Research Collaboration and License Agreement

EXECUTION COPY - --------------


Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment.
The omitted portions, marked by an * and [ ], have been
separately filed with the Commission.


RESEARCH COLLABORATION AND LICENSE AGREEMENT
by and among
MERCK & CO., INC.,
TRANSCELL TECHNOLOGIES, INC.
and
INTERNEURON PHARMACEUTICALS, INC.


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TABLE OF CONTENTS


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ARTICLE I DEFINITIONS.....................................................1


ARTICLE II RESEARCH PROGRAM AND DRUG DEVELOPMENT PROGRAM...................7


2.1 General..............................................................7
2.2 Conduct of Research..................................................8
2.3 Additional FTE's.....................................................8
2.4 [*] Research Program.................................................8
2.5 [*] Research Program.................................................8
2.6 Joint Research Committee.............................................8
2.7 Exchange of Information..............................................9
2.8 Records and Reports.................................................10
2.9 Research Information and Inventions.................................10
2.10 Research Program Term...............................................11
2.11 Research Program Materials..........................................12
2.12 Drug Development Program............................................12


ARTICLE III LICENSE; DEVELOPMENT AND COMMERCIALIZATION.....................13


3.1 License Grant.......................................................13
3.2 Retained Rights.....................................................13
3.3 Exclusivity in Expanded Field.......................................13
3.4 Princeton Agreements................................................14
3.5 Development and Commercialization...................................14


ARTICLE IV CONFIDENTIALITY AND PUBLICATION................................15


4.1 Non-disclosure and Non-Use Obligations..............................15
4.2 Permitted Disclosure of Proprietary Information.....................15
4.3 Publication and Public Disclosures..................................16


ARTICLE V PAYMENTS; ROYALTIES AND REPORTS................................17

5.1 Commitment Fee and Option Payment...................................17
5.2 Research Program Funding............................................17
5.3 Milestone Payments..................................................18
5.4 Royalties...........................................................18
5.5 Reports; Payment of Royalty.........................................20
5.6 Audits..............................................................21
5.7 Payment Exchange Rate...............................................21
5.8 Income Tax Withholding..............................................22


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ARTICLE VI REPRESENTATIONS AND WARRANTIES.................................22

6.1 Transcell Representations and Warranties............................22
6.2 Interneuron Representations and Warranties..........................23
6.3 General Disclaimer..................................................24
6.4 Merck Representations and Warranties................................24


ARTICLE VII PATENT MATTERS.................................................24

7.1 Filing, Prosecution and Maintenance of Patents......................24
7.2 Right of Other Parties to Prosecute and Maintain Patents............25
7.3 Interference, Opposition, Reexamination and Reissue.................25
7.4 Enforcement and Defense.............................................26
7.5 Patent Term Restoration.............................................27


ARTICLE VIII TERM AND TERMINATION...........................................27

8.1 Term and Expiration.................................................27
8.2 Termination by Notice...............................................27
8.3 Termination.........................................................27
8.4 Effect of Expiration or Termination.................................29


ARTICLE IX MISCELLANEOUS..................................................30

9.1 Force Majeure.......................................................30
9.2 Assignment..........................................................30
9.3 Severability........................................................30
9.4 Notices.............................................................31
9.5 Applicable Law......................................................32
9.6 Dispute Resolution..................................................32
9.7 Entire Agreement....................................................32
9.8 Headings............................................................32
9.9 Independent Contractors.............................................33
9.10 Waiver..............................................................33
9.11 Counterparts........................................................33


Schedule 1.19 -- Interneuron Patent Assets Schedule 1.25 -- List of Major Market Countries Attachment 1.39 -- 1993 Princeton License Agreement Attachment 1.40 -- 1997 Princeton Research Agreement Attachment 1.46 -- Side Agreement Schedule 1.52 -- Transcell Patent Assets Attachment 2.1.A -- [*] Research Program Attachment 2.1.B -- [*] Research Program Attachment 4.3 -- Form of Press Release Schedule 7.1 -- Countries Where Interneuron and Transcell will File,
Prosecute and Maintain Patents


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RESEARCH COLLABORATION AND LICENSE AGREEMENT


THIS AGREEMENT effective as of June 30, 1997, (the "Effective Date") between Merck & Co., Inc., a corporation organized and existing under the laws of New Jersey ("Merck"), Transcell Technologies Inc., a corporation organized and existing under the laws of Delaware ("Transcell") and Interneuron Pharmaceuticals, Inc., a corporation organized and existing under the laws of Delaware ("Interneuron").


WITNESSETH:


WHEREAS, Transcell and/or Interneuron have developed or will develop certain Transcell Know-How and Interneuron Know-How and have or will obtain rights to certain Patent Assets (as hereinafter defined);


WHEREAS, Merck and Transcell desire to enter into a research collaboration to discover and develop Compounds (as hereinafter defined) upon the terms and conditions set forth herein;


WHEREAS, Merck desires to obtain a license under Transcell and Interneuron Intellectual Property, upon the terms and conditions set forth herein;


NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, the parties hereby agree as follows:


ARTICLE I


DEFINITIONS


Unless specifically set forth to the contrary herein, the following terms, whether used in the singular or plural, shall have the respective meanings set forth below:


1.1 "Affiliate" shall mean (i) any corporation or business entity of which fifty percent (50%) or more of the securities or other ownership interests representing the equity, the voting stock or general partnership interest are owned, controlled or held, directly or indirectly, by a Party; or (ii) any corporation or business entity which, directly or indirectly, owns, controls or holds fifty percent (50%) (or the maximum ownership interest permitted by law) or more of the securities or other ownership interests representing the equity, the voting stock or, if applicable, the general partnership interest, of a Party.


1.2 "Calendar Quarter" shall mean the respective periods of three (3) consecutive calendar months ending on March 31, June 30, September 30 and December 31.


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1.3 "Calendar Year" shall mean each successive period of twelve (12) months commencing on January 1 and ending on December 31.


1.4 "Combination Product" shall mean a Licensed Product which includes one or more active ingredients other than Compound in combination with Compound.


1.5 "Compound" shall mean any chemical entity that is synthesized in, or discovered in or during, the Research Program, or a derivative, homolog, or analogue of such a chemical entity or a salt or ester thereof.


1.6 "Drug Development Program" shall mean the drug development program to be carried out by Merck in accordance with Section 2.12.


1.7 "Effective Date" shall mean June 30, 1997.


1.8 "Expanded Field" shall mean all antibacterial agents for human or animal use.


1.9 "Extended Research Program Term" shall have the meaning set forth in Section 2.10.


1.10 "FDA" shall mean the United States Food and Drug Administration and any successor agency having substantially the same functions.


1.11 "Field" shall mean all [*] and [*] analogues which are antibacterial agents for human or animal use.


1.12 "First Commercial Sale" shall mean, with respect to any Licensed Product, the first sale for end use or consumption of such Licensed Product in a country after all required approvals, including marketing and pricing approvals, have been granted by the governing health authority of such country.


1.13 "Full Time Equivalent" or "FTE" shall mean the equivalent of a full-time scientist's work time over a twelve-month period (including normal vacations, sick days and holidays). The portion of an FTE year devoted by a scientist to the Research Program shall be determined by dividing the number of days during any twelve-month period devoted by such employee to the Research Program by the total number of working days during such twelve-month period.


1.14 "Improvement" shall mean any enhancement in the manufacture, formulation, ingredients, preparation, presentation, means of delivery, dosage or packaging of Compound or Licensed Product.


1.15 "Interneuron Information and Inventions" shall have the meaning as set forth in Section 2.9.
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1.16 "Interneuron Intellectual Property" shall mean (i) Interneuron Know-How, (ii) Interneuron Patent Assets, (iii) Interneuron Information and Inventions, (iv) Interneuron's interest in Interneuron/Transcell Joint Information and Inventions and (v) Interneuron's interest in Interneuron/Merck Joint Information and Inventions.


1.17 "Interneuron Know-How" shall mean all Interneuron Information and Inventions, and all information and materials, including but not limited to, discoveries, Improvements, processes, formulas, data, inventions, know-how and trade secrets, patentable or otherwise, which during the term of this Agreement (i) are in Interneuron's possession or control or in which Interneuron has sub-licensable rights, including its rights under the 1997 Princeton Research Agreement, (ii) are not generally known and (iii) are necessary or useful to Merck in connection with rights granted and activities contemplated under this Agreement.


1.18 "Interneuron/Merck Joint Information and Inventions" shall have the meaning as set forth in Section 2.9.


1.19 "Interneuron Patent Assets" shall mean issued patents and patent applications (which shall be deemed to include certificates of invention and applications for certificates of invention) presently existing or which during the term of this Agreement are owned by Interneuron or which Interneuron through license or otherwise acquires rights, including, but not limited to, those listed on Schedule 1.19, which: (i) relate to a Compound and/or Licensed Product, their uses in the Field or Expanded Field or a method of their manufacture; or (ii) relate to Research Information and Inventions; including all divisions, continuations, continuations-in-part, reissues, renewals, extensions, supplementary protection certificates or the like of any such patents and patent applications and foreign equivalents thereof.


1.20 "Interneuron/Transcell Joint Information and Inventions" shall have the meaning as set forth in Section 2.9.


1.21 "Joint Research Committee" shall mean the committee described in Section 2.6.


1.22 "Lead Candidate" means a Compound that is selected by the Joint Research Committee as a lead compound for medicinal chemistry studies in accordance with the [*] Research Program or the [*] Research Program. The information below marked by * and [ ] has been omitted pursuant to a request for confidential treatment. The omitted portion has been separately filed with the Commission.


1.23 "Licensed Product" shall mean any preparation in final form for sale by prescription, over-the-counter or by any other method, for human or animal use, which contains a Compound, including, without limitation, any Combination Product.


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1.24 "Licensor(s)" shall mean Interneuron and/or Transcell, as the context indicates.


1.25 "Major Market Country" shall mean a country listed on Schedule 1.25 hereto.


1.26 "Merck Information and Inventions" shall have the meaning as set forth in Section 2.9.


1.27 "Merck Know-How" shall mean any Merck information and materials, including but not limited to, discoveries, Improvements, processes, formulas, data, inventions, know-how and trade secrets, patentable or otherwise, which during the term of this Agreement are not generally known and which arise out of the Research Program or are necessary or useful to Transcell in the performance of its obligations under the Research Program.


1.28 "Merck Patent Assets" shall mean issued patents and patent applications (which shall be deemed to include certificates of invention and applications for certificates of invention) which during the term of this Agreement are owned by Merck or which Merck through license or otherwise acquires rights, which: (i) relate to a Compound and/or Licensed Product or their uses in the Field or Expanded Field; or (ii) relate to Research Information and Inventions; including all divisions, continuations, continuations-in-part, reissues, renewals, extensions, supplementary protection certificates or the like of any such patents and patent applications and foreign equivalents thereof.


1.29 "Milestone" shall have the meanings as described in Attachment 2.1.A and Attachment 2.1.B hereto.


1.30 "[*] Research Program" shall mean the research program for the synthesis and biological evaluation of [*] analogues and development of Licensed Products as described in Attachment 2.1.B hereto.


1.31 "NDA" shall mean a new drug application filed with the FDA for marketing authorization of a Licensed Product.


1.32 "Net Sales" shall mean the gross invoice price of Licensed Product sold by Merck, its Affiliates or sublicensees (which term does not include distributors) to the first independent third party after deducting, if not previously deducted, from the amount invoiced:


(a) trade, cash and quantity discounts;


(b) credits and allowances on account of returned or rejected
products;


(c) rebates, chargebacks and other amounts paid on sale or dispensing
of Licensed Product;


(d) retroactive price reductions;


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(e) with regard to sales in the United States, a fixed amount equal
to five percent (5%) of the amount invoiced to cover bad debt,
sales or excise taxes, transportation and insurance charges; and
with regard to sales outside the United States, a fixed amount
equal to ten percent (10%) of the amount invoiced to cover the
above and additional special transportation, custom duties, and
other governmental charges; and


(f) the inventory cost of devices or delivery systems used for
dispensing or administering Licensed Product, special packaging
of Licensed Product and diluents or similar exogenous materials
which accompany Licensed Product as it is sold.


With respect to sales of Combination Products, Net Sales shall be calculated on the basis of the invoice price of Licensed Product(s) containing the same weight of a Compound sold without other active ingredients. If such Licensed Product is not sold without other active ingredients, Net Sales shall be calculated on the basis of the invoice price of the Combination Product multiplied by a fraction, the numerator of which shall be the inventory cost of Compound in the Licensed Product and the denominator of which shall be the inventory cost of all of the active ingredients in the Combination Product. Inventory cost shall be determined in accordance with Merck's regular accounting methods.


1.33 "Option Payment" shall mean the payment described in Section 5.1 in consideration for the rights granted in Section 3.3.


1.34 "Option Period" shall mean the option period described in Section 3.3.


1.35 "Party" shall mean Merck, Transcell or Interneuron.


1.36 "Patent Assets" shall mean the Interneuron Patent Assets and the Transcell Patent Assets.


1.37 "Princeton" shall mean Princeton University, Princeton, New Jersey.


1.38 "Princeton Agreements" shall mean the 1993 Princeton License Agreement and the 1997 Princeton Research Agreement, as the same may be amended from time to time. The information below marked by * and [ ] has been omitted pursuant to a request for confidential treatment. The omitted portion has been separately filed with the Commission.


1.39 "1993 Princeton License Agreement" shall mean the License Agreement by and between the Trustees of Princeton and Transcell effective as of October 14, 1993, as amended February 21, 1997 and as further amended from time to time, a copy of which is attached hereto as Attachment 1.39.


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1.40 "1997 Princeton Research Agreement" shall mean the Research Agreement by and between the Trustees of Princeton and Interneuron effective as of April 29, 1997, as amended from time to time, a copy of which is attached hereto as Attachment 1.40.


1.41 "Proprietary Information" shall mean any and all scientific, clinical, regulatory, marketing, financial and commercial information or data, whether communicated in writing, orally or by any other means, which is provided by one Party to the other Party in connection with this Agreement. Proprietary Information shall include, without limitation, Merck Know-How and Transcell Know-How.


1.42 "Research Information and Inventions" shall mean the entire right, title and interest in all discoveries, Improvements, processes, formulas, data, inventions, know-how and trade secrets, patentable or otherwise, arising from the Research Program.


1.43 "Research Program" shall mean the collaborative research effort between the parties as described in Attachments 2.1.A and 2.1.B hereto consisting of the [*] Research Program and the [*] Research Program, as may be amended or revised pursuant to the provisions of Section 2.6.3. References to the Research Program shall refer only to the collaborative phase of the research effort and shall not refer to the selection of a Safety Assessment Candidate by Merck or to the Drug Development Program.


1.44 "Research Program Term" shall have the meaning set forth in Section 2.10.


1.45 "Safety Assessment Candidate" shall mean a Compound with a scientific data package that is evaluated and approved by the Merck Research Management Committee for initiation of formal toxicology studies.


1.46 "Side Agreement" shall mean the agreement entered into not later than, and effective as of, the Effective Date by and among Merck, Transcell, Interneuron and the Trustees of Princeton and attached hereto as Attachment 1.46.


1.47 "Territory" shall mean all of the countries in the world. The information below marked by * and [ ] has been omitted pursuant to a request for confidential treatment. The omitted portion has been separately filed with the Commission.


1.48 "Transcell Intellectual Property" shall mean (i) Transcell Know-How, (ii) Transcell Patent Assets, (iii) Transcell Information and Inventions, (iv) Transcell's interest in Transcell/Merck Joint Information and Inventions and (v) Transcell's interest in Interneuron/Transcell Joint Information and Inventions.


1.49 "Transcell Information and Inventions" shall have the meaning as set forth in Section 2.9.


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1.50 "Transcell Know-How" shall mean all Transcell Information and Inventions, and all information and materials, including but not limited to, discoveries, Improvements, processes, formulas, data, inventions, know-how and trade secrets, patentable or otherwise, which during the term of this Agreement (i) are in Transcell's possession or control or in which Transcell has sub-licensable rights, (ii) are not generally known and (iii) are necessary or useful to Merck in connection with rights granted and activities contemplated under this Agreement.


1.51 "Transcell/Merck Joint Information and Inventions" shall have the meaning as set forth in Section 2.9.


1.52 "Transcell Patent Assets" shall mean issued patents and patent applications (which shall be deemed to include certificates of invention and applications for certificates of invention) presently existing or which during the term of this Agreement are owned by Transcell or which Transcell through license or otherwise acquires rights, including, but not limited to, those listed on Schedule 1.52, which: (i) relate to a Compound and/or Licensed Product, their uses in the Field or Expanded Field, or a method of their manufacture; or (ii) relate to Research Information and Inventions; including all divisions, continuations, continuations-in-part, reissues, renewals, extensions, supplementary protection certificates or the like of any such patents and patent applications and foreign equivalents thereof.


1.53 "Valid Patent Claim" means a claim of an issued and unexpired patent included within the Patent Assets or the Merck Patent Assets, which has not been revoked or held unenforceable or invalid by a decision of a court or other governmental agency of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and which has not been disclaimed, denied or admitted to be invalid or unenforceable through reissue or disclaimer or otherwise.


1.54 "[*] Research Program" shall mean the research program for the synthesis and biological evaluation of [*] analogues and the development of Licensed Products as described in Attachment 2.1.A hereto.


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ARTICLE II


RESEARCH PROGRAM AND
DRUG DEVELOPMENT PROGRAM


2.1 General. Transcell and Merck shall engage in the Research Program upon the terms and conditions set forth in this Agreement. The activities to be undertaken in the course of Research Program are set forth in this Article II and in Attachment 2.1.A and Attachment


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2.1.B hereto which may be amended from time to time upon the mutual agreement of the parties.


2.2 Conduct of Research. Transcell and Merck each shall conduct the Research Program in a good scientific manner, and in compliance in all material respects with all requirements of applicable laws, rules and regulations and all applicable standa ...