[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

 

EXHIBIT 10.44

 

COLLABORATION AGREEMENT

 

This Collaboration Agreement (“Agreement”) is entered into as of June 10, 2002
(the “Effective Date”), between Tularik Inc. (“Tularik”), a Delaware
corporation, with offices at Two Corporate Drive, South San Francisco, CA 94080
and Sankyo Company, Limited (“Sankyo”), a corporation organized under the laws
of Japan with offices at 1-2-58 Hiromachi, Shinagawa-ku, Tokyo 140-8710, Japan
 (individually, a “Party” and, collectively, the “Parties”).

 

WHEREAS, Tularik and Sankyo desire to participate in a collaborative program (as
herein defined) to research, discover, develop, manufacture and market products
that agonize or antagonize various Program Targets (as herein defined) for the
treatment of disease in humans; and

 

WHEREAS, the Parties desire to execute a definitive agreement with respect to
such collaborative program;

 

NOW, THEREFORE, in consideration of the foregoing and the premises and
conditions set forth herein, the Parties agree as follow:

 

Article I.                 DEFINITIONS

 

Section 1.01   “AAA” shall have the meaning set forth in Section 15.02.

 

Section 1.02   “Affiliate” shall mean any corporation or other business entity
that during the Term controls, is controlled by or is under common control with
Sankyo or Tularik, but only for so long as such entity controls, is controlled
by or is under common control with Sankyo or Tularik.  For this purpose, control
means the possession of the power to direct or cause the direction of the
management and the policies of an entity, whether through ownership (directly or
indirectly) of over fifty percent (50%) of the stock entitled to vote, or if not
meeting the preceding requirements, any company owned or controlled by or owning
or controlling Sankyo or Tularik at the maximum control or ownership right
permitted in a country where such company exists.

 

Section 1.03   “Change in Control” shall mean the occurrence of any of the
following events: (a) A Party is merged, consolidated, or reorganized into or
with another corporation or other legal person, and as a result of such merger,
consolidation or reorganization less than fifty percent (50%) of the combined
voting power of the then-outstanding voting stock of the surviving and
controlling corporation or person immediately after such transaction are held in
the aggregate by the holders of voting stock of such Party immediately prior to
such transaction; (b) A Party sells or otherwise transfers all or substantially
all of its assets to another corporation or other legal person, and immediately
after such sale or transfer less than fifty percent (50%) of the combined voting
power of the then-outstanding voting stock of such corporation or person is held
in the aggregate by the holders of voting stock of such Party immediately prior
to such transaction; (c) Any person becomes the beneficial owner of securities
representing fifty percent (50%) or more of the combined voting power of the
then-outstanding voting stock of a Party; or (d) A Party files a report or proxy
statement with the Securities and Exchange Commission disclosing in response to
Item 1 of Form 8-K or Schedule 14A (or any successor schedule, form or report or
item therein) that a change in control of a Party has occurred or will occur in
the future pursuant to any then-existing contract or transaction..

 

Section 1.04   “Chemistry Contribution Factor” shall mean [ * ] and [ * ] that
takes into account [ * ] by which a [ * ].  If Sankyo [ * ] the [ * ] to the [ *
] the [ * ].  If Sankyo [ * ] the [ * ] the [ * ].  In the event that the
Parties are [ * ].

 

Section 1.05   “Chemistry Royalty Rate” shall mean a royalty rate equal to:  (i)
the [ * ]; multiplied by (ii) the [ * ]. In no event shall the Chemistry Royalty
Rate be [ * ].

 

Section 1.06   “Claims” shall have the meaning set forth in Section 9.01(a).

 

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Section 1.07   “Collaboration Lead Compound” shall have the meaning set forth in
Section 4.02(b).

 

Section 1.08 “Collaboration Target” shall mean [ * ] for the [ * ]. The Parties
shall update Appendix C from time to time to reflect all Collaboration Targets,
including [ * ] that the [ * ] in the [ * ].

 

Section 1.09   “Co-Commercialization Territory” shall mean:  (i) all of the
countries, territories and possessions of North America, including without
limitation the United States, Canada, Mexico and the Commonwealth of Puerto
Rico; and (ii) all of the countries, territories and possessions of Europe,
including without limitation Austria, Belgium, Denmark, Finland, France,
Germany, Greece, Italy, Ireland, Luxembourg, Netherlands, Norway, Portugal,
Spain, Switzerland, Sweden and United Kingdom, and any additional countries that
are or may subsequently become members of the European Union prior to the
execution of the Co-Commercialization Agreement.  Both parties agree to pursue
co-promotion for a Collaboration Lead Compound in co-promotion countries, unless
co-marketing is legally required in co-marketing countries as such countries are
defined in Appendix E.

 

Section 1.10   “Competitive Product Infringement” shall have the meaning set
forth in Section 10.07.

 

Section 1.11   “Confidential Information” shall mean, subject to the limitations
set forth in Section 11.01 hereof, all information disclosed by each Party to
the other Party under this Agreement.

 

Section 1.12   “Current Program Target” shall mean [ * ] pursuant to [ * ] and [
* ].  The Parties shall [ * ] at the [ * ] that the [ * ] in the [ * ].  The
number of Current Program Targets at any given point in time shall not exceed [
* ].

 

Section 1.13 “Details” shall mean in-person sales presentations of the Product
made by a Party’s sales representatives to physicians and to other healthcare
professionals legally entitled to prescribe the Product, all of whom shall meet
criteria as to type specified in the Marketing Plan.  Details shall be deemed to
include only presentations of first or second position in a sales presentation
and shall not be deemed to include tertiary or “reminder” details, in each case
as such terms are generally understood in the pharmaceutical industry.

 

Section 1.14   “Development” shall mean the development of any Product occurring
from and after the filing of an IND (or equivalent), through and including
approval of an NDA and any other governmental approvals required for the
commercialization of such Product in a country.  Development may include
Pre-Clinical Development activities to be performed after the filing of an IND.

 

Section 1.15   “Development Contribution Factor” shall mean [ * ] and [ * ] that
takes into account [ * ]. If Sankyo [ * ] relating to such [ * ].  If Sankyo [ *
] the [ * ] the [ * ].  In the event that the Parties are [ * ].

 

Section 1.16   “Development Royalty Rate” shall mean a royalty rate equal to: 
(i) the [ * ]; multiplied by (ii) the [ * ].  In no event shall the Development
Royalty Rate be [ * ] the [ * ] the [ * ].

 

Section 1.17   “Discontinued Compound” shall have the meaning set forth in
Section 4.03.

 

Section 1.18   “Drug Approval Applications” shall mean applications for
regulatory approval required before commercial sale or use of a Product as a
drug.

 

Section 1.19   “EC” shall mean the executive committee established pursuant to
Section 2.02.

 

Section 1.20   “FDA” shall mean the United States Food and Drug Administration,
or any successor thereto.

 

Section 1.21   “Feasibility Study” shall mean the portion of the Research
Program described in Section 3.01(a) pursuant to which the Parties will identify
and characterize the Current Program Targets to enable Sankyo to determine
whether any Current Program Target is viable for designation as a Collaboration
Target pursuant to Section 3.03(b).

 

Section 1.22   “Field” shall mean the [ * ] for the treatment of disease in
humans.

 

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Section 1.23   “Freedom to Operate” shall mean that [ * ] is [ * ], as the case
may be, [ * ]. A [ * ] and no [ * ]. By way of example, [ * ] and [ * ] or that
a [ * ].

 

Section 1.24   “GAAP” shall mean [ * ].

 

Section 1.25   “IND” or “Investigational New Drug Application” shall mean an
application for required approvals or authorizations from the FDA to commence
human clinical testing of a drug, as defined by the FDA, or the equivalent
application in any other country.

 

Section 1.26   “Know-How” shall mean know-how, Substances, information,
inventions, discoveries, data, materials and technologies, whether or not
patentable, owned or controlled by a Party that either (i) exist as of the
Effective Date or (ii) are owned or controlled by such Party and arise outside
of the Program during the Term, in each case that are applicable to the Program
Targets, Substances, Lead Compounds, Research Compounds, Collaboration Lead
Compounds, Sankyo Lead Compounds, Products or Sankyo Products and the Field. 
Know-How shall exclude Program Know-How, Patent Rights and Program Patents.

 

Section 1.27   “Lead Compound” shall mean a Substance designated by the RMC as
suitable for initial development against a Current Program Target or a
Collaboration Target within the Field based upon results of screening performed
pursuant to Section 3.04.  Lead Compounds may be selected as Collaboration Lead
Compounds pursuant to Section 4.02.

 

Section 1.28   “Long-Term Collaboration” shall mean the portion of the Research
Program pursuant to which the Parties will conduct research to identify and
characterize Lead Compounds or Research Compounds, and the Parties shall conduct
research on Lead Compounds or Research Compounds to identify Collaboration Lead
Compounds, all as described in Section 3.01(b).  The Long-Term Collaboration
will be conducted [ * ] and [ * ].

 

Section 1.29   “NDA” or “New Drug Application” shall mean a Drug Approval
Application filed with the FDA to obtain approvals or authorizations to commence
marketing of a drug, as defined by the FDA, or the equivalent application in any
other country.

 

Section 1.30   “Net Sales” shall mean with respect to the Product or Sankyo
Product,, the gross amount invoiced by a Party its Affiliates and sublicensees
from sales to arms’-length Third Parties, less,  (i) [ * ] discounts allowed;
(ii) [ * ] any other allowances which effectively reduce the net selling price;
(iii) [ * ] returns and allowances; (iv) That portion of the sales value
associated with [ * ]; (v) Any tax imposed on the production, sale, delivery or
use of [ * ], including without limitation, sales, use, excise or value added
taxes; (vi) Allowance for [ * ]; and (vii) Any other [ * ].

 

Section 1.31   “Non-Proposed Compound” shall have the meaning set forth in
Section 4.04.

 

Section 1.32   “Patent Rights” shall mean patents and patent applications, both
foreign and domestic, including without limitation all substitutions,
provisionals, continuations, continuations-in-part, divisionals, extensions,
reexaminations, reissues, renewals, supplementary protection certificates and
inventors’ certificates, that are owned or controlled by a Party that either
exist as of the Effective Date or claim inventions owned or controlled by such
Party and arise outside the Program during the Term, in each case to the extent
such patents and patent applications are applicable to the Program Targets,
Substances, Lead Compounds, Research Compounds, Collaboration Lead Compounds,
Sankyo Lead Compounds, Products or Sankyo Products and the Field.  Patent Rights
do not include Program Patents.

 

Section 1.33   “Pre-Clinical Development” shall have the meaning set forth in
Section 4 of Appendix D.

 

Section 1.34   “Pre-Clinical Development Criteria” shall mean the criteria for
commencing pre-clinical development of a Lead Compound or Research Compound set
forth by the RMC for a particular Lead Compound or Research Compound from time
to time.

 

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Section 1.35   “Product” shall have the meaning set forth in Section 4.02(b). 
Products do not include Sankyo Products.

 

Section 1.36   “Program” shall mean the collaborative program under which
Tularik and Sankyo will conduct the Research Program and discover, develop,
manufacture and market Products with activity against the Collaboration Targets
or the Current Program Targets in the Field.

 

Section 1.37   “Program Inventions” shall mean both Joint Program Inventions and
Sole Program Inventions.

 

Section 1.38   “Program Know-How” shall mean know-how, Substances, information,
inventions, discoveries, data, materials and technologies, whether or not
patentable, that are owned or controlled by either Party or both Parties and
made, discovered or developed during the Term in the course of the discovery,
research, Pre-Clinical Development, Development and commercialization of
Substances, Lead Compounds, Research Compounds, Collaboration Lead Compounds,
Sankyo Lead Compounds, Products or Sankyo Products pursuant to the Program. 
Program Know-How shall include Program Inventions and shall exclude Program
Patents and Research Compound Patents.

 

Section 1.39   “Program Patents” shall mean patents and patent applications,
both foreign and domestic, including without limitation all substitutions,
provisionals, continuations, continuations-in-part, divisionals, extensions,
reexaminations, reissues, renewals, supplementary protection certificates and
inventors’ certificates, that are owned or controlled by either Party or both
Parties and claim Program Inventions made during the Term in the course of the
discovery, research, Pre-Clinical Development, Development and commercialization
of Substances, Lead Compounds, Research Compounds, Collaboration Lead Compounds,
Sankyo Lead Compounds, Products or Sankyo Products pursuant to the Program. 
Program Patents shall exclude Research Compound Patents and Program Know-How.

 

Section 1.40   “Program Target” shall mean [ * ] as a [ * ] the [ * ].

 

Section 1.41   “Regulatory Approval” shall mean any approvals, licenses,
registrations or authorizations of any federal, state or local regulatory
agency, ministry, department, bureau or other governmental entity necessary for
the development, manufacture, use, marketing, sale or distribution of any
Product in any country in the Territory.

 

Section 1.42   “Research Compound” shall mean any compound that is based upon a
Lead Compound that agonizes or antagonizes a Current Program Target or a
Collaboration Target and that is made, created, discovered, identified,
invented, synthesized, optimized or acquired by or on behalf of either Party
pursuant to the Research Plan, or otherwise in the course of the Program. 
Research Compounds may be selected as Collaboration Lead Compounds pursuant to
Section 4.02.

 

Section 1.43   “Research Compound Inventions” shall have the meaning set forth
in Section 10.01.

 

Section 1.44   “Research Compound Patents” shall mean any and all patents and
patent applications, both foreign and domestic, including without limitation all
substitutions, provisionals, continuations, continuations-in-part, divisionals,
extensions, reissues, reexaminations, renewals, supplementary protection
certificates and inventors’ certificates, which claim Research Compound
Inventions made by or on behalf of either Party alone or both Parties jointly
pursuant to the Program during the Term.  Research Compound Patents shall not
include any Program Patents.

 

Section 1.45   “Research Plan” shall mean the research plan approved by the
Parties pursuant to a letter agreement between them of even date herewith, as
amended from time to time.

 

Section 1.46   “Research Program” shall mean the research component of the
Program, comprising the Feasibility Study and the Long-Term Collaboration.

 

Section 1.47   “Research Program Term” shall have the meaning set forth in
Section 3.07(a).

 

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Section 1.48   “RMC” shall mean the research management committee established
pursuant to Section 2.03.

 

Section 1.49   “Royalty Term” shall have the meaning set forth in Section
6.02(c).

 

Section 1.50   “Sankyo Lead Compound” shall have the meaning set forth in
Section 4.06(a).

 

Section 1.51   “Sankyo Product” shall have the meaning set forth in Section
4.06(a).  Sankyo Products do not include Products.

 

Section 1.52   “Sankyo Technology” shall mean, collectively, the Patent Rights
and the Know-How owned or controlled by Sankyo.

 

Section 1.53   “Sankyo Territory” shall mean all of the countries and
territories of the world other than the countries, territories and possessions [
* ].

 

Section 1.54   “Scientific FTE” shall mean a full-time scientific/technical
person (or, in the case of less than a full-time dedicated person, the full-time
equivalent scientific/technical person/year) dedicated to the research,
Pre-Clinical Development or Development of Substances, Lead Compounds, Research
Compounds, Collaboration Lead Compounds or Products for a period of one (1)
year, where a scientific/technical person is an employee of either Party having
skills in a [ * ].

 

Section 1.55   “Scientific FTE Rate” shall mean [ * ] as of the Effective Date.

 

Section 1.56   “Sole Program Inventions” shall have the meaning set forth in
Section 10.02.

 

Section 1.57   “Substances” shall mean those natural extracts, natural
compounds, endogenous ligands and synthetic compounds that a Party owns or to
which a Party has a license (with the right to sublicense) as of the Effective
Date or from time to time during the Term, which such Party actually provides to
the Program.

 

Section 1.58   “Targets” shall mean G protein-coupled receptors that [ * ] for
use in the Field.

 

Section 1.59   “Term” shall mean the period from the Effective Date until the
expiration of all Program Patents, Research Compound Patents and Patent Rights
containing a Valid Claim covering the manufacture, use or sale of Products or
Sankyo Products; provided, however, that if this Agreement is terminated prior
to such date pursuant to Section 13.01, then the Term shall end upon the
effective date of such earlier termination.

 

Section 1.60   “Territory” shall mean the Sankyo Territory and the
Co-Commercialization Territory.

 

Section 1.61   “Third Party” shall mean any person or entity other than Tularik,
Sankyo or their Affiliates.

 

Section 1.62   “Tularik Technology” shall mean, collectively, the Patent Rights
and the Know-How owned or controlled by Tularik.

 

Section 1.63   “Valid Claim” shall mean a claim of a pending patent application
or issued and unexpired patent that is included within the Program Patents,
Research Compound Patents or Patent Rights, in each case that has not been held
unenforceable, unpatentable, or invalid by a court or other governmental agency
of competent jurisdiction, and that has not been admitted to be invalid or
unenforceable through reissue, disclaimer or otherwise.

 

Section 1.64 “Weighted Details” for a Party during any period shall mean the [ *
] and [ * ].

 

Section 1.65 “Year Four” shall mean the one-year period commencing on the
expiration of Year Three.

 

Section 1.66 “Year One” shall mean the period commencing on the designation of
the first Collaboration Target pursuant to Section 3.03(b) and concluding on the
second anniversary of the Effective Date.

 

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Section 1.67 “Year Three” shall mean the one-year period commencing on the
expiration of Year Two.

 

Section 1.68   “Year Two” shall mean the one-year period commencing on the
expiration of Year One.

 

Article II.               MANAGEMENT

 

Section 2.01   Committees.  The Parties agree that an EC and an RMC shall manage
the relationship established by this Agreement.

 

Section 2.02 Executive Committee.

 

(a)               Composition.  The executive committee (“EC”) shall be
comprised of the Executive Vice President, Operations of Tularik and the
Director, Strategic Research Department of Sankyo.  A Party may replace its
designee to the EC by written notice to the other Party.

 

(b)              Responsibilities.  The EC shall oversee and manage the
relationship established by this Agreement and the other committees.  The EC
shall resolve problems and settle disagreements that have not been resolved by
the RMC, except as otherwise provided in this Agreement.

 

(c)               Meetings and Voting.  The EC shall meet as necessary to
resolve problems and settle disagreements within its jurisdiction, as provided
in this Agreement.  Except as otherwise provided herein, all decisions of the EC
shall be unanimous.

 

Section 2.03 Research Management Committee.

 

(a)               Composition.  Promptly after the Effective Date, a research
management committee (the “RMC”) shall be established and shall be composed of
three members from each of Tularik and Sankyo, the chairperson of which shall be
named by Sankyo.  Tularik’s representatives to the RMC shall be [ * ].  Sankyo’s
representatives to the RMC shall be [ * ].  A Party may replace any designee to
the RMC by written notice to the other Party.

 

(b)              Responsibilities.  The goals and progress of the Research
Program shall be determined and monitored by the RMC, which shall receive all
data and information obtained by either Party pursuant to the Research Program. 
In particular, the RMC shall:

 

(i)                           select up to [ * ] Current Program Targets [ * ]
at the first meeting of the RMC;

 

(ii)                        determine whether to cease development of Current
Program Targets, pursuant to Section 3.03(a);

 

(iii)                     periodically review the Research Program and the
Parties’ progress thereunder pursuant to the Research Plan, including all
screening results and new developments regarding the Current Program Targets in
the Field;

 

(iv)                    propose changes to the Research Plan based upon the
results of prior work and new developments regarding the Current Program Targets
in the Field;

 

(v)                       select Lead Compounds, Research Compounds and
Collaboration Lead Compounds;

 

(vi)                    delegate initial responsibility for the filing and
prosecution of Program Patents;

 

(vii)                 establish a system for identification of Research
Compounds as provided in Section 10.01;

 

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(viii)              increase the number of [ * ] the number of [ * ] beyond the
number of [ * ] and [ * ];

 

(ix)                      extend the Feasibility Study [ * ] for a [ * ]; and

 

(x)                         establish Standard Operating Procedures (SOP) for
the data management (including QC, and QA) with respect to basic research and
pre-clinical research, and documentation.

 

(c)               Meetings and Voting. The RMC shall meet at least twice
annually.  All decisions of the RMC shall be unanimous.  Any disagreement
regarding a matter not covered by this Agreement that cannot be resolved by the
unanimous vote of the RMC that is within the RMC’s jurisdiction shall be
referred to the EC for resolution under Section 2.02(c).  If a disagreement is
still unresolved after a seven (7) day period following submission to the EC,
such disagreement shall be resolved by the Chief Executive Officer of Tularik
and the head of the research division of Sankyo or their duly authorized
designees; provided, however, that any such [ * ].  If a disagreement is still
unresolved after a seven (7) day period following submission to the Chief
Executive Officer of Tularik and the head of the research division of Sankyo or
their duly authorized designees, [ * ] the [ * ] to the [ * ] to be [ * ].  It
is the intent of the Parties to resolve issues relating to Section 2.03(b)
through the RMC whenever possible and to refer issues to the EC only when
resolution through the RMC cannot be achieved.  The RMC may meet by telephone or
in person as proposed by the chairperson at such times as are agreeable to its
members. The location of each RMC meeting will be determined alternately by each
Party, with each Party bearing the expenses of its representatives attending RMC
meetings.  Tularik will determine the location of the first meeting of the RMC. 
Members of the RMC may be represented at any meeting by another member of the
RMC, or by a deputy, either of whom may cast the absent member’s vote.  The RMC
shall issue agendas in advance of each meeting.  The chairperson shall appoint
someone to keep accurate minutes of the meetings, which shall be effective upon
written approval of the other Party, such approval not to be unreasonably
withheld or delayed.

 

Article III.              RESEARCH PROGRAM

 

Section 3.01   Research Program.  During the Research Program Term both Parties
shall cooperate in good faith for the benefit of the Research Program. The RMC
shall establish a system to secure the exchange, and timely return, of research
materials and information that are necessary for the progress of the Research
Program.

 

(a)               Feasibility Study.  The Feasibility Study shall be conducted
by the Parties to identify and characterize the Current Program Targets and to
enable a determination by Sankyo as to whether any Current Program Target is
viable for designation as a Collaboration Target pursuant to Section 3.03(b). 
In addition, during the Feasibility Study the Parties shall screen Substances
against Current Program Targets and modify them, if necessary, to identify Lead
Compounds or Research Compounds. The Feasibility Study will be conducted during
the period commencing on the Effective Date and ending on the first anniversary
of the Effective Date, unless [ * ] the [ * ] on a [ * ] the [ * ]; provided,
however, that the Feasibility Study shall end on such earlier date as Sankyo has
designated [ * ] Collaboration Target pursuant to Section 3.03(b).  Within
thirty (30) days from the end of the Feasibility Study, Tularik shall send to
Sankyo a written report describing the results of the Feasibility Study,
including without limitation a reasonably detailed summary of the Scientific
FTEs funded by Sankyo.

 

(b)              Long-Term Collaboration.  The Long-Term Collaboration shall
immediately commence upon the designation of the first Collaboration Target
pursuant to Section 3.03(b).  The Long-Term Collaboration shall be conducted by
the Parties against such Collaboration Targets to identify and characterize Lead
Compounds or Research Compounds and to select Collaboration Lead Compounds
pursuant to the Research Plan.  Within thirty (30) days from the end of each
quarter during the Long-Term Collaboration, Tularik shall send to Sankyo a
written report describing the results of the Long-Term Collaboration during such
quarter, such report to include without limitation a reasonably detailed summary
of the Scientific FTEs funded by Sankyo.

 

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Section 3.02   Basic Research.  The Parties shall undertake, under the direction
of the RMC and pursuant to the Research Plan, basic research towards the
objectives of the Research Program.  During the Research Program Term, Sankyo
shall provide to Tularik the research payments set forth in Section 6.01 to
support the number of Scientific FTEs set forth in Appendix A [ * ] conducting
the Research Plan, which Tularik Scientific FTEs shall be distributed as set
forth in Appendix A.  During the Research Program Term, Sankyo shall provide the
number of Scientific FTEs set forth in Appendix A to assist in the conduct of
the Research Plan, which Sankyo Scientific FTEs shall be distributed as set
forth in Appendix A.  The actual distribution of such Scientific FTEs among the
scientific disciplines represented on Appendix A may vary from the projected
distribution of Scientific FTEs set forth on Appendix A as a function of the
needs of the Research Program at any particular time, as determined by the RMC.

 

Section 3.03   Targets.

 

(a)               Current Program Targets. Tularik shall provide to Sankyo all
the data and information reasonably available to Tularik prior to the selection
of such Current Program Targets pursuant to Section 2.03(b)(i).  The number of
Current Program Targets shall in no event be greater than [ * ].  The RMC may
elect to terminate research on a Current Program Target, in which case such
Program Target shall no longer be a Current Program Target.  Current Program
Targets for which work under the Feasibility Study is terminated may be pursued
[ * ].  For any Current Program Targets for which work is terminated all
licenses granted by Tularik to Sankyo will terminate (other than any [ * ]
license provided in the last sentence of Section 10.02) with respect to such
Current Program Targets.

 

(b)              Collaboration Targets.  During the Feasibility Study, Sankyo
may designate [ * ] Current Program Target as a Collaboration Target for further
research as part of the Long-Term Collaboration.  In the event any Current
Program Targets are not designated as a Collaboration Target by Sankyo prior to
the end of the Feasibility Study, such rejected Current Program Targets may be
pursued independently by Tularik without any obligation to Sankyo whatsoever. 
In the event that work on any Collaboration Target under the Long-Term
Collaboration is terminated by Sankyo, such Program Target shall cease to be a
Collaboration Target and be removed from Appendix C, and such rejected
Collaboration Target may be pursued independently by Tularik without any
obligation to Sankyo whatsoever. For any Collaboration Target for which work is
terminated by Sankyo all licenses granted by Tularik to Sankyo will terminate
(other than any [ * ] license provided in the last sentence of Section 10.02)
with respect to such Collaboration Target.

 

(c)               Replacement of Collaboration Target.  Anything in Section
3.03(b) to the contrary notwithstanding, during the twelve month period
commencing on the conclusion of the Feasibility Study, Sankyo may elect to:  (i)
replace a Collaboration Target with any [ * ]; or (ii) designate any [ * ]. 
Should Sankyo make either of the elections described above, Sankyo shall
reimburse Tularik for all costs and expenses incurred by Tularik relating to
each of the Current Program Targets during the period commencing on the
expiration of the Feasibility Study up to and including the date of such
election [ * ] in the event that [ * ] with respect to the [ * ].  In the event
that Sankyo determines to designate an additional Collaboration Target pursuant
to Section 3.03(c)(ii), Sankyo shall thereafter pay Tularik an amount to be
agreed in good faith by the Parties for such additional Collaboration Target,
along with Scientific FTE support at levels to be negotiated.

 

Section 3.04   Screening.  Pursuant to the Research Plan, Tularik shall develop,
and Tularik and Sankyo shall perform, [ * ] assays to determine (i) the effect
of Substances selected for screening by the RMC on Current Program Targets
during the Feasibility Study and Collaboration Targets during the Long-Term
Collaboration and (ii) the [ * ] of such Substances, for the purpose of
identifying Lead Compounds and determining whether to make and develop Research
Compounds based upon such Lead Compounds.  The RMC shall designate Lead
Compounds and determine whether to make and develop such Research Compounds.  To
the extent permitted by agreements with Third Parties, Sankyo and Tularik will
provide their respective proprietary [ * ] libraries for such screening as
directed by the RMC; provided, however, that a Party shall not be required to [
* ] that are [ * ] at the time of [ * ].

 

Section 3.05 Research Chemists.

 

(a)               The Parties recognize that the [ * ] of [ * ] to [ * ] will
confer [ * ].  Accordingly, the Parties agree that the RMC, by unanimous
decision, shall be responsible for determining:  (i) the identity of Lead
Compounds or

 

8

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Research Compounds to which medicinal chemistry resources will be dedicated; and
(ii) the number and level (i.e., Ph.D., research assistant, etc.) of chemistry
Scientific FTE to be assigned to perform medicinal chemistry on each Lead
Compound or Research Compound; [ * ] be [ * ] to the [ * ] that [ * ].

 

(b)              In the event that the RMC, by unanimous decision, determines to
[ * ] the [ * ] than the [ * ], Sankyo shall either:  (i) provide to the Program
[ * ] to the [ * ] and [ * ]; or (ii) pay Tularik the [ * ] for [ * ] of [ * ].

 

Section 3.06   Exchange of Pre-Clinical Data.  Sankyo and Tularik will exchange
research and Pre-Clinical Development data generated during the Program [ * ]. 
In accordance with Section 5.02 and Section 5.03, the Parties may also make such
data available to any permitted sublicensees in a country or countries in the
Territory; provided, however, such data shall not be made available to such
sublicensees until the sublicensee has executed a standard confidentiality
agreement covering disclosure and use of such data, and ownership of such data
and intellectual property rights, consistent with the terms of this Agreement.

 

Section 3.07 Research Program Term.

 

(a)               The Research Program shall be conducted during the Feasibility
Study pursuant to Section 3.01(a) and during Year One, Year Two, Year Three and
Year Four of the Long-Term Collaboration, or until such earlier time as the
Research Program may be terminated as provided in Section 3.07(b) (the “Research
Program Term”).

 

(b)              The Research Program shall terminate at the earlier of:  (i)
the expiration of the Feasibility Study in the event that no Collaboration
Target has been designated by Sankyo pursuant to Section 3.03(b) prior to the
end of the Feasibility Study; or (ii) termination of the Long-Term
Collaboration.  Following the commencement of the Long-Term Collaboration, upon
at least [ * ] days’ prior written notice to Tularik, Sankyo may terminate the
Research Program with respect to any Collaboration Target effective at the end
of either [ * ] if Sankyo determines, in the good faith exercise of its
reasonable scientific judgment, that (i) the Research Program with respect to
such Collaboration Target is [ * ]; (ii) the Research Program with respect to
each such Collaboration Target is [ * ]; or (iii) that [ * ] would not be [ *
].  The Long-Term Collaboration shall terminate following the earlier of:  (i)
the termination of all Collaboration Targets pursuant to the immediately
preceding sentence; or (ii) the end of Year Four.

 

Section 3.08 Effect of Termination of Research Program.

 

(a)               In case of a termination of the Research Program pursuant to
Section 3.07(b) prior to the end of Year Four, Sankyo shall be exempt from any
payment(s) under Section 6.01 that would have become due and payable after the
effective date of such early termination.  The RMC shall meet at least seven (7)
days prior to the end of the Research Program Term to determine which compounds
screened or made during the Research Program that are not then either a
Collaboration Lead Compound or a Sankyo Lead Compound should be designated as a
Collaboration Lead Compound or a Sankyo Lead Compound.

 

(b)              If the Research Program terminates pursuant to Section 3.07(b)
prior to the end of Year Four and this Agreement terminates simultaneously in
accordance with Section 13.01(a) (i.e., no Lead Compound or Research Compound
has been designated previously as a Collaboration Lead Compound in accordance
with Section 3.08(a) or Section 4.02 and no Sankyo Lead Compound has been
identified pursuant to Section 3.08(a) or is being developed in accordance with
Section 4.06), then: (i) all licenses granted by Tularik to Sankyo under this
Agreement will terminate, other than any [ * ] license provided in the last
sentence of Section 10.02; and (ii) [ * ] Sankyo will also grant to Tularik a
nonexclusive, sublicensable, worldwide license under the Sankyo Technology to
the extent necessary to develop, make, use, sell, offer for sale or import
Substances, Lead Compounds or Research Compounds screened in or made pursuant to
the Research Program [ * ].

 

(c)               Section 4.11 provides for the Parties’ rights and obligations
in the event that the Research Program terminates early but the Term of this
Agreement does not terminate simultaneously.

 

9

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Section 3.09   Exclusive Collaboration.  Except as otherwise provided in
Articles IV and V with respect to Third Party sublicensees and contractors, the
Parties shall work exclusively with each other to perform research to identify
and characterize the Current Program Target during the Feasibility Study and to
research and develop compounds [ * ] during the Research Program Term. During
the Term, neither Party shall research, develop or commercialize a product that
is primarily active against a Collaboration Target for use in the Field other
than pursuant to this Agreement.

 

(a)               If, following the commencement of the Long-Term Collaboration,
the Research Program is terminated with respect to any Collaboration Target
effective any time after the end of [ * ], for a period of [ * ] years
thereafter, Sankyo shall not research, develop or commercialize any product that
is [ * ]; provided, however, that Sankyo may research, develop or commercialize
Research Compounds that are [ * ].

 

(b)              If, following the commencement of the Long-Term Collaboration,
Sankyo should terminate the Research Program with respect to any Collaboration
Target effective at the end of [ * ] hereunder, Sankyo shall not research,
develop or commercialize any product that is [ * ] for the [ * ] or [ * ] of the
[ * ]; provided, however, that Sankyo may research, develop or commercialize
Research Compounds that are [ * ].

 

Article IV.              DEVELOPMENT PROGRAM

 

Section 4.01   General Principles.  The Parties agree to use commercially
reasonable efforts to develop Collaboration Lead Compounds for use in the Field,
making use of each Party’s special expertise as directed by the RMC, with the
intent of obtaining all Regulatory Approvals and commercializing Products as
soon as reasonably practicable thereafter.

 

Section 4.02 Designation of Collaboration Lead Compound.

 

(a)               From time to time either Party may propose to the RMC one or
more Lead Compounds or Research Compounds for Pre-Clinical Development.  The RMC
will promptly determine whether such Lead Compound or Research Compound is
suitable for Pre-Clinical Development by determining whether such Lead Compound
or Research Compound meets the Pre-Clinical Development Criteria and, if so,
propose a plan and budget for Pre-Clinical Development thereof within a
reasonable time following such determination.

 

(b)              If the RMC determines that such Lead Compound or Research
Compound meets the Pre-Clinical Development Criteria, then, within [ * ] of such
determination, each Party shall provide to the RMC a written notice as to
whether it elects to participate in, and commit resources to conduct,
Pre-Clinical Development of such Lead Compound or Research Compound as a
Collaboration Lead Compound.  If the RMC determines that more information is
necessary prior to making a determination of whether such Lead Compound or
Research Compound should be designated as a Collaboration Lead Compound, then
the proposal of such Lead Compound or Research Compound is rescinded and
reasonable efforts on such Lead Compound or Research Compound shall be continued
for a reasonable period of time. If the RMC determines that such Lead Compound
or Research Compound does not meet the Pre-Clinical Development Criteria, then,
within [ * ] of such determination, each Party shall provide to the RMC a
written notice as to whether it elects to designate such Lead Compound or
Research Compound as a Collaboration Lead Compound and participate in, and
commit resources to conduct, Pre-Clinical Development of such Collaboration Lead
Compound, notwithstanding that such Lead Compound or Research Compound does not
meet the Pre-Clinical Development Criteria.  If both Parties make an affirmative
election with respect to any Lead Compound or Research Compound pursuant to
either the first or second sentence of this Section 4.02(b), then such Lead
Compound or Research Compound shall be designated a “Collaboration Lead
Compound” and any products incorporating or based upon such Collaboration Lead
Compound for which an IND is submitted to a regulatory authority shall be
designated as a “Product.” If Tularik makes an affirmative election and Sankyo
makes a negative election with respect to whether any Lead Compound or Research
Compound shall be designated a Collaboration Lead Compound, then: (i) all
licenses granted by Tularik to Sankyo will terminate (other than any [ * ]
license provided in the last sentence of Section 10.02) with respect to such
Lead Compound or Research Compound; (ii) Sankyo will grant to Tularik an

 

10

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exclusive, sublicensable, worldwide, royalty-bearing [ * ] license to develop,
make, use, sell, offer for sale or import such Lead Compound or Research
Compound under Sankyo’s interest in Program Patents, Program Know-How and
Research Compound Patents; and (iii) under terms and conditions to be separately
agreed, Sankyo will also grant to Tularik a nonexclusive, sublicensable,
worldwide license under the Sankyo Technology to the extent necessary to
practice the license granted under the Program Patents and Program Know-How in
Section 4.02(b)(ii) (including Sankyo Technology relating to a limited number of
Sankyo’s Substances). Thereafter, Tularik will have the right to proceed
independently to develop such compound without any obligation to Sankyo
whatsoever.  If Sankyo makes an affirmative election and Tularik makes a
negative election with respect to whether any Lead Compound or Research Compound
shall be designated a Collaboration Lead Compound, Sankyo will have the right to
proceed independently to develop such compound as a Sankyo Lead Compound or
Sankyo Product under Section 4.06.

 

Section 4.03   Reversion of Discontinued Compounds.  If neither Party makes an
affirmative election with respect to any Lead Compound or Research Compound
being designated a Collaboration Lead Compound pursuant to Section 4.02(b), all
rights in and to any such Lead Compound that is not claimed in a Research
Compound Patent shall revert to the Party that synthesized such Lead Compound
without any obligation whatsoever to the other Party hereto and all rights in
and to any Research Compound shall be as provided in Section 10.01.  Development
of products based upon such non-elected Lead Compound or Research Compound (a
“Discontinued Compound”) may be subsequently independently initiated by Tularik
pursuant to Section 5.05.

 

Section 4.04  Reversion of Non-Proposed Compound.  If a Lead Compound or
Research Compound is not, during the Research Program Term, proposed to the RMC
pursuant to Section 4.02(a), such Lead Compound or Research Compound shall be
neither a Collaboration Lead Compound nor a compound that may be developed under
Section 4.06, and all rights in and to such non-proposed Lead Compound that is
not claimed in a Research Compound Patent shall revert to the Party that
synthesized such Lead Compound without any obligation to the other Party
whatsoever and all rights in and to any Research Compound shall be as provided
in Section 10.01.  Development of products based upon such non-proposed Compound
(a “Non-Proposed Compound”) may be subsequently independently initiated by
Tularik pursuant to Section 5.05.

 

Section 4.05   Compliance.  The Parties will comply with all applicable
supranational, federal, state and/or local laws pertaining to the Pre-Clinical
Development and Development of Products and Sankyo Products.  Sankyo will be
responsible for filing in its name and shall own all Drug Approval Applications
relating to Products in each country in the Sankyo Territory in which Products
will be commercialized.

 

Section 4.06 Independent Development by Sankyo following Opt-Out by Tularik.

 

(a)               Sankyo Lead Compound/Sankyo Product.  In the event (i)
Tularik, pursuant to Section 4.02(b), elects not to, or does not, participate in
and commit resources to the Pre-Clinical Development of a Research Compound or
Lead Compound as a Collaboration Lead Compound in the Co-Commercialization
Territory or (ii) Tularik unilaterally terminates its participation in the
Pre-Clinical Development or Development of a Collaboration Lead Compound or
Product in the Co-Commercialization Territory, then Sankyo shall have the right
to practice the license granted in Section 5.04 and to undertake pre-clinical
development of a Lead Compound or Research Compound or to continue Pre-Clinical
Development and Development of such Collaboration Lead Compound or Product
independently in the Territory as a “Sankyo Lead Compound” or “Sankyo Product,”
[ * ] and [ * ].

 

(b)              Sole Discretion.  In the event Sankyo elects to proceed
independently with respect to a Sankyo Lead Compound or Sankyo Product, Sankyo
shall be entitled to develop such Sankyo Lead Compound and commercialize such
Sankyo Product at its sole discretion, alone or with a Third Party, in the
Territory.

 

Section 4.07   Termination.  If Sankyo terminates its development or
commercialization of a Sankyo Lead Compound or a Sankyo Product, then (i) it
shall promptly so notify Tularik, (ii) such compound shall no longer be a Sankyo
Lead Compound and such product shall no longer be a Sankyo Product and (iii) the
licenses granted to Sankyo for such compound or product shall terminate upon
Tularik’s receipt of such notice.

 

 

11

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Section 4.08   Co-Development Agreement.  For each Collaboration Lead Compound,
the Parties will negotiate in good faith and finalize an agreement for the
co-development of all associated Products (“Co-Development Agreement”), as soon
as practicable following the [ * ].  The basis for the Co-Development Agreement
shall be the terms and conditions contained in the Heads of Co-Development
Agreement set forth in Appendix D [ * ].  Anything in this Agreement to the
contrary notwithstanding, if the Parties do not execute a Co-Development
Agreement for the relevant Product within [ * ]:  (i) the [ * ] shall continue [
* ] the Parties; and (ii) the Parties shall [ * ].

 

Section 4.09   Co-Commercialization Agreement.  For each Collaboration Lead
Compound, the Parties will negotiate in good faith and finalize an agreement for
the co-promotion or co-marketing, as the case may be, of all associated Products
(“Co-Commercialization Agreement”), within [ * ] after the [ * ] for the [ * ]. 
The basis for the Co-Commercialization Agreement shall be the terms and
conditions contained in the Heads of Co-Commercialization Agreement set forth in
Appendix E [ * ].  Anything in this Agreement to the contrary notwithstanding,
if the Parties do not execute a Co-Commercialization Agreement for the relevant
Product within [ * ]:  (i) the [ * ] shall continue [ * ] the Parties; and (ii)
the Parties shall [ * ].

 

Section 4.10   Dispute Resolution.  The Parties shall select three mutually
acceptable arbitrators (the “Arbitrators”) to determine all required provisions
of the Co-Development Agreement or Co-Commercialization Agreement, as the case
may be, that have not previously agreed by the Parties.  One (1) of the three
(3) Arbitrators shall be selected by Sankyo, one (1) of the Arbitrators shall be
selected by Tularik and the third Arbitrator, who shall act as chairperson,
shall be selected by the mutual agreement of the other two (2) Arbitrators
within [ * ] of their selection; provided, however, if within such time period
the first two (2) selected Arbitrators are unable to agree on a third member of
the arbitration panel, such third member shall be appointed by the President of
the American Arbitration Association as soon as practicable thereafter.  The
three (3) Arbitrators shall have relevant biotechnology and/or pharmaceutical
industry experience.  Each Party shall submit to the other Party and the
Arbitrators, within [ * ] of the selection of the chairperson of the
Arbitrators, such Party’s written proposal containing all of the required
provisions of the Co-Development Agreement or Co-Commercialization Agreement, as
the case may be, that have not previously been agreed to by the Parties, along
with support for such proposal. Such proposals shall reflect those terms as are
reasonable and customary within the pharmaceutical industry.  At the request of
either Party, the Arbitrators shall hold a hearing to determine the appropriate
provisions of the Co-Development Agreement or Co-Commercialization Agreement, as
the case may be.  The Arbitrators shall rule on such provisions within [ * ]
following the later to occur of receipt of such proposals from the Parties or
such hearing.  Such ruling shall [ * ].  The Arbitrators shall not issue any
written opinion or otherwise explain the basis of the ruling.  Any arbitration
herewith shall be conducted in the English language to the maximum extent
possible. [ * ].

 

Section 4.11   Reversion of Rights to Tularik on Early Termination of Research
Program.  If, after the Research Program terminates pursuant to Section 3.07(b)
[ * ] with the [ * ], Sankyo terminates Pre-Clinical Development of
Collaboration Lead Compounds and/or Development or Co-Commercialization of any
Products in any country in the Territory [ * ] or [ * ], then: (i) all licenses
granted by Tularik to Sankyo will terminate [ * ] with respect to such
Collaboration Lead Compound, Sankyo Lead Compound, Product or Sankyo Product;
(ii) Sankyo will grant to Tularik an exclusive, sublicensable, worldwide, [ * ]
license to develop, make, use and sell such Collaboration Lead Compound, Sankyo
Lead Compound, Product or Sankyo Products under Sankyo’s interest in Program
Patents, Program Know-How and Research Compound Patents; and (iii) [ * ] Sankyo
will also grant to Tularik a non-exclusive, sublicensable, worldwide license
under the Sankyo Technology to the extent necessary to practice the license
granted under the Program Patents and Program Know-How in Section 4.11(ii) [ *
].

 

Section 4.12   Sankyo Territory.

 

(a)               Development.  Sankyo shall [ * ] for each Product in the
Sankyo Territory and shall [ * ] throughout the Sankyo Territory.  Sankyo shall
be responsible for diligently conducting Development of Products in the Sankyo
Territory and use commercially reasonable efforts to develop and commercialize
Products as soon as reasonably practicable. Sankyo may elect, on a Collaboration
Lead Compound-by-Collaboration Lead Compound or Product-by-Product basis, to
terminate the Pre-Clinical Development of a given Collaboration Lead Compound or
Development of a given Product based upon or incorporating such Collaboration
Lead Compound in the Sankyo Territory by written notice to Tularik at any time.
After

 

12

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receipt of such notice by Tularik in accordance with this Section 4.12:  (i)
Sankyo shall no longer be [ * ]; and (ii) all rights in and to [ * ] in the [ *
] the [ * ] at the [ * ].  In the event Sankyo gives notice under this Section
4.12, Sankyo shall:  (i) make its personnel, relevant data and other resources
available to Tularik as necessary to effect an orderly transition of development
responsibilities; and (ii) transfer and assign to Tularik all regulatory
submissions, including all Drug Approval Applications relating to such
Collaboration Lead Compound and/or Products, together with all materials and
data related thereto in its possession.

 

(b)              Commercialization. Sankyo shall oversee and implement all
commercialization activities in the Sankyo Territory during the Term, based on
the principle of maximizing profits from sales of Products. Sankyo shall have
the exclusive responsibility for promoting each Product in the Sankyo Territory
during the Term.  All information and materials generated by Sankyo in the
course of its promotion effort for Products within any country in the Sankyo
Territory shall be provided to the MOC for use in the promotion effort within
the Co-Commercialization Territory. Sankyo shall [ * ] for providing such
information and materials to the MOC. Sankyo shall submit to the MOC a marketing
plan and budget for each Product it intends to commercialize in the Sankyo
Territory for informational purposes. The MOC shall review Sankyo’s plans for
implementation of commercialization activities within the Sankyo Territory and
provide suggestions for facilitating the promotion and commercialization of
Products on a global basis. Sankyo may elect, on a Collaboration Lead
Compound-by-Collaboration Lead Compound or Product-by-Product basis, to
terminate all commercialization activities relating to a given Product in the
Sankyo Territory by written notice to Tularik at any time. After receipt of such
notice by Tularik in accordance with this Section 4.12, all rights in and to
such Product in the Sankyo Territory shall revert to Tularik without any
obligation to Sankyo whatsoever [ * ].  In the event Sankyo gives notice under
this Section 4.12, Sankyo shall:  (i) [ * ] for the [ * ] the [ * ] (ii) make [
* ]; and (iii) [ * ].

 

Article V.               LICENSE GRANTS

 

Section 5.01   Research License.  Each Party hereby grants to the other Party,
solely for the purpose of conducting the Program as described in the Research
Plan, a non-exclusive license to practice the Patent Rights and Know-How owned
or controlled by such Party during the Research Program Term.  Neither Party may
grant sublicenses under the foregoing research licenses without the prior
written consent of the other Party, not to be unreasonably withheld.  The [ * ]
is as set forth Section 6.02, Section 6.03 and Appendix E.

 

Section 5.02   Grant by Tularik for Products.  Subject to the terms and
conditions of this Agreement, Tularik hereby grants and agrees to grant to
Sankyo:  (i) an exclusive (except as to Tularik), [ * ] license (with the right
to sublicense as provided in this Section 5.02) under the Program Patents,
Program Know-How and the Tularik Technology to the extent necessary or useful to
develop, have developed, make, have made, use, import, offer for sale, sell and
have sold any Product in the Co-Commercialization Territory (subject to Section
12 of Appendix E); and (ii) an exclusive (even as to Tularik), [ * ] license
(with the right to sublicense as provided in this Section 5.02) under the
Program Patents, Program Know-How and the Tularik Technology to develop, have
developed, make, have made, use, import, offer for sale, sell and have sold any
Product in the Sankyo Territory.  Except as provided in Section 5.06, Sankyo may
not sublicense any rights granted under this Section 5.02 in the Territory to
any Third Party without the prior written consent of Tularik, not to be
unreasonably withheld. Sankyo shall ensure that any such sublicense negotiated
by Sankyo as permitted under this Section 5.02 shall run from the Parties to
such sublicensee; and Sankyo shall ensure that any such sublicense shall provide
that [ * ] shall be [ * ] and [ * ].

 

Section 5.03   Grant by Sankyo for Products.  Subject to the terms and
conditions of this Agreement, Sankyo hereby grants and agrees to grant to
Tularik an exclusive (except as to Sankyo), [ * ] license (with the right to
sublicense as provided in this Section 5.03) under the Program Patents, Program
Know-How and the Sankyo Technology to the extent necessary or useful to develop,
have developed, make, have made, use, import, offer for sale, sell and have sold
any Product in the Co-Commercialization Territory (subject to Section 12 of
Appendix E).  Except as provided in Section 5.06, Tularik may not sublicense any
rights granted under this Section 5.03 to any Third Party in the
Co-Commercialization Territory without the prior written consent of Sankyo, not
to be unreasonably withheld.  Tularik shall ensure that any sublicense
negotiated by Tularik as permitted under this Section 5.03 shall run from the
Parties to such sublicensee; and Tularik shall ensure that [ * ] shall be [ * ]
and [ * ].

 

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Section 5.04   Grant by Tularik for Sankyo Products.  Tularik hereby grants to
Sankyo, to the extent Sankyo is developing a Sankyo Lead Compound or developing
or commercializing a Sankyo Product pursuant to Section 4.06: (i) an exclusive
(even as to Tularik), [ * ], worldwide (subject to Section 12 of Appendix E)
license (with the right to sublicense) under Tularik’s interest in the Program
Patents and Program Know-How; and (ii) a non-exclusive, [ * ], worldwide
(subject to Section 12 of Appendix E) license (with the right to sublicense)
under the Tularik Technology, in each case to develop or have developed Sankyo
Lead Compounds and to develop, have developed, make, have made, use, import,
offer for sale, sell and have sold Sankyo Products incorporating a Sankyo Lead
Compound.

 

Section 5.05   Grant by Sankyo for Discontinued Compounds and Non-Proposed
Compounds. Sankyo hereby grants to Tularik to the extent Tularik is developing a
Discontinued Compound or a Non-Proposed Compound:  (i) under terms and
conditions to be separately agreed, an exclusive, [ * ] worldwide license (with
the right to sublicense) under Sankyo’s interest in the Program Patents, Program
Know-How and Research Compound Patents; and (ii) under terms and conditions to
be separately agreed, a non-exclusive, [ * ] worldwide license (with the right
to sublicense) under the Sankyo Technology, in each case to develop or have
developed Discontinued Compounds and/or Non-Proposed Compounds and to develop,
have developed, make, have made, use, import, offer for sale, sell and have sold
products incorporating a Discontinued Compound and/or a Non-Proposed Compound.

 

Section 5.06   Third Party Technology; Consents to Certain Sublicenses.  During
the Term, if either Party becomes aware of (i) an opportunity to participate in
research with a Third Party that could advance the objectives of the Research
Program or the Development and/or Pre-Clinical Development of a Collaboration
Lead Compound and/or a Product; or (ii) an opportunity to obtain a license or
other right owned or controlled by a Third Party relating to the manufacture,
marketing, import, use or sale of a Product, it shall so notify the other Party
and the RMC, as applicable, will determine whether to pursue such opportunity in
connection with the Program.  In the event that the Parties pursue such
opportunity under subsection (i), they shall grant appropriate licenses or
sublicenses, as applicable, to such Third Party solely to perform the tasks
designated and approved by the RMC, as applicable, for such Third Party and
provide for confidentiality and non-use obligations, and for ownership of or
licenses under such Third Party’s inventions and related intellectual property
rights arising in the course of work performed by such Third Party pursuant to
this Agreement, consistent with those provided herein.  If the Parties, in
connection with any opportunity described in subsection (i) or (ii), incur
obligations to make payments to a Third Party for:  (A) [ * ] with respect to
the [ * ], such payments shall be made [ * ]; or (B) [ * ] with respect to the [
* ], such payments shall be [ * ] as the case may be, of the [ * ]. If Sankyo,
in connection with any opportunity described in subsection (i) or (ii), incurs
obligations to make payments to a Third Party with respect to the Sankyo
Territory for: (X) [ * ] with respect to the [ * ], such payments shall be made
[ * ]; or (Y) [ * ] with respect to the [ * ], such payments shall be [ * ]. 
Tularik shall provide reasonable assistance to Sankyo to [ * ] with respect to
the [ * ] in the [ * ].  Neither Party shall [ * ] shall receive [ * ] the [ *
], or [ * ].

 

Section 5.07   Grant by Parties for Personal Property Interest in Research
Compounds.  Tularik hereby grants to Sankyo, [ * ] a non-exclusive, [ * ]
worldwide license (with the right to sublicense) under Tularik’s personal
property interest in a Research Compound synthesized by Tularik in the event
that Sankyo desires to develop, have developed, make, have made, use, import,
offer for sale, sell and have sold products incorporating such Research
Compound. Sankyo hereby grants to Tularik, [ * ] a non-exclusive, [ * ]
worldwide license (with the right to sublicense) under Sankyo’s personal
property interest in a Research Compound synthesized by Sankyo in the event that
Tularik desires to develop, have developed, make, have made, use, import, offer
for sale, sell and have sold products incorporating such Research Compound.

 

Article VI.              PAYMENTS

 

Section 6.01 Payments.  In consideration of Tularik Technology, but not in
consideration of the licenses granted pursuant to Article V hereof or as partial
payment of any royalties to be paid in consideration hereof, Sankyo shall pay
Tularik [ * ].  This amount payable under this Section 6.01 shall represent the
actual proceeds to be received by Tularik after any applicable tax deductions
have been made. In the event that [ * ] or [ * ] with respect to [ * ].  In the
year the payments are made and for the following [ * ] shall [ * ] whether [ * ]
or [ * ] the [ * ].  Additionally, to support the Research Program, Sankyo shall
pay to Tularik an amount equal to:  (i)(A) [ * ] or as increased as required [ *
] for the [ * ] multiplied by (B) [ * ]; provided, however, that in no event
shall the [ * ] unless the [ * ] to the [ * ] as a [ * ], in which case the
payment in this Section 6.01(i) shall equal:  (X) the amount calculated by [ *
];

 

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multiplied by (Y) [ * ] equals the number of [ * ] and the [ * ]; provided
further in the event the Parties [ * ] of the amount calculated pursuant to [ *
] shall be payable [ * ]; (ii)(A) the [ * ] or as increased as required [ * ];
multiplied by (B) [ * ]; multiplied by (C) [ * ], where the [ * ] from the end [
* ] and the [ * ]; provided, however, that in no event shall the [ * ]; and
(iii)(A) the [ * ] or as increased as required [ * ]; multiplied by (B) [ * ];
provided, however, that in no event shall [ * ].  The amount to be paid [ * ] by
the [ * ] and shall be [ * ] or as increased as required [ * ], as the case may
be, and the [ * ]. Unless the [ * ] as provided in [ * ] the payments pursuant
to this Section 6.01 shall [ * ].

 

Section 6.02   Payments on Sankyo Products.

 

(a)               Royalties.  In the event Sankyo is commercializing a Sankyo
Product pursuant to Section 4.06, Sankyo will pay Tularik, with respect to
Sankyo Products sold in the Co-Commercialization Territory, a royalty equal to:

 

(i)                           [ * ] of Net Sales of such Sankyo Product by
Sankyo, its Affiliates or sublicensees in the Territory less than [ * ];

 

(ii)                        [ * ] of Net Sales of such Sankyo Product by Sankyo,
its Affiliates or sublicensees in the Territory greater than or equal to [ * ];
or

 

(iii)                     [ * ] of Net Sales of such Sankyo Product by Sankyo,
its Affiliates or sublicensees in the Territory greater than or equal to [ * ].

 

(b)              Milestone Payments.  In the event Sankyo is developing a Sankyo
Lead Compound or developing or commercializing a Sankyo Product pursuant to
Section 4.06, Sankyo will make the following payments to Tularik in US Dollars
upon the occurrence of the listed event in the Territory for such Sankyo Lead
Compound and related Sankyo Product:

 

Event

 

Payment

 

 

 

[ * ]

 

[ * ]

 

On the date any one milestone with respect to a Sankyo Lead Compound or Sankyo
Product is achieved, all lower numbered unachieved milestones shall be deemed to
have been achieved with respect to that Sankyo Lead Compound or Sankyo Product
and shall be paid.

 

(c)               Period of Royalty Obligation.  The royalty obligation under
Section 6.02(a) shall be payable on a quarterly basis in respect of each country
in which sales of Sankyo Products occur within [ * ] after the end of each
calendar quarter commencing on the date of the first commercial sale of a Sankyo
Product in such country until the expiration of the last to expire patent
licensed to Sankyo under Section 5.02 above or the [ * ] anniversary of the
first commercial sale in such country in which there is no patent (“Royalty
Term”) for such Sankyo Product. If Tularik terminates Development in the
Co-Promotion Territory, then Sankyo’s milestone obligations in the Territory
shall continue; provided, however, that Sankyo shall have no obligation to pay
milestones on Products for which Sankyo has already paid milestones to Tularik
in the Sankyo Territory. If Tularik terminates Co-Promotion or Co-Marketing
activities after the Parties have begun Co-Promoting or Co-Marketing in the
Territory, then Sankyo’s royalty obligations in the Territory with respect to
the Product shall continue, provided, however, that Sankyo shall have no
obligation to pay milestones to Tularik for the Product.

 

Section 6.03 Payments in the Sankyo Territory.

 

(a)               Royalties.  To the extent Sankyo is not otherwise required to
pay royalties pursuant to Section 6.02(a), Sankyo will pay Tularik royalties on
Net Sales of Products sold in the Sankyo Territory by Sankyo, its Affiliates or
sublicensees as follows:

 

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(i)                           [ * ] of Net Sales of Products by Sankyo, its
Affiliates or sublicensees less than [ * ];

 

(ii)                        [ * ] of Net Sales of Products by Sankyo, its
Affiliates or sublicensees greater than or equal to [ * ]; or

 

(iii)                  [ * ] of Net Sales of Products by Sankyo, its Affiliates
or sublicensees greater than or equal to [ * ].

 

(b)              Milestone Payments.  Unless Sankyo shall be otherwise required
to make the payments pursuant to Section 6.02(b), Sankyo will make the following
payments to Tularik in US Dollars upon the occurrence of the listed event in the
Sankyo Territory for each Collaboration Lead Compound and related Product:

 

Event

 

Payment

 

 

 

[ * ]

 

[ * ]

 

On the date any one milestone with respect to a Collaboration Lead Compound or
Product is achieved, all lower numbered unachieved milestones shall be deemed to
have been achieved with respect to that Collaboration Lead Compound or Product
and shall be paid.

 

(c)               Period of Royalty Obligation.  The royalty obligation under
Section 6.03(a) shall be payable on a quarterly basis in respect of each country
in the Sankyo Territory in which sales of Products occur within [ * ] after the
end of each calendar quarter commencing on the date of first commercial sale of
a Product in a country in the Sankyo Territory until the expiration of the last
to expire patent licensed to Sankyo under Section 5.02 above or the [ * ]
anniversary of the first commercial sale in such country in which there is no
patent for such Product.

 

Section 6.04   Taxes.  Payment of all withholding or similar taxes that may be
imposed by any governmental authority on royalty and milestone payments provided
in Section 6.02 or Section 6.03 of this Agreement shall be paid by Tularik.

 

Article VII.             RECORD

 

Section 7.01   Records.  Sankyo and Tularik and, if applicable, their respective
Affiliates and sublicensees, each shall keep accurate books and accounts of
record (prepared in accordance with GAAP) in connection with the manufacture,
use and/or sale by or for such Party of all Collaboration Lead Compounds,
Products and Sankyo Products in the Territory in sufficient detail to permit
accurate determination of all figures necessary for verification of royalties
and other compensation required to be paid or expenses required to be shared
hereunder or pursuant Section 4 of Appendix E.  Sankyo and Tularik shall
maintain such records for a period of [ * ] after the end of the year in which
such records were generated.  Either Party, through a certified public
accountant reasonably acceptable to the other Party, shall have the right to
access the books and records of the other Party, its Affiliates and sublicensees
for the sole purpose of verifying amounts due to or credited to (as applicable)
such Party pursuant to this Agreement, at the expense of the auditing Party,
unless such audit reveals an underpayment (or failure to credit, as applicable)
to such Party greater than [ * ] of amounts due to or credited to (as
applicable) such Party, in which case the audited Party shall bear all costs of
such audit, and the excess or deficit shall be adjusted between the Parties
within [ * ] of receipt of invoice for adjustment.  Such access shall be
permitted only upon reasonable prior written notice to the other Party during
ordinary business hours, and not more frequently than once during each calendar
year. [ * ] to [ * ] a [ * ] that [ * ] for purposes of:  (i) [ * ], which is [
* ]; or (ii) [ * ]

 

Article VIII.           DISCLAIMER OF WARRANTIES

 

Section 8.01   Tularik Disclaimer.  THE TULARIK TECHNOLOGY PROVIDED HEREUNDER IS
PROVIDED “AS IS” AND TULARIK EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES OF ANY
KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION THE WARRANTIES OF DESIGN,
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NONINFRINGEMENT OF THE
INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES OR WARRANTIES ARISING FROM A
COURSE OF DEALING, USAGE OR TRADE PRACTICES, IN ALL CASES WITH RESPECT THERETO. 

 

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Without limiting the generality of the foregoing, Tularik expressly does not
warrant (i) the success of any study or test commenced pursuant to the Program
or (ii) the safety or usefulness for any purpose of the Tularik Technology,
Program Patents or the Program Know-How.

 

Section 8.02   Sankyo Disclaimer.  THE SANKYO TECHNOLOGY PROVIDED HEREUNDER IS
PROVIDED “AS IS” AND SANKYO EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES OF ANY
KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION THE WARRANTIES OF DESIGN,
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NONINFRINGEMENT OF THE
INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES OR WARRANTIES ARISING FROM A
COURSE OF DEALING, USAGE OR TRADE PRACTICES, IN ALL CASES WITH RESPECT THERETO. 
Without limiting the generality of the foregoing, Sankyo expressly does not
warrant (i) the success of any study or test commenced pursuant to the Program
or (ii) the safety or usefulness for any purpose of the Sankyo Technology,
Program Patents or the Program Know-How.

 

Article IX.              INDEMNIFICATION

 

Section 9.01   Indemnification for Sankyo Products.  With respect to Sankyo
Products:

 

(a)               Sankyo hereby agrees to save, defend and hold Tularik and its
agents and employees harmless from and against any and all suits, claims,
actions, demands, liabilities, expenses and/or loss, including reasonable legal
expenses and attorneys’ fees (collectively, “Claims”), resulting directly or
indirectly from the development, manufacture, use, handling, storage, sale or
other disposition of Sankyo Products by Sankyo, its agents or sublicensees,
except to the extent such Claims result from the negligence or willful
misconduct of Tularik.

 

(b)              In the event that Tularik is seeking indemnification under this
Section 9.01, it shall inform Sankyo of a Claim as soon as reasonably
practicable after it receives notice of the Claim, shall permit Sankyo to assume
direction and control of the defense of the Claim (including the right to settle
the Claim solely for monetary consideration), and shall cooperate as requested
in the defense of the Claim.

 

Section 9.02   Indemnification for Products in the Co-Commercialization
Territory.  With respect to any Product in Development and any Product
Co-Promoted by the Parties in the Co-Commercialization Territory:

 

(a)               Each Party hereby agrees to save, defend and hold the other
Party and its agents and employees harmless from and against any and all Claims
resulting directly or indirectly from the development, manufacture, use,
handling, storage, sale or other disposition of Products by the indemnifying
Party, its agents or sublicensees, but only to the extent such Claims result
from the negligence or willful misconduct of the indemnifying Party or its
employees and agents and do not also result from the negligence or willful
misconduct of the Party seeking indemnification.  Any other Claims resulting
directly or indirectly from the development, manufacture, use, handling,
storage, sale or other disposition of Products shall be included as an expense
of either Party at the time such Claim is finally determined, whether by
judgment, award, decree or settlement and therefore shall be borne by the
Parties in accordance with the Parties’ share of profits.

 

(b)              In the event that a Party is seeking indemnification under this
Section 9.02, it shall inform the other Party of a Claim as soon as reasonably
practicable after it receives notice of the Claim, shall permit the indemnifying
Party to assume direction and control of the defense of the Claim (including the
right to settle the Claim solely for monetary consideration), and shall
cooperate as requested in the defense of the Claim.

 

Section 9.03   Indemnification for Products in the Sankyo Territory. With
respect to any Products sold by Sankyo in the Sankyo Territory:

 

(a)               Sankyo hereby agrees to save, defend and hold Tularik and its
agents and employees harmless from and against any and all Claims resulting
directly or indirectly from the manufacture, use, handling, storage, sale or
other disposition of Products by Sankyo, its agents or sublicensees, except to
the extent such Claims result from the negligence or willful misconduct of
Tularik.

 

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(b)              In the event that Tularik is seeking indemnification under this
Section 9.03, it shall inform Sankyo of a Claim as soon as reasonably
practicable after it receives notice of the Claim, shall permit Sankyo to assume
direction and control of the defense of the Claim (including the right to settle
the Claim solely for monetary consideration), and shall cooperate as requested
in the defense of the Claim.

 

Section 9.04   Indemnification for Discontinued Compounds or Non-Proposed
Compounds Sold by Tularik. With respect to any Discontinued Compounds or
Non-Proposed Compounds sold by Tularik:

 

(a)               Tularik hereby agrees to save, defend and hold Sankyo and its
agents and employees harmless from and against any and all Claims resulting
directly or indirectly from the manufacture, use, handling, storage, sale or
other disposition of Discontinued Compounds or Non-Proposed Compounds by
Tularik, its agents or sublicensees, except to the extent such Claims result
from the negligence or willful misconduct of Sankyo.

 

(b)              In the event that Sankyo is seeking indemnification under this
Section 9.04, it shall inform Tularik of a Claim as soon as reasonably
practicable after it receives notice of the Claim, shall permit Tularik to
assume direction and control of the defense of the Claim (including the right to
settle the Claim solely for monetary consideration), and shall cooperate as
requested in the defense of the Claim.

 

Article X.               PATENT AND TRADE SECRET RIGHTS

 

Section 10.01 Ownership of Research Compounds. All inventions relating to the
composition or use of Research Compounds (“Research Compound Inventions”), [ *
], shall be [ * ] Inventorship of such inventions shall be determined in
accordance with U.S. patent laws.  Each Party agrees to execute, or have its
employees, agents or consultants execute, all paperwork necessary to effectuate
any such assignment necessary to achieve such [ * ] ownership of Research
Compounds and Research Compound Inventions.  Research Compound Patents shall be
[ * ] and shall be prosecuted in accordance with Section 10.03 hereof. The Party
that synthesized a Research Compound shall own the personal property rights
relating to such Research Compound.  The RMC shall establish a common numbering
system for identification of the Research Compounds to allow the Parties to
coordinate their activities with respect to such Research Compounds.

 

Section 10.02 Ownership of Inventions other than Research Compound Inventions. 
Each Party shall remain the sole owner or licensee, as applicable, of all
technology, Substances, discoveries, patent applications, patents, know-how and
inventions owned or controlled by such Party on the Effective Date and shall
have no rights in or to technology, Substances, discoveries and inventions owned
by the other Party except as specifically granted herein.  All inventions or
discoveries made, and materials and information created, jointly by Affiliates
sublicensed hereunder by, or employees, agents or consultants of, each Party, in
the course of conducting activities pursuant to this Agreement other than
Research Compound Inventions (“Joint Program Inventions”) shall be jointly
owned. Except as provided in Section 10.01, all inventions or discoveries made,
and materials and information created solely by Affiliates sublicensed hereunder
by, or employees, agents or consultants of, one Party in the course of
conducting activities pursuant to this Agreement other than Research Compound
Inventions (“Sole Program Inventions”) shall be [ * ].  Inventorship shall be
determined in accordance with the U.S. patent laws.  Each Party shall disclose
to the other Party promptly any inventions made by such Party’s Affiliate,
employees, agents and consultants in the course of performing such Party’s
obligations under the Program. If [ * ] license [ * ]

 

Section 10.03 Prosecution and Maintenance of Research Compound Patents and
Program Patent Rights.

 

(a)               The RMC shall determine which Party shall be responsible for
filing, prosecuting and maintaining patent applications for Research Compound
Patents and Joint Program Inventions, provided that each Party shall be
responsible for bearing [ * ] of the cost of filing for and prosecution and
maintenance of such patent application and/or patent.  The Party chosen to file,
prosecute and maintain a patent application shall select patent counsel,
approved by the other Party, such approval not to be unreasonably withheld, to
oversee such activities; [ * ].  In the event that the Party selected to file,
prosecute and maintain a patent application decides not to proceed with such
filing, prosecution or maintenance of any patent application filed under this
Section 10.03(a), such Party shall give the other Party [ * ] notice before any
relevant deadline, and

 

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the other Party shall have the right, but not the obligation, to pursue, at its
own expense, prosecution of such patent application or maintenance of such
patent.

 

(b)              Each Party shall be responsible for filing, prosecuting and
maintaining those Sole Program Inventions owned by it throughout the world and
shall cooperate with the other Party as to the prosecution of such Program
Patents.  Each Party shall be responsible for bearing the cost of filing,
prosecution and maintenance of Sole Program Inventions owned by it.  In the
event that any Party decides not to proceed with prosecuting an application for
such Sole Program Invention, or to pay any annuity for such a Sole Program
Invention as it becomes due, such Party shall give the other [ * ] notice before
any relevant deadline, and the other Party shall have the right to pursue, at
its own expense, prosecution of such patent application or maintenance of such
patent.

 

(c)               The Parties desire to implement a patent prosecution and
maintenance strategy that provides strong, broad patent protection on inventions
made during the course of the Parties’ performance under this Agreement.
Accordingly, they shall use commercially reasonable efforts to work together to
file, prosecute and maintain Research Compound Patents and Program Patents under
this Article X that include claims relating to [ * ].  To this end, the Party
filing, prosecuting and maintaining a Research Compound Patent or a Program
Patent shall provide to the other Party a copy of each patent application or
other patent filing it intends to make at least [ * ] prior to the earlier of
the relevant filing deadline or intended filing date for review and comment. 
The Party making any such filing shall use all reasonable efforts to incorporate
the non-filing Party’s comments on such filing before submitting such filing to
the relevant patent authority.  Additionally, the Party filing, prosecuting or
maintaining a Research Compound Patent or Program Patent (i) shall promptly
provide the other Party a copy of all material notices received from a patent
authority with respect to a Research Compound Patent or Program Patents, and
(ii) shall not abandon or cease to prosecute or maintain a Research Compound
Patent or Program Patent unless it has first notified the other Party not later
than [ * ] prior to any relevant deadline for making a filing with a patent
authority or maintenance payment with respect thereto and the other Party has
not, within [ * ] after receiving such notice, by written notice to such Party
elected to assume responsibility for filing, prosecuting or maintaining such
Research Compound Patent or Program Patent.  If a dispute arises regarding the
strategy for filing and prosecuting a patent application hereunder, such matter
shall be submitted to the EC for final resolution.

 

Section 10.04 Prosecution and Maintenance of Sankyo and Tularik Patent Rights.
Sankyo and Tularik shall prosecute and maintain all Patent Rights and Know-How
owned or controlled by Sankyo or Tularik, respectively, at such Party’s sole
expense and in its sole discretion.

 

Section 10.05 Disclaimer.  Each Party specifically disclaims any representation
or warranty, express or implied, that it will successfully obtain any Program
Patent or that any invention made by Affiliates, employees, agents and
independent contractors of such Party will be patentable.

 

Section 10.06 Perfection of Interest.  Each Party agrees to cooperate with the
other and take all reasonable additional actions and execute such agreements,
instruments and documents as may be reasonably required to perfect the other’s
ownership interest in accordance with the intent of this Agreement including,
without limitation, the execution of necessary and appropriate instruments of
assignment.

 

Section 10.07       Infringement by Third Parties.

 

(a)            With respect to infringement of any [ * ] Program Patents or
Research Compound Patents by a Third Party through the manufacture, import, use,
sale or offer for sale of a product competitive with a Product in any country
(“Competitive Product Infringement”), the Operations Committee (as defined in
Section 3 of Appendix D ) shall determine which Party shall have the right to
institute, prosecute and control any action or proceeding with respect to such
infringement (with the other Party having the right to participate in such
action and be represented, if it so desires, by counsel of its own selection
therein), it being the Parties’ general intent that any Competitive Product
Infringement of a [ * ] Program Patent or Research Compound Patent in the Sankyo
Territory shall be instituted, prosecuted and controlled by Sankyo.  If
necessary, in

 

 

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any action brought hereunder, the Party not controlling such action agrees to be
joined as a party plaintiff and to give reasonable assistance and any needed
authority to control, file and to prosecute such action. The Parties shall
consult with each other regarding the institution, prosecution and control of
any action or proceeding with respect to infringement of any of the [ * ]
Program Patents or Research Compound Patents other than Competitive Product
Infringement. Each Party’s costs related to patent enforcement (including
internal costs and expenses specifically attributable to said patent
enforcement) with respect to Competitive Product Infringement shall be [ * ],
and any related recoveries shall be [ * ].

 

(b)              With respect to infringement by a Third Party of any Research
Compound Patents, Program Patents or Patent Rights through the manufacture,
import, use, sale or offer for sale of a product competitive with a Sankyo
Product (“Competitive Sankyo Product Infringement”), Sankyo shall have the first
right, but not the obligation, to institute, prosecute and control any action or
proceeding with respect to such infringement (with Tularik having the right to
participate in such action and be represented if it so desires by counsel of its
own selection).  If Sankyo fails to institute and prosecute an action or
proceeding to abate the infringement within a period of [ * ] after receiving
written notice or otherwise having knowledge of the infringement as provided
above, then Tularik, if it owns or controls the Patent Right or Program Patent
being infringed, shall have the right, but not the obligation, to bring and
prosecute any such action; provided, however, that in such event Sankyo shall
have the right to participate in such action and to be represented in any such
action by counsel of its choice.  If necessary, in any action brought pursuant
to this Section 10.07(b), the Party not controlling such action agrees to be
joined as a party plaintiff and to give reasonable assistance and any needed
authority to control, file and to prosecute such action.  Each Party’s costs
related to patent enforcement (including internal costs and expenses
specifically attributable to said patent enforcement) with respect to
Competitive Sankyo Product Infringement shall be [ * ], and any related
recoveries shall be [ * ].

 

(c)               No settlement or consent judgment or other voluntary final
disposition of suit under this Section 10.07(c) may be entered into without the
consent of both Parties, which consents shall not be withheld unreasonably.

 

(d)               If an infringement of Program Patents or Patent Rights by a
Third Party could be characterized as both a Competitive Product Infringement
and a Competitive Sankyo Product Infringement, the EC shall determine which
Party shall have the right to proceed against such Third Party.

 

Section 10.08       Defense and Settlement of Third-Party Claims.

 

(a)               If a Third Party asserts that a patent or other right owned by
it is infringed by the manufacture, import, use, sale or offer for sale of any
Product, the Party first obtaining knowledge of such a claim shall immediately
provide the other Party with notice of such claim and the related facts in
reasonable detail.  In such event, the EC shall determine how best to control
the defense of any such claim.  In the event the EC cannot determine the proper
manner of defending any such claim, such defense shall be controlled by Sankyo
if the claim is brought in the Sankyo Territory; provided, however, that the
other Party shall have the right to participate in such defense and to be
represented in any such action by counsel of its selection at its sole
discretion.  The entity that controls the defense of a given claim with respect
to a Product in the Sankyo Territory shall also have the right to control
settlement of such claim; provided, however, that no settlement shall be entered
into without the written consent of the other Party, which consent shall not be
withheld unreasonably.

 

(b)              If a Third Party asserts that a patent or other right owned by
it is infringed by the manufacture, import, use, sale or offer for sale of any
Sankyo Product, the Party first obtaining knowledge of such a claim shall
immediately provide the other Party with notice of such claim and the related
facts in reasonable detail.  In such event, Sankyo shall control the defense of
any such claim, and shall also have the right to control settlement of such
claim; provided, however, that no settlement shall be entered into with respect
to any Program Patent or Patent Right owned, in whole or in part, or controlled
by Tularik without the written consent of Tularik, which consent shall not be
withheld unreasonably.

 

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Section 10.09 Allocation of Expenses. Any expenses of patent defense, settlement
and judgments incurred pursuant to Section 10.07 with respect to Sankyo Products
shall be [ * ].

 

Section 10.10 Settlement of Third-Party Claims for Infringement; Payment of
Third-Party Royalties. If a Third Party asserts that a patent or other right
owned by it is infringed by the development, manufacture, use, sale, offer for
sale or import of any Sankyo Product, and as a result of settlement procedures
or litigation under this Article X Sankyo is required to pay the Third Party a
royalty or make any payment of any kind for the right to sell a Sankyo Product
in a particular country, such expense shall be [ * ] and subject also to the
proviso that, if [ * ] with respect to [ * ] and [ * ]. Tularik shall provide
reasonable assistance to Sankyo to facilitate [ * ] as provided in [ * ].

 

Article XI.              CONFIDENTIALITY AND PUBLICITY

 

Section 11.01 Confidential Information; Exceptions. Except to the extent
expressly authorized by this Agreement or otherwise agreed in writing by the
Parties, each Party agrees that, for the Term and for [ * ] thereafter, it shall
keep confidential and shall not publish or otherwise disclose and shall not use
for any purpose other than as provided for in this Agreement any Confidential
Information furnished to it by the other Party pursuant to this Agreement,
except to the extent that the receiving Party can demonstrate by competent proof
that such Confidential Information:

 

(a)               was already known to the receiving Party, other than under an
obligation of confidentiality, at the time of disclosure by the other Party;

 

(b)              was generally available to the public or otherwise part of the
public domain at the time of its disclosure to the receiving Party;

 

(c)               became generally available to the public or otherwise part of
the public domain after its disclosure and other than through any act or
omission of the receiving Party in breach of this Agreement;

 

(d)              was disclosed to the receiving Party, other than under an
obligation of confidentiality to a Third Party, by a Third Party who had no
obligation to the disclosing Party not to disclose such information to others;
or

 

(e)               was independently discovered or developed by the receiving
Party without the use of Confidential Information belonging to the disclosing
Party.

 

Section 11.02 Financial Terms; Permitted Disclosure. The Parties agree that the
material financial terms of the Agreement will be considered Confidential
Information of both Parties.  Notwithstanding the foregoing, either Party may
disclose such terms to bona fide potential sublicensees, if necessary, and may
disclose such terms and other Confidential Information of the other Party as
required by law, regulation or court order.  Tularik shall have the further
right to disclose the material financial terms of the Agreement to any bona fide
potential investor, investment banker, acquiror, merger partner or other
potential financial partner under confidentiality obligations to Tularik no less
restrictive than those herein.  In connection with any permitted disclosure of
Confidential Information pursuant to this Section 11.02, each Party agrees to
use all reasonable efforts to secure confidential treatment of, or a protective
order for, any such information.

 

Section 11.03 Publication. Each Party to this Agreement recognizes that the
publication of papers, including oral presentations and abstracts, regarding the
Program Know-How and the Program Patents, subject to reasonable controls to
protect Confidential Information, can be beneficial to both Parties. 
Accordingly, each Party shall have the right to review and approve any paper
proposed for publication by the other Party, including oral presentations and
abstracts, which includes Confidential Information of the other Party.  Before
any such paper, presentation or abstract is presented or submitted for
publication, the Party proposing publication shall deliver a complete copy to
the other Party at least thirty (30) days prior to such presentation or
submission.  The receiving Party shall review any such paper and give its
comments to the publishing Party within thirty (30) days of the delivery of such
paper to the receiving Party.  With respect to oral presentation materials and
abstracts, the Parties shall make reasonable efforts to expedite review of such
materials and abstracts, and shall return such items as soon as practicable to
the publishing Party with appropriate comments, if any, but in no event later
than thirty (30) days from the delivery date

 

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thereof to the receiving Party.  The publishing Party shall comply with the
other Party’s request to delete references to such other Party’s Confidential
Information in any such paper, presentation or abstract and agrees to withhold
publication of same for an additional thirty (30) days upon request by the
non-publishing Party in order to permit the Parties to obtain patent protection,
if either of the Parties deem it necessary, in accordance with the terms of this
Agreement. [ * ] with respect to [ * ], as the case may be.

 

Section 11.04 Publicity. Except as otherwise provided herein or required by law,
neither Party shall issue any publication, news release or other public
announcement, written or oral, whether in the public press, or stockholders’
reports (if applicable), or otherwise, relating to the existence of or the
performance under this Agreement, without the prior written approval of the
other Party, which approval shall not be unreasonably withheld; provided that if
a Party does not consent to such publication, release or announcement by the
other Party as proposed, then the Parties shall negotiate in good faith an
appropriate modification thereto that will make such publication, release or
announcement acceptable to the reviewing Party within [ * ] after submission
thereof by the publishing Party to the non-publishing Party.

 

Article XII.            GOVERNMENT CONTROLS

 

Section 12.01 This Agreement is made subject to any restrictions concerning the
export of Products or technical information from the United States that may be
imposed upon or related to Tularik or Sankyo from time to time by the government
of the United States and other applicable jurisdictions.  Furthermore, each
Party hereto agrees that it will not export, directly or indirectly, any
technical information acquired from the other under this Agreement or any
Products using such technical information to any country for which the United
States government or any agency thereof, or other applicable jurisdiction
requires at the time of export, an export license or other governmental
approval, without first obtaining the written consent to do so from the
Department of Commerce or other agency of the United States government or other
applicable jurisdiction when required by an applicable statute or regulation.

 

Article XIII.           TERM AND TERMINATION

 

Section 13.01 Term.  Subject to earlier termination in accordance with
subsections (a) and (b), this Agreement shall expire upon the end the Term.

 

(a)               Early Termination.  This Agreement shall terminate on such
earlier date as:  (i) the Research Program Term shall have expired or been
terminated pursuant to Section 3.07 without any Collaboration Lead Compound
having been designated in accordance with Section 3.08(a) or Section 4.02 or any
Sankyo Lead Compound being developed in accordance with Section 4.06; or (ii)
the Feasibility Study shall have expired without Sankyo having designated a
Current Program Target as a Collaboration Target pursuant to Section 3.03(b).

 

(b)              Termination for Material Breach. If either Party materially
breaches this Agreement and the breaching Party has not (i) cured the breach or
(ii) initiated good faith efforts to cure such breach to the reasonable
satisfaction of the non-breaching Party, within [ * ] of written notice of
breach from the non-breaching Party, the non-breaching Party may terminate this
Agreement upon expiration of such [ * ] period.  If this Agreement is terminated
pursuant to this Section 13.01(b), (A) all licenses granted to the non-breaching
Party shall survive such termination and shall be expanded to apply on a
worldwide basis and (B) all licenses and rights to obtain licenses granted to
the breaching Party shall terminate.

 

Section 13.02 Surviving Rights.  Subject to Section 13.01(b), the rights and
obligations set forth in this Agreement shall extend beyond the Term or
termination of the Agreement only to the extent expressly provided for herein,
or to the extent that the survival of such rights or obligations are necessary
to permit their complete fulfillment or discharge.  Without limiting the
foregoing, the Parties have identified various rights and obligations that are
understood to survive, for the period of time as follows: Sections [ * ] and
Articles [ * ].

 

Section 13.03 Accrued Rights; Surviving Obligations. Termination, relinquishment
or expiration of the Agreement for any reason shall be without prejudice to any
rights that shall have accrued to the benefit of either Party prior to such
termination, relinquishment or expiration, including damages arising from any
breach hereunder. 

 

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Such termination, relinquishment or expiration shall not relieve either Party
from obligations that are expressly indicated to survive termination or
expiration of the Agreement.

 

Article XIV.           REPRESENTATIONS AND WARRANTIES; COVENANTS

 

Section 14.01       Representations and Warranties.

 

(a)               Power and Authority.  Each Party hereby represents and
warrants that such Party has full corporate power and authority under the laws
of the state or country of its incorporation to enter into this Agreement and
carry out the provisions hereunder and that the person executing this Agreement
on each Party’s behalf has been duly authorized to do so by all requisite
corporate action.

 

(b)              Conflicts.  Each Party represents and warrants that, as of the
date of this Agreement, it is not a Party to any agreement, arrangement or
understanding with any Third Party that in any material fashion prevents such
Party from fulfilling any of its material obligations under the terms of this
Agreement.

 

(c)               Intellectual Property.  Each Party represents and warrants to
such Party’s best knowledge as of the Effective Date: (i) that such Party has
full power and authority to undertake the scientific activities required of it;
(ii) that the performance of the scientific activities required of such Party
under the Research Plan will not infringe the intellectual property rights of
any Third Parties; and (iii) that the practice of such Party’s Patent Rights or
Know-How described in Section 5.1 hereof pursuant to the Program does not
require any Third Party licenses not already obtained.  Tularik and Sankyo agree
to cooperate to identify existing Third Party licenses and the technologies to
which they pertain.  Except as expressly provided in this Agreement, neither
Tularik nor Sankyo shall have any obligation to make any payments whatsoever
with respect to any royalties that the other Party owes to any Third Party
licensor of technology that the Parties may practice while performing under this
Agreement.

 

(d)              Infringement.  Each Party represents and warrants that as of
the date of this Agreement, to the best of its knowledge, it is not aware of any
claims by Third Parties that the practice of technology, methodology or
materials to be utilized in the Program would infringe patents owned or
controlled by such Third Party.

 

Section 14.02       Covenants.

 

(a)               Licenses.  Each Party hereby covenants to the other that it
will not practice the license granted to it pursuant to Section 5.01, Section
5.02, Section 5.03, Section 5.04 or Section 5.05 under the other Party’s
interest in Patent Rights, Know-How, Program Patents or Program Know-How, except
as explicitly permitted in this Agreement.

 

(b)              Diligence.  Subject to Section 4.06 and Appendix D, Sankyo
and/or Tularik shall use commercially reasonable efforts to develop the Lead
Compounds, Research Compounds and Collaboration Lead Compounds consistent with
the efforts such Party expends on compounds involved in its other research and
development programs that have comparable market potential.  Sankyo and/or
Tularik shall use commercially reasonable efforts to develop and market
Products, consistent with the efforts it expends on its other products that have
comparable market potential.  If a Party disagrees on whether the other Party’s
efforts are commercially reasonable, such disagreement shall be resolved in
accordance with Section 15.01.

 

(c)               Conflicts.  Each Party covenants that it will not commit any
acts or fail to take any action that would be in material conflict with its
obligations or licenses under this Agreement.

 

Article XV.            DISPUTE RESOLUTION

 

Section 15.01 Dispute Resolution.  Any disputes or disagreements arising in the
RMC will be referred to the EC if the RMC is unable to resolve such dispute or
disagreement within seven (7) days after submission of an issue to such
committee.  In addition, any other disputes or disagreements between the Parties
arising hereunder will first be referred to the EC.  If such dispute is not
resolved within the seven (7) day period following submission of such

 

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dispute to the EC, such dispute shall be referred to the Chief Executive Officer
of Tularik and the head of the research division of Sankyo.  Except as otherwise
provided herein, if such dispute is not resolved within the seven (7) day period
following submission of such dispute to the Chief Executive Officer of Tularik
and the head of the research division of Sankyo or their duly authorized
designees [ * ], and such dispute relates to an alleged breach of this
Agreement, then either Party may propose to refer such dispute to arbitration,
and thereafter such dispute shall be resolved pursuant to Section 15.02 below.
Except as otherwise provided herein, in the event such dispute is not resolved
within the seven (7) day period following submission of such dispute to the
Chief Executive Officer of Tularik and the head of the research division of
Sankyo, and such dispute does not relate to an alleged breach of this Agreement,
such dispute shall be referred to a Third Party mediator with significant
experience in the pharmaceutical industry acceptable to both Parties for
resolution.  The costs and expenses of such Third Party mediator shall be shared
equally by the Parties.  In the event such dispute is not resolved within the
ninety (90) day period following submission of such dispute to the Third Party
mediator, then either Party may propose to refer such dispute to arbitration,
and thereafter such dispute shall be resolved pursuant to Section 15.02 below.

 

Section 15.02 Arbitration.  In the event of any controversy or claim arising out
of, relating to, or in connection with or in any way connected with any
provision of this Agreement, the Parties shall try to settle their differences
amicably between themselves by referring the disputed matter to the dispute
resolution procedures set forth in Section 15.01.  Any unresolved disputes
arising between the Parties arising out of, relating to, in connection with or
in any way connected with this Agreement or any term or condition hereof, or
performance by either Party of its obligations hereunder, whether before or
after termination or expiration of this Agreement, shall be finally resolved by
binding arbitration, except as otherwise provided in this Agreement and except
that any disputes regarding the validity, scope or enforceability of patents or
trademarks shall be submitted to a court of competent jurisdiction.  The
arbitration shall be held in San Francisco, California according to the rules of
the American Arbitration Association (“AAA”) if Sankyo is the Party seeking
arbitration.  The arbitration shall be held in Tokyo, Japan according to the
rules of the Commercial Arbitration Rules of the Japan Commercial Arbitration
Association (“JCAA”) if Tularik is the Party seeking arbitration.  The
arbitration will be conducted by a panel of three (3) arbitrators with
significant experience in the pharmaceutical industry appointed in accordance
with applicable AAA or JCAA rules as appropriate.  Any arbitration herewith
shall be conducted in the English language to the maximum extent possible. [ *
]  Judgment on the award so rendered shall be final and may be entered in any
court having jurisdiction thereof.

 

Article XVI.           MISCELLANEOUS

 

Section 16.01 Rights under [ * ].

 

Section 16.02 Severability.  If any part of this Agreement is declared invalid
by any legal authority having jurisdiction over either Party, then such
declaration shall not affect the remainder of the Agreement, which shall
continue in full force and effect.  The Parties shall revise the invalidated
part in a manner that will render such provision valid and closely approximate
the Parties’ original intent.

 

Section 16.03 Waiver.  Except as specifically provided for herein, the waiver
from time to time by either of the Parties of any of their rights or their
failure to exercise any remedy shall not operate or be construed as a continuing
waiver of same or of any other of such Party’s rights or remedies provided in
this Agreement.

 

Section 16.04 Consents Not Unreasonably Withheld.  Whenever provision is made in
this Agreement for either Party to secure the consent or approval of the other,
that consent or approval shall not unreasonably be withheld, and whenever in
this Agreement provision is made for one Party to object to or disapprove a
matter, such objection or disapproval shall not unreasonably be exercised.

 

Section 16.05 Ambiguities.  Ambiguities, if any, in this Agreement shall not be
construed against any Party, irrespective of which Party may be deemed to have
authored the ambiguous provision.

 

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Section 16.06 Further Action. Each Party agrees to execute, acknowledge and
deliver such further instruments, and to do all such other acts, as may be
necessary or appropriate in order to carry out the purposes and intent of this
Agreement.

 

Section 16.07 Notices. All notices hereunder shall be in writing and shall be
deemed given if delivered personally or by facsimile transmission (receipt
verified), telexed, mailed by registered or certified mail (return receipt
requested), postage prepaid, or sent by express courier service, to the Parties
at the following addresses (or at such other address for a Party as shall be
specified by like notice; provided, that notices of a change of address shall be
effective only upon receipt thereof).

 

(a)               If to Sankyo Company, Limited, addressed to:

 

Sankyo Company, Limited

1-2-58 Hiromachi, Shinagawa-ku, Tokyo 140-8710, Japan

Attention:   Director, Strategic Research Department

Telephone: 3-3492-3131

Facsimile:

 

(b)              If to Tularik Inc., addressed to:

 

Tularik Inc.

Two Corporate Drive

South San Francisco, CA 94080

Attn: Secretary

Telephone: (650) 825-7300

Facsimile: (650) 825-7392

 

Section 16.08 Assignment.  This Agreement shall be binding upon and inure to the
benefit of the Parties hereto and their permitted successors and assigns;
provided, however, that, without the prior written consent of the other party
(to be given or withheld in its sole discretion), neither Party shall assign any
of its rights and obligations hereunder except (i) as incident to the merger,
consolidation, reorganization or acquisition of stock or assets affecting all or
substantially all of the assets or actual voting control of the assigning Party
or (ii) to an Affiliate; provided, however, that in no event shall either
Party’s obligations under the Research Program be assigned to an Affiliate
without the prior written consent of the other Party.

 

Section 16.09 Force Majeure. Any delays in performance by either Party under
this Agreement shall not be considered a breach of this Agreement if and to the
extent caused by occurrences beyond the reasonable control of the Party
affected, including but not limited to acts of God, embargoes, governmental
restrictions, strikes or other concerted acts of workers, fire, earthquake,
flood, explosion, riots, wars, civil disorder, rebellion or sabotage.  The Party
suffering such occurrence shall notify the other Party as soon as practicable
and any time for performance hereunder shall be extended by the actual time of
delay caused by the occurrence, provided that the Party affected by such event
uses reasonable efforts to overcome such delay.

 

Section 16.10 Headings. The section and paragraph headings contained herein are
for the purposes of convenience only and are not intended to define or limit the
contents of said sections or paragraphs.

 

Section 16.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

 

Section 16.12 Governing Law and Language.  This Agreement shall be governed by
New York law, notwithstanding its conflicts of laws principles.  The official
text of this Agreement and any Appendices hereto, or any notice given or
statements required by this Agreement shall be in English.  In the event of any
dispute concerning the construction or meaning of this Agreement, reference
shall be made only to this Agreement as written in English and not to any other
translation into any other language. Any dispute shall be resolved in San

 

25

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Francisco, California if Sankyo is the Party initiating such dispute.  Any
dispute shall be resolved in Tokyo, Japan if Tularik is the Party initiating
such dispute.

 

Section 16.13 Limitation of Liability.   IN NO EVENT SHALL EITHER PARTY OR ITS
AFFILIATES AND SUBLICENSEES BE LIABLE FOR SPECIAL, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES, WHETHER IN CONTRACT, WARRANTY, TORT, STRICT LIABILITY OR
OTHERWISE, including but not limited to loss of profits or revenues, except to
the extent such Party may be required to indemnify the other Party from such
damages claimed by Third Parties pursuant to this Agreement.

 

Section 16.14 Entire Agreement; Amendment.  This Agreement sets forth the
principal terms of the arrangement between the Parties hereto and, except as
otherwise set forth herein, supersedes and terminates all prior agreements and
understandings between the Parties.  No subsequent alteration, amendment, change
or addition to this Agreement shall be binding upon the Parties unless reduced
to writing and signed by an authorized officer of each Party.

 

IN WITNESS WHEREOF, the Parties have signed this Agreement effective as of the
Effective Date.

 

Tularik Inc.

 

 

 

 

 /s/ David Goeddel

 

By:

David V. Goeddel

Title:

Chief Executive Officer

 

 

 

 

Sankyo Company, Limited

 

 

 

 /s/ Yukio Sugimura

 

By:

Yukio Sugimura, Ph.D.

Title

General Manager, Research Institute

 

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

 

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APPENDIX A

 

Description of Scientific FTE Assigned to the Program

 

[ * ]

 

The Scientific FTEs set forth on this Appendix A [ * ] only.  In the event [ * ]
on this Appendix A; [ * ] in the wake of the [ * ]

 

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

 

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APPENDIX B

 

Current Program Targets

 

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APPENDIX C

 

Collaboration Targets

 

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[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

 

APPENDIX D

 

Heads of Co-Development Agreement

 

This Heads of Co-Development Agreement sets forth the basic understanding of the
Parties relating to development of Products associated with a given
Collaboration Lead Compound.  This Heads of Co-Development Agreement shall be [
* ], and the [ * ] that [ * ] to which this [ * ] and [ * ] in the [ * ] of the
Collaboration Agreement [ * ].  The terms of any such Co-Development Agreement
shall be consistent with the terms as described below.

 

1.                                       Designation of Collaboration Lead
Compound. The Parties shall designate the Collaboration Lead Compound for
clinical development in accordance with Section 4.02 of the Collaboration
Agreement to which this Heads of Co-Development Agreement is attached.

 

2.                                       Pre-Clinical Development.  The Parties,
under the direction of the RMC and pursuant to the Research Plan, shall
diligently conduct Pre-Clinical Development with respect to any designated
Collaboration Lead Compound. Each Party shall supply [ * ] of the [ * ] in the [
* ]. Under no circumstances shall either Party [ * ] except as permitted by the
RMC, the Research Plan and the plan for Pre-Clinical Development established by
the RMC.

 

3.                                       Steering Committee and Operations
Committee for Development. Each Party would appoint an equal number of
senior-management representatives to a steering committee (the “Steering
Committee”) within thirty (30) days after the date upon which the RMC designates
the first Collaboration Lead Compound.  Each Party would be permitted to change
any of its appointments to the Steering Committee at any time upon giving
written notice to the other.  The Steering Committee Chairperson shall [ * ].

 

The Steering Committee would appoint an operations team consisting of equal
numbers of managers (the “Operations Committee”).  The Operations Committee
would be responsible to develop annual plans, run the daily business of the
collaboration and communicate performance.  The Operation Committee Chairperson
shall [ * ].

 

The Steering Committee would meet within thirty (30) days after the date upon
which the RMC designates the first Collaboration Lead Compound to prepare such
procedures and mechanisms as may be necessary for the operation of the Steering
Committee, the Operations Committee and any other committee established by the
Steering Committee to assure the most efficient conduct of each Party’s
obligations under the Agreements.  The Marketing Committee (MC) would formulate
and propose to the Steering Committee a Business Plan before submission of the
NDA to the FDA or any corresponding approval granting authority.

 

The personnel, facilities, expertise and other resources of Tularik and Sankyo
to be used in performance of each Party’s obligations under the Agreements would
be established by the Steering Committee or the Operations Committee.  The
Steering Committee would be responsible for reviewing, modifying and approving
the Development Plan developed by the Operations Committee, the Business Plan
developed by the Marketing Committee and any material amendments thereto.

 

The Steering Committee would have the authority to resolve disputes among the
members of the Operations Committee and other committees that report to the
Steering Committee.

 

If for any reason the Steering Committee would be unable to reach agreement on
any appropriate matter, [ * ].

 

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4.                                       General Responsibilities.  The
Operations Committee shall oversee and manage the relationship established by
the Co-Development Agreement.  The Operations Committee shall be responsible for
coordinating all aspects of all activities (including, but not limited to:  [ *
]) that will be undertaken with respect to a Collaboration Lead Compound that
are necessary or desirable to enable the filing of an IND for a Product or
Products based upon or incorporating such Collaboration Lead Compound, including
the preparation and filing of an IND (collectively, “Pre-Clinical
Development”).  The Operations Committee will be responsible for coordinating
all aspects of the Development of each Product as provided in the Co-Development
Agreement through the filing of an NDA or equivalent.

 

5.                                      Development Plan and Development Budget.
Promptly following the designation of a Collaboration Lead Compound pursuant to
Section 4.02(b), the Operations Committee shall initiate preparation of the
development plan for the Development of such Collaboration Lead Compound in the
Co-Commercialization Territory (the “Development Plan”) and a budget (the
“Development Budget”) for proposed Development Costs therefor. The initial
Development Plan for a Collaboration Lead Compound shall [ * ] and [ * ] for the
[ * ] and identify [ * ].  The budget for each Development program shall include
a [ * ] covering [ * ] of the [ * ] of the [ * ].  Each Development Plan and
Development Budget shall be approved by the Steering Committee.  Both Parties
recognize that the Development Plan and the Development Budget represent
projections only and will be subject to frequent changes during the Development
process.  Each such Development Plan and Development Budget shall be updated as
deemed appropriate by the Steering Committee, but in no event [ * ], and
approved by [ * ] and [ * ].

 

6.                                       Development of Products. The Parties
will each diligently collaborate in the Development of Products in the
Co-Commercialization Territory and use commercially reasonable efforts to
develop and commercialize Products as soon as reasonably practicable.  The role
of each Party in the Development process in the Co-Commercialization Territory
will be determined by the Operations Committee, with the Parties intending that
each Party will provide advisory and supporting services with respect to any
phase of the process in which such Party is not actively or primarily involved. 
Each Party shall supply [ * ] of the [ * ] Development effort for each Product
in the Co-Commercialization Territory in the aggregate, [ * ]. The Operations
Committee will determine appropriate written standards for measuring each
Party’s required Development efforts and accounting procedures to confirm and
document each Party’s performance of its required Development effort for any
Product before the Parties commence Development thereof.  No clinical trials
involving any Product shall be commenced by or on behalf of either Party in the
Co-Commercialization Territory without the prior approval of the Operations
Committee.  Nothing contained in this Section shall be [ * ].  Any decision by a
Party not to [ * ] or to [ * ] shall not be deemed a breach of this Agreement.

 

7.                                       Duration of Co-Development. The Parties
will continue to co-develop Products until [ * ] of the Collaboration Agreement
to which this Heads of Co-Development Agreement is attached.

 

8.                                       Termination of Participation in
Development. Either Party may elect, on a Collaboration Lead
Compound-by-Collaboration Lead Compound or Product-by-Product basis, to
terminate its participation in, or to not participate in, the Pre-Clinical
Development of a given Collaboration Lead Compound or Development of a given
Product based upon or incorporating such Collaboration Lead Compound in the
Co-Commercialization Territory by written notice to the other Party [ * ].  In
the event Tularik is the Party delivering the notice under this Section 8,
Sankyo will have the right to proceed independently to develop such
Collaboration Lead Compound or Product as a Sankyo Lead Compound or Sankyo
Product in the Co-Commercialization Territory as set forth in Section 4.06 of
the Collaboration Agreement to which this Heads of Co-Development Agreement is
attached.  In the event Sankyo is the Party delivering

 

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the notice under this Section 8, Tularik will have the right to proceed
independently to develop such Collaboration Lead Compound or Product in the
Co-Commercialization Territory without any obligation to Sankyo whatsoever other
than the payment of royalties at the Development Royalty Rate.  In the event a
Party gives such notice under this Section 8, such Party (i) will remain
responsible for its share of Development Costs for such Collaboration Lead
Compound or Product in the Co-Commercialization Territory until [ * ], and (ii)
will make its personnel, relevant data and other resources available to the
other Party as necessary to effect an orderly transition of development
responsibilities, with the costs of such personnel, relevant data and resources
to be [ * ] notice under this Section 8.  In the event of a Party’s termination
of participation in Pre-Clinical Development of a Collaboration Lead Compound or
Development of a Product in accordance with this Section 8, such Party shall [ *
] to the other Party all regulatory submissions, including all Drug Approval
Applications, relating to such Collaboration Lead Compound and/or Product,
together with all materials and data related thereto in its possession.

 

9.                                       Calculation of Development Costs.
“Development Costs” shall mean all costs and expenses reasonably charged
directly to the Pre-Clinical Development of any Lead Compound, Research Compound
or Collaboration Lead Compound or Development of any Product, as well as
overhead costs of the functions that directly support such Pre-Clinical
Development or Development (as calculated in accordance with GAAP and using the
same allocation methods that the Party incurring such costs uses throughout its
operations, but in all events [ * ]), all as specified in the Development Plan
and the Development Budget for the Co-Commercialization Territory.  Development
Costs shall include, without limitation: (i) [ * ] for the [ * ] or [ * ] for [
* ], to the extent [ * ]; (ii) [ * ] or [ * ]; (iii) [ * ] for [ * ]; (iv) [ * ]
provided for in this Section 9, subsection (vi)) and [ * ]; (v) [ * ] and [ * ]
for the [ * ] of the [ * ] and [ * ]; and (vi) the [ * ].

 

10.                                 Share of Development Costs. Within thirty
(30) days after each calendar quarter, each Party shall provide the Operations
Committee with detailed information concerning the Development Costs incurred by
such Party during such quarter for the Co-Commercialization Territory pursuant
to the Development Plan and the Development Budget.  Promptly after receipt
thereof, the Operations Committee will determine the amount, if any, that either
Party has paid in excess of the amount to be borne by such Party for such
quarter pursuant to this Section 10, and shall so notify the Parties.  Tularik
shall be responsible for [ * ] of the Development Costs and Sankyo shall be
responsible for the [ * ] of Development Costs for each Collaboration Lead
Compound and Product throughout the Co-Commercialization Territory.  In the
event of [ * ] for the [ * ] in a [ * ] after the [ * ]. In the event the
Development Costs incurred by a Party during any calendar quarter exceed [ * ]
for activities to be conducted by such Party during such quarter (the “Overage
Threshold”), then the other Party shall not be [ * ], or is subsequently
ratified, unanimously, by the Operations Committee (in which case each of the
Parties shall be [ * ].  In the event such overage has not been approved or
ratified unanimously by the Operations Committee, the Party incurring
Development Costs in a calendar quarter exceeding the Overage Threshold in such
quarter shall be [ * ].

 

11.                                 Regulatory. Sankyo will be responsible for
filing, and shall own, regulatory filings such as the IND or NDA/MAA. Sankyo (or
its Affiliates) will file applications for regulatory approval required before
commercial sale or use of a Product as a drug (“Drug Approval Applications”) in
countries within the Co-Commercialization Territory and attempt to obtain
Regulatory Approvals in each country in the Co-Commercialization Territory in
which Products will be commercialized. Tularik shall have the right to
cross-reference to all such filings made by Sankyo for such Product in any
country.  The Parties will cooperate in the preparation of all such regulatory
filings and in obtaining Regulatory Approvals under this Section 11, including
without limitation providing access to each other data and information obtained
under the Program to the extent necessary for obtaining Regulatory Approvals of
Products.

 

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12.                                 Sublicense.  Either Party may sublicense its
rights under the Co-Development Agreement to Third Parties who agree to be bound
to the terms and conditions of the Collaboration Agreement, Appendix D and
Appendix E, upon receipt of the written consent of the other Party, such consent
not to be unreasonably withheld.

 

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

 

33

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[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

 

APPENDIX E

 

Heads of Co-Commercialization Agreement

 

This Heads of Co-Commercialization Agreement sets forth the basic understanding
of the Parties relating to the Co-Commercialization of Products associated with
a given Collaboration Lead Compound and for further good faith discussions of
the terms and conditions to be contained in definitive written Agreement(s)
pertaining to co-commercialization for a pharmaceutical preparation for human
use containing the “Product”.  This Heads of Co-Commercialization Agreement
shall be [ * ], and the [ * ] that [ * ] to which this [ * ] of the
Collaboration Agreement [ * ].  The terms of any such Co-Commercialization
Agreement shall be consistent with the terms as described below.

 

1.               Duration of Co-Commercialization. The Parties will [ * ]; or
such [ * ] to which this [ * ].  After termination of the Co-Commercialization
relationship under this Section 1, the Parties shall [ * ].

 

2.               Designation.

 

Co-Promotion Countries:  Tularik would [ * ].   Sankyo would remit to Tularik or
Tularik’s designated Affiliate [ * ].  DM would be calculated by [ * ].  Sankyo
would [ * ].  Neither Party would [ * ].

 

Co-Marketing Countries:  Tularik would [ * ].  Neither Party would [ * ].  In
Co-Marketing Countries, Tularik and Sankyo shall [ * ].  The Parties shall
negotiate and agree in good faith on which countries in the Co-Commercialization
Territory they will Co-Market Products.

 

3.     Detailing and Promotional Efforts in Co-promotion countries.

 

(i)            Sales Forces.

 

The Parties would [ * ]. The Parties would use reasonable commercial efforts
consistent with accepted pharmaceutical industry business practices when
conducting such promotion and detailing.

 

(ii)           Right to Enter Market.

 

In each co-marketing or co-promotion country, a Party that [ * ] consisting of [
* ].  Within  thirty (30) days prior to the submission of the NDA in each
country in the Co-Promotion Territory, the Parties will [ * ]. If both Parties [
* ]

 

(iii)          Diligence.

 

Each Party would work diligently to fulfill all responsibilities assigned to it
under the definitive written Agreement(s) in compliance with all applicable laws
in the countries in the Co-Commercialization Territory.  The Parties would, in
co-promotion countries, unless otherwise mutually agreed to, devote [ * ] to the
marketing, promotion and detailing of the Products.

 

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4.     Expense Sharing in Co-promotion Countries

 

(i)            Sales Force Expenses.

 

Each Party’s sales force would [ * ]. Each Party would [ * ].

 

(ii)           Product Expenses.

 

During the Term, the Parties would [ * ]. “Product Expenses” means [ * ].

 

(iii)          Other Expenses as Mutually Agreed.

 

The Parties would [ * ].

 

5.     Adjustments for Detail Deficiency.  In the event that:

 

[ * ].

 

6.               Steering Marketing Committee. The SMC shall be composed of an
equal number of senior representatives of Tularik and Sankyo.  A Party may
replace its designee to the SMC by written notice to the other Party. The SMC
shall be chaired by [ * ]. The SMC shall oversee and manage the relationship
established by the Co-Commercialization Agreement and the Marketing Operations
Committee (“MOC”).  The SMC shall resolve problems and settle disagreements that
have not been resolved by the MOC, except as otherwise provided in the
Co-Commercialization Agreement.  If the SMC can not resolve the issue, [ * ].

 

7.               Marketing Operations Committee.  The Parties shall establish an
MOC, composed of an equal number of representatives from Sankyo and Tularik that
will oversee and discuss launch, promotional, pricing, marketing and sales
activities for Products in the Co-Commercialization Territory.  The MOC shall be
chaired by [ * ].  Decisions of the MOC shall be made by consensus, with each
Party having one (1) vote.  If the MOC is unable to reach consensus on any issue
relating to the launch, promotional, marketing and sales activities for Products
in the Co-Commercialization Territory that is not addressed in the relevant
Business Plan (for clarity, once each has been agreed by the MOC) or any other
commercial issue (each, a “Business Issue”) the Business Issue shall be
submitted for consideration to the SMC.  If a Business Issue cannot be resolved
by the SMC within a period of thirty (30) days after it is referred to the SMC,
then [ * ]. Anything in this Section 7 to the contrary notwithstanding, the
Parties must unanimously agree on the Business Plan for a Product for a given
calendar year in the Co-Commercialization Territory.

 

8.               General Responsibilities. The MOC will establish mechanisms for
achieving an effective collaboration between Sankyo and Tularik on marketing
programs and optimization of Product sales opportunities in the
Co-Commercialization Territory, to include professional educational activities,
public relations and communications with government and community support
groups.  The MOC shall discuss and adopt annual business plans, including the
marketing budget (“Business Plan”), for each Product in the Co-Commercialization
Territory.  The content of the Business Plans for each Product shall [ * ].

 

9.               Medical Inquiries.

 

9.01         Co-Promotion Territory

 

[ * ] will be responsible for all inquiries for medical information regarding
Products. [ * ] will be responsible for processing all serious adverse events
and complaints regarding Products

 

9.02         Co-Marketing Territory

 

[ * ] will finally be responsible for all inquiries for medical information
regarding Products.  Each Party holding market authorization will finally be
responsible for processing all serious adverse events and complaints regarding
Products.

 

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9.03   Reporting Methodology

 

The Parties will agree upon more detailed reporting methodology in the
Co-Commercialization Agreement.

 

10.         Regulatory.  Sankyo will be responsible for filing, and shall own,
regulatory filings such as the IND or NDA/MAA. Sankyo (or its Affiliates) will
file applications for regulatory approval required before commercial sale or use
of a Product as a drug (“Drug Approval Applications”) in countries within the
Co-Commercialization Territory and attempt to obtain Regulatory Approvals in
each country in the Co-Commercialization Territory in which Products will be
commercialized. Tularik shall have the right to cross-reference to all such
filings made by Sankyo for such Product in any country.  The Parties will
cooperate in the preparation of all such regulatory filings and in obtaining
Regulatory Approvals under this Section 10, including without limitation
providing access to each other data and information obtained under the Program
to the extent necessary for obtaining Regulatory Approvals of Products.

 

11.         Trade and Sales Activity. In Co-Promotion Countries, [ * ].  In
Co-Marketing Countries, [ * ].  The MOC shall coordinate and develop procedures
for providing information from [ * ].

 

12.         Termination of Participation in Co-Commercialization. Either Party
may elect, on a Product-by-Product basis, to terminate its participation in the
Co-Commercialization of a given Product in the Co-Commercialization Territory by
written notice to the other Party [ * ].  In the event Tularik is the Party
delivering the notice under this Section 12, Sankyo will have the right to
proceed independently to promote such Product as a Sankyo Product in the
Co-Commercialization Territory as set forth in Section 4.06 of the Collaboration
Agreement to which this Heads of Co-Commercialization is attached.  In the event
Sankyo is the Party delivering the notice under this Section 12, Tularik will
have the right to proceed independently to promote such Product in the
Co-Commercialization Territory without any obligation to Sankyo whatsoever other
than the payment of royalties at the Development Royalty Rate.  In the event a
Party gives notice under this Section 12, such Party (i) will remain responsible
for its share of expenses for such Product in the Co-Commercialization Territory
until [ * ] from the date the other Party receives such notice, and (ii) will
make its personnel, relevant data and other resources available to the other
Party as necessary to effect an orderly transition of promotional
responsibilities, with the costs of such personnel, relevant data and resources
to be [ * ].  In the event of a Party’s termination of participation in
Co-Commercialization of a Product in accordance with this Section 12, such Party
shall [ * ].

 

13.         Pricing.  [ * ]

 

14.         Trademark.  [ * ]  To the extent commercially reasonable and
appropriate, a single trademark shall be used for each Product in all countries
in the Co-Commercialization Territory.  Each trademark shall be used only in
connection with the applicable Product and shall not be used by either Party on,
or in connection with, any other product.  [ * ]

 

15.         Manufacture. [ * ]

 

16.         Sublicense.  Either Party may sublicense its rights under the
Co-Commercialization Agreement to Third Parties who agree to be bound to the
terms and conditions of the Co-Commercialization Agreement upon receipt of the
written consent of the other Party, such consent not to be unreasonably
withheld.

 

17.         Cross-Border Sales. The Parties shall, to the extent permitted under
law, use reasonable efforts to deter the re-importation of Products into any
country in the Co-Commercialization Territory by their Affiliates and
sublicensees.  Sankyo and Tularik recognize that in certain territories, and in
particular in free trade regions, customers or other third parties may import
Products purchased in one country

 

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for use in another.  If such activity materially distorts the aggregate relative
profitability to the Parties of the sale of Products in one or more countries
relative to that intended as provided in the Co-Commercialization Agreement,
Tularik and Sankyo shall agree upon an equitable mechanism to adjust the
compensation of the Parties hereunder to offset the economic effect of such
cross-border transfers, to the extent it is practical and permitted under law to
do so.

 

18.         Infringement. If either Party believes in good faith that any Patent
Rights owned or controlled by a Party are infringed by a Third Party through
Competitive Product Infringement, the Party first having knowledge of such
infringement shall promptly notify the other Party in writing thereof, which
notice shall set forth the facts of such infringement in reasonable detail.  The
Party owning or controlling such Patent Right shall have the first right, but
not the obligation, to bring an action or proceeding to abate such infringement
in the Co-Commercialization Territory.  If the Party having the first right
hereunder with respect to a Patent Right fails to institute and prosecute an
action or proceeding to abate the infringement within a period of one hundred
twenty (120) days after receiving written notice or otherwise having knowledge
of the infringement as provided above, then the other Party shall have the
right, but not the obligation, to bring and prosecute any such action if such
other Party then has an exclusive or co-exclusive license under the relevant
Patent Right pursuant to Article V.  In such event, the Party which failed to
bring such action agrees to be joined as a party plaintiff and to give the Party
bringing such action reasonable assistance and all authority to control, file
and prosecute the suit as may be necessary; provided, however, that the Party
failing to bring such action shall have the right to participate in such action
and to be represented in any such action by counsel of its choice, at its
expense. Each Party’s costs related to patent enforcement (including internal
costs and expenses specifically attributable to said patent enforcement) with
respect to Competitive Product Infringement of jointly owned Program Patents in
the Co-Commercialization Territory shall be agreed to by the Parties in the
Co-Commercialization Agreement. If a Third Party asserts that a patent or other
right owned by it is infringed by the manufacture, import, use, sale or offer
for sale of any Product, the Party first obtaining knowledge of such a claim
shall immediately provide the other Party with notice of such claim and the
related facts in reasonable detail.  In such event, the MOC shall determine how
best to control the defense of any such claim.  In the event the MOC cannot
determine the proper manner of defending any such claim, such defense shall be
controlled by a Party selected by the MOC if the claim is brought in a country
in the Co-Commercialization Territory; provided, however, that the other Party
shall have the right to participate in such defense and to be represented in any
such action by counsel of its selection at its sole discretion.  The Party
selected by the MOC shall control settlement of any such claim brought in the
Co-Commercialization Territory; provided, however, that no settlement shall be
entered into without the written consent of the other Party, which consent shall
not be withheld unreasonably.

 

If a Third Party asserts that a patent or other right owned by it is infringed
by the development, manufacture, use, sale, offer for sale or import of any
Product, and as a result of settlement procedures or litigation under this
Section 18 a Party is required to pay the Third Party a royalty or make any
payment of any kind for the right to sell a Product in a particular country,
such expense shall be [ * ].

 

The expenses of patent defense, settlement and judgments incurred pursuant to
this Section 18 with respect to Products in the Co-Commercialization Territory
shall be [ * ].

 

19.         Exclusivity.  During the Co-Commercialization Period, [ * ].

 

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

 

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INITIAL RESEARCH PLAN

(TO BE APPROVED IN A SIDE LETTER)

 

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

 

38

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