COLLABORATION AND LICENSE AGREEMENT
By and Among
PHARMACOPEIA, INC.
and
SCHERING CORPORATION
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Table of Contents
ARTICLE I - DEFINITIONS 1
1.1 ACCEPTANCE 1
1.2 ACTIVE COMPOUND 1
1.3 AFFILIATE 1
1.4 AGREEMENT COMPOUND 2
1.5 AGREEMENT PRODUCT 2
1.6 COLLABORATION 2
1.7 COLLABORATION COMMITTEE 2
1.8 COLLABORATION RESEARCH PLAN 2
1.9 COLLABORATION PLATFORM TECHNOLOGY 2
1.10 COLLABORATION TARGET-SPECIFIC TECHNOLOGY 2
1.11 COLLABORATION TECHNOLOGY 2
1.11.1 Collaboration Patent Rights 2
1.11.2 Collaboration Know-How 3
1.12 COLUMBIA LICENSE 3
1.13 COMBINATION PRODUCT 3
1.14 DERIVATIVE COMPOUND 3
1.15 DEVELOPMENT CANDIDATE 3
1.16 DISCOVERY LIBRARY 3
1.16.1 Collaboration Discovery Library 3
1.16.2 SP Discovery Library 3
1.17 EXCLUSIVITY PERIOD 3
1.18 FDA 4
1.19 FIRST COMMERCIAL SALE 4
1.20 FTE 4
1.21 HRD 4
1.22 IND 4
1.23 INTERNATIONAL AGREEMENT 4
1.24 LEAD COMPOUND 4
1.25 LIBRARY 4
1.26 LIBRARY COMPOUND 4
1.27 MAJOR MARKET 4
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1.28 NDA 4
1.29 NET SALES 4
1.30 OPTIMIZATION LIBRARY 5
1.31 PHARMACOPEIA CHANGE IN CONTROL 5
1.32 PHARMACOPEIA ENABLING TECHNOLOGY 5
1.33 PHARMACOPEIA TECHNOLOGY 6
1.33.1 Existing Pharmacopeia Patent Rights 6
1.33.2 Existing Pharmacopeia Know-How 6
1.33.3 Pharmacopeia Improvements 6
1.34 PHASE III 6
1.35 PRODUCT 6
1.36 REGULATORY APPROVAL 6
1.37 SCHERING COMPOUND 6
1.38 SCHERING TECHNOLOGY 7
1.38.1 Schering Patent Rights 7
1.38.2 Schering Know-How 7
1.38.3 Schering Improvements 7
1.39 SP PRODUCT 7
1.40 SUBLICENSEE 7
1.41 TARGET 7
1.42 TERRITORY 8
1.43 THIRD PARTY 8
ARTICLE II - COLLABORATION 8
2.0 COLLABORATION EFFECTIVE DATE 8
2.1 COLLABORATION RESEARCH PLAN 8
2.2 COLLABORATION TERM 8
2.2.1 Extension of Collaboration Term 8
2.2.2 Termination of Collaboration Upon Pharmacopeia
Change in Control 8
2.3 PHARMACOPEIA RESPONSIBILITIES 9
2.4 SCHERING RESPONSIBILITIES 9
2.5 COLLABORATION STAFFING 9
2.5.1 Pharmacopeia FTE Commitments 9
2.5.2 Schering FTE Commitments 10
2.6 ADDITIONAL COLLABORATION EXPENSES 10
2.6.1 Capital Expenditures 10
2.6.2 Third Party Licenses re Pharmacopeia Enabling Technology 11
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2.6.3 Other Third Party Licenses 11
2.7 RESERVED TARGETS 11
2.8 RECORD KEEPING AND INSPECTION OF RECORDS 12
2.9 LIBRARIES 12
2.9.0 Discovery Libraries 12
2.9.1 Classification; Limit on SP Discovery Libraries 13
2.9.2 Identification of Targets 13
2.9.3 Coded Targets 13
2.9.4 Targets for Optimization Libraries 13
2.10 COMPOUND IDENTIFICATION 13
2.11 COPIES OF LIBRARIES 13
2.12 ACTIVE COMPOUNDS 14
2.13 RETAINED RIGHTS 14
2.14 PHARMACOPEIA INDEPENDENT RESEARCH ACTIVITIES 14
2.14.1 Activities Outside the Collaboration 14
2.14.2 Restrictions on Use of Collaboration Technology 14
ARTICLE III - COLLABORATION MANAGEMENT 15
3.1 COLLABORATION COMMITTEE 15
3.2 DESIGN OF LIBRARIES; FRESH LIBRARIES 15
3.3 COLLABORATION COMMITTEE MEETINGS 15
3.4 COLLABORATION COMMITTEE DECISIONS 15
3.5 DEVELOPMENT STATUS; NOTICE OF SALE OF PRODUCTS 16
3.6 DILIGENCE 16
ARTICLE IV - LICENSES AND EXCLUSIVITY 18
4.1 LICENSE TO SCHERING 18
4.1.1 Compounds and Products 18
4.1.2 Collaboration Target-Specific Technology 18
4.2 SUBLICENSES 18
4.3 DIRECT AFFILIATE LICENSES 18
4.4 COLLABORATION PLATFORM TECHNOLOGY 18
4.5 THIRD PARTY RIGHTS 19
4.5.1 Pharmacopeia Third Party Activities 19
4.5.2 No Liability 19
4.5.3 Pharmacopeia Reports to Schering On Third Party Rights 19
4.6 COLUMBIA SUBLICENSE 19
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4.7 COLLABORATION RESEARCH ACTIVITIES 20
4.8 PHARMACOPEIA'S USE OF LIBRARYS COMPOUNDS FOR QUALITY CONTROL 20
4.9 LIBRARY EXCLUSIVITY 20
4.9.1 Optimization Libraries 20
4.9.2 SP Discovery Libraries 20
4.9.3 Collaboration Discovery Libraries 20
4.9.4 Extension of Exclusivity for Collaboration
Discovery Libraries 21
4.9.5 Co-Exclusive Collaboration Discovery Libraries 21
4.10 NO OTHER PRODUCTS 22
4.11 LICENSE GRANT BACK FOR ABANDONED AGREEMENT COMPOUNDS 22
ARTICLE V - PAYMENTS 22
5.1 PAYMENTS BY SCHERING 22
5.2 COLLABORATION FUNDING 22
5.2.1 Funding During Year One 22
5.2.2 Funding During Subsequent Years 23
5.2.3 Increased FTE Requirements 23
5.2.4 Wind-Down in Final Year 23
5.2.5 Annual FTE Rate Adjustments 23
5.2.6 Quarterly Adjustment 23
5.2.7 Manner of Payment 23
5.3 MILESTONE PAYMENTS 24
5.3.1 Events and Amounts 24
(a) Discovery Library Milestones 24
(b) Optimization Library Milestones 24
5.3.2 Lead Compound 25
5.3.3 Development Candidate 25
5.3.4 Manner of Payment 25
5.3.5 Announcement of Milestones 25
5.4 ROYALTIES 25
5.4.1 Base Royalty 25
5.4.2 Royalty Term for Agreement Products 26
5.4.3 Royalty Terms for SP Products 26
5.4.4 Single Royalty; Non-Royalty Sales 27
5.4.5 Third Party Royalties 27
(a) Schering Responsibilities 27
(b) * 27
5.4.6 Compulsory Royalty Reductions 28
5.4.7 Royalty Overpayment 28
5.5 REPORTS; PAYMENT OF ROYALTY; PAYMENT EXCHANGE RATE
AND CURRENCY CONVERSIONS 28
5.5.1 Royalty Reports and Payments 28
5.5.2 Payment Method 28
5.5.3 Place of Royalty Payment and Currency Conversions 28
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* CONFIDENTIAL TREATMENT REQUESTED
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5.6 MAINTENANCE OF RECORDS; AUDITS 28
5.6.1 Records; Inspection 28
5.7 COORDINATION WITH PAYMENTS UNDER INTERNATIONAL AGREEMENT 29
5.8 TAX MATTERS 29
5.8.1 Withholding Taxes 29
5.8.2 Sales Taxes 30
5.9 PRODUCT DEVELOPMENT COSTS 30
ARTICLE VI - PATENTS AND INVENTIONS 30
6.1 OWNERSHIP OF SCHERING TECHNOLOGY AND PHARMACOPEIA TECHNOLOGY 30
6.2 OWNERSHIP OF COLLABORATION TECHNOLOGY 30
6.3 FILING, PROSECUTION AND MAINTENANCE OF PATENTS 30
6.3.1 Collaboration Technology 30
6.3.2 Collaboration Platform Technology 31
6.3.3 Schering Technology 31
6.3.4 Pharmacopeia Technology 31
6.3.5 Pharmacopeia's Rights Regarding Patents Relating
to Agreement Compounds 31
6.4 Cooperation 31
6.4.1 Cooperation 31
6.5 ENFORCEMENT 32
6.5.1 Notice 32
6.5.2 Collaboration Technology 32
6.5.3 Collaboration Platform Technology 32
6.5.4 Schering Technology and Pharmacopeia Technology 32
6.5.5 Cooperation; Costs and Recoveries 33
6.6 INFRINGEMENT CLAIMS 33
6.7 CERTIFICATION UNDER DRUG PRICE COMPETITION AND PATENT
RESTORATION ACT 33
6.8 PATENT TERM RESTORATION 33
ARTICLE VII - CONFIDENTIALITY 34
7.1 CONFIDENTIAL INFORMATION 34
7.2 PERMITTED USE AND DISCLOSURES 34
7.3 RETURN OF CONFIDENTIAL INFORMATION 34
7.4 NONDISCLOSURE OF TERMS 35
7.5 PUBLICATION 35
7.6 PHARMACOPEIA EMPLOYEES 35
ARTICLE VIII - REPRESENTATION, WARRANTIES AND COVENANTS 36
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8.1 SCHERING 36
8.2 PHARMACOPEIA 36
8.3 COMPLIANCE WITH AGREEMENT AND LAWS 36
8.4 DISCLAIMER 36
ARTICLE IX - INDEMNIFICATION 37
9.1 INDEMNIFICATION BY SCHERING 37
9.2 INDEMNIFICATION BY PHARMACOPEIA 37
9.3 NO CONSEQUENTIAL DAMAGES 37
9.4 PROCEDURE 38
9.5 INSURANCE 38
ARTICLE X - TERM AND TERMINATION 38
10.1 TERM AND EXPIRATION 38
10.2 TERMINATION FOR CAUSE 38
10.3 TERMINATION UPON BANKRUPTCY OR INSOLVENCY 38
10.4 TERMINATION FOR PHARMACOPEIA CHANGE IN CONTROL 40
10.5 CONCURRENT TERMINATION WITH THE INTERNATIONAL AGREEMENT 40
10.6 EFFECT OF TERMINATION 40
10.6.1 Accrued Obligations 40
10.6.2 Return of Materials 40
10.6.3 Effect on Agreement Products 40
10.6.4 Licenses 41
(a) Termination by Pharmacopeia Pursuant to Section 10.2 41
(b) Termination by Schering Pursuant to Sections 10.2 or 10.3 41
(c) Termination by Pharmacopeia Pursuant to Section 10.3 41
(d) Termination by Schering Pursuant to Section 10.4 41
10.6.5 Surviving Provisions 41
ARTICLE XI - MISCELLANEOUS 41
11.1 ASSIGNMENT 41
11.2 GOVERNING LAW 42
11.3 DISPUTE RESOLUTION 42
11.4 NO IMPLIED LICENSES 42
11.5 REPRESENTATION BY LEGAL COUNSEL 42
11.6 WAIVER 42
11.7 INDEPENDENT CONTRACTORS 42
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11.8 SOLICITATION OF EMPLOYEES 42
11.9 COMPLIANCE WITH LAWS 42
11.10 EXPORT CONTROL 43
11.11 PATENT MARKING 43
11.12 NOTICES 43
11.13 FORCE MAJEURE 44
11.14 SEVERABILITY 44
11.15 COUNTERPARTS 44
11.16 CAPTIONS 45
11.17 COMPLETE AGREEMENT 45
11.18 RECORDING 45
11.19 Further Actio1ns 45
EXHIBIT A - CURRENCY CONVERSION
SCHEDULE 1.28 - Elements Of Fully Absorbed Manufacturing Costs
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COLLABORATION AND LICENSE AGREEMENT
This COLLABORATION AND LICENSE AGREEMENT (the "Agreement"), effective as of
October 29, 1998 (the "Effective Date"), is made by and among: Pharmacopeia,
Inc., a Delaware corporation having its principal place of business at 3000 East
Park Boulevard, Cranbury, New Jersey 08512, (hereinafter referred to as
"Pharmacopeia"); and Schering Corporation, a New Jersey corporation having its
principal place of business at 2000 Galloping Hill Road, Kenilworth, New Jersey
07033, U.S.A., (hereinafter referred to as "Schering"). Pharmacopeia and
Schering are sometimes referred to herein individually as a Party and
collectively as the Parties. References to "Schering" and "Pharmacopeia" shall
include their respective Affiliates (as hereinafter defined).
WHEREAS, Pharmacopeia has developed proprietary technologies relating to
the design and preparation of encoded compound libraries based upon
combinatorial chemistry; and
WHEREAS, Schering and Pharmacopeia desire to collaborate to design, prepare
and screen compound libraries against Schering's biological targets; and
WHEREAS, Pharmacopeia and Schering's Affiliate Schering-Plough Ltd. have
entered into a collaboration and license agreement relating to countries and
territories outside of the United States of even date herewith;
NOW, THEREFORE, in consideration of the covenants, conditions, and
undertakings herein contained, Schering and Pharmacopeia hereby agree as
follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following capitalized terms, whether used in
the singular or plural, shall have the respective meanings set forth below:
1.1 "Acceptance" shall mean, with respect to an IND, NDA or HRD submitted
----------
by or on behalf of Schering or its Affiliate or Sublicensee, notice by the FDA
(or an analogous regulatory authority in another country) that the IND, NDA or
HRD has been accepted for review by the FDA (or analogous regulatory authority).
In the event that the FDA (or analogous regulatory authority) is not required to
provide such a notice of acceptance of an IND, NDA or HRD, then "Acceptance"
shall be deemed to occur: (i) in the case of an IND, thirty (30) days following
the date of submission, or if previously rejected any resubmission, of such IND;
or (ii) in the case of an NDA or HRD, sixty (60) days following the date of
submission, or if previously rejected any resubmission, of such NDA or HRD,
unless in each case Schering or its Affiliates or Sublicensee receives notice
from the FDA (or analogous regulatory authority), during the applicable thirty
(30) or sixty (60) day period, that the NDA or HRD is not acceptable for review.
1.2 "Active Compound" shall mean, except as otherwise provided in Section
---------------
2.12, a Library Compound that demonstrates activity against a specific Target,
which Library Compound (i) was found to have such activity at a concentration
set forth in the applicable Collaboration Research Plan during screening of one
or more Libraries by Pharmacopeia in the conduct of the Collaboration or (ii)
was found to have such activity during screening by or on behalf of Schering.
1.3 "Affiliate" shall mean any individual or entity directly or indirectly
---------
controlling, controlled by or under common control with, a Party to this
Agreement. For purposes of this Agreement, the direct or indirect ownership of
fifty percent (50%) or more of the outstanding voting
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securities of an entity, or the right to receive fifty percent (50%) or more of
the profits or earnings of an entity shall be deemed to constitute control, or
if not meeting the preceding requirements, any company owned or controlled by or
owning or controlling Pharmacopeia or Schering at the maximum control or
ownership right permitted in a country where such company exists. Such other
relationship as in fact results in actual control over the management, business
and affairs of an entity shall also be deemed to constitute control.
1.4 "Agreement Compound" shall mean any Active Compound or Derivative
------------------
Compound as well as any compositions-of-matter claimed in patent applications
filed or patents issued under Article VI which claim an Active Compound or
Derivative Compound.
1.5 "Agreement Product" shall mean any product containing an Agreement
-----------------
Compound, including, without limitation, products for the therapeutic or
prophylactic treatment or prevention of diseases and conditions in human beings
or animals.
1.6 "Collaboration" shall mean the research and drug discovery programs
-------------
to be performed at Pharmacopeia's facilities by Schering or Pharmacopeia under
this Agreement to discover Agreement Compounds for further development by
Schering.
1.7 "Collaboration Committee" shall have the meaning set forth in Section
-----------------------
3.1.
1.8 "Collaboration Research Plan" shall have the meaning set forth in
----------------------
Section 2.1.
1.9 "Collaboration Platform Technology" shall mean Collaboration
---------------------------------
Technology relating to assays, compound screening methods and biological
research tools, in each case which are demonstrated to be broadly applicable
(i.e., can be readily applied and used in research directed to a variety of
pharmacologically distinct Targets); provided, however, that Collaboration
-------- -------
Platform Technology shall not include any rights in or to (1) any of Schering's
Targets, (2) any Library Compounds, or (3) any Agreement Compounds.
1.10 "Collaboration Target-Specific Technology" shall mean Collaboration
----------------------------------------
Technology relating to assays, compound screening methods and biological
research tools, in each case which are discovered and developed through
Collaboration research directed to a specific Target, or a small number of
closely related Targets (e.g. a family of biological receptor subtypes), and are
not readily applicable to other types of Targets; provided, however, that
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Collaboration Target-Specific Technology shall not include any rights in or to
(1) any of Schering's Targets, (2) any Library Compounds, or (3) any Agreement
Compounds.
1.11 "Collaboration Technology" shall mean Collaboration Patent Rights and
------------------------
Collaboration Know-How.
1.11.1 "Collaboration Patent Rights" shall mean: (i) all patents and
---------------------------
patent applications claiming any invention or discovery made by or on behalf of
Pharmacopeia in performance of the Collaboration (including, without limitation,
the synthesis and composition of matter of any Agreement Compound, or method of
use thereof); and (ii) any divisions, continuations, continuations-in-part,
reissues, reexaminations, extensions or other governmental actions which extend
any of the subject matter of the patent applications or patents in (i) above,
and any substitutions, confirmations, registrations, revalidations, or additions
of any of the foregoing, in each case, which is owned or controlled, in whole or
part, by license, assignment or otherwise by Pharmacopeia during the term of
this Agreement; provided, however, that Collaboration Patent Rights shall not
-------- -------
include any patents or patent applications which are Schering Technology,
Pharmacopeia Technology or Pharmacopeia Enabling Technology.
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1.11.2 "Collaboration Know-How" shall mean all proprietary ideas,
----------------------
inventions, data, know-how, instructions, processes, formulas, materials, expert
opinion and information (including, without limitation, (i) biological,
chemical, physical and analytical data and information relating to Agreement
Compounds, and (ii) any structure-function data obtained from Library Compounds)
discovered and/or developed in performance of the Collaboration by or on behalf
of Pharmacopeia, in each case, to the extent Pharmacopeia has the right to
license or sublicense the same, and subject to any limitations and prohibitions
of such license or sublicense; provided, however, that Collaboration Know-How
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shall not include Collaboration Patent Rights, Schering Technology, Pharmacopeia
Technology or Pharmacopeia Enabling Technology.
1.12 "Columbia License" shall mean that certain License Agreement
----------------
effective as of July 16, 1993, as amended and restated as of October 6, 1995,
entered by and between Pharmacopeia, Inc., the Trustees of Columbia University
in the City of New York and the Cold Spring Harbor Laboratory.
1.13 "Combination Product" shall mean a Product which comprises two (2) or
-------------------
more active therapeutic ingredients at least one (1) of which is an Agreement
Compound or a Schering Compound.
1.14 "Derivative Compound" shall mean any compound, other than a Library
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Compound, derived (a) by or on behalf of Schering, or (b) in the performance of
the Collaboration by Pharmacopeia, in each case from an Active Compound, and
having activity against the same Target as such Active Compound. As used
herein, a compound shall be deemed to have been "derived from" an Active
Compound if it *
1.15 "Development Candidate" shall mean a Lead Compound or derivative
---------------------
thereof which possesses the desirable properties of a therapeutic agent for the
prevention or treatment of a clinical condition, in the absence of required
safety trials necessary to begin human testing.
1.16 "Discovery Library" shall mean a Library transferred to Schering
-----------------
pursuant to this Agreement for screening against one or more Targets and which
is not an Optimization Library.
1.16.1 "Collaboration Discovery Library" shall mean a Discovery
-------------------------------
Library that is not an SP Discovery Library.
1.16.2 "SP Discovery Library" shall mean a Discovery Library based
--------------------
on one or more specific Schering proprietary core structures which core
structures are (i) discovered, designed or developed by or on behalf of Schering
without assistance or information from Pharmacopeia or any Pharmacopeia
employee, or (ii) designed or developed by Pharmacopeia based on proprietary
Schering structures or structure-function data.
1.17 "Exclusivity Period" shall mean, with respect to any Collaboration
------------------
Discovery Library and for all Library Compounds contained in such Library, that
period commencing on the date Pharmacopeia first provides Schering notice that
such Collaboration Discovery Library is available to be shipped to Schering or
Schering-Plough Ltd. (the "Notice Date"), and continuing until the *
or such later date as may be established under Section 4.9.4 below.
In the event that Schering is unable to accept delivery of any Collaboration
Discovery Library at the time of the applicable Notice Date, Schering may, upon
written notice to Pharmacopeia, delay delivery of such Collaboration Discovery
Library, in which case the Notice Date with respect to such Collaboration
Discovery Library shall be deemed to be the earlier of (i) the date that
Schering notifies
_________________
* CONFIDENTIAL TREATMENT REQUESTED
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Pharmacopeia that Schering is ready to accept delivery of the first plates from
such Collaboration Discovery Library or (ii) the date three (3) months after the
original Notice Date.
1.18 "FDA" shall mean the United States Food and Drug Administration or
---
any corresponding foreign registration or regulatory authority.
1.19 "First Commercial Sale" shall mean, with respect to any Product, the
---------------------
first sale for end use of such Product in the Territory after receipt of the
requisite Regulatory Approval.
1.20 "FTE" shall mean a full-time employee dedicated to the conduct of the
---
Collaboration or, in the case of less than full-time dedication, a full-time
equivalent person-year, based on a total of forty-six and one-fourth (46.25)
weeks or one thousand eight hundred fifty (1,850) hours per year, of work on or
directly related to the Collaboration.
1.21 "HRD" shall mean a health registration dossier or its equivalent
---
covering an Agreement Product filed in any country outside the United States and
which is analogous to an NDA and including, where applicable, applications for
pricing, pricing reimbursement approval, labeling and Regulatory Approval.
1.22 "IND" shall mean an Investigational New Drug application, as defined
---
in the U.S. Food, Drug and Cosmetic Act and the regulations promulgated
thereunder for initiating clinical trials in the United States, or any
corresponding foreign application, registration or certification.
1.23 "International Agreement" shall mean that certain Collaboration and
-----------------------
License Agreement entered into by and between Pharmacopeia and Schering-Plough,
Ltd. of even date herewith.
1.24 "Lead Compound" shall mean any Active Compound or Derivative Compound
-------------
with respect to which Schering or its Affiliates initiates a program of
medicinal chemistry to identify a Development Candidate based upon the structure
of such Active Compound or Derivative Compound.
1.25 "Library" shall mean any chemical compound library prepared by
-------
Pharmacopeia employees working on the Collaboration, and/or Schering employees
working at Pharmacopeia's facilities on the Collaboration, under the terms of
this Agreement using (i) combinatorial chemistry techniques or (ii) such other
techniques as may, from time to time, be agreed by the Parties.
1.26 "Library Compound" shall mean any compound which is contained in a
----------------
Discovery Library or Optimization Library hereunder.
1.27 "Major Market" shall mean Japan or any three (3) of the following
------------
countries; France, Germany, Italy, Spain or the United Kingdom.
1.28 "NDA" shall mean a New Drug Application, Product License Application,
---
or Biologic License Application, as defined in the U.S. Food Drug and Cosmetics
Act and regulations promulgated thereunder, or the equivalent filed with the FDA
seeking approval to market and sell a Product in the United States.
1.29 "Net Sales" shall mean, with respect to each country in the
---------
Territory, the invoice price billed by Schering or its Affiliates, or their
respective Sublicensees, to Third Parties (whether an end-user, a distributor or
otherwise) for the sale of Products, and exclusive of intercompany transfers or
sales among Schering, its Affiliates and/or Sublicensees in the Territory, less
the reasonable and customary deductions from such gross amounts including: (i)
normal and customary trade, cash and quantity discounts, allowances and credits;
(ii) credits or allowances actually granted for damaged
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goods, returns or rejections of Product and retroactive price reductions; (iii)
sales or similar taxes (including duties or other governmental charges levied
on, absorbed or otherwise imposed on the sale of Product including, without
limitation, value added taxes or other governmental charges otherwise measured
by the billing amount, when included in billing); (iv) freight, postage,
shipping, customs duties and insurance charges, when included in billing; (v)
charge back payments and rebates granted to managed health care organizations or
their agencies, and purchasers and reimbursers or to trade customers, including
but not limited to, wholesalers and chain and pharmacy buying groups; (vi)
commissions paid to Third Parties other than sales personnel and sale
representatives or sales agents; and (vii) rebates (or equivalents thereof)
granted to or charged by national, state or local governmental authorities in a
country in the Territory. In determining Net Sales of a Product any of the
above discounts shall be accounted for and apportioned based on the list price
of each such Product.
In the event that a Product is sold in the form of a Combination Product,
Net Sales for such Combination Product will be calculated by multiplying actual
Net Sales of such Combination Product by the fraction A/(A+B) where: A is the
invoice price of the Agreement Product and/or Schering Compound contained in the
Combination Product if sold separately by Schering, an Affiliate or Sublicensee;
and B is the invoice price of any other active therapeutic ingredients in the
Combination Product if sold separately by Schering, an Affiliate or Sublicensee.
In the event that the Product is sold in the form of a Combination Product
containing one or more active therapeutic ingredients other than an Agreement
Product and/or Schering Compound and one or more such active therapeutic
ingredients of the Combination Product are not sold separately, then the above
formula shall be modified such that A shall be the fully allocated manufacturing
cost to Schering, its Affiliates or Sublicensee of the Agreement Product and/or
Schering Compound and B shall be the fully allocated manufacturing cost to
Schering, its Affiliate or Sublicensee of any other active therapeutic
ingredients in the combination, in each case, determined in accordance with the
schedule of fully allocated manufacturing costs set forth in Schedule 1.29.
1.30 "Optimization Library" shall mean a Library based upon one or more
--------------------
Active Compound or Schering Compound structures, and which is designed to
optimize such structures with respect to activity against one or more specific
Targets.
1.31 "Pharmacopeia Change in Control" shall mean any of the following:
------------------------------
(i) a reorganization, merger or consolidation of Pharmacopeia with a Major
Pharmaceutical Company if the shareholders of Pharmacopeia (determined
immediately prior to the reorganization, merger or consolidation taking effect)
hold, directly or indirectly, less than fifty percent (50%) of the surviving
corporation (determined immediately after such reorganization, merger or
consolidation takes effect); (ii) an acquisition by a Major Pharmaceutical
Company of direct or indirect beneficial ownership of voting stock of
Pharmacopeia representing more than fifty percent (50%) of the total current
voting power of Pharmacopeia then issued and outstanding; (iii) a sale of all or
substantially all the assets of Pharmacopeia to a Major Pharmaceutical Company;
or (iv) a liquidation or dissolution of Pharmacopeia. As used in this Section
1.31, the term "Major Pharmaceutical Company" shall mean any entity (including
any corporation, joint venture, partnership or unincorporated entity) having
annual sales of pharmaceutical products of at least five hundred million dollars
($500,000,000), as well as any Affiliates or division(s) of such entity, that is
engaged in the research, development, manufacturing, registration and/or
marketing of drug products that are approved under NDAs, HRDs, ANDAs or
Biologics License Applications.
1.32 "Pharmacopeia Enabling Technology" shall mean the Columbia License
--------------------------------
and any other proprietary technology owned or controlled by Pharmacopeia with
the right to grant sublicenses which is necessary or useful for the design,
preparation and use of Libraries.
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1.33 "Pharmacopeia Technology" shall mean Existing Pharmacopeia Patent
-----------------------
Rights, Existing Pharmacopeia Know-How, and Pharmacopeia Improvements (except
for Pharmacopeia Improvements which are Pharmacopeia Enabling Technology).
1.33.1 "Existing Pharmacopeia Patent Rights" shall mean (i) all
-----------------------------------
patents and patent applications existing as of the Effective Date that claim the
synthesis or composition of matter of an Active Compound, or the method of use
thereof, and (ii) any divisions, continuations, continuations-in-part, reissues,
reexaminations, extensions or other governmental actions which extend any of the
subject matter of the patent applications or patents in (i) above, and any
substitutions, confirmations, registrations, revalidations, or additions of any
of the foregoing, in each case, which is owned or controlled, in whole or part,
by license, assignment or otherwise by Pharmacopeia during the term of this
Agreement, and subject to any limitations and prohibitions of such license or
sublicense; provided, however, it is understood that Existing Pharmacopeia
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Technology shall not include any Pharmacopeia Enabling Technology.
1.33.2 "Existing Pharmacopeia Know-How" shall mean all ideas,
------------------------------
inventions, data, know-how, instructions, processes, formulas, expert opinion
and information, including, without limitation, biological, chemical, physical
and analytical data and information, existing as of the Effective Date, owned or
controlled in whole or part by Pharmacopeia by license, assignment or otherwise,
which is necessary for the discovery, development, manufacture or use of
Agreement Compounds and/or the discovery, development, manufacture, use, sale or
commercialization of Agreement Products, in each case, to the extent
Pharmacopeia has the right to license or sublicense the same, and subject to any
limitations and prohibitions of such license or sublicense; provided, however,
-------- -------
that Existing Pharmacopeia Know-How shall not include Existing Pharmacopeia
Patent Rights or Pharmacopeia Enabling Technology.
1.33.3 "Pharmacopeia Improvements" shall mean all patentable
-------------------------
inventions conceived and reduced to practice, solely or jointly, by Pharmacopeia
or Schering in the conduct of the Collaboration that are within the scope of a
claim of an issued patent within the Existing Pharmacopeia Patent Rights or
Pharmacopeia Enabling Technology (i) which patent issued prior to the Effective
Date or (ii) which claim has an effective filing date prior to the Effective
Date; provided, however, that Pharmacopeia Improvements shall not include
-------- -------
Pharmacopeia Independent Technology (as defined in Section 2.14).
1.34 "Phase III" shall mean Phase III clinical trials as prescribed by
---------
applicable FDA regulations, regardless of whether such trials are conducted in
the United States or elsewhere.
1.35 "Product" means any Agreement Product or SP Product.
-------
1.36 "Regulatory Approval" shall mean any applications or approvals,
-------------------
including any INDs, NDAs, supplements, amendments, pre- and post-approvals,
marketing authorizations based upon such approvals (including any prerequisite
manufacturing approvals or authorizations related thereto) and labeling
approval(s), technical, medical and scientific licenses, registrations or
authorizations of any national, regional, state or local regulatory agency,
department, bureau, commission, council or other governmental entity, necessary
for the manufacture, distribution, use, import, export or sale of Product(s) in
the Territory.
1.37 "Schering Compound" shall mean a compound which is independently
-----------------
discovered by or on behalf of Schering, without the use of Collaboration
Technology or Pharmacopeia Technology as demonstrated by documented evidence
created at the time of such discovery, and which is active against a specific
Target.
-6-
<PAGE>
1.38 "Schering Technology" shall mean Schering Patent Rights, Schering
-------------------
Know-How and Schering Improvements.
1.38.1 "Schering Patent Rights" shall mean (i) all existing patents
----------------------
and patent applications owned or controlled in whole or in part by Schering or
its Affiliates as of the Effective Date (including, without limitation, those
which claim the synthesis or composition of matter of an Active Compound, or the
method of use thereof, or which relate to any Target or any assay provided by
Schering for use in the Collaboration or the corresponding Targets for such
assays), (ii) all patents and patent applications claiming any invention or
discovery made by or behalf of Schering or its Affiliates, other than in
performance of the Collaboration, in connection with the discovery and/or
development of any Agreement Compounds and/or Schering Compounds, and/or the
development and commercialization of any Product, and (iii) any divisions,
continuations, continuations-in-part, reissues, reexaminations, extensions or
other governmental actions which extend any of the subject matter of the patent
applications or patents in (i) or (ii) above, and any substitutions,
confirmations, registrations, revalidations, or additions of any of the
foregoing.
1.38.2 "Schering Know-How" shall mean all ideas, inventions, data,
-----------------
know-how, instructions, processes, formulas, materials, expert opinion and
information, including, without limitation, biological, chemical,
pharmacological, toxicological, pharmaceutical, physical and analytical,
clinical, safety, manufacturing and quality control data and information (except
for any of the above arising in performance of the Collaboration) owned or
controlled in whole or part by Schering by license, assignment or otherwise,
which is necessary for the discovery, development, manufacture, use, sale or
commercialization of Products, in each case, to the extent Schering has the
right to license or sublicense the same, and subject to any limitations and
prohibitions of such license or sublicense; provided, however, that Schering
-------- -------
Know-How does not include Schering Patent Rights.
1.38.3 "Schering Improvements" shall mean all patentable inventions
---------------------
conceived and reduced to practice solely or jointly by Schering or Pharmacopeia
in the conduct of the Collaboration that are within the scope of the claims of
any issued patent within the Schering Patent Rights (i) which patent issued
prior to the Effective Date or (ii) which claim has an effective filing date
prior to the Effective Date.
1.39 "SP Product" shall mean any product for the therapeutic or
----------
prophylactic treatment or prevention of diseases and conditions in human beings
containing a Schering Compound, provided such SP Product is not a Combination
Product containing both a Schering Compound and an Agreement Compound.
1.40 "Sublicensee" shall mean with respect to a particular Product, a
-----------
Third Party to whom Schering has granted a sublicense under the applicable
Pharmacopeia Technology, Schering Technology or Collaboration Technology to
make, use and/or sell such Product. As used in this Agreement, it is understood
that "Sublicensee" shall also include a Third Party or Third Parties to whom
Schering has granted the right to distribute such Product, provided that such
Third Party or parties has (have) the primary responsibility for marketing and
promotion at its (their) expense of such Product within the field or territory
for which such distribution rights are granted, which marketing and promotional
activities are not subsidized directly or indirectly by Schering.
1.41 "Target" shall mean a biomolecular entity (including, without
------
limitation, receptors, enzymes, nucleic acids and proteins, and/or fragments
thereof) that a small molecule is screened against in order to determine whether
the small molecule demonstrates a specific biochemical or pharmaceutical effect.
-7-
<PAGE>
1.42 "Territory" shall mean the United States and its territories,
---------
possessions and commonwealths.
1.43 "Third Party" shall mean any Party other than Pharmacopeia and its
-----------
Affiliates, Schering Corporation and its Affiliates, Schering-Plough, Ltd. and
its Affiliates, and their permitted assigns.
ARTICLE II
COLLABORATION
2.0 Collaboration Effective Date. The Parties wish Pharmacopeia to begin
----------------------------------
performance of the Collaboration effective as of October 1, 1998 (the
"Collaboration Effective Date") and agree that upon execution of this Agreement
on the Effective Date the Parties' respective obligations relating to
performance of the Collaboration hereunder shall be deemed to be effective as of
the Collaboration Effective Date. Notwithstanding the foregoing, the
effectiveness of this Agreement is expressly conditioned upon the Board of
Directors of Schering-Plough Corporation approving this Agreement and the
execution of this Agreement by the Parties on the Effective Date.
2.1 Collaboration Research Plan. Within thirty (30) days of the
---------------------------------
Effective Date, the Collaboration Committee shall agree upon a written overall
plan for the research and drug discovery activities to be conducted by the
Parties (the "Collaboration Research Plan"). The Collaboration Research Plan
shall be periodically revised and updated (at least annually) by the
Collaboration Committee during the term of the Collaboration. The Collaboration
Research Plan shall set forth the responsibilities of each of the Parties with
respect to performance of the Collaboration. The Collaboration Committee shall
have responsibility for monitoring the performance of Collaboration research
programs. Notwithstanding the foregoing, the Parties acknowledge and agree that,
subject to Section 2.7 below, Schering, in its sole discretion, shall have
primary responsibility and decision making authority with respect to the
selection of the Targets and specific research programs to be conducted during
the Collaboration.
2.2 Collaboration Term. The term of the Collaboration shall be for a
------------------------
period of five (5) years, unless extended pursuant to Section 2.2.1, or earlier
terminated pursuant to Section 2.2.2 or Article X.
2.2.1 Extension of Collaboration Term. Schering shall have the
---------------------------------------
right, in its sole discretion, to extend the Collaboration for an additional *
period by providing written notice to Pharmacopeia on or before the * of the
Collaboration Effective Date. If Schering does not provide such notice, the
Collaboration shall expire on the fifth anniversary of the Collaboration
Effective Date.
2.2.2 Termination of Collaboration Upon Pharmacopeia Change in
---------------------------------------------------------------
Control. In the event of a Pharmacopeia Change in Control during the term of
-------
the Collaboration, Schering shall have the right, in its discretion, (i) to
terminate the Agreement pursuant to Section 10.4, below, or (ii) to terminate
the Collaboration and not the Agreement upon ninety (90) days written notice to
Pharmacopeia after such Change in Control expressly stating its intention to
terminate the Collaboration. In the event that Schering elects to terminate the
Collaboration and not the Agreement, then (a) Schering will not be obligated to
make the payments set forth in Section 5.2 for the period after the effective
date of such termination, (b) subject to Sections 2.10 and 2.11, Pharmacopeia
shall not be obligated to conduct any Collaboration research activities after
the effective date of such termination, and (c) the remaining terms and
conditions of this Agreement, including without limitation the licenses and
royalty obligations set forth herein, shall remain in full force and effect
until the Agreement expires or is terminated as set forth in Article X, below.
_____________________
* CONFIDENTIAL TREATMENT REQUESTED
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<PAGE>
2.3 Pharmacopeia Responsibilities. Pharmacopeia shall use commercially
-----------------------------------
reasonable efforts to provide:
(i) the number of scientist FTEs agreed to by the Parties, as set
forth in Section 2.5, and such additional scientists as may be mutually agreed
to in writing by the Parties and paid for by Schering, for performance of the
Collaboration during each year of the Collaboration (it being understood and
agreed that FTEs provided by Pharmacopeia for the Collaboration under the
International Agreement shall also be deemed to be provided to this
Collaboration for purposes of determining the number of FTEs provided by
Pharmacopeia hereunder);
(ii) research facilities, laboratories and equipment sufficient to
enable the Collaboration scientists (including Pharmacopeia employees and one
(1) Schering employee to be provided pursuant to Section 2.4(i)) to perform the
Collaboration in a fashion similar to the operation of Pharmacopeia's own
operations, and which shall be located in dedicated laboratories at
Pharmacopeia's research facilities in Monmouth Junction, New Jersey;
(iii) access to Pharmacopeia Enabling Technology by the Pharmacopeia
scientists working on the Collaboration and by Schering scientists, if any,
working on the Collaboration at Pharmacopeia's facilities as set forth in
Section 2.4, as Pharmacopeia, in its discretion, deems is reasonably necessary
and useful for the optimal performance of the Collaboration;
(iv) administrative services necessary to conduct the business of
the Collaboration in a manner comparable to that of Pharmacopeia's own business
activities; and
(v) during the term of the Collaboration, on an as needed basis,
up to an additional * miscellaneous FTEs, at Phamacopeia's expense, to assist
with Schering's requests for Library plate production and/or Library Compound
decodes pursuant to Sections 2.10 and 2.11, which additional FTEs shall not be
dedicated FTEs assigned to the Collaboration and shall not be included in the
FTE allocations set forth in Section 2.5.
It is understood and agreed that, except as may be mutually agreed by the
Parties, Pharmacopeia shall not be obligated hereunder to conduct research or
development activities in the Collaboration which are outside the scope of the
Collaboration Research Plan.
2.4 Schering Responsibilities. Schering shall provide research funding
-------------------------------
for the Collaboration as set forth in Section 5.1 and shall use commercially
reasonable efforts to provide:
(i) one scientific director provided by Schering Corporation, in
combination with Schering-Plough, Ltd., to work full-time at Pharmacopeia during
the term of the Collaboration managing the day-to-day operations of the
Collaboration (the "Collaboration Director"); and
(ii) additional support for Collaboration research projects,
including, without limitation, scientists, facilities and materials to perform
biological research to identify Targets, assay development, Library screening,
medicinal chemical research and analytical support services.
2.5 Collaboration Staffing.
----------------------------
2.5.1 Pharmacopeia FTE Commitments. Pharmacopeia will provide *
------------------------------------
FTEs at the start of the first year of the Collaboration consisting of *
chemists and * biologists (each of which shall be a * and *
miscellaneous FTEs to handle Library production, engineering, decoding, quality
control, etc. for the Collaboration (which miscellaneous FTEs *
__________________
* CONFIDENTIAL TREATMENT REQUESTED
-9-
<PAGE>
*. During the first quarter of the 1999 calendar year, Pharmacopeia will add
an additional * FTEs to the Collaboration from personnel currently assigned to
work on research projects under the December 22, 1994 Collaboration Agreement
between Pharmacopeia, Schering Corporation and Schering-Plough Ltd. The total
number of Collaboration FTEs shall be increased to *, consisting of * chemists,
* biologists and * miscellaneous FTEs, by
the start of the second year of the Collaboration. Subject to the wind-down
provisions set forth in Section 5.2.4, Pharmacopeia shall continue to provide *
FTEs to the Collaboration during each subsequent year of the Collaboration, or
such other number as the Parties shall agree upon in writing. With the exception
of the * FTEs responsible for support activities for the Collaboration (such as
Library production, engineering, decoding, quality control, etc.), all of the
Pharmacopeia FTEs assigned to work on the Collaboration *.
In the event that Schering determines that it will be unable to
screen the number of Discovery Libraries anticipated to be delivered in year *
of the Collaboration *,
Schering may, upon written notice to Pharmacopeia at least six (6) months prior
to the beginning of such year, reduce the number of chemistry FTEs to be
provided to the Collaboration by Pharmacopeia in such year; provided, however,
that such reduction shall be in whole FTE increments, and Schering shall not so
reduce the number of chemistry FTEs to be provided by Pharmacopeia to less than
eighty percent (80%) of the number of Pharmacopeia chemistry FTEs assigned to
the Collaboration at the time of such notice. On or before the Effective Date
Pharmacopeia will provide to Schering a list individually identifying those
Pharmacopeia FTEs assigned to the Collaboration, which list shall be updated
from time to time during the term of the Collaboration as FTEs assigned to work
exclusively for the Collaboration are added, removed and/or replaced. It is
understood that, in the aggregate, the education, training and experience levels
of Pharmacopeia FTEs assigned to the Collaboration will be reasonably
representative of Pharmacopeia employees working on Pharmacopeia's internal
research programs. Within fifteen (15) business days after the Effective Date,
Pharmacopeia will provide Schering with: (i) a copy of the*
Collaboration; and (ii) Pharmacopeia's written representation and warranty
that*.
2.5.2 Schering FTE Commitments. During the term of the
--------------------------------
Collaboration Schering shall, in combination with Schering-Plough Ltd. under the
International Agreement, provide a single scientific director as set forth in
Section 2.4(i). Such director shall be subject to Pharmacopeia's confidentiality
restrictions such as limited access to laboratories and access only to data that
specifically relate to the Collaboration. It is understood that the scientific
director shall remain an employee of Schering Corporation, and that Schering
shall remain responsible for, and indemnify Pharmacopeia for any claims arising
from or relating to, the conduct, activities, salary and benefits of such
director, except to the extent caused by the gross negligence or willful
misconduct of Pharmacopeia. In addition, Schering shall provide such additional
FTEs located at Schering's research facilities as Schering determines, in its
sole discretion, are reasonably necessary to support the ongoing research
programs of the Collaboration, including, without limitation, assay development,
screening, medicinal chemistry, analytical services and animal testing services.
2.6 Additional Collaboration Expenses.
---------------------------------------
2.6.1 Capital Expenditures. In the event that the Parties
----------------------------
determine that one or more Collaboration research projects to be performed at
Pharmacopeia, as identified in the Collaboration Research Plan, will require
Pharmacopeia to incur unanticipated reasonable out-of-pocket expenses in
connection with such research project(s) for capital expenditures on specialized
equipment, the Parties shall agree on the additional monies to be paid by
Schering to Pharmacopeia therefor. It is understood
____________________
* CONFIDENTIAL TREATMENT REQUESTED
-10-
<PAGE>
and agreed that Pharmacopeia shall not be obligated hereunder to pay any such
unanticipated capital expenditures without its express consent, and that the
failure of Pharmacopeia to conduct research activities that cannot be performed
without such expenditures shall not constitute a breach of this Agreement. It
is further understood and agreed that Schering may, by providing written notice,
prohibit Pharmacopeia from using specialized equipment acquired pursuant to this
Section 2.6.1, and for which Schering has paid and/or reimbursed Pharmacopeia
for all of the acquisition costs and major operating costs, for activities
outside of the Collaboration. The Parties acknowledge and agree that, at
Schering's option, Schering may elect to provide on loan to Pharmacopeia any
such specialized equipment required for performance of the Collaboration, which
equipment shall be returned to Schering upon termination of the Collaboration.
2.6.2 Third Party Licenses re Pharmacopeia Enabling Technology. In
----------------------------------------------------------------
the event that the Parties agree that it is necessary for Pharmacopeia to obtain
any license from a Third Party to Pharmacopeia Enabling Technology (existing as
of the Effective Date) for the performance of Library encoding and/or decoding
in connection with one or more Collaboration research projects, Schering shall
pay to Pharmacopeia Schering's equitable share of any amounts paid by
Pharmacopeia pursuant to such license. Pharmacopeia shall provide Schering
notice of such payment obligations and invoice Schering for such costs and
Schering shall pay the invoice within * days. Schering's share, which may be
subject to adjustment periodically, shall be determined by ascertaining the
independent value the licensed technology has to Pharmacopeia and Third Parties
collaborating with Pharmacopeia, as reasonably determined by Pharmacopeia, and
apportioning the license costs between Pharmacopeia, Schering and such Third
Parties in an equitable manner; provided, however, that Schering may reduce any
-------- -------
royalty otherwise due Pharmacopeia hereunder to reimburse it for any royalties
actually paid to Pharmacopeia pursuant to this Section 2.6.2, as set forth
below. The amount of the reduction shall be equal to * of the royalty paid to
Pharmacopeia pursuant to this Section 2.6.2, but in no event shall the royalty
due Pharmacopeia for any calendar quarter, with respect to any Product, be
thereby reduced to less than * of the royalty due Pharmacopeia under Section
5.4.1 with respect to Net Sales of such Product. In the event that Pharmacopeia
enters into a royalty-bearing license or agreement during the term of this
Agreement with respect to Pharmacopeia Enabling Technology, and Schering does
not approve and agree to pay for its equitable share of such license or
agreement within * days after a request by Pharmacopeia, the subject matter
covered by such license or agreement shall not be within this Agreement for any
purpose
2.6.3 Other Third Party Licenses. In the event that the Parties
----------------------------------
agree that it is necessary for Pharmacopeia to obtain a license (except for any
licenses relating to Pharmacopeia Enabling Technology obtained pursuant to
Section 2.6.2) from a Third Party in order to perform one or more Collaboration
research projects selected by Schering, the Parties shall agree on the
respective amounts to be paid by Schering and Pharmacopeia to obtain any such
license. Each Party's share of such license costs shall be determined by
ascertaining the independent value the licensed technology has to Schering (as
reasonably determined by Schering), and to Pharmacopeia and any Third Parties
collaborating with Pharmacopeia (as reasonably determined by Pharmacopeia) and
apportioning the license costs between Pharmacopeia, Schering and such Third
Parties in an equitable manner. It is understood and agreed that Pharmacopeia
shall not be obligated hereunder to pay for any such license without its express
consent, and that the failure of Pharmacopeia to conduct research activities
that cannot be performed without such license shall not constitute a breach of
this Agreement. It is further understood and agreed that, in the event that no
Third Parties have shared in the costs and Schering has paid and/or reimbursed
Pharmacopeia for all of the costs of such licenses, Schering shall have the
right, by providing written notice, to prohibit Pharmacopeia from using licensed
technology, or other license rights, acquired pursuant to this Section 2.6.3 for
activities outside of the Collaboration.
2.7 Reserved Targets. The Parties acknowledge that , as of the Effective
----------------------
Date, there are certain Targets with respect to which Pharmacopeia may have
obligations under its existing agreements
__________________
* CONFIDENTIAL TREATMENT REQUESTED
-11-
<PAGE>
with Third Parties, and that Pharmacopeia will not conduct certain research
activities with respect to such Targets in connection with the Collaboration
(each such Target a "Reserved Target"). Schering shall not knowingly request
Pharmacopeia to develop assays with respect to, or screen any Libraries against,
such Reserved Targets. * In the event that during the term of the Collaboration
Pharmacopeia's Third Party obligations with respect to a given Reserved Target
expire, or such Reserved Target otherwise becomes available for unrestricted use
in the Collaboration, Pharmacopeia shall promptly notify Schering and such
Target shall thereafter cease to be a Reserved Target. It is further understood
and agreed that, notwithstanding any other provision of this Agreement,
Pharmacopeia shall not be obligated to conduct any activities in performance of
the Collaboration that would constitute a breach of any of its obligations to
any Third Party.
2.8 Record Keeping and Inspection of Records. Each of Schering and
----------------------------------------------
Pharmacopeia, and their respective Affiliates, shall maintain records of its
Collaboration activities (or cause such records to be maintained) in sufficient
detail and in good scientific manner appropriate for patent and regulatory
purposes as will properly reflect all work performed and the results achieved in
performance of the Collaboration. Schering shall also maintain analogous
records of its development activities with respect to Agreement Compounds and
Agreement Products. Such records may include books, records, reports, research
notes, charts, graphs, comments, computations, analyses, recordings,
photographs, computer programs and documentation thereof, computer information
storage media, samples of materials and other graphic or written data generated
in connection with the Collaboration, including any data required to be
maintained pursuant to all requirements of applicable laws, rules and
regulations, or as directed by the Collaboration Committee. Pharmacopeia's
records shall also document by name which individuals assigned to the
Collaboration pursuant to Section 2.5.1 are working on each specific
Collaboration research project (identifying the Target(s) involved, to the
extent known by Pharmacopeia at the time of the research). During the
Collaboration and for * years thereafter, each of Schering and Pharmacopeia
shall have the right, upon at least five (5) business days' prior notice, to
inspect all such records of the other Party (or legible copies thereof) during
normal business hours. Each Party's rights under this Section 2.8 shall be
limited to one (1) inspection in any calendar year. In each case, the Party
conducting the inspection shall maintain such records and the information
disclosed therein in confidence in accordance with Section 7.1, and shall use
such information solely for purposes of this Agreement. Upon request and tender
of payment for the actual cost in providing copies, Pharmacopeia and/or
Schering, as appropriate, shall provide to the requesting Party copies of such
records.
2.9 Libraries.
---------------
2.9.0 Discovery Libraries. A Discovery Library is generally a
---------------------------
large collection of compounds (typically containing anywhere from 10,000 to
100,000 compounds, but more typically around 30,000 to 50,000 compounds)
prepared by combinatorial chemistry techniques based on one or more core
structures such that the compounds in the library represent a number of
structurally diverse classes of compounds useful for screening against a variety
of Targets. The selection of core structures and the design of Discovery
Libraries based thereon are generally handled such that the compounds contained
in the Discovery Library are novel compounds (i.e, are not generally known and
have not been included in compound libraries previously prepared by
Pharmacopeia). The Parties acknowledge and agree (i) that the Discovery Library
descriptions set forth in this Section 2.9.0 represent general guidelines for
the size and composition of Discovery Libraries, (ii) that Schering and
Pharmacopeia will generally be cooperating in the design of Discovery Libraries,
and that Discovery Libraries prepared for the Collaboration may therefore vary
from the general guidelines set forth herein, and (iii) that nothing in the
Section 2.9.0 shall be construed as a commitment or representation by
Pharmacopeia that any given Discovery Library prepared for the Collaboration
will conform to such guidelines.
___________________
* CONFIDENTIAL TREATMENT REQUESTED
-12-
<PAGE>
2.9.1 Classification; Limit on SP Discovery Libraries. At the time
-------------------------------------------------------
Schering and Pharmacopeia agree that Pharmacopeia will prepare and provide to
Schering any given Library, Schering and Pharmacopeia shall agree upon the
appropriate classification of such Library as a Collaboration Discovery Library,
SP Discovery Library, or Optimization Library. It is understood and agreed that
the number of SP Discovery Libraries provided to Schering in a given year during
the term of the Collaboration *
in such year without the prior written consent of Pharmacopeia. It is
further understood and agreed that if the *,
for all purposes of this Agreement, unless otherwise agreed in writing by the
Parties. In determining the number of SP Discovery Libraries and total number of
all Discovery Libraries for purposes of this Section, *.
2.9.2 Identification of Targets. At the time that Schering
---------------------------------
notifies Pharmacopeia of an Active Compound from any Library pursuant to Section
2.12, Schering shall also notify Pharmacopeia of the applicable Target(s) (in
coded form only) and the general therapeutic area relevant to such Target.
2.9.3 Coded Targets. To the extent that Schering identifies
-------------
Targets to Pharmacopeia in coded form pursuant to Section 2.9.2, Schering shall
use a unique code for each Target, and shall not use more than one code to
identify the same Target unless Schering tells Pharmacopeia that more than one
code identifies the same Target and specifies the applicable codes. Schering
shall have no obligation to disclose to Pharmacopeia the identity of any Targets
on a non-coded basis prior to the publication of a patent application disclosing
both (i) the structure of an Active Compound having activity against the Target
and (ii) the identity of the Target. If, at any time, Schering has identified a
Target to Pharmacopeia on a non-coded basis, Schering shall identify the codes,
if any, that Schering had used to identify such Target, and shall thereafter
only identify such Target on a non-coded basis.
2.9.4 Targets for Optimization Libraries. At the time that
------------------------------------------
Schering and Pharmacopeia initiate the design and preparation of an Optimization
Library, Schering shall identify the Target (in coded form only) and the
relevant general therapeutic area for which the Optimization Library is being
prepared.
2.10 Compound Identification. Following Schering's screening of the
-----------------------------
Discovery Libraries and/or Optimization Libraries, at Schering's request, during
the term of this Agreement (for so long as Pharmacopeia's business operations
include preparing and providing libraries and related services), Pharmacopeia
shall decode and identify to Schering any Library Compound in such Libraries
that demonstrates activity in Schering's screening assays; provided, however,
-------- -------
Pharmacopeia shall have no obligation (i) to decode more Library Compounds than
can reasonably be accomplished by * Pharmacopeia FTEs, in conjunction with their
other assigned tasks in the Collaboration. * If Schering requests the decoding
of additional Library Compounds during the Collaboration, or requests any
decoding after the end of the Collaboration, then Pharmacopeia shall decode such
compounds and invoice Schering for the actual direct labor and material costs
associated with, and other allocated costs directly required for, such decoding,
and Schering shall pay such invoice within * days of receipt.
2.11 Copies of Libraries. Until the exhaustion of all copies of a
-------------------------
particular Library, Schering may provide Pharmacopeia notice that Schering
wishes to obtain sets of plates from such Library
__________________
* CONFIDENTIAL TREATMENT REQUESTED
-13-
<PAGE>
containing sufficient quantities of compounds to perform an agreed number of
assays, and Pharmacopeia will deliver such plates to Schering as soon as
practicable; provided, however, that during the term of the Collaboration,
Pharmacopeia shall have no obligation to prepare more such Library plates than
can reasonably be accomplished by * Pharmacopeia FTEs, in conjunction with
their other assigned tasks in the Collaboration. *
If Schering requests the preparation of additional
Library plates during the Collaboration, or requests any preparation of such
Library plates after the end of the Collaboration, then Pharmacopeia shall
prepare such plates and invoice Schering for the actual direct labor and
material costs associated with, and other allocated costs directly required for,
such preparation, and Schering shall pay such invoice within * days of receipt.
Following the exhaustion of all copies of a Library, Schering may request a
further set of plates for any such Library, and the Parties shall negotiate in
good faith the terms on which such plates may be provided.
2.12 Active Compounds. Any Library Compound identified as meeting the
----------------------
definition of an Active Compound through (i) screening of one or more Libraries
by Pharmacopeia and/or Schering in the conduct of the Collaboration, or (ii)
screening of one or more Libraries by Schering after the term of the
Collaboration, shall be an Active Compound. It is understood that no grant of
any licenses by Pharmacopeia to Schering, its Affiliates or Sublicensees under
Section 4.1 with respect to any Library Compound shall become effective unless
and until Pharmacopeia has received notice that such Library Compound is an
Active Compound. Pharmacopeia shall be deemed to have received such notice
effective upon receipt of a request by Schering to decode a Library Compound.
In the event that Schering or its Affiliates or Sublicensees identifies, without
decoding by Pharmacopeia pursuant to Section 2.10, a particular Library Compound
with activity against a Target, Schering shall give Pharmacopeia notice
identifying such Library Compound as an Active Compound, which notice shall be
effective upon receipt by Pharmacopeia. Notwithstanding the foregoing, any
Active Compound that is subject to a license by Pharmacopeia to a Third Party
(as set forth in Section 4.5 or 4.9.5) granted prior to the time the Library
Compound is decoded as set forth in Section 2.10 above or, with respect to a
Library Compound which is not decoded, the time that Pharmacopeia receives
actual notice from Schering as set forth in this Section 2.12, shall not be
deemed to be licensed to Schering under Section 4.1.
2.13 Retained Rights. Subject to the rights and licenses granted to
---------------------
Schering hereunder, and the limitations expressly set forth in Section 4.6,
Pharmacopeia shall retain ownership of the tangible property embodied in the
encoded Discovery Libraries and Optimization Libraries.
2.14 Pharmacopeia Independent Research Activities.
--------------------------------------------------
2.14.1 Activities Outside the Collaboration. The Parties
--------------------------------------------
acknowledge that during and after the term of the Collaboration Pharmacopeia may
(either alone or in collaboration with one or more Third Parties) perform
independent research and development activities with respect to Targets,
including, without limitation, to identify, develop and commercialize products,
which activities are not within the scope of this Agreement ("Pharmacopeia
Independent Technology"). The Parties further acknowledge that Pharmacopeia
Independent Technology may include technology independently acquired, discovered
or developed by Pharmacopeia (as demonstrated by documented evidence created at
the time of such acquisition, discovery or development) and which coincidentally
is substantially the same as technology within the scope of Collaboration
Technology and/or Schering Technology. Schering shall have no rights or licenses
whatsoever to any Pharmacopeia Independent Technology.
2.14.2 Restrictions on Use of Collaboration Technology. To the
-------------------------------------------------------
extent that Pharmacopeia is entitled to use Collaboration Technology under this
Agreement for purposes outside
__________________
* CONFIDENTIAL TREATMENT REQUESTED
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the Collaboration, Pharmacopeia will not knowingly use such Collaboration
Technology to jeopardize the commercial value of Agreement Products.
ARTICLE III
COLLABORATION MANAGEMENT
3.1 Collaboration Committee. The Parties shall establish a Collaboration
-----------------------------
Committee to oversee, review and coordinate the conduct of the Collaboration.
The Collaboration Committee shall be comprised of two (2) representatives from
each of Schering and Pharmacopeia, or such other equal number of representatives
as the Parties may agree, each Party's members selected by that Party. Each of
Pharmacopeia and Schering may replace its Collaboration Committee
representatives at any time upon written notice to the other Party. The
Collaboration Committee shall be chaired by the Collaboration Director appointed
by Schering, unless otherwise agreed by the Parties. From time to time the
Collaboration Committee may establish various subcommittees, constituted as
agreed by the Collaboration Committee, to oversee particular projects or
activities within the Collaboration.
3.2 Design of Libraries; Fresh Libraries. At Schering's discretion,
------------------------------------------
Schering's representatives on the Collaboration Committee may contribute to the
development of the design of one or more Discovery Libraries or Optimization
Libraries, or contribute particular starting materials for use in synthesis of
the Discovery Libraries or Optimization Libraries. Except as set forth in
Section 4.9.5, or as the Parties may otherwise agree in writing, the Libraries
made available to Schering under this Agreement shall not have been provided to
Third Parties, or screened by Pharmacopeia for itself or for Third Parties.
Notwithstanding any other provision of this Agreement, Pharmacopeia shall not be
obligated to prepare or deliver to Schering any Library containing one or more
compounds previously delivered by Pharmacopeia to any Third Party.
3.3 Collaboration Committee Meetings. During the term of the
--------------------------------------
Collaboration, as it may be extended, the Collaboration Committee shall meet six
(6) times per year, or more often as agreed by the Parties, at such locations as
the Parties shall agree. At such meetings the Collaboration Committee will
formulate and review the Collaboration objectives with respect to each
Collaboration research project (including, without limitation, review and
approval of the design of Libraries), monitor the progress of the Collaboration
toward those objectives, and take such other actions as may be specified under
this Agreement or which the Parties deem appropriate. The Collaboration
Committee may designate a patent committee comprised of employees or
representatives of the Parties to oversee the patent prosecution and/or
enforcement activities described in Article VI, and to facilitate communication
and agreement between the Parties regarding inventorship of inventions made in
the Collaboration and the classification of such inventions (e.g., as Schering
Improvements, Pharmacopeia Improvements, Collaboration Platform Technology,
Collaboration Target-Specific Technology, etc.). Additional non-voting
representatives or consultants from either Party may from time to time be
invited by Schering or Pharmacopeia to attend and participate in Collaboration
Committee meetings (e.g., to evaluate and advise on business or scientific
issues) subject to compliance with the confidentiality provisions of Section
7.1. Each Party shall be responsible for its own expenses in connection with
the Collaboration Committee.
3.4 Collaboration Committee Decisions. Decisions of the Collaboration
---------------------------------------
Committee shall be based upon the consensus of all the members. In the event
that the Collaboration Committee cannot or does not, after good faith efforts,
reach agreement on an issue, such issue shall be referred to the respective
Presidents of Schering's Affiliate, the Schering-Plough Research Institute
("SPRI"), and Pharmacopeia for resolution. In the event that the Presidents of
SPRI and Pharmacopeia are unable to resolve the issue within fifteen (15)
business days after submission of the issue to them, then the unresolved issue
may be submitted by either Party to binding arbitration pursuant to Section 11.3
of this Agreement, except that the decision shall be made by one (1) arbitrator
with expertise in
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pharmaceutical product development, and the decision of the arbitrator shall be
rendered within six (6) months of initiation of the arbitration. During the
pendency of any such arbitration proceedings, the Parties shall proceed with
performance of the Collaboration following the course of conduct determined by
Schering; provided, however, that notwithstanding the foregoing, Pharmacopeia
-------- -------
shall not be obligated to (i) take any action that would violate its obligations
to any Third Party, (ii) spend or forego receiving any amounts of money (except
as necessary in connection with the fulfillment of Pharmacopeia's
responsibilities under Section 2.3), (iii) conduct any of the activities
referred to in Section 2.7 with respect to Reserved Targets, or (iv) knowingly
prepare or deliver to Schering any Library containing one or more compounds
previously provided to any Third Party. Notwithstanding the foregoing,
Schering, in its sole discretion, shall have complete and final control over
Schering's research, development and commercialization of Schering Compounds,
Agreement Compounds and/or Product(s) in accordance with the terms and
conditions of this Agreement.
3.5 Development Status; Notice of Sale of Products. During the term of
----------------------------------------------------
this Agreement, Schering shall provide Pharmacopeia written semi-annual reports
within thirty (30) days after the end of each six (6) month period, providing:
(i) a brief report summarizing the development status of each Lead Compound
and/or Development Candidate under development at Schering; (ii) the status of
all patent applications claiming any Library Compounds or Derivative Compounds,
and (iii) copies of all such patent applications which have published during
such six (6) month period and were not previously provided to Pharmacopeia.
Such reports shall contain information sufficient to allow Pharmacopeia to
monitor the status of Schering's efforts with respect to the accomplishment of
the milestones set forth in Section 5.3; provided, however, that nothing
-------- -------
hereunder shall be construed as requiring Schering to provide Pharmacopeia with
any specific research data or results, including, without limitation,
information relating to Targets or data obtained from screening programs being
conducted at Schering. Until the First Commercial Sale of each Agreement
Product by or on behalf of Schering hereunder, Schering shall keep Pharmacopeia
reasonably informed as to the status of the pre-clinical, clinical and
commercial development of such Agreement Product by providing Pharmacopeia with
semi-annual written reports summarizing such activities with respect to each
potential Agreement Product under development during the term of this Agreement.
Within thirty (30) days of the First Commercial Sale of any Agreement Product,
or any SP Product as to which Pharmacopeia is entitled to receive royalty
payments hereunder, Schering shall give Pharmacopeia written notice thereof,
which notice shall describe the relevant Product, identify the active
ingredients in such Product, and identify the specific Target(s) which led to
the development of such Product, it being understood that Schering shall
identify such Target(s) on a non-coded basis, and shall identify the code(s), if
any, used by Schering under this Agreement to identify such Target; provided,
--------
however, that nothing herein shall require Schering to disclose to Pharmacopeia
-------
any of Schering's proprietary information which has not been previously publicly
disclosed, beyond that which is necessary to satisfy Schering's reporting
requirements under this Section 3.5.
3.6 Diligence. The Parties acknowledge and agree that all business
---------------
decisions regarding research, development and commercialization of Agreement
Products including, without limitation, decisions relating to the development
and manufacture of Agreement Compounds, or to the design, development,
manufacture, sale, price, distribution, marketing and promotion of Agreement
Products under this Agreement, and the decision whether to develop a particular
Agreement Compound, or to develop and commercialize a particular Agreement
Product, shall be within the sole discretion of Schering. Schering shall use
reasonable good faith efforts to discover and develop Agreement Compounds, and
to discover, develop and commercialize Agreement Products; provided, however,
-------- -------
that Schering shall have no quotas or other minimum diligence obligations with
regard to number of Agreement Compounds and Agreement Products to be developed
and commercialized hereunder. Schering's diligence obligations hereunder are
expressly conditioned upon the continuing absence of any adverse condition or
event which warrants a delay in commercialization of an Agreement Product
including, but not limited to, an adverse condition or event relating to the
safety or efficacy of the
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Agreement Product or unfavorable pricing, pricing reimbursement, labeling or
lack of Regulatory Approval, and Schering shall have no obligation to develop or
market any such Agreement Product so long as in Schering's opinion any such
condition or event exists. Schering shall use commercially reasonable efforts
to overcome any unfavorable pricing or pricing reimbursement. The Parties
acknowledge and agree that none of the diligence obligations in this Section 3.6
shall apply to any Schering Compounds or SP Products, the discovery, development
and commercialization of which are the sole and exclusive responsibility of
Schering.
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ARTICLE IV
LICENSES AND EXCLUSIVITY
4.1 License to Schering.
------------------------
4.1.1 Compounds and Products. Pharmacopeia agrees to grant, and
-----------------------------
hereby grants to Schering an exclusive license under the Pharmacopeia Technology
and Pharmacopeia's interest in the Collaboration Technology (exclusive even as
to Pharmacopeia and its Affiliates), to make, have made, use, sell, offer to
sell, import and export Agreement Products in the Territory. It is understood
that such licenses shall include the right to conduct drug research and
development, and the exclusive right to discover, develop, make, have made and
use Agreement Compounds, during the term of this Agreement.
4.1.2 Collaboration Target-Specific Technology. Pharmacopeia agrees
-----------------------------------------------
to grant, and hereby grants, to Schering an exclusive license (exclusive even as
to Pharmacopeia and its Affiliates), under all of Pharmacopeia's interest in the
Collaboration Target-Specific Technology for any and all purposes in the
Territory, including the right to grant sublicenses.
4.2 Sublicenses. Schering shall have the right to sublicense the rights
----------------
granted in Section 4.1 above; provided, however, that Schering and its
-------- -------
Affiliates shall not provide any Discovery Library or Optimization Library to
any Third Party without the prior written consent of Pharmacopeia, except that
such consent shall not be required if the Third Party is a contractor or
academic collaborator conducting Library screening on behalf of Schering and is
not granted, and will not be granted or otherwise acquire, any rights to
Agreement Compounds or Agreement Products. Each such sublicense shall be
consistent with all the terms and conditions of this Agreement. It is further
understood that Schering's Sublicensees shall have no rights under the
sublicense granted in Section 4.6 herein, but may make, have made, use, sell,
offer to sell, import and export Agreement Products. Schering shall remain
responsible to Pharmacopeia for all of each such Sublicensee's applicable
financial and other obligations due under this Agreement. Such Sublicensee
shall not have the right to grant further sublicenses, and such sublicenses may
not be assigned or transferred to any Third Party without the prior written
consent of Pharmacopeia. Each sublicense shall provide for its continuation
following early termination of the license rights of Schering hereunder and its
assignment to Pharmacopeia. Promptly following the execution of each sublicense
requiring Pharmacopeia's consent hereunder, Schering shall give Pharmacopeia
written notice of the existence and identity of each Sublicensee and identify
the Agreement Product(s) sublicensed to such Sublicensee.
4.3 Direct Affiliate Licenses. Whenever Schering shall reasonably
------------------------------
demonstrate to Pharmacopeia that, in order to facilitate direct royalty payments
by an Affiliate, it is desirable that a separate license agreement be entered
into between Pharmacopeia and such Affiliate, Pharmacopeia will grant such
licenses directly to such Affiliate by means of an agreement which shall be
consistent with all of the provisions hereof and Schering shall guarantee the
Affiliate's obligations thereunder and otherwise provide to Pharmacopeia
assurances of performance satisfactory to Pharmacopeia. Schering shall
reimburse Pharmacopeia for its reasonable attorneys' fees and costs incurred in
connection with any such separate license agreement.
4.4 Collaboration Platform Technology. Upon conclusion of the
--------------------------------------
Collaboration Term, Pharmacopeia and Schering each agree to grant, and hereby
grant, to the other a co-exclusive license under their respective interests in
the Collaboration Platform Technology in the Territory, as follows: (i)
Schering and Pharmacopeia may each use such Collaboration Platform Technology
for any and all internal uses, including without limitation, in collaboration
with Third Parties for drug discovery, and
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(ii) neither Pharmacopeia nor Schering may license, sublicense or otherwise
transfer the Collaboration Platform Technology to any Third Party.
4.5 Third Party Rights.
-----------------------
4.5.1 Pharmacopeia Third Party Activities. It is understood that
Pharmacopeia is in the business of providing combinatorial libraries to Third
Parties, and that Pharmacopeia will grant such Third Parties rights after the
Effective Date to acquire licenses for compounds derived from such libraries
similar to Schering's rights under this Article IV. Notwithstanding the
licenses granted to Schering under Section 4.1 above, it is possible that a
Third Party may acquire rights from Pharmacopeia with respect to one or more
compounds of which Pharmacopeia is a sole or joint owner, which compounds were
made and designed independently of Pharmacopeia's activities in the
Collaboration; accordingly, Pharmacopeia's grant of rights under Section 4.1 is
limited to the extent that (i) a Third Party (either alone or jointly with
Pharmacopeia) has filed a patent application with respect to such a compound
prior to the filing by Schering (either alone or jointly with Pharmacopeia) of a
patent application with respect to such a compound, or (ii) Pharmacopeia has
previously granted a Third Party a license, an option to acquire a license, a
right of first negotiation, field exclusivity, or a non-competition covenant
with respect to such a compound, and is subject to any such grant of rights to a
Third Party.
4.5.2 No Liability. It is understood and agreed that, even if
-------------------
Pharmacopeia complies with its obligations under this Agreement, compounds
provided to Third Parties in the course of Pharmacopeia's other business
activities may result in Third Party patent applications and patents, including
patent applications and patents owned by such Third Parties, or owned jointly by
Pharmacopeia and such Third Parties, which could conflict with patent
applications and patents owned by Schering, or jointly owned by Schering and
Pharmacopeia hereunder. Pharmacopeia shall use reasonable efforts to avoid such
conflict, which efforts shall be comparable to those used by Pharmacopeia in
performing similar obligations under its agreements with Third Parties. It is
understood that, unless Schering is damaged as a proximate result of a material
breach by Pharmacopeia of Section 4.9, or of any of the representations and
warranties in Article VIII, then Pharmacopeia shall have no liability under this
Agreement with respect to any such conflict.
4.5.3 Pharmacopeia Reports to Schering On Third Party Rights. During
-------------------------------------------------------------
the period from the Effective Date until the First Commercial Sale of an
Agreement Product, within thirty (30) days of a written demand by Schering
concerning a Pharmacopeia license to a Third Party of a patent application owned
or co-owned by Pharmacopeia, Pharmacopeia shall, to the extent it may do so
without breaching any contractual or other legal obligation, provide Schering
with a statement explaining why the invention(s) claimed in the patent
application or technology licensed to such Third Party is independent of
Pharmacopeia's activities in the Collaboration. Such statement shall be
supported by written records kept in the ordinary course of business consistent
with pharmaceutical industry standards, provided that such records need not be
provided to Schering at the time of providing such statement, but may have to be
provided pursuant to Section 11.3. Such information shall be deemed
Confidential Information of Pharmacopeia pursuant to this Agreement.
4.6 Columbia Sublicense. Pharmacopeia agrees to grant, and hereby grants,
------------------------
to Schering a non-exclusive sublicense, without the right to sublicense, under
the Columbia License, to make, have made, use, offer to sell, sell, import and
export Agreement Products in the Territory, (including, without limitation, the
right to decode Library Compounds). It is understood and agreed that such
sublicenses do not include the right to create, make or have made encoded
combinatorial libraries or use methods or processes relating to the preceding,
except as expressly provided in this Agreement. It is further understood and
agreed that Schering's right to decode Library Compounds, as granted hereunder,
shall only be exercisable in the event that Pharmacopeia is unable or unwilling
to provide
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decoding services to Schering, in which event Pharmacopeia shall promptly
provide to Schering the technology and know-how necessary to perform such
decoding.
4.7 Collaboration Research Activities. Schering agrees to grant, and
--------------------------------------
hereby grants, to Pharmacopeia a royalty-free, non-exclusive license under (i)
Schering's interest in the Collaboration Technology, and (ii) any Schering
Technology which Schering, in its sole discretion, reasonably determines is
necessary or useful for Pharmacopeia's performance of the Collaboration, in each
case to use during the term of the Collaboration and solely in performance of
the Collaboration such intellectual property of Schering (including, without
limitation, research materials and reagents, as are reasonably necessary or
useful to assay compounds in certain Optimization Libraries, to be selected by
Schering, for activity against the applicable Target). Pharmacopeia will not be
required to pay any fees to use such intellectual property, but will as a
condition precedent to such use execute any consents or sublicenses required by
any Schering licensor. Pharmacopeia shall not be required to execute any
unreasonable consents or licenses and will not be in breach of this Agreement
for failure to do so.
4.8 Pharmacopeia's Use of Library Compounds for Quality Control.
----------------------------------------------------------------
Notwithstanding Section 4.1 above or Section 4.9 below, and subject to the other
applicable provisions of this Agreement, Pharmacopeia shall retain the right
under the Collaboration Technology to make, have made and use Library Compounds
solely for Pharmacopeia's internal quality control purposes, provided that such
--------------
rights shall not include the right to conduct any research other than quality
control research on any individual Library Compounds. Pharmacopeia agrees to
use reasonable efforts not to conduct quality control research pursuant to this
Section 4.8 which would adversely affect Schering's ability to commercialize
Agreement Products or which would jeopardize the commercial or research value of
the Collaboration Technology.
4.9 Library Exclusivity.
------------------------
4.9.1 Optimization Libraries. Schering shall have exclusivity with
-----------------------------
respect to all Optimization Libraries, as follows: Pharmacopeia shall not * for
any purpose, * for any purpose. Solely to ensure such exclusivity Pharmacopeia
agrees to *. This Section 4.9.1 shall survive the termination or expiration of
this Agreement.
4.9.2 SP Discovery Libraries. Schering shall have exclusivity with
-----------------------------
respect to all SP Discovery Libraries, as follows: Pharmacopeia shall not * for
any purpose, * for any purpose. Solely to ensure such exclusivity, Pharmacopeia
agrees to *. This Section 4.9.2 shall survive the termination or expiration of
this Agreement.
4.9.3 Collaboration Discovery Libraries. To provide Schering a
----------------------------------------
period of exclusivity for screening of the Collaboration Discovery Libraries
provided to Schering hereunder, Pharmacopeia agrees that until the termination
of the Exclusivity Period for a Collaboration Discovery Library, including as
such period may be extended, Pharmacopeia shall not * for any purpose, *
__________________
* CONFIDENTIAL TREATMENT REQUESTED
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* for any purpose. The
undertakings in this Section 4.9.3 shall be in addition to and not in derogation
of any undertakings of Pharmacopeia expressly set forth in the other terms of
this Agreement with respect to Collaboration Discovery Libraries, Agreement
Compounds and Agreement Products. Solely to ensure such exclusivity,
Pharmacopeia agrees to *. Upon expiration of the applicable Exclusivity Period
with respect to a Collaboration Discovery Library, including as it may be
extended pursuant to Section 4.9.4, below, the *; provided, however, that
Pharmacopeia's rights shall be subject to Schering's rights to Active Compounds
and to the provisions of Section 4.9.5 below.
4.9.4 Extension of Exclusivity for Collaboration Discovery Libraries.
---------------------------------------------------------------------
Schering shall have the right, in its sole discretion, to extend the Exclusivity
Period with respect to any particular Collaboration Discovery Library for
successive * year periods by notifying Pharmacopeia no later than sixty (60)
days prior to the date on which such Exclusivity Period will expire, and
concurrently paying to Pharmacopeia a maintenance fee of*
for each such Collaboration Discovery Library. In the event that
Schering has paid to Pharmacopeia milestone payments totaling * with respect to
Library Compounds contained in any given Collaboration Discovery Library and/or
Derivative Compounds derived from such Library Compounds, Schering's exclusivity
with respect to such Collaboration Discovery Library shall become perpetual and
irrevocable; provided, however, that if the Exclusivity Period for such
-------- -------
Collaboration Discovery Library has lapsed prior to the payment of such
milestone payments totaling *, then such exclusivity shall be subject to and
limited by (i) applicable rights, if any, granted to Third Parties during any
period of co-exclusive rights as set forth in Section 4.9.5, and (ii)
Pharmacopeia's rights regarding the Library Compounds identified before such
time in an "Outlicensing Notice" as set forth in Section 4.9.5.
4.9.5 Co-Exclusive Collaboration Discovery Libraries. Following the
-----------------------------------------------------
expiration of the Exclusivity Period (including any extensions thereof) for any
given Collaboration Discovery Library, Pharmacopeia shall have the right to *;
provided, however, that Pharmacopeia shall not *. If after the expiration of the
-------- -------
applicable Exclusivity Period, Pharmacopeia *
__________________
* CONFIDENTIAL TREATMENT REQUESTED
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*
4.10 No Other Products. With the exception of (i) any Schering Compounds
-----------------------
which are the same as a Library Compound and with respect to which Schering
notifies Pharmacopeia in writing prior to finalization by the Collaboration
Committee of the design the relevant Library, or (ii) as otherwise agreed or
specifically provided in the terms of this Agreement, neither Schering nor its
Affiliates or Sublicensees shall commercialize any Library Compound, Active
Compound, Derivative Compound, or other composition-of-matter claimed in patent
applications filed, or patents issued, under Article VI which claim an Active
Compound or Derivative Compound, other than as an Agreement Product in
accordance with this Agreement.
4.11 License Grant Back for Abandoned Agreement Compounds. In the event
----------------------------------------------------------
that Pharmacopeia acquires rights to patent applications and/or patents claiming
any Agreement Compounds pursuant to Section 6.3.5, Schering agrees to grant and
hereby grants to Pharmacopeia an exclusive license to make, have made, use,
sell, offer for sale, import and export products containing such Agreement
Compounds, in the Territory; provided, however, that such license shall be
-------- -------
limited to the general therapeutic area identified for the relevant Optimization
Library in accordance with Section 2.9.4. Schering will retain the rights to
such Agreement Compounds for all other therapeutic uses.
ARTICLE V
PAYMENTS
5.1 Payments By Schering. In partial consideration for Pharmacopeia's
--------------------------
conducting research activities in the Collaboration and the rights and licenses
granted Schering herein, Schering agrees to pay to Pharmacopeia the amounts set
forth in Sections 5.2, 5.3 and 5.4.
5.2 Collaboration Funding.
---------------------------
5.2.1 Funding During Year One. Schering shall pay to Pharmacopeia
------------------------------
research funding for the Collaboration at a rate of *
per FTE during the first year of the Collaboration based upon the actual number
of Pharmacopeia FTEs
__________________
* CONFIDENTIAL TREATMENT REQUESTED
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assigned to the Collaboration as set forth in Section 2.5.1, plus any additional
FTEs agreed upon by the Parties under Section 5.2.3.
5.2.2 Funding During Subsequent Years. Schering shall pay to
--------------------------------------
Pharmacopeia research funding for the Collaboration at a rate of *,
plus any adjustment pursuant to Section 5.2.5, per FTE during each subsequent
year of the Collaboration, other than the final year of the Collaboration, based
upon the actual number of Pharmacopeia FTEs assigned to the Collaboration as set
forth in Section 2.5.1, plus any additional FTEs agreed upon by the Parties
under Section 5.2.3.
5.2.3 Increased FTE Requirements. In the event that the Parties
---------------------------------
agree that additional FTEs are necessary to meet unanticipated increases in
workload under the Collaboration, the Parties may agree to add additional
Pharmacopeia FTEs, which shall be provided at the then current FTE rate.
5.2.4 Wind-Down in Final Year. In the final year of the
------------------------------
Collaboration (i.e., year five if the Collaboration is not extended),
Pharmacopeia shall have the right, starting at the end of the second quarter of
the final year, to remove FTEs from the Collaboration during the remainder of
the term of the Collaboration. The foregoing notwithstanding, the Parties agree
that the minimum number of Pharmacopeia FTEs assigned to the Collaboration at
the end of the third and fourth quarters of the fifth year of the Collaboration
shall be * and *, respectively. It is understood and agreed that, except as the
Parties may otherwise agree, Schering shall pay Pharmacopeia for * FTEs (at the
then-current FTE rate, as adjusted) for the first three quarters of the final
year, and for * FTEs during the fourth quarter of the final year. In the event
that Schering requests additional Pharmacopeia manpower be available to the
Collaboration during the final year of the Collaboration (i.e., in excess of the
numbers set forth in the second sentence of this Section 5.2.4), Schering shall,
in addition to payment for such FTEs (at the then-current rate) during the
Collaboration, pay an additional wind-down fee per additional FTE at * of
the then-current FTE rate, which shall be payable in two equal payments due on
the first day of each of the first and second quarter of the year following the
end of the Collaboration.
5.2.5 Annual FTE Rate Adjustments. Starting on January 1, 2000, and
----------------------------------
annually thereafter during the term of the Collaboration, the FTE rate to be
paid by Schering shall be adjusted to account for increases in salaries and
other costs. The annual FTE rate adjustment shall be determined based upon: *
of the percentage increase in the SIRS Salary Survey (Biotech Sector)
over the previous one (1) year period; and * of the percentage
increase in the Consumer Price Index over the previous one (1) year
period; provided, however, that the first adjustment shall account for such
-------- -------
increases over a two (2) year period.
5.2.6 Quarterly Adjustment. At the conclusion of each quarter,
---------------------------
Pharmacopeia will calculate the actual number of FTEs provided by Pharmacopeia
during that quarter and calculate any difference between the actual number of
FTEs provided by Pharmacopeia and the number prepaid by Schering. Any
overpayment or underpayment shall be reflected as a credit or additional charge,
as the case may be, in the next quarterly invoice as per Section 5.2.7 below,
and in the event that no further quarterly payments are due under this Section
5.2, then (i) any underpayment shall be paid by Schering to Pharmacopeia within
* business days of receiving notice and invoice therefor, or (ii) Pharmacopeia
shall within * days reimburse Schering for any overpayment.
5.2.7 Manner of Payment. Funding for the Collaboration under this
------------------------
Section 5.2 shall be payable quarterly in advance on the first day of each
calendar q