Exhibit 10.325

 

 

* CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

COLLABORATION AND LICENSE AGREEMENT

By and Between

PHARMACOPEIA, INC.

and

SCHERING CORPORATION

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Table of Contents

 

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COLLABORATION AND LICENSE AGREEMENT

This COLLABORATION AND LICENSE AGREEMENT (the “Agreement”), dated as of the
latest date of signature appearing below (the “Execution Date”) and to be
effective as of the Effective Date (as defined below), is made by and among:
Pharmacopeia, Inc., a Delaware corporation having its principal place of
business at 3000 Eastpark Boulevard, Cranbury, New Jersey 08512, (hereinafter
referred to as “Pharmacopeia”); and Schering Corporation, a New Jersey
corporation having its principal place of business at 2000 Galloping Hill Road,
Kenilworth, New Jersey 07033, U.S.A., (hereinafter referred to as
“Schering”). Pharmacopeia and Schering are sometimes referred to herein
individually as a Party and collectively as the Parties. References to
“Schering” and “Pharmacopeia” shall include their respective Affiliates (as
hereinafter defined).

WHEREAS, Schering and Pharmacopeia desire to collaborate to design and conduct
medicinal chemistry optimization programs against Schering’s biological targets
based upon lead compounds selected by Schering; and

WHEREAS, Schering and Pharmacopeia also desire for Pharmacopeia to conduct a
separate program to identify new lead compounds by screening certain of its
internal compound libraries for activity against biological targets selected by
Schering; and

WHEREAS, Pharmacopeia and Schering’s Affiliate Schering-Plough Ltd. have entered
into a collaboration and license agreement relating to countries and territories
outside of the United States of even date herewith; and

WHEREAS, Schering and Pharmacopeia wish to modify and amend certain terms of the
existing 1998 Agreements (as defined below) between the Parties related to
Optimization Libraries (as defined in the 1998 Agreements);

NOW, THEREFORE, in consideration of the covenants, conditions, and undertakings
herein contained, Schering and Pharmacopeia hereby agree as follows:

ARTICLE I

DEFINITIONS

As used in this Agreement, the following capitalized terms, whether used in the
singular or plural, shall have the respective meanings set forth below:

1.1 “Acceptance” shall mean, with respect to an IND, NDA or HRD submitted by or
on behalf of Schering or its Affiliate or Sublicensee, notice by the FDA (or an
analogous regulatory authority in another country) that the IND, NDA or HRD has
been accepted for review by the FDA (or analogous regulatory authority). In the
event that the FDA (or analogous regulatory authority) is not required to
provide such a notice of acceptance of an IND, NDA or HRD, then “Acceptance”
shall be deemed to occur: (i) in the case of an IND, thirty (30) days following
the date of submission, or if previously rejected any resubmission, of such IND;
or (ii) in the case of an NDA or HRD, sixty (60) days following the date of
submission, or if previously rejected any resubmission, of such NDA or HRD,
unless in each case Schering or its Affiliates or Sublicensee receives notice
from the FDA (or analogous regulatory authority), during the applicable thirty
(30) or sixty (60) day period, that the NDA or HRD is not acceptable for review.

1.2 “Activity Criteria” shall mean the threshold criteria to be agreed upon by
the Parties for identifying compounds having activity against the relevant
Screening Target.

1.3 “Affiliate” shall mean any individual or entity directly or indirectly
controlling, controlled by or under common control with, a Party to this
Agreement. For purposes of this Agreement, the direct or indirect ownership of
fifty percent (50%) or more of the outstanding voting securities of an entity,
or the right to receive fifty percent (50%) or more of the profits or earnings
of an entity shall be deemed to constitute control, or if not meeting the
preceding requirements, any company owned or controlled by or owning or
controlling Pharmacopeia or Schering at the maximum control or ownership right
permitted in a country where such company exists. Such other relationship as in
fact results in actual control over the management, business and affairs of an
entity shall also be deemed to constitute control. *

 

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1.4 “Agreement Compound” shall mean any Lead Compound or Derivative Compound, as
well as *

1.5 “Agreement Product” shall mean any product containing an Agreement Compound,
including, without limitation, products for the therapeutic or prophylactic
treatment or prevention of diseases and conditions in human beings or animals.

1.6 “Carryover Programs” shall have the meaning set forth in Section 2.02.

1.7 “Collaboration” shall mean the Optimization Programs and Screening Programs
to be performed at Pharmacopeia’s facilities by Schering or Pharmacopeia under
this Agreement to discover Agreement Compounds for further development by
Schering.

1.8 “Collaboration Committee” shall have the meaning set forth in Section 3.1.

1.9 “Collaboration Research Plan” shall have the meaning set forth in
Section 2.1.

1.10 “Collaboration Target-Specific Technology” shall mean Collaboration
Technology relating to assays, compound screening methods and biological
research tools, in each case which are discovered and developed through
Collaboration research directed to a specific Target, or a small number of
closely related Targets (e.g. a family of biological receptor subtypes), and are
not readily applicable to other types of Targets; provided, however, that
Collaboration Target-Specific Technology shall not include any rights in or to
any Schering Technology (including, without limitation, Schering’s proprietary
Targets) or any Agreement Compounds.

1.11 “Collaboration Technology” shall mean Collaboration Patent Rights and
Collaboration Know-How.

1.11.1 “Collaboration Patent Rights” shall mean: (i) all patents and patent
applications claiming any invention or discovery made by or on behalf of
Pharmacopeia in performance of the Collaboration (including, without limitation,
the synthesis and composition of matter of any Agreement Compound, or method of
use thereof); and (ii) any divisions, continuations, continuations-in-part,
reissues, reexaminations, extensions or other governmental actions which extend
any of the subject matter of the patent applications or patents in (i) above,
and any substitutions, confirmations, registrations, revalidations, or additions
of any of the foregoing, in each case, which is owned or controlled, in whole or
part, by license, assignment or otherwise by Pharmacopeia during the term of
this Agreement; provided, however, that Collaboration Patent Rights shall not
include any patents or patent applications which are Schering Technology or
Pharmacopeia Technology.

1.11.2 “Collaboration Know-How” shall mean all proprietary ideas, inventions,
data, know-how, instructions, processes, formulas, materials, expert opinion and
information (including, without limitation, (i) biological, chemical, physical
and analytical data and information relating to Agreement Compounds, and
(ii) any structure-function data related to Lead Compounds or Derivative
Compounds), in each case which is developed by Pharmacopeia in performance of
the Collaboration; provided, however, that Collaboration Know-How shall not
include Collaboration Patent Rights, Schering Technology or Pharmacopeia
Technology.

1.12 “Combination Product” shall mean an Agreement Product which comprises two
(2) or more active therapeutic ingredients at least one (1) of which is an
Agreement Compound.

1.13 “Derivative Compound” shall mean any compound derived by Pharmacopeia in
the performance of the Collaboration, in each case from one or more Lead
Compounds, and having activity against the same Target as such Lead
Compound(s). As used herein, a compound shall be deemed to have been “derived
from” a Lead Compound if it *

 

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1.14 “Development Candidate” shall mean a Lead Compound, Derivative Compound or
Schering Derivative which possesses the desirable properties of a therapeutic
agent for the prevention or treatment of a clinical condition, in the absence of
required safety trials necessary to begin human testing.

1.15 “Effective Date” shall have the meaning set forth in Section 2.01.

1.16 “Excluded Compound” shall have the meaning set forth in Section 2.9.3.

1.17 “FDA” shall mean the United States Food and Drug Administration or any
corresponding foreign registration or regulatory authority.

1.18 “First Commercial Sale” shall mean, with respect to any Agreement Product,
the first sale for end use of such Agreement Product in the Territory after
receipt of the requisite Regulatory Approval.

1.19 “FTE” shall mean a full-time employee dedicated to the conduct of the
Collaboration or, in the case of less than full-time dedication, a full-time
equivalent person-year, based on a total of forty-six and one-fourth
(46.25) weeks or one thousand eight hundred fifty (1,850) hours per year, of
work on or directly related to the Collaboration.

1.20 “Hit” shall mean a Pharmacopeia Compound identified by Pharmacopeia during
the term and in performance of the Collaboration as meeting the Activity
Criteria with respect to the given Screening Target.

1.21 “HRD” shall mean a health registration dossier or its equivalent covering
an Agreement Product filed in any country outside the United States and which is
analogous to an NDA and including, where applicable, applications for pricing,
pricing reimbursement approval, labeling and Regulatory Approval.

1.22 “IND” shall mean an Investigational New Drug application, as defined in the
U.S. Food, Drug and Cosmetic Act and the regulations promulgated thereunder for
initiating clinical trials in the United States, or any corresponding foreign
application, registration or certification.

1.23 “International Agreement” shall mean that certain Collaboration and License
Agreement entered into by and between Pharmacopeia and Schering-Plough, Ltd. of
even date herewith.

1.24 “Lead Compound” shall mean any Hit or Schering Compound with respect to
which the Parties agree to initiate a program of medicinal chemistry to identify
a Development Candidate based upon the structure of such Hit or Schering
Compound.

1.23 “Major Market” shall mean Japan or any three (3) of the following
countries; France, Germany, Italy, Spain or the United Kingdom.

1.26 “NDA” shall mean a New Drug Application, Product License Application, or
Biologic License Application, as defined in the U.S. Food, Drug and Cosmetics
Act and regulations promulgated thereunder, or the equivalent filed with the FDA
seeking approval to market and sell an Agreement Product in the United States.

1.27 “Net Sales” shall mean, with respect to each country in the Territory, the
invoice price billed by Schering or its Affiliates, or their respective
Sublicensees, to Third Parties (whether an end-user, a distributor or otherwise)
for the sale of Agreement Products, and exclusive of intercompany transfers or
sales among Schering, its Affiliates and/or Sublicensees in the Territory, less
the reasonable and customary deductions from such gross amounts
including: (i) normal and customary trade, cash and quantity discounts,
allowances and credits; (ii) credits or allowances actually granted for damaged
goods, returns or rejections of Agreement Product and retroactive price
reductions; (iii) sales or similar taxes (including duties or other governmental
charges levied on, absorbed or otherwise imposed on the sale of Agreement
Product including, without limitation, value added taxes or other governmental
charges otherwise measured by the billing amount, when included in
billing); (iv) freight, postage, shipping, customs duties and insurance charges,
when included in billing; (v) charge back payments and rebates granted to
managed health care organizations or their agencies, and purchasers and
reimbursers or to trade customers, including but not limited to, wholesalers and
chain and pharmacy buying groups; (vi) commissions paid to Third Parties other
than sales personnel and sale representatives or

 

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sales agents; and (vii) rebates (or equivalents thereof) granted to or charged
by national, state or local governmental authorities in a country in the
Territory. In determining Net Sales of an Agreement Product any of the above
discounts shall be accounted for and apportioned based on the list price of each
such Agreement Product.

In the event that an Agreement Product is sold in the form of a Combination
Product, Net Sales for such Combination Product will be calculated by
multiplying actual Net Sales of such Combination Product by the fraction A/(A+B)
where: A is the invoice price of the Agreement Product contained in the
Combination Product if sold separately by Schering, an Affiliate or Sublicensee;
and B is the invoice price of any other active therapeutic ingredients in the
Combination Product if sold separately by Schering, an Affiliate or
Sublicensee. In the event that the Agreement Product is sold in the form of a
Combination Product containing one or more active therapeutic ingredients other
than an Agreement Product and one or more such active therapeutic ingredients of
the Combination Product are not sold separately, then the above formula shall be
modified such that A shall be the fully allocated manufacturing cost to
Schering, its Affiliates or Sublicensee of the Agreement Product and B shall be
the fully allocated manufacturing cost to Schering, its Affiliate or Sublicensee
of any other active therapeutic ingredients in the combination, in each case,
determined in accordance with the schedule of fully allocated manufacturing
costs set forth in Exhibit C.

1.28 “Optimization Program” shall mean a medicinal chemistry research program to
discover one or more Development Candidates with respect to a given Target based
upon one or more Lead Compounds.

1.29 “Pharmacopeia Change in Control” shall mean any of the following: (i) a
reorganization, merger or consolidation of Pharmacopeia with a Major
Pharmaceutical Company if the shareholders of Pharmacopeia (determined
immediately prior to the reorganization, merger or consolidation taking effect)
hold, directly or indirectly, less than fifty percent (50%) of the surviving
corporation (determined immediately after such reorganization, merger or
consolidation takes effect); (ii) an acquisition by a Major Pharmaceutical
Company of direct or indirect beneficial ownership of voting stock of
Pharmacopeia representing more than fifty percent (50%) of the total current
voting power of Pharmacopeia then issued and outstanding; (iii) a sale of all or
substantially all the assets of Pharmacopeia’s Drug Discovery division to a
Major Pharmaceutical Company; or (iv) a liquidation or dissolution of
Pharmacopeia. As used in this Section 1.29, the term “Major Pharmaceutical
Company” shall mean any entity (including any corporation, joint venture,
partnership or unincorporated entity), as well as any Affiliates or division(s)
of such entity, that is engaged in the research, development, manufacturing,
registration and/or marketing of drug products that are approved under NDAs,
HRDs, ANDAs or Biologics License Applications, having total annual sales of
pharmaceutical products of at least *

1.30 “Pharmacopeia Compound” shall mean a compound synthesized and characterized
by Pharmacopeia and which is contained in one of Pharmacopeia’s proprietary
internal compound libraries.

1.31 “Pharmacopeia Technology” shall mean Existing Pharmacopeia Patent Rights,
Existing Pharmacopeia Know-How, and Pharmacopeia Improvements.

1.31.1 “Existing Pharmacopeia Patent Rights” shall mean (i) all patents and
patent applications existing as of the Effective Date that claim the synthesis
or composition of matter of a Lead Compound which is a Hit (and/or any other
Hits from the same Screening Program as such Lead Compound) or a corresponding
Derivative Compound, or the method of use thereof, and (ii) any divisions,
continuations, continuations-in-part, reissues, reexaminations, extensions or
other governmental actions which extend any of the subject matter of the patent
applications or patents in (i) above, and any substitutions, confirmations,
registrations, revalidations, or additions of any of the foregoing, in each
case, which is owned or controlled, in whole or part, by license, assignment or
otherwise by Pharmacopeia during the term of this Agreement, and subject to any
limitations and prohibitions of such license or sublicense.

1.31.2 “Existing Pharmacopeia Know-How” shall mean all ideas, inventions, data,
know-how, instructions, processes, formulas, expert opinion and information,
including, without limitation, biological, chemical, physical and analytical
data and information, existing as of the Effective Date, owned or controlled in
whole or part by Pharmacopeia by license, assignment or otherwise, which is
necessary for the discovery, development, manufacture or use of Lead Compounds
based on Hits (and/or any other Hits from the same Screening Program as such
Lead Compound) or corresponding Derivative Compounds and/or the discovery,

 

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development, manufacture, use, sale or commercialization of corresponding
Agreement Products, in each case, to the extent Pharmacopeia has the right to
license or sublicense the same, and subject to any limitations and prohibitions
of such license or sublicense.

1.31.3 “Pharmacopeia Improvements” shall mean all patentable inventions
conceived and reduced to practice, solely or jointly, by Pharmacopeia or
Schering in the conduct of the Collaboration that are within the scope of a
claim of an issued patent within the Existing Pharmacopeia Patent Rights
(i) which patent issued prior to the Effective Date or (ii) which claim has an
effective filing date prior to the Effective Date; provided, however, that
Pharmacopeia Improvements shall not include Pharmacopeia Independent Technology
(as defined in Section 2.10.1).

1.32 “Phase III” shall mean Phase III clinical trials as prescribed by
applicable FDA regulations, regardless of whether such trials are conducted in
the United States or elsewhere.

1.33 “Regulatory Approval” shall mean any applications or approvals, including
any INDs, NDAs, supplements, amendments, pre- and post-approvals, marketing
authorizations based upon such approvals (including any prerequisite
manufacturing approvals or authorizations related thereto) and labeling
approval(s), technical, medical and scientific licenses, registrations or
authorizations of any national, regional, state or local regulatory agency,
department, bureau, commission, council or other governmental entity, necessary
for the manufacture, distribution, use, import, export or sale of Agreement
Product(s) in the Territory.

1.34 “Schering Compound” shall mean a compound which is independently discovered
by or on behalf of Schering, without the use of Collaboration Technology or
Pharmacopeia Technology as demonstrated by documented evidence created at the
time of such discovery, and which is active against a specific Target.

1.35 “Schering Derivative” shall mean any compound derived by Schering during
the term of the Collaboration or for a period of * after the expiration or
earlier termination of the Collaboration, in each case from any Derivative
Compound(s) or from a Lead Compound which is a Hit, and having as its primary
mode of action *. As used herein, a compound shall be deemed to have been
“derived from” such a Lead Compound or a Derivative Compound if it *

1.36 “Schering Technology” shall mean Schering Patent Rights, Schering Know-How
and Schering Improvements.

1.36.1 “Schering Patent Rights” shall mean (i) all existing patents and patent
applications owned or controlled in whole or in part by Schering or its
Affiliates as of the Effective Date (including, without limitation, those which
claim the synthesis or composition of matter of a Lead Compound or Derivative
Compound, or the method of use thereof, or which relate to any Target or any
assay provided by Schering for use in the Collaboration or the corresponding
Targets for such assays), (ii) all patents and patent applications claiming any
invention or discovery made by or behalf of Schering or its Affiliates, other
than in performance of the Collaboration, in connection with the discovery
and/or development of any Agreement Compounds and/or Schering Compounds, and/or
the development and commercialization of any Agreement Product, and (iii) any
divisions, continuations, continuations-in-part, reissues, reexaminations,
extensions or other governmental actions which extend any of the subject matter
of the patent applications or patents in (i) or (ii) above, and any
substitutions, confirmations, registrations, revalidations, or additions of any
of the foregoing.

1.36.2 “Schering Know-How” shall mean all ideas, inventions, data, know-how,
instructions, processes, formulas, materials, expert opinion and information,
including, without limitation, biological, chemical, pharmacological,
toxicological, pharmaceutical, physical and analytical, clinical, safety,
manufacturing and quality control data and information (except for any of the
above arising in performance of the Collaboration) owned or controlled in whole
or part by Schering by license, assignment or otherwise, which is necessary for
the discovery, development, manufacture, use, sale or commercialization of
Agreement Products, in each case, to the extent Schering has the right to
license or sublicense the same, and subject to any limitations and prohibitions
of such license or sublicense; provided, however, that Schering Know-How does
not include Schering Patent Rights.

 

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1.36.3 “Schering Improvements” shall mean all patentable inventions conceived
and reduced to practice solely or jointly by Schering or Pharmacopeia in the
conduct of the Collaboration that are within the scope of the claims of any
issued patent within the Schering Patent Rights (i) which patent issued prior to
the Effective Date or (ii) which claim has an effective filing date prior to the
Effective Date.

1.37 “Screening Program” shall mean a program to screen Pharmacopeia’s internal
compound libraries for activity against one or more Screening Targets for the
purpose of identifying Hits.

1.38 “Screening Target” shall mean a Target agreed to by the Parties pursuant to
Section 2.1.2.

1.39 “Sublicensee” shall mean with respect to a particular Agreement Product, a
Third Party to whom Schering has granted a sublicense under the applicable
Pharmacopeia Technology, Schering Technology or Collaboration Technology to
make, use and/or sell such Agreement Product. As used in this Agreement, it is
understood that “Sublicensee” shall also include a Third Party or Third Parties
to whom Schering has granted the right to distribute such Agreement Product,
provided that such Third Party or parties has (have) the primary responsibility
for marketing and promotion at its (their) expense of such Agreement Product
within the field or territory for which such distribution rights are granted,
which marketing and promotional activities are not subsidized directly or
indirectly by Schering.

1.40 “Target” shall mean a biomolecular entity (including, without limitation,
receptors, enzymes, nucleic acids and proteins, and/or fragments thereof) that a
small molecule is screened against in order to determine whether the small
molecule demonstrates a specific biochemical or pharmaceutical effect.

1.41 “Territory” shall mean the United States and its territories, possessions
and commonwealths.

1.42 “Third Party” shall mean any Party other than Pharmacopeia and its
Affiliates, Schering and its Affiliates, Schering-Plough, Ltd. and its
Affiliates, and their permitted assigns.

1.43 “1994 Agreements” shall have the meaning set forth in Section 11.17.

1.44 “1998 Agreements” shall have the meaning set forth in Section 11.17.

1.44 “Valid Claim” shall mean a composition-of-matter or method-of-use claim of
an issued and unexpired patent included within the Collaboration Patent Rights
or Pharmacopeia Patent Rights, and in each case which has not been revoked or
held unenforceable or invalid by a decision of a court or other governmental
agency of competent jurisdiction, unappealable or unappealed within the time
allowed for appeal, and which has not been disclaimed, denied or admitted to be
invalid or unenforceable through reissue or disclaimer or otherwise.

ARTICLE II

COLLABORATION

2.0 Effective Date; 1998 Agreements.

2.01 Effective Date. Schering and Pharmacopeia have signed this Agreement on the
Execution Date as evidence of their mutual desire to establish a collaborative
alliance to discover and develop Agreement Products effective against certain
Targets. *

2.02 Relationship to 1998 Agreements. As of the Effective Date, all of
Schering’s remaining obligations to provide research funding for Pharmacopeia
FTEs under Sections 2.4 and 5.2 of the 1998 Agreements, and all of
Pharmacopeia’s remaining obligations to provide FTEs under Section 2.5.1 of the
1998 Agreements, shall terminate. In addition, as of the Effective Date, any and
all ongoing research programs at Pharmacopeia * shall continue to be performed
using the Pharmacopeia FTEs to be provided under this Agreement, as determined
by the Collaboration Committee. As of the Effective Date, any and all such
ongoing programs (hereinafter “Carryover Programs”) shall be treated under this
Agreement as Optimization Programs; provided, however, that notwithstanding
anything herein to the contrary, the provisions of this Agreement related to
diligence, milestone payments, royalties, ownership, exclusivity, patent related
activities and any and all other rights or obligations with respect to * shall
be governed by the

 

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terms and conditions of the 1998 Agreements, and Schering shall have no
milestone or royalty payment obligations under this Agreement with respect
thereto. Except as expressly modified and amended by this Agreement, all other
terms and conditions of the 1998 Agreements shall remain in full force and
effect.

2.1 Collaboration Research Programs.

2.1.1 Optimization Programs. Within thirty (30) days of the Effective Date, the
Collaboration Committee shall agree upon a written overall plan for each of the
Optimization Programs to be conducted by the Parties (the “Collaboration
Research Plan”). The Collaboration Research Plan shall be periodically revised
and updated (at least annually) by the Collaboration Committee during the term
of the Collaboration. The Collaboration Research Plan shall set forth the
responsibilities of each of the Parties with respect to performance of the
Optimization Programs. The Collaboration Committee shall have responsibility for
monitoring the performance of Optimization Programs against the current
Collaboration Research Plan. Notwithstanding the foregoing, the Parties
acknowledge and agree that Schering, in its sole discretion, shall have primary
responsibility and decision making authority with respect to the selection of
the Targets and Lead Compounds and the specific Optimization Programs to be
conducted during the Collaboration; provided that Pharmacopeia shall not be
obligated to undertake an Optimization Program for a Target selected by Schering
if Pharmacopeia reasonably determines that the performance of an Optimization
Program based upon that Target would constitute a breach one or more of
Pharmacopeia’s existing contractual obligations to Third Parties; and provided
further, that Pharmacopeia’s obligation to undertake such an Optimization
Program shall be subject to Section 2.12.

2.1.2 Screening Programs. Within thirty (30) days after the Effective Date,
Schering shall notify Pharmacopeia in writing of the identity of * Screening
Targets. Such notice shall include the applicable Activity Criteria recommended
by Schering for each proposed Screening Target, which Activity Criteria shall
constitute Schering Know-How. Such Activity Criteria shall include, without
limitation, * Pharmacopeia shall have the right to reject any proposed Targets
as Screening Targets if: (i) it has a pre-existing contractual obligation to any
Third Party that provides for exclusivity and/or non-compete obligations with
respect to such Target; or (ii) Pharmacopeia has previously screened one or more
Pharmacopeia Compounds against the same Target and there are less than two
million (2,000,000) Pharmacopeia Compounds that have not previously been
screened against the Target; or (iii) in accordance with the terms of
Section 2.12. In addition, in the event that Pharmacopeia reasonably believes
(based upon objective scientific information) that the Activity Criteria
recommended by Schering for a proposed Screening Target are not reasonably
attainable, then the Collaboration Committee shall promptly meet to agree in
good faith upon mutually acceptable Activity Criteria. Pharmacopeia shall
promptly notify in writing whether it accepts or rejects each such Target as a
Screening Target. Schering shall have the right to propose a replacement Target
for each Target rejected by Pharmacopeia, which replacement Target may be
accepted or rejected by Pharmacopeia, as described above. The Parties shall use
reasonable efforts to agree on * Schering shall propose * additional Targets for
acceptance by Pharmacopeia as Screening Targets for Screening
Programs. Pharmacopeia shall have the right to accept or reject such Targets, as
described above, and the Parties shall use reasonable efforts to agree on * new
Screening Targets for Screening Programs to be conducted by Pharmacopeia * To
the extent that Schering will be funding * the Parties shall use reasonable
efforts to agree upon * new Targets (to be proposed by Schering * as Screening
Targets for Screening Programs to be conducted by Pharmacopeia *

2.2 Collaboration Term. The term of the Collaboration shall be *and, unless
extended pursuant to Section 2.2.1, or earlier terminated pursuant to
Section 2.2.2 or Article X, shall expire on the third anniversary of the
Effective Date.

2.2.1 Extension of Collaboration Term. In the event that Schering continues to
fund the Collaboration *in accordance with Section 2.5.2, then the Collaboration
may be extended for *as provided below. The first *shall be effective upon
agreement by Schering *shall be effective upon agreement by Schering *Each of
the *shall become effective upon written notice by Schering to Pharmacopeia that
it agrees to the *in accordance with Section 2.8.3. *shall be at Schering’s sole
discretion and shall be for the purpose of completing any Optimization Programs
which are still in progress at the end *The *extension, if any, shall be
effective upon written notice by Schering to Pharmacopeia at least* If Schering
does not provide such notice, the Collaboration shall expire on *

 

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2.2.2 Wind Down Period. The parties acknowledge that * of the Collaboration is
intended to serve as a wind down period during which any then ongoing
Optimization Programs can be completed. Thus, if Schering does not elect to
*during the * shall be the wind down period. In the event that Schering is *
during * of the Collaboration and Schering does not agree to * during * of the
Collaboration based upon one or more * then the Collaboration shall continue for
a wind down period of * to enable the Parties to complete and wind down any
remaining Optimization Programs then ongoing. Schering’s funding obligations
during the * period shall be governed by the terms of Section 2.5.2 *2.5.4 *or
2.5.3 *, as applicable.

2.2.3 Termination of Collaboration Upon Pharmacopeia Change in Control. In the
event of a Pharmacopeia Change in Control during the term of the Collaboration,
Schering shall have the right, in its discretion, (i) to terminate the Agreement
pursuant to Section 10.4.1, below, or (ii) to terminate the Collaboration and
not the Agreement upon ninety (90) days written notice to Pharmacopeia after
such Change in Control expressly stating its intention to terminate the
Collaboration. In the event that Schering elects to terminate the Collaboration
and not the Agreement, then (a) Schering will not be obligated to make the
payments set forth in Section 5.2 for the period after the effective date of
such termination, (b) Pharmacopeia shall not be obligated to conduct any
Collaboration research activities after the effective date of such termination,
and (c) the remaining terms and conditions of this Agreement, including without
limitation the licenses and royalty obligations set forth herein, shall remain
in full force and effect until the Agreement expires or is terminated as set
forth in Article X, below.

2.2.4 Early Termination of Screening Programs. In the event that Pharmacopeia
fails to identify any Hits meeting the applicable Activity Criteria from any of
the Screening Programs conducted during * then Schering shall have the right to
terminate all further obligations with regard to Screening Programs in *. This
right shall be exercisable by Schering, in its sole discretion, by providing
written notice to that effect to Pharmacopeia within * In the event that the
Screening Programs are terminated pursuant to this Section 2.2.4, then
Pharmacopeia shall not conduct any further Screening Programs under this
Agreement during the remaining term of the Collaboration. In addition,
notwithstanding anything herein to the contrary: (i) the Collaboration shall be
limited to a total *of three (3) years with the third year being a wind down
year in which Schering shall only be obligated to fund * chemists, as provided
in Section 2.5.2; and (ii) the number of FTEs to be funded during *, consisting
of * chemistry FTEs and * biology FTEs, to conduct the Optimization Programs *
In the event that following such early termination of the Screening Programs by
Schering, or during any other wind down period under Section 2.2.2, Pharmacopeia
undertakes any new Optimization Programs based upon Lead Compounds which are
Schering Compounds (“Wind Down Programs”), then notwithstanding anything herein
to the contrary, Pharmacopeia shall be entitled to receive milestone payments
with respect to any new Agreement Compounds resulting from such Wind Down
Programs under Section 5.4.1(a), but shall not be entitled to receive any
royalty payments under Section 5.5 on sales of any Agreement Products containing
an Agreement Compound resulting from such Wind Down Programs or with respect to
any pharmaceutical products containing a Schering Compound having primary
activity against the Target which was the subject of the Wind Down Program.

2.3 Pharmacopeia Responsibilities. Pharmacopeia shall use commercially
reasonable efforts to provide:

(i) the number of scientist FTEs agreed to by the Parties, as set forth in
Section 2.5, and such additional scientists as may be mutually agreed to in
writing by the Parties and paid for by Schering, for performance of the
Collaboration during each year of the Collaboration (it being understood and
agreed that FTEs provided by Pharmacopeia for the Collaboration under the
International Agreement shall also be deemed to be provided to this
Collaboration for purposes of determining the number of FTEs provided by
Pharmacopeia hereunder);

(ii) research facilities, laboratories and equipment sufficient to enable the
Collaboration scientists (including Pharmacopeia employees and one (1) Schering
employee to be provided pursuant to Section 2.4(i)) to perform the Collaboration
in a fashion similar to the operation of Pharmacopeia’s own operations. The
chemistry FTEs shall work in dedicated laboratories at Pharmacopeia’s research
facilities in New Jersey; and

(iii) administrative services necessary to conduct the business of the
Collaboration in a manner comparable to that of Pharmacopeia’s own business
activities.

 

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It is understood and agreed that, except as may be mutually agreed by the
Parties, Pharmacopeia shall not be obligated hereunder to conduct research or
development activities in the Collaboration which are outside the scope of the
Collaboration Research Plan or the Screening Programs.

2.4 Schering Responsibilities. Schering shall provide research funding for the
Collaboration as set forth in Section 5.2 and shall use commercially reasonable
efforts to provide:

(i) one scientific director provided by Schering, in combination with
Schering-Plough, Ltd., to work full-time on the Collaboration managing the
day-to-day operations of the Collaboration (the “Collaboration Director”);

(ii) additional support for Collaboration research projects, including, without
limitation, scientists, facilities and materials to perform biological research
to identify Targets, assay development, compound screening, medicinal chemical
research and analytical support services; and

(iii) the research materials, procedures and Schering Know-How necessary to
conduct the Screening Programs, as provided in Section 2.8.

2.5 Collaboration Staffing.

2.5.1 Pharmacopeia Initial FTE Commitments. During * Pharmacopeia will provide *
FTEs, consisting of synthetic/medicinal chemists * and the remaining * biology
FTEs to be allocated, as determined by the Collaboration Committee, between
bioassay support for Optimization Programs and performance of Screening
Programs. The Parties agree that the Collaboration Committee shall have the
right to (i) increase or decrease the total number of FTEs to be provided by
Pharmacopeia and funded by Schering during any year of the Collaboration, and/or
(ii) to adjust the allocation of the total number of FTEs working on the
Collaboration between chemistry and biology FTEs, in each case as necessary to
carry out the Collaboration Research Plan; provided, however, that any such
adjustments must be agreed upon by the Collaboration Committee in advance in
writing, shall not be made more than once in any given quarter, and shall not *
or * in any wind down year. Pharmacopeia’s obligation to provide FTEs during *
as well as during any extension of the Collaboration pursuant to Section 2.2.1
or wind down period pursuant to Section 2.2.2, shall be determined in accordance
with Sections 2.5.2, 2.5.3 or 2.5.4, as applicable. All of the Pharmacopeia
chemistry FTEs assigned to work on the Collaboration * On or before the
Effective Date, Pharmacopeia will provide to Schering a list individually
identifying those Pharmacopeia chemistry FTEs assigned to the Collaboration,
which list shall be updated from time to time during the term of the
Collaboration as FTEs assigned to work exclusively for the Collaboration are
added, removed and/or replaced. During the term of the Collaboration, upon
initiating each Optimization Program, Pharmacopeia will also individually
identify a biology FTE as the primary contact at Pharmacopeia for the
performance of assays and other biology related activities for such Optimization
Program, it being understood that such individuals may have responsibility for
more than one Optimization Program. It is understood that, in the aggregate, the
education, training and experience levels of all Pharmacopeia FTEs assigned to
the Collaboration will be reasonably representative of Pharmacopeia employees
working on Pharmacopeia’s internal research programs. Within fifteen
(15) business days after the Effective Date, Pharmacopeia will provide Schering
with: (i) a copy of the Collaboration Business Conduct Policy (as described in
Section 7.6) to be observed by all Pharmacopeia FTEs assigned to work on the
Collaboration; and (ii) Pharmacopeia’s written representation and warranty that
all such FTEs assigned to the Collaboration have read and understand the terms
of the Collaboration Business Conduct Policy.

2.5.2 Pharmacopeia FTE Commitments for *. In the event that during *the Parties
have initiated, or Schering has agreed to initiate, * Optimization Programs *
then Pharmacopeia shall continue to provide, and Schering will continue to fund,
* FTEs during *If at least * then Schering shall have the right (in its sole
discretion) to reduce the number of FTEs to be provided by Pharmacopeia and
funded by Schering; provided that the number of Pharmacopeia FTEs to be funded
by Schering during the third year of the Collaboration shall be * FTEs; and
provided further that all such FTEs shall be chemistry FTEs dedicated to work
full time on the Collaboration.

2.5.3 Pharmacopeia FTE Commitments During *. If the term of the Collaboration is
* pursuant to Section 2.2.1, Schering shall continue to fund and Pharmacopeia
shall continue to provide * FTEs during *, if applicable. If Schering extends
the Collaboration for * pursuant to Section 2.2.1, then the level of FTE support
to be provided by Pharmacopeia and funded by Schering shall be determined by the
Parties based * to be completed during *.

 

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2.5.4 Pharmacopeia FTE Commitments *. Schering shall have the right (in its sole
discretion) to decrease the level of FTE support to be provided by Pharmacopeia
and funded by Schering * as determined pursuant to Section 2.2.2) * provided
that the number of Pharmacopeia FTEs to be funded by Schering during * shall be
at least *; and provided further that all such FTEs shall be chemistry FTEs
dedicated to work full time on the Collaboration.

2.5.5 Schering FTE Commitments. During the term of the Collaboration Schering
shall, in combination with Schering-Plough Ltd. under the International
Agreement, provide a single scientific director as set forth in
Section 2.4(i). Such director shall be subject to Pharmacopeia’s confidentiality
restrictions such as limited access to laboratories and access only to data that
specifically relate to the Collaboration. It is understood that the scientific
director shall remain an employee of Schering, and that Schering shall remain
responsible for, and indemnify Pharmacopeia for any claims arising from or
relating to, the conduct, activities, salary and benefits of such director,
except to the extent caused by the gross negligence or willful misconduct of
Pharmacopeia. In addition, Schering shall provide such additional FTEs located
at Schering’s research facilities as Schering determines, in its sole
discretion, are reasonably necessary to support the ongoing research programs of
the Collaboration, including, without limitation, assay development, screening,
medicinal chemistry, analytical services and animal testing services.

2.6 Capital Expenditures. In the event that the Parties reasonably determine
that one or more Optimization Programs to be performed at Pharmacopeia, as
identified in the applicable Collaboration Research Plan, will require capital
expenditures to provide Pharmacopeia with access to specialized equipment needed
to perform such Optimization Program, Schering shall be responsible (at its
expense) for the purchase of such specialized equipment, and for purchasing, or
reimbursing Pharmacopeia for the out-of-pocket costs of, any specialized
consumables that are uniquely necessary for the proper operation of such
specialized equipment. The Parties will make arrangements for the delivery and
installation of such specialized equipment at Pharmacopeia’s facilities;
provided that the specialized equipment is and shall remain the sole and
exclusive property of Schering. Pharmacopeia shall have the right to utilize the
specialized equipment in performance of Optimization Programs and shall not use
the specialized equipment for any other activities or programs
whatsoever. Pharmacopeia shall be responsible (at its own expense) for all
routine operating costs incurred in connection with the use of any specialized
equipment provided by Schering under this Section 2.6, including without
limitation, any utility costs and the costs of reagents, solvents or other
supplies necessary for the operation of the specialized equipment. Pharmacopeia
shall ensure that all Pharmacopeia employees operating the specialized equipment
have been properly trained in its use and shall use the specialized equipment in
accordance with the instructions and operating procedures to ensure its proper
use. Pharmacopeia shall be responsible (at its expense) for any damage
(excluding ordinary wear and tear) to any of Schering’s specialized equipment
provided to Pharmacopeia pursuant to this Section 2.6 resulting from
Pharmacopeia’s use of the specialized equipment. Upon expiration or earlier
termination of the Collaboration, Pharmacopeia shall fully cooperate with
Schering to promptly return the specialized equipment to
Schering. Alternatively, the Parties may decide to permit Pharmacopeia to retain
the specialized equipment following the expiration or termination of the
Collaboration, in which case the Parties shall arrange for the purchase and
transfer of ownership of the specialized equipment to Pharmacopeia on financial
terms to be agreed to by the Parties based upon the then current fair market
value of the specialized equipment.

2.7 Record Keeping and Inspection of Records. Each of Schering and Pharmacopeia,
and their respective Affiliates, shall maintain records of its Collaboration
activities (or cause such records to be maintained) in sufficient detail and in
good scientific manner appropriate for patent and regulatory purposes as will
properly reflect all work performed and the results achieved in performance of
the Collaboration. Schering shall also maintain analogous records of its
development activities with respect to Agreement Compounds and Agreement
Products. Such records may include books, records, reports, research notes,
charts, graphs, comments, computations, analyses, recordings, photographs,
computer programs and documentation thereof, computer information storage media,
samples of materials and other graphic or written data generated in connection
with the Collaboration, including any data required to be maintained pursuant to
all requirements of applicable laws, rules and regulations, or as directed by
the Collaboration Committee. Pharmacopeia’s records shall also document by name
which individuals assigned to the Collaboration

 

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pursuant to Section 2.5 are working on each specific Collaboration research
project (identifying the Target(s) involved). During the Collaboration and for
five (5) years thereafter, each of Schering and Pharmacopeia shall have the
right, upon at least five (5) business days’ prior notice, to inspect all such
records of the other Party (or legible copies thereof) during normal business
hours. Each Party’s rights under this Section 2.7 shall be limited to one
(1) inspection in any calendar year. In each case, the Party conducting the
inspection shall maintain such records and the information disclosed therein in
confidence in accordance with Section 7.1, and shall use such information solely
for purposes of this Agreement. Upon request and tender of payment for the
actual cost in providing copies, Pharmacopeia and/or Schering, as appropriate,
shall provide to the requesting Party copies of such records.

2.8 Performance of Screening Programs. With respect to each Screening Target,
the Parties agree that promptly following the acceptance by Pharmacopeia of each
Screening Target in accordance with Section 2.1.2, Schering will provide
Pharmacopeia (free of charge) with reasonable quantities of the Screening Target
protein and any of Schering’s other proprietary reagents required to perform
assays to identify compounds having activity against such Screening Target. All
such proteins and other reagents are and shall remain the property of Schering,
shall be used by Pharmacopeia solely in performance of the Screening Program,
and shall not be transferred or otherwise made available to any Third Party
without Schering’s prior written consent (which consent may be granted or
withheld in Schering’s sole discretion.) Upon receipt of such * Pharmacopeia
shall use diligent efforts to initiate and conduct a Screening Program to
identify Pharmacopeia Compounds having activity against such Screening
Target. Such efforts shall include any assay development work or assay
modifications necessary to enable Pharmacopeia to perform the relevant assays to
determine whether or not the applicable Activity Criteria are met for such
Screening Target. Except as otherwise provided in Section 2.6, Pharmacopeia
shall be solely responsible * Effective upon acceptance by Pharmacopeia of each
Screening Target under Section 2.1.2, Pharmacopeia shall not conduct any
screening of Pharmacopeia Compounds, either for itself or for any Third Party,
against the same Target as such Screening Target (as determined pursuant to
Section 2.11.1) for the period *

2.8.1 Hits. Any Pharmacopeia Compound(s) identified as meeting the Activity
Criteria against a Screening Target through screening of the Pharmacopeia
Compounds by Pharmacopeia during the term of the Collaboration, shall be
designated a Hit. Upon completion by Pharmacopeia of the Screening Program for a
given Screening Target, Pharmacopeia shall promptly notify Schering of all Hits
identified with respect to that Screening Target, which notice shall identify
the Screening Target and the available data generated by Pharmacopeia regarding
*but shall not disclose the chemical structure of the Hits, or in the event that
no Hits are identified from the Screening Program, Pharmacopeia shall notify
Schering to that effect. * information and samples of Hits solely for the
purpose of confirming that such Pharmacopeia Compound meets the Activity
Criteria for the Screening Target. This will include the performance by Schering
of any tests necessary to confirm * Schering agrees, however, not to conduct, or
have conducted, *

2.8.2 * Within Schering shall notify Pharmacopeia in writing of those compounds
which Schering has confirmed are Hits * Promptly after receipt of such notice,
Pharmacopeia shall disclose to Schering * Upon receipt of the * Schering shall
ensure that those employees having access to the * shall only use such
information for *

2.8.3 Lead Compounds from Screening Programs. * Schering shall notify
Pharmacopeia which (if any) of those confirmed Hits are acceptable to Schering
as Lead Compounds for initiation of new Optimization Programs. Following notice
from Schering that one or more Hits are acceptable as Lead Compounds, the
Parties shall, as soon as reasonably practicable, initiate a new Optimization
Program based upon such Lead Compound(s) in accordance with Section 2.9. The
Parties acknowledge and agree that if Schering notifies Pharmacopeia that at
least one Hit is acceptable to Schering as a Lead Compound for a given Screening
Target, then the licenses granted to Schering under Article 4 with respect to
such Lead Compound shall also include * The restrictions set forth in
Section 2.8.2 regarding disclosure, access and use of structural information
with respect to confirmed Hits shall no longer apply following notice of
acceptance by Schering of one or more such Hits as a Lead Compound pursuant to
this Section 2.8.3. Upon acceptance by Schering of one or more Hits as a Lead
Compound pursuant to this Section 2.8.3, the duration of the restriction on
screening by Pharmacopeia against the relevant Screening Target, as set forth in
the last sentence of Section 2.8, *

 

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2.8.4 Hits Not Accepted by Schering. In the event that Schering does not accept
any of the Hits identified by Pharmacopeia with respect to a given Screening
Target as Lead Compounds for an Optimization Program, Pharmacopeia shall have
the right to * In the event that Pharmacopeia decides to * Following receipt of
any * by Schering, the Parties agree that for *

2.9 Performance of Optimization Programs. The first Optimization Programs to be
performed under this Agreement are the ongoing research programs for
Optimization Libraries (as defined in the 1998 Agreements) listed in Exhibit D,
which shall be subject to the terms and conditions of Section 2.0. All new
Optimization Programs to be initiated by the Parties after the Effective Date
shall be programs based upon Lead Compounds selected under the terms and
conditions of this Agreement and Section 2.0 shall not apply to any such new
Optimization Programs. It is anticipated that the Parties will generally seek to
maintain * ongoing Optimization Programs during each year of the Collaboration
in which Schering is funding research at the full level of * FTEs in accordance
with Section 2.5; provided, however, that the Parties acknowledge that the
actual number of ongoing Optimization Programs at any given time may vary and
shall be subject in part to Pharmacopeia’s success in identifying Hits from
Screening Programs. If the Parties are unable to maintain * of Optimization
Programs based upon Lead Compounds which are Hits from Screening Programs,
Schering will use commercially reasonable efforts to approve and initiate new
Optimization Programs based upon Lead Compounds which are Schering Compounds as
necessary in order maintain a reasonable number of ongoing Optimization Programs
based upon the available Pharmacopeia FTEs working on the Collaboration;
provided, however, failure by Schering to provide Lead Compounds which are
Schering Compounds shall not constitute a breach under this Agreement. If
Schering ceases funding the Collaboration at the full level in * in accordance
with Sections 2.5.2, 2.5.3 and 2.5.4, then Schering will not be obligated to
initiate any new Optimization Programs *. The Collaboration Committee shall be
responsible for allocation of the FTEs and other resources among the various
Optimization Programs selected by Schering. This will include allocation of the
medicinal chemistry FTEs, as well as additional FTEs to provide bioassay
support, as necessary, for each Optimization Program to generate primary assay
data for Lead Compounds and Derivative Compounds. In the event that all FTEs are
fully allocated among the various ongoing Optimization Programs, any new
Optimization Programs will be initiated as resources become available within the
Collaboration, based upon prioritization determined by Schering. Any delay in
initiating an Optimization Program based upon a Lead Compound which is a Hit
from a Screening Program shall not have any effect on the acceptance of such Hit
as a Lead Compound and Pharmacopeia shall not acquire any *

2.9.1 Preparation of Derivative Compounds. In performing each Optimization
Program, Pharmacopeia shall undertake the synthesis of analogs and other
Derivative Compounds based upon the relevant Lead Compounds. Pharmacopeia will
also conduct primary screening assays of all such Derivative Compounds to
determine activity against the applicable Target. Pharmacopeia will provide the
Collaboration Committee with regular (at least quarterly) written reports of the
data and results generated in performance of each Optimization Program. Such
reports will identify the chemical structure of any and all Derivative Compounds
prepared by Pharmacopeia in performance of the Optimization Program (whether or
not such compounds are identified as active against the Target), and all test
data with respect thereto.

2.9.2 * .

2.9.3 * Notwithstanding the provisions of Section 2.9.2, *

2.9.4 Leads Based Upon Schering Compounds. Schering shall not be obligated to
disclose the structure of any Schering Compound(s) proposed as Lead Compounds
unless and until Pharmacopeia has agreed, pursuant to Section 2.1.1, to conduct
an Optimization Program against the relevant Target. Upon Pharmacopeia’s
agreement to conduct an Optimization Program based upon one or more Lead
Compounds which are Schering Compounds, Schering shall disclose to Pharmacopeia
the structure of such Schering Compounds. Effective upon the date Pharmacopeia
agrees to perform an Optimization Program based upon one or more Lead Compounds
which are Schering Compounds, for the period extending from *

2.10 Pharmacopeia Independent Research Activities.

2.10.1 Activities Outside the Collaboration. The Parties acknowledge that during
and after the term of the Collaboration Pharmacopeia may (either alone or in
collaboration with one or more Third Parties) perform independent research and
development

 

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activities with respect to Targets (including, without limitation, to identify,
develop and commercialize products), which activities are not within the scope
of this Agreement; provided that Pharmacopeia shall not use any Schering
Technology, and except as otherwise expressly set forth in this Agreement shall
not use any Collaboration Technology, in connection with any such independent
research and development activities. Any data, information, materials,
compounds, products or other technology resulting from such independent research
and development activities is the property of Pharmacopeia (“Pharmacopeia
Independent Technology”). The Parties further acknowledge that Pharmacopeia
Independent Technology may include technology independently acquired, discovered
or developed by Pharmacopeia (as demonstrated by documented evidence created at
the time of such acquisition, discovery or development) and which coincidentally
is substantially the same as technology within the scope of Collaboration
Technology and/or Schering Technology. Schering shall have no rights or licenses
whatsoever to any Pharmacopeia Independent Technology.

2.11 Schering’s Screening Programs. The Parties acknowledge that Schering shall
have the right to conduct its own independent screening programs against any and
all Targets, and that except as expressly set forth in this Section 2.11, *
resulting from such independent screening programs. Schering shall have the
right * The Parties acknowledge and agree that any pharmaceutical products
discovered, developed and commercialized as a result of * are and shall be
treated as Agreement Products and shall be subject to * but shall not be subject
*

2.11.1 Differentiation of Targets. A Target will encompass *

2.12 Third Party Patents. The Parties acknowledge and agree that Pharmacopeia
shall have the right to reject and shall not be obligated to undertake any
Screening Program or Optimization Program, or any new research activities in
connection with an ongoing Screening Program or Optimization Program, pursuant
to this Agreement if Pharmacopeia reasonably determines, in good faith, that
such program or activities cannot be performed without infringing an issued US
patent held by a Third Party. It is further understood and agreed that, unless
Schering obtains a license for Pharmacopeia, or grants Pharmacopeia a sublicense
under a license held by Schering, to conduct such program or research
activities, Pharmacopeia’s failure to conduct such program or research
activities shall not constitute a breach of this Agreement. Pharmacopeia shall
promptly inform Schering in the event that Pharmacopeia determines in accordance
with this Section 2.12 that it will be unable to undertake any proposed
Screening Program, Optimization Program or research activities due to Third
Party patents. *

ARTICLE III

COLLABORATION MANAGEMENT

3.1 Collaboration Committee. The Parties shall establish a Collaboration
Committee to oversee, review and coordinate the conduct of the
Collaboration. The Collaboration Committee shall be comprised of three
(3) representatives from each of Schering and Pharmacopeia, or such other equal
number of representatives as the Parties may agree, each Party’s members
selected by that Party. Each of Pharmacopeia and Schering may replace its
Collaboration Committee representatives at any time upon written notice to the
other Party. The Collaboration Committee shall be chaired by the Collaboration
Director appointed by Schering, unless otherwise agreed by the Parties.

From time to time the Collaboration Committee may establish various
subcommittees, constituted as agreed by the Collaboration Committee, to oversee
particular projects or activities within the Collaboration.

3.2 Collaboration Committee Meetings. During the term of the Collaboration,
including as it may be extended, the Collaboration Committee shall meet at least
four (4) times per year, or more often as agreed by the Parties, at such
locations as the Parties shall agree. At such meetings the Collaboration
Committee’s responsibilities will include: (i) formulating and reviewing the
Collaboration objectives with respect to each Optimization Program;
(ii) monitoring the progress of the Collaboration toward those objectives;
(iii) evaluating Hits identified by Pharmacopeia from Screening Programs;
(iv) initially reviewing recommendations by Pharmacopeia to Schering for Hits
proposed to be accepted as Lead Compounds for new Optimization Programs; and
(v) taking such other actions as may be specified under this Agreement or which
the Parties deem appropriate. The Collaboration Committee may designate a patent
committee comprised of employees or representatives of the Parties to oversee
the patent prosecution and/or enforcement activities described in Article VI,
and to facilitate communication and agreement between the Parties regarding
inventorship of

 

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inventions made in the Collaboration and the classification of such inventions
(e.g., as Schering Improvements, Pharmacopeia Improvements, Collaboration
Technology, etc.). Additional non-voting representatives or consultants from
either Party may from time to time be invited by Schering or Pharmacopeia to
attend and participate in Collaboration Committee meetings (e.g., to evaluate
and advise on business or scientific issues) subject to compliance with the
confidentiality provisions of Section 7.1. Each Party shall be responsible for
its own expenses in connection with the Collaboration Committee.

3.3 Collaboration Committee Decisions. Decisions of the Collaboration Committee
shall be based upon the consensus of all the members. In the event that the
Collaboration Committee cannot or does not, after good faith efforts, reach
agreement on an issue, such issue shall be referred to the President of
Schering’s Affiliate, the Schering-Plough Research Institute (“SPRI”), and the
President and Chief Operating Officer of Pharmacopeia Drug Discovery for
resolution. In the event that these officers are unable to resolve the issue
within fifteen (15) business days after submission of the issue to them, then
the unresolved issue may be submitted by either Party to binding arbitration
pursuant to Section 11.3 of this Agreement, except that the decision shall be
made by one (1) arbitrator with expertise in pharmaceutical product development,
and the decision of the arbitrator shall be rendered within six (6) months of
initiation of the arbitration. During the pendency of any such arbitration
proceedings, the Parties shall proceed with performance of the Collaboration
following the course of conduct determined by Schering; provided, however, that
notwithstanding the foregoing, Pharmacopeia shall not be obligated to
(i) perform any action that would violate its obligations to any Third Party or
contravene Section 2.12, (ii) spend or forego receiving any amounts of money
(except as necessary in connection with the fulfillment of Pharmacopeia’s
responsibilities under Section 2.3), or (iii) knowingly prepare or deliver to
Schering any compounds previously licensed to any Third Party. Notwithstanding
the foregoing, Schering, in its sole discretion, shall have complete and final
control over Schering’s research, development and commercialization of Schering
Compounds, Agreement Compounds and/or Agreement Product(s) in accordance with
the terms and conditions of this Agreement.

3.4 Development Status; Notice of Sale of Agreement Products. During the term of
this Agreement, Schering shall provide Pharmacopeia written annual reports
within thirty (30) days after the first and each subsequent anniversary of the
Effective Date, which reports shall provide: (i) a brief report summarizing the
development status of each Lead Compound and/or Development Candidate under
development at Schering; (ii) the status of all patent applications claiming any
Library Compounds or Derivative Compounds, and (iii) copies of all such patent
applications which have published during the relevant twelve (12) month period
and were not previously provided to Pharmacopeia. Such reports shall contain
information sufficient to allow Pharmacopeia to monitor the status of Schering’s
efforts with respect to the accomplishment of the milestones set forth in
Section 5.3; provided, however, that nothing hereunder shall be construed as
requiring Schering to provide Pharmacopeia with any specific research data or
results, including, without limitation, information relating to Targets or data
obtained from screening programs being conducted at Schering. Until the First
Commercial Sale of each Agreement Product by or on behalf of Schering hereunder,
Schering shall keep Pharmacopeia reasonably informed as to the status of the
pre-clinical, clinical and commercial development of such Agreement Product by
providing Pharmacopeia with annual written reports summarizing such activities
with respect to each potential Agreement Product under development during the
term of this Agreement. Within thirty (30) days of the First Commercial Sale of
any Agreement Product, Schering shall give Pharmacopeia written notice thereof,
which notice shall describe the relevant Agreement Product, identify the active
ingredients in such Agreement Product, and identify the specific Target(s) which
led to the development of such Agreement Product.

3.5 Diligence. The Parties acknowledge and agree that all business decisions
regarding research, development and commercialization of Agreement Products
(including, without limitation, decisions relating to the development and
manufacture of Agreement Compounds, or to the design, development, manufacture,
sale, price, distribution, marketing and promotion of Agreement Products under
this Agreement) and the decision whether to develop (or cease developing) a
particular Agreement Compound, or to develop and commercialize (or cease
developing and commercializing) a particular Agreement Product, shall be within
the sole discretion of Schering. Schering shall use reasonable good faith
efforts to discover and develop Agreement Compounds, and to discover, develop
and commercialize Agreement Products; provided, however, that Schering shall
have no quotas or other minimum diligence obligations with regard to number of
Agreement Compounds and Agreement Products to be developed and commercialized
hereunder. Such decision making and/or reasonable good faith efforts shall be
expended by Schering, as determined in its reasonable

 

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commercial judgement, based upon the facts and circumstances in existence and
reasonably available to Schering at that time, and shall be exercised in a
manner consistent with the discovery, development and commercialization of
Schering’s other products of comparable commercial value, potential and stage of
development. All of Schering’s diligence obligations hereunder are expressly
conditioned upon the continuing absence of any adverse condition or event which
warrants a delay in commercialization of an Agreement Product including, but not
limited to, an adverse condition or event relating to the safety or efficacy of
the Agreement Product or unfavorable pricing, pricing reimbursement, labeling or
lack of Regulatory Approval, and Schering shall have no obligation to develop or
market any such Agreement Product so long as in Schering’s opinion any such
condition or event exists; provided that Schering shall use commercially
reasonable efforts to overcome any unfavorable pricing or pricing reimbursement
with respect to Agreement Products being commercialized under this
Agreement. The Parties acknowledge and agree that none of the diligence
obligations in this Section 3.5 shall apply to any Schering Compounds, the
discovery, development and commercialization of which are the sole and exclusive
responsibility of Schering.

ARTICLE IV

LICENSES AND EXCLUSIVITY

4.1 License to Schering.

4.1.1 License to Pharmacopeia Technology. Subject to the terms of Section 4.4.1,
Pharmacopeia agrees to grant, and hereby grants to Schering an exclusive license
under the Pharmacopeia Technology (exclusive even as to Pharmacopeia and its
Affiliates) in the Territory, to make, have made, use, sell, offer to sell,
import and export Agreement Products containing a Lead Compound which is a Hit
or a corresponding Derivative Compound as an active ingredient. It is understood
that such licenses shall include the right to conduct drug research and
development, and the exclusive right to discover, develop, make, have made and
use such Lead Compounds and corresponding Derivative Compounds, during the term
of this Agreement.

4.1.2 License to Collaboration Technology. Pharmacopeia agrees to grant, and
hereby grants to Schering an exclusive license under Pharmacopeia’s interest in
the Collaboration Technology (exclusive even as to Pharmacopeia and its
Affiliates), to make, have made, use, sell, offer to sell, import and export
Agreement Products in the Territory. It is understood that such licenses shall
include the right to conduct drug research and development, and the exclusive
right to discover, develop, make, have made and use Agreement Compounds, during
the term of this Agreement.

4.1.3 License to Collaboration Target-Specific Technology. Pharmacopeia agrees
to grant, and hereby grants, to Schering an exclusive license (exclusive even as
to Pharmacopeia and its Affiliates), under all of Pharmacopeia’s interest in the
Collaboration Target-Specific Technology for any and all purposes in the
Territory, including the right to grant sublicenses.

4.1.4 *

4.2 Sublicenses. Schering shall have the right to sublicense the rights granted
in Section 4.1 above. Each such sublicense shall be consistent with all the
terms and conditions of this Agreement. Schering shall remain responsible to
Pharmacopeia for all of each such Sublicensee’s applicable financial and other
obligations due under this Agreement. Such Sublicensee shall not have the right
to grant further sublicenses, and such sublicenses may not be assigned or
transferred to any Third Party without the prior written consent of
Pharmacopeia. Each sublicense shall provide for its continuation following early
termination of the license rights of Schering hereunder and its assignment to
Pharmacopeia. Promptly following the execution of each sublicense requiring
Pharmacopeia’s consent hereunder, Schering shall give Pharmacopeia written
notice of the existence and identity of each Sublicensee and identify the
Agreement Product(s) sublicensed to such Sublicensee.

4.3 Direct Affiliate Licenses. Whenever Schering shall reasonably demonstrate to
Pharmacopeia that, in order to facilitate direct royalty payments by an
Affiliate, it is desirable that a separate license agreement be entered into
between Pharmacopeia and such Affiliate, Pharmacopeia will grant such licenses
directly to such Affiliate by means of an agreement which shall be consistent
with all of the provisions hereof and Schering shall guarantee the Affiliate’s
obligations thereunder and otherwise provide to Pharmacopeia assurances of
performance satisfactory to Pharmacopeia. Schering shall reimburse Pharmacopeia
for its reasonable attorneys’ fees and costs incurred in connection with any
such separate license agreement.

 

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4.4 Third Party Rights.

4.4.1 Pharmacopeia Third Party Activities. It is understood that as of the
Effective Date Pharmacopeia may have already granted, or on or after the
Effective Date may grant, to Third Parties rights to acquire licenses for
Pharmacopeia Compounds similar to Schering’s rights under this
Article IV. Notwithstanding the licenses granted to Schering under Sections
4.1.1 and 4.1.4 above, it is possible that a Third Party already has or may
acquire rights from Pharmacopeia with respect to one or more compounds of which
Pharmacopeia is a sole or joint owner, which compounds were made and designed
independently of Pharmacopeia’s activities in the Collaboration; accordingly,
Pharmacopeia’s grant of rights under Sections 4.1.1 and 4.1.4 are limited to the
extent that (i) a Third Party (either alone or jointly with Pharmacopeia) has
filed a patent application with respect to such a compound prior to the filing
by Schering (either alone or jointly with Pharmacopeia) of a patent application
with respect to such a compound, or (ii) Pharmacopeia has previously granted a
Third Party a license, an option to acquire a license, a right of first
negotiation, field exclusivity, or a non-competition covenant with respect to
such a compound, and are subject to any such grant of rights to a Third Party.

4.4.2 No Liability. It is understood and agreed that, even if Pharmacopeia
complies with its obligations under this Agreement, compounds provided to Third
Parties in the course of Pharmacopeia’s other business activities may result in
Third Party patent applications and patents, including patent applications and
patents owned by such Third Parties, or owned jointly by Pharmacopeia and such
Third Parties, which could conflict with patent applications and patents owned
by Schering, or jointly owned by Schering and Pharmacopeia
hereunder. Pharmacopeia shall use reasonable efforts to avoid such conflict,
which efforts shall be comparable to those used by Pharmacopeia in performing
similar obligations under its agreements with Third Parties. It is understood
that, unless Schering is damaged as a proximate result of a material breach by
Pharmacopeia of any of the representations and warranties in Article VIII, then
Pharmacopeia shall have no liability under this Agreement with respect to any
such conflict.

4.4.3 Pharmacopeia Reports to Schering On Third Party Rights. During the period
from the Effective Date until the First Commercial Sale of an Agreement Product,
within thirty (30) days of a written demand by Schering concerning a
Pharmacopeia license to a Third Party of a patent application owned or co-owned
by Pharmacopeia, Pharmacopeia shall, to the extent it may do so without
breaching any contractual or other legal obligation, provide Schering with a
statement explaining why the invention(s) claimed in the patent application or
technology licensed to such Third Party is independent of Pharmacopeia’s
activities in the Collaboration. Such statement shall be supported by written
records kept in the ordinary course of business consistent with pharmaceutical
industry standards, provided that such records need not be provided to Schering
at the time of providing such statement, but may have to be provided pursuant to
Section 11.3. Such information shall be deemed Confidential Information of
Pharmacopeia pursuant to this Agreement.

4.5 Collaboration Research Activities. Schering agrees to grant, and hereby
grants, to Pharmacopeia a royalty-free, non-exclusive license under
(i) Schering’s interest in the Collaboration Technology, and (ii) any Schering
Technology which Schering, in its sole discretion, reasonably determines is
necessary or useful for Pharmacopeia’s performance of the Collaboration, in each
case to use during the term of the Collaboration and solely in performance of
the Collaboration. Pharmacopeia will not be required to pay any fees to use such
intellectual property, but will as a condition precedent to such use execute any
consents or sublicenses required by any Schering licensor. Pharmacopeia shall
not be required to execute any unreasonable consents or licenses and will not be
in breach of this Agreement for failure to do so.

4.6 *

4.7 No Other Products. Neither Schering nor its Affiliates or Sublicensees shall
commercialize any Hit, Lead Compound which is a Hit, Derivative Compound,
Schering Derivative or other composition of matter claimed in a Collaboration
Patent Right, other than as an Agreement Product in accordance with this
Agreement.

 

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ARTICLE V

PAYMENTS

5.1 Payments By Schering. In partial consideration for Pharmacopeia’s conducting
research activities in the Collaboration and the rights and licenses granted to
Schering herein, Schering agrees to pay to Pharmacopeia the amounts set forth in
Sections 5.2, 5.3, 5.4 and 5.5. *

5.2 Collaboration Funding.

5.2.1 Funding During Year One. Schering shall pay to Pharmacopeia research
funding for the Collaboration at a rate of * per FTE per year during the first
year of the Collaboration based upon the actual number of Pharmacopeia FTEs
assigned to the Collaboration as set forth in Section 2.5.1, plus any additional
FTEs (if any) agreed upon by the Parties under Section 2.3(i).

5.2.2 Funding During Subsequent Years. Schering shall pay to Pharmacopeia
research funding for the Collaboration at an adjusted rate per FTE during the
second year and each subsequent year of the Collaboration, based upon the actual
number of Pharmacopeia FTEs assigned to the Collaboration in such year in
accordance with Sections 2.5.2, 2.5.3 or 2.5.4 (as applicable), plus any
additional FTEs (if any) agreed upon by the Parties under Section 2.3(i). The
adjusted rate to be applied in each such year shall be *

5.2.3 Manner of Payment. As noted in Section 5.1, with respect to each
Pharmacopeia FTE, * Research funding for the Collaboration under this
Section 5.2 shall be payable quarterly in advance on the first day of each
calendar quarter. Pharmacopeia shall send an invoice therefor to Schering
fifteen (15) business days prior to the end of the preceding quarter, and
Schering shall pay such invoiced amounts. It is understood that in the case of
the first calendar quarter of the first year of the Collaboration, Pharmacopeia
shall send an invoice to Schering as soon as practicable after the Effective
Date. Each invoice will indicate the number of Pharmacopeia FTEs to be assigned
to the Collaboration for such quarter and any adjustment from the prior quarter
as determined in accordance with Section 5.2.4. Schering will use commercially
reasonable efforts during each calendar year during the term of the
Collaboration to pay its first calendar quarter Collaboration funding payments
to Pharmacopeia on or before the first (1st) day of January; provided, however,
that in the event Schering is unable to complete such payment, payment by
Schering on or before the seventh (7th) day of January in such calendar year
shall not constitute a breach or default by Schering.

5.2.4 Quarterly Adjustment. At the conclusion of each quarter, Pharmacopeia will
calculate the actual number of FTEs provided by Pharmacopeia during that quarter
and calculate any difference between the actual number of FTEs provided by
Pharmacopeia and the number prepaid by Schering. Any overpayment or underpayment
shall be reflected as a credit or additional charge, as the case may be, in the
next quarterly invoice as per Section 5.2.3, and in the event that no further
quarterly payments are due under this Section 5.2, then (i) any underpayment
shall be paid by Schering to Pharmacopeia within fifteen (15) business days of
receiving notice and invoice therefor, or (ii) Pharmacopeia shall within thirty
(30) days reimburse Schering for any overpayment. For purposes of clarity and
avoidance of doubt, the Parties acknowledge and agree that nothing in this
Section 5.2.4 shall be construed as obligating Schering to pay for any
Pharmacopeia FTEs actually working in the Collaboration during a given year of
the Collaboration in excess of the number of FTEs specifically provided for in
Section 2.2 during such year, unless such increased FTE support is agreed to in
advance in writing by Schering.

5.3 Lead Compound Milestone. Schering shall pay to Pharmacopeia a milestone
payment of * for each new Optimization Program initiated or agreed to by
Schering with respect to a Screening Target based upon one or more Lead
Compound(s) accepted by Schering in accordance with Section 2.8 that are Hits
arising from Screening Programs conducted by Pharmacopeia. No such milestone
shall be payable with respect to any Optimization Programs initiated or agreed
to based upon Lead Compounds which are Schering Compounds. Such milestone
payment shall be due within thirty (30) days after Schering notifies
Pharmacopeia pursuant to Section 2.8.3 that it has accepted one or more
Pharmacopeia Compounds as Lead Compounds. The milestone payment under this
Section 5.3 shall only be payable * Further, it is understood and agreed that
all amounts payable under this Section 5.3 are in addition to any milestone
payments that may be due to Pharmacopeia under the corresponding provisions of
the International Agreement. For the avoidance of doubt, it is understood and
agreed that, for each new Optimization Program conducted by Pharmacopeia,
Pharmacopeia shall be entitled to receive the milestone payment under this
Section 5.3 and the milestone payment from Schering-Plough Ltd. under the
corresponding provision of the International Agreement.

 

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5.4 Milestone Payments.

5.4.1 Events and Amounts.

(a) Milestones for Optimization Programs based upon Schering Compounds. Schering
agrees to pay to Pharmacopeia the following amounts upon attainment, by or on
behalf of Schering, its Affiliates or Sublicensees, of the indicated milestones
with respect to any new Agreement Compounds/Agreement Products discovered by
Pharmacopeia in performance of an Optimization Program based upon one or more
Lead Compounds which are Schering Compounds (i.e., any Derivative Compounds
resulting from such Optimization Program and/or any Schering Derivatives derived
from such Derivative Compounds):

 

  (i) * upon nomination of a Development Candidate;

 

  (ii) *upon the filing and Acceptance of an IND or its equivalent;

 

  (iii) * upon initiation of treatment of the first patient in a Phase III
clinical study;

 

  (iv) * upon filing and Acceptance of an NDA with the FDA; and

 

  (v) * upon Regulatory Approval in the Territory.

(b) Milestones for Optimization Programs based upon Hits. Schering agrees to pay
to Pharmacopeia the following amounts upon attainment, by or on behalf of
Schering, its Affiliates or Sublicensees, of the indicated milestones with
respect to an Agreement Compound/Agreement Product arising from an Optimization
Program based upon one or more Lead Compounds which are Hits, (i.e., any such
Lead Compounds, related Hits, Derivative Compounds resulting from such
Optimization Program and/or Schering Derivatives derived from such Lead
Compounds, Hits or Derivative Compounds):

 

  (i) * upon nomination of a Development Candidate;

 

  (ii) * upon the filing and Acceptance of an IND or its equivalent;

 

  (iii) * upon initiation of treatment of the first patient in a Phase III
clinical study;

 

  (iv) * upon filing and Acceptance of an NDA with the FDA; and

 

  (v) * upon Regulatory Approval in the Territory.

It is understood and agreed that all amounts payable under this Section 5.3.1
are in addition to any milestone payments that may be due to Pharmacopeia under
the terms of the International Agreement.

5.4.2 Development Candidate. A Development Candidate shall have been deemed to
have been nominated upon the earlier of the date (i) the Schering-Plough
Research Institute Project Assessment Committee or its successor approves
proceeding with full development of such compound, or (ii) Schering (or its
Affiliate) initiates in vivo toxicology trials necessary, and meeting U.S. FDA
(or corresponding European or Japanese) standards, for obtaining approval for
use of such Agreement Compound in human clinical trials. Within thirty (30) days
after the nomination of a Development Candidate, Schering shall notify
Pharmacopeia thereof.

5.4.3 Manner of Payment. All payments made to Pharmacopeia by Schering pursuant
to Section 5.4.1(a) or (b) shall be due within thirty (30) days after the
achievement of the corresponding milestone and shall be nonrefundable and not
creditable against other amounts due to Pharmacopeia. The payments provided for
under this Section 5.4 shall only be payable once upon the first achievement of
the indicated milestone with respect to an Agreement Compound and/or Agreement
Product developed against a

 

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particular Target and no additional payments shall be due on subsequent or
repeated achievement of the same milestone for another Agreement Compound and/or
Agreement Product developed against the same Target. No milestones shall be
payable under this Section 5.4 with respect to any compounds or products other
than Agreement Compounds and Agreement Products, nor shall any payments be due
under this Section 5.4 with respect to any Agreement Products discovered by
Schering with respect to Targets which are not the subject of a Screening
Program and/or Optimization Program, as provided in Section 2.11.

5.5 Royalties. In partial consideration for the know-how licenses, patent
licenses and other rights granted to Schering hereunder, Schering shall pay
royalties to Pharmacopeia based upon the sales of Agreement Products in the
Territory. The parties acknowledge and agree that, except as expressly set forth
herein, Schering’s obligation to pay such royalties is not conditioned upon the
existence of patent protection for the Agreement Products.

5.5.1 Base Royalty. Schering shall pay to Pharmacopeia running royalties on Net
Sales of Agreement Products by Schering, its Affiliates and Sublicensees in the
Territory, as follows:

 

  (i) * of Net Sales of Agreement Products where the Agreement Compound in such
Agreement Product is (1) a Lead Compound which is a Hit, or (2) a Derivative
Compound discovered by Pharmacopeia in an Optimization Program based upon a Lead
Compound which is a Hit, or (3) a corresponding Schering Derivative; or

 

  (ii) * of Net Sales of Agreement Products where the Agreement Compound in such
Agreement Product is a Derivative Compound discovered by Pharmacopeia in an
Optimization Program based upon a Lead Compound which is a Schering Compound;

 

  (iii) * of Net Sales of Agreement Products where the Agreement Compound in
such Agreement Product is (1) a Lead Compound which is a Hit, or (2) a
Derivative Compound, and in each case where such Agreement Product was developed
and commercialized by Schering as a result of an independent screening program
conducted by Schering pursuant to Section 2.11 against a Target which was not
the subject of a Screening Program or Optimization Program under this Agreement;
or

 

  (iv) * of net sales (to be determined in the same manner as Net Sales) of a
pharmaceutical product containing as an active ingredient a Schering Derivative
derived from a Derivative Compound discovered by Pharmacopeia in an Optimization
Program based upon a Lead Compound which is a Schering Compound.

5.5.2 Royalty Term for Agreement Products. Schering’s obligation to pay
royalties to Pharmacopeia under Sections 5.5.1(i), 5.5.1(ii), 5.5.1(iii) or
5.5.1(iv), as applicable, shall continue for each Agreement Product until the
date which is the later of *

5.5.3 Single Royalty; Non-Royalty Sales. No royalty shall be payable under
Section 5.5.1 above with respect to sales of Agreement Products among Schering,
its Affiliates and Sublicensees for resale; however, a royalty shall be payable
upon such resale by Schering’s Affiliates and Sublicensees to any Third
Party. In no event shall more than one royalty be due hereunder with respect to
any Agreement Product unit even if covered by more than one patent included in
the Pharmacopeia Technology or Collaboration Technology. For purposes of clarity
and avoidance of doubt, the Parties acknowledge and agree that under no
circumstances will any royalty ever be payable under Sections 5.5.1(i) or
5.5.1(ii) with respect to sales of any Agreement Product resulting from an
independent screening programs conducted by Schering pursuant to
Section 2.11. No royalties shall accrue on the disposition of any Agreement
Product in reasonable quantities by Schering, its Affiliates or its Sublicenses
as (i) samples (promotional or otherwise), (ii) donations (for example, to
non-profit institutions or government agencies for a non-commercial purpose),
(iii) for use in clinical studies, or (iv) free of charge in compassionate use
and/or indigent care programs.

 

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5.5.4 Third Party Royalties.

(a) Schering Responsibilities. Schering shall be responsible for the payment of
any royalties due to licenses obtained from Third Parties relating to the
manufacture, use, marketing, sale or distribution of Agreement Products by
Schering, its Affiliates or Sublicensees under the Collaboration Technology or
Schering Technology.

(b) Third Party Royalty Offset. Notwithstanding Section 5.5.4(a) above, if a
Third Party alleges that the manufacture, use or sale of an Agreement Product
infringes its patents, based solely on the practice of the Pharmacopeia
Technology, Pharmacopeia and Schering shall consult regarding whether a license
should be taken from such Third Party. If Pharmacopeia and Schering agree that
such a license is required, Schering, its Affiliates or Sublicensees may, with
respect to sales of such Agreement Product, pay royalties directly (or
indirectly through Pharmacopeia) to the Third Party whose patents may be
infringed by such sales. Schering may reduce any royalty due Pharmacopeia under
Section 5.5.1 to reimburse Schering for any such royalties actually paid to
Third Parties; provided that the amount of the reduction shall be equal to * of
the royalty actually paid to such Third Parties with respect to sales of the
Agreement Product in such country; provided, however, that in no event shall the
royalty due Pharmacopeia for any calendar quarter, with respect to any such
Agreement Product, be thereby reduced to * of the royalty due Pharmacopeia under
Section 5.5.1 with respect to Net Sales in such country. If the Parties cannot
promptly reach agreement they shall appoint an independent patent counsel
reasonably acceptable to each of them to give an opinion, which will be binding
as between the Parties, and the parties shall have no further recourse to
dispute such opinion (including, without limitation, the provisions of
Section 11.3, which shall not apply). If it is the independent patent counsel’s
opinion that the patent is valid and infringed by the sale of such Agreement
Product due to use of the Pharmacopeia Technology, Schering may settle the
matter in its sole discretion on such terms as it deems appropriate, provided
that such settlement does not contain an admission or acknowledgment of
infringement or invalidity.

5.5.5 Compulsory Royalty Reductions. If the royalties set forth herein are
higher than the maximum royalties permitted by the law or regulation in any
country or territory or possession thereof in the world, the royalty payable for
sales in such country, territory or possession shall be equal to the maximum
permitted royalty under such law or regulations.

5.5.6 Royalty Overpayment. In the event Schering pays Pharmacopeia royalties in
excess of the amounts due under Section 5.5.1 herein, Schering shall promptly
notify Pharmacopeia providing a written explanation of the amount of
overpayment. Any such overpayment shall be fully creditable against royalties
subsequently due hereunder.

5.6 Reports; Payment of Royalty; Payment Exchange Rate and Currency Conversions.

5.6.1 Royalty Reports and Payments. After the First Commercial Sale of an
Agreement Product on which royalties are payable by Schering, its Affiliate or
Sublicensees hereunder, Schering shall make quarterly written reports to
Pharmacopeia within sixty (60) days after the end of each calendar quarter,
stating in each such report separately for Schering and each of its Affiliates
and Sublicensees the number, description, and aggregate Net Sales by country of
each Agreement Product sold during the calendar quarter upon which a royalty is
payable under Section 5.5 above. Subject to any reductions permitted pursuant to
the express terms of this Agreement, concurrently with the making of such
reports, Schering shall pay to Pharmacopeia royalties at the rates specified in
Section 5.5.1.

5.6.2 Payment Method. All payments due under this Agreement shall be made by
bank wire transfer in immediately available funds to an account designated by
Pharmacopeia. All payments hereunder shall be made in U.S. dollars. Any payments
that are not paid on the date such payments are due under this Agreement shall
bear interest, calculated on the number of days such payment is delinquent, at
the lesser of: (i) the prime rate as reported by the Chase Manhattan Bank, New
York, New York, on the date such payment is due, plus an additional two percent
(2%), or (ii) the maximum rate permitted by applicable law.

5.6.3 Place of Royalty Payment and Currency Conversions. Royalties shall be
deemed payable by the entity making the Net Sales from the country in which
earned in local currency and subject to foreign exchange regulations then
prevailing. Royalty payments shall be made in United States dollars to the
extent that free conversion to United States dollars is permitted. The rate of

 

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exchange to be used in any such conversion from the currency in the country
where such Net Sales occurs shall be in accordance with the policy set forth in
Exhibit A hereto. If, due to restrictions or prohibitions imposed by national or
international authority, payments cannot be made as aforesaid, the Parties shall
consult with a view to finding a prompt and acceptable solution, and Schering or
its designated Affiliates will, from time to time, deal with such monies as
Pharmacopeia may lawfully direct at no additional out-of-pocket expense to
Schering. Notwithstanding the foregoing, if royalties in any country cannot be
remitted to Pharmacopeia for any reason within six (6) months after the end of
the calendar quarter during which they are earned, then Schering shall be
obligated to deposit the royalties in a bank account in such country in the name
of Pharmacopeia.

5.7 Maintenance of Records; Audits.

5.7.1 Records; Inspection. Schering and its Affiliates shall keep complete, true
and accurate books of account and records for the purpose of determining the
royalty amounts payable under this Agreement, which books and records shall be
maintained in accordance with Schering’s records retention policies. Upon prior
written notice from Pharmacopeia, Schering shall, within a period not to exceed
forty-five (45) days, permit an independent certified public accounting firm of
nationally recognized standing selected by Pharmacopeia and reasonably
acceptable to Schering, at Pharmacopeia’s expense, to have access during normal
business hours to examine pertinent books and records of Schering and/or its
Affiliates as may be reasonably necessary to verify the accuracy of the royalty
reports hereunder. The examination shall be limited to pertinent books and
records for any calendar year ending not more than thirty-six (36) months prior
to the date of such request. Such inspections may be made no more than once each
calendar year. In the event that the accounting firm correctly concludes that a
variation or error has occurred resulting in an underpayment of royalties by
Schering of five percent (5)% or more of the amount actually due for the period
covered by the inspection, Schering shall pay to Pharmacopeia such additional
amounts, as well as the costs relating to the inspection, within thirty
(30) days of receipt of an invoice for such amounts. Any overpayment of
royalties by Schering discovered through such audit shall be fully creditable
against royalties subsequently due hereunder. Schering may designate
competitively sensitive information which such auditor may not disclose to
Pharmacopeia; provided, however, that such designation shall not encompass the
auditor’s conclusions. The accounting firm shall disclose to Pharmacopeia only
whether the royalty reports are correct or incorrect and the specific details
concerning any discrepancies. No other information shall be provided to
Pharmacopeia. The accounting firm employees shall sign confidentiality
agreements acceptable to Schering as a condition precedent to their
inspection. Schering shall include in each sublicense granted by it pursuant to
this Agreement a provision requiring the Sublicensee to make reports to
Schering, to keep and maintain records of sales made pursuant to such sublicense
and to grant access to such records by Pharmacopeia’s independent accountant to
the same extent required of Schering under this Agreement. Upon expiration of
the thirty-six (36) month period immediately following the receipt by
Pharmacopeia of Schering’s fourth quarter royalty report for a given calendar
year in accordance with Section 5.6.1, the calculation of royalties payable with
respect to such year shall be binding and conclusive upon Pharmacopeia, and
Schering, its Affiliates and its Sublicensees shall be released from any
liability or accountability with respect to royalties for such year, except for
instances of fraud or other intentional misconduct by Schering.

5.8 Coordination With Payments under International Agreement. The milestones and
royalties payable by Schering under Sections 5.3, 5.4 and 5.5 are in
consideration for the rights and licenses granted to Schering under this
Agreement and are in addition to any amounts payable to Pharmacopeia under the
International Agreement. It is understood and agreed that, with respect to the
specific milestones payable under Sections 5.4.1(a)(i)-(iii) and
5.4.1(b)(i)-(iii), the occurrence of the same milestone event will result in
milestone payment obligations under both this Agreement and the corresponding
provisions of the International Agreement. However, the specific milestones
payable under Sections 5.4.1(a)(iv) and (v) and Sections 5.4.1(b)(iv) and
(v) under this Agreement and the analogous milestones under the International
Agreement shall be paid, respectively, upon occurrence of the relevant milestone
event specified in this Agreement or the International Agreement.

5.9 Tax Matters.

5.9.1 Withholding Taxes. All royalty amounts required to be paid to Pharmacopeia
pursuant to this Agreement shall be paid with deduction for withholding for or
on account of any taxes (other than taxes imposed on or measured by net income)
or similar governmental charge imposed by a jurisdiction other than the United
States (“Withholding Taxes”) to the extent Pharmacopeia and/or its Affiliates or
their successors has the lawful rights to utilize the Withholding Taxes paid by
Schering as a

 

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credit against Pharmacopeia’s and/or its Affiliates regular U.S. tax
liability. Schering shall provide Pharmacopeia documentation evidencing payment
of any Withholding Taxes hereunder in a manner that is satisfactory for purposes
of the U.S. Internal Revenue Service. Any Withholding Taxes paid when due
hereunder shall be for the account of Pharmacopeia and shall not be included in
the calculation of Net Sales. Payments of Withholding Taxes made by Schering
pursuant to this Section 5.9.1 shall be made based upon financial information
provided to Schering by Pharmacopeia, and to the extent that such information is
incorrect Pharmacopeia shall be liable for any deficiency, and any fine,
assessment or penalty imposed by any taxing authority in the Territory for any
deficiency in the amount of any such Withholding Taxes, or the failure to make
payment of Withholding Taxes, based upon such incorrect information. If Schering
is required to pay any such deficiency, or any fine, assessment or penalty for
any such deficiency based upon such incorrect information (except to the extent
caused by Schering’s gross negligence or willful misconduct), Pharmacopeia shall
promptly reimburse Schering for such payments, which shall not be included in
the calculation of Net Sales.

5.10 Product Development Costs. Schering shall, at Schering’s expense, be
responsible for conducting all development of Agreement Compounds, Agreement
Products, Schering Compounds, and all commercialization of Agreement Products.

ARTICLE VI

PATENTS AND INVENTIONS

6.1 Ownership of Schering Technology and Pharmacopeia Technology. It is
understood and agreed that (i) Schering shall own all Schering Technology
including, without limitation, Schering Improvements, and (ii) Pharmacopeia
shall own all Pharmacopeia Technology including, without limitation,
Pharmacopeia Improvements.

6.2 Ownership of Collaboration Technology. The Parties anticipate that the
Collaboration may result in new inventions, discoveries and innovations, as well
as improvements to existing technologies, whether patentable or not, within the
Collaboration Technology. Ownership of Collaboration Technology shall be
determined based upon U.S.

Patent Laws and the following guidelines; provided, however, that ownership
rights to all Collaboration Technology shall be subject to the applicable
licenses and other rights granted under Article IV of this Agreement.

(a) Inventions by Schering Employees. Title to all Collaboration Technology
invented solely by employees of Schering working on the Collaboration at
Pharmacopeia, together with any Derivative Compounds synthesized by Pharmacopeia
pursuant to Section 2.9, shall be deemed to be owned by Schering.

(b) Inventions by Pharmacopeia Employees. Title to all Collaboration Technology
invented solely by employees of Pharmacopeia shall be deemed to be owned by
Pharmacopeia.

(c) Joint Inventions. Title to all Collaboration Technology invented jointly by
one or more employees of Schering working on the Collaboration at Pharmacopeia,
and one or more employees of Pharmacopeia shall be deemed to be jointly owned by
Schering and Pharmacopeia.

6.3 Filing, Prosecution and Maintenance of Patents.

6.3.1 Collaboration Technology. Schering shall have the right to prepare, file,
prosecute and maintain in such countries as it deems appropriate in its
discretion, at its own expense and upon appropriate consultation with
Pharmacopeia, patent applications and patents, and to conduct any interferences,
re-examinations, reissues, oppositions or requests for patent term extension or
governmental equivalents thereto within the Collaboration Technology, and
Pharmacopeia shall give reasonable cooperation in connection therewith, at
Schering’s request and expense. Schering shall provide Pharmacopeia with copies
of any new patent applications claiming Collaboration Technology which are
proposed to be filed by Schering, as provided in Section 6.4.1. In the event
that Schering does not file a patent or patent application claiming an invention
within such Collaboration Technology, or if it ceases

 

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to so prosecute, maintain, conduct any interferences, re-examinations, reissues,
oppositions or requests for patent term extension or governmental equivalents
thereto relating to such an invention, Pharmacopeia shall have the right, in its
sole discretion, to undertake such activities at its own expense, and Schering
shall give reasonable cooperation in connection therewith, at Pharmacopeia’s
expense.

6.3.2 Schering Technology. Schering shall have the right to prepare, file,
prosecute and maintain in such countries as it deems appropriate in its
discretion, at its own expense, patent applications and patents, and to conduct
any interferences, re-examinations, reissues, oppositions or requests for patent
term extension or governmental equivalents thereto within the Schering
Technology and Pharmacopeia shall give reasonable cooperation in connection
therewith, at Schering’s request and expense.

6.3.3 Pharmacopeia Technology. Pharmacopeia shall have the right to prepare,
file, prosecute and maintain in such countries as it deems appropriate in its
discretion, at its own expense, patent applications and patents, and to conduct
any interferences, re-examinations, reissues, oppositions or requests for patent
term extension or governmental equivalents thereto within the Pharmacopeia
Technology, and Schering shall give reasonable cooperation in connection
therewith, at Pharmacopeia’s request and expense.

6.4 Cooperation.

6.4.1 Cooperation. Upon request, and at the requesting Party’s expense, each of
Pharmacopeia and Schering shall provide the other Party reasonable assistance to
prepare, file, prosecute and maintain patents and patent applications covering
any Collaboration Technology, Schering Improvements or Pharmacopeia Improvements
which the requesting Party has the right to file. Reasonable assistance shall
include, without limitation, providing the requesting Party with necessary or
useful data and information relating to the Collaboration Technology, Schering
Improvements or Pharmacopeia Improvements, as the case may be, and reasonable
access to the inventors of said inventions, as well as causing the execution of
required patent assignments and/or other documents. With respect to all patent
applications claiming Collaboration Technology, or any Derivative Compounds,
Lead Compounds which are Hits, or Schering Derivatives, the filing Party shall
give the non-filing Party an opportunity to review the text of such patent
applications before filing, shall consult with the non-filing Party with respect
thereto, and shall supply the non-filing Party with a copy of the applications
as filed, together with notice of its filing date and serial number. Schering
will identify to Pharmacopeia any of Schering’s proprietary information
contained in such documents to be provided to Pharmacopeia to ensure that
Pharmacopeia will protect Schering’s proprietary information, including without
limitation, information relating to Targets. In addition, with respect to
applications which do not include Pharmacopeia inventors, Schering may redact or
provide in coded form any information contained in such documents to be provided
to Pharmacopeia to the extent necessary (in Schering’s opinion) to protect
Schering’s proprietary information, including without limitation, information
relating to Targets. Pharmacopeia and Schering shall each keep the other Party
advised of the status of the actual and prospective patents and patent
applications within the Collaboration Patent Rights for which it is responsible,
and upon the written request of the other Party, will provide advance copies of
any substantive papers related to the filing, prosecution and maintenance of
such Collaboration Patent Rights.

6.5 Enforcement.

6.5.1 Notice. Each Party shall promptly notify the other of its knowledge of any
actual or potential infringement of the Collaboration Technology by a Third
Party.

6.5.2 Collaboration Technology. Schering shall have the initial right, but not
the obligation, to take reasonable legal action to enforce against infringements
by Third Parties or defend any declaratory judgment action relating to any
patent within the Collaboration Technology at its sole cost and expense. If,
within six (6) months following receipt of notice of such infringement from
Pharmacopeia (or written notice of a declaratory judgment action alleging
invalidity or unenforceability of such Collaboration Technology), Schering does
not take such action against a commercially significant infringement,
Pharmacopeia shall, in its sole discretion, have the right, but not the
obligation to take such action at its sole expense.

6.5.3 Schering Technology and Pharmacopeia Technology. It is understood and
agreed that Pharmacopeia shall have the sole right, but not the obligation, to
initiate and conduct legal proceedings to enforce the Pharmacopeia Technology
against any actual

 

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or threatened infringement or misappropriation or defend any declaratory
judgment action relating thereto, at its sole expense, and that Schering shall
have the sole right, but not the obligation, to initiate and conduct legal
proceedings to enforce the Schering Technology against any actual or threatened
infringement or misappropriation or defend any declaratory judgment action
relating thereto, at its sole expense.

6.5.4 Cooperation; Costs and Recoveries. Each Party agrees to render such
reasonable assistance as the enforcing Party may request, and at the enforcing
Party’s expense. Costs of maintaining any such action shall be paid by the Party
bringing the action and any damages or settlements recovered therefrom shall
belong to such Party. To the extent that Schering recovers any lost profits or
other recovery based upon Third Party sales of infringing products, Pharmacopeia
shall receive an equitable share of such recovery, as determined based upon the
royalties Pharmacopeia would have been entitled to under this Agreement on Net
Sales by Schering, its Affiliates or Sublicensees of the relevant Agreement
Products corresponding to such lost profits. If Schering, in its sole
discretion, agrees to settle any such infringement action by granting a
sublicense to the Third Party infringer, and such Third Party, but for the grant
of such sublicense, would be infringing a claim of an issued patent in the
Collaboration Technology, or a composition-of-matter claim of an issued patent
in the Schering Technology, Schering shall be entitled to receive all
consideration payable by such Third Party for the grant of the license;
provided, however, that net sales of such Third Party products in the Territory
on which Schering receives such consideration (including, without limitation,
running royalties or lump sum payments) shall be treated as Net Sales for
purposes of this Agreement, and further provided that, notwithstanding anything
herein to the contrary, Schering’s royalty obligations to Pharmacopeia with
respect to such Third Party sales in any calendar quarter shall not exceed fifty
percent (50%) of the royalties received by Schering from such Third Party for
the same quarter.

6.6 Infringement Claims. If the manufacture, sale or use of any Agreement
Product pursuant to this Agreement because of the practice of the Pharmacopeia
Technology, Collaboration Technology or Schering Technology, results in any
claim, suit or proceeding alleging patent infringement against Pharmacopeia or
Schering (or their respective Affiliates or Sublicensees), such Party shall
promptly notify the other Party hereto in writing setting forth the facts of
such claim in reasonable detail. The Party subject to such claim shall have the
exclusive right and obligation to defend and control the defense of any such
claim, suit or proceeding, at its own expense, using counsel of its own choice;
provided, however, it shall not enter into any settlement which admits or
concedes that any aspect of (i) the Schering Technology or Collaboration
Technology in the case of Pharmacopeia, and (ii) the Pharmacopeia Technology or
Collaboration Technology in the case of Schering, is invalid or unenforceable
without the prior written consent of such other Party. The Party subject to the
claim shall keep the other Party hereto reasonably informed of all material
developments in connection with any such claim, suit or proceeding.

6.7 Certification under Drug Price Competition and Patent Restoration
Act. Pharmacopeia and Schering each shall immediately give written notice to the
other of any certification of which they become aware filed pursuant to 21
U.S.C.§§355(b)(2)(A)(iv) and 355(j)(2)(A)(vii) claiming that Collaboration
Patent Rights do not cover the use or sale of any product(s) equivalent to an
existing Agreement Product(s) by a Third Party. Schering shall have the right to
bring an infringement action, in its sole discretion and at its own expense, in
its own name and/or in the name of Pharmacopeia, subject to Section 6.5
above. The provisions of Section 6.5.4 shall apply to any such infringement
action.

6.8 Patent Term Restoration. The Parties hereto shall give reasonable
cooperation to each other in obtaining patent term restoration or supplemental
protection certificates or their equivalents in any country in the Territory
where applicable to the Collaboration Technology.

ARTICLE VII

CONFIDENTIALITY

7.1 Confidential Information. Except as expressly provided herein, the Parties
agree that, * the receiving Party shall not disclose and except as expressly
provided in this Article 7, shall not use for any purpose any confidential
information (“Confidential Information”) furnished to it by the disclosing Party
hereto pursuant to this Agreement except to the extent that it can be
established by the receiving Party by competent proof that such information:

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

 

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

(iii) 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;

(iv) was independently developed by the receiving Party as demonstrated by
documented evidence prepared contemporaneously with such independent
development; or

(v) was subsequently lawfully disclosed to the receiving Party, other than under
a duty of confidentiality, by a Third Party that had the right to make such
disclosure.

7.2 Permitted Use and Disclosures. Each Party hereto may use or disclose
Confidential Information disclosed to it by the other Party to the extent such
information is included in the Pharmacopeia Technology, Schering Technology or
Collaboration Technology, as the case may be, and to the extent (i) such use or
disclosure is reasonably necessary and permitted in the exercise of the rights
granted hereunder in filing or prosecuting patent applications, prosecuting or
defending litigation, (ii) such disclosure is reasonably required to be made to
any institutional review board of any entity conducting clinical trials with
Agreement Compound(s) and/or Agreement Product(s), or to any governmental or
other regulatory agency, in order to gain approval to conduct clinical trials or
to market Agreement Compound(s) and/or Agreement Products, (iii) such disclosure
is required by law, regulation, rule, act or order of any governmental
authority, court, or agency, or is made in connection with submitting required
information to tax or other governmental authorities, or (iv) such disclosure or
use is reasonably required in conducting clinical trials, or making a permitted
sublicense or otherwise exercising license rights expressly granted to it by the
other Party pursuant to the terms of this Agreement; in each case, provided that
if a Party is required to make any such disclosure of another Party’s
Confidential Information, other than pursuant to a confidentiality agreement, it
will give reasonable advance notice to the other Party of such disclosure and,
save to the extent inappropriate in the case of patent applications, will use
its reasonable diligent efforts to secure confidential treatment of such
Confidential Information in consultation with the other Party prior to its
disclosure (whether through protective orders or otherwise) and disclose only
the minimum necessary to comply with such requirements.

7.3 Return of Confidential Information. Following termination of this Agreement,
at any time upon request of the disclosing Party, the receiving Party will
return all documents, and copies thereof, containing the disclosing Party’s
Confidential Information that are still in the receiving Party’s possession or
control; however, the receiving Party may retain one copy of such documents in a
secure location solely for the purpose of determining its obligations hereunder,
to comply with any applicable regulatory requirements, or to defend against any
product liability claims.

7.4 Nondisclosure of Terms. Each of the Parties hereto agrees not to disclose to
any Third Party the existence or the terms of this Agreement without the prior
written consent of each other Party hereto, except to such Party’s attorneys,
advisors, investors and others on a need to know basis under circumstances that
reasonably ensure the confidentiality thereof, or to the extent required by
law. Notwithstanding the foregoing, the Parties will agree upon a press release
to announce the effectiveness of this Agreement, together with a corresponding
Q&A outline for use in responding to inquiries about the Agreement; and in such
event, Pharmacopeia and Schering may each disclose to Third Parties the
information contained in such press release and Q&A without the need for further
approval by the other. In addition, Pharmacopeia may make public statements
regarding progress with respect to the development and commercialization of
Agreement Compounds and/or Agreement Products, including announcement of the
achievement of milestones, following consultation with Schering and with the
written consent of Schering. Nothing in this Section 7.4 shall prohibit a Party
from making such disclosures to the extent reasonably required under applicable
federal or state securities laws or any rule or regulation of any nationally
recognized securities exchange. In such event, however, the disclosing Party
shall use good faith efforts to notify and consult with the other Party prior to
such disclosure and, where applicable, shall diligently seek confidential
treatment to the extent available.

 

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7.5 Publication. Any manuscript by Schering or Pharmacopeia or their Affiliates
describing Agreement Products shall be subject to the prior review of the other
Party at least ninety (90) days prior to submission. Further, to avoid loss of
patent rights as a result of premature public disclosure of patentable
information, the receiving Party shall notify the disclosing Party in writing
within thirty (30) days after receipt of a disclosure whether the receiving
Party desires to file a patent application on any invention disclosed in such
scientific results. In the event that the receiving Party desires to file such a
patent application, the disclosing Party shall withhold publication or
disclosure of such scientific results until the earlier of (i) a patent
application is filed thereon, or (ii) the Parties determine after consultation
that no patentable invention exists, or (iii) one hundred and eighty (180) days
after receipt by the disclosing Party of the receiving Party’s written notice of
the receiving Party’s desire to file such patent application, or such other
period as is reasonable for seeking patent protection. Further, if such
scientific results contain the information of the receiving Party that is
subject to use and nondisclosure restrictions under this Article 7, the
disclosing Party agrees to remove such information from the proposed publication
or disclosure.

7.6 Pharmacopeia Employees. All Pharmacopeia employees assigned to work
exclusively on Collaboration research projects pursuant to Section 2.5, shall be
required to have read and understood the Collaboration Business Conduct
Policy. Any Pharmacopeia employees assigned to work exclusively on Collaboration
research projects shall also be subject to non-compete obligations, as set forth
below, with respect to any Target with respect to which Collaboration research
efforts directed to such Target are performed at Pharmacopeia (including,
without limitation, the design and synthesis of Derivative Compounds based on
Lead Compounds). None of the individual Pharmacopeia chemists participating in
Target specific collaboration research shall * Pharmacopeia shall be liable for
any breach of the Collaboration Business Conduct Policy and/or these non-compete
obligations by its employees. *, Pharmacopeia shall use reasonably diligent
efforts to ensure that its employees working on the Collaboration do not
disclose or provide access to any Collaboration Target-Specific Technology,
Schering Technology, or the results of any screening or other Target specific
research performed at Pharmacopeia in the Collaboration, to any Pharmacopeia
employees not working on the Collaboration (except to the extent reasonably
necessary for Pharmacopeia to ensure its compliance with its exclusivity
obligations hereunder) or to any Third Parties.

ARTICLE VIII

REPRESENTATIONS, WARRANTIES AND COVENANTS

8.1 Schering. Schering warrants, represents and covenants on behalf of itself
and its Affiliates that: (i) it has the legal right and power to extend the
rights granted in this Agreement; (ii) it has the legal power, authority and
right to enter into this Agreement, and to perform all its obligations
hereunder, and (iii) it has not previously granted, and during the term of this
Agreement will not knowingly make any commitment or grant any rights which in
any material way conflict with the rights and licenses granted herein.

8.2 Pharmacopeia. Pharmacopeia represents, warrants and covenants on behalf of
itself and its Affiliates that: (i) it has the legal right and power to extend
the rights granted in this Agreement; (ii) it has the legal power, authority and
right to enter into this Agreement, and to perform all its obligations
hereunder; (iii) it has not previously granted, and during the term of this
Agreement will not knowingly make any commitment or grant any rights which in
any material way conflict with the rights and licenses granted herein; (iv) to
the best of its knowledge as of the Effective Date, there are no existing or
threatened actions, suits or claims pending against it with respect to the
Pharmacopeia Technology; (v) to the best of its knowledge as of the Effective
Date, it is not aware of any Existing Pharmacopeia Know-How which is not
available for use for all purposes contemplated by this Agreement; and (vi) to
the best of its knowledge as of the Effective Date, it owns or controls all of
the Pharmacopeia Technology, and has the rights to grant the licenses or
sublicenses granted to Schering hereunder with respect thereto.

8.3 Compliance with Agreement and Laws. Each Party shall comply in all material
respects with the terms of this Agreement and with all laws, rules and
regulations applicable to the discovery, development, manufacture, distribution,
import and export and sale of pharmaceutical products pursuant to this
Agreement.

 

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8.4 Disclaimer. Schering and Pharmacopeia expressly disclaim any representation,
warranty or guaranty that the Collaboration will be successful. EXCEPT AS
OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, PHARMACOPEIA AND SCHERING AND
THEIR RESPECTIVE AFFILIATES MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OR
CONDITIONS OF ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE
PHARMACOPEIA TECHNOLOGY, THE SCHERING TECHNOLOGY, THE COLLABORATION TECHNOLOGY,
LEAD COMPOUNDS, DERIVATIVE COMPOUNDS, AGREEMENT COMPOUNDS OR AGREEMENT PRODUCTS,
OR INFORMATION DISCLOSED PURSUANT TO ARTICLE VII, AND EXPRESSLY DISCLAIM ALL
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OF THE
PHARMACOPEIA TECHNOLOGY, COLLABORATION TECHNOLOGY OR SCHERING TECHNOLOGY (IN
EACH CASE, WHETHER PATENTED OR UNPATENTED), OR NONINFRINGEMENT OF THE
INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.

ARTICLE IX

INDEMNIFICATION

9.1 Indemnification by Schering. Schering shall indemnify, defend and hold
harmless Pharmacopeia and its Affiliates, and each of its and their respective
employees, officers, directors and agents (the “Pharmacopeia Indemnitees”) from
and against any and all liability, loss, claims, damage, cost, and expense
(including reasonable attorneys’ and professionals’ fees and other expenses of
litigation) (collectively, a “Liability”) arising out of or in connection with
Third Party claims relating to (i) the discovery, development, manufacture, use,
testing, marketing, sale or other disposition of Agreement Products by or on
behalf of Schering or its Affiliates or Sublicensees, (ii) performance of the
Collaboration by Schering, (iii) any injury, illness or disease suffered by any
Schering employees in connection with the performance of the Collaboration,
(iv) the use of any and all Targets with respect to which research activities
are conducted in the Collaboration, including without limitation claims in
connection with materials relating to such Target, or (v) any breach by Schering
of its representations and warranties made under this Agreement, except, in each
case, to the extent such Liabilities result from the gross negligence or willful
misconduct of Pharmacopeia, its Affiliates, or any of their respective
employees, officers, directors or agents.

9.2 Indemnification by Pharmacopeia. Pharmacopeia shall indemnify, defend and
hold harmless Schering and its Affiliates, and each of its and their respective
employees, officers, directors and agents (the “Schering Indemnitees”) from and
against any Liability (as defined above) arising out of or in connection with
Third Party claims relating to (i) the performance of the Collaboration by
Pharmacopeia except to the extent directly related to the use of Targets,
(ii) any injury, illness or disease suffered by any Pharmacopeia employees in
connection with the performance of the Collaboration, (iii) any product based
upon a Pharmacopeia Compound developed, manufactured, used, sold or otherwise
distributed by or on behalf of Pharmacopeia, its Affiliates or Licensees, as
permitted under this Agreement (including, without limitation, product liability
and patent infringement claims), (iv) any breach of Pharmacopeia’s contractual
obligations to Third Parties, or (v) any breach by Pharmacopeia of its
representations and warranties made under this Agreement, except, in each case,
to the extent such Liabilities result from the gross negligence or willful
misconduct of Schering, its Affiliates, or any of their respective employees,
officers, directors or agents.

9.3 No Consequential Damages. Except with respect to Third Party claims as
provided for under Sections 9.1 and 9.2, in no event shall any Party to this
Agreement have any claims against or liability to the other Party for any
special, consequential or incidental damages arising under this Agreement under
any theory of liability.

9.4 Procedure. In the event that any Indemnitee intends to claim indemnification
under this Article IX, it shall promptly notify the other Party in writing of
any such alleged Liability. The indemnifying Party shall have the right to
control the defense thereof with counsel of its choice; provided, however, that
any Indemnitee shall have the right to retain its own counsel, with the fees and
expenses to be paid by the indemnifying Party, if representation of such
Indemnitee by the counsel retained by the indemnifying Party would be
inappropriate due to actual or potential differing interests between such
Indemnitee and any other Party represented by such counsel in such
proceeding. The affected Indemnitees shall cooperate reasonably with the
indemnifying Party and its legal representatives in the investigation and
defense of any action, claim or liability covered by this Article IX. Neither
Party may settle a claim or action related to a Liability for which it or the
other Party seeks indemnification hereunder without the consent of the other
Party, if such settlement would impose any monetary obligation on the other
Party or require the other Party to submit to an injunction or otherwise limit
the other Party’s rights under this Agreement. Any payment made by a Party to
settle any such claim or action shall be at its own cost and expense.

 

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9.5 Insurance. Each Party shall obtain and maintain throughout the term of this
Agreement statutory Workers’ Compensation and Employer’s Liability insurance
covering all employees engaged in the performance of work under this
Agreement. Each Party shall provide the other Party with evidence of such
insurance and/or self-insurance program, upon request.

ARTICLE X

TERM AND TERMINATION

10.1 Term and Expiration. This Agreement shall be effective as of the Effective
Date and unless terminated earlier as provided in this Article X or by mutual
written agreement of the Parties, the term of this Agreement shall continue in
full force and effect, on a country-by-country and product-by-product basis,
until Schering and its Affiliates and Sublicensees have no further obligation to
pay royalties under Article V hereof in a country, at which time the Agreement
shall expire in its entirety in such country and the Parties shall have no
further payment obligations or other financial obligations to each other with
respect to the continuing use in such country of Pharmacopeia Technology,
Schering Technology and/or Collaboration Technology, as the case may be, in the
manner licensed herein. As royalty payment obligations for an Agreement Product
expire in a country, even if the Agreement thereafter remains in effect in such
country, Schering, its Affiliates and Sublicensees, shall no longer have any
remaining payment obligations hereunder with respect to such Agreement Product
in that country.

10.2 Termination for Cause. This Agreement may be terminated by written notice
by either Party at any time during the term of this Agreement if the other Party
(the “Breaching Party”) is in material breach or default of any of its material
obligations hereunder (including, without limitation, any payment obligations),
as follows: (i) the terminating Party shall send written notice of the breach or
default to the Breaching Party; and (ii) if such default or breach thereafter
continues for sixty (60) days after written notice thereof was provided to the
Breaching Party, then the termination shall become effective at the end of such
sixty (60) day period, unless the Breaching Party (or any other party on its
behalf) has cured any such breach or default prior to the expiration of the
sixty (60) day period or has commenced activities reasonably expected to cure
such breach within such sixty (60) day period and thereafter uses diligent
efforts to complete the cure as soon as practicable.

10.3 Termination Upon Bankruptcy or Insolvency. This Agreement may be terminated
by Pharmacopeia giving written notice of termination to Schering upon the filing
of bankruptcy or insolvency of Schering or the appointment of a receiver for the
assets of Schering, or the making by Schering of an assignment for the benefit
of creditors, or the institution of any proceedings against Schering under any
bankruptcy law. Termination shall be effective upon the date specified in such
notice. The rights of Schering under this Agreement shall not terminate in the
event of a bankruptcy of Pharmacopeia, unless Schering elects to terminate this
Agreement in accordance with the following provisions of this Section 10.3. In
the event that (i) Pharmacopeia shall make an assignment for the benefit of
creditors, file a petition in bankruptcy, petition or apply to any tribunal for
the appointment of custodian, receiver or any trustee for it or a substantial
part of its assets, or shall commence any case or proceeding under any
bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, whether now or hereafter in
effect; or (ii) if there shall have been filed any such bona fide petition or
application, or any such proceeding shall have been commenced against it, in
which an order for relief is entered or which remains undismissed for a period
of sixty (60) days or more; or (iii) if Pharmacopeia by any act or omission of
act shall indicate its consent to, approval of or acquiescence in any such bona
fide petition, application, or proceeding or order for relief or the appointment
of a custodian, receiver or trustee for it or any substantial part of its
property, or shall suffer any such custodianship, receivership or trusteeship to
continue undischarged for a period of sixty (60) days or more (each such event a
“Pharmacopeia Bankruptcy Event”), then Schering shall have the following
rights. Schering shall have the right, in its sole discretion, to elect to
terminate this Agreement by giving written notice of such termination to
Pharmacopeia. In the event that Schering does not elect to terminate this
Agreement, then notwithstanding any rejection of this Agreement by Pharmacopeia
(which, for purposes of this Section 10.3, includes any debtor in possession,
trustee or other entity that may succeed Pharmacopeia) pursuant to 11 U.S.C.
§365, Schering shall retain all of its rights, benefits, licenses, protections
and privileges under this Agreement and shall be entitled to all of the rights,
benefits and protections of a licensee under 11 U.S.C. 365(n). Schering will
have the right (including, without limitation, the right and ability to cure any
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Pharmacopeia under this Agreement, any agreement supplementary hereto, and any
agreement with a Third Party affecting or comprising all or a part of the
Pharmacopeia Technology, and to take any other actions, to oppose a rejection
pursuant to 11 U.S.C. §365 of this Agreement, and to contract directly with
Third Parties, if any, involved in contracted arrangements with Pharmacopeia
with respect to performance of the Collaboration), provided that Schering’s
obligations to make payments to Pharmacopeia under this Agreement shall
automatically be reduced by the amount of all out-of-pocket costs and expenses
incurred by Schering in exercising such rights. The Parties acknowledge and
agree that all information, data and other intellectual property referred to in
this Section 10.3 (including, without limitation, Pharmacopeia Technology) and
all Agreement Compounds, Agreement Products, Collaboration Technology and any
other intellectual property that is licensed, or is the subject of any other
right, benefit, protection or privilege that is granted, transferred or
otherwise afforded, to Schering hereunder is “intellectual property” within the
meaning of 11 U.S.C. §365.

10.4 Termination for Pharmacopeia Change in Control.

10.4.1 Termination of Entire Agreement. In the event of any Pharmacopeia Change
in Control during the term of this Agreement, Schering shall have the right to
terminate this Agreement upon ninety (90) days written notice after such
Pharmacopeia Change in Control. In such event, the provisions of Sections
10.6.1, 10.6.2, 10.6.3 and 10.6.4(d) shall apply, but none of the provisions of
Section 10.6.5 shall be applicable.

10.4.2 Termination of the Collaboration. In the event that such Pharmacopeia
Change in Control occurs during the term of the Collaboration, Schering may, in
its discretion, elect to terminate the Collaboration (but not the Agreement) on
ninety (90) days written notice as set forth in Section 2.2.3. Upon receipt of
written notice from Schering of its decision to terminate the Collaboration (but
not the Agreement) pursuant to this Section 10.4.2 and Section 2.2.3,
Pharmacopeia (or its successor in interest as a result of the Pharmacopeia
Change in Control) shall have the option (exercisable in its sole discretion) to
provide to Schering within thirty (30) days after receipt of such notice a
written certification signed by a senior corporate officer of Pharmacopeia (or
such successor) setting forth written representations and warranties by
Pharmacopeia (or such successor):

 

  (i) that it is committed to continuing in good faith to perform the
Collaboration under the terms of this Agreement;

 

  (ii) that it will continue to provide at least the same level and quality of
personnel, facilities and resources for the performance of the Collaboration as
existed prior to the Pharmacopeia Change in Control;

 

  (iii) that it will implement such additional safeguards as may be required
(and which are reasonably acceptable to Schering) to ensure that all of
Schering’s Confidential Information will be protected from unauthorized
disclosure or use by Pharmacopeia (or such successor) and its Affiliates; and

 

  (iv) that it will take such other actions as are reasonably necessary to
provide reasonable assurances to Schering that the results of the Collaboration,
including without limitation, any Agreement Compounds and Collaboration
Technology, will only be used by Pharmacopeia (or such successor) and its
Affiliates in furtherance of the Collaboration or as otherwise expressly
permitted under the terms and conditions of this Agreement.

If Pharmacopeia (or such successor) does not provide a certification under this
Section 10.4.2 within such thirty (30) day period, then the Collaboration shall
terminate upon expiration of the ninety (90) period following Schering’s notice
of termination under this Section 10.4.2, and all of the provisions of
Section 10.6.5 shall apply.

If Pharmacopeia (or such successor) does provide a certification under this
Section 10.4.2 within such thirty (30) day period, then following Schering’s
receipt of such certification from Pharmacopeia (or such successor) pursuant to
this Section 10.4.2, Schering shall have the right to rescind its notice of
termination of the Collaboration by providing written notice to Pharmacopeia
within thirty (30) days after receipt of such written certification. If
following receipt of such certification, Schering provides written notice
rescinding its decision to terminate the Collaboration within such thirty
(30) day period, then none of the provisions of Section 10.6

 

29

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shall apply and the Collaboration shall continue under the terms and conditions
of this Agreement as if Schering had never provided any notice of termination
under Section 10.4.2. However, if following receipt of such certification,
Schering does not provide written notice rescinding its decision to terminate
the Collaboration within such thirty (30) day period, then the Collaboration
shall terminate upon expiration of the ninety (90) day period following
Schering’s notice of termination under Section 10.4.2, and the provisions of
Section 10.6.5(i) and (ii) shall apply, but the provisions of
Section 10.6.5(iii) shall not apply. For purposes of clarity and avoidance of
doubt, the Parties agree that written notice provided by Schering–Plough Ltd.
rescinding a decision by Schering-Plough Ltd. to terminate the Collaboration
under the corresponding provisions of the International Agreement shall also be
deemed notice by Schering under this Agreement.

10.5 Concurrent Termination with the International Agreement. In the event of
any termination of the International Agreement by either Pharmacopeia or
Schering-Plough Ltd. under the provisions of Sections 10.2, 10.3 or 10.4
thereof, as applicable, this Agreement shall automatically terminate
concurrently under the corresponding Section 10.2, 10.3 or 10.4 of this
Agreement.

10.6 Effect of Termination.

10.6.1 Accrued Obligations. Termination of this Agreement for any reason shall
not relieve the Parties from any liability which at the time of such termination
has already accrued to the other Party, or which is attributable to a period
prior to such termination, nor preclude either Party from pursuing all rights
and remedies it may have hereunder or at law or in equity with respect to any
breach of this Agreement.

10.6.2 Return of Materials. Upon any termination of this Agreement, Schering and
Pharmacopeia shall promptly return to the other Party all Confidential
Information (including without limitation all Existing Schering Know-How or
Existing Pharmacopeia Know-How, as the case may be) as set forth in Section 7.3.

10.6.3 Effect on Agreement Products. In the event that two (2) or more Agreement
Compounds and/or Agreement Products are being developed and/or commercially
exploited by Schering, its Affiliates or Sublicensees under this Agreement and a
breach entitling Pharmacopeia to terminate this Agreement occurs which relates
solely to a single Agreement Compound or Agreement Product, then Pharmacopeia
shall have the option to terminate this Agreement only with respect to the
applicable Agreement Compound or Agreement Product, and in which case all of the
terms of this Agreement shall remain in full force and effect with regard to the
other Agreement Compounds and/or Agreement Products being developed and
commercialized. In the event this Agreement is terminated with respect to a
given Agreement Product, Schering shall have the right to continue to sell its
remaining inventory of such Agreement Product for a period of up to six
(6) months after the date of termination, provided that Schering continues to
pay royalties to Pharmacopeia with respect to such sales.

10.6.4 Licenses.

(a) Termination by Pharmacopeia Pursuant to Section 10.2. In the event of
termination by Pharmacopeia under Section 10.2, the licenses granted hereunder
relating to any Agreement Product with respect to which there has been a
material breach, shall terminate, and the licenses granted to Pharmacopeia
hereunder shall remain in effect, subject to the terms and conditions of this
Agreement; provided, however, a breach shall have no effect on Schering’s
licenses hereunder other than with respect to the Agreement Product (together
with any Hits, Lead Compounds which are Hits, and/or Derivative Compounds
discovered by Pharmacopeia in performance of Screening Programs and/or
Optimization Programs against the same Target as such Agreement Product) to
which the breach specifically relates, and the remaining licenses granted
hereunder shall remain in effect, subject to the terms and conditions of this
Agreement.

(b) Termination by Schering Pursuant to Sections 10.2 or 10.3. In the event of
any termination by Schering pursuant to Section 10.2 or 10.3 above, any licenses
granted by Schering hereunder shall terminate concurrently, and any licenses
granted by Pharmacopeia shall remain in effect, subject to the terms and
conditions of this Agreement.

(c) Termination by Pharmacopeia Pursuant to Section 10.3. In the event of any
termination by Pharmacopeia pursuant to Section 10.3 above, any licenses granted
by Pharmacopeia hereunder shall terminate concurrently, and any licenses granted
by Schering shall remain in effect, subject to the terms and conditions of this
Agreement.

 

30

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(d) Termination by Schering Pursuant to Section 10.4. In the event of any
termination by Schering pursuant to Section 10.4 above, any licenses granted by
Pharmacopeia to Schering, and by Schering to Pharmacopeia, shall remain in
effect, except for the licenses under Section 4.5, which shall terminate
concurrently.

10.6.5 Effect of Termination of the Collaboration for Pharmacopeia Change in
Control. In the event that the Collaboration (but not the Agreement) is
terminated by Schering pursuant to Sections 10.4.2 and 2.2.3 as a result of a
Pharmacopeia Change in Control, and the decision to terminate is not rescinded
by Schering in accordance with Section 10.4.2, the Parties further agree that,
effective as of *

(i) the non-solicitation provisions of Section 11.8 shall not apply with respect
to any of the individual Pharmacopeia employees identified as working on the
Collaboration under Section 2.5.1;

(ii) to the extent that Schering contracts with one or more Third Parties to
complete any Optimization Program which was ongoing at the time the
Collaboration was terminated, Schering shall have the right to *

(iii) if (and only if) Pharmacopeia (or its successor in interest as a result of
such Pharmacopeia Change in Control) has failed to timely provide a
certification to Schering in accordance with Section 10.4.2, Pharmacopeia (or
such successor) *

10.6.6 Surviving Provisions. Articles VI, VII, VIII, IX and XI of this
Agreement, as well as Sections 2.9.2, 2.9.3, 2.10, 2.11, 4.1.3, 4.4, 4.7, 5.4,
5.5, 5.6, 5.7, 5.8, 5.9, 5.10, and 10.6 shall survive the expiration or
termination of this Agreement for any reason and shall remain in full force and
effect.

ARTICLE XI

MISCELLANEOUS

11.1 Assignment. This Agreement shall not be assigned, or assignable, by either
Party hereto to any Third Party without the prior written consent of the other
Party, and any such attempted assignment shall be void and without force or
effect; provided, however, that notwithstanding the foregoing, either Party may,
without such consent, assign this Agreement and its rights and obligations
hereunder to an Affiliate or in connection with the transfer or sale of all or
substantially all of its business or assets related to the subject matter to
which this Agreement pertains, or in the event of its merger, reorganization,
acquisition, sale, consolidation or change in control or similar
transaction. This Agreement shall be binding upon, and inure to the benefit of,
each Party, its Affiliates, and its permitted successors and assigns. Each Party
shall be responsible for the compliance by its Affiliates with the terms and
conditions of this Agreement.

11.2 Governing Law. This Agreement and any dispute arising from the performance
or breach hereof, shall be governed, interpreted and construed in accordance
with the laws of the State of New Jersey, without giving effect to conflict of
law principles. The Parties expressly exclude application of the United Nations
Convention for the International Sale of Goods.

11.3 Dispute Resolution. Except as set forth in Sections 3.3 and 5.5.4, any
dispute under this Agreement which is not settled by mutual consent shall be
finally settled by binding arbitration, conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration Association by three
arbitrators appointed in accordance with said rules. The arbitration shall be
held in New York, New York and at least one of the arbitrators shall be an
independent expert in pharmaceutical product development (including clinical
development and regulatory affairs). Any written evidence originally in a
language other than English shall be submitted in English translation
accompanied by the original or a true copy thereof. The costs of the
arbitration, including administrative and arbitrators’ fees, shall be shared
equally by the Parties. Each Party shall bear its own costs and attorneys’ and
witness’ fees. A disputed performance or suspended performances pending the
resolution of the arbitration must be completed within thirty (30) days
following the final decision of the arbitrators or such other reasonable period
as the arbitrators determine in a written opinion. Any arbitration subject to
this Section 11.3 shall be completed within one (1) year from the filing of
notice of a request for such arbitration.

 

31

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11.4 No Implied Licenses. Only the licenses granted pursuant to the express
terms of this Agreement shall be of any legal force or effect. No license rights
shall be created by implication, estoppel or otherwise.

11.5 Representation by Legal Counsel. Each Party hereto represents that it has
been represented by legal counsel in connection with this Agreement and
acknowledges that it has participated in the drafting hereof. In interpreting
and applying the terms and provisions of this Agreement, the Parties agree that
no presumption shall exist or be implied against the Party which drafted such
terms and provisions.

11.6 Waiver. Any delay or failure in enforcing a Party’s rights under this
Agreement or any waiver as to a particular default or other matter shall not
constitute a waiver of such Party’s rights to the future enforcement of its
rights under this Agreement, nor operate to bar the exercise or enforcement
thereof at any time or times thereafter, excepting only as to an express written
and signed waiver as to a particular matter for a stated duration.

11.7 Independent Contractors. The relationship of the Parties hereto is that of
independent contractors. Nothing herein contained shall be deemed to create an
employment, agency, joint venture or partnership relationship between the
Parties hereto or any of their agents or employees. Neither Party shall have any
power to enter into any contracts or commitments or to incur any liabilities in
the name of, or on behalf of, the other Party, or to bind the other Party in any
respect whatsoever.

11.8 Solicitation of Employees. Schering and Pharmacopeia both agree that,
during the Collaboration Term and for one (1) year thereafter, without the
express prior written consent of the other Party, they will not knowingly induce
or attempt to induce, directly or indirectly, any scientific or technical
personnel then employed by the other Party to accept employment or affiliation
with the inducing Party or its Affiliates.

11.9 Compliance with Laws. In exercising their rights under this license, the
Parties shall fully comply with the requirements of any and all applicable laws,
regulations, rules and orders of any governmental body having jurisdiction over
the exercise of rights under this license.

11.10 Export Control. This Agreement and the obligations of both Parties
hereunder are made subject to, and limited by, all applicable restrictions
concerning the export of products or technical information from the United
States of America which may be imposed upon or related to Pharmacopeia or
Schering from time to time by the government of the United States of
America. Furthermore, Schering agrees that it will not export, directly or
indirectly, any technical information acquired from Pharmacopeia under this
Agreement or any products using such technical information to any country for
which the United States government or any agency thereof at the time of export
requires 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 when required by an applicable statute or
regulation.

11.11 Patent Marking. Schering agrees to mark and have its Affiliates and
Sublicensees mark all Agreement Products sold pursuant to this Agreement in
accordance with the applicable statute or regulations relating to patent marking
in the country or countries of manufacture and sale thereof.

11.12 Notices. Any notice required or permitted to be given or sent under this
Agreement shall be in writing and shall be hand delivered or sent by express
delivery service or certified or registered mail, postage prepaid, or by
facsimile transmission (with written confirmation copy by registered first-class
mail) to the Parties at the addresses and facsimile numbers indicated below.

 

32

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If to Pharmacopeia, to:

Pharmacopeia, Inc.

3000 Eastpark Boulevard

Cranbury, New Jersey 08512

Attn: Chief Executive Officer

Fax No.: (609) 452-3672

with a copy to:

Pharmacopeia, Inc.

3000 Eastpark Boulevard

Cranbury, New Jersey 08512

Attn: General Counsel

Fax No.: (609) 452-3655

If to Schering, to:

Schering Corporation

2000 Galloping Hill Road

Kenilworth, New Jersey 07033

Attention: Vice President, Business Development

Facsimile No.: (908) 298-5379

with copies to:

Schering Corporation

2000 Galloping Hill Road

Kenilworth, New Jersey 07033

Attention: Law Department, Senior Legal Director – Licensing

Facsimile No.: (908) 298-2739

Schering-Plough Ltd.

Toepferstrasse 5

CH 6004 Lucerne, Switzerland

Attention: President

Facsimile No.: (011) 41 41 418 1630

Any such notice shall be deemed to have been given when received. Either Party
may change its address or its facsimile number by giving the other Party written
notice, delivered in accordance with this Section.

11.13 Force Majeure. Failure of any Party to perform its obligations under this
Agreement (except the obligation to make payments when properly due) shall not
subject such Party to any liability or place them in breach of any term or
condition of this Agreement to the other Party to the extent (and only to the
extent) that such failure is due to fire, explosion, flood, drought, war,
terrorism, riot, sabotage, embargo, strikes or other labor trouble, failure of
suppliers, a national health emergency, compliance with any order or regulation
of any government entity acting with color of right, or any other cause beyond
the reasonable control of such non-performing Party and not caused by the
negligence, intentional conduct or misconduct of the non-performing Party (such
event or cause referred to as “force majeure”). The Party affected shall
promptly notify the other Party of the condition constituting force majeure as
defined herein and shall exert reasonable efforts to eliminate, cure or overcome
any such event of force majeure and to resume performance of its obligations
with all possible speed. If a condition constituting force majeure as defined
herein exists for more than ninety (90) consecutive days, the Parties shall meet
to negotiate a mutually satisfactory resolution to the problem, if
practicable. The foregoing notwithstanding, nothing herein shall require any
Party to settle on terms unsatisfactory to such Party any strike, lock-out or
other labor difficulty, any investigation or proceeding by any public authority
or any litigation by any Third Party.

 

33

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11.14 Severability. If any provision of this Agreement becomes or is declared by
a court of competent jurisdiction to be illegal, invalid or unenforceable or
void, it is mutually agreed that this Agreement shall remain in full force and
effect without such provision, and the Parties will, in good faith, renegotiate
the terms and conditions of this Agreement so as to lawfully include the
substance of such provision (to the extent possible) in order to as fully as
possible realize the intent of the Parties and their commercial bargain.

11.15 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original as against either Party whose
signature appears thereon, but all of which taken together shall constitute but
one and the same instrument, and shall become effective on the Effective Date.

11.16 Captions. The captions of this Agreement are solely for the convenience of
reference and shall not affect its meaning or interpretation.

11.17 Complete Agreement. This Agreement with its Exhibits, together with the
International Agreement, constitutes the entire agreement between the Parties
with respect to the subject matter hereof, and all prior agreements respecting
the subject matter hereof, either written or oral, expressed or implied, shall
be abrogated, canceled, and are null and void and of no effect; provided,
however that except as expressly set forth in this Agreement, nothing herein
shall affect the rights and obligations of the Parties under: (i) the certain
Collaboration Agreement and the certain Random Library Agreement between
Pharmacopeia, Schering Corporation and Schering-Plough Ltd. effective as of
December 22, 1994, as amended (the “1994 Agreements”); or (ii) the certain
contemporaneous Collaboration Agreements between Pharmacopeia and each of
Schering Corporation and Schering-Plough Ltd., effective as of October 29, 1998,
each as amended (the “1998 Agreements”). No amendment, modification, supplement,
change or addition to this Agreement (or the Exhibits attached hereto) shall be
effective or binding on either of the Parties hereto unless reduced to writing
and executed by the respective duly authorized representatives of Pharmacopeia
and Schering.

11.18 Relationship of Prior Agreements. For purposes of clarity and avoidance of
doubt, the Parties acknowledge and agree that the terms and conditions of this
Agreement shall not apply to any compounds or products discovered and developed
by or on behalf of the Parties under the 1994 Agreements or the 1998
Agreements. In particular, the Parties acknowledge and agree that (i) no
milestone payment or royalty obligations set forth in this Agreement shall apply
to any compounds discovered and/or developed under the 1994 Agreements or the
1998 Agreements, and (ii) any Agreement Compounds and/or Agreement Products
discovered and developed under this Agreement shall not be subject to any
milestone payment or royalty obligations set forth in the 1994 Agreements or the
1998 Agreements.

11.19 Recording. Each Party shall have the right, at any time, to record,
register, or otherwise notify this Agreement in appropriate governmental or
regulatory offices anywhere in the world, and each Party shall provide
reasonable assistance to the other in effecting such recording, registering or
notifying. The Parties acknowledge that this Agreement may be notified by either
Party to the European Community for compliance with applicable laws.

11.20 Further Actions. Each Party agrees to execute, acknowledge and deliver
such further instruments, and to do all other acts, as may be necessary or
appropriate in order to carry out the purposes and intent of this Agreement
including, without limitation, any filings with any antitrust agency which may
be required.

IN WITNESS WHEREOF, this Agreement has been executed by the duly authorized
representatives of the Parties as of the date set forth below.

 

PHARMACOPEIA, INC.     SCHERING CORPORATION By:  

/s/    Stephen A. Spearman

    By:  

/s/    David Poorvin

Title:   EVP     Title:   Vice President Date:   7/9/03     Date:   7/9/03

 

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EXHIBIT A

CURRENCY CONVERSION

--------------------------------------------------------------------------------

*

--------------------------------------------------------------------------------

EXHIBIT C

Elements of Fully Allocated Manufacturing Costs

The following expenses are included in manufacturing costs:

 

  1. Direct Materials

Materials used in the manufacturing process that are traced directly to the
completed product, such as:

 

  •  

Inert raw materials or excipients

 

  •  

Active substances/ingredients

 

  •  

Packaging components such as bottles, caps, labels, etc.

 

  2. Direct Labor

The cost of employees engaged in production activities that are directly
identifiable with product costs. Excludes supervision, which is included in
indirect labor, and production support activities such as inspection, plant and
equipment maintenance labor, and material handling personnel. Direct Labor cost
includes:

 

  •  

Base pay, overtime, vacation and holidays, illness, personal time with pay, and
shift differential.

 

  •  

Cost of employee fringe benefits such as health and life insurance, payroll
taxes, welfare, pension, profit sharing and bonuses.

 

  3. Indirect Manufacturing Costs

Costs which are ultimately allocated to product based on an appropriate method
such as standard direct labor hours, tank hours, grams, vials, etc., of the
operating departments. These costs include:

 

  •  

Indirect Production Labor - salaries of employees engaged in production
activities who are not classified as direct labor, including supervision,
clerical, etc.

 

  •  

Costs of Direct Labor - employees not utilized for the manufacturing of product
such as training, downtime and general duties.

 

  •  

Indirect Materials - supplies and chemicals which are used in the manufacturing
process and are not assigned to specific products but are included in
manufacturing overhead costs. Includes supplies for which direct assignment to
products is not practical.

 

  •  

Utilities - expenses incurred for fuel, electricity and water in providing power
for production and other plant equipment.

 

  •  

Maintenance and Repairs - amount of expense incurred in-house or purchased to
provide services for plant maintenance and repairs of facilities and equipment.

 

  •  

Other Services - purchased outside services and rentals such as the cost of
security, ground maintenance, etc.

--------------------------------------------------------------------------------

  •  

Depreciation - of plant and equipment utilizing the straight-line method of
calculation.

 

  •  

Insurance - cost of inventory insurance, comprehensive insurance and other
insurance necessary for the safeguard of manufacturing plant and equipment.

 

  •  

Taxes - expense incurred for taxes on real and personal property (manufacturing
site, buildings and the fixed assets of equipment, furniture and fixtures,
etc.). If manufacturing site includes other operations (marketing, R&D, etc.),
taxes are allocated to manufacturing on the basis of total real and personal
property.

 

  •  

Cost of manufacturing, service departments - such as: (where applicable)

 

  •  

Packaging Engineering

 

  •  

Manufacturing Maintenance

 

  •  

Industrial Engineering

 

  •  

Receiving and Warehousing

 

  •  

Purchasing and Accounting

 

  •  

Production Scheduling

 

  •  

Inventory Management

 

  •  

Plant Materials Management

 

  •  

Central Weigh

 

  •  

Manufacturing Administration

 

  •  

Regulatory Affairs direct support to manufacturing (not to exceed $80,000 per
year for a three(3) year period)

 

  •  

Allocated costs of services provided to manufacturing including: (where
applicable)

 

  •  

Cafeteria

 

  •  

Personnel Operations

 

  •  

Health and Safety Services

 

  •  

Division Engineering and Operations Services

 

  •  

Plant Services (housekeeping)

 

  •  

Manufacturing Information Systems

--------------------------------------------------------------------------------

  •  

Plant Power

 

  •  

Office of V.P. Manufacturing

Various bases are used for allocating these costs to manufacturing operating
departments including headcount, square feet, metered utilities use, estimated
services rendered, EDP computer hours, etc.

 

4. Quality Assurance Costs

Direct labor and indirect costs for Quality Assurance departments testing and
approving materials used in manufacturing and completed manufacturing batches
and finished products. This includes all manufacturing in-process testing and
testing of finished materials. Excluded from product costs are QA costs related
to research and development, stability testing, etc.

The following expenses are not included in manufacturing costs:

 

  a) Inventory Carrying Costs

 

  b) Regulatory Affairs Costs (except as set forth above)

 

  c) Pilot plant costs, research batches and other similar costs prior to
turnover to manufacturing. These are handled as development costs and expensed
to R&D. This excludes commercial goods produced by a research facility.

 

  d) Costs incurred by Manufacturing for special projects, or for
Schering-Plough Research Institute requests, to establish and certify new
production processes, batch sizes and product line improvements, and new vendor
certification of equipment and primary materials components. These costs are
expensed to R&D.

 

  e) Manufacturing start-up costs and initial one-time extraordinary
manufacturing costs incurred prior to plant operation and achievement of a
normal production activity level. Includes costs of training, testing,
qualification/validation of new equipment and facilities and initial trial
batches. These costs are deferred and then amortized to Other Production Costs
over five years.

 

  f) Significant idle capacity is eliminated from factory overhead and product
cost. Idle or excess capacity costs are culled out of the Manufacturing Budget
and expensed as a period cost to Other Production Costs.

 

  g) Finished goods warehousing, shipping and other distribution costs. These
are included in distribution costs which are part of marketing expenses.

 

  h) Product liability and/or business interruption insurance expenses.