Joint Venture Agreement 12/21/96 Medichem & Craun

EXHIBIT 10.4


JOINT VENTURE AGREEMENT BETWEEN
CRAUN RESEARCH SDN. BHD., SARAWAK
AND
MEDICHEM RESEARCH INC., USA


DECEMBER, 1996


AGREEMENT
---------


THIS AGREEMENT is made the 21st day of December, 1996


BETWEEN:


(1) CRAUN RESEARCH SENDIRIAN BERHAD a company incorporated in Sarawak, Malaysia
under the Companies Act, 1965, whose registered office is at Levels 5, 8
and 12, Wisma Satok, Jalan Satok, 93400 Kuching, Sarawak and place of
business at Lot 3147 Block 14, Jalan Santubong, 93055 Kuching, Sarawak
(hereinafter referred to as "CRAUN") of the one part and


(2) MEDICHEM RESEARCH INC. a company organized and incorporated under the laws
of the United States of America and State of Illinois, with a place of
business at 12305 So. New Avenue, Lemont, ILLINOIS 60439, United States of
America (hereinafter referred to as "MEDICHEM") of the other part.


WHEREAS


(1) CRAUN is the duly authorized agent for and on the behalf of the Government
of the State of Sarawak, Malaysia ("the State Government") where the
species of Callophylum plants from which the COMPOUND known scientifically
as (+) - Calanolide A (hereinafter referred to as "the said COMPOUND") is
isolated; and CRAUN, therefore, enters into this Agreement for and on
behalf of the State Government;


(2) MEDICHEM is primarily engaged in research and early stage development of
therapeutic agents. MEDICHEM has title or has the exclusive licenses to
the following patents and patent applications relating to the COMPOUND
which are potent inhibitors of Human Immunodeficiency Virus (HIV) reverse
transcriptase and intermediates, namely:


(a) MediChem U.S. Patent No. 5,489,697; 1996 - Method for the Preparation
of (+)-Calanolide A and Intermediates Thereof (Boulanger, Flavin,
et al.).


(b) MediChem U.S. Patent Application No. 08/510,213; 1995, and
International Application No. PCT/US95/09804; 1995 - Method for the
Preparation of (+)-Calanolide A and Intermediates Thereof (Flavin, Xu,
et al.).


(c) MediChem U.S. Patent Application No. 08/609,537; 1996 - Method for the
Preparation of (+)-Calanolide A and Analogues Thereof (Flavin, Xu,
et al).


(d) NCI U.S. Patent Application No. 08/065,618; 1993 - Calanolide and
Related Antiviral Compounds, Compositions, and Uses Thereof (Boyd,
Cardellina, et al.).


(e) NCI International Patent Application No. PCT/US94/05658; 1995 -
Calanolide and Related Antiviral Compounds, Compositions, and Uses
Thereof (Boyd, Cardellina, et al.).


(3) MEDICHEM has by virtue of a Patent License Agreement (Patent License No.
L-135-94) with National Cancer Institute ("'NCI") of the National Institute
of Health which is an agency of the United States Public Health Service
within the Department of Health and Human Services, U.S.A. (a copy whereof
is hereto attached as Appendix A) the use of the Patent rights licensed
thereunder to undertake research into the said COMPOUND with a


view to developing a drug for the treatment of acquired immunodeficiency
syndrome (AIDS) diseases, and to use and sell the licensed PRODUCTS, i.e.,
the drug derived from the said COMPOUND;


(4) MEDICHEM entered into an Agreement with the State Government whereby in
consideration of the State Government agreeing to NIH granting to MEDICHEM
a license to use the COMPOUND and to sell and distribute drugs developed
therefrom, MEDICHEM agrees to pay royalties, at the rate stated therein, to
the State Government. A copy of the Agreement is attached as Appendix B;


(5) MEDICHEM has a duly executed license with vita of Spain under the License
Agreement attached as Appendix C.


(6) MEDICHEM has invited the State Government, through CRAUN, to form a COMPANY
for the clinical trials for the said COMPOUND and subscribe to purchase
shares in the COMPANY with a view to enhancing benefits to the State
Government in the event of the successful development and commercialization
of the PRODUCT;


(7) Both the Sarawak Government (through CRAUN) and MEDICHEM wish to jointly
cooperate to form a COMPANY for conducting research into the COMPOUND and
more particularly in the conduct of the clinical trials for the said
COMPOUND, with a view to the production and medical application of the
PRODUCT. CRAUN and MEDICHEM wish to be equal shareholders in the COMPANY.


In pursuance thereof, the parties hereto have agreed to enter into mutual commitments and to regulate their rights in relation to such COMPANY in the manner and upon the terms and conditions hereinafter appearing.


IT IS MUTUALLY AGREED as follows:


1. Interpretations


1.1 In this Agreement unless the context otherwise requires:


1.1.1 "the COMPOUND" means the anti-viral molecule or agent isolated from the
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plants of the genus callophylum found in the State of Sarawak in
Malaysia and including Calanolide or any synthesized form thereof or
that derived from preparation made by MEDICHEM under the said patents.


1.1.2 "the COMPANY" means the COMPANY incorporated under Clause 4 below.
-------


1 1.3 "FDA" means the Food and Drug Administration of the United States of
---
America.


1.1.4 MEDICHEM "intellectual Property Rights" means technical information, all
----------------------------
trade secrets, patent applications and patents and licenses related to
COMPOUND or PRODUCT in which MEDICHEM has right, title and interest at
the date of signing this Agreement.


1.1.5 "State Government" means the Government of the State of Sarawak,
----------------
Malaysia.


1.1.6 COMPANY Intellectual Property Rights shall mean technical information,
trade secrets, and patent rights developed or obtained by the COMPANY.


1 1.7 "The PRODUCT" means any drug or pharmaceutical goods or PRODUCT derived
-----------
from the COMPOUND for the treatment of Human Immunodeficiency (HIV) or
HIV related diseases, developed through or under this Project.


1.1.8 "This Project" means
------------


(a) the development of Calanolide as a Therapeutic for treatment of
HIV infection;


(b) development of Calanolide A as a Therapeutic for treatment of non
HIV viral infections;


(c) development of Calanolide-related compounds including Costatolide
as Therapeutic agent for treatment of viral infections;


(d) the research and study into medicinal properties of other plant
materials from the State of Sarawak, and


(e) undertake any current or future endeavours or collaboration
entered into between MEDICHEM and the U.S. National Institute of
Health in connection with the research and study into Calanolide
Compounds.


1.2 References to statutory provisions shall be construed as references to
those provisions as respectively amended or re-enacted or as their
application is modified by other provisions (whether before or after the
making of this agreement) from time to time and shall include any
provisions of which they are re-enactments (whether with or without
modifications).


1.3 The headings are inserted for convenience only and shall not affect the
construction of this Agreement.


1.4 The Appendices shall be considered as an integral part of this Agreement.


1.5 Words importing one gender include all other genders and words importing
the singular include the plural and vice versa.


1.6 Any covenant by a party not to do an act or thing shall be deemed to
include an obligation not to permit or suffer such act or thing to be done
by another person.


2. Term


This Agreement shall commence on the date shown hereinabove and shall
continue until and unless terminated in accordance with hereunder.


3. Nature of Collaboration


3.1 CRAUN and MEDICHEM hereby mutually agree to cooperate with each other to
form a COMPANY for the purpose of taking the COMPOUND through its clinical
trials which shall start as soon as such trials are approved by the FDA and
to comply with and achieve the Benchmarks for the development thereof as
set out in Appendix D to the Patent License Agreement between MEDICHEM and
the National Institutes of Health (further set out in Appendix C hereof).


3.2 The COMPANY shall seek the requisite approvals of the FDA and any other
governing bodies (hereinafter referred to as "the regulatory authorities")
for the conduct of clinical trials for the COMPOUND and comply with all the
conditions and requirements set out in the approvals by the regulatory
authorities.


3.3 The COMPANY shall seek the approvals of the regulatory authorities in the
United States of America and those of other countries for the manufacture,
use, marketing and sale of the PRODUCT.


3.4. Upon approvals from the regulatory authorities for the manufacturing of
the PRODUCT and its medical application, the parties hereto shall proceed,
either through the COMPANY itself or by arrangements with other parties (to
be mutually agreed upon by CRAUN and MEDICHEM), to have the PRODUCT
manufactured, distributed and sold both in the United States of America and
abroad.


3.5 MEDICHEM shall make available to the COMPANY, at MEDICHEM's standard cost,
the scientists to undertake the research and clinical trials of the
COMPOUND and manufacture of the PRODUCT and shall (subject to Visa and U.S.
immigration clearance) train scientists nominated by CRAUN at MEDICHEM's
facilities in the United States and permit such scientists from Sarawak, to
participate in the clinical trials, development, manufacture, marketings
and distribution of the PRODUCT.


4. Scheme of Collaboration


4.1 CRAUN and MEDICHEM agree to have incorporated, under United States laws, a
COMPANY, with limited liability, whose shares shall be owned by the parties
hereto in the following proportions:-


CRAUN


(as agent and nominee of the State Government): 50%


CRAUN'S shares are to be obtained by making subscription payments in
accordance with Subscription Agreement. (Appendix D).


MEDICHEM: 50%.


MEDICHEM's shares are to be obtained by contribution of MEDICHEM
Intellectual Property Rights and shall vest automatically according to
Appendix E.


4.2 The COMPANY shall be known as SARAWAK MEDICHEM PHARMACEUTICALS, INC.,
or such other name as may be approved by the Secretary of State of
Delaware, United States of America.


4.3 (a) The COMPANY'S principal business and activity is to undertake the
research work and carry out clinical trials for the COMPOUND and
thereafter, to carry out research and study into other plant materials
for their medicinal properties.


(b) In the event of a successful development of the PRODUCT, the parties,
as shareholders of the COMPANY, shall mutually agree upon the mode and
manner for undertaking the commercialization of the PRODUCT, in
particular, manufacturing, sale and distribution thereof either
through the COMPANY or such third parties as may be mutually agreed by
CRAUN and MEDICHEM. In making this determination both parties will
take into consideration the following:


(i) capital expenditure that may be required for the
commercialization of the PRODUCT,


(ii) the most efficient and cost effective manner for the manufacturing,
promoting and distributing thereof.


4.4 The objects, constitution and articles of association of the COMPANY shall
be in the document set out in Appendix F, the provision of this appendix
both parties hereto may both mutually agree in writing to modify, alter, or
amend the provisions of Appendix F.


4.5 All Patents, License Agreements and Approvals relating to the development
of the PRODUCT shall be assigned or exclusively licensed to the COMPANY
upon payment by CRAUN of the sum of US $1,200,000 to the COMPANY as the
first payment for subscription of shares. These funds are to be used for
the attainment of the first benchmark stipulated in Appendix D.


5. WARRANTIES AND UNDERTAKINGS


5.1 MEDICHEM undertakes that its scientists whose names appear in Appendix G
will carry out for the COMPANY all research and trials envisaged under the
Project and throughout the duration of this Agreement. MEDICHEM will be
reimbursed for services of MEDICHEM scientists at a rate approved by the
COMPANY's Board of Directors.


5.2 MEDICHEM warrants that all the scientists named in Appendix G possess the
requisite knowledge, skill and experience to undertake the research and
trials described hereinabove, and will undertake such responsibilities to
the best of their professional competence and according to the highest
standard of professional conduct and ethics.


5.3 MEDICHEM undertakes to recruit, engage, appoint, or involve other
scientists for the COMPANY whose skills and professional abilities are
required for the successful


implementation of the Project or for the development and commercialization
of the PRODUCT in addition to or in substitution of those scientists named
in Appendix G.


5.4 MEDICHEM undertakes to procure or obtain for the COMPANY from the
scientists named in Appendix G and any scientists recruited or appointed
under clause 5.3, written undertakings in the form acceptable to the State
Government, that they will not make any unauthorised use or disclosure of
any data, findings or knowledge acquired that may or come into their
possession during or in the course of their involvement or participation in
the Project.


5.5 MEDICHEM warrants that no other person has any claim, interest or right
whatsoever to any of the Patents, and that the same can be validly be
assigned to the COMPANY and that the COMPANY shall have absolute right and
ownership of the Patents and entitled to custody and control of the
certificates and the documentary evidence relating thereto except as that
provided in Appendices A, B and C.


5.6 CRAUN warrants that it has the authority to enter into this Agreement on
behalf of the State Government and has secured funds to meet the payments
due under this Agreement.


5.7 CRAUN undertakes to procure or obtain for the COMPANY from its scientists
involved in the Project, a written undertaking, in a form acceptable to
MEDICHEM, that they will not make any unauthorized use or disclosure of any
date, findings, or knowledge acquired or come into their possession during
or in the course of their involvement or participation in the Project.


5.8 Neither CRAUN nor MEDICHEM shall, during the subsistence of the Agreement
enter into or establish any relationship, arrangement or collaboration with
any other parties or institution for the purpose of undertaking any
research, study, trial, manufacture, production, distribution, or sale of
the PRODUCT, the COMPOUND or any analogs or derivatives thereof without the
prior written consent of the other party.


6. FUNDS FOR PROJECT AND PAID UP CAPITAL OF COMPANY
-------------------------------------------------


6.1 MEDICHEM has estimated that the costs of both Phases of the clinical trials
for the COMPOUND would have US $21,000,000 particulars of which are as
follows:


Phase Amount
----- ------
(a) Phase 1A/1B US $ 6,000,000
(b) Phase II US $15,000,000
----------------
Total U.S. $21,000,000


A detailed schedule for the disbursement of the above mentioned sum is
found in Appendix D hereto.


6.2 The clinical trials shall be undertaken by the Company from funds provided
as follows:-


(i) CRAUN will provide to the COMPANY a total sum of US$9,000,000 through
subscription in COMPANY stocks to cover the full costs of the Phase
1A/1B clinical trials and part of the costs of Phase II of the trials.
The sum of US $9,000,000 shall be made available in the manner and at
the times set out in subscription Appendix D, subject always to the
condition that prior to each payment the results of the clinical
trials are shown to be satisfactory and the benchmarks stipulated in
Appendix D are attained. The COMPANY shall issue


stocks in accordance with the provisions of Appendices D and E within
30 days from the date of the subscription payment.


(ii) MEDICHEM shall be issued shares in the COMPANY equivalent to the value
of the MEDICHEM Intellectual Property Rights assigned or licensed to
the COMPANY. Both parties agree that the ultimate value of the
MEDICHEM Intellectual Property Rights assigned or licensed to the
COMPANY shall be US $9,000,000, but the shares for MEDICHEM shall be
vested and be issued at the same time as the shares are issued to
CRAUN, to the intent that the amount of shares issued to CRAUN and
MEDICHEM shall be equal at all material times. Except if CRAUN fails
to make subscription payments, CRAUN shall not receive any further
shares, MEDICHEM shares shall continue to automatically be vested
according to the Schedule E.


(iii) The balance of the sum required to complete the clinical trials of US
$12,000,000 shall be raised by the COMPANY as follows:


(a) through license fees or royalties received by the COMPANY from
the licensing of the rights to manufacture, sale, and
distribution of the PRODUCT to a pharmaceutical company or
companies:


(b) by loans or finance obtained from banks or financial
institutions;


(c) by a combination of (a) and (b);


(d) by loans provided by CRAUN to the COMPANY, or;


(e) by the COMPANY calling for additional working capital from its
shareholders and CRAUN and MEDICHEM will purchase an equal number
of shares to meet the working capital needs of the COMPANY. In
such an event, CRAUN will make available a loan [on terms to be
agreed upon by the parties hereto] to MEDICHEM to subscribe to
the shares of the COMPANY to the intent that MEDICHEM shall
retain 50% equity interest in the COMPANY.


6.3 Both parties shall endeavor to ensure that the COMPANY has sufficient funds
at all material times, to complete the clinical trials for the COMPOUND.


7. Intellectual Property Rights


7.1 Any Product created jointly by the parties in pursuance of this Agreement,
shall belong to the Company at the date of its creation:


(a) Where in the course of developing the PRODUCT Intellectual Property
Rights are brought into existence, such Intellectual Property Rights
SHALL be COMPANY Intellectual Property Rights and be held in the name
of the COMPANY, and the COMPANY'S expense, shall take all reasonable
steps necessary to protect the same by applying for US and Worldwide
Patents and such foreign rights corresponding to them or registrations
of them as may be reasonable.


(b) If at any time during the existence of the COMPANY any Intellectual
Property Rights belonging to the COMPANY or assigned or licensed to
the COMPANY by MEDICHEM are infringed by a third party then the
COMPANY shall take all


reasonable steps necessary to enforce the COMPANY and MEDICHEM
Intellectual Property Rights at COMPANY expense. Both parties shall
use all steps and provide all information and assistance reasonably
required for the purpose of such proceedings. Any sums recovered as a
result of proceedings taken to enforce the COMPANY or MEDICHEM
Intellectual Property Rights shall after deduction of all legal fees
and other expenses incurred in connection with such proceedings by the
parties be paid to the COMPANY'S general account.


8. Termination and breach of Agreement and their consequences.


8.1 This Agreement shall be deemed to have been terminated if:


(a) both CRAUN and MEDICHEM mutually agree in writing not to proceed
further with any stage of the clinical trials of the COMPOUND;


(b) the State Government fails to provide share subscription funds
required for the clinical trials of the COMPOUND in accordance with
the provisions of Clause 6 above or in the manner stipulated and at
the times mentioned in Appendix D hereto or fails, without reasonable
cause, to provide the funds in accordance with clause 6.2 (iii).


8.2.1 Where this Agreement is terminated pursuant to clause 8.1(a) both parties
will be released from their prospective obligations hereunder and any
liabilities of the COMPANY will be settled by the parties hereto equally.
Upon settlement of such liabilities, all patents assigned or licensed to
the COMPANY shall be reassigned back to


MEDICHEM, including rights to clinical trials, and the parties will take
steps to dissolve the COMPANY in accordance with the laws of the State of
Delaware of the United States of America.


8.2.2 Where this Agreement is terminated pursuant to Clause 8.1(b), the
MEDICHEM Intellectual Property Rights shall be reassigned by the COMPANY
back to MEDICHEM, who shall be entitled to continue with the development
of the COMPOUND.


8.3 In the event that the parties are unable to arrive at a joint decision as
required under Clause 8.1(a) and the provisions of Clause 8.1(b) do not
apply on whether or not to proceed further with any stage of the clinical
trials for the PRODUCT that the party that wishes to proceed with the
development of the PRODUCT is entitled to do so, subject to the
following:


(a) in the event that it is CRAUN that does not want to proceed,
MEDICHEM shall have the right but not the obligation to purchase
CRAUN's shares at the price paid by CRAUN.


(b) in the event it is MEDICHEM that does not wish to proceed, CRAUN
shall have the right, but not the obligation to purchase MEDICHEM's
shares at the price of $9,000,000 US being the price paid by
MEDICHEM.


(c) in the event that the conditions in subparagraphs (a) and (b) above
cannot be fulfilled within a period of six months from the date when
either party gives written notice to the other of its desire not to
proceed with the clinical trial of the


COMPOUND, this Agreement shall be deemed mutually terminated and the
provisions of clause 8.2 shall apply.


8.4. Subject to the provisions of 8.1(b), a breach of any of the provisions of
the Agreement shall not result in its termination, but the party in breach
shall be liable to compensate the other party for all damages and loss
suffered or sustained by the innocent party in consequence of such breach.


9. Profit Sharing


The profits derived from the sale of the PRODUCT when commercialized shall
be shared by the parties hereto in the manner and in the proportion set out
in Appendix H.


10. Nature of this Agreement


This Agreement relates only to the single COMPANY referred to in it and
shall neither constitute either party to it the agent of the other party
nor shall it constitute a partnership between such parties.


11. Taxation


Each of the parties hereto agrees that each shall bear its own liability
for any taxation chargeable in the United States of America or Malaysia in
respect of its participation in this collaboration and each undertakes to
indemnify the other in respect of any such taxation assessed on and paid by
the other in respect of which the former is primarily liable.


12. General


12.1 This Agreement shall be binding on the parties to it and their
respective successors and permitted assigns, provided that neither of
such parties shall be entitled to assign this Agreement or any of its
rights and obligations under this Agreement without the consent of the
other (which consent either party may in its absolute discretion
withhold).


12.2 No exercise or failure to exercise or delay in exercising any right,
power, or remedy vested in either party under or pursuant to this
Agreement shall constitute a waiver by that party of that or any other
right, power, or remedy.


12.3 Each party shall bear its own costs of or in connection with the
preparation and execution of this Agreement.


12.4(a) Neither party hereto shall issue any press release or other public
statement or publish any article or account of any patent findings,
conclusions, or results of any trials carried out under this agreement
without the prior written consent of the other party but such consent
should not be unreasonably withheld.


(b) Both parties shall and also ensure that their respective scientists
and staff keep and maintain complete confidentiality over any
information, data, findings, conclusions, or outcome of any research,
patents, patent applications, approvals, negotiations, discussions ...