Research Collaboration And License Agreement

RESEARCH COLLABORATION AND LICENSE AGREEMENT


This Agreement made as of ... June 1997 (the "Effective Date"), between OSIRIS THERAPEUTICS, INC., a company organized under the laws of the State of Delaware, of 2001 Aliceanna Street, Baltimore, Maryland 21231-2001, USA (hereinafter "Osiris") and NOVARTIS PHARMACEUTICALS CORPORATION, a corporation organized under the laws of the State of Delaware, of Route 10, East Hanover, New Jersey, USA (hereinafter "Novartis").


WITNESSETH


WHEREAS, Osiris owns, or is exclusive licensee with the right to sublicense, certain patent rights and know-how relating to the isolation and use of mesenchymal stem cells as hereinafter defined (hereinafter "MSCs "); and


WHEREAS, Novartis desires to obtain a license from Osiris to manufacture, use and sell products containing MSCs for certain therapeutic uses under such patent rights and know-how; and


WHEREAS, both Osiris and Novartis desire to enter into a research collaboration in the Field as hereinafter defined; and


WHEREAS, Novartis' Affiliate Novartis Pharma AG desires to make an equity investment in Osiris;


NOW, THEREFORE, the parties hereto hereby agree as follows:


ARTICLE 1. DEFINITIONS


The following terms shall have the following meanings:


1.1 "Affiliate" means any corporation or other entity which controls, is controlled by, or is under common control with, a party to this Agreement. A corporation or other entity shall be regarded as in control of another corporation or entity if it owns or directly or indirectly controls more than fifty percent (50%) of the voting stock or other ownership interest of the other corporation or entity, or if it possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the corporation or other entity.


1.2 "Area" means a subdivision of the Field, which is either the Bone Therapy Area, the Cartilage Therapy Area, or the Gene Therapy Area.


1.3 "Bone Therapy Area" means the systemic or local treatment of diagnosed osteoporosis (OP), but does not include acute and non-degenerative bone defects, other degenerative bone defects, and large segmental defects.


1.4 "Cartilage Therapy Area" means the treatment of acute articular hyaline cartilage injury, other non-degenerative articular hyaline cartilage defects, and diagnosed osteoarthritis (OA).


1.5 "E.U. Countries" means the Member States of the European Union as of the Effective Date, and such other countries as may in the future join the European Union, in each case for so long as such country remains a member of the European Union.


1.6 "FDA" means the United States Food and Drug Administration.


1.7 "Field" means all three of the Areas Cartilage Therapy, Bone Therapy and Gene Therapy, as defined herein, or, to the extent that the Field has been restricted according to the provisions of Art. 4.7, any one or two of said Areas.


1.8 "First Commercial Sale" of Product shall mean the first bona fide sale for use or consumption by the general public of Product in a country after required marketing and pricing approval has been granted by the governing health authority of such country.


1.9 "Gene Therapy Area" means the use of transduced MSCs for the delivery of a gene and/or polypeptide, which becomes part of the Gene Therapy Area pursuant to any part of Article 4.8.


1.10 "Gene Therapy Product" means a product or process which comprises or is used for producing transduced MSCs for the delivery of a gene and/or polypeptide and which is in the Gene Therapy Area.


1.11 "IND" means an Investigational New Drug application, or an Investigational Device Exemption (IDE), as defined in the US Food, Drug and Cosmetic Act and the regulations promulgated thereunder for initiating clinical trials in the USA, or any corresponding application in a country other than the USA.


1.12 "Joint Patent Rights" means patent rights which are jointly owned by Novartis and by Osiris under the provisions of Art. 11.1.


1.13 "JSC" means the Joint Steering Committee set up under the provisions of Art. 5.


1.14 "Making and having made" includes the expansion and/or differentiation of MSCs in vitro and/or combining such MSCs or differentiated products thereof with a delivery vehicle.


1.15 "MSCs" means human mesenchymal stem cells which can differentiate into cells of more than one connective tissue type.


1.16 "MSC Product" means a product, process or service in the Cartilage Therapy Area or the Bone Therapy Area and containing non-transduced or transduced MSCs, or cells derived from isolated MSCs which have been differentiated in vitro into a specific lineage.


1.17 "NDA" means a New Drug Application; a Biologics License Application; or a Pre-Marketing Approval for a device, as defined in the US Food, Drug and Cosmetic Act and the regulations promulgated thereunder or any other governmental approval to market a Product in the USA,


or any corresponding application for marketing approval in a country other than the USA.


1.18 "Net Sales" with respect to any Product means the gross invoice price of such Product sold to Third Parties in bona fide, arms-length transactions by Novartis or its Affiliates, licensees or sublicensees, less (i) quantity and/or cash discounts actually allowed or taken; (ii) freight, postage and insurance; (iii) amounts repaid or credited by reasons of rejections or return of goods or because of retroactive price reductions specifically identifiable to Product; (iv) amounts payable resulting from Governmental (or agency thereof) mandated rebate programs; (v) third-party rebates to the extent actually allowed; vi) custom duties and taxes (excluding income, value-added and similar taxes), if any, directly related to the sale; and (vii) any other specifically identifiable amounts included in Product's gross sales that will be credited for reasons substantially equivalent to those listed hereinabove; all as determined in accordance with Novartis' standard allocation procedure and accountancy methods, which are in accordance with generally acceptable accountancy principles GAAP).


In the event a Product is sold in a combination product with other pharmacologically active components, Net Sales, for purposes of royalty payments on the combination product, shall be calculated by multiplying the Net Sales of that combination product by the fraction A/B, where A is the gross selling price of the Product sold separately and B is the gross selling price of the combination product. In the event that no such separate sales are made by Novartis or an Affiliate, licensee or sublicensee, Net Sales for royalty determination shall be calculated by multiplying Net Sales of the combination product by the fraction C/(C+D) where C is the fully allocated cost of the Product and D is the fully allocated cost of such other pharmacologically active component. In no event shall Net Sales of any Product calculated under this provision with respect to any combination product be less than fifty percent of the Net Sales of such combination product.


1.19 "North America" means Canada, Mexico and the United States of America, its territories and possessions, including Puerto Rico.


1.20 "Novartis Know-How" means any and all data, substances, processes, materials, formulas, inventions (whether or not patentable), results or information which is useful for the research, development, making, or using of MSCs or products produced therefrom and which is owned by Novartis or its Affiliates or as to which Novartis or its Affiliates has transferable rights.


1.21 "Novartis Patent Rights" means any and all patents and patent applications owned by Novartis or its Affiliates or including Novartis' interest in Joint Patent Rights or as to which Novartis or its Affiliates has transferable rights, in each case to the extent that they claim Novartis Know-How.


1.22 "Osiris Know-How" means any and all data, substances, processes, materials, formulas, inventions (whether or not patentable), results or information which is useful for the research, development, making or using of Product and which results from Novartis funding and/or is owned by Osiris or to which Osiris has transferable rights, including rights obtained from Osiris Affiliates.


1.23 "Osiris Patent Rights" means any and all patents and patent applications owned by Osiris including Osiris' interest in Joint Patent Rights or as to which Osiris has a transferable rights in each case to the extent that they claim Osiris Know-How. The Osiris Patent Rights include the patents and applications of Schedule B.


1.24 "Patents and patent applications" includes divisions, continuations, reissues, provisional applications, continuations-in part, reexaminations, extensions and supplemental protection certificates.


1.25 "Primary Country" means any of the United States, Canada, Japan, France, Germany, Italy, the United Kingdom and Switzerland.


1.26 "Product" means an MSC Product or a Gene Therapy Product.


1.27 "Research Program" means the program of research described in the detailed plan set out in Schedule C of this Agreement for the first two years of the Research Term, and as subsequently amended or extended as provided in this Agreement.


1.28 "Research Term" means, with respect to an Area and the Products in the Area, the period during which research by Osiris in an Area is being funded by Novartis.


1.29 "Royalty Term" means with respect to each Product in each country the period of time equal to the longer of (a) ten (10) years from the date of the First Commercial Sale of such Product in such country or (b) if after such ten (10) year period the manufacture, use or sale of such Product in such country is covered by a Valid Patent Claim of an Osiris Patent Right, the term for which such Valid Patent Claim or any new Valid Patent Claim remains in effect and would if in a granted patent be infringed but for the license granted by this Agreement.


1.30 "Start-up Date" means 1 July 1997.


1.31 "Territory" means all countries in the world.


1.32 "Third Party" means any party other than Osiris, Novartis and their Affiliates.


1.33 "Valid Patent Claim" means either (a) a claim of an issued and unexpired patent which has not been held permanently revoked, 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 admitted to be invalid or unenforceable through reissue or disclaimer or otherwise or (b) a claim of a pending patent application which claim was filed in good faith and has not been abandoned or finally disallowed without the possibility of appeal or refiling of said application.


ARTICLE 2. LICENSE GRANT


2.1 License Grant by Osiris: Subject to the terms and conditions of this Agreement, Osiris hereby grants to Novartis an exclusive license, or where applicable an exclusive sublicense, under Osiris Patent Rights and Osiris Know-How to use, import, sell and offer to sell Product in the Territory; to make and to have made Gene Therapy Product in the Territory; to make and to have made MSC Product for sale and use in all countries of the Territory other than North America; and to the extent that Novartis is granted the right to make or have made MSC Product for sale and use in North America under the provisions of Article 14.2 or the Supply Agreement entered between the parties pursuant to Article 14.1, to make and to have made MSC Product for sale and use in North America. It is expressly


understood that Novartis shall not have the right to grant a sublicense under the licenses granted to Novartis hereunder, except as provided in Article 2.5.


2.2 Exclusivity Term in E.U.: Respecting E.U. Countries, the exclusivity provided by Osiris in respect of a specific Product shall be limited to a period of ten (10) years from First Commercial Sale of that Product in an EU Country, provided, however, that in the E.U. Countries in which Patent Rights relevant to that Product remain valid after expiration of the ten-year period, the exclusivity will continue until expiration of said Patent Rights. For avoidance of doubt, Novartis acknowledges that termination of exclusivity in E.U. Countries pursuant to the preceding sentence shall not reduce, impair or otherwise affect Novartis' obligation to continue to pay royalties provided in Article 8 hereof, in such countries.


2.3 DARPA Agreement: It is expressly understood that no rights are transferred by Osiris with respect to developments under the Agreement between Defense Advanced Research Projects Agency (DARPA) and Osiris.


2.4 License Grant by Novartis:


2.4.1 Novartis on behalf of itself and its Affiliates grants to Osiris an exclusive royalty free license in the Field under Novartis Know-How and under Novartis Patents with respect to any and all Products in any and all countries as to which Product and country(ies) the license granted to Novartis by Osiris hereunder has been terminated under the provisions of Art. 4.7, 6.5, 6.6, 17.2, 17.3, or 17.4.


2.4.2 Novartis on behalf of itself and its Affiliates grants to Osiris a royalty bearing worldwide license under Novartis Know-How and under Novartis Patents to use, import, sell, offer to sell, make and have made any and all products outside the Field. The license shall be exclusive except as to Novartis and its Affiliates. The royalty shall be negotiated in good faith between the parties and if the parties cannot reach agreement, the royalty shall be submitted to arbitration pursuant to Schedule A hereto.


2.4.3 The licenses granted under Sections 2.4.1 and 2.4.2 include the right to grant sublicenses.


2.5 Sublicenses:


2.5.1 Novartis shall have the right to grant a sublicense to any Novartis Affiliate. Further, Novartis shall have the right to grant a sublicense to a Third Party with the prior consent of Osiris, which shall not be unreasonably withheld. In any sublicense granted by Novartis, Novartis shall require the sublicensee to become bound to the terms and conditions of Articles 6, 9.5, 16.1, 16.4, 18.2.2, 18.2.3, 18.4 and 18.6 of this Agreement, with Osiris being made a third party beneficiary of such obligations of the sublicense. A breach of such terms by the sublicensee shall be a breach by Novartis under this Agreement. Any such sublicense shall prohibit any further sublicensing and shall provide that a termination of Novartis' license shall terminate the sublicensed rights.


2.5.2 To the extent that a party to this Agreement receives a license under this Agreement which is a sublicense under an agreement with a Third Party ("Third Party Agreement"), the party receiving such sublicense understands and agrees as follows:


(i) The sublicense granted under this Agreement is subject to the
terms, limitations, restrictions and obligations of the Third
Party Agreement; and
(ii) such party will comply with the terms, obligations, limitations
and restrictions of such Third Party Agreement applicable to a
sublicensee, to the extent that such party is advised thereof.


2.5.3 Subject to the rights retained by Case Western Reserve University (Case Western), Osiris is the exclusive licensee of Case Western to US Patent 5,591,625 and to US patent applications [*CONFIDENTIALITY REQUESTED*] and equivalents thereof, which are included in the Patent Rights set out in Schedule B of this Agreement. Osiris warrants that it has the right to grant sublicenses under such Patent Rights, and that Novartis shall have no direct financial or other liability to Case Western as a result of entering into this Agreement with Osiris.


2.5.4 If Novartis receives a sublicense under Osiris Know-How or Osiris Patent Rights as to which Osiris has transferable rights under a license from a Third Party, and said license was obtained from said Third Party during the Research Term, then no payment additional to those specified in Articles 7 and 8 shall be required in order for Novartis to make use of such sublicense, and any royalties due to said Third Party shall be paid by Osiris. If Novartis receives a sublicense under Osiris Know-How or Osiris Patent Rights as to which Osiris has transferable rights under a license from a Third Party, and said license was obtained from said Third Party subsequent to the Research Term, then if Novartis wishes to make use of such sublicense any royalties due to said Third Party shall be paid by Novartis in addition to the royalty payments due to Osiris.


ARTICLE 3. KNOW-HOW


Insofar as this has not already occurred, Osiris shall disclose to Novartis the existing Osiris Know-how within thirty (30) days of the Effective Date. Osiris and Novartis shall further disclose to one another all Osiris Know-how and Novartis Know-how hereinafter developed or acquired by either party during the term of this Agreement, to the extent that it is licensed to the other party.


ARTICLE 4. RESEARCH PROGRAM


4.1. Conduct of the Research Program: The conduct of the Research Program shall be the primary responsibility of Osiris with participation by Novartis and its Affiliates. The Research Program shall be conducted in compliance, where required, with Good Laboratory Practice, and in all material respects with applicable legal requirements, to attempt to achieve efficiently and expeditiously its objectives described in the work plan set forth in Schedule C hereto. Osiris and Novartis shall proceed diligently with the work set out in the Research Program by using their respective good faith efforts considering, in the case of Osiris, the funding received from Novartis.


4.2. Use of Research Funding: Osiris shall apply the research funding it receives from Novartis under this Agreement for the purpose of identification and pre-clinical development of Products, applying the number of Full Time Equivalents (FTEs) specified in Schedule C. At least 25% (twenty five percent) of the FTEs specified for each Area shall be assigned to the Research Program in that Area within one (1) month from the Start-up Date, at least 60% (sixty percent) within two (2) months from the Start-up Date, and at least 100% (one hundred percent) within three (3) months from the Start-up Date, whereby any under-allocation of FTEs during this initial


three (3) month period shall be made good by the first anniversary of the Start-up Date. It is also understood and agreed that an FTE may be provided by one, two or more persons. For each Area, a senior scientist, mutually acceptable to both parties, shall be appointed as Program Leader for the Research Program in that Area.


In no event shall Osiris be obligated to perform work under the Research Program beyond that which is funded by Novartis, except as otherwise provided in Art. 4.6. It is expressly understood that no representations or warranties or agreement is made that the objectives set forth in the work plan will in fact be achieved.


With respect to each Area, during the period which Novartis is funding research in such Area under this Agreement, Osiris agrees not to perform any research and development work for any Third Party in such Area. It is also expressly understood that the research funding may be employed for research to be performed by Osiris under this Agreement and/or for research to be performed under a subcontract, as provided in Article 4.3.


4.3. Subcontracts: Subject to the provisions of Art. 16, Osiris and Novartis may each subcontract portions of the Research Program to be performed by them in the normal course of their business to a Third Party without the prior consent of the other; provided, however, that the other party is informed, and that either such Third Party has entered into an appropriate confidentiality agreement with Osiris or Novartis, or such subcontracting would not require the transfer of confidential information to the Third Party. The use of subcontractors by Osiris shall not add to the financial liabilities of Novartis under this Agreement, whether in terms of Research Funding, of royalties, or in any other respect; however, the research funding may be used for funding any such subcontracts.


4.4. Data: Osiris and Novartis and their respective Affiliates and subcontractors shall each maintain records in sufficient detail and in good scientific manner appropriate for patent purposes and as will properly reflect all work done and results achieved in the performance of the Research Program (including all data in the form required to be maintained under any applicable governmental regulations). Osiris and Novartis shall each provide the other the right to inspect such records, and shall provide copies of all requested records, to the extent reasonably required for the performance of the requesting party's obligations under this Agreement; provided, however, that each party shall maintain such records and the information of the other contained therein in confidence in accordance with Article 16 below and shall not use such records or information except to the extent otherwise permitted by this Agreement.


4.5 Term of Research Funding: The term during which Novartis will fund the research of Osiris shall be determined independently for each of the Areas. For each of the Bone Therapy and the Cartilage Therapy Areas, independently, the term shall be five (5) years from the Start-up Date, unless earlier terminated by Novartis in its sole discretion. Such notice of early termination may be given by Novartis no later than twenty four (24) months from the Start-up Date, to take effect at thirty (30) months from the Start-up Date; or no later than forty two (42) months from the Start-up Date, to take effect at forty eight (48) months from the Start-up Date. For the Gene Therapy Area, the term shall be thirty (30) months from the Start up Date provided, however, that Novartis shall have the right to extend such term for an additional thirty (30) months with respect to the Gene Therapy Area as it exists as of such date upon agreement by the parties to the funding therefor, which funding shall


be no less than $500,000 per calendar quarter, and subject to termination by Novartis, in its sole discretion, eighteen months after the start of such extended term, by at least six months prior written notice.


4.6 Amount of Research Funding: Novartis will fund the research of Osiris in the Field, subject to the provisions of Art. 4.5, by quarterly payments in advance throughout the Research Term, beginning on the Start-up Date. The amount of each of the first ten quarterly payments shall be [*CONFIDENTIALITY REQUESTED*]. Thereafter, the amount of each quarterly payment shall depend upon the agreed budget for those Areas in which research is still being funded, but shall not be less than [*CONFIDENTIALITY REQUESTED*] if one of the Cartilage Therapy and Bone Therapy Areas is being funded, and not less than [*CONFIDENTIALITY REQUESTED*] if both of said Areas are being funded. This funding shall provide the number of FTEs in each Area as specified in Schedule C hereto, inclusive of personnel costs, lab materials and supplies, electronic data processing expenditures, travel expenditures, depreciation, occupancy fees and all other costs. One FTE shall be provided by Osiris for each [*CONFIDENTIALITY REQUESTED*] of funding provided by Novartis; in addition, Osiris shall provide, at its own cost and without further charge to Novartis, one (1) FTE in the Cartilage Therapy Area and one (1) FTE in the Bone Therapy Area in each full year of the Research Term for such Area, provided, however, that Osiris shall not be obligated to provide such FTE in an Area as from the date of notice of early termination of research funding for such Area according to Art. 4.5.


4.7 Restriction of Rights on early Termination: If Novartis gives notice of early termination of research funding for the Bone Therapy Area and/or the Cartilage Therapy Area under the provisions of Article 4.5, the Areas for which research funding has been terminated shall no longer be part of the Field, the license granted to Novartis for MSC Product in each such Area shall be terminated and Novartis shall have no further rights in respect of such Area.


4.8 Scope of Gene Therapy Area:


4.8.1 Initial Designation: Within ninety (90) days of the Effective Date, Novartis shall designate three genes or polypeptides which shall be used for transducing MSCs for delivery of a gene and/or polypeptide and the use of such transduced MSCs shall become part of the Gene Therapy Area.


4.8.2 Right of First Refusal: Novartis may at any time up to 31 December 1997 propose to Osiris that the use in transduced MSCs of one or more of the specific genes or polypeptides in a list given to Osiris within ninety (90) days of the Effective Date shall be added to the Gene Therapy Area within this Agreement. The list shall include only those genes and polypeptides the use of which Novartis in good faith believes may be added to the Gene Therapy Area. When such genes and polypeptides are proposed, the parties shall then discuss the financial terms upon which the Gene Therapy Area may be so extended. Such terms [*CONFIDENTIALITY REQUESTED*] as set out in this agreement. Non-financial terms of this Agreement shall not be affected. If the parties have not reached agreement upon such terms within sixty (60) days from the date of Novartis' proposal, Osiris may offer a license for such subject matter to a Third Party provided that the financial terms thereof, as a whole, are no more favorable to such Third Party than those last offered to Novartis. If Osiris desires to offer a Third Party a license for such subject matter at terms more favorable, then Osiris shall offer such more favorable terms to Novartis and if within thirty (30) days of such offer, Novartis informs Osiris that it is prepared to enter into an agreement with Osiris in accordance with such terms, Osiris shall conclude such agreement with Novartis upon such terms. If no such


statement is made by Novartis within said thirty (30) days, Osiris shall be free to enter into an agreement in accordance with such terms with a third party.


4.8.3 Right of First Negotiation: Novartis may at any time up to 31 December 1997 propose to Osiris that the use in transduced MSCs of one or more genes or polypeptides other than those listed in Art. 4.8.2 above shall be added to the Gene Therapy Area within this Agreement, and the parties shall then discuss the financial terms upon which the Gene Therapy Area may be so extended. Such terms [*CONFIDENTIALITY REQUESTED*] shall not change the royalty rates as set out in this Agreement. Non-financial terms of this Agreement shall not be affected. If the parties have not reached agreement upon such terms within sixty (60) days from the date of Novartis' proposal, Osiris shall be free to enter into a license agreement for such subject matter with a Third Party without further reference to Novartis.


4.8.4 Amendment to Schedule C: When the scope of the Gene Therapy Area is initially defined or extended by the provisions of Art. 4.8.1, 4.8.2 or 4.8.3, Schedule C of this Agreement shall be modified accordingly.


4.9 Visit to Premises: At any time during the Research Term for any Area, Novartis members of the JSC or other designated employees of Novartis or its Affiliates may upon reasonable notice visit the premises of Osiris or its subcontractors in order to inform themselves of the progress of work funded by Novartis under this Agreement.


ARTICLE 5. JOINT STEERING COMMITTEE


5.1 Membership and Responsibilities: A Joint Steering Committee ("JSC") shall be established, ...