Exhibit
10.1


EXCLUSIVE
LICENSE AGREEMENT


This
Exclusive License Agreement (this “Agreement”)
effective as of April 27, 2007 (the “Effective Date”), is by and between Kyowa
Hakko Kogyo Co., Ltd., a company legally organized and existing under the laws
of Japan (referred to herein as “Kyowa”)
and ArQule, Inc., a corporation organized and existing under the laws of
Delaware, USA (referred to herein as “ArQule”).  Kyowa and ArQule are sometimes hereinafter
referred to each as a “Party” and
collectively as the “Parties.”


WITNESSETH:


WHEREAS, ArQule has developed a proprietary
compound for the treatment of cancer; and


WHEREAS, Kyowa wishes to obtain exclusive
rights to develop, market and sell
all formulations of such proprietary compound in the Territory, as more fully
described below, and ArQule wishes to grant such rights to Kyowa as set forth
herein.


NOW, THEREFORE, in consideration of the
foregoing premises and the mutual covenants herein contained, the Parties
hereby agree as follows:


ARTICLE 1

DEFINITIONS


Unless
specifically set forth to the contrary herein, the following terms, whether
used in the singular or plural, shall have the respective meanings set forth
below:


1.1           “Additional Field” means the field comprised
of Indications designated by the JSC as included in the Additional Field in
accordance with Section 3.8 hereof.


1.2           “Affiliate” means, with respect to any
Party, (i) any other Person of which fifty percent (50%) or more of the
securities or other ownership interests representing the equity, the voting
stock or, if applicable, general partnership interest of such other Person are
owned, controlled, or held, directly or indirectly by, or under common
ownership or control with, such Party; or (ii) any other Person that, directly
or indirectly, owns, controls, or holds fifty percent (50%) or more of the
securities or other ownership interests representing the equity, the voting
stock or, if applicable, the general partnership interest, of such Party or is
otherwise able to control the direction of such Party.


1.3           “API” means bulk ARQ 197 or bulk Licensed
Back-Up Compound.


1.4           “Applicable Laws and Regulations” means any
federal, state, local, national and supra-national laws, statutes, rules and/or
regulations, including any rules, regulations, guidance, guidelines or
requirements of Regulatory Authorities, national securities exchanges or
securities listing organizations, that may be in effect from time to time
during the Term and apply to a particular activity hereunder.






[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.  CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.  OMITTED
TEXT IS INDICATED BY A “*”.













1.5           “ArQule Decision” means any decision made in ArQule’s sole but reasonable discretion
on any matter that is submitted to
the JSC, which is not a Kyowa Decision.


1.6           “ArQule Background Technology” means all
Technology, other than Program Technology but including Technology licensed to
ArQule by a Third Party, that relates to Licensed Products and is Controlled by
ArQule during the Term.


1.7           “ArQule Patent Rights” means any Patent
Rights in the Territory existing at any
time during the Term (regardless of whether the Patent Rights arise from
inventions made, or patent applications submitted, before the Effective Date or
after the Effective Date) that
contain one or more claims that cover ArQule Technology. For purposes of
reference, the ArQule Patent Rights as of
the Effective Date are listed on Exhibit A attached hereto.


1.8           “ArQule Program Technology” means any
Program Technology Controlled by ArQule that
is conceived or first reduced to practice by employees of, or consultants to,
ArQule, alone or jointly with any Third Party without the use, in any material respect, of any Kyowa Technology,
Kyowa Patent Rights or Joint Technology.


1.9           
“ArQule Technology” means,
collectively, ArQule Background Technology and ArQule Program Technology.


1.10         “ArQule Trademark” means any trademark owned or Controlled by
ArQule in the Territory (a) that is the equivalent in the language of the
applicable country in the Territory of a trademark used by ArQule on Licensed
Product outside the Territory and registrations and applications
therefor or (b) covering ArQule’s name
and/or company logo (“ArQule Company
Trademarks”).


1.11         
“ARQ 197” means the molecule set
forth and identified as the ARQ 197 molecule on Exhibit B attached
hereto with the chemical name  * .


1.12         “Back-Up Compound” means a cMet Inhibitor distinct in chemical structure from ARQ 197
that falls within ArQule Patent Rights.


1.13         
“Calendar Quarter” means the
period beginning on the Effective Date and ending on the last day of the
Calendar Quarter in which the Effective Date falls, and thereafter each successive
period of three (3) consecutive calendar months ending on March 31, June 30,
September 30 or December 31.


1.14         “Calendar Year” means each successive period
of twelve (12) months commencing on January 1 and ending on December 31. The “Initial Calendar Year” means the period
commencing on the Effective Date and ending on the subsequent December 31.


1.15         “Cancer Field” means (i) the treatment of cancer and (ii) Patient Selection.


1.16         
“CDA” means the Confidential
Disclosure Agreement dated as of July 21,
2006, as amended on November 16, 2006, February 12, 2007 and March 7, 2007
by and between the Parties.



 2
  
  
  
 









1.17         “cMet Inhibitor” means ARQ 197 and any
compound of its class of drugs that binds the c-Met RTK and inhibits its
autophosphorylation as its primary mode of inhibition of tumor growth and
metastasis.


1.18         “Commercial Launch” means the first
commercial sale of Licensed Product to a Third Party in the Territory after
obtaining Commercialization Regulatory Approval in the Territory.


1.19         “Commercialization Regulatory Approval”
means, with respect to any Licensed Product, the Regulatory Approval required
by Applicable Laws and Regulations to sell such Licensed Product for use for an
Indication in the Cancer Field, or Additional Field if applicable, in a country
or region in the Territory.  For purposes
of clarity, “Commercialization Regulatory Approval” in any country or region in
the Territory shall mean final approval of the applicable Drug Approval
Application by the Regulatory Authority for such country or region.


1.20         
“Commercialize,” or “Commercialization” means all activities
relating to seeking, obtaining and/or maintaining any Regulatory Approval for
Licensed Product in the Cancer Field, or Additional Field if applicable, in the
Territory, registration, importing, manufacturing, distributing, marketing,
selling, non-clinical and clinical development or testing of Licensed Product
in the Cancer Field, or Additional Field if applicable, in the Territory under
this Agreement, including, without limitation, labeling, packaging, finishing,
promotion, marketing, sales, distribution, development for label extensions,
and conducting Medical Affairs Studies, whether conducted by a Party or for
such Party by another, and “Commercialization”
shall be interpreted accordingly. For clarity, Clinical Development Activities,
Regulatory Activities, and Marketing Activities are Commercialization
activities.


1.21         “Commercially Reasonable Efforts” means, (a)
when used with respect to Kyowa’s obligations with respect to any Licensed
Product under this Agreement, the devotion of no fewer resources to such
Licensed Product than Kyowa devotes to a similar pharmaceutical product owned
by it or to which it has rights, which product is at a similar stage in its
development or product life and is of similar market potential and strategic
value taking into account efficacy, safety, expected labeling, the
competitiveness of alternative products in the marketplace, the patent and
other proprietary position of the product, the likelihood of regulatory
approval given the regulatory structure involved, the profitability of the
product including the royalties payable to licensors or patent or other
intellectual property rights, alternative products and other relevant factors;
and (b) when used with respect to ArQule’s obligations under this Agreement,
the level of efforts required to carry out such obligation consistent with the
efforts a similarly situated company, as licensor, devotes to a product of
similar market potential, profit potential and strategic value and similar
scientific, technical, development and regulatory risks, based on conditions
then prevailing.


1.22         “Common Technical Document” means the
acceptable format for registration dossiers submitted to regulatory authorities
within regions following the International Conference on Harmonization of
Technical Requirements for the Registration of Pharmaceuticals for Human Use
(ICH).


1.23         “Control” means, with respect to any Patent
Rights or Technology, the possession by a Party (including without limitation by way of a license granted by a Third Party
to a Party) of the 



 3
  
  
  
 









ability to grant a license or sublicense of such
Patent Rights, or Technology as provided for herein without violating the terms
of any arrangement or agreements between such Party and any Third Party and
without requiring such Party to make undue payment to any Third Party.


1.24         “Drug Approval Application” means, with
respect to each Licensed Product in a particular country or region in the
Territory, an application seeking Commercialization Regulatory Approval from
the Regulatory Authority in such country or region,  including without limitation, an application
submitted to: (a) Japan’s Ministry of Health, Labor and Welfare (“MHLW”), with respect to the commercial sale
or use of Licensed Product in Japan; (b) China’s State Food and Drug
Administration, with respect to the commercial sale or use of Licensed Product
in China; (c) South Korea’s Pharmaceutical Affairs Bureau, with respect to the
commercial sale or use of Licensed Product in South Korea; and (d) Taiwan’s
Bureau of Pharmaceutical Affairs, with respect to the commercial sale or use of
Licensed Product in Taiwan, as any of the foregoing may be amended from time to
time.


1.25         “Effective Date” shall have the meaning set
forth in the preamble.


1.26         “FDA” means the United States Food and Drug
Administration or any successor agency thereto.


1.27         “Indication” means any human indication,
disease or condition, which can be treated, prevented, cured or the progression
of which can be delayed. For purposes of clarity, distinctions between human
indications, diseases or conditions with respect to a Licensed Product shall be
based on commonly accepted medical practice, or if the parties cannot agreement
on commonly accepted medical practice, made by reference to the World Health
Organization International Classification of Diseases, version 10 (as revised
and updated, “ICD10” ).  For Indications
in the Cancer Field, reference will be made to separate classifications at the  * of  * of
* etc. are each separate Indication.   For Indications in the Additional Field,
reference will be made to separate classifications at the  * of other  *  all
conditions within  * of * are a single
Indication and all conditions within  * of
* are a different single Indication). 
Disputes will be resolved as set forth in  * .


1.28         
“Initiation” means, with respect
to a human clinical trial, the first date that a subject or patient is dosed in
such clinical trial.


1.29         “Joint Patent Rights” means Patent Rights
that contain one or more claims that cover Joint Technology.


1.30         “Joint Technology” means any Program
Technology that is jointly conceived or reduced to practice by employees of, or
consultants to, Kyowa and employees of, or consultants to, ArQule or that is
conceived or reduced to practice by employees of, or consultants to, a Party
with the use, in any material respect, of the Technology or Patent Rights of
the other Party.


1.31         “Knowledge” means the actual knowledge of
the chief executive officer, the president, the executive vice-president, any
vice president, the senior director of regulatory affairs, the senior patent
counsel, or the chief medical officer of ArQule.


1.32         
“Kyowa” shall have the meaning set
forth in the preamble.



 4
  
  
  
 









1.33         “Kyowa Background Technology” means any
Technology, other than Program Technology, that is used by Kyowa or provided by
Kyowa  for use, for Licensed
Product in the performance of activities under this Agreement and is Controlled
by Kyowa during the Term.


1.34         “Kyowa Decision” means any decision made in Kyowa’s sole but reasonable discretion  with respect to clinical development or
Commercialization of Licensed Product in the Territory, including without
limitation, determination of, in the
Territory, (a) the Indication(s) in the Cancer Field, and Additional
Field if applicable, to be pursued for
Licensed Product, (b) Clinical Development Activities, (c) Regulatory
Activities, (d) Marketing Activities, (e)
trademarks to be used for Licensed Product, subject to Section 6.5 hereof, and
(f) whether to develop one or more Licensed Back-Up Compounds in place of or in
addition to ARQ 197 in accordance with Section 3.7 hereof or to include an
Indication in the Additional Field in accordance with Section 3.8 hereof, except
to the extent any decision, in ArQule’s sole but reasonable opinion, would
have, or is having, a material adverse scientific, clinical, medical,
regulatory or commercial impact on obtaining regulatory approval for the
manufacture, use or sale of Licensed Product outside the Territory, or
commercialization of Licensed Product outside of the Territory, in which event
such decision will be an ArQule Decision.


1.35         “Kyowa  Patent
Rights” means any Patent Rights existing at any time during the Term (regardless of whether the Patent
Rights arise from inventions made, or patent applications submitted, before the
Effective Date or after the Effective Date) that contain one or more claims
that cover Kyowa Technology. For purposes of reference, the Kyowa Patent Rights
as of the Effective Date are listed on Exhibit C attached hereto.


1.36         “Kyowa Program Technology” means any
Program Technology that is conceived or first reduced to practice by employees
of, or consultants to, Kyowa, alone or jointly with any Third Party, or Controlled by Kyowa, without the
use, in any material respect, of any ArQule Technology, ArQule Patent Rights or
Joint Technology.


1.37         “Kyowa Regulatory Data” means all Regulatory
Filings made by or on behalf of Kyowa and all data generated by or on behalf of
Kyowa during Clinical Development Activities or Regulatory Activities,
including without limitation the Common Technical Document and any information
contained in any Regulatory Filings and the results of and all information
related to any Clinical Development Activities or Regulatory Activities
performed by or on behalf of Kyowa pursuant to this Agreement.


1.38          “Kyowa Technology” means, collectively,
Kyowa Background Technology and Kyowa Program Technology.


1.39         “Kyowa Trademark” means any trademark and registrations
and applications therefor owned or
Controlled by Kyowa in the Territory.


1.40         
“Licensed Back-Up Compound” means
a Back-Up Compound that has been designated
by the JSC for Commercialization as a Licensed Back-Up Compound pursuant to
Section 3.7 hereof.



 5
  
  
  
 









1.41         
“Licensed Product” means (i) a
product comprised of, in whole or in part, or containing ARQ 197 or a Licensed
Back-Up Compound and conforming to the Specifications and (ii) a product sold
for use in Patient Selection.


1.42         “Manufacturing Cost” means ArQule’s
fully-burdened costs (including the costs associated with product testing and
release activities) of producing and packaging Licensed Product or API, as
applicable, in bulk or finished form, determined in accordance with GAAP,
including the sum of the following components: (a) direct costs, including
manufacturing labor and materials directly used in producing and packaging; (b)
overhead costs attributable to the cost of goods under the foregoing clause
(a), including quality labor and manufacturing and quality supervisory
services, depreciation, return on capital assets and other operating and
administrative costs of the manufacturing and quality departments and occupancy
costs which are allocable to company departments based on space occupied or
headcount, or other activity-based method; (c) any other reasonable and
customary out-of-pocket costs borne by ArQule for the testing, transport,
customs clearance, duty, insurance and/or storage of such products, including
payments made by ArQule to Third Party Manufacturers for manufacture, filling,
finishing, packaging, labeling, testing, storage and distribution of such
Licensed Product or API and ArQule’s handling costs with respect thereto, as
applicable; (d) Kyowa’s prorata share of costs of API and Licensed Product
process improvements developed by ArQule or a Third Party on behalf of ArQule;  and (e) ArQule’s general and
administrative costs, including purchasing, human resources, payroll,
information system and accounting, which are directly attributable or
reasonably allocable to company departments based on space occupied or
headcount or other activity-based method.


1.43         “Medical Affairs Activities” means: (a) the
coordination of medical information requests and field based medical liaisons;
and (b) those clinical studies conducted after Commercialization Regulatory
Approval of a Licensed Product has been obtained which are neither intended nor
designed to support a Regulatory Filing including, without limitation, Kyowa-initiated
medical affairs studies, post marketing studies and investigator and
physician-initiated studies; provided, that, all Medical Affairs Activities
shall be consistent with Licensed Product labeling, including all package
inserts for Licensed Product and shall be conducted in accordance with
Applicable Laws and Regulations.


1.44         “Milestone Additional Indication” means an
Indication for the Licensed Product in the Additional Field not covered by a
Patent Right Controlled by Kyowa that claims the use of the Licensed Product
for such Indication.


1.45         “NDA” means a new drug application (as defined in Title 21 of
the United States Code of Federal Regulations, as amended from time to time)
filed with the FDA seeking regulatory approval to market and sell Licensed
Product in the United States for a particular Indication.



 6
  
  
  
 









1.46         “NHI Price” means the drug price for
Licensed Product set by the MHLW for reimbursement by insurers to medical
institutions under the National Health Insurance Plan, which price is listed in
the National Health Insurance Drug Price List.


1.47         “Net Sales” means the gross invoiced sales
price for all Licensed Products sold by Kyowa, its Affiliates, Sublicensees or wholesalers to end users throughout the Territory during each
Calendar Quarter, less:


(a)          trade, cash and quantity discounts or rebates actually allowed or
taken, including discounts or rebates to governmental or managed care
organizations;


(b)         credits or allowances actually given or made for rejection of,
uncollectible amounts on, or return of previously sold Licensed Products
(including Medicare and similar types of rebates);


(c)          any charges for insurance, freight, and other transportation costs
directly related to the delivery of Licensed Product to the extent included in
the gross invoiced sales price;


(d)         any tax, tariff, duty or governmental charge levied on the sales,
transfer, transportation or delivery of a Licensed Product (including any tax
such as a value added or similar tax or government charge) borne by the seller
thereof, other than franchise or income tax of any kind whatsoever; and


(e)          any import or export duties or their equivalent borne by the seller.


“Net Sales” shall not include sales or transfers
between Kyowa and its Affiliates, Sublicensees or wholesalers unless the
Licensed Product is consumed by the Affiliate, Sublicensee or wholesaler.


1.48         
“Other Licensee” means any Third
Party to whom ArQule grants a license or sublicense for development and
commercialization of Licensed Product in the Cancer Field or Additional Field
outside the Territory.


1.49         “Party” shall have the meaning set forth in
the preamble.


1.50         “Patent Rights” means the rights and
interests in and to issued patents and pending patent applications (which, for
purposes of this Agreement, include certificates of invention, applications for
certificates of invention and priority rights) in any country or region,
including all provisional applications, substitutions, continuations,
continuations-in-part, divisions, renewals, all letters patent granted thereon,
and all reissues, re-examinations and extensions thereof, and all foreign
counterparts of any of the foregoing.


1.51         “Patient Selection” means the selection of patients using a diagnostic tool to be treated for cancer
with the Licensed Product described in clause (i) of Section 1.41.


1.52         “Person” means any individual, corporation,
association, partnership (general or limited), joint venture, trust, estate,
limited liability company, limited liability partnership, unincorporated 



 7
  
  
  
 









organization, government (or any agency or political
subdivision thereof) or other legal entity or organization.


1.53         “Phase 1 Clinical Trial” means a clinical
trial performed in accordance with the
Applicable Laws and Regulations in the Territory that provides for the first
introduction of a Licensed Product into humans for the purpose of determining
human toxicity, metabolism, biomarker, absorption, elimination and other
pharmacological action.


1.54         “Phase 2 Clinical Trial” means a clinical
trial performed in accordance with the
Applicable Laws and Regulations in the Territory in patients with a
particular disease or condition which is designed to establish the safety,
appropriate dosage and tolerability of a Licensed Product given its intended
use and to initially explore its efficacy for such disease or condition and
shall include such a clinical trial intended to be a pivotal trial.


1.55         “Phase 3 Clinical Trial” means a pivotal
clinical trial performed in accordance with the Applicable Laws and Regulations in the Territory and conducted
in subjects with a particular disease or condition which is designed to
establish the efficacy and safety of a Licensed Product given its intended use
and to define warnings, precautions and adverse events that are associated with
Licensed Product in the dosage range intended to be prescribed.


1.56         “Program Technology” means any Technology relating to Licensed Product Controlled
by either Party that is conceived or first reduced to practice by employees of,
or consultants to, either Party
alone or jointly with any Third Party, or the two Parties together in the
conduct of activities under this Agreement.


1.57         “Proprietary Information” means all (a)
Confidential Information as defined in the CDA, (b) terms of this Agreement,
and (c) scientific, clinical, regulatory, marketing, financial and commercial
information or data, whether communicated in writing or orally or by sensory
detection, which is provided by, or on behalf of, such Party to the other Party
in connection with this Agreement, and whether or not specifically marked as
confidential or proprietary.


1.58         “Regulatory Approvals” means, with respect
to any country or region in the Territory, any approval, product and
establishment license, registration or authorization of any Regulatory
Authority required for the manufacture, use, storage, or Commercialization of a
Licensed Product in such country or region.


1.59         “Regulatory Authority” means any applicable
government regulatory authority involved in granting approvals for the
manufacture, Commercialization, reimbursement and/or pricing of Licensed
Product. “Regulatory Authority” in the Territory includes, without limitation,
the MHLW, the State Food and Drug Administration in China, the Pharmaceutical
Affairs Bureau in South Korea and the Bureau of Pharmaceutical Affairs in
Taiwan, or any successor agency of the foregoing having regulatory jurisdiction
over the manufacture, distribution and sale of drugs in any country or region
in the Territory.


1.60         “Regulatory Filings” means any filings that
may be required for any Regulatory Approval or otherwise filed or submitted to
a Regulatory Authority in the Territory in an effort to comply with Applicable
Laws and Regulations.



 8
  
  
  
 









1.61         “Royalty Term” means the period of time
commencing on the date of Commercial Launch of each Licensed Product and
continuing on a country-by-country and Licensed Product-by-Licensed Product
basis until the later of (a) the expiration of the last to expire Valid Claim
in the country covering the manufacture, use or sale of such Licensed Product
in such country or (b)  *  from the date of the Commercial Launch in such
country of such Licensed Product. In the event a Licensed Product for an
Indication in the Additional Field is distinguishable by form, dosage or
labeling from Licensed Product in the Cancer Field, then there will be separate
Royalty Terms for Licensed Product in the Cancer Field and Licensed Product in
the Additional Field.


1.62         “Specifications” means the current specifications of Licensed Product
and API as provided for in Section 8.3 hereof as such specifications may
be updated, changed or amended from time to time in accordance with the
provisions of Sections 3.7 and 8.3 hereof.


1.63         “Sublicensee” shall mean any Third Party or
Affiliate to whom Kyowa grants a sublicense of some or all of the rights
granted to Kyowa under this Agreement pursuant to Section 2.5 hereof.


1.64         “Technology” means inventions, discoveries,
improvements, methods, processes, formulas, materials, know-how, trade secrets,
technology, data or information, whether or not patentable, including without
limitation: (a) methods of production or use of, and structural and functional
information pertaining to, chemical compounds and (b) compositions of matter,
data, formulations, processes, techniques, know-how and results including any
negative results.


1.65         “Territory” means Japan, China (including Hong Kong), South Korea and
Taiwan.


1.66         “Third Party” means a Person other than
Kyowa, ArQule or their respective Affiliates.


1.67         “Valid Claim” means any claim of a pending
patent application or an issued unexpired patent within the ArQule Patent
Rights or Patent Rights covering any Program Technology that (a) has not been
finally cancelled, withdrawn, abandoned or rejected by any administrative agency
or other body of competent jurisdiction, (b) has not been permanently revoked,
held invalid, or declared unpatentable or unenforceable in a decision of a
court or other body of competent jurisdiction that is unappealable or
unappealed within the time allowed for appeal, (c) has not been rendered
unenforceable through disclaimer or otherwise, and (d) is not lost through an
interference proceeding, which but for
this Agreement, would be infringed by Kyowa by Commercialization of Licensed
Product.


Additional
Definitions.  In
addition, each of the following definitions shall have the respective meanings
set forth in the section of this Agreement indicated below:


	
  Definitions

  	
   

  	
  Section

  
	
  Additional
  Rights

  	
   

  	
  7.6.1

  
	
  Agreement

  	
   

  	
  Preamble

  
	
  ArQule

  	
   

  	
  Preamble

  
	
  ArQule Clinical
  Data

  	
   

  	
  4.2.3

  
	
  ArQule Company
  Trademarks

  	
   

  	
  1.10

  
	
  ArQule
  Indemnitees

  	
   

  	
  12.2.1

  



 



 9
  
  
  
 









 


	
  Clinical Development
  Activities

  	
   

  	
  4.1

  
	
  Clinical and
  Regulatory Plan

  	
   

  	
  3.6

  
	
  Co-Chairs

  	
   

  	
  3.1

  
	
  Delivery

  	
   

  	
  8.1.3

  
	
  Disputed Matter

  	
   

  	
  3.9

  
	
  Effective Date

  	
   

  	
  Preamble

  
	
  Financing
  Sources

  	
   

  	
  11.1.7

  
	
  AAA

  	
   

  	
  14.2.1

  
	
  AAA Rules

  	
   

  	
  14.2.1

  
	
  Infringement

  	
   

  	
  10.2.1

  
	
  Infringement
  Notice

  	
   

  	
  10.2.1

  
	
  Insolvent Party

  	
   

  	
  13.5.8

  
	
  Kyowa

  	
   

  	
  Preamble

  
	
  Kyowa Clinical
  Data

  	
   

  	
  4.2.1

  
	
  Kyowa
  Indemnitees

  	
   

  	
  12.2.3

  
	
  JSC

  	
   

  	
  3.1

  
	
  Losses

  	
   

  	
  12.2.1

  
	
  Marketing Plan

  	
   

  	
  6.2

  
	
  Medical Affairs
  Plan

  	
   

  	
  6.7

  
	
  MHLW

  	
   

  	
  1.24

  
	
  Other Licensees’
  Clinical Data

  	
   

  	
  4.2.4

  
	
  Other Products

  	
   

  	
  7.4.1

  
	
  Party

  	
   

  	
  Preamble

  
	
  Parties

  	
   

  	
  Preamble

  
	
  Patent
  Coordinator

  	
   

  	
  10.1.4

  
	
  Regulatory
  Activities

  	
   

  	
  5.1.1

  
	
  Sales and
  Marketing Activities

  	
   

  	
  6.1

  
	
  Specification
  Update Costs

  	
   

  	
  8.3.2

  
	
  Supply Agreement

  	
   

  	
  8.2

  
	
  Term

  	
   

  	
  13.1

  
	
  Third Party
  Manufacturer

  	
   

  	
  8.1.2

  
	
  Trademark
  License

  	
   

  	
  2.1.4

  
	
  USBC

  	
   

  	
  13.5.8

  



 


ARTICLE 2

LICENSES


2.1           ArQule License Grants.


2.1.1        Commercialization License. ArQule hereby
grants to Kyowa an exclusive royalty-bearing license, under the ArQule
Technology and ArQule Patent Rights and ArQule’s interest in the Joint
Technology and Joint Patent Rights solely (i) to import and use API solely for use in Licensed Products and/or (ii) to develop,
use, distribute for sale, offer for sale, sell, import and export Licensed
Products for use in the Cancer Field, and/or the Additional Field if
applicable, in the Territory.  Kyowa
shall have the right to grant sublicenses under the license granted to it under
this Section 2.1.1 solely in accordance with Section 2.5 below.



 10
  
  
  















2.1.2                        Manufacturing License.
ArQule hereby grants to Kyowa a non-exclusive royalty-bearing license under the
ArQule Technology and ArQule Patent Rights and ArQule’s interest in the Joint
Technology and Joint Patent Rights to make (i) API solely for use in Licensed Products and (ii) Licensed Products
solely for use in accordance with the license granted pursuant to Section 2.1.1
above in such countries in the Territory in which such Licensed Products have
received Commercialization Regulatory Approval. Kyowa shall have the right to
grant sublicenses under the license granted to it under this Section 2.1.2
solely in accordance with Section 2.5 below.


2.1.3                        License Registration.
Upon request of Kyowa, ArQule shall register, at Kyowa’s expense, in favor of Kyowa the exclusive license
(“SENYO JISSIKEN” in Japanese) of the
ArQule Patent Rights granted pursuant to Section 2.1.1 by recording with a Patent Office or other competent authorities of
any country in the Territory.


2.1.4                        Trademarks. Kyowa reserves the right to use Kyowa
Trademarks for Licensed Product in the Territory, subject to the provisions of
Section 6.5 hereof and ArQule’s consent, which consent will only be withheld
if, in ArQule’s sole but reasonable opinion, such use would have, or is
having, a material adverse regulatory or commercial impact on obtaining
regulatory approval for the manufacture, use or sale of Licensed Product
outside the Territory, or commercialization of Licensed Product outside of the
Territory. In the event Kyowa does not
use Kyowa Trademarks and upon request of Kyowa, the following provisions shall
apply.


(a)                             Grant
of License.  ArQule grants to Kyowa
an exclusive license to use the ArQule Trademarks solely in connection with
Kyowa’s exercise of the license granted to it pursuant to Section 2.1.1 above
(the “Trademark License”). Kyowa
shall have the right to grant sublicenses under the licenses granted to it
under this Section 2.1.4 solely in accordance with Section 2.5 below.


(b)                            Acknowledgement
of Ownership of ArQule Trademarks and Assignment of Rights.  Kyowa acknowledges ArQule’s ownership of all
right, title and interest in and to the ArQule Trademarks, and agrees that it
will do nothing inconsistent with such ownership, that all use of the ArQule
Trademarks by Kyowa shall inure to the benefit of and be on behalf of ArQule,
and that any goodwill associated with the use of any ArQule Trademark by Kyowa
will inure to the benefit of ArQule. 
Kyowa agrees that nothing in this Agreement shall give Kyowa any right,
title or interest in the ArQule Trademarks other than the right to use the
ArQule Trademarks in accordance with this Agreement.  Notwithstanding anything in this Agreement to
the contrary, if by virtue of Kyowa’s use of the ArQule Trademarks, Kyowa
acquires any equity, title or other rights in or to the ArQule Trademarks,
Kyowa shall and hereby does agree to assign and transfer same to ArQule.


(c)                             Use
of ArQule Trademarks.  Kyowa shall
use the ArQule Trademarks (i) solely in the manner specified in this Agreement
in connection with Licensed Product and not for any other goods or services and
(ii) only in the form and manner as reasonably prescribed from time to time by
ArQule. Without limiting the foregoing, where practical, Kyowa’s use of an
ArQule Trademark for Licensed Product should be accompanied by a trademark
notice that states that such ArQule Trademark is a trademark (or a registered
trademark, if applicable) of ArQule, Inc. Kyowa shall use the ArQule
Trademarks, and ArQule shall maintain the ArQule Trademarks, in compliance with
all Applicable Laws and Regulations, including but not limited 



 11
 









to those relating to the licensing of trademarks, in the
Territory.  Kyowa agrees to promptly
correct any failure to comply with this Section 2.1.4.


(d)                            Trademarks of Other Licensees. Upon Kyowa’s request for the right to use a
trademark of any Other Licensee, other than a trademark incorporating any Other
Licensee’s name or logo, ArQule shall make Commercially Reasonable Efforts to
obtain a royalty-free license to use such trademark from such Other Licensee
for the benefit of Kyowa.


2.2                                 Exclusivity.


2.2.1                        Kyowa Acknowledgements and
Covenants.  Kyowa hereby acknowledges
and agrees that (a) it shall Commercialize Licensed Product solely within the
Territory for use in the Cancer Field, or Additional Field if applicable, and
solely on behalf of, and pursuant to the authority granted to Kyowa by, ArQule
under this Agreement; (b) it is not granted any rights under this Agreement
outside of the Territory and shall in no event Commercialize Licensed Product
outside of the Territory or within the Territory for use outside of the
Territory or provide any Licensed Product to any Third Party if Kyowa has
knowledge or reasonably believes that such Third Party, either directly or
indirectly, is selling, or intends to sell or otherwise provide, Licensed
Product outside the Territory or within the Territory for use outside of the
Territory; and (c) it shall not make, have made, source or otherwise purchase
API or Licensed Product, except for the supply of API and/or Licensed Product
by, or on behalf of, ArQule to Kyowa or in accordance with the express licenses
granted hereunder to Kyowa. If Kyowa becomes aware of, or has reason to believe
that, any Third Party (including without limitation any customer, wholesaler or
distributor) is selling or exporting API or Licensed Product or using any
ArQule Trademark, itself or through any other Third Party, outside of the
Territory or within the Territory for use outside of the Territory, Kyowa shall
provide ArQule with prompt written notice thereof.


2.2.2                        ArQule Covenants.  ArQule hereby agrees that it shall not
Commercialize Licensed Product or any
products which contain c-Met Inhibitor in the Territory for use in the
Cancer Field, or Additional Field if applicable, during the Term, except as
provided hereunder, and ArQule shall not appoint any Person, other than Kyowa,
as a distributor or a licensee of
Licensed Product and any products which
contain c-Met Inhibitor in the Territory for use in the Cancer Field,
and Additional Field if applicable, during the Term.


2.2.3                        Exceptions.  The foregoing provisions and grant of
exclusive licenses in Sections 2.1 and 2.6 shall not prohibit (a) Kyowa from
conducting activities outside of the Territory including without limitation
importing, exporting, using and manufacturing API or Licensed Products, solely
for the purpose of furthering the Commercialization of Licensed Product within
the Territory; provided, that, such activities do not affect ArQule’s
regulatory filings or approvals for Licensed Product outside of the Territory
and are otherwise consistent with Applicable Laws and Regulations and Kyowa’s
rights and obligations hereunder; nor (b) ArQule from conducting activities
inside of the Territory; including without limitation importing, exporting,
using and manufacturing API or Licensed Products, solely for the purpose of
furthering the development, manufacture or commercialization of Licensed
Product outside of the Territory or fulfilling its obligations hereunder; provided,
that, such activities do not affect Kyowa’s Regulatory Filings or 



 12
 









Regulatory
Approvals and are otherwise consistent with Applicable Laws and Regulations and
ArQule’s rights and obligations hereunder.


2.3                                 Other Restrictions on Sales of Licensed Products.  Kyowa hereby further agrees that it shall not
sell Licensed Product other than to independent Third Parties in bona fide arm’s
length transactions.


2.4                                 Directly Competitive Licensed Products.  During the Term, Kyowa shall not, directly or
indirectly, sell, offer to sell, have sold, market, promote, distribute or
commercialize in the Territory any cMet Inhibitor other than Licensed Product
as provided herein.


2.5                                 Sublicense Rights. Kyowa shall have the
right to grant sublicenses under the licenses granted to it under Sections
2.1.1. 2.1.2 and 2.1.4 to any Affiliate or Third Party; provided, that (a)
Kyowa obtains the prior written approval of ArQule for each such sublicense,
which consent shall not be unreasonably withheld or delayed; (b) it shall be a
condition of any such sublicense that such Third Party agrees in writing with
Kyowa to be bound by the terms of
this Agreement applicable to Kyowa (including, without limitation, Articles 11
and 12 and the restrictions set forth in Sections 2.2.1, 2.3 and 2.4); and (c)
Kyowa shall not be relieved of any of its obligations pursuant to this
Agreement as a result of such sublicense.


2.6                                 Kyowa License Grants. Kyowa hereby
grants to ArQule an exclusive royalty-free, perpetual, irrevocable license,
subject to Section 13.7.3, under the Kyowa Technology and Kyowa Patent Rights
and Kyowa’s interest in Joint Technology and Joint Patent Rights, solely to
develop, have developed, make, have made, use, have used, sell, offer for sale,
have sold, import, have imported, export and have exported, API and Licensed
Products solely for use outside the Territory. ArQule shall have the right to
grant sublicenses under the foregoing license; provided, however, that ArQule
shall not grant a sublicense to any Other Licensee unless such Other Licensee
shall grant to ArQule the license (with rights to sublicense to Kyowa) set
forth in Section 2.7.


2.7                                 Other Licensees.  ArQule shall use Commercially Reasonable Efforts to have any Other
Licensees grant to ArQule an exclusive, royalty-free, fully-paid
up, perpetual, irrevocable license
sublicensable to Kyowa under Technology and Patent Rights controlled by such
Other Licensee or jointly by such Other Licensee and ArQule solely for Kyowa to import and use API solely for use in Licensed Products and/or to develop,
use, distribute for sale, offer for sale, sell, import and export Licensed
Products for use in the Cancer Field, or Additional Field if applicable, in the
Territory.


2.8                                 Use of Technology; No Other Rights.  Kyowa covenants to ArQule that Kyowa will not
practice the ArQule Technology except as expressly permitted under this
Agreement. Except as expressly set forth in this Agreement, this Agreement does
not include the grant of any right or license, express or implied, to any other
intellectual property or other rights owned or Controlled by ArQule.



 13
 









ARTICLE 3

JOINT STEERING COMMITTEE  


3.1                                 Establishment and Membership.  Within thirty (30) days of the Effective
Date, the Parties shall establish a joint steering committee (the “JSC),
the purpose of which shall be to oversee the collaboration of the Parties
relating to the development and Commercialization of Licensed Product in the
Cancer Field, or Additional Field if applicable, in the Territory. The JSC
shall consist of three (3) members from each Party, shall be co-chaired by a
senior employee of the Parties’ respective business units or their designees (“Co-Chairs”), and shall include
representatives of each Party chosen from staff of one or more of the
following departments of the Parties: regulatory/CMC, clinical,
sales/marketing, project management or
business development department. 
Each Party shall be free to change its members, on prior written notice
to the other Party.


3.1.1                        Appointment
as a Right. The appointment of members of the JSC is a right of each Party
and not an obligation and shall not be a “deliverable” as defined in EITF Issue
No. 00-21. Each Party shall be free to determine not to appoint members of the
JSC.


3.1.2                        Consequences
of Non-Appointment. If a Party does not appoint members of the JSC, it
shall not be a breach of this Agreement, nor shall any consideration be
returned, and unless and until such persons are appointed, the other Party may
discharge the roles for which such Party’s members were not appointed by such
Party.


3.2                                 Meetings.  The JSC shall establish a schedule of times
for regular meetings.  Special meetings
of the JSC may be convened by any member upon not less than thirty (30) days (or, if such meeting is proposed to be conducted by
teleconference, upon ten (10) days) written notice to the other members;
provided, that, (a) notice of any such special meeting may be waived at any
time, either before or after such meeting and (b) attendance of any member at a
special meeting shall constitute a valid waiver of notice from such
member.  In no event shall the JSC meet
less frequently than once every four
(4) months. Regular and special meetings of the JSC may be held in
person or by teleconference or videoconference; provided that meetings held in
person shall alternate between the respective offices of the Parties in Boston,
Massachusetts and Tokyo, Japan or such other locations mutually agreeable to
the JSC members.  The Co-Chairs shall
alternate the responsibility for preparing and circulating to each JSC member
an agenda for each JSC meeting not later than one (1) week prior to such
meeting.


3.3                                 Quorum; Voting; Decisions.  At each JSC meeting, (a) the presence in
person of at least  one (1) member
designated by each Party shall constitute a quorum and (b) each member who is
present shall have one vote on all matters before the JSC at such meeting.  All decisions of the JSC shall be made by
majority vote; provided that any member designated by a Party shall have the
right to cast the votes of any of such Party’s members on the JSC who are
absent from the meeting. Alternatively, the JSC may act by written consent
signed by at least one (1) member  designated
by each Party.  Whenever any action by the JSC is
called for hereunder during a time period in which the JSC is not scheduled to
meet, either Co-Chair shall cause the JSC to take the action in the requested
time period by calling a special meeting or by circulating a written
consent.  Representatives of each Party
or of its Affiliates who are not members of the JSC (including, without
limitation, the Patent Coordinators) may attend JSC meetings as non-voting
observers.


3.4                                 Minutes.  The JSC shall keep minutes of its meetings
that record all decisions and all actions recommended or taken in reasonable
detail.  Drafts of the minutes shall be
prepared and 



 14
 









circulated to the members of the JSC within a
reasonable time after the meeting, not to exceed thirty (30) business days, and the Co-Chairs shall alternate responsibility
for the preparation and circulation of draft minutes. Each member of the JSC
shall have the opportunity to provide comments on the draft minutes. Draft
minutes shall be approved, disapproved and revised as soon as practicable.  Upon approval, final minutes of each meeting
shall be circulated to the members of the JSC by the Co-Chairs with
responsibility for preparing such minutes.


3.5                                 Responsibilities.  In accordance with the terms and conditions
of this Agreement, the JSC shall coordinate the Parties’ efforts in the
Territory with respect to Commercialization of Licensed Product consistent with
ArQule’s clinical, regulatory and global branding strategy for Licensed
Product, by exchanging information pertinent to the overall management of
Licensed Product, as provided elsewhere in this Agreement.  More specifically, the JSC shall:


3.5.1                        coordinate and oversee all
Commercialization activities, including Clinical Development Activities,
Regulatory Activities, Sales and Marketing Activities, and Medical Affairs
Activities;


3.5.2                        review and discuss the Clinical
and Regulatory Plan and Medical Affairs Plan, and all amendments thereto as
provided in Sections 3.6 and 6.7  below,
respectively;


3.5.3                        review and discuss Licensed
Product supply, strategies, schedules and budgets and other matters that affect
Commercialization of Licensed Product in the Territory, including discussing
and approving potential Licensed Back-Up Compounds and Indications in the
Additional Field in accordance with Section 3.7 and 3.8 below, respectively;
and


3.5.4                        attempt to resolve any disputes
between the Parties in accordance with Section 3.9.


3.6                                 Clinical and Regulatory Plan. Set
forth on Exhibit D attached hereto is the written plan (the “Clinical and Regulatory Plan”), which
describes all Clinical Development Activities and Regulatory Activities to be
conducted in Japan and a timeline for the completion thereof. Not less than
once every Calendar Year during the Term, Kyowa shall prepare and submit to the
JSC, for review in accordance with this Section 3.6, an updated Clinical and
Regulatory Plan for each country in the Territory, which at such time as Kyowa
proposes to commence Clinical Development Activities and Regulatory Activities
in other countries in the Territory shall describe all such Clinical
Development Activities and Regulatory Activities to be conducted and the
timeline for completion thereof. All such updated Clinical and Regulatory Plans
shall be  reviewed and discussed by
the JSC. Kyowa will in good faith consider the reasonable comments provided by
the ArQule JSC members but will only be required to revise an updated Clinical
and Regulatory Plan if, in ArQule’s sole but reasonable opinion, an aspect of
such updated Clinical and Regulatory Plan would have, or is having, a material
adverse scientific, clinical, medical, regulatory or commercial impact on
obtaining regulatory approval for the manufacture, use or sale of Licensed
Product outside the Territory, or commercialization of Licensed Product outside
of the Territory, in which event Kyowa will revise the applicable Clinical and
Regulatory Plan and resubmit it to the JSC for review in the same manner. Kyowa
shall make commercially reasonable best efforts to carry out and perform the
plan, strategy and activities set forth in the Clinical and Regulatory Plan as
in effect from time to time within the timelines contained 



 15
 









therein.  All
decisions regarding the day-to-day conduct of Clinical Development Activities
and Regulatory Activities in accordance with the Clinical and Regulatory Plan
shall be Kyowa Decisions. Kyowa shall not engage in any Clinical Development
Activity or Regulatory Activity with respect to Licensed Product unless such
activity is described in the Clinical and Regulatory Plans.


3.7                                 Identification of Licensed Back-Up Compounds.  During the Term, ArQule will keep Kyowa
reasonably informed of its efforts to research and develop any Back-Up
Compounds.  Without limiting the
generality of the foregoing, ArQule will advise Kyowa of any potential Back-Up
Compounds that have been nominated by  *  for  * .


3.7.1                        During the Term, Kyowa shall
have the right to request in writing to ArQule that Kyowa have the right to *  in the Territory * that ArQule is researching
and developing in addition to, or in place of,  * . At Kyowa’s request, ArQule and Kyowa shall
discuss Kyowa’s request that  * have the
right to * in the Territory such *. 
Within the later of *  days of
receipt of such request or (ii)  * after
such discussion, ArQule will respond in writing as to whether or not ArQule
consents, in its sole discretion, to granting Kyowa such right. If ArQule does
not respond within the  * or  * period, or responds that it does not so
consent, then Kyowa shall not have any such right. If ArQule responds within
the * or  * that it does so consent, then
the JSC will designate such * as a
*  the rights and obligations of the
Parties relating to such * shall be identical to those applicable to  * and any reference to  * thereafter shall be deemed to include, or to
be made to, such  * , except as otherwise
expressly provided herein or if the context clearly indicates a reference
specifically to  *  Subsequent to such designation, as applicable,
the *  shall be amended.


3.7.2                        If, during the Term, ArQule
develops or obtains, with the right to grant a license to Kyowa hereunder, one or more  *  before the  * of the
first  * in the Territory or before the  * anniversary
of the Effective Date (whichever is earlier), and ArQule determines to discuss
any such  * with an  *, ArQule
will notify Kyowa of such  * and discuss such  *, with
Kyowa on substantially the same timetable as with such other  * .  If ArQule determines to Commercialize such
*  alone or with any  *  in the  * , or
*  if applicable outside the Territory, ArQule will notify Kyowa and, with consultation of the JSC, Kyowa will determine, as a Kyowa Decision, whether to *  such * in the Territory in addition to, or in
place of, *  If Kyowa determines to  * the
proposed  * in the Territory, the JSC will designate it as a *, the rights
and obligations of the Parties relating to such  * shall be identical to those applicable to * and
any reference to  *  thereafter shall be deemed to include, or to
be made to, the  *, except as otherwise
expressly provided herein or if the context clearly indicates a reference specifically
to  *. 
Subsequent to such designation, as applicable, the  * shall be amended.


3.8                                 Indications in the Additional Field.
During the Term, ArQule will keep Kyowa reasonably informed of its efforts to
research and develop any * in the Territory. Without limiting the generality of
the foregoing, ArQule will advise Kyowa of any potential  *  in
the * no later than  * with the time it
notifies any  * of such * .


3.8.1                        During the Term, Kyowa shall
have the right to request in writing to ArQule that Kyowa have the right to  * in the Territory  for an
*  not in the *.  Within  * of receipt of such request, ArQule will
respond in writing as to whether or not ArQule consents, in its sole
discretion, to 



 16
 









granting
Kyowa such right. If ArQule does not respond within the  * or responds that it does not so consent,
then Kyowa shall not have any such right. If ArQule responds within the  * that it does so consent, then the JSC will designate such * as an  * within the  * the rights and obligations of the Parties
relating to such  * shall be identical to
all previously designated *  in the * if
any, and any reference to the * thereafter shall be deemed to include such *


3.8.2                        If, during the Term, ArQule determines to discuss any  * in the  *  with an *  ArQule will notify Kyowa of such  *  in
the  *  and discuss such  * in the * with Kyowa on substantially the same timetable as with such other  *,  If ArQule determines to  *,  alone or with any *, outside the Territory for an  * not in
the *, ArQule will notify Kyowa and, with consultation of the
JSC, Kyowa will determine, as a
Kyowa Decision, whether to  * such
* in the Territory *  If Kyowa determines to  * such * in the Territory for such *, the JSC will designate it as an  * within the  * the rights and obligations of the Parties
relating to such Indication shall be identical to all previously designated  * in the  * if any, and any reference to the * thereafter
shall be deemed to include such *


3.9                                 Disputed Matters. The JSC members shall
use good faith efforts to reach agreement on any and all matters submitted to
it, including consensus on all Clinical Development Activities and Regulatory
Activities and Marketing Activities. In the event that, despite such good faith
efforts, agreement on a particular matter cannot be reached by the JSC within  *  days
after the JSC first meets to consider such matter (each such matter, a “Disputed Matter”), then, if the Disputed
Matter involves an ArQule Decision, ArQule’s representatives on the JSC shall
have the right to make the final decision on such Disputed Matter. If the
Disputed Matter involves a Kyowa Decision, then Kyowa’s representatives on the
JSC shall have the right to make the final decision on such Disputed Matter.
All other Disputed Matters shall be resolved in accordance with Article 14.


3.10                           Expenses.  Each Party shall be responsible for all
travel and related costs and expenses for its members, designees and non-JSC
invitees to attend meetings of, and otherwise participate on, the JSC.


3.11                           Informational Sessions.
Notwithstanding the foregoing, within  *  days of the Effective Date, the Parties will
finalize a schedule upon which a team of clinical, regulatory and business
development representatives from each Party (including at least one JSC member
from each Party) will have a monthly conference by telephone during the Term to
discuss Commercialization activities hereunder and events material to such
efforts, provided, that any such telephone conference may be cancelled by
agreement of the Parties.


ARTICLE 4

CLINICAL DEVELOPMENT


4.1                                 Kyowa Clinical Development Activities.
Subject to, and in accordance with, the terms and conditions of this Agreement
and the requirements of all Applicable Laws and Regulations, Kyowa shall be
responsible for, shall bear all costs of execution of, and shall use
commercially reasonable best efforts to conduct, all pre-clinical and clinical
trial activities necessary or useful for the Commercialization of Licensed
Product in the Territory as overseen by the JSC in accordance with Article 3 (“Clinical Development Activities”). Subject
to ArQule’s right to 



 17
 









make ArQule Decisions, Kyowa shall have final
decision-making authority over all Clinical Development Activities; provided
that all such Clinical Development Activities shall be conducted in accordance
with the Clinical and Regulatory Plan and coordinated by the JSC in accordance
with Article 3. Without limiting the applicability of the foregoing and the
remainder of this Article 4, Kyowa, through the JSC, shall keep ArQule timely informed
of all material events and developments occurring in the course of the Clinical
Development Activities and shall pursue the most expeditious schedule
practicable for achieving Commercial Regulatory Approval.


4.2                                 Clinical Development Data.


4.2.1                        Obligations of Kyowa.  All results of all Clinical Development
Activities and any and all other information or data generated by Kyowa or any
Third Party on behalf of Kyowa with respect to any Clinical Development
Activities (collectively, “Kyowa Clinical Data”)
shall be (a) used by Kyowa and its Affiliates to support necessary Regulatory
Approvals and Commercialization in
the Territory and (b) promptly provided by Kyowa to ArQule.


4.2.2                        Use of
Kyowa Clinical Data.  Kyowa hereby
agrees that ArQule may use Kyowa Clinical Data for the performance of its
obligations and exercise of its rights under this Agreement and that ArQule and
any Other Licensees shall have a right of access, a right of reference and a
right to use and incorporate all Kyowa Clinical Data in any regulatory filings
or for other uses in accordance with Applicable Laws and Regulations, outside
the Territory provided, however, that any Other Licensee shall not have such
right unless such Other Licensee shall agree to provide, or permit ArQule to provide,
Kyowa with copies of any NDAs or equivalent drug approval application  filed by such Other Licensee with the FDA or
EMEA in the Cancer Field.


4.2.3                        Obligations of ArQule.  During the Term, and subject to Applicable
Laws and Regulations, ArQule shall provide Kyowa with copies of all information
or data with respect to Licensed Product that is generated by ArQule or any
Third Party on behalf of ArQule, and Controlled by ArQule and necessary for
Kyowa to obtain any required Regulatory Approvals or perform such other
Regulatory Activities under this Agreement or otherwise reasonably requested in
writing by Kyowa (collectively “ArQule
Clinical Data”). ArQule Clinical Data shall be licensed to, and used
by, Kyowa solely in accordance with the license granted in Section 2.1.1.


4.2.4                        Other Licensee Data.  In any license or sublicense granted to an  * for *  and  * of
 *  in the * ArQule shall (a) include a provision
requiring such  *  to provide, or 
permit ArQule to provide, * with copies of  *  filed
by such *  in the * and grant to Kyowa a
right of access, a right of reference and the right to use and incorporate any
such * of this Agreement  and (b) use
commercially reasonable best efforts to include a provision requiring such  * to provide or permit ArQule to provide,  * with copies of any additional information or
data with respect to *  that is generated
by such * or any * on behalf of such * and owned or otherwise controlled by
such  * and necessary or useful for  * to obtain any required  * or perform such other *  under this Agreement or otherwise reasonably
requested in writing by * (collectively, the “*”) * provided to Kyowa by or on
behalf of ArQule shall be licensed to, and used by, Kyowa solely in accordance
with the license granted in Section 2.1.1, free of any additional charge.



 18
 









4.3                                 No Debarred Personnel.  In performing the Clinical Development
Activities, Kyowa shall not use the services of any employee or consultant, who
has been debarred by the FDA or any Regulatory Authority, or, to the best of
Kyowa’s knowledge, is the subject of debarment proceedings by the FDA or any
other Regulatory Authority.


4.4                                 Use of Animals.  In connection with any development or
Commercialization activities, including Clinical Development Activities
undertaken by Kyowa in connection with Licensed Product, Kyowa shall comply
with all Applicable Laws and Regulations regarding the care and use of
experimental animals. All animals used by Kyowa to evaluate ARQ 197, any
Licensed Back-Up Compound, or Licensed Product shall be provided humane care
and treatment in accordance with applicable veterinary practices.


ARTICLE 5

REGULATORY


5.1                                 Regulatory Activities.


5.1.1                        Regulatory Activities.  Subject to, and in accordance with, the terms
and conditions of this Agreement and the requirements of all Applicable Laws
and Regulations, Kyowa, at its sole cost and expense, shall use commercially
reasonable best efforts to (i) take all actions necessary and  file all Regulatory Filings with respect to
Licensed Product required to obtain Commercialization Regulatory Approval
throughout the Territory; (ii) respond in a timely fashion to requests for data
and information from Regulatory Authorities with respect to Licensed Product;
and (iii) meet with officials of Regulatory Authorities at such times as may be
requested by such Regulatory Authorities with respect to Licensed Product (“Regulatory Activities”).  Subject to ArQule’s right to make ArQule
Decisions, Kyowa shall have final decision-making authority over all Regulatory
Activities; provided that all such Regulatory Activities shall be conducted in
accordance with the Clinical and Regulatory Plan and coordinated by the JSC in
accordance with Article 3. Without limiting the applicability of the foregoing
and the remainder of this Article 5, Kyowa, through the JSC, shall keep ArQule
timely informed of all material events and developments occurring in the course
of the Regulatory Activities, including without limitation, scheduled Kyowa
regulatory strategy discussions and meetings with Regulatory Authorities in the
Territory relating to Licensed Product.


5.1.2 ArQule Assistance. Upon written request
of Kyowa, ArQule shall use Commercially Reasonable Efforts to assist Kyowa in
connection with any meetings with Regulatory Authorities in the Territory
related to Licensed Product.


5.2                                 Kyowa Regulatory Data and Regulatory Approvals.  


(a)                                  Regulatory
Filings.


(i)                                     Review.
Kyowa shall provide ArQule with summaries (in English) of all Regulatory
Filings, including synopses and patient death narratives, if any, not less than
sixty (60) days prior to filing thereof and ArQule shall have the right within
thirty (30) business days  of receipt
thereof to review and comment on any Regulatory Filings pertaining to clinical
studies and/or manufacturing of Licensed Product and Kyowa shall incorporate
into such regulatory submissions all reasonable comments thereon by
ArQule.  It is acknowledged by the
Parties that 



 19
 









given
time constraints, the Regulatory Filing actually submitted by Kyowa to a
Regulatory Authority may vary from the summaries discussed by the Parties prior
to such submission because of changes resulting from interactions with
Regulatory Authorities.


(ii)                                  Copies.
Kyowa shall provide to ArQule: (A) compact discs containing each Regulatory
Filing as submitted and all Kyowa Regulatory Data relevant thereto (in the
original language in which it was filed) promptly following such submission,
(B) summaries (in English) of each Regulatory Filing as submitted, including synopses and patient death narratives, if any, as
soon as reasonably practicable following submission thereof,  *.  ArQule and any Other Licensees, subject to
Section 4.2.4 above, shall have a right of access, a right of reference and the
right to use and incorporate all Kyowa Regulatory Data consistent with the
terms of this Agreement. Kyowa’s access to information and data of any Other
Licensee shall be governed by Section 4.2.4 hereof.


(b)                                 Ownership
of Kyowa Regulatory Data. Kyowa shall hold title to all Kyowa Regulatory
Data, including Regulatory Filings and Regulatory Approvals; provided, that,
Kyowa shall file for and obtain Regulatory Filings and Regulatory Approvals in
such manner as may be required under the Applicable Laws and Regulations of the
Territory to allow, for the expeditious transfer thereof to ArQule or ArQule’s
designee pursuant to Section 13.5 hereof upon termination of this Agreement
pursuant to Section 13.2 or 13.3.


5.3                                 Provision of Regulatory Information to Kyowa.  ArQule shall use Commercially Reasonable
Efforts to assist Kyowa in connection with its conduct of all Regulatory
Activities, including by (a) providing Kyowa with copies of the relevant
sections of any United States regulatory filings for Licensed Product filed by
or on behalf of, and Controlled by ArQule as necessary for Kyowa to make Regulatory Filings for Licensed
Product and (b) supplying or granting Kyowa the right to reference any data
Controlled by ArQule that is necessary and required by Applicable Laws and
Regulations to allow Kyowa to meet its regulatory filing obligations in the
Territory.  Kyowa shall have a right of
access, a right of reference and the right to use and incorporate all
information provided to it pursuant to this Section 5.3 solely to support its
Regulatory Activities and Commercialization of Licensed Product in the
Territory and in accordance with the terms of this Agreement.


5.4                                 Safety; Adverse Event Reporting.


5.4.1                        Pharmacovigilance and Drug
Safety Data.  Kyowa shall be
responsible, at its sole cost and expense, for: (i) collecting all
pharmacovigilance and other drug safety data for Licensed Product in the
Territory; and (ii) reporting any such data, including adverse events, to the
applicable Regulatory Authorities in the Territory, as appropriate to be in
compliance with all Applicable Laws and Regulations, including without
limitation entry into the global safety database in CIOMS format (in English).
Kyowa will provide notice, including without limitation by email, to ArQule of
such global database entries within the time period required by FDA regulations
for the type of event involved. ArQule shall have the right to review Kyowa’s
internal processes and procedures for the collection and processing of safety
data relating to Licensed Product. 
ArQule shall hold and maintain the global safety data base for Licensed
Product; provided that ArQule may agree with any Other Licensee that such Other
Licensee shall hold and maintain the global safety database for Licensed
Product.



 20















5.4.2        Safety Agreement.  On or before the earlier of (a)  * after
the  *  or (b)  *  prior to * commencement of  * , the
Parties will enter into a mutually agreeable safety agreement setting forth the
Parties’ respective obligations in detail regarding pharmacovigilance and the
exchange of drug safety data. ArQule may require that any Other Licensee be a
party to such Safety Agreement.


5.5           Recalls and Voluntary Withdrawals.
Kyowa shall submit to ArQule its internal standard operating procedures as to
product recalls and the treatment of product complaints and inquiries as to
safety, quality or efficacy reasonably in advance of the date of Commercial
Launch. If Kyowa becomes aware of information about Licensed Product indicating
that it may not conform to the Specifications or that there are potential
adulteration, misbranding and/or other issues regarding safety or
effectiveness, it shall immediately so notify ArQule.  The Parties shall promptly meet to discuss
such circumstances and to consider appropriate courses of action, including
without limitation, Licensed Product recalls. Unless agreed by the Parties in
writing Kyowa shall implement and be responsible, at its sole expense, for all
recalls of Licensed Product in the Territory, and shall maintain complete and
accurate records of any Licensed Product recall for such periods as may be
required by legal requirements, but in any event for no less than  * .


5.6           Inspection Rights. ArQule shall have
the right, on not less than  *  prior notice, to inspect the facilities of
Kyowa, its Affiliates and Sublicensees where Licensed Product is manufactured,
stored or handled and to audit the procedures of Kyowa, its Affiliates and
Sublicensees for the manufacture, storage and handling of Licensed Product for
purposes of quality control.


5.7           Governmental Inspections and Inquiries.  Kyowa shall advise ArQule promptly, but in no
event later than  *  after Kyowa’s receipt of notice thereof, of
any planned Regulatory Authority visit to the facilities of Kyowa, its
Affiliates or Sublicensees where Licensed Product is manufactured, stored or
handled or any written or oral inquiries by a Regulatory Authority concerning
such facilities, the procedures of Kyowa, its Affiliates or Sublicensees for
the manufacture, storage or handling of Licensed Product, or the
Commercialization of Licensed Product in the Territory.  Kyowa shall furnish to ArQule (a) minutes of
the inspection generated by Kyowa and translated into English promptly
following such inspection and (b) any report or correspondence (in English)
provided by Kyowa, any Affiliate or Sublicensee, as the case may be, to the
Regulatory Authority or issued by or provided by the Regulatory Authority to
Kyowa, any Affiliate or Sublicensee, as the case may be, in connection with such
visit or inquiry as soon as reasonably practicable thereafter.


5.8           ArQule Participation Right.  ArQule shall have the right, at its option,
upon written request at any time, to participate in any and all of Kyowa’s
regulatory strategy discussions and meetings with Regulatory Authorities in the
Territory relating to Licensed Product, including without limitation any such
discussions and meetings relating to final positioning of labeling and safety
claims within the original and any subsequent regulatory submissions and drug
reimbursement pricing. Kyowa shall provide reasonable prior written notice to
ArQule of any such meetings and copies of all material correspondence with
regard thereto.



 21
 









ARTICLE 6

SALES AND MARKETING; DILIGENCE OBLIGATIONS


6.1           Sales and Marketing Activities. Subject
to, and in accordance with, the terms and conditions of this Agreement and the
requirements of all Applicable Laws and Regulations, Kyowa, at its sole cost
and expense, shall have the sole responsibility, including without limitation
the determination of price for the sale Licensed Product in the Territory, and
shall use Commercially Reasonable Efforts to develop a sales force and market
and sell Licensed Product in the Territory (“Sales
and Marketing Activities”) and in any event will execute Commercial
Launch in each country in the Territory within ninety (90) days of obtaining
pricing approval  for such Licensed
Product in such country.


6.2           Marketing Plan. Without limiting the
generality of the other provisions of this Article 6, Kyowa shall prepare and
submit to ArQule a plan containing the strategy and proposed activities for
marketing and selling Licensed Product in the Territory (as updated pursuant to
this Section 6.2, the “Marketing Plan”).
Kyowa shall submit a proposed draft of the Marketing Plan to ArQule no later
than  *  prior to the anticipated Commercial Launch of
Licensed Product and shall submit a revised Marketing Plan to ArQule no later
than  *  prior to the anticipated Commercial Launch of
Licensed Product.  Kyowa shall deliver an
update of the relevant sections of the Marketing Plan from time to time during
the Term, and in no case less than once per Calendar Year. Updates to the
Marketing Plan shall reflect, among other things, each new Indication in the
Cancer Field, and Additional Field if applicable, for Licensed Product. ArQule
shall have the opportunity to comment on the proposed draft, revised and
updated Marketing Plan and Kyowa will consider such comments in good faith. All
decisions regarding the day-to-day conduct of Marketing Activities in
accordance with the Marketing Plan shall be Kyowa Decisions.


6.3           Sales Forecasts.   *  prior to the anticipated date of Commercial
Launch, Kyowa shall provide ArQule with a sales forecast which sets forth the
projected monthly sales (by quantity and estimated Net Sales) of Licensed
Product in the Territory for the  *  period commencing upon the anticipated
Commercial Launch date.  Thereafter,
Kyowa shall provide ArQule with a sales forecast on the first business day of
each April and October which sets
forth the projected monthly sales (by quantity and estimated Net Sales) of
Licensed Product in the Territory for the succeeding  *  month period; provided, that, upon the written
request of ArQule, Kyowa shall deliver such forecasts more frequently during
the Calendar Year in which Commercial Launch occurs for Licensed Product.


6.4           Interconnected Discounting.  Kyowa shall not discount the price of
Licensed Product or agree to reduce the unit volume of purchases or sales of
Licensed Product in consideration of any price increase on, the receipt of any
payment in connection with, or the entering of an arrangement for, the purchase
or sale of a product other than Licensed Product (including, without
limitation, any arrangement guaranteeing volume increases or minimum volume of
such other product), and Kyowa shall not enter into any agreement for such
purpose.


6.5           Labeling and Patent Rights Marking.  Notwithstanding the provisions of Section
2.1.4 hereof, Kyowa shall identify ArQule as the licensor or manufacturer of
the Licensed Product using the ArQule Company Trademarks designated by ArQule
for such use with reasonable 



 22
 









prominence, on the vial label, package insert, and outside of the product
packaging and in all advertising materials for Licensed Product in the
Territory in a manner approved in advance in writing by ArQule and in
accordance with the Trademark License set forth in Section 2.1.4 hereof. Kyowa shall mark all Licensed Product sold by
Kyowa with appropriate patent numbers or indicia at ArQule’s request to the
extent required and/or permitted by Applicable Laws and Regulations and,
subject to the foregoing, may, in its sole discretion, include any Kyowa
Trademarks.


6.6           Medical Affairs Activities.  Subject to, and in accordance with, the terms
and conditions of this Agreement and the requirements of all Applicable Laws
and Regulations, Kyowa shall be responsible for and shall bear all costs of
execution of all Medical Affairs Activities. Such activities shall be conducted
in accordance with the Clinical and Regulatory Plan and coordinated by the JSC
in accordance with Article 3.  If Kyowa
wishes to conduct an investigation or initiate a post-marketing clinical study
that is not specifically related to any Indication in the Cancer Field, or
Additional Field if applicable, included in the package insert for Licensed
Products, it shall provide prior written notice to the JSC, which notice shall
include a protocol for the proposed clinical study for its review and approval
pursuant to Article 3.


6.7           Medical Affairs Plan. Kyowa shall
prepare and submit to the JSC a plan containing the strategy and proposed
activities for Medical Affairs Activities (as updated pursuant to this Section
6.7, the “Medical Affairs Plan”).
Kyowa shall submit a proposed draft of the Medical Affairs Plan to the JSC no
later than  *  prior to the anticipated Commercial Launch of
Licensed Product and shall submit an updated Medical Affairs Plan to the JSC no
later than  *  prior to the anticipated Commercial Launch of
Licensed Product.  Kyowa shall deliver an
update of the relevant sections of the Medical Affairs Plan from time to time
during the Term, and in no case less than once per Calendar Year. Updates to the
Medical Affairs Plan shall reflect, among other things, each new Indication in
the Cancer Field, and Additional Field if applicable, and countries within the
Territory in which Medical Activities will be conducted for Licensed Product.
The Medical Affairs Plan and all updates shall be  reviewed and discussed by the JSC. Kyowa will in good faith
consider the reasonable comments provided by the ArQule JSC members but will
only be required to revise a Medical Affairs Plan if, in ArQule’s sole but
reasonable opinion, an aspect of such Medical Affairs Plan would have, or is
having, a material adverse scientific, clinical, medical, regulatory or
commercial impact on obtaining regulatory approval for the manufacture, use or
sale of Licensed Product outside the Territory, or commercialization of Licensed
Product outside of the Territory, in which event Kyowa will revise the
applicable Medical Affairs Plan and resubmit it to the JSC for review in the
same manner. Kyowa shall make commercially reasonable best efforts to carry out
and perform the plan, strategy and activities set forth in the Medical Affairs
Plan as in effect from time to time within the timelines contained therein. All
decisions regarding the day-to-day conduct of Medical Affairs Activities in
accordance with the Medical Affairs Plan shall be Kyowa Decisions. Kyowa shall
not engage in any Medical Affairs Activities with respect to Licensed Product
unless such activity is described in the Medical Affairs Plan.


6.8           Marketing and Promotional Literature.
All marketing and promotional literature related to Licensed Product and
prepared for use in the Territory by Kyowa shall be prepared in a manner
consistent with Applicable Laws and Regulations.  In all marketing and promotional literature,
ArQule shall be presented and described as the Party who developed the Licensed




 23
 









Product.  To the
extent practical, the ArQule name and logo shall appear in the same in size and
proximity as the Kyowa name and logo on all marketing and promotional
literature used in the Territory unless prohibited by Applicable Laws or
Regulations of the Territory.


ARTICLE 7

UPFRONT AND MILESTONE PAYMENTS


7.1           Upfront Payment. Pursuant to the CDA,
Kyowa paid to ArQule, in consideration for the rights granted to Kyowa under
this Agreement as well as other rights set forth in the CDA, the sum of three million United States dollars (US$3,000,000)
and shall pay to ArQule hereunder, within ten (10) business days following the
Effective Date, the additional sum of twenty-seven
million United States dollars (US$27,000,000).


7.2           Milestone Payments.  In consideration for the rights granted to
Kyowa under this Agreement, Kyowa shall make the following non-refundable,
non-creditable payments to ArQule within thirty (30) days after the occurrence
of each of the following milestone events for each Licensed Product that
achieves such milestone:


7.2.1        Regulatory
Milestones:


	
   Milestone
  Event

  	
   

  	
  Milestone Payment 

  (US$)

  
	
   

  	
   

  	
   

  
	
   Initiation
  of Phase 1 Clinical Trial in the Territory for first Indicationin the Cancer
  Field

  	
   

  	
  *

  
	
   

  	
   

  	
   

  
	
   Initiation
  of Phase 2 Clinical Trial in the Territory for first Indication in the Cancer
  Field

  	
   

  	
  *

  
	
   

  	
   

  	
   

  
	
   Initiation
  of Phase 3 Clinical Trial in the Territory for first Indication in the Cancer
  Field

  	
   

  	
  *

  
	
   

  	
   

  	
   

  
	
   First
  filing of Drug Approval Application for first Indication in the Cancer Field
   

   (if Phase 3 is
   required)

  	
   

  	
  *

  
	
   

  	
   

  	
   

  
	
   First
  filing of Drug Approval Application for first Indication in the Cancer Field
   

   (if Phase 3 is
   not required)

  	
   

  	
  *

  
	
   

  	
   

  	
   

  
	
   Commercial
  Launch of Licensed Product for first Indication in the Cancer Field

  	
   

  	
  *

  
	
   

  	
   

  	
   

  
	
   If, upon
  Commercial Launch in Japan the NHI Price is set at 6000 yen/day or higher:

  	
   

  	
  *

  
	
   

  	
   

  	
   

  
	
   First
  filing of Drug Approval Application for each of the second and third
  Indication in the  Cancer Field

  	
   

  	
  *

  



 



 24
 









 


	
   Commercial
  Launch of Licensed Product in the Territory for each of the second and third
   Indication in the Cancer Field

  	
   

  	
  *

  
	
   

  	
   

  	
   

  
	
   First
  filing of Drug Approval Application for each of the first, second and third
  Milestone  Additional Indication

  	
   

  	
  *

  
	
   

  	
   

  	
   

  
	
   Commercial
  Launch of Licensed Product in the Territory for each of the first, second and
   third Milestone Additional Indication

  	
   

  	
  *

  



 


7.2.2        Sales
Milestones.  In addition to the
milestone payments contemplated by Section 7.2.1, Kyowa shall make each of the following non-refundable,
non-creditable one-time only payments
to ArQule within sixty (60) days after the first occurrence of the
corresponding milestone event during the Term for all Licensed Products for all
Indications in the Territory in the aggregate in any single Calendar Year:


	
   Milestone
  Event  

  (US$) (Sales
  Milestone Payments are one-time only payments)

  	
   

  	
  Milestone Payment 

  (US$)

  
	
   Net Sales
  greater than *

  	
   

  	
  *

  
	
   Net Sales
  greater than *

  	
   

  	
  *

  
	
   Net Sales
  greater than *

  	
   

  	
  *

  
	
   Net Sales
  greater than *

  	
   

  	
  *

  



For purposes of
determining when sales milestones are achieved under this Section 7.2.2, Net Sales shall be calculated each
month in the currency in which it was paid to Kyowa, its Affiliates or
Sublicensees, as the case may be, and will be translated monthly into United
States dollars in accordance with Section 7.9 hereof.  Each month’s calculated Net Sales in United
States dollars will then be added to the previous month’s cumulative United
States dollar total. When such a sales milestone has been achieved will be
determined as of the last day of each month, and payment of sales milestone
payments will be made within thirty (30) calendar days following such date.


7.2.3        If
at the time any given milestone payment is due, one or more preceding milestone
payments have not been paid, then payment for all preceding unpaid milestone
payments shall be paid at such time as well.


7.3           Royalties. In consideration for the
rights granted to Kyowa under this Agreement, Kyowa shall pay ArQule during the
Royalty Term for each Licensed Product and country in the Territory and, if
appropriate, each Indication in the Additional Field, a royalty based on the Net Sales within a single Calendar Year of all Licensed Products sold by
Kyowa, its Affiliates, Sublicensees and wholesalers during such Calendar Year, at the following rates:


	
   Net
  Sales 

   (US$)

  	
   

  	
  Royalty 

  (%)

  
	
   Under *

  	
   

  	
  *

  
	
   * - *

  	
   

  	
  *

  
	
   * -
  *

  	
   

  	
  *

  
	
  Greater than*

  	
   

  	
  *

  



 


 



 25
 









By way of
example, if Net Sales in
any particular Calendar Year were equal to $ * the royalty due would be equal  $*  which is calculated as $ * + $ * + $ * +
$ *. The calculation of
Net Sales begins from  *  for each new Calendar Year.


Each royalty
payment shall be non-refundable and non-creditable against any other payments
due hereunder unless expressly set forth herein otherwise. For purposes of
determining when a sale of any Licensed Product occurs under this Section 7.3,
the sale shall be deemed to occur on the earlier of (a) the date the Licensed
Product is shipped or (b) on the date of the invoice to the purchaser of the
Licensed Product. Each royalty payment shall be accompanied by a report for
each country in the Territory in which sales of Licensed Products occurred in
the Calendar Quarter covered by such statement, specifying: the gross sales (if
available) and Net Sales in each country’s currency; the applicable royalty
rate under this Agreement; the royalties payable in each country’s currency,
including an accounting of deductions taken in the calculation of Net Sales;
the applicable exchange rate to convert from each country’s currency to United States
dollars under  Section 7.9; and the
royalties payable in United States dollars.


7.4            Combination Products.


7.4.1        In the event that a Licensed Product is sold as part of a
Combination Product, where “Combination
Product” means any unified
dose (e.g. not a kit of two separate and distinct drug dosage forms) of pharmaceutical
product which is comprised of Licensed Product and other therapeutically active
compound(s) and/or ingredients (collectively the “Other Products”), Net Sales of Licensed Product, for the
purposes of determining royalty payments, shall be determined by multiplying
the Net Sales of the Combination Product by the fraction, A / (A+B) where A is
the weighted average sale price of the Licensed Product when sold separately in
finished form, and B is the weighted average sale price of the Other Products
sold separately in finished form, in each case in the country of sale of the
Combination Product in the Calendar Quarter of such sale. In the event that no
separate sales are made of either the Licensed Product or the Other Products,
the reasonably estimated commercial value thereof will be used instead of the
sale price. Each of “weighted average sale price” and “reasonably estimated
commercial value” shall be determined in accordance with Section 7.4.2 below,


7.4.2        “Weighted average sale
price” and “reasonably estimated commercial value,” as the case may be, for a
Licensed Product and Other Products shall be calculated once at the
commencement of each Calendar Year and such amount shall be used during all
applicable royalty reporting periods for the entire following Calendar Year.
When determining the weighted average sale price of a Licensed Product or Other
Products, the weighted average sale price shall be calculated by dividing the
Net Sales (translated into U.S. dollars in accordance with Section 7.9 hereof)
by the units of active ingredient sold during the twelve (12) months (or the
number of months sold in a partial Calendar Year) of the preceding Calendar
Year for the respective Licensed Product or Other Products. “Estimated
commercial value” shall be determined by agreement of the Parties using
criteria to be mutually agreed upon by the Parties. If the Parties do not
agree, such dispute shall be resolved in accordance with Section 14.2 hereof.
In the Initial Calendar Year, a forecasted weighted average sale price will be
used for the License Product and Other Products, if applicable. Any over or
under payment due to a difference between forecasted 



 26
 









and actua€l
weighted average sale prices will be paid or credited in the first royalty
payment of the following Calendar Year.


7.5           Competitive Generic Licensed Product.
Royalties will be paid regardless of the patentability of the Licensed Product;
provided, that, if patents fail to issue or expire such that no Valid Claim
covers the Licensed Product in a country in the Territory and a competitor
offers a generic version of the Licensed Product that captures a greater than  *  share of the aggregate market of the combined generic
version and Licensed Product in such country (measured on a product volume basis rather than dollar sales amount
basis), then the royalty rates in such country due shall be reduced by  *  of the amounts set forth in Section 7.3 above. For purposes of this Section
7.5, the royalty rate(s) payable to ArQule with respect to Net Sales of a
Licensed Product in a given country (before the  *  reduction) shall be deemed to be the rate(s)
which would apply if Net Sales of such Licensed Product in such country subject
to each of the royalty rates under Section 7.3 were proportional to Net Sales
of such Licensed Product in all countries subject to each of the royalty rates
under Section 7.3.  For clarity, an
example of the application of the preceding sentence is as follows: If sales in
a calendar year in countries without generic products capturing more than  * are
$ * and sales in
countries with generic products capturing more than  * are *, the royalties will  *  calculated as follows:  $* + $* + $*


7.6           Third Party Licenses.


7.6.1        Preexisting Third Party Licenses. ArQule
shall pay  *  of all payments owed to Third Parties for
licenses related to Licensed Product under (a) agreements existing as of the
Effective Date between ArQule and such Third Parties, (b) any other license between
ArQule and Third Parties relating to other Patent Rights of Third Parties that
ArQule and Kyowa agree upon from time to time (“Additional
Rights”), and (c) any agreement in existence as of the Effective
Date between ArQule and a Third Party relating to Patent Rights for Patient
Selection.


7.6.2        Other Rights. In
the event that (unrelated to Additional Rights) during the Term ArQule obtains
a license covering the manufacture, use or sale of Licensed Product pertaining
to the Territory, Kyowa shall reimburse ArQule  *  of all payments made by ArQule under such
license to the extent such payments pertain to the Territory, including without
limitation, licensee fees, milestones and royalties. In the event of license
fees or milestone payments that are not allocated to specific territories, a
portion of such payments will be deemed to pertain to the Territory equal to
the ratio of the total sales of cancer therapeutic products in the Territory to
total worldwide sales of cancer therapeutic products during the Calendar Year
preceding the payment as determined from  *  published data. ArQule shall keep Kyowa reasonably informed of all material developments
regarding negotiations with, and payments to, Third Parties regarding such
reimbursable payments. All material matters relating to such Third Party
reimbursable payments and calculations shall be discussed in good faith between
the Parties.


7.7           Method of Payment.  Unless otherwise expressly provided, Kyowa
shall make royalty payments owed to ArQule hereunder in arrears, within  *  from the end of each Calendar Quarter in which
such payment accrues.  For purposes of
determining when a sale of any Licensed Product occurs under this Agreement,
the sale shall be deemed to occur on the earlier of (a) the date the Licensed
Product is shipped or (b) on the date of the invoice to the purchaser of the 



 27
 









Licensed
Product.  All payments due to ArQule
hereunder, including upfront, milestone, royalty and Licensed Product supply
payments, shall be made by wire transfer of immediately available funds in
United States dollars to a bank account or bank accounts designated by ArQule.


7.8           Interest on Overdue Payments.  Any amounts not paid by either Party when due
under this Agreement shall be subject to interest from and including the date
payment is due through and including the date upon which such Party makes such
payment at a rate equal to the sum of  *  quoted in the Money Rates section of the Wall Street Journal (New York Edition)
calculated daily on the basis Applicable Laws and Regulations.


7.9           Foreign Currency Exchange.  Conversion of foreign currency to United
States dollars shall be made by applying the average of the rates published in
the eastern edition of The Wall Street
Journal under the heading “Money Rates,” or any other mutually
agreed upon source, over the period of each month within each Calendar Quarter
to the Net Sales that was deemed sold during such month.


7.10         Withholding Taxes.  If Applicable Laws and Regulations require
withholding of income or other taxes imposed upon any payments made by Kyowa to
ArQule under this Agreement, Kyowa shall make such withholding payments as may
be required and shall subtract such withholding payments from such
payments.  Kyowa shall submit appropriate
proof of payment of the withholding taxes to ArQule within a reasonable period
of time. Kyowa shall render ArQule reasonable assistance in order to allow
ArQule to obtain the benefit of any present or future treaty against double
taxation which may apply to such payments.


ARTICLE 8

ARQULE SUPPLY OF LICENSED PRODUCT;
SPECIFICATIONS


8.1           ArQule Obligation to Supply Clinical Trial Materials.


8.1.1        ArQule Obligation. Subject to the terms
and conditions of this Agreement, ArQule shall use Commercially Reasonable
Efforts to supply Kyowa with quantities of Licensed Product necessary to
support clinical trials conducted by Kyowa as part of its Clinical Development
Activities, or otherwise with the consent of ArQule, at a transfer price equal
to the Manufacturing Cost, exclusive of costs of API and Licensed Product
process improvements developed by ArQule or a Third Party on behalf of ArQule;
for such Licensed Product.  Kyowa shall
use Licensed Product solely to conduct its Clinical Development Activities and
shall not use such Licensed Product for commercial supplies or for any other
purpose.


8.1.2        Third Party Manufacturer.  Kyowa hereby acknowledges and agrees that
ArQule shall be entitled, at its discretion, to perform any or all of its
obligations under this Article 8 by subcontracting any or all of such
obligations to Third Party contract manufacturers (each, a “Third Party Manufacturer”) in any country;
provided, that, any such manufactured Licensed Product meets the
Specifications.


8.1.3        Delivery by ArQule.  ArQule shall (a) deliver the Licensed Product
FOB ArQule’s or a Third Party Manufacturer’s facility, (b) arrange delivery of
Licensed Product and insurance covering Licensed Product during delivery
pursuant to Kyowa’s written instructions 



 28
 









and (c)
use Commercially Reasonable Efforts to deliver all Licensed Product by the
dates agreed upon by the Parties in writing (each, a “Delivery”). 
Title to and risk of loss in Licensed Product shall pass to Kyowa upon
delivery to the common carrier for delivery to Kyowa.  Kyowa shall be responsible for freight,
delivery and insurance charges incurred in delivering the Licensed Product to
Kyowa’s designated delivery destination.


8.1.4        Responsibility of Kyowa.  Kyowa shall have the responsibility, at its
own expense, for (i) obtaining any necessary export and import permits; (ii)
all customs, duties and other governmental charges relating to import of Licensed Product from ArQule
to Kyowa; (iii) the importation and sale of Licensed Product in the Territory;
(iv) storing and clearing Licensed Product through all customs and exportation
and importation requirements; (v) having Licensed Product delivered to Kyowa’s
labeling and packaging facility; and (vi) conducting all quality control
testing, retention of samples and lot release, labeling and packaging of
Licensed Product for distribution in the Territory, all in full compliance with
all Applicable Laws and Regulations.


8.1.5        Nonconforming Licensed Product.


(a)           Acceptance and Rejection by Kyowa.  Each shipment of Licensed Product shall
contain such quality control certificates and other documentation as are
necessary to show that Licensed Product materially conforms to the
Specifications at the time of Delivery. 
In the event that Kyowa determines within thirty (30) days of Delivery
that any Licensed Product did not materially conform with the Specifications at
the time of Delivery, Kyowa shall, within ten (10) days following such
determination, ship all units of such Licensed Product to ArQule, freight
prepaid and properly insured, along with a reasonably detailed statement of the
claimed non-conformity and proof of date of purchase.


(b)           Replacement by ArQule.  In the event that ArQule determines that the
returned Licensed Product was non-conforming, ArQule shall replace all of such
non-conforming units of Licensed Product, at no cost to Kyowa, and ArQule shall
deliver to Kyowa, freight prepaid, all replacement units of Licensed Product,
along with reimbursement of the shipment charges for return of the
non-conforming Licensed Product.


(c)           Disputes Over Non-Conforming Licensed Product.  In the event that any returned Licensed
Product is determined by ArQule to have been improperly rejected by Kyowa, the
Parties shall cooperate to have retained samples in ArQule’s possession of the
units of Licensed Product in dispute analyzed by a mutually acceptable
independent testing laboratory of recognized reputation in the pharmaceutical
industry.  The results of such laboratory
testing shall be conclusive and binding on the Parties on the issue of material
compliance of such units of Licensed Product with the Specifications at the
time of Delivery.  If such independent
testing laboratory determines that such Licensed Product meets the
Specifications, then (i) the units of Licensed Product returned by Kyowa shall
be deemed to have been improperly rejected by Kyowa, (ii) Kyowa shall bear the
cost of the independent laboratory testing and all costs and expenses of
returning the improperly rejected Licensed Product to Kyowa and (iii) Kyowa
shall reimburse ArQule for all costs and expenses incurred by ArQule in
connection with the inspection and analysis of such Licensed Product.  If such independent testing laboratory
determines that such Licensed Product did not materially conform to the
Specifications, then 



 29
 









ArQule
shall bear the cost of the laboratory testing, as well as the costs associated
with properly-rejected Licensed Product described in subsection (b) above.


(d)           Sole Remedy.  The remedies provided in this Section 8.1.5
for the replacement of properly-rejected Licensed Product shall be Kyowa’s sole
and exclusive remedy for the delivery by ArQule of non-conforming Licensed
Product.


(e)           No Liability.  In no event shall ArQule be liable under this
Section 8.1.5 for Licensed Product that materially conformed to the Specifications
at the time of Delivery but that ceased to materially conform to the
Specifications as a result of any circumstance, action or omission following
Delivery.


8.1.6        Invoice and Payment. ArQule shall
invoice Kyowa for each shipment of Licensed Product upon shipment to
Kyowa.  Kyowa shall pay each invoice
within thirty (30) days of the date of the invoice,
subject to the provisions of Sections 7.7, 7.8, and 7.10 hereof.


8.2           Supply of Licensed Product for Commercial Sale.  Kyowa shall have the right to request at
anytime during the Term following Commercialization Regulatory Approval that
ArQule manufacture, or have manufactured by a Third Party, and supply all or
some of Kyowa’s needs for commercial supply of Licensed Product and/or API. If
ArQule agrees, the Parties shall negotiate in good faith the terms of such
commercial supply agreement (the “Supply
Agreement”); provided, that, the price shall be equal to  *  of the Manufacturing Cost for such Licensed
Product or API, as the case may be. ArQule shall (a) deliver the Licensed
Product FOB ArQule’s or a Third Party Manufacturer’s facility, (b) arrange
delivery of Licensed Product and insurance covering Licensed Product during
delivery pursuant to Kyowa’s written instructions and (c) use Commercially Reasonable
Efforts to make each Delivery by the dates agreed upon by the Parties in
writing.  Title to and risk of loss in
Licensed Product shall pass to Kyowa upon delivery to the common carrier for
delivery to Kyowa.  Kyowa shall be
responsible for freight, delivery and insurance charges incurred in delivering
the Licensed Product to Kyowa’s designated delivery destination. In the event
that the price charged to Kyowa exceeds  * of the *,
ArQule shall proportionally reduce the price charged to Kyowa; provided, that,
in no event shall the price be less than  *  of the Manufacturing Cost. Kyowa may at any time without condition during the
Term elect to manufacture or have
manufactured Licensed Product and/or API for Commercialization in the Territory, in which case ArQule shall transfer its manufacturing technology to
Kyowa or a Third Party designated by Kyowa, at Kyowa’s expense and subject to a
royalty-free Technology Transfer Agreement to be negotiated in good faith by
the Parties and any Third Party designated by Kyowa.


8.3           Specifications.  Initially, the “Specifications” shall be the
specifications for Licensed Product set forth in Exhibit F attached
hereto.


8.3.1        Changes by ArQule. Subject to the
conditions herein, ArQule shall be entitled, at its sole cost, to change the
Specifications if such change is necessary to keep the specifications of all
units of Licensed Product consistent or identical as between the Territory and
countries outside of the Territory. Before making a decision to proceed with
any such change in Specifications or any material change in Licensed Product
and/or API manufacturing process, regardless of whether before or after the
Commercial Launch, such change must first be



 30















discussed
at the JSC to enable a thorough assessment of its impact, including potential
unexpected or unintended ramifications. 
If such change is ultimately deemed necessary or advisable by ArQule in
its sole but reasonable discretion, ArQule shall regardless of whether before
or after the Commercial Launch, give advance written
notice of implementation of such change to Kyowa with a lead time reasonably sufficient for Kyowa to apply for, and obtain,
required approval of such change from the Regulatory Authority. If Kyowa
is unable to obtain such approval from Regulatory Authorities in any country in
the Territory for such change, Kyowa will provide written notice thereof to
ArQule and Kyowa shall have the right to manufacture or have manufactured Licensed Products and/or API, ArQule shall
transfer its manufacturing technology to Kyowa or a Third Party designated by
Kyowa, at Kyowa’s expense and subject to a royalty-free Technology Transfer
Agreement to be negotiated in good faith by the Parties and any Third Party
designated by Kyowa. ArQule shall not be required to manufacture or
deliver to Kyowa any units of Licensed Product that do not conform to the
Specifications, as modified by ArQule nor shall Kyowa have any right or license
to make, use or sell any Licensed Product that does not either conform to the
Specifications, as modified by ArQule or conform to the Specifications as they
existed prior to such modification.


8.3.2        Change Requests by Kyowa. At any time
and from time to time during the Term, Kyowa may request an update to the
Specifications based on the requirements of a Regulatory Authority in the
Territory.  Following receipt of such
request, ArQule shall notify Kyowa whether such update is technically feasible,
commercially feasible and consistent with requirements of Regulatory Approvals
in countries outside the Territory. If the update is not technically feasible,
commercially feasible and consistent with requirements of Regulatory Approvals
in countries outside the Territory, ArQule will provide written notice thereof
to Kyowa and Kyowa shall have the right to manufacture or have manufactured Licensed Products and/or API, ArQule shall
transfer its manufacturing technology to Kyowa or a Third Party designated by
Kyowa, at Kyowa’s expense and subject to a royalty-free Technology Transfer
Agreement to be negotiated in good faith by the Parties and any Third Party
designated by Kyowa. If the update, in ArQule’s sole discretion, is
technically feasible, commercially feasible and consistent with requirements of
Regulatory Approvals in countries outside the Territory, ArQule shall update
the Specifications accordingly and the costs of such update (the “Specification Update Costs”) shall be paid
by Kyowa. ArQule shall not be required to manufacture or deliver to Kyowa any
units of Licensed Product that do not conform to the Specifications, as
modified by ArQule nor shall Kyowa have any right or license to make, use or
sell any Licensed Product that does not conform to the Specifications as
modified by ArQule or as they existed prior to such modification.


ARTICLE 9

RECORDS AND REPORTING


9.1           Reports.  Kyowa shall provide reports to ArQule within  * of
the end of each Calendar Quarter during the Term, which shall include:


9.1.1        information to demonstrate Kyowa’s compliance
with its Commercialization obligations under this Agreement during such
Calendar Quarter, including reports of all Clinical Development Activities,
Regulatory Activities, and Marketing Activities by Kyowa to date;



 31
 









9.1.2        Kyowa’s gross revenues from sales of Licensed
Product and the number of units of Licensed Product sold by Kyowa during such
Calendar Quarter;


9.1.3        Kyowa’s Net Sales of
Licensed Product made in such Calendar Quarter, including a detailed
calculation thereof as described in Sections 7.3, 7.4 and 7.5 hereof; and


9.1.4        any other information reasonably requested by
ArQule.


9.2           Records.  Kyowa shall keep and maintain complete and
accurate books and records with respect to Kyowa’s Commercialization of
Licensed Product in the Territory, including without limitation information in
support of Kyowa’s reports under Section 9.1, information necessary to permit
calculation and verification of amounts due hereunder, and information to
demonstrate Kyowa’s compliance with its diligence obligations under Articles 4,
5 and 6.  Kyowa shall maintain such books
and records for at least  *  after the applicable book or record was
created.


9.3           Audits. 
Upon not less than  *  prior written notice to Kyowa, ArQule may
cause an independent agent to audit the books and records of Kyowa for the
purposes of confirming Kyowa’s reports and the amounts due hereunder and as may
be necessary to comply with ArQule’s obligations under Applicable Laws and
Regulations or with a request made by any governmental authority.  Any such audit shall be performed at ArQule’s
expense during normal business hours.  In
the event that the independent agent determines that there has been an
underpayment of amounts due to ArQule, Kyowa shall promptly remit to ArQule all
amounts due.  If such an audit reveals
that Kyowa has underpaid ArQule or under-reported gross sales by greater than
the lesser of (a)  *  or (b)  * , then Kyowa
shall reimburse ArQule for the costs of such audit.


ARTICLE 10


INTELLECTUAL PROPERTY PROVISIONS


10.1         Ownership; Control.


10.1.1      ArQule Intellectual Property Rights.  Subject to the license grants pursuant to
Section 2.1 above, ArQule shall have sole and exclusive ownership of all right,
title and interest on a worldwide basis in and to any and all ArQule Technology
and ArQule Patent Rights.


10.1.2      Kyowa Intellectual Property Rights.  Subject to the license grant pursuant to
Section 2.6 above, Kyowa shall have sole and exclusive ownership of all right,
title and interest on a worldwide basis in and to any and all Kyowa Technology
and Kyowa Patent Rights.


10.1.3      Joint Technology Rights.  Subject to the exclusive license grants
pursuant to Sections 2.1 and 2.6 above, Kyowa and ArQule shall jointly own all
Joint Technology and Joint Patent Rights and the Parties hereby agree that
either Party may use or license or sublicense to Affiliates or Third Parties
all or any portion of its interest in Joint Technology or Joint Patent Rights
for any purposes inside or outside the Cancer Field and Territory without the
prior written consent of the other Party, without restriction and without the
obligation to provide compensation to the other Party.



 32
 









10.1.4      Patent Coordinators.  ArQule and Kyowa shall each appoint a patent
coordinator reasonably acceptable to the other Party (each, a “Patent Coordinator”) to serve as such Party’s
primary liaison with the other Party on matters relating to patent filing,
prosecution, maintenance and enforcement. Each Party may replace its Patent
Coordinator at any time by notice in writing to the other Party.  The initial Patent Coordinators shall be:


	
  For ArQule:

  	
   

  	
  Peter Lawrence

  
	
   

  	
   

  	
  Executive Vice President, CBO and General Counsel

  
	
   

  	
   

  	
  Email: plawrence@arqule.com

  
	
   

  	
   

  	
  Phone: 781-994-0409

  
	
   

  	
   

  	
  Fax: 781-994-0657

  
	
   

  	
   

  	
   

  
	
  For Kyowa:

  	
   

  	
  Ryohei Shimizu

  
	
   

  	
   

  	
  Senior Manager

  
	
   

  	
   

  	
  Intellectual Property Department

  
	
   

  	
   

  	
  Email: ryouhei.shimizu@kyowa.co.jp

  
	
   

  	
   

  	
  Phone: +81-3-3282-0036

  
	
   

  	
   

  	
  Fax: +81-3-3282-1527

  



 


10.1.5      Inventorship.  In case of a dispute
between ArQule and Kyowa over inventorship and, as a result, whether any
particular Technology is ArQule Technology, Kyowa Technology, Joint Technology,
or Program Technology, such dispute shall be resolved by patent counsel who
(and whose firm) is not at the time of the dispute, and was not at any time
during the  *  prior to such dispute, performing services for
either of the Parties, such patent counsel to be selected by the JSC.  Expenses of such patent counsel shall be
shared equally by the Parties.


10.1.6      Control of Patent Rights.


(a)           ArQule.
ArQule, at its sole expense and acting through patent counsel or agents of its
choice, shall be responsible for the preparation, filing, prosecution and
maintenance of all ArQule Patent Rights and Joint Patent Rights in the
Territory. ArQule will use Commercially Reasonable Efforts to timely provide to
Kyowa all material documents that relate to such filing, prosecution and
maintenance. ArQule shall promptly give notice to Kyowa of the allowance,
grant, lapse, revocation, surrender, invalidation or abandonment of any ArQule
Patent Rights and Joint Patent Rights. At ArQule’s request and expense, Kyowa
shall cooperate with and assist ArQule in all reasonable respects, at ArQule’s
expense, in connection with ArQule’s preparation, filing, prosecution and
maintenance of such ArQule Patent Rights and Joint Patent Rights.


(b)           Kyowa.  Kyowa, at its sole expense and acting through
patent counsel or agents of its choice, shall be responsible for the
preparation, filing, prosecution and maintenance of all Kyowa Patent Rights.
Kyowa will use Commercially Reasonable Efforts to timely provide to ArQule all
material documents that relate to such filing, prosecution and maintenance.
Kyowa shall promptly give notice to ArQule of the allowance, grant, lapse,
revocation, surrender, invalidation or abandonment of any Kyowa Patent Rights.
At Kyowa’s request and expense, ArQule shall cooperate with and assist Kyowa in
all reasonable respects, at Kyowa’s expense, in 



 33
 









connection
with Kyowa’s preparation, filing, prosecution and maintenance of such Kyowa
Patent Rights.


10.1.7      Information and Cooperation. 
Each filing Party shall (a) regularly provide the other Party with
copies of all patent applications filed hereunder for Program Technology and
material correspondence with regard thereto in sufficient time to allow for
review and comment by the other Party; and (b) provide the other Party and its
patent counsel with an opportunity to consult with the Party and its patent
counsel regarding the filing and contents of any such application, amendment,
submission or response, and the advice and suggestions of the other Party and
its patent counsel shall be taken into consideration in good faith by such
Party and its patent counsel in connection with such filing.  Each filing Party shall pursue in good faith
all reasonable claims requested by the other Party in the prosecution of any
Patent Rights under this Section 10.1.


10.1.8      Abandonment.


(a) Kyowa Patent Rights covering any Program
Technology. If Kyowa decides to abandon or to allow to lapse any of the
Kyowa Patent Rights covering any Program Technology outside the Territory,
Kyowa shall inform ArQule of such decision promptly and, in any event, so as to
provide ArQule a reasonable amount of time to meet any applicable deadline to
establish or preserve such Kyowa Patent Rights in such country or region.  ArQule shall have the right to assume
responsibility for continuing the prosecution of such Kyowa Patent Rights in
such country or region and paying any required fees to maintain such Kyowa
Patent Rights in such country or region or defending such Kyowa Patent Rights,
only at ArQule’s sole expense, through patent counsel or agents of its
choice.  ArQule shall not become an
assignee of any such Patent Rights as a result of its assumption of any such
responsibility.  Upon transfer of Kyowa’s
responsibility for prosecuting, maintaining and defending any of the Kyowa
Patent Rights to ArQule under this Section 10.1.8(a), Kyowa shall promptly
deliver to ArQule copies of all necessary files related to the Patent Rights
with respect to which responsibility has been transferred and shall take all
actions and execute all documents reasonably necessary for ArQule to assume
such prosecution, maintenance and defense.


(b) Joint Patent Rights covering any Program Technology.
If ArQule decides to abandon or to allow to lapse any of the Joint Patent
Rights covering any Program Technology in any country or region in the
Territory ArQule shall inform Kyowa of such decision promptly and, in any
event, so as to provide Kyowa a reasonable amount of time to meet any
applicable deadline to establish or preserve such Joint Patent Rights in such
country or region. Kyowa shall have the right to assume responsibility for
continuing the prosecution of such Joint Patent Rights in such country or
region and paying any required fees to maintain such Joint Patent Rights in
such country or region or defending such Joint Patent Rights, only at Kyowa’s
sole expense, through patent counsel or agents of its choice.  Kyowa shall not become an assignee of any
such Patent Rights as a result of its assumption of any such
responsibility.  Upon transfer of ArQule’s
responsibility for prosecuting, maintaining and defending any of the Joint
Patent Rights to Kyowa under this Section 10.1.8(b), ArQule shall promptly
deliver to Kyowa copies of all necessary files related to the Patent Rights
with respect to which responsibility has been transferred and shall take all
actions and execute all documents reasonably necessary for Kyowa to assume such
prosecution, maintenance and defense.



 34
 









(c)           ArQule
Patent Rights. If ArQule decides to abandon or to allow to lapse any of the
ArQule Patent Rights in any country or region in the Territory, ArQule shall
inform Kyowa of such decision promptly and, in any event, so as to provide
Kyowa a reasonable amount of time to meet any applicable deadline to establish
or preserve such ArQule Patent Rights in such country or region and the Parties
will discuss in good faith the reasons for such abandonment or lapse. Subject
to ArQule’s consent, which consent will not be unreasonably withheld, Kyowa
shall have the right to assume responsibility for continuing the prosecution of
such ArQule Patent Rights in such country or region and paying any required
fees to maintain such ArQule Patent Rights in such country or region or
defending such ArQule Patent Rights, in only at Kyowa’s sole expense, through
patent counsel or agents of its choice; provided, that, in no event will ArQule
be required to give consent to Kyowa if, in ArQule’s sole judgment, the
position or line of reasoning that would be expected to be taken in the
prosecution of such ArQule Patent Rights would be inconsistent with the
position or line of reasoning ArQule wishes to take in any other patent
prosecution or would otherwise be inconsistent with ArQule’s global patent
strategy. If Kyowa is granted the right by ArQule to assume such responsibility
for such ArQule Patent Rights, Kyowa shall not become an assignee of any such
Patent Rights as a result of its assumption of any such responsibility. Upon
transfer of ArQule’s responsibility for prosecuting, maintaining and defending
any of the ArQule Patent Rights to Kyowa under this Section 10.1.8(c), ArQule
shall promptly deliver to Kyowa copies of all necessary files related to the
Patent Rights with respect to which responsibility has been transferred and
shall take all actions and execute all documents reasonably necessary for Kyowa
to assume such prosecution, maintenance and defense.


10.2         Enforcement of Intellectual Property.


10.2.1      Notice. 
In the event either Party becomes aware of any possible infringement in
the Territory of any ArQule Patent Rights or Patent Rights covering Program
Technology or a Licensed Product, or the submission by any Third Party of an
application for approval to market a product containing ARQ 197 or a Licensed
Back-Up Compound in the Territory (an “Infringement”),
that Party shall promptly notify the other Party and provide it with all
evidence of such Infringement of which it is aware (each, an “Infringement Notice”).


10.2.2      Rights of the Parties.  As between the Parties, ArQule shall have the
first right, but not the obligation, to commence a lawsuit or take other
appropriate action against any person or entity engaged in an Infringement.  If ArQule commences a lawsuit or takes other
action against a Third Party regarding the Infringement, ArQule shall control
such action using counsel of its choosing, and shall keep Kyowa reasonably
informed of the progress of such suit or action.  If ArQule has not commenced a lawsuit or
taken other appropriate action as to an Infringement in the Territory, or
otherwise has not caused the cessation of such Infringement, by the date that
is  *  after the first notice to ArQule under 10.2.1
with respect to such Infringement, then Kyowa shall have the right to commence
a lawsuit or take other appropriate action to seek the cessation of such
Infringement.  If Kyowa elects to enforce
any ArQule Patent Rights against such Infringement, Kyowa shall so notify
ArQule in writing, and shall promptly bring a suit or other appropriate legal
action to enforce such ArQule Patent Rights against the Third Party infringer,
at Kyowa’s expense and using counsel of Kyowa’s choosing.  The enforcing Party shall keep the other
Party regularly informed of the status and progress of such enforcement efforts
and shall reasonably consider the other Party’s comments on any such
efforts.  Neither Party shall settle 



 35
 









any
Infringement claim or proceeding under this Section 10.2.2 without the prior written
consent of the other Party, which consent shall not be unreasonably withheld,
conditioned or delayed.


10.2.3      Right to Representation.  Each Party shall have the right to be
represented by counsel that it selects in any legal proceedings or other action
instituted under this Section 10.2 by the other Party.  If a Party with the right to initiate legal
proceedings under Section 10.2.2 to eliminate an Infringement lacks standing to
do so and the other Party has standing to initiate such legal proceedings, then
the Party with standing shall initiate such legal proceedings at the request
and expense of the other Party.


10.2.4      Cooperation of the Parties.  In any action, suit or proceeding instituted
under this Section 10.2, the Parties shall cooperate with and assist each other
in all reasonable respects.  Upon the
reasonable request of the Party instituting such action, suit or proceeding,
the other Party shall join such action, suit or proceeding and shall be represented
using counsel of its own choice, at the requesting Party’s expense.


10.2.5      Recoveries. Any damages, monetary awards
or other amounts recovered, whether by judgment or settlement, pursuant to any
suit, proceeding or other legal action taken under this Section 10.2, shall be
applied as follows:


(a)           First,
to reimburse the Parties for their respective costs and expenses (including
reasonable attorneys’ fees and costs) incurred in prosecuting such enforcement
action;


(b)           Second, (i) if ArQule
is the Party bringing such suit or proceeding or taking such other legal
action,  *  to ArQule and  *  to Kyowa, (ii) if Kyowa is the Party bringing
such suit or proceeding or taking such other legal action,  *  to Kyowa and  *  to ArQule, and (c) if the suit is brought
jointly,  *  to each Party.


ARTICLE 11

CONFIDENTIALITY, PUBLICATION AND PUBLICITY


11.1         Nondisclosure Obligation.  All Proprietary Information disclosed by or
on behalf of one Party to the other Party hereunder shall be maintained in
confidence by the receiving Party and shall not be disclosed to a Third Party
or used for any purpose whatsoever during the Term and for a period of ten (10)
years thereafter without the prior written consent of the other Party, except
to the extent that such Proprietary Information:


11.1.1      is known by recipient at the time of its receipt,
and not through a prior disclosure by or on behalf of the disclosing Party, as
documented by contemporaneous business records;


11.1.2      is properly in the public domain through no fault
of the recipient;


11.1.3      is subsequently disclosed to the recipient by a
Third Party who may lawfully do so and is not directly or indirectly under an
obligation of confidentiality to the disclosing Party, as documented by written
business records in existence prior to the receipt of such information from the
disclosing Party;



 36
 









11.1.4      is developed by the recipient independently of,
and without reference to or use of, Proprietary Information received from the
disclosing Party;


11.1.5      is information a Party reasonably believes based
on advice of outside securities counsel is required to be disclosed to
governmental or other regulatory agencies in order to obtain patents, to obtain
approval to conduct clinical trials or to market Licensed Product, or to comply
with applicable NASDAQ, Securities Exchange or Securities and Exchange
Commission regulations; provided however, that: (i) such disclosure may be made
only to the extent reasonably necessary to obtain patents or approval, or to
comply with regulations as appropriate, and (ii) confidential treatment will be
sought by the recipient to the extent reasonably practicable;


11.1.6      is information a Party reasonably believes is
necessary to be disclosed to employees, agents, consultants, Affiliates and/or
other Third Parties for the purpose of conducting activities permitted under
this Agreement in accordance with this Agreement on the condition that such
employees, agents, consultants, Affiliates and/or other Third Parties agree to
be bound by confidentiality obligations substantially equivalent to the terms herein;


11.1.7      is information a Party reasonably believes is
necessary to be disclosed to actual or prospective investors, lenders, real
estate or equipment lessors or acquirors or other potential or current
financing sources of a Party (collectively “Financing
Sources”), on the condition that such Financing Sources agree to be
bound by confidentiality obligations substantially equivalent to the terms
herein; or


11.1.8      is information a Party reasonably believes based
on advice of qualified outside counsel is required to be disclosed by law or
court order; provided, that, notice is promptly delivered to the disclosing
Party in order to provide an opportunity to challenge or limit the disclosure
obligations, and provided further that the recipient works in good faith with
the disclosing Party to seek confidential treatment of such disclosure and to
disclose only to the extent reasonably necessary to comply with the applicable
law or court order.


11.2         Publication.  Any publication or presentation of the
results of studies carried out under this Agreement that either Party wishes to
release shall first be provided to the other Party for review  *  in advance of the submission thereof, and the
submitting Party shall in good faith take into account reasonable comments from
the other Party and may make such publication or presentation of clinical
results (but not of any other Proprietary Information of the other Party unless
the other Party consents thereto) unless such publication or presentation will
have a material adverse scientific, clinical, medical, regulatory or commercial
impact on obtaining regulatory approval for the manufacture, use or sale of
Licensed Product in the Territory, or commercialization of Licensed Product in
the Territory. In order to keep Kyowa informed of development of Licensed
Products outside the Territory, ArQule intends to give Kyowa a copy of any
proposed publication or presentation of the results of studies conducted by
ArQule for Licensed Products outside the Territory and to discuss such proposed
publication or presentation with Kyowa in advance of the submission thereof.


11.3         Publicity. ArQule will issue a press
release in the form of Exhibit E attached hereto within  *  of the execution of this Agreement.  Any other publication, news release or other 



 37
 









public announcement relating to this Agreement or the
terms hereof that either Party wishes to release shall first be provided to the
other Party for review at least  *  in advance, and the submitting Party shall in
good faith take into account reasonable comments from the other Party.
Notwithstanding any other provision of this Agreement, (i) each Party shall
have the right, without consent of the other Party, to make disclosures
regarding any matter related to this Agreement that such Party reasonably
believes based on advice of qualified outside counsel is required, and (ii) the
requirement that a publication, news release or other public announcement be
provided to the other Party for review  *  in advance shall not apply if such Party reasonably
believes based on advice of outside securities or regulatory counsel that
regulatory requirements require the issuance thereof sooner than  *  and such Party is unable to contact the other
Party in the required time.


11.4         Employees and Consultants.  Kyowa hereby represents that all of its
employees and consultants and all of the employees and consultants of its
Affiliates and wholesalers, who participate in any activities under the this
Agreement or have access to Proprietary Information of ArQule or Licensed
Product are or will, prior to their participation or access, be bound by
written obligations to maintain such Proprietary Information or Licensed
Product in confidence and not to use or transfer such information or materials
except as expressly permitted hereunder. 
Kyowa agrees to use, and to cause its Affiliates, Sublicensees, and
wholesalers to use, reasonable commercial efforts to enforce such obligations.


11.5         Licensees Meetings. ArQule will use
Commercially Reasonable Efforts to cause Other Licensees to agree to regular
meetings with Kyowa at least twice each Calendar Year to discuss Licensed
Product development and sales strategy.


ARTICLE 12

REPRESENTATIONS, WARRANTIES, AND INDEMNITY


12.1         Representations and Warranties.


12.1.1      Mutual Representations and Warranties.  Each Party hereby represents and warrants to
the other Party as follows:


(a)          Corporate
Existence and Power.  It is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is incorporated, and has full corporate
power and authority and the legal right to own and operate its property and
assets and to carry on its business as it is now being conducted and as
contemplated in this Agreement, including, without limitation, the right to
grant the licenses granted hereunder.


(b)         Authority
and Binding Agreement.  As of the
Effective Date, (i) it has the corporate power and authority and the legal
right to enter into this Agreement and perform its obligations hereunder; (ii)
it has taken all necessary corporate action on its part required to authorize
the execution and delivery of this Agreement and the performance of its
obligations hereunder; and (iii) this Agreement has been duly executed and
delivered on behalf of such Party, and constitutes a legal, valid and binding
obligation of such Party that is enforceable against it in accordance with its
terms.



 38
 









(c)          No
Conflict.  It has not entered into
any agreement with any Third Party that is in conflict with the rights granted
to the other Party under this Agreement, and has not taken any action that
would in any way prevent it from granting the rights granted to the other Party
under this Agreement, or that would otherwise materially conflict with or
adversely affect the rights granted to the other Party under this
Agreement.  Its performance and execution
of this Agreement will not result in a breach of any other contract to which it
is a Party.


(d)         Validity.  It is aware of no action, suit, inquiry or
investigation instituted by any Third Party which questions or threatens the
validity of this Agreement.


(e)          Consents.  All necessary consents, approvals and
authorizations of all governmental authorities and other persons or entities
required to be obtained by such Party in connection with the execution and
delivery of this Agreement have been obtained.


12.1.2      Kyowa’s Representations and Warranties.  Kyowa represents and warrants to ArQule that:
(i) it shall abide by the requirements of all Applicable Laws and Regulations
in its Commercialization of Licensed Product; and (ii) Persons performing
Clinical Development Activities or Regulatory Activities for Kyowa under this
Agreement shall be under an obligation to assign their rights in any inventions
resulting therefrom to Kyowa.


12.1.3      ArQule’s
Representations and Warranties.  ArQule represents and warrants to Kyowa that:


(a)           Exhibit
A lists all ArQule Patent Rights existing as of the Effective Date; and as of the Effective
Date, ArQule will have exclusive right, title and interest to or otherwise
Controls the ArQule Patent Rights
and ArQule Background Technology
in existence on the Effective Date for ARQ
197.


(b)    As
of the Effective Date and to ArQule’s Knowledge,


(i)            there is no pending
litigation which alleges that any of the activities of ArQule relating to ARQ 197 and/or Licensed Product have violated any Patent Rights of any Third Party;


(ii)           ArQule has not received
any written communication threatening, nor has litigation been otherwise
threatened, which alleges that any of its activities relating to ARQ 197 and/or
Licensed Product have violated any Patent Rights of any Third Party;


(iii)          ArQule has the exclusive
right, title and interest in the ArQule Patent
Rights and ArQule Background Technology and the ArQule Patent Rights and ArQule Background
Technology are clear of all encumbrances, security interests, options
and licenses in the Territory;


(iv)          ArQule has disclosed to Kyowa
all licenses of relevant Third Party
licensed Patent Rights and ArQule is not in breach or default
under any such agreement and has not received from any such licensor any notice
of breach or default;



 39
 









(v)           there is no
unauthorized use, infringement or misappropriation by a Third Party of any
Patent Rights to be included in the ArQule Patent Rights and ArQule Background
Technology licensed hereunder to Kyowa;


(vi)          the pre-clinical and
clinical data provided by ArQule to Kyowa is a fair summary of the results of
ArQule’s preclinical and clinical studies as of the Effective Date and is true,
complete and accurate in all material respects; and


(vii)         Kyowa will have no
liability for any compensation to any inventor named on any ArQule Patent Right
and ArQule will be responsible for any such claim.


12.1.4      No Implied
Warranties. THE EXPRESS REPRESENTATIONS AND WARRANTIES STATED IN
THIS SECTION 12.1 ARE IN LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES WITH
RESPECT TO LICENSED PRODUCT, THE ARQULE TECHNOLOGY, OR THE ARQULE PATENT RIGHTS
EXPRESS, IMPLIED, OR STATUTORY, INCLUDING WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OR NON-MISAPPROPRIATION OF
THIRD PARTY INTELLECTUAL PROPERTY RIGHTS.


12.2         Indemnification.


12.2.1      By Kyowa. 
Kyowa hereby agrees to defend, hold harmless and indemnify ArQule and
its agents, directors, officers and employees (the “ArQule Indemnitees”) from and against any and all any and all
suits, claims, actions, demands, liabilities, damages, expenses and/or losses,
including without limitation reasonable legal expenses and attorneys’ fees (collectively
“Losses”) incurred by an ArQule
Indemnitee in connection with any and all Third Party claims directly or
indirectly arising or resulting from: (a) Kyowa’s material breach of its
representations, warranties or obligations under this Agreement; (b) any act or
omission of an distributor or Sublicensee of Kyowa; and (c) any injury, damage
or health complication suffered as a result of the manufacture, use, sale,
commercialization or import of Licensed Product in the Territory; each of (a),
(b) and (c), except to the extent such Losses arise from: (i) ArQule’s material
breach of its representations, warranties or obligations under this Agreement,
or (ii) the gross negligence, recklessness or willful misconduct of an ArQule
Indemnitee.


12.2.2      Procedure.
If an ArQule Indemnitee wishes to seek indemnification hereunder, such ArQule
Indemnitee shall inform Kyowa of the Third Party claim giving rise to the
obligation to indemnify as soon as reasonably practicable after receiving
notice of such Third Party claim.  Kyowa
shall have the right to assume and control the defense of any such Third Party
claim for which it is obligated to indemnify the Indemnitee under this
Agreement.  The ArQule Indemnitee shall
cooperate with Kyowa (and its insurer) as Kyowa may reasonably request, and at
Kyowa’s sole cost and expense.  The
ArQule Indemnitee shall have the right to retain its own counsel, at the
expense of Kyowa, if representation of such ArQule Indemnitee by the counsel
retained by Kyowa would be inappropriate because of actual or potential
differences in the interests of such ArQule Indemnitee and any other Party
represented by such counsel.  In all
other cases, the ArQule Indemnitee shall have the right to participate in such
defense, subject to Kyowa’s control, using its own counsel at its own
expense.  Kyowa shall have no obligation
to



 40















indemnify
any ArQule Indemnitee in connection with any settlement made without Kyowa’s
written consent; provided, that Kyowa does not unreasonably withhold or delay
any such written consent.


12.2.3      By ArQule.  ArQule hereby agrees to defend,
hold harmless and indemnify Kyowa and its agents, directors, officers and
employees (the “Kyowa Indemnitees”)
from and against any and all any and all Losses incurred by a Kyowa Indemnitee
in connection with any and all Third Party claims directly or indirectly
arising or resulting from: (a) ArQule’s material breach of its representations,
warranties or obligations under this Agreement; (b) any act or omission of any
Other Licensees; and each of (a) and (b), except to the extent such Losses
arise from: (i) Kyowa’s material breach of its representations, warranties or
obligations under this Agreement, or (ii) the gross negligence, recklessness or
willful misconduct of an Kyowa Indemnitee.


12.2.4      Procedure.
If a Kyowa Indemnitee wishes to
seek indemnification hereunder, such Kyowa
Indemnitee shall inform ArQule of
the Third Party claim giving rise to the obligation to indemnify as soon as
reasonably practicable after receiving notice of such Third Party claim.  ArQule
shall have the right to assume and control the defense of any such Third Party
claim for which it is obligated to indemnify the Kyowa Indemnitee under this Agreement.  The Kyowa
Indemnitee shall cooperate with ArQule
(and its insurer) as ArQule may
reasonably request, and at Kyowa’s sole cost and expense.  The Kyowa
Indemnitee shall have the right to retain its own counsel, at the expense of ArQule, if representation of such
Indemnitee by the counsel retained by ArQule
would be inappropriate because of actual or potential differences in the
interests of such Kyowa Indemnitee
and any other Party represented by such counsel.  In all other cases, the Kyowa Indemnitee shall have the right to
participate in such defense, subject to ArQule’s
control, using its own counsel at its own expense.  ArQule
shall have no obligation to indemnify any Kyowa Indemnitee in connection with any settlement made without ArQule’s written consent; provided, that
ArQule does not unreasonably
withhold or delay any such written consent.


12.3         Insurance. Kyowa shall procure and
maintain insurance, including product liability insurance, adequate to cover
its obligations hereunder and which are consistent with normal business
practices of prudent companies similarly situated at all times during which
Licensed Product is being clinically tested with human subjects or commercially
distributed or sold by Kyowa, by its permitted licensees, sublicensees or
wholesalers.  It is understood that such
insurance shall not be construed to create a limit of Kyowa’s liability with
respect to its indemnification obligations hereunder.  Kyowa shall provide ArQule with written
evidence of such insurance upon request.


12.4         Limitations of Liability.  Except in the case of a Party’s gross
negligence or willful misconduct, in no event shall either Party be liable to
the other Party for lost profits or for any indirect, incidental,
consequential, special, punitive or exemplary damages of the other Party in
connection with this Agreement or the transactions contemplated by this
Agreement, however caused, under any theory of liability, and whether or not
such Party had prior notice thereof.



 41
 









ARTICLE 13

TERM AND TERMINATION


13.1         Term. 
The term (“Term”) of this
Agreement shall commence on the Effective Date and shall expire, unless earlier
terminated as provided herein, on the date that the Royalty Term expires in all countries in the Territory.


13.2         Termination by Either Party for Breach or Insolvency.  Either Party shall have the right to
terminate this Agreement:


13.2.1      upon  *  prior written notice to the other Party if the
other Party has materially breached any of its representations, warranties or
obligations under this Agreement, unless the breaching Party shall have cured
the breach within the  *  period; and


13.2.2      immediately upon written notice, if the other
Party shall file a petition in bankruptcy, or if an involuntary petition in
bankruptcy shall be filed against the other Party and such petition shall not
be dismissed within  * , or if a receiver or guardian
has been appointed for the other Party.


13.3         Additional Termination Right of Kyowa.
Kyowa shall also have the right to terminate this Agreement without cause upon
not less than  *  written notice to ArQule.


13.4         Effect of Expiration or Termination of this Agreement
for Any Reason.


13.4.1      Upon the termination of this Agreement by either
Party for any reason each of the Parties shall return the originals and any
copies of the other Party’s Proprietary Information; provided, that, each Party
may retain copies of any Proprietary Information that is subject to a continuing
license hereunder and one copy of the other Party’s Proprietary Information in
possession of its legal counsel for the purposes of monitoring its obligations
hereunder and exercising any surviving rights;


13.4.2      Upon expiration or the termination of this
Agreement by either Party for any reason neither Party shall be relieved of any
liability or obligation of such Party that accrued, or which arose during or
relates to any period, prior to the effective date of such termination,
including without limitation any payment obligations; and


13.4.3      Upon expiration or the termination of this
Agreement by either Party for any reason the provisions of Articles 1, 11, 12,
14, 15 and Sections 9.2, 9.3, 10.1, 13.4 and 15.2-15.11 and Sections 13.5, 13.6
and/or 13.7 as applicable, shall survive the expiration or termination of this
Agreement and remain in full force and effect in accordance with their terms.


13.5         Effect of Termination Pursuant to Section 13.2 by
ArQule or Section 13.3 by Kyowa. 
Upon the termination of this Agreement pursuant to Section 13.2 hereof
by ArQule or Section 13.3 by Kyowa:


13.5.1      the rights and licenses granted by ArQule to
Kyowa hereunder shall terminate;


13.5.2      the rights and licenses granted by Kyowa to
ArQule hereunder shall continue;



 42
 









13.5.3      Kyowa shall immediately (a) cease conducting any
Commercialization activities with respect to Licensed Product, and (b)
discontinue making any representation regarding its status as a licensee or
distributor of ArQule in the Territory for Licensed Product;


13.5.4      Kyowa shall grant to ArQule as of the effective
date of the termination an exclusive, worldwide, perpetual, royalty-free,
fully-paid up license, with the right to sublicense, to any and all Kyowa
Technology and Kyowa Patent Rights and Kyowa’s interest in any Joint Technology
and Joint Patent Rights solely to develop, have developed, make, have made,
use, have used, sell, offer for sale, have sold, import, have imported, export
and have exported, Licensed Products in the Cancer Field, or Additional Field
if applicable, in the Territory.


13.5.5      Kyowa shall grant to ArQule as of the effective
date of the termination an exclusive sublicensable license to use the Kyowa
Trademarks that were actually used during the Term in the Commercialization of
Licensed Product in the Territory but excluding any Kyowa Trademark that
includes the Kyowa name or logo, solely in connection with Commercialization
activities with respect to Licensed Product.


13.5.6      Kyowa shall immediately (A) transfer to ArQule or
ArQule’s designee all Regulatory Filings and Regulatory Approvals owned by
Kyowa applicable to the Commercialization of 
Licensed Products, if such transfer is possible, or, if such transfer is
not possible, then at ArQule’s discretion (1) withdraw any such Regulatory
Filings and Regulatory Approvals applicable to the Commercialization of
Licensed Products in its name and take all actions necessary or useful to
support ArQule’s or ArQule’s designee’s submission of Regulatory Filings and
the achievement of Regulatory Approvals in the name of ArQule or ArQule’s
designee with respect to the Commercialization of Licensed Products or (2)
provide ArQule with access to, and grant ArQule the right and license to use
and to reference, such Regulatory Filings and Regulatory Approvals then in its
name applicable to the Commercialization of Licensed Products and all material
aspects of Proprietary Information Controlled by it as of the termination date
relating to such Regulatory Filings and Regulatory Approvals; (B) provide
ArQule with copies of all correspondence between Kyowa and Regulatory
Authorities relating to such Regulatory Filings and Regulatory Approvals any
and all other clinical and non-clinical data, records and tabulations that
Kyowa holds as of the date of termination with respect to Licensed Product; (C)
assign to ArQule all agreements,
with respect to the conduct of clinical trials for such Licensed Product,
including, without limitation, agreements or contracts with contract research
organizations, clinical sites and investigators, between Kyowa and any Third
Party, subject to any consent required by
such Third Party, which consent Kyowa will use Commercially Reasonable Efforts
to obtain on behalf of ArQule; and (D) provide ArQule with copies of all
reports and data obtained by Kyowa or its Affiliates pursuant to this Agreement
that relate to the Commercialization of Licensed Products, including any Kyowa
Clinical Data not already provided to ArQule hereunder. In connection therewith
(i) Kyowa hereby irrevocably authorizes ArQule to execute any documents to
effect any such transfer or withdrawal by Kyowa and submission by ArQule or
ArQule’s designee described in this Section 13.5.6; and (ii) Kyowa hereby
acknowledges and agrees that ArQule shall not be obligated to treat any
information received pursuant to this Section 13.5.6 as Kyowa Proprietary
Information and may use such information, data and know-how for any purpose at
ArQule’s discretion.



 43
 









13.5.7      As promptly as possible after any such
termination, Kyowa shall execute any and all documents of any patent offices
and/or patent receiving offices and/or Regulatory Authorities, so as to allow
ArQule to make immediate use of any data, records, and regulatory filings
transferred by Kyowa to ArQule pursuant to this Section 13.5.


13.5.8      In case of
termination by ArQule pursuant to Section 13.2.2 based on Kyowa becoming an “insolvent
party” (hereinafter “Insolvent Party”)
as defined under applicable bankruptcy law, ArQule’s rights under this
Agreement shall include, without limitation, those rights afforded by 11 U.S.C.
§ 365(n) of the United States Bankruptcy Code (“USBC”) and any successor thereto, if applicable.  If the
bankruptcy trustee of the Insolvent Party as a debtor or debtor-in-possession
rejects this Agreement under 11 U.S.C. § 365(o) of the USBC, ArQule may elect to retain its rights
licensed from the Insolvent Party
hereunder (and any other supplementary agreements hereto) for the duration of
this Agreement and avail itself of all rights and remedies to the full extent
contemplated by this Agreement and 11 U.S.C. § 365(n) of the USBC, and any
other relevant laws. The same shall apply under any similar provisions of
Japanese law, mutatis mutandis.


13.6         Effect of Expiration of the Term of Agreement.  Upon the expiration of the Royalty Term of this Agreement:


13.6.1      Kyowa shall have a fully paid, irrevocable,
freely transferable license under the ArQule Technology and ArQule Patent
Rights to develop, have developed, make, have made, use, have used, sell, offer
for sale, have sold, import, have imported, Licensed Products and API solely for use in Licensed Products for
use in the Cancer Field, and Additional Field if applicable, in the Territory,
subject to the surviving provisions of this Agreement.


13.6.2      Upon request of
Kyowa, the Parties shall discuss in good faith a continuation of the Trademark
License described in Section 2.1.4 (subject to the terms and conditions set
forth therein) subject to reasonable financial terms therefor, by providing
written notice at any time on or before  *  prior to the expiration date.


13.7         Effect of Termination Pursuant to Section 13.2 by Kyowa.  Upon the termination of this Agreement
pursuant to Section 13.2 hereof by Kyowa:


13.7.1      The rights and licenses granted by ArQule to
Kyowa hereunder shall continue, subject to Kyowa’s related obligations
hereunder, including without limitation, diligence, sales and marketing
obligations and payment and reporting obligations pursuant to Articles 6, 7 and
9, respectively;


13.7.2      In case of
termination by Kyowa pursuant to Section 13.2.2 based on ArQule becoming an
Insolvent Party, Kyowa’s rights under this Agreement shall include,
without limitation, those rights afforded by 11 U.S.C. § 365(n) of the
USBC.  If the bankruptcy trustee of the Insolvent Party as a debtor or
debtor-in-possession rejects this Agreement under 11 U.S.C. § 365(o) of the
USBC, Kyowa may elect to retain
its rights licensed from the Insolvent
Party hereunder (and any other supplementary agreements hereto) for the
duration of this Agreement 



 44
 









and avail
itself of all rights and remedies to the full extent contemplated by this
Agreement and 11 U.S.C. § 365(n) of the USBC, and any other relevant laws.


13.7.3      The rights and licenses granted by Kyowa to
ArQule pursuant to Section 2.6 hereof shall continue without further action by
ArQule, subject to fair market compensation to Kyowa to be agreed upon in good
faith by the Parties, unless ArQule notifies Kyowa in writing that it does not
wish some or all of such rights to continue.


ARTICLE 14

DISPUTE RESOLUTION


14.1         Informal Dispute Resolution; Mediation.


14.1.1      The Parties recognize that Disputed Matters may
from time to time arise during the Term of this Agreement which relate to
either Party’s rights and/or obligations hereunder.  It is the objective of the Parties to
establish procedures to facilitate the resolution of disputes arising under
this Agreement in an expedient manner by mutual cooperation and without resort
to litigation.  To accomplish this
objective, the Parties agree to follow the procedures set forth in this Article
14 if and when a Disputed Matter arises under this Agreement.


14.1.2      Any Disputed Matter arising under this Agreement
shall be discussed first by the JSC as described in Section 3.9.


14.1.3      In the event that the JSC is unable to resolve
any such Disputed Matter, then any such dispute shall, by either Party
providing written notice to the other Party, be referred to the respective
chief executive officers of the Parties, or their designees, for attempted
resolution by good faith negotiations within  *  after such notice is received.


14.1.4      In the event that the respective chief executive
officers of the Parties or their designees are not able to resolve such
Disputed Matter within such thirty (30) day period, and the Parties do not
agree to extend the time period for resolving the dispute, the dispute shall be
submitted for mediation by a mutually acceptable Third Party within thirty (30)
days after expiration of the previous thirty (30) day period.


14.1.5      In the event that such Disputed Matter is not
resolved within thirty (30) days after such dispute is submitted for mediation,
unless the Parties otherwise agree to extend the time period for resolving the
dispute, then such dispute shall be resolved by arbitration pursuant to the
provisions of Section 14.2.


14.1.6      Pending resolution of any dispute covered by this
Section 14.1, both Parties will continue their performance under this Agreement
of any obligations (including, without limitation, payment obligations) that
are not the subject of such dispute.


14.2         Arbitration.  If the dispute cannot be resolved pursuant to
Section 14.1 above, then the Parties shall follow the procedures set forth
below:



 45
 









14.2.1      Each Party irrevocably and unconditionally agrees
that any claim, dispute, or controversy arising out of or relating to this
Agreement shall be submitted by the Parties to binding arbitration and not to
litigation under rules then in effect (the “AAA
Rules”) of the American Arbitration Association (“AAA”), as such AAA Rules may be modified by
this Section 14.2 or by agreement of the Parties. Any such arbitration shall be
conducted in San Francisco, CA by three (3) arbitrators.  Each Party shall select one (1) arbitrator
and such arbitrators shall jointly appoint the third arbitrator who shall act
as the chairman.  If either Party fails
to appoint an arbitrator within thirty (30) days of a request by the other
Party, or if the arbitrators selected by the Parties cannot agree on a chairman
within thirty (30) days after they have been selected, then either Party may
request AAA to appoint such co-arbitrator (for the non-responsive Party) or the
chairman.  Such appointment shall be
binding on the Parties.


14.2.2      The Parties hereby agree to exercise their respective
rights under the AAA Rules to cause any arbitration proceeding under this
Section 14.2 to be finalized and a decision rendered by the arbitrators as soon
as reasonably practicable but in no event more than six (6) months after the
commencement of such arbitration proceeding. 
Without limiting the provisions of the preceding sentence, the Parties
will cooperate with each other in causing the arbitration to be held in as
efficient and expeditious a manner as practicable.  Responses or objections to a document request
shall be served twenty (20) days after receipt of the request.  The arbitrators shall resolve any discovery
disputes.  Nothing herein shall prevent
the Parties from settling any dispute by mutual agreement at any time.


14.2.3      Except as otherwise required by law, the Parties
and the arbitrator(s) shall maintain as confidential all information or
documents obtained during the arbitration process, including the resolution of
the dispute.  The arbitration shall be
conducted in the English language.


14.2.4      The costs and expenses of the arbitration, but
not the costs and expenses of the Parties, shall be shared equally by the
Parties, provided, that, the non-prevailing Party in any arbitration shall pay
the other Party’s costs and expenses (including travel expenses and reasonable
fees and disbursements of such other Party’s counsel) and reimburse such other
Party for its portion of the arbitration costs. 
In the event that neither Party wins totally, reimbursement shall be
made proportionally in accordance with the AAA Rules.  Any award rendered by the arbitrator(s) shall
be final and binding upon the Parties. 
Judgment upon the award may be entered in any court of competent
jurisdiction.  If a Party fails to
proceed with arbitration, unsuccessfully challenges the arbitration award, or
fails to comply with the arbitration award, the other Party is entitled to
costs, including reasonable attorneys’ fees and disbursements, for having to
compel arbitration or defend or enforce the award.


14.3         Equitable Remedies; Injunctive Relief.  Nothing in this Article 14 shall prohibit
either Party from seeking or obtaining any equitable remedy, including, but not
limited to, injunctive relief for violations of such Party’s intellectual
property rights or disclosure of such Party’s Proprietary Information.


14.4         Governing Law; Jurisdiction; Venue.  Resolution of all disputes arising out of or
related to this Agreement or the performance, enforcement, breach or
termination of this Agreement and any remedies relating thereto, shall be
governed by and construed under the 



 46
 









substantive laws of the State of New York, USA, without regard
to conflicts of law rules.  For the
purposes of Section 14.3, the Parties consent to the non-exclusive personal
jurisdiction and venue of the federal and state courts located in the Southern
District of New York, U.S.A.


ARTICLE 15

MISCELLANEOUS


15.1         Force Majeure.  Both Parties shall be excused from the
performance of their obligations under this Agreement, and neither Party shall
be held liable or responsible to the other Party nor be deemed to have
defaulted under or breached this Agreement for failure or delay in fulfilling
or performing any term of this Agreement, to the extent that such performance
is prevented by force majeure and the nonperforming Party promptly provides
notice of the prevention to the other Party. 
Such excuse shall be continued so long as the condition constituting a
force majeure event continues and the nonperforming Party uses reasonable
efforts to remove the condition.  For
purposes of this Agreement, a force majeure event shall include conditions
beyond the reasonable control and without the fault of a Party, such as an act
of God, voluntary or involuntary compliance with any regulation, law or order
of any government, war, an act of terrorism, civil commotion, labor strike or
lock-out, epidemic, failure or default of public utilities or common carriers,
destruction of production facilities or materials by fire, earthquake, storm or
like catastrophe, inability to procure necessary raw materials in a
commercially reasonable manner or default of suppliers or sub-contractors;
provided, however, the payment of invoices due and owing hereunder may not be
delayed by the payor because of a force majeure affecting the payor.


15.2         Assignment.  Neither this Agreement nor any obligation of
a Party hereunder may be assigned by either Party without the consent of the
other, except that each Party may assign this Agreement and the rights,
obligations and interests of such Party, in whole or in part, to any of its
Affiliates, to any purchaser of all, or substantially all, of its assets or
all, or substantially all, of its assets to which this Agreement relates or to
any successor corporation resulting from any merger, consolidation, share
exchange or other similar transaction. This Agreement shall inure to the
benefit of Kyowa and ArQule and their respective successors and assigns.


15.3         Severability.  In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby, unless the absence of the invalidated provision(s) adversely affect
the substantive rights of the Parties. 
The Parties shall in such an instance use their best efforts to replace
the invalid, illegal or unenforceable provision(s) with valid, legal and
enforceable provision(s) that, insofar as practical, implement the purposes of
this Agreement.


15.4         Notices.  All notices, documents or other
communications that are required or permitted hereunder shall be in writing in
the English language and sufficient if delivered personally, sent by
telefacsimile (and promptly confirmed by personal delivery, registered or
certified mail or overnight courier), sent by nationally-recognized overnight
courier or sent by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:



 47
 









ArQule,
Inc.


19 Presidential Way


Woburn, MA 01801


Attention: Peter S.
Lawrence


Tel: (781) 994-0409


Fax: (781)
994-0657


	
  With a copy to:

  	
   

  	
  Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

  
	
   

  	
   

  	
  One Financial
  Center

  
	
   

  	
   

  	
  Boston, MA 02111

  
	
   

  	
   

  	
  Attention:
  Jeffery M. Wiesen, Esq.

  
	
   

  	
   

  	
  Tel:
  617-542-6000

  
	
   

  	
   

  	
  Fax:
  617-542-2241

  



Kyowa Hakko Kogyo Co.,
LTD.


1-6-1, Ohtemachi, Chiyoda-ku, Tokyo, 100-8185, Japan


Pharmaceuticals Business Unit


Business Development Department 

General Manager


Takao Miyamoto 

Phone: +81-3-3282-0093 

Fax: +81-3-3282- 0107


or to such other
address as the Party to whom notice is to be given may have furnished to the
other Party in writing in accordance herewith. 
Any such communication shall be deemed delivered (i) if sent by mail, as
aforesaid, on the date upon which the return receipt is signed or delivery is
refused or the notice is designated by the postal authorities as not
deliverable, as the case may be, (ii) if sent by telefacsimile, as aforesaid,
when sent (with confirmation of receipt), and (iii) if sent by courier or hand
delivered, as aforesaid, when received. 
The cost of any translation into English of any communication, document
or notice shall be borne solely by the Party providing such communication,
document or notice.


15.5         Entire Agreement.  This Agreement and the CDA contain the entire
understanding of the Parties with respect to the subject matter hereof;
provided that in the event of a conflict between the provisions of this
Agreement and the CDA, the provisions of this Agreement shall govern.  All express or implied agreements and
understandings, either oral or written, heretofore made are expressly
superseded by this Agreement. Except as expressly set forth in this Agreement,
this Agreement may be amended, or any term hereof modified, only by a written
instrument duly executed by both Parties.


15.6         Headings.  The captions to the several Articles and
Sections hereof are not a part of this Agreement, but are merely guides or
labels to assist in locating and reading the several Articles and Sections
hereof.


15.7         Independent Contractors.  It is expressly agreed that ArQule and Kyowa
shall be independent contractors and that the relationship between the two
Parties shall not constitute a partnership, joint venture or agency.  Neither ArQule nor Kyowa shall have the
authority to 



 48
 









make any statements, representations or commitments of
any kind, or to take any action, which shall be binding on the other, without
the prior consent of the other Party.


15.8         Waiver. 
The waiver by either Party hereto of any right hereunder or the failure
to perform or of a breach by the other Party shall not be deemed a waiver of
any other right hereunder or of any other breach or failure by said other Party
whether of a similar nature or otherwise.


15.9         Counterparts.  This Agreement may be executed in identical
duplicate copies exchanged by telefacsimile transmission.  The Parties agree to execute two identical
original copies of this Agreement after exchanging signed telefacsimile
versions.  Each identical counterpart
shall be deemed an original, but all of which together shall constitute one and
the same instrument.


15.10       Waiver of
Rule of Construction. 
Each Party has had the opportunity to consult with counsel in connection
with the review, drafting and negotiation of this Agreement.  Accordingly, the rule of construction that
any ambiguity in this Agreement shall be construed against the drafting Party
shall not apply.


15.11       Third Party
Beneficiaries.  Except as
otherwise expressly provided in this Agreement, nothing herein expressed or
implied is intended or shall be construed to confer upon or to give to any Third Party any rights or remedies by
reason of this Agreement.  Except as
otherwise expressly provided in this Agreement, there are no intended Third Party beneficiaries under or by
reason of this Agreement.


[Remainder of this page is intentionally left blank.]



 49
 









IN
WITNESS WHEREOF, the Parties have executed this License Agreement to be
effective as of the Effective Date.


	
  KYOWA HAKKO KOGYO CO., LTD.

  	
   

  	
  ARQULE, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   /s/ Yuzuru
  Matsuda

  	
   

  	
  By:

  	
   

  	
  /s/ S.A. Hill

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   Yuzura
  Matsuda

  	
   

  	
  Name:

  	
   

  	
  S.A. Hill

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
  CEO

  	
   

  	
  Title:

  	
   

  	
  CEO

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
  4/26/07

  	
   

  	
  Date:

  	
   

  	
  4/26/07

  	
   

  
												



 



 50















EXHIBIT
A


ArQule
Patent Rights 


 *



 51
 









EXHIBIT
B


ARQ 197


 *



 52
 









EXHIBIT
C


Kyowa
Patent Rights


 *



 53
 









EXHIBIT
D


Clinical
and Regulatory Plan


The initial development
plan for development of  *  or its *  shall be
pursued through the following areas which would be designed to conduct
simultaneously:


(a)            Non-clinical


Kyowa will conduct additional
* and  * non-clinical experiments for  *  or its * according to Kyowa’s decision or request(s) from
the  * in the Territory.


i.                                          Additional
 *  and  *  and  *  experiments might be considered and conducted
to support * and * clinical trials in the Territory.  The pharmacology experiments for  * will
be conducted in Kyowa by using  *  or  *.   In particular, Kyowa wish to obtain the information
related to new or existing targets  * for * such as that of  *  etc..


ii.                                       Additional
both  * and * toxicology experiments might be considered to consider
combination regimens with  *  in the target indication(s).  Evaluation of novel combinations of  * with
traditional  * or  * targeted agents
might be considered and conducted by using both *  and *  systems.


Kyowa will accomplish this pre-clinical strategy by Kyowa’s own
laboratories, outsourced contracted laboratories, collaboration with the
investigators in academia in the Territory, or collaboration with ArQule.


(b)            CMC and Clinical


ArQule will supply * active
substances and drug products or its  * upon request from Kyowa.


Kyowa will immediately undertake technical transfer from ArQule for
specification testing methods * and
establish validated testing methods for the clinical development in the
Territory.


Kyowa will also immediately initiate preparation work for  * clinical
trial(s) in cancer patients in the Territory. 
Results and study reports derived from both non-clinical and clinical studies
conducted by ArQule will be translated into the Japanese, and summarized in
investigators brochure for *. In
the * clinical trial(s)
and/or  * trials(s), Kyowa might conduct * for  *  to conduct the additional  *  investigations.


Kyowa believes that oncology drugs should be developed using multiple
simultaneous strategies that might lead to either accelerated approval or full
approval(s).


i.                                          Single
agent accelerated approvals


To determine possible accelerated approval strategies, Kyowa would
consider the following approaches



 54
 









a.               Build on results
from the  * that suggest potential areas both
of unmet medical need and life-threatening. 
Based on the currently available information from  * non-clinical
and clinical data, potential areas would include  * and  *.


b.              Build on potential
leads derived from the non-clinical studies described above.


c.     Kyowa would consider
conducting  * in multi-centre clinical trials
for accelerated approval in the  Territory.


ii.                                       Accelerated
approvals for combination therapy


Kyowa will also consider the development of strategies in which  *  is added to the  * in groups of
patients that have previously failed to the drug alone.  For these strategies, Kyowa will consider
randomized  * trials comparing with the
standard  * alone.  Kyowa believes that it will be difficult to
conduct such * trials using
a placebo-controlled design in the
Territory.  The planned combination
of  *  and  * studies by ArQule in the * study is one such strategy
for the development in  *.


iii.                                    Full
Approvals


Kyowa believes that randomized studies and potentially full approval
strategies might be required for any strategy involving progression-free
survival or overall survival as an endpoint. 
These strategies would be pursued in the areas for which there were no
opportunity for pursuit of an unmet medical need.


Potential Timelines (starting from
the execution of the licensing agreement)


Months 1 – 6


Designation of
responsible development project team member from each section in Kyowa


Specification testing
methods transfer for  * from ArQule


Establishment of specification
testing methods and conducting  * stability studies for both of * and drug product


Initiation of additional non-clinical
studies, if necessary


Preparation work for  * trials
(Selection of principle investigators, development of  * clinical
trial protocols, etc.) in the Territory


Months 7 -18


 * submissions to the Regulatory
Authority for single agent  *  trial in the  * (Possible
consultation meeting with the *


Months 19 -24


 * submissions to the *  for combination  * trial(s) in
the  Territory.  


Preparation work for  *  trials (development of  *  and clinical trial protocols, etc.) in the  Territory


Months 25 -36


Determination of
appropriate cancer target(s) for accelerated approval as a single agent.


Determination of
appropriate cancer target(s) for accelerated approval as combo with  * 


Consultation meeting with
 * Authority for accelerated
approval and  *  study design


 * submission to the  *  for single agent  *  trials in the Territory, if applicable


 * submissions to the  *  for combination  * trials in
the Territory, if applicable



 55
 









Months 37 – 48


 * consultation meeting
with  *  for accelerated approval


If target  *  required  * trials,  *  to the  * for  * trials
initiation


Months 49 - 60


 * submission to the  * for
single agent approval in the Territory, if applicable


 * submission to the  *  for combination agent approval in the
Territory, if applicable


Timeline of these  *  are depend on the outcome of pre-NDA consultation meeting
with  * .  If  *  requests additional clinical trials, Kyowa
will change the development strategy.


Months 61 - 84


Launch for * accelerated approval in the
Territory, if applicable


Launch for * accelerated
approval in the Territory, if applicable


Months 85 - 108


 * to the * for  * trial
required approval in the Territory


Launch for  * required approval in the
Territory, if applicable



 56
 









EXHIBIT
E


ArQule
Press Release


ARQULE AND KYOWA HAKKO KOGYO SIGN EXCLUSIVE LICENSE AGREEMENT


IN ASIA FOR ARQ 197, C-MET INHIBITOR


Woburn, MA, April 27, 2007 – ArQule, Inc. (NASDAQ: ARQL) today announced
that it has entered into an exclusive license agreement with Kyowa Hakko Kogyo
Co., Ltd. (Kyowa) to develop and commercialize ARQ 197, a small molecule,
selective inhibitor of the c-Met receptor tyrosine kinase, in Japan and parts
of Asia.


The agreement includes $123 million in upfront and potential
development milestone payments from Kyowa to ArQule, including a $30 million
cash upfront licensing payment.  In
addition, the agreement includes undisclosed sales milestone payments.  Upon commercialization, ArQule will receive
double-digit royalties from Kyowa on net sales of ARQ 197.  Kyowa will be responsible for clinical
development costs and commercialization of the compound in certain Asian
countries, consisting of Japan, China (including Hong Kong), South Korea and
Taiwan.


 “We are excited to enter into a
partnership with a world-class Japanese company whose oncology franchise
positions it strongly in Asian markets and whose resources will allow it to
develop and commercialize ARQ 197 on a timely basis,” said Dr. Stephen A. Hill,
president and chief executive officer of ArQule.  “Kyowa is able to leverage an impressive
array of clinical development, manufacturing, sales and marketing capabilities
that will help realize the full potential of ARQ 197 and deliver its benefits
to cancer patients in Asia.  Our
agreement with them represents an important validation of this compound.


“In retaining proprietary rights to ARQ 197 in the rest of the world,
we preserve a broad range of longer-term strategic options for ArQule that will
unlock the full value of this novel compound, including, for example, increased
flexibility in pursuing additional partnering agreements and an enhanced ability
to continue the further development of ARQ 197 independently should we elect to
do so,” said Dr. Hill.


ArQule will hold a conference call to discuss this agreement today,
April 27, beginning at 9:30 a.m.  Dr.
Stephen A. Hill, president and chief executive officer of ArQule, will lead the
call.




	
  Date & Time:

  	
   

  	
  Friday, April 27, 2007, at 9:30 a.m., eastern time

  	 

	
  Conference Call Numbers

  	
   

  	
   

  	 

	
   

  	
  Toll Free:

  	
   

  	
  TBD

  
	
   

  	
  Toll:

  	
   

  	
  TBD

  
	
   

  	
  Code:

  	
   

  	
  ArQule

  
	
   

  	
  Webcast:

  	
   

  	
  www.arqule.com

  	
   

  
	
   

  	
  Archived Call:

  	
   

  	
  TBD

  
						






 


As a result of this agreement, ArQule will be updating its financial
guidance for the 2007 fiscal year during its first quarter conference call on
May 3, 2007.



 57
 









About
ARQ 197 and c-Met


ARQ 197 is the
lead product from the Company’s Cancer Survival Protein modulation
program.  Other than the rights licensed
under the agreement with Kyowa, ArQule retains all rights to compounds derived
from this program, including ARQ 197.


ARQ 197 mediates
its effects by inhibiting the activity of c-Met, a receptor tyrosine kinase
that plays multiple key roles in human cancer, including cancer cell growth,
survival, angiogenesis, invasion and metastasis.  C-Met is abnormally activated in most cancers
and is believed to control multiple signal transduction pathways involved in
tumor growth and metastasis. 
Pre-clinical findings have demonstrated that ARQ 197 inhibits c-Met in a
wide range of human tumor cell lines and possesses anti-tumor activity against
several types of xenografted human tumors in mice.


Interim Phase I
data with ARQ 197, presented at the 18th EORTC-NCI-AACR International Conference on
Molecular Targets and Cancer Therapeutics, demonstrated clinical tolerability,
pharmacokinetics and signs of anti-tumor activity in cancer patients with a
broad range of metastatic solid tumor types who had failed prior treatment
regimens. The American Society of
Clinical Oncology (ASCO) has accepted for oral presentation the Company’s
abstract for ARQ 197 (A Phase 1 Dose Escalation Study of ARQ 197, a Selective
Inhibitor of the c-Met Receptor in Patients with Metastatic Solid Tumors) at
the 43rd ASCO
Annual Meeting, June 1-5, 2007, in Chicago. 
This presentation will describe final results from this trial.


About ArQule


ArQule,
Inc. is a biotechnology company engaged in the research and development of
next-generation, small-molecule cancer therapeutics.  The Company’s targeted, broad-spectrum
products and research programs are designed to affect key biological processes
that are central to cancer. ArQule’s lead clinical-stage products have been
generated from two scientific platforms: Cancer Survival Protein modulation and
Activated Checkpoint Therapy® (ACT). 
The Cancer Survival Protein modulation platform has generated a
clinical-stage product that inhibits a molecule known as c-Met, which plays
multiple roles in cancer cell growth, survival, invasion, angiogenesis and
metastasis.  The ACT platform is designed
to kill cancer cells selectively while sparing normal cells through direct
activation of DNA damage response/checkpoint pathways. The Company’s lead ACT
program, based on the E2F-1 pathway, is partnered with Roche. For more
information, please visit www.arqule.com.


This press release contains forward-looking
statements regarding the Company’s license agreement with Kyowa Hakko Kogyo
Co., Ltd., including potential future milestone and royalty payments that could
result from the Company’s and Kyowa’s future development of ARQ 197.  Failure to successfully develop ARQ 197 could
prevent us from receiving these future payments. These statements are based on
the Company’s current beliefs and expectations, and are subject to risks and
uncertainties that could cause actual results to differ materially. Positive
information about early stage clinical trial results does not ensure that later
stage or larger scale clinical trials will be successful. For example, ARQ 197



 58
 









may not demonstrate promising therapeutic effect;
in addition, it may not demonstrate an appropriate safety profile in current or
later stage or larger scale clinical trials as a result of known or as yet
unanticipated side effects. The results achieved in ongoing or later stage
trials may not be sufficient to meet applicable regulatory standards. Problems
or delays may arise during clinical trials or in the course of developing,
testing or manufacturing these compounds that could lead the Company or its
partner to discontinue development. Even if later stage clinical trials are
successful, the risk exists that unexpected concerns may arise from analysis of
data or from additional data or that obstacles may arise or issues be
identified in connection with review of clinical data with regulatory
authorities or that regulatory authorities may disagree with the Company’s view
of the data or require additional data or information or additional studies. In
addition, the planned timing of initiation and completion of clinical trials
for ARQ 197 are subject to the ability of the Company to enroll patients, enter
into agreements with clinical trial sites and investigators, and other
technical hurdles and issues that may not be resolved. Drug development
involves a high degree of risk. Only a small number of research and development
programs result in the commercialization of a product. For more detailed information
on the risks and uncertainties associated with the Company’s drug development
and other activities see the Company’s periodic reports filed with the
Securities and Exchange Commission. The Company does not undertake any
obligation to publicly update any forward-looking statements.


# # #



 59














EXHIBIT
F


Specifications


	
  Appearance

  	
   

  	
  Conforms to description

  
	
  Assay

  	
   

  	
  * of
  Label Claim

  
	
   * Related Substances 

  	
   

  	
  Single Report any single related substance *

  
	
   

  	
   

  	
  Total *

  
	
   *

  	
   

  	
  *

  
	
   *

  	
   

  	
  *

  
	
   *

  	
   

  	
  *

  



 


Justification for
Specifications


Appearance: The
appearance should confirm that  *  and  * conform to the description of * produced in a similar
fashion and the specifications supplied by the  *  manufacturer.


Assay: Only small
development  * of capsules have been produced
to date. The reproducibility with which the label claim can be achieved is,
therefore, impossible to assess at the  * of the
clinical trial  *  Taking this into consideration, along with the
acceptable degree of variation contributed by the analytical method and the degree
of  * that could be expected over
the  *  period, a specification of  * is
justified.


 * Related
substances: The stability of * whether
stored as the  * alone or in the capsule
formulation, is, to date, not completely understood. The  * produced
at bench-scale contains process impurities in the range of  *.  A level of degradation products in the range
of  *  can be anticipated over the stability-testing
period for capsules. The specifications for  * -related
substances, therefore, indicate that the presence of all related substances
greater than *  should be documented and that the total level
should not exceed *


Enantiomeric
Excess:  *  is not expected given the  *  and  *  conditions for  *.  Therefore, the  * should
be equivalent to the specification set for the  * alone.


Dissolution:  The amount of drug contained in each capsule
of  * can vary depending upon the  * weight
variation and blend uniformity. This variation can be translated into variation
in the dissolution results.  The
threshold for testing additional units should be sufficient to address a sample
that might contain units at the limits of weight variation. Given this level of
 *  variation and the stability results for the  *  tested to date,  * of * at * is *.


Content Uniformity:  The uniformity of  *  capsules should be within the compendial
limits specified in  *.