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As filed with the Securities and Exchange Commission on January 30, 2006

Registration No. 333-            

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

THERAVANCE, INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or Other Jurisdiction
of Incorporation or Organization)		   94-3265960
(I.R.S. Employer
Identification Number)

901 Gateway Blvd.
South San Francisco, CA 94080
(650) 808-6000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices)

Rick E Winningham
Chief Executive Officer
Theravance, Inc.
901 Gateway Blvd.
South San Francisco, CA 94080
(650) 808-6000
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

The Commission is requested to send copies of all communications to:
David T. Young, Esq.
Christopher C. Dillon, Esq.
John F. Dietz, Esq.
Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP
155 Constitution Drive
Menlo Park, California 94025
(650) 321-2400

                 Approximate date of commencement of proposed sale to the public: From time to time after this Registration Statement becomes effective.

                 If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. o

                 If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. ý

                 If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

                 If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

                 If this Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box. ý

                 If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box. o

CALCULATION OF REGISTRATION FEE

Title of each class of Securities to be Registered
   Amount
to be
Registered
   Proposed Maximum
Offering Price Per
Unit
   Proposed Maximum
Aggregate
Offering Price
   Amount of
Registration Fee
Common Stock, par value $0.01   5,200,000 shares   (1)   (1)   (1)
(1)
In accordance with Rule 456(b) and 457(r) of the Securities Act of 1933, the registrant is deferring payment of all of the registration fee.

Subject To Completion
Preliminary Prospectus Dated January 30, 2006

The information in this prospectus is not complete and may be changed. This prospectus is not an offer to sell securities and it is not soliciting an offer to buy securities in any state where the offer or sale is not permitted.

P R O S P E C T U S

4,600,000 Shares

LOGO

Common Stock

              We are offering 4,600,000 shares of our common stock.

              Our common stock is traded on The Nasdaq National Market under the symbol "THRX." The last reported sale price of our common stock on The Nasdaq National Market on January 26, 2006 was $26.99 per share.

              Investing in our common stock involves risks. See "Risk Factors" on page 12 of this prospectus.

 
   Per Share
   Total
Public offering price   $     $  
Underwriting discount   $     $  
Proceeds, before expenses, to us   $     $  

              The underwriters may also purchase up to an additional 600,000 shares of common stock from us at the public offering price, less the underwriting discounts, within 30 days from the date of this prospectus to cover overallotments.

              Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

              The shares will be ready for delivery on or about February     , 2006.

Merrill Lynch & Co.    

 
HSBC
 

 
 
Thomas Weisel Partners LLC

The date of this prospectus is February    , 2006.


TABLE OF CONTENTS

 
   Page
Prospectus Summary   4

The Offering
 
9

Summary Consolidated Financial Data
 
10

Risk Factors
 
12

Forward-Looking Statements
 
28

Use of Proceeds
 
28

Price Range of our Common Stock
 
29

Dividend Policy
 
29

Capitalization
 
30

Description of Capital Stock
 
31

Material United States Federal Income Tax Consequences
 
53

Underwriting
 
57

Legal Matters
 
60

Experts
 
60

Where You Can Find More Information
 
60

Incorporation by Reference
 
60

              You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized anyone to provide you with information that is different. The information contained or incorporated by reference in this prospectus is accurate only as of the respective dates thereof, regardless of the time of delivery of this prospectus or of any sale of common stock. Our business, financial condition, results of operations and prospects may have changed since those dates. It is important for you to read and consider all information contained in this prospectus, including the documents incorporated by reference herein, in making your investment decision. You should also read and consider the information in the documents to which we have referred you under the caption "Where You Can Find More Information" in this prospectus.

              We are offering to sell, and are seeking offers to buy, the common stock only in jurisdictions where offers and sales are permitted. The distribution of this prospectus and the offering of the common stock in certain jurisdictions may be restricted by law. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to the offering of the common stock and the distribution of this prospectus outside the United States. This prospectus does not constitute, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy, any securities offered by this prospectus by any person in any jurisdiction in which it is unlawful for such person to make such an offer or solicitation.

              This prospectus contains summaries of certain provisions contained in some of the documents described herein, but reference is made to the actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Some of the documents referred to herein have been filed as exhibits to the registration statement of which this prospectus is a part, while others are incorporated by reference from our previously filed periodic reports or our Registration Statement on Form 8-A (Commission File No. 000-30319), filed on September 27, 2004, and amendments thereto, including their exhibits, and you may obtain copies of these documents as described below under "Where You Can Find More Information."

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PROSPECTUS SUMMARY

              This summary highlights selected information contained elsewhere or incorporated by reference in this prospectus. This summary may not contain all the information that you should consider before investing in our common stock. You should read the entire prospectus carefully, including "Risk Factors" and the financial statements incorporated by reference in this prospectus, before making an investment decision. Unless the context otherwise requires, any reference to "Theravance," "we," "our" and "us" in this prospectus refers to Theravance, Inc., a Delaware corporation, and its subsidiaries.


Theravance, Inc.

Overview

              We are a biopharmaceutical company with a pipeline of internally discovered product candidates. We are focused on the discovery, development and commercialization of small molecule medicines across a number of therapeutic areas including respiratory disease, bacterial infections and gastrointestinal disorders. Of our five programs in development, two are in late stage—our telavancin program focusing on treating serious Gram-positive infections with Astellas Pharma Inc. (Astellas) and our Beyond Advair collaboration with GlaxoSmithKline (GSK). By leveraging our proprietary insight of multivalency to drug discovery focused on validated targets, we are pursuing a next generation drug discovery strategy designed to discover superior medicines in large markets. None of our products have been approved for marketing and sale to patients and we have not received any product revenue to date.

Our Programs

              The following table summarizes the status of our product candidates for internal development or co-development.

CHART

              In the table above:

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Telavancin and our Relationship with Astellas

              In November 2005, we entered into a collaboration arrangement with Astellas for the development and commercialization of telavancin worldwide, except Japan. We received a $65.0 million upfront payment from Astellas in December 2005, and we are eligible to receive up to $156.0 million in clinical and regulatory milestone payments, which include up to $136.0 million for completion of clinical studies and filing and approval of new drug applications for complicated skin and skin structure infections (cSSSI) and hospital-acquired pneumonia (HAP), and up to $20.0 million if the Phase 3 data demonstrates telavancin's superiority over vancomycin for patients infected with methicillin-resistant Staphylococcus aureus (MRSA). If telavancin is commercialized, we will be entitled to receive royalties on global sales of telavancin by Astellas that, on a percentage basis, increase from the high teens to the upper twenties depending on sales volume. Under this arrangement, we will be responsible for substantially all costs to develop and obtain U.S. regulatory approval for telavancin for cSSSI and HAP, and Astellas will be responsible for substantially all costs associated with commercialization and further development of telavancin. In addition to the license rights to telavancin, Astellas also received an option to further develop and commercialize TD-1792, our heterodimer antibiotic compound that is in pre-clinical development.

              Telavancin, the lead product candidate in our bacterial infections program, is a rapidly bactericidal, injectable antibiotic. Telavancin is currently in Phase 3 clinical studies designed to demonstrate non-inferiority of telavancin compared to vancomycin for the treatment of serious Gram-positive infections and superiority over vancomycin in those patients whose infections are due to MRSA in both cSSSI and HAP. Our goal is for telavancin to become first line therapy in treating these very serious infections.

              We currently have two Phase 3 programs, one for cSSSI and one for HAP, each consisting of two studies targeting approximately 750 patients per study for a total of approximately 1,500 patients per program. However, we may increase the size of the cSSSI program to greater than 1,500 patients. Our goal is to complete enrollment for the cSSSI program in the first half of 2006 and for the HAP program in the second half of 2006. Our goal in the design and execution of both programs is to demonstrate non- inferiority compared to standard therapy in the treatment of Gram-positive infections and to obtain a sufficient subpopulation of MRSA patients to be able to demonstrate superiority over vancomycin in those patients infected by MRSA, if superiority in fact exists.

Our Relationship with GlaxoSmithKline

              2002 Beyond Advair Collaboration.    In November 2002, we entered into our Beyond Advair collaboration with GSK to develop and commercialize long-acting beta2 agonist (LABA) product candidates for the treatment of asthma and chronic obstructive pulmonary disease (COPD). These product candidates are intended to be administered via inhalation once daily both as a single new

5

medicine and as part of a new combination medicine with an inhaled corticosteroid (ICS). The collaboration intends to develop a new generation product to replace Advair®, which had approximately $4.0 billion of sales reported by GSK for the first nine months of 2005. Each company contributed four LABA product candidates to the collaboration, and five product candidates have either completed or are in Phase 2a clinical studies.

              In connection with this collaboration, we were eligible to receive up to $495.0 million in milestones and royalties on the sales of any product resulting from this collaboration. Through September 30, 2005, we received $45.0 million in milestone payments related to the clinical progress of our product candidates. In the event that a LABA product candidate discovered by us is successfully developed and commercially launched in multiple regions of the world, these future milestone payments could total up to an additional $450.0 million, of which $150.0 million would be attributable to the product candidates reaching certain sales thresholds. In the event that a LABA product candidate discovered by GSK is successfully developed and commercially launched in multiple regions of the world, we will be obligated to make payments to GSK of up to $220.0 million. Based on available information, we do not estimate that a significant portion of these potential milestone payments to GSK are likely to be made in the next three years. In addition, we are entitled to receive the same royalties on product sales of medicines from the Beyond Advair collaboration, regardless of whether the product candidate originated with us or with GSK. The royalty structure is downward tiering and would result in an average percentage royalty rates in the low to mid-teens at annual net sales up to approximately $4.0 billion and the average royalty rate would decline to single digits at annual net sales of more than $6.0 billion. Sales of single agent LABA medicines and combination LABA/ICS medicines would be combined for the purposes of this royalty calculation.

              The Beyond Advair collaboration has a development pool consisting of eight compounds, five of which are in Phase 2. Three of these Phase 2 compounds, GSK159797 ('797), GSK542444 ('444) and GSK159802 ('802) are receiving the majority of development resources. We anticipate that GSK will initiate a Phase 2b program with '797 in the first half of 2006. This Phase 2b program is designed to evaluate the safety and efficacy of '797 in multi-day administration to mild-to-moderate asthmatics and to assess potential commercial dosing. Compound '444 is currently in multi-dose Phase 2a studies and '802 is currently in single-dose Phase 2a studies.

              2004 GSK Strategic Alliance.    We entered into our strategic alliance with GSK in March 2004. Under this alliance, GSK received an option to license product candidates from all of our current and future drug discovery programs initiated prior to September 1, 2007, on pre-determined terms and on an exclusive, worldwide basis. When GSK exercises its option to license any of our programs, we receive an upfront payment, additional payments upon achievement of future milestones and royalties on any future sales. In addition, GSK funds all of the subsequent development and commercialization costs for product candidates in such programs. Consistent with our strategy, we will be obligated at our sole cost to discover two structurally different product candidates for any programs that are licensed by GSK under the alliance. To date, GSK has licensed our two COPD programs. In August 2004, pursuant to the terms of the strategic alliance, GSK exercised its right to license our long-acting muscarinic antagonist (LAMA) program, and in March 2005, GSK exercised its right to license our bifunctional muscarinic antagonist—beta2 agonist (MABA) program.

              Among the most frequently used bronchodilators for COPD are the inhaled muscarinic antagonists. Inhaled muscarinic antagonists work by inhibiting muscarinic receptors on the bronchial airways, which lead to muscle relaxation, bronchodilation and improved lung function. We are

6

developing with GSK an inhaled LAMA designed to produce a prolonged blockade of the relevant receptor sub-types while also being highly lung-selective, which means that lower concentrations of drug should get into the systemic circulation. We believe this approach will result in improved tolerability over currently available medicines at doses with comparable efficacy.

              In August 2004, GSK exercised its right to license our LAMA program under the strategic alliance. Accordingly, GSK is funding all development, manufacturing and commercialization activities for product candidates in this program.

              TD-5742, our lead compound in this program, has completed Phase 1 studies. The initial results from this study suggest that TD-5742 is less potent than we expected. A joint steering committee comprised of representatives of GSK and our Company is analyzing the data from these initial results and, once this analysis is complete, will provide a recommendation regarding whether or not to continue development of this compound. We have recently delivered to GSK a second, structurally different, product candidate for this program pursuant to the terms of the strategic alliance.

              In our MABA program, we are developing with GSK a long-acting inhaled bronchodilator that is bifunctional, meaning that one small molecule functions as both a muscarinic antagonist and a beta2 receptor agonist. By combining bifunctional activity and high lung selectivity, we intend to develop a medicine with greater efficacy than single mechanism bronchodilators (such as tiotropium or salmeterol) and with equal or better tolerability. This bifunctional bronchodilator could potentially then serve as a basis for improved "triple therapy" through co-formulation with another inhaled respiratory compound into a single product that could potentially deliver three complementary therapeutic effects for patients with respiratory disease.

              In March 2005, GSK licensed our MABA program under the strategic alliance. Accordingly, GSK is funding all development, manufacturing and commercialization activities for product candidates in this program.

              Our lead compound in this program, GSK961081, is currently in preclinical studies. We have delivered to GSK a second, structurally different, product candidate for this program pursuant to the terms of the strategic alliance.

Gastrointestinal (GI) Motility Dysfunction

              Our gastrointestinal (GI) motility dysfunction program is dedicated to finding new medicines for GI motility disorders such as chronic constipation, constipation-predominant irritable bowel syndrome (C-IBS), opioid-induced constipation, functional dyspepsia and diabetic gastroparesis.

              In late December 2005, we announced the results from recently completed Phase 1 single-dose and multiple-dose studies in healthy volunteers with TD-2749, a selective 5-HT4 agonist and the lead compound in our GI disorders program.

              In the single dose study, TD-2749 demonstrated a dose-dependent prokinetic effect with rapid onset at the highest doses and was generally well tolerated. In the multiple-dose study, TD-2749 demonstrated modest prokinetic activity and was generally well tolerated. Two subjects on TD-2749 and one subject on placebo demonstrated reversible elevations in liver enzymes in the multiple dose study.

              In December 2005, we also enrolled the first healthy volunteers in a Phase 1 clinical study designed to assess the safety, tolerability and pharmacokinetics of a second, structurally distinct, investigational GI prokinetic, TD-5108.

7


              In 2006, we are continuing to evaluate TD-2749 and intend to complete the initial Phase 1 program for TD-5108. We will then make a decision regarding future clinical development of these compounds based on our evaluation of the data.

GSK Share Ownership and Put/Call Rights

              GSK currently owns all of our Class A common stock, which represented approximately 17.4% of our outstanding stock as of December 31, 2005. Under the terms of the 2004 strategic alliance, GSK's ownership of our stock could increase to approximately 60% through the issuance by us to GSK of the number of shares of our common stock that we may be required to redeem from our stockholders. In July 2007, GSK has the right to require us to redeem, and upon notice of such redemption, each stockholder (including GSK, to the extent GSK holds common stock) will automatically be deemed to have submitted for redemption, 50% of our common stock held by such stockholder at $54.25 per share. This right is referred to in this prospectus as the "call." If GSK does not exercise this right, then in August 2007, our stockholders (including GSK, to the extent GSK holds common stock) have the right to require us to redeem up to 50% of their common stock at $19.375 per share. This right is referred to in this prospectus as the "put." In either case, GSK is obligated to pay to us the funds necessary for us to redeem the shares of common stock from our stockholders; however, GSK's maximum obligation for the shares subject to the put is capped at $525 million. We are under no obligation to redeem our shares under the call or the put until we receive the necessary funds from GSK. Alternatively, if our stockholders exercise the put, GSK may choose to purchase the shares of common stock put directly from our stockholders. If GSK's ownership of our stock increases to more than 50% as a result of the call or put, GSK will receive a five-year extension of its exclusive option to our programs, so that the option would cover all discovery programs initiated by us prior to September 1, 2012. Our call and put arrangements with GSK are described in detail in the "Description of Capital Stock" section of this prospectus.

Financial Update

              While we are still in the process of determining final results for the fourth quarter of 2005, as of November 30, 2005, we had cash, cash equivalents and marketable securities totaling $148.1 million and in December 2005 we received a $65.0 million upfront payment from Astellas in connection with our collaboration arrangement. In addition, and consistent with previous guidance, we expect that our operating expenses, particularly research and development expense, will be significantly higher over the next several quarters than in prior periods as we move toward completion of our Phase 3 clinical studies of telavancin. We expect that our cash, cash equivalents and marketable securities, together with the proceeds of this offering, will be sufficient to meet our capital needs for at least the next 18 months.

Corporate Information

              We were incorporated on November 19, 1996 under the name Advanced Medicine, Inc. In April 2002, we changed our name to Theravance, Inc. Our principal executive offices are located at 901 Gateway Boulevard, South San Francisco, California 94080, and our telephone number is (650) 808-6000. Theravance and the Theravance logo are registered trademarks of Theravance, Inc. Trademarks, tradenames or service marks of other companies appearing in this prospectus are the property of their respective owner. Our web site is www.theravance.com. Information contained on our web site does not constitute a part of this prospectus.

8


THE OFFERING


Common stock we are offering
 
4,600,000 shares

Common stock to be outstanding after this offering
 
49,137,694 shares

Class A common stock to be outstanding after this offering
 
9,401,498 shares

Use of proceeds
 
We intend to use the net proceeds from this offering for general corporate purposes, which may include clinical and preclinical development of existing product candidates, drug research activities and manufacture of pre-clinical, clinical and commercial drug supplies, capital expenditures and working capital. See "Use of Proceeds."

Nasdaq National Market symbol
 
THRX

              The number of shares of our common stock and Class A common stock to be outstanding immediately after this offering is based on the number of shares outstanding as of December 31, 2005, plus the 4,600,000 shares of common stock to be issued in this offering. GSK owns all of our outstanding Class A common stock. Our Class A common stock has rights and obligations substantially the same as our common stock except that (i) our Class A common stock is not subject to the call and the put, and (ii) depending on GSK's ownership of our Class A common stock, the Class A common stock has the right to designate up to one-third of the members of our board of directors and up to one-half of the independent members of our board of directors. See "Description of Capital Stock—Common Stock Call and Put Arrangements with GSK—Voting Rights for the Election of Directors/Board of Directors Composition."

              The number of shares of our common stock and Class A common stock to be outstanding immediately after this offering does not include:

9


SUMMARY CONSOLIDATED FINANCIAL DATA

              The following tables present our summary consolidated statements of operations data for our fiscal years 2002 through 2004 and the nine months ended September 30, 2004 and 2005, and our summary consolidated balance sheet data as of September 30, 2005. You should read this information in conjunction with our consolidated financial statements, including the related notes, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2004 and our Quarterly Report on Form 10-Q for the quarter ended September 30, 2005. The summary consolidated balance sheet data is presented on an actual basis and as adjusted to reflect the sale of 4,600,000 shares of common stock offered by us in this offering at an assumed public offering price of $26.99 per share after deducting estimated underwriting discounts and commissions and offering expenses.

 
   Years Ended December 31,
   Nine Months Ended
September 30,
  
 
   2002
   2003
   2004
   2004
   2005
  
 
   (in thousands, except per share amounts)

  
 
    
    
    
   (unaudited)

  
Consolidated Statements of Operations Data                                
Revenue from related party   $ 156   $ 3,605   $ 8,940   $ 6,200   $ 8,676  

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Research and development     66,481     61,704     86,996     59,694     93,654  
General and administrative     11,817     12,153     19,818     15,959     16,732  
Stock-based compensation(1)     4,941     2,214     8,521     6,160     3,934  
   
 
 
 
 
 
Total operating expenses     83,239     76,071     115,335     81,813     114,320  
   
 
 
 
 
 
Loss from operations     (83,083 )   (72,466 )   (106,395 )   (75,613 )   (105,644 )

Interest and other income
 
 
4,990
 
 
3,373
 
 
4,564
 
 
2,762
 
 
5,153
 

Interest and other expense
 
 
(1,134
)
 
(1,490
)
 
(823
)
 
(632
)
 
(462
)
   
 
 
 
 
 
Net loss   $ (79,227 ) $ (70,583 ) $ (102,654 ) $ (73,483 ) $ (100,953 )
   
 
 
 
 
 

Basic and diluted net loss per share(2)
 
$
(12.50
)
$
(10.37
)
$
(3.08
)
$
(2.71
)
$
(1.90
)
   
 
 
 
 
 
Shares used in per share calculations(2)     6,336     6,809     33,283     27,097     53,155  
   
 
 
 
 
 
(1)
Stock-based compensation, consisting of amortization of deferred stock-based compensation and the value of options issued to non-employees for services rendered, is allocated as follows:

Research and development   $ 3,398   $ 1,300   $ 4,631   $ 3,180   $ 2,466
General and administrative     1,543     914     3,890     2,980     1,468
   
 
 
 
 
Total non-cash stock-based compensation   $ 4,941   $ 2,214   $ 8,521   $ 6,160   $ 3,934
   
 
 
 
 
(2)
Share and per share amounts for all periods reflect the effect of a one for 1.55 reverse stock split effected September 27, 2004; and, for the year ended December 31, 2004, the nine months ended September 30, 2004 and the nine months ended September 30, 2005, the conversion of all of our outstanding preferred stock into common stock as of May 11, 2004.

10

 
   As of
September 30, 2005
  
 
   Actual
   As
Adjusted
  
 
   (unaudited)

  
Consolidated Balance Sheet Data              
Cash, cash equivalents and marketable securities   $ 172,323   $ 289,149  
Working capital     136,584     253,410  
Total assets     196,988     313,814  
Long-term liabilities     58,384     58,384  
Accumulated deficit     (569,557 )   (569,557 )
Total stockholders' equity (deficit)     98,177     215,003  

              A $1.00 increase (decrease) in the assumed public offering price of $26.99 per share would increase (decrease) the net proceeds to us from this offering by $4.3 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriter discounts and commissions and estimated offering expenses payable by us.

11


RISK FACTORS

              You should carefully consider the risks described below before making an investment decision. You should also refer to the other information in this prospectus, including our financial statements and the related notes incorporated by reference in this prospectus. The risks and uncertainties described below are not the only risks and uncertainties we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks actually occur, our business, results of operations and financial condition could suffer. In that event the trading price of our common stock could decline, and you may lose all or part of your investment in our common stock. The risks discussed below also include forward-looking statements and our actual results may differ substantially from those discussed in these forward-looking statements.


Risks Related to our Business

Any failure or delay in commencing or completing clinical studies for our product candidates, such as a failure or delay in GSK's commencement of the planned Phase 2b program in the Beyond Advair collaboration, would likely cause our stock price to decline.

              Each of our product candidates must undergo extensive preclinical and clinical studies as a condition to regulatory approval. Preclinical and clinical studies are expensive and take many years to complete. To date we have not completed the clinical studies of any product candidate. The commencement and completion of clinical studies for our product candidates may be delayed by many factors, including:

              For example, in the fourth quarter of 2005, we announced that the Phase 2b program with '797, the lead investigational compound in the Beyond Advair collaboration with GSK, would not occur by the end of 2005 due to potential issues associated with the formulation of the compound. While we anticipate that GSK will commence this program during the first half of 2006, there can be no assurance that the Phase 2b program will occur in this time period. Failure to commence the Phase 2b program in the first half of 2006 would likely cause our stock price to decline.

              It is possible that none of our product candidates will complete clinical studies in any of the markets in which we, our collaborators or licensees intend to sell those product candidates. Accordingly, we, our collaborators or licensees may not receive the regulatory approvals needed to market our product candidates. Any failure or delay in commencing or completing clinical studies or obtaining regulatory approvals for our product candidates would delay commercialization of our product candidates and severely harm our business and financial condition.

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If our product candidates, in particular telavancin, which is currently in Phase 3 clinical studies, are determined to be unsafe or ineffective in humans, our business will be adversely affected.

              We have never commercialized any of our product candidates. We are uncertain whether any of our compounds or product candidates will prove effective and safe in humans or meet applicable regulatory standards. In addition, our approach to applying our expertise in multivalency to drug discovery is unproven and may not result in the creation of successful medicines. The risk of failure for all of our compounds and product candidates is high. For example, in late 2005 we discontinued our overactive bladder program based upon the results of our Phase 1 studies with compound TD-6301. To date, the data supporting our drug discovery and development programs is derived solely from laboratory and pre-clinical studies and limited clinical studies. We currently expect to complete the first of our Phase 3 clinical studies for telavancin in 2006. There is no assurance that this study or other studies will demonstrate that telavancin is safe or effective. Any adverse development or result, or perceived adverse development or result, with respect to our telavancin Phase 3 studies will harm our business and cause our stock price to decline. In addition, a number of our other compounds remain in the lead identification, lead optimization, preclinical testing stages and early clinical testing. It is impossible to predict when or if any of our compounds and product candidates will prove effective or safe in humans or will receive regulatory approval. If we are unable to discover and develop medicines that are effective and safe in humans, our business will fail.

If the product candidates that we develop on our own or through collaborative partners are not approved by regulatory agencies, including the Food and Drug Administration, we will be unable to commercialize them.

              The Food and Drug Administration (FDA) must approve any new medicine before it can be marketed and sold in the United States. We must provide the FDA and similar foreign regulatory authorities with data from preclinical and clinical studies that demonstrate that our product candidates are safe and effective for a defined indication before they can be approved for commercial distribution. We will not obtain this approval for a product candidate unless and until the FDA approves a New Drug Application (NDA). In order to market our medicines in the European Union and other foreign jurisdictions, we must obtain separate regulatory approvals in each country. The approval procedure varies among countries and can involve additional testing, and the time required to obtain approval may differ from that required to obtain FDA approval. Approval by the FDA does not ensure approval by regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. We have not yet filed an NDA with the FDA or made a comparable filing in any foreign country for any of our product candidates.

              Clinical studies involving our product candidates may reveal that those candidates are ineffective, inferior to existing approved medicines, unacceptably toxic or have other unacceptable side effects. In addition, the results of preclinical studies do not necessarily predict clinical success, and larger and later-stage clinical studies may not produce the same results as earlier-stage clinical studies. Frequently, product candidates that have shown promising results in early preclinical or clinical studies have subsequently suffered significant setbacks or failed in later clinical studies. In addition, clinical studies of potential products often reveal that it is not possible or practical to continue development efforts for these product candidates. If our clinical studies are substantially delayed or fail to prove the safety and effectiveness of our product candidates, we may not receive regulatory approval of any of our product candidates and our business and financial condition will be materially harmed.

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Even if our product candidates receive regulatory approval, commercialization of such products may be adversely affected by regulatory actions.

              Even if we receive regulatory approval, this approval may include limitations on the indicated uses for which we can market our medicines. Further, if we obtain regulatory approval, a marketed medicine and its manufacturer are subject to continual review, including review and approval of the manufacturing facilities. Discovery of previously unknown problems with a medicine may result in restrictions on its permissible uses or on the manufacturer, including withdrawal of the medicine from the market. The FDA and similar foreign regulatory bodies may also implement new standards or change their interpretation and enforcement of existing standards and requirements for the manufacture, packaging, or testing of products at any time. If we are unable to comply, we may be subject to regulatory or civil actions or penalties that could significantly and adversely affect our business. Any failure to maintain regulatory approval will limit our ability to commercialize our product candidates, which would materially and adversely affect our business and financial condition.

We have incurred operating losses in each year since our inception and expect to continue to incur substantial and increasing losses for the foreseeable future.

              We have been engaged in discovering and developing compounds and product candidates since mid-1997. We have not generated any product sales revenue to date. We may never generate revenue from selling medicines or achieve profitability. As of September 30, 2005, we had an accumulated deficit of approximately $569.6 million. We expect our research and development expenses to keep increasing as we continue to initiate new discovery programs and expand our development programs. As a result, we expect to continue to incur substantial and increasing losses for the foreseeable future. We are uncertain when or if we will be able to achieve or sustain profitability. Failure to become and remain profitable would adversely affect the price of our common stock and our ability to raise capital and continue operations.

If we fail to obtain the capital necessary to fund our operations, we may be unable to develop our products and we could be forced to share our rights to commercialize our product candidates with third parties on terms that may not be favorable to us.

              We need large amounts of capital to support our research and development efforts. If we are unable to secure capital to fund our operations we will not be able to continue our discovery and development efforts and we might have to enter into strategic collaborations that could require us to share commercial rights to our medicines to a greater extent than we currently intend. Based on our current operating plans, we believe that our cash and cash equivalents and marketable securities together with the proceeds of this offering will be sufficient to meet our anticipated operating needs for at least the next 18 months. We may require additional capital to fund operating needs thereafter.

              In addition, in the event that a LABA product candidate discovered by GSK is successfully developed and commercially launched in multiple regions of the world, we are obligated to pay GSK milestone payments of up to an aggregate of $220.0 million under our Beyond Advair collaboration. We may also need to raise additional funds sooner if we choose to expand more rapidly than we presently anticipate. We may seek to sell additional equity or debt securities, or both, or incur other indebtedness. The sale of additional equity or debt securities, if convertible, could result in the issuance of additional shares of our capital stock and could result in dilution to our stockholders. The incurrence of indebtedness would result in increased fixed payment obligations and could also result in certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. In addition, our ability to raise debt and equity financing is constrained by our alliance with GSK and we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. In particular, after this offering

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and until the expiration of the put and call provisions with GSK, we will be contractually prohibited from selling significant additional equity securities to raise capital. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we will be prevented from pursuing research and development efforts. This could harm our business, prospects and financial condition and cause the price of our common stock to fall.

If our partners do not satisfy their obligations under our agreements with them, we will be unable to develop our partnered product candidates as planned.

              We entered into our Beyond Advair collaboration agreement with GSK in November 2002, our strategic alliance agreement with GSK in March 2004, and our telavancin development and commercialization agreement with Astellas in November 2005. In connection with these agreements, we have granted to these parties certain rights regarding the use of our patents and technology with respect to compounds in our development programs, including development and marketing rights. In connection with our GSK strategic alliance agreement, upon exercise of its license with respect to a particular development program, GSK will have full responsibility for development and commercialization of any product candidates in that program. Any future milestone payments or royalties to us from these programs will depend on the extent to which GSK advances the product candidate through development and commercial launch. In connection with our Astellas telavancin agreement, Astellas is responsible for the commercialization of telavancin and any royalties to us from this program will depend upon Astellas' ability to launch and sell the medicine if it is approved.

              Our partners might not fulfill all of their obligations under these agreements. In that event, we may be unable to assume the development and commercialization of the product candidates covered by the agreements or enter into alternative arrangements with a third party to develop and commercialize such product candidates. In addition, with the exception of product candidates in our Beyond Advair collaboration, our partners generally are not restricted from developing and commercializing their own products and product candidates that compete with those licensed from us. If a partner elected to promote its own products and product candidates in preference to those licensed from us, future payments to us could be reduced and our business and financial condition would be materially and adversely affected. Accordingly, our ability to receive any revenue from the product candidates covered by these agreements is dependent on the efforts of the partner. We could also become involved in disputes with a partner, which could lead to delays in or termination of our development and commercialization programs and time-consuming and expensive litigation or arbitration. If a partner terminates or breaches its agreements with us, or otherwise fails to complete its obligations in a timely manner, the chances of successfully developing or commercializing our product candidates would be materially and adversely affected.

              In addition, while our strategic alliance with GSK sets forth pre-agreed upfront payments, development obligations, milestone payments and royalty rates under which GSK may obtain exclusive rights to develop and commercialize our product candidates, GSK may in the future seek to negotiate more favorable terms on a project-by-project basis. To date, GSK has only licensed our LAMA program and our MABA program under the terms of the strategic alliance agreement, and has chosen not to license our bacterial infections program and our anesthesia program. There can be no assurance that GSK will license any other development program under the terms of the strategic alliance agreement, or at all. GSK's failure to license our development programs could adversely affect the perceived prospects of the product candidates that are the subject of these development programs, which could negatively affect our ability to enter into collaborations for these product candidates with third parties and the price of our common stock.

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Our relationship with GSK may have a negative effect on our ability to enter into relationships with third parties.

              As of December 31, 2005, GSK beneficially owned approximately 17.4% of our outstanding capital stock, and will have the right in July 2007 to acquire up to approximately 60% of our common stock through the exercise of its call right. Other than our bacterial infections program and our anesthesia program, which GSK has decided not to license under the strategic alliance, GSK has the right to license exclusive development and commercialization rights to our product candidates arising from all of our current and future drug discovery and development programs initiated prior to September 1, 2007. This right will extend to our programs initiated prior to September 1, 2012 if GSK owns more than 50% of our common stock due to exercise of the call right or the put right. Pharmaceutical companies other than GSK that may be interested in developing products with us are likely to be less inclined to do so because of our relationship with GSK, or because of the perception that development programs that GSK does not license pursuant to our strategic alliance agreement are not promising programs. In addition, because GSK may license our development programs at any time prior to successful completion of a Phase 2 proof-of-concept study, we may be unable to collaborate with other partners with respect to these programs until we have expended substantial resources to advance them through clinical studies. Given the restrictions on our ability to raise capital provided for in our agreements with GSK, we may not have sufficient funds to pursue such programs in the event GSK does not license them at an early stage. If our ability to work with present or future strategic partners, collaborators or consultants is adversely affected as a result of our strategic alliance with GSK, our business prospects may be limited and our financial condition may be adversely affected.

If we are unable to enter into future collaboration arrangements or if any such collaborations with third parties are unsuccessful, our profitability may be delayed or reduced.

              To date we have only entered into collaborations with GSK for the Beyond Advair, LAMA and MABA programs and with Astellas for telavancin. As a result, we may be required to enter into collaborations with other third parties regarding our other programs whereby we have to relinquish material rights, including revenue from commercialization of our medicines, on terms that are less attractive than our current arrangements with GSK and Astellas. Furthermore, our ability to raise additional capital to fund our drug discovery and development efforts is greatly limited as a result of our agreements with GSK. In addition, we may not be able to control the amount of time and resources that our collaborative partners devote to our product candidates and our partners may choose to pursue alternative products. Moreover, these collaboration arrangements are complex and time-consuming to negotiate. If we are unable to reach agreements with third-party collaborators, we may fail to meet our business objectives and our financial condition may be adversely affected. We face significant competition in seeking third-party collaborators and may be unable to find third parties to pursue product collaborations on a timely basis or on acceptable terms. Our inability to successfully collaborate with third parties would increase our development costs and could limit the likelihood of successful commercialization of our product candidates.

We rely on a number of manufacturers for our product candidates and our business will be seriously harmed if these manufacturers are not able to satisfy our demand and alternative sources are not available.

              We do not have in-house manufacturing capabilities and depend entirely on a number of third-party compound manufacturers and active pharmaceutical ingredient formulators. We may not have long-term agreements with these third parties and our agreements with these parties may be terminable at will by either party at any time. If, for any reason, these third parties are unable or unwilling to perform, we may not be able to locate alternative manufacturers or formulators or enter into favorable agreements with them. Any inability to acquire sufficient quantities of our compounds in a timely

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manner from these third parties could delay clinical studies and prevent us from developing our product candidates in a cost-effective manner or on a timely basis. In addition, manufacturers of our compounds are subject to the FDA's current Good Manufacturing Practices regulations and similar foreign standards and we do not have control over compliance with these regulations by our manufacturers.

              Our manufacturing strategy presents the following additional risks:

              We have sufficient quantities of formulated drug product to complete all of the currently planned clinical studies of telavancin, our lead product candidate in our bacterial infections program. In 2006 and early 2007 we plan to manufacture additional bulk drug substance and drug product intended to meet our obligations to Astellas in connection with commercial launch in the event telavancin is approved for sale by regulatory authorities. If we are unable to do so in a timely manner the commercial introduction of telavancin, if approved, would be adversely affected. For our development compounds in our gastrointestinal motility dysfunction program, we are using single sources to manufacture each of the bulk drug substance and drug product. We have adequate supplies for the currently planned development activities for these compounds, but if the supplier fails to continue to produce them at acceptable quantity or quality levels, our future clinical and preclinical studies could be delayed.

We depend on third parties in the conduct of our clinical studies for our product candidates.

              We depend on independent clinical investigators, contract research organizations and other third party service providers in the conduct of our pre-clinical and clinical studies for our product candidates. We rely heavily on these parties for execution of our pre-clinical and clinical studies, and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol. The failure of these third parties to complete activities on schedule or to conduct our studies in accordance with regulatory requirements and our protocols could delay or prevent the further development, approval and commercialization of our product candidates, which could severely harm our business and financial condition. In addition, if we lose our relationship with any one or more of these third parties, we could experience a significant delay in both identifying another comparable service provider and then contracting for its services. We may be unable to retain an alternative service provider on reasonable terms, if at all. Even if we locate an alternative service provider, it is likely that this provider will need additional time to respond to our needs and may not provide the same level of service as the original service provider.

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We face substantial competition from companies with more resources and experience than we have, which may result in others discovering, developing or commercializing products before or more successfully than we do.

              Our ability to succeed in the future depends on our ability to demonstrate and maintain a competitive advantage with respect to our approach to the discovery and development of medicines. Our objective is to discover, develop and commercialize new medicines with superior efficacy, convenience, tolerability and/or safety. Because our strategy is to develop new product candidates for biological targets that have been validated by existing medicines or potential medicines in late stage clinical studies, to the extent that we are able to develop medicines, they are likely to compete with existing drugs that have long histories of effective and safe use. We expect that any medicines that we commercialize with our collaborative partners or on our own will compete with existing or future market-leading medicines.

              Many of our potential competitors have substantially greater financial, technical and personnel resources than we have. In addition, many of these competitors have significantly greater commercial infrastructures than we have. Our ability to compete successfully will depend largely on our ability to leverage our experience in drug discovery and development to:

              Established pharmaceutical companies may invest heavily to quickly discover and develop novel compounds that could make our product candidates obsolete. Accordingly, our competitors may succeed in obtaining patent protection, receiving FDA approval or discovering, developing and commercializing medicines before we do. We are also aware of other companies that may currently be engaged in the discovery of medicines that will compete with the product candidates that we are developing.

              Any new medicine that competes with a generic market leading medicine must demonstrate compelling advantages in efficacy, convenience, tolerability and/or safety in order to overcome severe price competition and be commercially successful. If we are not able to compete effectively against our current and future competitors, our business will not grow and our financial condition and operations will suffer.

              As the principles of multivalency become more widely known, we expect to face increasing competition from companies and other organizations that pursue the same or similar approaches. Novel therapies, such as gene therapy or effective vaccines for infectious diseases, may emerge that will make both conventional and multivalent medicine discovery efforts obsolete or less competitive.

We have no experience selling or distributing products and no internal capability to do so.

              Generally, our strategy is to engage pharmaceutical or other healthcare companies with an existing sales and marketing organization and distribution system to market, sell and distribute our products. We may not be able to establish these sales and distribution relationships on acceptable terms, or at all. If we receive regulatory approval to commence commercial sales of any of our product candidates that are not covered by our current agreements with GSK or Astellas, we will have to establish a sales and marketing organization with appropriate technical expertise and supporting

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distribution capability. At present, we have no sales personnel and a limited number of marketing personnel. Factors that may inhibit our efforts to commercialize our products without strategic partners or licensees include:

              If we are not able to partner with a third party and are not successful in recruiting sales and marketing personnel or in building a sales and marketing infrastructure, we will have difficulty commercializing our product candidates, which would adversely affect our business and financial condition.

If approved, telavancin may not be accepted by physicians, patients, third party payors or the medical community in general.

              If approved by the relevant regulatory agencies, the commercial success of telavancin will depend upon its acceptance by physicians, patients, third party payors and the medical community in general. We cannot be sure that telavancin will be accepted by these parties even if it is approved by the relevant regulatory authorities. Telavancin will compete with vancomycin, a relatively inexpensive generic drug that is manufactured by a variety of companies, a number of existing anti-infective drugs manufactured and marketed by major pharmaceutical companies and others, and potentially against new anti-infective drugs that are not yet on the market. Even if the medical community accepts that telavancin is safe and efficacious for its approved indications, physicians may choose to restrict the use of telavancin due to antibiotic resistance concerns. The degree of market acceptance of telavancin depends on a number of factors, including, but not limited to:


If we lose key scientists or management personnel, or if we fail to recruit additional highly skilled personnel, it will impair our ability to discover, develop and commercialize product candidates.

              We are highly dependent on principal members of our management team and scientific staff, including our Chairman of the Board of Directors, P. Roy Vagelos, our Chief Executive Officer, Rick E Winningham, our Executive Vice President of Research, Patrick P.A. Humphrey, and our Senior Vice President of Development, Michael Kitt. These executives each have significant pharmaceutical industry experience and Dr. Vagelos and Dr. Humphrey are prominent scientists. The loss of Dr. Vagelos, Mr. Winningham, Dr. Humphrey or Dr. Kitt could impair our ability to discover, develop and market new medicines.

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              Our scientific team has expertise in many different aspects of drug discovery and development. Our company is located in northern California, which is headquarters to many other biopharmaceutical companies and many academic and research institutions. There is currently a shortage of experienced scientists, which is likely to continue, and competition for skilled personnel in our market is very intense. Competition for experienced scientists may limit our ability to hire and retain highly qualified personnel on acceptable terms. In addition, none of our employees have employment commitments for any fixed period of time and could leave our employment at will. If we fail to identify, attract and retain qualified personnel, we may be unable to continue our development and commercialization activities.

Our principal facility is located near known earthquake fault zones, and the occurrence of an earthquake, extremist attack or other catastrophic disaster could cause damage to our facilities and equipment, which could require us to cease or curtail operations.

              Our principal facility is located in the San Francisco Bay Area near known earthquake fault zones and therefore is vulnerable to damage from earthquakes. In October 1989, a major earthquake struck this area and caused significant property damage and a number of fatalities. We are also vulnerable to damage from other types of disasters, including power loss, attacks from extremist organizations, fire, floods, communications failures and similar events. If any disaster were to occur, our ability to operate our business could be seriously impaired. In addition, the unique nature of our research activities and of much of our equipment could make it difficult for us to recover from this type of disaster. We currently may not have adequate insurance to cover our losses resulting from disasters or other similar significant business interruptions and we do not plan to purchase additional insurance to cover such losses due to the cost of obtaining such coverage. Any significant losses that are not recoverable under our insurance policies could seriously impair our business and financial condition.


Risks Related to GSK's Ownership of Our Stock

GSK's right to become a controlling stockholder of the company and its right to membership on our board of directors may create conflicts of interest, and may inhibit our management's ability to continue to operate our business in the manner in which it is currently being operated.

              As of December 31, 2005, GSK beneficially owned approximately 17.4% of our outstanding capital stock. In addition, GSK has certain rights to maintain its percentage ownership of our capital stock in the future, and in 2007 GSK may exercise its call right to acquire additional shares and thereby increase its ownership up to approximately 60% of our then outstanding capital stock. If GSK exercises this call right, or a sufficient number of our stockholders exercise the put right provided for in our certificate of incorporation, GSK could own a majority of our capital stock. In addition, GSK currently has the right to designate one member to our board of directors and, depending on GSK's ownership percentage of our capital stock after September 2007, GSK will have the right to nominate up to one-third of the members of our board of directors and up to one-half of the independent members of our board of directors. There are currently no GSK designated directors on our board of directors. GSK's control relationship could give rise to conflicts of interest, including:

              Further, pursuant to our certificate of incorporation, we renounce our interest in and waive any claim that a corporate or business opportunity taken by GSK constituted a corporate opportunity of

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ours unless such corporate or business opportunity is expressly offered to one of our directors who is a director, officer or employee of GSK, primarily in his or her capacity as one of our directors.

GSK's rights under the strategic alliance and governance agreements may deter or prevent efforts by other companies to acquire us, which could prevent our stockholders from realizing a control premium.

              Our governance agreement with GSK requires us to exempt GSK from our stockholder rights plan, affords GSK certain rights to offer to acquire us in the event third parties seek to acquire our stock and contains other provisions that could deter or prevent another company from seeking to acquire us. For example, GSK may offer to acquire 100% of our outstanding stock from stockholders in certain circumstances, such as if we are faced with a hostile acquisition offer or if our board of directors acts in a manner to facilitate a change in control of us with a party other than GSK. In addition, pursuant to our strategic alliance agreement with GSK, GSK has the right to license all of our current and future drug discovery and development programs initiated prior to September 1, 2007 or, if GSK acquires more than 50% of our stock in 2007, prior to September 1, 2012. As a result, we may not have the opportunity to be acquired in a transaction that stockholders might otherwise deem favorable, including transactions in which our stockholders might realize a substantial premium for their shares.

Our governance agreement with GSK limits our ability to raise debt and equity financing, undertake strategic acquisitions or dispositions and take certain other actions, which could significantly constrain and impair our business and operations.

              Our governance agreement with GSK limits the number of shares of capital stock that we may issue and the amount of debt that we may incur. Prior to the termination of the call and put arrangements with GSK in 2007, without the prior written consent of GSK, we may not issue any equity securities if it would cause more than approximately 54.2 million shares of common stock, or securities that are vested and exercisable or convertible into shares of common stock, to be outstanding. After this offering and until the expiration of the put and call provisions with GSK, we will be contractually prohibited from selling significant additional equity securities to raise capital. In addition:


              These limits on issuing equity and debt could leave us without adequate financial resources to fund our discovery and development efforts if GSK does not license additional development programs pursuant to our strategic alliance agreement, if we do not enter into alliances with third parties on similar or better terms for these programs, or if we do not earn any of the potentially significant milestones in the programs that we have currently partnered with GSK. These events could result in a reduction of our discovery and development efforts or could result in our having to enter into collaborations with other companies that could require us to share commercial rights to our medicines to a greater extent than we currently intend. In addition, if GSK's ownership of our capital stock exceeds 50% as a result of the call and put arrangements, we will be prohibited from engaging in certain acquisitions, the disposition of material assets or repurchase of our outstanding stock without

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GSK's consent. These restrictions could cause us to forego transactions that would otherwise be advantageous to us and our other stockholders.

The market price of our common stock is not guaranteed, and could be adversely affected by the put and call arrangements with GSK.

              In 2007, GSK has the right to require us to redeem 50% of our outstanding common stock for $54.25 per share, and, if GSK does not exercise this right, our stockholders will have the right to cause us to redeem up to the same number of shares for $19.375 per share. The existence of the call feature on 50% of our common stock at a fixed price of $54.25 may act as a material impediment to our common stock trading above the $54.25 per share call price. If the call is exercised, our stockholders would participate in valuations above $54.25 per share only with respect to 50% of their shares. Therefore, even if our common stock trades above $54.25 per share, 50% of each stockholder's shares could be called at $54.25 per share. Similarly, because the put applies to only 50% of our common stock and is not exercisable prior to 2007, it is uncertain what effect the put will have on our stock price. Prior to the expiration of the put period, the price at which our common stock will trade may be influenced by the put right. Therefore, after the expiration of the put period, the market price of the common stock may decline significantly. In addition, while GSK is generally prevented from making any unsolicited tender offer for our common stock, any announcement by GSK that it does not intend to exercise the call or any offer GSK may make to our board of directors on terms less favorable than the call right described above could adversely affect our common stock price.

After September 1, 2012, GSK could sell or transfer a substantial number of shares of our common stock, which could depress our stock price or result in a change in control of our company.

              After September 1, 2012, GSK will have no restrictions on its ability to sell or transfer our common stock on the open market, in privately negotiated transactions or otherwise, and these sales or transfers could create substantial declines in the price of the outstanding shares of our common stock or, if these sales or transfers were made to a single buyer or group of buyers, could transfer control of our company to a third party.

As a result of the call and put arrangements with GSK, there are uncertainties with respect to various tax consequences associated with owning and disposing of shares of our common stock. Therefore, there is a risk that owning and/or disposing of our common stock may result in certain adverse tax consequences to our stockholders.

              Due to a lack of definitive judicial and administrative interpretation, uncertainties exist with respect to various tax consequences resulting from the ownership of our common stock. These include:

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See section entitled "Material United States Federal Income Tax Consequences" for a description of the tax consequences to a holder of our common stock.


Risks Related to Legal and Regulatory Uncertainty

If our efforts to protect the proprietary nature of the intellectual property related to our technologies are not adequate, we may not be able to compete effectively in our market.

              We rely upon a combination of patents, patent applications, trade secret protection and confidentiality agreements to protect the intellectual property related to our technologies. Any involuntary disclosure to or misappropriation by third parties of this proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, thus eroding our competitive position in our market. However, the status of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and is very uncertain. As of December 31, 2005, we had 63 issued United States patents and have received notices of allowance for 13 other United States patent applications. As of that date, we had 84 pending patent applications in the United States and 203 granted foreign patents. We also have 32 Patent Cooperation Treaty applications that permit us to pursue patents outside of the United States, and 517 foreign national patent applications. Our patent applications may be challenged or fail to result in issued patents and our existing or future patents may be too narrow to prevent third parties from developing or designing around these patents. If the sufficiency of the breadth or strength of protection provided by our patents with respect to a product candidate is threatened, it could dissuade companies from collaborating with us to develop, and threaten our ability to commercialize, the product candidate. Further, if we encounter delays in our clinical trials, the patent lives of the related drug candidates would be reduced.

              In addition, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable, for processes for which patents are difficult to enforce and for any other elements of our drug discovery and development processes that involve proprietary know-how, information and technology that is not covered by patent applications. Although we require all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information and technology to enter into confidentiality agreements, we cannot be certain that this know-how, information and technology will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Further, the laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent material disclosure of the intellectual property related to our technologies to third parties, we will not be able to establish or, if established, maintain a competitive advantage in our market, which could materially adversely affect our business, financial condition and results of operations.

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Litigation or third-party claims of intellectual property infringement could require us to divert resources and may prevent or delay our drug discovery and development efforts.

              Our commercial success depends in part on our not infringing the patents and proprietary rights of third parties. Third parties may assert that we are employing their proprietary technology without authorization. There are third party patents that may cover materials or methods for treatment related to our product candidates. At present we are not aware of any patent claims with merit that would adversely and materially affect our ability to develop our product candidates, but nevertheless the possibility of third party allegations cannot be ruled out. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. Furthermore, parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, obtain one or more licenses from third parties or pay royalties. In addition, even in the absence of litigation, we may need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates, and we have done so from time to time. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further develop and commercialize one or more of our product candidates, which could harm our business significantly.

              In addition, in the future we could be required to initiate litigation to enforce our proprietary rights against infringement by third parties. Prosecution of these claims to enforce our rights against others could involve substantial litigation expenses and divert substantial employee resources from our business. If we fail to effectively enforce our proprietary rights against others, our business will be harmed.

Product liability lawsuits could divert our resources, result in substantial liabilities and reduce the commercial potential of our medicines.

              The risk that we may be sued on product liability claims is inherent in the development of pharmaceutical products. These lawsuits may divert our management from pursuing our business strategy and may be costly to defend. In addition, if we are held liable in any of these lawsuits, we may incur substantial liabilities and may be forced to limit or forgo further commercialization of those products. Although we maintain general liability and product liability insurance, this insurance may not fully cover potential liabilities. In addition, inability to obtain or maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against potential product liability claims could prevent or inhibit the commercial production and sale of our products, which could adversely affect our business.

Uncertainty regarding the effects of recent health care reform measures, trends in the managed health care and health insurance industries, and the likelihood of further legislative reform of the healthcare system could adversely affect our ability to sell our potential medicines profitably.

              The continuing efforts of the government, insurance companies, managed care organizations and other payors of health care costs to contain or reduce costs of health care may adversely affect one or more of the following:


              In certain foreign markets, the pricing of prescription drugs is subject to government control and reimbursement may in some cases be unavailable. In the United States recently there have been

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federal and state government initiatives directed at lowering the total cost of health care, and we anticipate that Congress and state legislatures will continue to focus on health care reform, the cost of prescription drugs and the reform of the Medicare and Medicaid systems. For example, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA) provides a new Medicare prescription drug benefit and mandates additional reforms. It is possible that the new Medicare prescription drug benefit, which will be managed by private health insurers and other managed care organizations, will result in decreased reimbursement for prescription drugs, which may intensify industry-wide pressure to reduce prescription drug prices. This could harm our ability to market our potential medicines and generate revenues. The MMA, associated cost containment measures that health care payors and providers are instituting, and the effect of probable further health care reform could significantly reduce potential revenues from the sale of any product candidates approved in the future.

Failure to comply with internal control attestation requirements could lead to loss of public confidence in our financial statements and negatively impact our stock price.

              Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required, beginning with our fiscal year ended December 31, 2005, to include in our annual report on Form 10-K our assessment of the effectiveness of our internal control over financial reporting as of December 31, 2005. Furthermore, we will be required to have our independent registered public accounting firm attest to whether our assessment of the effectiveness of our internal control over financial reporting is fairly stated in all material respects and separately report on whether it believes we maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005. We have prepared and implemented a plan of action to assess the effectiveness of our internal control. If we fail to complete this assessment on a timely basis, or if our independent registered public accounting firm cannot timely attest to our assessment, or if our independent registered public accounting firm does not agree with management's assessment, we could be subject to a loss of public confidence in our internal control and the reliability of our financial statements, which ultimately could negatively impact our stock price. In addition, any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to timely meet our regulatory reporting obligations.

If we use hazardous and biological materials in a manner that causes injury or violates applicable law, we may be liable for damages.

              Our research and development activities involve the controlled use of potentially hazardous substances, including chemical, biological and radioactive materials. In addition, our operations produce hazardous waste products. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of hazardous materials. Although we believe that our procedures for use, handling, storing and disposing of these materials comply with legally prescribed standards, we may incur significant additional costs to comply with applicable laws in the future. Also, even if we are in compliance with applicable laws, we cannot completely eliminate the risk of contamination or injury resulting from hazardous materials and we may incur liability as a result of any such contamination or injury. In the event of an accident, we could be held liable for damages or penalized with fines, and the liability could exceed our resources. We do not have any insurance for liabilities arising from hazardous materials. Compliance with applicable environmental laws and regulations is expensive, and current or future environmental regulations may impair our research, development and production efforts, which could harm our business.

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Risks Related to this Offering

Concentration of ownership will limit your ability to influence corporate matters.

              As of December 31, 2005, GSK beneficially owned approximately 17.4% of our outstanding capital stock and our directors, executive officers and investors affiliated with these individuals beneficially owned approximately 15.5% of our outstanding capital stock. These stockholders could substantially control the outcome of actions taken by us that require stockholder approval. In addition, pursuant to our governance agreement with GSK, GSK currently has the right to nominate a director and following September 2007 will have the right to nominate a certain number of directors depending on GSK's ownership percentage of our capital stock at the time. For these reasons, GSK could have substantial influence in the election of our directors, delay or prevent a transaction in which stockholders might receive a premium over the prevailing market price for their shares and have significant control over changes in our management or business.

Our stock price may be extremely volatile and purchasers of our common stock could incur substantial losses.

              Our stock price may be extremely volatile. The stock market in general and the market for biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. The following factors, in addition to the other risk factors described in this section, may also have a significant impact on the market price of our common stock:

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Anti-takeover provisions in our charter and bylaws, in our rights agreement and in Delaware law could prevent or delay a change in control of our company.

              Provisions of our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions include:

              In addition, our board of directors has adopted a rights agreement that may prevent or delay a change in control of us. Further, some provisions of Delaware law may also discourage, delay or prevent someone from acquiring us or merging with us.

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FORWARD-LOOKING STATEMENTS

              This prospectus contains or incorporates by reference certain "forward-looking" statements as that term is defined in the Private Securities Litigation Reform Act of 1995 regarding, among other things, statements relating to goals, plans, objectives and future events. Theravance intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act and the Private Securities Litigation Reform Act of 1995. Examples of such statements include statements relating to the goals, timing and expected results of clinical and preclinical studies, statements regarding the potential benefits and mechanisms of action of drug candidates, the enabling capabilities of Theravance's approach to drug discovery and its proprietary insights, statements concerning expectations for product candidates through development and commercialization and projections of revenue and other financial items. These statements are based on the current estimates and assumptions of the management of Theravance as of the date of this prospectus and are subject to risks, uncertainties, changes in circumstances, assumptions and other factors that may cause the actual results of Theravance to be materially different from those reflected in its forward-looking statements. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, among others, risks related to delays or difficulties in commencing or completing clinical and preclinical studies, the potential that results of clinical or preclinical studies indicate product candidates are unsafe, ineffective, inferior or not superior, delays or failure to achieve regulatory approvals, and risks of collaborating with third parties to develop and commercialize products. These and other risks are described in greater detail under the heading "Risk Factors." Given these uncertainties, you should not place undue reliance on these forward-looking statements. Theravance assumes no obligation to update its forward-looking statements. You should carefully consider the risks described in the "Risk Factors" section, in addition to the other information set forth in this prospectus and incorporated by reference herein, before making an investment decision.


USE OF PROCEEDS

              We estimate the net proceeds to us from the sale of the 4,600,000 shares of common stock in this offering to be approximately $116.8 million at an assumed public offering price of $26.99 per share and after deducting the underwriting discounts and commissions and estimated offering expenses. If the underwriters' overallotment option is exercised in full, we estimate the net proceeds will be approximately $132.1 million.

              A $1.00 increase (decrease) in the assumed public offering price of $26.99 per share would increase (decrease) the net proceeds to us from this offering by $4.3 million (or $4.9 million if the underwriters overallotment option is exercised in full), assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriter discounts and commissions and estimated offering expenses payable by us.

              We currently intend to use the net proceeds from the sale of our common stock that we may offer with this prospectus for general corporate purposes. General corporate purposes may include funding clinical and preclinical development of existing product candidates, drug research activities and manufacture of pre-clinical, clinical and commercial drug supplies, capital expenditures and working capital. We have not determined the amounts we plan to spend on any of the areas listed above or the timing of these expenditures. As a result, our management will have broad discretion to allocate the net proceeds of this offering. Pending the application of the net proceeds for these purposes, we intend to invest the net proceeds in short-term, interest-bearing, investment-grade securities.

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PRICE RANGE OF OUR COMMON STOCK

              Our common stock is quoted on The Nasdaq National Market under the symbol "THRX." The following table sets forth, for the periods indicated, the range of high and low closing sale prices of our common stock as reported on The Nasdaq National Market.

 
   High
   Low
Year Ended December 31, 2004            
  Fourth Quarter (from October 5, 2004)   $ 18.46   $ 15.40
Year Ended December 31, 2005            
  First Quarter   $ 18.86   $ 16.53
  Second Quarter     18.31     16.55
  Third Quarter     21.57     16.98
  Fourth Quarter     23.50     20.86
Year Ended December 31, 2006            
  First Quarter (through January 26, 2006)   $ 26.99   $ 20.43

              The last reported sale price of our common stock on January 26, 2006 was $26.99 per share.

              As of December 31, 2005, there were approximately 578 holders of record of our common stock. Because many of these shares are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.


DIVIDEND POLICY

              We have never declared or paid any dividends on our capital stock. We currently intend to retain any future earnings to finance our research and development efforts, the development of our proprietary technologies and the expansion of our business and do not intend to declare or pay cash dividends on our capital stock in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant. If a cash dividend is paid before the date of our common stock is called or put, the call price or put price per share, as applicable, will be reduced by the amount of the per share cash dividend.

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CAPITALIZATION

              The following table sets forth our unaudited capitalization as of September 30, 2005:

              You should read the information in this table together with our financial statements and the accompanying notes incorporated by reference in this prospectus.

 
   September 30, 2005
  
 
   Actual
   As Adjusted
  
 
   (unaudited)
(in thousands)

  
Long-term obligations, less current portion   $ 1,114   $ 1,114  
Stockholders' equity:              
  Preferred stock, $0.01 par value; 230,000 shares authorized, no shares issued and outstanding, actual and as adjusted     —     —  
  Common stock, $0.01 par value; 200,000,000 shares authorized, 44,347,280 shares issued and outstanding, actual; 48,947,280 shares issued and outstanding, as adjusted     442     488  
  Class A common stock, $0.01 par value, 30,000,000 shares authorized, 9,401,498 shares issued and outstanding, actual and as adjusted     94     94  
Additional paid-in capital     674,109     790,889  
Notes receivable from stockholders     (27 )   (27 )
Deferred stock-based compensation     (6,255 )   (6,255 )
Accumulated other comprehensive income (loss)     (629 )   (629 )
Accumulated deficit     (569,557 )   (569,557 )
   
 
 
Total stockholders' equity     98,177     215,003  
   
 
 
  Total capitalization   $ 99,291   $ 216,117  
   
 
 

              The number of shares in the table above excludes:

              The number of shares in the table above includes 78,837 shares of common stock issued upon exercise of stock options that were granted after March 21, 2002 and unvested at September 30, 2005.

              A $1.00 increase (decrease) in the assumed public offering price of $26.99 per share would increase (decrease) each of additional paid in capital, total stockholders' equity and total capitalization by $4.3 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriter discounts and commissions and estimated offering expenses payable by us.

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DESCRIPTION OF CAPITAL STOCK

General

              The following is a summary of the rights of our common stock and preferred stock and related provisions of our certificate of incorporation, bylaws and governance agreement with GSK. For more detailed information, please see our certificate of incorporation, bylaws, governance agreement and amended and restated investors' rights agreement, which are filed as exhibits to our Registration Statement on Form 8-A (Commission File No. 000-30319), filed on September 27, 2004, and amendments thereto. In this prospectus, this Registration Statement on Form 8-A is referred to as the 2004 Registration Statement.

              Our authorized capital stock consists of 230,230,000 shares, each with a par value of $0.01 per share, of which:

              At December 31, 2005, we had outstanding 44,537,694 shares of common stock, 9,401,498 shares of Class A common stock and no shares of preferred stock. All of our outstanding Class A common stock is held by GSK and its affiliates. In addition, as of December 31, 2005, 10,032,967 shares of our common stock were subject to outstanding options, and 18,064 shares of our capital stock were subject to outstanding warrants. At December 31, 2005, 62,632 shares of our outstanding common stock held by our employees, consultants and directors were subject to a lapsing right of repurchase in our favor, under which we may repurchase these shares upon the termination of the holder's employment or consulting relationship.

Common Stock

Voting Rights

              Unless otherwise provided for in our certificate of incorporation or required by applicable law, on all matters submitted to our stockholders for vote, our common stockholders and Class A common stockholders will be entitled to one vote per share, voting together as a single class.

              The Class A common stock, all of which is held by GSK, will have the right to elect a certain number of directors to our board of directors depending on the percentage of our outstanding voting stock owned by GSK at varying points in time. See "—Voting Rights For the Election of Directors/Board of Directors Composition" and "—Governance Agreement" for a description of the rights of GSK as the holder of our Class A common stock with respect to board of directors composition.

Dividends

              Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of common stock and Class A common stock shall be entitled to share equally in any dividends that our board of directors may determine to issue from time to time. In the event a dividend is paid in the form of shares of common stock or rights to acquire shares of common stock, the holders of common stock shall receive common stock, or rights to acquire common stock, as the case may be, and the holders of Class A common stock shall receive Class A common stock, or rights to acquire Class A common stock, as the case may be.

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Liquidation

              Upon our liquidation, dissolution or winding-up, the holders of common stock and Class A common stock shall be entitled to share equally all assets remaining after the payment of any liabilities and the liquidation preferences on any outstanding preferred stock.

Common Stock Call and Put Arrangements with GSK

              Pursuant to our certificate of incorporation and our governance agreement with GSK:

              The call and put prices are subject to adjustment in the case of stock splits, stock combinations, cash dividends, and other similar events. Generally, the call and put, if exercised, will be effected by our redemption of common stock from the holders thereof for cash, to be funded in full by GSK, and the concurrent issuance of the same number of newly issued shares of Class A common stock to GSK.

              Set forth below is a brief summary of the provisions that will apply in the event the call or put arrangements described above are exercised. The actual provisions are set forth in our certificate of incorporation and governance agreement with GSK, which are attached as exhibits to the 2004 Registration Statement.

              If GSK elects to exercise its call rights, it must provide written notice to us between June 1 and July 1, 2007, and must provide to us adequate funds in cash to pay the aggregate redemption price of the shares of our common stock to be called. GSK must specify the date that the call will occur, which must be no later than July 31, 2007.

              Upon receipt of notice from GSK to effect the call, we will be required to:

              After we give our stockholders notice of the call and deposit the funds necessary to redeem the shares of common stock subject to the call, then:

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              Each holder of shares of common stock will be paid the call price for their shares of common stock within three business days following the surrender of the certificate or certificates representing their shares to the depositary, together with a properly executed letter of transmittal covering the shares.

              Our written instructions to the depositary may provide that any of such deposit remaining unclaimed, at the expiration of two years after the call date, by the holder of any shares of common stock subject to the call be, subject to applicable law, returned to us and revert to our general funds. After this two year period, a holder shall have no claim against the depositary but shall have a claim against us as an unsecured creditor for the call price together with any accrued and unpaid dividends to the call date, without interest.

              If GSK does not exercise the call described above, each holder of our common stock may exercise the put right described above during the period beginning on August 1, 2007 and ending on the 30th business day thereafter or as may be required under the Securities Exchange Act of 1934, as amended or the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

              At least ten and not more than thirty days prior to August 1, 2007, we will mail to each holder of common stock a put notification describing:

              We will also publish notification of the put in the Wall Street Journal within the same time frame as the put notification must be provided. Our board of directors may fix a record date for determination of holders of common stock entitled to be given the put notification, but the record date may not be more than five days prior to the date that the put notification is given.

              To the extent the put is exercised, GSK must either (i) provide us with an amount of cash sufficient to legally redeem our common stock with respect to which the put has been properly exercised prior to the last day of the period in which the put can be exercised, or (ii) elect and arrange to purchase at the put price directly from the holders of our common stock at the expiration of the period in which the put can be exercised, in compliance with applicable law, the shares of our common stock for which the put has been properly exercised.

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              If GSK provides to us the funds necessary to redeem the shares of common stock that have been properly put, promptly following the end of the period in which the put can be exercised, we shall deposit with a depositary that we select the funds sufficient to pay the put price for all shares of common stock with respect to which the put has been properly exercised. Each holder of shares of common stock who has properly exercised the put, and who has surrendered the shares of common stock to the depositary, shall be paid the put price promptly following the end of the period in which the put can be exercised. We may delay the dates to take the actions described above to later dates to the extent necessary to comply with the United States federal securities laws.

              If we have an insolvency event, which is described below, the right of our stockholders to exercise the put shall accelerate and commence immediately and continue for the 65 business days after such event or until a later date as required under the Securities Exchange Act of 1934, as amended, or the Hart-Scott-Rodino Antitrust Improvements Act of 1976. We are obligated to provide the put notification to stockholders as soon as practicable following the date of the insolvency event. In the event the put notification is accelerated due to an insolvency event, GSK remains obligated to provide us the funds necessary to effect the redemption of all shares of common stock that are properly put or elect and arrange to purchase at the expiration of the period in which the put can be exercised, in compliance with applicable law, all shares of common stock that are properly put directly from our stockholders.

              An insolvency event means the occurrence of any of the following events:


              All shares of common stock that we redeem pursuant to the call or the put will be retired and certificates representing the shares of common stock will be canceled promptly after the redemption and may not be reissued.

              Each certificate representing shares of common stock bears the following legend:

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Optional Conversion of Class A Common Stock

              All shares of our Class A common stock are held by GSK. GSK may convert each share of Class A common stock into one share of common stock on or after the call/put termination date. All shares of Class A common stock so converted will be retired and cancelled. The call/put termination date is referred to in "Description of Capital Stock" as the date following the date of redemption of our common stock pursuant to the call or, in the alternative, on the close of business on the last day in which the put can be exercised.

Voting Rights for the Election of Directors/Board of Directors Composition

              Our certificate of incorporation and bylaws provide that our board of directors may consist of any number of directors, greater than or equal to one, provided that at any time that GSK's percentage ownership of our voting stock is 50.1% or greater, the authorized number of directors on our board of directors will be no less than nine, or any greater number that is divisible by three. We will increase or decrease the size of our board of directors and fill any newly created directorships as appropriate to achieve our board of directors composition required by our governance agreement with GSK. We will have the right to decrease the size of our board of directors without GSK's consent (and, if desired, to increase it again without GSK's consent to no more than 13 seats), so long as GSK does not lose its right to designate the directors or independent directors pursuant to the governance agreement.

              Our certificate of incorporation provides that holders of a majority of the shares of Class A common stock voting as a separate class, shall be entitled to elect members of our board of directors as follows:

For these purposes, "independent directors" include all of our directors that qualify as independent under applicable exchange listing rules.

              All other directors are elected by a plurality of holders of our common stock and Class A common stock, voting together as a single class.

              GSK has the right to nominate any replacement for a director nominated by GSK at the end of that director's term or upon removal from office, subject to the approval of a majority of the directors (other than any director nominated by GSK) with respect to nominations pursuant to the governance agreement. The directors that were not nominated by GSK have the right to nominate any replacement for a director that was not nominated by GSK.

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Preferred Stock

              Our certificate of incorporation authorizes 230,000 shares of Series A junior participating preferred stock that are purchasable upon exercise of the rights under our rights agreement. See "—Rights Agreement" These shares are:

Corporate Opportunities

              Our certificate of incorporation acknowledges that we and GSK may generally pursue any business opportunities available to us, and have no obligation to offer any business opportunities to the other party. In addition, pursuant to our certificate of incorporation, as between us and GSK and its affiliates, we renounce our interest in and waive any claim that a corporate or business opportunity constituted a corporate opportunity for us so long as the policy regarding treatment of corporate opportunities set forth in our certificate of incorporation is followed. Pursuant to the policy set forth in our certificate of incorporation, a corporate or business opportunity offered to any person who is our director and who is also a director, officer or employee of GSK, will belong to us only if the opportunity is expressly offered to such person primarily in his or her capacity as our director. Otherwise the opportunity will belong to GSK. Our certificate of incorporation provides that these provisions may only be amended by the affirmative vote of at least 85% of the voting power of all shares of our voting stock then outstanding.

Governance Agreement

              The following summary describes the material provisions of our governance agreement with GSK, which is included as an exhibit to the registration statement of which this prospectus is a part. The governance agreement contains agreements with GSK relating to our corporate governance, future acquisitions or dispositions of our securities by GSK and the put and call features of our common stock. As described above, the call may be exercised in July 2007. If the call is not exercised, our stockholders may exercise their put right in August 2007. Certain rights and obligations contained in the governance agreement differ following the call/put termination date as compared to prior to the call/put termination date. The rights and obligations following the call/put termination date may further vary based on the level of GSK's ownership of our voting stock. The following description describes the rights and obligations of us and GSK prior to the call/put termination date and then following the call/put termination date, depending on GSK's ownership of our voting stock at that time.

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Rights of GSK Prior to the Call/Put Termination Date

              GSK shall have the right to either:

              GSK shall have this right until such time as GSK's percentage ownership of our outstanding securities having the right to vote generally in any election of our directors, referred to as our "voting stock," (a) has fallen below 15%, or (b) directly as a result of any sale or other disposition by GSK of voting stock, has fallen below 19%.

              Without the prior written consent of GSK, we may not issue any equity securities other than shares of common stock, options to acquire common stock and permitted indebtedness. We may only issue these equity securities if, as a consequence of such issuance, the aggregate number of shares of our common stock would not exceed 54.2 million (as adjusted for stock splits, stock dividends, combinations and other recapitalizations). Shares of common stock subject to lock-up agreements with GSK, as well as shares underlying all options granted under our 2004 Equity Incentive Plan and certain options granted in March 2004 under our 1997 Stock Option Plan, which are not exercisable until after the put/call termination date, are not included in the aggregate number of shares of common stock for purposes of this restriction. In addition to common stock outstanding, shares underlying outstanding warrants and options that are exercisable before the put/call termination date are included in the aggregate number of shares of common stock for purposes of this restriction.

              The term "equity securities" is referred to as (i) any of our voting stock, (ii) our securities convertible into or exchangeable for voting stock, and (iii) options, rights and warrants issued by us to acquire voting stock.

              The term "permitted indebtedness" is referred to as any indebtedness that we issue prior to the call/put termination date and in an amount equal to or less than $100.0 million and, if the indebtedness may be converted or exchanged into our voting stock, then the terms of the indebtedness must provide that it may not be converted or exchanged prior to the call/put termination date.

              We may not borrow money or otherwise incur indebtedness that would cause us, on a consolidated basis, to have financial indebtedness that exceeds our cash and cash equivalents, except that we may incur permitted indebtedness.

              Except as agreed to by us in writing following approval by a majority of our independent directors, GSK may not, directly or indirectly:

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              GSK may acquire our equity securities from us in the following circumstances:

              GSK may acquire our equity securities from our stockholders in the following circumstances:

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              The term "change in control" is referred to as (i) an acquisition of us by a third party (ii) any transaction or series of related transactions (including mergers, consolidations and other forms of business consolidations) after which our continuing stockholders hold less than 50% of the outstanding voting securities of either us or the entity that survives the transaction (or the parent of the surviving entity), or (iii) the sale, lease, license, transfer or other disposal of all or substantially all of our business or assets (except that the sale, license or transfer to another party of any of our assets in the ordinary course of business will not be considered a change in control of us if GSK has no contractual rights under our existing agreements with GSK over our asset sold, licensed or transferred).

              GSK may not sell or transfer any of our voting stock without the prior approval of a majority of our board of directors (not including any director nominated by GSK) except for transfers:


              GSK shall vote the voting stock held by it (at GSK's election) either (i) in accordance with the recommendation of our independent directors or (ii) in proportion to the votes cast by the other holders of our voting stock.

              GSK can vote as it chooses on any proposal to:

              If a person or group acting in concert acquires 20% or more of the voting stock, GSK may vote its voting stock without any restrictions.

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              GSK grants an irrevocable proxy coupled with an interest in all voting stock owned by GSK to our board of directors. This proxy will enable the proxyholder to vote or otherwise act with respect to all of GSK's voting stock in the manner required by the governance agreement.

Rights of GSK Following the Call/Put Termination Date

              Our board of directors will include:

              An independent director is a director that complies with the independence requirements for directors with respect to us for companies listed on the Nasdaq National Market and has business or technical experience, stature and character as is commensurate with service on our board of directors of a publicly traded enterprise. In addition, so long as GSK's percentage ownership of our voting stock is 50.1% or greater, upon its request, GSK may designate nominees for half of the total number of independent directors. These nominees to be independent directors must be reasonably acceptable to the directors not nominated by GSK. Each GSK nominee to be an independent director must meet the qualifications of an independent director both with respect to us and with respect to GSK. An equal number of independent directors will be nominated by the directors of our board of directors (excluding the directors nominated by GSK). If GSK's percentage ownership of our voting stock falls below 50.1% (subject to certain limitations), then the term of each director nominated by GSK pursuant to this provision will automatically cease.

              Any committee of our board of directors must contain at least one director nominated by GSK except for:

              The approval of a majority of the directors nominated by GSK will be required to approve any of the following:

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              If GSK's percentage ownership of our voting stock is 50.1% or greater on the call/put termination date or if GSK's percentage ownership of our voting stock is less than 50.1% on the call/put termination date, but exceeds 50.1% at any time on or prior to December 31, 2008, we may not issue any equity security other than:

              Except as agreed to by us in writing following approval by a majority of our independent directors, GSK will have the same limitations on the acquisition of our equity securities as GSK did prior to the call/put termination date. These limitations are described above in "—Governance Agreement; Rights of GSK Prior to the Call/Put Termination Date; Limitations and Exceptions to GSK's Rights to Acquire Our Securities."

              GSK may acquire our equity securities from us under the same circumstances that it is allowed to acquire our equity securities prior to the call/put termination date. These circumstances are described above in "—Governance Agreement; Rights of GSK Prior to the Put/Call Termination Date; Limitations and Exceptions to GSK's Rights to Acquire Our Securities." In addition, GSK may acquire our equity securities from us under the following circumstances:

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              If GSK's percentage ownership of our voting stock is 50.1% or greater on the call/put termination date solely as a result of the exercise of the put:

              If GSK's percentage ownership of our voting stock is 50.1% or greater on the call/put termination date solely as a result of the exercise of the call:

              GSK may acquire our equity securities from our stockholders under the same circumstances that it is allowed to acquire our equity securities from our stockholders prior to the call/put termination date. These circumstances are described above in "—Governance Agreement; Rights of GSK Prior to the Put/Call Termination Date; Limitations and Exceptions to GSK's Rights to Acquire Our Securities." In addition, GSK may acquire our equity securities from our stockholders under the following circumstances:

              GSK can make an offer to our stockholders to merge with us or otherwise acquire outstanding voting stock that would bring GSK's percentage ownership of our voting stock to 100%, subject to the following conditions:

              GSK can make an offer to our stockholders to acquire outstanding voting stock that would bring GSK's percentage ownership of our voting stock to 100%, subject to the following conditions:

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              GSK may not sell or transfer any of our voting stock held by it without the prior approval of a majority our independent directors until September 1, 2012 if GSK's percentage ownership of our voting stock is 50.1% or greater on the call/put termination date. If GSK's percentage ownership of our voting stock becomes 50.1% or greater after the call/put termination date and before September 1, 2012, then GSK may not sell or transfer any voting stock held by it until September 1, 2012. GSK is permitted to sell or transfer its voting stock in connection with a change in control of us that is approved by a majority of our independent directors. In the event that the prohibition on the disposition of voting stock by GSK expires on September 1, 2012, if GSK disposes of any of our voting stock, GSK shall not be able to purchase any of our voting stock for one year after such disposition without the prior approval of a majority of our independent directors.

              GSK shall vote the voting stock held by it (at GSK's election) either (i) in accordance with the recommendation of our independent directors or (ii) in proportion to the votes cast by the other holders of our voting stock.

              GSK can vote as it chooses on any proposal to:

              If a person or group acting in concert acquires 20% or more of the voting stock, GSK may vote its voting stock without any restrictions.

              GSK grants an irrevocable proxy coupled with an interest in all voting stock owned by GSK to our board of directors. This proxy will enable the proxyholder to vote or otherwise act with respect to all of GSK's voting stock in the manner required by the governance agreement.

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Rights of GSK during the Interim Period

              GSK shall have the right to:

              GSK's nominees to be independent directors must be reasonably acceptable to the directors not nominated by GSK. GSK's right to nominate a director and independent directors pursuant to this provision and the term of any director and independent director nominated by GSK pursuant to these provisions will automatically cease upon the expiration of the time period described above.

              The "interim period" is referred to as the time period between the call/put termination date and September 1, 2008, or, if on or after September 1, 2008 GSK offers to purchase additional shares of our voting stock that would result in GSK's percentage ownership of us to equal 60%, then the expiration date of that offer (which may be no later than October 15, 2008).

              The approval of a majority of our independent directors will be required to approve any of the following:

              We may not issue any equity security at any time on or prior to December 31, 2008 other than:

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              Except as agreed to by us in writing following approval by a majority of our independent directors, GSK will have the same limitations on the acquisition of our equity securities as GSK did prior to the call/put termination date. These limitations are described above in "—Governance Agreement; Rights of GSK Prior to the Call/Put Termination Date; Limitations and Exceptions to GSK's Rights to Acquire Our Securities."

              GSK may acquire our equity securities from us under the same circumstances that it is allowed to acquire our equity securities prior to the call/put termination date. These circumstances are described above in "—Governance Agreement; Rights of GSK Prior to the Put/Call Termination Date; Limitations and Exceptions to GSK's Rights to Acquire Our Securities." In addition, GSK may acquire our equity securities from us under the following circumstance:

              GSK may acquire our equity securities from our stockholders under the same circumstances that it is allowed to acquire our equity securities from our stockholders prior to the call/put termination date. These circumstances are described above in "—Governance Agreement; Rights of GSK Prior to the Put/Call Termination Date; Limitations and Exceptions to GSK's Rights to Acquire Our Securities." In addition, GSK can make an offer to our stockholders to acquire outstanding voting stock that would bring GSK's percentage ownership of our voting stock to no greater than 60%, subject to the following conditions:

              GSK may not sell or transfer any of our voting stock held by it without the prior approval of a majority our independent directors until September 1, 2008. GSK is permitted to sell or transfer its voting stock in connection with a change in control of us that is approved by a majority of our independent directors. In the event that the prohibition on the disposition of voting stock by GSK

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expires on September 1, 2008 as set forth above, GSK shall only be able to dispose of voting stock after such date and prior to September 1, 2012 through either a public offering or pursuant to Rule 144 under the Securities Act of 1933, as amended.

              GSK shall vote the voting stock held by it (at GSK's election) either (i) in accordance with the recommendation of our independent directors or (ii) in proportion to the votes cast by the other holders of our voting stock.

              GSK can vote as it chooses on any proposal to:

              If a person or group acting in concert acquires 20% or more of the voting stock, GSK may vote its voting stock without any restrictions.

              GSK grants an irrevocable proxy coupled with an interest in all voting stock owned by GSK to our board of directors. This proxy will enable the proxyholder to vote or otherwise act with respect to all of GSK's voting stock in the manner required by the governance agreement.

Rights of GSK Following the Call/Put Termination Date

              GSK shall have the right to either:

              GSK shall have this right until such time as GSK's percentage ownership of our outstanding securities having the right to vote generally in any election of our directors, referred to in this section "Description of Capital Stock—Governance Agreement" as our "voting stock," (a) has fallen below 15%, or (b) directly as a result of any sale or other disposition by GSK of voting stock, has fallen below 19%.

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              Except as agreed to by us in writing following approval by a majority of our independent directors, GSK will have the same limitations on the acquisition of our equity securities as GSK did prior to the call/put termination date. These limitations are described above in "Description of Capital Stock—Governance Agreement; Rights of GSK Prior to the Call/Put Termination Date; Limitations and Exceptions to GSK's Rights to Acquire Our Securities."

              GSK may acquire our equity securities from us under the same circumstances that it is allowed to acquire our equity securities prior to the call/put termination date. These circumstances are described above in "Description of Capital Stock—Governance Agreement; Rights of GSK Prior to the Put/Call Termination Date; Limitations and Exceptions to GSK's Rights to Acquire Our Securities." In addition, GSK may acquire our equity securities from us under the following circumstance:


              GSK may acquire our equity securities from our stockholders under the same circumstances that it is allowed to acquire our equity securities from our stockholders prior to the call/put termination date. These circumstances are described above in "—Governance Agreement; Rights of GSK Prior to the Put/Call Termination Date; Limitations and Exceptions to GSK's Rights to Acquire Our Securities." In addition, GSK can make an offer to our stockholders to acquire outstanding voting stock that would bring GSK's percentage ownership of our voting stock to no greater than 60%, subject to the following conditions:


              GSK may not sell or transfer any of our voting stock held by them without the prior approval of a majority our independent directors until September 1, 2008. GSK is permitted to sell or transfer its voting stock in connection with a change in control of us that is approved by a majority of our independent directors. In the event that the prohibition on the disposition of voting stock by GSK

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expires on September 1, 2008 as set forth above, GSK shall only be able to dispose of voting stock after such date and prior to September 1, 2012 through either a public offering or pursuant to Rule 144 under the Securities Act of 1933, as amended.

              GSK shall vote the voting stock held by it (at GSK's election) either (i) in accordance with the recommendation of our independent directors or (ii) in proportion to the votes cast by the other holders of our voting stock.

              GSK can vote as it chooses on any proposal to:

              If a person or group acting in concert acquires 20% or more of the voting stock, GSK may vote its voting stock without any restrictions.

              GSK grants an irrevocable proxy coupled with an interest in all voting stock owned by GSK to our board of directors. This proxy will enable the proxyholder to vote or otherwise act with respect to all of GSK's voting stock in the manner required by the governance agreement.

Redemption of Our Common Stock

              The governance agreement contains certain mechanics relating to the call and the put features of our common stock. See "—Common Stock Call and Put Arrangements with GSK."

Covenants

              We agree not to enter into or amend any existing contract with any of our directors, officers or employees that would provide for any payment, vesting of common stock, acceleration or other benefit or right contingent upon (i) GSK's purchase of shares of Class A common stock, (ii) the exercise by GSK of any of its rights under the governance agreement to representation on our board of directors or (iii) GSK's purchase of any equity securities not prohibited by the governance agreement.

              Under the governance agreement, GSK agrees to indemnify us and our directors, officers, employees and agents against all losses, claims, damages, liabilities and expenses (including attorneys' fees) arising out of the redemption (pursuant to the call or the put) of our common stock in accordance with the provisions of the governance agreement, other than losses, claims, damages, liabilities and expenses that result primarily from actions taken or omitted in bad faith by the indemnified person or from the indemnified person's gross negligence or willful misconduct.

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              The governance agreement provides that its provisions may be amended only if the amendment is in writing and signed by GSK and us, and that no amendment will be effective without the approval of a majority of our independent directors.

              The provisions of the governance agreement will terminate at the earliest of (i) when GSK beneficially owns 100% of our outstanding voting stock, (ii) the effective time of a change in control of us and (iii) September 1, 2015. However, GSK's and our agreements under the governance agreement with respect to the following provisions will survive the agreement's termination:

Anti-Takeover Effects of Delaware Law, Our Certificate of Incorporation and Bylaw Provisions and our Governance Agreement with GSK

              Provisions of Delaware law and our certificate of incorporation and bylaws could make our acquisition by a third party and the removal of our incumbent officers and directors more difficult. These provisions, summarized below, may discourage coercive takeover practices and inadequate takeover bids and are intended to encourage persons seeking to acquire control of us to first negotiate with us. We believe that the benefits of increased protection of our ability to negotiate with the proponent of an unfriendly or unsolicited acquisition proposal outweigh the disadvantages of discouraging such proposals because, among other things, negotiation could result in an improvement of their terms.

              We are subject to Section 203 of the Delaware General Corporation Law, which regulates corporate acquisitions. In general, Section 203 prohibits a Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years following the date the person became an interested stockholder, unless:


              A "business combination" generally includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. In general, an "interested stockholder" is a person who, together with affiliates and associates, owns, or within three years prior to the determination of interested stockholder status, did own, 15% or more of a corporation's voting stock.

              Pursuant to the terms of our governance agreement with GSK, we have agreed that we will exempt GSK from the application of Section 203 of the Delaware General Corporation Law. Under the governance agreement, GSK is subject to certain limitations in its ability to acquire our shares of capital stock. See "—Governance Agreement."

              Our certificate of incorporation and bylaws do not provide for the right of stockholders to act by written consent without a meeting or for cumulative voting in the election of directors. In addition,

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our bylaws provide that special meetings of the stockholders can only be called by the Chairman of our board of directors, the chief executive officer, our board of directors or the request of stockholders holding at least 662/3% of the outstanding common stock. These provisions, which require the vote of stockholders holding at least 662/3% of the outstanding common stock to amend, may have the effect of deterring hostile takeovers or delaying changes in our management.

Rights Agreement

              Under our rights agreement, each share of our common stock and Class A common stock has associated with it one preferred stock purchase right. Each of these rights entitles its holder to purchase, at a price of $209.25 for each, one one-thousandth of a share of Series A junior participating preferred stock, (each subject to adjustment) under circumstances provided for in the rights agreement. The purpose of our rights agreement is to:

              The exercise of the rights under our rights agreement would cause substantial dilution to a person attempting to acquire us on terms not approved by our board of directors, and therefore would significantly increase the price that such person would have to pay to complete the acquisition. Our rights agreement may deter a potential acquisition or tender offer. Until a "distribution date" occurs, the rights will:

              The rights will expire at the close of business on October 8, 2014, unless earlier redeemed or exchanged by us. Following a "distribution date," the rights would become exercisable and we would issue separate certificates representing the rights, which would trade separately from the shares of our common stock. A "distribution date" would occur upon the earlier of:

              A holder of rights will not, as such, have any rights as a stockholder, including the right to vote or receive dividends.

              Under our rights agreement, a person becomes an "acquiring person" if the person, alone or together with a group, acquires beneficial ownership of 15% or more of the outstanding shares of our common stock. GSK is not an "acquiring person" because we have, pursuant to our governance agreement with GSK, exempted GSK from the application of our rights agreement. In addition, an "acquiring person" shall not include us, any of our subsidiaries, or any of our employee benefit plans or any person or entity acting pursuant to such employee benefit plans. Our rights agreement also

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contains provisions designed to prevent the inadvertent triggering of the rights by institutional or certain other stockholders.

              If any person becomes an acquiring person, each holder of a right, other than the acquiring person, will be entitled to purchase, at the purchase price, a number of our shares of common stock having a market value of two times the purchase price. If, following a public announcement that a person has become an acquiring person:

each holder of a right, other than the acquiring person, will be entitled to purchase a number of shares of common stock of the surviving entity having a market value of two times the purchase price.

              After a person becomes an acquiring person, but prior to such person acquiring 50% of our outstanding common stock, our board of directors may exchange each right, other than rights owned by the acquiring person, for

              At any time until a person has become an acquiring person, our board of directors may redeem all of the rights at a redemption price of $0.01 per right. On the redemption date, the rights will expire and the only entitlement of the holders of rights will be to receive the redemption price.

              For so long as the rights are redeemable, our board of directors may amend any provisions in the rights agreement without stockholder consent. After the rights are no longer redeemable, our board of directors may only amend the rights agreement without stockholder consent if such amendment would not change the amendment provisions, adversely affect the interests of the holders of rights, or cause the rights to again become redeemable. Despite the foregoing, at no time may the redemption price of the rights be amended or changed.

              The adoption of the rights agreement and the distribution of the rights should not be taxable to our stockholders or us. Our stockholders may recognize taxable income when the rights become exercisable in accordance with the rights agreement.

Warrants

              As of December 31, 2005 there were warrants outstanding to purchase a total of 18,064 shares of our common stock at a price of $1.94 per share.

Registration Rights

              Certain holders of our common stock and GSK are entitled to rights with respect to the registration of their shares under the Securities Act. These registration rights are contained in our amended and restated investors' rights agreement and are described below. The registration rights under the investors' rights agreement with respect to holders of our common stock will expire October 5, 2009, or, with respect to an individual holder holding two percent or less of our outstanding capital stock, when such holder is able to sell all of its shares in a single transaction pursuant to Rule 144 under the Securities Act. The registration rights under the investors' rights agreement with respect to holders of our Class A common stock will expire seven years following the date of redemption of our common stock pursuant to the call or, in the alternative, on the close of business on

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the last day that the put can be exercised, or, with respect to an individual holder of Class A common stock holding two percent or less of our outstanding capital stock, when such holder is able to sell all of its shares in a single transaction pursuant to Rule 144 under the Securities Act.

              The holders of shares of common stock having demand registration rights under the investors' rights agreement have the right to require that we register their common stock, provided such registration relates to not less than 50% in aggregate of our then outstanding shares of common stock having demand registration rights. We are only obligated to effect two registrations in response to these demand registration rights. We may postpone the filing of a registration statement for up to 90 days once in any 12-month period if our board of directors determines in good faith that the filing would be seriously detrimental to our stockholders or us. The underwriters of any underwritten offering have the right to limit the number of shares to be included in a registration statement filed in response to the exercise of these demand registration rights. We must pay all expenses, except for underwriters' discounts and commissions, incurred in connection with these demand registration rights.

              If we register any securities for public sale, the stockholders with piggyback registration rights under the investors' rights agreement have the right to include their shares in the registration, subject to specified exceptions. The underwriters of any underwritten offering have the right to limit the number of shares registered by these stockholders due to marketing reasons. We must pay all expenses, except for underwriters' discounts and commissions, incurred in connection with these piggyback registration rights.

              While we are eligible to file a registration statement on Form S-3, the stockholders with S-3 registration rights under the investors' rights agreement can request that we register their shares, provided that such registration relates to not less than 10% in aggregate of our then outstanding shares of common stock having S-3 registration rights and the total price of the shares of common stock offered to the public is at least $1,000,000. The holders of S-3 registration rights may only require us to file two Form S-3 registration statements in any 12-month period. We may postpone the filing of a Form S-3 registration statement for up to 90 days once in any 12-month period if our board of directors determines in good faith that the filing would be seriously detrimental to our stockholders or us. We must pay all expenses, except for underwriters' discounts and commissions, incurred in connection with these S-3 registration rights.

Transfer Agent and Registrar

              The transfer agent and registrar for our common stock and the rights is American Stock Transfer & Trust Company.

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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

Overview

              The following is a general discussion of the material United States federal income tax consequences of the ownership and disposition of our common stock. This discussion is based on the Internal Revenue Code of 1986, as amended (which we refer to as the "Code"), final, temporary and proposed Treasury regulations (which we refer to as the "Treasury regulations") promulgated thereunder by the Internal Revenue Service (which we refer to as the "IRS"), and administrative and judicial interpretations thereof, each as in effect and available on the date hereof, all of which are subject to change. Any such change, which may or may not be retroactive, could alter the tax consequences to our stockholders. You should note that, due to a lack of definitive judicial or administrative interpretation, uncertainties exist with respect to many of the tax consequences described below.

              You should also be aware that unless expressly indicated otherwise, this discussion is addressed only to those of our stockholders who are individuals and who are United States citizens and residents. This discussion does not address all of the United States federal income tax consequences that may be relevant to particular stockholders in light of their individual circumstances, such as stockholders who are subject to the alternative minimum tax provisions of the Code, who are dealers in securities or foreign currency, who are financial institutions or insurance companies, who are investors in pass-through entities, who are tax-exempt organizations, who hold their shares as "qualified small business stock" pursuant to Section 1202 of the Code, who do not hold their shares of Company stock as capital assets, who acquired their shares in connection with stock option or stock purchase plans or in other compensatory transactions, who hold shares of our stock as part of an integrated investment (including a hedge or a straddle) comprised of shares of our stock and one or more other positions, or who have previously entered into a conversion transaction or constructive sale of shares of our stock under the constructive sale provisions of the Code.

              We have not requested a ruling from the IRS in connection with the tax consequences described herein. Accordingly, the discussion below neither binds the IRS nor precludes it from adopting a contrary position.

              IN VIEW OF THE FOREGOING AND BECAUSE THE FOLLOWING DISCUSSION IS INTENDED AS A GENERAL SUMMARY ONLY, YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE OWNERSHIP OR DISPOSITION OF OUR STOCK, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES, IN LIGHT OF YOUR OWN PARTICULAR TAX SITUATIONS.

General Consequences of Owning Common Stock

              Distributions, if any, paid with respect to our common stock will be taxable dividends to the extent of our current or accumulated earnings and profits. To the extent that distributions on our common stock exceed our current or accumulated earnings and profits, the amount distributed will be applied to reduce the tax basis in such common stock, and, to the extent that the amount distributed exceeds the tax basis, will constitute long- or short-term capital gain, depending on the holding period for such common stock.

              As described above in the section entitled "Description of the Common Stock," our common stock is subject to our call right and to a put right of the holder of such stock. While we currently do not expect to pay dividends during the period of time that our call right or the stockholders' put rights are outstanding, each stockholder should note that there are certain minimum holding period requirements which must be met in order for a recipient of dividends to qualify for preferential

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taxation at capital gains rates on such dividends and, in the case of corporate recipients, for the dividends received deduction with respect to such dividends. In some cases, the existence of a put or call right with respect to a share of stock will toll such holding periods, although it is clear that traditional equity rights to demand payments from a corporate issuer, such as the rights traditionally provided by mandatorily redeemable preferred stock, will not toll such holding periods. Additionally, in general a put option that is significantly out of the money (i.e., the put price is significantly lower than the fair market value of the stock that is subject to such put right) on or about the time that the stock trades ex-dividend with respect to a particular dividend will not toll such holding periods. In the event that our call right or the stockholder's put right is not viewed for these purposes as equivalent to a "traditional equity right to demand payment from a corporate issuer" or, with respect to the put right, if such put right is not significantly out of the money on or about the time that the stock trades ex-dividend with respect to a particular dividend, then a stockholder's holding period with respect to 50% of its common stock could be tolled during the period such rights remain in existence. In such case, in the event a stockholder receives or is deemed to receive dividend distributions prior to the exercise or lapse of our call right and/or such stockholder's put right with respect to such shares of common stock, such dividends may not qualify for taxation at preferential capital gains rates (in which case any such dividend income would be taxed at higher ordinary income rates), and any corporate stockholders may not qualify for the dividends received deduction with respect to such dividends.

              In addition, there is an issue as to whether the put right to which our common stock is subject is a property right which is separate and distinct from our shares of common stock. In the event the put right were considered a separate property right, it is possible that a stockholder's common stock (or at least 50% of such common stock) and the associated put right may be treated as a straddle under Section 1092 of the Code, in which case such stockholder may be subject to limitations on recognition of losses and certain other adverse consequences with respect to such stockholder's common stock and the put right under Section 1092 of the Code (including the tolling of such stockholder's holding period pursuant to Treasury Regulations Section 1.1092(b)-2T). The put right is not expected to be treated as a separate property right since it is an integral and incidental part of our common stock. However, due to a lack of definitive judicial or administrative interpretation, this conclusion is not free from doubt.

General Consequences of Disposing of Common Stock

              A stockholder will recognize gain or loss upon the sale of its common stock equal to the difference between its adjusted basis in its sold shares and the sum of the amount of cash and the fair market value of any property the stockholder receives in exchange therefor. Except with respect to the various issues described herein, any such gain or loss will be long- or short-term capital gain or loss depending on the stockholder's holding period for the common stock.

              Our redemption of up to 50% of a stockholder's common stock pursuant to such stockholder's exercise of its put right is expected to be subject to the stock redemption rules of Section 302 of the Code. In addition, our redemption of 50% of a stockholder's common stock pursuant to the call right is expected to be subject to the stock redemption rules of Section 302 of the Code. Under the rules of Section 302 of the Code, the entire cash proceeds from the redemption received will be treated as a distribution taxable as a dividend (to the extent of our current or accumulated earnings and profits), unless the redemption is "substantially disproportionate" with respect to the stockholder or is "not essentially equivalent to a dividend" with respect to the stockholder. In the event the redemption is "substantially disproportionate" or "not essentially equivalent to a dividend" with respect to the stockholder, the redemption should qualify for sale treatment (i.e., the stockholder will recognize long- or short-term (depending upon its holding period for the redeemed shares) capital gain or loss upon the redemption equal to the difference between the stockholder's adjusted tax basis in the redeemed shares and the amount of cash received in exchange for such shares in the redemption).

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              In determining whether a redemption is "substantially disproportionate" or "not essentially equivalent to a dividend" with respect to a stockholder, the stockholder must take into account its shares of stock actually owned as well as its shares of stock constructively owned by reason of certain constructive ownership rules set forth in the Code. Under these constructive ownership rules, a stockholder will be deemed to own any shares of stock that are either actually or constructively owned by certain related individuals or entities and any shares of stock that the stockholder has a right to acquire by exercise of an option or by conversion or exchange of a security. In addition, in applying the "substantially disproportionate" and "not essentially equivalent to a dividend" tests, a stockholder must also take into account acquisitions or dispositions of stock that are treated for United States federal income tax purposes as integrated with the redemption.

              The redemption of the shares of our common stock held by a stockholder will be "substantially disproportionate" with respect to such stockholder if, among other things, the percentage of shares of our stock actually and constructively owned by such stockholder immediately following the redemption is less than 80% of the percentage of shares of our stock actually and constructively owned by such stockholder immediately prior to the redemption. The redemption of shares of our common stock held by a stockholder will be treated as "not essentially equivalent to a dividend" with respect to such stockholder if it experiences a "meaningful reduction" in its percentage interest as a result of the redemption. For this purpose, the stockholder would compare its percentage interest in us represented by its shares actually and constructively owned immediately prior to the redemption with its percentage interest in us represented by shares actually and constructively owned immediately after the redemption. Depending on a particular stockholder's facts and circumstances, even a small reduction in the stockholder's proportionate equity interest may satisfy the meaningful reduction test. For example, the IRS has held that any reduction in the percentage interest of a stockholder whose relative stock interest in a publicly held corporation is minimal (e.g., an interest of less than 1%) and who exercises no control over corporate affairs constitutes a "meaningful reduction."

              There is a risk that a redemption of a stockholder's common stock pursuant to the call right or pursuant to the exercise of a put right could be treated as a recapitalization under Section 368(a)(1)(E) of the Code in which the stockholder is deemed to exchange its shares of common stock which are subject to the put and the call right for shares of common stock which are not subject to a put or a call right and cash. It is not expected that a redemption of a stockholder's common shares should be treated in such a manner, although, due to a lack of definitive judicial or administrative interpretation, this conclusion is not free from doubt. In the event that a redemption of a stockholder's common stock does result in such recapitalization treatment, such stockholder would recognize gain but not loss in the exchange equal to the lesser of:

In general any such gain or loss would be treated as dividend income or capital gain under rules similar to those described above with respect to redemptions (i.e., such gain will generally be treated as capital gain if the redemption was "substantially disproportionate" with respect to the stockholder or otherwise "not essentially equivalent to a dividend" as described above).

              Under certain circumstances, where a taxpayer has an option to sell stock (such as through the exercise of a right similar to the put right), Section 1233 of the Code prevents the taxpayer's holding period from increasing (for purposes of obtaining long-term capital gain). The terms of our common

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stock are not expected to cause Section 1233 of the Code to apply to our common stock. Section 1233 since the put right would be acquired on the same day as the common stock, provided the identification requirements contained in Section 1233(c) of the Code are met. Due to a lack of definitive judicial or administrative interpretation, this issue is not free from doubt, however. A stockholder is urged to consult its tax advisors concerning the "identification" requirement contained in Code Section 1233(c) of the Code.

Information Reporting and Backup Withholding

              Certain of our non-corporate stockholders may be subject to information reporting and backup withholding at a 28% rate on certain of the payments due to such stockholders. In order to avoid backup withholding, a stockholder must complete Form W-8IMY or Form W-8BEN (if it is a nonresident alien individual or foreign entity) or Form W-9 (if it is a United States resident or domestic entity). Forms W-8IMY, W-8BEN and W-9 are available on the Internal Revenue Service's web site, www.irs.gov.

              IN LIGHT OF THE UNCERTAINTY ASSOCIATED WITH THE TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK AND BECAUSE THE TAX CONSEQUENCES TO YOU MAY DIFFER BASED ON YOUR PARTICULAR CIRCUMSTANCES, YOU SHOULD CONSULT YOUR OWN TAX ADVISOR REGARDING SUCH TAX CONSEQUENCES.

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UNDERWRITING

              Under the terms and subject to the conditions contained in a purchase agreement dated the date of this prospectus, the underwriters named below, for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, HSBC Securities (USA) Inc. and Thomas Weisel Partners LLC are acting as representatives, have severally agreed to purchase, and we have agreed to sell to them, severally, the number of shares indicated below:

 
 Underwriter
   Number
of Shares
Merrill Lynch, Pierce, Fenner & Smith    
  Incorporated    
HSBC Securities (USA) Inc.    
Thomas Weisel Partners LLC    
     
  Total   4,600,000
     

              The underwriters are offering the shares of common stock subject to their acceptance of the shares from us and subject to prior sale. The purchase agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of common stock offered by this prospectus are subject to the approval of specified legal matters by their counsel and to other conditions. The underwriters are obligated to take and pay for all of the shares of common stock offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters' overallotment option described below.

              The underwriters initially propose to offer the shares of common stock directly to the public at the public offering price listed on the cover page of this prospectus and part to certain dealers at a price that represents a concession not in excess of $            per share under the public offering price. Any underwriter may allow, and such dealers may reallow, a concession not in excess of $            per share to other underwriters or to certain dealers. After the initial offering of the shares of common stock, the offering price and other selling terms may from time to time be varied by the representatives.

Overallotment Option

              We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to an aggregate of 600,000 additional shares of common stock at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering overallotments, if any, made in connection with the offering of the shares of common stock offered by this prospectus. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the additional shares of common stock as the number listed next to the underwriter's name in the preceding table bears to the total number of shares of common stock listed next to the names of all underwriters in the preceding table. If the underwriters option is exercised in full, the total price to the public would be approximately $             million and the total proceeds to us would be approximately $             million after deducting estimated underwriting discounts and commissions and offering expenses.

              On behalf of the underwriting syndicate, Merrill Lynch, Pierce, Fenner & Smith Incorporated will be responsible for recording a list of potential investors that have expressed an interest in purchasing shares of common stock as part of this offering.

              The underwriters have informed us that they do not intend sales to discretionary accounts to exceed five percent of the total number of shares of common stock offered by them.

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No Sales of Similar Securities

              We, each of our directors, executive officers, funds affiliated with our directors and GSK have agreed that, without the prior written consent of Merrill Lynch, Pierce, Fenner and Smith Incorporated on behalf of the underwriters, we and they will not, during the period ending 90 days after the date of this prospectus:

whether any transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise. These restrictions do not apply to:

Commissions and Discounts

              The following table shows the underwriting discounts and commissions that we are to pay to the underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares of our common stock.

 
   Paid by Us
 
   No Exercise
   Full Exercise
Per share   $     $  
Total   $     $  

              In addition, we estimate that the total expenses of this offering payable by us, not including the underwriting discounts and commissions, will be approximately $500,000.

Price Stabilization and Short Positions

              In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the purchase agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under the overallotment option. The underwriters can close out a covered short sale by exercising the overallotment option or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under the overallotment option. The underwriters may also sell shares in excess of the overallotment option, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in

58


the open market after pricing that could adversely affect investors who purchase in this offering. In addition, to stabilize the price of the common stock, the underwriters may bid for, and purchase, shares of common stock in the open market. Finally, the underwriting syndicate may reclaim selling concessions allowed to an underwriter or a dealer for distributing the common stock in this offering, if the syndicate repurchases previously distributed common stock in transactions to cover syndicate short positions or to stabilize the price of the common stock. Any of these activities may stabilize or maintain the market price of the common stock above independent market levels. The underwriters are not required to engage in these activities, and may end any of these activities at any time.

              Our common stock is listed on the Nasdaq National Market under the trading symbol "THRX."

              We and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act of 1933, as amended.

              Certain of the underwriters or their affiliates have provided from time to time, and may provide in the future, investment and commercial banking and financial advisory services to Theravance and its affiliates in the ordinary course of business, for which they have received and may continue to receive customary fees and commissions.

              A prospectus in electronic format will be made available on the websites maintained by one or more of the lead managers of this offering and may also be made available on websites maintained by other underwriters. The underwriters may agree to allocate a number of shares to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the lead managers to underwriters that may make Internet distributions on the same basis as other allocations.

59


LEGAL MATTERS

              The legality of the shares of common stock offered hereby will be passed upon for Theravance, Inc. by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, Menlo Park, California. Members of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP are the beneficial owners of 151,002 shares of our common stock (which includes 38,709 shares underling options that are not exercisable within 60 days) and Robert V. Gunderson, Jr., a partner of the firm, is a member of our board of directors. Davis Polk & Wardwell, Menlo Park, California, is representing the underwriters of this offering.


EXPERTS

              The consolidated financial statements of Theravance, Inc. incorporated by reference in Theravance, Inc.'s Annual Report (Form 10-K) for the year ended December 31, 2004 have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon, included therein, and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given on the authority of such firm as experts in accounting and auditing.


WHERE YOU CAN FIND MORE INFORMATION

              We have filed a registration statement on Form S-3 with the SEC for the common stock offered by this prospectus. This prospectus does not include all of the information contained in the registration statement. You should refer to the registration statement and its exhibits for additional information. Whenever we make reference in this prospectus to any of our contracts, agreements or other documents, the references are not necessarily complete and you should refer to the exhibits attached to the registration statement for copies of the actual contract, agreement or other document. We are also required to file annual, quarterly and current reports, proxy statements and other information with the SEC.

              We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any document we file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Rooms. Our SEC filings are also available to the public from the SEC's website at www.sec.gov.


INCORPORATION BY REFERENCE

              The SEC allows us to "incorporate by reference" the information we file with them, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus, and certain information that we file later with the SEC will automatically update and supersede this information. We incorporate by reference the documents listed below and any future filings we will make with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, until we complete our offering of the securities:

60

              You may request, and we will provide you with, a copy of these filings, at no cost, by calling us at (650) 808-6000 or by writing to us at the following address:

Theravance, Inc.
901 Gateway Blvd.
South San Francisco, CA 94080
Attn: Investor Relations

61

4,600,000 Shares

LOGO

Common Stock

P R O S P E C T U S

Merrill Lynch & Co.

HSBC

Thomas Weisel Partners LLC

February     , 2006


PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14. Other Expenses of Issuance and Distribution.

              The following table sets forth all expenses, other than the underwriting discounts and commissions, payable by the registrant in connection with the sale of the common stock being registered. All the amounts shown are estimates except for the registration fee.

Securities and Exchange Commission Registration Fee   $ 14,884
Legal Fees and Expenses   $ 175,000
Accounting Fees and Expenses   $ 100,000
Printing Expenses   $ 100,000
NASD Filing Fee   $ 75,500
Miscellaneous   $ 34,616
  Total   $ 500,000

Item 15. Indemnification of Officers and Directors.

              Section 145 of the Delaware General Corporation Law authorizes a court to award or a corporation's board of directors to grant indemnification to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933. Article VI of the registrant's bylaws provides for mandatory indemnification of its directors and officers and those serving at the registrant's request as directors, officers, employees or agents of other organizations to the maximum extent permitted by the Delaware General Corporation Law. The registrant's amended and restated certificate of incorporation provides that, pursuant to Delaware law, its directors shall not be liable for monetary damages for breach of the directors' fiduciary duty as directors to the registrant and its stockholders. This provision in the amended and restated certificate of incorporation does not eliminate the directors' fiduciary duty, and in appropriate circumstances equitable remedies such as injunctive or other forms of non-monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director's duty of loyalty to the registrant for acts or omissions not in good faith or involving intentional misconduct or knowing violations of law, for actions leading to improper personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a director's responsibilities under any other law, such as the federal securities laws or state or federal environmental laws. The registrant has entered into indemnification agreements with its officers and directors. The Indemnification Agreements provide the registrant's officers and directors with further indemnification to the maximum extent permitted by the Delaware General Corporation Law. The registrant maintains liability insurance for its directors and officers.

II-1


Item 16. Exhibits.


Exhibit
Number
   Description of Document

1.1
 
Form of Underwriting Agreement

4.1(1)
 
Specimen certificate representing the common stock of the registrant

4.2(2)
 
Rights Agreement dated October 8, 2004

5.1
 
Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP

10.1(3)
 
License, Development and Commercialization Agreement between the registrant and Astellas Pharma Inc., dated November 7, 2005

23.1
 
Consent of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP (included in Exhibit 5.1)

23.2
 
Consent of Independent Registered Public Accounting Firm

24.1
 
Power of Attorney (included on page II-6)
(1)
Incorporated herein by reference to the exhibit of the same number in the Company's Registration Statement on Form S-1 (Commission File No. 333-116384).

(2)
Incorporated herein by reference to the exhibit of the same number in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2004.

(3)
Application has been made to the Securities and Exchange Commission to seek confidential treatment of certain provisions. Omitted material for which confidential treatment has been requested has been filed separately with the Securities and Exchange Commission. The representations and warranties made by the parties to this agreement were made solely for purposes of the agreement and to allocate risk between the parties. You should not rely on the representations, warranties and covenants in this agreement.

Item 17. Undertakings.

              The undersigned registrant hereby undertakes:

II-2

              Provided, however, that paragraphs (A)(1)(i), (A) (1)(ii) and (A) (1)(iii) of this section do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the Registrant pursuant to section 13 or section 15(d) of the Exchange Act that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.

II-3

              The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of our employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

              Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described in Item 15, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.

II-4


SIGNATURES—FORM S-3

              Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of South San Francisco, State of California, on this 30th day of January, 2006.

    THERAVANCE, INC.
         
         
    By:   /s/  RICK E WINNINGHAM      
Rick E Winningham
Chief Executive Officer

II-5


POWER OF ATTORNEY

              KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Bradford. J. Shafer, his true and lawful attorney-in-fact and agent with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to sign any registration statement for the same offering covered by this Registration Statement that is to be effective on filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute, may lawfully do or cause to be done by virtue hereof.

              Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

Name
   Title
   Date

 
 
 
 
 
/s/  RICK E WINNINGHAM          
Rick E Winningham		   Chief Executive Officer and Director (principal executive officer)   January 30, 2006

/s/  MICHAEL W. AGUIAR          
Michael W. Aguiar
 
Senior Vice President and Chief Financial Officer (principal financial and accounting officer)
 
January 30, 2006

/s/  P. ROY VAGELOS          
P. Roy Vagelos
 
Director
 
January 30, 2006

/s/  JULIAN C. BAKER          
Julian C. Baker
 
Director
 
January 30, 2006

/s/  JEFFREY M. DRAZAN          
Jeffrey M. Drazan
 
Director
 
January 30, 2006

/s/  ROBERT V. GUNDERSON, JR.          
Robert V. Gunderson, Jr.
 
Director
 
January 30, 2006

/s/  ARNOLD J. LEVINE          
Arnold J. Levine
 
Director
 
January 30, 2006

/s/  RONN C. LOEWENTHAL          
Ronn C. Loewenthal
 
Director
 
January 30, 2006

/s/  EVE E. SLATER          
Eve E. Slater
 
Director
 
January 30, 2006
         

II-6


/s/  WILLIAM H. WALTRIP          
William H. Waltrip
 
Director
 
January 30, 2006

/s/  GEORGE M. WHITESIDES          
George M. Whitesides
 
Director
 
January 30, 2006

/s/  WILLIAM D. YOUNG          
William D. Young
 
Director
 
January 30, 2006

II-7


Index to Exhibits

Exhibit
Number
   Description of Document
1.1   Form of Underwriting Agreement

4.1
(1)
Specimen certificate representing the common stock of the registrant

4.2
(2)
Rights Agreement dated October 8, 2004

5.1
 
Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP

10.1
(3)
License, Development and Commercialization Agreement between the registrant and Astellas Pharma Inc., dated November 7, 2005

23.1
 
Consent of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP (included in Exhibit 5.1)

23.2
 
Consent of Independent Registered Public Accounting Firm

24.1
 
Power of Attorney (included on page II-6)
(1)
Incorporated herein by reference to the exhibit of the same number in the Company's Registration Statement on Form S-1 (Commission File No. 333-116384).

(2)
Incorporated herein by reference to the exhibit of the same number in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2004.

(3)
Application has been made to the Securities and Exchange Commission to seek confidential treatment of certain provisions. Omitted material for which confidential treatment has been requested has been filed separately with the Securities and Exchange Commission. The representations and warranties made by the parties to this agreement were made solely for purposes of the agreement and to allocate risk between the parties. You should not rely on the representations, warranties and covenants in this agreement.



QuickLinks

TABLE OF CONTENTS
PROSPECTUS SUMMARY
Theravance, Inc.
THE OFFERING
SUMMARY CONSOLIDATED FINANCIAL DATA
RISK FACTORS
Risks Related to our Business
Risks Related to GSK's Ownership of Our Stock
Risks Related to Legal and Regulatory Uncertainty
Risks Related to this Offering
FORWARD-LOOKING STATEMENTS
USE OF PROCEEDS
PRICE RANGE OF OUR COMMON STOCK
DIVIDEND POLICY
CAPITALIZATION
DESCRIPTION OF CAPITAL STOCK
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
UNDERWRITING
LEGAL MATTERS
EXPERTS
WHERE YOU CAN FIND MORE INFORMATION
INCORPORATION BY REFERENCE
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
SIGNATURES—FORM S-3
POWER OF ATTORNEY
Index to Exhibits

Exhibit 1.1

 

 

 

THERAVANCE, INC.

 

(a Delaware corporation)

 

 

4,600,000 Shares of Common Stock

 

 

 

PURCHASE AGREEMENT

 

 

Dated: •, 2006

 

 

 


 

Draft of January 27, 2006

 

THERAVANCE, INC.

 

(a Delaware corporation)

 

4,600,000 Shares of Common Stock

 

(Par Value $0.01 Per Share)

 

PURCHASE AGREEMENT

 

•, 2006

 

MERRILL LYNCH & CO.

Merrill Lynch, Pierce, Fenner & Smith
Incorporated

HSBC Securities (USA) Inc.

Thomas Weisel Partners LLC

as Representative(s) of the several Underwriters

 

c/o  Merrill Lynch & Co.

Merrill Lynch, Pierce, Fenner & Smith
Incorporated

4 World Financial Center
New York, New York 10080

 

Ladies and Gentlemen:

 

Theravance, Inc., a Delaware corporation (the “Company”) confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”) and each of the other Underwriters named in Schedule A hereto (collectively, the “Underwriters”, which term shall also include any underwriter substituted as hereinafter provided in Section 10 hereof), for whom Merrill Lynch, HSBC Securities (USA) Inc. and Thomas Weisel Partners LLC are acting as representatives (in such capacity, the “Representatives”), with respect to (i) the sale by the Company and the purchase by the Underwriters, acting severally and not jointly, of the respective numbers of shares of Common Stock, par value $0.01 per share, of the Company (“Common Stock”) set forth in Schedule A hereto and (ii) the grant by the Company to the Underwriters, acting severally and not jointly, of the option described in Section 2(b) hereof to purchase all or any part of 600,000 additional shares of Common Stock to cover overallotments, if any.  The aforesaid 4,600,000 shares of Common Stock (the “Initial Securities”) to be purchased by the Underwriters and all or any part of the 600,000 shares of Common Stock subject to the option described in Section 2(b) hereof (the “Option Securities”) are hereinafter called, collectively, the “Securities”.

 

The Company understands that the Underwriters propose to make a public offering of the Securities as soon as the Representatives deem advisable after this Agreement has been executed and delivered.

 

The Company has filed with the Securities and Exchange Commission (the “Commission”) a shelf registration statement on Form S-3 (No. 333-•), including the related preliminary prospectus or prospectuses, which registration statement became effective upon filing under Rule 462(e) of the rules

 

1


 

and regulations of the Commission (the “1933 Act Regulations”) under the Securities Act of 1933, as amended (the “1933 Act”).  Such registration statement covers the registration of the Securities under the 1933 Act.  Promptly after execution and delivery of this Agreement, the Company will prepare and file a prospectus in accordance with the provisions of Rule 430B (“Rule 430B”) of the 1933 Act Regulations and paragraph (b) of Rule 424 (“Rule 424(b)”) of the 1933 Act Regulations.  Any information included in such prospectus that was omitted from such registration statement at the time it became effective but that is deemed to be part of and included in such registration statement pursuant to Rule 430B is referred to as “Rule 430B Information.”  Each prospectus used in connection with the offering of the Securities that omitted the Rule 430B Information is herein called a “preliminary prospectus.”  Such registration statement, at any given time, including the amendments thereto at such time, exhibits and any schedules thereto at such time, the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933 Act at such time and the documents otherwise deemed to be a part thereof or included therein by 1933 Act Regulations, is herein called the “Registration Statement.”  The Registration Statement at the time it originally became effective is herein called the “Original Registration Statement.”  The final prospectus in the form first furnished to the Underwriters for use in connection with the offering of the Securities, including the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933 Act at the time of the execution of this Agreement and any preliminary prospectuses that form a part thereof, is herein called the “Prospectus.”  For purposes of this Agreement, all references to the Registration Statement, any preliminary prospectus, the Prospectus or any amendment or supplement to any of the foregoing shall be deemed to include the copy filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval system (“EDGAR”).

 

All references in this Agreement to financial statements and schedules and other information which is “contained,” “included” or “stated” in the Registration Statement, any preliminary prospectus or the Prospectus (or other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which is incorporated by reference in or otherwise deemed by the 1933 Act Regulations to be a part of or included in the Registration Statement, any preliminary prospectus or the Prospectus, as the case may be; and all references in this Agreement to amendments or supplements to the Registration Statement, any preliminary prospectus or the Prospectus shall be deemed to mean and include the filing of any document under the Securities Exchange Act of 1934 (the “1934 Act”) which is incorporated by reference in or otherwise deemed by the 1933 Act Regulations to be a part of or included in the Registration Statement, such preliminary prospectus or the Prospectus, as the case may be.

 

SECTION 1.  Representations and Warranties.

 

(a)           Representations and Warranties by the Company.  The Company represents and warrants to each Underwriter as of the date hereof, the Applicable Time referred to in Section 1(a)(i) hereof and as of the Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery (if any) referred to in Section 2(b) hereof, and agrees with each Underwriter, as follows:

 

(i)            Status as a Well-Known Seasoned Issuer. (A) At the time of filing the Original Registration Statement, (B) at the time of the most recent amendment thereto for the purposes of complying with Section 10(a)(3) of the 1933 Act (whether such amendment was by post-effective amendment, incorporated report filed pursuant to Section 13 or 15(d) of the 1934 Act or form of prospectus), (C) at the time the Company or any person acting on its behalf (within the meaning, for this clause only, of Rule 163(c) of the 1933 Act Regulations) made any offer relating to the Securities in reliance on the exemption of Rule 163 of the 1933 Act Regulations and (D) at the date hereof, the Company was and is a “well-known seasoned issuer” as defined in Rule 405 of the 1933 Act Regulations (“Rule 405”), including not having been and not being an “ineligible issuer” as defined in Rule 405. The Registration Statement is an “automatic shelf registration

 

2


 

statement,” as defined in Rule 405, and the Securities, since their registration on the Registration Statement, have been and remain eligible for registration by the Company on a Rule 405 “automatic shelf registration statement”.  The Company has not received from the Commission any notice pursuant to Rule 401(g)(2) of the 1933 Act Regulations objecting to the use of the automatic shelf registration statement form.

 

At the time of filing the Original Registration Statement, at the earliest time thereafter that the Company or another offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) of the 1933 Act Regulations) of the Securities and at the date hereof, the Company was not and is not an “ineligible issuer,” as defined in Rule 405.

 

(ii)           Registration Statement, Prospectus and Disclosure at Time of Sale.  The Original Registration Statement became effective upon filing under Rule 462(e) of the 1933 Act Regulations (“Rule 462(e)”) on                        , 2006, and any post-effective amendment thereto also became effective upon filing under Rule 462(e).  No stop order suspending the effectiveness of the Registration Statement has been issued under the 1933 Act and no proceedings for that purpose have been instituted or are pending or, to the knowledge of the Company, are contemplated by the Commission, and any request on the part of the Commission for additional information has been complied with.

 

Any offer that is a written communication relating to the Securities made prior to the filing of the Original Registration Statement by the Company or any person acting on its behalf (within the meaning, for this paragraph only, of Rule 163(c) of the 1933 Act Regulations) has been filed with the Commission in accordance with the exemption provided by Rule 163 of the 1933 Act Regulations (“Rule 163”) and otherwise complied with the requirements of Rule 163, including without limitation the legending requirement, to qualify such offer for the exemption from Section 5(c) of the 1933 Act provided by Rule 163.

 

At the respective times the Original Registration Statement and each amendment thereto became effective, at each deemed effective date with respect to the Underwriters pursuant to Rule 430B(f)(2) of the 1933 Act Regulations and at the Closing Time and, if any Option Securities are purchased, at the Date of Delivery, the Registration Statement complied and will comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations, and did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading.

 

Neither the Prospectus nor any amendments or supplements thereto, at the time the Prospectus or any such amendment or supplement was issued and at the Closing Time and, if any Option Securities are purchased, at the Date of Delivery, included or will include an untrue statement of a material fact or omitted or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

 

Each preliminary prospectus (including the prospectus or prospectuses filed as part of the Original Registration Statement or any amendment thereto) complied when so filed in all material respects with the 1933 Act Regulations and each preliminary prospectus and the Prospectus delivered to the Underwriters for use in connection with this offering was identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.

 

3


 

As of the Applicable Time (as defined below), neither (x) the Issuer General Use Free Writing Prospectus(es) (as defined below) issued at or prior to the Applicable Time, the Statutory Prospectus (as defined below) and the information included on Schedule B hereto, all considered together (collectively, the “General Disclosure Package”), nor (y) any individual Issuer Limited Use Free Writing Prospectus, when considered together with the General Disclosure Package, included any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

 

As used in this subsection and elsewhere in this Agreement:

 

“Applicable Time” means •:00 [a/p]m (Eastern time) on               , 2006 or such other time as agreed by the Company and Merrill Lynch.

 

“Issuer Free Writing Prospectus” means any “issuer free writing prospectus,” as defined in Rule 433 of the 1933 Act Regulations (“Rule 433”), relating to the Securities that (i) is required to be filed with the Commission by the Company, (ii) is a “road show that is a written communication” within the meaning of Rule 433(d)(8)(i), whether or not required to be filed with the Commission or (iii) is exempt from filing pursuant to Rule 433(d)(5)(i) because it contains a description of the Securities or of the offering that does not reflect the final terms, in each case in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Company’s records pursuant to Rule 433(g).

 

“Issuer General Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is intended for general distribution to prospective investors, as evidenced by its being specified in Schedule C hereto.

 

“Issuer Limited Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is not an Issuer General Use Free Writing Prospectus.

 

“Statutory Prospectus” as of any time means the prospectus relating to the Securities that is included in the Registration Statement immediately prior to that time, including any document incorporated by reference therein and any preliminary or other prospectus deemed to be a part thereof.

 

Each Issuer Free Writing Prospectus, as of its issue date and at all subsequent times through the completion of the public offer and sale of the Securities or until any earlier date that the issuer notified or notifies Merrill Lynch as described in Section 3(e), did not, does not and will not include any information that conflicted, conflicts or will conflict with the information contained in the Registration Statement or the Prospectus, including any document incorporated by reference therein and any preliminary or other prospectus deemed to be a part thereof that has not been superseded or modified.

 

The representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement, the Prospectus or any Issuer Free Writing Prospectus made in reliance upon and in conformity with written information furnished to the Company by any Underwriter through Merrill Lynch expressly for use therein.

 

(iii)          Incorporated Documents.  The documents incorporated or deemed to be incorporated by reference in the Registration Statement and the Prospectus, when they became effective or at the time they were or hereafter are filed with the Commission, complied and will

 

4


 

comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations or the 1934 Act and the rules and regulations of the Commission thereunder (the “1934 Act Regulations”), as applicable, and, when read together with the other information in the Prospectus, (a) at the time the Original Registration Statement became effective, (b) at the earlier of time the Prospectus was first used and the date and time of the first contract of sale of Securities in this offering and (c) at the Closing Time, did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading.

 

(iv)          Independent Accountants.  Ernst & Young LLP, who certified the financial statements and supporting schedules included in the Registration Statement, are independent public accountants as required by the 1933 Act and the 1933 Act Regulations.

 

(v)           Financial Statements.  The financial statements included in the Registration Statement, the General Disclosure Package and the Prospectus, together with the related schedules and notes, present fairly the financial position of the Company and its consolidated subsidiaries at the dates indicated and the statement of operations, stockholders’ equity and cash flows of the Company and its consolidated subsidiaries for the periods specified; said financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”) applied on a consistent basis throughout the periods involved.  The supporting schedules, if any, present fairly in accordance with GAAP the information required to be stated therein.  The selected financial data and the summary financial information included in the Prospectus present fairly the information shown therein and have been compiled on a basis consistent with that of the audited financial statements included in the Registration Statement.

 

(vi)          No Material Adverse Change in Business.  Since the respective dates as of which information is given in the Registration Statement, the General Disclosure Package or the Prospectus, except as otherwise stated therein, (A) there has been no material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business (a “Material Adverse Effect”), (B) there have been no transactions entered into by the Company or its subsidiaries, other than those in the ordinary course of business, which are material with respect to the Company and its subsidiaries considered as one enterprise, and (C) except as described in the Prospectus there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock.

 

(vii)         Good Standing of the Company.  The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement, the General Disclosure Package or the Prospectus and to enter into and perform its obligations under this Agreement; and the Company is duly qualified as a foreign corporation to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect.

 

(viii)        Subsidiaries. The only subsidiaries of the Company are the subsidiaries listed on Schedule E hereto which, considered in the aggregate as a single subsidiary do not constitute a “significant subsidiary” as defined in Rule 1-02 of Regulation S-X.

 

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(ix)           Capitalization.  The authorized, issued and outstanding capital stock of the Company is as set forth in the Registration Statement, the General Disclosure Package or the Prospectus in the column entitled “Actual” under the caption “Capitalization” (except for subsequent issuances, if any, pursuant to this Agreement, pursuant to reservations, agreements or employee benefit plans referred to in the Registration Statement, the General Disclosure Package or the Prospectus or pursuant to the exercise of convertible securities or options referred to in the Registration Statement, the General Disclosure Package or the Prospectus).  The shares of issued and outstanding capital stock have been duly authorized and validly issued and are fully paid and non-assessable; none of the outstanding shares of capital stock was issued in violation of the preemptive or other similar rights of any securityholder of the Company.

 

(x)            Authorization of Agreement.  This Agreement has been duly authorized, executed and delivered by the Company.

 

(xi)           Authorization and Description of Securities.  The Securities to be purchased by the Underwriters from the Company have been duly authorized for issuance and sale to the Underwriters pursuant to this Agreement and, when issued and delivered by the Company pursuant to this Agreement against payment of the consideration set forth herein, will be validly issued and fully paid and non-assessable; the Common Stock conforms to all statements relating thereto contained in the Registration Statement, the General Disclosure Package or the Prospectus and such description conforms to the rights set forth in the instruments defining the same; no holder of the Securities will be subject to personal liability by reason of being such a holder; and the issuance of the Securities is not subject to the preemptive or other similar rights of any securityholder of the Company.

 

(xii)          Absence of Defaults and Conflicts.  Neither the Company nor any of its subsidiaries is in violation of its charter or by-laws or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or its subsidiary is subject (collectively, “Agreements and Instruments”) except for such defaults that would not reasonably be expected to have a Material Adverse Effect; and the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein and in the Registration Statement, the General Disclosure Package or the Prospectus (including the issuance and sale of the Securities and the use of the proceeds from the sale of the Securities as described in the Registration Statement, the General Disclosure Package or the Prospectus under the caption “Use of Proceeds”) and compliance by the Company with its obligations hereunder have been duly authorized by all necessary corporate action and do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined below) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or its subsidiary pursuant to, the Agreements and Instruments (except for such conflicts, breaches, defaults or Repayment Events or liens, charges or encumbrances that would not result in a Material Adverse Effect), nor will such action result in any violation of the provisions of the charter or by-laws of the Company or any of its subsidiaries or any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any of its subsidiaries or any of their material assets, properties or operations.  As used herein, a “Repayment Event” means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such

 

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holder’s behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any of its subsidiaries.

 

(xiii)         Absence of Labor Dispute.  No labor dispute with the employees of the Company or any of its subsidiaries exists or, to the knowledge of the Company, is imminent, and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its principal suppliers, manufacturers, customers or contractors, which, in either case, would result in a Material Adverse Effect.

 

(xiv)        Absence of Proceedings.  There is no action, suit, proceeding, inquiry or investigation before or brought by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Company, threatened, against or affecting the Company or any of its subsidiaries, which is required to be disclosed in the Registration Statement, the General Disclosure Package or the Prospectus (other than as disclosed therein), or which would reasonably be expected to result in a Material Adverse Effect, or which would reasonably be expected to materially and adversely affect the performance by the Company of its obligations hereunder; the aggregate of all pending legal or governmental proceedings to which the Company or any of its subsidiaries is a party or of which any of their respective property or assets is the subject which are not described in the Registration Statement, including ordinary routine litigation incidental to the business, would not reasonably be expected to result in a Material Adverse Effect.

 

(xv)         Accuracy of Exhibits.  There are no contracts or documents which are required to be described in the Registration Statement, the General Disclosure Package or the Prospectus or the documents incorporated by reference therein or to be filed as exhibits thereto which have not been so described and filed as required.

 

(xvi)        Possession of Intellectual Property.  The Company owns, or otherwise possesses, sufficient rights to use all patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary rights), trademarks, service marks, trade names or other intellectual property (collectively, “Intellectual Property”) necessary to carry on the business of the Company as described in the Registration Statement, the General Disclosure Package or the Prospectus, except where the lack of such rights would not result, singly or in the aggregate, in a Material Adverse Effect.  The Company has not received any notice, and is not otherwise aware of any infringement of or conflict with asserted rights of others with respect to any Intellectual Property, or of any valid grounds for any bona fide claim that would render any of the Company’s exclusive Intellectual Property rights invalid or inadequate to protect material interests of the Company or its subsidiaries therein.  To the Company’s knowledge and reasonable belief, the claims of its issued patents are valid and enforceable.

 

(xvii)       Absence of Manipulation.  Neither the Company nor any affiliate of the Company has taken, nor will the Company or any affiliate take, directly or indirectly, any action which is designed to or which has constituted or which would be expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities.

 

(xviii)      Absence of Further Requirements.  No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency is necessary or required for the performance by the Company of its obligations hereunder, in connection with the offering, issuance or sale of the Securities

 

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hereunder, the consummation of the transactions contemplated by this Agreement, except such as have been already obtained or as may be required under the 1933 Act or the 1933 Act Regulations or state securities laws.

 

(xix)         Possession of Licenses and Permits.  The Company and its subsidiaries possess such permits, licenses, approvals, consents and other authorizations (collectively, “Governmental Licenses”) issued by the appropriate federal, state, local or foreign regulatory agencies or bodies necessary to conduct the business of the Company as described in the Registration Statement, the General Disclosure Package or the Prospectus, except where the failure so to possess would not, singly or in the aggregate, result in a Material Adverse Effect; the Company and its subsidiaries are in compliance with the terms and conditions of all such Governmental Licenses, except where the failure so to comply would not, singly or in the aggregate, result in a Material Adverse Effect; all of the Governmental Licenses are valid and in full force and effect, except when the invalidity of such Governmental Licenses or the failure of such Governmental Licenses to be in full force and effect would not, singly or in the aggregate, result in a Material Adverse Effect; and neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any such Governmental Licenses which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Material Adverse Effect.

 

(xx)          Title to Property.  The Company and its subsidiaries have good and marketable title or have valid rights to lease or otherwise use all real and personal property that is material to the business of the Company, free and clear of all mortgages, pledges, liens, security interests, claims, restrictions or encumbrances of any kind except such as (a) are described in the Registration Statement, the General Disclosure Package or the Prospectus or (b) do not, singly or in the aggregate, materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company or its subsidiaries; and all of the leases and subleases material to the business of the Company and its subsidiaries, considered as one enterprise, and under which the Company or its subsidiaries holds properties described in the Registration Statement, the General Disclosure Package or the Prospectus, are in full force and effect, and neither the Company nor any of its subsidiaries has any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company or its subsidiaries under any of the leases or subleases mentioned above.

 

(xxi)         Investment Company Act.  The Company is not required, and upon the issuance and sale of the Securities as herein contemplated and the application of the net proceeds therefrom as described in the Registration Statement, the General Disclosure Package or the Prospectus will not be required, to register as an “investment company” under the Investment Company Act of 1940, as amended (the “1940 Act”).

 

(xxii)        Environmental Laws.  Except as described in the Registration Statement and except as would not, singly or in the aggregate, result in a Material Adverse Effect, (A) neither the Company nor any of its subsidiaries is in violation of any federal, state, local or foreign statute, law, rule, regulation, ordinance, code, policy or rule of common law or any judicial or administrative interpretation thereof, including any judicial or administrative order, consent, decree or judgment, relating to pollution or protection of human health, the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, including, without limitation, laws and regulations relating to the release or threatened release of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum or petroleum products, asbestos-containing materials or mold (collectively, “Hazardous Materials”) or to the manufacture, processing, distribution, use, treatment, storage,

 

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disposal, transport or handling of Hazardous Materials (collectively, “Environmental Laws”), (B) the Company and its subsidiaries have all permits, authorizations and approvals required under any applicable Environmental Laws and are each in compliance with their requirements, (C) there are no pending or, to the knowledge of the Company, threatened administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigation or proceedings relating to any Environmental Law against the Company or its subsidiaries and (D) there are no events or circumstances that would reasonably be expected to form the basis of an order for clean-up or remediation, or an action, suit or proceeding by any private party or governmental body or agency, against or affecting the Company or its subsidiaries relating to Hazardous Materials or any Environmental Laws.

 

(xxiii)       Registration Rights.  Except for such rights as have been satisfied or waived, there are no persons with registration rights or other similar rights to have any securities registered pursuant to the Registration Statement or otherwise registered by the Company under the 1933 Act.

 

(xxiv)       ERISA.  Except as set forth or incorporated by reference in the Prospectus, neither the Company nor any of its subsidiaries has violated any provisions of the Employee Retirement Income Security Act of 1974, as amended, except for violations which, singly or in the aggregate, would not result in a Material Adverse Effect.

 

(xxv)        Foreign Corrupt Practices Act.  Except as set forth or incorporated by reference in the Prospectus, neither the Company nor any of its subsidiaries has violated any provisions of the Foreign Corrupt Practices Act or the rules and regulations promulgated thereunder except for such violations which, singly or in the aggregate, would not result in a Material Adverse Effect.

 

(xxvi)       Insurance.  The Company and its subsidiaries carry or are entitled to the benefits of insurance, with financially sound and reputable insurers, in such amounts and covering such risks as is generally maintained by companies of established repute engaged in the same or similar business, and all such insurance is in full force and effect.  The Company has no reason to believe that it or any of its subsidiaries will not be able (A) to renew its existing insurance coverage as and when such policies expire or (B) to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted and at a cost that would not result in a Material Adverse Change.  Neither of the Company nor any of its subsidiaries has been denied any insurance coverage which it has sought or for which it has applied.

 

(xxvii)      Accounting Controls and Disclosure Controls.  The Company and its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (1) transactions are executed in accordance with management’s general or specific authorizations; (2) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets; (3) access to assets is permitted only in accordance with management’s general or specific authorization; and (4) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.  Except as described in the Prospectus, since the end of the Company’s most recent audited fiscal year, there has been (I) no material weakness in the Company’s internal control over financial reporting (whether or not remediated) and (II) no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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The Company and its subsidiaries employ disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the 1934 Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and is accumulated and communicated to the Company’s management, including its principal executive officer or officers and principal financial officer or officers, as appropriate, to allow timely decisions regarding disclosure.

 

(xxviii)     Compliance with the Sarbanes-Oxley Act.  There is and has been no failure on the part of the Company or any of the Company’s directors or officers, in their capacities as such, to comply in all material respects with any provision of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith (the “Sarbanes-Oxley Act”), including Section 402 related to loans and Sections 302 and 906 related to certifications.

 

(xxix)       Pending Proceedings and Examinations.  The Registration Statement is not the subject of a pending proceeding or examination under Section 8(d) or 8(e) of the 1933 Act, and the Company is not the subject of a pending proceeding under Section 8A of the 1933 Act in connection with the offering of the Securities.

 

(xxx)        Trials and Studies.  Any clinical trials and human studies conducted by the Company and, to the knowledge of the Company, any clinical trials and human studies conducted on behalf of the Company or in which the Company has participated were and, if still pending, are being conducted in accordance with standard medical and scientific research procedures and any applicable rules, regulations and policies of the jurisdiction in which such trials and studies are being conducted, except where the failure to be so conducted would not reasonably be expected to have a Material Adverse Effect.

 

(xxxi)       Regulatory Compliance.  The Company has operated and currently is in compliance with all applicable rules, regulations and policies of the FDA, except where the failure to so operate or be in compliance would not reasonably be expected to have a Material Adverse Effect on the Company and its subsidiaries taken as a whole.

 

(b)           Officer’s Certificates.  Any certificate signed by any officer of the Company or any of its subsidiaries or delivered to the Representatives or to counsel for the Underwriters shall be deemed a representation and warranty by the Company to each Underwriter as to the matters covered thereby.

 

SECTION 2.  Sale and Delivery to Underwriters; Closing.

 

(a)           Initial Securities.  On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from the Company, at the price per share set forth in Schedule D, the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter, plus any additional number of Initial Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof, bears to the total number of Initial Securities, subject, in each case, to such adjustments among the Underwriters as the Representatives in their sole discretion shall make to eliminate any sales or purchases of fractional securities.

 

(b)           Option Securities.  In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby grants an option to the Underwriters, severally and not jointly, to purchase up to an additional 600,000 shares of Common

 

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Stock, at the price per share set forth in Schedule D, less an amount per share equal to any dividends or distributions declared by the Company and payable on the Initial Securities but not payable on the Option Securities.  The option hereby granted will expire 30 days after the date hereof and may be exercised in whole or in part from time to time only for the purpose of covering overallotments which may be made in connection with the offering and distribution of the Initial Securities upon written notice by Merrill Lynch to the Company setting forth the number of Option Securities as to which the several Underwriters are then exercising the option and the time and date of payment and delivery for such Option Securities.  Any such time and date of delivery (a “Date of Delivery”) shall be at least two business days after written notice is given as determined by Merrill Lynch, but shall not be later than seven full business days after the exercise of said option, nor in any event prior to the Closing Time, as hereinafter defined.  If the option is exercised as to all or any portion of the Option Securities, each of the Underwriters, acting severally and not jointly, will purchase that proportion of the total number of Option Securities then being purchased which the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter bears to the total number of Initial Securities, subject in each case to such adjustments as Merrill Lynch in its discretion shall make to eliminate any sales or purchases of fractional shares.

 

(c)           Payment.  Payment of the purchase price for, and delivery of, the Initial Securities shall be made at the offices of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, 155 Constitution Drive, Menlo Park, California, or at such other place as shall be agreed upon by the Representatives and the Company at 9:00 A.M. (Eastern time) on the third (fourth, if the pricing occurs after 4:30 P.M. (Eastern time) on any given day) business day after the date hereof (unless postponed in accordance with the provisions of Section 10), or such other time not later than ten business days after such date as shall be agreed upon by the Representatives and the Company (such time and date of payment and delivery being herein called “Closing Time”).

 

In addition, in the event that any or all of the Option Securities are purchased by the Underwriters, payment of the purchase price for, and delivery of, such Option Securities shall be made at the above-mentioned offices, or at such other place as shall be agreed upon by the Representatives and the Company, on each Date of Delivery as specified in the notice from the Representatives to the Company.

 

Payment shall be made to the Company by wire transfer of immediately available funds to bank accounts designated by the Company against delivery to the Representatives for the respective accounts of the Underwriters of the Securities to be purchased by them.  It is understood that each Underwriter has authorized the Representatives, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Initial Securities and the Option Securities, if any, which it has agreed to purchase.  Merrill Lynch, individually and not as representative of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Initial Securities or the Option Securities, if any, to be purchased by any Underwriter whose funds have not been received by the Closing Time or the relevant Date of Delivery, as the case may be, but such payment shall not relieve such Underwriter from its obligations hereunder.

 

(d)           Denominations; Registration.  The Initial Securities and the Option Securities, if any, shall be in such denominations and registered in such names as the Representatives may request in writing at least two full business days before the Closing Time or the relevant Date of Delivery, as the case may be.  A specimen of the certificate for the Initial Securities and the Option Securities, if any, will be made available for examination and packaging by the Representatives in The City of New York not later than 10:00 A.M. (Eastern time) on the business day prior to the Closing Time or the relevant Date of Delivery, as the case may be.

 

SECTION 3.  Covenants of the Company.  The Company covenants with each Underwriter as follows:

 

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(a)           Compliance with Securities Regulations and Commission Requests; Payment of Filing Fees.  The Company, subject to Section 3(b), will comply with the requirements of Rule 430B and will notify the Representatives immediately, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement or new registration statement relating to the Securities shall become effective, or any supplement to the Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or the filing of a new registration statement or any amendment or supplement to the Prospectus or any document incorporated by reference therein or otherwise deemed to be a part thereof or for additional information, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or such new registration statement or of any order preventing or suspending the use of any preliminary prospectus, or of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes or of any examination pursuant to Section 8(e) of the 1933 Act concerning the Registration Statement and (v) if the Company becomes the subject of a proceeding under Section 8A of the 1933 Act in connection with the offering of the Securities.  The Company will effect the filings required under Rule 424(b), in the manner and within the time period required by Rule 424(b) (without reliance on Rule 424(b)(8)), and will take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus.  The Company will make every reasonable effort to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment.  The Company shall pay the required Commission filing fees relating to the Securities within the time required by Rule 456(b)(1)(i) of the 1933 Act Regulations without regard to the proviso therein and otherwise in accordance with Rules 456(b) and 457(r) of the 1933 Act Regulations (including, if applicable, by updating the “Calculation of Registration Fee” table in accordance with Rule 456(b)(1)(ii) either in a post-effective amendment to the Registration Statement or on the cover page of a prospectus filed pursuant to Rule 424(b)).

 

(b)           Filing of Amendments and Exchange Act Documents.  The Company will give the Representatives notice of its intention to file or prepare any amendment to the Registration Statement or new registration statement relating to the Securities or any amendment, supplement or revision to either any preliminary prospectus (including any prospectus included in the Original Registration Statement or amendment thereto at the time it became effective) or to the Prospectus, whether pursuant to the 1933 Act, the 1934 Act or otherwise, and the Company will furnish the Representatives with copies of any such documents a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file or use any such document to which the Representatives or counsel for the Underwriters shall object. The Company has given the Representatives notice of any filings made pursuant to the 1934 Act or 1934 Act Regulations within 48 hours prior to the Applicable Time; the Company will give the Representatives notice of its intention to make any such filing from the Applicable Time to the Closing Time and will furnish the Representatives with copies of any such documents a reasonable amount of time prior to such proposed filing and will not file or use any such document to which the Representatives or counsel for the Underwriters shall object.

 

(c)           Delivery of Registration Statements.  The Company has furnished or will deliver to the Representatives and counsel for the Underwriters, without charge, signed copies of the Original Registration Statement and of each amendment thereto (including exhibits filed therewith or incorporated by reference therein and documents incorporated or deemed to be incorporated by reference therein or otherwise deemed to be a part thereof) and signed copies of

 

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all consents and certificates of experts, and will also deliver to the Representatives, without charge, a conformed copy of the Original Registration Statement and of each amendment thereto (without exhibits) for each of the Underwriters.  The copies of the Original Registration Statement and each amendment thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.

 

(d)           Delivery of Prospectuses.  The Company has delivered to each Underwriter, without charge, as many copies of each preliminary prospectus as such Underwriter reasonably requested, and the Company hereby consents to the use of such copies for purposes permitted by the 1933 Act.  The Company will furnish to each Underwriter, without charge, during the period when the Prospectus is required to be delivered under the 1933 Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request.  The Prospectus and any amendments or supplements thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.

 

(e)           Continued Compliance with Securities Laws.  The Company will comply with the 1933 Act and the 1933 Act Regulations and the 1934 Act and the 1934 Act Regulations so as to permit the completion of the distribution of the Securities as contemplated in this Agreement and in the Prospectus.  If at any time when a prospectus is required by the 1933 Act to be delivered in connection with sales of the Securities, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Company, to amend the Registration Statement or amend or supplement the Prospectus in order that the Prospectus will not include any untrue statements of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, or if it shall be necessary, in the opinion of such counsel, at any such time to amend the Registration Statement or to file a new registration statement or amend or supplement the Prospectus in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and file with the Commission, subject to Section 3(b), such amendment, supplement or new registration statement as may be necessary to correct such statement or omission or to comply with such requirements, the Company will use its best efforts to have such amendment or new registration statement declared effective as soon as practicable (if it is not an automatic shelf registration statement with respect to the Securities) and the Company will furnish to the Underwriters such number of copies of such amendment, supplement or new registration statement as the Underwriters may reasonably request.  If at any time following issuance of an Issuer Free Writing Prospectus there occurred or occurs an event or development as a result of which such Issuer Free Writing Prospectus conflicted or would conflict with the information contained in the Registration Statement (or any other registration statement relating to the Securities) or the Statutory Prospectus or any preliminary prospectus or included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances prevailing at that subsequent time, not misleading, the Company will promptly notify Merrill Lynch and will promptly amend or supplement, at its own expense, such Issuer Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission.

 

(f)            Blue Sky Qualifications.  The Company will cooperate with the Underwriters, to qualify the Securities for offering and sale under the applicable securities laws of such states and other jurisdictions (domestic or foreign) as the Representatives may designate and to maintain such qualifications in effect for a period of not less than one year from the date hereof; provided,

 

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however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject.

 

(g)           Rule 158.  The Company will timely file such reports pursuant to the 1934 Act as are necessary in order to make generally available to its securityholders as soon as practicable an earnings statement for the purposes of, and to provide to the Underwriters the benefits contemplated by, the last paragraph of Section 11(a) of the 1933 Act.

 

(h)           Use of Proceeds.  The Company will use the net proceeds received by it from the sale of the Securities in the manner specified in the Prospectus under “Use of Proceeds”.

 

(i)            Listing.  The Company will use its best efforts to effect and maintain the quotation of the Securities on the Nasdaq National Market.

 

(j)            Restriction on Sale of Securities.  During a period of 90 days from the date of the Prospectus, the Company will not, without the prior written consent of Merrill Lynch, (i) directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of any share of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or file any registration statement under the 1933 Act with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Stock, whether any such swap or transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise.  The foregoing sentence shall not apply to the (A) Securities to be sold hereunder, (B) any shares of Common Stock issued pursuant to outstanding options or other rights under the Company’s existing stock option plans or other employee benefit plans, in each case as described in the Prospectus (C) any options to purchase shares of Common Stock granted under the Company’s existing stock option plans or other employee benefit plans, in each case as described in the Prospectus; provided that such options shall not be vested and exercisable prior to the expiration of the lock-up period as described in Exhibit B hereto, (D) any shares of Common Stock issued by the Company upon the exercise of any other option or warrant or the conversion of a security outstanding on the date hereof and referred to in the Prospectus or (E) any shares of Common Stock issued by the Company pursuant to the Company’s Employee Stock Purchase Plan as described in the Prospectus.

 

(k)           Reporting Requirements.  The Company, during the period when the Prospectus is required to be delivered under the 1933 Act, will file all documents required to be filed with the Commission pursuant to the 1934 Act within the time periods required by the 1934 Act and the 1934 Act Regulations.

 

(l)            Issuer Free Writing Prospectuses.  The Company represents and agrees that, unless it obtains the prior consent of the Representative, and each Underwriter represents and agrees that, unless it obtains the prior consent of the Company and the Representative, it has not made and will not make any offer relating to the Securities that would constitute an “issuer free writing prospectus,” as defined in Rule 433, or that would otherwise constitute a “free writing prospectus,” as defined in Rule 405, required to be filed with the Commission.  Any such free writing prospectus consented to by the Company and the Representative is hereinafter referred to as a “Permitted Free Writing Prospectus.”  The Company represents that it has treated or agrees

 

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that it will treat each Permitted Free Writing Prospectus as an “issuer free writing prospectus,” as defined in Rule 433, and has complied and will comply with the requirements of Rule 433 applicable to any Permitted Free Writing Prospectus, including timely filing with the Commission where required, legending and record keeping.

 

SECTION 4.  Payment of Expenses.

 

(a)           Expenses.  The Company will pay or cause to be paid all expenses incident to the performance of their obligations under this Agreement, including (i) the preparation, printing and filing of the Registration Statement (including financial statements and exhibits) as originally filed and of each amendment thereto, (ii) the preparation, printing and delivery to the Underwriters of this Agreement, any Agreement among Underwriters and such other documents as may be required in connection with the offering, purchase, sale, issuance or delivery of the Securities, (iii) the preparation, issuance and delivery of the certificates for the Securities to the Underwriters, including any stock or other transfer taxes and any stamp or other duties payable upon the sale, issuance or delivery of the Securities to the Underwriters, (iv) the fees and disbursements of the Company’s counsel, accountants and other advisors, (v) the qualification of the Securities under securities laws in accordance with the provisions of Section 3(f) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of the Blue Sky Survey and any supplement thereto, (vi) the printing and delivery to the Underwriters of copies of each preliminary prospectus, any Permitted Free Writing Prospectus and of the Prospectus and any amendments or supplements thereto and any costs associated with electronic delivery of any of the foregoing by the Underwriters to investors, (vii) the preparation, printing and delivery to the Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii) the fees and expenses of any transfer agent or registrar for the Securities, (ix) the costs and expenses of the Company relating to investor presentations on any “road show” undertaken in connection with the marketing of the Securities, including without limitation, expenses associated with the production of road show slides and graphics, fees and expenses of any consultants engaged with the Company’s consent in connection with the road show presentations, travel and lodging expenses of the representatives and officers of the Company and any such consultants, and the cost of aircraft and other transportation chartered with the Company’s consent in connection with the road show, (x) the filing fees incident to, and the reasonable fees and disbursements of counsel to the Underwriters in connection with, the review by the National Association of Securities Dealers, Inc. (the “NASD”) of the terms of the sale of the Securities, (xi) the fees and expenses incurred in connection with the inclusion of the Securities in the Nasdaq National Market and (xii) the costs and expenses (including without limitation any damages or other amounts payable in connection with legal or contractual liability) associated with the reforming of any contracts for sale of the Securities made by the Underwriters caused by a breach of the representation contained in the sixth paragraph of Section 1(a)(ii).  It is understood that, subject to this section and Section 4(b), the Underwriters will pay all of their costs and expenses, including fees and disbursements of their counsel and any advertising expenses connected with any offers they may make.

 

(b)           Termination of Agreement.  If this Agreement is terminated by the Representatives in accordance with the provisions of Section 5, Section 9(a)(i) or Section 11 hereof, the Company shall reimburse the Underwriters for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters.

 

SECTION 5.  Conditions of Underwriters’ Obligations.  The obligations of the several Underwriters hereunder are subject to the accuracy of the representations and warranties of the Company contained in Section 1 hereof or in certificates of any officer of the Company delivered pursuant to the provisions hereof, to the performance by the Company of its covenants and other obligations hereunder that are required to be performed or satisfied by it at or prior to the Closing Time, and to the following further conditions:

 

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(a)           Effectiveness of Registration Statement; Filing of Prospectus; Payment of Filing Fee.  The Registration Statement has become effective and at Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission, and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of counsel to the Underwriters.  A prospectus containing the Rule 430B Information shall have been filed with the Commission in the manner and within the time period required by Rule 424(b) without reliance on Rule 424(b)(8) (or a post-effective amendment providing such information shall have been filed and become effective in accordance with the requirements of Rule 430B).  The Company shall have paid the required Commission filing fees relating to the Securities within the time period required by Rule 456(b)(1)(i) of the 1933 Act Regulations without regard to the proviso therein and otherwise in accordance with Rules 456(b) and 457(r) of the 1933 Act Regulations and, if applicable, shall have updated the “Calculation of Registration Fee” table in accordance with Rule 456(b)(1)(ii) either in a post-effective amendment to the Registration Statement or on the cover page of a prospectus filed pursuant to Rule 424(b).

 

(b)           Opinion of Counsel for Company.  At Closing Time, the Representatives shall have received an opinion, dated as of Closing Time, of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel for the Company, in form and substance reasonably satisfactory to counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters to the effect set forth in Exhibit A hereto and to such further effect as counsel to the Underwriters may reasonably request.

 

(c)           Opinion of Counsel for Underwriters.  At Closing Time, the Representatives shall have received an opinion, dated as of Closing Time, of Davis Polk & Wardwell, counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters in form and substance reasonably satisfactory to the Underwriters.

 

(d)           Officers’ Certificate.  At Closing Time, there shall not have been, since the date hereof or since the respective dates as of which information is given in the Prospectus or the General Disclosure Package, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, and the Representatives shall have received a certificate of the Chief Executive Officer or a Vice President of the Company and of the chief financial or chief accounting officer of the Company, dated as of Closing Time, to the effect that (i) there has been no such material adverse change, (ii) the representations and warranties in Section 1(a) hereof are true and correct with the same force and effect as though expressly made at and as of Closing Time, (iii) the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to Closing Time, and (iv) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or, to their knowledge, contemplated by the Commission.

 

(e)           Accountant’s Comfort Letter.  At the time of the execution of this Agreement, the Representatives shall have received from Ernst & Young LLP a letter dated such date, in form and substance reasonably satisfactory to the Representatives, together with signed or reproduced copies of such letter for each of the other Underwriters containing statements and information of the type ordinarily included in accountants’ “comfort letters” to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement, the General Disclosure Package or the Prospectus as of the Applicable Time.

 

(f)            Bring-down Comfort Letter.  At Closing Time, the Representatives shall have received from Ernst & Young LLP a letter, dated as of Closing Time, to the effect that they reaffirm the statements

 

16


 

made in the letter furnished pursuant to subsection (e) of this Section, except that the specified date referred to shall be a date not more than three business days prior to Closing Time.

 

(g)           Approval of Listing.  At Closing Time, the Securities shall have been approved for inclusion in the Nasdaq National Market, subject only to official notice of issuance.

 

(h)           No Objection.  The NASD has confirmed that it has not raised any objection with respect to the fairness and reasonableness of the underwriting terms and arrangements.

 

(i)            Lock-up Agreements.  At the date of this Agreement, the Representatives shall have received an agreement substantially in the form of Exhibit B hereto signed by the persons listed on Schedule F hereto.

 

(j)            Conditions to Purchase of Option Securities.  In the event that the Underwriters exercise their option provided in Section 2(b) hereof to purchase all or any portion of the Option Securities, the representations and warranties of the Company contained herein and the statements in any certificates furnished by the Company and its subsidiaries hereunder shall be true and correct as of each Date of Delivery and, at the relevant Date of Delivery, the Representatives shall have received:

 

(i)                                     Officers’ Certificate.  A certificate, dated such Date of Delivery, of the Chief Executive Officer or a Vice President of the Company and of the chief financial or chief accounting officer of the Company confirming that the certificate delivered at the Closing Time pursuant to Section 5(d) hereof remains true and correct as of such Date of Delivery.

 

(iii)                               Opinion of Counsel for Company.  An opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel for the Company, in form and substance reasonably satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(b) hereof.

 

(iv)                              Opinion of Counsel for Underwriters.  An opinion of Davis Polk & Wardwell, counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(c) hereof.

 

(v)                                 Bring-down Comfort Letter.  A letter from Ernst & Young LLP, in form and substance reasonably satisfactory to the Representatives and dated such Date of Delivery, substantially in the same form and substance as the letter furnished to the Representatives pursuant to Section 5(f) hereof, except that the “specified date” in the letter furnished pursuant to this paragraph shall be a date not more than five days prior to such Date of Delivery.

 

(k)           Additional Documents.  At Closing Time and at each Date of Delivery counsel for the Underwriters shall have been furnished with such documents and opinions as they may reasonably require for the purpose of enabling them to pass upon the issuance and sale of the Securities as herein contemplated.

 

(l)            Termination of Agreement.  If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement, or, in the case of any condition to the

 

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purchase of Option Securities on a Date of Delivery which is after the Closing Time, the obligations of the several Underwriters to purchase the relevant Option Securities, may be terminated by the Representatives by notice to the Company at any time at or prior to Closing Time or such Date of Delivery, as the case may be, and such termination shall be without liability of any party to any other party except as provided in Section 4 and except that Sections 1, 6, 7 and 8 shall survive any such termination and remain in full force and effect.

 

SECTION 6.  Indemnification.

 

(a)           Indemnification of Underwriters.  The Company agrees to indemnify and hold harmless each Underwriter, its affiliates, as such term is defined in Rule 501(b) under the 1933 Act (each, an “Affiliate”), and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:

 

(i)            against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the Rule 430B Information, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact included in any preliminary prospectus, any Issuer Free Writing Prospectus or the Prospectus (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;

 

(ii)           against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Section 6(d) below) any such settlement is effected with the written consent of the Company;

 

(iii)          against any and all expense whatsoever, as reasonably incurred (including the fees and disbursements of counsel chosen by Merrill Lynch), in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above;

 

provided, however, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by any Underwriter directly or through Merrill Lynch expressly for use in the Registration Statement (or any amendment thereto), including the Rule 430B Information, or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto).

 

(b)           Indemnification of Company, Directors and Officers.  Each Underwriter severally agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating

 

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any such action or claim), as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto), including the Rule 430B Information or any preliminary prospectus, any Issuer Free Writing Prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such Underwriter directly or through Merrill Lynch expressly for use therein.

 

(c)           Actions against Parties; Notification.  Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement.  In the case of parties indemnified pursuant to Section 6(a) above, counsel to the indemnified parties shall be selected by Merrill Lynch, and, in the case of parties indemnified pursuant to Section 6(b) above, counsel to the indemnified parties shall be selected by the Company.  An indemnifying party may participate at its own expense in the defense of any such action; provided, however, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified party.  In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances.  No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 6 or Section 7 hereof (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party.

 

(d)           Settlement without Consent if Failure to Reimburse.  If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 6(a)(ii) effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement.

 

SECTION 7.  Contribution.  If the indemnification provided for in Section 6 hereof is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Securities pursuant to this Agreement or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the Underwriters on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations.

 

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The relative benefits received by the Company on the one hand and the Underwriters on the other hand in connection with the offering of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Securities pursuant to this Agreement (before deducting expenses) received by the Company and the total underwriting discount received by the Underwriters, in each case as set forth on the cover of the Prospectus bear to the aggregate initial public offering price of the Securities as set forth on the cover of the Prospectus.

 

The relative fault of the Company on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

 

The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 7.  The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 7 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission.

 

Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of any such untrue or alleged untrue statement or omission or alleged omission.

 

No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

 

For purposes of this Section 7, each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act and each Underwriter’s Affiliates shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company.  The Underwriters’ respective obligations to contribute pursuant to this Section 7 are several in proportion to the number of Initial Securities set forth opposite their respective names in Schedule A hereto and not joint.

 

SECTION 8.  Representations, Warranties and Agreements to Survive.  All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company or any of its subsidiaries submitted pursuant hereto, shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of any Underwriter or its Affiliates, any person controlling any Underwriter, its officers or directors or any person controlling the Company and (ii) delivery of and payment for the Securities.

 

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SECTION 9.  Termination of Agreement.

 

(a)           Termination; General.  The Representatives may terminate this Agreement, by notice to the Company, at any time at or prior to Closing Time (i) if there has been, since the time of execution of this Agreement or since the respective dates as of which information is given in the Prospectus or the General Disclosure Package, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets in the United States or the international financial markets, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to make it, in the judgment of the Representatives, impracticable or inadvisable to market the Securities or to enforce contracts for the sale of the Securities, or (iii) if trading in any securities of the Company has been suspended or materially limited by the Commission or the Nasdaq National Market, or if trading generally on the American Stock Exchange or the New York Stock Exchange or in the Nasdaq National Market has been suspended or materially limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by such system or by order of the Commission, the National Association of Securities Dealers, Inc. or any other governmental authority, or (iv) a material disruption has occurred in securities settlement or payment or clearance services in the United States, or (v) if a commercial banking moratorium has been declared by either Federal or New York authorities.

 

(b)           Liabilities.  If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided further that Sections 1, 6, 7 and 8 shall survive such termination and remain in full force and effect.

 

SECTION 10.  Default by One or More of the Underwriters.  If one or more of the Underwriters shall fail at Closing Time or a Date of Delivery to purchase the Securities which it or they are obligated to purchase under this Agreement (the “Defaulted Securities”), the Representatives shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representatives shall not have completed such arrangements within such 24-hour period, then:

 

(i)            if the number of Defaulted Securities does not exceed 10% of the number of Securities to be purchased on such date, each of the non-defaulting Underwriters shall be obligated, severally and not jointly, to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or

 

(ii)           if the number of Defaulted Securities exceeds 10% of the number of Securities to be purchased on such date, this Agreement or, with respect to any Date of Delivery which occurs after the Closing Time, the obligation of the Underwriters to purchase and of the Company to sell the Option Securities to be purchased and sold on such Date of Delivery shall terminate without liability on the part of any non-defaulting Underwriter.

 

No action taken pursuant to this Section shall relieve any defaulting Underwriter from liability in respect of its default.

 

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In the event of any such default which does not result in a termination of this Agreement or, in the case of a Date of Delivery which is after the Closing Time, which does not result in a termination of the obligation of the Underwriters to purchase and the Company to sell the relevant Option Securities, as the case may be, either (i) the Representatives or (ii) the Company shall have the right to postpone Closing Time or the relevant Date of Delivery, as the case may be, for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements.  As used herein, the term “Underwriter” includes any person substituted for an Underwriter under this Section 10.

 

SECTION 11.  Default by the Company.  If the Company shall fail at Closing Time or at the Date of Delivery to sell the number of Securities that it is obligated to sell hereunder, then this Agreement shall terminate without any liability on the part of any nondefaulting party; provided, however, that the provisions of Sections 1, 4, 6, 7 and 8 shall remain in full force and effect.  No action taken pursuant to this Section shall relieve the Company from liability, if any, in respect of such default.

 

SECTION 12.  Notices.  All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication.  Notices to the Underwriters shall be directed to the Representatives at 4 World Financial Center, New York, New York 10080, attention of Global Origination Counsel; notices to the Company shall be directed to it at 901 Gateway Boulevard, South San Francisco, California 94080, attention of Chief Financial Officer.

 

SECTION 13.  No Advisory or Fiduciary Relationship.  The Company acknowledges and agrees that (a) the purchase and sale of the Securities pursuant to this Agreement, including the determination of the public offering price of the Securities and any related discounts and commissions, is an arm’s-length commercial transaction between the Company, on the one hand, and the several Underwriters, on the other hand, (b) in connection with the offering contemplated hereby and the process leading to such transaction each Underwriter is and has been acting solely as a principal and is not the agent or fiduciary of the Company, or its stockholders, creditors, employees or any other party, (c) no Underwriter has assumed or will assume an advisory or fiduciary responsibility in favor of the Company with respect to the offering contemplated hereby or the process leading thereto (irrespective of whether such Underwriter has advised or is currently advising the Company on other matters) and no Underwriter has any obligation to the Company with respect to the offering contemplated hereby except the obligations expressly set forth in this Agreement, (d) the Underwriters and their respective affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Company, and (e) the Underwriters have not provided any legal, accounting, regulatory or tax advice with respect to the offering contemplated hereby and the Company has consulted its own legal, accounting, regulatory and tax advisors to the extent it deemed appropriate.

 

SECTION 14.  Integration.  This Agreement supersedes all prior agreements and understandings (whether written or oral) between the Company and the Underwriters, or any of them, with respect to the subject matter hereof.

 

SECTION 15.  Parties.  This Agreement shall each inure to the benefit of and be binding upon the Underwriters and the Company and their respective successors.  Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Underwriters and the Company and their respective successors and the controlling persons and officers and directors referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained.  This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Underwriters and the Company and their respective successors, and said controlling persons

 

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and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation.  No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase.

 

SECTION 16.  GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

 

SECTION 17.  TIME. TIME SHALL BE OF THE ESSENCE OF THIS AGREEMENT. EXCEPT AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.

 

SECTION 18.  Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement.

 

SECTION 19.  Effect of Headings.  The Section headings herein are for convenience only and shall not affect the construction hereof.

 

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If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the Underwriters and the Company in accordance with its terms.

 

 

Very truly yours,

 

 

 

THERAVANCE, INC.

 

 

 

By

 

 

 

 

Name:

 

 

Title:

 

CONFIRMED AND ACCEPTED,
as of the date first above written:

 

 

MERRILL LYNCH & CO.

MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED

HSBC SECURITIES (USA) INC.

THOMAS WEISEL PARTNERS LLC

 

By: MERRILL LYNCH, PIERCE, FENNER & SMITH

INCORPORATED

 

 

By

 

 

 

Authorized Signatory

 

 

For themselves and as Representatives of the other Underwriters named in Schedule A hereto.

 

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EXHIBIT 5.1

January 30, 2006

Theravance, Inc.
901 Gateway Blvd.
South San Francisco, CA 94080

Re: REGISTRATION STATEMENT ON FORM S-3

Ladies and Gentlemen:

              We have examined the Registration Statement on Form S-3 filed by Theravance, Inc. (the "Company") with the Securities and Exchange Commission (the "Commission") on January 30, 2006 (the "Registration Statement"), in connection with the registration under the Securities Act of 1933, as amended, of up to 5,200,000 shares of the Company's Common Stock (the "Shares"). The Shares, which include an over-allotment option granted by the Company to the Underwriters to purchase up to 600,000 additional shares of the Company's Common Stock, are to be sold to the Underwriters by the Company as described in the Registration Statement. As your counsel in connection with this transaction, we have examined the proceedings taken by you in connection with the sale of the Shares.

              It is our opinion that, upon completion of the proceedings being taken or contemplated by us, as your counsel, to be taken prior to the issuance of the Shares and upon completion of the proceedings being taken in order to permit such transactions to be carried out in accordance with the securities laws of the various states where required, the Shares being sold by the Company, when issued and sold in the manner described in the Registration Statement and in accordance with the resolutions adopted by the Board of Directors of the Company, will be legally and validly issued, fully paid and non-assessable.

              We consent to the use of this opinion as an exhibit to the said Registration Statement, and further consent to the use of our name wherever appearing in said Registration Statement, including the prospectus constituting a part thereof, and in any amendment or supplement thereto.

              Very truly yours,

        /s/    GUNDERSON DETTMER STOUGH
VILLENEUVE FRANKLIN & HACHIGIAN, LLP



Exhibit 10.1

 

CONFIDENTIAL

 

EXECUTION
COPY

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

 

LICENSE, DEVELOPMENT AND COMMERCIALIZATION AGREEMENT

 

by and between

 

THERAVANCE, INC.

 

and

 

ASTELLAS PHARMA INC.

 

 

Dated:  November 7, 2005

 


 

TABLE OF CONTENTS

 

 

 

 

Page

 

 

 

 

ARTICLE 1

DEFINITIONS

 

1

Section 1.01

“Adverse Drug Experience”

 

1

Section 1.02

“Affiliate”

 

1

Section 1.03

“Anti-Infective Franchise Plan”

 

2

Section 1.04

“API Compound”

 

2

Section 1.05

“ASTELLAS IP”

 

2

Section 1.06

“ASTELLAS Invention”

 

2

Section 1.07

“ASTELLAS Know-How”

 

2

Section 1.08

“ASTELLAS Patents”

 

2

Section 1.09

“ASTELLAS Product Trademark”

 

3

Section 1.10

“Basic Commercial Plan”

 

3

Section 1.11

“Basic Development Plan”

 

3

Section 1.12

“Breaching Party”

 

3

Section 1.13

“Business Day”

 

3

Section 1.14

“Calendar Quarter”

 

3

Section 1.15

“Calendar Month”

 

3

Section 1.16

“Calendar Year”

 

3

Section 1.17

“Claim”

 

3

Section 1.18

“Commercial Manufacture”

 

3

Section 1.19

“Commercialization”

 

4

Section 1.20

“Confidential Information”

 

4

Section 1.21

“Contracting Issues”

 

5

Section 1.22

“Control”

 

5

Section 1.23

“Cost Of Goods Sold”

 

5

Section 1.24

“Country”

 

6

Section 1.25

“cSSSI”

 

6

Section 1.26

“Deployment Issues”

 

6

Section 1.27

“Designated Foreign Filings”

 

6

Section 1.28

“Detailed Development Plan”

 

6

Section 1.29

“Development” or “Develop”

 

6

Section 1.30

“Diligent Efforts”

 

7

Section 1.31

“Disclosing Party”

 

8

Section 1.32

“Distribution Issues”

 

8

Section 1.33

“DMF”

 

8

Section 1.34

“Due Diligence Notice Date”

 

8

Section 1.35

“Economic Integration Period”

 

8

Section 1.36

“Effective Date”

 

8

Section 1.37

“FDA”

 

8

Section 1.38

“Field”

 

8

Section 1.39

“Filing”

 

8

Section 1.40

“First Commercial Sale”

 

9

Section 1.41

“First Commercial Sale Stock”

 

9

 

1


 

Section 1.42

“Force Majeure Event”

 

9

Section 1.43

“Governmental Authority”

 

9

Section 1.44

“HAP”

 

9

Section 1.45

“Hatch-Waxman Certification”

 

9

Section 1.46

“Housemark”

 

9

Section 1.47

“Indemnified Party”

 

9

Section 1.48

“Indemnifying Party”

 

9

Section 1.49

“Initial Indications”

 

9

Section 1.50

“Invention”

 

9

Section 1.51

“Issue of Necessity”

 

9

Section 1.52

[*]

 

10

Section 1.53

[*]

 

10

Section 1.54

“Joint Invention”

 

10

Section 1.55

“JSC”

 

10

Section 1.56

“Know-How”

 

10

Section 1.57

“Know-How Royalty Term”

 

10

Section 1.58

“Last Patient, Last Visit”

 

10

Section 1.59

“Laws”

 

10

Section 1.60

“Licensed Product”

 

10

Section 1.61

“Litigation Condition”

 

10

Section 1.62

“Losses”

 

10

Section 1.63

“Major Market Country”

 

11

Section 1.64

“Marketing Authorization”

 

11

Section 1.65

“Medical Marketing Plan”

 

11

Section 1.66

“Milestone”

 

11

Section 1.67

“NDA”

 

11

Section 1.68

“NDA Approval”

 

11

Section 1.69

“NDA Filing”

 

11

Section 1.70

“NDA Holder”

 

11

Section 1.71

“Net Sales”

 

11

Section 1.72

“Net Sales Report”

 

12

Section 1.73

“Opt-In Right”

 

12

Section 1.74

“Other Indications”

 

13

Section 1.75

“OUS”

 

13

Section 1.76

“Patents”

 

13

Section 1.77

“Patent Infringement Claim”

 

13

Section 1.78

“Patent Infringement Notice”

 

13

Section 1.79

“Patent Resolution Issue”

 

13

Section 1.80

“Payment Period”

 

13

Section 1.81

“Person”

 

13

Section 1.82

“Phase 3a Studies”

 

13

Section 1.83

“Phase 3b Studies”

 

13

Section 1.84

“Phase 4 Studies”

 

13

Section 1.85

“POC Data”

 

13

Section 1.86

“Plan”

 

14

Section 1.87

“PRC”

 

14

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

2


 

Section 1.88

“Product Supplier”

 

14

Section 1.89

“Promotional Materials”

 

14

Section 1.90

“Promotional/MedEd Issues”

 

14

Section 1.91

“Promotional/MedEd Spending”

 

14

Section 1.92

“Receiving Party”

 

14

Section 1.93

“Recording Party”

 

14

Section 1.94

“Registration Batches”

 

14

Section 1.95

“Registration Expenses”

 

14

Section 1.96

“Samples”

 

14

Section 1.97

[*]

 

15

Section 1.98

[*]

 

15

Section 1.99

“Signing Date”

 

15

Section 1.100

“Studies”

 

15

Section 1.101

“Supplied Licensed Product”

 

15

Section 1.102

[*]

 

15

Section 1.103

“Taxes”

 

15

Section 1.104

“TD-1792 Compound”

 

15

Section 1.105

“TD-1792 Phase 3 Study”

 

15

Section 1.106

“TELAVANCIN”

 

15

Section 1.107

“TELAVANCIN Product Management Team”

 

15

Section 1.108

“Term-Additional”

 

15

Section 1.109

“Term-Basic”

 

16

Section 1.110

“Term-Total”

 

16

Section 1.111

“Territory”

 

16

Section 1.112

“THERAVANCE Compound”

 

16

Section 1.113

“THERAVANCE IP”

 

16

Section 1.114

“THERAVANCE Invention”

 

16

Section 1.115

“THERAVANCE Know-How”

 

17

Section 1.116

“THERAVANCE Patents”

 

17

Section 1.117

“THERAVANCE Product Trademark”

 

17

Section 1.118

“Third Party”

 

17

Section 1.119

“Third Party Claim”

 

17

Section 1.120

“United States”

 

17

Section 1.121

“Valid Claim”

 

17

ARTICLE 2

LICENSE RIGHTS AND OBLIGATIONS

 

18

Section 2.01

License Grants From THERAVANCE to ASTELLAS

 

18

Section 2.02

TD-1792 Option Grant To ASTELLAS

 

18

Section 2.03

Further Commercialization In The Field

 

19

Section 2.04

Right To Sublicense

 

19

Section 2.05

Right To Appoint Distributors

 

20

Section 2.06

Duration Of License Grants

 

20

Section 2.07

Trademarks And Housemarks

 

20

Section 2.08

Further THERAVANCE Inventions, In-Licensing and Updates to Exhibit A; Covenants

 

21

ARTICLE 3

GOVERNANCE

 

24

Section 3.01

Overviews

 

24

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

3


 

Section 3.02

Joint Steering Committee

 

25

Section 3.03

TELAVANCIN Product Management Team

 

28

Section 3.04

Budgeting

 

30

Section 3.05

Decision-Making

 

30

Section 3.06

Dispute Resolution

 

32

ARTICLE 4

DEVELOPMENT OF LICENSED PRODUCT

 

33

Section 4.01

Obligations For Development

 

33

Section 4.02

ASTELLAS Assistance

 

35

Section 4.03

Transfer Of THERAVANCE Know-How

 

35

Section 4.04

Certain Activities; Non-delegation

 

36

ARTICLE 5

COMMERCIALIZATION

 

37

Section 5.01

Medical Marketing Plans

 

37

Section 5.02

Obligations For Commercialization

 

38

Section 5.03

Commercialization

 

38

Section 5.04

Collaborative Working Meetings

 

40

Section 5.05

Compliance

 

40

Section 5.06

Respective Employees’ Status Not Changed

 

40

ARTICLE 6

FINANCIAL PROVISIONS

 

41

Section 6.01

Signing Payment

 

41

Section 6.02

Licensing Milestone Payments

 

41

AMOUNT

 

 

42

Section 6.03

Payment Of Royalties On Net Sales Of Licensed Product

 

43

Section 6.04

Net Sales Report

 

47

Section 6.05

U.S. GAAP

 

47

Section 6.06

Currencies

 

47

Section 6.07

Manner Of Payments

 

47

Section 6.08

Interest On Late Payments

 

47

Section 6.09

Tax

 

48

Section 6.10

Financial Records; Audits

 

48

ARTICLE 7

PROMOTIONAL MATERIALS AND SAMPLES

 

49

Section 7.01

Review Of Promotional Materials

 

49

Section 7.02

Markings Of Packaging And Promotional Materials

 

50

Section 7.03

Statements Consistent With Labeling

 

50

ARTICLE 8

REGULATORY MATTERS

 

50

Section 8.01

OUS Governmental Authorities

 

50

Section 8.02

United States Governmental Authorities

 

51

Section 8.03

Recalls Or Other Corrective Action

 

53

Section 8.04

Rights Of Reference To DMFs

 

53

Section 8.05

Events Affecting Integrity Or Reputation

 

54

ARTICLE 9

ORDERS; SUPPLY AND RETURNS

 

54

Section 9.01

Orders And Terms Of Sale To Third Parties

 

54

Section 9.02

Supply Of API Compound And Formulated Licensed Product For Development

 

54

Section 9.03

Supply Of API Compound For Commercialization

 

55

Section 9.04

Supply Of Licensed Product For Commercialization

 

55

 

4


 

Section 9.05

Inventories

 

55

Section 9.06

[*]

 

55

Section 9.07

Transition Assistance

 

56

ARTICLE 10

CONFIDENTIAL INFORMATION

 

57

Section 10.01

Confidential Information

 

57

Section 10.02

Permitted Disclosure And Use

 

57

Section 10.03

Publications

 

58

Section 10.04

Public Announcements

 

58

Section 10.05

Confidentiality Of This Agreement

 

59

Section 10.06

Termination Of Prior Confidentiality Agreements

 

59

Section 10.07

Survival

 

59

ARTICLE 11

REPRESENTATIONS AND WARRANTIES; COVENANTS

 

59

Section 11.01

Mutual Representations And Warranties

 

59

Section 11.02

Representations And Warranties Of THERAVANCE

 

60

Section 11.03

Acknowledgement Of ASTELLAS

 

62

Section 11.04

Limitations

 

62

Section 11.05

Covenants

 

63

ARTICLE 12

INDEMNIFICATION

 

63

Section 12.01

Indemnification By ASTELLAS

 

63

Section 12.02

Indemnification By THERAVANCE

 

63

Section 12.03

Procedure For Indemnification

 

64

Section 12.04

Assumption Of Defense

 

65

Section 12.05

Insurance

 

65

ARTICLE 13

PATENTS

 

66

Section 13.01

Prosecution And Maintenance Of Patents

 

66

Section 13.02

Patent Infringement

 

70

Section 13.03

Notice Of Certification

 

71

Section 13.04

Assistance

 

72

Section 13.05

Settlement

 

72

Section 13.06

Ownership Of Inventions

 

72

Section 13.07

Licensing Discussion Procedures

 

73

ARTICLE 14

TERM AND TERMINATION

 

74

Section 14.01

Term And Expiration Of Term

 

74

Section 14.02

Termination For Material Breach

 

74

Section 14.03

Terminations For Cause

 

75

Section 14.04

Contemporaneous Termination Of Opt-In Right

 

76

Section 14.05

Survival Of Obligations

 

76

Section 14.06

Survival of Provisions Upon Termination and/or Expiration

 

76

ARTICLE 15

CONSEQUENCES OF TERMINATION

 

77

Section 15.01

Termination And Handback Of License

 

77

Section 15.02

Termination Followed By Continued License

 

79

ARTICLE 16

MISCELLANEOUS

 

80

Section 16.01

Relationship Of The Parties

 

80

Section 16.02

Registration And Filing Of This Agreement

 

80

Section 16.03

Force Majeure

 

81

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

5


 

Section 16.04

Governing Law

 

81

Section 16.05

Attorneys’ Fees And Related Expenses

 

81

Section 16.06

Assignment

 

81

Section 16.07

Performance by Affiliates

 

82

Section 16.08

Notices

 

82

Section 16.09

Limitation on Liability

 

83

Section 16.10

Severability

 

84

Section 16.11

Headings; Interpretation

 

84

Section 16.12

Waiver

 

84

Section 16.13

Entire Agreement

 

84

Section 16.14

No License

 

84

Section 16.15

Third Party Beneficiaries

 

85

Section 16.16

Counterparts

 

85

Section 16.17

Single Closing Condition

 

85

 

6


 

AGREEMENT

 

This AGREEMENT (“Agreement”) dated November 7, 2005, is made by and between THERAVANCE, Inc., a Delaware corporation, and having its principal office at 901 Gateway Boulevard, South San Francisco, California 94080 (“THERAVANCE”), and ASTELLAS PHARMA INC., a Japanese corporation, and having its principal office at 3-11, Nihonbashi-Honcho 2-chome, Chuo-ku, Tokyo 103-8411, Japan (“ASTELLAS”).  THERAVANCE and ASTELLAS may be referred to as a “Party” or together, the “Parties”.

 

RECITALS

 

WHEREAS, THERAVANCE has discovered and is currently developing the proprietary compound identified as TELAVANCIN for use as a parenteral antibiotic;

 

WHEREAS, ASTELLAS performs development of pharmaceutical compounds and marketing of pharmaceutical products including in the anti-infective area; and

 

WHEREAS, ASTELLAS desires to obtain a license and to undertake development and commercialization activities with respect to TELAVANCIN, in collaboration with THERAVANCE, under the terms and conditions of this Agreement.

 

NOW, THEREFORE, in consideration of the foregoing premises and the representations, covenants and agreements contained herein, THERAVANCE and ASTELLAS, intending to be legally bound, hereby agree as follows:

 

ARTICLE 1

 

DEFINITIONS

 

For purposes of this Agreement, the following initially capitalized terms, whether used in the singular or plural, shall have the following meanings (with derivative forms of them being interpreted accordingly):

 

Section 1.01                                “Adverse Drug Experience” means any of: an “adverse drug experience,” a “life-threatening adverse drug experience,” a “serious adverse drug experience,” or an “unexpected adverse drug experience,” as those terms are defined in either 21 C.F.R.§312.32 or 21 C.F.R.§314.80.

 

Section 1.02                                “Affiliate” of a Party means any Person, whether de jure or de facto, that directly or indirectly controls, is controlled by, or is under common control with such Party for so long as such control exists, where “control” means the decision-making authority as to such Person and, further, where such control shall be presumed to exist where a Person owns more than fifty percent (50%) of the equity (or such lesser percentage which is the maximum allowed to be owned by a foreign corporation in a particular jurisdiction) having the power to vote on or direct the affairs of or elect the management of the entity.

 

1


 

Section 1.03                                “Anti-Infective Franchise Plan” shall mean that certain annual plan developed by [*] describing at a high level the basic principles for [*] to the extent [*] including the [*].

 

Section 1.04                                “API Compound” means bulk quantities of THERAVANCE Compound as an active pharmaceutical ingredient prior to the commencement of secondary manufacturing resulting in the Licensed Product.

 

Section 1.05                                “ASTELLAS IP” means ASTELLAS Know-How, ASTELLAS Patents, ASTELLAS Inventions, and any Patents claiming same, ASTELLAS Product Trademark and ASTELLAS’ interest in the Joint Inventions and any Patents claiming same.

 

Section 1.06                                “ASTELLAS Invention” means an Invention that is invented (a) by any employee(s) or agent(s) of ASTELLAS (and/or any of its Affiliates) whether solely, jointly among themselves, or jointly with one or more Third Party(ies) (including without limitation via the subcontractors and service providers of any of them performing Development or Commercialization); or (b) by any Third Party with which ASTELLAS or any of its Affiliates has contracted to perform Development and/or Commercialization hereunder, in each case to the full extent Controlled by ASTELLAS.

 

Section 1.07                                “ASTELLAS Know-How” means all present and future Know-How relating to the THERAVANCE Compound, Licensed Product or the ASTELLAS Inventions, including without limitation all data, records and regulatory filings relating to the THERAVANCE Compound or Licensed Product, that is necessary or useful for THERAVANCE to perform its obligations or exercise it rights under this Agreement, and which during the Term-Basic are in ASTELLAS’ or any of its Affiliates’ possession or control and are or become owned by, or otherwise may be licensed to, ASTELLAS, in all cases to the extent Controlled by ASTELLAS or any of its Affiliates.  ASTELLAS Know-How does not include ASTELLAS Patents (other than the information contained in unpublished applications). [*].

 

Section 1.08                                “ASTELLAS Patents” means all present and future patents and patent applications including United States provisional applications and any continuations, continuations-in-part, divisionals, registrations, confirmations, revalidations, re-examinations, renewals, reissues, Patent Cooperation Treaty applications, certificates of addition, utility models, design patents and petty patents, including without limitation extensions or restorations of terms thereof, pediatric use extensions, supplementary protection certificates or any other such right (“Patents”) that covers the making, having made, use, sale, offer for sale, or importation of THERAVANCE Compound or Licensed Product that are or become during the Term-Basic owned by ASTELLAS or ASTELLAS’ Affiliates, or as to which ASTELLAS or ASTELLAS’ Affiliates otherwise are or become during the Term-Basic licensed, now or in the future, in all cases solely to the extent ASTELLAS or any of its Affiliates Controls such Patent.

 

Section 1.09                                “ASTELLAS Product Trademark” means any and all trademarks and trade dress that ASTELLAS (or its Affiliates) may file to register and/or register and Control for Licensed Product in the Territory during the Term-Basic excluding any ASTELLAS Housemark.

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

2


 

Section 1.10                                “Basic Commercial Plan” means that certain plan for the pre-launch, achieving First Commercial Sale and medical marketing and promotion (in the first three (3) years after the first US Marketing Authorization is approved by the FDA) of TELAVANCIN for the Initial Indications in the US agreed to by the Parties in writing as of the Signing Date and containing a section on assumptions and objectives, a section on commitments and an appendix with background information.  The Basic Commercial Plan assumes successful completion of the activities called for in the Basic Development Plan.

 

Section 1.11                                “Basic Development Plan” shall mean that certain Development plan for the clinical Development of TELAVANCIN for the Initial Indications for the United States agreed to by the Parties in writing as of the Signing Date and containing a section on assumptions and objectives, a section on commitments and an appendix with background information.

 

Section 1.12                                “Breaching Party” shall have the meaning set forth in Section 14.02.

 

Section 1.13                                “Business Day” means any day on which commercial banks in New York City, New York, United States are open for business.

 

Section 1.14                                “Calendar Quarter” means for each Calendar Year, each of the three-month periods beginning in January, April, July and October.

 

Section 1.15                                “Calendar Month” means for each Calendar Year, each of the one-month periods.

 

Section 1.16                                “Calendar Year” means, for the first calendar year, the period commencing on the Effective Date and ending on December 31 of the calendar year during which the Effective Date occurs, and each successive period beginning on January 1 and ending twelve (12) consecutive calendar months later on December 31.

 

Section 1.17                                “Claim” means all charges, complaints, actions, suits, proceedings, hearings, investigations, claims and demands.

 

Section 1.18                                “Commercial Manufacture” means all activities relating to supply of Licensed Product for Phase 3b Studies and Phase 4 Studies and for all commercial supply of API Compound and Licensed Product after THERAVANCE’s delivery of the First Commercial Sale Stock.  This includes without limitation formulation, fill, finish, QA, QC, and all analytical methods development.

 

Section 1.19                                “Commercialization” means any and all activities directed to conducting Phase 3b Studies and Phase 4 Studies; marketing, promoting, distributing, offering for sale and selling the Licensed Product; and importing the Licensed Product (to the extent applicable).  Commercialization includes (without limitation) Commercial Manufacture.  When used as a verb, “Commercialize” means to engage in Commercialization.

 

Section 1.20                                “Confidential Information” means all secret, confidential or proprietary information, data or other Know-How (including without limitation ASTELLAS Know-How and THERAVANCE Know-How) whether provided in written, oral, graphic, video,

 

3


 

computer or other form, provided by one Party or its Affiliates (the “Disclosing Party”) to the other Party or its Affiliates (collectively the “Receiving Party”) pursuant to this Agreement or generated pursuant to this Agreement (the Party not generating the information shall be the Receiving Party with respect thereto), including but not limited to information relating to the Disclosing Party’s existing or proposed research, Development efforts, patent applications, business or products, the terms of this Agreement and any other materials that have not been made available by the Disclosing Party to the general public.  Solely with respect to information, data and other Know-How that regards manufacturing (including without limitation information, data and Know-How as to the process to make and formulate TELAVANCIN and Licensed Product in final finished form and that which is covered by the [*] or the [*] Agreement), to qualify as Confidential Information, the information, data or other Know-How must be (i) marked confidential on initial disclosure, (ii) confirmed in writing to be confidential within a reasonable time (not less than 30 days) after initial disclosure, or (iii) of a nature or disclosed in a context within which the Receiving Party should reasonably be expected to understand that it is confidential. Confidential Information shall not include any information or materials that the Receiving Party can document with competent written proof:

 

(a)                                  were already known to the Receiving Party (other than under an obligation of confidentiality), at the time of disclosure by the Disclosing Party;

 

(b)                                 were generally available to the public or otherwise part of the public domain at the time of its disclosure to the Receiving Party;

 

(c)                                  became generally available to the public or otherwise part of the public domain after its disclosure or development, as the case may be, and other than through any act or omission of a Party in breach of such Party’s confidentiality obligations under this Agreement;

 

(d)                                 were disclosed to a Party, other than under an obligation of confidentiality, by a Third Party who had no obligation to the Disclosing Party not to disclose such information to others; or

 

(e)                                  were independently discovered or developed by or on behalf of the Receiving Party without the use of the Confidential Information belonging to the other Party.

 

Notwithstanding the foregoing, any combination of features or disclosures of Confidential Information shall not be deemed to be within the public domain or in the rightful possession of the Receiving Party merely because individual features are published or available to the general public or in the rightful possession of the Receiving Party unless the combination itself and principle of operation (if applicable) are published or available to the general public or in the rightful possession of the Receiving Party.  In addition, specific aspects or details of Confidential Information shall not be deemed to be within the public domain or in the rightful possession of the Receiving Party merely because they are contained within more general public disclosures or more general information in the rightful possession of the Receiving Party (as non-limiting illustrations:  if a temperature range of 60 – 80 degrees were publicly disclosed, then the more specific termperature of 70 degrees as being preferred over

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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all other temperatures in that range would not be considered publicly known based on the more general public disclosure of the overall range; and a specific compound within a chemical class that is patentably distinct over a large genus of compounds would not be deemed to be in the public domain merely because the large genus of compounds within which it falls is publicly known if the specific compound has never been publicly disclosed individually).

 

Section 1.21                                “Contracting Issues” means all issues and decisions regarding price and price terms [*] and other contract terms respecting Licensed Product sales in the US.  This shall include without limitation all issues and decisions with respect to contracting with managed care entities, hospitals, GPOs, PBMs, and government, and specifically includes issues and decisions about the offer of discounts or rebates for formulary placement for Licensed Product.  Contracting Issues [*] issues and decisions regarding [*] and all other [*].

 

Section 1.22                                “Control” with respect to an item of intellectual property means ownership of or possession of a license (or other similar right) under such item of intellectual property, in each case with the right to grant a license or sublicense thereunder to the other Party of the scope and content provided for in this Agreement without breaching any written agreement with a Third Party (a) existing as of the Signing Date or (b) by which such Party granting the license or sublicense hereunder derives rights to such item of intellectual property after the Signing Date.

 

Section 1.23                                “Cost Of Goods Sold” means as applicable, either (a) the amounts paid to Third Party manufacturers for the manufacture and supply of Licensed Product to be sold hereunder or (b) the sum of the following costs to the extent directly related to Licensed Product to be sold hereunder: the cost of direct materials, direct labor, licensing costs (not including payments made pursuant to the [*]) and manufacturing overhead related to the facility in which the Products are produced. The Cost of Goods Sold shall exclude the following: corporate overhead and any allocable costs not generated in the manufacturing facility. The Cost of Goods Sold shall be calculated in a manner consistent with United States GAAP consistently applied and as generally used by the applicable Party.

 

Section 1.24                                “Country” means any sovereign entity generally recognized internationally as a nation.  Country excludes the individual states within the United States and other similar entities in other jurisdictions that are not recognized internationally as nations, but includes the US as a whole.

 

Section 1.25                                “cSSSI” has the meaning given such term in the definition of Initial Indications.

 

Section 1.26                                “Deployment Issues” means all issues and decisions regarding the deployment of the sales force for Licensed Product, including without limitation hiring, firing and compensation of sales force personnel promoting Licensed Product, all other employment matters relating to the personnel who form such sales force, the specific allocation of sales representatives between and within customer accounts (both existing and potential), account universe, physician call universe, the geographic focus of sales efforts, the amount of time spent in presenting Licensed

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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Product within a sales call, and the order of presenting Licensed Product relative to other promoted products in such sales call (sales hierarchy).  Deployment Issues shall not include Promotional/MedEd Issues, defined below.  As an illustration (but without limitation), decisions about which [*] that a significant percentage [*] a specific type of [*] that Licensed Product provides [*].

 

Section 1.27                                “Designated Foreign Filings” shall have the meaning set forth in Section 13.01(b)(ii).

 

Section 1.28                                “Detailed Development Plan” means the plan for the detailed implementation of the Basic Development Plan, designed to achieve Development for the Licensed Product for the Initial Indications for the US consistent with the Basic Development Plan and this Agreement, including, without limitation, the nature, number and schedule of Development activities as well as the estimated resources necessary to implement such activities.  The Detailed Development Plan must at all times be consistent with the Basic Development Plan and this Agreement.  The Detailed Development Plan is intended to reflect the Parties’ plans for the detailed implementation of the Basic Development Plan, but not to alter the Basic Development Plan in any way.

 

Section 1.29                                “Development” or “Develop” means nonclinical and clinical drug development activities, including, among other things (but in the case of manufacturing-related activities, specifically excluding Commercial Manufacture as of the date that THERAVANCE delivers the First Commercial Sale Stock): test method development and stability testing, toxicology, formulation, process development, manufacturing scale-up to commercial scale, development-stage manufacturing, current Good Manufacturing Practices audits, current Good Clinical Practices audits, current Good Laboratory Practices audits, analytical method validation, manufacturing process validation, cleaning validation, scale-up, quality assurance/quality control development, statistical analysis and report writing, nonclinical and clinical studies, regulatory filing submission, and regulatory affairs related to the foregoing. When used as a verb, “Develop” means to engage in Development.

 

Section 1.30                                “Diligent Efforts” means with respect to the efforts to be expended by a Party with respect to any objective, the use of reasonable, diligent, good faith efforts to accomplish such objective as such Party would normally use to accomplish a similar objective under similar circumstances, it being understood and agreed that with respect to the Development or Commercialization of the Licensed Product, such efforts shall be commensurate with those efforts and resources commonly used by a Party for a product owned by it or to which it has rights, which product is at a similar stage in its development or product life and is of similar market potential (in each case as compared to the Licensed Product) taking into account efficacy, safety, Governmental Authority-approved labeling, the competitiveness of alternative products in the marketplace, the patent and other proprietary position of the product, the likelihood of regulatory approval given the regulatory structure involved, the profitability of the product taking into account the royalties payable to licensors of patent or other intellectual property rights, alternative products, manufacturing costs and all other relevant commercial factors. Diligent Efforts requires that:

 

(a)                                  each Party [*] for such obligations [*] (which in the case of [*] includes the Party’s [*] as part of such [*]);

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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(b)                                 each Party [*] for carrying out [*]; and

 

(c)                                  each Party [*] designed to [*] with respect to such [*].

 

Diligent Efforts shall be [*] for the Licensed Product, and it is anticipated that the [*] it is understood and agreed that this [*] will be staged over [*]. Also, additional [*] under the [*] by the [*] and therefore may [*].

 

It is understood and agreed that [*] among other things [*] as well as [*].  Statements elsewhere in this Agreement that [*] for those activities because they are called out separately.

 

A Party may satisfy its obligation to devote Diligent Efforts to particular obligations in whole or in part through the efforts of a sublicensee, a distributor or an outside service provider (engaged in a manner that is otherwise in accordance with this Agreement, i.e., permitted or approved sublicensees, distributors and service providers).

 

Section 1.31                                “Disclosing Party” shall have the meaning set forth in the definition of Confidential Information above.

 

Section 1.32                                “Distribution Issues” means all issues and decisions regarding the distribution of Licensed Product in the Territory, including without limitation decisions as to whether and with which distributors to contract, and the terms of contracts with distributors (subject to Section 2.05), and the other or more detailed matters set forth in Section 5.03(a)(iii).

 

Section 1.33                                “DMF” shall mean a drug master file submitted to the FDA.

 

Section 1.34                                “Due Diligence Notice Date” shall have the meaning set forth in Section 2.02(a).

 

Section 1.35                                “Economic Integration Period” means the time period from [*], until the [*].

 

Section 1.36                                “Effective Date” means the date the Closing Condition described in Section 16.17 occurs.

 

Section 1.37                                “FDA” means the United States Food and Drug Administration and any successor agency thereto.

 

Section 1.38                                “Field” means the field of [*].  For example (but without limitation), Field includes as of the Signing Date [*].  Field excludes as of the Signing Date [*].  For example (but without limitation), Field excludes [*].  Further, in any event, Field excludes [*].

 

Section 1.39                                “Filing” means (i) in the case of the U.S., the NDA Filing; (ii) in the case of OUS, the date on which the appropriate Regulatory Authority in any Country has accepted for review a Marketing Authorization application according to applicable Laws in such Country.

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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Section 1.40                                “First Commercial Sale” means with respect to a particular Country and Licensed Product, the first shipment of commercial quantities of any Licensed Product sold to a Third Party by ASTELLAS, its Affiliates and/or their sublicensee and/or distributor in such Country after receipt of Marketing Authorization for such Licensed Product in such Country. Sales for test marketing, sampling and promotional uses, clinical study purposes or compassionate or similar uses shall not be considered to constitute a First Commercial Sale.

 

Section 1.41                                “First Commercial Sale Stock” means the quantities of Licensed Product that will be sold in the U.S. to achieve First Commercial Sale of Licensed Product in the US and that are anticipated to be sold (or required to be on-hand for potential sales) within six (6) months after such First Commercial Sale in the U.S.  The Parties will agree an appropriate time in advance of anticipated First Commercial Sale as to such quantity.

 

Section 1.42                                “Force Majeure Event” shall have the meaning set forth in Section 16.03.

 

Section 1.43                                “Governmental Authority” means any court, tribunal, arbitrator, agency, legislative body, commission, official or other instrumentality of (i) any government of any Country, (ii) a federal, state, province, county, city or other political subdivision thereof or (iii) any supranational body, including without limitation the European Agency for the Evaluation of Medicinal Products.

 

Section 1.44                                “HAP” has the meaning given such term in the definition of Initial Indications.

 

Section 1.45                                “Hatch-Waxman Certification” shall have the meaning set forth in Section 13.03.

 

Section 1.46                                “Housemark” means the name and logo of ASTELLAS or THERAVANCE or, as applicable, any of their respective Affiliates, as identified by one Party to the other from time to time.

 

Section 1.47                                “Indemnified Party” shall have the meaning set forth in Section 12.03(a).

 

Section 1.48                                “Indemnifying Party” shall have the meaning set forth in Section 12.03(a).

 

Section 1.49                                “Initial Indications” means complicated skin and skin structure infections (herein, “cSSSI”) and hospital-acquired pneumonia (herein, “HAP”).

 

Section 1.50                                “Invention” means any invention or discovery (whether patentable or not) invented during the Term-Basic (while it is in effect anywhere in the world with respect to the Licensed Product) as a result of research, Development or Commercialization activities related to the THERAVANCE Compound or Licensed Product hereunder (including without limitation API Compound and Licensed Product manufacturing of both Development and Commercialization supplies).

 

Section 1.51                                “Issue of Necessity” shall have the meaning set forth in Section 6.03(c)(ii).

 

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Section 1.52                                [*] means all Patents and Know-How licensed to THERAVANCE pursuant to and/or in accordance with the [*].

 

Section 1.53                                [*] has the meaning given in [*].

 

Section 1.54                                “Joint Invention” means an Invention that is invented jointly by employee(s), contractors, and/or agent(s) of each of THERAVANCE (or an Affiliate thereof) and ASTELLAS (or an Affiliate thereof) hereunder.

 

Section 1.55                                “JSC” shall have the meaning set forth in Section 3.02(a).

 

Section 1.56                                “Know-How” means technical and other information, which is not subject to published patent rights and which is not publicly known, including, but not limited to, information comprising or relating to discoveries, data, formulae, inventions, methods, models, assays, procedures, designs for experiments and tests and results of experimentation and testing (including without limitation results of research or development), processes (including without limitation manufacturing processes), specifications and techniques, laboratory records, chemical, pharmacological, toxicological, clinical, analytical and quality control data, study data, clinical research plans, case report forms, data analyses, reports, manufacturing data or summaries and information contained in submissions to and information from ethical committees and regulatory authorities.

 

Section 1.57                                “Know-How Royalty Term” has the meaning given such phrase in the definition of Term-Basic.

 

Section 1.58                                “Last Patient, Last Visit” means, with respect to a clinical study, the date of the “Test-of-Cure Evaluation” (as defined in the applicable study protocol) for the last patient enrolled in such clinical study.

 

Section 1.59                                “Laws” means all laws, statutes, rules, regulations (including, without limitation, current Good Manufacturing Practice Regulations as specified in 21 C.F.R. §§ 210 and 211; Investigational New Drug Application regulations in 21 C.F.R. § 312; NDA regulations in 21 C.F.R. § 314; relevant provisions of the Federal Food, Drug and Cosmetic Act; and other laws and regulations enforced by the FDA), ordinances and other pronouncements having the binding effect of law of any Governmental Authority.

 

Section 1.60                                “Licensed Product” means any pharmaceutical composition or product containing the THERAVANCE Compound as an active ingredient.

 

Section 1.61                                “Litigation Condition” shall have the meaning set forth in Section 12.03(b).

 

Section 1.62                                “Losses” means, with respect to a Claim by a Third Party, any and all damages (including without limitation all incidental, consequential, statutory and treble damages), awards, deficiencies, settlement amounts, defaults, assessments, fines, dues, penalties, expenses, fees, liabilities, obligations, taxes, liens, losses, lost profits and expenses (including without limitation court expenses, interest and reasonable fees of attorneys, accountants and other experts) incurred by or awarded to Third Parties and required to be paid to Third Parties with respect to a Claim by reason of any judgment, order, decree,

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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stipulation or injunction, or any settlement entered into in accordance with the provisions of this Agreement, together with all documented out-of-pocket expenses and expenses incurred in complying with any judgments, orders, decrees, stipulations and injunctions that arise from or relate to that Claim of a Third Party.

 

Section 1.63                                “Major Market Country” means each of [*].

 

Section 1.64                                “Marketing Authorization” means, with respect to a Country, the regulatory authorization required to legally market and sell a Licensed Product in such Country as granted by the relevant Governmental Authority, including (without limitation) any applicable pricing, final labeling or reimbursement approvals.

 

Section 1.65                                “Medical Marketing Plan” means, for the Licensed Product, the plan for implementation at a detailed level of the Basic Commercial Plan, such plan for implementation at a detailed level being prepared by the TELAVANCIN Product Management Team and approved by the Joint Steering Committee.  The Medical Marketing Plan must always be consistent with the Basic Commercial Plan and Basic Development Plan (as, if and to the extent applicable).  The Medical Marketing Plan is intended to reflect the Parties’ plans for detailed implementation of the Basic Commercial Plan, but not to alter the Basic Commercial Plan in any way.

 

Section 1.66                                “Milestone” shall have the meaning set forth in Section 6.02(a).

 

Section 1.67                                “NDA” means a new drug application or supplemental new drug application or any amendments thereto submitted to the FDA in the United States.

 

Section 1.68                                “NDA Approval” means the approval of an NDA by the FDA.

 

Section 1.69                                “NDA Filing” means the written notification by the FDA that the NDA has met all the criteria for filing acceptance pursuant to 21 C.F.R. §314.101.

 

Section 1.70                                “NDA Holder” shall have the meaning set forth in Section 8.02(b).

 

Section 1.71                                “Net Sales” means the gross invoice price of a Licensed Product sold by ASTELLAS, its Affiliates or their sublicensees (or such sublicensees’ sublicensed affiliates) to a Third Party (excluding sales to Affiliates and/or sublicensees for resale or use in any Study), less the following to the full extent not already excluded from the gross invoice price:

 

(a)                                  deduction of cash, trade and quantity discounts specifically identified, actually paid or incurred;

 

(b)                                 discounts, refunds, rebates, chargebacks, retroactive price adjustments, and any other allowances actually made which effectively reduce the net selling price, including without limitation any institutional rebate or discount for government subsidy or reimbursement programs such as Medicare or Medicaid provided in the United States or any similar organization elsewhere in the world, and [*] or any comparable [*];

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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(c)                                  credits and allowances for product returns actually made consistent with ASTELLAS’ then-current policy;

 

(d)                                 freight, packing and handling [*]; and

 

(e)                                  taxes, including without limitation value added taxes and sales taxes, but excluding taxes on seller’s net income.

 

In any case, [*] agrees that the foregoing [*] in a manner [*].

 

Net Sales shall exclude the value of Samples distributed in the usual course of business.

 

In the case of [*] as follows:

 

If ASTELLAS (or its Affiliate) [*] (see definition of this term below) of [*] includes [*] then to the extent, if at all, ASTELLAS [*] included in the [*] as set forth below, then [*].

 

[*]

[*]

[*]

 

where [*] of the [*] equals the [*] as established by [*].

 

For purposes of this Section 1.72, a [*] for which ASTELLAS or its Affiliate [*], such that the [*].

 

If THERAVANCE so requests in writing, then ASTELLAS shall provide THERAVANCE with documentation [*] with respect to [*].

 

Section 1.72                                “Net Sales Report” shall have the meaning set forth in Section 6.04.

 

Section 1.73                                “Opt-In Right” shall have the meaning set forth in Section 2.02.

 

Section 1.74                                “Other Indications” means any use of the Licensed Product for indications other than the Initial Indications.

 

Section 1.75                                “OUS” means outside the United States.

 

Section 1.76                                “Patents” shall have the meaning given such term as set forth in the defintion of ASTELLAS Patents in Section 1.08.

 

Section 1.77                                “Patent Infringement Claim” shall have the meaning set forth in Section 13.02(a).

 

Section 1.78                                “Patent Infringement Notice” shall have the meaning set forth in Section 13.02(b).

 

Section 1.79                                “Patent Resolution Issue” shall have the meaning given in Section 13.01(c).

 

Section 1.80                                “Payment Period” shall have the meaning set forth in Section 6.03(a).

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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Section 1.81                                “Person” means any natural person, corporation, general partnership, limited partnership, limited liability company, joint venture, proprietorship, other business organization or governmental entity.

 

Section 1.82                                “Phase 3a Studies” means that portion of clinical development relating to the Initial Indications of the Licensed Product which provides for large scale, pivotal, clinical studies conducted in a sufficient number of patients and whose primary objective is to obtain a definitive evaluation of the efficacy and safety of the Licensed Product in patients that is needed to evaluate the overall risk-benefit profile of the Licensed Product and to provide adequate basis for obtaining requisite regulatory approval(s) and product labeling for Initial Indications, as more fully defined in 21 C.F.R. § 312.21(c).

 

Section 1.83                                “Phase 3b Studies” means that portion of clinical development relating to the Licensed Product commenced before receipt of Regulatory Approval for the Initial Indications in the jurisdiction where such trials are being conducted, but which are not required for receipt of Marketing Authorization for the Initial Indications and which are conducted primarily for the purpose of registering the Licensed Product for Other Indications or for product support (i.e., providing additional drug profile data).

 

Section 1.84                                “Phase 4 Studies” means that portion of clinical development relating to the Licensed Product that is initiated after receipt of a Marketing Authorization for the Licensed Product and that is principally intended to support the medical marketing of such Licensed Product, including without limitation investigator initiated trials, clinical experience trials and studies conducted to fulfill local commitments made as a condition of any Marketing Authorization.

 

Section 1.85                                “POC Data” means the material, data and supporting documentation relating to achievement of clinical proof of concept by the TD-1792 compound, prepared by THERAVANCE and delivered to ASTELLAS in sufficient detail and intended to enable ASTELLAS to determine whether or not to exercise its Opt-In Right in accordance with Section 2.02.  The POC Data shall include at least the content described in Exhibit D.

 

Section 1.86                                “Plan” means the Basic Development Plan or the Basic Commercial Plan.

 

Section 1.87                                “PRC” has the meaning given in Section 7.01.

 

Section 1.88                                “Product Supplier” means any manufacturer, packager or processor of THERAVANCE Compound, API Compound or the Licensed Product for development, marketing and sale.

 

Section 1.89                                “Promotional Materials” means the written, printed, video or graphic advertising, promotional, educational and communication materials (other than Licensed Product labeling) for marketing, advertising and promotion of the Licensed Product.

 

Section 1.90                                “Promotional/MedEd Issues” means all issues and decisions regarding the following promotional and medical education matters respecting Licensed Product: [*] activities [*] (including without limitation [*].

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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Section 1.91                                “Promotional/MedEd Spending” means expenses incurred in implementing or effectuating Promotional/MedEd Issues.

 

Section 1.92                                “Receiving Party” shall have the meaning set forth in the definition of Confidential Information above.

 

Section 1.93                                “Recording Party” shall have the meaning set forth in Section 6.10.

 

Section 1.94                                “Registration Batches” means those manufacturing batches of Licensed Product the characterization of which is included in (or intended to be included in) the application for US Marketing Authorization (NDA) for such Licensed Product.

 

Section 1.95                                “Registration Expenses” means all documented, external out-of-pocket costs and expenses directly related to Development of the Licensed Product for the Initial Indications in the U.S., including but not limited to external out-of-pocket registration expenses, as well as documented, external out-of-pocket costs and expenses directly related to manufacture and supply of Registration Batches and all other quantities of Licensed Product (except for Phase 3b and Phase 4 supplies) through THERAVANCE’s delivery of the First Commercial Sale Stock.  No THERAVANCE nor THERAVANCE Affiliate overhead shall be included in Registration Expenses.

 

Section 1.96                                “Samples” means Licensed Product packaged and distributed as a complimentary trial for use in the Territory.

 

Section 1.97                                “[*]” means [*].

 

Section 1.98                                “[*] Agreement” means that certain [*] Agreement between THERAVANCE and [*] (as amended prior to the Signing Date) and relating to [*].

 

Section 1.99                                “Signing Date” means the date set forth on the first page of this Agreement.

 

Section 1.100                          “Studies” means nonclinical studies and clinical trials.

 

Section 1.101                          “Supplied Licensed Product” shall have the meaning set forth in Section 15.01(a)(viii).

 

Section 1.102                          “[*]” means, [*] with respect to a particular time period [*] over such time period.

 

Section 1.103                          “Taxes” shall have the meaning set forth in Section 6.09.

 

Section 1.104                          “TD-1792 Compound” means: (a) the THERAVANCE compound known as TD-1792, the structure of which has been disclosed in writing to ASTELLAS prior to the Signing Date; and (b) all salts, esters, complexes, chelates, hydrates, isomers, stereoisomers, crystalline and amorphous forms, prodrugs, solvates, metabolites and metabolic precursors (whether active or inactive) and pegylated forms of the foregoing in (a).

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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Section 1.105                          “TD-1792 Phase 3 Study” means that portion of clinical development relating to the TD-1792 Compound which provides for pivotal clinical studies conducted in a sufficient number of patients and whose primary objective is to obtain a definitive evaluation of the compound’s therapeutic efficacy and safety in patients that is needed to evaluate the overall risk-benefit profile and provide a basis for obtaining the requisite regulatory approvals and product labeling.

 

Section 1.106                          “TELAVANCIN” means the chemical compound known as TELAVANCIN, the structure of which is shown in Exhibit C.

 

Section 1.107                          “TELAVANCIN Product Management Team” shall have the meaning set forth in Section 3.03(a).

 

Section 1.108                          “Term-Additional” means, on a Country-by-Country basis, the period from the expiration of the Term-Basic until the expiration of [*] or through an [*] or due to an [*] that [*] for the [*] (for purposes of evaluating such [*] shall be deemed to be[*].  As with the Term-Basic, there is only one Term-Additional per Country.

 

Section 1.109                          “Term-Basic” means, on a Country-by-Country basis, the period from the Effective Date until the later of (a) the expiration of the last Valid Claim of a THERAVANCE Patent listed in Exhibit A (whether as of the Signing Date or through an update pursuant to Section 2.08(b) or due to an ASTELLAS election pursuant to Section 2.08(d)(iii)) in such Country that but for the licenses granted ASTELLAS hereunder would be infringed by the manufacture, use, importation or sale of the Licensed Product in such Country (for purposes of evaluating such infringement, pending Valid Claims shall be deemed to be issued), and (b) [*] after First Commercial Sale in such Country.  If (b) occurs later than (a), then the period from (a) to (b) is the “Know-How Royalty Term” with respect to such Country.  To avoid any doubt, there is only one Term-Basic per Country, regardless of the number of forms (including without limitation differing dosage forms and different versions of the Licensed Product that include any of the variations on TELAVANCIN referred to in the definition of THERAVANCE Compound) in which the Licensed Product is marketed in the particular Country.  In particular, this means that prong (b) does not recommence each time a new form of the Licensed Product is introduced in the particular Country.

 

Section 1.110                          “Term-Total” means on a Country-by-Country basis the period from the Effective Date until the later-to-expire of the Term-Basic and the Term-Additional in such Country.  As with Term-Basic and Term-Additional, there is only one Term-Total per Country.

 

Section 1.111                          “Territory” means worldwide, excluding Japan.

 

Section 1.112                          “THERAVANCE Compound” means TELAVANCIN and all salts, esters, complexes, chelates, hydrates, isomers, stereoisomers, crystalline and amorphous forms, prodrugs, solvates, metabolites and metabolic precursors (whether active or inactive) and pegylated forms of TELAVANCIN.

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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Section 1.113                          “THERAVANCE IP” means the THERAVANCE Patents (including without limitation any Patents claiming THERAVANCE Inventions and THERAVANCE’s interest in any Patents claiming Joint Inventions); the THERAVANCE Know-How; the THERAVANCE Inventions; THERAVANCE’S interest in the Joint Inventions; and the THERAVANCE Product Trademarks. THERAVANCE IP excludes [*].

 

Section 1.114                          “THERAVANCE Invention” means an Invention that is invented (a) by any employee(s) or agent(s) of THERAVANCE or any of its Affiliates whether solely, jointly among themselves or jointly with one or more Third Party(ies) (including without limitation via subcontractors and service providers of any of them performing Development or Commercialization), or (b) by any Third Party with which THERAVANCE or any of its Affiliates has contracted to perform THERAVANCE’S obligations hereunder (without limiting the restrictions on THERAVANCE’S ability to subcontract or delegate its duties hereunder as set forth in Section 4.04).

 

Section 1.115                          “THERAVANCE Know-How” means all present and future Know-How relating to the THERAVANCE Compounds, Licensed Product or the THERAVANCE Inventions that is necessary or useful for ASTELLAS to perform its obligations or exercise its rights under this Agreement, and which during the Term-Basic are in THERAVANCE’s or any of its Affiliates’ possession or control and are or become owned by, or otherwise may be licensed to any of them, in each case to the extent Controlled by THERAVANCE or any THERAVANCE Affiliate.  THERAVANCE Know-How does not include (i) any THERAVANCE Patents (other than information contained in unpublished applications), or (ii) any [*].

 

Section 1.116                          “THERAVANCE Patents” means all Patents that are or become owned by THERAVANCE or THERAVANCE’s Affiliates, or as to which THERAVANCE or THERAVANCE’s Affiliates are or become licensed, now or in the future, to the extent (a) Controlled by THERAVANCE or any THERAVANCE Affiliate, and (b) covering the development, making, having made, use, offer for sale, sale or importation of any THERAVANCE Compound or Licensed Product (whether directly through their composition (including without limitation their formulation) or indirectly through their manufacture (including without limitation any article useful and/or consumed in such manufacture) or use (including without limitation methods of administration)).  The THERAVANCE Patents include without limitation those Patents set forth in Exhibit A as of the Signing Date (or through an update to Exhibit A under Section 2.08(b) or due to an ASTELLAS election under Section 2.08(d)(iii)); all continuations, continuations-in-part, divisionals, substitutions and other patent applications claiming priority thereto; all patents issuing on any of the foregoing; all renewals, extensions, reissues and re-examinations of any of the foregoing; and all counterparts to any of the foregoing in other countries.  THERAVANCE Patents exclude the [*].

 

Section 1.117                          “THERAVANCE Product Trademark” means any and all trademarks and (if any) trade dress that THERAVANCE or any of its Affiliates has on or before the Signing Date filed to register and/or registered for Licensed Product (or which are protected under common law) in the Territory, excluding any THERAVANCE Housemark.

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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Section 1.118                          “Third Party” means a Person who is not a Party or an Affiliate of a Party.

 

Section 1.119                          “Third Party Claim” shall have the meaning set forth in Section 12.03(a).

 

Section 1.120                          “United States” means the United States, its territories and possessions.  “US” and “U.S.” each also have the same meaning.

 

Section 1.121                          “Valid Claim” means any claim of a THERAVANCE Patent (other than a Patent claiming a Joint Invention, subject to Section 2.08(d)(iii)) which claim(s) is pending in a patent application [*] or is in an unexpired patent which has not been held unenforceable, unpatentable 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 has been admitted to be invalid or unenforceable through reissue or disclaimer and has not lapsed or gone abandoned.  If in any country there should be two or more such decisions conflicting with respect to the validity or unenforceability of the same claim, the decision of the higher or highest tribunal shall thereafter control; however, should the tribunals be of equal rank, then the decision or decisions upholding the claim shall prevail when the decisions are equal in number, and the majority of decisions shall prevail when the conflicting decisions are unequal in number.  [*] application that [*] because it [*] may [*].

 

ARTICLE 2

 

LICENSE RIGHTS AND OBLIGATIONS

 

Section 2.01                                License Grants From THERAVANCE to ASTELLAS. Subject to the terms of this Agreement and subject to THERAVANCE retaining such rights as it requires to perform its obligations under this Agreement, THERAVANCE hereby grants to ASTELLAS (i) an exclusive license during the Term-Basic in each Country under the THERAVANCE IP, (ii) subject to Section 2.08(d) and during the Term-Additional in each Country, a non-exclusive license under the THERAVANCE Patents, (iii) an exclusive sublicense under [*] under the [*] during the Term-Total in each Country (or if longer the life of the [*]), and (iv) a non-exclusive license under the THERAVANCE Know-How during the Term-Additional in each Country and thereafter, in each case:

 

(a)                                  to develop, have developed, use, have used, make, have made, import, have imported, market, have marketed, offer to sell, sell and have sold the Licensed Products for any and all indications in the Territory; and

 

(b)                                 to develop, have developed, make, have made, use, have used, import and have imported THERAVANCE Compounds, API Compounds and Licensed Products anywhere in the world (i.e., in Japan in addition to the Territory) for the sole purpose of: developing them (and having them developed), selling them and having them sold, using them and having them used, offering them and having them offered for sale, marketing them and having them marketed, and supplying them and having them supplied, for, in or to, in all of the foregoing cases, the Territory.

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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For the avoidance of doubt, THERAVANCE retains no right to sell (or license another to sell) API Compound or THERAVANCE Compound in the Territory to anyone other than ASTELLAS or an ASTELLAS Affiliate during the Term-Basic.

 

Section 2.02                                TD-1792 Option Grant To ASTELLAS. ASTELLAS shall have the exclusive option (the “Opt-In Right”) to Develop and commercialize the TD-1792 Compound pursuant to the terms and conditions set forth below in this Section 2.02.  While ASTELLAS’ Opt-In Right is in effect (i.e. from the Signing Date until it is exercised or expires unexercised), THERAVANCE shall provide ASTELLAS with quarterly written and oral updates (at the time of and through the JSC’s meetings) regarding TD-1792 Development, at a reasonable level of detail that includes at a minimum all information generated as of the date of the report that is or would be required to be included in the POC Data, as well as plans and objectives for the next twelve (12) months.  Subject to the terms of this Agreement, THERAVANCE hereby grants ASTELLAS an option to obtain an exclusive, royalty-bearing license under all relevant Know-How and Patents Controlled by THERAVANCE and/or its Affiliates during the term of this Agreement, to Develop and commercialize the TD-1792 Compound worldwide as follows:

 

(a)                                  no later than [*] prior to initiation of the first TD-1792 Phase 3 Study, THERAVANCE will deliver to ASTELLAS (in a manner and format to be designated by ASTELLAS) the POC Data (the date THERAVANCE provides the POC Data to ASTELLAS, the “Due Diligence Notice Date”);

 

(b)                                 within [*] of the Due Diligence Notice Date, ASTELLAS will notify THERAVANCE in writing as to whether or not it is exercising its Opt-In Right;

 

(c)                                  if ASTELLAS exercises its Opt-In Right, the Parties have a further [*] to negotiate and sign a definitive license, Development and commercialization agreement on substantially the same terms and conditions contained in this Agreement (it being understood by the Parties that they intend to carry over substantially the same economic terms, governance terms and allocation of responsibilities as set forth in this Agreement [*] as regards any [*] prior to the [*]; and

 

(d)                                 if ASTELLAS does not exercise its Opt-In Right within [*] of the Due Diligence Notice Date, THERAVANCE will be entitled to pursue all Development and commercialization of the TD-1792 Compound alone or in combination with a Third Party and ASTELLAS will have no other legal or financial claim to the TD-1792 Compound.

 

Section 2.03                                Further Commercialization In The Field. Subject to Section 16.06(b), other than with respect to TD-1792 and the THERAVANCE Compound, each Party agrees that it and its Affiliates will not commercialize (alone or with a Third Party) any other compound in the Field in the Territory for a period of [*] from the Effective Date.  Subject to Section 16.06(b), if either Party acquires or is acquired by a Person who is either merged into such Party or becomes an Affiliate of such Party, and such non-Party Person commercializes a compound in the Field at the time of the relevant transaction (the merger or acquisition transaction), then the Party and such Person will have a period

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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of [*] to effect a disposition of such other compound in the Field (which may be an out-license to endure until the end of such [*] period, or may be a more complete disposition) and no breach shall be deemed to have occured hereunder prior to the end of such [*].

 

Section 2.04                                Right To Sublicense. ASTELLAS shall have the right to grant sublicenses under the rights granted under Section 2.01, through one (1) or more tiers or layers of sublicensees without (except as provided below) consent, provided that ASTELLAS shall notify THERAVANCE of each such sublicense without unreasonable delay following any such grant of sublicense, [*] that any such [*]. ASTELLAS shall contractually require all of its sublicensees to comply with all terms and conditions of this Agreement applicable to sublicensees and ASTELLAS shall remain fully responsible for the compliance by such sublicensees with the applicable terms and conditions of this Agreement as if such sublicensees were ASTELLAS hereunder.  ASTELLAS shall secure all appropriate covenants, obligations and rights from any such sublicensee of it under this Agreement, including, but not limited to, intellectual property rights and confidentiality obligations in any such agreement or other relationship, to ensure that such sublicensee complies with all of ASTELLAS’ covenants and obligations to THERAVANCE under this Agreement that are applicable to sublicensees. ASTELLAS’ rights to sublicense its rights are limited to those expressly set forth in this Section 2.04.

 

Section 2.05                                Right To Appoint Distributors. ASTELLAS shall also have the right to appoint distributors in the Territory for the sale of the Licensed Products without consent. ASTELLAS shall at all times ensure that its distributors act fully in compliance with the applicable terms and conditions of this Agreement and shall be fully responsible for their compliance.

 

Section 2.06                                Duration Of License Grants.

 

(a)                                  The exclusive license set out in Section 2.01(i), and associated rights set out in Section 2.04 and Section 2.05, shall continue in accordance with what is stated therein on a Country-by-Country basis until royalty payment under Section 6.03(a) (as adjusted by Section 6.03(c) - Section 6.03(f)) is no longer due in the Country concerned (i.e., until the Term-Basic has expired with respect to such Country).

 

(b)                                 The non-exclusive license set out in Section 2.01(ii), and associated rights set out in Section 2.04 and Section 2.05, shall, subject to Section 2.08(d), be in effect in each Country during, [*] with respect to [*] the Term-Additional in such Country.

 

(c)                                  The exclusive sublicense set out in Section 2.01(iii), and associated rights set out in Section 2.04 and Section 2.05, shall be in effect during the Term-Total in each Country or if longer the term of the [*] in the particular Country.

 

(d)                                 The non-exclusive THERAVANCE Know-How license set out in Section 2.01(iv), and associated rights set out in Section 2.04 and Section 2.05, shall be in effect in each Country at all times after the end of the Term-Basic in such Country and is perpetual and royalty-free.

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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Section 2.07                                Trademarks And Housemarks.

 

(a)                                  Trademarks. The Licensed Product shall be Commercialized under trademarks and trade dress [*].  Prior to any such proposed trademark(s) and trade dress being [*], ASTELLAS shall be responsible for undertaking their preliminary selection and shall be responsible for the procurement, filing and maintenance of trademark registrations for such trademarks and trade dress and all expenses related thereto.  All such trademarks and trade dress shall be deemed to be ASTELLAS Product Trademarks.  ASTELLAS (or an ASTELLAS Affiliate) shall exclusively own all ASTELLAS Product Trademarks.  ASTELLAS (or an ASTELLAS Affiliate) shall also exclusively own all trade dress and copyrights associated with the Licensed Product and any Promotional Materials.

 

(b)                                 Housemarks. Each Party acknowledges the goodwill and reputation that has been associated with the other Party’s Housemarks over the years, and shall use such Housemarks in a manner that maintains and promotes such goodwill and reputation and is consistent with trademark guidelines. Each Party shall take all reasonable precautions and actions to protect the goodwill and reputation that has inured to the other Party’s Housemarks, shall refrain from doing any act that is reasonably likely to impair the reputation of such Housemarks, and shall cooperate fully to protect such Housemarks.  To avoid any doubt, neither Party grants to the other any license, express or implied, with respect to any Housemarks; provided, however, that THERAVANCE hereby grants ASTELLAS a license (with rights to sublicense Affiliates, sublicenses and distributors of Licensed Product) under the entire right, title and interest in and to the THERAVANCE Housemarks and all intellectual property rights therein to use and display the THERAVANCE Housemarks solely for the purpose of and to the extent necessary or reasonably required to comply with ASTELLAS’ obligations under this Agreement (for example, to identify THERAVANCE as the licensor of Licensed Product in accordance with Section 7.02).

 

Section 2.08                                Further THERAVANCE Inventions, In-Licensing and Updates to Exhibit A; Covenants.

 

(a)                                  Inventions. In accordance with the definitions of ASTELLAS Inventions and THERAVANCE Inventions, Inventions invented by their subcontractors and service providers performing Development and/or Commercialization hereunder are included within the ASTELLAS Inventions and THERAVANCE Inventions.  Each Party shall use Diligent Efforts to make its contractual arrangements with such subcontractors and service providers (including without limitation manufacturers or those performing process development) such that the contracting Party shall own, or otherwise Control within the scope of the licenses granted ASTELLAS under Section 2.01, any such Inventions that regard THERAVANCE Compound or Licensed Product (or a method of manufacture or use thereof).  If THERAVANCE does not Control exclusive rights under the THERAVANCE Patent corresponding to a particular such THERAVANCE Invention (to avoid any doubt, we refer here to exclusive rights within the scope of the grants listed out in Section 2.01(a) and Section 2.01(b), without regard to whether the Patent has broader coverage nor whether THERAVANCE would Control any rights outside the scope of the grants listed out in Section 2.01(a) and Section 2.01(b)), then such THERAVANCE Patent’s claims shall not be deemed to be Valid Claims of

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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THERAVANCE Patents listed on Exhibit A at any time for purposes of determinining the Term-Basic (and thus royalty payments hereunder) in each Country in which THERAVANCE does not Control such exclusive rights (but shall be considered to be Valid Claims of THERAVANCE Patents for the purpose of determining any Term Additional should ASTELLAS elect to have a non-exclusive license therein under Section 2.08(d)(ii)).

 

(b)                                 Exhibit A Updates. Exhibit A shall be updated by the Parties at least quarterly to reflect additional THERAVANCE Patents on THERAVANCE Inventions first filed prior to [*] after the Signing Date (“Exhibit A Period”).  No further updates will be made to Exhibit A after the Exhibit A Period, but if the Parties make an error and fail to include such a Patent filed within the Exhibit A Period on Exhibit A through the regular updates, and the error is discovered after such time period, then ASTELLAS may at its option include such Patent on Exhibit A by written notice to THERAVANCE.

 

(c)                                  Further In-Licensing for the Licensed Product. With respect to all Patents and Know-How that THERAVANCE or any of its Affiliates acquires, in-licenses or otherwise obtains rights to Control after the Signing Date, to the extent specific to Licensed Product or THERAVANCE Compound, such Patents and Know-How will fall within the definition of THERAVANCE IP and be licensed to ASTELLAS under this Agreement.  THERAVANCE and its Affiliates shall not, however, during the term of this Agreement acquire, in-license or otherwise obtain rights in the Territory to any Patents or Know-How intended particularly for Licensed Product(s) or THERAVANCE Compound(s) without first obtaining ASTELLAS’ written consent (and all discussions seeking such consent shall be conducted in accordance with the procedures set forth in Section 13.07).  ASTELLAS is entitled to withhold such consent, and the expectation going forward from the Effective Date is that to the extent additional Patents and Know-How will be in-licensed particularly for the purpose of covering the THERAVANCE Compound or Licensed Product, ASTELLAS will be the in-licensing Party and have a direct relationship with the Third-Party licensor.

 

(d)                                 Election Regarding Rights During Term-Additional.

 

(i)                                     No later than eighteen (18) months prior to the expiration of the Term-Basic in each Country, THERAVANCE shall notify ASTELLAS in writing of which THERAVANCE Patents (including without limitation Patents claiming Joint Inventions) THERAVANCE believes would cover the THERAVANCE Compound or Licensed Product or the manufacture or use of either of them in such Country as of the expiration of the Term-Basic in such Country.  If ASTELLAS wishes to maintain a license beyond the end of the then-Term-Basic under any THERAVANCE Patents noticed by THERAVANCE in such Country, then ASTELLAS shall within [*] after the deadline for THERAVANCE’s notice (or if noticed late, [*] after THERAVANCE actually provides such notice) notify THERAVANCE in writing of the license ASTELLAS desires in such Country.  This license may be exclusive or non-exclusive, and may be for some or all of the THERAVANCE Patents of which THERAVANCE has notified ASTELLAS.  ASTELLAS shall specify these details in its notice.

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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(ii)                                  If ASTELLAS elects a non-exclusive license in such Country for any THERAVANCE Patent(s) (other than Patents claiming Joint Inventions) identified in THERAVANCE’s notice, then ASTELLAS shall have a non-exclusive license under such THERAVANCE Patent(s) in such Country, [*] in accordance with [*] with respect to [*].

 

(iii)                               If ASTELLAS elects an exclusive license in such Country under any THERAVANCE Patent(s) identified in THERAVANCE’s notice, then the THERAVANCE Patent(s) that ASTELLAS identifies in its notice (“Exclusively Elected Patents”) shall be automatically deemed included in Exhibit A with respect to such Country, thus extending the Term-Basic in such Country (until the expiration of the last Valid Claim of the Exclusively Elected Patents that supports the continued duration in such Country of the Term-Basic in accordance with the definition of Term-Basic).  Accordingly, Net Sales in such Country shall continue to be royalty-bearing according to the rates of Section 6.03(a) (as adjusted by Section 6.03(c) - Section 6.03(f)) until the expiration of the thus-extended Term-Basic.  To be clear, ASTELLAS may make its election for the exclusive license for any THERAVANCE Patent, including without limitation any that is a Patent claiming a Joint Invention, and if ASTELLAS elects to take an exclusive license for a Patent claiming a Joint Invention, then such Patent’s claims shall be entitled to qualify as Valid Claims and it shall be deemed to be listed on Exhibit A (to the same effect as generally described in this subsection (iii) with regard to the Term-Basic and royalties due on Net Sales in the relevant Country).

 

(iv)

 

(A)                              For the avoidance of doubt, ASTELLAS will have an exclusive license under THERAVANCE’s rights in any Patents claiming Joint Inventions for so long as ASTELLAS pays a royalty according to the rates of Section 6.03(a) (as adjusted by Section 6.03(c) - Section 6.03(f)) with respect to Net Sales in each Country.  If all Valid Claims in THERAVANCE Patents listed on Exhibit A (whether as of the Signing Date or thereafter through an update under Section 2.08(b) or due to an ASTELLAS election under Section 2.08(d)(iii) with respect to a THERAVANCE Patent that does not claim a Joint Invention) have expired in a particular Country, and ASTELLAS does not desire to continue its exclusive rights in Patents claiming Joint Inventions that have not yet expired in such Country, ASTELLAS can choose to rely on its ownership rights in such Patents claiming Joint Inventions and stop paying royalty to THERAVANCE whereupon THERAVANCE shall be free to license its rights in any such Patents to Third Parties, except not to the exclusion of ASTELLAS, in accordance with the following:

 

(B)                                Other than as licensed under Section 2.01, the Parties wish to achieve, to the maximum extent permitted by Law in each OUS Country, the rights of joint owners of US patents based on co-inventorship in the absence of a written agreement (i.e., that each may practice and license the jointly owned Patent without a duty of accounting to the other, again except to the extent otherwise licensed under Section 2.01).  Accordingly, each Party hereby grants all permissions and consents and licenses, and hereby waives all of the other Party’s duties of accounting (or other

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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right of the waiving Party to payment (other than a royalty explicitly agreed to under this Agreement) in respect of such practice or licensing), to the full extent required to achieve such result in each OUS Country, and agrees to execute and deliver all documents reasonably required to evidence, record or effect such permissions, consents, licenses and waivers.  To be clear, the background rights of the Parties as joint owners are further subject to the license grant of Section 2.01.  Also (but without limiting royalties that may apply by application of Section 2.08(d)(iii)), any licenses granted under this Section 2.08(d)(iv)(B) shall not be deemed licenses for purposes of determining Patent coverage by reference to Patents that would be infringed “but for” the licenses granted hereunder, in the definitions of Term-Basic and Term-Additional (i.e., anything that is done to achieve the background rights of the Parties as joint owners of Patent claiming Joint Inventions shall not be considered to constitute a royalty-bearing license).

 

(v)                                 If ASTELLAS declines to maintain a license under any THERAVANCE Patent(s) identified in THERAVANCE’s notice (either non-exclusive under Section 2.08(d)(ii) or exclusive under Section 2.08(d)(iii)), then those THERAVANCE Patent(s) for which ASTELLAS declines to maintain a license shall be excluded from the THERAVANCE Patents in such Country from the time that the Term-Basic expires in such Country forward and forever.

 

(vi)                              Should THERAVANCE omit any relevant THERAVANCE Patent from a notice under subsection (i), then once THERAVANCE becomes aware of the error it shall promptly notify ASTELLAS in writing, and ASTELLAS shall be entitled to make its licensing election (whether to have a license at all, in which Country(ies), and whether any license shall be exclusive or non-exclusive) with respect to the newly-noticed THERAVANCE Patent within [*] days after receipt of this notice.

 

(vii)                           The elections of this Section 2.08(d) operate on a Country-by-Country basis.  ASTELLAS is not required to make worldwide elections, rather, it is entitled to make its elections under this Section on a Country-by-Country basis.

 

(viii)                        The Parties may negotiate different royalty rates and licenses than set forth above in this Section 2.08(d) for the Patents referred to in this Section 2.08(d), however, for different royalty rates or licenses to apply, an amendment under Section 16.13 would be required.

 

ARTICLE 3

 

GOVERNANCE

Section 3.01                                Overviews.

 

(a)                                  Various Plans and Their Relationships to Each Other and This Agreement. This Agreement provides for four (4) different Licensed Product-related plans, three (3) covering the Initial Indications in the US (namely, the Basic Development Plan, the Basic Commercial Plan, and the Detailed Development Plan) and one covering marketing activities worldwide (namely, the Medical Marketing Plan).  The Basic Development

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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Plan and Basic Commercial Plan represent the Parties’ agreement as of the Signing Date as to Development and Commercialization, respectively (until [*] after the first US Marketing Authorization) of Licensed Product for the Initial Indications for the US market.  These Plans may only be changed by mutual agreement between the Parties as set forth in Section 3.05(b).  The Detailed Development Plan is intended to implement the Basic Development Plan at a detailed level, consistent with the Basic Development Plan and this Agreement.  The Medical Marketing Plan is intended to implement the Basic Commercial Plan in the United States at a detailed level (in a manner consistent with the Basic Commercial Plan and this Agreement), as well as to describe ASTELLAS’ OUS Commercialization.  The Medical Marketing Plan and changes and updates thereto are to be established in accordance with Section 5.01.

 

(b)                                 Governance Structures And Management. The Parties’ collaboration hereunder will be managed at a high level by a Joint Steering Committee (the JSC, as defined in Section 3.02) responsible for strategic decisions and high-level management of the collaboration operating by consensus, as and within the limits further set forth below.  At a more detailed level, a TELAVANCIN Product Management Team will be responsible for making decisions required to implement the plans approved by the Joint Steering Committee and making tactical decisions consistent with the plans approved by the Joint Steering Committee and implementing the plans.

 

(c)                                  General Guidelines And Initial Coordination Efforts. In all matters related to the collaboration established by this Agreement, the Parties shall strive to balance as best they can the legitimate interests and concerns of the Parties and [*] of the Licensed Product.  In all matters relating to this Agreement, the Parties shall seek to comply with good pharmaceutical and environmental practices.  The Parties intend, following the Effective Date, to organize meetings of applicable internal staff to communicate and explain the provisions of this Agreement to ensure the efficient and timely Development and Commercialization of the Licensed Product.

 

Section 3.02                                Joint Steering Committee.

 

(a)                                  Purpose. The purposes of the Joint Steering Committee (hereinafter the “JSC”) shall be to provide a forum (i) to oversee the Development and Commercialization of the Licensed Product and (ii) to resolve disputes concerning the Development and Commercialization of the Licensed Product in accordance with Section 3.06(a).

 

(b)                                 Members. Within ten (10) days after the Effective Date, the Parties shall establish the JSC, and ASTELLAS and THERAVANCE shall each designate four (4) employees as representatives.  Each of ASTELLAS and THERAVANCE may replace any or all of its representatives on the JSC with another (or other) employee(s) at any time upon written notice to the other Party.  Such representatives shall include individuals who have the relevant experience and expertise to oversee Development and/or Commercialization of Licensed Product. Each Party shall at all times have a JSC member who is at a level of Vice President or above.  A Party may designate a substitute to temporarily attend and perform the functions of such Party’s designee at any meeting of

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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the JSC. ASTELLAS and THERAVANCE each may, on advance written notice to the other Party, invite non-member representatives of such Party to attend meetings of the JSC. The JSC shall be chaired on an alternating basis by a representative from each Party for one-year terms.  The first year’s chairman shall be a representative of THERAVANCE. The Party that has not selected the chairman for that year shall select one of its representatives to be secretary for that year.

 

(c)                                  Responsibilities. The JSC shall perform the following functions:

 

(i)                                     Review and approve Detailed Development Plans with respect to Licensed Product Development to support Marketing Authorizations for the Initial Indications (such Detailed Development Plans to be initially prepared by THERAVANCE within ninety (90) days after the Effective Date and discussed initially at the TELAVANCIN Product Management Team level);

 

(ii)                                  Review and approve the Medical Marketing Plans prepared by the TELAVANCIN Product Management Team and any material changes proposed by the TELAVANCIN Product Management Team (but this approval extends only to aspects of the Medical Marketing Plan that do not involve decisions reserved to ASTELLAS under Section 3.05(c));

 

(iii)                               Review and approve the life cycle management of the Licensed Product;

 

(iv)                              Review, approve, and monitor regulatory strategy and activities for the Licensed Product in accordance with ARTICLE 8;

 

(v)                                 Discuss the state of the markets for Licensed Product and opportunities and issues concerning the Commercialization of Licensed Product, including consideration of marketing and promotional strategy, market research plans, labeling, Licensed Product platform positioning and Licensed Product profile issues;

 

(vi)                              At each meeting review the Development and Commercialization activities for Licensed Product in the Territory as reported by the responsible Party including reviewing and approving any material changes proposed by THERAVANCE and/or ASTELLAS (to avoid any doubt, this means changes to Development and Commercialization activities themselves, not changes to the contractual terms (terms of this Agreement) surrounding such activities, which contractual terms may only be amended by the Parties in accordance with Section 16.13);

 

(vii)                           At each meeting, review the status of all Studies conducted on Licensed Product and any results therefrom;

 

(viii)                        At each meeting, review Net Sales for the year-to-date, as available;

 

(ix)                                In accordance with the procedures established in Section 3.06, resolve disputes and disagreements between the Parties; and

 

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(x)                                   Have such other responsibilities as may be assigned to the JSC pursuant to this Agreement or as may be mutually agreed upon by the Parties from time to time.

 

(d)                                 Meetings. Until [*] after the first Marketing Authorization in the US, the JSC shall have at least quarterly meetings and more frequently as ASTELLAS and THERAVANCE mutually agree.  Thereafter, the JSC shall have semi-annual meetings for at least [*].  After that, the JSC will not have standing meetings but either Party may call a special meeting, if required, for consultation or discussions on an as-needed basis with respect to matters within the JSC’s purview as set forth below (but not more frequently than quarterly).  In the first year after the Effective Date, all of the required JSC meetings shall be face-to-face, but thereafter they may take place by video- or tele-conference; provided, however, that at least two (2)  meetings per year until [*] after the first Marketing Authorization in the US shall be face-to-face.  The location of the meetings shall alternate between the offices of THERAVANCE and ASTELLAS, or such other location as the Parties may mutually agree, with the first meeting occurring at THERAVANCE’s facilities within twenty (20) days after the establishment of the JSC.

 

(e)                                  Minutes Of Committee Meetings. Definitive minutes of all JSC meetings shall be finalized no later than thirty (30) Business Days after the meeting to which the minutes pertain as follows:

 

(i)                                     Within ten (10) Business Days after a JSC meeting, the secretary of the JSC shall prepare and distribute to all members of the JSC draft minutes of the meeting. Such minutes shall provide a list of any issues in dispute.

 

(ii)                                  The Party members of the JSC shall have ten (10) Business Days after receiving such draft minutes to collect comments thereon and provide them to the secretary of the JSC.

 

(iii)                               Upon the expiration of such second ten (10) Business Day period, the Parties shall have an additional ten (10) Business Days to discuss each other’s comments and finalize the minutes. The secretary and chairperson of the JSC shall each sign and date the final minutes. The signature of such chairperson and secretary upon the final minutes shall indicate each Party’s assent to the minutes.

 

(f)                                    Expenses. Each Party shall be responsible for all travel and related expenses for its members and other representatives to attend meetings of, and otherwise participate on the JSC.

 

(g)                                 Limits of Authority. The JSC shall have only those powers and that authority explicitly set forth in this Agreement for it and is subject to the terms and conditions of this Agreement.  The JSC shall be kept apprised of, but shall have no decision-making or deliberative authority respecting Contracting Issues, Deployment Issues and Distribution Issues, which are ASTELLAS’ sole responsibility and right to decide in accordance with Section 3.05(c). The JSC shall have no power or authority to

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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amend or waive compliance with this Agreement, the Basic Development Plan or the Basic Commercial Plan.

 

(h)                                 JSC Decision-Making. The manner in which the JSC makes decisions is described in Section 3.05(a) with any disputes among the JSC being resolved as per Section 3.06.

 

Section 3.03                                TELAVANCIN Product Management Team.

 

(a)                                  Purpose.  It is the Parties’ intent that the relevant employees from each Party work together in a [*] team (the “TELAVANCIN Product Management Team”) to effectively Commercialize the Licensed Product.  The TELAVANCIN Product Management Team will be responsible, in particular, for [*].   The TELAVANCIN Product Management Team is expected to meet regularly and have a close and ongoing day-to-day working relationship, each during the US pre-launch period and through [*] after First Commercial Sale in the US.  Both Parties’ TELAVANCIN Product Management Team members shall be responsible for implementing the [*], all as further described in ARTICLE 5.  The TELAVANCIN Product Management Team shall be led by THERAVANCE personnel with respect to US Initial Indication Development activities and US Initial Indication Promotional Med/Ed issues, and be led by ASTELLAS personnel with respect to all other Development and Commercialization activities.  Such leadership, in each case, shall be subject to consistency and compliance with the Plan(s), if any, applicable to such activities, and the terms and conditions of the Agreement.  Leadership in this context means that the lead Party will take responsibility to initiate and formulate plans covering the applicable activities using the full resources of the TELAVANCIN Product Management Team (including without limitation the input and participation of non-lead members).

 

(b)                                 Composition. The TELAVANCIN Product Management Team shall be composed of a maximum of [*] THERAVANCE employees and as many ASTELLAS employees as ASTELLAS deems necessary.  In any case, each Party shall be entitled to have at least [*] TELAVANCIN Product Management Team members and may designate and replace its own members by written notice to the other Party.  During time periods with respect to which the medical marketing services fee is due under Section 3.03(d), THERAVANCE shall have at least [*] fully dedicated employees as TELAVANCIN Product Management Team members.  The TELAVANCIN Product Management Team will be composed of individuals having appropriate experience in marketing, market analytics and forecasting, pharmacoeconomics and clinical development.

 

(c)                                  Responsibilities. The TELAVANCIN Product Management Team shall perform the following functions as approved by the JSC:

 

(i)                                     Prepare the Medical Marketing Plan for submission to and review and approval by the JSC, [*] — in every case subject to consistency with the Basic Development Plan and Basic Commercial Plan (and, consistent with Section 3.05(c), certain decisions ASTELLAS is entitled to make) as further outlined in Section 5.01;

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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(ii)                                  Prepare and present to the JSC for approval [*], including but not limited to [*] (subject to consistency with the Basic Commercial Plan);

 

(iii)                               On an annual rolling basis beginning within six (6) months of the Effective Date, update and amend the Medical Marketing Plan for the following Calendar Year so that it can immediately thereafter submit to the JSC such proposed Medical Marketing Plan for review and approval;

 

(iv)                              Recommend to the JSC any material amendments or modifications to the Medical Marketing Plan during the Calendar Year with respect to the US;

 

(v)                                 Provide reports to the JSC regarding the state of the markets for Licensed Product and opportunities and issues concerning the Commercialization of the Licensed Product, including consideration of [*];

 

(vi)                              Review Net Sales for the year-to-date, as available, and provide reports with assessments and recommendations to the JSC;

 

(vii)                           Regularly review ASTELLAS’ progress to [*] in the United States that is consistent with the Medical Marketing Plan.  Such [*] will be undertaken by ASTELLAS; and

 

(viii)                        Have such other responsibilities as may be assigned to the TELAVANCIN Product Management Team pursuant to this Agreement or as may be mutually agreed upon by the Parties through the JSC in final, undisputed written minutes from time to time.

 

(d)                                 Expenses. With respect to TELAVANCIN Product Management Team members from THERAVANCE directed at Commercialization, ASTELLAS will pay THERAVANCE an annual medical marketing services fee equal to [*] in each year through [*] after the first Marketing Authorization in the US — up to a maximum over the life of this Agreement of [*] — but ASTELLAS shall not be responsible for any other Commercialization expenses, internal or external, incurred by THERAVANCE without ASTELLAS’ prior written agreement, except as provided in Section 5.03 with regard to expenses that are below the threshold stated in such Section for written approval to be required, provided that such expenses below such threshold are within the budget and consistent with the Medical Marketing Plan.  This annual [*] medical marketing fee will be paid [*] commencing with 2006.  Further, after [*] from the year the first US Marketing Authorization is obtained, the Parties do not intend for ASTELLAS to further pay the medical marketing services fee described in this Section 3.03(d).

 

(e)                                  Decision-Making. It is the Parties’ intent that disputes within the TELAVANCIN Product Management Team be resolved within the team or through escalation to ASTELLAS’ Vice President, Marketing and Sales, Hospital Products (or successor position) and the Senior Vice President, Commercial Development (or successor position) at THERAVANCE.  In the failure of agreement, either Party may escalate disputed issues within the TELAVANCIN Product Management Team’s authority and responsibility, as provided herein, to the JSC for resolution.  The Parties

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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acknowledge escalation to the JSC is intended to be extraordinary, and instead the TELAVANCIN Product Management Team is expected to have a close working relationship and work out issues within their area of responsibility in a manner acceptable to each Party and consistent with the Plans and this Agreement.  The TELAVANCIN Product Management Team shall not be empowered to make any decision inconsistent with any Plan and shall not make any decision inconsistent with or that undermines any such applicable Plan.

 

(f)                                    Limits of Authority. The TELAVANCIN Product Management Team shall have only those powers and that authority explicitly set forth in this Agreement for it and is subject to the terms and conditions of this Agreement.  The TELAVANCIN Product Management Team shall be kept apprised of, but shall have no decision-making or deliberative authority respecting Contracting Issues, Deployment Issues and Distribution Issues, which are ASTELLAS’ responsibility and right to decide in accordance with Section 3.05(c).  The TELAVANCIN Product Management Team shall have no power or authority to amend or waive compliance with this Agreement, the Basic Development Plan, or the Basic Commercial Plan.

 

Section 3.04                                Budgeting. The Plans include maximum budgets that cannot be exceeded without ASTELLAS’ prior written consent. Annually, the TELAVANCIN Product Management Team shall prepare a detailed annual budget for the upcoming Calendar Year.  This process shall commence in June.  The annual budget shall be finalized by the end of September annually and is subject ultimately to approval by ASTELLAS, within the guidelines set forth in the Basic Commercial Plan.  In any case, ASTELLAS shall not be required to approve any budget that exceeds the applicable limits set forth in the Plans.

 

Section 3.05                                Decision-Making.

 

(a)                                  General. The JSC may make decisions with respect to any subject matter that is subject to the JSC’s decision-making authority and functions as set forth in Section 3.02(c).  All decisions of the Joint Steering Committee shall be made by consensus, with the representatives from each Party presenting a unified position on behalf of such Party.  The JSC shall use Diligent Efforts to resolve the matters within its authority.  The JSC’s decisions must be consistent at all times with the Plans and this Agreement.

 

(b)                                 Plan Changes. The Basic Development Plan and the Basic Commercial Plan each contain a section entitled “Commitments”. Because changes to the “Commitments” section of the Basic Development Plan and Basic Commercial Plan are fundamentally business decisions, the Parties consider that any change to the “Commitments” sections of such Plans (provided that such changes are not subject to decision-making authority of ASTELLAS pursuant to Section 3.05(c)), should be decided by the Parties and not by recourse to the dispute resolution provisions of Section 3.06 nor to any form of dispute resolution (including without limitation court and arbitration), except to the extent of any Contract Compliance Dispute described in Section 3.06(c).  Accordingly, the Parties intend and agree that (i) any change to the “Commitments” section(s) of either and/or both such Plan(s) shall only be made if the Parties mutually in their sole discretions (subject to consistency with the exercise of Diligent Efforts and this

 

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Agreement’s terms) agree to the change (in the manner provided in Section 16.13 with respect to all amendments); (ii) the JSC — while it may discuss any such change proposed by a Party — shall have no authority to agree to any such change; and (iii) the dispute resolution procedures set forth in Section 3.06(b) shall not apply to any disagreement or failure of consensus regarding whether or how to change the “Commitments” section of either and/or both such Plan(s).  The Parties acknowledge that it is their intent that any change to the “Commitments” section of either and/or both such Plan(s) should only be supportable by material changes in the underlying circumstances surrounding Licensed Products.

 

(c)                                  Contracting Issues, Deployment Issues and Distribution Issues.

 

(i)                                     General.  Contracting Issues, Deployment Issues and Distribution Issues shall be at the sole discretion of ASTELLAS. [*] right [*] without [*] in accordance with [*].    Provided that ASTELLAS exercises its right to make these decisions consistent with the applicable Plans and any requirements that it apply Diligent Efforts with respect to the subject matter of the decision, disputes regarding the exercise of any decision by ASTELLAS with regard to a Contracting Issue, Deployment Issue or Distribution Issue shall not be referable to dispute resolution under Section 3.06(b).    Moreover to avoid any doubt, ASTELLAS cannot deem an amendment to the Net Sales definition herein to be a Contracting Issue within its sole discretion and, absent a mutually agreed upon amendment, shall comply with the Net Sales definition as written herein for purposes of calculating payments due hereunder.

 

(ii)                                  Pricing.  Notwithstanding anything else express or implied in this Agreement, ASTELLAS shall have the sole authority to make the decision as to all Licensed Product pricing matters [*], and while ASTELLAS will share information and THERAVANCE may express its ideas and concerns through JSC and TELAVANCIN Product Management Team participation regarding [*] pricing matters, none of THERAVANCE, the JSC nor the TELAVANCIN Product Management Team shall have any decision-making authority with regard to [*] pricing matters.

 

Section 3.06                                Dispute Resolution.

 

(a)                                  Work Towards Consensus. With respect to any issue that the JSC is empowered to decide that is in dispute, if the JSC cannot reach consensus within thirty (30) Business Days after the issue has been brought to the attention of the full JSC, then such issue shall be referred to the Chief Executive Officer of THERAVANCE and the Chief Executive Officer of ASTELLAS US, LLC (collectively, the “Officers”) for resolution.  The Parties accept that the use of the Officers for resolution of any unresolved issues will be on an exceptional basis.  If any disputes arise between the Parties regarding this Agreement or its interpretation that are not those Development and Commercialization matters the JSC is empowered to decide, either Party may refer the matter directly to the Officers for discussion (without first calling a JSC meeting and waiting an additional thirty (30) Business Days as with issues that go first to JSC discussions).

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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(b)                                 Resolution by Third Party. If the Officers are unable to reach consensus within thirty (30) Business Days after the matter has been referred to them, except for Excluded Issues under Section 3.06(c),   the final decision will be made by a mutually acceptable Third Party arbitrator.  Either Party can initiate such arbitration on 30 days written notice to the other Party (given at any time following the period of the Officers’ discussions).  The Parties will use best efforts to agree on an arbitrator within such 30-day period.  If the Parties do not agree on an arbitrator within such 30 days, then the Parties’ proposed arbitrators (one proposed by each Party) shall within 15 additional days choose the arbitrator, who shall be unaffiliated with both Parties and their respective Affiliates.  If the Parties’ proposed arbitrators fail to timely select the arbitrator, the Parties shall engage a single arbitrator (unaffiliated with both Parties) from and selected by the organization JAMS (standing for “Judicial Arbitration and Mediation Services”) (“JAMS”), to be appointed within ten (10) additional Business Days.  Such arbitration will occur as promptly as practicable, but in no event later than 60 days following selection of the arbitrator and will be held in New York City, New York.  The arbitration shall be conducted in accordance with the JAMS rules.  The decision of the arbitrator will be final and binding on the Parties; provided that either Party shall retain all rights to bring an action against the other to enforce the arbitrator’s decision.

 

(c)                                  Excluded Issues. Notwithstanding anything express or implied to the contrary in this Agreement, decisions regarding changes to the “Commitments” sections of the Plans and ASTELLAS’ exercise of its right to make the decisions regarding Deployment Issues, Contracting Issues, and Distribution Issues shall not be referable to dispute resolution under Section 3.06(b) nor to any other form of dispute resolution (including without limitation court and, other than as provided in this subsection 3.06(c) for Contract Compliance Disputes, arbitration), except to the extent required to determine whether each Party has acted in accordance with (i.e., has not breached) this Agreement (including without limitation the obligations set forth in this Agreement that it devote (and agree to devote) Diligent Efforts, and the obligations to act consistent with the Basic Development Plan and/or the Basic Commercial Plan) (each a “Contract Compliance Dispute”).  Contract Compliance Disputes are referable for dispute resolution under Section 3.06(b).  In addition, notwithstanding anything express or implied in this Agreement and absent fraud in connection with any dispute resolution under Section 13.01(c), Patent Resolution Issues remaining unresolved after initial dispute resolution under Section 3.06(a) shall not be referable for dispute resolution under Section 3.06(b), but shall instead be resolved as set forth in Section 13.01(c).

 

(d)                                 Exclusive Procedures. The procedures set forth in this Section 3.06  (including without limitation by reference to Section 13.01(c)) shall be the sole and exclusive procedures for resolving disputes between the Parties in connection with this Agreement.  The only exceptions to this are that either Party may (i) seek preliminary injunctive relief from a court having jurisdiction over both Parties pending the outcome of a dispute resolution in accordance with this Section 3.06,  (ii) seek injunctive relief from a court having jurisdiction over both Parties for a breach or a threatened breach of Article 10, or (iii) seek judicial enforcement of the arbitrator’s decision.

 

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ARTICLE 4

 

DEVELOPMENT OF LICENSED PRODUCT

 

Section 4.01                                Obligations For Development.

 

(a)                                  General. THERAVANCE, acting through the TELAVANCIN Product Management Team, shall have the overall responsibility for, and use Diligent Efforts in, assuring the performance of all Development activities (x)  for the Initial Indications to support an application for Marketing Authorization in the US in accordance with the Detailed Development Plan and Basic Development Plan, and in particular for the desired label identified in the Basic Development Plan, and (y) delivery of the First Commercial Sale Stock.  This shall include, where applicable, preparing relevant US regulatory filings (as contemplated under ARTICLE 8) for the Licensed Product for the Initial Indications.  ASTELLAS shall use Diligent Efforts to advance such Licensed Product through regulatory filings outside the U.S. for Initial Indications for the Major Market Countries and other Countries, and through Development for Other Indications. THERAVANCE will maintain such scientific support for the Licensed Product, including without limitation microbiology, PK/ADME, and toxicology, as is deemed necessary by the JSC.

 

(b)                                 Development Funding Responsibilities. THERAVANCE shall be responsible for and pay all Registration Expenses for Initial Indications to support an NDA submission for such indications in the US for the Target Label from [*] to the time of FDA approval of the Initial Indications;  provided, however, that: (i) should such costs and expenses exceed [*], then to the extent incurred in a manner consistent with the Basic Development Plan and the Detailed Development Plan (for post-Effective Date costs and expenses) ASTELLAS shall pay to THERAVANCE an amount equal to [*];  provided, however, that ASTELLAS shall not be obligated to pay THERAVANCE more than [*] pursuant to this clause (i) without ASTELLAS’ prior written consent; and (ii) should such costs and expenses (incurred in a manner consistent with the Basic Development Plan and Detailed Development Plan, for post-Effective Date costs and expenses) be less than [*].  THERAVANCE represents that Registration Expenses from [*] total approximately [*].  Within thirty (30) days after the Effective Date, THERAVANCE shall (in conjunction with and as part of providing the Detailed Development Plan) provide for JSC review a budget for all remaining Registration Expenses.  Thereafter, quarterly, THERAVANCE shall provide actual-to-budget Registration Expense expenditures for the past quarter as well as an updated budget for JSC review.  All Registration Expenses shall be reported to the JSC on a quarterly basis and the amounts owed by one Party to the other, as applicable, determined by the JSC at the appropriate time (in the case of (ii), no later than thirty (30) days after receipt of the US Marketing Authorization for the Licensed Product for the Initial Indications).  Any dispute regarding an amount owed will be handled by the normal dispute mechanism (see Section 3.06).  Payments will be made within twenty (20) Business Days of the determination by the JSC.  ASTELLAS shall be responsible for and pay all costs and expenses for Development activities beyond the scope of those activities covered by the Registration Expenses.  To the extent this would involve covering any costs or expenses incurred by or for THERAVANCE or its Affiliate, such costs and expenses must be specifically

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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budgeted for in advance in accordance with Section 3.04 (provided that in no event shall ASTELLAS be obligated to cover or reimburse anything other than external out-of-pocket expenses).  In the event this Agreement terminates for any reason other than material breach by THERAVANCE or a for-cause termination under Section 14.03,  in either case prior to the first NDA Filing Milestone set forth in Section 6.02(b), ASTELLAS shall be responsible for and pay (X) [*] through the date of termination (post-Effective Date, to the extent incurred consistent with the Basic Development Plan and Detailed Development Plan), less (Y) [*].

 

(c)                                  Development Cost Sharing During the Economic Integration Period. Notwithstanding anything to the contrary herein, during the Economic Integration Period, ASTELLAS shall be responsible for and shall pay up to a total of [*] in Development expenses to the extent actually incurred by THERAVANCE to develop Licensed Product for HAP.  ASTELLAS shall pay such amount promptly after being invoiced in writing by THERAVANCE for such amount, and THERAVANCE shall provide supporting documentation as to such costs actually incurred if requested by ASTELLAS.  Amounts paid by ASTELLAS pursuant to this Section are deemed included in Registration Expenses for all purposes under this Agreement (excluding only the requirement that ASTELLAS pay such amount, unlike all other Registration Expenses, which are paid by THERAVANCE).

 

(d)                                 Reporting. Quarterly, each Party shall keep the JSC fully and timely advised of ongoing Development activities by providing the JSC with an update report that includes information as to every (i) initiation (i.e., first person dosed) of any study involving the Licensed Product, and (ii) the last person dosed/last visit in any study relating to the Licensed Product, in each case in the quarter leading up to the report.  This report shall be in addition to quarterly reports to the JSC on other subject matter in connection with its regular meetings.

 

(e)                                  Notification. The Party responsible to conduct the activity shall immediately notify the other Party and provide particulars of any halt or substantial delay in any development program or clinical study, any obstacles in the Licensed Product reaching the market and any substantial changes anticipated in the sales potential of the Licensed Product.  Details shall be provided to the members of the JSC.

 

(f)                                    Diligent Efforts. THERAVANCE shall use Diligent Efforts for Development activities related to the Initial Indications and in pursuing regulatory approvals for Initial Indications in the U.S., in accordance with the terms of ARTICLE 8.  ASTELLAS shall use Diligent Efforts for Development of Other Indications and in pursuing regulatory approvals for Initial Indications and Other Indications outside the U.S. and Other Indications in the U.S., all in accordance with the terms of ARTICLE 8 and consistent with Section 4.01(a).

 

Section 4.02                                ASTELLAS Assistance. ASTELLAS will endeavor to provide THERAVANCE, upon THERAVANCE’s request, and at ASTELLAS’ sole discretion, such assistance as may be reasonably required by THERAVANCE to achieve its

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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Development obligations, which such assistance may be provided directly or through ASTELLAS’ vendors or contractors.

 

Section 4.03                                Transfer Of THERAVANCE Know-How. Without unreasonable delay following the Effective Date (and in any event within ninety (90) days thereafter and with respect to items not yet available to THERAVANCE as of the Effective Date as soon as available to THERAVANCE), THERAVANCE shall make available and transfer to ASTELLAS the following THERAVANCE Know-How and Know-How to which it derives rights under the [*] or the [*] Agreement:

 

(a)                                  a detailed written description of the process(es) used by THERAVANCE for the manufacture of the Licensed Product intended for Phase 3 Studies and the full report of the development of such process;

 

(b)                                 a detailed written description of the analytical methods and validation reports for the starting materials and intermediates to be used in the manufacture of the Licensed Product;

 

(c)                                  the detailed written description of the test methods used by THERAVANCE for validating the commercial process for the API Compound and Licensed Product manufactured, and the full report of the validation done thereon by THERAVANCE (and/or its contractors);

 

(d)                                 to the extent available to THERAVANCE at the Effective Date (and in any event promptly after it is available to THERAVANCE), reference and analytical standard compounds to be used as reference material in the conduct of comparative analyses in relation to the manufacturing process with the API Compound. It is explicitly understood that no such reference or analytical standard compound may be used for any other purpose than the purpose now stated; and

 

(e)                                  a description of all THERAVANCE Know-How relating to Studies conducted by THERAVANCE using the API Compound and the Licensed Product prior to the Effective Date.

 

In addition, in the first [*] months after the Effective Date, THERAVANCE shall provide the advice and assistance reasonably required to expeditiously transfer the THERAVANCE Know-How (including without limitation the ability for ASTELLAS to practice, itself or through an Affiliate or Third-Party contractor), the then-current processes to make API Compound and finished Licensed Product (i.e., the finished form that is in First Commercial Sale Stock) to ASTELLAS, to include updating information described in subsections (a) through (e) above as it becomes available, at no charge to ASTELLAS.

 

Following the aforementioned [*]-month period, upon reasonable request of ASTELLAS from time to time, THERAVANCE shall make appropriate personnel (including without limitation from THERAVANCE’s contractors) available, for consultation, updates and assistance regarding THERAVANCE Know-How.  [*] of their respective [*].

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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THERAVANCE’s obligations under this Section 4.03 extend to providing ASTELLAS with the full right to access (including without limitation all reasonably required letters of access) THERAVANCE’s current (as of the Signing Date) Licensed Product-related DMF and any and all updates thereto during the term of this Agreement.

 

Section 4.04                                Certain Activities; Non-delegation. After the Signing Date, with regard to new contracts with Third Parties respecting manufacturing, supply, formulation and process development and material changes to existing contracts with Third Parties respecting manufacturing, supply, formulation and process development — in all cases to the extent that it affects THERAVANCE Compound or Licensed Product — THERAVANCE shall not execute such new contract or such material change to an existing contract without ASTELLAS’ prior written consent, which will not be withheld unreasonably.  THERAVANCE shall provide ASTELLAS copies of all such proposed contracts and amendments for advance review and approval prior to execution. THERAVANCE shall not subcontract or otherwise delegate its duties or obligations with respect to THERAVANCE Compound and Licensed Product manufacture, supply, formulation and process development other than pursuant to a written contract.  THERAVANCE shall not subcontract or otherwise delegate its duties or obligations (nor assign its rights) with respect to TELAVANCIN Product Management Team activities (i.e., THERAVANCE’s members on this team must be THERAVANCE employees).

 

ARTICLE 5

 

COMMERCIALIZATION

 

Section 5.01                                Medical Marketing Plans.

 

(a)                                  General. The TELAVANCIN Product Management Team shall be responsible for preparing and the JSC shall be responsible for reviewing and approving a high-level Territory-wide Medical Marketing Plan for the Licensed Product (“Medical Marketing Plan”).  The Medical Marketing Plan shall define the goals and objectives for Commercializing the Licensed Product in the Territory in the pertinent Calendar Year consistent with the Basic Development Plan and — with respect to the US — the Basic Commercial Plan.  In addition, the Parties recognize the value of coordinating Licensed Product promotion within the context of ASTELLAS’ anti-infectives franchise (and that THERAVANCE has chosen ASTELLAS as THERAVANCE’s commercial collaborator for Licensed Product in part based on the value that ASTELLAS brings through its anti-infectives franchise leadership position).  ASTELLAS is entitled to [*] with THERAVANCE each year [*] for the year, on a timeline that is consistent with ASTELLAS’ internal process for annual planning of this sort.  If THERAVANCE (or its Affiliate) has in late-stage clinical development (phase 3a or beyond) or commercializes a product that competes with any other products within ASTELLAS’ anti-infectives franchise at any time, then ASTELLAS may choose not to provide THERAVANCE with [*], and to avoid any doubt will not be required to provide THERAVANCE with information regarding such other ASTELLAS product(s).

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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(b)                                 Contents Of Each Medical Marketing Plan. The initial Medical Marketing Plan for the Licensed Product shall be prepared within six (6) months following the Effective Date and shall be a rolling, three (3) year plan, updated annually, and shall contain at a minimum and as appropriate to then-current knowledge:

 

(i)                                     Results of market research and strategy, including market size, market dynamics, market growth, customer segmentation, customer targeting, competitive analysis and global Licensed Product platform positioning;

 

(ii)                                  [*]

 

(iii)                               ASTELLAS’ pricing strategy for Licensed Product;

 

(iv)                              Annual sales forecasts for Major Market Countries;

 

(v)                                 For each Major Market Country (as available and to the extent applicable): sales plans which will include the target number of sales representatives, detail strategy, target number of details, and targeted physicians by tier;

 

(vi)                              Core, global advertising and promotion programs and strategies, including but not limited to publication plans, media plans, key opinion leader development, symposia and speaker programs; and

 

(vii)                           [*] studies to be conducted.

 

Section 5.02                                Obligations For Commercialization. Both Parties shall use Diligent Efforts to carry out the responsibilities assigned to them hereunder to Commercialize the Licensed Product.

 

Section 5.03                                Commercialization.

 

(a)                                  ASTELLAS Responsibility. Subject to the Plans and the obligations and responsibilities of the TELAVANCIN Product Management Team and the JSC specifically set forth in ARTICLE 3, ASTELLAS shall have responsibility for Commercialization of Licensed Product.  Other than as provided in Section 5.03(c), ASTELLAS shall be responsible for and pay all expenses associated with the Commercialization of Licensed Product for sale or distribution including without limitation all financial and administrative support.  For the avoidance of doubt, ASTELLAS shall have no obligation hereunder to pay for or reimburse any expenses incurred by or for THERAVANCE or its Affiliates in conducting any Commercialization activities unless approved by ASTELLAS in advance in writing under Section 5.03(c) (if written approval is required under such subsection (c)), except for the medical marketing services fee to the extent provided in Section 3.03(d), and expenses under the written approval threshold to the extent provided to be reimbursed under Section 5.03(c).

 

(i)                                     ASTELLAS shall have the sole right and responsibility to distribute, sell, record sales and collect payments for Licensed Product.

 

(ii)                                  ASTELLAS shall have the sole right and responsibility for establishing and modifying the terms and conditions with respect to the sale of Licensed

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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Product, including without limitation the sole right and responsibility for deciding all Contracting Issues.

 

(iii)                               ASTELLAS will be responsible for supply, storage, order receipt, order fulfillment, shipping and invoicing of Licensed Product, including without limitation the sole right and responsibility for deciding all Distribution Issues.

 

(iv)                              Following Marketing Authorization in each Country of the Territory ASTELLAS shall use Diligent Efforts to launch the Licensed Product in such Country.

 

(v)                                 Regarding any Country of the Territory where the Licensed Product is launched, ASTELLAS shall promptly inform THERAVANCE in writing of the occurrence of such launch.

 

(vi)                              ASTELLAS shall, in each Country of the Territory where the Licensed Product has been launched, at its own expense, or the expense of its Affiliates, sublicensees or distributors, use Diligent Efforts to Commercialize the Licensed Product.

 

(vii)                           In the United States, ASTELLAS shall be responsible for hiring, organizing and maintaining a field sales force of appropriate number and training to promote sales of the Licensed Product consistent with Diligent Efforts and shall be responsible for deciding all other Deployment Issues.

 

(viii)                        [*] that is consistent with the [*].

 

(ix)                                [*] using the [*] that are [*].

 

(x)                                   ASTELLAS shall be responsible for all activities in connection with any line extensions of the Licensed Product and Other Indications.

 

(b)                                 Semi-Annual Reports. ASTELLAS shall provide the JSC reports semi-annually. Such reports shall set forth in summary form the results of ASTELLAS’ Commercialization activities performed during such semi-annual period in the Major Market Countries, including to the extent Diligent Efforts so warrant, a proposed development plan for Other Indications for review.

 

(c)                                  Commercialization Expense Financial Controls. It is the Parties’ intent to incur and pay for Commercialization expenses in a manner consistent with the Medical Marketing Plan and the approved budget and consistent with ASTELLAS’ internal financial controls.  THERAVANCE’s members of the TELAVANCIN Product Management Team shall not be empowered to and shall not commit to any individual Commercialization expense of more than [*] without the prior written approval of ASTELLAS, shall only be empowered to commit (absent ASTELLAS’ prior written approval) to expenses below such threshold to the extent consistent with the annual budget and Medical Marketing Plan, and after the time period with respect to which the medical marketing services fee is due under Section 3.03(d) shall not be empowered to and shall not commit to any Commercialization expenses.  If the TELAVANCIN Product

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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Management Team decides that a particular expense will be incurred, then responsibility for paying for such expense shall rest with ASTELLAS (subject to the limits imposed by the annual budgets).

 

Other than paying the annual medical marketing services fee through [*] years after the first Marketing Authorization in the US as provided for in Section 3.03(d), ASTELLAS will not be responsible to reimburse Commercialization expenses incurred by THERAVANCE, without ASTELLAS’ prior written consent.

 

(d)                                 Marketing Cost Sharing During the Economic Integration Period. During the Economic Integration Period, THERAVANCE shall be responsible for and shall pay up to a total of [*] in marketing expenses to the extent actually incurred by ASTELLAS to market Licensed Product for its first approved indication (anticipated to be cSSSI).  THERAVANCE shall pay such amount promptly after being invoiced in writing by ASTELLAS for such amount, and ASTELLAS shall provide supporting documentation as to such costs actually incurred if requested by THERAVANCE.  To avoid any doubt, examples of marketing expenses that count towards such [*] include without limitation sales force salaries and Promotional/MedEd Spending.

 

Section 5.04                                Collaborative Working Meetings. Except for information that ASTELLAS’ internal or external counsel, HR department, or internal or external compliance or regulatory advisors require be kept confidential within ASTELLAS and except to the extent required by Law, planning information regarding [*] shall be shared openly with the TELAVANCIN Product Management Team (subject to the protections of ARTICLE 10 (Confidentiality)).  TELAVANCIN Product Management Team meetings shall include discussions of [*] (excluding, again to avoid doubt, matters required by internal or external counsel, HR or internal or external compliance or regulatory advisors to be kept confidential).

 

Section 5.05                                Compliance. Each Party shall in its activities hereunder comply with all applicable Laws, industry codes and industry guidelines.  Each member of the TELAVANCIN Product Management Team shall be trained on ASTELLAS’ compliance policies at least annually and shall comply with such policies (including without limitation providing an annual certification as to having been trained on such policies).  Furthermore, nothing in this Agreement shall be deemed to require ASTELLAS to act in a manner not in accordance with its own internal regulatory compliance guidelines.  Nothing in this Agreement shall be deemed to require THERAVANCE to act in a manner not in accordance with its own internal regulatory compliance guidelines; provided, however, that to the extent ASTELLAS’ compliance guidelines impose a higher or stricter standard, then in its activities under this Agreement THERAVANCE must adhere to such higher or stricter standard.

 

Section 5.06                                Respective Employees’ Status Not Changed. THERAVANCE’s employees performing hereunder shall not obtain the status of or otherwise be considered ASTELLAS employees by virtue of their activities under this Agreement or work in conjunction with ASTELLAS.  They shall not hold themselves out as, nor give any person any reason to believe that they are, employees of ASTELLAS.  They shall not be

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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eligible for any ASTELLAS employee benefits (including without limitation fringe benefits, equity compensation and retirement benefits).  All payroll and employment taxes, insurance, worker’s compensation and benefits with respect to such persons shall be the sole responsibility of THERAVANCE.  If any THERAVANCE employee performing hereunder (or his or her heir or estate) makes any Claim relating to an alleged employment relationship with ASTELLAS, relating to ASTELLAS employee benefits, or in relation to or resulting from such person’s involvement in activities covered by this Agreement (each a “THERAVANCE Employee Claim”), then such THERAVANCE Employee Claim shall be subject to THERAVANCE’s Indemnification obligation pursuant to Section 12.02.

 

Similarly, ASTELLAS’ employees performing hereunder shall not obtain the status of or otherwise be considered THERAVANCE employees by virtue of their activities under this Agreement or work in conjunction with THERAVANCE.  They shall not hold themselves out as, nor give any person any reason to believe that they are, employees of THERAVANCE.  They shall not be eligible for any THERAVANCE employee benefits (including without limitation fringe benefits, equity compensation and retirement benefits).  All payroll and employment taxes, insurance, worker’s compensation and benefits with respect to such persons shall be the sole responsibility of ASTELLAS.  If any ASTELLAS employee performing hereunder (or his or her heir or estate) makes any Claim relating to an alleged employment relationship with THERAVANCE, relating to THERAVANCE employee benefits, or in relation to or resulting from such person’s involvement in activities covered by this Agreement (each an “ASTELLAS Employee Claim”), then such ASTELLAS Employee Claim shall be subject to ASTELLAS’ Indemnification obligation pursuant to Section 12.01.

 

ARTICLE 6

 

FINANCIAL PROVISIONS

 

Section 6.01                                Signing Payment. In partial consideration for the acquisition of the license rights in Section 2.01 under the THERAVANCE IP by ASTELLAS, ASTELLAS shall within three (3) Business Days after the Effective Date, pay to THERAVANCE a non-creditable, non-refundable amount of Sixty Million United States Dollars (U.S. $60,000,000.00); and in consideration for the acquisition of the Opt-In Right in Section 2.02 under this Agreement, ASTELLAS shall within three (3) Business Days after the Effective Date, pay to THERAVANCE a non-creditable, non-refundable amount of Five Million United States Dollars (U.S. $5,000,000.00).

 

Section 6.02                                Licensing Milestone Payments.

 

(a)                                  General. In further consideration of the license rights granted herein and the covenants and agreements contained herein, ASTELLAS shall also pay to THERAVANCE the non-creditable (except as provided in the last sentence of Section 4.01(b)), non-refundable payments set forth below for each such Milestone referred to therein (each, a “Milestone”).

 

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(b)                                 Licensing Milestone Payments To THERAVANCE.  ASTELLAS shall make the following one-time licensing Milestone payments to THERAVANCE following the achievement of the indicated Milestone for the Licensed Product (with payment due on the timing set forth in subsection (c)).

 

Milestone

 

Amount

[*]

 

[*]

[*]

 

[*]

[*]

 

[*]

[*]

 

[*]

[*]

 

[*]

[*]

 

[*]

[*]

 

[*]

[*]

 

[*]

[*]

 

[*]

 

 

 

Total possible Milestones

 

U.S. $156 Million

 

(c)                                  Notification And Payment.  In the event a Party achieves a Milestone, it shall promptly, but in no event more than ten (10) Business Days after the achievement of each such Milestone, notify the other Party in writing of the achievement of same. For all Milestones achieved, ASTELLAS shall promptly (no more than thirty (30) days after notification of the achievement of each such Milestone) remit payment to THERAVANCE for such Milestone.

 

(d)                                 One-Time-Only Milestones.  Each Milestone shall be payable hereunder a maximum of one (1) time under this Agreement, regardless of how many times in addition to one (1) time the corresponding milestone event is achieved with respect to one (1) or more Licensed Products.

 

Section 6.03                                Payment Of Royalties On Net Sales Of Licensed Product.

 

(a)                                  Royalty Rates.  Within thirty (30) days after the end of each Calendar Quarter (the “Payment Period”), ASTELLAS shall pay THERAVANCE royalty

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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payments based on Net Sales in the Territory in such Payment Period during the Term-Basic as follows:

 

On total Calendar Year-to-date Net Sales up to and including [*]

 

[*]

On total Calendar Year-to-date Net Sales greater than [*] and up to and including [*]

 

[*]

On total Calendar Year-to-date Net Sales greater than [*]

 

[*]

 

For example, where total Calendar Year-to-date Net Sales in all Countries in the Territory totals to [*] (for example, [*] in each of [*] Countries), the royalties are calculated as follows:  The first [*] is subject to the [*] rate, yielding [*] in royalties on that portion of the Calendar Year’s Net Sales.  The next [*] is subject to the [*] rate, yielding [*] in royalties on that portion of the Calendar Year’s Net Sales.  The last [*] is subject to the [*] rate, yielding [*] on that portion of the Calendar Year’s Net Sales.  The total royalty for the year calculated under this Section 6.03(a) would be [*] plus [*] plus [*] for a grand total for the year of [*].  (To avoid doubt, depending upon the facts and circumstances, this total may be subject to adjustment under Sections 6.03(c)-(f).)

 

The Parties agree that the [*] set forth in [*] under this Agreement.

 

(b)                                 Payment Calculation.  The royalties payable under this Section 6.03 shall be calculated on a Country-by-Country basis from the date of First Commercial Sale of the Licensed Product in a particular Country until the end of the Term-Total in that Country, with the rates of Section 6.03(a) (as adjusted by Sections 6.03(c)-(f)) applying during the Term-Basic, and the rate of Section 6.03(g) (as adjusted by Section 6.03(e) with respect to Combination Products) applying during the Term-Additional.

 

(c)                                  Offsets.

 

(i)                                     Financials.  Subject to Section 6.03(c)(ii) and Section 6.03(c)(iii) below, if ASTELLAS (or an Affiliate or sublicensee hereunder) pays any Third Party a royalty on Licensed Products (however calculated) under an intellectual property license that is necessary or reasonably required to avoid claims of infringement or misappropriation that are reasonably likely to succeed (or settlement of an intellectual property dispute under intellectual property that is necessary or reasonably required on the foregoing standard), then ASTELLAS shall be entitled to reduce the royalty to THERAVANCE hereunder by [*]; provided, however, that the royalty to THERAVANCE hereunder shall not be reduced in any Payment Period by operation of this offset to less than [*] for such Payment Period if such offset did not apply.  ASTELLAS may carry forward any unused offset (unused due to the [*]) to apply in future Payment Periods.  Notwithstanding the foregoing, payments to [*] in accordance with Section 9.06 do not qualify for the offset of this Section 6.03(c)(i).  The offset provided for in Section 6.03(c) shall operate on a Country-by-Country basis, and ASTELLAS shall be reasonable in its allocation between Countries where judgment is required.

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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(ii)                                  Discussions.  It is anticipated that the Parties will discuss all potentially desirable intellectual property licenses through the mechanism provided in Section 13.07.  All intellectual property licenses that the Parties agree should be taken through such discussions shall automatically qualify for the offset provided for in Section 6.03(c)(i).  With respect to all other intellectual property licenses from Third Parties, if THERAVANCE disagrees whether the license is necessary or reasonably required to avoid claims of infringement or misappropriation that are reasonably likely to succeed (the “Issue of Necessity”) then THERAVANCE may refer the Issue of Necessity for resolution under Section 13.01(c).  If the independent patent counsel under such Section determines the Issue of Necessity in favor of the license, then royalties under such license shall qualify for the offset of Section 6.03(c)(i).  If such patent counsel determines the Issue of Necessity against taking the license, then while ASTELLAS may still take (whether before or after the independent patent counsel’s decision) and maintain the license at its sole expense, royalties under such license shall not qualify for the offset of Section 6.03(c)(i).  Intellectual property settlements involving an in-license over which the Parties disagree shall be handled in the same manner as provided in this Section 6.03(c)(ii).

 

(iii)                               Exception.  The offset provided for in Section 6.03(c)(i) is intended to ensure that if additional Third-Party intellectual property is needed to permit ASTELLAS to enjoy its rights and benefits under this Agreement to Develop and Commercialize the Licensed Product in the form in which it receives NDA Approval using a manufacturing process delivered by THERAVANCE that is consistent with that used for the Registration Batches and that achieves the Target Cost of Goods (and any updates or modifications required to respond to any legitimate safety issues or Regulatory Authority requirements that may emerge, or required to achieve or maintain such Target Cost of Goods, which such updates or modifications are referred to herein as “Required Changes”), then THERAVANCE shares the costs of obtaining such Third-Party intellectual property through the royalty offset and ASTELLAS is not subject to royalty stacking.  As used herein, “Target Cost of Goods” means a cost of goods sold for Licensed Product of [*], based on a [*] patient receiving a [*].  However, the offset is not intended to cover the situation where ASTELLAS unilaterally decides to in-license Third-Party intellectual property that covers Licensed Product or activities hereunder only because of a change ASTELLAS has alone (not through a JSC decision) decided to make in the Licensed Product or manufacturing process that is not a Required Change (“Discretionary, Third-Party IP”).  Accordingly, if ASTELLAS without reaching consensus with THERAVANCE through the JSC decides to in-license any Discretionary, Third Party IP, the royalty payable in respect of the license under the Discretionary, Third-Party IP shall not qualify for the offset of Section 6.03(c)(i).

 

(iv)                              The offset of Section 6.03(c)(i) shall not be deemed or read to limit in any way THERAVANCE’s representations and warranties in ARTICLE 11.

 

(d)                                 Generic Competition.  At any time during the Term-Basic, if a competitive product is launched or sold by a Third Party that contains the THERAVANCE Compound as its active ingredient in any Country where ASTELLAS markets the Licensed Product, and if the Net Sales hereunder of the Licensed Product in that Country

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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decline by [*] or more in such Country relative to the same time period in the prior calendar year (e.g., with Q3 of year 2 being measured as against Q3 of year 1), then the royalty rates set forth in Section 6.03(a) shall be reduced by [*]; provided, however, that (i) the total reduction in the royalty rate shall in no case be more than [*]of the rate set forth in 6.03(a) and (ii) any subsequent increase in Net Sales in such Country relative to the same time period in the prior calendar year shall cause the royalty rates to be increased by a percentage amount equal to [*] (the comparison here, too, being measured relative to the corresponding period of the prior year, e.g. with Q3 of year 2 being measured as against Q3 of year 1), provided, however, that the increase will [*].

 

Because the Net Sales tiers of Section 6.03(a) are based on worldwide Net Sales, but the adjustment of this Section 6.03(d) applies to Net Sales on a Country-by-Country basis, the following assumption will be applied to allocate Net Sales in the individual Country(ies) with respect to which ASTELLAS is entitled to a reduction under this Section 6.03(d) being allocated between the sales tiers as follows:  Net Sales in each Country in a given Calendar Year shall be apportioned to the royalty tiers in Section 6.03(a) in the same proportion as total Net Sales worldwide for the year fall into such royalty tiers, regardless of in which Countries the earlier Net Sales in the Calendar Year were made.  For example, on the facts recited in the example set forth in Section 6.03(a), if ASTELLAS is entitled to a generic competition royalty reduction for Net Sales in a particular Country, Net Sales in that Country will be deemed to fall [*].

 

As an example of how to calculate the generic competition royalty reduction, if in Q1 of 2011 in the US ASTELLAS had [*] in Net Sales, in Q4 of 2011 a generic THERAVANCE Compound product entered the US market, and in Q1 of 2012 ASTELLAS’ Net Sales in the US were [*], the reduction would be calculated as follows:  [*], and [*] is [*] of [*].  [*], therefore the generic competition reduction of this subsection (d) is applicable.  [*].  For Net Sales in the US falling in the lowest royalty tier, a rate of [*], applies; in the next royalty tier, a rate of [*], applies; and in the top tier a rate of [*], applies.  Which tier to assign the [*] in sales to shall be made in accordance with the paragraph immediately preceding this one (on this example, the tier does not matter in the sense that it does not affect the total royalty calculated on Net Sales in the Country, however, in circumstances where the drop in Net Sales is greater so that the [*] on the 6.03(a) rates applies, assignment to tiers could make a difference in the royalty calculated).

 

(e)                                  Combination Products.  If any Licensed Product contains any active pharmaceutical ingredient (i.e., a chemical entity performing an identifiable therapeutic or prophylactic function) in addition to the THERAVANCE Compound active pharmaceutical ingredient (the THERAVANCE Compound component the “Licensed Product Component,” and the combination, a “Combination Product”), then the royalty applicable to sales of the Combination Product during the applicable Term-Basic or Term-Additional shall be the royalty calculated by multiplying the appropriate rate set forth in Section 6.03(a) by a pro rata share of the Net Sales of the Combination Product determined on the basis of the Licensed Product Component’s contribution to the fair market value of the Combination Product.  Fair market values of the components of a Combination Product shall be determined, to the extent possible, by the list prices of the

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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active components when sold separately.  For the avoidance of doubt, the Licensed Product in the form in which it exists as of the Signing Date is not a Combination Product, and any other form of it that incorporates a [*] shall not be considered a Combination Product solely on the basis of incorporating a [*].

 

(f)                                    Know-How Royalty Term Rates.  The rates set forth in Section 6.03(a) shall be reduced to [*] of the level otherwise calculated in accordance with Section 6.03(a)-(d) with respect to Net Sales during the Know-How Royalty Term in each Country.

 

(g)                                 Term-Additional [*].  If ASTELLAS has taken a non-exclusive license under Section 2.08(d)(ii) to any THERAVANCE Patent, within thirty (30) days after the end of each Payment Period during the Term-Additional, ASTELLAS shall pay THERAVANCE [*].  Once no further Valid Claim for a Patent not listed in Exhibit A (whether as of the Signing Date or through an update pursuant to Section 2.08(d) or due to an ASTELLAS election under Section 2.08(d)(iii)) is in force in the particular Country (i.e., when the Term-Additional expires in the particular Country), no [*] shall be due hereunder.

 

Section 6.04                                Net Sales Report.  Within thirty (30) Business Days after the end of each Payment Period ASTELLAS shall submit to THERAVANCE a written report setting forth Net Sales in the Territory on a Country-by-Country basis during such Payment Period, total royalty payments due THERAVANCE, and relevant market share data (each a “Net Sales Report”).  With respect to Major Market Countries, the figure in this report shall be actual Net Sales in such Countries.  With respect to other Countries, the figure in this report may be an estimate, and ASTELLAS shall provide a further Net Sales Report and true-up payment (if any further payment is due) with respect to Net Sales in such non-Major Market Countries within sixty (60) Business Days after the end of the Payment Period (if on the other hand ASTELLAS has overpaid then it may credit the amount of the overpayment against the next payment due hereunder or if no further payments are due hereunder THERAVANCE shall promptly upon written invoice from ASTELLAS refund the overpayment).

 

Section 6.05                                U.S. GAAP.  All defined and undefined financial terms and standards used in this Agreement for sales or activities shall be governed by and determined in accordance with United States generally accepted accounting principles, consistently applied.

 

Section 6.06                                Currencies.  Monetary conversion from the currency of a foreign country in which Licensed Product is sold into US Dollars shall be calculated in accordance with either (a) the methodology referred to in ASTELLAS’ then current corporate finance reporting policy (or its successor policy that applies throughout the organization) or (b) as otherwise mutually agreed by the Parties.

 

Section 6.07                                Manner Of Payments.  All sums due to THERAVANCE under this ARTICLE 6 shall be payable [*] in United States Dollars by bank wire transfer in immediately available funds to such US bank account(s) as THERAVANCE shall

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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designate.  Such payment shall not withhold any tax, except as may be required by applicable law (in which case the provisions of Section 6.09 shall apply).  [*] is required to [*] then the [*]shall be [*].  ASTELLAS shall notify THERAVANCE as to the date and amount of any such wire transfer to THERAVANCE at least five (5) Business Days prior to such transfer.  ASTELLAS shall always be entitled to make any and all payments due hereunder to a US entity, regardless of any assignment of this Agreement by THERAVANCE to a non-US entity or other circumstance.

 

Section 6.08                                Interest On Late Payments.  If ASTELLAS shall fail to make a timely payment pursuant to this ARTICLE 6, any such payment that is not paid on or before the date such payment is due under this Agreement shall bear interest, to the extent permitted by applicable law, at the average one-month London Inter-Bank Offering Rate (LIBOR) plus [*] for the United States Dollar as reported from time to time in The Wall Street Journal, effective for the first date on which payment was delinquent and calculated on the number of days such payment is overdue or, if such rate is not regularly published, as published in such source as the JSC agrees.

 

Section 6.09                                Tax.  ASTELLAS shall be responsible for all taxes, levies and other duties (“Taxes”) on Licensed Product manufacture or sale arising out of this Agreement other than Taxes attributable to THERAVANCE income.  If ASTELLAS is required by applicable law (after giving effect to any applicable tax treaty) to deduct or withhold any Taxes from or in respect of any amount payable to THERAVANCE under this Agreement, [*] ASTELLAS shall make the necessary witholding or deduction of applicable Taxes and pay the relevant taxation authority the minimum amount necessary to comply with the applicable law, [*] the corresponding [*] so that [*] by applicable law, to [*] as provided above, THERAVANCE shall [*] and, at the time of such [*] hereunder whereby ASTELLAS [*] under this Agreement.  Both Parties [*] under applicable law [*] hereunder.

 

Section 6.10                                Financial Records; Audits.  ASTELLAS shall keep, and shall cause its Affiliates and sublicensees to keep, such accurate and complete records of Net Sales as are necessary to determine the amounts due to THERAVANCE under this Agreement and such records shall be retained by ASTELLAS or any of its Affiliates or sublicensees (in such capacity, the “Recording Party”) for at least the three Calendar Years after the period to which the Net Sales relate. During normal business hours and with reasonable advance notice to the Recording Party, such records shall be made available at a single location for inspection, review and audit, at the request of THERAVANCE, by an independent certified public accountant, or the local equivalent, appointed and paid by THERAVANCE and reasonably acceptable to the Recording Party for the sole purpose of verifying the accuracy of the Recording Party’s accounting reports and payments made or to be made pursuant to this Agreement; provided, however that such audits may not be performed by THERAVANCE more than once per Calendar Year. Such accountants shall be instructed not to reveal to THERAVANCE the details of its review, except for (i) such information as is required to be disclosed under this Agreement and (ii) such information presented in a summary fashion as is necessary to report the accountants’ conclusions to THERAVANCE, and all such information shall be deemed Confidential Information of the Recording Party; provided, however, that in any event such

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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information may be presented to THERAVANCE in a summary fashion as is necessary to report the accountants’ conclusions. All external expenses incurred in connection with performing any such audit shall be paid by THERAVANCE unless the audit discloses at least a [*] shortfall, in which case the Recording Party will bear the full expense of the audit for such Calendar Year. THERAVANCE will be entitled to recover any shortfall in payments due to it as determined by such audit, plus interest thereon calculated in accordance with Section 6.08, or alternatively shall have the right to offset and deduct any such shortfall in payments due to it against payments THERAVANCE is otherwise required to make to the Reporting Party under this Agreement.  ASTELLAS may offset any overpayment against any other payment(s) due THERAVANCE hereunder or require THERAVANCE to refund the overpayment within 30 days.  The documents from which were calculated the sums due under this ARTICLE 6 shall be retained by the relevant Party during the Term-Total plus [*].

 

The foregoing in this Section 6.10 shall apply mutatis mutandis regarding THERAVANCE’s and its Affiliates’ recordkeeping and ASTELLAS’ right to review and audit records of expenses for which THERAVANCE may seek reimbursement under this Agreement, including without limitation Registration Expenses.

 

ARTICLE 7

 

PROMOTIONAL MATERIALS AND SAMPLES

 

Section 7.01                                Review Of Promotional Materials.  Subject to applicable Law, the Parties, acting under the direction of the JSC, will jointly, through consultation and with the assistance of each other, create a mechanism (which must be consistent with the remainder of this Section 7.01) to review and approve the core Promotional Materials.  The relevant legal, medical, marketing and regulatory personnel of each Party shall have the opportunity to review and comment on all such core Promotional Materials prior to use and such comments shall be considered in the review and approval of such core Promotional Materials.

 

The specific mechanism and procedure for review shall be as follows:

 

All proposed core Promotional Materials, academic, scientific and medical publications and public presentations relating to a Licensed Product or any research or Development activities under this Agreement will be submitted to a Promotional Review Committee (hereinafter “PRC”), for review and approval in connection with preservation of patentability and trade secrets and/or to determine whether Confidential Information should be modified or deleted from the proposed publication or public presentation. The PRC will operate in the same manner and on the same timeframes as ASTELLAS’ PRCs for other products within ASTELLAS’ portfolio.  [*] from each of its [*] all materials [*] from one person [*].  The Parties will each comply with standard academic practice regarding authorship of scientific publications and recognition of contribution of other parties in any publications relating to the Licensed Product or any Development activities under this Agreement.

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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Section 7.02                                Markings Of Packaging And Promotional Materials.  Except where prohibited by applicable Law, all packaging, package inserts and outserts, sample labels, labeling and Promotional Materials shall each contain reference to THERAVANCE indicating the contribution of the license from THERAVANCE for the Licensed Product (for example, by stating “Licensed from THERAVANCE, Inc.”).  Subject to the foregoing, and except where prohibited by applicable Law, the THERAVANCE Housemark and the ASTELLAS Housemark shall both be given exposure and prominence on the materials referred to in this Section 7.02.

 

Section 7.03                                Statements Consistent With Labeling.  ASTELLAS shall ensure that its sales representatives detail the Licensed Product in the US in a manner consistent with the requirements of the Federal Food, Drug and Cosmetic Act of the United States, as amended, including, but not limited to, the regulations in 21 C.F.R. § 202 in the United States, and detail the Licensed Product in OUS in a manner consistent with the requirements of other similar Laws in each jurisdiction as applicable.

 

ARTICLE 8

 

REGULATORY MATTERS

 

Section 8.01                                OUS Governmental Authorities.  ASTELLAS shall be primarily responsible for communicating with OUS Governmental Authorities but will give THERAVANCE the opportunity to have a representative present at any material meeting or material communication with an OUS Major Market Governmental Authority (with no less than reasonable (under the circumstances) advance notice of the meeting).  ASTELLAS will keep THERAVANCE informed of any significant issue or issues with any OUS Governmental Authority in a timely manner.

 

(a)                                  OUS Filings.  ASTELLAS shall be solely responsible for filing Marketing Authorization applications for Licensed Product OUS and will use Diligent Efforts in seeking appropriate approvals for Licensed Product in those Countries, and shall be responsible for maintaining such Marketing Authorization(s).  Such regulatory documents for each filing shall be centralized and held at the offices of ASTELLAS. THERAVANCE shall provide such reasonable assistance as may be required by ASTELLAS where cooperation between the Parties is, or may be, necessary to enable ASTELLAS to fulfill its responsibilities hereunder.  This assistance shall include (without limitation):  providing ASTELLAS with full access to all data from Licensed Product and THERAVANCE Compound Studies, and full rights of reference and access to any and all Licensed Product and THERAVANCE Compound regulatory filings held by THERAVANCE (and/or its Affiliates).  ASTELLAS shall solicit THERAVANCE’S advice and review of all material regulatory submissions, material correspondence and material intended discussions with OUS Major Market Country regulatory authorities, taking into account and incorporating THERAVANCE’S reasonable comments and recommendations, and both Parties shall have the opportunity to participate in correspondence and discussions with such authorities regarding Licensed Products and THERAVANCE Compounds, including but not limited to discussion regarding labeling. Copies of the submissions and correspondence referred to in this Section 8.01(a) shall be

 

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made available to THERAVANCE upon its request.  ASTELLAS shall be fully responsible for bearing all expenses associated with undertaking and completing said OUS registration activities, including but not limited to the expenses of preparing and prosecuting applications for such Marketing Authorizations and fees payable to Governmental Authorities in obtaining and maintaining same.

 

(b)                                 Exchange Of Drug Safety Information.  ASTELLAS shall be responsible for receipt, recording, investigating, summarizing, notifying, reporting and reviewing all OUS Adverse Drug Experiences in accordance with applicable Laws and shall require that its Affiliates (i) adhere to all requirements of applicable Laws which relate to the reporting and investigation of OUS Adverse Drug Experiences, and (ii) keep THERAVANCE informed on a timely basis respecting same.  ASTELLAS shall also keep the JSC apprised on a regular basis of such drug safety matters.

 

Section 8.02                                United States Governmental Authorities.  Until the Licensed Product NDA is transferred to ASTELLAS in accordance with Section 8.02(a), THERAVANCE shall be primarily responsible for communicating with the FDA regarding the Initial Indications but will give ASTELLAS the opportunity to have a representative present at any meeting with or material conversation with the FDA (with no less than reasonable (under the circumstances) advance notice of the meeting and in any event no less than twenty-four (24) hours notice).  THERAVANCE will keep ASTELLAS informed of any significant issue or issues with the FDA in a timely manner.  This introductory paragraph to Section 8.02 shall apply mutatis mutandis (i.e. vice versa) to ASTELLAS once such NDA is transferred to ASTELLAS.

 

(a)                                  Filings In The United States.  In the United States, THERAVANCE shall also be solely responsible for filing Marketing Authorization applications for the Initial Indications for the Licensed Product and will use Diligent Efforts in seeking appropriate Marketing Authorizations for the Initial Indications for the Licensed Product in the United States, and, until transfer of same to ASTELLAS, as described below, THERAVANCE shall be responsible for maintaining such Marketing Authorizations. Promptly following receipt of Marketing Authorization in the United States for an indication within the second-to-be-approved of the Initial Indications, and in any event no later than [*] after initial NDA Approval (even if earlier than such second approval), THERAVANCE will transfer ownership of the Marketing Authorizations (along with all INDs or other applications and registrations respecting Licensed Products) in the United States to ASTELLAS, after which ASTELLAS will solely own and maintain the United States Marketing Authorizations.  Such regulatory documents for each filing shall be centralized and held at the offices of THERAVANCE prior to the transfer of ownership to ASTELLAS and by ASTELLAS subsequent to such transfer of ownership.  With respect to THERAVANCE’s efforts to seek Marketing Authorizations for the Initial Indications for the Licensed Product in the United States, THERAVANCE shall provide ASTELLAS (and its representatives) with access to all clinical and manufacturing data, including but not limited to source data, as well as the opportunity to audit clinical and manufacturing sites.  THERAVANCE may accomplish this by exercising THERAVANCE’S rights to access such items in cooperation with ASTELLAS by permitting ASTELLAS to have its representative(s) present when THERAVANCE

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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accesses such items.  THERAVANCE shall take into account and incorporate ASTELLAS’ reasonable comments and recommendations respecting same.  THERAVANCE shall solicit ASTELLAS’ advice and review of all regulatory submissions, correspondence and intended discussions with the FDA respecting the Initial Indications, taking into account and incorporating ASTELLAS reasonable comments and recommendations, and both Parties shall participate in correspondence and discussions with the FDA regarding Licensed Products and THERAVANCE Compounds, including but not limited to discussion regarding labeling.  ASTELLAS shall also provide such reasonable assistance as may be required by THERAVANCE where liaison between the Parties is, or may be, necessary to enable THERAVANCE to fulfill its responsibilities hereunder. In the United States, ASTELLAS shall be solely responsible for filing all Marketing Authorization applications for Other Indications for the Licensed Product and will use Diligent Efforts in seeking appropriate Marketing Authorizations for the Other Indications for the Licensed Product in the United States.  ASTELLAS shall solicit THERAVANCE’s advice and review of all regulatory submissions, correspondence and intended discussions with the FDA respecting Marketing Authorization filings for Other Indications in the United States, taking into account and incorporating THERAVANCE’s reasonable comments and recommendations, and both Parties shall participate in correspondence and discussions with such authorities regarding Licensed Products and THERAVANCE Compounds, including, but not limited to, discussions regarding labeling for any such Other Indications.  ASTELLAS shall be responsible for maintaining the US Marketing Authorizations for such Other Indications and shall solely own all such US Marketing Authorizations.

 

(b)                                 Exchange Of Drug Safety Information.  During its ownership, the Party owning the United States Marketing Authorization (herein, the “NDA Holder”) shall be responsible for recording, investigating, summarizing, notifying, reporting and reviewing all Adverse Drug Experiences that occur in the United States in accordance with applicable Laws and shall set up procedures and an organization to (i) adhere to all requirements of applicable Laws which relate to the reporting and investigation of Adverse Drug Experiences, and (ii) keep the other Party informed of same on a timely basis.  Prior to THERAVANCE’s transfer of the United States Marketing Authorizations to ASTELLAS (as described in Section 8.02(a)), the Parties shall put in place a global data safety exchange agreement with agreed-upon procedures and allocation of responsibilities between them for the recording, investigating, summarizing, notifying, reporting and reviewing all Adverse Drug Experiences, including but not limited to Adverse Drug Experience reporting obligations under the [*].  The NDA Holder shall also keep the JSC apprised on a regular basis of drug safety matters.

 

(c)                                  CMC Obligations.  Recognizing that THERAVANCE shall be the NDA Holder for a period after First Commercial Sale, until the time of NDA transfer to ASTELLAS, THERAVANCE agrees to fulfill all responsibilites and obligations of an NDA holder or to execute and file with FDA appropriate instuments delegating some or all of such responsibitiles and obligations to ASTELLAS.  THERAVANCE shall confer and agree with ASTELLAS in advance with respect to the content of any such instruments of delegation.

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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Section 8.03                                Recalls Or Other Corrective Action.  If, during its ownership of the NDA, the NDA Holder (defined above in Section 8.02(b)) receives any information that would lead a Party to reasonably conclude that a recall is required or warranted, the NDA Holder shall, within twenty-four (24) hours, notify the other Party of that information in sufficient detail to allow the Parties to comply with any and all applicable Laws. The NDA Holder shall promptly notify the other Party of any material actions to be taken by the NDA Holder with respect to any recall or market withdrawal or other corrective action related to the Licensed Product and, where feasible given statutory or regulatory timelines for taking such action, shall permit the other Party a reasonable opportunity to consult with the NDA Holder with respect thereto prior to such action.  Except to the extent due to a THERAVANCE failure to supply Licensed Product conforming to applicable specifications or Development action, all expenses with respect to a recall, market withdrawal or other corrective action shall be borne by ASTELLAS.

 

Section 8.04                                Rights Of Reference To DMFs.  THERAVANCE hereby grants ASTELLAS the following rights of reference:

 

(a)                                  the right to reference the Licensed Product DMF filed prior to the Effective Date by THERAVANCE (including without limitation all updates thereto);

 

(b)                                 [*] the right to reference the Licensed Product DMF filed prior to the Effective Date by [*] (including without limitation all updates thereto);

 

(c)                                  the right to reference the Licensed Product DMF filed by (or on behalf of) [*] (including without limitation all updates thereto); and

 

(d)                                 the right to reference any and all Licensed Product DMFs on file as of or after the Effective Date by any of THERAVANCE, [*], or any other applicable DMF that THERAVANCE may have the right to reference, together with all updates to each of the foregoing.

 

In addition THERAVANCE has granted to ASTELLAS the right of access to THERAVANCE’s DMF that is set forth in Section 4.03, and shall extend to ASTELLAS (through an outright grant or by exercising any right THERAVANCE may have on ASTELLAS’ behalf) the benefit of any right of access that THERAVANCE may have or obtain to any and all other DMFs referred to in this Section 8.04.  This includes without limitation any rights to access the regulatory filings or other similar rights that may become effective on a failure by the Third Party to fully supply.

 

Section 8.05                                Events Affecting Integrity Or Reputation.  During the Term-Basic, the Parties shall notify each other immediately of any circumstances of which they are aware and which could impair the integrity and reputation of the Licensed Product or if a Party or its Affiliate is threatened by the unlawful activity of any Third Party in relation to the Licensed Product, which circumstances shall include, by way of illustration, deliberate tampering with or contamination of the Licensed Product by any Third Party as a means of extorting payment from the Parties or another Third Party or otherwise. In any such circumstances, the Parties shall use Diligent Efforts to prevent any damage to the public,

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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the Parties and/or to the Licensed Product.  Where practicable, the Parties shall promptly call a JSC meeting to discuss and resolve such circumstances (but exigent circumstances may require a response without a formal JSC meeting).

 

ARTICLE 9

 

ORDERS; SUPPLY AND RETURNS

 

Section 9.01                                Orders And Terms Of Sale To Third Parties.  [*] (including without limitation with regard to [*], ASTELLAS shall have the sole right to (i) receive, accept and fill orders for the Licensed Product, (ii) control invoicing, order processing and collection of accounts receivable for the Licensed Product sales, (iii) record the Licensed Product sales in its books of account, and (iv) establish and modify the commercial terms and conditions with respect to the sale and distribution of the Licensed Product, including without limitation matters such as the local price at which the Licensed Product will be sold and whether any discounts, rebates or other deductions should be made, paid or allowed and in general to make decisions as to these and other Contracting Issues.

 

Section 9.02                                Supply Of API Compound And Formulated Licensed Product For Development.

 

(a)                                  Supply Of API Compound For Development.  THERAVANCE shall be responsible for supply of worldwide requirements of API Compound for Studies supporting Initial Indications and the Registration Batches thereof as well as all other supply for the Initial Indications in the US up through delivery of the First Commercial Sale Stock.  Such API Compound shall be manufactured and supplied in accordance with applicable Laws and current Good Manufacturing Practices.

 

(b)                                 Supply Of Licensed Product For Development and First Commercial Sale Stock.  THERAVANCE shall be responsible for supply of  worldwide requirements of Licensed Product for Studies supporting  Initial Indications and the Registration Batches thereof as well as all other supply for the Initial Indications in the US up through delivery of the First Commercial Sale Stock.  Such Licensed Product  shall be manufactured and supplied in accordance with applicable Laws and current Good Manufacturing Practices (and, with respect to Licensed Product in the First Commercial Sale Stock, in accordance with agreed-upon specifications).  Within a reasonable period of time following six (6) months after First Commercial Sale in the U.S., the Parties will review the amount of Licensed Product actually sold during such six (6) month period and, to the extent less Licensed Product was sold in such period than was delivered by THERAVANCE, ASTELLAS will pay THERAVANCE its Cost of Goods Sold associated with manufacturing such excess amount of Licensed Product.

 

 

(c)                                  Supply To ASTELLAS.  At ASTELLAS’ request, THERAVANCE shall supply ASTELLAS with its API Compound and Licensed Product requirements for nonclinical studies, for Phase 3b and Phase 4 Studies and for Development of the Licensed Product for Other Indications worldwide and for Initial Indications for OUS, on

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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the terms set forth in Exhibit B and in all cases only through delivery of First Commercial Sale Stock.

 

Section 9.03                                Supply Of API Compound For Commercialization.  Subject to THERAVANCE providing to ASTELLAS a commercially validated process for API Compound manufacture, ASTELLAS shall be responsible for supply of API Compound for Commercial purposes following THERAVANCE’s delivery of First Commercial Sale Stock, including API Compound for clinical trials of Other Indications subject to the fulfillment of any orders that may be pending at that time under Section 9.02(c). A non-binding forecast for API Compound requirements for Commercialization of the Licensed Product shall be prepared and periodically updated by ASTELLAS.

 

Section 9.04                                Supply Of Licensed Product For Commercialization.  Subject to THERAVANCE providing to ASTELLAS a commercially validated process for finished Licensed Product manufacture, ASTELLAS shall obtain supply of Licensed Product for Commercial purposes following Marketing Authorization, including Licensed Product for clinical studies of Other Indications once the Registration Batches of Licensed Product are complete and subject to the fulfillment of any orders that may be pending at that time under Section 9.02(c).  Such packaged and labeled Licensed Product shall be manufactured and supplied in accordance with all applicable Laws and current Good Manufacturing Practices. ASTELLAS shall be solely responsible for secondary manufacture, packaging and labeling of the Licensed Product.

 

Section 9.05                                Inventories.  THERAVANCE, ASTELLAS and their respective Product Suppliers shall maintain an inventory of API Compound and Licensed Product in accordance with their normal practices and so as to ensure fulfillment of their respective supply obligations herein.

 

 

Section 9.06                                [*].  [*] ASTELLAS shall have sole responsibility for THERAVANCE’s financial obligations arising after the Effective Date to pay any milestones and/or royalties due under the [*] as a result of ASTELLAS’ exercise of its  sublicense thereunder.  This payment obligation applies only to the [*] and not to any other THERAVANCE (or THERAVANCE Affiliate) in-licenses.  To avoid any doubt, this obligation specifically excludes all payment obligations under the [*] arising on or before the Effective Date or after the Effective Date where due to THERAVANCE action or inaction independently of ASTELLAS, as well as all damages that may now or at any time be due [*] as a result of or in connection with THERAVANCE’S breach of the [*] on or before the Effective Date or after the Effective Date where due to THERAVANCE action or inaction independently of ASTELLAS, indemnification obligations thereunder for matters arising on or before the Effective Date or after the Effective Date where due to THERAVANCE action or inaction independently of ASTELLAS, and/or other payment obligations thereunder for matters that occurred on or before the Effective Date or after the Effective Date where due to THERAVANCE action or inaction independently of ASTELLAS.  THERAVANCE covenants that it (a) shall not amend or terminate the [*] or take any action with regard to the [*] after the Effective Date without the prior consent of ASTELLAS, which consent shall not be unreasonably withheld; and (b) shall, to the extent [*] will not accept reports and payments directly from ASTELLAS

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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and provided that ASTELLAS timely provides to THERAVANCE all information required to be reported to [*] in relation to activities under this Agreement and payments in respect of such activities (and provided that while THERAVANCE is responsible for supply THERAVANCE shall be responsible for information on such activities and to notify ASTELLAS sixty (60) days in advance the amount of any payment that is coming due), timely make the required payments and reports to [*] (which acts on THERAVANCE’s part are expressly authorized by ASTELLAS).

 

Section 9.07                                Transition Assistance.  The Parties recognize and agree that subject to the terms and conditions herein, ASTELLAS will be responsible for Commercial Manufacture of Licensed Product, itself or through one or more Third Parties as of THERAVANCE’s delivery of the First Commercial Sale Stock.  In furtherance of same, the Parties contemplate that THERAVANCE and its Third Party suppliers will work actively and collaboratively with ASTELLAS as of the Effective Date to assist ASTELLAS in assuming such manufacturing responsibilities on a timely basis. THERAVANCE shall provide ASTELLAS with all reasonable cooperation and assistance to achieve technology transfer of the current processes for THERAVANCE Compounds and Licensed Product (including without limitation the following processes: manufacturing, analytical methods, release procedures and all other relevant processes).  THERAVANCE shall use Diligent Efforts as and to the extent reasonably requested by ASTELLAS to assist ASTELLAS at its option to (a) take assignment of THERAVANCE’S existing THERAVANCE Compound and Licensed Product supply agreements, (b) negotiate new agreements with THERAVANCE’S existing suppliers, and/or (c) enter into three-way agreements among THERAVANCE, ASTELLAS, and such suppliers for the transitional period, if required.  THERAVANCE’S assistance under the foregoing paragraph shall be at no additional charge to ASTELLAS.

 

ARTICLE 10

 

CONFIDENTIAL INFORMATION

 

Section 10.01                          Confidential Information.  Each of ASTELLAS and THERAVANCE shall keep all Confidential Information received from the other Party with the same degree of care it maintains the confidentiality of its own Confidential Information. Neither Party shall use such Confidential Information for any purpose other than in performance of this Agreement or the exercise of its rights hereunder or disclose the same to any other Person other than to such of its or its Affiliates’ (and in the case of ASTELLAS, its and its Affiliates’ sublicensees’ and distributors’) employees, consultants, agents and sublicensees who have a need to know such Confidential Information to implement the terms of this Agreement or enforce or exercise the rights granted under this Agreement.  A Receiving Party (as defined in the definition of Confidential Information) shall contractually obligate any such recipient to obligations of confidentiality and non-use at least as restrictive as those contained herein prior to any such disclosure.  Upon termination or expiration of this Agreement in its entirety, the Receiving Party shall promptly upon the request of the Disclosing Party return or destroy all documents, tapes or other media containing Confidential Information of the Disclosing Party that remain in the Receiving Party’s or its agents’ (including without limitation Affiliates’) possession,

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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except for any such Confidential Information to be used in connection with any surviving rights or surviving obligations of such Receiving Party hereunder and except that the Receiving Party may keep one copy of the Confidential Information in the legal department files of the Receiving Party, solely for archival purposes. Such archival copy and any such Confidential Information retained for use in connection with any surviving rights or surviving obligations of the Receiving Party shall be deemed to be the property of the Disclosing Party, and shall continue to be subject to the provisions of this ARTICLE 10. Notwithstanding anything to the contrary in this Agreement, the Receiving Party shall have the right to disclose this Agreement or Confidential Information provided hereunder if, in the reasonable opinion of the Receiving Party’s legal counsel, such disclosure is necessary to comply with the terms of this Agreement, or the requirements of any Law. Where possible, the Receiving Party shall notify the Disclosing Party of the Receiving Party’s intent to make such disclosure pursuant to the provision of the preceding sentence sufficiently prior to making such disclosure so as to allow the Disclosing Party adequate time to take whatever action the Disclosing Party may deem to be appropriate to protect the confidentiality of the information.  The Receiving Party will cooperate reasonably with the Disclosing Party’s efforts to protect the confidentiality of the information.  Each Party will be liable for breach of this ARTICLE 10 by any of its Affiliates, agents, or sublicensees.

 

Section 10.02                          Permitted Disclosure And Use.  Notwithstanding Section 10.01, a Party may disclose Confidential Information belonging to the other Party only to the extent such disclosure is reasonably necessary to: (a) obtain Marketing Authorization of a Licensed Product; (b) enforce the provisions of this Agreement; or (c) comply with Laws. If a Party deems it necessary to disclose Confidential Information of the other Party pursuant to this Section 10.02, such Party shall give reasonable advance notice of such disclosure to the other Party to permit such other Party sufficient opportunity to object to such disclosure or to take measures to ensure confidential treatment of such information. The Receiving Party will cooperate reasonably with the Disclosing Party’s efforts to protect the confidentiality of the information.

 

Either Party may disclose Confidential Information of the other Party as is reasonably necessary to effectuate the purposes of this Agreement (including but not limited to entering into undertakings with Third Parties for research, Development, manufacturing and Commercialization purposes), provided, however, that whenever either Party (the “Further Disclosing Party”) intends to disclose Confidential Information of the other Party to such Third Party (“Permitted Recipient”), the Further Disclosing Party shall first obtain from the Permitted Recipient a written nondisclosure and non-use agreement.  The Further Disclosing Party will secure the Permitted Recipient’s agreement to nondisclosure and non-use terms that are equivalent in scope to those imposed upon the Further Disclosing Party itself under this Agreement and for as long a duration as is reasonably possible, up to the duration of the Further Disclosing Party’s own nondisclosure and non-use obligations hereunder, but in any case not less than five (5) years after the termination of such agreement with the Permitted Recipient;  provided, however, that if the Permitted Recipient is a formulation or manufacturing entity, the Further Disclosing Party will obtain the prior written consent of the Disclosing Party (not to be withheld unreasonably) before agreeing to nondisclosure and nonuse terms that are

 

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not equivalent in scope to those imposed upon the Further Disclosing Party.  The Further Disclosing Party shall require the Permitted Recipient to likewise agree to the following conditions: (1) all confidential data and materials disclosed to the Permitted Recipient or generated by it in the course of the work to be performed is proprietary to the Further Disclosing Party and Permitted Recipient has no right to publish, sell, assign, or otherwise transfer same, except that, in the case of Permitted Recipients who are performing clinical development work on the THERAVANCE Compound and/or Licensed Product, Permitted Recipient may publish the results of its work in a manner consistent with Permitted Recipient’s institutional policies and in the interest of academic and/or scientific advancement, and in accordance with the publication provisions of Section 10.03 hereof; and (2) no confidential data or materials may be retained by Permitted Recipient after conclusion of its work for  the Further Disclosing Party except (i) to the extent Permitted Recipient deems reasonably necessary to ensure its compliance with its nondisclosure obligations to the Further Disclosing Party; and (ii) as may be required by Law, regulation, or court order.

 

Section 10.03                          Publications.  All publications relating to the Licensed Product must be approved via the procedure provided in Section 7.01.

 

Section 10.04                          Public Announcements.  Except as may be expressly permitted under Section 10.03 or required by applicable Laws and subject to the final sentence of this Section 10.04, neither Party (nor its Affiliates) will make any public announcement of any information regarding this Agreement (including without limitation its execution and terms), the Licensed Product or Development or Commercialization activities under this Agreement without the prior written approval of the other Party, which approval shall not be withheld unreasonably.  The Parties have (prior to the Signing Date) agreed to and exchanged the final text of a joint press release announcing the execution of this Agreement, and the text of a press release announcing the achievement of the Closing Condition described in Section 16.17. Once any statement is approved for disclosure by the Parties or information is otherwise made public in accordance with the preceding sentence, either Party may make a subsequent public disclosure of the contents of such statement without further approval of the other Party.  In its press releases, investor presentations and other official public statements by its officers or investor relations personnel in all cases that mention or are regarding the Licensed Product or the collaboration under this Agreement, ASTELLAS shall refer to the fact that it has licensed Licensed Product from THERAVANCE.

 

Section 10.05                          Confidentiality Of This Agreement.  The terms of this Agreement shall be Confidential Information of each Party and, as such, shall be subject to the provisions of this ARTICLE 10.  Either Party may disclose the terms of this Agreement if, in the opinion of its counsel, such disclosure is required by Law.  In such event, the disclosing Party will seek appropriate confidentiality of those portions of the Agreement for which confidential treatment is typically permitted by the relevant Governmental Authority.  In any case, if a Party is legally required to publicly file a copy of this Agreement, the disclosing Party will provide the other Party with an advance draft of the redacted form of the Agreement as the disclosing Party proposes to file it, with not less than five (5) Business Days for review, and shall incorporate the non-disclosing Party’s comments

 

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thereon, to the extent additional or other redactions requested by the non-disclosing Party may reasonably be afforded confidential treatment under applicable law and then-prevailing SEC practice.

 

Section 10.06                          Termination Of Prior Confidentiality Agreements.  This Agreement supersedes all existing Confidential Disclosure Agreements (“CDA”) between the Parties relating to the Licensed Product and to TD-1792, including the CDA dated December 1, 2004 and amended on October 17, 2005.  The information exchanged under such agreement shall be deemed to have been exchanged under this Agreement.

 

Section 10.07                          Survival.  The obligations and prohibitions contained in this ARTICLE 10 shall survive the expiration or termination of this Agreement in its entirety for a period of ten (10) years.

 

ARTICLE 11

 

REPRESENTATIONS AND WARRANTIES; COVENANTS

 

Section 11.01                          Mutual Representations And Warranties.  THERAVANCE and ASTELLAS each represents and warrants to the other as of the Signing Date that:

 

(a)                                  such Party (i) is a company duly organized, validly existing, and in good standing under the Laws of its jurisdiction of incorporation; (ii) is duly qualified as a corporation and in good standing under the Laws of each jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification, where the failure to be so qualified would have a material adverse effect on its financial condition or its ability to perform its obligations hereunder; (ii) has the requisite corporate power and authority and the legal right to conduct its business as now conducted and hereafter contemplated to be conducted; (iv) has or will obtain all necessary licenses, permits, consents, or approvals from or by, and has made or will make all necessary notices to, all Governmental Authorities having jurisdiction over such Party, to the extent required for the ownership and operation of its business, where the failure to obtain such licenses, permits, consents or approvals, or to make such notices, would have a material adverse effect on its financial condition or its ability to perform its obligations hereunder; and (v) is in compliance with its charter documents;

 

(b)                                 the execution, delivery and performance of this Agreement by such Party and all instruments and documents to be delivered by such Party hereunder (i) are within the corporate power of such Party; (ii) have been duly authorized by all necessary or proper corporate action; (iii) do not conflict with any provision of the charter documents of such Party; (iv) will not, to the best of such Party’s knowledge, violate any law or regulation or any order or decree of any court of governmental instrumentality; (v) will not violate or conflict with any terms of any indenture, mortgage, deed of trust, lease, agreement, or other instrument to which such Party is a party, or by which such Party or any of its property is bound, which violation would have a material adverse effect on its financial condition or on its ability to perform its obligations hereunder or the other Party’s enjoyment of its rights hereunder;

 

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(c)                                  this Agreement has been duly executed and delivered by such Party and constitutes a legal, valid and binding obligation of such Party, enforceable against such Party in accordance with its terms, except as such enforceability may be limited by applicable insolvency and other Laws affecting creditors’ rights generally, or by the availability of equitable remedies; and

 

(d)                                 all of its employees, officers, and consultants have executed agreements or have existing obligations under law requiring assignment to such Party of all Inventions made by such individuals during the course of and as the result of their association with such Party, and obligating such individuals to maintain as confidential such Party’s Confidential Information.

 

Section 11.02                          Representations And Warranties Of THERAVANCE.  THERAVANCE represents and warrants to ASTELLAS as follows:

 

(a)                                  Exhibit A is an accurate and complete list as of the Signing Date of all THERAVANCE Patents; and

 

(b)                                 as of the Signing Date it is the sole and exclusive owner of the THERAVANCE Patents listed in Exhibit A, all of which as well as the THERAVANCE Know-How are free and clear of any liens, charges and encumbrances; and

 

(c)                                  as of the Signing Date THERAVANCE and its Affiliates have not previously assigned, transferred, licensed, conveyed or otherwise encumbered their right, title and interest in the THERAVANCE IP and [*] in whole or in part; and

 

(d)                                 as of the Signing Date, no Person other than THERAVANCE or any of its Affiliates, has any ownership with respect to THERAVANCE IP nor has any Person made or threatened any claim to such ownership nor to [*]; and

 

(e)                                  as of the Signing Date and to THERAVANCE’S knowledge, the manufacture, use and sale of the THERAVANCE Compound and the current (as of the Signing Date) form of the Licensed Product do not infringe upon any intellectual property rights of any Third Party; and

 

(f)                                    as of the Signing Date there are no claims, judgments or settlements against or owed by THERAVANCE relating to the THERAVANCE IP or pending or threatened claims or litigation relating to the THERAVANCE IP nor relating to [*]; and

 

(g)                                 except as insofar [*] and, as of the Signing Date there are no other Patents or Know-How other than THERAVANCE Patents or THERAVANCE Know-How owned or licensed by THERAVANCE required to develop and/or commercialize the THERAVANCE Compound; and

 

(h)                                 as of the Signing Date there are no interferences — nor re-examination nor re-issue proceeding(s) — pending, declared, or threatened involving THERAVANCE with the THERAVANCE Patents, nor any re-examination or reissue proceeding concerning such THERAVANCE Patents; and

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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(i)                                     as of the Signing Date THERAVANCE has no knowledge from which it can reasonably be inferred that the granted THERAVANCE Patents are invalid or unenforceable or that the applications for THERAVANCE Patents will not proceed to grant or yield valid and enforceable issued Patents; and

 

(j)                                     the [*] is in full force and effect as of the Signing Date; the copy of the [*] that THERAVANCE has disclosed to ASTELLAS on or before the Signing Date is a true and accurate copy of such agreement; as of the Signing Date, THERAVANCE has made all payments and fulfilled all obligations due and/or owed under the [*] for which the payment or other obligation arose on or before the Signing Date; and as of the Signing Date, THERAVANCE is not in breach of the [*] and has received no notice of breach thereunder; and

 

(k)                                  THERAVANCE has disclosed in writing to ASTELLAS all currently effective agreements relating to THERAVANCE Compound(s) and/or Licensed Product(s) to which THERAVANCE and/or any of its Affiliates is a party as of the Signing Date (excluding clinical site agreements, clinical investigator agreements and related documentation, and excluding confidentiality or non-disclosure agreements with Third Parties); and

 

(l)                                     as of the Signing Date, THERAVANCE is not a Party to any in-effect agreement or obliged to any surviving obligation under any expired agreement, in each case that would limit THERAVANCE’s ability to grant ASTELLAS a license of the scope set forth in Section 2.01 (ignoring solely for purposes of evaluating this representation and warranty any limitations that the definition of “Control” would place on the scope of Patents and Know-How included in the license) under the THERAVANCE IP; and

 

(m)                               the safety- and efficacy-related data and information (including without limitation nonclinical and clinical data) regarding TELAVANCIN as of the Signing Date is true and accurate in all material respects and THERAVANCE has not omitted to disclose to ASTELLAS any data or information (including without limitation nonclinical and clinical data) that is or reasonably could be expected to be material to ASTELLAS’ (or any reasonable prospective licensee’s or collaborator’s) decision to enter into the transaction contemplated in this Agreement as of the Signing Date; and

 

(n)                                 as of the Signing Date, the THERAVANCE IP and [*] are not subject to any license, option, covenant not to sue or other similar interests that limit or restrict the licenses granted to ASTELLAS hereunder; and

 

(o)                                 other than the THERAVANCE Compound and the TD-1792 Compound, THERAVANCE and its Affiliates do not as of the Signing Date have in nonclinical development, IND-enabling work or clinical development any other compound in the Field, themselves or through contract(s) with any Third Party(ies).

 

Section 11.03                          Acknowledgement Of ASTELLAS.  ASTELLAS is aware that the THERAVANCE Patents or the THERAVANCE Know-How may not sufficiently enable

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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ASTELLAS to successfully implement modifications to the process relating to the manufacture of the THERAVANCE Compound and/or API Compound or preparation of the Licensed Product  that THERAVANCE will provide to ASTELLAS hereunder, or to conduct any other operational or manufacturing-related activities with respect to such ASTELLAS-implemented process modifications.  It is explicitly understood by ASTELLAS that ASTELLAS will have to independently conduct any analysis, evaluation and investigation regarding what intellectual property, techniques, routes, equipment or other help or assistance that will be required for implementation of any such new processes.  This acknowledgement, to avoid any doubt, in no way alters and shall not be deemed to undermine, interpret or lessen THERAVANCE’S representations and warranties set forth in Section 11.01 and Section 11.02 particularly (but without limitation) as they relate to the manufacturing processes and THERAVANCE Know-How that THERAVANCE shall deliver to ASTELLAS hereunder.

 

Section 11.04                          Limitations.  EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT EACH OF THERAVANCE AND ASTELLAS EXPRESSLY DISCLAIMS ANY AND ALL IMPLIED OR EXPRESS WARRANTIES AND MAKE NO EXPRESS OR IMPLIED WARRANTY, STATUTORY OR OTHERWISE, OF ANY KIND, INCLUDING ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE REGARDING THE THERAVANCE COMPOUNDS, THERAVANCE CONFIDENTIAL INFORMATION, ASTELLAS CONFIDENTIAL INFORMATION, THERAVANCE IP, ASTELLAS IP, [*] OR LICENSED PRODUCTS.

 

Section 11.05                          Covenants.  Each Party hereby covenants and agrees during the Term-Basic that it shall carry out its obligations or activities hereunder in accordance with (i) the terms of this Agreement and (ii) all applicable Laws.

 

ARTICLE 12

 

INDEMNIFICATION

 

Section 12.01                          Indemnification By ASTELLAS.  Subject to Section 12.04, ASTELLAS shall defend, indemnify and hold harmless (collectively, “Indemnify”) THERAVANCE and its Affiliates, sublicensees and distributors and all of the foregoing entities’ officers, directors, shareholders, employees, agents, successors and assigns from and against all Claims of Third Parties, and all associated Losses, to the extent arising out of (a) ASTELLAS’ or its Affiliates’ negligence or willful misconduct in performing any of their obligations under this Agreement, (b) a breach by ASTELLAS (or its Affiliates) of any of their representations, warranties, covenants or agreements under this Agreement, or (c) the manufacture, use, handling, storage, marketing, sale, distribution or other disposition of the API Compound, the THERAVANCE Compound or Licensed Product by ASTELLAS, its Affiliates, agents, sublicensees or distributors.  In addition, this Indemnification obligation applies to ASTELLAS Employee Claims as provided for in Section 5.06.  The obligation to Indemnify under this Section 12.01 shall not apply to the extent of any Claims and associated Losses resulting from a cause listed in Section 12.02(a)-(c) or in the second sentence of Section 12.02.

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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Section 12.02                          Indemnification By THERAVANCE.  Subject to Section 12.04, THERAVANCE shall Indemnify ASTELLAS and its Affiliates, and their sublicensees and distributors hereunder and all of the foregoing entities’ officers, directors, shareholders, employees, agents, successors and assigns from and against all Claims of Third Parties, and all associated Losses, to the extent arising out of (a) THERAVANCE’S or its Affiliates’ negligence or willful misconduct in performing any of their obligations under this Agreement, or (b) a breach by THERAVANCE (or its Affiliates) of any of their representations, warranties, covenants or agreements under this Agreement, or (c) the manufacture, use, handling, storage, marketing or other disposition of the API Compound, the THERAVANCE Compound or Licensed Product by THERAVANCE, its Affiliates, agents, licensees (including without limitation  sublicensees), and distributors or the failure of any Licensed Product supplied by THERAVANCE hereunder to conform to the specifications therefor or any representations and warranties made with respect thereto by THERAVANCE in accordance with Section 9.02 and Exhibit B.  In addition, this Indemnification obligation applies to THERAVANCE Employee Claims as provided for in Section 5.06.  This obligation to Indemnify shall not apply to the extent of any Claims and associated Losses resulting from a cause listed in Section 12.01(a)-(c) or in the second sentence of  Section 12.01.

 

Section 12.03                          Procedure For Indemnification.

 

(a)                                  Notice.  Each Party will notify promptly the other in writing if it becomes aware of a Claim (actual or potential) by any Third Party (a “Third Party Claim”) for which indemnification may be sought by that Party and will give such information with respect thereto as the other Party shall reasonably request. If any proceeding (including any governmental investigation) is instituted involving any Party for which such Party may seek an indemnity under Section 12.01 or Section 12.02, as the case may be (the “Indemnified Party”), the Indemnified Party shall not make any admission or statement concerning such Third Party Claim, but shall promptly notify the other Party (the “Indemnifying Party”) orally and in writing and the Indemnifying Party and Indemnified Party shall meet to discuss how to respond to any Third Party Claims that are the subject matter of such proceeding. The Indemnifying Party shall not be obligated to indemnify the Indemnified Party to the extent any admission or statement made by the Indemnified Party or any failure by such Party to notify the Indemnifying Party of the claim materially prejudices the defense of such claim.

 

(b)                                 Defense Of Claim.  If the Indemnifying Party elects to defend or, if local procedural rules or laws do not permit the same, elects to control the defense of a Third Party Claim, it shall be entitled to do so provided it gives notice to the Indemnified Party of its intention to do so within forty-five (45) days after the receipt of the written notice from the Indemnified Party of the potentially indemnifiable Third Party Claim (the “Litigation Condition”). The Indemnifying Party expressly agrees that the Indemnifying Party shall be responsible for satisfying and discharging any award made to or settlement reached with the Third Party pursuant to the terms of this Agreement without prejudice to any provision in this Agreement or rights or remedies available at law which will allow the Indemnifying Party subsequently to recover any amount from the Indemnified Party.

 

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Subject to compliance with the Litigation Condition, the Indemnifying Party shall retain counsel reasonably acceptable to the Indemnified Party (such acceptance not to be unreasonably withheld, refused, conditioned or delayed) to represent the Indemnified Party and shall pay the fees and expenses of such counsel related to such proceeding. In any such proceeding, the Indemnified Party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of the Indemnified Party. The Indemnified Party shall not settle any claim for which it is seeking indemnification without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld, refused, conditioned or delayed. The Indemnified Party shall, if requested by the Indemnifying Party, cooperate in all reasonable respects in the defense of such claim that is being managed and/or controlled by the Indemnifying Party. The Indemnifying Party shall not, without the written consent of the Indemnified Party (which consent shall not be unreasonably withheld, refused, conditioned or delayed), effect any settlement of any pending or threatened proceeding in which the Indemnified Party is, or based on the same set of facts could have been, a party and indemnity could have been sought hereunder by the Indemnified Party, unless such settlement includes an unconditional release of the Indemnified Party from all liability to Third Parties on claims that are the subject matter of such proceeding and provided such settlement does not limit or restrict the rights granted to the Indemnified Party hereunder in any material respect or otherwise materially adversely affect the ability of the Indemnified Party to enjoy the benefits of this Agreement. If the Litigation Condition is not met, then neither Party shall have the right to control the defense of such Third Party Claim and the Parties shall cooperate in and be consulted on the material aspects of such defense at each Party’s own expense; provided that if the Indemnifying Party does not satisfy the Litigation Condition, the Indemnifying Party may at any subsequent time during the pendency of the relevant Third Party Claim irrevocably elect, if permitted by local procedural rules or laws, to defend and/or to control the defense of the relevant Third Party Claim so long as the Indemnifying Party also agrees to pay the reasonable fees and expenses incurred by the Indemnified Party in relation to the defense of such Third Party Claim from the inception of the Third Party Claim until the date the Indemnifying Party assumes the defense or control thereof.

 

Notwithstanding the foregoing, if the Parties do not agree as to the application of Section 12.01 and Section 12.02 to any particular Claim (and associated Losses), then each may conduct its own defense of such Claim and reserve the right to claim indemnification from the other Party upon resolution of the underlying Claim.

 

Section 12.04                          Assumption Of Defense.  Notwithstanding anything to the contrary contained herein, an Indemnified Party shall be entitled to assume the defense of any Third Party Claim with respect to the Indemnified Party, upon written notice to the Indemnifying Party pursuant to this Section 12.04, in which case the Indemnifying Party shall be relieved of liability under Section 12.01 or Section 12.02, as applicable, solely for such Third Party Claim and related Losses.

 

Section 12.05                          Insurance.  During [*], each Party shall obtain and/or maintain at its sole expense, product liability insurance (including any self-insured arrangements) in amounts which are reasonable and customary in the U.S. pharmaceutical industry for companies of

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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comparable size and activities, in any event no less than [*] for ASTELLAS and [*] for THERAVANCE.  The Parties agree to revisit or consult via the JSC in the future respecting [*].  Such product liability insurance or self-insured arrangements shall insure against all reasonable and customary liability typically covered by such insurance policies including without limitation personal injury, physical injury, or property damage arising out of the manufacture, sale, distribution, or marketing of the Licensed Product. Each Party shall provide written proof of the existence of such insurance to the other Party upon request.

 

ARTICLE 13

 

PATENTS

 

Section 13.01                          Prosecution And Maintenance Of Patents.

 

(a)                                  Prosecution And Maintenance Of THERAVANCE Patents.

 

In this Section 13.01(a), references to “THERAVANCE Patents” are intended only to apply to those THERAVANCE Patents that are not Patents on Joint Inventions.  Patents on Joint Inventions are handled separately in Section 13.01(b).

 

(i)                                     Responsibility.  THERAVANCE shall have the exclusive right and the obligation to (subject to THERAVANCE’S election not to file, prosecute, or maintain pursuant to Section 13.01(e)), or, if applicable, to cause its licensors to, prepare, file, prosecute in a diligent manner (including without limitation by conducting interferences, oppositions and reexaminations or other similar proceedings), maintain (by timely paying all maintenance fees, renewal fees, and other such fees and expenses required under applicable Laws) and extend all THERAVANCE Patents and related applications, in accordance with input from ASTELLAS as provided below.

 

(ii)                                  Abandonment.  THERAVANCE shall consult with ASTELLAS and comply with Section 13.01(e) prior to abandoning any THERAVANCE Patents.

 

(iii)                               Input.  THERAVANCE shall regularly advise ASTELLAS of the status of all pending applications, including with respect to any hearings or other proceedings before any Governmental Authority, and, at ASTELLAS’ request, shall provide ASTELLAS with copies of all documentation concerning such applications, including all correspondence to and from any Governmental Authority, including without limitation drafts of all filings and correspondence with any Governmental Authority no later than [*] prior to the date such filing will be made or correspondence sent unless (without fault of THERAVANCE) deadlines will not permit such advance notice in which case a copy of any such filing or correspondence will be promptly provided to ASTELLAS. Other than as set forth in this Agreement regarding prosecution of Patents claiming Joint Inventions, THERAVANCE shall solicit ASTELLAS’ advice regarding prosecution of THERAVANCE Patents and THERAVANCE shall take into account ASTELLAS’ reasonable comments related thereto.  In the event of a dispute between the Parties with respect to patent prosecution and/or maintenance (including without

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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limitation substantive patent issues and decisions as to in which Countries OUS any particular filing should be made or extended), THERAVANCE shall make the final decision in a manner consistent with the Diligent Efforts standard.  Within the priority period, THERAVANCE shall agree with ASTELLAS regarding the Countries outside the United States in which corresponding applications should be filed (“OUS Filings”). It is presumed that a corresponding Patent Cooperation Treaty (“PCT”) application will be filed unless otherwise agreed by the Parties.  THERAVANCE shall effect filing of all such applications within the priority period.  Extension of the PCT Filing into individual Countries shall be made on a case-by-case basis consistent with the Diligent Efforts standard.

 

(iv)                              Expenses.  ASTELLAS shall be responsible for [*] percent ([*]%) [*] THERAVANCE’S external, properly documented, out-of-pocket expenses incurred after the Effective Date to procure THERAVANCE Patents in the Territory with respect to those patent families that include any members listed in Exhibit A (whether as of the Signing Date or thereafter through an update pursuant to Section 2.08(a) or due to an ASTELLAS election under Section 2.08(d)(iii)) including without limitation PCT and individual country filing fees, translations, maintenance, annuities, and protest proceedings.  For all such corresponding patent applications, THERAVANCE will invoice ASTELLAS on a quarterly basis beginning the first Calendar Quarter following the Effective Date, setting forth all such expenses incurred.  Reimbursement will be made to THERAVANCE in United States Dollars within thirty (30) days of receipt of the invoice by ASTELLAS.  ASTELLAS will within thirty (30) days following the Effective Date identify the ASTELLAS representative that should receive such invoices from THERAVANCE.  THERAVANCE shall be responsible for all of its internal expenses associated with prosecution and maintenance.   ASTELLAS’ obligations hereunder are in addition to any obligations of ASTELLAS under Section 13.01(b)(ii).

 

(v)                                 [*] Patents.  This Section 13.01(a) applies equally to the Patents within the [*] to the extent THERAVANCE has rights to prosecute under the [*] and owes prosecution costs thereunder.

 

(b)                                 Prosecution And Maintenance Of Patents Covering Joint Inventions.

 

(i)                                     For Patents covering Joint Inventions, the Parties shall agree, without prejudice to ownership, which Party shall have the right to prepare and file a priority patent application, and prosecute such application(s) and maintain any patents derived therefrom, with [*] the reasonable out-of-pocket expenses for the preparation, filing, prosecution and maintenance of such priority patent application.  The Parties will reasonably cooperate to obtain any export licenses that might be required for such activities.  Should the agreed-upon Party elect not to prepare and/or file any such priority patent application, it shall (x) provide the other Party with written notice as soon as reasonably possible after making such election but in any event no later than sixty (60) days before the other Party would be faced with a possible loss of rights, (y) give the other Party the right, at the other Party’s discretion and sole expense, to prepare and file the priority application(s), and (z) offer reasonable assistance in connection with such preparation and filing at no expense to the other Party except for reimbursement of

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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reasonable out-of-pocket expenses incurred by the agreed upon Party in rendering such assistance. The other Party, at its discretion and expense, shall prosecute such application(s) and maintain sole ownership (and the opting-out Party shall assign ownership to such other Party) of any patents derived therefrom.

 

(ii)                                  Within nine (9) months after the filing date of a priority application directed to a Joint Invention, the Party filing the priority application shall request that the other Party identify those non-priority, non-PCT (“foreign”) Countries in which the other Party desires that the Party filing the priority application file corresponding patent applications. Within thirty (30) days after receipt by the other Party of such request from the Party filing the priority application, the other Party shall provide to the Party filing the priority application a written list of such foreign Countries in which the other Party wishes to effect corresponding foreign patent applications filings. The Parties will then attempt to agree on the particular Countries in which such applications will be filed, provided that in the event agreement is not reached, the application will be filed in the disputed as well as the non-disputed Countries (all such filings referred to hereinafter as “Designated Foreign Filings”). Thereafter, within twelve (12) months after the filing date of the priority application, the Party filing the priority application shall effect all such Designated Foreign Filings.  It is presumed (unless otherwise agreed in writing by the Parties) that a corresponding PCT application will be filed designating all PCT member Countries. As to each Designated Foreign Filing and PCT application, each Party shall bear [*] of the expenses for the filing and prosecutions of such Designated Foreign Filing and PCT application (including entering national phase in all agreed countries) unless ASTELLAS opts out as provided herein. Should the Party filing the priority application not agree to file or cause to be filed a Designated Foreign Filing, the other Party will have the right to effect such Designated Foreign Filing in its name.

 

(iii)                               Should the filing Party pursuant to Section 13.01(b)(i) or Section 13.01(b)(ii) no longer wish to prosecute and/or maintain any patent application or patent resulting from such application, the filing Party shall (x) provide the non-filing Party with written notice of its wish no later than sixty (60) days before the patent or patent applications would otherwise become abandoned, (y) give the non-filing Party the right, at the non-filing Party’s election and sole expense, to prosecute and/or maintain such patent or patent application, and (z) offer reasonable assistance to the non-filing Party in connection with such prosecution and/or maintenance at no expense to the non-filing Party except for reimbursement of the filing Party’s reasonable out-of-pocket expenses incurred by the filing Party in rendering such assistance.

 

(iv)                              Should the non-filing Party pursuant to Section 13.01(b)(iii) not wish to incur its share of preparation, filing, prosecution and/or maintenance expenses for a patent application filed pursuant to Section 13.01(a)(i) or Section 13.01(b)(ii) or patents derived therefrom, it shall (x) provide the filing Party with 30 days advance written notice of its wish, (y) continue to offer reasonable assistance to the filing Party in connection with such prosecution or maintenance and (z) assign its entire right, title and interest therein to the filing Party in each case at no expense to the filing Party except for reimbursement of the non-filing Party’s reasonable external, out-of-pocket expenses incurred by the non-filing Party in rendering such assistance.

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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(v)                                 The Parties agree to cooperate in the preparation and prosecution of all patent applications filed under Section 13.01(b)(i) and Section 13.01(b)(ii), including obtaining and executing necessary powers of attorney and assignments by the named inventors, providing relevant technical reports to the filing Party concerning the invention disclosed in such patent application, obtaining execution of such other documents which shall be needed in the filing and prosecution of such patent applications, and, as requested, updating each other regarding the status of such patent applications.

 

(c)                                  Patent-Related Dispute Resolution.  The Parties wish to foster a truly collaborative and cooperative relationship between their respective patent counsel.  The Parties recognize that from time to time, despite such a positive relationship, their respective patent counsel may disagree as to certain matters relating to prosecution of Patents covering Joint Inventions, as well as the Issue of Necessity referred to in Section 6.03(c)(ii) (each of the foregoing issues regarding prosecution of Patents covering Joint Inventions, and each Issue of Necessity, a “Patent Resolution Issue”).  In such event, instead of resorting to the dispute resolution process as described in Section 3.06(b), the Parties agree to seek guidance and resolution from an independent, mutually acceptable patent attorney as further described below in this Section.  If the Parties reach an impasse (remaining even after resort to the initial dispute resolution provided for in Section 3.06(a)) as to any Patent Resolution Issue, then they shall submit the Patent Resolution Issue to an experienced patent attorney mutually acceptable to the Parties — and who does not otherwise perform work for either Party or any of its Affiliates — for resolution.  They shall engage such attorney within thirty (30) days after either Party notifies the other of a Patent Resolution Issue impasse remaining unresolved after resort to Section 3.06(a).  If they cannot agree as to who such attorney shall be within such time period, then the total of two nominees of the Parties (one from each Party) shall select a third patent attorney who shall be the attorney to resolve the dispute.  (Alternatively the Parties may choose to designate the patent attorney who will resolve Patent Resolution Issues in advance of any such issue arising.)  The Parties shall share equally the expenses incurred for the services of such patent attorney.  Within fifteen (15) days after engaging the patent attorney, the Parties shall each submit up to twenty (20) pages of documentation to the patent attorney.  Within five (5) Business Days thereafter, the Parties shall convene a discussion with the patent attorney during which each Party may orally present its position on the Patent Resolution Issue for no more than one (1) hour.  The Parties shall endeavor to cause the patent attorney to render his or her guidance as to the Patent Resolution Issue within five (5) Business Days after such discussion.  Neither Party shall engage in any ex parte communications with the patent attorney.  The Parties shall accept and follow the guidance and resolution of the patent attorney absent any fraud in the proceedings.

 

(d)                                 Prosecution And Maintenance Of ASTELLAS Patents. Except as provided in Section 13.01(f) and ARTICLE 15, ASTELLAS shall have the sole right to file, prosecute, maintain and enforce the ASTELLAS Patents.

 

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(e)                                  ASTELLAS Step-In Rights.

 

This Section 13.01(e), where it refers to “THERAVANCE Patents,” is intended only to apply to those THERAVANCE Patents that are not Patents on Joint Inventions.  Patents on Joint Inventions are handled separately in Section 13.01(b).

 

If THERAVANCE elects not to file, prosecute or maintain the THERAVANCE Patents or claims encompassed by such THERAVANCE Patents that cover any THERAVANCE Compound or Licensed Product (whether directly through its composition (including without limitation formulations) or indirectly through its manufacture or use (including without limitation methods of administration), THERAVANCE shall give ASTELLAS notice thereof within a reasonable period prior to allowing such THERAVANCE Patents, or such claims encompassed by such THERAVANCE Patents, to lapse or become abandoned or unenforceable (in any event no less than 30 days written notice), and ASTELLAS shall thereafter have the right, at its sole expense, to prepare, file, prosecute and maintain such THERAVANCE Patents in such Country.

 

(f)                                    Execution Of Documents By Agents. Each of the Parties shall execute or have executed by its appropriate agents such documents as may be necessary to obtain, perfect or maintain any Patents filed or to be filed pursuant to this Agreement, and shall cooperate with the other Party so far as reasonably necessary with respect to furnishing all information and data in its possession reasonably necessary to obtain or maintain such Patent Rights.

 

(g)                                 Patent Term Extensions Including Supplementary Protection Certificates (“SPCs”) and Any Similar Rights. The Parties shall cooperate with each other in gaining patent term extension or related extension of rights, including without limitation SPCs and similar rights,  where applicable to Licensed Product.  The JSC shall discuss which patents the Parties shall endeavor to have extended.  All filings for such extension will be made by the Party to whom the patent is assigned after consultation with the other Party.  If the JSC does not agree, then:  first, a Party is entitled to refuse to allow its own Patent to be extended; and second, normal dispute resolution applies (Section 3.06 dispute resolution) to select which Patent shall be extended in accordance with the principle of the next sentence.  It is understood and agreed that the purpose of any patent term extensions under this Section is to extend the term of meaningful patent exclusivity for the Licensed Product, not provide either (i) for a protracted royalty term for THERAVANCE hereunder in situations where a THERAVANCE Patent extension will not extend the overall life of meaningful patent exclusivity for the Licensed Product , or (ii) for a decreased royalty term for ASTELLAS where the THERAVANCE Patent would provide greater exclusivity than the ASTELLAS Patent.

 

Section 13.02                          Patent Infringement.

 

(a)                                  Infringement Claims By Third Parties. With respect to any and all Claims instituted by Third Parties against THERAVANCE or ASTELLAS or any of their respective Affiliates for patent infringement involving the manufacture, use, license, marketing, sale, offer for sale or importation of a Licensed Product in any Country or Countries of the Territory during any Term-Basic in the applicable Country(ies) (each, a “Patent Infringement Claim”) as applicable, THERAVANCE and ASTELLAS will assist

 

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one another and cooperate in the defense and settlement of such Patent Infringement Claims at the other Party’s request.  This shall not alter ARTICLE 12 as regards Indemnification between the Parties, including without limitation with respect to Claims arising out of a breach of a representation and warranty hereunder, including without limitation THERAVANCE’s intellectual property representations and warranties hereunder.

 

(b)                                 Infringement Of THERAVANCE Patents. In the event that THERAVANCE or ASTELLAS becomes aware of actual or threatened infringement of a THERAVANCE Patent during the Term-Basic, that Party will promptly notify the other Party in writing (a “Patent Infringement Notice”).   [*] will have the first right but not the obligation to bring an infringement action against any Third Party.  If [*] elects to pursue such infringement action, [*] shall be solely responsible for the expenses associated with such action with any recovery going first to pay for all expenses incurred by [*] in connection with bringing and maintaining such action (including without limitation via reimbursement of [*] expenses) and any remaining amount being divided as follows: (i) [*] with [*] retaining the [*] and (ii) any other portion of the award shall be retained by [*].  During the Term-Basic in the applicable Country(ies) of infringement, in the event that [*] does not undertake such an infringement action within ninety (90) days after the Patent Infringement Notice between the Parties regarding the applicable infringement, [*] shall be permitted to do so in [*] or the relevant [*] Affiliate’s name.  If a Party is authorized to bring an infringement action under this section but such Party is not recognized by the applicable court or other relevant body as having the requisite standing to pursue such action, then the other Party shall join as a party-plaintiff.  If [*] elects to pursue such infringement action, [*] may be represented in such action by attorneys of its own choice and its own expense with [*] taking the lead in and controlling such action (and this sentence applies mutatis mutandis or vice versa with respect to suits pursued instead by [*]).  Recoveries on [*] suits under this Section 13.02(b) shall go first to reimburse [*] litigation expenses, and the remaining recovery shall be treated as [*].

 

This Section 13.02(b) applies to those THERAVANCE Patents that are not Patents on Joint Inventions, however, unlike with the other THERAVANCE Patents, with respect to Patents on Joint Inventions, the Parties must agree which Party will have the first right to enforce them, with the other Party having a back-up right equivalent to the ASTELLAS’ back-up right described above in this Section 13.02(b).

 

(c)                                  Infringement Of ASTELLAS Patents. During the Term-Total, ASTELLAS shall have the sole and exclusive right to pursue infringement of any ASTELLAS Patents in its sole discretion, retaining all recoveries.

 

(d)                                 [*]. Section 13.02(b) applies mutatis mutandis to the Patents within the [*], subject only to the [*] therein.

 

Section 13.03                          Notice Of Certification. ASTELLAS and THERAVANCE each shall promptly give notice to the other of any certification filed under the “U.S. Drug Price Competition and Patent Term Restoration Act of 1984” as amended or as it may be amended (or its foreign equivalent) claiming that a THERAVANCE Patent is invalid or

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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that infringement will not arise from the manufacture, use or sale of the Licensed Product by a Third Party (“Hatch-Waxman Certification”) with cooperation between the Parties to start immediately upon either Party having knowledge that a Hatch-Waxman Certification has been filed.  This Section is explicitly intended to apply both to successor legislation in the US and counterpart or similar legislation OUS.

 

(a)                                  Notice. If a Party decides not to bring infringement proceedings against the entity making such a certification, such Party shall give notice to the other Party of its decision not to bring suit within twenty-one (21) days after receipt of notice of such certification.

 

(b)                                 Option. Such other Party then may, but is not required to, bring suit against the entity that filed the certification.

 

(c)                                  Name Of Party. Any suit by THERAVANCE or ASTELLAS shall either be in the name of THERAVANCE or in the name of ASTELLAS, (or any Affiliate) or jointly in the name of THERAVANCE and ASTELLAS (or any Affiliate), as may be required by law.

 

Outside the US or if the time period in the US is amended from that operative as of the Effective Date, the time period for notice under Section 13.03(a) shall be one-half the time before the deadline for response without loss of rights under applicable Law.  This Section 13.03 only designates the notice time period that applies to infringement actions in relation to Hatch-Waxman or similar actions, but otherwise the suits will be handled is as set forth in Section 13.03.

 

Section 13.04                          Assistance. For purposes of Section 13.02 and Section 13.03, each Party shall execute such legal papers and provide such reasonable assistance and take such further actions as is necessary for the prosecution of such suit as may be reasonably requested by the other Party.  This shall be at the expense of the Party bringing suit (on an at-expense, pass-through basis).

 

Section 13.05                          Settlement. No settlement or consent judgment or other voluntary final disposition of a suit under this Article may be entered into without the joint written consent of ASTELLAS and THERAVANCE (which consent will not be withheld unreasonably) except as follows:  either Party may settle an infringement claim against it by a Third Party for money damages that such Party will pay and for which it will not seek reimbursement, offset or expense-sharing from the other Party;  provided that ASTELLAS’ right to sublicense shall not be limited by this Section 13.05.

 

In addition, THERAVANCE shall not settle any suit under Section 13.02 in a manner inconsistent with ASTELLAS’ exclusive license hereunder (this means, without limitation, that THERAVANCE shall not grant in the context of a settlement any license (whether or not exclusive), covenant not to sue, non-suit or other with respect to THERAVANCE Compound(s) and/or Licensed Products).

 

Section 13.06                          Ownership Of Inventions. Each Party shall promptly disclose to the other Party all Inventions made by it during the Term-Basic; provided that ASTELLAS will be

 

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allowed a reasonable time to file patent applications covering ASTELLAS Inventions prior to disclosing the ASTELLAS Invention to THERAVANCE.  THERAVANCE will be allowed a reasonable time to file patent applications covering THERAVANCE Inventions prior to disclosing the THERAVANCE Invention to ASTELLAS; [*]. Such designated [*] have been [*] regarding such [*] regarding the [*] prior to [*].  Any such draft patent application will be considered THERAVANCE Confidential Information [*].  THERAVANCE shall own all THERAVANCE Inventions and ASTELLAS shall own all ASTELLAS Inventions.  All Joint Inventions shall be owned jointly by THERAVANCE and ASTELLAS, and each Party hereby consents (without granting any license) to the exercise, assignment or license or other disposition by the other Party of its joint interest in Joint Inventions without accounting or the need to seek the consent of the other Party to such assignment or license or other disposition; provided that any such assignment, license or other disposition shall at all times be subject to the grant of rights and accompanying conditions under Section 2.01, Section 2.04 and ARTICLE 15.  The determination of inventorship for Inventions shall be made in accordance with the applicable Laws relating to inventorship set forth in the patent Laws of the United States (Title 35, United States Code).

 

Section 13.07                          Licensing Discussion Procedures. Until expiration of the last Term-Basic in all Countries in the Territory, if either Party identifies any Third-Party Patents and/or Know-How that it believes may be desirable to license to cover activities hereunder, it shall request (in writing) a meeting between one JSC member from each Party and internal or external counsel for each Party.  Such meeting shall occur within thirty (30) days after requested.  If requested by counsel for either Party, the Parties shall enter into an appropriate and customary joint defense/common interest agreement to cover any and all such discussions and document the parties’ common interest with respect to Licensed Product-related Third-Party intellectual property.  In their meeting and any follow-up meetings, the Parties shall seek to reach consensus as to the relevance of such Third-Party intellectual property to Licensed Product, and whether it is desirable to take a license under such Third-Party intellectual property.  Any minutes of such meeting(s) shall be prepared and kept only by counsel and shall be at an appropriate level of detail and include only statements that are appropriate in view of the possibility of litigation.

 

ARTICLE 14

 

TERM AND TERMINATION

 

Section 14.01                          Term And Expiration Of Term. Unless otherwise mutually agreed to by the Parties, this Agreement shall commence on the Effective Date and shall end upon expiration of the last Term-Total, unless terminated early as contemplated hereunder (and to avoid any doubt, with royalty obligations separately earlier expiring on a Country-by-Country basis on the expiration of the Term-Total in such Country).  Unless terminated early under this ARTICLE 14, the licenses granted by THERAVANCE to ASTELLAS shall survive and shall be considered fully-paid and royalty-free, and non-exclusive on a Country-by-Country basis at the times and as more particularly set forth in Section 2.06.

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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Section 14.02                          Termination For Material Breach. Either Party may, without prejudice to any other remedies available to it at law or in equity, terminate this Agreement subject to ARTICLE 15 in the event that the other Party (as used in this subsection, the “Breaching Party”) shall have materially breached this Agreement or materially defaulted in its performance of its obligations hereunder, and not corrected the situation following notice and an opportunity to cure through performing an appropriate remedy as provided below.  The Breaching Party shall have [*] after written notice thereof (with the written notice being required to specify that it is a notice of material breach under this Section 14.02  and describing the breach with reasonable specificity) was provided to the Breaching Party by the non-breaching Party to remedy such default (or, if such default cannot be cured within such [*] period, the Breaching Party must commence actions to cure such default during such [*] period and thereafter diligently continue such actions).  Any such termination shall become effective at the end of such [*] period unless the Breaching Party has cured any such breach or default prior to the expiration of such [*] period (or, if such default is capable of being cured but cannot be cured within such [*] period, the Breaching Party has commenced and diligently continued actions to cure such default provided always that, in such instance, such cure must have occurred within [*] after written notice thereof was provided to the Breaching Party by the non-breaching Party to remedy such default).  If the Breaching Party disputes the existence of a material breach in good faith, or disputes the appropriate remedy for such breach or whether any attempt to cure the breach has been adequate or successful, this Agreement shall not be terminated unless and until a final determination of uncured breach is made in accordance with Section 3.06.

 

Notwithstanding anything express or implied in the foregoing paragraph, in recognition of the substantial investment ASTELLAS is making in the Licensed Product (both through payments to THERAVANCE hereunder and otherwise), both Parties expressly intend that termination of this Agreement shall be a remedy of last and extraordinary resort, and preference shall in all cases (absent proven fraud or extreme, overt and exceptional bad faith) be given to fashioning a remedy or cure that leaves the licenses to ASTELLAS intact but adequately addresses the breach.  Such possible remedies and cures include, without limitation: an adjustment to the royalties due hereunder, other money damages, the requirement that ASTELLAS carry out additional Development and/or Commercialization (to an extent consistent with Diligent Efforts) or conversion of the licenses to ASTELLAS to no longer be exclusive with respect to THERAVANCE and its Affiliates.  In addition, to the extent the breach relates primarily to a particular Country (for example in the case of a failure to apply Diligent Efforts to Licensed Product Development or Commercialization with respect to a particular Country), to the extent no remedy short of termination can adequately address the breach, preference shall in all cases (absent proven fraud or extreme, overt and exceptional bad faith) be given to termination solely with respect to such Country.  Any arbitrator of a dispute arising in connection with this Section 14.02 is hereby explicitly instructed to fashion an appropriate remedy short of termination in all cases where any remedy other than termination is reasonably adequate to cure the breach, and where termination is the only remedy that can adequately address the breach to limit termination to the Country with respect to which the breach occurred.

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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Section 14.03                          Terminations For Cause. ASTELLAS shall have the right to terminate this Agreement for cause, defined as any (or any combination) of the following occurring:

 

(i)                                     If the results of TELAVANCIN Studies do not support the submission of an NDA for the Licensed Product, or do not support NDA Filing for the Licensed Product within [*] after the Effective Date [*].

 

(ii)                                  If the FDA refuses to file or declines to approve an NDA (once filed) for the Licensed Product within [*].

 

(iii)                               If the labeling approved by the FDA for the Licensed Product indicates that [*] population [*] defined as those patients [*].

 

(iv)                              If the labeling approved by the FDA for the Licensed Product indicates that [*] population [*] defined as those patients [*].    [*].

 

(v)                                 If TELAVANCIN is not approved by the FDA [*].

 

(vi)                              If serious safety concerns arise with respect to the Licensed Product that result in its withdrawal from the market in [*].

 

Section 14.04                          Contemporaneous Termination Of Opt-In Right. The Opt-In Right shall terminate automatically at the time of any early termination of this Agreement under this ARTICLE 14 with respect to any Major Market Country except a termination by ASTELLAS under Section 14.02 for THERAVANCE’s material breach (i.e. the Opt-In Right survives any such termination as per Section 15.02).

 

Section 14.05                          Survival Of Obligations. Termination or expiration of this Agreement shall not relieve either Party from any obligation accrued hereunder prior to the effective date of termination or expiration.

 

Section 14.06                          Survival of Provisions Upon Termination and/or Expiration. In addition to the survival of accrued obligations under Section 14.05 (and the survival of any provisions to the extent in accordance with the express terms thereof), the following Sections and Articles shall survive any and all terminations and expirations of this Agreement (on a Country-by-Country basis in the case of partial terminations):  Articles 1 (to the extent required to interpret surviving rights); 6 (solely (i) as regards mechanics of payment to ensure payment of payment obligations that have accrued prior to expiration or termination, and payment obligations to the extent surviving under Section 15.02), and (ii) with respect to audits under Section 6.10 for a period of [*] years after expiration or termination); 10 (with obligations thereunder expiring on the timetable set forth in such Article); 11; 12; 14; 15; and 16; and the following Sections:  Section 2.01 to the extent provided in Section 2.06 (along with corresponding Section 2.04, Section 2.05, and Section 2.07 rights); Section 2.08 (but only the following pieces:  subsection (b), subsection (d)(iv)(B), and subsection (d)(vi)); Section 3.06; Section 5.06; Section 8.01 and Section 8.02(a) (solely as regards ownership of the NDA and OUS Regulatory Authorizations but not after terminations of this Agreement for ASTELLAS’ material

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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breach); Section 8.04 (but not after terminations for ASTELLAS’ material breach); Section 9.06 (solely to the extent ASTELLAS wishes to continue to exercise a sublicense thereunder, and not after terminations for ASTELLAS’ material breach); Section 13.01(b); Section 13.02, Section 13.03, Section 13.04 and Section 13.05 (for all of Sections 13.02, 13.03, 13.04 and 13.05, these survive with respect to infringement occurring during the Term-Total in each Country, but do not survive termination for THERAVANCE’s material breach, patent enforcement rights after which breach are governed by Section 15.02); and Section 13.07 as regards any common interest or joint defense agreements entered into prior to expiration or termination.

 

ARTICLE 15

 

CONSEQUENCES OF TERMINATION

 

Section 15.01                          Termination And Handback Of License. In addition to any remedy either Party may have in law, tort or in contract, upon termination of the Agreement in a certain Country or in the Territory as a whole, the following shall apply.

 

(a)                                  Termination Of Licenses. Upon termination of this Agreement by THERAVANCE in a certain Country or the Territory as a whole pursuant to Section 14.02  or by ASTELLAS in a certain Country or in the Territory as a whole pursuant to Section 14.03  (in either case the “Date of Termination”),  the licenses and rights granted under Section 2.01, Section 2.04, Section 2.05, and Section 2.08 regarding the Country(ies) contemplated by the termination concerned shall cease, and ASTELLAS shall, regarding the Territory or the Country concerned, whichever is applicable:

 

(i)                                     in exchange for a royalty on Net Sales of Licensed Products equal to [*] for the longer of the life of the ASTELLAS Patents and [*] years after the Date of Termination (subject to a [*] reduction on patent expiration in the applicable Country) plus THERAVANCE paying [*] any royalties, milestones and other payments (x) due Third-Party licensors of the ASTELLAS IP in respect of the rights ASTELLAS grants under this Section 15.01 and (y) due Third-Party licensors of reverted THERAVANCE IP and/or [*] previously sublicensed to ASTELLAS (including without limitation to [*]), and committing to reasonable diligence obligations, at the option of THERAVANCE, grant to THERAVANCE a non-exclusive, Territory-wide or for the Country concerned, whichever is applicable, sub-licensable, license under the ASTELLAS IP to develop, have developed, make, have made, use, have used, import, have imported, market, have marketed, sell and have sold the Licensed Product for any indications in the form(s) in which it was in clinical development or on the market as of termination. ASTELLAS shall do all such acts and things as may reasonably be necessary to fulfill this obligation in a timely manner.

 

(ii)                                  return to THERAVANCE all THERAVANCE Know-How and —subject to the financial terms required in subsection (i) — deliver to THERAVANCE a copy of all ASTELLAS Know-How in written form;

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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(iii)                               promptly after THERAVANCE’S request, deliver to THERAVANCE at the location specified by THERAVANCE any and all quantities of API Compound and Licensed Product in its possession, power, custody or control subject always to ASTELLAS’ right to dispose of Licensed Product which is the subject of pre-termination date orders.  THERAVANCE shall pay for the quantities thus transferred to it in an amount equal to ASTELLAS’ Cost of Goods Sold for such quantities.  For the avoidance of doubt, should this Section 15.01(a)(iii) become applicable because of termination regarding a certain Country or Countries pursuant to Section 14.02,   then the quantities of Licensed Product referred to herein shall mean only those quantities clearly designated, by marking, labeling or similar, for the Country or Countries concerned and which could only be used for the Country or Countries concerned;

 

(iv)                              for all ASTELLAS Patents that ASTELLAS intends to prosecute and/or maintain and subject to Section 15.01(a)(i), ASTELLAS shall effective on the Date of Termination grant THERAVANCE an exclusive license to develop, have developed, use, have used, make, have made, import, have imported, market, have marketed, sell, and have sold the THERAVANCE Compound and Licensed Product for all indications and uses with the right to sublicense.  For any ASTELLAS Patents that ASTELLAS elects not to prosecute and/or maintain, ASTELLAS shall: (1) promptly notify THERAVANCE with sufficient time for THERAVANCE to assume such prosecution and/or maintenance; (2) fully cooperate with THERAVANCE and ensure that its patent attorneys immediately transfer to THERAVANCE a copy of the patent files relating to such ASTELLAS Patents; (3) effective on the Date of Termination grant THERAVANCE an exclusive license under any such ASTELLAS Patents to develop, have developed, make, have made, use, have used, sell, offer to sell, market, have marketed, import or have imported the API and Licensed Products for any and all indications in the Territory; and (4) take any action and produce any documents so as to enable THERAVANCE to apply for patent term extensions, including, but not limited to, supplementary protection certificates (or any other procedure by which the effective term of the ASTELLAS Patent is extended), relating to the ASTELLAS Patents in THERAVANCE’S name;

 

(v)                                 subject to Section 15.01(a)(i), commensurate with legislative and regulatory requirements, transfer to THERAVANCE or its nominee all Marketing Authorizations and regulatory filings for the Licensed Product including, without limitation, all information and documentation used in the filings relating to the Licensed Product, subject to THERAVANCE’S payment of the royalties provided for in subsection (i).  In the event that in any Country such a transfer is not possible, ASTELLAS shall use reasonable efforts to ensure that THERAVANCE has the benefit of the relevant Marketing Authorizations, and other related regulatory filings and approvals and, to this end, consents to any regulatory authority cross-referencing to the data and information on file with any Governmental Authority as may be necessary to facilitate the granting of second Marketing Authorizations to and permit filings of a Marketing Authorizations application by THERAVANCE, and ASTELLAS agrees to complete whatever other procedures that are reasonably necessary in relation to the same to enable THERAVANCE (either itself or in conjunction with a Third Party) freely to

 

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develop and sell the Licensed Product in the Country concerned in substitution for ASTELLAS;

 

(vi)                              subject to Section 15.01(a)(i), if applicable, assign the ASTELLAS Product Trademark or grant a royalty-free exclusive license to THERAVANCE to use the ASTELLAS Product Trademark as well as trade dress and copyrights (to avoid any doubt, excluding any ASTELLAS Housemarks) for the marketing, sales and distribution of the Licensed Product;

 

(vii)                           not after the date of termination itself take any further action to Develop, manufacture, have manufactured, use, market, distribute or sell the Licensed Product during the life of the ASTELLAS Patents or the THERAVANCE Patents, whichever is the longer but in any event only for so long as the licenses granted in 15.01(a)(i) and 15.01(a)(ii) are in effect, except that ASTELLAS has the right to dispose of that part of its inventory of Licensed Product on hand as of the effective Date of Termination which is the subject of orders for Licensed Product accepted prior to the date of notice of termination for a period of six (6) months after the effective Date of Termination, and, within thirty (30) days after disposition of such inventory pursuant to the fulfillment of such orders, ASTELLAS will forward to THERAVANCE a final report and pay all royalties due on the Net Sales of Licensed Product during such period; and

 

(viii)                        for a period of [*] following the effective Date of Termination manufacture or supply such API Compound and Licensed Product if any, that is being manufactured by or for ASTELLAS prior to such termination (“Supplied Licensed Product”) to THERAVANCE or to THERAVANCE’S designee.  Such Supplied Licensed Product shall be provided to THERAVANCE at ASTELLAS’ Cost Of Goods Sold plus any amounts that may be due under the [*] in respect of such supply (to the extent not already paid by THERAVANCE under subsection (i)).  During said [*] period, THERAVANCE shall manufacture according to the requirements of the current updated forecast for Licensed Product as of the date of termination.  ASTELLAS shall also provide THERAVANCE, should THERAVANCE so require, with reasonable assistance in relation to THERAVANCE’S appointment of a Third Party manufacturer of Licensed Product and THERAVANCE shall have the right to disclose ASTELLAS Confidential Information and ASTELLAS Know-How under customary and reasonable legally binding obligations of confidentiality and non-use, to any such potential Third Party manufacturer.

 

In the cases of part-world terminations, each of (i)-(viii) shall only apply with respect to the terminated Country(ies) (and intellectual property rights granted therein), and in particular (ii) shall only apply with respect to Know-How that is specific to such Country(ies), and (iii) shall only apply with respect to quantities that are labelled and can only legally be used for sale in such Countries.

 

(b)                                 Disclosure Of Confidential Information. Upon termination by THERAVANCE under Section 14.02  as stated in this ARTICLE 15, THERAVANCE shall have the right to disclose Confidential Information, under customary and reasonable legally binding obligations of confidentiality and non-use, to Third Parties for the

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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purpose only of, and only to the extent necessary for, enabling such Third Party to evaluate the financial and scientific status of the Licensed Product for the purpose of making a financial offer to THERAVANCE on the licensing or acquisition of the rights returned to THERAVANCE and the rights licensed to THERAVANCE under this ARTICLE 15, and, if such licensing or acquisition occurs, as necessary to exploit or enforce such rights.

 

Section 15.02                          Termination Followed By Continued License. Upon the termination of this Agreement by ASTELLAS pursuant to Section 14.02, in addition to those Articles and Sections explicitly surviving as per Section 14.06,   THERAVANCE’S licenses granted to ASTELLAS under Section 2.01 (and ASTELLAS’ associated rights under Section 2.04 and Section 2.05 and Section 2.08) shall continue, provided that ASTELLAS continues to make payments pursuant to ARTICLE 6 as if the Agreement were still in effect and the following Sections shall additionally survive:  Section 2.02, Section 2.03 (as applied to THERAVANCE only), Section 2.08, Section 4.03 (to the extent not already completely performed), 9.02-9.04 (but only as regards THERAVANCE’s obligations and solely to the extent ASTELLAS does not choose to assume such obligations and THERAVANCE has not already completely performed them), and Section 13.04.  To avoid any doubt, ASTELLAS shall have no further diligence obligations to THERAVANCE after such termination under Section 14.02 and no further obligation to include THERAVANCE in the Development or Commercialization (including without limitation any decisions with respect to such activities, which decisions shall belong solely to ASTELLAS post-termination).  ASTELLAS shall further under such circumstances be entitled to conduct all enforcement against infringement within the scope of the licenses to ASTELLAS hereunder (treating all recoveries over expenses as Net Sales, to the full extent not representing treble or punitive damages).  In addition, if THERAVANCE elects not to file, prosecute or maintain the THERAVANCE Patents or claims encompassed by such THERAVANCE Patents after such termination, ASTELLAS shall have the same “step-in rights” (and THERAVANCE shall have the same notification obligations) as are provided in Section 13.01(e) (to avoid any doubt this specific remedy is not to exclusion of any other remedy that may be available to ASTELLAS).

 

ARTICLE 16

 

MISCELLANEOUS

 

Section 16.01                          Relationship Of The Parties. Each Party shall bear its own expenses incurred in the performance of its obligations hereunder without charge or expense to the other except as expressly provided in this Agreement.  Neither Party shall have any responsibility for the hiring,  termination or compensation of the other Party’s employees or for any employee benefits of such employee.  No employee or representative of a Party shall have any authority to bind or obligate the other Party to this Agreement for any sum or in any manner whatsoever, or to create or impose any contractual or other liability on the other Party without said Party’s prior written approval.  For all purposes, and notwithstanding any other provision of this Agreement to the contract, the legal relationship between the Parties under this Agreement shall be that of independent

 

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contractors.  This Agreement is not a partnership agreement and nothing in this Agreement shall be construed to establish a relationship of co-partners, partners or joint venturers between the Parties nor to render one Party the agent of the other Party.

 

Section 16.02                          Registration And Filing Of This Agreement. To the extent, if any, that either Party concludes in good faith that it or the other Party is required to file or register this Agreement or a notification thereof with any Governmental Authority, including without limitation the U.S. Securities and Exchange Commission, the Competition Directorate of the Commission of the European Communities or the U.S. Federal Trade Commission, in accordance with Law, such Party shall inform the other Party thereof. Should either of them be required (as determined by such Party in good faith) to submit or obtain any such filing, registration or notification, the Parties shall follow the procedures relating thereto set forth in Section 10.05, and they shall cooperate, each at its own expense, in such filing, registration or notification and shall execute all documents reasonably required in connection therewith.  The Parties shall promptly inform each other as to the activities or inquiries of any such Governmental Authority relating to this Agreement, and shall reasonably cooperate to respond to any request for further information there from on a timely basis.

 

Section 16.03                          Force Majeure. The occurrence of an extraordinary event which materially interferes with the ability of a Party to perform its obligations or duties hereunder which is not within the reasonable control of the Party affected or any of its Affiliates, not due to malfeasance by such Party or its Affiliates, and which could not with the exercise of due diligence have been avoided (each, a “Force Majeure Event”), including, but not limited to, an injunction, order or action by a Governmental Authority, fire, accident, labor difficulty, strike, riot, civil commotion, act of God, act of war, act of terrorism, inability to obtain raw materials, delay or errors by shipping companies or change in law, shall not excuse such Party from the performance of its obligations or duties under this Agreement, but shall merely suspend such obligation or performance during the continuation of the Force Majeure. The Party prevented from performing its obligations or duties because of a Force Majeure Event shall promptly notify the other Party of the occurrence and particulars of such Force Majeure and shall provide the other Party, from time to time, with its best estimate of the duration of such Force Majeure Event and with notice of the termination thereof. The Party so affected shall use Diligent Efforts to avoid or remove such causes of nonperformance as soon as is reasonably practicable. Upon termination of the Force Majeure Event, the performance of any suspended obligation or duty shall promptly recommence. The Party subject to the Force Majeure Event shall not be liable to the other Party for any direct, indirect, consequential, incidental, special, punitive, exemplary or other damages arising out of or relating to the suspension or termination of any of its obligations or duties under this Agreement by reason of the occurrence of a Force Majeure Event, provided such Party complies in all material respects with its obligations under this Section 16.03.

 

Section 16.04                          Governing Law. This Agreement shall be construed, and the respective rights of the Parties determined, according to the substantive law of the State of New York, United States of America, notwithstanding the provisions governing conflict of laws under such New York law to the contrary.

 

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Section 16.05                          Attorneys’ Fees And Related Expenses. In the event that any legal proceeding is brought to enforce or interpret any of the provisions of this Agreement, the prevailing party shall be entitled to recover its reasonable attorneys’ fees, court expenses and expenses of litigation whether or not the action or proceeding proceeds to final judgment.

 

Section 16.06                          Assignment.

 

(a) This Agreement may not be assigned by either Party without the prior written consent of the other Party; provided, however that either Party may assign this Agreement, in whole or in part, to any of its Affiliates if such Party guarantees the performance of this Agreement by such Affiliate; and provided further that either Party may assign this Agreement to a successor to all or substantially all of the assets of such Party whether by merger, sale of stock, sale of assets or other similar transaction. This Agreement shall be binding upon, and subject to the terms of the foregoing sentence, inure to the benefit of the Parties hereto, their permitted successors, legal representatives and assigns.  [*] (each of the foregoing referred to in this sentence, [*].

 

(b) If (i) THERAVANCE assigns this Agreement as permitted in the foregoing paragraph, and the assignee has in clinical development or on the market in any Country in the Territory, or has filed an application for Marketing Authorization (with such term for this purpose being deemed to cover only applications that are for products other than Licensed Product) in any Country in the Territory for, a product candidate or product in the Field, or (ii) [*], then ASTELLAS shall be entitled to terminate its diligence obligations and obligations to collaborate with (including without limitation sharing information with, which includes without limitation providing updates to the Medical Marketing Plan, and having the TELAVANCIN Product Management Team meet at all, or the JSC meet at all) the acquiror or perform ASTELLAS’ activities under this Agreement in accordance with any previously exchanged information and plans, and ASTELLAS shall be entitled to make all decisions previously reserved to the JSC and/or THERAVANCE Product Management Team.  However, in the case of (i) (but solely as relates to assignments not involving a [*]), if the acquiror divests the competitive product within one hundred and eighty (180) days after the assignment, then the foregoing sentence shall not apply to such transaction.  The effect of such termination of ASTELLAS’ obligations shall be as if ASTELLAS had terminated pursuant to Section 14.02,  which effect is as described in Section 15.02 (to the full extent not already provided for above in this Section 16.06).  Furthermore, the acquiror shall promptly return or destroy all Confidential Information to ASTELLAS and certify within sixty (60) days after the assignment in an officer’s certificate that all Confidential Information has been so returned or destroyed.  In the event that this subparagraph 16.06(b) applies (and there is no divestiture of the applicable competitive product as provided above), then Section 2.03 shall not apply to either Party and both Parties shall be released from the obligations thereunder.

 

Section 16.07                          Performance by Affiliates. ASTELLAS may perform its obligations and exercise its rights hereunder by or through one or more of its Affiliates, provided always

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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that ASTELLAS shall be responsible for the acts/omissions of any such ASTELLAS Affiliate.

 

Section 16.08                          Notices. All demands, notices, consents, approvals, reports, requests and other communications hereunder must be in English and in writing and will be deemed to have been duly given only if delivered personally, by facsimile with confirmation of receipt, by mail (first class, postage prepaid), or by overnight delivery using a globally-recognized carrier, to the Parties at the following addresses:

 

THERAVANCE:

 

THERAVANCE, Inc.

 

 

901 Gateway Boulevard

 

 

South San Francisco, CA 94080

 

 

[*]

 

 

Attn: Senior Vice President, Commercial Development

 

 

 

With a required copy to:

 

THERAVANCE, Inc.

 

 

901 Gateway Boulevard

 

 

South San Francisco, CA 94080

 

 

[*]

 

 

Attn: Senior Vice President and General Counsel

 

 

 

ASTELLAS:

 

ASTELLAS PHARMA INC

 

 

3-11, Nihonbashi-Honcho

 

 

2-chome Chuo-ku

 

 

Tokyo

 

 

103-8411

 

 

Japan

 

 

[*]

 

 

Attn: Vice President, Legal Department

 

 

 

With required copies to:

 

ASTELLAS US LLC

 

 

Three Parkway North

 

 

Deerfield, IL 60015-2548

 

 

[*]

 

 

Attn: General Counsel

 

 

 

 

 

ASTELLAS US LLC

 

 

Three Parkway North

 

 

Deerfield, IL 60015-2548

 

 

[*]

 

 

Attn: Senior Vice President, Business Development

 

or to such other address as the addressee shall have last furnished in writing in accord with this provision to the addressor. All notices shall be deemed effective upon receipt by the addressee.

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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Section 16.09                          Limitation on Liability. EXCEPT FOR BREACH OF ARTICLE 10 (CONFIDENTIALITY) OR TO THE EXTENT A PARTY MAY BE REQUIRED TO INDEMNIFY THE OTHER PURSUANT TO ARTICLE 12 (INDEMNIFICATION), IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, SPECIAL, INCIDENTAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES OF ANY KIND ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY OR OTHERWISE).

 

Section 16.10                          Severability. In the event of the invalidity of any provisions of this Agreement or if this Agreement contains any gaps, the Parties agree that such invalidity or gap shall not affect the validity of the remaining provisions of this Agreement. The Parties will replace an invalid provision or fill any gap with valid provisions which most closely approximate the purpose and economic effect of the invalid provision or, in case of a gap, the Parties’ presumed intentions. In the event that the terms and conditions of this Agreement are materially altered as a result of the preceding sentences, the Parties shall renegotiate the terms and conditions of this Agreement in order to resolve any inequities. Nothing in this Agreement shall be interpreted so as to require either Party to violate any applicable Laws, rules or regulations.

 

Section 16.11                          Headings; Interpretation. The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof.

 

Also in interpreting this Agreement, where examples are given or the phrases “including,” “such as” or a like phrase is used, the intent is not to be limiting but rather merely illustrative.

 

Section 16.12                          Waiver. Any term or condition of this Agreement may be waived at any time by the Party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the Party waiving such term or condition. No waiver by any Party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion. Except as expressly set forth in this Agreement, all rights and remedies available to a Party, whether under this Agreement or afforded by law or otherwise, will be cumulative and not in the alternative to any other rights or remedies that may be available to such Party.

 

Section 16.13                          Entire Agreement. This Agreement (including the exhibits and schedules hereto) constitutes the entire agreement between the Parties hereto with respect to the subject matter of this Agreement and supersedes all previous agreements and understandings between the Parties, whether written or oral. This Agreement may be altered, amended or changed only by a writing making specific reference to this Agreement, stating that it amends this Agreement, and signed by duly authorized officers

 

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(at a seniority level within the relevant Party at least as high as the original signatory from such Party having executed this Agreement) of THERAVANCE and ASTELLAS.

 

Section 16.14                          No License. Nothing in this Agreement shall be deemed to constitute the grant of any license or other right in either Party, to or in respect of any, patent, trademark, Confidential Information, trade secret, data or any other intellectual property of the other Party, except as expressly set forth herein.

 

Section 16.15                          Third Party Beneficiaries. None of the provisions of this Agreement shall be for the benefit of or enforceable by any Third Party, including without limitation any creditor of either Party hereto. No such Third Party shall obtain any right under any provision of this Agreement or shall by reasons of any such provision make any Claim in respect of any debt, liability or obligation (or otherwise) against either Party hereto.

 

Section 16.16                          Counterparts. This Agreement may be executed in any two counterparts, each of which, when executed, shall be deemed to be an original and both of which together shall constitute one and the same document.

 

Section 16.17                          Single Closing Condition. The obligation of each Party to consummate the transaction contemplated hereby is subject to the satisfaction of the following condition (the “Closing Condition”):  All filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and any other similar competition or merger control laws that are necessary in any jurisdiction with respect to the transaction contemplated hereby shall have been made and any required waiting period under such laws shall have expired or been terminated and any Governmental Authority that has power under or authority to enforce such laws shall have, if applicable, approved, cleared or decided neither to initiate proceedings or otherwise intervene in respect of the transaction contemplated hereby nor to refer the transaction to any other competent Governmental Authority.  Each Party shall use good faith efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other party in doing, all things necessary, proper or advisable to consummate and make effective the transaction contemplated by this Agreement, including, but not limited to satisfaction of the Closing Condition and each Party shall keep the other Party reasonably apprised of the status of matters relating to the completion of same.  In connection with the foregoing, the Parties hereby agree to negotiate in good faith to make as soon as practicable any modification or amendment to this Agreement or any agreement related hereto that is required by the United States Federal Trade Commission, Department of Justice or equivalent Governmental Authority, provided that no Party shall be required to agree to any modification or amendment that, in the reasonable opinion of such Party’s external legal or financial counsel, would be adverse to such Party.  This Agreement may be terminated by either Party upon written notice any time after [*] of the Signing Date if the transactions contemplated by this Agreement shall not have been consummated due to failure to satisfy the Closing Condition; provided, however, that the terminating Party shall not have breached in any material respect its obligations under this Agreement in any manner that shall have been the proximate cause of, or resulted in, the failure to satisfy the Closing Condition or otherwise to consummate the transactions contemplated by this Agreement by such date.  Prior to the Closing Condition being

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

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[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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satisfied or this Agreement being terminated under this Section 16.17,  neither Party shall take any action that will make any of its representations and warranties under ARTICLE 11 untrue as of the Effective Date, it being understood that with respect to THERAVANCE’s representations in Section 11.02, threats, claims, proceedings or actions by Third Parties that may occur after the Signing Date do not in and of themselves constitute “taking any action” by THERAVANCE for purposes of the preceding sentence.

 

IN WITNESS WHEREOF, the Parties have executed this Agreement by the hands of their duly authorized officers as of the Effective Date.

 

THERAVANCE, INC.

ASTELLAS PHARMA INC.

 

 

By:

 

 

By:

 

 

Name:

 

 

Name:

 

 

Title:

 

 

Title:

 

 

Date:

 

 

Date:

 

 

 

81


 

LISTS OF EXHIBITS

 

Exhibit A -

 

THERAVANCE Patents as of the Effective Date

 

 

 

Exhibit B -

 

Supply Terms

 

 

 

Exhibit C -

 

Chemical Structure of TELAVANCIN

 

 

 

Exhibit D -

 

POC Data Contents

 

1


 

Exhibit A

 

THERAVANCE Patents as of the Effective Date

 

[*]

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

1


 

EXHIBIT B

 

Supply Terms

 

As provided in Section 9.02(c) of this Agreement, this Exhibit B sets forth the terms upon which THERAVANCE will supply ASTELLAS with quantities of API Compound and Licensed Product.  If the Parties choose to enter into a more detailed written agreement for this supply, then this more detailed written agreement once executed by the Parties, will supersede the terms of this Exhibit B.

 

Requirements

 

THERAVANCE shall supply ASTELLAS with API Compound and Licensed Product for ASTELLAS’ requirements under Section 9.02(c).

 

Forecasts

 

ASTELLAS would provide THERAVANCE with [*] forecasts for Licensed Product, covering a period of time beginning [*] after the date the forecast is provided, with the first [*], and the succeeding [*].

 

Orders

 

ASTELLAS would place quarterly purchase orders with THERAVANCE for Licensed Products, [*] in advance of the quarter in which delivery is requested. These orders cannot exceed by more than [*] the last forecast for the [*] of delivery.

 

Order Cancellation

 

ASTELLAS could cancel any order prior to it being delivered provided that it covered any cancellation expenses.

 

Acceptance and Rejection

 

ASTELLAS would have [*] to inspect each shipment to determine its conformance to the applicable specifications, and would be deemed to have accepted a shipment if it provided no notice of rejection within such time period after receiving such shipment. If ASTELLAS were to reject any quantity of Licensed Product, THERAVANCE could agree with the rejection or send the dispute to a Third-Party lab for determination whether the quantity rejected was in conformity with specifications.

 

At-Cost Transfer Pricing

 

THERAVANCE would supply ASTELLAS at cost on a pass-through basis based on the price THERAVANCE pays its Third-Party suppliers.

 

Compliance with Laws

 

THERAVANCE would comply with applicable laws in discharging the manufacture and supply obligation hereunder, and would contractually require the same of its suppliers.

 

 

 

Conformance of

 

THERAVANCE would deliver Licensed Product manufactured

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

1


 

delivered quantities to cGMP and Regulatory Requirements

 

in accordance with then-current cGMP, the applicable specifications and other applicable requirements of regulatory authorities.

 

 

 

GMP Audits

 

THERAVANCE would exercise its audit right of any Third-Party suppliers in accordance with ASTELLAS’ request and permit ASTELLAS and/or ASTELLAS representatives to accompany THERAVANCE on the audit.

 

In addition, ASTELLAS (itself or by and through its representatives) would be entitled to audit THERAVANCE, to the full extent THERAVANCE is performing any release testing or other activities governed by cGMP.

 

Risk Allocation

 

THERAVANCE would indemnify ASTELLAS for Claims arising out of any failure of Licensed Product delivered to ASTELLAS hereunder to conform to applicable specifications or be manufactured in accordance with the standards set forth above.

 

2


 

Exhibit C

 

Chemical Structure of TELAVANCIN

 

[*]

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

3


 

Exhibit D

POC Data Contents

 

[*]

 

 

[*]=CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

 

4

 



EXHIBIT 23.2

Consent of Independent Registered Public Accounting Firm

              We consent to the reference to our firm under the caption "Experts" in the Registration Statement (Form S-3) and related Prospectus of Theravance, Inc. for the registration of 5,200,000 shares of its common stock and to the incorporation by reference therein of our report dated February 16, 2005, with respect to the consolidated financial statements of Theravance, Inc. included in its Annual Report (Form 10-K) for the year ended December 31, 2004, filed with the Securities and Exchange Commission.

Palo Alto, California
January 27, 2006