Product Development And License Agreement

PRODUCT DEVELOPMENT AND LICENSE AGREEMENT


This Product Development and License Agreement ("the Agreement") entered into on June 28, 1996, is made and entered into by and between Anergen, Inc., a California corporation, with a principal place of business at 301 Penobscot Drive, Seaport Centre, Redwood City, California 94063, U.S.A. ("ANERGEN"), and N.V. Organon, a company incorporated under the laws of The Netherlands, having its registered place of business at P.O. Box 20, 5340 BH Oss, The Netherlands ("ORGANON"), together referred to as "PARTIES", or individually as a "PARTY."


WHEREAS:


(1) ANERGEN has developed and is developing proprietary Major Histocompatibility Complex Class II ("MHC II" ) peptide complexes designated for the treatment of autoimmune disease and has offered rights to its technology to ORGANON for use in the treatment of rheumatoid arthritis ("RA"); and


(2) ORGANON wishes ANERGEN to conduct feasibility studies leading to the development of a product or products which incorporate a proprietary ORGANON peptide epitope for the treatment of RA and makes use of ANERGEN's aforesaid technology, and wishes to receive a license under ANERGEN's proprietary rights for the purpose of development, manufacturing and marketing such product or products; and


(3) The PARTIES wish to enter into a collaboration to develop and commercialize such product or products in the field of RA, on the terms and conditions herein.


NOW, THEREFORE, the PARTIES hereby agree as follows:


ARTICLE 1 - DEFINITIONS


In this Agreement, the following terms shall have the following meanings:


1.1 "AFFILIATE" shall mean any corporation or other entity that is directly
or indirectly controlling, controlled by or under common control with a
PARTY. For the purpose of this definition, "control" shall mean the
direct or indirect ownership of more than fifty percent (50%) of the
shares of the subject entity entitled to vote in the election of
directors or other managing authority of such entity.


1.2 "ANERGEN KNOW-HOW" shall mean any and all confidential scientific,
technical and engineering information, experience and know-how relating
to the MHC PEPTIDE TECHNOLOGY that is owned, invented, developed or
acquired (with a right to sublicense) by ANERGEN now or during the term
of the DEVELOPMENT PROGRAM. 2 1.3 "ANERGEN PATENTS" shall mean the United States patents and patent
applications listed on Exhibit A, and any patents issuing thereon, and
any corresponding foreign patent applications and patents, and any
division, re-examination, continuation, continuation-in-part,
extension, substitution or reissue of any of the preceding patent
applications and patents.


1.4 "DEVELOPMENT PROGRAM" shall mean the research, scale-up manufacturing,
regulatory and clinical program described in Exhibit B of this
Agreement.


1.5 "EFFECTIVE DATE" shall mean the date this Agreement is entered into.


1.6 "FDA" shall mean the U.S. Food and Drug Administration.


1.7 "FIELD" shall mean the treatment of rheumatoid arthritis.


1.8 "FUTURE PATENTS" shall mean all patent applications in any jurisdiction
made and owned by either PARTY, claiming inventions made by a PARTY or
jointly by the PARTIES during and in connection with the DEVELOPMENT
PROGRAM relating to the MHC PEPTIDE TECHNOLOGY, or the PRODUCT(S) or
the manufacture or use thereof, and any patents issuing thereon, and
any division, re-examination, continuation, continuation-in-part,
extension, substitution and reissue of any of the preceding patent
applications or patents.


1.9 "IND" shall mean an Investigational New Drug Exemption for a PRODUCT,
as defined in the U.S.A. Food, Drug and Cosmetic Act and the
regulations promulgated thereunder, or its equivalent in other
countries.


1.10 "JOINT KNOW-HOW" shall have the meaning set forth in Section 14.3
herein.


1.11 "LAUNCH DATE" shall mean the date on which a PRODUCT is first offered
for commercial sale in any country of the TERRITORY by ORGANON or an
ORGANON AFFILIATE or sublicensee.


1.12 "MAJOR COUNTRY" shall mean any of the United States, Japan, Germany,
the United Kingdom, France or Italy.


1.13 "MHC PEPTIDE TECHNOLOGY" shall mean methods for making and combining a
MHC II heterodimer or a portion thereof, or functional equivalents
thereof, with a peptide capable of forming a complex.


1.14 "NET SALES" shall mean the invoice price billed by ORGANON, its
AFFILIATES or its sublicensees to third parties for the sale of
PRODUCT(S), less the following:


(a) trade and/or quantity discounts actually allowed and taken;


(b) sales, value added, or other excise taxes paid, and duties
actually absorbed, or allowed;


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(c) amounts repaid or credited by reason of purchase chargebacks,
rebates, rejections, defects or return; and


(d) charges for freight, insurance, handling and transportation.


1.15 "ORGANON KNOW-HOW" shall mean any and all confidential scientific,
technical and engineering information, experience and know-how relating
to the PRODUCT(S), that are owned, invented, developed, or acquired
(with a right to sublicense) by ORGANON during the term of the
DEVELOPMENT PROGRAM, including, but not limited to, information, data,
drawings and other materials relating to the development, manufacture,
use and/or sale of the PRODUCT(S).


1.16 "ORGANON PATENTS" shall mean the patent applications and patents listed
on Exhibit C, and any patents issuing thereon, and any division,
re-examination, continuation, continuation- in-part, extension,
substitution or reissue of any of the preceding patent applications and
patents.


1.17 "PAYMENT COMPUTATION PERIOD" shall mean each three (3) month period
ending on March 31st, June 30th, September 30th, and December 31st of a
given year during the term of this Agreement.


1.18 "PLA" shall mean a Product License Application for a PRODUCT, as
defined in the U.S.A. Food, Drug and Cosmetic Act and the regulations
promulgated thereunder, or its equivalent in other countries.


1.19 "PRODUCT," "PRODUCTS," OR PRODUCT(S)" shall mean any pharmaceutical
active composition for the treatment of RA developed in connection with
the DEVELOPMENT PROGRAM, which is derived by the use of the MHC PEPTIDE
TECHNOLOGY and which incorporates one or more specific proprietary
ORGANON epitopes and/or an ANERGEN epitopes selected under 4.5.


1.20 "PROJECT INITIATION DATE" shall mean the date that ORGANON provides
initial quantities of the initial ORGANON epitope to ANERGEN.


1.21 "STEERING COMMITTEE" or "SC" shall mean the joint steering committee
responsible for the management of the initial feasibility stage of the
DEVELOPMENT PROGRAM, described in Article 3 of this Agreement.


1.22 "TERRITORY" shall mean all countries of the world.


ARTICLE 2 - DEVELOPMENT PROGRAM


-3- 4 2.1 The PARTIES shall conduct the DEVELOPMENT PROGRAM with the goal of
developing a PRODUCT OR PRODUCTS. Each PARTY shall perform its
responsibilities under the DEVELOPMENT PROGRAM in accordance with the
timetables set forth in the development plan.


2.2 The DEVELOPMENT PROGRAM shall have three stages, as follows:


(a) the initial feasibility stage shall consist of
pre-clinical research and development, scale-up manufacture and the
conduct of an initial Phase I/II clinical trial using samples of a
PRODUCT to demonstrate proof of principle in RA, according to criteria
to be established by the SC. The initial feasibility stage shall
commence on the EFFECTIVE DATE and terminate upon the completion of the
first Phase I/II clinical trial of the PRODUCT. For purposes of this
Agreement, a clinical trial shall be deemed completed when all patients
enrolled in such trial have been treated with the PRODUCT, and all
patient case report forms have been submitted to ANERGEN or its
designee and ANERGEN has fully reported to ORGANON in writing its
detailed evaluation of the results of such trial;


(b) the second stage shall commence on the completion of the
initial phase and terminate upon the first approval for the sale of a
PRODUCT in a MAJOR COUNTRY, and shall consist of the conduct of further
clinical trials, including pivotal trials, of the PRODUCT(S), and if
appropriate, further pre-clinical studies with regard to the
PRODUCT(S); and


(c) the third stage shall commence on the completion of the
second phase and shall consist of the conduct of post-approval clinical
studies and PRODUCT commercialization activities.


2.3 Prior to the PROJECT INITIATION DATE, the PARTIES shall agree on a
written development plan for the activities each PARTY will conduct in
connection with the initial feasibility stage of the DEVELOPMENT
PROGRAM. The SC shall review the development plan on an ongoing basis
and from time to time may make changes to the development plan;
provided, however, the development plan shall not be modified except as
agreed in writing by ANERGEN and ORGANON.


2.4 In the event that ORGANON after consideration by the SC and review of
the recommendation of the SC determines that it is [*] FIELD [*] or
[*], ORGANON may [*] subject to the terms and conditions set forth in
this Agreement and provided [*].


* Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.


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It is understood and agreed that ORGANON [*] the epitope described on
Exhibit D hereto (the "Initial Epitope "). Until the [*] anniversary of
the EFFECTIVE DATE, ORGANON may [*]


(a) [*]
(b) [*]


Notwithstanding the above, it is understood and agreed by PARTIES that
[*]


(c) [*]


(d) [*]


Notwithstanding the above, it is understood and agreed that [*]


[*]


2.5 The DEVELOPMENT PROGRAM shall commence on the date of this Agreement
and shall continue thereafter for a period of at least thirty-six (36)
months from the PROJECT INITIATION DATE. The DEVELOPMENT PROGRAM shall
automatically renew thereafter unless ORGANON gives ANERGEN six (6)
months written notice not to continue the DEVELOPMENT PROGRAM; provided
ORGANON may not give such notice prior to thirty (30) months after the
PROJECT INITIATION DATE and provided any extension of


* Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.


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the DEVELOPMENT PROGRAM beyond the fifth anniversary of the EFFECTIVE
DATE must be mutually agreed in writing by the PARTIES.


2.6 At least every three (3) months, the SC shall provide each PARTY with a
written report summarizing the activities performed according to the
initial feasibility stage of the DEVELOPMENT PROGRAM, and the costs
incurred in connection with such activities. Periodically, but no less
often than annually, each PARTY shall provide the SC with a written
report summarizing the status of its PATENTS and FUTURE PATENTS
worldwide, and any material scientific or commercial issues relating to
the PRODUCT(S).


2.7 Except as expressly provided in Section 2.8, ORGANON shall be
responsible for all costs projected or approved by the SC to be
incurred in connection with the initial feasibility phase of the
DEVELOPMENT PROGRAM (Exhibit B), including, but not limited to,
pre-clinical research costs, the costs of clinical trials including
product liability insurance, expenses of outside parties assisting in
any such trial, and other clinical trial expenses, costs of toxicology
and pharmacokinetic studies, regulatory filing fees and costs of other
research activities. ORGANON shall pay to ANERGEN quarterly, in
advance, amounts equal to the fully burdened direct and indirect
expenses projected or approved by the SC to be incurred by ANERGEN in
connection with DEVELOPMENT PROGRAM activities in the next quarter.


2.8 In the event that the SC determines that any intellectual property must
be licensed from a third party for the conduct of the DEVELOPMENT
PROGRAM, ORGANON shall be responsible for all license fees and costs
associated with such license; provided, ANERGEN shall [*] of such fees
and costs to ORGANON for a license of any intellectual property
necessary for the use of the MHC PEPTIDE TECHNOLOGY. Unless otherwise
agreed by the PARTIES, ANERGEN shall be the licensee of any
intellectual property necessary for the use of the MHC PEPTIDE
TECHNOLOGY, and ORGANON shall be the licensee of any other third party
intellectual property. If a third party license is obtained by either
PARTY which covers any PRODUCT(S), it is agreed the licensing PARTY
will attempt in good faith to obtain the right to sublicense the same,
and if it obtains such rights, will offer to sublicense such rights to
the other PARTY for consideration equal to a pro rata share of any
license fees, and payments for any amounts owed to the licensor for any
activities conducted by the sublicensee, and on other terms fully
consistent with the license. Any such sublicense will, if possible,
have the same life as the other license rights granted herein. It is
further agreed that each PARTY will attempt to maintain these third
party licenses as long as they are important to the other PARTY and the
sublicensee has not committed any breach of the sublicensed rights.


* Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.


-6- 7 ARTICLE 3 - STEERING COMMITTEE


3.1 In order to plan, establish budgets for, and review and monitor
progress with respect to the initial feasibility stage of the
DEVELOPMENT PROGRAM, ANERGEN and ORGANON shall establish a STEERING
COMMITTEE. The SC shall be comprised of three (3) representatives of
each PARTY, such representatives to be selected and replaced by the
respective PARTIES.


3.2 Any approval, determination or other action of the SC must be agreed to
by the representatives of both PARTIES, with each PARTY having one
vote. The SC shall act to resolve, if possible, any disputes between
the PARTIES, and to address other significant matters which may arise
hereunder. In the event of a tie, the matter shall be referred to the
chief executive officers of each PARTY, or their designees, who shall
promptly negotiate in good faith to resolve such dispute. In the event
that such individuals are unable to resolve such dispute, the matter
shall be resolved by binding arbitration pursuant to Section 20.2.


3.3 Each year during the initial feasibility stage of the DEVELOPMENT
PROGRAM, on or before October 31, the SC shall agree on a budget for
the initial feasibility stage of the DEVELOPMENT PROGRAM activities to
be conducted during the next year. Each PARTY shall finally approve the
budget established by the SC for the next year by December 1 of each
year. The PARTIES shall agree on the budget for the first year of the
DEVELOPMENT PROGRAM prior to the PROJECT INITIATION DATE.


3.4 Until the termination of the initial feasibility phase of the
DEVELOPMENT PROGRAM, the SC shall meet at least quarterly, unless
otherwise agreed by the PARTIES, at times and places as agreed upon in
the prior meeting of the SC. The SC shall keep written minutes of its
meetings. ORGANON shall pay all reasonable out-of-pocket expenses,
including, without limitation, travel and lodging expenses, associated
with the attendance of SC representatives at SC meetings. Such
out-of-pocket expenses shall be included as part of the DEVELOPMENT
PROGRAM budget.


ARTICLE 4 - LICENSE GRANTS


4.1 Subject to the terms and conditions of this Agreement, ANERGEN hereby
grants to ORGANON, and ORGANON hereby accepts, the following,
royalty-bearing license under the ANERGEN PATENTS, ANERGEN KNOW HOW,
and ANERGEN's interest in the FUTURE PATENTS and JOINT KNOW-HOW:


(a) to develop, have developed, evaluate, have evaluated, validate
and have validated the PRODUCT(S) in the FIELD;


(b) to conduct clinical and nonclinical studies with respect to
validation, safety and efficacy of the PRODUCT(S) in the
FIELD; and


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(c) subject to Sections 10.1 and 10.3 below, to make, have made,
import, use, offer for sale and sell the PRODUCT(S) in the
FIELD in the TERRITORY.


4.2 ORGANON shall have the right (with the right to sublicense to its
AFFILIATES and other third parties) the right to manufacture, have
manufactured, use and sell the PRODUCT(S) developed in connection with
the DEVELOPMENT PROGRAM, provided that such sublicensees agree in
writing to comply with the terms and conditions of this Agreement and
ANERGEN is an express third party beneficiary of such a sublicense
agreement. The PRODUCT(S) may be sold under ORGANON trademarks;
provided any such PRODUCT(S) shall bear a statement disclosing that any
such PRODUCT(S) was developed in collaboration with and under a license
from ANERGEN.


4.3 ORGANON hereby grants to ANERGEN, and ANERGEN hereby accepts, a
non-exclusive, worldwide, royalty-free license (with the right to grant
sublicenses) to use and practice the ORGANON PATENTS and ORGANON
KNOW-HOW solely for the purpose of conducting the DEVELOPMENT PROGRAM
and fulfilling its obligations under this Agreement.


4.4 Each PARTY shall have the right to practice and commercialize, itself
or with third parties, the JOINT KNOW-HOW and FUTURE PATENTS outside
the FIELD, without the consent of the other PARTY and with no
obligation to account to the other PARTY.


4.5 ORGANON acknowledges that the PRODUCT(S) will contain one or more
proprietary ORGANON epitopes, but that its non-MHC portion will not
contain any ANERGEN epitopes unless the PARTIES agree to amend this
Agreement to include an ANERGEN epitope(s) in which event as part of
such amendment the milestone payment for IND non- rejection in Section
6.2 shall be increased to U.S.[*] and each of the royalty rates in
Section 7.1 shall each be increased by [*] for sales of PRODUCT(S)
using an ANERGEN epitope.


ARTICLE 5 - PROVISIONS ON EXCLUSIVITY IN THE FIELD


5.1 [*]


5.2 After the date set forth in Section 5.1, ANERGEN shall have the right
to enter into an agreement to research, develop and/or commercialize
with third parties (or alone to research, develop and/or
commercialize), products other than the PRODUCT(S) for use in the FIELD
which incorporate the MHC PEPTIDE TECHNOLOGY, provided that such
products do not


* Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.


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incorporate any ORGANON epitope and/or ANERGEN epitope agreed by the
parties pursuant to Section 4.5. ANERGEN agrees that any exercise of
such retained rights shall not prevent it from performing its
obligations with respect to the DEVELOPMENT PROGRAM. In the event
ANERGEN enters into an agreement with one additional third party and in
connection therewith files a PLA, or if ANERGEN alone files a PLA with
respect to the use of the MHC PEPTIDE TECHNOLOGY in the FIELD,
ORGANON's rights under this Agreement shall be non-exclusive in the
FIELD and the milestone payments and royalties due to ANERGEN
thereafter shall be those set forth in Sections 6.2 (b) and 7.1 (b),
respectively. ANERGEN must notify ORGANON within 10 days of any change
in exclusivity.


ARTICLE 6 - MILESTONE PAYMENTS


6.1 On the EFFECTIVE DATE, ORGANON shall pay to ANERGEN a technology access
fee of [*].


6.2 Within thirty (30) days following the achievement of each of the
following milestones, ORGANON shall pay to ANERGEN the corresponding
milestone payment set forth below.


(a) [*]
(b) [*]


* Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.


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If ORGANON'S rights become non-exclusive pursuant to Section 5.2 resulting in milestone payments as reflected in Section 6.2(b), because an ANERGEN or a third party PLA is filed within [*] from the filing of ORGANON'S PLA, then [*] of the higher milestone amounts paid under Secti ...