Document:

Exhibit 10.32

 

 

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

 

 

COLLABORATION
AND LICENSE AGREEMENT

 

 

By and Between

 

 

PHARMACOPEIA, INC.

 

 

and

 

 

SCHERING-PLOUGH LTD.

 

 

Table of Contents

 

 

i

 

COLLABORATION
AND LICENSE AGREEMENT

 

This COLLABORATION AND
LICENSE AGREEMENT (the “Agreement”), dated as of the latest date of signature
appearing below (the “Execution Date”) and to be effective as of the Effective
Date (as defined below), is made by and among: Pharmacopeia, Inc., a Delaware
corporation having its principal place of business at 3000 Eastpark Boulevard,
Cranbury, New Jersey 08512, (hereinafter referred to as “Pharmacopeia”); and
Schering-Plough Ltd., a Swiss corporation having its principal place of
business at Toepferstrasse 5, CH 6004 Lucerne, Switzerland, (hereinafter
referred to as “SPL”).  Pharmacopeia and
SPL are sometimes referred to herein individually as a Party and collectively
as the Parties.  References to “SPL” and
“Pharmacopeia” shall include their respective Affiliates (as hereinafter
defined).

 

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

 

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

 

WHEREAS, Pharmacopeia and
SPL’s Affiliate Schering Corporation have entered into a collaboration and
license agreement relating to the United States of even date herewith; and

 

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

 

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

 

ARTICLE I

DEFINITIONS

 

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

 

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

 

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

 

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

 

1

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

2

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

3

 

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

 

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

 

1.28                           “Pharmacopeia
Change in Control” shall mean any of the following:  (i) a reorganization, merger or
consolidation of Pharmacopeia with a Major Pharmaceutical Company if the
shareholders of Pharmacopeia (determined immediately prior to the
reorganization, merger or consolidation taking effect) hold, directly or
indirectly, less than fifty percent (50%) of the surviving corporation
(determined immediately after such reorganization, merger or consolidation
takes effect); (ii) an acquisition by a Major Pharmaceutical Company of
direct or indirect beneficial ownership of voting stock of Pharmacopeia representing
more than fifty percent (50%) of the total current voting power of Pharmacopeia
then issued and outstanding; (iii) a sale of all or substantially all the
assets of Pharmacopeia’s Drug Discovery division to a Major Pharmaceutical
Company; or (iv) a liquidation or dissolution of Pharmacopeia.  As used in this Section 1.28, the term
“Major Pharmaceutical Company” shall mean any entity (including any
corporation, joint venture, partnership or unincorporated entity), as well as
any Affiliates or division(s) of such entity, that is engaged in the research,
development, manufacturing, registration and/or marketing of drug products that
are approved under NDAs, HRDs, ANDAs or Biologics License Applications, having
annual sales of pharmaceutical products of *.

 

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

 

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

 

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

 

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

 

4

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

5

 

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

 

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

 

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

 

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

 

1.40                           “Territory”
shall mean all of the countries and territories in the world, except for the
United States and its territories, possessions and commonwealths.

 

1.41                           “Third
Party” shall mean any Party other than Pharmacopeia and its Affiliates, SPL
and its Affiliates, Schering Corporation and its Affiliates, and their
permitted assigns.

 

1.42                           “1994
Agreements” shall have the meaning set forth in Section 11.17.

 

1.43                           “1998
Agreements” shall have the meaning set forth in Section 11.17.

 

1.44                           “US
Agreement” shall mean that certain Collaboration and License Agreement
entered into by and between Pharmacopeia and Schering Corporation of even date
herewith.

 

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

 

ARTICLE II

COLLABORATION

 

2.0                                 Effective
Date; 1998 Agreements.

 

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

 

2.02                           Relationship
to 1998 Agreements.  As of the
Effective Date, all of SPL’s remaining obligations to provide research funding
for Pharmacopeia FTEs under Sections 2.4 and 5.2 of the 1998 Agreements, and
all of Pharmacopeia’s remaining obligations to provide FTEs under
Section 2.5.1 of the 1998 Agreements, shall terminate.  In addition, as of the Effective Date, any
and all ongoing research programs at Pharmacopeia *shall continue to be
performed using the Pharmacopeia FTEs to be provided under this Agreement, as
determined by the Collaboration Committee. 
As of the Effective Date, any and all such ongoing programs (hereinafter
“Carryover Programs”) shall be

 

6

 

treated under this
Agreement as Optimization Programs; provided, however, that
notwithstanding anything herein to the contrary, the provisions of this
Agreement related to diligence, milestone payments, royalties, ownership,
exclusivity, patent related activities and any and all other rights or
obligations with respect to *shall be governed by the terms and conditions
of the 1998 Agreements, and SPL shall have no milestone or royalty payment
obligations under this Agreement with respect thereto.   Except as expressly modified and amended by
this Agreement, all other terms and conditions of the 1998 Agreements shall
remain in full force and effect.

 

2.1                                 Collaboration
Research Programs.

 

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

 

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

 

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

 

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

 

7

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

8

 

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

 

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

 

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

 

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

 

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

 

2.5                                 Collaboration
Staffing.

 

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

 

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

 

2.5.3                        Pharmacopeia
FTE Commitments During *If the term of the Collaboration
is *pursuant to Section 2.2.1, SPL shall continue to fund and
Pharmacopeia shall continue to provide *FTEs during * if
applicable.  If 

 

9

 

SPL extends the Collaboration *pursuant
to Section 2.2.1, then the level of FTE support to be provided by
Pharmacopeia and funded by SPL shall be determined by the Parties
based *to be completed during*

 

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

 

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

 

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

 

2.7                                 Record
Keeping and Inspection of Records. 
Each of SPL and Pharmacopeia, and their respective Affiliates, shall
maintain records of its Collaboration activities (or cause such records to be
maintained) in sufficient detail and in good scientific manner appropriate for
patent and regulatory purposes as will properly reflect all work performed and
the results achieved in performance of the Collaboration.  SPL shall also maintain analogous records of
its development activities with respect to Agreement Compounds and Agreement
Products.  Such records may include
books, records, reports, research notes, charts, graphs, comments,
computations, analyses, recordings, photographs, computer programs and
documentation thereof, computer information storage media, samples of materials
and other graphic or written data generated in connection with the
Collaboration, including any data required to be maintained pursuant to all
requirements of applicable laws, rules and regulations, or as directed by the
Collaboration Committee.  Pharmacopeia’s
records shall also document by name which individuals assigned to the
Collaboration pursuant to Section 2.5 are working on each specific
Collaboration research project (identifying the Target(s) involved).  During the Collaboration and for five (5)
years thereafter, each of SPL and Pharmacopeia shall have the right, upon at
least five (5)

 

10

 

business days’
prior notice, to inspect all such records of the other Party (or legible copies
thereof) during normal business hours. 
Each Party’s rights under this Section 2.7 shall be limited to one
(1) inspection in any calendar year.  In
each case, the Party conducting the inspection shall maintain such records and
the information disclosed therein in confidence in accordance with
Section 7.1, and shall use such information solely for purposes of this
Agreement.  Upon request and tender of
payment for the actual cost in providing copies, Pharmacopeia and/or SPL, as
appropriate, shall provide to the requesting Party copies of such records.

 

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

 

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

 

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

 

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

 

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

 

11

 

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

 

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

 

2.9.2                        *

 

2.9.3                        *  Notwithstanding the provisions of
Section 2.9.2, in the event

 

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

 

*2.10                    Pharmacopeia
Independent Research Activities.

 

2.10.1                  Activities
Outside the Collaboration.  The
Parties acknowledge that during and after the term of the Collaboration
Pharmacopeia may (either alone or in collaboration with one or more Third Parties)
perform independent research and development activities with respect to Targets
(including, without limitation, to identify, develop and commercialize
products), which activities are not within the scope of this Agreement; provided
that Pharmacopeia shall not use any Schering Technology, and except as
otherwise expressly set forth in this Agreement shall not use any Collaboration
Technology, in connection with any such independent research and development
activities.

 

12

 

Any data, information,
materials, compounds, products or other technology resulting from such
independent research and development activities is the property of Pharmacopeia
(“Pharmacopeia Independent Technology”). 
The Parties further acknowledge that Pharmacopeia Independent Technology
may include technology independently acquired, discovered or developed by
Pharmacopeia (as demonstrated by documented evidence created at the time of
such acquisition, discovery or development) and which coincidentally is
substantially the same as technology within the scope of Collaboration
Technology and/or Schering Technology. 
SPL shall have no rights or licenses whatsoever to any Pharmacopeia
Independent Technology.

 

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

 

2.11.1                  Differentiation
of Targets.  A Target will
encompass *

 

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

ARTICLE III

COLLABORATION MANAGEMENT

 

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

 

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

 

13

 

committee comprised of
employees or representatives of the Parties to oversee the patent prosecution
and/or enforcement activities described in Article VI, and to facilitate
communication and agreement between the Parties regarding inventorship of
inventions made in the Collaboration and the classification of such inventions
(e.g., as Schering Improvements, Pharmacopeia Improvements, Collaboration
Technology, etc.).  Additional
non-voting representatives or consultants from either Party may from time to
time be invited by SPL or Pharmacopeia to attend and participate in Collaboration
Committee meetings (e.g., to evaluate and advise on business or scientific
issues) subject to compliance with the confidentiality provisions of
Section 7.1.  Each Party shall be
responsible for its own expenses in connection with the Collaboration Committee.

 

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

 

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

 

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

 

14

 

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

 

ARTICLE IV                          

LICENSES AND EXCLUSIVITY

 

4.1                                 License
to SPL.

 

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

 

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

 

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

 

4.1.4                        *

 

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

 

15

 

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

 

4.4                                 Third
Party Rights.

 

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

 

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

 

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

 

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

 

4.6                                 *

 

16

 

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

 

ARTICLE V

PAYMENTS

 

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

 

5.2                                 Collaboration
Funding.

 

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

 

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

 

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

 

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

 

17

 

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

 

5.4                                 Milestone
Payments.

 

5.4.1                        Events and
Amounts.

 

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

 

(i)                         *upon
nomination of a Development Candidate;

 

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

 

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

 

(iv)                              *upon
filing and Acceptance of an HRD with the applicable regulatory authority in a
Major Market; and

 

(v)                     *upon
Regulatory Approval in a Major Market.

 

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

 

(i)                                     *upon
nomination of a Development Candidate;

 

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

 

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

 

(iv)                  *upon
filing and Acceptance of an HRD with the applicable regulatory authority in a
Major Market; and

 

(v)                                 *upon
Regulatory Approval in a Major Market.

 

18

 

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

 

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

 

5.4.3                        Manner of
Payment.  All payments made to
Pharmacopeia by SPL pursuant to Section 5.4.1(a) or (b) shall be due
within thirty (30) days after the achievement of the corresponding milestone
and shall be nonrefundable and not creditable against other amounts due to
Pharmacopeia.  The payments provided for
under this Section 5.4 shall only be payable once upon the first
achievement of the indicated milestone with respect to an Agreement Compound
and/or Agreement Product developed against a particular Target and no
additional payments shall be due on subsequent or repeated achievement of the
same milestone for another Agreement Compound and/or Agreement Product
developed against the same Target.  No
milestones shall be payable under this Section 5.4 with respect to any
compounds or products other than Agreement Compounds and Agreement Products,
nor shall any payments be due under this Section 5.4 with respect to any
Agreement Products discovered by SPL with respect to Targets which are not the
subject of a Screening Program and/or Optimization Program, as provided in
Section 2.11.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

19

 

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

 

5.5.4                        Third
Party Royalties.

 

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

 

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

 

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

 

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

 

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

 

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

 

20

 

any reductions permitted
pursuant to the express terms of this Agreement, concurrently with the making
of such reports, SPL shall pay to Pharmacopeia royalties at the rates specified
in Section 5.5.1.

 

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

 

5.6.3                        Place of
Royalty Payment and Currency Conversions. 
Royalties shall be deemed payable by the entity making the Net Sales
from the country in which earned in local currency and subject to foreign
exchange regulations then prevailing. 
Royalty payments shall be made in United States dollars to the extent
that free conversion to United States dollars is permitted.  The rate of exchange to be used in any such
conversion from the currency in the country where such Net Sales occurs shall
be in accordance with the policy set forth in Exhibit A hereto.  If, due to restrictions or prohibitions
imposed by national or international authority, payments cannot be made as
aforesaid, the Parties shall consult with a view to finding a prompt and
acceptable solution, and SPL or its designated Affiliates will, from time to
time, deal with such monies as Pharmacopeia may lawfully direct at no
additional out-of-pocket expense to SPL. 
Notwithstanding the foregoing, if royalties in any country cannot be
remitted to Pharmacopeia for any reason within six (6) months after the end of
the calendar quarter during which they are earned, then SPL shall be obligated
to deposit the royalties in a bank account in such country in the name of
Pharmacopeia.

 

5.7                                 Maintenance
of Records; Audits.

 

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

 

5.8                                 Coordination
With Payments under US Agreement. 
The milestones and royalties payable by SPL under Sections 5.3, 5.4 and
5.5 are in consideration for the rights and licenses granted to SPL under this
Agreement and are in addition to any amounts payable to Pharmacopeia under the
US Agreement.  It is understood and
agreed that, with 

 

21

 

respect to the specific
milestones payable under Sections 5.4.1(a)(i)-(iii) and 5.4.1(b)(i)-(iii), the
occurrence of the same milestone event will result in milestone payment
obligations under both this Agreement and the corresponding provisions of the
US Agreement.  However, the specific
milestones payable under Sections 5.4.1(a)(iv) and (v) and Sections
5.4.1(b)(iv) and (v) under this Agreement and the analogous milestones under the
US Agreement shall be paid, respectively, upon occurrence of the relevant
milestone event specified in this Agreement or the US Agreement.

 

5.9                                 Tax
Matters.

 

5.9.1                        Withholding
Taxes.  All royalty amounts required
to be paid to Pharmacopeia pursuant to this Agreement shall be paid with
deduction for withholding for or on account of any taxes (other than taxes
imposed on or measured by net income) or similar governmental charge imposed by
a jurisdiction other than the United States (“Withholding Taxes”) to the extent
Pharmacopeia and/or its Affiliates or their successors has the lawful rights to
utilize the Withholding Taxes paid by SPL as a credit against Pharmacopeia’s
and/or its Affiliates regular U.S. tax liability.  SPL shall provide Pharmacopeia documentation evidencing payment
of any Withholding Taxes hereunder in a manner that is satisfactory for
purposes of the U.S. Internal Revenue Service. 
Any Withholding Taxes paid when due hereunder shall be for the account
of Pharmacopeia and shall not be included in the calculation of Net Sales.  Payments of Withholding Taxes made by SPL
pursuant to this Section 5.9.1 shall be made based upon financial
information provided to SPL by Pharmacopeia, and to the extent that such
information is incorrect Pharmacopeia shall be liable for any deficiency, and any
fine, assessment or penalty imposed by any taxing authority in the Territory
for any deficiency in the amount of any such Withholding Taxes, or the failure
to make payment of Withholding Taxes, based upon such incorrect information.  If SPL is required to pay any such
deficiency, or any fine, assessment or penalty for any such deficiency based
upon such incorrect information (except to the extent caused by SPL’s gross
negligence or willful misconduct), Pharmacopeia shall promptly reimburse SPL
for such payments, which shall not be included in the calculation of Net Sales.

 

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

 

ARTICLE VI

PATENTS AND INVENTIONS

 

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

 

6.2                                 Ownership
of Collaboration Technology.  The
Parties anticipate that the Collaboration may result in new inventions, discoveries
and innovations, as well as improvements to existing technologies, whether
patentable or not, within the Collaboration Technology.  Ownership of Collaboration Technology shall
be determined based upon U.S. Patent Laws and the following guidelines; provided,
however, that ownership rights to all Collaboration Technology shall be
subject to the applicable licenses and other rights granted under
Article IV of this Agreement.

 

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

 

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

 

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

 

6.3                                 Filing,
Prosecution and Maintenance of Patents.

 

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

 

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

 

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

 

6.4                                 Cooperation.

 

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

 

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6.5                                 Enforcement.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

ARTICLE VII

CONFIDENTIALITY

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

25

 

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

 

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

 

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

 

ARTICLE VIII                  

REPRESENTATIONS, WARRANTIES AND COVENANTS

 

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

 

26

 

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

 

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

 

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

 

ARTICLE IX

INDEMNIFICATION

 

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

 

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

 

27

 

under this Agreement,
except, in each case, to the extent such Liabilities result from the gross
negligence or willful misconduct of SPL, its Affiliates, or any of their
respective employees, officers, directors or agents.

 

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

 

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

 

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

 

ARTICLE X

TERM AND TERMINATION

 

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

 

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

 

10.3                           Termination
Upon Bankruptcy or Insolvency.  This
Agreement may be terminated by Pharmacopeia giving written notice of
termination to SPL upon the filing of bankruptcy or insolvency of SPL or the
appointment of a 

 

28

 

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

 

10.4                           Termination
for Pharmacopeia Change in Control.

 

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

 

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

 

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

 

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

 

29

 

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

 

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

 

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

 

If Pharmacopeia (or such
successor) does provide a certification under this Section 10.4.2 within
such thirty (30) day period, then following SPL’s receipt of such certification
from Pharmacopeia (or such successor) pursuant to this Section 10.4.2, SPL
shall have the right to rescind its notice of termination of the Collaboration
by providing written notice to Pharmacopeia within thirty (30) days after
receipt of such written certification. 
If following receipt of such certification, SPL provides written notice
rescinding its decision to terminate the Collaboration within such thirty (30)
day period, then none of the provisions of Section 10.6 shall apply and
the Collaboration shall continue under the terms and conditions of this
Agreement as if SPL had never provided any notice of termination under
Section 10.4.2.  However, if
following receipt of such certification, SPL does not provide written notice
rescinding its decision to terminate the Collaboration within such thirty (30)
day period, then the Collaboration shall terminate upon expiration of the
ninety (90) day period following SPL’s notice of termination under
Section 10.4.2, and the provisions of Section 10.6.5(i) and (ii)
shall apply, but the provisions of Section 10.6.5(iii) shall not
apply.  For purposes of clarity and
avoidance of doubt, the Parties agree that written notice provided by Schering
Corporation rescinding a decision by Schering Corporation to terminate the
Collaboration under the corresponding provisions of the US Agreement shall also
be deemed notice by SPL under this Agreement.

 

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

 

10.6                           Effect
of Termination.

 

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

 

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

 

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

 

30

 

for a period of up to six
(6) months after the date of termination, provided that SPL continues to pay
royalties to Pharmacopeia with respect to such sales.

 

10.6.4                  Licenses.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

31

 

ARTICLE XI

MISCELLANEOUS

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

32

 

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

 

11.10                     Export
Control.  This Agreement and the
obligations of both Parties hereunder are made subject to, and limited by, all
applicable restrictions concerning the export of products or technical
information from the United States of America which may be imposed upon or
related to Pharmacopeia or SPL from time to time by the government of the
United States of America.  Furthermore,
SPL agrees that it will not export, directly or indirectly, any technical
information acquired from Pharmacopeia under this Agreement or any products
using such technical information to any country for which the United States
government or any agency thereof at the time of export requires an export
license or other governmental approval, without first obtaining the written
consent to do so from the Department of Commerce or other agency of the United
States government when required by an applicable statute or regulation.

 

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

 

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

 

If to Pharmacopeia, to:

 

Pharmacopeia,
Inc.

3000 Eastpark Boulevard

Cranbury, New Jersey  08512

Attn: Chief Executive Officer

Fax No.: (609) 452-3672

 

with a copy to:

 

Pharmacopeia,
Inc.

3000 Eastpark Boulevard

Cranbury, New Jersey  08512

Attn: General Counsel

Fax No.: (609) 452-3655

 

If to SPL, to:

 

Schering-Plough
Ltd.

Toepferstrasse 5

CH 6004 Lucerne, Switzerland

Attention:  President

Facsimile No.: (011) 41 41 418 1630

 

33

 

with copies to:

 

Schering
Corporation

2000 Galloping Hill Road

Kenilworth, New Jersey  07033

Attention: Law Department, Senior Legal Director – Licensing

Facsimile No.: (908) 298-2739

 

Schering
Corporation

2000 Galloping Hill Road

Kenilworth, New Jersey  07033

Attention: Vice President, Business Development

Facsimile No.: (908) 298-5379

 

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

 

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

 

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

 

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

 

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

 

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

 

34

 

Agreements”).  No amendment, modification, supplement,
change or addition to this Agreement (or the Exhibits attached hereto) shall be
effective or binding on either of the Parties hereto unless reduced to writing
and executed by the respective duly authorized representatives of Pharmacopeia
and SPL.

 

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

 

11.19                     Relationship
to US Agreement; Controlling Provisions. 
The Parties acknowledge and agree that this Agreement together with the
US Agreement are intended to operate together as a single worldwide agreement
governing the rights and obligations of Pharmacopeia, SPL and Schering
Corporation.  For purposes of clarity
and avoidance of doubt, the parties agree that Article II and
Article III of this Agreement shall be subject to and governed by the
corresponding provisions of the US Agreement. 
The Parties further agree that SPL’s rights and obligations with respect
to the filing, prosecution, maintenance and enforcement of patents and patent
applications under Article VI of this Agreement shall be exercised and
performed by the employees and/or agents of Schering Corporation having
responsibility for Schering Corporation’s rights and obligations under Article VI
of the US Agreement, and that all such activities will be performed in a
coordinated manner.

 

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

 

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

 

 

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

 

 

	
  PHARMACOPEIA, INC.

  	
  SCHERING-PLOUGH LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   /s/ Stephen A.
  Spearman

  	
   

  	
  By:

  	
   /s/ David Poorvin

  	
   

  
	
   

  	
   

  
	
  Title:

  	
  EVP

  	
   

  	
  Title:

  	
  Prokurist

  	
   

  
	
   

  	
   

  
	
  Date:

  	
  7/9/03

  	
   

  	
  Date:

  	
  7/9/03

  	
   

  
										

 

35

 

EXHIBIT
A

 

CURRENCY
CONVERSION

 

 

* EXHIBIT C

 

Elements
of Fully Allocated Manufacturing Costs

 

 

The following expenses are included in manufacturing
costs:

 

1.                                       Direct Materials

 

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

 

•                                                                                          Inert raw materials or
excipients

•                                                                                          Active
substances/ingredients

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

 

2.                                       Direct Labor

 

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

 

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

 

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

 

i

 

3.                                       Indirect Manufacturing Costs

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

ii

 

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

 

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

 

 

•                                                                                          Cost of manufacturing,
service departments - such as:

(where applicable)

 

•                                          Packaging Engineering

 

•                                          Manufacturing Maintenance

 

•                                          Industrial Engineering

 

•                                          Receiving and Warehousing

 

•                                          Purchasing and Accounting

 

•                                          Production Scheduling

 

•                                          Inventory Management

 

•                                          Plant Materials Management

 

•                                          Central Weigh

 

•                                          Manufacturing
Administration

 

•                                          Regulatory Affairs direct
support to manufacturing

(not to exceed $80,000 per year for a three(3) year period)

 

iii

 

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

 

•                                          Cafeteria

 

•                                          Personnel Operations

 

•                                          Health and Safety Services

 

•                                          Division Engineering and
Operations Services

 

•                                          Plant Services
(housekeeping)

 

•                                          Manufacturing Information
Systems

 

•                                          Plant Power

 

•                                          Office of V.P.
Manufacturing

 

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

 

4.                                       Quality Assurance Costs

 

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

 

The following expenses are not included in
manufacturing costs:

 

a)                                      Inventory Carrying Costs

 

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

 

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

 

iv

 

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

 

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

 

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

 

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

 

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

 

v

 

*

 

iExhibit 10.33

 

 

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

 

 

COLLABORATION
AND LICENSE AGREEMENT

 

 

By and Between

 

 

PHARMACOPEIA, INC.

 

 

and

 

 

SCHERING CORPORATION

 

i

 

Table of Contents

 

 

ii

 

COLLABORATION
AND LICENSE AGREEMENT

 

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

 

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

 

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

 

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

 

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

 

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

 

ARTICLE I

DEFINITIONS

 

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

 

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

 

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

 

1.3                                 “Affiliate”
shall mean any individual or entity directly or indirectly controlling,
controlled by or under common control with, a Party to this Agreement.  For purposes of this Agreement, the direct
or indirect ownership of fifty percent (50%) or more of the outstanding voting
securities of an entity, or the right to receive fifty percent (50%) or more of
the profits or earnings of an entity shall be deemed to constitute control, or
if not meeting the preceding requirements, any company owned or controlled by
or owning or controlling Pharmacopeia or Schering at the maximum

 

1

 

control or ownership
right permitted in a country where such company exists.  Such other relationship as in fact results
in actual control over the management, business and affairs of an entity shall
also be deemed to constitute control.  *

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

2

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

1.27                           “Net
Sales” shall mean, with respect to each country in the Territory, the
invoice price billed by Schering or its Affiliates, or their respective Sublicensees,
to Third Parties (whether an end-user, a distributor or otherwise) for the sale
of Agreement Products, and exclusive of intercompany transfers or sales among
Schering, its Affiliates and/or Sublicensees in the Territory, less the
reasonable and customary deductions from such gross amounts including:  (i) normal and customary trade, cash and
quantity discounts, allowances and credits; 
(ii) credits or allowances actually granted for damaged goods, returns
or rejections of Agreement Product and retroactive price reductions;  (iii) sales or similar taxes (including
duties or other governmental charges levied on, absorbed or otherwise imposed
on the sale of Agreement Product including, without limitation, value added
taxes or other governmental charges otherwise measured by the billing amount,
when included in billing);  (iv)
freight, postage, shipping, customs duties and insurance charges,  when
included in billing; (v) charge back payments and rebates granted to managed
health 

 

3

 

care organizations or
their agencies, and purchasers and reimbursers or to trade customers, including
but not limited to, wholesalers and chain and pharmacy buying groups;  (vi) commissions paid to Third Parties other
than sales personnel and sale representatives or sales agents; and  (vii) rebates (or equivalents thereof)
granted to or charged by national, state or local governmental authorities in a
country in the Territory.  In
determining Net Sales of an Agreement Product any of the above discounts shall
be accounted for and apportioned based on the list price of each such Agreement
Product.

 

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

 

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

 

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

 

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

 

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

 

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

 

1.31.2                  “Existing
Pharmacopeia Know-How” shall mean all ideas, inventions, data, know-how,
instructions, processes, formulas, expert opinion and information, including,
without limitation, biological, chemical, physical and analytical data and
information, existing as of the Effective Date, owned or controlled in whole or
part by 

 

4

 

Pharmacopeia by license,
assignment or otherwise, which is necessary for the discovery, development,
manufacture or use of Lead Compounds based on Hits (and/or any other Hits from
the same Screening Program as such Lead Compound) or corresponding Derivative
Compounds and/or the discovery, development, manufacture, use, sale or
commercialization of corresponding Agreement Products, in each case, to the
extent Pharmacopeia has the right to license or sublicense the same, and
subject to any limitations and prohibitions of such license or sublicense.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

1.36.2                  “Schering
Know-How” shall mean all ideas, inventions, data, know-how, instructions,
processes, formulas, materials, expert opinion and information, including,
without limitation, biological, chemical, pharmacological, toxicological,
pharmaceutical, physical and analytical, clinical, safety, manufacturing and
quality control data and information (except for any of the above arising in
performance of the Collaboration) owned or controlled in whole or part by
Schering by license, assignment or otherwise, which is necessary for the
discovery, development, manufacture, use, sale or commercialization of
Agreement Products, in each case, to the extent Schering 

 

5

 

has the right to license
or sublicense the same, and subject to any limitations and prohibitions of such
license or sublicense; provided, however, that Schering Know-How
does not include Schering Patent Rights.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

ARTICLE II

COLLABORATION

 

2.0                                 Effective
Date; 1998 Agreements.

 

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

 

2.02                           Relationship
to 1998 Agreements.  As of the
Effective Date, all of Schering’s remaining obligations to provide research
funding for Pharmacopeia FTEs under Sections 2.4 and 5.2 of the 1998
Agreements, and 

 

6

 

all of Pharmacopeia’s
remaining obligations to provide FTEs under Section 2.5.1 of the 1998
Agreements, shall terminate.  In
addition, as of the Effective Date, any and all ongoing research programs at
Pharmacopeia * shall continue to be performed using the Pharmacopeia FTEs to be
provided under this Agreement, as determined by the Collaboration
Committee.  As of the Effective Date,
any and all such ongoing programs (hereinafter “Carryover Programs”) shall be
treated under this Agreement as Optimization Programs; provided, however,
that notwithstanding anything herein to the contrary, the provisions of this
Agreement related to diligence, milestone payments, royalties, ownership, exclusivity,
patent related activities and any and all other rights or obligations with
respect to * shall be governed by the terms and conditions of the 1998
Agreements, and Schering shall have no milestone or royalty payment obligations
under this Agreement with respect thereto.  
Except as expressly modified and amended by this Agreement, all other
terms and conditions of the 1998 Agreements shall remain in full force and
effect.

 

2.1                                 Collaboration
Research Programs.

 

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

 

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

 

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

 

7

 

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

 

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

 

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

 

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

 

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

 

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

 

8

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

2.5                                 Collaboration
Staffing.

 

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

 

9

 

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

 

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

 

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

 

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

 

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

 

2.7                                 Record
Keeping and Inspection of Records. 
Each of Schering and Pharmacopeia, and their respective Affiliates,
shall maintain records of its Collaboration activities (or cause such records to
be maintained) in sufficient detail and in good scientific manner appropriate
for patent and regulatory purposes as will properly reflect all work 

 

10

 

performed and the results
achieved in performance of the Collaboration. 
Schering shall also maintain analogous records of its development
activities with respect to Agreement Compounds and Agreement Products.  Such records may include books, records,
reports, research notes, charts, graphs, comments, computations, analyses,
recordings, photographs, computer programs and documentation thereof, computer
information storage media, samples of materials and other graphic or written
data generated in connection with the Collaboration, including any data required
to be maintained pursuant to all requirements of applicable laws, rules and
regulations, or as directed by the Collaboration Committee.  Pharmacopeia’s records shall also
document by name which individuals assigned to the Collaboration pursuant to
Section 2.5 are working on each specific Collaboration research project
(identifying the Target(s) involved). 
During the Collaboration and for five (5) years thereafter, each of
Schering and Pharmacopeia shall have the right, upon at least five (5) business
days’
prior notice, to inspect all such records of the other Party (or legible copies
thereof) during normal business hours. 
Each Party’s rights under this Section 2.7 shall be limited to one
(1) inspection in any calendar year.  In
each case, the Party conducting the inspection shall maintain such records and
the information disclosed therein in confidence in accordance with
Section 7.1, and shall use such information solely for purposes of this
Agreement.  Upon request and tender of
payment for the actual cost in providing copies, Pharmacopeia and/or Schering,
as appropriate, shall provide to the requesting Party copies of such records.

 

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

 

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

 

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

 

2.8.3                        Lead
Compounds from Screening Programs. * Schering shall notify Pharmacopeia
which (if any) of those confirmed Hits are acceptable to Schering as Lead
Compounds for initiation of new Optimization Programs.  Following notice from Schering that one or
more Hits are acceptable as Lead Compounds, the Parties shall, as soon as
reasonably practicable, initiate a new Optimization Program based upon such
Lead Compound(s) in accordance with Section 2.9.  The Parties acknowledge and agree that if Schering notifies
Pharmacopeia that at least one Hit is acceptable to Schering as a Lead Compound
for a given Screening Target, then the licenses granted to Schering under
Article 4 with respect to such Lead Compound shall also include * The
restrictions set forth in Section 2.8.2 

 

11

 

regarding disclosure,
access and use of structural information with respect to confirmed Hits shall
no longer apply following notice of acceptance by Schering of one or more such
Hits as a Lead Compound pursuant to this Section 2.8.3.  Upon acceptance by Schering of one or more
Hits as a Lead Compound pursuant to this Section 2.8.3, the duration of
the restriction on screening by Pharmacopeia against the relevant Screening
Target, as set forth in the last sentence of Section 2.8, *

 

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

 

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

 

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

 

2.9.2                        * .

 

2.9.3                        *
Notwithstanding the provisions of Section 2.9.2, *

 

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

 

12

 

date Pharmacopeia agrees
to perform an Optimization Program based upon one or more Lead Compounds which
are Schering Compounds, for the period extending from *

 

2.10                           Pharmacopeia
Independent Research Activities.

 

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

 

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

 

2.11.1                  Differentiation
of Targets.  A Target will encompass
*

 

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

 

ARTICLE III

COLLABORATION MANAGEMENT

 

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

 

13

 

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

 

3.2                                 Collaboration
Committee Meetings.  During the term
of the Collaboration, including as it may be extended, the Collaboration
Committee shall meet at least four (4) times per year, or more often as agreed
by the Parties, at such locations as the Parties shall agree.  At such meetings the Collaboration
Committee’s responsibilities will include: (i) formulating and reviewing the
Collaboration objectives with respect to each Optimization Program; (ii)
monitoring the progress of the Collaboration toward those objectives; (iii)
evaluating Hits identified by Pharmacopeia from Screening Programs; (iv)
initially reviewing recommendations by Pharmacopeia to Schering for Hits
proposed to be accepted as Lead Compounds for new Optimization Programs; and
(v) taking such other actions as may be specified under this Agreement or which
the Parties deem appropriate.  The
Collaboration Committee may designate a patent committee comprised of employees
or representatives of the Parties to oversee the patent prosecution and/or
enforcement activities described in Article VI, and to facilitate
communication and agreement between the Parties regarding inventorship of
inventions made in the Collaboration and the classification of such inventions
(e.g., as Schering Improvements, Pharmacopeia Improvements, Collaboration
Technology, etc.).  Additional
non-voting representatives or consultants from either Party may from time to
time be invited by Schering or Pharmacopeia to attend and participate in
Collaboration Committee meetings (e.g., to evaluate and advise on business or
scientific issues) subject to compliance with the confidentiality provisions of
Section 7.1.  Each Party shall be
responsible for its own expenses in connection with the Collaboration
Committee.

 

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

 

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

 

14

 

shall describe the
relevant Agreement Product, identify the active ingredients in such Agreement
Product, and identify the specific Target(s) which led to the development of
such Agreement Product.

 

3.5                                 Diligence.  The Parties acknowledge and agree that all
business decisions regarding research, development and commercialization of
Agreement Products (including, without limitation, decisions relating to the
development and manufacture of Agreement Compounds, or to the design,
development, manufacture, sale, price, distribution, marketing and promotion of
Agreement Products under this Agreement) and the decision whether to develop
(or cease developing) a particular Agreement Compound, or to develop and
commercialize (or cease developing and commercializing) a particular Agreement
Product, shall be within the sole discretion of Schering.  Schering shall use reasonable good faith
efforts to discover and develop Agreement Compounds, and to discover, develop
and commercialize Agreement Products; provided, however, that
Schering shall have no quotas or other minimum diligence obligations with
regard to number of Agreement Compounds and Agreement Products to be developed
and commercialized hereunder.  Such
decision making and/or reasonable good faith efforts shall be expended by
Schering, as determined in its reasonable commercial judgement, based upon the
facts and circumstances in existence and reasonably available to Schering at
that time, and shall be exercised in a manner consistent with the discovery,
development and commercialization of Schering’s other products of comparable
commercial value, potential and stage of development.  All of Schering’s diligence obligations hereunder are expressly
conditioned upon the continuing absence of any adverse condition or event which
warrants a delay in commercialization of an Agreement Product including, but
not limited to, an adverse condition or event relating to the safety or
efficacy of the Agreement Product or unfavorable pricing, pricing
reimbursement, labeling or lack of Regulatory Approval, and Schering shall have
no obligation to develop or market any such Agreement Product so long as in
Schering’s opinion any such condition or event exists; provided that
Schering shall use commercially reasonable efforts to overcome any unfavorable
pricing or pricing reimbursement with respect to Agreement Products being
commercialized under this Agreement. 
The Parties acknowledge and agree that none of the diligence obligations
in this Section 3.5 shall apply to any Schering Compounds, the discovery,
development and commercialization of which are the sole and exclusive
responsibility of Schering.

 

ARTICLE IV

LICENSES AND EXCLUSIVITY

 

4.1                                 License
to Schering.

 

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

 

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

 

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

 

15

 

4.1.4                        *

 

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

 

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

 

4.4                                 Third
Party Rights.

 

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

 

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

 

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

 

16

 

provided pursuant to
Section 11.3.  Such information
shall be deemed Confidential Information of Pharmacopeia pursuant to this
Agreement.

 

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

 

4.6                                 *

 

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

 

ARTICLE V

PAYMENTS

 

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

 

5.2                                 Collaboration
Funding.

 

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

 

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

 

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

 

5.2.4                        Quarterly
Adjustment.  At the conclusion of
each quarter, Pharmacopeia will calculate the actual number of FTEs provided by
Pharmacopeia during that quarter and calculate any difference between the actual
number of FTEs provided by Pharmacopeia and the number prepaid by
Schering.  Any overpayment or
underpayment 

 

17

 

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

 

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

 

5.4                                 Milestone
Payments.

 

5.4.1                        Events and
Amounts.

 

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

 

(i)                         *
upon nomination of a Development Candidate;

 

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

 

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

 

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

 

(v)                     *
upon Regulatory Approval in the Territory.

 

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

 

(i)                         *
upon nomination of a Development Candidate;

 

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

 

18

 

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

 

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

 

(v)                     *
upon Regulatory Approval in the Territory.

 

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

 

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

 

5.4.3                        Manner of
Payment.  All payments made to
Pharmacopeia by Schering pursuant to Section 5.4.1(a) or (b) shall be due
within thirty (30) days after the achievement of the corresponding milestone
and shall be nonrefundable and not creditable against other amounts due to
Pharmacopeia.  The payments provided for
under this Section 5.4 shall only be payable once upon the first
achievement of the indicated milestone with respect to an Agreement Compound
and/or Agreement Product developed against a particular Target and no
additional payments shall be due on subsequent or repeated achievement of the
same milestone for another Agreement Compound and/or Agreement Product
developed against the same Target.  No
milestones shall be payable under this Section 5.4 with respect to any
compounds or products other than Agreement Compounds and Agreement Products,
nor shall any payments be due under this Section 5.4 with respect to any
Agreement Products discovered by Schering with respect to Targets which are not
the subject of a Screening Program and/or Optimization Program, as provided in
Section 2.11.

 

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

 

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

 

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

 

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

 

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

 

(iv)                  * of net sales
(to be determined in the same manner as Net Sales) of a pharmaceutical product
containing as an active ingredient a Schering Derivative derived from a
Derivative Compound 

 

19

 

discovered
by Pharmacopeia in an Optimization Program based upon a Lead Compound which is
a Schering Compound.

 

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

 

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

 

5.5.4                        Third
Party Royalties.

 

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

 

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

 

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

 

5.5.6                        Royalty
Overpayment.  In the event Schering
pays Pharmacopeia royalties in excess of the amounts due under
Section 5.5.1 herein, Schering shall promptly notify Pharmacopeia
providing a written explanation of 

 

20

 

the amount of
overpayment.  Any such overpayment shall
be fully creditable against royalties subsequently due hereunder.

 

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

 

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

 

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

 

5.6.3                        Place of
Royalty Payment and Currency Conversions. 
Royalties shall be deemed payable by the entity making the Net Sales
from the country in which earned in local currency and subject to foreign
exchange regulations then prevailing. 
Royalty payments shall be made in United States dollars to the extent
that free conversion to United States dollars is permitted.  The rate of exchange to be used in any such
conversion from the currency in the country where such Net Sales occurs shall
be in accordance with the policy set forth in Exhibit A hereto.  If, due to restrictions or prohibitions
imposed by national or international authority, payments cannot be made as
aforesaid, the Parties shall consult with a view to finding a prompt and
acceptable solution, and Schering or its designated Affiliates will, from time
to time, deal with such monies as Pharmacopeia may lawfully direct at no
additional out-of-pocket expense to Schering. 
Notwithstanding the foregoing, if royalties in any country cannot be
remitted to Pharmacopeia for any reason within six (6) months after the end of
the calendar quarter during which they are earned, then Schering shall be
obligated to deposit the royalties in a bank account in such country in the
name of Pharmacopeia.

 

5.7                                 Maintenance
of Records; Audits.

 

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

 

21

 

records of sales made
pursuant to such sublicense and to grant access to such records by
Pharmacopeia’s independent accountant to the same extent required of Schering
under this Agreement.  Upon expiration
of the thirty-six (36) month period immediately following the receipt by
Pharmacopeia of Schering’s fourth quarter royalty report for a given calendar year
in accordance with Section 5.6.1, the calculation of royalties payable
with respect to such year shall be binding and conclusive upon Pharmacopeia,
and Schering, its Affiliates and its Sublicensees shall be released from any
liability or accountability with respect to royalties for such year, except for
instances of fraud or other intentional misconduct by Schering.

 

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

 

5.9                                 Tax
Matters.

 

5.9.1                        Withholding
Taxes.  All royalty amounts required
to be paid to Pharmacopeia pursuant to this Agreement shall be paid with
deduction for withholding for or on account of any taxes (other than taxes imposed
on or measured by net income) or similar governmental charge imposed by a
jurisdiction other than the United States (“Withholding Taxes”) to the extent
Pharmacopeia and/or its Affiliates or their successors has the lawful rights to
utilize the Withholding Taxes paid by Schering as a credit against
Pharmacopeia’s and/or its Affiliates regular U.S. tax liability.  Schering shall provide Pharmacopeia
documentation evidencing payment of any Withholding Taxes hereunder in a manner
that is satisfactory for purposes of the U.S. Internal Revenue Service.  Any Withholding Taxes paid when due
hereunder shall be for the account of Pharmacopeia and shall not be included in
the calculation of Net Sales.  Payments
of Withholding Taxes made by Schering pursuant to this Section 5.9.1 shall
be made based upon financial information provided to Schering by Pharmacopeia,
and to the extent that such information is incorrect Pharmacopeia shall be
liable for any deficiency, and any fine, assessment or penalty imposed by any taxing
authority in the Territory for any deficiency in the amount of any such
Withholding Taxes, or the failure to make payment of Withholding Taxes, based
upon such incorrect information.  If
Schering is required to pay any such deficiency, or any fine, assessment or
penalty for any such deficiency based upon such incorrect information (except
to the extent caused by Schering’s gross negligence or willful misconduct),
Pharmacopeia shall promptly reimburse Schering for such payments, which shall
not be included in the calculation of Net Sales.

 

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

 

ARTICLE VI

PATENTS AND INVENTIONS

 

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

 

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

 

22

 

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

 

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

 

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

 

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

 

6.3                                 Filing,
Prosecution and Maintenance of Patents.

 

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

 

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

 

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

 

6.4                                 Cooperation.

 

6.4.1                        Cooperation.  Upon request, and at the requesting Party’s
expense, each of Pharmacopeia and Schering shall provide the other Party
reasonable assistance to prepare, file, prosecute and maintain patents and
patent applications covering any Collaboration Technology, Schering
Improvements or Pharmacopeia Improvements which the requesting Party has the
right to file.  Reasonable assistance
shall include, without limitation, providing the requesting Party with
necessary or useful data and information relating to the Collaboration
Technology, Schering Improvements or Pharmacopeia Improvements, as the case may
be, and reasonable access to the inventors of said inventions, as well as
causing the execution of required patent assignments and/or other
documents.  With respect to all patent
applications claiming Collaboration Technology, or any Derivative Compounds,
Lead Compounds which are Hits, or Schering Derivatives, the filing Party shall
give the non-filing Party an opportunity to review the text of such patent
applications before filing, shall consult with the non-filing Party with
respect thereto, and shall supply the non-filing Party with a

 

23

 

copy of the applications
as filed, together with notice of its filing date and serial number.  Schering will identify to Pharmacopeia any
of Schering’s proprietary information contained in such documents to be
provided to Pharmacopeia to ensure that Pharmacopeia will protect Schering’s
proprietary information, including without limitation, information relating to
Targets.  In addition, with respect to
applications which do not include Pharmacopeia inventors, Schering may redact
or provide in coded form any information contained in such documents to be
provided to Pharmacopeia to the extent necessary (in Schering’s opinion) to
protect Schering’s proprietary information, including without limitation,
information relating to Targets. 
Pharmacopeia and Schering shall each keep the other Party advised of the
status of the actual and prospective patents and patent applications within the
Collaboration Patent Rights for which it is responsible, and upon the written
request of the other Party, will provide advance copies of any substantive
papers related to the filing, prosecution and maintenance of such Collaboration
Patent Rights.

 

6.5                                 Enforcement.

 

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

 

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

 

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

 

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

 

6.6                                 Infringement
Claims.  If the manufacture, sale or
use of any Agreement Product pursuant to this Agreement because of the practice
of the Pharmacopeia Technology, Collaboration Technology or Schering
Technology, results in any claim, suit or proceeding alleging patent
infringement against Pharmacopeia or Schering (or their respective Affiliates
or Sublicensees), such Party shall promptly notify the other Party hereto in
writing setting forth the facts of such claim in reasonable detail.  The Party subject to such claim shall have
the exclusive right and obligation to defend and control the defense of any
such claim, suit or proceeding, at its own expense, using counsel of its own
choice; 

 

24

 

provided,
however, it shall not enter into any settlement which admits or concedes
that any aspect of (i) the Schering Technology or Collaboration Technology in
the case of Pharmacopeia, and (ii) the Pharmacopeia Technology or Collaboration
Technology in the case of Schering, is invalid or unenforceable without the
prior written consent of such other Party. 
The Party subject to the claim shall keep the other Party hereto
reasonably informed of all material developments in connection with any such
claim, suit or proceeding.

 

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

 

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

 

ARTICLE VII

CONFIDENTIALITY

 

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

 

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

 

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

 

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

 

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

 

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

 

7.2                                 Permitted
Use and Disclosures.  Each Party
hereto may use or disclose Confidential Information disclosed to it by the
other Party to the extent such information is included in the Pharmacopeia
Technology, Schering Technology or Collaboration Technology, as the case may
be, and to the extent (i) such use or disclosure is reasonably necessary
and permitted in the exercise of the rights granted hereunder in filing or
prosecuting patent applications, prosecuting or defending litigation,
(ii) such disclosure is reasonably required to be made to any
institutional review board of any entity conducting clinical trials with
Agreement Compound(s) and/or Agreement Product(s), or to any governmental or
other regulatory agency, in order to gain approval to conduct clinical trials
or to market Agreement Compound(s) and/or Agreement Products, (iii) such
disclosure is required by law, regulation, rule, act or order of any
governmental authority, court, or agency, or is made in connection with
submitting required information to tax or other governmental authorities, or
(iv) such disclosure or use is reasonably required in conducting clinical
trials, or making a permitted sublicense or otherwise exercising license rights
expressly granted to it by the other Party pursuant to the terms

 

25

 

of this Agreement; in
each case, provided that if a Party is required to make any such disclosure of
another Party’s Confidential Information, other than pursuant to a
confidentiality agreement, it will give reasonable advance notice to the other
Party of such disclosure and, save to the extent inappropriate in the case of
patent applications, will use its reasonable diligent efforts to secure
confidential treatment of such Confidential Information in consultation with
the other Party prior to its disclosure (whether through protective orders or
otherwise) and disclose only the minimum necessary to comply with such
requirements.

 

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

 

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

 

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

 

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

 

26

 

employees not working on
the Collaboration (except to the extent reasonably necessary for Pharmacopeia
to ensure its compliance with its exclusivity obligations hereunder) or to any
Third Parties.

 

ARTICLE VIII

REPRESENTATIONS, WARRANTIES AND COVENANTS

 

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

 

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

 

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

 

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

 

ARTICLE IX

INDEMNIFICATION

 

9.1                                 Indemnification
by Schering.  Schering shall
indemnify, defend and hold harmless Pharmacopeia and its Affiliates, and each
of its and their respective employees, officers, directors and agents (the
“Pharmacopeia Indemnitees”) from and against any and all liability, loss,
claims, damage, cost, and expense (including reasonable attorneys’
and professionals’ fees and other expenses of litigation) (collectively, a
“Liability”) arising out of or in connection with Third Party claims relating
to (i) the discovery, development, manufacture, use, testing, marketing, sale
or other disposition of Agreement Products by or on behalf of Schering or its
Affiliates or Sublicensees, (ii) performance of the Collaboration by Schering,
(iii) any injury, illness or disease suffered by any Schering employees in
connection 

 

27

 

with the performance of
the Collaboration, (iv) the use of any and all Targets with respect to which
research activities are conducted in the Collaboration, including without
limitation claims in connection with materials relating to such Target, or (v)
any breach by Schering of its representations and warranties made under this
Agreement, except, in each case, to the extent such Liabilities result from the
gross negligence or willful misconduct of Pharmacopeia, its Affiliates, or any
of their respective employees, officers, directors or agents.

 

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

 

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

 

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

 

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

 

ARTICLE X

TERM AND TERMINATION

 

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

 

28

 

such country, Schering,
its Affiliates and Sublicensees, shall no longer have any remaining payment
obligations hereunder with respect to such Agreement Product in that country.

 

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

 

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

 

10.4                           Termination
for Pharmacopeia Change in Control.

 

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

 

29

 

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

 

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

 

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

 

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

 

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

 

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

 

If Pharmacopeia (or such
successor) does provide a certification under this Section 10.4.2 within
such thirty (30) day period, then following Schering’s receipt of such
certification from Pharmacopeia (or such successor) pursuant to this
Section 10.4.2, Schering shall have the right to rescind its notice of
termination of the Collaboration by providing written notice to Pharmacopeia
within thirty (30) days after receipt of such written certification.  If following receipt of such certification,
Schering provides written notice rescinding its decision to terminate the
Collaboration within such thirty (30) day period, then none of the provisions
of Section 10.6 shall apply and the Collaboration shall continue under the
terms and conditions of this Agreement as if Schering had never provided any
notice of termination under Section 10.4.2.  However, if following receipt of such certification, Schering does
not provide written notice rescinding its decision to terminate the
Collaboration within such thirty (30) day period, then the Collaboration shall
terminate upon expiration of the ninety (90) day period following Schering’s
notice of termination under Section 10.4.2, and the provisions of Section 10.6.5(i)
and (ii) shall apply, but the provisions of Section 10.6.5(iii) shall not
apply.  For purposes of clarity and
avoidance of doubt, the Parties agree that written notice provided by
Schering–Plough Ltd. rescinding a decision by Schering-Plough Ltd. to terminate
the Collaboration under the corresponding provisions of the International
Agreement shall also be deemed notice by Schering under this Agreement.

 

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

 

10.6                           Effect
of Termination.

 

10.6.1                  Accrued
Obligations.  Termination of this
Agreement for any reason shall not relieve the Parties from any liability which
at the time of such termination has already accrued to the other Party, or
which is 

 

30

 

attributable to a period
prior to such termination, nor preclude either Party from pursuing all rights
and remedies it may have hereunder or at law or in equity with respect to any
breach of this Agreement.

 

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

 

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

 

10.6.4                  Licenses.

 

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

 

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

 

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

 

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

 

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

 

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

 

31

 

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

 

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

 

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

 

ARTICLE XI

MISCELLANEOUS

 

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

 

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

 

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

 

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

 

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

 

32

 

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

 

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

 

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

 

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

 

11.10                     Export
Control.  This Agreement and the
obligations of both Parties hereunder are made subject to, and limited by, all
applicable restrictions concerning the export of products or technical information
from the United States of America which may be imposed upon or related to
Pharmacopeia or Schering from time to time by the government of the United
States of America.  Furthermore,
Schering agrees that it will not export, directly or indirectly, any technical
information acquired from Pharmacopeia under this Agreement or any products
using such technical information to any country for which the United States
government or any agency thereof at the time of export requires an export
license or other governmental approval, without first obtaining the written
consent to do so from the Department of Commerce or other agency of the United
States government when required by an applicable statute or regulation.

 

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

 

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

 

If to Pharmacopeia, to:

 

Pharmacopeia,
Inc.

3000 Eastpark Boulevard

Cranbury, New Jersey  08512

Attn: Chief Executive Officer

Fax No.: (609) 452-3672

 

with a copy to:

 

Pharmacopeia,
Inc.

3000 Eastpark Boulevard

Cranbury, New Jersey  08512

Attn: General Counsel

Fax No.: (609) 452-3655

 

33

 

If to Schering, to:

 

Schering
Corporation

2000 Galloping Hill Road

Kenilworth, New Jersey  07033

Attention: Vice President, Business Development

Facsimile No.: (908) 298-5379

 

with copies to:

 

Schering
Corporation

2000 Galloping Hill Road

Kenilworth, New Jersey  07033

Attention: Law Department, Senior Legal Director – Licensing

Facsimile No.: (908) 298-2739

 

Schering-Plough
Ltd.

Toepferstrasse 5

CH 6004 Lucerne, Switzerland

Attention:  President

Facsimile No.: (011) 41 41 418 1630

 

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

 

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

 

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

 

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

 

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

 

34

 

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

 

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

 

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

 

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

 

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

 

 

	
  PHARMACOPEIA, INC.

  	
  SCHERING CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Stephen A. Spearman

  	
   

  	
  By:

  	
  /s/ David Poorvin

  	
   

  
	
   

  	
   

  
	
  Title:

  	
  EVP

  	
   

  	
  Title:

  	
  Vice President

  	
   

  
	
   

  	
   

  
	
  Date:

  	
  7/9/03

  	
   

  	
  Date:

  	
  7/9/03

  	
   

  
										

 

35

 

EXHIBIT
A

 

CURRENCY
CONVERSION

 

 

*

 

 

EXHIBIT
C

 

Elements of Fully Allocated Manufacturing Costs

 

The following expenses
are included in manufacturing costs:

 

1.                                       Direct
Materials

 

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

 

•                                                                                          Inert
raw materials or excipients

 

•                                                                                          Active
substances/ingredients

 

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

 

2.                                       Direct
Labor

 

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

 

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

 

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

 

3.                                       Indirect
Manufacturing Costs

 

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

 

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

 

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

 

i

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

•                                                                                          Cost
of manufacturing, service departments - such as:

 

(where
applicable)

 

•                                          Packaging
Engineering

 

•                                          Manufacturing
Maintenance

 

•                                          Industrial
Engineering

 

•                                          Receiving
and Warehousing

 

•                                          Purchasing
and Accounting

 

•                                          Production
Scheduling

 

•                                          Inventory
Management

 

•                                          Plant
Materials Management

 

•                                          Central
Weigh

 

•                                          Manufacturing
Administration

 

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

 

ii

 

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

 

•                                          Cafeteria

 

•                                          Personnel
Operations

 

•                                          Health
and Safety Services

 

•                                          Division
Engineering and Operations Services

 

•                                          Plant
Services (housekeeping)

 

•                                          Manufacturing
Information Systems

 

•                                          Plant
Power

 

•                                          Office
of V.P. Manufacturing

 

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

 

4.                                       Quality
Assurance Costs

 

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

 

The following expenses
are not included in manufacturing costs:

 

a)                                      Inventory
Carrying Costs

 

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

 

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

 

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

 

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

 

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

 

iii

 

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

 

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

 

iv

 

*

 

i

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00057-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00057-of-00352.parquet"}]]