Exhibit 10.6

 

***Text Omitted and Filed Separately

with the Securities and Exchange Commission.

Confidential Treatment Requested

Under 17 C.F.R. Sections 200.80(b)(4)

and 240.24b-2.

 

August 26, 2004

 

 

Neurogenetics, Inc.

11085 N. Torrey Pines Road

La Jolla, California 92037

Attention:  Chief Executive Officer

 

Ladies and Gentlemen:

 

As you are aware, we have been engaged in discussions, and as of the date of
this letter we are entering into an equity investment in Neurogenetics, Inc., a
Delaware corporation (the “Company” or “you”), by Johnson & Johnson Development
Corporation, a New Jersey corporation (“JJDC” or “we” or “us”), pursuant to that
certain Series C Participating Preferred Stock Purchase Agreement of even date
herewith by and among JJDC, the Company and the certain other investors set
forth therein. The purpose of this letter is to provide JJDC with certain rights
with respect to the consummation of any proposed sale, transfer, license or
distribution arrangement, whether by operation of law or by merger or
consolidation, regarding any of the Rights (as defined below (any of such
transactions referred to above being hereinafter referred to as a “Proposed
Transaction”). The term “Rights” shall include all inventions, developments,
patents, patent applications, know-how, technology, other proprietary rights or
products owned, developed or acquired (whether through license or otherwise) by
the Company related to its research and development work into the use of M1
agonists in the treatment of CNS disorders (the “M1 Agonist Program”). JJDC’s
affiliate company Johnson & Johnson Pharmaceutical Research & Development,
L.L.C. (“J&J PRD”) has [***] and [***], which are part of the M1 Agonist
Program, and based thereon, JJDC has elected to enter into this letter agreement
with the Company. In consideration of the representations, warranties,
agreements and covenants contained in this letter, and for other good and
valuable consideration, including the agreement of Scott Reines, Vice President
at J&J PRD, or such other person as may be designated by JJDC, and reasonably
acceptable to the Company, to serve without compensation (other than
reimbursement of reasonable expenses) as a scientific advisory board or clinical
advisory board member to the Company through December 31, 2005 pursuant to a
mutually acceptable scientific advisory board or clinical advisory board
consulting agreement, the receipt and sufficiency of which are hereby
acknowledged, JJDC and the Company hereby agree as follows:

 

1.                                      The parties hereby agree that, following
the completion (if any) of the Company’s first [***] with respect to [***], or
such other M1 agonist as may be selected in good faith by the Company to be used
in the Company’s [***], the Company shall deliver in writing, via certified mail
(return receipt requested) or by Federal Express, to JJDC notice of such
completion, together with the final statistical report for the [***] (the
“Report”) and all other material data from the M1 Agonist Program, including a
letter from an officer of the Company confirming delivery to JJDC of all such
material data in the Company’s possession or control as of the date of the
Report. For a period of [***] [***] (the “Period of Exclusive Negotiation”)
commencing upon JJDC’s receipt of such items, such date (the “Delivery Date”) to
be evidenced by the return receipt or Federal Express signature receipt record,
the Company shall negotiate in good faith and exclusively with JJDC with respect
to the consummation of a Proposed Transaction (it being understood that the
final pricing, terms, conditions and other material

 

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provisions of any such Proposed Transaction shall be subject to approval by the
Company’s board of directors (the “Board”), and the Board may elect to not
approve any such Proposed Transaction in its sole discretion). Notwithstanding
the foregoing, the Company and JJDC may mutually agree by written amendment to
this letter agreement to commence the Period of Exclusive Negotiation prior to
the completion of the [***] study as described above.

 

2.                                      (a)                                 
Following the expiration of the Period of Exclusive Negotiation, the Company
may enter into an agreement with respect to a Proposed Transaction on terms that
are more favorable to you in the aggregate (taking into consideration all of the
material pricing, terms and provisions) than the terms last offered by us during
the Period of Exclusive Negotiation. For a period of [***] days following the
expiration of the Period of Exclusive Negotiation (the “Rights Period”), you
shall not consummate or agree to consummate a Proposed Transaction with any
other party (a “Third Party”) on terms that are not more favorable to you in the
aggregate (taking into consideration all of the material pricing, terms and
provisions of the JJDC Proposed Transaction and the Third Party’s Proposed
Transaction) than the terms last offered by us during the Period of Exclusive
Negotiation without first promptly giving notice thereof to us in writing with
respect to each such Proposed Transaction (in each case, the “Notice”)
specifying the pricing, terms, conditions and other material provisions of such
Proposed Transaction by providing a redacted (with respect to the Third Party’s
name only) copy of the Third Party proposal. In the event that we elect to
consummate a transaction upon the same pricing, terms, conditions and other
material provisions as specified in the Notice, we shall have [***] business
days to so notify you and you shall use all reasonable commercial efforts to
facilitate the consummation of such a Proposed Transaction with us within [***]
days following receipt of the Notice, unless extended by mutual agreement of the
parties (the “Negotiation Period”) (it being understood that the pricing, terms,
conditions and other material provisions of such Proposed Transaction (and
JJDC’s consummation thereof in lieu of the Third Party) shall have been approved
by the Board prior to delivery of the applicable Notice). In the event that we
fail to elect to exercise this right within the above mentioned [***] business
day period or fail to enter into definitive documentation or other binding
agreement with you with respect to the applicable Proposed Transaction within
the applicable Negotiation Period, you may enter into an agreement with the
specified Third Party with respect to the applicable Proposed Transaction on
terms that are, in the aggregate, not less favorable to you than the terms
specified by you in the applicable Notice. In the event that the pricing, terms,
conditions and other material provisions of any applicable Proposed Transaction
are modified to be less favorable to you than were specified in the applicable
Notice, then the Company shall be required pursuant to this Section 2(a) to give
anew the requisite Notice to us and comply with the right of first refusal and
other provisions set forth herein.

 

(b)                                  Subject to the last sentence of
Section 2(a), the parties hereby agree that JJDC’s rights of first negotiation
and refusal set forth above in Section 1 and 2(a) and all other rights and
obligations of the parties set forth in this letter shall terminate at the
termination of the Rights Period (i.e. up to [***], unless extended by mutual
agreement, after the Delivery Date) or, in the event that one or more Notices is
given during the Rights Period, the termination of the Negotiation Period for
the last Notice given (the “End Date”).

 

(c)                                  Until the End Date, you shall not sell,
license or otherwise transfer any right, title and interest (including, but not
limited to, those with respect to patents, patent applications,

 

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trademarks, tradenames, inventions, processes, formulae and copyrights) in or to
any M1 Agonist Program asset, except in accordance with Sections 1 and 2(a). The
parties hereby acknowledge and agree that we shall have no obligation to enter
into a definitive agreement concerning the Proposed Transaction if we so elect
in our sole determination. You hereby represent and warrant to us that (i) you
have all right, title and interest (including, but not limited to, those with
respect to patents, patent applications, trademarks, tradenames, inventions,
processes, formulae and copyrights) or valid licenses with respect to, all M1
Agonist Program assets, and (ii) the granting of rights provided herein will not
conflict with or infringe upon the rights of any other person or entity.

 

(d)                                  The parties hereto agree and acknowledge
that, at JJDC’s discretion, JJDC may cause one of its affiliates instead of it
to enter into a written binding letter of intent or definitive, written
agreement regarding a Proposed Transaction, as contemplated herein.

 

3.                                      You shall not originate any publicity,
news release or other public announcement, written or oral, whether relating to
the performance under this letter agreement or the existence of any arrangement
between the parties, without our prior written consent, except that the Company
may disclose this letter agreement (i) to potential investors in a bona fide
financing, (ii) in connection with the Company’s initial public offering, and
(iii) upon prior written notice to us, to Third Parties in connection with any
Proposed Transaction.

 

4.                                      Consummation of a Proposed Transaction
involving the parties hereto shall be subject to the execution of a definitive
agreement, containing representations and warranties, indemnities and other
terms and conditions that are customary for a transaction of this kind (the
“Definitive Agreement”) and the satisfaction of any and all applicable
governmental requirements and receipt of all required corporate approvals. In
addition, this letter does not identify all matters upon which agreement must be
reached in order for a Proposed Transaction to be consummated. Except with
respect to the specific obligations set forth in Sections 1, 2, 3, and 4 and
hereof (which, as applicable, both parties hereby represent to the other they
are authorized to undertake), a binding commitment will result only from
execution of the Definitive Agreement.

 

5.                                      Notwithstanding anything to the contrary
herein, the provisions of this letter will not apply to, and will in no way
restrict the Company with respect to, any sale, transfer or other disposition of
all or substantially all of the business or assets of the Company, which
includes the M1 Agonist Program, whether effected by merger, consolidation, sale
of stock or assets or otherwise; provided that the acquiring party in such
transaction shall be subject to the provisions of this letter with respect to
the M1 Agonist Program as successor to the Company.

 

6.                                      Prior to commencement of arbitration,
the parties must attempt to mediate any dispute using a professional mediator
from the American Arbitration Association (“AAA”), the CPR Institute for Dispute
Resolution, or like organization selected by agreement or, absent agreement,
through selection procedures administered by the AAA. Within a period of 45 days
after the request for mediation, the parties agree to convene with the mediator,
with business representatives present, for at least one session to attempt to
resolve the matter. In no event will mediation delay commencement of the
arbitration for more than 45 days absent agreement of the parties or interfere
with the availability of emergency relief. Any controversy or claim arising out
of or relating to this Agreement not resolved by mediation shall be resolved by
arbitration

 

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before three arbitrators in accordance with the Commercial Arbitration Rules of
the AAA then pertaining (available at www.adr.org), except where those
rules conflict with this provision, in which case this provision controls. Any
court with jurisdiction shall enforce this clause and enter judgment on any
award. The arbitrators shall be selected within twenty business days from
commencement of the arbitration from the panel of arbitrators trained in Large
Complex Commercial Disputes pursuant to agreement or through selection
procedures administered by the AAA. Within 45 days of initiation of arbitration,
the parties shall reach agreement upon and thereafter follow procedures,
including limits on discovery, assuring that the arbitration will be concluded
and the award rendered within no more than eight months from selection of the
arbitrators or, failing agreement, procedures meeting such time limits will be
designed by the AAA and adhered to by the parties. The arbitration shall be held
in New Brunswick, New Jersey and the interpretation and enforcement of this
arbitration provision shall be governed by the Federal Arbitration Act. Prior to
commencement of arbitration, emergency relief is available from any court to
avoid irreparable harm. THE ARBITRATORS SHALL NOT AWARD EITHER PARTY PUNITIVE,
EXEMPLARY, MULTIPLIED OR CONSEQUENTIAL DAMAGES, OR ATTORNEYS FEES OR COSTS.

 

7.                                      This letter agreement may be executed in
counterparts, all of which together shall constitute one and the same
instrument. This letter agreement shall be deemed a contract made under the laws
of the State of New Jersey and, together with the rights or obligations of the
parties hereunder, shall be construed under and governed by the laws of such
State, without giving effect to the conflict of laws principles thereof.

 

Please acknowledge your acquiescence with the terms and provisions of this
letter by countersigning where indicated below and, upon such countersigning the
provisions of this letter shall become effective and in full force and effect.

 

Very truly yours,

 

JOHNSON & JOHNSON DEVELOPMENT
CORPORATION

 

By:

/s/ Roy Cosan

 

 

Name: Roy Cosan

 

Title: Vice President

 

 

For notice purposes:

 

 

Johnson & Johnson Development Corporation

One Johnson & Johnson Plaza

New Brunswick, New Jersey 08933

Attention: Eric Jung, Associate General Counsel

 

AGREED TO AND ACCEPTED:

 

NEUROGENETICS, INC.

 

 

By:

/s/ Neil Kurtz

 

 

Name: Neil M. Kurtz, M.D.

 

Title: President and CEO

 

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