Strategic Alliance Dated 4/1/2004

EXHIBIT 10.49


STRATEGIC ALLIANCE AGREEMENT


This STRATEGIC ALLIANCE AGREEMENT (the "Agreement"), having a date of April 1, 2004, is made by and between, on the one hand, F. HOFFMANN-LA ROCHE LTD, a Swiss corporation, having its principal place of business at Grenzacherstrasse 124, CH-4070, Basel, Switzerland and HOFFMANN-LA ROCHE INC., a New Jersey corporation, having its principal place of business at 340 Kingsland Street, Nutley, New Jersey 07110 (collectively "Roche") and, on the other hand, ARQULE, INC., a Delaware corporation, having its principal place of business at 19 Presidential Way, Woburn, Massachusetts 01801-5140 ("ArQule").


INTRODUCTION


1. ArQule has a development program relating to pharmaceutical compounds for the treatment of oncological diseases based on its E2F1 technology and associated compounds (the "ArQule Program"), and owns related intellectual property rights.


2. Roche has expertise in the research, development, manufacture and commercialization of pharmaceutical products.


3. Roche desires to secure rights to further develop and commercialize products developed and to be developed pursuant to the ArQule Program.


4. In consideration of the mutual covenants and promises contained in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, ArQule and Roche agree as follows:


ARTICLE 1 DEFINITIONS


As used in this Agreement, the following terms, whether used in the singular or plural, shall have the following meanings:


[*]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. OMITTED TEXT IS INDICATED BY A "*".


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1.1 "Adjusted Gross Sales" means the amount of gross sales of a Product
invoiced by Roche, its Affiliates and its sublicensees to independent
third parties less deductions for returns and return reserves (such
reserves consistent with International Financial Reporting Standards)
(including allowances actually given for spoiled, damaged, out-dated,
rejected or returned Product sold, withdrawals and recalls), rebates to
the extent consistently and reasonably applied by Roche to its products
(price reductions, rebates to social and welfare systems, charge backs
and charge back reserves (such reserves consistent with International
Financial Reporting Standards), cash sales incentives (but only to the
extent it is a sales related deduction which is accounted for within
Roche on a product-by-product basis)), government mandated rebates and
similar types of rebates (e.g., P.P.R.S. Medicaid, each as consistently
and reasonably applied by Roche to its products), volume (quantity)
discounts, each as consistently and reasonably applied by Roche to its
products, and taxes (value added or sales taxes, government mandated
exceptional taxes and other taxes directly linked to the gross sales
amount), it being understood that income and capital gains taxes are
not the type of taxes contemplated as a deduction in this definition of
Adjusted Gross Sales. Notwithstanding the foregoing, amounts received
by Roche, its Affiliates and sublicensees for the sale of Product among
Roche, its Affiliates or sublicensees for resale shall not be included
in the computation of Adjusted Gross Sales.


1.2 "Adverse Drug Reaction" and "Adverse Event" shall have the meaning
given at 21 C.F.R. 314.80 or 21 C.F.R. 312.32, as applicable, and in
the ICH guidelines. For purposes of this Agreement, "ICH guidelines"
means the E2A ICH Harmonized Tripartite Guideline: Clinical Safety Data
Management - Definitions and Standards for Expedited Reporting (as
currently in effect and adopted by the relevant regulatory agency).


1.3 "Affiliate" means (a) a business entity which owns, directly or
indirectly, more than fifty percent (50%) of the voting shares or other
means of control of a Party; or (b) a business entity in which more
than fifty percent (50%) of the voting shares or other means of control
are owned by a Party, either directly or indirectly; or (c) a business
entity, the majority ownership of which is directly or indirectly
common to the majority ownership of a Party. Anything to the contrary
in this paragraph notwithstanding, Genentech, Inc., a Delaware
corporation, and Chugai Pharmaceutical Co., Ltd., a Japanese
corporation, (each, a "Roche Entity"), shall not be deemed an Affiliate
of Roche unless Roche provides written notice to ArQule of its desire
to include a particular Roche Entity as an Affiliate of Roche and such
Roche Entity otherwise meets the definition of an Affiliate.
Notwithstanding such written notice, if any Roche Entity does not agree
to be bound by the terms and conditions of this Agreement, then such
Roche Entity shall have none of the rights and obligations of an
Affiliate of Roche under this Agreement, and such Roche Entity shall be
treated as a Third Party under this Agreement and, accordingly, Roche
may not grant a sublicense to such Roche Entity except as permitted by
Section 2.3 hereof. Notwithstanding the preceding


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provisions, once an entity ceases to be an Affiliate, then such entity
shall, without any further action, cease to have any rights, including
license and sublicense rights, under this Agreement that it has by
reason of being an Affiliate.


1.4 "Agreement Term" means the term of this Agreement, more fully described
in Section 17.2.


1.5 "ArQule Know-How" means all Know-How that ArQule owns, or otherwise has
the right to grant as part of and pertinent to the License that may be
granted herein, during the Agreement Term.


1.6 "ArQule Patent Rights" means all Patent Rights that ArQule owns or
otherwise controls and has the right to grant as part of the License
that may be granted herein during the Agreement Term. As of the date
set forth in the first paragraph of this Agreement, the ArQule Patent
Rights are as specified in Schedule 1.


1.7 "ArQule Program" has the meaning given in the first paragraph of the
Introduction of this Agreement.


1.8 "Backup Compound" means, as of the Option Exercise, any analog of the
Primary Compound and any other compound developed by ArQule that has
been screened for regulation of the E2F1 protein prior to the Effective
Date or as part of the Strategic Alliance, and as a direct result of
such screening has been determined to modulate E2F1 in cancer cells,
directly leading to apoptosis.


1.9 "Bioequivalent Product" means, with respect to a given Product sold in
a given country of the Territory by Roche, its Affiliate or
sublicensee, a product sold by a Third Party in such country containing
the same compound (or an acid, salt or ester thereof) as an Optioned
Compound.


1.10 "Clinical Candidate" means, subject to Section 4.3(a), as of or within
* following the date of the Option Exercise, a Backup Compound that has
commenced * studies.


1.11 "Combination Product" means any product containing both a
pharmaceutically active agent that causes it to be considered a Product
and one or more other pharmaceutically active agents that are not
Products.


1.12 "Compound Evaluation Report" shall have the meaning given in Section
9.3.


1.13 "Cover" (including the variations such as "Covered", "Coverage" or
"Covering") shall mean that the making, using, offering for sale,
selling or importing of a given compound or product would infringe a
claim of a Patent Right in the absence of a license under such Patent
Right. The determination of whether a compound or product is Covered by
a particular Patent Right shall be made on a country-by-country basis.
In the event of a disagreement between the Parties as to whether a
compound or product is Covered by a particular Valid Claim, the


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Parties shall refer such disagreement pursuant to the dispute
resolution process of Section 18.1.


1.14 "Effective Date" shall have the meaning given in Section 17.1(a).


1.15 "End of Phase 1" means the date of completion of a particular Phase 1
clinical trial.


1.16 "End of Phase 2" means the date of completion of a particular Phase 2
or Phase 2a clinical trial.


1.17 "EU Launch" means a Launch in any country in Europe.


1.18 "EU NDA Filing" means an application for marketing authorization filed
in the European Union for a given Product and a given Indication.


1.19 "Europe" means the United Kingdom, Germany, Italy, France, and Spain.


1.20 "FDA" means the US Food and Drug Administration.


1.21 "Field" means only all Indications. For the avoidance of doubt, the
Field does not include Specifically Excluded Areas.


1.22 "IND" means an Investigational New Drug Application filed with the FDA,
or the foreign equivalent, for human clinical testing of a drug.


1.23 "Indication" means any therapeutic indication for human cancer.


1.24 "Initiation of Phase 1" means the date that a human is first dosed with
a Product in a Phase 1 clinical trial.


1.25 "Initiation of Phase 2" means the date that a human is first dosed with
a Product in a Phase 2 clinical trial. In the event a Phase 1b clinical
trial and a Phase 2 clinical trial constitute component parts of a
combined trial, "Initiation of Phase 2" means the formal commencement
date pursuant to the applicable protocol of the Phase 2 clinical trial
component part.


1.26 "Initiation of Phase 3" means the date that a human is first dosed with
a Product in a Phase 3 clinical trial.


1.27 "Invention" means an invention that is conceived or reduced to practice
in the conduct of the Strategic Alliance.


1.28 "Invention Priority Application" means a patent application that can be
cited as a priority document for a patent filing.


1.29 "Joint Patent Rights" means all Patent Rights that ArQule and Roche
jointly own, or otherwise jointly have the right to grant as part of
the licenses herein, during the Agreement Term.


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1.30 "Joint R&D Committee" has the meaning given in Section 8.2.


1.31 "Know-How" means data, knowledge and information, including materials,
samples, chemical manufacturing data, toxicological data,
pharmacological data, preclinical data, assays, platforms,
formulations, specifications, quality control testing data, that are
necessary for the discovery, manufacture, development or
commercialization of Optioned Compounds or Products in the Territory.


1.32 "Launch" means, with respect to a Product in a country of the
Territory, the date of the first commercial sale to a Third Party by
Roche, its Affiliate or its sublicensee of the given Product in the
given country.


1.33 "License" has the meaning given in Section 2.1(a).


1.34 "License Rights Maintenance Fees" means the payments by Roche to ArQule
pursuant to Section 4.4 hereof.


1.35 "Major Indication" means an Indication for any one or more of the
following types of human cancer: *.


1.36 "Major Market Countries" means the US, Canada, Japan and any country in
Europe.


1.37 "Net Sales" means:


(a) for the US, the amount calculated by subtracting from the
amount of Adjusted Gross Sales a lump sum deduction of *
percent (*%) of Adjusted Gross Sales in lieu of those sales
related deductions which are not accounted for within Roche on
a product by product basis (e.g., outward freight, postage
charges, transportation insurance, packaging materials for
dispatch of goods, custom duties, bad debt, and legal
discounts granted later than at the time of invoicing);


(b) for the ROW Territory, the amount calculated by subtracting
from the amount of Adjusted Gross Sales a lump sum deduction
of * percent (*%) of Adjusted Gross Sales in lieu of those
sales related deductions which are not accounted for within
Roche on a product by product basis (e.g., outward freight,
postage charges, transportation insurance, packaging materials
for dispatch of goods, custom duties, bad debt, and legal
discounts granted later than at the time of invoicing).


Notwithstanding the foregoing, amounts received by Roche, its
Affiliates and sublicensees for the sale of Product among
Roche, its Affiliates or sublicensees for resale shall not be
included in the computation of Net Sales.


1.38 "Option Exercise" has the meaning given in Section 2.1(a).


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1.39 "Option Exercise Period" means the period beginning on the last day of
the Option Term, and ending * calendar days thereafter.


1.40 "Option Term" means the period commencing on the Effective Date and
ending on the date that is the earlier of the Option Trigger Date and
*, except as extended pursuant to Section 4.5.


1.41 "Option Trigger Date" means the date on which ArQule has delivered to
Roche the Compound Evaluation Report.


1.42 "Optioned Compounds" means the Primary Compound, the Clinical
Candidates and, if Roche makes the payment set forth in Section 4.3(b),
then also the Potential Optioned Compounds.


1.43 "Other Indication" means any Indication that is not a Major Indication.


1.44 "Party" means Roche or ArQule, and "Parties" means Roche and ArQule.


1.45 "Patent Rights" means all rights under any patent or patent
application, in any country of the Territory, including any patents
issuing on such patent application, and further including any
substitution, extension or supplementary protection certificate,
reissue, reexamination, renewal, division, continuation or
continuation-in-part of any of the foregoing, Covering a Product or an
Optioned Compound in the Territory.


1.46 "Phase 1" means the first phase of human clinical trials of a drug
required by the FDA to gain evidence of safety in patients, as
described in 21 C.F.R. Part 312, as it may be amended.


1.47 "Phase 1a" means the currently ongoing Phase 1 trial of the Primary
Compound governed by the IND filed on July 7, 2003.


1.48 "Phase 1b" means a Phase 1 study of the Primary Compound (in a
combination protocol) subsequent to Phase 1a.


1.49 "Phase 2" means the second phase of human clinical trials of a drug
required by the FDA to gain evidence of efficacy in the target
population for an Indication, determine optimal dosage, and obtain
expanded evidence of safety for Product(s), as described in 21 C.F.R.
Part 312, as it may be amended.


1.50 "Phase 2a" means the first set of exposure response studies in patients
in Phase 2 trials (conducted in a Major Market Country) collectively
designed to demonstrate clinical proof of concept. These studies shall
incorporate early stopping rules, where feasible and appropriate.


1.51 "Phase 3" means the third phase of human clinical trials of a drug
required by the FDA to gain evidence of efficacy in the target
population for an Indication and


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obtain expanded evidence of safety for Product(s), as described in 21
C.F.R. Part 312, as it may be amended.


1.52 "Potential Optioned Compounds" means, as of the date of the Option
Exercise, those Backup Compounds which have not been selected as
Clinical Candidates.


1.53 "Primary Compound" means the compound known as ARQ 501.


1.54 "Primary Compound Trials" means at least * clinical trials with respect
to the Primary Compound, of which (a) * shall be in *, (b) * shall be
in * as a * and (c) * shall be in * either as a * or as a * protocol
(to be determined by the Joint R&D Committee), in each case for tumor
types to be determined by the Joint R&D Committee.


1.55 "Product" means any and all products for use in the Field that include,
in whole or as a component thereof, an Optioned Compound. "Product"
shall also include any and all products that include, in whole or as a
component thereof, any Optioned Compound to which Roche has acquired a
license pursuant to Section 2.1(b).


1.56 "Publishing Party" shall have the meaning set forth in Section 16.4(a).


1.57 "Reasonable Diligence" means the same standard of effort as used by the
Parties, or in any case not less than common in the industry taken as a
whole for similarly situated companies, for the activities to be
undertaken pursuant to this Agreement, including, in the case of Roche,
activities relating to development, clinical testing, manufacturing,
marketing and sale, with respect to a product which (i) is intended to
receive approval from FDA or another regulatory agency in Major Market
Countries and (ii) has similar potential for treatment of an Indication
as do the Optioned Compounds, taking into account scientific, business,
marketing and return on investment considerations. It is understood
that such compound potential may change from time to time based upon
changing scientific, business, marketing and return on investment
considerations. The Parties also acknowledge that, even within the
Major Market Countries, Roche and its Affiliates do not always seek to
market their own products in every such country or seek to obtain
regulatory approval in every such country or for every potential
indication or every compound that has potential for an indication. As a
result, the exercise by Roche of Reasonable Diligence is to be
determined by judging its efforts taken as a whole.


1.58 "Research Plan" means the plan of research and development attached as
Schedule 2, developed by the Parties, outlining the work expected to be
performed by ArQule as part of the Strategic Alliance, as such plan may
be updated from time to time as provided in this Agreement.


1.59 "Regulatory Approval" means any approvals (including pricing and
reimbursement approvals), licenses, registrations or authorizations of
any national or international or local regulatory authority,
department, bureau or other


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governmental entity, necessary for the manufacture, marketing and sale
of a Product in a regulatory jurisdiction in the Territory.


1.60 "Roche Patent Rights" means all Patent Rights that Roche owns or
otherwise controls and has the right to grant as part of the licenses
herein, during the Agreement Term.


1.61 "ROW Territory" means all countries and territories in the world other
than the US.


1.62 "Serious Adverse Drug Reaction" and "Serious Adverse Event" shall have
the meaning given at 21 C.F.R. 314.80 or 21 C.F.R. 312.32, as
applicable, and the ICH guidelines.


1.63 "Specifically Excluded Areas" means (i) the *, and (ii) the *.


1.64 "Strategic Alliance" means discovery and development by ArQule of
pharmaceutical compounds in the Field during the Agreement Term and
development and commercialization of such compounds by Roche and ArQule
pursuant to this Agreement.


1.65 "Territory" means all countries and territories in the world, provided
however that in the event Roche exercises its right of termination
pursuant to Section 17.4(c) with respect to any country or countries,
such country or countries shall be excluded from the definition of
"Territory."


1.66 "Third Party" means a person or entity other than (i) ArQule or any of
its Affiliates or (ii) Roche or any of its Affiliates.


1.67 "US" means the United States of America and its possessions and
territories, including Puerto Rico.


1.68 "US Launch" means Launch in the US.


1.69 "US NDA" means a New Drug Application filed with the FDA for a drug.


1.70 "US NDA Filing" means for a given Product, the date that a US NDA is
filed with the FDA for such Product for an Indication.


1.71 "Valid Claim" means a claim in any (i) unexpired and issued patent
right that has not been (x) held permanently revoked, unenforceable or
invalid by a final unappealable decision of a court or government
agency of competent jurisdiction over such claim or (y) admitted to be
invalid or unenforceable through disclaimers, consent decrees or
otherwise, or (ii) pending patent application that has been on file
with the applicable patent office for no more than ten (10) years and
for which there has been reasonably consistent activity to advance to
issuance of a patent.


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ARTICLE 2 GRANTS


2.1 Grants.


(a) Subject to the terms and conditions of this Agreement,
commencing on the Effective Date and ending at the conclusion
of the Option Exercise Period, Roche shall have the right with
respect to the Products to exercise an option ("Option
Exercise") to obtain a sole and exclusive license, including
the right to grant sublicenses in accordance with Section 2.3,
under the ArQule Patent Rights and Joint Patent Rights, and a
non-exclusive license to use the ArQule Know-How, in each case
solely to make, use, offer for sale, sell and import the
Products in the Territory for use in the Field (the
"License").


(b) If Roche has effected the Option Exercise, and, within * after
the date of Option Exercise, Roche has delivered a written
notice to ArQule designating a particular Optioned Compound as
subject to this Section 2.1(b), then, subject to the terms and
conditions of this Agreement, Roche shall have, with respect
to such designated Optioned Compound and its associated
Products, for no further consideration, a sole and exclusive
license, including the right to grant sublicenses in
accordance with Section 2.3, under the ArQule Patent Rights,
and a non-exclusive license to use the ArQule Know-How, in
each case solely to make, use, offer for sale, sell and import
such product in the Territory for use outside the Field
(except that such licenses shall exclude Specifically Excluded
Areas).


(c) The right of Roche to effect the Option Exercise shall be made
by Roche giving ArQule written notice to such effect prior to
the conclusion of the Option Exercise Period and making or
having made payment to ArQule of (1) all research and
development payments specified in Section 4.1, (2) either (i)
the one-time payment specified in Section 4.3(a) or (ii) the
one-time payment specified in Section 4.3(b), and (3) any of
the License Rights Maintenance Fees due and payable pursuant
to Section 4.4, or, subject to Section 8.2(f), if an event or
events described in Section 4.4 which, but for having occurred
prior to the date of Option Exercise, would have triggered the
payment of such License Rights Maintenance Fee(s), the License
Rights Maintenance Fee(s) associated with such event or
events.


(d) If Roche exercises its right to obtain the License as provided
in this Section 2.1, ArQule shall be deemed to have granted
such License hereunder without any requirement for further
action by or on behalf of either Party. For the avoidance of
doubt, except as may be provided pursuant to Section 2.1(g),
Roche shall have no license or other rights (except for the
right to effect the Option Exercise) in or to any ArQule
Patent Rights, ArQule Know-How or Optioned Compound unless and
until it effects the Option Exercise.


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(e) From and after the Option Exercise, Roche shall be responsible
for and pay all costs and expenses relating to the continued
development of Products, including obtaining all Regulatory
Approvals with respect thereto.


(f) Except as expressly provided in Sections 2.1(b) and 2.1(h),
nothing in this Agreement grants to Roche any option, right or
license to use ArQule Know-How or ArQule Patent Rights for any
purpose other than to make, use, offer for sale, sell and
import Products in the Territory for use in the Field.
Further, except as expressly provided in this Agreement to the
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