Document:

Exhibit 10.1

 

NOTE
MODIFICATION AGREEMENT

 

This Note Modification Agreement (this “Agreement”),
dated as of August 12, 2005 to be effective July 1, 2005, is by and
between Waste Systems, Inc., a Delaware corporation (“Lender”), and 3CI
Complete Compliance Corporation, a Delaware corporation (“Borrower”).  Terms not otherwise defined herein shall have
the same meanings as set forth in the Note (as defined below).

 

RECITALS:

 

WHEREAS, Borrower and Lender have entered
into that certain Second Amended and Restated Secured Promissory Note, dated September 30,
2004, in the original principal amount of $1,302,826.48 (as amended, modified,
or restated from time to time, the “Note”); and

 

WHEREAS, pursuant to the terms and conditions
of the Note, Borrower has agreed to make a principal and interest payment in
the amount of $25,000 on the fifth (5th) business day of each
calendar month commencing on October 7, 2004 (the “Required Payments”);
and

 

WHEREAS, Borrower has requested that Lender
waive requiring Borrower to make the Required Payments that shall become due
and owing for a period of six (6) months, commencing with the payment due
on July 5, 2005, through and including the payment due on December 5,
2005, as set forth herein (such period being the “Deferral Period”); and

 

WHEREAS, Borrower and Lender desire to modify
payment terms of the Note as herein set forth;

 

NOW THEREFORE, for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:

 

1.             Note
Modification.  Borrower
shall not be required to make any Required Payments during the Deferral
Period.  During the Deferral Period, the
unpaid principal balance of the Note shall continue to accrue interest until
paid at the Prime Rate, not to exceed 13% per annum, in accordance with the
terms and conditions of the Note.  After
the Deferral Period, Borrower shall make payments in accordance with the Note
(i.e., Borrower shall pay $25,000 on January 5, 2006, and on the fifth (5th)
business day of each calendar month thereafter until the Maturity Date).  Borrower may prepay the Required Payments
plus all accrued interest, in whole or in part, at any time without notice or
prepayment penalty.

 

2.             Effect of
Modification.  Except as expressly modified and superseded by
this Agreement, the Note shall continue in full force and effect in accordance
with its terms.

 

3.             Multiple
Counterparts. 
This Agreement may be executed in a number of identical separate
counterparts, each of which for all purposes is to be deemed an original, but
both of which shall constitute, collectively, one agreement.

 

4.             Reference to
Agreement. 
The Note and any and all other agreements, documents or instruments now
or hereafter executed and delivered pursuant to the terms hereof containing a
reference to the Note shall mean and refer to the Note, as modified
hereby.  All capitalized words that are
not defined in this Agreement shall have the same definitions as established in
the Note.

 

5.             Headings.  The
headings, captions and arrangements used in this Agreement are for convenience
only and shall not affect the interpretation of this Agreement.

 

6.             Governing Law; Venue.  The parties hereto acknowledge and agree that
this Agreement and the obligations and undertakings of the parties hereunder
shall be performable in Dallas, Dallas County, Texas.   This Note shall be governed by, and construed
in accordance with, the laws of the State of Texas, without giving effect to
such State’s principles of conflict of laws.

 

 

IN WITNESS WHEREOF, the parties hereto have
executed this Agreement effective as of the date first set forth above.

 

 

	
  BORROWER:

  	
  LENDER:

  
	
   

  	
   

  
	
  3CI COMPLETE COMPLIANCE

  	
  WASTE SYSTEMS, INC.

  
	
  CORPORATION

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By: 

  	
  /s/ Matthew
  D. Peiffer

  	
   

  	
  By:

  	
    
  /s/ Elizabeth L. Brandel

  	
   

  
	
   

  	
  Matthew D. Peiffer

  	
  Name: 

  	
    Elizabeth
  L. Brandel

  	
   

  
	
   

  	
  Chief Financial Officer

  	
  Title: 

  	
    VP
  FinanceExhibit 10.28

 

EXECUTION
COPY

 

***Text
Omitted and Filed Separately

with the
Securities and Exchange Commission.

Confidential
Treatment Requested

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

and
240.24b-2.

 

LICENSE AND COLLABORATION AGREEMENT

 

THIS LICENSE AND COLLABORATION AGREEMENT (the “Agreement”) is entered into as of June 22,
2005 (the “Effective Date”) by and
between METABASIS THERAPEUTICS, INC., a
Delaware corporation (“Metabasis”),
and MERCK & CO., INC., a New
Jersey corporation (“Merck”).

 

RECITALS

 

WHEREAS, Metabasis has developed and acquired
proprietary rights related to certain compounds that bind to and activate the
biological target AMPK;

 

WHEREAS, Merck is engaged in the research,
development and commercialization of pharmaceutical products;

 

WHEREAS, Merck and Metabasis desire to enter
into a research collaboration to identify and develop Collaboration Compounds
(as hereinafter defined) upon the terms and conditions set forth herein; and

 

WHEREAS, Merck wishes to obtain, and Metabasis
is willing to grant to Merck, an exclusive, worldwide license to develop and
commercialize Products in the Field (each, as defined below), subject to the
terms and conditions set forth herein.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the
foregoing premises and the mutual covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:

 

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.  References to “Articles”,
“Sections” and “subsections” in this Agreement shall be to Articles, Sections
and subsections respectively, of this Agreement unless otherwise specifically
provided:

 

1.1          “[***]” shall have the meaning provided
in Exhibit A hereto.

 

1.2          “[***]” shall have the meaning provided
in Exhibit A hereto.

 

1

 

1.3          “Affiliate” shall mean (i) any
corporation or business entity of which more than fifty percent (50%) (or if
the jurisdiction where such entity is domiciled prohibits foreign ownership of
such entity, the maximum foreign ownership interest permitted under such laws,
provided that Merck or Metabasis actually controls such entity) of the
securities or other ownership interests representing the equity, the voting
stock or general partnership interest are owned, controlled or held, directly
or indirectly, by Merck or Metabasis; or (ii) any corporation or business
entity which, directly or indirectly, owns, controls or holds more than fifty
percent (50%) (or if the jurisdiction where such entity is domiciled prohibits
foreign ownership of such entity, the maximum foreign ownership interest permitted
under such laws, provided that such entity actually controls Merck or
Metabasis) of the securities or other ownership interests representing the
equity, the voting stock or, if applicable, the general partnership interest,
of Merck or Metabasis; or (iii) any corporation or business entity of
which more than fifty percent (50%) (or if the jurisdiction where such entity
is domiciled prohibits foreign ownership of such entity, the maximum foreign
ownership interest permitted under such laws, provided that the owning entity
actually controls the owned entity) of the securities or other ownership
interests representing the equity, the voting stock or general partnership
interest are owned, controlled or held, directly or indirectly, by a
corporation or business entity described in (i) or (ii).

 

1.4          “Alliance Manager” shall have the meaning
set forth in Section 2.9.

 

1.5          “Biological Target” shall mean
AMP-activated protein kinase.

 

1.6          “Calendar Quarter” shall mean each
respective period of three (3) consecutive months ending on March 31,
June 30, September 30 and December 31.

 

1.7          “Calendar Year” shall mean each
respective period of twelve (12) months commencing on January 1 and ending
on December 31.

 

1.8          “[***] Technology” shall mean (a) any
and all [***] of a [***]; and/or (b) any method of making or using any of
the foregoing.

 

1.9          “Change of Control” shall mean with
respect to a party:  (a) a sale of
all or substantially all of such party’s assets or business relating to this
Agreement; (b) a merger, reorganization or consolidation involving a party
in which the stockholders of such party immediately prior to such transaction
cease to own collectively a majority of the voting equity securities of a
successor entity; or (c) a person or entity, or group of persons or
entities, acting in concert acquire 50% or more of the voting equity securities
or management control of such party, except for a bona fide equity financing
with arm’s-length financial investors.

 

1.10        “Clinical Trial” shall mean a Phase 1 Clinical
Trial, Phase 2 Clinical Trial or Phase 3 Clinical Trial, or any studies
conducted following Marketing Authorization that include the administration of
Product to humans.

 

1.11        “Collaboration” shall have the meaning
provided in Section 2.1.

 

1.12        “Collaboration Compound” shall mean any
compound [***], the primary mechanism of action of which is [***], and that is
in the Control of [***] during the [***] (in

 

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each case, whether or not identified or synthesized
[***] and/or whether or not identified or synthesized [***]).

 

1.13        “Combination Product” shall mean a Product
which includes one or more pharmaceutically active ingredients other than
Collaboration Compound(s) in addition to Collaboration Compound(s).  All references to Product in this Agreement
shall be deemed to include Combination Product.

 

1.14        “Competitive Product” shall mean, with
respect to a Product being commercialized by or on behalf of a Related Party in
a particular country, any preparation in final form being commercialized by a
non Related Party in such country [***], delivered by the same route of
administration as such Product, whether for sale by prescription,
over-the-counter or any other method.

 

1.15        “Compulsory License” shall mean, in the
case of a Product, a compulsory license obtained by a Third Party through the
order, decree or grant of a Regulatory Authority, authorizing such Third Party
to manufacture, use, sell, offer for sale or import such Product in a
particular country.

 

1.16        “Confidential Information” shall have the
meaning provided in Section 9.1.

 

1.17        “Control” shall mean, with respect to any
Know-How, Information, Patent or other intellectual property right, possession
by a party of the ability (whether by ownership, license or otherwise) to grant
access, a license or a sublicense to such Know-How, Information or intellectual
property right without violating the terms of any agreement or other
arrangement with any Third Party.

 

1.18        “Co-Promotion Option” shall have the
meaning provided in Section 3.6.

 

1.19        “Co-Promotion Territory” shall mean the
USA.

 

1.20        “[***]” shall have the meaning provided in Exhibit A hereto.

 

1.21        “Estimated Product Launch Date” shall have
the meaning provided in Section 3.6.

 

1.22        “European Market” shall mean: (a) any
one of the following countries: the United Kingdom, France, Germany, Italy or
Spain; or (b) the European Union as a whole.

 

1.23        “FDA” shall mean the United States Food and
Drug Administration, or any successor agency thereto having the administrative
authority to regulate the marketing of human pharmaceutical products or
biological therapeutic products, delivery systems and devices in the USA.

 

1.24        “Field” shall mean the use of Collaboration
Compounds for all human and animal uses.

 

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1.25        “First Commercial Sale” shall mean, with
respect to any Product, the first sale for end use or consumption of such Product
in a country, excluding, however, any sale or other distribution for use in a
Clinical Trial.

 

1.26        “Full Time Equivalent” or “FTE” shall mean the equivalent of a full-time scientist’s
work time over a twelve-month period (including normal vacations, sick days and
holidays).  The portion of an FTE year
devoted by a scientist to the Collaboration shall be determined by dividing the
number of full days during the applicable twelve-month period devoted by such
employee to the Collaboration by the total number of working days during such
twelve-month period.

 

1.27        “FTE Rate” shall mean the amount Merck will
pay Metabasis during the Research Term to support one (1) Metabasis FTE
dedicated to the Collaboration.  The FTE
Rate will be [***] per FTE.  The FTE Rate
shall include all personnel, equipment, reagents and all other expenses
including support staff and overhead for or associated with an FTE; provided, however, that payment by Merck of the FTE Rate
shall not be deemed to give Merck any ownership interest in any equipment,
reagents or other property purchased by Metabasis using such funding.

 

1.28        “Good Laboratory Practices” or “GLP” shall mean current Good Laboratory Practices
regulations as promulgated by the FDA.

 

1.29        “HepDirect Technology” shall mean (a) any
and all [***] that are activated by any [***] and/or (b) any method of
making or using any of the foregoing.

 

1.30        “HepDirect[***] Patents”
shall mean Metabasis Patents claiming any Invention directed to HepDirect
Technology or [***] Technology either (a) having an effective priority
date for such Invention that is before the Effective Date; or (b) having
an effective priority date for such Invention that is after the Effective Date
but that (i) do not claim the composition of matter of or a method of use
for a Preclinical Candidate, or (ii) do not specifically claim a method of
manufacture of a Preclinical Candidate.

 

1.31        “IND” shall mean an Investigational New
Drug application, Clinical Study Application, Clinical Trial Exemption, or
similar application or submission for approval to conduct human clinical
investigations filed with or submitted to a Regulatory Authority in conformance
with the requirements of such Regulatory Authority.

 

1.32        “IND-Enabling GLP Toxicology Studies” shall
mean genotoxicity, acute toxicology, safety pharmacology, and sub-chronic
toxicology studies, in species that satisfy applicable regulatory requirements,
using applicable GLPs, that meet the standard necessary for submission as part
of an IND filing with a Regulatory Authority.

 

1.33        “Indication” means a separate and distinct
disease or medical condition in humans for which a Product has received
Marketing Authorization, meaning that such Indication is contained in the
Product’s labeling approved by a Regulatory Authority as part of the Marketing
Authorization for such Product.  The
parties agree that: (i) [***]; (ii) the [*** ](e.g., [***]);
and (iii) the [***] (e.g., [***]).

 

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1.34        “Information” shall mean any and all
information and data, including without limitation Merck Know-How, Metabasis
Know-How, and all other scientific, preclinical, clinical, regulatory,
manufacturing, marketing, financial, legal, and commercial information and
data, whether communicated in writing or orally or by any other method, which
is provided by one party to the other party in connection with this Agreement.

 

1.35        “Initiates” shall mean, with respect to a
Clinical Trial, the administration of the first dose to the first human in such
Clinical Trial.

 

1.36        “Invention” shall mean any process, method,
composition of matter, article of manufacture, discovery or finding,
whether or not patentable.

 

1.37        “Joint Development Committee” and “JDC” shall have the meaning provided in section 3.2.

 

1.38        “Joint Research Committee” and “JRC” shall have the meaning provided in Section 2.2.

 

1.39        “Joint Information and Inventions” shall
mean all protocols, formulas, data, Inventions, Know-How, and trade secrets,
patentable or otherwise, resulting from the Collaboration developed or invented
jointly by at least one employee of Merck or others acting on behalf of Merck
and at least one employee of Metabasis or others acting on behalf of Metabasis,
during the Research Term [***], where inventorship of an Invention, whether
patentable or not, is to be determined in accordance with the patent laws of
the USA.

 

1.40        “Jointly-Owned Off-Target Compound” shall
mean any compound within the Joint Information and Inventions the primary
mechanism of action of which is [***].

 

1.41        “Joint Patents” shall mean all Patents that
claim Joint Information and Inventions.

 

1.42        “Joint Technology” shall mean Joint
Information and Inventions and Joint Patents.

 

1.43        “Know-How” shall mean all tangible and
intangible (a) techniques, technology, practices, trade secrets,
Inventions, knowledge, know-how, skill, experience, test data and results
(including pharmacological, toxicological and clinical test data and results),
analytical and quality control data, results and descriptions, software and
algorithms and (b) compounds, compositions of matter, cells, cell lines,
assays, animal models and physical, biological or chemical materials.

 

1.44        “Major Market” shall mean the USA, the
European Union or Japan.

 

1.45        [***]

 

1.46        [***]

 

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1.47        “Marketing Authorization” shall mean all
approvals from the relevant Regulatory Authority in a country or other
regulatory jurisdiction (including without limitation all applicable pricing
and governmental reimbursement approvals) that are necessary to market and sell
a Product for human use in such country or regulatory jurisdiction.

 

1.48        “Materials” shall have the meaning provided
in Section 2.8.

 

1.49        “Merck Information and Inventions” shall
mean all protocols, formulas, data, Inventions, Know-How, and trade secrets,
patentable or otherwise, resulting from the Collaboration that are [***] for
the research, development, manufacture, marketing, use or sale of any
Collaboration Compound or Product in the Field and are developed solely by
employees of Merck or others acting on behalf of Merck during the Research Term
[***].

 

1.50        “Merck Know-How” shall mean all Know-How
that during the Term (i) is in Merck’s Control, (ii) is not generally
known and (iii) is [***] for the conduct of the Collaboration and/or the
research, development, manufacture, marketing, use or sale of any Collaboration
Compound or Product in the Field.

 

1.51        “Merck Patents” shall mean, to the extent
Controlled by Merck as of the Effective Date or during the Term, all Patents
that are [***] for the development, manufacture, use or sale of any
Collaboration Compound or Product in the Field, but excluding the Joint Patents.

 

1.52        “Merck Technology” shall mean the Merck
Patents and Merck Know-How.

 

1.53        “Metabasis Information and Inventions”
shall mean all protocols, formulas, data, Inventions, Know-How, and trade
secrets, patentable or otherwise, resulting from the Collaboration that are
necessary or useful for the research, development, manufacture, marketing, use
or sale of any Collaboration Compound or Product in the Field and are developed
solely by employees of Metabasis or others acting on behalf of Metabasis during
the Research Term [***].

 

1.54        “Metabasis Know-How” shall mean all
Know-How that during the Term (i) is in Metabasis’ Control, (ii) is
not generally known and (iii) is necessary or useful for the conduct of
the Collaboration and/or the research, development, manufacture, marketing, use
or sale of any Collaboration Compound or Product in the Field.

 

1.55        “Metabasis Marks” shall have the meaning
provided in Exhibit A hereto.

 

1.56        “Metabasis Patents” shall mean, to the
extent Controlled by Metabasis as of the Effective Date or during the Term, all
Patents that are necessary or useful for the development, manufacture, use or
sale of any Collaboration Compound or Product in the Field, but excluding the
Joint Patents.

 

1.57        “Metabasis Sales Force” shall have the meaning
provided in Exhibit A hereto.

 

1.58        “Metabasis Technology” shall mean the
Metabasis Patents and Metabasis Know-How.

 

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1.59        “Metabolic Disease Indication” shall mean
any of the following Indications: 
diabetes, dyslipidemia and obesity.

 

1.60        “NDA” shall mean a New Drug Application,
Biologics License Application, Worldwide Marketing Application, Marketing
Authorization Application, filing pursuant to Section 510(k) of the US
Food, Drug and Cosmetics Act, or similar application or submission for
Marketing Authorization of a Product filed with a Regulatory Authority in a
country or other regulatory jurisdiction to obtain marketing approval for a
biological, pharmaceutical or diagnostic product for human use in that country
or regulatory jurisdiction.

 

1.61        “Net Sales” shall mean the gross invoice
price of Product sold by Merck or its Related Parties to the first Third Party
after deducting, if not previously deducted, from the amount invoiced or
received:

 

(a)           trade and quantity discounts other than
early payment cash discounts;

 

(b)           returns, rebates, chargebacks and other
allowances;

 

(c)           retroactive price reductions that are
actually allowed or granted; and

 

(d)           a fixed amount equal to [***] of the
amount invoiced to cover bad debt, sales or excise taxes, early payment cash
discounts, transportation and insurance, custom duties, and other governmental
charges.

 

With respect to sales of a particular Combination Product, and on a
country-by-country basis, the “Net Sales” for royalty purposes hereunder shall
be calculated by multiplying the actual Net Sales (calculated in the manner
described above) of such Combination Product by the fraction [***], in which A
is [***], and B is [***].  All [***]
shall be calculated as the [***] during the applicable accounting period for
which the Net Sales are being calculated. 
If, on a country-by-country basis, no [***], is made in such country
during the applicable accounting period, or if the [***] cannot be determined
for an accounting period, then the “Net Sales” for royalty purposes hereunder
for sales of such Combination Product in each such country shall be determined
by multiplying the Net Sales (calculated in the manner described above) of such
Combination Product in such country by a fraction, determined by mutual
agreement of the parties, that reflects the [***] to the end user in such
country; provided that in no event will the [***] be less than [***] for
purposes of this paragraph.

 

1.62        “Non-Merck Product” shall have the meaning
provided in Exhibit A hereto.

 

1.63        “Patents” shall mean (a) all patents,
certificates of invention, applications for certificates of invention, and
patent applications, including without limitation patent applications under the
Patent Cooperation Treaty and the European Patent Convention, together with (b) any
renewal, division, continuation (in whole or in part), or continued prosecution
applications of any of such patents, certificates of invention and patent
applications, and any and all patents or certificates of invention issuing
thereon, and any and all reissues, reexaminations, extensions, divisions,
renewals, substitutions, confirmations, registrations, revalidations,
revisions, and additions of or to any of the foregoing, and any foreign
counterparts of any of the foregoing and any other patents and patent
applications claiming priority back to any of the foregoing.

 

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1.64        “PCC Criteria” shall mean the criteria that
a particular Collaboration Compound must satisfy prior to nomination for
assessment and review by Merck’s Preclinical Development Review Committee (or
its successor committee) for entry into IND-Enabling GLP Toxicology Studies, as
set forth in an exhibit to the Research Plan (as such exhibit may be modified
by the JRC or JDC from time to time).

 

1.65        “Phase 1 Clinical Trial” shall mean a human
clinical trial in any country that would satisfy the requirements of 21 CFR
312.21(a).

 

1.66        “Phase 2 Clinical Trial” shall mean a human
clinical trial in any country that would satisfy the requirements of 21 CFR
312.21(b).

 

1.67        “Phase 3 Clinical Trial” shall mean a human
clinical trial in any country that would satisfy the requirements of 21 CFR
312.21(c).

 

1.68        “Preclinical Candidate” shall mean a
Collaboration Compound that Merck’s Preclinical Development Review Committee
(or its successor committee) approves for entry into IND-Enabling GLP
Toxicology Studies or that is actually entered into IND-Enabling GLP Toxicology
Studies by Merck or a Related Party.

 

1.69        “Product” shall mean any pharmaceutical or
biological preparation in final form containing a Preclinical Candidate (i) for
sale by prescription, over-the-counter or any other method or (ii) for
administration to human patients in a Clinical Trial, for any and all uses in
the Field.

 

1.70        “Product Patents” shall mean any Metabasis
Patents that claim the composition of matter of a Preclinical Candidate or
Product under development or commercialization by or on behalf of Merck, or any
method of use or manufacture thereof, but excluding, in any event, any and all
HepDirect[***] Patents.

 

1.71        “Project Leader” shall have the meaning
provided in Section 2.2(d).

 

1.72        “Regulatory Authority” shall mean any
applicable government regulatory authority involved in granting approvals for
the manufacturing, marketing, reimbursement and/or pricing of a Product in the
any country in the world, including, in the USA, the FDA.

 

1.73        “Related Party” shall mean Merck, its
Affiliates and sublicensees (which term does not include distributors)
permitted under this Agreement. 
Notwithstanding the foregoing, in no event shall Metabasis be considered
a Related Party.

 

1.74        “Research Plan” shall mean the plan that
sets out the research work to be performed by Metabasis and Merck in conducting
the Collaboration, as such plan may be developed, amended or modified by the
JRC or the parties as contemplated under this Agreement.

 

1.75        “Research Term” shall mean the three-year
period commencing on the Effective Date, subject to extension for one
additional year by mutual written agreement of the parties [***].

 

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1.76        “Royalty Term” shall mean, in the case of
any Product, in any country, the period of time commencing on the First
Commercial Sale of such Product in such country and ending upon the [***] of (a) [***]
after the date of First Commercial Sale of such Product in such country, and (b) the
expiration of the last to expire of the Metabasis Patents, Merck Patents or
Joint Patents containing a Valid Patent Claim relating to such Product in such
country.

 

1.77        “Tail Period” shall mean, if this Agreement
is terminated prior to the [***] of the Effective Date, the period beginning on
the date of such termination and ending on the [***] of the Effective Date; provided, however, that if the Research Term is extended
beyond the [***] of the Effective Date, such period shall continue until the
date that is [***] after the expiration or termination of such extended
Research Term.

 

1.78        “Term” shall have the meaning provided in Section 10.1.

 

1.79        “Third Party” shall mean an entity other
than Merck and its Related Parties, and Metabasis and its Affiliates.

 

1.80        “USA” shall mean the United States of
America, its territories and possessions.

 

1.81        “Valid Patent Claim” shall mean a claim of
an issued and unexpired patent included within the Metabasis Patents, Merck
Patents or Joint Patents that either (i) claims Collaboration Compound or
Product as a composition-of-matter or (ii) claims a method of use for, or
method of manufacture of, Collaboration Compound or Product, which claim has
not been revoked or held unenforceable or invalid by a decision of a court or
other governmental agency of competent jurisdiction, which decision is not
appealable or has not been appealed within the time allowed for appeal, and
which claim has not been disclaimed, denied or admitted to be invalid or
unenforceable through reissue, re-examination or disclaimer or otherwise.

 

2.                                      COLLABORATION

 

2.1          Collaboration.  Subject to the terms and conditions of this
Agreement, Metabasis and Merck shall conduct a discovery collaboration during
the Research Term to identify or synthesize Collaboration Compounds satisfying
the PCC Criteria for potential development by Merck in the Field (collectively,
the “Collaboration”), with an initial
focus on the treatment of diseases and disorders associated with the metabolic
syndrome.  The activities to be
undertaken in the course of the Collaboration shall be set forth in the initial
Research Plan, which shall be developed, and may be amended from time to time,
by the JRC in accordance with this Article 2.

 

2.2          Joint Research Committee.  No later than ten (10) days following
the Effective Date, the parties shall establish a committee to facilitate the
Collaboration as follows:

 

(a)           Composition of the Joint Research Committee.  The Collaboration shall be conducted under
the direction of a joint research committee (the “Joint
Research Committee” or “JRC”)
composed of three (3) named representatives of Merck and three (3) named
representatives of Metabasis.  Each party
may change its representatives to the JRC from time to time in its sole
discretion, effective upon notice to the other party of such change.  These representatives shall have appropriate
technical credentials, experience and knowledge, and ongoing familiarity with
the Collaboration.  Additional representatives
or consultants may from

 

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time to time, by mutual consent of the parties, be
invited to attend JRC meetings, subject to such representative’s or consultant’s
written agreement to comply with confidentiality and non use obligations
equivalent to those set forth in Article 9 hereof.  Each party shall bear its own expenses
related to the attendance of such meetings by its representatives.  The JRC shall be chaired by a representative
of Merck.  Except as expressly provided
in this Section 2.2, the JRC’s decision-making authority shall be limited
to scientific and technical matters related to the conduct of the
Collaboration.  The JRC shall have the
authority to develop and agree upon the initial Research Plan, as described
below, and thereafter to modify the Research Plan, including, without
limitation, the allocation by scientific discipline of the FTEs at Metabasis
funded by Merck in accordance with Section 2.4, subject to the limitations
set forth below in this Section 2.2. 
Decisions of the JRC shall be made by unanimous vote, with each party’s
representatives on the JRC collectively having one (1) vote.  In the event that the JRC cannot or does not,
after good faith efforts, reach agreement on an issue, such issue shall be
referred to the Alliance Managers, who shall meet promptly thereafter and shall
negotiate in good faith to resolve such issue. 
If they cannot resolve such issue within ten (10) business days of
commencing such negotiations, then such issue shall be referred to the
Executive Vice President, Worldwide Basic Research for Merck and the Executive
Vice President of Research and Development for Metabasis.  Such officers of the parties shall meet
promptly thereafter and shall negotiate in good faith to resolve such
issue.  If they cannot resolve such issue
within thirty (30) days of commencing such negotiations, then the resolution
and/or course of conduct shall be determined by the [***], but [***] will
provide [***] with respect to matters for which [***] and will give good faith
consideration to [***] and make reasonable efforts to take [***].  Notwithstanding the foregoing, in no event
shall the JRC [***] have the right:

 

(i)            to modify or amend the terms and
conditions of this Agreement other than the Research Plan;

 

(ii)           to determine which [***] personnel
perform Collaboration activities or act as [***] representatives on the JRC;

 

(iii)         to determine the specific means by which
[***] executes the activities for which it is responsible under the Research
Plan;

 

(iv)          to require [***] to perform tasks
inconsistent with the approved Research Plan;

 

(v)            to approve an initial Research Plan
that would require, or to modify or amend the Research Plan in any manner that
would require, [***] beyond that specified in, or agreed upon in accordance
with, Section [***] or to incur expenses not contemplated by this
Agreement; or

 

(vi)          to determine any such issue in a manner
that would conflict with the express terms and conditions of this Agreement.

 

No later than thirty (30) days following the
Effective Date, the parties shall convene the inaugural JRC meeting (the “Inaugural Meeting”).  The principal focus of the Inaugural Meeting
shall be discussion of, and agreement upon, the initial Research Plan,
including the

 

***Confidential
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10

 

allocation by
scientific discipline of the Initial Metabasis FTEs provided for in Section 2.4.  If the JRC is unable to agree unanimously
upon the initial Research Plan within thirty (30) days after the Effective
Date, the issue shall be resolved as described in the first paragraph of this Section 2.2(a) .  The preliminary allocation of the Initial
Metabasis FTEs is agreed by the parties to be [***] FTEs and [***] FTEs.  Any modification of the allocation by
scientific discipline of the Initial Metabasis FTEs shall require the unanimous
approval of all JRC members [***].

 

(b)           Meetings.  The JRC shall meet in accordance with a schedule established
by mutual agreement of the parties, but no less frequently than once per
Calendar Quarter, with the location for such meetings alternating between
Metabasis and Merck facilities (or such other locations as is mutually agreed
by the parties).  Alternatively, the JRC
may meet by means of teleconference, videoconference or other similar
communications equipment.  The JRC shall
confer solely regarding the status of the Collaboration, review relevant data,
consider and advise on any technical issues that arise, consider issues of
priority, and review and advise on any budgetary and FTE-allocation matters
relating to the Collaboration which are referred to the JRC.  No JRC meeting may be conducted unless at
least two (2) representatives of each party are participating.

 

(c)           Minutes. 
The hosting party shall have responsibility for preparing definitive
minutes of such JRC meeting, a draft of which shall be circulated for comment
to all members of the JRC within fifteen (15) days after the relevant
meeting.  Such minutes shall provide a
description, in reasonable detail, of the Collaboration progress during the
period since the most recent JRC meeting and of the discussions at the meeting,
a list of any actions or determinations approved by the JRC at such meeting,
and the identification of any issues that were not resolved by the JRC at such
meeting.  The Project Leaders for the
parties shall discuss any comments on such minutes and finalize the minutes by
no later than thirty (30) days after such meeting.  Any disagreement on the minutes shall be
resolved in accordance with Section 2.2(a).

 

(d)           Project Leaders.  Merck and Metabasis each shall appoint a
person (a “Project Leader”) from the
JRC to coordinate its part of the Collaboration.  The Project Leaders shall be the primary
contact between the parties with respect to the Collaboration.  Each party shall notify the other party as
soon as practicable upon changing this appointment; provided, however, that
each party’s Project Leader shall at all times be a representative on the JRC.

 

2.3          Conduct of the Collaboration.  Subject to the terms and conditions of this
Agreement, each party shall be responsible for managing and controlling its
respective research obligations under the Research Plan.  Each party shall proceed diligently and in a
timely manner with the work set out in the Research Plan by using their
respective good faith efforts to allocate sufficient time, effort, equipment
and facilities to the Collaboration and to use personnel with sufficient skills
and experience as are required to accomplish the Collaboration in accordance
with the terms of this Agreement and Research Plan.  In no event shall Metabasis be obligated to
devote to the Collaboration more than the number of FTEs being funded by Merck
under this Agreement.  Each party shall
be entitled to utilize the services of Affiliates to perform its Collaboration
responsibilities.  Each party shall be
entitled to utilize the services of Third Parties to perform its Collaboration
responsibilities only upon the prior written consent of the JRC (not to be
unreasonably withheld).  Notwithstanding
any such use of Affiliates or Third Parties, each

 

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11

 

party shall remain at all times responsible for the
performance of its respective responsibilities under the Collaboration and
shall obtain the written agreement of each such Third Party, prior to the time
such Third Party initiates work, to comply with confidentiality and non use
obligations equivalent to those set forth in Article 9 and to assign
ownership of Inventions made in the course of Collaboration activities to such
party.

 

2.4          Use of Merck Research Funding and Metabasis FTE
Commitments.  Metabasis
shall apply the research funding it receives from Merck under this Agreement to
carry out its Collaboration activities in accordance with the Research Plan and
the terms and conditions of this Agreement. 
During the Research Term, Metabasis shall dedicate [***] FTEs to the
Collaboration to work directly on the Collaboration (the “Initial
Metabasis FTEs”), all of which shall be funded by Merck in
accordance with Section 5.2.  In the
event that the JRC modifies the Research Plan such that the total number of
FTEs dedicated to the Collaboration by both parties in the aggregate (“Aggregate FTEs”) will exceed [***], then [***] of the total number of
Aggregate FTEs in excess of the most recently agreed number of Aggregate FTEs
shall be Metabasis FTEs (the “Additional Metabasis FTEs”);
provided, however, that [***]; and provided, further, that [***].  After the initial designation by [***], [***]
shall not have the right [***] to modify such allocation without the prior
written consent of [***].  All of the
Additional Metabasis FTEs provided by Metabasis shall be funded by Merck in
accordance with Section 5.2.

 

2.5          Exchange of Compounds and Information.  Promptly following the Effective Date,
Metabasis shall disclose to Merck all Collaboration Compounds known to
Metabasis as of the Effective Date and, subject to availability, shall provide
samples of such Collaboration Compounds to Merck.  During the Research Term, each party shall
promptly disclose to the other party any and all Collaboration Compound(s) identified
by such party in the course of the Collaboration as a result of screening
compound libraries Controlled by such party. 
In addition, during the Research Term, each party shall promptly
disclose to the other party any and all compounds synthesized by such party in
the course of performing Collaboration activities (regardless of whether such
compounds constitute Collaboration Compounds). 
At a party’s request, and subject to availability, the other party shall
provide to such party samples of any such compound(s) for use by such party in
accordance with this Agreement.  Nothing
herein shall require either party to disclose information received from a Third
Party that remains subject to bona fide
confidentiality obligations to such Third Party.

 

2.6          Records and Reports.

 

(a)           Records. 
Metabasis and Merck shall each maintain records, in sufficient detail
and in good scientific manner appropriate for patent and regulatory purposes,
which shall fully and properly reflect all work done and results achieved in
the performance of the Collaboration by such party.

 

(b)           Quarterly Reports.  Within thirty (30) days following the end of
each Calendar Quarter during the Research Term, each party shall provide to the
other party a written progress report in English which shall describe the work
performed by such party to date on the Collaboration and the allocation by
scientific discipline of such party’s FTEs to Collaboration activities,
evaluate the work performed in relation to the goals of the Collaboration and
provide

 

***Confidential
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12

 

such other information required by the Collaboration or reasonably
requested by the other party relating to the progress of the goals or
performance of the Collaboration. 
Without limiting the generality of the foregoing, each such progress
report will disclose any Collaboration Compounds identified or synthesized by
such party during such Calendar Quarter.

 

2.7          Compliance.  Each party shall conduct the Collaboration in
accordance with all applicable laws, rules and regulations, including,
without limitation, GLPs, if applicable. 
In addition, if animals are used in research hereunder, each party will
comply with the Animal Welfare Act or any other applicable local, state,
national and international laws or regulations relating to the care and use of
laboratory animals.  The parties are
encouraged to use the highest standards, such as those set forth in the Guide
for the Care and Use of Laboratory Animals (NRC, 1996), for the humane
handling, care and treatment of such research animals.  Any animals which are used in the course of
the Collaboration, or products derived from those animals, such as eggs or
milk, will not be used for food purposes, nor will these animals be used for
commercial breeding purposes.  Metabasis
shall notify Merck in writing of any deviations from applicable regulatory or
legal requirements that relate to or may impact the Collaboration.  Merck shall notify Metabasis in writing of
any deviations from applicable regulatory or legal requirements to the extent
such deviation(s) could reasonably be expected to have a material adverse
effect on the Collaboration.  Each party
hereby certifies that it will not and has not employed or otherwise used in any
capacity the services of any person debarred under Section 21 USC 335a in
performing any services hereunder.

 

2.8          Materials.  During the Research Term, each party may
provide the other party with chemical or biological materials, including
without limitation Collaboration Compound(s), for the purpose of conducting the
Collaboration (collectively, the “Materials”).  Each party shall use the Materials supplied
by the other party solely for the purposes of carrying out its respective
activities under the Collaboration in accordance with the terms of this
Agreement and, in the case of Merck, of developing, manufacturing and/or
commercializing Collaboration Compound(s) and/or Product(s) in accordance with
this Agreement.  Neither party shall
transfer, deliver or disclose any such Materials of the other party, or any
derivatives, analogs, modifications or components thereof, to any Third Party
without the prior written approval of the providing party, except that: (a) Metabasis
may transfer Materials provided by Merck to Metabasis’ permitted subcontractors
under Section 2.3 of its Collaboration activities for the sole purpose of
performing such Collaboration activities; and (b) Merck may transfer
Materials provided by Metabasis (i) to Merck’s permitted subcontractors
under Section 2.3 of its Collaboration activities for the sole purpose of
performing such Collaboration activities or (ii) to Merck’s Related Parties and
their agents for the sole purpose of developing, manufacturing and/or
commercializing Collaboration Compound(s) and/or Product(s); subject in each
case to the terms and conditions of this Agreement.  The Materials are not to be used in humans,
except as contemplated by this Agreement and permitted by applicable law.  Upon expiration or termination of the
Collaboration, (x) Metabasis shall, at Merck’s option, deliver to Merck or
destroy (in accordance with instructions from Merck) any unused Materials
supplied by Merck, and any derivatives, analogs, modifications or components
thereof, and (y) Merck shall deliver to Metabasis or destroy (in accordance
with instructions from Metabasis) any unused Materials supplied by Metabasis,
and any derivatives, analogs, modifications or components thereof; provided
that for so long as the license set forth in Section 4.1(a)(ii) remains in
effect and Merck is conducting development and/or commercialization activities
on at least one Collaboration Compound and/or

 

13

 

Product hereunder, Merck may retain any quantities
supplied by Metabasis of Preclinical Candidates and Products.

 

2.9          Alliance Managers.  Each of the parties shall appoint one senior
representative to act as its Alliance Manager. 
The role of the Alliance Manager is to act as a single point of contact
between the parties to ensure a successful collaboration.  The Alliance Managers shall attend all JRC
and JDC meetings as non-voting participants, unless they are also appointed
members of such committee pursuant to Section 2.2 or Section 3.2, as
applicable; provided, however, that an Alliance Manager may bring any matter to
the attention of any committee if such Alliance Manager reasonably believes
that such matter warrants such attention.

 

Each party may change its designated Alliance
Manager from time to time upon written notice to the other party.  Any Alliance Manager may designate a
substitute to temporarily perform the functions of that Alliance Manager.  Each Alliance Manager shall be charged with
creating and maintaining a collaborative work environment within the JRC and
the JDC.  Each Alliance Manager also
shall:

 

(i)            identify and bring disputes to the
attention of the JRC or JDC, as applicable, in a timely manner and be the point
of first referral in all matters of conflict resolution;

 

(ii)           provide a single point of communication
for seeking consensus both internally within the parties’ respective
organizations and between the parties;

 

(iii)         plan and coordinate cooperative efforts
and internal and external communications; and

 

(iv)          take responsibility for ensuring that JRC
and JDC meetings and the production of meeting minutes occur as set forth in
this Agreement and that relevant action items resulting from such meetings are
appropriately carried out or otherwise addressed.

 

3.                                      DEVELOPMENT
AND COMMERCIALIZATION OF PRODUCTS

 

3.1          Clinical Development and Registration.  Subject to the terms and conditions of this
Agreement, Merck shall control, and be solely responsible for the costs
associated with, the worldwide preclinical and clinical development and
registration of Products by or on behalf of either party, including without
limitation any and all studies that include the administration of Collaboration
Compound or Product to humans.

 

3.2          Joint Development Committee: Composition, Meetings and
Cost.  Promptly (but no
later than thirty (30) days) following approval of the first Preclinical
Candidate, Merck and Metabasis shall establish a Joint Development Committee
(the “Joint Development Committee” or “JDC”) with an equal number of (not
to exceed four (4)) representatives of each party.  Merck’s representatives on the JDC shall
disclose to Metabasis’ representatives on the JDC, within a reasonable period
of time, all information and documentation in Merck’s Control relating to the
development of Products that is reasonably necessary, in Merck’s opinion, for
Metabasis’ representatives to participate in the proceedings of the JDC,
potentially including non-clinical and Clinical Trial results, final protocols,
draft and final study reports, original and

 

14

 

revised development plans for Product and regulatory submissions and
correspondence with regard to Product. 
The Joint Development Committee shall meet in accordance with a schedule established
by mutual agreement of the parties, but no less frequently than once per
Calendar Quarter, with the location for such meetings alternating between
Metabasis and Merck facilities (or such other locations as may be determined by
the JDC).  Alternatively, the JDC may meet
by means of teleconference, videoconference or other similar communications
equipment.  Each party shall bear its own
expenses related to the attendance of such meetings by its representatives.  The JDC shall be chaired by a representative
of Merck.  [***] shall provide [***] with
[***] within [***] of [***].  [***] shall
be the holder of all NDAs for Products throughout the world.

 

3.3          Decision-Making.  [***] shall have final decision-making
authority on the Joint Development Committee and in general regarding
development and regulatory work and issues relating to Products worldwide.  However, [***] representatives on the JDC
will provide [***] representatives on the JDC with an opportunity to present
[***] with respect to [***] and will give good faith consideration
thereto.  [***] representatives on the
JDC will make reasonable efforts to take [***] into account when developing
recommendations to [***].

 

3.4          Commercialization of Products.  Subject to the terms and conditions of this
Agreement (including, without limitation, Articles 5 and 6), and subject to
Metabasis’ Co-Promotion Option set forth in Section 3.6, Merck shall
control, and be solely responsible for the costs associated with, the worldwide
commercialization of Products.  Merck
shall have final decision-making authority for all issues relating to
commercialization of Products, including, but not limited to, all reimbursement
and pricing matters.  The appropriate
Merck marketing representatives shall meet with the appropriate Metabasis
representatives once during each Calendar Year to review the worldwide
commercialization of Products, for information purposes only.  Furthermore, in the event that Metabasis and
Merck enter into a co-promotion agreement with respect to a Product, Metabasis
shall be kept informed regarding the commercialization of such Product in the
USA through a joint commercialization committee to be established by the
parties pursuant to Exhibit A.

 

3.5          Manufacturing.  Merck shall be responsible for the worldwide
supply of all Collaboration Compounds and Products developed and/or
commercialized hereunder.

 

3.6          Co-Promotion Option.  Subject to the terms and conditions of this
Agreement, Merck hereby grants to Metabasis the option to co-promote Products
in the Co-Promotion Territory (the “Co-Promotion Option”).  Metabasis may exercise the Co-Promotion
Option, at its sole discretion, by written notice to Merck, given no later than
[***] in advance of Merck’s good faith estimated launch date of the first
Product in the Co-Promotion Territory (the “Estimated Product Launch
Date”), of which Estimated Product Launch Date Merck shall keep
Metabasis regularly and fully informed. 
If Metabasis exercises its Co-Promotion Option, the parties shall
negotiate in good faith and enter into a co-promotion agreement governing such
co-promotion activities no later than [***] prior to the Estimated Launch
Date.  Such co-promotion agreement shall
include, without limitation, the terms set forth in Exhibit A
hereto.  Metabasis shall not have the
right to assign, sublicense, delegate or otherwise transfer its Co-Promotion
Option or any of its rights or obligations under the co-promotion agreement
entered into pursuant

 

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15

 

to this Section 3.6 to any Third Party or in
connection with a Change of Control of Metabasis, except with the prior written
consent of Merck.

 

3.7          Disclosure Regarding
Additional Compounds and Preclinical Candidates.  During the Term, Merck shall keep Metabasis
regularly and fully informed as described in this Section 3.7 regarding
the worldwide development and commercialization of Products by Merck or its
Related Parties.  Such information shall
be communicated to Metabasis through the Joint Development Committee.  In addition, to the extent not previously
disclosed to the other party in writing pursuant to Section 2.5, and no
less frequently than quarterly, each party shall provide the other party with a
written report disclosing the initial generation or acquisition of any
Collaboration Compound by or on behalf of such party or any of its
Affiliates/Related Parties.  In addition,
each such report by Merck shall include the approval or designation of any
Preclinical Candidate during such period. 
The provisions of this Section 3.7 shall survive expiration or
termination of the Research Term for so long as Merck has a license under Section 4.1(a)(ii).

 

3.8          Adverse Experience Reporting.  Subject to Article 9 hereof, each party
agrees throughout the Term to notify the other party within two (2) working
days, in English, of any information of which such party becomes aware
concerning any side effect, injury, toxicity or sensitivity reaction, or any
unexpected incident, and the severity thereof (hereinafter “Adverse
Experience”), where such Adverse Experience is Serious and
associated with the clinical uses, studies, investigations, tests and
commercialization of Product, whether or not determined to be attributable to
Product.  Each party shall furnish the other
party with copies of all other Adverse Experiences reported to such party in
connection with the  commercialization of
Product, in English, within ten (10) working days after receipt.  “Serious” as used in this Section refers
to an experience which results in death, is immediately life threatening,
results in persistent and significant disability/incapacity or requires
in-patient hospitalization, or prolongation of existing hospitalization, or is
a congenital anomaly, cancer or an overdose. 
Other important medical events that may jeopardize the patient or may
require intervention to prevent one of the outcomes previously listed should
also be considered Serious.

 

It is understood and agreed that these Adverse Experience reporting
requirement provisions are based on the policies and procedures of Merck and
regulatory reporting requirements. 
Accordingly, in the event of changes to regulatory requirements for
Adverse Experience reporting, Metabasis agrees to comply with such revised
notification requirements.

 

4.                                      LICENSES

 

4.1          License Grants.

 

(a)           By Metabasis.

 

(i)            Collaboration License.  Subject to the terms and conditions of this
Agreement, Metabasis hereby grants to Merck, during the Research Term, an
exclusive (even as to Metabasis, except as set forth below in this Section 4.1(a)(i)),
worldwide, royalty free license, without the right to sublicense except as
permitted under Section 2.3, under the Metabasis Technology and Metabasis’
interest in the Joint Technology solely to perform Merck’s obligations under
the Research Plan as expressly authorized by this Agreement.  The

 

16

 

exclusivity of the foregoing
license shall be subject to Metabasis’ retained right to practice under the
Metabasis Technology and the Joint Technology solely to perform Metabasis’
obligations under the Research Plan as expressly authorized by this Agreement
and to practice under the Metabasis Technology and the Joint Technology for
purposes other than research, development and commercialization of
Collaboration Compounds and Products.

 

(ii)           Development and Commercialization Licenses relating to
Collaboration Compounds. 
Subject to the terms and conditions of this Agreement, Metabasis hereby
grants to Merck, during the Term, an exclusive (even as to Metabasis, except as
set forth below in this Section 4.1(a)(ii)), worldwide, royalty bearing
license, with the right to sublicense, under the Metabasis Technology and
Metabasis’ interest in the Joint Technology, to research, develop, make, have
made and use Collaboration Compounds for the sole purpose of identifying and
developing Preclinical Candidates and Products in the Field and to develop,
make, have made, use, sell, offer for sale, have sold and import Preclinical
Candidates and Products in the Field; provided, however,
that Merck and its Related Parties shall not initiate or conduct, or have
conducted, IND-Enabling GLP Toxicology Studies or any Clinical Trial of, or
sell, offer for sale or have sold, any Collaboration Compound or any Product,
unless and until Merck has approved or designated such Collaboration Compound
as a Preclinical Candidate. If Metabasis exercises the Co-Promotion Option, the
exclusivity of the foregoing license shall be subject to Metabasis’ retained
right to practice under the Metabasis Technology and the Joint Technology
solely to co-promote Products in the Co-Promotion Territory in accordance with Section 3.6,
Exhibit A hereto and any
co-promotion agreement entered into by the parties in connection
therewith.  The exclusivity of the
foregoing license shall also be subject to Metabasis’ retained right to
practice under the Metabasis Technology and the Joint Technology for purposes
other than research, development and commercialization of Collaboration
Compounds and Products.

 

(b)           By Merck.

 

(i)            Collaboration License.  Subject to the terms and conditions of this
Agreement, Merck hereby grants to Metabasis, during the Research Term, a non
exclusive, worldwide, royalty free license, without the right to sublicense,
under the Merck Technology and Merck’s interest in the Joint Technology solely
to perform Metabasis’ obligations under the Research Plan.

 

4.2          Exclusivity.  [***], each party agrees that it shall not,
directly or indirectly, [***], except pursuant to, and subject to the terms and
conditions of, this Agreement, including, without limitation, Article 10
hereof.  Without limiting the generality
of the foregoing, during the Term, Merck and its Related Parties shall not
initiate or conduct, or have conducted, IND-Enabling GLP Toxicology Studies or
any Clinical Trial of, or sell, offer for sale or have sold any Collaboration
Compound or any Product, unless Merck has approved such Collaboration Compound
as a Preclinical Candidate.

 

4.3          Diligence Obligations.  Merck shall use reasonable efforts,
consistent with the usual practice followed by Merck in pursuing the
development, commercialization and marketing of its other pharmaceutical
products for the treatment of diabetes (and no less than the efforts used by
Merck with respect to its other pharmaceutical products of similar commercial
potential), at its own expense, to develop and commercialize, itself or through
Related Parties, as

 

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promptly as reasonably practicable, [***] on a
commercially reasonable basis in the Major Markets and in such other countries
throughout the world where in Merck’s reasonable opinion it is commercially
viable to do so.  In the event that (a) Merck’s
development and commercialization efforts with respect to Preclinical
Candidates and Products substantially cease for a period of [***] or more, or (b) Merck
makes a determination to discontinue its development and commercialization
efforts with respect to Preclinical Candidates and Products, then Merck shall
provide Metabasis with prompt written notice thereof.  In addition, if Metabasis in good faith
believes that Merck’s good faith development and commercialization efforts with
respect to Preclinical Candidates and Products have substantially ceased for a
period of [***] or more, then Metabasis may provide Merck with written notice
thereof, in which event Merck shall have sixty (60) days from the date of such
notice in which to provide Metabasis with a written description of its
then-current efforts with respect to Preclinical Candidates and Compounds and
its rationale for concluding that such efforts are reasonable.

 

4.4          Retained Rights; No Implied Licenses.  Subject to Sections 4.2 and 7.1(b), Metabasis
hereby expressly reserves the right to practice, and to grant licenses under,
the Metabasis Technology and the Joint Patents for any and all purposes other
than the specific purposes for which Merck has been granted an exclusive
license under Section 4.1(a). 
Subject to Sections 4.2 and 7.1(b), Merck hereby expressly reserves the
right to practice, and to grant licenses under, the Merck Technology and the
Joint Patents for any and all purposes. 
No right or license under any Patents or Information is granted or shall
be granted by implication.  All such
rights or licenses are or shall be granted only as expressly provided in the
terms of this Agreement.

 

5.                                      FEES
AND PAYMENTS

 

5.1          Upfront Fee.  Merck shall make a one-time, non refundable,
non creditable payment to Metabasis equal to US$5,000,000 within thirty (30)
days of the Effective Date.

 

5.2          Research Funding.  During the Research Term, Merck shall make
research funding payments to Metabasis for the applicable number of FTEs per
year determined in accordance with Section 2.4, quarterly in advance, at
the FTE Rate; provided, however, that the
payments for the first Calendar Quarter and the last Calendar Quarter of the
Research Term shall be made on a pro rata basis
and payment for the first Calendar Quarter shall be made within ten (10) days
after the first day of the Research Term. 
All other FTE payments shall be made on the first business day of each
Calendar Quarter during the Research Term. 
Within thirty (30) days following the end of each Calendar Quarter,
Metabasis shall provide Merck with a list of names of people providing FTEs to
the Collaboration and the percentage of their time worked on the Collaboration
on a monthly basis.  If Metabasis fails,
in any Calendar Year, to provide the specified aggregate number of FTEs, then,
in addition to any other rights that Merck has under this Agreement, Merck
shall be entitled to [***]; provided, however,
that if the amount of any such [***] exceeds the amount of Merck’s remaining
research funding obligations under this Section 5.2, then Merck shall be
entitled to [***] to Metabasis under this Article 5; and provided, further, that, notwithstanding the provisions of Section 5.3(c),
in the event that Merck’s other payment obligations to Metabasis under this Article 5
during the Calendar Year immediately following the Calendar Year in which the
[***] occurred (the “Following Calendar Year”) are lower in amount than the
amount of such [***], all of such [***] to such other payment

 

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18

 

obligations shall be [***] Merck by Metabasis within
thirty (30) days following the end of the Following Calendar Year.

 

5.3          Milestone Payments.

 

(a)           Preclinical Milestone.  Within thirty (30) days following initiation
of [***] with respect to a Collaboration Compound, Merck shall pay to Metabasis
a preclinical milestone payment of [***]. 
The foregoing preclinical milestone payment shall be payable on a
Collaboration Compound-by-Collaboration Compound basis; provided,
however, that this milestone payment shall only be payable with
respect to the first [***] to achieve such milestone.

 

(b)           Development Milestones.  Within thirty (30) days following the first
occurrence of each of the events set forth below with respect to any
Collaboration Compound or a Product containing such Collaboration Compound,
Merck shall pay to Metabasis the milestone payment set forth below (whether
such milestone is achieved by Merck or a Related Party): 

 

	
  Milestone Event

  	
   

  	
  Milestone Payment

  	
   

  
	
  (1)

  	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  (2)

  	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  (3)

  	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  (4)

  	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  (5)

  	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  (6)

  	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  (7)

  	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  (8)

  	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  (9)

  	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  (10)

  	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  (11)

  	
  [***]

  	
   

  	
  [***]

  	
   

  

 

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19

 

	
  Milestone Event

  	
   

  	
  Milestone
  Payment

  	
   

  
	
  (12)

  	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  (13)

  	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  (14)

  	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  (15)

  	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  (16)

  	
  [***]

  	
   

  	
  [***]

  	
   

  

 

Milestone payments [***] set forth in this Section 5.3(b) shall
be payable [***].  Milestone payments
[***] set forth in this Section 5.3(b) shall be payable on a
Collaboration Compound-by-Collaboration Compound basis, but each of such
payments shall be payable [***]; provided, however,
that if (A) [***] and (B) [***], then Merck shall be entitled to
[***].

 

(c)           Milestones Non-Refundable and Non-Creditable.  All payments made to Metabasis pursuant to
this Section 5.3 are non-refundable and, except as expressly set forth in Section 5.3(b),
may not be credited against any other payments payable by Merck to Metabasis
under this Agreement.

 

5.4          Royalties.  Merck shall pay to Metabasis royalties on Net
Sales of each Product by Merck and its Related Parties, on a Product-by-Product
and country-by-country basis, until the expiration of the Royalty Term with
respect to such Product, at the applicable rates set forth below:

 

(a)           [***] of that portion of total annual
Net Sales of such Product [***];

 

(b)           [***] of that portion of total annual
Net Sales of such Product [***]; and

 

(c)           [***] of that portion of total annual
Net Sales of such Product [***];

 

provided, however,
that if (1) a particular Product is labeled for human use and (A) there
is no Valid Patent Claim covering such Product in the country of sale, or (B) gross
sales of Competitive Products of such Product in such country by any non
Related Party attain, on a Calendar Year basis, [***] or more in such country
of sale as measured by [***] OR (2) the

 

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20

 

Product is labeled for animal
use and there is a Valid Patent Claim in the country of sale, then the royalty
rates applicable to Net Sales of such Product in such country thereafter for
the remainder of the Royalty Term for such Product in such country shall be
[***] of the amounts set forth in (a) through (c) above; and provided further that if a particular Product is labeled for
animal use and (A) there is no Valid Patent Claim covering such Product in
the country of sale, or (B) gross sales of Competitive Products of such
Product in such country by any non-Related Party attain, on a Calendar Year
basis, [***] or more in such country of sale as measured by [***], then the
royalty rates applicable to Net Sales of such Product in such country
thereafter for the remainder of the Royalty Term for such Product in such
country shall be [***] of the amounts set forth in (a) through (c) above.

 

5.5          Change in Sales Practices.  The parties acknowledge that during the Term,
Merck’s sales practices for the marketing and distribution of Product may
change to the extent to which the calculation of the payment for royalties on
Net Sales may become impractical or even impossible.  In such event the parties agree to meet and
discuss in good faith new ways of compensating Metabasis to the extent
currently contemplated under Section 5.4, subject to the mutual written
agreement of the parties.

 

5.6          Royalties for [***].  In those cases where Merck or its Affiliates
sell [***] to an independent Third Party and do not receive any consideration
from such independent Third Party with respect to sales of [***], the royalty
obligations under Section 5.4 shall be applicable to the sale price of the
[***]; provided that (a) such sale of [***] is in the best interest of
maximizing the commercial value of such [***] and (b) each other product
that is sold by Merck or its Affiliate to such independent Third Party is also
sold without Merck or its Affiliate receiving any consideration from such
independent Third Party with respect to sales of such product other than the
reasonable arm’s-length price of such product, it being the parties’ intent
that Merck may not utilize the [***] to such Third Party to obtain a [***] for
other products sold by Merck to such Third Party.

 

5.7          Compulsory Licenses.  If a Compulsory License is granted to a Third
Party with respect to Product in any country with a royalty rate lower than the
royalty rate provided by Section 5.4, then the royalty rate to be paid by
Merck on Net Sales in that country under Section 5.4 shall be [***] for
the period during which such Compulsory License is in effect.  Merck shall use commercially reasonable
efforts to oppose the granting of any such Compulsory License, and if any such
Compulsory License is granted, to eliminate or limit such Compulsory License to
the extent possible.

 

5.8          Third Party Licenses.  In the event that Merck or its Related
Parties are required to obtain one or more licenses under Patents of other
Third Parties that, in the absence of such license(s), would be infringed by
the manufacture, use or sale of a Preclinical Candidate (or Product containing
such Preclinical Candidate) (hereinafter “Third Party Patent
Licenses”), [***] of the royalties actually paid under such
Third Party Patent Licenses by Merck or its Related Parties for sale of such
Preclinical Candidate (or Product containing such Preclinical Candidate) in a
country for a Calendar Quarter shall be creditable against the royalty payments
due Metabasis by Merck with respect to the sale of such Preclinical Candidate
or Product in such country; provided, however,
that in no event shall the royalties owed by Merck to Metabasis with

 

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21

 

respect to Net Sales of such Preclinical Candidate or
Product for such Calendar Quarter in such country be reduced by more than
[***].

 

6.                                      PAYMENT;
RECORDS; AUDITS

 

6.1          Payment; Reports.  During the Term following the First
Commercial Sale of a Product, Merck shall furnish to Metabasis a quarterly
written report for the Calendar Quarter showing the Net Sales of all Products
subject to royalty payments sold by Merck and its Related Parties during the
reporting period and the royalties payable under this Agreement in sufficient
detail to permit confirmation of the accuracy of the royalty payment made,
including, without limitation and on a country-by-country basis, the number of
Products sold, the gross sales and Net Sales of Products, the quantity and
gross selling price of [***] sold by Merck or its Affiliate(s) to an
independent Third Party as contemplated by Section 5.6, the royalties (in
U.S. dollars) payable, and the method used to calculate the royalty.  Reports shall be due on the sixtieth (60th)
day following the close of each Calendar Quarter.  Royalties shown to have accrued by each
royalty report shall be due and payable on the date such royalty report is
due.  Merck shall keep complete and
accurate records in sufficient detail to enable the royalties payable hereunder
to be determined.

 

6.2          Exchange Rate; Manner and Place of Payment.  All payments to be made by Merck to Metabasis
under this Agreement shall be made in USA dollars and may be paid by check made
to the order of Metabasis or bank wire transfer in immediately available funds
to such bank account in the USA designated in writing by Metabasis from time to
time.  In the case of sales outside the
USA, the rate of exchange to be used in computing the amount of currency
equivalent in USA dollars due Metabasis shall be made at the monthly rate of
exchange utilized by Merck in its worldwide accounting system prevailing on the
third to the last business day of the month prior to the month in which such
sales are recorded by Merck.

 

6.3          Income Tax Withholding.  If laws, rules or regulations require
withholding of income taxes or other taxes imposed upon payments set forth in Article 5,
Merck shall make such withholding payments as required and subtract such
withholding payments from the payments set forth in Article 5.  Merck shall submit appropriate proof of
payment of the withholding taxes to Metabasis within a reasonable period of
time.  Each party shall provide
reasonable assistance to the other party in minimizing or claiming exemptions
from, or refunds of, any such applicable withholding taxes, upon the other
party’s written request.

 

6.4          Audits.

 

(a)           Merck shall maintain, and shall cause
its Affiliates to maintain, complete and accurate books and records in
connection with the sale of Products hereunder, as necessary to allow the
accurate calculation of the royalties due to Metabasis hereunder.  Upon the written request of Metabasis and not
more than once in each Calendar Year, Merck shall permit an independent certified
public accounting firm of nationally recognized standing selected by Metabasis
and reasonably acceptable to Merck, at Metabasis’ expense (except as set forth
in Section 6.4(b) below), to have access during normal business hours
to such of the records of Merck and its Affiliates as may be reasonably
necessary to verify the accuracy of the royalty reports hereunder for any year
ending not more than [***] prior to the date of such request.  The

 

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22

 

accounting firm shall disclose to Metabasis only
whether the royalty reports are correct or incorrect and the specific details
concerning any discrepancies.  No other
information shall be provided to Metabasis.

 

(b)           If such accounting firm correctly
identifies a discrepancy made during such period, the appropriate party shall
pay the other party the amount of the discrepancy within thirty (30) days of
the date Metabasis delivers to Merck such accounting firm’s written report so
correctly concluding, or as otherwise agreed upon by the parties, plus interest
calculated in accordance with Section 6.5. 
The fees charged by such accounting firm shall be paid by Metabasis; provided, however, that if audit uncovers an underpayment of
royalties by Merck that exceeds the greater of [***] or [***] of the total
royalties owed, then the fees of such accounting firm shall be paid by Merck.

 

(c)           Merck shall include in each sublicense
granted by it pursuant to this Agreement a provision requiring the sublicensee
to make reports to Merck, to keep and maintain records of sales made pursuant
to such sublicense and to grant access to such records by Metabasis’
independent accountant to the same extent required of Merck under this
Agreement.

 

(d)           Absent fraud, upon the expiration of
[***] following the end of any year, the calculation of royalties payable with
respect to such year shall be binding and conclusive upon Metabasis, and Merck
and its Related Parties shall be released from any liability or accountability
with respect to royalties for such year.

 

(e)           Metabasis shall treat all financial
information subject to review under this Section 6.4 or under any
sublicense agreement in accordance with the confidentiality and non-use
provisions of this Agreement, and shall cause its accounting firm to enter into
an acceptable confidentiality agreement with Merck and/or its Related Parties
obligating it to retain all such information in confidence pursuant to such
confidentiality agreement.

 

6.5          [***].  In the event that any payment [***], the payment
shall [***]; provided, however, that in no
event shall such [***].  The payment of
such [***] shall not limit a party from exercising any other rights it may have
as a consequence of the [***].  In the
event that Merck [***] claimed by Metabasis to be [***] on the basis that a bona fide dispute between the parties exists as to whether
or when such [***], and such [***] is ultimately determined to be [***],
and/or, as applicable, such [***] is ultimately determined, then such [***]
shall be deemed to have [***].

 

7.                                      INTELLECTUAL
PROPERTY

 

7.1          Ownership; Use; Disclosure; Right of First Negotiation.

 

(a)           Ownership.  The entire right, title, and interest in:

 

(i)            Metabasis Information and Inventions
shall be owned solely by Metabasis;

 

(ii)           Merck Information and Inventions shall
be owned solely by Merck;

 

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23

 

(iii)         Joint Information and Inventions shall be
owned jointly by Metabasis and Merck.

 

(b)           Use of Joint Information and Inventions.  Subject to the provisions of this Agreement
(including without limitation Sections 4.1 and 4.2), during the Term each party
shall have the non-exclusive right to use Joint Information and Inventions as
it deems appropriate for any and all purposes, and shall have the right to
grant licenses under its interest in any Joint Information and Inventions as it
deems appropriate without the consent of the other party; provided, however,
that [***].

 

(c)           Disclosure of Joint Information and Inventions.  Each party shall promptly disclose to the
other all Inventions within the Joint Information and Inventions, including,
without limitation, all Jointly-Owned Off-Target Compounds.  In addition, Merck shall promptly disclose to
Metabasis any Invention within the Merck Information and Inventions, and
Metabasis shall promptly disclose to Merck any Invention within the Metabasis
Information and Inventions.

 

(d)           Right of First Negotiation.  In the event that, during the period
beginning on the Effective Date and ending on the [***] of the Effective Date,
Metabasis wishes to enter into any agreement with a Third Party for the
clinical development or commercialization of any compound discovered or
invented through the Collaboration solely by employees of Metabasis, or others
acting on behalf of Metabasis, the primary mechanism of action of which is
[***], Metabasis shall send a written notification to Merck describing such
compound and setting forth Metabasis’ interest in entering into an agreement
with a Third Party relating to such compound. 
Upon Merck’s request, Metabasis shall send Merck, under confidentiality,
all relevant information relating to such compound.  No later than [***] following Merck’s receipt
of such notification and, if requested by Merck, such information, Merck shall
notify Metabasis as to Merck’s interest in entering into an agreement with
Metabasis relating to the development and commercialization of such
compound.  If Merck either (i) notifies
Metabasis that Merck is not interested in such compound, or (ii) does not
send a notification to Metabasis within such [***] period, Metabasis shall be
free to enter into an agreement with a Third Party relating to such
compound.  If Merck notifies Metabasis
within such [***] period that Merck is interested in such compound, Merck and
Metabasis shall negotiate in good faith the terms and conditions relating to
Merck’s participation in the development and commercialization of such
compound.  If, within [***] of Metabasis’
receipt of such notification from Merck, Merck and Metabasis fail to agree on
the terms and conditions relating to Merck’s participation in the development
and commercialization of such compound, then Metabasis shall be free to enter
into an agreement with a Third Party relating to such compound.

 

(e)           Inventorship.  In the event of any disagreement between the
parties regarding the inventorship of any Invention, the parties shall
[***].  The parties agree that Joint
Patent Counsel shall [***].  The parties
will [***] the fees associated [***].

 

(f)            Execution of Documents.  Each party shall execute such documents and
perform such acts as may be reasonably requested by the other party to enable
the other party to use its interest in Joint Information and Inventions or to
otherwise give effect to the provisions set forth in this Section 7.1.

 

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24

 

7.2          Patent Prosecution.

 

(a)           As used herein, “prosecution” shall
include interferences, reexaminations, reissues, oppositions, and the like.

 

(b)           Merck Patents.  Merck shall have the sole right to control
the preparation, filing, prosecution and maintenance of Merck Patents using
patent counsel of Merck’s choice, at Merck’s expense.

 

(c)           Metabasis Patents.  Metabasis shall have the sole right to
control the preparation, filing, prosecution and maintenance of Metabasis
Patents (except those that are also Product Patents) using patent counsel of
Metabasis’ choice.  Metabasis shall give
timely notice to Merck of any decision not to file applications for, or to
cease prosecution and/or maintenance of, or not to continue to pay the expenses
of prosecution and/or maintenance of, any Metabasis Patents on a
country-by-country basis and, in such case, shall permit Merck, at its sole
discretion and expense, to file or to continue prosecution or maintenance of
such Metabasis Patents; provided, however,
that Merck shall have the right to credit its actual expenses incurred in the
prosecution of such Metabasis Patents against the royalties due to Metabasis
under Section 5.4 and shall provide Metabasis with supporting
documentation of such expenses. 
Notwithstanding the preceding provisions of this Section 7.2(c),
Merck shall not have the right to [***].

 

(d)           Joint Patents and Product Patents.  During the Term of this Agreement, all
preparation, filing, prosecution and maintenance of Joint Patents and Product
Patents shall be governed by this Section 7.2(d).

 

(i)            Joint Patent Counsel.  Merck and Metabasis will select patent
counsel mutually agreeable to both parties (the “Joint
Patent Counsel”) to prepare, file, prosecute, and maintain the
Joint Patents and Product Patents.  Merck
will have the first right to control the preparation, prosecution and
maintenance of the Joint Patents and Product Patents, with Metabasis having the
right to review and comment on drafts of patent submissions; provided, however, that any [***].

 

(ii)           Option to Prosecute and Maintain Patents.  Merck shall give timely notice to Metabasis
of any decision not to file applications for, or to cease prosecution and/or
maintenance of, or not to continue to pay the expenses of prosecution and/or
maintenance of, any Joint Patents or Product Patents on a country-by-country
basis and, in such case, shall permit Metabasis, at its sole discretion and
expense, to file or to continue prosecution or maintenance of such Joint
Patents or Product Patents (in which event, in the case of Joint Patents, Merck
shall execute such documents and perform such acts at its expense as may be
reasonably necessary to [***] in a timely manner).  Any such patents or patent applications for
which [***] shall not be considered part of Joint Patents or Product Patents
and the claims of such Patents shall not be subject to the license provisions
of Article 4.

 

(iii)         Interference, Opposition, Reexamination and Reissue.  Merck and Metabasis shall inform the other of
any request for, or filing or declaration of, any interference, opposition, or
reexamination relating to the Joint Patents or Product Patents within thirty
(30) days of learning of such event.  [***]
shall be the lead party in any such interference,

 

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25

 

opposition, or reexamination relating to the Joint
Patents or Product Patents, subject to the provisions of this Section 7.2(c)(iii).  [***] shall have the right to review and
consult with [***] regarding any submission to be made in connection with such
proceeding.  Notwithstanding the
foregoing or any other provision of this Agreement to the contrary:

 

(1)           In any interference, opposition, or
reexamination relating to any Joint Patent or Product Patent, [***] shall not
(and it will [***]) specifically [***], or take any action that could
reasonably be expected to [***];

 

(2)           [***] shall give [***] timely notice of
any proposed settlement of an interference relating to a Joint Patent or
Product Patent and shall not enter into such settlement without [***] prior
written consent (such consent not to be unreasonably withheld);

 

(3)           [***] shall give [***] timely notice of
any decision not to initiate or continue an interference relating to a Joint Patent
or Product Patent, and, except where such interference involves a Joint Patent
or Product Patent that claims a Collaboration Compound or Product then under
development or commercialization by Merck, shall permit [***], at its sole
discretion and expense, to initiate or continue such interference in [***]
name; and

 

(4)           In connection with any interference,
opposition, reissue or reexamination proceeding relating to the Joint Patents
or Product Patents, Merck and Metabasis will cooperate fully and will provide
each other with any information or assistance that either reasonably
requests.  Each party shall keep the
other informed of developments in any such action or proceeding, including, to
the extent permissible by law, consultation and approval of any settlement.

 

7.3          Patent Fees.

 

(a)           Except as expressly set forth below, all
costs associated with filing, prosecuting, issuing and maintaining Metabasis
Patents, including interference, opposition, reexamination and reissue actions,
shall be borne by Metabasis. With respect to any Product Patent, [***] shall
bear all costs associated with filing, prosecuting, issuing, and maintaining
such Product Patent, including interference, opposition, reexamination, and
reissue actions, and shall reimburse [***] for any such costs incurred by [***]
with respect to such [***] from and after the Effective Date and before such [***]
becoming a Product Patent.  [***] shall
deliver to [***] an invoice for such costs, which shall be accompanied by
appropriate supporting documentation, and [***] shall pay such invoice in full
within thirty (30) days of receipt.

 

(b)           All costs associated with filing,
prosecuting, issuing and maintaining Merck Patents, including interference,
opposition, reexamination and reissue actions shall be borne by Merck.

 

(c)           All costs associated with filing,
prosecuting, issuing and maintaining Joint Patents, including interference,
opposition, reexamination and reissue actions, shall be [***].  Notwithstanding the foregoing, until [***]
shall bear [***] share of costs incurred under this Section 7.3(c) (“[***]”).  Commencing upon [***] shall be entitled to [***]
not to exceed [***].

 

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26

 

7.4          Cooperation.  Each party will promptly provide to the other
party information reasonably requested by other party that is necessary for the
prosecution activities pursuant to Section 7.2 above.  The parties agree to cooperate and to take
such actions as the parties mutually agree are reasonable to maximize the
protections available under the safe harbor provisions of 35 U.S.C. 103(c) for
USA patents/patent applications.

 

7.5          Enforcement and Defense.  Metabasis and Merck shall promptly notify the
other in writing of any alleged or threatened infringement of any Metabasis
Patents, Merck Patents or Joint Patents of which they become aware.  Both parties shall use their commercially
reasonable efforts in cooperating with each other to terminate such infringement
without litigation.

 

(a)           Metabasis Patents.  Metabasis shall have the sole right to bring
and control any action or proceeding with respect to infringement of any
Metabasis Patent[***] at its own expense and by counsel of its own choice.

 

(b)           Merck Patents.  Merck shall have the first right to bring and
control any action or proceeding with respect to infringement of any Merck
Patent at its own expense and by counsel of its own choice.  With respect to infringement of any Merck
Patent that could reasonably be expected to have a [***].

 

(c)           Product Patents and Joint Patents.  [***] shall have the first right to bring and
control any action or proceeding with respect to infringement of any Product
Patent or Joint Patent, at its own expense and by counsel of its own choice,
and [***] shall have the right, at its own expense, to be represented in any
such action by counsel of its own choice. 
If [***] fails to bring an action or proceeding within (i) ninety
(90) days following the notice of alleged infringement or (ii) ten (10) days
before the time limit, if any, set forth in the appropriate laws and
regulations for the filing of such actions, whichever comes first, [***] shall
have the right to bring and control any such action at its own expense and by
counsel of its own choice, and [***] shall have the right, at its own expense,
to be represented in any such action by counsel of its own choice.  In no event shall either party admit the
invalidity of, or after exercising its right to bring and control an action
under this Section 7.5(c), fail to defend the validity of, any Product
Patent or Joint Patent without the other party’s prior written consent, nor
shall [***] take a position [***] without [***] prior written consent, such
consent not to be unreasonably withheld.

 

In the event a party brings an infringement action in accordance with
this Section 7.5, the other party shall cooperate fully, including, if
required to bring such action, the furnishing of a power of attorney or being
named as a party.  Neither party shall
have the right to settle any patent infringement litigation under this Section 7.5
relating to any Product Patent or Joint Patent without the prior written
consent of the other party, which shall not be unreasonably withheld.

 

(d)           Except as otherwise agreed by the
parties as part of a cost-sharing arrangement, any recovery obtained by either
or both Merck and Metabasis in connection with or as a result of any action
contemplated by Sections 7.5(a) through 7.5(c), whether by settlement or
otherwise, shall be shared in order as follows:

 

(i)            The party which initiated and
prosecuted the action shall recoup all of its costs and expenses incurred in
connection with the action;

 

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27

 

(ii)           The other party shall then, to the
extent possible, recover its costs and expenses incurred in connection with the
action;

 

(iii)         Any remaining amounts after such
reimbursement of the parties’ costs and expenses that are attributable to lost
sales or lost profits with respect to Products shall [***]; and

 

(iv)          Any other remaining amounts after such
reimbursement of the parties’ costs and expenses shall belong to the party that
brought and controlled such action.

 

(e)           Each party shall inform the other party
of any certification regarding any Merck Patents, Metabasis Patents or Joint
Patents it has received pursuant to either 21 U.S.C. §§ 355(b)(2)(A)(iv) or
(j)(2)(A)(vii)(IV) or its successor provisions, or Canada’s Patented Medicines
(Notice of Compliance) Regulations Article 5, or any similar provisions in
a country other than the United States and Canada, and shall provide the other
party with a copy of such certification within five (5) days of receipt by
such party.  Metabasis’ and Merck’s
rights with respect to the initiation and prosecution of any legal action as a
result of such certification or any recovery obtained as a result of such legal
action shall be as defined in Sections 7.5(a) through 7.5(c).

 

(f)            For any action under Sections 7.5(a) through
7.5(c) for which the parties are sharing expenses, the party that is
contributing the greatest monetary amount shall control the action, but shall
continue to consult with the other party on all major strategy decisions.

 

(g)           [***] shall give [***] timely written
notice of the proposed settlement of any action under Section [***] and
shall not enter into any such settlement without the prior written consent of [***],
not to be unreasonably withheld.

 

7.6          Patent Term Restoration.  The parties shall cooperate in obtaining
patent term restoration or supplemental protection certificates or their
equivalents in any country where applicable to Product Patents, Merck Patents
or Joint Patents.  If elections with
respect to obtaining such patent term restoration are to be made, [***] shall
have the right to make the election to seek patent term restoration or
supplemental protection and [***] shall abide by such election.  Should [***] wish to obtain patent term
restoration or supplemental protection certificates or their equivalents in any
country where applicable to [***], the parties shall discuss the same in good
faith, but [***] shall have the ultimate decision-making authority with respect
thereto.

 

8.                                      REPRESENTATIONS
AND WARRANTIES

 

8.1          Mutual Representations and Warranties.  Each party represents and warrants to the
other that: (a) it is duly organized and validly existing under the laws
of its jurisdiction of incorporation or formation, and has full corporate or
other power and authority to enter into this Agreement and to carry out the
provisions hereof; (b) it is duly authorized to execute and deliver this
Agreement and to perform its obligations hereunder, and the person or persons
executing this Agreement on its behalf has been duly authorized to do so by all
requisite corporate or partnership action; (c) this Agreement is legally
binding upon it, enforceable in accordance with its terms, and does not
conflict with any agreement, instrument or understanding, oral or written,

 

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28

 

to which it is a party or by which it may be bound,
nor violate any law or regulation of any court, governmental body or
administrative or other agency having jurisdiction over it; and (d) each
employee or agent of such party performing work under this Agreement is
contractually obligated to assign to such party any and all Inventions made by
such employee or agent.

 

8.2          Metabasis Representations and Warranties.  Metabasis represents and warrants to Merck that,
as of the Effective Date:

 

(a)           there are no pending legal actions of
which Metabasis has received written notice or judgments or settlements against
or owed by Metabasis with respect to the Metabasis Technology, and Metabasis
has not received written notice of any pending or threatened claims or
litigation seeking to invalidate any Metabasis Patents or claiming that the
practice of the Metabasis Technology infringes or misappropriates the
intellectual property rights of any Third Party;

 

(b)           to Metabasis’ knowledge, the Metabasis
Patents in existence on the Effective Date are not invalid or unenforceable,
and Metabasis is not aware of any Patent owned or controlled by a Third Party
with claims that dominate (in whole or in part) the claims of the Metabasis
Patents;

 

(c)           all inventors of any inventions claimed
by the Metabasis Patents who were Metabasis employees at the time such
invention was made have an obligation to assign their entire right, title and
interest in and to such inventions and the corresponding Metabasis Patents to
Metabasis, and, to Metabasis’ knowledge, no person, other than those persons
named as inventors in any Metabasis Patents, is an inventor of the invention(s)
claimed in such Metabasis Patents; and

 

(d)           Metabasis has not received written
notice concerning the institution or possible institution of any interference,
reexamination, reissue, revocation or nullification proceeding involving any
Metabasis Patents.

 

8.3          Performance by Affiliates, Sublicensees and Subcontractors.  The parties recognize that each may perform
some or all of its obligations or exercise some or all of its rights under this
Agreement (to the extent expressly permitted hereby) through one or more
subcontractors or, in the case of Merck, Related Parties; provided,
however, that each party shall remain responsible and be guarantor
of the performance by its subcontractors and Related Parties and shall cause
its subcontractors and Related Parties to comply with the provisions of this
Agreement in connection with such performance. 
In particular, if any subcontractor or Related Party participates in
research, development or commercialization activities under this Agreement or
with respect to Products, the restrictions of this Agreement which apply to the
activities of such party with respect to Products shall apply equally to the
activities of such subcontractor or Related Party.

 

8.4          Disclaimer.  Except as expressly set forth herein, THE
TECHNOLOGY AND INTELLECTUAL PROPERTY RIGHTS PROVIDED BY EACH PARTY HEREUNDER
ARE PROVIDED “AS IS” AND EACH PARTY EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES
OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT

 

29

 

LIMITATION THE WARRANTIES OF DESIGN, MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF
THIRD PARTIES, OR ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICES,
IN ALL CASES WITH RESPECT THERETO. 
Without limiting the generality of the foregoing, each party expressly
does not warrant (a) the success of any study or test commenced under the
Collaboration or (b) the safety or usefulness for any purpose of the technology
it provides hereunder.

 

8.5          Limitation of Liability.  EXCEPT FOR PAYMENTS UNDER ARTICLE 5 OR
LIABILITY FOR BREACH OF SECTIONS 4.1 OR 4.2 OR ARTICLE 9, NEITHER PARTY
SHALL BE ENTITLED TO RECOVER FROM THE OTHER PARTY ANY SPECIAL, INCIDENTAL,
CONSEQUENTIAL OR PUNITIVE DAMAGES IN CONNECTION WITH THIS AGREEMENT OR ANY
LICENSE GRANTED HEREUNDER; provided, however, that
this Section 8.5 shall not be construed to limit either party’s
indemnification obligations under Section 10.4(b)(v) or Article 11.

 

9.                                      CONFIDENTIALITY

 

9.1          Confidential
Information. 
Except to the extent expressly authorized by this Agreement or otherwise
agreed in writing by the parties, the parties agree that, during the Term and
for [***] thereafter, the receiving party shall keep confidential and shall not
publish or otherwise disclose and shall not use for any purpose other than as
expressly provided for in this Agreement any Information furnished to it by the
other party pursuant to this Agreement (collectively, “Confidential
Information”).  Each party
may use such Confidential Information only to the extent required to accomplish
the purposes of this Agreement or as otherwise permitted under this
Agreement.  Each party will use at least
the same standard of care as it uses to protect proprietary or confidential
information of its own to ensure that its employees, agents, consultants and
other representatives do not make any unauthorized use or disclosure of the
Confidential Information.  Each party
will promptly notify the other upon discovery of any unauthorized use or
disclosure of the Confidential Information.

 

9.2          Exceptions.  Confidential Information shall not include
any information which the receiving party can prove by competent evidence: (a) is
now, or hereafter becomes, through no fault of the receiving party, generally
known or available; (b) is known by the receiving party at the time of receiving
such Information; (c) is hereafter furnished to the receiving party by a
Third Party who may lawfully do so and is not under an obligation of
confidentiality to the disclosing party; (d) is discovered or developed by
the receiving party outside the Collaboration and without the use of
Confidential Information belonging to the disclosing party; or (e) is the
subject of a written permission to disclose provided by the disclosing party.

 

9.3          Authorized Disclosure.  Each party may disclose Confidential
Information belonging to the other party as expressly permitted by this
Agreement or if and to the extent such disclosure is reasonably necessary in
the following instances:

 

(a)           filing or prosecuting Patents as
permitted by this Agreement;

 

***Confidential
Treatment Requested

 

30

 

(b)           regulatory filings for Products such
party has a license or right to develop hereunder;

 

(c)           prosecuting or defending litigation as
permitted by this Agreement;

 

(d)           complying with applicable court orders
or governmental regulations;

 

(e)           in the case of Merck, conducting
development and/or commercialization activities in accordance with the license
granted under Section 4.1(a)(ii);

 

(f)            disclosure to Affiliates, Related Parties,
employees and consultants of the receiving party, solely to the extent required
to accomplish the purposes of this Agreement, in each case on the condition
that such Affiliate, Related Party, employee or consultant agrees to be bound
by terms of confidentiality and non-use at least equivalent in scope to those
set forth in this Article 9;

 

(g)           disclosure of Confidential Information
(other than information of a scientific or technical nature) to other Third
Parties in connection with due diligence or similar investigations by such
Third Parties and/or in confidential financing documents, provided, in each
case, that such party shall use all commercially reasonable efforts to obtain
the prior written agreement of any such Third Party to be bound by terms of
confidentiality and non-use substantially equivalent in scope to those set
forth in this Article 9; provided, however,
that the parties acknowledge that the term of such confidentiality and non use
obligations need not be the same as the parties’ obligations under this Article 9
to the extent the same is not feasible under the circumstances;

 

(h)           disclosure of Confidential Information
(other than information of a scientific or technical nature) to the receiving
party’s financial advisors for the sole purpose of enabling such financial
advisors to provide advice to the receiving party, provided, in each case, that
such party shall use all commercially reasonable efforts to obtain the prior
written agreement of any such financial advisor to be bound by terms of
confidentiality and non-use substantially equivalent in scope to those set
forth in this Article 9; provided, however, that
the parties acknowledge that the term of such confidentiality and non use
obligations need not be the same as the parties’ obligations under this Article 9
to the extent the same is not feasible under the circumstances; and

 

(i)            disclosure to the receiving party’s
attorneys and independent accountants for the sole purpose of enabling such
attorneys and independent accountants to provide advice to the receiving party.

 

Notwithstanding the foregoing, in the event a
party is required to make a disclosure of the other party’s Confidential
Information pursuant to Section 9.3(c) or (d), it will, to the extent
possible, give reasonable advance notice to the other party of such disclosure
and use efforts to secure confidential treatment of such information at least
as diligent as such party would use to protect its own confidential
information, but in no event less than reasonable efforts.  In any event, the parties agree to take all
reasonable action to avoid unauthorized disclosure of Confidential Information
hereunder.  The parties will consult with
each other on the provisions of this

 

31

 

Agreement to be redacted in any filings made
by the parties with the Securities and Exchange Commission or as otherwise
required by law.

 

9.4          Publications.  Merck and Metabasis each acknowledge the
other party’s interest in publishing the results of its research and
development efforts in order to obtain recognition within the scientific and
investment communities and to advance the state of scientific knowledge and
agree that clinical trial results regarding Collaboration Compounds or Products
shall be presented at appropriate scientific conferences in a timely
fashion.  Each party also recognizes the
mutual interest in obtaining valid patent protection and in protecting business
interests and trade secret information. 
Consequently, except for disclosures permitted pursuant to Section 9.5,
(a) Metabasis shall not be entitled to make any written publication or
oral presentation relating to Collaboration Compounds or Products except with
Merck’s prior written consent and Merck’s review and approval of such publication
or presentation, and (b) Merck shall deliver to Metabasis a copy of any
written publication or an outline of any oral presentation relating to
Collaboration Compounds or Products at least thirty (30) days prior to
submission for publication or presentation. 
Merck shall consider in good faith Metabasis’ reasonable requests to
delete Confidential Information from such publication or presentation.  In addition, Metabasis shall have the right
to request a reasonable delay in publication or presentation in order to
protect patentable information.  If
Metabasis requests such a delay, Merck shall delay submission or presentation
for a period of no more than ninety (90) days to enable patent applications
protecting each party’s rights in such information to be filed in accordance
with Article 7.

 

9.5          Publicity.  The parties shall issue a joint press release
in the form attached hereto as Exhibit B
on, or as promptly as practicable following, the Effective Date.  It is understood that each party may desire or
be required to issue subsequent press releases relating to this Agreement or
activities hereunder.  Without limiting
the generality of the foregoing, [***]. 
The parties agree to consult with each other reasonably and in good
faith with respect to the text and timing of such press releases prior to the
issuance thereof, and Metabasis agrees to consider in good faith Merck’s
requests to limit disclosure in such press releases, provided that a party may
not unreasonably withhold consent to such releases, and that either party may
issue such press releases and make such disclosures as it determines, based on
advice of counsel, are reasonably necessary to comply with applicable laws or
regulations, including without limitation the rules or regulations of the
United States Securities and Exchange Commission or a similar regulatory agency
in a country other than the United States or of any stock exchange or Nasdaq;
provided further that the party seeking to make the disclosure in order to
comply with applicable laws or regulations must provide a copy of the proposed
disclosure to the other party at least five (5) business days prior to
making such disclosure, or if five (5) days is not possible, then with as
much advance notice as possible.  In
addition, following the initial joint press release announcing this Agreement,
either party shall be free to disclose, without the other party’s prior written
consent, the existence of this Agreement, the identity of the other party and
those terms of the Agreement which have already been publicly disclosed in
accordance herewith.  Metabasis shall
provide to Merck’s Vice President, Public Affairs a copy of each press release
or other written public disclosure made by Metabasis that refers to this
Agreement or the activities of the parties hereunder.

 

***Confidential
Treatment Requested

 

32

 

10.                               TERM
AND TERMINATION

 

10.1        Term. 
The term of the Collaboration shall commence on the Effective Date and
continue until expiration of the Research Term, unless this Agreement is
earlier terminated pursuant to Section 10.2 or Section 10.3.  The term of this Agreement (the “Term”) shall commence on the
Effective Date and continue until the expiration of the last Royalty Term for
any Product with respect to which Merck has a license under this Agreement,
unless earlier terminated pursuant to Section 10.2 or Section 10.3.

 

10.2        Termination at Will.  In the event that Merck has abandoned its
research efforts directed toward the Biological Target prior to the expiration
of the Research Term, Merck may terminate this Agreement upon [***] prior
written notice to Metabasis given no earlier than the [***].  In addition, at any time following the
expiration of the Research Term, Merck may terminate this Agreement upon [***]
prior written notice to Metabasis.

 

10.3        Termination for Cause.  Each party shall have the right to terminate
this Agreement upon sixty (60) days’ prior written notice to the other upon the
occurrence of any of the following:

 

(a)           Upon or after the bankruptcy,
insolvency, dissolution or winding up of the other party (other than a
dissolution or winding up for the purpose of reconstruction or amalgamation);
or

 

(b)           Upon or after the breach of any material
provision of this Agreement by the other party if the breaching party has not
cured such breach within the sixty (60)-day period following written notice by
the non-breaching party specifying the breach and requesting that it be cured.

 

10.4        Effect of Termination; Surviving Obligations.

 

(a)           Upon termination of this Agreement by
Merck pursuant to Section 10.3(b):

 

(i)            the licenses granted under Sections
4.1(a)(i) and 4.1(b), if then in effect, shall automatically terminate and
revert to the granting party;

 

(ii)           the license granted by Metabasis to
Merck under Section 4.1(a)(ii), if in effect immediately prior to such
termination, shall remain in effect in accordance with its terms, subject to
compliance by Merck with all surviving provisions of this Agreement and the
payment obligations set forth in Article 5; and

 

(iii)         except as otherwise expressly provided in
this Section 10.4, all other rights and obligations of the parties
hereunder shall terminate and be of no further force or effect.

 

(b)           Upon termination of this Agreement by
Merck pursuant to Section 10.2 after the expiration of the Research Term,
or termination of this Agreement by Metabasis pursuant to Section 10.3(b):

 

***Confidential
Treatment Requested

 

33

 

(i)            the licenses granted under Sections 4.1(a) and
4.1(b), if then in effect, shall automatically terminate and revert to the
granting party;

 

(ii)           effective upon such termination, Merck
shall, and it hereby does, grant to Metabasis a non-exclusive, worldwide,
perpetual, royalty-bearing license, with the right to sublicense, under the
Merck Technology to develop, make, have made, use, sell, offer for sale, have
sold and import Collaboration Compounds and Products in the Field.  Metabasis shall pay to Merck with respect to
Collaboration Compounds and Products the milestones and royalties described in
Sections 5.3 and 5.4; provided that the
references to “Merck” in such Sections, in Sections 6.1 through 6.5 and in the
related definitions shall be deemed to be, and shall be, references to “Metabasis”
for purposes of this Section 10.4(b)(ii);

 

(iii)         Merck shall promptly, to the extent
permitted by applicable laws, transfer and assign to Metabasis all data and
documents, Marketing Authorizations and other regulatory filings and approvals
in Merck’s control as of the date of such termination that solely relate to and
are necessary for Metabasis to continue the development and commercialization
of Products in the Field (collectively, “Supporting Documents”),
provided that all Supporting Documents will be supplied by Merck on an “as-is”
basis only and Merck shall have no liability whatsoever with respect to such
Supporting Documents; and provided further that Merck shall not be required
under this Section 10.4(b)(iii) to expend more time and effort than
is commercially reasonable;

 

(iv)          Metabasis hereby agrees to save, defend
and hold Merck and its Affiliates and their respective directors, officers,
employees and agents harmless from and against any and all claims, suits,
actions, demands, liabilities, expenses and/or losses, including reasonable
legal expense and attorneys’ fees (for the purposes of this Section 10.4(b)(iv) only,
collectively, “Losses”), which they may
become subject to as a result of any claim, demand, action or other proceeding
by any person or entity other than Merck and its Related Parties, to the extent
such Losses arise directly or indirectly out of Metabasis’ development,
commercialization or sale of any Products or use of any Supporting Documents;
except, in each case, to the extent such Losses result from the gross
negligence or willful misconduct of Merck or its Related Party(ies) or the
breach by Merck of any warranty, representation, covenant or agreement made by
Merck in this Agreement; and

 

(v)            except as otherwise expressly provided
in this Section 10.4, all other rights and obligations of the parties
hereunder shall terminate and be of no further force or effect.

 

(c)           Upon termination of this Agreement by
Merck pursuant to Section 10.2 prior to the expiration of the Research
Term:

 

(i)            the licenses granted under Sections 4.1(a) and
4.1(b), if then in effect, shall automatically terminate and revert to the
granting party;

 

(ii)           effective upon such termination, Merck
shall, and it hereby does, grant to Metabasis a non-exclusive, worldwide,
perpetual, fully paid-up license, with the right to 

 

34

 

sublicense, under the Merck Technology to develop,
make, have made, use, sell, offer for sale, have sold and import Collaboration
Compounds and Products in the Field;

 

(iii)         Merck shall promptly, to the extent
permitted by applicable laws, transfer and assign to Metabasis all Supporting
Documents, provided that all Supporting Documents will be supplied by Merck on
an “as-is” basis only and Merck shall have no liability whatsoever with respect
to such Supporting Documents; and provided further that Merck shall not be
required under this Section 10.4(c)(iii) to expend more time and
effort than is commercially reasonable;

 

(iv)          Metabasis hereby agrees to save, defend
and hold Merck and its Affiliates and their respective directors, officers,
employees and agents harmless from and against any and all claims, suits,
actions, demands, liabilities, expenses and/or losses, including reasonable
legal expense and attorneys’ fees (for the purposes of this Section 10.4(c)(iv) only,
collectively, “Losses”), which they may
become subject to as a result of any claim, demand, action or other proceeding
by any person or entity other than Merck and its Related Parties, to the extent
such Losses arise directly or indirectly out of Metabasis’ development,
commercialization or sale of any Products or use of any Supporting Documents;
except, in each case, to the extent such Losses result from the gross
negligence or willful misconduct of Merck or its Related Party(ies) or the
breach by Merck of any warranty, representation, covenant or agreement made by
Merck in this Agreement; and

 

(v)            except as otherwise expressly provided
in this Section 10.4, all other rights and obligations of the parties
hereunder shall terminate and be of no further force or effect.

 

(d)           In the event that Merck terminates this
Agreement pursuant to Section 10.2, then notwithstanding the provisions of
Section 4.2, Merck may (i) enter into agreements with Third Parties
relating to the development and/or commercialization of compounds controlled by
such Third Parties, [***], and/or (ii) acquire, merge or consolidate with,
or be acquired by, a Third Party which is developing and/or commercializing
compounds [***] (the occurrence of (i) or (ii) being collectively
referred to herein as an “Acquisition of a Target
Compound” and any such compound being referred to herein as a “Target Compound”); provided, however,
that if the Acquisition of a Target Compound [***], then Merck (or its
successor-in-interest) shall [***], with respect to any Target Compound
commercialized by Merck (or its successor-in-interest) [***].

 

(e)           Expiration or termination of this
Agreement shall not relieve the parties of any obligation accruing prior to
such expiration or termination.  Except
as set forth below or elsewhere in this Agreement, the obligations and rights
of the parties under the following provisions of this Agreement shall survive
expiration or termination of this Agreement:

 

Section 2.8 – Materials (last sentence only)

Section 4.2 – Exclusivity (except with respect to development and
commercialization of Products by a party that has a license to develop and
commercialize Products in the Field after termination pursuant to Section 10.4(a),
Section 10.4(b) or Section 10.4(c), for so long as, and to the
extent that, such license remains in effect)

 

***Confidential
Treatment Requested

 

35

 

Section 6.1 – Payment; Reports (so long as any amounts are payable
under Article 5 pursuant to Section 10.4)

Section 6.2 – Exchange Rate; Manner and Place of Payment (so long
as any amounts are payable under Article 5 pursuant to Section 10.4)

Section 6.3 – Income Tax Withholding (so long as any amounts are
payable under Article 5 pursuant to Section 10.4)

Section 6.4 – Audits (so long as any amounts are payable under Article 5
pursuant to Section 10.4)

Section 6.5 – [***]

Section 7.1 – Ownership of Inventions

Section 7.2 – Patent Prosecution and Maintenance (so long as Merck
retains a license from Metabasis under Section 10.4)

Section 7.3 – Cooperation of the Parties (so long as Merck retains
a license from Metabasis under Section 10.4)

Section 7.4 – Infringement by Third Parties (so long as Merck
retains a license from Metabasis under Section 10.4)

Section 7.5 – Infringement of Third Party Rights (so long as Merck
retains a license from Metabasis under Section 10.4)

Section 8.3 – Performance by Affiliates, Sublicensees and Subcontractors
(so long as Merck retains a license from Metabasis under Section 10.4)

Section 8.4 – Disclaimer

Section 8.5 – Limitation of Liability

Section 9.1 – Confidential Information

Section 9.2 – Exceptions

Section 9.3 – Authorized Disclosure

Section 9.4 – Publications

Section 10.4 – Effect of Termination; Surviving Obligations

Section 10.5 – Exercise of Right to Terminate

Section 10.6 – Damages; Relief

Section 10.7 – Rights in Bankruptcy (so long as Merck retains a
license from Metabasis under Section 10.4)

Article 11 – Indemnification

Article 12 – Dispute Resolution

Article 13 – General Provisions

 

(f)            Within thirty (30) days following the
expiration or termination of this Agreement, except to the extent and for so
long as a party retains license rights under Sections 10.4(a), (b) or (c),
each party shall deliver to the other party any and all Confidential
Information of the other party in its possession.

 

10.5        Exercise of Right to Terminate.  The use by either party hereto of a
termination right provided for under this Agreement shall not give rise to the
payment of damages or any other form of compensation or relief to the other
party with respect thereto.

 

10.6        Damages; Relief.  Subject to Section 10.5 above,
termination of this Agreement shall not preclude either party from claiming any
other damages, compensation or relief that it may be entitled to upon such
termination.

 

***Confidential
Treatment Requested

 

36

 

10.7        Rights in Bankruptcy.  All rights and licenses granted under or
pursuant to this Agreement by Metabasis are, and will otherwise be deemed to
be, for purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses
of right to “intellectual property” as defined under Section 101 of the U.S.
Bankruptcy Code.  The parties agree that
Merck, as licensee of such rights under this Agreement, will retain and may
fully exercise all of its rights and elections under the U.S. Bankruptcy Code.  The parties further agree that, in the event
of the commencement of a bankruptcy proceeding by or against Metabasis under
the U.S. Bankruptcy Code, Merck will be entitled to a complete duplicate of (or
complete access to, as appropriate) any such intellectual property and all
embodiments of such intellectual property, and same, if not already in its
possession, will be promptly delivered to it (i) upon any such
commencement of a bankruptcy proceeding upon its written request therefor,
unless Metabasis elects to continue to perform all of its obligations under this
Agreement, or (ii) if not delivered under (i) above, following the
rejection of this Agreement by or on behalf of Metabasis upon written request
therefor by Merck.

 

11.                               INDEMNIFICATION

 

11.1        Indemnification by Merck.  Merck hereby agrees to save, defend and hold
Metabasis and its Affiliates and their respective directors, officers,
employees and agents (each, a “Metabasis Indemnitee”)
harmless from and against any and all claims, suits, actions, demands,
liabilities, expenses and/or loss, including reasonable legal expense and
attorneys’ fees (collectively, “Losses”),
to which any Metabasis Indemnitee may become subject as a result of any claim,
demand, action or other proceeding by any person or entity other than a party
or its Affiliates to the extent such Losses arise directly or indirectly out
of: (i) the practice by Merck or its Related Parties of any license
granted to it hereunder, (ii) the manufacture, use, handling, storage,
sale or other disposition of any Product by Merck or any of its Related Parties,
or (iii) the breach by Merck of any warranty, representation, covenant or
agreement made by Merck in this Agreement; except, in each case, to the extent
such Losses result from the negligence or willful misconduct of any Metabasis
Indemnitee or the breach by Metabasis of any warranty, representation, covenant
or agreement made by Metabasis in this Agreement.

 

11.2        Indemnification by Metabasis.  Metabasis hereby agrees to save, defend and
hold Merck and its Affiliates and their respective directors, officers,
employees and agents (each, a “Merck Indemnitee”)
harmless from and against any and all Losses to which any Merck Indemnitee may
become subject as a result of any claim, demand, action or other proceeding by
any person or entity other than a party or its Affiliates to the extent such
Losses arise directly or indirectly out of: (i) the practice by Metabasis,
its Affiliates or sub-licensees (excluding Merck and its Related Parties) of
any license granted to it hereunder, (ii) the manufacture, use, handling,
storage, sale or other disposition of any product by Metabasis, its Affiliates
or sub-licensees (excluding Merck and its Related Parties), or (iii) the
breach by Metabasis of any warranty, representation, covenant or agreement made
by Metabasis in this Agreement; except, in each case, to the extent such Losses
result from the negligence or willful misconduct of any Merck Indemnitee or the
breach by Merck of any warranty, representation, covenant or agreement made by
Merck in this Agreement.

 

11.3        Control of Defense.  Any entity entitled to indemnification under
this Article 11 shall give notice to the indemnifying party of any Losses
that may be subject to indemnification, promptly after learning of such Losses,
and the indemnifying party shall assume the defense of

 

37

 

such Losses with counsel reasonably satisfactory to
the indemnified party.  If such defense
is assumed by the indemnifying party with counsel so selected, the indemnifying
party will not be subject to any liability for any settlement of such Losses
made by the indemnified party without its consent (but such consent will not be
unreasonably withheld or delayed), and will not be obligated to pay the fees
and expenses of any separate counsel retained by the indemnified party with
respect to such Losses.  The indemnified
party shall provide the indemnifying party with all information in its
possession and all assistance reasonably necessary to enable the indemnifying
party to carry on the defense of any such Losses.

 

11.4        Insurance. 
Merck, at its own expense, shall maintain product liability insurance
(or self-insure) in an amount consistent with industry standards during the
Term.

 

12.                               DISPUTE
RESOLUTION

 

12.1        Dispute Resolution.  The parties shall negotiate in good faith and
use reasonable efforts to settle any dispute, controversy or claim arising from
or related to this Agreement or the breach thereof.  If the parties cannot resolve the dispute,
controversy or claim within thirty (30) days of a written request by either
party to the other party, the parties agree to hold a meeting, attended by the
Chief Executive Officer of Metabasis and an Executive Vice President of Merck,
as appropriate in light of the subject matter of the dispute, to attempt in
good faith to negotiate a resolution of the dispute prior to pursuing other
available remedies.  If, within sixty
(60) days after such written request, the parties have not succeeded in
negotiating a resolution of the dispute, and a party wishes to pursue the
matter, each such dispute, controversy or claim that is not an “Excluded Claim”
shall be resolved by binding arbitration in accordance with the Commercial
Arbitration Rules and Supplementary Procedures for Large Complex Disputes
of the American Arbitration Association (“AAA”) as
then in effect, and judgment on the arbitration award may be entered in any
court having jurisdiction thereof.  The
decision rendered in any such arbitration will be final and not appealable.  If either party intends to commence binding
arbitration of such dispute, controversy or claim, such party will provide
written notice to the other party informing the other party of such intention
and the issues to be resolved.  Within
thirty (30) days after the receipt of such notice, the other party may by
written notice to the party initiating binding arbitration, add additional
issues to be resolved.

 

12.2        Arbitrators.  The arbitration shall be conducted by a panel
of three persons experienced in the pharmaceutical business, none of whom shall
be a current or former employee or director, or a then-current stockholder, of
either party, their respective Affiliates or any Related Parties.  Within thirty (30) days after receipt of the
original notice of binding arbitration (the “Notice
Date”), each party shall select one person to act as arbitrator
and the two party-selected arbitrators shall select a third arbitrator within
fifteen (15) days of their appointment. 
If the arbitrators selected by the parties are unable or fail to agree
upon the third arbitrator, the third arbitrator shall be appointed by the
AAA.  The place of arbitration shall be
Dallas, Texas, and all proceedings and communications shall be in English.

 

12.3        Procedural Matters.  It is the intention of the parties that
discovery, although permitted as described herein, will be limited except in
exceptional circumstances.  The
arbitrators will permit such limited discovery necessary for an understanding
of any legitimate issue raised in the arbitration, including the production of
documents.  No later than thirty (30)

 

38

 

days after selection of the
third arbitrator, the parties and their representatives shall hold a
preliminary meeting with the arbitrators, to mutually agree upon and thereafter
follow procedures seeking to assure that the arbitration will be concluded
within six (6) months from such meeting. 
Failing any such mutual agreement, the arbitrators will design and the
parties shall follow procedures to such effect.

 

12.4        Governing Law.  The arbitrators will, in rendering their
decision, apply the substantive laws of the State of New York, without
giving effect to its principles of conflicts of law, and without giving effect
to any rules or laws relating to arbitration.  In no event shall an arbitration be initiated
after the date when commencement of a legal or equitable proceeding based on
the dispute, controversy or claim would be barred by the applicable New York
statute of limitations.

 

12.5        Injunctive Relief.  Either party may apply to the arbitrators for
interim injunctive relief until the arbitration award is rendered or the
controversy is otherwise resolved. 
Either party also may, without waiving any remedy under this Agreement,
seek from any court having jurisdiction any injunctive or provisional relief
necessary to protect the rights or property of that party pending the
arbitration award.  The arbitrators shall
have no authority to award punitive or any other non-compensatory damages,
except as may be provided in Section 8.5. 
Each party shall bear its own costs and expenses and attorneys’ fees and
an equal share of the arbitrators’ and any administrative fees of arbitration.

 

12.6        Confidentiality.  Except to the extent necessary to confirm or
enforce an award or as may be required by law, neither a party nor an
arbitrator may disclose the existence, content, or results of an arbitration
without the prior written consent of both parties.

 

12.7        Termination of Agreement.  The parties agree that, in the event of a
dispute over whether a party has the right to terminate this Agreement, neither
party may terminate this Agreement until final resolution of the dispute
through arbitration.  The parties further
agree that any payments made pursuant to this Agreement pending resolution of
the dispute may be paid into an escrow account pending resolution by the
arbitrators and to the extent paid directly to a party shall be refunded if an
arbitrator or court determines that such payments are not due.

 

12.8        Excluded Claim.  As used in this Section, the term “Excluded Claim” shall mean a
dispute, controversy or claim that concerns (a) the validity or
infringement of a patent, trademark or copyright; or (b) any antitrust,
anti-monopoly or competition law or regulation, whether or not statutory.

 

13.                               GENERAL
PROVISIONS

 

13.1        Non-Solicitation.  Each party agrees that, until the [***] of the
Effective Date, such party will not permit any representative of such party or
its Affiliates to solicit for employment with such party or any of its
Affiliates any employee of the other party; provided, however,
that this Section 13.1 will not prevent either party from:  (a) causing to be placed any general
advertisement or similar notice that is not targeted specifically at employees
of the other party or its Affiliates; or (b) engaging any recruiting firm
or similar organization to identify or solicit persons for employment on behalf
of such party, or soliciting the employment of any

 

***Confidential
Treatment Requested

 

39

 

employee of the other party who is identified by any
such recruiting firm or organization, as long as such recruiting firm or
organization is not instructed to target any employees of the other party or
its Affiliates.

 

13.2        Governing Law.  This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York,
excluding its conflicts of laws principles. 
The United Nations Convention on the Sale of Goods shall not apply.

 

13.3        Entire Agreement; Modification.  This Agreement is both a final expression of
the parties’ agreement and a complete and exclusive statement with respect to
all of its terms.  This Agreement
supersedes all prior and contemporaneous agreements and communications, whether
oral, written or otherwise, concerning the Biological Target.  No rights or licenses with respect to any
intellectual property of either party are granted or deemed granted hereunder
or in connection herewith, other than those rights expressly granted in this
Agreement.  This Agreement may only be
modified or supplemented in a writing expressly stated for such purpose and
signed by the parties to this Agreement. 
Notwithstanding anything to the contrary in the foregoing, the
confidentiality agreement between the parties dated as of September 1,
2004 shall continue to govern disclosures made thereunder.

 

13.4        Relationship Between the Parties.  The parties’ relationship, as established by
this Agreement, is solely that of independent contractors.  This Agreement does not create any
partnership, joint venture or similar business relationship between the
parties.  Neither party is a legal
representative of the other party, and neither party can assume or create any
obligation, representation, warranty or guarantee, express or implied, on
behalf of the other party for any purpose whatsoever.

 

13.5        Non-Waiver. 
The failure of a party to insist upon strict performance of any
provision of this Agreement or to exercise any right arising out of this Agreement
shall neither impair that provision or right nor constitute a waiver of that
provision or right, in whole or in part, in that instance or in any other
instance.  Any waiver by a party of a
particular provision or right shall be in writing, shall be as to a particular
matter and, if applicable, for a particular period of time and shall be signed
by such party.

 

13.6        Assignment and Change of Control.

 

(a)           Except as provided in this Section 13.6,
this Agreement may not be assigned or otherwise transferred, nor may any right
or obligation hereunder be assigned or transferred, by either party without the
consent of the other party.

 

(b)           Merck may, without Metabasis’ consent, assign
this Agreement and its rights and obligations hereunder in whole or in part to
an Affiliate of Merck or in connection with a Change of Control of Merck.

 

(c)           Metabasis may, without Merck’s consent,
assign this Agreement and its rights and obligations hereunder in connection
with a Change of Control; provided, however, that in the event of
a [***], Metabasis shall provide
written notice to Merck at least thirty (30) days prior to the completion of
such [***] and Merck shall have
the right, at its election at any time within thirty (30) days after such
notice, to (i) terminate the Collaboration (to the extent it is

 

***Confidential
Treatment Requested

 

40

 

still ongoing) and (ii) regardless
of whether the Collaboration is ongoing or is terminated, to implement one or
more of the provisions set forth hereinbelow:

 

(i)            to the extent that provisions of the
Agreement require Merck to provide Merck Know-How and other materials and
information regarding the Collaboration to Metabasis, such provisions shall be
automatically amended to no longer impose such an obligation on Merck;

 

(ii)           the provisions of the Agreement providing for
any participation or decision-making by Metabasis on or through the JRC and the
JDC shall be of no further force and effect;

 

(iii)         the license granted
under Section 4.1(b)(i) shall terminate and be of no further force or
effect, but the licenses granted under Sections 4.1(a)(i) and 4.1(a)(ii) shall
continue in full force and effect in accordance with their terms, subject to
compliance by Merck with all applicable surviving provisions of this Agreement
(including, without limitation, the provisions of Article 5); and

 

(iv)          Metabasis (including, for purposes of this
subsection, the [***] party)
shall discuss in good faith with Merck the adoption and implementation of [***] (collectively, “Sensitive Information”) within the surviving entity and among
the surviving entity and its Affiliates. 
The purpose of such procedures would be to limit (to the extent
feasible, commercially reasonable and consistent with applicable corporate
governance standards) the disclosure of Sensitive Information to only those
personnel having a need to know Sensitive Information and to prohibit the use
of Sensitive Information against Merck or any Product, including without
limitation the use of Sensitive Information for the development or
commercialization of any products, [***].

 

In the event that Merck does NOT exercise its right under this Section 13.6
to terminate the Collaboration in connection with a [***] of Metabasis, the
provisions of subsections (i), (ii) and (iv) of this Section 13.6(c) will
nevertheless apply to the extent that Merck opts to implement them in
accordance with this Section 13.6. 
Except as provided in this Section 13.6(c), this Agreement will
remain in full force and effect in accordance with its terms.

 

(d)           Metabasis shall not have the right to assign,
sublicense, delegate or otherwise transfer its Co-Promotion Option or any of
its rights or obligations under the co-promotion agreement entered into
pursuant to Section 3.6 to any Third Party or in connection with a Change
of Control of Metabasis, except with the prior written consent of Merck.

 

(e)           In the event that a party assigns this
Agreement and its rights and obligations hereunder in connection with a Change
of Control (whether this Agreement is actually assigned or is assumed by the
acquiring party by operation of law (e.g., in the context of a reverse
triangular merger)), intellectual property rights of the acquiring party to
such transaction (if other than one of the parties to this Agreement) shall not
be included in the

 

***Confidential
Treatment Requested

 

41

 

technology licensed hereunder.

 

(f)            Any attempted assignment not in
accordance with this Section 13.6 shall be void.  Any permitted assignee shall assume all
assigned obligations of its assignor under this Agreement.

 

13.7        No Third Party Beneficiaries.  This Agreement is neither expressly nor
impliedly made for the benefit of any party other than those executing it.

 

13.8        Severability.  If, for any reason, any part of this
Agreement is adjudicated invalid, unenforceable or illegal by a court of
competent jurisdiction, such adjudication shall not affect or impair, in whole
or in part, the validity, enforceability or legality of any remaining portions
of this Agreement.  All remaining
portions shall remain in full force and effect as if the original Agreement had
been executed without the invalidated, unenforceable or illegal part.

 

13.9        Notices. 
All notices which are required or permitted hereunder shall be in
writing and sufficient if delivered personally, sent by facsimile (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:

 

	
  if to Metabasis, to:

  	
   

  	
  Metabasis Therapeutics, Inc.

  9390 Towne Centre Drive, Suite 300

  San Diego, CA 92121

  Attention: Chief Executive Officer

  Facsimile No.: (858) 587-2770

  
	
   

  	
   

  	
   

  
	
  and:

  	
   

  	
  Cooley Godward LLP

  4401 Eastgate Mall

  San Diego, CA 92121

  Attention: Frederick T. Muto, Esq.

  Facsimile No.: (858) 550-6420

  
	
   

  	
   

  	
   

  
	
  if to Merck, to:

  	
   

  	
  Merck & Co., Inc.

  One Merck Drive

  P.O. Box 100, WS3A-65

  Whitehouse Station, NJ 08889-0100

  Attention: Office of Secretary

  Facsimile No.: (908)735-1246

  
	
   

  	
   

  	
   

  
	
  and

  	
   

  	
  Merck & Co., Inc.

  One Merck Drive

  Attention: Chief Licensing Officer

  P.O. Box 100, WS2A-30

  Whitehouse Station, NJ 08889-0100

  Facsimile: (908)735-1214

  

 

42

 

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
notice shall be deemed to have been given: (a) when delivered if personally
delivered or sent by facsimile on a business day (or if delivered or sent on a
non-business day, then on the next business day); (b) on the business day
after dispatch if sent by nationally-recognized overnight courier; and/or (c) on
the fifth business day following the date of mailing if sent by mail.

 

13.10      Force Majeure.  Except for the obligation to make payment
when due, each party shall be excused from liability for the failure or delay
in performance of any obligation under this Agreement by reason of any event
beyond such party’s reasonable control including but not limited to Acts of
God, fire, flood, explosion, earthquake, or other natural forces, war, civil
unrest, accident, destruction or other casualty, any lack or failure of
transportation facilities, any lack or failure of supply of raw materials, any
strike or labor disturbance, or any other event similar to those enumerated
above.  Such excuse from liability shall
be effective only to the extent and duration of the event(s) causing the
failure or delay in performance and provided that the party has not caused such
event(s) to occur.  Notice of a party’s
failure or delay in performance due to force majeure must be given to the other
party within 10 days after its occurrence. 
All delivery dates under this Agreement that have been affected by force
majeure shall be tolled for the duration of such force majeure.  In no event shall any party be required to
prevent or settle any labor disturbance or dispute.

 

13.11      Interpretation.

 

(a)           Captions & Headings.  The captions and headings of clauses
contained in this Agreement preceding the text of the articles, sections,
subsections and paragraphs hereof are inserted solely for convenience and ease
of reference only and shall not constitute any part of this Agreement, or have
any effect on its interpretation or construction.

 

(b)           Singular & Plural.  All references in this Agreement to the
singular shall include the plural where applicable, and all references to
gender shall include both genders and the neuter.

 

(c)           Articles, Sections & Subsections.  Unless otherwise specified, references in
this Agreement to any article shall include all sections, subsections, and
paragraphs in such article; references in this Agreement to any section shall
include all subsections and paragraphs in such sections; and references in this
Agreement to any subsection shall include all paragraphs in such
subsection.

 

(d)           Days. 
All references to days in this Agreement shall mean calendar days,
unless otherwise specified.

 

(e)           Ambiguities.  Ambiguities and uncertainties in this
Agreement, if any, shall not be interpreted against either party, irrespective
of which party may be deemed to have caused the ambiguity or uncertainty to
exist.

 

(f)            English Language.  This Agreement has been prepared in the
English language and the English language shall control its
interpretation.  In addition, all notices

 

43

 

required or permitted to be given hereunder, and all
written, electronic, oral or other communications between the parties regarding
this Agreement shall be in the English language.

 

13.12      Counterparts. 
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original document, and all of which, together with
this writing, shall be deemed one instrument.

 

[Remainder of this page intentionally
left blank.]

 

44

 

IN WITNESS
WHEREOF, the parties hereto have duly executed this LICENSE AND COLLABORATION AGREEMENT as of the Effective
Date.

 

	
  METABASIS THERAPEUTICS, INC.

  	
  MERCK & CO., INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
    /s/
  Edgardo Baracchini

  	
   

  	
  By:

  	
    /s/ Richard T. Clark

  	
   

  
	
  Name: Edgardo Baracchini, Ph.D., M.B.A.

  	
  Name: Richard T. Clark

  
	
  Title: Sr. Vice President, Business Development

  	
  Title: CEO & President

  
							

 

45

 

Exhibit A

 

Terms of Co-Promotion Agreement

 

1.             General.  This Exhibit sets out the principal terms
under which Metabasis may co-promote Products and potentially an [***] by
Detailing to Specialists, subject to the negotiation and execution of a
definitive Co-Promotion Agreement. 
Promptly following execution of the Co-Promotion Agreement, the parties
shall negotiate and enter into an agreement setting forth mutually acceptable
guidelines and procedures for the receipt, investigation, recordation,
communication, and exchange (as between the parties) of adverse event reports,
pregnancy reports, and any other information concerning the safety of
Collaboration Compounds and Products. 
Such guidelines and procedures will be in accordance with, and will
enable the parties and their Affiliates to fulfill, local and international
regulatory reporting obligations to government authorities.

 

2.             Certain Defined Terms.  Capitalized terms used but not otherwise
defined herein shall have the meanings provided in the Agreement.  In addition, the following terms, whether
used in the singular or plural, shall have the respective meanings set forth
below:

 

(a)           “Detail”
shall mean a product presentation in a face-to-face meeting in an individual or
group practice setting between a professional sales representative and a Target
Prescriber in which one or more key product benefits are verbally
presented.  For the avoidance of doubt, a
Detail does not include a reminder or sample drop.

 

(b)           “Detailing”
shall mean the act of presenting a Detail.

 

(c)           “Specialist”
shall mean a diabetologist or endocrinologist, or such other
specialist medical or health care professional authorized to prescribe Products
under the laws of the jurisdiction in which such medical or health care
professional is practicing.

 

(d)           “Target
Prescriber” shall mean a Specialist identified as a member of
the target audience to whom Metabasis shall direct a Detail.

 

3.             Co-Promotion Agreement.  Upon exercise by Metabasis of the Co-Promotion
Option, and pursuant to the procedures set forth in Section 3.6, the
parties shall enter into an agreement relating to the Detailing of Products to
Target Prescribers (the “Co-Promotion Agreement”).  For purposes of clarification,
notwithstanding the exercise of the Co-Promotion Option or the execution of the
Co-Promotion Agreement, Merck shall at all times during the Term remain
obligated to pay the applicable amounts specified under Article 5 of the
Agreement with respect to each Product (whether or not such Product is co
promoted by Metabasis).  The Co-Promotion
Agreement shall include but not be limited to the following provisions:

 

(a)           Recruitment.  The Metabasis Sales Force
shall be recruited by Metabasis at Metabasis’ sole expense.  At the request of Metabasis, and at Metabasis’
expense, Merck will assist in the recruitment of the Metabasis Sales
Force.  Metabasis shall recruit the
Metabasis Sales Force with a profile to be reasonably agreed to by Merck.  The parties agree that the Metabasis Sales
Force shall have a minimum size of [***] representatives, with the actual
number of representatives to be jointly determined by Merck and Metabasis in
good faith.  The

 

***Confidential
Treatment Requested

 

1

 

parties agree that the Metabasis Sales Force will
operate throughout the entire Co-Promotion Territory, but the specific
territories and alignment throughout the Co-Promotion Territory allocated to
the Metabasis Sales Force shall be reasonably determined by [***].  For purposes of clarification, should
Metabasis exercise its Co-Promotion Option hereunder, as well as any
co-promotion option it may have under any other license or collaboration agreement
between Merck and Metabasis, there will be only one Metabasis sales force for
all products co-promoted by Merck and Metabasis, assuming the target audience
for all such products is the same and that the number of products is manageable
by one sales force (2 to 3 products).

 

(b)           Training.  Merck shall provide the
Metabasis Sales Force with appropriate training with respect to promotion of
the Product(s) and any other Merck product to be detailed by the Metabasis
Sales Force.  In addition, at Metabasis’
reasonable request, Merck shall provide general sales training to the Metabasis
Sales Force.  Metabasis will be
responsible for expenses including but not limited to travel, lodging, meals
and representative salary and benefits during the training period.  Merck will be responsible for the costs of
Merck employees providing the training, the training facility and training
materials.  The training will be carried
out at a Merck training facility and will be equivalent to the training
received by the corresponding Merck specialty sales force.

 

(c)           Timing.

 

(i)            If
[***] Is Available.  Except as set forth in the last sentence of
this paragraph 3(c)(i), Merck shall, by written notice to Metabasis no later
than [***] in advance of the Estimated Product Launch Date (the [***] intended
to start no later than [***] prior to the launch of the Product.  The [***] shall be included within the [***]
negotiated by the parties with respect to Product pursuant to Section 3.6.  In such event, Metabasis shall hire a
specialty sales force which will be employed by Metabasis (the “Metabasis Sales Force”) to promote
the [***]  Hiring of the Metabasis Sales
Force shall be completed no later than [***] prior to the Estimated Product
Launch Date.  Merck shall initiate
training of the Metabasis Sales Force with respect to such [***] prior to the
Estimated Launch Date and shall complete such training within [***] following
initiation of such training.  [***]

 

(ii)           If
No [***] Is Available.  If Merck is not able to provide an [***] to Metabasis
as described in paragraph (a) above, hiring of the Metabasis Sales Force
shall begin no later than [***] before the then-current Estimated Product
Launch Date, and be completed no later than [***] before the then-current
Estimated Product Launch Date, so that Merck may initiate training of the
Metabasis Sales Force in accordance with paragraph 3(b) above.  Merck agrees to complete such training within
[***] following initiation of such training.

 

***Confidential
Treatment Requested

 

2

 

(d)           Other
Products.  [***],
provided that the Metabasis Sales Force is not detailing an [***] or a non
Merck Product (“Non-Merck Product”) in
addition to Product, Merck may request to utilize the Metabasis Sales Force (at
no further compensation to Metabasis) to detail [***].  Notwithstanding the foregoing, Merck shall
not be obligated to provide any [***].

 

(e)           Launch
Meeting.  The Metabasis
Sales Force will attend the same launch meeting as the Merck sales force for Product.

 

(f)            Target
Prescribers.  The
Target Prescribers of the Product shall be reasonably determined by Merck
following good faith consultations with Metabasis.

 

(g)           Position
of Details.  Details to
be delivered by Metabasis for the Product shall be reasonably determined by [***];
provided, however, that the Details to be delivered by Metabasis for the
Product shall be [***] throughout the term of the Co-Promotion Agreement unless
otherwise agreed by the parties.

 

(h)           Content
of Details.  The form
and content of all information communicated in all Details or other
communications to health care professionals by Metabasis for the Product and
any [***] shall be those developed by Merck at its sole expense and in use by
the corresponding Merck sales force.  Metabasis
will limit its claims of efficacy and safety for the Product and any [***] to
those which are consistent with Merck’s approved labeling for the applicable
product and shall provide appropriate balance in all communications regarding
such products.  Metabasis shall Detail
the Product and any [***] in strict adherence to all applicable legal,
regulatory, professional and policy requirements, including, but not limited
to, all applicable Merck policies that have been communicated to Metabasis, as
they exist at the time of the Detail.

 

(i)            Compensation.
 Commencing  upon the 
earlier of (a) completion of the training of the Metabasis Sales
Force on the Product, or (b) completion of the training  of the Metabasis Sales Force on the [***],
Merck shall compensate Metabasis, commensurate with Merck standards, for [***]
costs directly related to the Metabasis Sales Force, including salary,
benefits, incentives, automobile leases, computers, provided
that the Metabasis Sales Force details only Product(s) and any [***].  If (A) there is a Non Merck Product also
being Detailed by the Metabasis Sales Force, or (B) Metabasis declines the
opportunity to detail the [***] or (C) Merck and Metabasis are unable,
following good faith negotiations, to reach agreement on the [***], then Merck
will compensate Metabasis under the Co-Promotion Agreement only for [***] of
the Metabasis Sales Force’s cost.

 

(j)            Schedule of
Payments.  Within
thirty (30) days of the end of each Calendar Quarter, Metabasis shall submit to
Merck an invoice containing a schedule of Metabasis Sales Force activities
and expenses for review and approval. 
Merck shall make the required payments to Metabasis within thirty (30)
days of receipt, except to the extent that any of such expenses are subject to
a bona fide dispute.  In the event that Merck withholds or delays
any such payment

 

***Confidential
Treatment Requested

 

3

 

claimed by Metabasis to be due hereunder on the basis
that a bona fide dispute between the parties
exists as to whether or when such payment is due, and such payment is
ultimately determined to be due, then such payment shall be deemed to have
accrued interest at the rate specified in Section 6.5 of the Agreement
from the date due until such payment and accrued interest have been paid in
full.

 

(k)           Performance
Criteria.  The parties
shall agree on a minimum number of total Details to be conducted by Metabasis
each year for Product and any Advance Merck Product or Delayed Merck Product
based on industry standard performance expectations of a similar specialty
sales representative (calls and Details per day).  Compensation to Metabasis as provided above
will be subject to adjustment if the minimum level of such Details is not
achieved.

 

(l)            Metabasis
Trademarks.  All
advertising and promotional material used by Metabasis, Merck and Related
Parties in connection with any Product in the Co-Promotion Territory shall
feature Metabasis’ corporate trade name and logo where feasible under local
regulations (collectively, the “Metabasis Marks”),
which shall be in at least the same font size as Merck’s corporate trade name
and logo on any of the foregoing.  Such
use shall be in accordance with a separate trademark license agreement, under
which Metabasis would grant to Merck a non exclusive, royalty-free license to
use the Metabasis Marks on Product advertising and promotional material.  Metabasis or an Affiliate of Metabasis shall
retain the ownership of the entire right, title and interest in and to the
Metabasis Marks, and all goodwill associated with or attached to the Metabasis
Marks arising out of the use thereof by Merck and Related Parties shall inure
to the benefit of Metabasis.

 

(m)          Sampling
and Promotional Materials.  With respect to Product and any Advance Merck
Product or Delayed Merck Product, the Metabasis Sales Force shall be required
to use only promotional materials provided to it by Merck.  Merck shall provide samples and promotional
material to Metabasis Sales Force in a manner and quantity consistent with its
provision of samples and promotional material to its own corresponding sales
force.

 

(n)           Maintenance
and Audit of Records. 
Under the Co-Promotion Agreement, Metabasis will be responsible for the
maintenance of accurate records corresponding to the invoice of the expenses
and activities of the Metabasis Sales Force, including, without limitation, an
accurate monthly record of the number of Details, by position.  Merck shall have the right to review and
audit all such records.

 

(o)           Coordination;
Exclusivity.  The
Metabasis Sales Force shall work in a coordinated fashion with Merck’s sales
force for the applicable Product(s) and any Advance Merck Product or Delayed
Merck Product and shall not, without Merck’s prior written consent (not to be
unreasonably withheld), promote a product that has the same primary mode of
action as Product or, if applicable, the Advance Merck Product or Delayed Merck
Product.

 

(p)           Joint
Commercialization Committee.  The
parties shall establish a joint commercialization committee (“JCC”) with an equal number of (not
to exceed four (4)) representatives of each party.  The JCC shall meet in accordance with a schedule established
by mutual agreement of the parties, but no less frequently than once per
Calendar Quarter, with the

 

4

 

location for such meetings alternating between
Metabasis and Merck facilities (or such other locations as may be determined by
the JCC).  Alternatively, the JCC may
meet by means of teleconference, videoconference or other similar
communications equipment.  Each party
shall bear its own expenses related to the attendance of such meetings by its
representatives.  The JCC shall be
chaired by a representative of Merck. 
The JCC will review marketing plans and coordinate implementation of
field activities.  Merck’s
representatives on the JCC shall disclose to Metabasis’ representatives on the
JCC such information as is reasonably necessary, in Merck’s opinion, for
Metabasis’ representatives to participate in the proceedings of the JCC.

 

(q)           Term
and Termination.  The
term of the Co-Promotion Agreement shall continue until the last to expire
Valid Patent Claim in the USA, or as long as Merck Details such Product in the
USA, whichever occurs later; provided, however, that
in the event that development or commercialization of Product ceases while
Metabasis is co promoting (or being trained to co promote) an [***] then the
term of the Co-Promotion Agreement (and Metabasis’ right to co promote such [***]
shall continue for one (1) year from the date of such cessation of
development or commercialization or until such later date as Merck may specify
in writing to Metabasis.  The
Co-Promotion Agreement shall be subject to termination:

 

(i)            by
Merck in the event of a Change of Control of Metabasis;

 

(ii)           by
Merck at any time, if Metabasis fails to meet an average of [***] of the target
level of Details for the Product, [***] over any [***] period, or if Metabasis
fails to meet [***] of the target level of Details for the Product, [***] for
any [***] during a rolling [***] period;

 

(iii)         by
either party upon sixty (60) days’ prior written notice to the other party if
the other party breaches any material provision of the Co-Promotion Agreement
and has not cured such breach within the sixty (60)-day period following
written notice of termination by the non breaching party;

 

(iv)          in
its entirety or solely with respect to the [***] (if any), by Metabasis at any
time with at least six (6) months’ prior written notice; or

 

(v)            by
either party immediately in the event of termination of the Agreement, or upon
twelve (12) months’ written notice upon expiration of the Agreement.

 

***Confidential
Treatment Requested

 

5

 

Exhibit B

 

Form of
Joint Press Release

 

	
  

  	
  

  

 

News Release

 

Contacts:

	
  Julie C. Cunningham

  	
   

  	
  Janet Skidmore

  
	
  Metabasis Therapeutics, Inc.

  	
   

  	
  Merck & Co., Inc.

  
	
  Investor Relations & Corporate Communications

  	
   

  	
  Public Affairs & Media Relations

  
	
  Ph: 1-858-622-3973

  	
   

  	
  Ph: 1-908-423-3046

  
	
  Fax: 1-858-458-3504

  	
   

  	
  Fax: 1-908-735-1745

  
	
  Email: Cunningham@mbasis.com

  	
   

  	
  Email: janet_skidmore@merck.com

  

 

METABASIS THERAPEUTICS AND MERCK ANNOUNCE COLLABORATION TO DEVELOP

 

NEW TREATMENT FOR DIABETES, HYPERLIPIDEMIA AND OBESITY

 

 

SAN DIEGO, CA and WHITEHOUSE STATION, NJ –                         ,
2005 — Metabasis Therapeutics, Inc. (Nasdaq: MBRX) and Merck &
Co., Inc. (NYSE: MRK) announced today that they have formed a
collaboration to research, develop and commercialize novel small molecule
therapeutics with potential to treat several diseases, including type II
diabetes, hyperlipidemia and obesity, by activation of an enzyme in the liver
called AMP-activated Protein Kinase (AMPK).

 

Under
the terms of the agreement, both Metabasis and Merck will conduct discovery
efforts and contribute drug candidates to the collaboration.  Merck will make a payment of $5 million on
signature of the agreement and will provide Metabasis with funding for its
research contribution to the program. 
Merck assumes primary responsibility, including financial
responsibility, for clinical development of any resulting product candidates
and will have the right to market such products worldwide. Metabasis will be
eligible to receive payments upon identification and achievement of certain
milestones during development of a product candidate. Should a product be
commercialized, Metabasis will receive a royalty on net sales and have the

 

 

option to co-promote the
product in the United States.  In the
event that a product is developed and marketed for use in patients for a single
indication, the total cash payments to Metabasis, excluding royalties, would be
approximately $54 million. If a product is approved for additional indications
Merck would make additional milestone payments, which could bring the total
cash payments to Metabasis to $74 million.

 

“We
are very excited to embark on our second collaboration with Merck, given Merck’s
world class R&D and commercialization capabilities.” said Dr. Paul
Laikind, Chairman, President and CEO of Metabasis.  “We have been very impressed with the
expertise and professionalism that we have experienced during the joint
hepatitis C project we began with Merck in 2004.  Combining efforts with Merck scientists on
the AMPK project will give us the greatest chance of developing a new drug to
treat a devastating group of diseases.”

 

“Merck’s continued and serious commitment to being a leader in the area
of diabetes and metabolic diseases is driven by the magnitude of the unmet
medical need,”
said Dr. Mervyn Turner, Senior Vice President of Worldwide Licensing and
External Research for Merck.  “All
of the currently marketed therapies have shortcomings that can be improved upon
in next-generation agents.  Our strategy
is to deliver medicines that address key pathogenic defects and are safe and
effective across the spectrum of pre-diabetes and diabetes. This latest
collaboration with Metabasis underscores Merck’s significant ongoing research
and commitment to diabetes and metabolic diseases by targeting what we hope
will be an important new class of drugs. 
We look forward to a fruitful collaboration.”

 

“AMPK
has received considerable attention over the past several years based on its
potential as a drug target for metabolic diseases,” said Dr. Mark Erion,
Metabasis’ Executive Vice President of Research and Development.  “Our
interest in AMPK stems not only from its therapeutic potential but also from
our experience on enzymes that, like AMPK, use nucleotide binding sites to
regulate their activity.  Historically it has been difficult to find
molecules that bind to these sites with high affinity and specificity.
 Using our NuMimetic technology and the compound libraries made
specifically for these sites, we have had success in the past in finding drug
candidates.  We look forward to working with Merck and their talented team
of scientists on this attractive drug target for metabolic diseases.”

 

2

 

Metabasis has used its proprietary NuMimeticTM
technology to discover potent and highly selective compounds that activate a
protein kinase in the liver known to regulate cholesterol and fat levels. These
small molecule compounds, known as AMP mimetics, mimic the natural regulator of
this enzyme which is known as adenosine mono-phosphate (AMP).  Metabasis’ NuMimetic technology was developed
to help identify this class of compounds. 
The Company has discovered lead compounds in the program that appear to
inhibit cholesterol and fat synthesis in preclinical models. The data supports
the premise that these or related compounds may be useful for the treatment of
patients with type 2 diabetes, hyperlipidemia, or non-alcoholic
steatohepatitis.  These compounds are
designed to target type 2 diabetes by a different mechanism than Metabasis’
gluconeogenesis inhibitors, CS-917 and MB07803.

 

About Metabasis (www.mbasis.com):

 

Metabasis
Therapeutics is a biopharmaceutical company focused on the discovery,
development and commercialization of novel small molecule drugs principally to
treat metabolic diseases, cancer and certain other diseases linked to pathways
in the liver. The Company has established a pipeline that includes clinical
stage and preclinical product candidates targeting large markets with
significant unmet medical needs.  Metabasis has developed several
proprietary technologies for use in discovering and optimizing drugs, including
the NuMimetic and HepDirectTM technologies.  Metabasis is
continuing to identify and develop new product candidates using its proprietary
technologies and expertise.

 

Metabasis Forward-looking Statement

 

Statements in this press release that are not
strictly historical in nature constitute “forward-looking statements.”  Such statements include, but are not limited
to, the dollar amount of potential payments to Metabasis under the Merck
Agreement, references to progress on its strategic goals and pursuit of
Metabasis’ corporate objectives, the initiation, progress and completion of
preclinical and clinical trials for Metabasis’ and its collaborators’ product
candidates, the expansion of Metabasis’ product pipeline through the
designation of additional product candidates from Metabasis’ advanced research
programs and through Metabasis’ collaboration with Merck, and the reinforcement
of Metabasis’ proprietary position, as well as other statements about Metabasis’
proprietary technologies, product candidates, research programs and
collaborations.  Such forward-looking
statements involve known and unknown

 

3

 

risks,
uncertainties and other factors which may cause Metabasis’ actual results to be
materially different from historical results or from any results expressed or
implied by such forward-looking statements as discussed in the “Risk Factors” section of
Metabasis’ Annual Report on Form 10-K for the year ended December 31,
2004.  All forward-looking statements are
qualified in their entirety by this cautionary statement.  Metabasis is providing this information as of
this date of this release and does not undertake any obligation to update any
forward-looking statements contained in this release as a result of new
information, future events or otherwise.

 

About Merck

 

Merck & Co., Inc. is a global
research-driven pharmaceutical company dedicated to putting patients first.
Established in 1891, Merck discovers, develops, manufactures and markets
vaccines and medicines in more than 20 therapeutic categories. The company
devotes extensive efforts to increase access to medicines through far-reaching
programs that not only donate Merck medicines but help deliver them to the
people who need them. Merck also publishes unbiased health information as a
not-for-profit service. For more information, visit www.merck.com.

 

Merck Forward-Looking
Statement

 

This press release contains “forward-looking
statements” as that term is defined in the Private Securities Litigation Reform
Act of 1995. These statements involve risks and uncertainties, which may cause
results to differ materially from those set forth in the statements. The
forward-looking statements may include statements regarding product
development, product potential or financial performance. No forward-looking
statement can be guaranteed, and actual results may differ materially from
those projected. Merck undertakes no obligation to publicly update any
forward-looking statement, whether as a result of new information, future
events, or otherwise. Forward-looking statements in this press release should
be evaluated together with the many uncertainties that affect Merck’s business,
particularly those mentioned in the cautionary statements in Item 1 of Merck’s Form 10-K
for the year ended Dec. 31, 2004, and in its periodic reports on Form 10-Q
and Form 8-K, which the company incorporates by reference.

 

###

 

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