Document:

EXHIBIT 10.32

 

NOTICE OF
EXTENSION AND

SECOND
AMENDMENT TO COLLABORATION AGREEMENT

 

This Notice and Amendment to the Collaboration Agreement (the “Amendment”)
dated as of December 15, 2003 (the “Effective Date”) is between Sunesis
Pharmaceuticals, Inc., having a principal place of business at 341 Oyster Point
Boulevard, South San Francisco, California 94080 (“Sunesis”), a Delaware
Corporation, and Johnson & Johnson Pharmaceutical Research &
Development, L.L.C., a limited liability company, having a principal place of
business at 920 U.S. Route 202, Raritan, New Jersey 08869 (“JJPRD”).  Sunesis and JJPRD may be referred to
individually herein as a “Party” or together as the Parties and all references
to “Sunesis” and “JJPRD” shall include their respective Affiliates, unless
otherwise indicated.

 

RECITALS

 

WHEREAS, Sunesis and JJPRD entered into a
Collaboration Agreement dated May 3, 2002 (the “Agreement”); and

 

WHEREAS, Sunesis and JJPRD amended the
Collaboration Agreement December 15, 2002 (the “First Amendment”); and

 

WHEREAS, Sunesis and JJPRD desire to make
modifications to the Agreement for the purpose of extending the Research Term
for one (1) additional year and providing funding by JJPRD for the Research
Program under the Agreement and the extended Research Term; and

 

WHEREAS, JJRPD desires to give written Notice
of its intention to extend the Research Term of the Collaboration Agreement
with Sunesis.

 

NOW, THEREFORE, in consideration of the
mutual covenants set forth in this Amendment, Sunesis and JJPRD hereby agree as
follows:

 

1.             Capitalized
terms used in this Amendment and not otherwise defined here shall have the
meanings ascribed to such terms in the Agreement.

 

2.             Pursuant
to Article 2.4, JJPRD elects to extend the Research Term one (1)
additional year from May 3, 2004 through May 2, 2005 (the “First Extension”).  Sunesis agrees to dedicate and JJPRD agrees
to fund [*] ([*]) FTE’s during the First Extension of the Research Term at [*]
dollars ($[*]) plus [*] ([*]%) or [*] dollars ($[*]) per FTE as provided under Article 5.1.1(b).

 

3.             The
Parties agree the remaining FTE payments, both for the initial two year
Research Term and the First Extension, will be made in advance according to the
following schedule:

 

Confidential treatment has been requested for portions of this
exhibit.  The copy filed herewith omits
the information subject to the confidentiality request.  Omissions are designated as [*].  A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.

 

 

(i)            $[*]
for the remainder of the initial two year Research Term ([*] FTE’s at $[*] per
FTE from February 3, 2004 through May 2, 2004),

 

(ii)           $[*]
for the 2004 portion of the First Extension ([*] FTE’s at $[*] per FTE from May
3, 2004 through December 31, 2004), and

 

(iii)          $[*]
for the 2005 portion of the First Extension ([*] FTE’s at $[*] per FTE from January 1,
2005 through May 2, 2005).

 

It is agreed that in partial recognition of
the right of JJPRD to extend the Research Term hereunder, items (i) and (ii) or
$[*] shall be due on the Second Amendment Effective Date and will be payable by
JJPRD within thirty (30) days after the Second Amendment Effective Date and
that item (iii) shall de due on January 1, 2005 and will be paid by JJPRD
at any time prior to thirty (30) days after January 1, 2005.

 

5.             Pursuant
to Article 3.4, the JRC shall decide prior to execution of this Amendment
how to distribute the FTE’s during the First Extension of the Research Term.

 

5.             Except
to the extent modified or amended herein, all other terms and conditions of the
Agreement shall remain in full force and effect.

 

[The
rest of this page is intentionally left blank]

 

[*]
Certain information on this page has been redacted and filed separately with
the Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.

 

 

IN WITNESS WHEREOF, the undersigned have duly executed and delivered
this Amendment as a sealed instrument effective as of the date first above
written.

 

 

SUNESIS PHARMACEUTICALS, INC.

 

	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  

 

 

JOHNSON & JOHNSON PHARMACEUTICAL

RESEARCH & DEVELOPMENT, L.L.C.

 

	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:EXHIBIT
10.34

 

LICENSE AND COLLABORATION AGREEMENT

 

This LICENSE AND COLLABORATION AGREEMENT (the “Agreement”),
effective as of February 12, 2003 (the “Effective Date”), is made by and
between Sunesis Pharmaceuticals, Inc., a Delaware corporation, having a
principal place of business at 341 Oyster Point Boulevard, South San Francisco,
CA 94080 (“Sunesis”), and Merck & Co., Inc., a New Jersey corporation,
having a principal place of business at One Merck Drive, Whitehouse Station, NJ
08889-0100 (‘“Merck”).  Sunesis and Merck
are sometimes referred to herein individually as a “Party” and collectively as
the “Parties”.

 

BACKGROUND

 

A.                                   Sunesis
has developed proprietary technology and know-how for the discovery and
optimization of small molecules that bind to enzyme targets and protein-protein
interfaces;

 

B.                                     Merck
is a leader in the research and development of pharmaceutical products;

 

C.                                     Sunesis
and Merck wish to collaborate to discover and develop small molecules that
modulate a certain Target (as defined below), with the goal of delivering
compounds with desired activity and selectivity; and

 

D.                                    Merck
wishes to acquire an exclusive license under the Collaboration Technology and
Sunesis Prior Aspartyl Protease Patents to develop and commercialize
Development Candidates in the Field (each, as defined below), as well as
certain other rights to the results of the collaboration, and Sunesis wishes to
grant to Merck such license, all on the terms and conditions herein.

 

NOW, THEREFORE, for and in consideration of
the covenants, conditions and undertakings hereinafter set forth, it is agreed
by and between the Parties as follows:

 

ARTICLE 1

DEFINITIONS

 

As used herein, the following terms will have the
meanings set forth below:

 

1.1                                 “Active
Program” shall mean a program for the discovery, and/or the preclinical,
clinical and/or commercial development, of a Product directed to a Target.

 

1.2                                 “Affiliate”
shall mean (i) any corporation or other business entity of which fifty
percent (50%) or more 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 Sunesis; or
(ii) any corporation or business entity which, directly or indirectly,
owns, controls or holds fifty percent (50%) (or the maximum ownership interest
permitted by law) or more

 

Confidential treatment has been requested for portions of this
exhibit.  The copy filed herewith omits
the information subject to the confidentiality request.  Omissions are designated as [*].  A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.

 

1

 

of the securities or
other ownership interests representing the equity, the voting stock or, if
applicable, the general partnership interest, of Merck or Sunesis; or
(iii) any corporation or business entity of which fifty percent (50%) or
more 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), in each case, for so long as such corporation or business
entity meets the requirements in (i), (ii) or (iii) above.

 

1.3                                 “Calendar
Quarter” shall mean the respective periods of three (3) consecutive
calendar months ending on March 31, June 30, September 30 and December 31.

 

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

 

1.5                                 “Collaboration
Compound” shall mean any chemical entity that is a protein, small molecule,
or other compound that is synthesized by the Parties pursuant to work conducted
under the Research Program and during the Research Term and Derivatives (as
defined below) synthesized by a Party or its Affiliates on behalf of a Party
prior to the third (3rd)
anniversary of the end of the Research Term, and shall include any
Merck-Derived Compound or Sunesis-Derived Compound, as the case may be.

 

1.5.1                        “Merck-Derived
Compound” shall mean any Collaboration Compound that is first synthesized
during the Research Term solely by Merck or jointly by Merck and Sunesis (the
former shall be termed a “Sole Merck-Derived Compound” and the latter shall be
termed a “Jointly-Derived Compound”). 
Sole Merck-Derived Compounds shall also include any Derivative of a
Collaboration Compound, which Derivative is first synthesized solely by Merck
or its Affiliates on behalf of Merck up to the third (3rd) anniversary of the end of
the Research Term.

 

1.5.2                        “Sunesis-Derived
Compound” shall mean any Collaboration Compound that is first synthesized
solely by Sunesis during the Research Term. 
This term shall also include any Derivative of a Collaboration Compound,
which Derivative is first synthesized solely by Sunesis or its Affiliates up to
the third (3rd)
anniversary of the end of the Research Term.

 

For purposes of this Section 1.5, “Derivative” shall mean
any chemical entity, the chemical structure of which was derived on the basis
of structure-activity relationship (“SAR”) data obtained with a Collaboration
Compound or a series of Collaboration Compounds.

 

1.6                                 “Collaboration
Technology” shall mean all Research Patents and Research Know-How.

 

1.6.1                        “Research
Patents” shall mean all Merck Research Patents, Sunesis Research Patents
and Joint Research Patents.

 

(a)                                  “Merck
Research Patents” shall mean all patents, patent applications and invention
disclosures the subject of which is an invention made: (i) solely by Merck
personnel in the course of performing the Research Program; or (ii) solely
by Merck personnel during the Exclusivity Period in the course of activities
directed to the discovery, research or development of compounds for use in the
Field; as well as any divisions, continuations, continuations-in-part,

 

2

 

reissues, reexaminations, extensions, supplementary protection
certificates, and other governmental actions which extend any of the patent
applications or patents in (i) or (ii) above, and all foreign
counterparts to any of the foregoing.

 

(b)                                 “Sunesis
Research Patents” shall mean all patents, patent applications and invention
disclosures the subject of which is an invention made: (i) solely by
Sunesis personnel in the course of performing the Research Program; or
(ii) solely by Sunesis personnel during the Exclusivity Period in the
course of activities directed to the discovery, research or development of
compounds for use in the Field; as well as any divisions, continuations,
continuations-in-part, reissues, reexaminations, extensions, supplementary
protection certificates, and other governmental actions which extend any of the
patent applications or patents in (i) or (ii) above, and all foreign
counterparts to any of the foregoing.

 

(c)                                  “Joint
Research Patents” shall mean all patents, patent applications and invention
disclosures the subject of which is an invention made: (i) jointly by
personnel of Merck and Sunesis in the course of performing the Research
Program; or (ii) jointly by Merck and Sunesis during the Exclusivity
Period in the course of activities directed to the discovery, research or
development of compounds for use in the Field; as well as any divisions, continuations,
continuations-in-part, reissues, reexaminations, extensions, supplementary
protection certificates, and other governmental actions which extend any of the
patent applications or patents in (i) or (ii) above, and all foreign
counterparts to any of the foregoing.

 

1.6.2                        “Research
Know-How” shall mean all Merck Research Know-How, Sunesis Research
Know-How, and Joint Research Know-How.

 

(a)                                  “Merck
Research Know-How” shall mean any information or material, including, but
not limited to, discoveries, processes, methods, protocols, formulas, data,
non- patented inventions, know-how, and trade secrets of Merck, made or
developed: (i) solely by Merck personnel in the course of performing the
Research Program; or (ii) solely by or under authority of Merck personnel during
the Exclusivity Period in the course of activities directed to the discovery,
research or development of compounds for use in the Field.

 

(b)                                 “Sunesis
Research Know-How” shall mean any information or material, including, but
not limited to, discoveries, processes, methods, protocols, formulas, data,
non-patented inventions, know-how, and trade secrets of Sunesis, made or
developed: (i) solely by Sunesis personnel in the course of performing the
Research Program; or (ii) solely by or under authority of Sunesis
personnel during the Exclusivity Period in the course of activities directed to
the discovery, research or development of compounds for use in the Field.

 

(c)                                  “Joint
Research Know-How” shall mean any information or material, including, but
not limited to, discoveries, processes, methods, protocols, formulas, data,
non-patented inventions, know-how, and trade secrets of Merck, made or
developed: (i) jointly by personnel of Sunesis and Merck in the course of
performing the Research Program; or (ii) jointly by or under authority of
Sunesis and Merck personnel during the Exclusivity Period in the course of
activities directed to the discovery, research or development of compounds for
use in the Field.

 

3

 

Notwithstanding Section 1.6.1 and 1.6.2 above,
the Collaboration Technology, Research Patents and Research Know-How shall not
include any Sunesis Core Technology.

 

1.7                                 “Combination
Product” shall mean (i) a Product which includes one or more active
ingredients other than Licensed Compound in addition to Licensed Compound; or
(ii) a Sunesis Product which includes one or more active ingredients other
than (a) a Collaboration Compound in addition to a Collaboration Compound,
or (b) a compound other than a Collaboration Compound where the
manufacture, sale or use of the product is covered by a Valid Claim within the
Research Patents in addition to a compound other than a Collaboration Compound
where the manufacture, sale or use of the product is covered by a Valid Claim
within the Research Patents.  All
references to Product or Sunesis Product in this Agreement shall be deemed to
include Combination Product.

 

1.8                                 “Criteria”
shall mean the Lead Compound Criteria and Development Candidate Criteria (as
defined below).

 

1.8.1                        “Lead
Compound Criteria” shall mean (i) those criteria set forth in
Exhibit 1.8.1 hereto, and/or (ii)such other criteria that are approved by
the JRC and agreed in writing by the Parties, which are required to be
demonstrated from the testing of a compound in order for such compound to be
deemed a Lead Compound.

 

1.8.2                        “Development
Candidate Criteria” shall mean (i) those criteria set forth in
Exhibit 1.8.2 hereto, and/or (ii) such other criteria that are
approved by the JRC and agreed in writing by the Parties, which are required to
be demonstrated from the testing of a Lead Compound and/or other compound in
order for such Lead Compound and/or other compound to be deemed a Development
Candidate.

 

1.9                                 “Development
Candidate” shall mean any Collaboration Compound that is approved by Merck
in its sole discretion as a Development Candidate in accordance with Section 2.7.

 

1.10                           “Exclusivity
Period” shall mean the period from the Effective Date until the first
anniversary of the end of the Research Term.

 

1.11                           “Field”
shall mean the research, development and commercialization of Collaboration
Compounds for any or all therapeutic indications of small molecule modulators
of the Target.

 

1.12                           “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).  In the case of less than a full-time
scientist, the portion of an FTE year devoted by a scientist to the Research
Program shall be determined by dividing the number of days during any
twelve-month period devoted by such scientist to the Research Program by the
total number of working days of a full-time scientist during such twelve-month
period.

 

1.13                           “IND-Enabling
GLP Safety Assessment Studies” shall mean genotoxicity, acute toxicology,
and sub-chronic toxicology studies using “Good Laboratory Practices” for
obtaining approval from a Regulatory Agency to administer the Product to a
human.

 

4

 

1.14                           “Lead
Compound” shall mean any Collaboration Compound that is approved by Merck
in its sole discretion as a Lead Compound in accordance with Section 2.7.

 

1.15                           “Licensed
Compound” shall mean each (i) Development Candidate,
(ii) Merck-Derived Compound, and (iii) other compound, each of which
the manufacture, sale or use of which is covered by a Research Patent.

 

1.16                           “Major
Territories” shall mean any of France, Germany, Italy, Japan or the United
Kingdom.

 

1.17                           “NDA”
or “MAA” shall mean a New Drug Application (or its equivalent), as defined
in the U.S. Food, Drug and Cosmetic Act and the regulations promulgated
thereunder, or any corresponding or similar application or submission for
Regulatory Approval of a Product or Sunesis Product filed with a Regulatory
Authority to obtain marketing approval in that country or in that group of
countries.

 

1.18                           “Net
Sales” shall mean the invoice price of Products or Sunesis Products sold by
a Party, its Affiliates, or Sublicensees to the first Third Party, after
deducting, if not previously deducted, from the amount invoiced or received:

 

(a)                                  a
fixed amount equal to five percent (5%) of the amount invoiced to cover bad
debt, sales or excise taxes, early payment discounts, transportation and
insurance, custom duties, and other governmental charges;

 

(b)                                 sales
commissions paid to Third Party distributors and/or selling agents (excluding
sales commissions paid for sales made in the United States, Australia, Japan,
and the countries of the European Union);

 

(c)                                  trade
and quantity discounts other than early pay cash discounts;

 

(d)                                 rejections,
returns, rebates, chargebacks and other allowances or credits; and

 

(e)                                  retroactive
price reductions that are actually allowed or granted.

 

Sales among a Party, its Affiliates and their
respective Sublicensees for resale shall be excluded from the computation of
Net Sales, to the extent that (i) the subsequent resale is included within
Net Sales, or (ii) such sales relate to products that are transferred or
otherwise disposed of as samples (promotion or otherwise) or as donations (for
example, to non-profit institutions or government agencies for a non-commercial
purposes).

 

With respect to sales of Combination Products, Net
Sales shall be calculated on the basis of the invoice price of Product(s) or
Sunesis Products containing the same strength of Compound sold without other
active ingredients.  In the event that
Product or Sunesis Product is sold only as a Combination Product, Net Sales
shall be calculated on the basis of the invoice price of the Combination
Product multiplied by a fraction, the numerator of which shall be the inventory
cost of (i) Licensed Compound in the case of a Product, or
(ii) Collaboration Compound or a compound

 

5

 

other than a Collaboration Compound where the
manufacture, sale or use of the product is covered by a Valid Claim within the
Research Patents in the case of a Sunesis Product, and the denominator of which
shall be the inventory cost of all of the active ingredients in the Combination
Product.  Inventory cost shall be
determined in accordance with the Party’s regular accounting methods,
consistently applied.  The deductions set
forth in paragraphs (a) through (e) above will be applied in calculating
Net Sales for a Combination Product.  In the
event that Product or Sunesis Product is sold only as a Combination Product and
either Party reasonably believes that the calculation set forth in this
Paragraph does not fairly reflect the value of the Product or Sunesis Product
relative to the other active ingredients in the Combination Product, the
Parties shall negotiate, in good faith, other means of calculating Net Sales
with respect to Combination Products.

 

1.19                           “Phase I”
shall mean human clinical trials, the principal purpose of which is preliminary
evaluation of safety and/or pharmacokinetic effect of a Product or Sunesis
Product in human subjects or that would otherwise satisfy the requirements of
21 C.F.R. §312.21(a).

 

1.20                           “Phase II”
shall mean human clinical trials conducted on a limited number of patients for
the purpose of preliminary evaluation of the effectiveness of a Product or
Sunesis Product for a particular indication or indications in human subjects
with the disease or indication under study or that would otherwise satisfy the
requirements of 21 C.F.R. 312.21(b).

 

1.21                           “Phase III”
shall mean pivotal human clinical trials the results of which could be used to
establish safety and efficacy of a Product or Sunesis Product as a basis for
Regulatory Approval or that would otherwise satisfy the requirements of 21
C.F.R. §312.21(c).

 

1.22                           “Product”
shall mean any preparation in final form for sale by prescription,
over-the-counter or any other method for any and all uses, which contains a
Licensed Compound, including without limitation any Combination Product.

 

1.23                           “Regulatory
Agency” shall mean any applicable government regulatory authority involved
in granting approvals for the manufacturing, marketing, reimbursement and/or
pricing of a Product in the Territory, including the United States Food and
Drug Administration and any successor governmental authority having
substantially the same function.

 

1.24                           “Regulatory
Approval” shall mean shall mean any approval (including without limitation
all applicable pricing and governmental reimbursement approvals) from the
relevant Regulatory Agency necessary for the marketing and sale of a Product in
the applicable country.

 

1.25                           “Research
Program” shall mean the activities undertaken by the Parties as set forth
in Article 2 and in the Research Plan.

 

1.26                           “Research
Term” shall mean the period commencing on the Effective Date and ending on
the later of (i) the third anniversary of the Effective Date, or
(ii) if extended in accordance with Section 2.4 below, the end of
such extension period; provided that, the Research Term shall in all events
terminate upon an earlier termination of the Agreement in accordance with Article 12
below.

 

6

 

1.27                           “Sublicensee”
shall mean, with respect to a particular Product or Sunesis Product, a Third
Party to whom a Party has granted a right to make and sell or sell such Product
or Sunesis Product, but shall not include distributors.

 

1.28                           “Sunesis
Core Technology” shall mean all patents, patent applications, invention
disclosures, information, materials and other subject matter made or controlled
by Sunesis, and improvements thereof, relating to (w) the use of novel
protein engineering techniques and compositions and their application in drug
discovery, (x) target-directed fragment discovery and maturation to
produce drug leads, including monophore libraries for such purposes,
(y) covalent tethering and techniques related thereto (e.g. NMR, X-ray,
mass spec. AUC, Biacore) and its use to discover fragments and test binding
hypotheses of fragments and leads, or (z) dynamic and other combinatorial
chemistries related to proteins, the subject of which is an invention made:
(i) solely by Sunesis prior to the Effective Date or in the course of
performing the Research Program; or (ii) by employees of Merck or its
Affiliates on Merck’s behalf during the Exclusivity Period in the course of
activities directed to the discovery, research or development of compounds for
use in the Field; provided, in the case of (ii) that such item was made using
or derived from Sunesis Core Technology. 
Sunesis Core Technology shall also include any divisions, continuations,
continuations-in-part, reissues, reexaminations, extensions, supplementary
protections certificates, and other governmental actions which extend any of
the patent applications or patents in (i) or (ii) above, and all
foreign counterparts to any of the foregoing.

 

1.29                           “Sunesis
Know-How” shall mean all information and materials, including, but not
limited to, discoveries, processes, methods, protocols, formulas, data,
non-patented inventions, know-how, and trade secrets of Sunesis, not included
in the Sunesis Prior Aspartyl Protease Patents or the Sunesis Core Technology,
that are controlled by Sunesis prior to the Effective Date or during the term
of the Research Program but outside its scope, which are disclosed to Merck in
connection with the Research Program and are reasonably necessary for the
conduct of Merck’s activities under the Research Program or to develop, make,
or otherwise exploit Development Candidates and Merck-Derived Compounds.  Sunesis Know-How shall not include patents
rights therein.

 

1.30                           “Sunesis
Prior Aspartyl Protease Patents” shall mean all patents and patent
applications controlled by Sunesis as of the Effective Date that claim small
molecule inhibitors of Aspartyl Proteases, as described in Exhibit 1.30
hereto, together with any divisions, continuations, continuations-in-part,
reissues, reexaminations, extensions, supplementary protection certificates,
and other governmental actions which extend any of the patent applications or
patents listed in Exhibit 1.30, and any all foreign counterparts of any of
the foregoing.

 

1.31                           “Target”
shall mean beta-site APP-cleaving enzyme (“BACE”).  Notwithstanding the foregoing, if a
Substitute Target is established in accordance with Section 2.6 below,
then Target shall mean such Substitute Target, and in such event BACE may or
may not continue to be a Target, as provided in Section 2.6.  For such purposes, “BACE” shall have the meaning
defined in Exhibit 1.31.

 

1.32                           “Territory”
shall mean all of the countries of the world.

 

7

 

1.33                           “Third
Party” shall mean any person or entity other than Sunesis, Merck, and their
Affiliates.

 

1.34                           “Valid
Claim” shall mean a claim of an issued and unexpired patent within the
Collaboration Technology, the Sunesis Prior Aspartyl Protease Patents or the
Sunesis Core Technology, which has not been revoked or held unenforceable,
invalid or unpatentable by a court or other government body having competent
jurisdiction in a decision from which no appeal can or has been taken, and
which has not been rendered unenforceable through disclaimer.

 

1.35                           Additional
Terms.  In addition to the foregoing,
the following terms shall have the meaning defined in the corresponding Section below:

 

 

	
  Term

  	
   

  	
  Section Defined

  
	
  “Abandoned
  Compound”

  	
   

  	
  2.6.3(b) and
  7.3.1

  
	
  “Abandoned
  Target”

  	
   

  	
  2.6.3(b) and
  7.3.1

  
	
  “BACE”

  	
   

  	
  1.31

  
	
  “Change of
  Control”

  	
   

  	
  14.3

  
	
  “Derivative”

  	
   

  	
  1.5

  
	
  “Executive
  Committee”

  	
   

  	
  3.2

  
	
  “First
  Commercial Sale”

  	
   

  	
  6.1

  
	
  “Inflation
  Index”

  	
   

  	
  5.1.1(c)

  
	
  “Initial
  Notice”

  	
   

  	
  7.4

  
	
  “Jointly-Derived
  Compound”

  	
   

  	
  1.5.1

  
	
  “Joint
  Patent Committee”

  	
   

  	
  8.2.2

  
	
  “Joint
  Patent Counsel”

  	
   

  	
  8.2.2

  
	
  “JRC”      or      ”Joint      Research
  Committee”

  	
   

  	
  3.1

  
	
  “MedChem
  Portion”

  	
   

  	
  2.6.1

  
	
  “Research
  Plan”

  	
   

  	
  2.2

  
	
  “Sole
  Merck-Derived Compound”

  	
   

  	
  1.5.1

  
	
  “Substitute
  Target”

  	
   

  	
  2.6.1

  
	
  “Sunesis
  Compounds”

  	
   

  	
  12.5.3

  
	
  “Sunesis
  Product”

  	
   

  	
  5.5.1

  
	
  “Sunesis
  Targets”

  	
   

  	
  12.5.3

  
	
  “Tethering
  Portion”

  	
   

  	
  2.6.1

  

 

ARTICLE 2

RESEARCH PROGRAM

 

2.1                                 General;
Conduct of Research.  Sunesis and
Merck shall engage in the Research Program upon the terms and conditions set
forth herein.  Sunesis and Merck shall
each conduct the Research Program in a scientific manner in accordance with the
standards used in the pharmaceutical industry for drug discovery and
development, and in compliance in all material respects with all requirements
of applicable laws, rules and regulations and all applicable standard
laboratory

 

8

 

practices as used in the
pharmaceutical industry to attempt to achieve their objectives efficiently and
expeditiously.  Sunesis and Merck each
shall proceed diligently with the work set out in the Research Program by using
their good faith efforts.  Sunesis agrees
to dedicate to the Research Program the number of Sunesis FTE’s specified in
the Research Plan and to use personnel with sufficient skills and experience as
are required to accomplish the Research Program in accordance with the terms of
this Agreement and Exhibit 2.2; provided however, Sunesis shall not be
obligated to incur costs in performing its activities under the Research
Program in excess of the amounts funded by Merck under Section 5.1 below.

 

2.2                                 Research
Plan.  The Parties will conduct the
Research Program in the Field in accordance with a written plan approved by the
JRC (the “Research Plan”).  The Research
Plan shall establish: (i) the scope of the research activities which will
be performed; (ii) the research objectives, work plan activities and
schedules with respect to the Research Program; and (iii) the respective
obligations of the Parties with respect to the Research Program.  The Research Plan shall be reviewed on an
ongoing basis and may be amended in writing by approval of the JRC from time to
time as it deems necessary or appropriate. 
The initial Research Plan is attached hereto as Exhibit 2.2.

 

2.3                                 Disclosure.  During the Research Term, each Party shall
keep the other Party informed of its progress and material results in performing
the Research Program.  In this regard,
each Party shall provide the JRC with data and information pertaining to all
Collaboration Compounds identified by such Party, including the chemical
structures of such Collaboration Compounds and structure-activity data with
respect thereto, and such other information as the Parties agree in writing.

 

2.4                                 Term
of Research Program.  The Research
Program shall continue for an initial period of three (3) years after the
Effective Date.  Merck may extend the
Research Term for one additional one (1) year period at a level of research
funding to be determined by the JRC and by providing Sunesis written notice at
least three (3) months before the end of the initial three-year Research Term.  In addition, Merck shall have the right to
terminate the Research Program and this Agreement on the twenty-first (21)
month anniversary of the Effective Date, by providing Sunesis written notice at
least three (3) months in advance, as specified in Section 12.4.

 

2.5                                 Exclusivity.  Unless otherwise agreed by the Parties,
during the Exclusivity Period, neither Sunesis nor Merck shall knowingly
collaborate or otherwise cooperate with a Third Party or perform screening or
other research for its own account outside the Research Program for the purpose
of identifying compounds based upon their activity in directly modulating the
activity of the Target.  During the
one-year period immediately following the Research Term, the Parties shall,
after the filing of patent applications, disclose to the other Party Research
Patents arising from the Research Program and shall assign a joint ownership
interest in and to such Research Patents to the other Party in accordance with
the terms of Section 8.1.1.  The
Parties agree that nothing in this Agreement and particularly in this Section 2.5
shall in any way limit Merck from acquiring, from a party other than Sunesis, a
compound which is a modulator of the Target and which is approved by Merck as a
development candidate which satisfies the Development Candidate Criteria and
that no milestones nor royalties shall be owed to Sunesis with regard to such
compound, unless such

 

9

 

compound is covered by
Collaboration Technology (including without limitation Research Patent or
Research Know-How) and/or a Sunesis Prior Aspartyl Protease Patent.

 

2.6                                 Substitution
of the Target under the Research Program.

 

2.6.1                        Merck
Election to Substitute a Target for the Target BACE.  Beginning [**] ([*]) months after the
Effective Date (or such earlier time as the JRC approves and is agreed in
writing by the Parties), Merck may elect, in its sole discretion, to make a
one-time substitution of another target for the Target BACE under the MedChem
Portion and/or the Tethering Portion of the Research Program (and terminate the
MedChem Portion and/or the Tethering Portion of the Research Program with
respect to the Target BACE), as provided in this Section 2.6.1.  Promptly following Merck’s notice to Sunesis
of such election, the JRC shall evaluate the potential alternative targets to
substitute for the Target BACE, and the outline of a research plan for such
alternate, and shall recommend to the Parties a proposed substitute for the
Target BACE.  Upon agreement of the
Parties, such target shall be deemed the “Substitute Target” and shall
be substituted for the Target BACE under the MedChem Portion and/or the
Tethering Portion of the Research Program, as applicable, on the same terms and
conditions of this Agreement, and the MedChem Portion and/or the Tethering
Portion of the Research Program with respect to the Target BACE, as applicable,
shall be terminated (subject to Section 5.1.1(a)(except for the number of
Sunesis FTEs) and (b) below). 
Sunesis may condition its approval of a target as a Substitute Target on
mutual agreement of the Parties regarding the appropriate number of Sunesis
FTEs to be utilized for the Substitute Target. 
As used herein, the “MedChem Portion” shall mean those activities
conducted by Sunesis under the Research Program directed to the use of
medicinal chemistry to design, synthesize and characterize biologically active
molecules based on those compounds being optimized by Sunesis as of the
Effective Date and disclosed under the Sunesis Prior Aspartyl Protease Patents;
and the “Tethering Portion” shall mean those activities conducted by
Sunesis under the Research Program directed to the use of Sunesis Core
Technology commencing on the Effective Date to discover and advance novel
compounds.

 

2.6.2                        Establishment
of Criteria; Extension of Research Term. 
Promptly following such designation of a Substitute Target, the JRC
shall establish the Criteria for a Collaboration Compound to be deemed a Lead
Compound or Development Candidate for such Target; and the Parties shall determine
whether to extend the Research Program with respect to such Target beyond the
initial Research Term, it being understood that, subject to Section 2.4
above, the Research Term shall be so extended only as the Parties mutually
agree in writing.

 

2.6.3                        Target
BACE.

 

(a)                                  If,
at the time the Substitute Target is established under Section 2.6.1
above, Merck continues to fund at least one Sunesis FTE to conduct activities
under either the

 

[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.

 

10

 

MedChem Portion or Tethering Portion of the Research Program with
respect to BACE, or Merck has an Active Program with respect to BACE, then BACE
shall continue to be a Target, and all rights and obligations of the Parties
hereunder (other than with respect to that portion of the Research Program that
was terminated under Section 2.6.1) shall continue in full force and
effect with respect to such Target.

 

(b)                                 If,
at the time the Substitute Target is established under Section 2.6.1
above, both the MedChem Portion and Tethering Portion of the Research Program
have been terminated by Merck with respect to BACE, and Merck does not have an
Active Program with respect to BACE, then BACE shall be deemed an “Abandoned
Target” and all Collaboration Compounds (other than Merck-Derived Compounds)
that modulate the activity of BACE shall be deemed “Abandoned Compounds” for
purposes of this Agreement and the provisions of Section 7.3.2 and 7.3.3
shall apply.

 

2.7                                 Designation
of Lead Compounds and Development Candidates.  The Parties have established Criteria, set
forth in Exhibits 1.8.1 and 1.8.2, for the nomination of Collaboration
Compounds as Lead Compounds or Development Candidates, respectively.  From time to time, either Party may suggest
that a particular Collaboration Compound be recommended by the JRC to Merck for
consideration as a Lead Compound or as a Development Candidate.  Based upon the Criteria and the results of
the Research Program, the JRC shall nominate from time to time Collaboration
Compounds for consideration by Merck as Lead Compounds or Development
Candidates, and upon approval by Merck, such Collaboration Compound shall be
deemed a Lead Compound or Development Candidate, as the case may be.  During the Research Term, Merck may approve,
or withhold its approval of, the designation of any Collaboration Compound within
the Field as a Lead Compound or as a Development Candidate in Merck’s sole
discretion, whether or not such Collaboration Compound meets the Criteria, and
a Collaboration Compound shall not be deemed a Lead Compound or Development
Candidate unless so approved by Merck. 
In addition to the foregoing, following the end of the Research Term and
continuing until the expiration or termination of the Agreement, Merck may
approve, in its sole discretion, the designation of any Collaboration Compound
within the Field as a Development Candidate, provided such Collaboration
Compound (i) meets the Development Candidate Criteria, (ii) was
recommended by a Party to the JRC during the Research Term for consideration by
Merck as a Development Candidate, or (iii) is mutually approved by the
Parties to be a Development Candidate (such approval not to be unreasonably
withheld by Sunesis).  Subject to the
foregoing, it is understood and agreed that if Merck undertakes GLP toxicity
studies with respect to a particular Collaboration Compound in the Field, such
Collaboration Compound shall be deemed designated by Merck as a Development
Candidate (and if such Collaboration Compound has not already been designated
by Merck as a Lead Compound, it shall also be deemed designated by Merck as a
Lead Compound).

 

2.8                                 Reports;
Records; Inspection.

 

2.8.1                        Reports.  To the extent not already accomplished
through the meetings of the JRC, the Parties shall provide one another, at
least once quarterly, a written summary of research activities and results in
connection with the Research Program.

 

11

 

2.8.2                        Research
Records.  Sunesis and Merck shall
maintain records of the Research Program (or cause such records to be
maintained) in sufficient detail and in good scientific manner, in accordance
with the standards used in the pharmaceutical industry for drug discovery and
development, and appropriate for patent and regulatory purposes as will
properly reflect all work done and results achieved in the performance of the
Research Program.  During the Research
Term, and for three (3) years thereafter, Sunesis shall provide Merck with
access to such records, upon request, during ordinary business hours.

 

ARTICLE 3

MANAGEMENT

 

3.1                                 Joint
Research Committee.  Merck and
Sunesis will establish a committee (the “Joint Research Committee” or “JRC”) to
oversee, review and recommend direction of the Research Program.  The responsibilities of the JRC shall consist
of: (i) monitoring the progress of the Research Program;
(ii) monitoring the diligence of each Party; (iii) establishing
and/or modifying Criteria for the selection of Lead Compounds and Development
Candidates; (iv) nominating Collaboration Compounds as Lead Compounds
and/or as Development Candidates; (v) directing allocation of resources of
each Party for follow-up on SAR of Collaboration Compounds; and
(vi) taking such other actions as are specifically allocated to the JRC
under this Agreement.

 

3.2                                 Executive
Committee.  Merck and Sunesis will
also establish a committee (the “Executive Committee”) to oversee the JRC and
to provide overall strategic and business guidance for the Research
Program.  The responsibilities of the
Executive Committee shall consist of: (i) monitoring the progress of the
Research Program; (ii) resolving disputes as to matters allocated to the
JRC; and (iii) taking such other actions as are specifically allocated to
the Executive Committee under this Agreement.

 

3.3                                 Membership.  The Executive Committee, and the JRC, shall
each include two (2) representatives of each of Merck and Sunesis, with each
Party’s members selected by that Party. 
Sunesis and Merck may each replace its Executive Committee and/or JRC
representatives at any time, upon written notice to the other Party.  Unless otherwise agreed by the Parties, at
least one (1) representative of each Party to the Executive Committee must be
at least a vice-president or higher level employee of such Party.

 

3.4                                 Meetings.  During the Research Term, (i) the JRC
shall meet at least quarterly or at a frequency as agreed by its respective
committee members, and (ii) the Executive Committee shall meet at a
frequency as agreed by its respective committee members, in each case, at such
locations as the Parties agree or by means of teleconference, videoconference
or other similar communications equipment, and will otherwise communicate by
telephone, electronic mail, facsimile and/or videoconference.  With the prior consent of the Parties, other
representatives of Sunesis or Merck may attend the Executive Committee and/or
the JRC meetings as nonvoting observers. 
Each Party shall be responsible for all of its own expenses associated
with attendance of such meetings.

 

3.5                                 Decision-Making.  Decisions of the JRC shall be made by
unanimous approval of the members present in person or by other means (e.g.,
teleconference) at any meeting; provided that at least one member from each
Party must be so present and voting.  In
the event that unanimity is not

 

12

 

achieved within the JRC
on a decision required to be made by the JRC, the matter will be referred to
the Executive Committee, which shall promptly meet and endeavor in good faith
to resolve such matter in a timely manner. 
Such matters that cannot be resolved by the Executive Committee shall be
decided by Merck; provided, however, that with respect to: (i) selection
of a specific Substitute Target; (ii) an increase or decrease in the
number of Sunesis FTEs during the Research Term; (iii) modification of the
Criteria for designating Collaboration Compounds as Lead Compounds and
Development Candidates; and (iv) directing allocation of resources of each
Party for follow-up on SAR of Collaboration Compounds, in each case, decisions
must be made by mutual agreement of the Parties.

 

ARTICLE 4

LICENSES

 

4.1                                 License
to Development Candidates, Collaboration Compounds and Corresponding Products.

 

4.1.1                        License
under Merck Research Patents and Merck Research Know-How.  Subject to the terms and conditions of this
Agreement, Sunesis hereby grants to Merck a permanent, worldwide, exclusive
(even as to Sunesis) license under Sunesis’ interest in the Merck Research
Patents and Merck Research Know-How, for any and all purposes; provided,
however, that Sunesis may exercise such interest solely as necessary to perform
its obligations under the Research Program.

 

4.1.2                        License
under the Collaboration Technology. 
Subject to the terms and conditions of this Agreement, Sunesis hereby
grants to Merck a worldwide, exclusive license under Sunesis’ interest in the
Collaboration Technology (other than as provided in Section 4.1.1) to
develop, make, have made, use, import, offer for sale, sell, have sold or
otherwise exploit (i) Development Candidates for any and all purposes in
the Field; and (ii) subject to Section 4.3.2, Merck-Derived Compounds
outside the Field; in each case, alone or as incorporated into a Product.

 

4.1.3                        License
under the Sunesis Prior Aspartyl Protease Patents.  Subject to the terms and conditions of this
Agreement, Sunesis hereby grants to Merck a worldwide, exclusive license under
the Sunesis Prior Aspartyl Protease Patents to develop, make, have made, use,
import, offer for sale, sell, have sold or otherwise exploit Development
Candidates for any and all purposes in the Field, alone or as incorporated into
a Product.

 

4.1.4                        License
under Sunesis Core Technology and Sunesis Know-How.  Subject to the terms and conditions of this
Agreement, Sunesis hereby grants to Merck a worldwide, non exclusive license
(i) under the Sunesis Core Technology and Sunesis Know-How as reasonably
necessary or useful to develop, make, have made, use, import, offer for sale,
sell, have sold or otherwise exploit Development Candidates for any and all
purposes in the Field, and (ii) subject to Section 4.3.2, under the
Sunesis Know-How as reasonably necessary or useful to develop, make, have made,
use, import, offer for sale, sell, have sold or otherwise exploit Merck-Derived
Compounds outside the Field; in each case, alone or as incorporated into a
Product.  It is understood that the
foregoing license under Sunesis Core Technology shall not include the right to
practice Sunesis Core Technology to discover novel compositions outside the
Field, and shall only include

 

13

 

the right to exploit
Development Candidates that are Sunesis-Derived Compounds, or that are
Merck-Derived Compounds generated without the use of Sunesis Core Technology in
accordance with this Agreement.

 

4.2                                 Sublicenses.  Subject to the terms and conditions of this
Agreement, Merck shall have the right to sublicense: (i) all rights
granted in Section 4.1 above to Affiliates; and (ii) the rights
granted in Section 4.1 above to non-Affiliates with respect to Products
for which Merck has filed an NDA or MAA for its own account prior to the grant
of such sublicense.  Within sixty (60)
days following Merck’s grant of any such sublicense, Merck shall provide
Sunesis with the identity of the Sublicensee and the rights granted with
respect thereto for each Product and territory, sufficient to allow Sunesis to
verify the amounts due under Articles 5 and 6 below.  Each sublicense granted by Merck shall be
consistent with all the terms and conditions of this Agreement, and subordinate
thereto.

 

4.3                                 Collaboration
Compounds.

 

4.3.1                        Right
for Merck to Screen Compounds Outside Field.  It is understood that Merck shall have the
right, under Section 4.1 above, to include in its screening libraries
Merck-Derived Compounds for any and all purposes outside the Field.

 

4.3.2                        Notice
for Exclusive Rights to Collaboration Compounds Outside the Field.

 

(a)                                  Notice.  At each meeting of the JRC, the Parties shall
inform one another of all Collaboration Compounds synthesized since the prior
JRC meeting and the Parties agree that Merck shall have exclusive rights to any
and all Merck-Derived Compounds disclosed by Merck in such manner unless Merck
informs Sunesis otherwise, subject to Sections 4.3.2(b) and
(c) below.

 

(b)                                 Rights
to Use [*] Compounds.  With respect to
any [*] Compounds, if at the time of such notice, [*], its [*] or a [*] under
authority of Sunesis has undertaken [*] with respect to a [*] the [*] as such
[*], the licenses granted under Section 4.1 with respect to such compound
shall be non-exclusive.

 

(c)                                  Rights
to Use [*] Compounds.  With respect to any [*] Compounds not [*] to
Sunesis [*] the [*] under Section [*], Sunesis shall have the right under
the [*] to [*] and [*] and [*] compounds the [*] such [*]; provided, prior to
[*] any compound claimed within a Research Patent that was not otherwise
disclosed under this Agreement, Sunesis may [*] of the [*] of such [*], in
which case the Parties shall promptly determine whether [*] is a [*] or a [*].

 

4.3.3                        Merck
Rights to Use Sunesis-Derived Compounds. 
With respect to any Sunesis-Derived Compound disclosed to Merck, it is
understood and agreed that Merck shall use

 

[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.

 

14

 

such Sunesis-Derived
Compounds only in the course of the Research Program.  Unless such Sunesis-Derived Compound becomes
a Development Candidate in accordance with Section 2.7 above, Merck shall
not (and shall not authorize any Affiliate or Third Party to) market, sell or
distribute any such Sunesis-Derived Compound for any purpose.

 

4.4                                 Reserved
Rights of Sunesis.

 

4.4.1                        License.  Subject to the licenses expressly granted to
Merck herein, Sunesis shall have the worldwide right and license, with the
right to sublicense to the extent provided in Section 4.4.2, to practice
and exploit: (a) the Collaboration Technology inside the Field solely for
the purposes of the Research Program; and (b) the Collaboration Technology
(other than Merck Research Patents and Merck Research Know-How) outside the
Field.

 

4.4.2                        Sublicenses.  Within sixty (60) days following Sunesis’
grant of any sublicense under the Joint Research Patents, Sunesis shall provide
Merck with a description of the Joint Research Patents covered by such
sublicense, the name of the Third Party to whom such sublicense has been
granted and, if applicable, information sufficient to allow Merck to verify the
amounts due under Articles 5 and 6 below. 
Each sublicense granted by Sunesis shall be consistent with all the
terms and conditions of this Agreement, and subordinate thereto.

 

4.4.3                        Negotiation
of Rights to Merck Research Patents. 
With respect to any product under clinical development and/or
commercialization by Sunesis, which contains a compound claimed within a patent
or patent application within the Research Patents licensed to Sunesis under Section 4.4.1,
upon written notice to Merck, the Parties shall negotiate in good faith the
terms and conditions under which Merck may elect to grant Sunesis a license
under the Merck Research Patents and/or Merck Research Know-How to develop and
commercialize such product containing such compound.

 

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

 

ARTICLE 5

PAYMENTS

 

5.1                                 Research
Program Funding.

 

5.1.1                        Research
Program Payment Schedule.  Merck
agrees to pay Sunesis research funding for Sunesis’ conduct of the Research
Program each Calendar Quarter in advance by the first day of each Calendar
Quarter, in an amount equal to the number of Sunesis FTEs called for in the
Research Plan for the applicable quarter multiplied by the Sunesis FTE rate (as
defined below).  The initial payment, to
be made within thirty (30) days of the Effective Date, shall include said
funding for the period from the Effective Date through March 31, 2003.

 

15

 

(a)                                  Initial
Research Term.  The Research Plan
shall provide for a total of [*] ([*]) Sunesis FTEs during each year of the
initial Research Term, such FTEs to be allocated as set forth in the Research
Plan.  The Sunesis FTE rate for such
years shall be equal to [*] U.S. Dollars ($[*]) per FTE per month during the
first [*] ([*]) years of the initial Research Term.  The Sunesis FTE rate during the [*] year of
the initial Research Term shall be equal to the Sunesis FTE rate for the
previous year plus a percentage increase equal to the Inflation Index (as
defined below).

 

(b)                                 Extended
Research Term.  During any extension
of the Research Term beyond the initial Research Term, the Parties shall agree
on the appropriate number of FTEs.  The
Sunesis FTE rate during any such extended Research Term shall be equal to
Sunesis FTE rate for the previous year plus a percentage increase equal to the
Inflation Index.  It is understood and
agreed, that in no event is Merck obligated to extend the Research Term.

 

(c)                                  Inflation
Index.  As used herein, “Inflation
Index” shall mean the percentage increase in the Consumer Price Index for all
Urban Consumers, as published by the U.S. Department of Labor, Bureau of
Statistics, since the Effective Date, or if later, since the date of the last
adjustment of the Sunesis FTE rate under this Section 5.1.

 

5.1.2                        Outsourced
Activities.  In the event the
Research Plan provides, or the JRC agrees, that work under the Research Program
is to be conducted by a Third Party, unless otherwise agreed by the Parties,
Merck shall bear the out-of-pocket costs incurred with respect to such work
that is approved in advance by Merck.

 

5.2                                 Research
Milestones.

 

5.2.1                        Upfront
Payment.  Upon execution of this
Agreement by both Parties, an upfront technology access fee of [*] U.S. Dollars
(US$[*]) shall be due to Sunesis, payable by Merck within thirty (30) days
after the Effective Date.  Such fee shall
be non-refundable and non-creditable against other amounts due Sunesis
hereunder.

 

5.2.2                        Research
Milestones Payments.  On a
Target-by-Target basis, Merck shall pay to Sunesis the following amounts within
thirty (30) days following the first achievement of the following research
milestones with respect to the Target:

 

 

[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted portions.

 

16

 

	
  Research
  Milestones

  	
   

  	
  Payment Amount

  	
   

  
	
  1.

  	
  Approval by
  Merck, in accordance with Section 2.7, of the first Lead Compound for
  such Target:

  	
   

  	
  $

  	
  [*]

  	
   

  
	
  2.

  	
  Approval by
  Merck, in accordance with Section 2.7, of the first Development
  Candidate for such Target:

  	
   

  	
  $

  	
  [*]

  	
   

  
	
  3.

  	
  For each of the
  next [*] ([*]) Development Candidates for such Target, on a Development
  Candidate-by-Development Candidate basis:

  	
   

  	
   

  	
   

  
	
   

  	
  (i)

  	
  Approval by
  Merck, in accordance with Section 2.7 of such Development Candidate for
  such Target; and

  	
   

  	
  $

  	
  [*]

  	
   

  
	
   

  	
  (ii)

  	
  Upon successful
  completion of the IND-Enabling GLP Safety Assessment Studies for such
  Development Candidate for such Target:

  	
   

  	
  $

  	
  [*]

  	
   

  

 

The milestone payment shall be payable only
upon the initial achievement of such milestone for such Target and no amounts
shall be due hereunder for subsequent or repeated achievement of such milestone
with respect to the same Target.

 

5.3                                 Development
Milestones.

 

5.3.1                        Development
Milestone Payments.  On a Licensed
Compound-by-Licensed Compound basis, subject to Section 5.3.2 below, Merck
shall pay to Sunesis the following amounts within thirty (30) days following
the first achievement by Merck, its Affiliates or Sublicensees, as the case may
be, of each of the following milestones with respect to a Licensed Compound (or
corresponding Product incorporating such Licensed Compound):

 

 

	
   

  	
   

  	
  Payment Amount

  	
   

  
	
  Development Milestones

  	
   

  	
  1st Indication

  	
   

  	
  2nd Indication*

  	
   

  	
  3rd Indication*

  	
   

  
	
  1.

  	
  Initiation of Phase I for such
  Licensed Compound in any country:

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  Initiation of the first Phase II trial
  for such Licensed Compound in any country:

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  Initiation of the first Phase III
  trial for such Licensed Compound in any country:

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  Acceptance of a NDA in the U.S. for such
  Licensed Compound:

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  

 

 

[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.

 

17

 

	
   

  	
   

  	
  Payment Amount

  	
   

  
	
  Development Milestones

  	
   

  	
  1st Indication

  	
   

  	
  2nd Indication*

  	
   

  	
  3rd Indication*

  	
   

  
	
  5.

  	
  Acceptance of an MAA in a Major Territory
  for such Licensed Compound:

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  Regulatory Approval in the U.S. of such
  Licensed Compound:

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  Regulatory Approval in a Major Territory of
  such Licensed Compound:

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  

 

Such milestone payments shall be non-refundable and
non-creditable against other amounts due Sunesis hereunder.  The milestone payment shall be payable only
upon the initial achievement of such milestone and no amounts shall be due hereunder
for subsequent or repeated achievement of such milestone.  In addition, in all circumstances, milestone
payments applicable to each Licensed Compound shall be payable only once per
Licensed Compound.

 

*Note:  It is understood that the Parties expect
there to be only one indication with respect to the Target BACE.  Consequently, the milestones set forth above
for additional indications shall not apply to the Target BACE.  To the extent the Parties identify multiple
indications for the Substitute Target, or in the event Merck initiates a
clinical study for an additional indication, beyond the first indication, for
the Substitute Target, the Parties will negotiate in good faith regarding the
appropriate milestones for the first two additional indication(s); provided,
however, that such milestones shall not exceed the amounts set forth in this Section 5.3.1.  Such negotiations will take into
consideration the commercial potential of the indication (e.g., orphan drug
status and medical need).  The Parties
agree that: (i) prevention of a disease shall not be a separate indication
from treatment of the same disease (e.g., treatment and prevention of Alzheimer’s
Disease); (ii) the treatment and prevention of similar diseases through
the same mechanism of action shall not be a separate indication (e.g., primary
hypercholesteremia and hvpertriglyceridemia); and (iii) the treatment or
prevention of the same disease in a different population shall not be a
separate indication (e.g. adult and pediatric).

 

5.3.2                        Products
Outside the Field.  Notwithstanding Section 5.3.1
above:

 

(a)                                  If
a Licensed Compound is being developed and commercialized solely outside the
Field, but its manufacture, sale or use is covered by a Valid Claim, then the
amounts due under Section 5.3.1 with respect to the achievement of such
milestones by such Licensed Compound shall be reduced by fifty percent (50%).

 

[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.

 

18

 

(b)                                 If
a Licensed Compound is being developed and commercialized solely outside the
Field, and is not so covered by a Valid Claim, then no milestone payments shall
be due with respect to such Licensed Compound under Section 5.3.1 above.

 

5.3.3  
Certain Additional Terms.

 

(a)                                  Credit
for Discontinued Compounds.  If Merck
ceases all clinical development of a particular Licensed Compound (the “Discontinued
Compound”) after having made the payments due under Section 5.3 above on
the achievement of a particular milestone by such Licensed Compound, there
shall be no payment due upon the accomplishment of that same milestone with
respect to the next Licensed Compound to achieve such milestone.

 

(b)                                 Acceptance.  For purposes of this Article 5, “acceptance”
of an NDA or MAA shall mean (i) in the United States, that the FDA has
accepted such NDA for substantive review; and (ii) in the European Union,
that the Regulatory Agency of a country of the European Union, or the European
Medicines Evaluation Agency (or a comparable agency of the EU), has validated
or otherwise accepted such MAA for substantive review; and (iii) in Japan,
that the Regulatory Agency of Japan has validated or otherwise accepted such
NDA for substantive review.

 

(c)                                  Accrued
Milestones.  If a research milestone
for a Target or Development Candidate under Section 5.2.2 above, or a
development milestone for a Licensed Compound under Section 5.3.1 above,
is achieved with respect to such Target, Development Candidate or Licensed
Compound (respectively) in a territory before a prior research milestone under Section 5.2.2
or a prior development milestone under Section 5.3.1 for such Target,
Development Candidate or Licensed Compound in such territory, then the earlier
milestone payments under Section 5.2.2 and 5.3.1 in such territory shall
then be due with respect to such Target, Development Candidate or Licensed
Compound, as the case may be.  For such
purposes, “subsequent” and “prior” shall refer to the numerical order of such
milestone, as indicated next to such milestone in Sections 5.2.2 and 5.3.1
above; provided, that milestones 4 and 6 under Section 5.3.1 above shall
not be so deemed “prior” to milestones 5 and 7, and vice versa.

 

5.3.4   Reports; Payments.  Within ten (10) business days of the
occurrence of any event which would trigger a milestone payment according to Section 5.2
or 5.3, Merck shall inform Sunesis of such occurrence.  The corresponding payment shall be due thirty
(30) days after the occurrence of such event.

 

5.4                                 Royalties
on annual Net Sales of Products by Merck, its Affiliates and Sublicensees.

 

5.4.1                        Products.  Merck shall pay to Sunesis a royalty on
annual Net Sales by Merck, its Affiliates and their Sublicensees of Products
incorporating Licensed Compounds, on a Product-by-Product basis, equal to the
percentage of such Net Sales set forth below, subject to Sections 5.4.2
and 5.4.3 below:

 

19

 

	
  Annual Net Sales

  	
   

  	
  Royalty on Net Sales

  	
   

  
	
  Portion of
  Annual Net Sales of such Product up to $[*]:

  	
   

  	
  [*]%

  	
   

  
	
  Portion of
  Annual Net Sales of such Product between $[*] and $[*]:

  	
   

  	
  [*]%

  	
   

  
	
  Portion of
  Annual Net Sales of such Product over $[*]:

  	
   

  	
  [*]%

  	
   

  

 

For purposes of the foregoing, “annual Net
Sales” shall mean, for a particular Product, the worldwide Net Sales of such
Product for the particular calendar year. 
In addition, it is understood that all formulations and dosage forms of
the same active ingredient(s) shall be deemed the same “Product,” but Products
with different active ingredients shall be deemed different Products.  No royalties shall be due upon the sale or
other transfer among Merck, its Affiliates or Sublicensees, but in such cases
the royalty shall be due and calculated upon Merck’s or its Affiliate’s or its
Sublicensee’s Net Sales to the first Third Party.

 

5.4.2  
Products Outside the Field. 
Notwithstanding Section 5.4.1

 

(a)                                  In
the case of Products being commercialized solely outside the Field, where the
manufacture, sale or use of the Product is covered by a Valid Claim, the
royalty rates specified in Section 5.4.1 above with respect to annual Net
Sales of such Product shall be reduced by $[*] 
percent ([*]%) (i.e., to [*]%, [*]% and [*]%, respectively).

 

(b)                                 In
the case of Products being commercialized solely outside the Field where the
Product is not so covered by a Valid Claim, the royalties specified in Section 5.4.1
above shall not apply, and instead Merck shall pay to Sunesis royalties equal
to [*] percent ([*]%) of the Net Sales of such Product by Merck, its Affiliates
and Sublicensees.

 

5.4.3  
Competitive Products

 

(a)                                  If,
in any Calendar Year, a Third Party sells a product in a country which is a
Competitive Product (as defined below) of a Product, then the royalty rate to
be paid on Net Sales of such Product in that country under Section 5.4.1
shall be reduced by fifty percent (50%) in such country during such Calendar
Year.

 

(b)                                 For
purposes of this Section 5.4.3, “Competitive Product” shall mean a product

 

(i)                                     that
is being sold in the same country in which Merck is selling a Product, which
product incorporates an active moiety that is the same as the Licensed Compound
contained within such Product being sold in such country,

 

(ii)                                  the
sale of which is not covered by a Valid Claim in such country or a Valid Claim
exists in such country but is unenforceable; and

 

[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.

 

20

 

(iii)                               of
which sales in such country attains over such Calendar Year basis a market
share of [*] percent ([*]%) or more in such country of sale as measured by
prescriptions or other similar information in the country of sale as determined
by an independent sales auditing firm selected by Merck and reasonably
acceptable to Sunesis.  Once the
Competitive Product has achieved such percentage market share in a country, its
shall be deemed to satisfy this clause (iii) for each subsequent Calendar
Year in such country until such time as commercial sales of such Competitive
Product are effectively discontinued in such country.

 

If Merck is entitled to a royalty reduction based on
Competitive Product sales pursuant to this Section 5.4.3 for any royalty
reporting period, Merck shall submit the sales report of such independent firm,
as applicable, for the relevant royalty reporting period to Sunesis, together
with the sales report for the relevant royalty reporting period submitted
pursuant to Section 6.1.

 

5.5                                 Royalties
on Sales by Sunesis, its Affiliates and Sublicensees

 

5.5.1                        Products.

 

(a)                                  In
the case of products being commercialized by Sunesis for use outside the Field,
that incorporate a Collaboration Compound, and where the manufacture, sale or
use of the product is covered by a Valid Claim within the Research Patents,
Sunesis shall pay to Merck royalties equal to fifty percent (50%) of the
royalties set forth in Section 5.4.1 as applied to annual Net Sales by
Sunesis, its Affiliates and Sublicensees of such products; and

In the case of all other products (other than the products specified in
Section 5.51(a) above) being commercialized by Sunesis for use
outside the Field, that incorporate a compound other man a Collaboration
Compound, and where the manufacture, sale or use of the product is covered by a
Valid Claim within the Research Patents, the royalties specified in Section 5.51(a)
shall not apply, and instead Sunesis shall pay to Merck royalties equal to [*]
percent ([*]%) of annual Net Sales by Sunesis, its Affiliates and Sublicensees
of such products;

 

(collectively, each a “Sunesis Product” and including without
limitation any Combination Product)

 

5.5.2                        Certain
Targets.  Notwithstanding Section 5.5.1,
Sunesis shall have no obligation to pay the royalty specified in Section 5.5.1
with respect to Sunesis Products that modulate directly or indirectly the activity
of any of the following: [*], [*] and/or [*] (each as defined in
Exhibit 5.5.2).

 

5.6                                 Royalty
Term.  The royalties due pursuant to
Sections 5.4 and 5.5 shall be payable on a country-by-country and
product-by-product basis commencing on the First Commercial Sale in a country
and continuing until the date which is the later of: (i) the expiration of
the last Valid Claim covering the manufacture, sale or use of such product, in
such country (such expiration to occur only after expiration of extensions of
any nature to such patents which may be obtained under applicable

 

[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.

 

21

 

statutes or regulations
in the respective countries, such as the Drug Price Competition and Patent Term
Restoration Act of 1984 in the U.S.A. and similar patent extension laws in
other countries), or (ii) twelve (12) years following the First Commercial
Sale of such product in such country.

 

ARTICLE 6

PAYMENTS, BOOKS AND RECORDS

 

6.1                                 Royalty
Reports and Payments.  After the
First Commercial Sale of a Product or Sunesis Product on which royalties are
payable by a Party, or its Affiliates or Sublicensees hereunder, such Party
shall make quarterly written reports to die other Party within sixty (60) days
after the end of each calendar quarter, stating in each such report, separately
for such Party and Sublicensee, the aggregate Net Sales and royalties payable,
by country, of each such Product or Sunesis Product sold during the Calendar
Quarter upon which a royalty is payable under Section 5.4 or 5.5 above, as
applicable.  Concurrently with the making
of such reports, such Party shall pay to the other Party royalties due at the
rates specified in Section 5.4 or 5.5, as applicable.  “First Commercial Sale” shall mean,
with respect to any Product or Sunesis Product, the first sale for end use or consumption
of such Product or Sunesis Product in a country after all required approvals
(other than pricing and reimbursement approvals) have been granted by the
Regulatory Agency of such country.

 

6.2                                 Payment
Method.  All payments due under this
Agreement shall be made by check made to the order of the other Party or by
bank wire transfer in immediately available funds to such bank account
designated in writing by the other Party from time to time.  All payments hereunder shall be made in U.S.
Dollars.  In the event that the due date
of any payment subject to Article 5 hereof is a Saturday, Sunday or
national holiday, such payment may be paid on the following business day.  Any payments that are not paid on the date
such payments are due under this Agreement shall bear interest to the extent
permitted by applicable law at the prime rate as reported by the Chase
Manhattan Bank, New York, New York, on the date such payment is due.

 

6.3                                 Currency
Conversion.  In the case of sales
invoiced in a foreign currency, exchange conversion of such sales into U.S.
Dollars shall be made on a monthly basis and shall be translated at the rate of
exchange utilized by Merck in its worldwide accounting system.  As of the Effective Date of this Agreement,
Merck accesses such monthly rates of exchange as quoted by Reuters Ltd.

 

6.4                                 Records;
Inspection.  Each Party shall keep
complete, true and accurate books of account and records for the purpose of
determining the amounts payable under this Agreement.  Such books and records shall be kept at the
principal place of business of such Party, as the case may be, for at least two
(2) years following the end of the Calendar Quarter to which they pertain.  Such records will be open for inspection by an
independent certified public accounting firm of nationally recognized standing
to whom the audited Party has no reasonable objection, solely for the purpose
of determining the payments to the other Party hereunder.  Such inspections may be made no more than
once each Calendar Year, at reasonable times and on reasonable notice.  Inspections conducted under this Section 6.4
shall be at the expense of the auditing Party, unless a variation or error

 

22

 

producing an increase
exceeding [*] percent
([*]%) and at least [*] and [*] Dollars ($[*]) of the amount stated for the
period covered by the inspection is established in the course of any such
inspection, whereupon all reasonable costs relating to the inspection for such
period shall be paid promptly by the audited Party.  The interest available to the auditing Party
pursuant to this Section 6.4 shall in no way limit any other remedies
available to the auditing Party.

 

6.5                                 Withholding
Taxes.  Each Party shall pay any and
all taxes levied on account of amounts payable to it under this Agreement.  If laws or regulations require that taxes be
withheld, the paying Party will (i) deduct those taxes from the remittable
payment, (ii) timely pay the taxes to the proper authority, and
(iii) send proof of payment to the other Party within sixty (60) days
following that payment.  Notwithstanding
the foregoing, it is understood and agreed that the amounts payable under
Sections 5.1, 5.2 and 5.3 shall be paid in full without reduction for
withholding taxes.

 

ARTICLE 7

DILIGENCE

 

7.1                                 Diligence.  Merck shall use commercially reasonable
efforts to develop and market Products within the Field for each Target.  Such efforts shall include those efforts that
Merck applies to develop and market other products directed at major market
indications.

 

7.2                                 Reports.  Merck agrees to keep Sunesis informed on a
quarterly basis with respect to the pre-clinical and clinical development of
all Products and Sunesis agrees to keep Merck informed on a quarterly basis
with respect to the pre-clinical and clinical development of all Sunesis
Products, to the extent it has the right to do so.

 

7.3                                 Abandoned
Compounds,

 

7.3.1                        Abandonment
of a Compound or a Target.  Merck
may, at its sole discretion, discontinue development and/or commercialization
of Development Candidates.  If such
discontinuation involves a Development Candidate which contains a
Sunesis-Derived Compound or a Jointly-Derived Compound, and the decision to
discontinue occurs solely because of Merck’s opinion of the economic prospects
or marketing potential of the Development Candidate containing a
Sunesis-Derived Compound or a Jointly-Derived Compound, then such compounds
shall be deemed Abandoned Compounds. 
Except as otherwise provided in Section 2.6.3(b), Merck may, at its
sole discretion, elect to abandon a Target and such target shall be deemed an “Abandoned
Target”.

 

7.3.2                        Abandoned
Targets and Abandoned Compounds. 
Upon designation of an Abandoned Target or an Abandoned Compound
pursuant to Section 2.6.3(b) or Section 7.3.1 above:

 

[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.

 

23

 

(a)                                  the
Abandoned Target shall cease to be a Target and the Abandoned Compounds shall
cease to be Products, Licensed Compounds, Development Candidates, Lead
Compounds, and/or Collaboration Compounds, and, except as otherwise provided in
this Agreement, Merck shall have no further rights under Section 2.7, 4.1,
4.2 and 4.3 with respect to such Abandoned Target and Abandoned Compounds;

 

(b)                                 the
obligations of Section 2.5 shall continue in full force and effect with
respect to Merck during the Exclusivity Period as if the Abandoned Target were
still a Target, but shall not apply to activities by or under authority of
Sunesis relating to such Abandoned Target and such Abandoned Compounds; and

 

(c)                                  Merck
shall grant and hereby grants to Sunesis a worldwide non exclusive license,
with the right to sublicense to the extent provided in Section 4.4.2,
under the Collaboration Technology (other than Merck Research Patents and Merck
Research Know-How) to practice and otherwise exploit such Abandoned Target and
the compounds directed to such Abandoned Target and to make, have made, import,
use, sell, offer to sell and otherwise exploit Abandoned Compounds, alone or as
incorporated into a product.

 

7.3.3                        Reversion
of Rights.  Subject to Section 7.3.4
and 7.3.5 below, upon designation of a compound as a Abandoned Compound
pursuant to Section 2.6.3(b) or 7.3.1 above, Sunesis shall have the
immediate and exclusive right to further develop and/or commercialize Abandoned
Compounds outside the Field; provided, however, that Sunesis shall not develop
and/or commercialize an Abandoned Compound if Merck reasonably demonstrates
that: (i) it discontinued development of such Abandoned Compound due to
significant concerns by Merck that such compound was unsafe for use, and (ii) further
development or use of such Abandoned Compound would create a significant
perception in the Major Territories that such compound is unsafe.  For the avoidance of doubt, the Parties agree
that, notwithstanding any provision in Sections 2.6.3, 4.3.2(c) and/or
this Section 7.3, Sunesis shall only have the right to develop and/or
commercialize Abandoned Compounds that modulate the activity of BACE or the
Substitute Target if Merck does not have an Active Program for BACE or the
Substitute Target, as the case may be.

 

7.3.4                        Reverse
Royalty.  Sunesis agrees to pay to
Merck a reverse royalty on aggregate Net Sales of products that modulate BACE
or the Substitute Target by Sunesis, its Affiliates or its Sublicensees of
Abandoned Compounds, where the manufacture, sale or use of such Abandoned
Compound is covered by a Valid Claim, based on the development status of the
Abandoned Compound at the time it becomes an Abandoned Compound under Section 2.6.3(b)
or Section 7.3.1 above, as follows:

 

24

 

 

	
  Stage of
  Abandoned Compound

  	
   

  	
  Reverse

  on Net Sales

  	
   

  	
  Royalty

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  After initiation of first Phase I
  trial, but prior to initiation of first Phase II trial, of the Abandoned
  Compound:

  	
   

  	
  [*]%

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  After initiation of first Phase II
  trial, but prior to initiation of first Phase III trial, of the
  Abandoned Compound:

  	
   

  	
  [*]%

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  After initiation of first Phase III
  trial:

  	
   

  	
  [*]%

  	
   

  	
   

  	
   

  

 

Such royalty shall be subject to the same
terms as apply to Merck under Sections 5.4.3, mutatis
mutandis.  The royalties under
Section 5.5.1 above shall not apply to any Product for which royalties are
due under this Section 7.3.4.

 

7.3.5                        Abandonment
of Program.  The Parties agree to act
in good faith regarding discussions of whether there is a remaining Target or
Development Candidate under this Agreement.

 

7.4                                 Merck
Right of First Negotiation - Abandoned Compounds.  At least sixty (60) days prior to Sunesis
granting to a Third Party the right to market and distribute a product
containing an Abandoned Compound which modulates the activity of BACE or the
Substitute Target, Sunesis agrees to notify Merck in writing, together with a
summary description of the product(s) to be proposed that would be the subject
of such grant (the “Initial Notice”). 
Upon request by Merck following its receipt of such Initial Notice,
Sunesis and Merck shall discuss the terms and conditions under which Sunesis
would grant such rights to Merck.  In the
event the Parties agree on the terms and conditions under which Sunesis would
grant such right to Merck, in accordance with Section 12.5.4, Sunesis
shall cooperate fully (and cause it Affiliates to cooperate fully) with Merck
to facilitate a smooth and prompt transition to Merck of all Collaboration
Technology, information and materials that are necessary or useful for Sunesis
to further research, develop, produce or otherwise exploit such Abandoned
Compound.  In the event that the Parties
have not agreed upon such terms and conditions pursuant to which such rights
and license would be granted to Merck, within one hundred eighty (180) days
after the date Sunesis provided the Initial Notice to Merck, Sunesis shall be
free to enter into an agreement with a Third Party to market and distribute
products containing such Abandoned Compound, without further obligations to
Merck, and on any terms that Sunesis considers appropriate and not in conflict
with the terms of this Agreement.  It is
understood that, because Sunesis will be providing the Initial Notice to Merck
prior to the commencement of material and substantial negotiations with a Third
Party, Sunesis may not be able to define the entire or exact scope of the
product, field or rights to be granted, and accordingly, so long as the Initial
Notice describes a product, field or rights that significantly overlap with the
product, field or rights actually negotiated with, or granted to, a Thud Party,
Sunesis shall be deemed to have satisfied its obligations under this
Section 7.4; also, it is understood that Sunesis need only provide one
such Initial Notice hereunder with respect to an Abandoned Compound, and that
Sunesis is not obligated

 

[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.

 

25

 

to provide any further
notice if Sunesis subsequently engages in discussions with more than one Third
Party with respect to the Abandoned Compound described in the Initial
Notice.  The only obligations of Merck
and Sunesis under this Section 7.4 are as expressly stated therein, and
there are no further implied obligations relating to the matters contemplated
therein.

 

ARTICLE 8

INTELLECTUAL PROPERTY

 

8.1                                 Ownership;
Disclosure.

 

8.1.1                        Collaboration
Technology.  Subject to
Section 8.1.2, all right, title and interest in and to the Collaboration
Technology shall, as between the Parties, be jointly owned by Merck and
Sunesis.  Merck hereby assigns to Sunesis
a joint ownership interest in and to the Merck Research Patents, Joint Research
Patents, Merck Research Know-How and Joint Research Know-How; and Sunesis
hereby assigns to Merck a joint ownership interest in and to the Sunesis
Research Patents, Joint Research Patents, Sunesis Research Know-How and Joint
Research Know-How.  It is understood
that, except as expressly set forth in this Agreement, neither Party shall have
any right to research, develop, commercialize and/or otherwise exploit
Collaboration Technology without the express written consent of the other
Party.

 

8.1.2                        Sunesis
Core Technology.  All right, title
and interest in and to the Sunesis Core Technology, and in any inventions or
improvements made by or under authority of either Party or its Affiliates
during the term of this Agreement relating to Sunesis Core Technology, shall,
as between the Parties, be owned solely by Sunesis.  Merck hereby assigns to Sunesis all of its
rights in and to such inventions and improvements relating to Sunesis Core
Technology (including all patent and other intellectual property rights
therein).

 

8.1.3                        Disclosure.  Each Party shall promptly disclose to the
other, inventions within the Collaboration Technology, and/or Sunesis Core
Technology, made in connection with this Agreement.

 

8.2                                 Patent
Prosecution.

 

8.2.1                        Sunesis
Core Technology.  Sunesis shall have
the right to control the preparation, filing, prosecution and maintenance of
patent applications and patents directed to Sunesis Core Technology and the
Sunesis Prior Aspartyl Protease Patents using patent counsel of Sunesis’
choice, provided, however, that Sunesis shall only have such right with regard
to Sunesis Prior Aspartyl Protease Patents in countries where patent costs are
borne solely by Sunesis.

 

8.2.2                        Collaboration
Technology.  Except as provide in
Section 8.2.1, all preparation, filing, prosecution and maintenance of
patent applications and patents directed to Collaboration Technology shall be
governed by this Section 8.2.2.

 

(a)                                  Joint
Patent Committee.  Merck and Sunesis
will establish a joint patent committee (the “Joint Patent Committee”) to
(i) select patent counsel mutually agreeable to both Parties (the “Joint
Patent Counsel”) to prepare, file, prosecute and maintain the patent
applications and patents directed to Collaboration Technology, and (ii) to
control the filing,

 

26

 

prosecution, and maintenance of the patent applications and patents
directed to Collaboration Technology. 
The Joint Patent Committee shall include two (2) representatives of each
of Merck and Sunesis (one of which shall be patent counsel or patent agent for
such Party), with each Party’s members selected by that Party.  Sunesis and Merck may each replace its Joint
Patent Committee representatives at any time, upon written notice to the other
Party.  During the term of this
Agreement, the Joint Patent Committee shall meet and/or communicate by
telephone, electronic mail, facsimile and/or videoconference on a regular basis
as agreed by the Parties.  With the
consent of the Parties, other representatives of Sunesis or Merck may attend
the Joint Patent Committee meetings as nonvoting observers.  Each Party shall be responsible for all of
its own expenses associated with attendance of such meetings.  Decisions of the Joint Patent Committee shall
be made by unanimous approval of the members present in person or by other
means (e.g., teleconference) at any meeting; provided that at least one member
from each Party must be so present and voting. 
As used herein, “prosecution” shall include interferences,
re-examinations, reissues, oppositions and the like.

 

(b)                                 Joint
Patent Counsel.  In addition to
preparing, filing, prosecuting and maintaining the patent applications and
patents directed to Collaboration Technology, Patent Counsel shall have final
responsibility for determining: (i) whether, consistent with laws
regarding inventorship, to correct or supplement the inventors listed on the
invention disclosure form in view of the activities conducted under the Research
Program, and (ii) whether, consistent with applicable law regarding
inventorship, the respective invention was made solely or jointly be Merck
and/or Sunesis.

 

(c)                                  Option
to Prosecute and Maintain Patents. 
The Parties shall give timely notice to the other of any decision not to
file applications or to cease prosecution and/or maintenance of any Merck
Research Patents, Joint Research Patents or Sunesis Research Patents on a
country-by-country basis and, in such case, shall permit the other party, at its
sole discretion and expense, to file or to continue prosecution or maintenance
of such Research Patents.

 

(i)                                     If
Merck elects to continue prosecution or maintenance, or to file in any country,
based on Sunesis’ election not to file, Sunesis shall execute such documents
and perform such acts at its expense as may be reasonably necessary to effect
an assignment of such Research Patents to Merck in a timely manner.  Any patents or patent applications so
assigned shall not be considered Collaboration Technology and the claims of
such Patents shall not be considered Valid Claims for the purposes of
Section 5.4.

 

(ii)                                  If
Sunesis elects to continue prosecution or maintenance, or to file in any
country, based on Merck’s election not to file, Merck shall execute such
documents and perform such acts at its expense as may be reasonably necessary
to effect an assignment of such Research Patents to Sunesis in a timely
manner.  Any patents or patent
applications so assigned shall not be considered part of Collaboration Technology
and the claims of such Patents shall not be subject to the license provisions
of Section 4 and shall not be considered Valid Claims for the purposes of
Sections 5.5.1 and 7.3.4.

 

(d)                                 Interference,
Opposition, Reexamination and Reissue. 
Merck and Sunesis within ten (10) days of learning of such event, shall
inform the other of any request for, or

 

27

 

filing or declaration of, any interference, opposition, or
reexamination relating to the Research Patents. 
Sunesis shall be the lead party on any Sunesis Research Patents.  Merck shall be the lead Party on Merck
Research Patents and Joint Research Patents. 
Merck and Sunesis thereafter shall consult and cooperate fully to
determine a course of action with respect to any such proceedings.  A non-lead Party shall have the right to
review and consult with the lead Party regarding any submission to be made in
connection with such proceeding.

 

(i)                                     Neither
Merck nor Sunesis shall initiate any opposition, reexamination or reissue
proceeding relating to the Research Patents without the prior written consent
of the other party, which consent shall not be unreasonably withheld.

 

(ii)                                  Merck
shall give Sunesis timely notice of any proposed settlement of an interference
relating to a Joint Research Patent, and in such case, to the extent such
interference does not involve a Joint Research Patent that claims a Lead
Compound and/or Development Candidate that modulates the activity of a Target
or that claims a Sole Merck-Derived Compound outside the Field, Merck shall not
enter into such settlement without Sunesis’ prior written consent (such consent
not to be unreasonably withheld).

 

(iii)                               Merck
shall give Sunesis timely notice of any decision not to initiate or continue an
interference relating to a Joint Research Patent, and in such case, so long as
such interference does not involve a Joint Research Patent that claims a Lead
Compound and/or Development Candidate that modulates the activity of BACE or
that claims a Sole Merck-Derived Compound outside the Field, shall permit
Sunesis, at its sole discretion and expense, to initiate or continue such
interference in Sunesis’ name.

 

(iv)                              In
connection with any interference, opposition, reissue or reexamination
proceeding relating to the Research Patents, Merck and Sunesis 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.

 

8.2.3                        Patent
Fees.

 

(a)                                  All
costs associated with filing, prosecuting, issuing and maintaining patent
applications and patents including interference, opposition, reexamination and
reissue actions within the Sunesis Core Technology shall be borne by Sunesis;

 

(b)                                 All
costs associated with filing, prosecuting, issuing and maintaining patent
applications and patents within the Sunesis Prior Aspartyl Protease Patents:

 

(i)                                     within
the United States, Canada, Australia, Japan and the countries in the European
Patent Convention (as set forth in Exhibit 8.2.3(b)) shall be borne by
Sunesis; and

 

(ii)                                  in
all other countries in the world shall be borne equally by Merck and Sunesis.

 

28

 

(c)                                  All
costs associated with interference, opposition, reexamination and reissue
actions relating to the Sunesis Prior Aspartyl Protease Patents shall be borne
equally by Merck and Sunesis.

 

(d)                                 All
costs associated with filing, prosecuting, issuing and maintaining patent
applications and patents including interference, opposition, reexamination and
reissue actions within the Collaboration Technology shall be borne by equally
Merck and Sunesis.

 

(e)                                  Notwithstanding
the foregoing, until Merck commences paying royalties to Sunesis under
Section 5.4, Merck shall bear Sunesis’ share of costs incurred under
(b)(ii), (c) and (d) above (“Sunesis Deferred Patent Expenses”).  Commencing upon payment of royalties to
Sunesis under Section 5.4, Merck shall be entitled to credit such actual
direct amounts paid to cover Sunesis Deferred Patent Expenses against the
royalty payments due under Section 5.4, such credit not to exceed [*] percent ([*]%) of the royalty
otherwise due under Section 5.4.

 

8.2.4                        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 8.2.2 above.

 

8.3                                 Enforcement
and Defense.

 

8.3.1                        If
either Party learns of any infringement of Research Patents, or any
misappropriation or misuse of Research Know-How, such Party shall promptly
notify the other Party of such infringement, misappropriation or misuse.  Merck and Sunesis thereafter shall promptly
consult and cooperate fully to determine a course of action including, without
limitation, the commencement of legal action by either or both of Sunesis and
Merck, to terminate any infringement of such Research Patent rights or any
misappropriation or misuse of Research Know-How.  Merck shall have the first right to initiate
and prosecute such legal action at its own expense and in the name of Merck
and, if necessary, Sunesis, or to control the defense of any declaratory
judgment action relating to Research Patents or Research Know-How.  If, within six (6) months following a request
by Sunesis to Merck to initiate and prosecute such legal action, Merck fails to
take such action, or if Merck informs Sunesis that it elects not to exercise
such first right, Sunesis (or its designee) thereafter shall have the right
either to initiate and prosecute such action or to control the defense of such
declaratory judgment in the name of Sunesis.

 

8.3.2                        If
Merck elects not to initiate and prosecute an infringement action as provided
in Subsection 8.3.1, and Sunesis elects to do so, the costs incurred by
Sunesis in such course of action, including the costs of any legal action
commenced or the defense of any declaratory judgment, shall be borne solely by
Sunesis.

 

[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.

 

29

 

8.3.3                        For
any action to terminate any infringement of Research Patents or any
misappropriation or misuse of Research Know-How, if either Party is unable to
initiate or prosecute such action solely in its own name, the other Party shall
join such action voluntarily and shall execute all documents necessary to
initiate litigation to prosecute and maintain such action.  In connection with any such action, Merck and
Sunesis shall 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, the
consultation and approval of any offer related thereto.

 

8.3.4                        Any
recovery obtained by either or both Merck and Sunesis in connection with or as
a result of any action contemplated by this Section 8.3, whether by
settlement or otherwise, shall be shared in order as follows:

 

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

 

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

 

(c)                                  to
the extent such action was directed to a compound that is licensed exclusively
to Merck hereunder, the amount of any recovery remaining shall then be
allocated between the Parties as follows: [*] percent ([*]%) to Merck and [*]
percent ([*]%) to Sunesis; and

 

(d)                                 to
the extent such action was directed to a compound that is not exclusively
licensed to Merck hereunder, the amount of any recovery remaining shall then be
allocated [*] Percent ([*]%) to Sunesis.

 

8.3.5                        Each
Party shall inform the other Party of any certification regarding any Research
Patents it has received pursuant to either 21 U.S.C. §§ 355(b)(2)(A)(iv)
or (j)(2)(A)(vii)(XIV) 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.  Sunesis’ 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 Subsections 8.3.1 through 8.3.4.

 

8.3.6                        For
any action under Sections 8.3.1 through 8.3.3 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.  If the
Parties are contributing equally, Merck shall control the action.

 

[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.

 

30

 

8.4                                 Patent
Term Restoration.  The Parties shall
cooperate in obtaining patent term restoration or supplemental protection
certificates or their equivalents in any country in the Territory where
applicable to Research Patents.  If
elections with respect to obtaining such patent term restoration are to be
made, Merck shall have the right to make the election to seek patent term
restoration or supplemental protection and Sunesis shall abide by such
election.

 

ARTICLE 9

CONFIDENTIALITY

 

9.1                                 Confidential
Information.  Except as otherwise
expressly provided herein, the Parties agree that the receiving Party shall
not, except as expressly provided in this Article 9 or with the prior
written consent of the disclosing Party, disclose to any Third Party or use for
any purpose any confidential information furnished to it by the disclosing
Party hereto pursuant to this Agreement (“Confidential Information”), except to
the extent that it can be established by the receiving Party by competent proof
that such information:

 

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

 

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

 

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

 

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

 

(v)                                 was
developed by the receiving Party independently of, and without knowledge of,
Confidential Information received from the disclosing Party, as documented by
the Receiving Party’s business records.

 

Except as otherwise expressly provided in
this Agreement, Collaboration Technology shall be deemed Confidential
Information of both Merck and Sunesis.

 

9.2                                 Permitted
Use and Disclosures.  Each Party
hereto may use or disclose Confidential Information of the other Party to the
extent such use or disclosure is reasonably necessary (a) in the exercise
of the rights granted or reserved to it hereunder (including permitted
licensees or sublicenses) on the condition that any Affiliate or Third Party to
whom it is disclosed agrees to be bound by confidentiality and non-use
obligations substantially similar to those contained in this Agreement; or
(b) in prosecuting patents or to gain approval to conduct clinical trials
or to market Product, but such disclosure may be only to the extent reasonably
necessary to obtain patents or authorizations from governmental or other
regulatory agencies; or (c) in prosecuting or defending litigation,
complying with applicable governmental laws, regulations or court order or
otherwise submitting information to tax or other governmental authorities;
provided that if a Party is required

 

31

 

by law to make any such
disclosure, other than pursuant to a confidentiality agreement, it will
promptly notify the other Party of such disclosure in order to provide the
other Party an opportunity to challenge or limit the disclosure obligations
and, save to die extent inappropriate in the case of patent applications or the
like, will use its reasonable efforts to secure confidential treatment of such
information in consultation with the other Party prior to its disclosure
(whether through protective orders or otherwise) and disclose only the minimum
necessary to comply with such requirements.

 

9.3                                 Nondisclosure
of Terms/Use of Names.  Each of the
Parties hereto agrees not to disclose the existence of, or the terms of, this
Agreement to any Third Party and neither Party shall use the name, trademark,
trade name or logo of the other Party or its employees in any publicity, news
release or disclosure relating to this Agreement or its subject matter, without
the prior written consent of the other Party hereto; provided, however, that
each Party may disclose the terms and conditions of this Agreement (a) as
required by any court or other governmental body or as otherwise required by
law (including securities laws); (b) in confidence, to attorneys, accountants,
financing sources, subcontractors and sublicensees, on the condition that such
party to whom it is disclosed agrees to be bound by confidentiality and non-use
obligations substantially similar to those contained in this Agreement; and
(c) in confidence, in connection with a merger or acquisition, or a
proposed merger or acquisition, on the condition that such party to whom it is
disclosed agrees to be bound by confidentiality and non-use obligations
substantially similar to those contained in this Agreement.  Notwithstanding the foregoing, the Parties
shall agree upon a press release and timing to announce the execution of this
Agreement; thereafter, Sunesis and Merck may each disclose to Third Parties the
information contained in such press release without the need for further
approval by the other.

 

9.4                                 Publication.  Any manuscript or oral disclosure by Sunesis
or Merck describing scientific results pertaining to any activity under the
Research Program to be published or publicly disclosed, shall be subject to the
prior review of the other Party at least sixty (60) days prior to submission
for publication or presentation. 
Further, to avoid loss of patent rights as a result of premature public
disclosure of patentable information, the receiving Party shall notify the
disclosing Party in writing within thirty (30) days after receipt of any
disclosure whether the receiving Party desires to file a patent application on
any invention disclosed in such scientific results.  In the event that the receiving Party desires
to file such a patent application, the disclosing Parry shall withhold
publication or disclosure of such scientific results until the earlier of
(i) a patent application is filed thereon, (ii) the Parties determine
after consultation that no patentable invention exists, or (iii) ninety
(90) days after receipt by the disclosing Party of the receiving Party’s
written notice of the receiving Party’s desire to file such patent application,
or such other period as is reasonable for seeking patent protection.  Further, if such scientific results contain
the information of the other Party that is subject to use and nondisclosure
restrictions under this Article 9, the publishing Party agrees to remove
such information from the proposed publication or disclosure.  Following the filing of any patent
application within the Collaboration Technology, in the eighteen (18) month
period prior to the publication of such a patent application, neither Party
shall make any written public disclosure regarding any invention claimed in
such patent application without the prior written consent of the other Party.

 

32

 

ARTICLE 10

REPRESENTATIONS AND WARRANTIES

 

10.1                           Warranty.  Each Party represents and warrants on its own
behalf that: (i) it has the legal power and authority to enter into this
Agreement and to perform all of its obligations hereunder; (ii) this
Agreement is a legal and valid obligation binding upon it and enforceable in
accordance with its terms; and (iii) it has not previously granted, and
during the term of this Agreement will not knowingly make any commitment or
grant, any rights which are in conflict in any material way with the rights and
licenses granted herein.

 

10.2                           Additional
Warranty of Sunesis.  In addition,
Sunesis represents and warrants that, to the best of its knowledge as of the
Effective Date, the practice of the Sunesis Core Technology is not in an
interference with, and does not infringe, the patent rights of any Third Party.  Sunesis also represents and warrants that, to
the best of its knowledge as of the Effective Date, except with respect to the
Sunesis Prior Aspartyl Protease Patents, Sunesis does not own or control any
patents and/or patent applications directed to small molecule inhibitors of
BACE.  In addition, Sunesis represents
and warrants that, to the best of its knowledge as of the Effective Date, with
regard to the Sunesis Core Technology, Sunesis Prior Aspartyl Protease Patents
and Sunesis Know-How: (a) such exist and with respect to the issued
patents contained therein, such patents are not invalid or unenforceable, in
whole or in part; (b) Sunesis has not previously assigned, transferred,
conveyed or otherwise encumbered its right, title and interest therein in a
manner that is in conflict with the rights and licenses granted herein;
(c) except for subject matter licensed pursuant to that certain license
agreement dated December 8,1998 between Sunesis and the Regents of the
University of California, Sunesis is the sole and exclusive owner thereof and
all are free and clear of any liens, charges and encumbrances (other than with
respect to certain non-exclusive licenses granted by Sunesis to its
collaboration partners under the Sunesis Core Technology), and no other person,
corporate or other private entity, or governmental entity or subdivision
thereof, has or shall have any claim of ownership therein; (d) the
exercise of the licenses granted herein do not interfere with or infringe any
intellectual property rights owned or possessed by any Third Party; (e) mere
are no claims, judgments or settlements against or owed by Sunesis or pending
or threatened claims or litigation relating thereto; and (f) Sunesis has
disclosed to Merck all reasonably relevant information relating thereto of
which Sunesis is aware of and is in Sunesis’ possession or control; and (g)
Sunesis has disclosed to Merck all reasonably relevant information relating
thereto of which Sunesis is aware of and that is not in Sunesis’ possession or
control.  It is understood that Sunesis
makes no representation or warranty with respect to any patent rights of Third
Parties relating to the Target.

 

10.3                           Disclaimer.  EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN
THIS AGREEMENT, SUNESIS AND MERCK MAKE NO REPRESENTATIONS AND EXTEND NO
WARRANTIES OR CONDITIONS OF ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT
TO THE COLLABORATION TECHNOLOGY, SUNESIS CORE TECHNOLOGY, SUNESIS PRIOR
ASPARTYL PROTEASE PATENTS, COLLABORATION COMPOUNDS, PRODUCTS OR CONFIDENTIAL
INFORMATION DISCLOSED HEREUNDER, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OF ANY
COLLABORATION TECHNOLOGY, PATENTED OR UNPATENTED, OR NONINFRINGEMENT OF THE
INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.

 

33

 

ARTICLE 11

INDEMNIFICATION

 

11.1                           Merck.  Merck agrees to indemnify, defend and hold
Sunesis and its Affiliates and their respective directors, officers, employees,
agents and their respective successors, heirs and assigns (the “Sunesis
Indemnitees”) harmless from and against any losses, costs, claims, damages,
liabilities or expense (including reasonable attorneys’ and professional fees
and other expenses of litigation) (collectively, “Liabilities”) arising,
directly or indirectly out of or in connection with Third Party claims, suits,
actions, demands or judgments (including, without limitation, product liability
and patent infringement claims) relating to (i) any Products or Licensed
Compounds manufactured or sold by or under authority of Merck, its Affiliates
or Sublicensees, (ii) the Target(s) which is involved in the conduct of
the Research Program or the making or use of modulators of such Target(s), or
(iii) any material breach by Merck of its representations and warranties made
in this Agreement; except, in each case, to the extent such Liabilities result
from a material breach of this Agreement by Sunesis, gross negligence or
intentional misconduct of Sunesis.

 

11.2                           Sunesis.  Sunesis agrees to indemnify, defend and hold
Merck and its Affiliates and their respective directors, officers, employees,
agents and their respective successors, heirs and assigns (the “Merck
Indemnitees”) harmless from and against any Liabilities arising, directly or
indirectly out of or in connection with Third Party claims, suits, actions,
demands or judgments (including, without limitation, product liability and
patent infringement claims) relating to (i) any Collaboration Compounds or
Abandoned Compounds manufactured, sold or otherwise distributed by Sunesis or
its Affiliates or Sublicensees (other than Merck or an Affiliate or Third Party
acting under authority of Merck), (ii) the Sunesis Core Technology as
licensed under Article 4, (iii) any Sunesis Products manufactured or
sold by or under authority of Sunesis, its Affiliates or Sublicensees, and
(iv) any material breach by Sunesis of its representations and warranties
made in this Agreement; except, in each case, to the extent such Liabilities
result from a material breach of this Agreement by Merck, gross negligence or
intentional misconduct of Merck.

 

11.3                           Procedure.  In the event that any Indemnitee (either a
Merck Indemnitee or a Sunesis Indemnitee) intends to claim indemnification
under this Article 11 it shall promptly notify the other Party in writing
of such alleged Liability.  The
indemnifying Party shall have the right to control the defense thereof with
counsel of its choice as long as such counsel is reasonably acceptable to
Indemnitee; provided, however, that any Indemnitee shall have the right to
retain its own counsel at its own expense, for any reason, including if
representation of any Indemnitee by the counsel retained by the indemnifying
Party would be inappropriate due to actual or potential differing interests
between such Indemnitee and any other Party represented by such counsel in such
proceeding.  The affected Indemnitee
shall cooperate with die indemnifying Party and its legal representatives in
the investigation of any action, claim or liability covered by this
Article 11.  The Indemnitee shall
not, except at its own cost, voluntarily make any payment or incur any expense
with respect to any claim or suit without the prior written consent of the
indemnifying Party, which such Party shall not be required to give.

 

34

 

ARTICLE 12

TERM AND TERMINATION

 

12.1                           Term.  The term of this Agreement shall commence on
the Effective Date, and shall continue in full force and effect on a
country-by-country and Product-by-Product basis until both Parties have no
remaining royalty payment obligations in such country with respect to such
Products, unless terminated earlier as provided in this Article 12.  Effective upon the expiration (but not
earlier termination) of this Agreement, Sunesis hereby grants to Merck a
fully-paid up license under the Collaboration Technology, and Merck hereby
grants to Sunesis a fully-paid up license under the Sunesis Research Patents,
Joint Research Patents, Sunesis Research Know-How and the Joint Research
Know-How.

 

12.2                           Termination
for Breach.  Either Party to this
Agreement may terminate this Agreement in the event the other Party hereto
shall have materially breached or defaulted in the performance of any of its
material obligations hereunder, and such default shall have continued for sixty
(60) days after written notice thereof was provided to the breaching Party by
the non-breaching Party.  Any termination
shall become effective at the end of such sixty (60) day period unless the
breaching Party has cured any such breach or default prior to the expiration of
the sixty (60) day period.

 

12.3                           Termination
For Bankruptcy.  Either Party hereto
shall have the right to terminate this Agreement forthwith by written notice to
the other Party (i) if the other Party is declared insolvent or bankrupt
by a court of competent jurisdiction, (ii) if a voluntary or involuntary
petition in bankruptcy is filed in any court of competent jurisdiction against
the other Party and such petition is not dismissed within ninety (90) days
after filing, (iii) if the other Party shall make or execute an assignment
of substantially all of its assets for the benefit of creditors, or
(iv) substantially all of the assets of such other Party are seized or
attached and not released within ninety (90) days thereafter.

 

If this Agreement is terminated by Merck
pursuant to this Section 12.3, due to the rejection of this Agreement by
or on behalf of Sunesis under Section 365 of the United States Bankruptcy
Code (the “Code”), all licenses and rights to licenses granted under or
pursuant to this Agreement by Sunesis to Merck are, and shall otherwise be
deemed to be, for purposes of Section 365(n) of the Code, licenses of
rights to “intellectual property” as defined under Section 101(325A) of
the Code.  The Parties agree that Merck,
as a licensee of such rights under this Agreement, shall retain and may fully
exercise all of its rights and elections under the Code, and that upon
commencement of a bankruptcy proceeding by or against Sunesis under the Code,
Merck shall be entitled to a complete duplicate of or complete access to (as
Merck deems appropriate), any such intellectual property and all embodiments of
such intellectual property.  Such
intellectual property and all embodiments thereof shall be promptly delivered
to Merck (i) upon any such commencement of a bankruptcy proceeding upon
written request therefore by Merck, unless Sunesis elects to continue to
perform all of its obligations under this Agreement or (ii) if not
delivered under (i) above, upon the rejection of this Agreement by or on
behalf of Sunesis upon written request therefore by Merck.  The foregoing provisions are without
prejudice to any rights Merck may have arising under the Code or other
applicable law.

 

35

 

12.4                           Permissive
Termination by Merck.  Merck will
have the right to terminate the Agreement on the twenty-first (21) month
anniversary of the Effective Date, or any time after the third anniversary of
the Effective Date, by providing Sunesis written notice at least three (3)
months in advance.  Notwithstanding the
foregoing, if Merck extends the Research Term as provided in Section 2.4,
Merck may not so terminate this Agreement until the end of such extended
Research Term.

 

12.5                           Effect
of Breach or Termination.  

 

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

 

12.5.2                  Termination
by Merck for Breach by Sunesis.  In
the event of termination of this Agreement by Merck pursuant to
Sections 12.2 due to Sunesis’ material breach, in addition to those
provisions surviving under Section 12.6, the rights and obligations of the
Parties under Sections 2.5, 4.1, 4.2, 4.3, 5.2, 5.3, 5.4, 5.5, 5.6 shall
survive, except that (i) with respect to the milestone and royalty amounts
accrued and payable by Merck to Sunesis after the effective date of
termination, such amounts shall be reduced by fifty percent (50%) of the amounts
that would otherwise be due to Sunesis under Sections 5.2, 5.3 and 5.4,
and (ii) with respect to Section 2.5, the “Exclusivity Period” as it
applies to Sunesis with respect to the Target shall continue until one (1) year
after the effective date of such termination and shall terminate for Merck upon
the effective date of such termination. 
In addition to the foregoing, upon such termination, the following shall
apply:

 

(a)                                  Subject
to any licenses granted by Sunesis under Section 4.4.1, 7.3.2(c), or 7.3.3
and in accordance with the terms of this Agreement, to an Affiliate or Third
Party under the Joint Research Patents and/or Joint Research Know-How prior to
the notice of termination of the Agreement, Sunesis hereby grants to Merck a
worldwide, exclusive (even as to Sunesis) license, with the right to sublicense
to the extent provided in Section 4.2, under Sunesis’ interest in the
Joint Research Patents and Joint Research Know-How for any and all purposes;

 

(b)                                 Sunesis
shall assign and hereby assigns to Merck all right, title and interest in and
to its interest in the Merck Research Patents and Merck Research Know-How;

 

(c)                                  Merck’s
rights and Sunesis’ obligations under Sections 2.8,8.2 and 8.3 shall
survive;

 

(d)                                 Merck
shall have final authority with respect to decisions made by the Joint Patent
Committee under Section 8.2.2; and

 

(e)                                  Sunesis
shall retain no rights with regard to Abandoned Compounds or Abandoned Targets,
other than those Abandoned Compounds already licensed to Sunesis by Merck as of
the effective date of termination.

 

36

 

12.5.3                  Termination
by Sunesis for Breach by Merck, or Permissive Termination by Merck.  In the event of termination of this Agreement
by Sunesis pursuant to Section 12.2 due to Merck’s breach, or termination
of this Agreement pursuant to Section 12.4, in addition to those
provisions surviving under Section 12.6, the rights and obligations of the
Parties under Sections 5.2, 5.3, 5.4 and 5.6 shall survive with respect to
the license and rights retained by Merck under Section 4.1.1 and granted
to Merck under this Section 12.5.3 with respect to Jointly-Derived
Compounds.  In addition to the foregoing,
upon such termination the following shall apply:

 

(a)                                  Sunesis
shall grant and hereby grants to Merck a worldwide, non exclusive license, with
the right to sublicense to the extent provided in Section 4.2, under its
interest in the Collaboration Technology to develop, make, have made, import,
use, sell, have sold, offer for sale or otherwise exploit Merck-Derived
Compounds outside the Field, alone or as incorporated into a product;

 

(b)                                 Solely
in the event of termination of this Agreement by Merck pursuant to
Section 12.4, Sunesis shall also grant and hereby grants to Merck a
worldwide, non exclusive license, with the right to sublicense to the extent
provided in Section 4.2, under its interest in the Joint Research Patents
and Joint Research Know-How to develop, make, have made, import, use, sell,
have sold, offer for sale or otherwise exploit any and all compounds outside
the Field, alone or as incorporated into a product;

 

(c)                                  Merck
shall assign and hereby assigns to Sunesis all right, title and interest in and
to the Sunesis Research Patents and Sunesis Research Know-How;

 

(d)                                 Merck
shall grant and hereby grants to Sunesis a worldwide license, with the right to
sublicense to the extent provided under Section 4.4.2, under its interest
in the Collaboration Technology to make, have made, import, use, sell, offer to
sell and otherwise exploit any and all compounds in the Field.  Such license shall be:

 

(i)                                     solely
in the event of termination of this Agreement by Sunesis pursuant to
Section 12.2 and, except as provided in Section 12.5.3(a) and
(b) above, exclusive under the Collaboration Technology (other than Merck
Research Patents and Merck Research Know-How);

 

(ii)                                  non-exclusive
under the Merck Research Patents and Merck Research Know-How with respect to
any and all compounds.

 

In addition to the foregoing, Merck shall also grant and hereby grants to
Sunesis a worldwide, nonexclusive license under other intellectual property
rights owned or controlled by Merck which Merck reasonably deems necessary to
practice and exploit the rights granted above under such Collaboration
Technology with respect to Collaboration Compounds that have met the Lead
Compound Criteria as of the effective date of termination of the Agreement
(including any Abandoned Compounds). 
Hereinafter, such compounds shall be deemed “Sunesis Compounds”
and the Targets) shall be deemed “Sunesis Targets”;

 

37

 

(e)                                  the
rights and obligations of the Parties under Section 2.5 shall survive;
provided, however, that, solely in the event of termination of this Agreement
by Sunesis pursuant to Section 12.2, with respect to Section 2.5, the
“Exclusivity Period” as it applies to Merck and Sunesis with respect to the
Target shall continue until one (1) year after the effective date of
termination;

 

(f)                                    Sunesis
rights, and Merck’s obligations, under Section 8.3 shall survive; and

 

(g)                                 Sunesis
shall have final authority with respect to decisions made by the Joint Patent
Committee under Section 8.2.2

 

12.5.4                  Transition
of Information and Materials.  With
respect to a Party’s obligation to transition to the other Party Collaboration
Technology, information and material with respect to a particular compound
pursuant to (a) Merck’s obligation under Section 2.6.3(b) or 7.3.2
with respect to Abandoned Compounds and Products that incorporate Abandoned
Compounds, (b) Merck’s obligation under Section 12.5.3 with respect
to any Sunesis Compounds, or (c) Sunesis’ obligation under
Section 7.4 with respect to Abandoned Compounds and products that
incorporate Abandoned Compounds for which Merck has obtained rights under Section 7.4,
as applicable, each Party shall cooperate with the other Party to transfer
Collaboration Technology, information and materials deemed necessary by the
transferring Party for such other Party to further research, develop, or
otherwise exploit such target and compounds in the Field.

 

12.6                           Survival
Sections.  Sections 4.1.1, 4.4
(provided however that, in the event of termination of this Agreement by Merck
pursuant to Section 12.2, Sunesis shall not have the right to sublicense
the rights granted to it in Section 4.4.1), 4.5, 5.2.1, 5.3.4, 8.1, 8.2,
9.1, 9.2, 9.3, 12.5, and 12.6, and Articles 1, 6, 10, 11, 13 and 14 of this
Agreement shall survive the expiration or termination of this Agreement for any
reason.

 

ARTICLE 13

DISPUTE RESOLUTION

 

13.1                           Dispute
Resolution.

 

13.1.1                  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, including submission of such to the Executive Vice President of
Worldwide Basic Research of Merck and the Chief Executive Officer of
Sunesis.  If the Parties do not fully
settle, and a Party wishes to pursue the matter, each such dispute, controversy
or claim that is not an “Excluded Claim” shall be finally resolved by binding
arbitration in accordance with the Commercial Arbitration Rules and
Supplementary Procedures for Large Complex Disputes of the American Arbitration
Association (“AAA”), and judgment on the arbitration award may be entered in
any court having jurisdiction thereof.

 

13.1.2                  The
arbitration shall be conducted by a panel of three persons experienced in the
pharmaceutical business: within 30 days after initiation of arbitration, each
Party shall select one

 

38

 

person to act as
arbitrator and the two Party-selected arbitrators shall select a third
arbitrator within 30 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
New York, New York, and all proceedings and communications shall be in English.

 

13.1.3                  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
type of damages not measured by a Party’s compensatory damages.  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.

 

13.1.4                  Except
to the extent necessary to confirm 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.  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 Delaware statute of limitations.

 

13.1.5                  The
Parties agree that, in the event of a dispute over the nature or quality of
performance under this Agreement, neither Party may terminate the Agreement
until final resolution of the dispute through arbitration or other judicial
determination.  The Parties further agree
that any payments made pursuant to this Agreement pending resolution of the
dispute shall be refunded if an arbitrator or court determines that such payments
are not due.

 

13.1.6                  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.

 

ARTICLE 14

MISCELLANEOUS

 

14.1                           Governing
Laws.  This Agreement and any dispute
arising from the construction, performance or breach hereof shall be governed
by and construed, and enforced in accordance with, the laws of the state of
Delaware, without reference to conflicts of laws principles.

 

14.2                           Waiver.  It is agreed that no waiver by either Party
hereto of any breach or default of any of the covenants or agreements herein
set forth shall be deemed a waiver as to any subsequent and/or similar breach
or default.

 

14.3                           Assignment.  Except as provided in this Section 14.3,
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
written consent of the other Party. 
Merck may, without Sunesis’ consent, assign this Agreement and its
rights and obligations hereunder in whole or in part

 

39

 

to an Affiliate or in
connection with a Change of Control (as defined below).  Sunesis may, without Merck’s consent, assign
this Agreement and its rights and obligations hereunder, except as specified
below, in connection with a Change of Control; provided, however, that Sunesis
must notify Merck at least thirty (30) days, where feasible, prior to the
closing of any such Change of Control, and Merck shall have the right, at any
time after receipt of such notice, to notify Sunesis of the termination of the
Research Program and thereafter Merck shall have no obligation to provide any
reports except for a royalty report on a worldwide basis.  Any permitted assignee shall assume all
obligations of its assignor under this Agreement.  Any attempted assignment not in accordance
with this Section 14.3 shall be void. 
For purposes of this Section 14.3, a “Change of Control” of
a Party shall be deemed to occur if such Party is involved in a merger,
reorganization or consolidation, or if a person or group other than the current
controlling person or group shall effectively acquire control of the management
and policies of such Party or if there is a sale of all or substantially all of
such Party’s assets or business relating to this Agreement.

 

14.4                           Independent
Contractors.  The relationship of the
Parties hereto is that of independent contractors.  The Parties hereto are not deemed to be
agents, partners or joint venturers of the others Party for any purpose as a
result of this Agreement or the transactions contemplated thereby.  Neither Sunesis nor Merck shall have the
authority to make any statements, representations or commitments of any kind,
or to take any action, which shall be binding on the other Party, without the
prior written consent of the other Party.

 

14.5                           Compliance
with Laws.  In exercising their
rights and obligations under this Agreement, the Parties shall tally comply in
all material respects with the requirements of any and all applicable laws,
regulations, rules and orders of any governmental body having jurisdiction over
the exercise of rights and obligations under this Agreement.

 

14.6                           Patent-Marking.  Merck agrees to request that Sublicensees
mark all Products sold pursuant to this Agreement in accordance with the
applicable statute or regulations relating to patent- marking in the country or
countries of manufacture and sale thereof.

 

14.7                           Notices.  All notices, requests and other
communications hereunder shall be in writing and shall be personally delivered
or by registered or certified mail, return receipt requested, postage prepaid,
or by facsimile (and promptly confirmed by personal delivery, registered or
certified mail or overnight courier), or by nationally-recognized overnight
courier, in each case to the respective address specified below, or such other
address as may be specified in writing to the other Parties hereto and shall be
deemed to have been given upon receipt:

 

	
  Sunesis:

  	
  Sunesis Pharmaceuticals, Inc.

  	
   

  
	
   

  	
  341 Oyster Point Boulevard

  	
   

  
	
   

  	
  South San Francisco, California 94080

  	
   

  
	
   

  	
  Attn: General Counsel

  	
   

  
	
   

  	
  Fax: (650)266-3505

  	
   

  
	
   

  	
   

  	
   

  

 

40

 

	
  With a copy to:

  	
  Wilson Sonsini Goodrich & Rosati

  	
   

  
	
   

  	
  Professional Corporation

  	
   

  
	
   

  	
  650 Page Mill Road

  	
   

  
	
   

  	
  Palo Alto, California 94304-1050

  	
   

  
	
   

  	
  Attn: Kenneth A. Clark, Esq.

  	
   

  
	
   

  	
  Fax: (650)493-6811

  	
   

  
	
   

  	
   

  	
   

  
	
  Merck :

  	
  Merck & Co., Inc.

  	
   

  
	
   

  	
  One Merck Drive

  	
   

  
	
   

  	
  P.O. Box 100

  	
   

  
	
   

  	
  Whitehouse Station, NJ 08889-0100

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Attn: Chief Licensing Officer

  	
   

  
	
   

  	
  Tele: (908) 423-1000

  	
   

  
	
   

  	
  Fax: (908) 735-1202

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Merck & Co., Inc.

  	
   

  
	
   

  	
  One Merck Drive

  	
   

  
	
   

  	
  P.O. Box 100

  	
   

  
	
   

  	
  Whitehouse Station, NJ 08889-0100

  	
   

  
	
   

  	
  Attn: Corporate Secretary

  	
   

  
	
   

  	
  Tele: (908) 423-1000

  	
   

  
	
   

  	
  Fax: (908) 735-1224

  	
   

  

 

14.8                           Severability.  In the event that any provisions) of this
Agreement becomes or is declared by a court of competent jurisdiction or an
arbitrator’s) as provided in Article 13 to be illegal, unenforceable or
invalid, this Agreement shall continue in full force and effect to the fullest
extent permitted by law without said provision, and the Parties shall use their
best efforts to amend the Agreement to the extent feasible to lawfully include
the substance of the excluded term to as fully as possible realize the intent
of the Parties and their commercial bargain.

 

14.9                           Advice
of Counsel.  Sunesis and Merck have
each consulted counsel of their choice regarding this Agreement, and each
acknowledges and agrees that this Agreement shall not be deemed to have been
drafted by one Party or another and will be construed accordingly.

 

14.10                     Force
Majeure.  Neither Party shall be held
liable to the other Party nor be deemed to have defaulted under or breached the
Agreement for failure or delay in performing any obligation under the Agreement
when such failure or delay is caused by or results from causes beyond the
reasonable control of the affected Party including, but not limited to,
embargoes, war, acts of war (whether war be declared or not), insurrections,
riots, civil commotions, strikes, lockouts or other labor disturbances, fire,
floods, or other acts of God, or acts, omissions or delays in acting by any
governmental authority or the other Party. 
The affected Party shall notify the other Party of such force majeure
circumstances as soon as reasonably practical, and shall promptly undertake all
reasonable efforts necessary to cure such force majeure circumstances.

 

41

 

14.11                     Complete
Agreement.  This Agreement with its
Exhibits, constitutes the entire agreement, both written and oral, between the
Parties with respect to the subject matter hereof, and all prior agreements
respecting the subject matter hereof, either written or oral, express or
implied, shah be abrogated, canceled, and are null and void and of no
effect.  No amendment or change hereof or
addition hereto shall be effective or binding on either of the Parties hereto
unless reduced to writing and executed by the respective duly authorized
representatives of Sunesis and Merck.

 

14.12                     Headings.  The captions to the several Sections and
Articles hereof are not a part of this Agreement, but are included merely for
convenience of reference and shall not affect its meaning or interpretation.

 

14.13                     Counterparts.  This Agreement may be executed in
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same agreement.

 

42

 

IN WITNESS WHEREOF, the Parties hereto have
caused this Agreement to be duly executed by their authorized representatives
and delivered in duplicate originals as of the Effective Date.

 

	
  MERCK & CO., INC.

  	
  SUNESIS PHARMACEUTICALS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
  Name: Richard N. Kender

  	
  Name: James W. Young

  
	
   

  	
   

  
	
  Title: Vice President, Business Development

  	
  Title: Chief Executive Officer

  
	
   

  	
  & Corporate Licensing

  	
   

  
	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
  Date:

  	
   

  	
   

  
	
   

  	
   

  
											

 

43

 

EXHIBIT 1.8.1

 

Lead Compound Criteria

 

1.                                       BACE.

 

Apparent [*] in series.

 

•                                          Ki
[*].

 

•                                          Distinct
SAR based on [*] compounds in series.

 

•                                          IC50
[*] for inhibition of A-beta production in cell culture.

 

•                                          [*]
selectivity versus relevant [*] (e.g. [*], [*]) and receptors and channels
contained in Panlabs Lead Profiling assay battery.  [*] selectivity criteria may be altered
pending [*] KO mouse data (when available) at the JRC’s discretion.

 

•                                          IC50
cytotoxicity/ IC50 cell based assay [*].

 

Favorable [*] profile for at [*] in a series.

 

•                                          Bioavailability
[*]%.

 

•                                          [*]
/ [*] ratio [*].

 

•                                          Physical
and chemical properties consistent with [*] and [*] in man. Suggested target
parameters are shown below.  Compounds
which fall outside of these parameters may be considered as potential lead
candidates provided they demonstrate [*], or [*] in a [*].

 

•                                          cLogP[*].

 

•                                          [*]
donors [*]

 

•                                          [*]
acceptors [*].

 

•                                          MW[*].

 

•                                          Not
significantly [*] by [*]

 

[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.

 

1

 

•                                          Specific
assays and assay conditions will have to be agreed upon.

 

2

 

EXHIBIT 1.8.2

 

Development
Candidate Criteria

 

1.                                       BACE.

 

•                                          Preclinical
[*] indicate [*] for [*].

 

Effective in a [*] and/or [*] of [*]
production.

 

Acceptable profile in [*] preliminary safety
assays in effect at time of nomination.

 

•                                          [*]
/ [*] ratio [*].

 

•                                          [*]
data indicate potential for [*] is [*].

 

•                                          Low
covalent protein binding in microsomes.

 

•                                          Lack
of [*] ([*]).

 

•                                          [*]
negative.

 

•                                          Preferably
more than one [*] contributes to metabolism.

 

•                                          Preferably
simple metabolic profile, with metabolites represented in selected safety
species.

 

•                                          Acceptable
[*] ([*]%); marginal [*] in activity.

 

 

[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.

 

1

 

EXHIBIT
1.30

 

SUNESIS PRIOR ASPARTYL PROTEASE PATENTS

 

	
  [*]

  	
  [*]

  
	
  [*]

  	
  [*]

  
	
  [*]

  	
  [*]

  

 

 

[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.

 

1

 

EXHIBIT 1.31

 

TARGETS

 

“BACE” shall mean the BACE
(Beta-Amyloid precursor protein-Cleaving Enzyme), also known as BACE1, Asp2,
and memapsin2, is a 501 amino acid aspartyl protease defined by the sequence
reported by Vassar, et al ((1999) Science 286,735-741). MEROPS ID# A01.004
(Rawlings, N.D., O’Brien, E.A. & Barrett, A.J. (2002) MEROPS: the
protease database.  Nucleic
Acids Res. 30,343-346.), NC-IUBMB # not yet assigned.

 

1

 

EXHIBIT 2.2

 

RESEARCH PLAN

 

I.                                      Executive
Summary

 

•                                          Discovery
efforts will be focused in two areas:

 

•                                          1)  identification of a novel inhibitor class
using the tethering technology.  The
tethering research plan outlines a strategy aimed at [*] compounds in [*].  The plan outlined below assumes Merck
involvement in [*], [*] and [*].

 

•                                          2)  Advancement of the novel chemotypes
identified at Sunesis during an exploratory chemistry effort.  The enclosed research plan assumes access to
[*] for [*], and outlines a strategy aimed at [*] to [*] in [*] from the
Effective Date of the Agreement.

 

II.                                  General
Introduction

 

There
are several activities where participation by both Merck and Sunesis could
greatly advance the programs.  Examples
of resources Merck may provide include access to [*], [*], [*], [*], and [*].  It is anticipated that both organizations
will have similar assays running in-house, and some standardization of primary
assays may be necessary to ensure consistency in reported results.  It is suggested that die JRC determine which
protocols are adopted by the respective research sites, as appropriate.

 

BACE

 

Introduction and timelines

 

The
BACE discovery effort will be [*], and includes [*] a [*] utilizing the
tethering technology (first priority) as well as a [*] based on the [*] at [*]
during an [*].  We anticipate the efforts
will complement one another, and potentially result in leads containing
components derived from each approach. 
Merck [*] will similarly be used to [*] the tethering effort.  The compound [*] will serve [*] discovery
approaches.  The timelines are based on a
minimum of [*] at Sunesis and participation by Merck as agreed pursuant to the
Agreement.

 

 

[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.

 

1

 

III.                                 BACE
Research Plan/Outline

 

[*] Activities

 

•                  [*]
information [*], including ideas on [*] for [*] investigations

 

•                  [*],
[*], and [*]

 

•                  List
of [*] for prioritization

 

•                  [*]
coordinates for [*]

 

•                  Functional
[*]: [*] and [*]

 

•                  Sunesis
[*] for [*] at [*]: BACE2 [*] and PK

 

A.                                    [*]

 

Months [*]: Prepare for [*]

 

1.                                       [*]
of [*]

 

a.                                       [*]
(Sunesis/Merck)

 

b.                                      [*]:
[*] out [*] and test [*]

 

2.                                       [*]

 

a.                                       Design
and create [*]

 

b.                                      Explore
[*] and [*]

 

Months [*]: 
[*]

 

1                  [*]
and [*]

 

2                  [*]
from [*]

 

3                  Continue
[*]

 

4                  Prepare
[*] for [*]

 

5                  Initiate
[*] of [*]

 

 

[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.

 

2

 

B.                                    [*]

 

Months [*]: 
[*] with [*]

 

1.                                       Develop
[*]:

 

a.                                       [*]
structures of [*]

 

b.                                      [*]

 

c.                                       [*]
and existing [*] information

 

2.                                       [*]
of information with [*] program

 

3.                                       [*]
design and [*]

 

4.                                       Test
[*] as [*]

 

Months [*]: Develop [*] for [*]

 

1.                                       Additional
[*] based on [*]

 

2.                                       Objective
is [*] having a [*]

 

C.                                    [*] of [*]
at Sunesis [*]

 

Months [*]: [*] and [*]; [*] Sunesis/Merck
[*]

 

1.                                       [*]
of [*] Sunesis [*]

 

2.                                       [*]

 

a.                                       Continue
[*]

 

b.                                      [*]
Merck/Sunesis [*] information

 

c.                                       Identify
[*]

 

d.                                      Improvement
of [*] and [*] of [*]

 

 

[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.

 

3

 

Months [*] : [*] of [*].

 

1.                                       [*]
in [*] effort

 

2.                                       Continue
[*]

 

3.                                       Goal:
Meet [*]

 

 

[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.

 

4

 

EXHIBIT 5.5.2

 

CERTAIN TARGETS

 

	
  [*]

  	
  –

  	
   

  	
  MEROPS ID#’s [*]
  ([*]) and [*] ([*]), NC-IUBMB #’s [*] in sub-subclass [*]: [*] ([*]) ([*])
  See Dunn, B.M. (1998) Handbook of Proteolytic Enzymes, Barrett, A. J.,
  Rawlings, N.D., and Woessner, J. F. eds Academic Press pp. [*] for complete
  classification data.

  
	
   

  	
   

  	
   

  	
   

  
	
  [*]

  	
  –

  	
   

  	
  MEROPS ID # [*],
  NC-IUBMB # [*] in sub-subclass [*]: [*]. See Kay, J., and Tatnell, PJ. (1998)
  Handbook of Proteolytic Enzymes, Barrett, A. J., Rawlings, N.D., and
  Woessner, J. F., eds, Academic Press pp. [*] for complete classification
  data.

  
	
   

  	
   

  	
   

  	
   

  
	
  [*]

  	
  –

  	
   

  	
  MEROPS ID# [*],
  NC-IUBMB # [*] in sub-subclass [*]: [*]. See Conner, G.E. (1998) Handbook of
  Proteolytic Enzymes, Barrett, A. J., Rawlings, N.D., and Woessner, J. F.,
  eds, Academic Press pp. [*] for complete classification data.

  

 

 

[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.

 

1

 

Exhibit 8.2.3(b)

 

EUROPEAN PATENT
CONVENTION COUNTRIES

 

Austria

 

Belgium

 

Cyprus

 

Denmark

 

Finland

 

France

 

Germany

 

Greece

 

Holland

 

Ireland

 

Italy

 

Luxembourg

 

Portugal

 

Spain

 

Sweden

 

Switzerland

 

Turkey

 

United Kingdom

 

1

 

EXHIBIT 9.3

 

PRESS RELEASE

 

MERCK AND SUNESIS
PHARMACEUTICALS TO COLLABORATE ON DISCOVERY OF POTENTIAL NEW TREATMENTS FOR
ALZHEIMER’S DISEASE

 

SOUTH SAN FRANCISCO, Calif., and WHITEHOUSE STATION, NJ,
February _, 2003 - Sunesis Pharmaceuticals, Inc. and Merck & Co.
Inc. (NYSE: MRK) announced today that they have entered into a multi-year
research collaboration to discover novel oral therapeutics for the treatment of
Alzheimer’s disease, a degenerative disease of the brain that afflicts more
than four million Americans.

 

Sunesis will contribute an initial series of small molecule inhibitors
and apply its proprietary fragment-based drug discovery ‘Tethering” technology
to discover additional novel series of small molecules.  The initial target in the collaboration is
BACE (p-amyloid precursor protein-cleaving enzyme), an enzyme that mediates the
deposition of amyloid plaque in the brain.

 

Under the terms of the agreement, Merck will make an upfront payment,
provide research funding, and make a series of milestone payments to Sunesis
based on the successful development and approval of a compound identified
through the program.  Merck will also
make royalty payments based on net sales, and will receive an exclusive,
worldwide license to products resulting from the collaboration.  Merck and Sunesis will also have the option
to expand the collaboration to additional therapeutic targets beyond BACE.

 

“We believe fragment-based drug discovery is a compelling new approach
to finding novel therapeutic leads in important and underserved disease
categories,” said Bennett M. Shapiro, M.D., Executive Vice President, Worldwide
Licensing and External Research for Merck. 
“We have been impressed with the Sunesis research team and look forward
to collaborating with them on the ongoing discovery and advancement of new
treatment options for Alzheimer’s disease.”

 

Dr. Shapiro noted that more than 1 in 10 persons aged 65 and older
suffer from Alzheimer’s disease.  Nearly an
equal number of men and women are affected by the condition.  By the year 2050, it is estimated that 14
million Americans will suffer from Alzheimer’s disease.

 

“The agreement enables Sunesis and Merck to focus on a novel approach
to the discovery of promising small molecule compounds for important disease
targets”, according to James Young, Ph.D., CEO of Sunesis.  “We hope our work with Merck will allow us to
leverage the potential of our discovery platform.  In Merck, we have an outstanding collaboration
partner for the discovery, development and commercialization of novel small
molecule therapeutics for this serious and debilitating disease.”

 

Technology Overview

Sunesis’ technology platform reliably generates novel hits against
challenging targets by identifying binding ligands that other techniques such
as high-throughput screening are too insensitive to find.  Sunesis scientists screen libraries of
fragments, fundamental building blocks of oral therapeutics,

 

1

 

against validated targets that have been resistant to small molecule
discovery.  The basis for this approach
is Tethering, a process in which the target selects fragments with binding
affinity for a specific region on the target surface.  By discovering drugs in pieces, Sunesis can
effectively search a chemical diversity space equivalent to hundreds of
millions of compounds.

 

About Alzheimer’s Disease

The symptoms of Alzheimer’s disease (AD) include memory loss, behavior
and personality changes, and a decline in cognitive abilities.  While scientists still do not yet fully
understand what causes AD, many believe that there is not one single cause, but
rather several factors that affect each person differently.  BACE (p-amyloid precursor protein-cleaving
enzyme) is understood to be critical in mediating the deposition of amyloid
plaque in the brain that results in the degenerative symptoms associated with
AD.

 

About Merck

Merck & Co., Inc. is a leading research-driven pharmaceutical
products and services company.  Merck
discovers, develops, manufactures and markets a broad range of innovative
products to improve human and animal health, directly and through its joint
ventures.

 

About Sunesis

Sunesis is a leading discovery-based pharmaceutical company that
applies its breakthrough fragment-based technologies to create superior oral
therapeutics for the most challenging and important disease targets.  Sunesis is building a pipeline of innovative
therapeutics addressing major diseases through internal development and
selective partnering.

 

This press release contains “forward-looking statements” as that term
is defined in the Private Securities Litigation Reform Act of 1995.  No forward-looking statement can be
guaranteed, and actual results may differ materially from those projected.  We undertake 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 document should be evaluated together with the many
uncertainties that affect our business, particularly those mentioned in the
cautionary statements in Item 1 of Merck’s Form 10-K for the year ended Dec.
31, 2001, and in Merck’s periodic reports on Form 10-Q and Form 8-K (if any)
which we incorporate by reference.

 

# # #

 

2

 

CONTACT:

 

 

	
  Sunesis
  Pharmaceuticals, Inc.

  Dan Swisher

  CFO & Chief Business Officer

  (650) 266-3715

  	
   

  	
  Merck &
  Co., Inc.

  Press Contact:

  Janet Skidmore

  (908) 423-3046

  
	
   

  	
   

  	
   

  
	
  Burns McClellan
  Inc.

  Blair Clark (investors)

  Justin Jackson
  and Tricia Morsch (media)

  (212) 213-0006

  	
   

  	
  Investor Contact

  Mark Stejbach

  (908) 423-5184

  

 

3

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