Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________________________________________
FORM 10-Q
________________________________________________________________________________________
x
Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2014
or
o
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Transition Period From ______ to ______ .
Commission File Number: 001-33093
________________________________________________________________________________________
LIGAND PHARMACEUTICALS INCORPORATED
(Exact name of registrant as specified in its charter)
________________________________________________________________________________________
Delaware
77-0160744
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
11119 North Torrey Pines Road, Suite 200
La Jolla, CA
92037
(Zip Code)
(Address of principal executive offices)
 
(858) 550-7500
(Registrant's Telephone Number, Including Area Code)
________________________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)
Large Accelerated Filer
o
 
Accelerated Filer
x
Non-Accelerated Filer
o
(Do not check if a smaller reporting company)
Smaller Reporting Company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of August 5, 2014, the registrant had 20,780,756 shares of common stock outstanding.

Table of Contents


LIGAND PHARMACEUTICALS INCORPORATED
QUARTERLY REPORT

FORM 10-Q

TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
 
 
 
 
 




Table of Contents

PART I.
FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
LIGAND PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share data)
 
June 30,
 
December 31,
 
2014
 
2013
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
14,537

 
$
11,639

Short-term investments
7,490

 
4,340

Accounts receivable
3,133

 
2,222

Inventory
817

 
1,392

Capitalized IPO expenses, Viking Therapeutics, Inc.
1,094

 
—

Other current assets
1,123

 
959

Current portion of co-promote termination payments receivable
391

 
4,329

Total current assets
28,585

 
24,881

Restricted cash and investments
1,261

 
1,341

Property and equipment, net
619

 
867

Intangible assets, net
51,911

 
53,099

Goodwill
12,238

 
12,238

Commercial license rights
4,567

 
4,571

Long-term portion of co-promote termination payments receivable
413

 
7,417

Other assets
253

 
299

Total assets
$
99,847

 
$
104,713

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable (including $1.4 million related to a VIE, Viking Therapeutics, Inc.)
$
5,059

 
$
3,951

Accrued liabilities
3,241

 
5,337

Current portion of contingent liabilities
2,877

 
1,712

Current portion of deferred income taxes
1,574

 
1,574

Current portion of note payable
2,698

 
9,109

Current portion of co-promote termination liability
391

 
4,329

Current portion of lease exit obligations
2,689

 
2,811

Current portion of deferred revenue
92

 
116

Total current liabilities
18,621

 
28,939

Long-term portion of co-promote termination liability
413

 
7,417

Long-term portion of deferred revenue, net
2,085

 
2,085

Long-term portion of lease exit obligations
1,587

 
3,071

Deferred income taxes
1,104

 
1,098

Long-term portion of contingent liabilities
12,223

 
11,795

Other long-term liabilities
728

 
695

Total liabilities
36,761

 
55,100

Commitments and Contingencies

 

Stockholders' equity:
 
 
 
Common stock, $0.001 par value; 33,333,333 shares authorized; 20,778,526 and 20,468,521 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively
21

 
21

Additional paid-in capital
726,758

 
718,017

Accumulated other comprehensive income
5,041

 
2,914

Accumulated deficit
(667,650
)
 
(671,339
)
Total stockholders' equity attributable to parent
64,170

 
49,613

Noncontrolling interests
(1,084
)
 
$
—

Total liabilities and stockholders' equity
$
99,847

 
$
104,713


See accompanying notes.

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LIGAND PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except share data)

 
Three months ended
 
Six months ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
Royalties
$
5,241

 
$
4,916

 
$
13,091

 
$
10,742

Material sales
3,476

 
3,993

 
9,191

 
5,532

Collaborative research and development and other revenues
1,891

 
671

 
4,284

 
4,957

Total revenues
10,608

 
9,580

 
26,566

 
21,231

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of sales
1,186

 
1,214

 
3,637

 
1,877

Research and development
2,689

 
2,022

 
5,821

 
4,487

General and administrative
5,239

 
4,306

 
10,310

 
8,808

Lease exit and termination costs
136

 
44

 
340

 
132

Write-off of in-process research and development
—

 
480

 
—

 
480

Total operating costs and expenses
9,250

 
8,066

 
20,108

 
15,784

Income from operations
1,358

 
1,514

 
6,458

 
5,447

Other (expense) income:
 
 
 
 
 
 
 
Interest expense, net
(181
)
 
(453
)
 
(429
)
 
(1,361
)
(Increase) decrease in contingent liabilities
(1,312
)
 
2,741

 
(3,260
)
 
900

Other, net
1,376

 
2

 
621

 
188

Total other (expense) income, net
(117
)
 
2,290

 
(3,068
)
 
(273
)
Income before income taxes
1,241

 
3,804

 
3,390

 
5,174

Income tax benefit (expense)
47

 
(110
)
 
(6
)
 
(176
)
Income from continuing operations
1,288

 
3,694

 
3,384

 
4,998

Discontinued operations:
 
 
 
 
 
 
 
Gain on sale of Avinza Product Line before income taxes
—

 
2,397

 
—

 
2,588

Income from discontinued operations
—

 
2,397

 
—

 
2,588

Net income:
1,288

 
6,091

 
3,384

 
7,586

Less: Net loss attributable to noncontrolling interests
(304
)
 
—

 
(304
)
 
—

Net income attributable to Ligand common shareholders
$
1,592

 
$
6,091

 
$
3,688

 
$
7,586

 
 
 
 
 
 
 
 
Per share amounts attributable to Ligand common shareholders:
 
 
 
 
 
 
 
Basic per share amounts:
 
 
 
 
 
 
 
Income from continuing operations
$
0.08

 
$
0.18

 
$
0.18

 
$
0.25

Income from discontinued operations
—

 
0.12

 
—

 
0.13

Net income
$
0.08

 
$
0.30

 
$
0.18

 
$
0.38

 
 
 
 
 
 
 
 
Diluted per share amounts:
 
 
 
 
 
 
 
Income from continuing operations
$
0.07

 
$
0.18

 
$
0.17

 
$
0.24

Income from discontinued operations
—

 
0.12

 
—

 
0.13

Net income
$
0.07

 
$
0.30

 
$
0.17

 
$
0.37

 
 
 
 
 
 
 
 
Weighted-average number of common shares-basic
20,738,299

 
20,258,618

 
20,668,110

 
20,223,634

Weighted-average number of common shares-diluted
21,780,034

 
20,427,360

 
21,776,125

 
20,277,763


See accompanying notes.

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LIGAND PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)

 
Three months ended
 
Six months ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Net income attributable to Ligand common shareholders
$
1,592

 
$
6,091

 
$
3,688

 
$
7,586

Unrealized net (loss) gain on available-for-sale securities, net of tax of $0
(5,127
)
 
229

 
3,095

 
1,395

Less: Reclassification of net realized gains included in net income
(774
)
 
—

 
(968
)
 
—

Comprehensive income (loss) attributable to Ligand common shareholders
$
(4,309
)
 
$
6,320

 
$
5,815

 
$
8,981


See accompanying notes.


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LIGAND PHARMACEUTICAL INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
Six months ended
 
June 30,
 
2014
 
2013
Operating activities
 
 
 
Net income including noncontrolling interests
$
3,384

 
$
7,586

Less: gain from discontinued operations
—

 
2,588

Income from continuing operations
3,384

 
4,998

Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities:
 
 
 
Non-cash change in estimated fair value of contingent liabilities
3,261

 
(900
)
Write-off of in-process research and development
—

 
480

Realized gain on sale of short-term investment
(968
)
 
—

Gain on write-off of assets
(16
)
 
—

Depreciation and amortization
1,337

 
1,339

Stock-based compensation
5,093

 
2,616

Non-cash upfront fee
(1,211
)
 
—

Deferred income taxes
6

 
176

Accretion of note payable
169

 
225

Other
—

 
(13
)
Changes in operating assets and liabilities:
 
 
 
     Accounts receivable
(911
)
 
3,890

     Inventory
575

 
429

     Other current assets
(136
)
 
(382
)
     Other long-term assets
(231
)
 
123

     Accounts payable and accrued liabilities
(3,743
)
 
(3,006
)
     Deferred revenue
(24
)
 
(318
)
Net cash provided by operating activities of continuing operations
6,585

 
9,657

Net cash used in operating activities of discontinued operations
—

 
(642
)
Net cash provided by operating activities
6,585

 
9,015

Investing activities
 
 
 
Purchase of commercial license rights
—

 
(3,571
)
Payments to CVR holders and former license holders
(1,668
)
 
—

Proceeds from sale of property and equipment
125

 
3

Proceeds from sale of short-term investments
1,156

 
—

Other, net
(1
)
 
(158
)
Net cash used in investing activities
(388
)
 
(3,726
)
Financing activities
 
 
 
Repayment of debt
(6,947
)
 
(12,933
)
Net proceeds from stock option exercises
3,648

 
1,186

Net cash used in financing activities
(3,299
)
 
(11,747
)
Net increase (decrease) in cash and cash equivalents
2,898

 
(6,458
)
Cash and cash equivalents at beginning of period
11,639

 
12,381

Cash and cash equivalents at end of period
$
14,537

 
$
5,923

Supplemental disclosure of cash flow information
 
 
 
Interest paid
$
212

 
$
1,245

Taxes paid
$
3

 
$
—

Supplemental schedule of non-cash activity
 
 
 
Liability for commercial license rights
$
—

 
$
1,000

Accrued inventory purchases
$
—

 
$
997

Unrealized gain on AFS investments
$
3,095

 
$
1,395

See accompanying notes.

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LIGAND PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements
(Unaudited)

1. Basis of Presentation

Ligand Pharmaceuticals Incorporated, a Delaware corporation (the "Company" or "Ligand") is a biopharmaceutical company that develops and acquires royalty and other revenue generating assets and couples them with a lean corporate cost structure. The Company diversifies its portfolio of assets across numerous technology types, therapeutic areas, drug targets, and industry partners. The Company added Captisol® to its technology portfolio in January 2011. Captisol is a formulation technology that has enabled six FDA approved products, including Onyx's Kyprolis® and Baxter International's Nexterone®, and is currently being developed in a number of clinical-stage partner programs. The Company's therapies address the unmet medical needs of patients for a broad spectrum of diseases including hepatitis, multiple myeloma, muscle wasting, Alzheimer’s disease, dyslipidemia, diabetes, anemia, asthma, Focal Segmental Glomerulosclerosis ("FSGS") and osteoporosis. Ligand has established multiple alliances with the world’s leading pharmaceutical companies including GlaxoSmithKline, Onyx Pharmaceuticals (a subsidiary of Amgen, Inc.), Merck, Pfizer, Baxter International, Lundbeck Inc. and Spectrum Pharmaceuticals, Inc. The Company’s principal market is the United States. The Company sold its Oncology Product Line ("Oncology") and Avinza Product Line ("Avinza") on October 25, 2006 and February 26, 2007, respectively. The operating results for Oncology and Avinza have been presented in the accompanying condensed consolidated financial statements as "Discontinued Operations."
 
The Company has incurred significant losses since its inception. As of June 30, 2014, the Company’s accumulated deficit was approximately $667.7 million and the Company had working capital of approximately $10.0 million. Management believes that cash flows from operations will improve due to Captisol® sales, an increase in royalty revenues driven primarily from continued increases in Promacta® and Kyprolis® sales, and also from anticipated new license and milestone revenues. In the event revenues and operating cash flows are not meeting expectations, management plans to reduce discretionary expenses. It is possible, however, that the Company may be required to seek additional financing. There can be no assurance that additional financing will be available on terms acceptable to management, or at all. Management believes its currently available cash, cash equivalents and short-term investments, as well as its current and future royalty, license and milestone revenues and Captisol material sales will be sufficient to satisfy its anticipated operating and capital requirements through at least the next 12 months. The Company’s future operating and capital requirements will depend on many factors, including, but not limited to: the pace of scientific progress in its research and development programs; the potential success of these programs; the scope and results of preclinical testing and clinical trials; the time and costs involved in obtaining regulatory approvals; the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims; competing technological and market developments; the amount of royalties on sales of the commercial products of its partners; the efforts of its collaborative partners; obligations under its operating lease agreements; costs associated with future acquisitions; and the capital requirements of any companies the Company may acquire in the future. The ability of the Company to achieve its operational targets is dependent upon the Company’s ability to further implement its business goals and generate sufficient operating cash flow.

Principles of Consolidation
    
The accompanying condensed consolidated financial statements include Ligand and its wholly owned subsidiaries, Ligand JVR, Allergan Ligand Retinoid Therapeutics, Seragen, Inc., Pharmacopeia, Inc. ("Pharmacopeia"), Neurogen Corporation ("Neurogen"), CyDex Pharmaceuticals, Inc. ("CyDex"), Metabasis Therapeutics, Inc. ("Metabasis") and Nexus VI, Inc. Also included is Viking Therapeutics, Inc. ("Viking"), a variable interest entity ("VIE") for which the Company is deemed under applicable accounting guidance to be the primary beneficiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

Basis of Presentation

The Company’s accompanying unaudited condensed consolidated financial statements as of June 30, 2014 and for the three and six months ended June 30, 2014 and 2013 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for annual financial statements. The Company’s condensed consolidated balance sheet at December 31, 2013 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the financial position and results of operations of the Company and

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its subsidiaries, have been included. Operating results for the three and six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. These financial statements should be read in conjunction with the consolidated financial statements and notes therein included in the Company’s annual report on Form 10-K for the year ended December 31, 2013.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, contingent assets and liabilities, definite and indefinite lived intangible assets, goodwill, co-promote termination payments receivable and co-promote termination liabilities, uncertain tax positions, deferred revenue, lease exit liability and income tax net operating loss carryforwards during the reporting period. The Company’s critical accounting policies are those that are both most important to the Company’s financial condition and results of operations and require the most difficult, subjective or complex judgments on the part of management in their application, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Because of the uncertainty of factors surrounding the estimates or judgments used in the preparation of the condensed consolidated financial statements, actual results may materially vary from these estimates.

Income Per Share

Basic income per share is calculated by dividing net income by the weighted-average number of common shares and vested restricted stock units outstanding. Diluted income per share is computed by dividing net income by the weighted-average number of common shares and vested restricted stock units outstanding and the weighted-average number of dilutive common stock equivalents, including stock options and non-vested restricted stock units. Common stock equivalents are only included in the diluted income per share calculation when their effect is dilutive. The total number of potential common shares excluded from the computation of diluted income per share because their inclusion would have been anti-dilutive was 0.4 million and 1.1 million, as of June 30, 2014 and 2013, respectively.


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The following table sets forth the computation of basic and diluted net income per share for the periods indicated (in thousands, except per share amounts):

 
Three months ended
 
Six months ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
EPS attributable to Ligand common shareholders:
 
 
 
 
 
 
 
Net income from continuing operations
$
1,592

 
$
3,694

 
3,688

 
$
4,998

Net income from discontinued operations
—

 
2,397

 
—

 
2,588

Net income
$
1,592

 
$
6,091

 
$
3,688

 
$
7,586

 
 
 
 
 
 
 
 
Shares used to compute basic income per share
20,738,299

 
20,258,618

 
20,668,110

 
20,223,634

Dilutive potential common shares:
 
 
 
 
 
 
 
Restricted stock
29,029

 
46,391

 
44,815

 
35,864

     Stock options
1,012,706

 
122,351

 
1,063,200

 
18,265

Shares used to compute diluted income per share
21,780,034

 
20,427,360

 
21,776,125

 
20,277,763

 
 
 
 
 
 
 
 
Basic per share amounts:
 
 
 
 
 
 
 
Income from continuing operations
$
0.08

 
$
0.18

 
$
0.18

 
$
0.25

Income from discontinued operations
—

 
0.12

 
—

 
0.13

Net income
$
0.08

 
$
0.30

 
$
0.18

 
$
0.38

 
 
 
 
 
 
 
 
Diluted per share amounts:
 
 
 
 
 
 
 
Income from continuing operations
$
0.07

 
$
0.18

 
$
0.17

 
$
0.24

Income from discontinued operations
—

 
0.12

 
—

 
0.13

Net income
$
0.07

 
$
0.30

 
$
0.17

 
$
0.37



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Cash, Cash Equivalents and Short-term Investments

Cash and cash equivalents consist of cash and highly liquid securities with maturities at the date of acquisition of three months or less. Securities received by the Company as a result of a milestone payment from licensees are considered short-term investments and have been classified by management as available-for-sale. Such investments are carried at fair value, with unrealized gains and losses included in the statement of comprehensive income. The Company determines the cost of investments based on the specific identification method.
Restricted Cash and Investments
    
Restricted cash and investments consist of certificates of deposit held with a financial institution as collateral under a facility lease and third-party service provider arrangements.

The following table summarizes the various investment categories at June 30, 2014 and December 31, 2013 (in thousands):

 
Cost
 
Gross unrealized
gains
 
Gross unrealized
losses
 
Estimated
fair value
June 30, 2014
 
 
 
 
 
 
 
Short-term investments
$
2,449

 
$
5,079

 
$
(38
)
 
$
7,490

Certificates of deposit-restricted
1,261

 
—

 
—

 
1,261

 
$
3,710

 
$
5,079

 
$
(38
)
 
$
8,751

December 31, 2013
 
 
 
 
 
 
 
Short-term investments
$
1,426

 
$
2,914

 
$
—

 
$
4,340

Certificates of deposit-restricted
1,341

 
—

 
—

 
1,341

 
$
2,767

 
$
2,914

 
$
—

 
$
5,681


Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash equivalents, investments and accounts receivable.

The Company invests its excess cash principally in U.S. government debt securities, investment-grade corporate debt securities and certificates of deposit. The Company has established guidelines relative to diversification and maturities that maintain safety and liquidity. These guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates. The Company did not experience any significant losses on its cash equivalents, short-term investments or restricted investments for the periods ending June 30, 2014 and December 31, 2013.

As of June 30, 2014 and December 31, 2013, cash deposits held at financial institutions in excess of FDIC insured amounts of $250,000 were approximately $13.9 million and $11.1 million, respectively.

Accounts receivable from one customer was 92% of total accounts receivable at June 30, 2014, the majority of which has been received. Accounts receivable from two customers was 75% of total accounts receivable at December 31, 2013. 

The Company currently obtains Captisol from a single supplier.  If this supplier were not able to supply the requested amounts of Captisol and the existing inventory was depleted, the Company would be unable to continue to derive revenues from the sale of Captisol until it obtained an alternative source, which might take a considerable length of time. The Company maintains inventory of Captisol, which has a five year shelf life, at three geographically spread storage locations in the United States and Europe.  If disasters were to strike one or all three of these locations, it could lead to supply interruptions.

Inventory

Inventory is stated at the lower of cost or market value. The Company determines cost using the first-in, first-out method. The Company analyzes its inventory levels periodically and writes down inventory to its net realizable value if it has become obsolete, has a cost basis in excess of its expected net realizable value or is in excess of expected requirements. There were no write downs related to obsolete inventory recorded for the three and six months ended June 30, 2014 and 2013.

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Property and Equipment

Property and equipment is stated at cost and consists of the following (in thousands):

 
June 30,
 
December 31,
 
2014
 
2013
Lab and office equipment
$
2,509

 
$
3,737

Leasehold improvements
273

 
387

Computer equipment and software
631

 
616

 
3,413

 
4,740

Less accumulated depreciation and amortization
(2,794
)
 
(3,873
)
     Total property and equipment, net
$
619

 
$
867


Depreciation of equipment is computed using the straight-line method over the estimated useful lives of the assets, which range from three to ten years. Leasehold improvements are amortized using the straight-line method over their estimated useful lives or their related lease term, whichever is shorter. Depreciation expense recognized for each of the three and six months ended June 30, 2014 and the three months ended June 30, 2013 was $0.1 million. Depreciation expense for the six months ended June 30, 2013 was $0.2 million. Depreciation expense is included in operating expenses.

Other Current Assets

Other current assets consist of the following (in thousands):

 
June 30,
 
December 31,
 
2014
 
2013
Prepaid expenses
$
745

 
$
786

Other receivables
378

 
173

     Total current assets
$
1,123

 
$
959


Goodwill and Other Identifiable Intangible Assets

Goodwill and other identifiable intangible assets consist of the following (in thousands):

 
June 30,
 
December 31,
 
2014
 
2013
Indefinite lived intangible assets
 
 
 
     Acquired in-process research and development
$
12,556

 
$
12,556

     Goodwill
12,238

 
12,238

Definite lived intangible assets
 
 
 
     Complete technology
15,267

 
15,267

          Less: Accumulated amortization
(2,617
)
 
(2,235
)
     Trade name
2,642

 
2,642

          Less: Accumulated amortization
(454
)
 
(387
)
     Customer relationships
29,600

 
29,600

          Less: Accumulated amortization
(5,083
)
 
(4,344
)
Total goodwill and other identifiable intangible assets, net
$
64,149

 
$
65,337


The Company accounts for goodwill and other intangible assets in accordance with Accounting Standards Codification ("ASC") Topic 350 - Intangibles - Goodwill and Other which, among other things, establishes standards for goodwill acquired in a business combination, eliminates the amortization of goodwill and requires the carrying value of goodwill and certain non-

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amortizing intangibles to be evaluated for impairment on an annual basis. The Company uses the income approach and the market approach, each weighted at 50%, when performing its goodwill impairment analysis. For the income approach, the Company considers the present value of future cash flows and the carrying value of its assets and liabilities, including goodwill. The market approach is based on an analysis of revenue multiples of peer public companies. If the carrying value of the assets and liabilities, including goodwill, were to exceed the Company’s estimation of the fair value, the Company would record an impairment charge in an amount equal to the excess of the carrying value of goodwill over the implied fair value of the goodwill. The Company performs an evaluation of goodwill and other intangibles as of December 31 of each year, absent any indicators of earlier impairment, to ensure that impairment charges, if applicable, are reflected in the Company's financial results before December 31 of each year. When it is determined that impairment has occurred, a charge to operations is recorded. Goodwill and other intangible asset balances are included in the identifiable assets of the business segment to which they have been assigned. Any goodwill impairment, as well as the amortization of other purchased intangible assets, is charged against the respective business segments' operating income.

Amortization of definite-lived intangible assets is computed using the straight-line method over the estimated useful life of the asset of 20 years. Amortization expense of $0.6 million and $1.2 million was recognized for each of the three and six months ended June 30, 2014 and 2013, respectively. Estimated amortization expense for the years ending December 31, 2014 through 2018 is $2.4 million per year.
Acquired In-Process Research and Development
    
Intangible assets related to acquired in-process research and development ("IPR&D") are considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts. During the period the assets are considered to be indefinite-lived, they will not be amortized but will be tested for impairment on an annual basis and between annual tests if the Company becomes aware of any events occurring or changes in circumstances that would indicate a reduction in the fair value of the IPR&D projects below their respective carrying amounts. If and when development is complete, which generally occurs if and when regulatory approval to market a product is obtained, the associated assets would be deemed definite-lived and would then be amortized based on their respective estimated useful lives at that point in time. For the three and six months ended June 30, 2014 there was no impairment of IPR&D. For the three and six months ended June 30, 2013, the Company recorded a non-cash impairment charge of $0.5 million for the write-off of IPR&D for Captisol-enabled Clopidogrel (MDCO-157). The asset was impaired upon notification from the Medicines Company that they intended to terminate the license agreement and return the rights of the compound to the Company. MDCO-157 is an intravenous option of the anti-platelet medication designed for situations where the administration of oral platelet inhibitors is not feasible or desirable.

Impairment of Long-Lived Assets
    
Management reviews long-lived assets for impairment annually or whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Fair value for the Company’s long-lived assets is determined using the expected cash flows discounted at a rate commensurate with the risk involved. As of June 30, 2014, management does not believe there have been any events or circumstances indicating that the carrying amount of its long-lived assets may not be recoverable.

Commercial license rights
    
Commercial license rights represent a portfolio of future milestone and royalty payment rights acquired in accordance with the Royalty Stream and Milestone Payments Purchase Agreement entered into with Selexis SA ("Selexis") in April 2013.  The portfolio consists of over 15 Selexis commercial license agreement programs with various pharmaceutical-company counterparties.  The purchase price was $4.6 million, inclusive of acquisition costs. The Company paid $3.6 million upon closing and paid an additional $1.0 million in April 2014. Individual commercial license rights acquired under the agreement are carried at allocated cost and approximate fair value. The carrying value of the license rights will be reduced on a pro-rata basis as revenue is realized over the term of the agreement. Declines in the fair value of individual license rights below their carrying value that are deemed to be other than temporary are reflected in earnings in the period such determination is made. As of June 30, 2014, management does not believe there have been any events or circumstances indicating that the carrying amount of its commercial license rights may not be recoverable.

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Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

 
June 30,
 
December 31,
 
2014
 
2013
Compensation
$
1,123

 
$
1,929

Professional fees
279

 
697

Other
1,839

 
2,711

     Total accrued liabilities
$
3,241

 
$
5,337


Other Long-Term Liabilities

Other long-term liabilities consist of the following (in thousands):

 
June 30,
 
December 31,
 
2014
 
2013
Deposits
$
385

 
$
345

Deferred rent
343

 
350

     Total other long-term liabilities
$
728

 
$
695

Contingent Liabilities
    
In connection with the Company’s acquisition of CyDex in January 2011, the Company recorded a $17.6 million contingent liability, inclusive of the $4.3 million payment made in January 2012, for amounts potentially due to holders of the CyDex contingent value rights ("CVRs") and former license holders. The liability is periodically assessed based on events and circumstances related to the underlying milestones, royalties and material sales. Any change in fair value is recorded in the Company’s consolidated statements of operations. The carrying amount of the liability may fluctuate significantly and actual amounts paid under the CVR agreements may be materially different than the carrying amount of the liability. The fair value of the liability at June 30, 2014 and December 31, 2013 was $10.4 million and $9.3 million, respectively. The Company recorded a fair-value adjustment to increase the liability for CyDex-related contingent liabilities by $3.2 million and $2.7 million for the three and six months ended June 30, 2014, respectively, and an adjustment to decrease the liability by $5.2 million and $3.3 million for the three and six months ended June 30, 2013, respectively. There was a revenue-sharing payment of $1.6 million made during the six months ended June 30, 2014, and no revenue sharing payments were made during the three months ended June 30, 2014 and three and six months ended June 30, 2013.
    
In connection with the Company’s acquisition of Metabasis in January 2010, the Company issued to Metabasis stockholders four tradable CVRs, one CVR from each of four respective series of CVR, for each Metabasis share. The CVRs will entitle Metabasis stockholders to cash payments as frequently as every six months as cash is received by the Company from proceeds from the sale or partnering of any of the Metabasis drug development programs, among other triggering events. The fair values of the CVRs are remeasured at each reporting date through the term of the related agreement. Changes in the fair values are reported in the statement of operations as income (decreases) or expense (increases). The carrying amount of the liability may fluctuate significantly based upon quoted market prices and actual amounts paid under the agreements may be materially different than the carrying amount of the liability. The fair value of the liability was estimated to be $4.7 million and $4.2 million as of June 30, 2014 and December 31, 2013, respectively. The Company recorded a decrease in the liability for Metabasis-related CVRs of $1.9 million and an increase in the liability of $0.5 million for the three and six months ended June 30, 2014, respectively. The Company recorded an increase in the liability of $2.4 million for each of the three and six months ended June 30, 2013.

Fair Value of Financial Instruments
Fair value is defined as the exit price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based measurement that should be determined using assumptions that market participants would use in pricing an asset

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or liability. The Company establishes a three-level hierarchy to prioritize the inputs used in measuring fair value. The levels are described in the below with level 1 having the highest priority and level 3 having the lowest:
Level 1 - Quoted prices in active markets;
Level 2 - Inputs other than the quoted prices in active markets that are observable either directly or indirectly; and
Level 3 - Unobservable inputs in which there is little or no market data, which require the Company to develop its own assumptions.
The Company’s short-term investments include investments in equity securities which were received by the Company as a result of event-based and upfront payments from licensees. Additionally, there is a liability related to the investment in equity securities for amounts owed to former license holders. The Metabasis CVR liability is marked-to-market at each reporting period based upon the quoted market prices of the underlying CVR. The fair value of the CyDex contingent liabilities are determined at each reporting period based upon an income valuation model. The co-promote termination payments receivable represents a non-interest-bearing receivable for future payments to be made by Pfizer related to Avinza product sales and is recorded at its fair value. The receivable and liability will remain equal, and are adjusted each quarter for changes in the fair value of the obligation including any changes in the estimate of future net Avinza product sales.
The Company evaluates its financial instruments at each reporting period to determine if any transfers between the various three-level hierarchy have occurred and appropriately reclassifies its financial instruments to the appropriate level within the hierarchy.
Treasury Stock
The Company may on occasion repurchase its common stock on the open market or in private transactions. When such stock is repurchased it is not constructively or formally retired and may be reissued if certain regulatory requirements are met; however, the Company may from time to time choose to retire the shares of common stock held in its treasury. The purchase price of the common stock repurchased is charged to treasury stock. During the year ended December 31, 2013, the Company retired 1,118,222 shares of its common stock held in treasury.
Revenue Recognition

Royalties on sales of products commercialized by the Company’s partners are recognized in the quarter reported by the respective partner. Generally, the Company receives royalty reports from its licensees approximately one quarter in arrears due to the fact that its agreements require partners to report product sales between 30 and 60 days after the end of the quarter. The Company recognizes royalty revenues when it can reliably estimate such amounts and collectability is reasonably assured. Under this accounting policy, the royalty revenues reported are not based upon estimates and such royalty revenues are typically reported to the Company by its partners in the same period in which payment is received.
Revenue from material sales of Captisol is recognized upon transfer of title, which normally passes upon shipment to the customer. The Company’s credit and exchange policy includes provisions for the return of product between 30 to 90 days, depending on the specific terms of the individual agreement, when that product (1) does not meet specifications, (2) is damaged in shipment (in limited circumstances where title does not transfer until delivery), or (3) is exchanged for an alternative grade of Captisol.
Nonrefundable, upfront license fees are recognized as revenue upon delivery of the license, if the license is determined to have standalone value that is not dependent on any future performance by the Company under the applicable collaboration agreement. Nonrefundable contingent event-based payments are recognized as revenue when the contingent event is met, which is usually the earlier of when payments are received or collections are assured, provided that it does not require future performance by the Company. The Company occasionally has sub-license obligations related to arrangements for which it receives license fees, milestones and royalties. The Company evaluates the determination of gross versus net reporting based on each individual agreement.
Sales-based contingent payments from partners are accounted for similarly to royalties, with revenue recognized upon achievement of the sales targets assuming all other revenue recognition criteria for milestones are met. Revenue from development and regulatory milestones is recognized when earned, as evidenced by written acknowledgement from the collaborator, provided that (i) the milestone event is substantive, its achievability was not reasonably assured at the inception of the agreement, and the Company has no further performance obligations relating to that event, and (ii) collectability is reasonably assured. If these criteria are not met, the milestone payment is recognized over the remaining period of the Company’s performance obligations under the arrangement.
The Company analyzes its revenue arrangements and other agreements to determine whether there are multiple elements that should be separated and accounted for individually or as a single unit of accounting. For multiple element

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contracts, arrangement consideration is allocated at the inception of the arrangement to all deliverables on the basis of relative selling price, using a hierarchy to determine selling price. Management first considers vendor-specific objective evidence ("VSOE"), then third-party evidence ("TPE") and if neither VSOE nor TPE exist, the Company uses its best estimate of selling price.
Many of the Company's revenue arrangements involve the bundling of a license with the option to purchase manufactured product. Licenses are granted to pharmaceutical companies for the use of Captisol in the development of pharmaceutical compounds. The licenses may be granted for the use of the Captisol product for all phases of clinical trials and through commercial availability of the host drug or may be limited to certain phases of the clinical trial process. Management believes that its licenses have stand-alone value at the outset of an arrangement because the customer obtains the right to use Captisol in its formulations without any additional input by the Company.

Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts based on the best estimate of the amount of probable losses in the Company’s existing accounts receivable. Accounts receivable that are outstanding longer than their contractual payment terms, ranging from 30 to 90 days, are considered past due. When determining the allowance for doubtful accounts, several factors are taken into consideration, including historical write-off experience and review of specific customer accounts for collectability. Account balances are charged off against the allowance after collection efforts have been exhausted and the potential for recovery is considered remote. There was no allowance for doubtful accounts included in the balance sheets at June 30, 2014 and December 31, 2013.

Accounting for Stock-Based Compensation

Stock-based compensation expense for awards to employees and non-employee directors is recognized on a straight-line basis over the vesting period until the last tranche vests. Compensation cost for consultant awards is recognized over each separate tranche’s vesting period. The following table summarizes stock-based compensation expense recorded as components of research and development expenses and general and administrative expenses for the periods indicated (in thousands):

 
Three months ended
 
Six months ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Stock-based compensation expense as a component of:
 
 
 
 
 
 
 
Research and development expenses
$
956

 
$
448

 
$
1,645

 
$
834

General and administrative expenses
2,071

 
1,044

 
3,448

 
1,782

 
$
3,027

 
$
1,492

 
$
5,093

 
$
2,616


The fair-value for options that were awarded to employees and directors was estimated at the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions:

 
Three months ended
 
Six months ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Risk-free interest rate
1.9%
 
1.4%
 
1.9%
 
1.3%
Dividend yield
—
 
—
 
—
 
—
Expected volatility
67%
 
69%
 
69%
 
69%
Expected term
6.4
 
6.3
 
6.4
 
6.3
Forfeiture rate
8.6%
 
8.4%
 
8.6%-9.7%
 
8.4%-9.8%

The risk-free interest rate is based on the U.S. Treasury yield curve at the time of the grant. The expected term of the employee and non-employee director options is the estimated weighted-average period until exercise or cancellation of vested options (forfeited unvested options are not considered) based on historical experience. The expected term for consultant awards is the remaining period to contractual expiration. Volatility is a measure of the expected amount of variability in the stock price over the expected life of an option expressed as a standard deviation. In making this assumption, the Company used the

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historical volatility of the Company’s stock price over a period equal to the expected term. The forfeiture rate is based on historical data at the time of the grant.
Preclinical Study and Clinical Trial Accruals
    
Substantial portions of the Company’s preclinical studies and all of the Company's clinical trials have been performed by third-party laboratories, contract research organizations, or other vendors (collectively "CROs"). Some CROs bill monthly for services performed, while others bill based upon milestone achievement. The Company accrues for each of the agreements it has with CROs on a monthly basis. For preclinical studies, accruals are estimated based upon the percentage of work completed and the contract milestones achieved. For clinical studies, accruals are estimated based upon a percentage of work completed, the number of patients enrolled and the duration of the study. The Company monitors patient enrollment, the progress of clinical studies and related activities to the extent possible through internal reviews of data reported to it by the CROs, correspondence with the CROs and clinical site visits. The Company's estimates are dependent upon the timelines and accuracy of the data provided by its CROs regarding the status of each program and total program spending. The Company periodically evaluates its estimates to determine if adjustments are necessary or appropriate based on information it receives concerning changing circumstances, and conditions or events that may affect such estimates. No material adjustments to preclinical study and clinical trial accrued expenses have been recognized to date.

Sale of Royalty Rights
    
The Company previously sold to third parties the rights to future royalties of certain of its products. As part of the underlying royalty agreements, the partners have the right to offset a portion of any future royalty payments owed to the Company to the extent of previous milestone payments. Accordingly, the Company deferred a portion of the revenue associated with each tranche of royalty right sold, equal to the pro-rata share of the potential royalty offset. Such amounts associated with the offset rights against future royalty payments will be recognized as revenue upon receipt of future royalties from the respective partners. As of June 30, 2014 there was no deferred revenue remaining related to the sale of royalty rights. As of December 31, 2013, the Company had deferred $0.1 million of revenue related to the sale of royalty rights.
Product Returns
    
In connection with the sale of the Avinza and Oncology product lines, the Company retained the obligation for returns of product that were shipped to wholesalers prior to the close of the transactions. The accruals for product returns, which were recorded as part of the accounting for the sales transactions, are based on historical experience. Any subsequent changes to the Company’s estimate of product returns are accounted for as a component of discontinued operations.

Milestone Payments
In May 2014, the Company entered into a licensing agreement and research collaboration with Omthera Pharmaceuticals. The research collaboration will target the development of novel products that utilize the proprietary Ligand-developed LTP TECHNOLOGY™ to improve lipid-lowering activity of certain omega-3 fatty acids. The Company is eligible to receive development, regulatory, and event-based payments, of which the Company determined a $1.0 million payment upon completion of a proof of concept under the development program represents a milestone under the milestone method of accounting as (1) it is an event that can only be achieved in part on the Company's past performance, (2) there is substantive uncertainty at the date the arrangement was entered into that the event will be achieved and (3) it results in additional payment being due to us. None of the other event-based payments represents a milestone under the milestone method of accounting. No event based payment or milestone was achieved during the periods presented.

Cost of Goods Sold

The Company determines cost using the first-in, first-out method. Cost of goods sold include all costs of purchase and other costs incurred in bringing the inventories to their present location and condition, including costs to store and distribute.

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Research and Development
    
Collaborative research and development expense consists of labor, material, equipment and allocated facility costs of the Company’s scientific staff who are working pursuant to the Company’s collaborative agreements. From time to time, collaborative research and development expense includes costs related to research efforts in excess of those required under certain collaborative agreements. Management has the discretion to set the scope of such excess efforts and may increase or decrease the level of such efforts depending on the Company’s strategic priorities.
Proprietary research and development expense consists of intellectual property in-licensing costs, labor, materials, contracted services, and allocated facility costs that are incurred in connection with internally funded drug discovery and development programs.

Income Taxes

                Income taxes are accounted for under the liability method.  This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of differences between the tax basis of assets or liabilities and their carrying amounts in the consolidated financial statements.  A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize their benefit or if future deductibility is uncertain.  As of June 30, 2014, the Company had provided a full valuation allowance against its deferred tax assets as recoverability was uncertain.  Developing the provision for income taxes requires significant judgment and expertise in federal and state income tax laws, regulations and strategies, including the determination of deferred tax assets and liabilities and, if necessary, any valuation allowances that may be required for deferred tax assets.  The Company's judgments and tax strategies are subject to audit by various taxing authorities.  While management believes the Company has provided adequately for its income tax liabilities in its consolidated financial statements, adverse determinations by these taxing authorities could have a material adverse effect on the Company's consolidated financial condition and results of operations. 

The Company's ending deferred tax liability represents a future tax obligation for current tax amortization claimed on acquired IPR&D.  As the Company cannot estimate when the IPR&D assets will be amortizable for financial reporting purposes, the deferred tax liability associated with the IPR&D assets cannot be used to support the realization of the Company's deferred tax assets.  As a result, the Company is required to increase its valuation allowance and record a charge to deferred taxes.  

Discontinued Operations-Oncology Product Line
    
In September 2006, the Company and Eisai Inc. and Eisai Co., Ltd. (collectively "Eisai"), entered into a purchase agreement, ("the Oncology Purchase Agreement"), pursuant to which Eisai agreed to acquire all of the Company's worldwide rights in and to its oncology products, including, among other things, all related inventory, equipment, records and intellectual property, and to assume certain liabilities as set forth in the Oncology Purchase Agreement. The Oncology product line included the Company's four marketed oncology drugs: Ontak, Targretin capsules, Targretin gel and Panretin gel.
    
Discontinued Operations-Avinza Product Line
    
In September 2006, the Company and King Pharmaceuticals, now a subsidiary of Pfizer, entered into a purchase agreement ("the Avinza Purchase Agreement"), pursuant to which Pfizer acquired all of the rights in and to Avinza in the United States, its territories and Canada, including, among other things, all Avinza inventory, records and related intellectual property, and to assume certain liabilities as set forth in the Avinza Purchase Agreement.

Pursuant to the terms of the Avinza Purchase Agreement, the Company retained the liability for returns of product from wholesalers that had been sold by the Company prior to the close of the transaction. Accordingly, as part of the accounting for the gain on the sale of Avinza, the Company recorded a reserve for Avinza product returns.

During the three and six months ended June 30, 2014 the Company did not recognize any gain or loss on the sale of the Avinza product line. The Company recognized a pre-tax gain of $2.4 million and $2.6 million for the three and six months ended June 30, 2013, due to subsequent changes in certain estimates and liabilities recorded as of the sale date.
Segment Reporting
    
Under ASC 280, Segment Reporting ("ASC 280"), operating segments are defined as components of an enterprise about which separate financial information is available that is regularly evaluated by the entity’s chief operating decision maker,

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in deciding how to allocate resources and in assessing performance. The Company has evaluated this codification and has identified two reportable segments: the development and commercialization of drugs using Captisol technology by CyDex and the biopharmaceutical company with a business model that is based upon the concept of developing or acquiring royalty revenue generating assets and coupling them with a lean corporate cost structure.
Comprehensive Income
    
Comprehensive income represents net income adjusted for the change during the periods presented in unrealized gains and losses on available-for-sale securities less reclassification adjustments for realized gains or losses included in net income. The unrealized gains or losses are reported on the consolidated statements of comprehensive income.

Consolidation of Variable Interest Entities

The Company identifies an entity as a VIE if either: (1) the entity does not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support, or (2) the entity's equity investors lack the essential characteristics of a controlling financial interest. The Company performs ongoing qualitative assessments of its VIEs to determine whether the Company has a controlling financial interest in any VIE and therefore is the primary beneficiary. If the Company is the primary beneficiary of a VIE, it must consolidate the VIE under applicable accounting guidance. The Company determined it holds a variable interest in Viking Therapeutics, Inc. ("Viking") based on management's assessment that it does not have sufficient resources to carry out its principal activities without the support of the Company. The Company's variable interests in Viking are a loan provided by the Company to Viking and a license agreement executed concurrently. As of June 30, 2014, total assets include $2.0 million and total liabilities include $3.1 million related to Viking. Viking's consolidated assets are owned by Viking, and Viking's consolidated liabilities are without recourse against Ligand.
New Accounting Pronouncements
    
In February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. Under ASU 2013-02, an entity is required to provide information about the amounts reclassified out of Accumulated Other Comprehensive Income ("AOCI") by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. Implementing ASU 2013-02 did not change the current requirements for reporting net income or other comprehensive income in the financial statements. The amendments in this ASU are effective for the Company for fiscal years, and interim periods within those years, beginning after January 1, 2014. The Company's adoption of this standard did not materially affect the consolidated financial statements.

In July, 2013, FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU 2013-11 requires the netting of unrecognized tax benefits (UTBs) against a deferred tax asset for a loss or other carryforward that would apply in settlement of the uncertain tax positions. UTBs are required to be netted against all available same-jurisdiction loss or other tax carryforwards that would be utilized, rather than only against carryforwards that are created by the UTBs. ASU 2013-11 is effective for the Company for interim and annual periods beginning after December 15, 2013. The Company's adoption of this standard did not materially affect the consolidated financial statements.

In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 raises the threshold for a disposal to qualify as a discontinued operation and modifies the related disclosure requirements. Under the new guidance, only disposals resulting in a strategic shift that will have a major effect on an entity's operations and financial results will be reported as discontinued operations. ASU 2014-08 also removes the requirement that an entity not have any significant continuing involvement in the operations of the component after disposal to qualify for reporting of the disposal as a discontinued operation. The guidance is effective for annual and interim periods beginning after December 15, 2014, with early adoption permitted for any disposal transaction not previously reported. Management does not believe the adoption of this guidance will have a material impact on the Company's consolidated financial statements.

In May, 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. The revenue standard’s

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core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, the standard requires five basic steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, (v) recognize revenue when (or as) the entity satisfies a performance obligation. Management is currently evaluating the effect the adoption of this standard will have on its financial statements.

In June 2014, the FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The amendments in this update require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in ASC 718, Compensation - Stock Compensation, as it relates to awards with performance conditions that affect vesting to account for such awards. The amendments in this update will be effective for the Company as of January 1, 2016. Earlier adoption is permitted. Entities may apply the amendments in this update either: (a) prospectively to all awards granted or modified after the effective date; or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this update as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. In addition, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. Management is currently assessing the impact of this update, and believes that its adoption on January 1, 2016 will not have a material impact on its consolidated financial statements.


2. Financial Instruments

The Company measures certain financial assets and liabilities at fair value on a recurring basis, including available-for-sale fixed income, equity securities, co-promote termination payments receivable and the related liability, and contingent liabilities.
The fair value of the Company’s investments which were classified as short-term investments as of June 30, 2014 and December 31, 2013 is determined using quoted market prices in active markets. These securities were received by the Company in December 2012 and June 2014 as a result of an event-based payment and an upfront license payment, respectively, under licensees. Additionally, the liability for CVRs for Metabasis are determined using quoted market prices in active markets. The co-promote termination payments receivable represents a non-interest bearing receivable for future payments to be made by Pfizer and is recorded at its fair value. The fair value is subjective and is affected by changes in inputs to the valuation model including management’s assumptions regarding future Avinza product sales. The receivable and liability will remain equal, and are adjusted each reporting period for changes in the fair value of the obligation including any changes in the estimate of future net Avinza product sales. The fair value of the liabilities for CyDex contingent liabilities were determined based on the income approach using a Monte Carlo analysis. The fair value is subjective and is affected by changes in inputs to the valuation model including management’s assumptions regarding revenue volatility, probability of commercialization of products, estimates of timing and probability of achievement of certain revenue thresholds and developmental and regulatory milestones which may be achieved and affect amounts owed to former license holders and CVR holders. Changes in these assumptions can materially affect the fair value estimate.


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The following table provides a summary of the assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2014 (in thousands):

Fair Value Measurements at Reporting Date Using
 
 
 
Quoted Prices in
Active Markets
for Identical
Assets
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
 
Total
 
(Level 1)
 
(Level 2)
 
(Level 3)
Assets:
 
 
 
 
 
 
 
Current portion of co-promote termination payments receivable
$
391

 
$
—

 
$
—

 
$
391

Available-for-sale securities
7,490

 
7,490

 
—

 
—

Restricted cash and investments
1,261

 
—

 
1,261

 
—

Long-term portion of co-promote termination payments receivable
413

 
—

 
—

 
413

     Total assets
$
9,555

 
$
7,490

 
$
1,261

 
$
804

Liabilities:
 
 
 
 
 
 
 
Current portion of contingent liabilities-CyDex
$
2,877

 
$
—

 
$
—

 
$
2,877

Current portion of co-promote termination liability
391

 
—

 
—

 
391

Long-term portion of contingent liabilities-Metabasis
4,724

 
4,724

 
—

 
—

Long-term portion of contingent liabilities-CyDex
7,498

 
—

 
—

 
7,498

Liability for short-term investments owed to former licensees
1,078

 
1,078

 
—

 
—

Long-term portion of co-promote termination liability
413

 
—

 
—

 
413

     Total liabilities
$
16,981

 
$
5,802

 
$
—

 
$
11,179


The following table provides a summary of the assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2013 (in thousands):

Fair Value Measurements at Reporting Date Using
 
 
 
Quoted Prices in
Active Markets
for Identical
Assets
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
 
Total
 
(Level 1)
 
(Level 2)
 
(Level 3)
Assets:
 
 
 
 
 
 
 
Current portion of co-promote termination payments receivable
$
4,329

 
$
—

 
$
—

 
$
4,329

Available-for-sale securities
4,340

 
4,340

 
—

 
—

Restricted cash and investments
1,341

 
—

 
1,341

 
—

Long-term portion of co-promote termination payments receivable
7,417

 
—

 
—

 
7,417

     Total assets
$
17,427

 
$
4,340

 
$
1,341

 
$
11,746

Liabilities:
 
 
 
 
 
 
 
Current portion of contingent liabilities-CyDex
$
1,712

 
$
—

 
$
—

 
$
1,712

Current portion of co-promote termination liability
4,329

 
—

 
—

 
4,329

Long-term portion of contingent liabilities-Metabasis
4,196

 
4,196

 
—

 
—

Long-term portion of contingent liabilities-CyDex
7,599

 
—

 
—

 
7,599

Liability for short-term investments owed to former licensees
651

 
651

 
—

 
—

Long-term portion of co-promote termination liability
7,417

 
—

 
—

 
7,417

     Total liabilities
$
25,904

 
$
4,847

 
$
—

 
$
21,057




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The following table represents significant unobservable inputs used in determining the fair value of contingent liabilities assumed in the acquisition of CyDex:

 
June 30, 2014
 
December 31, 2013
Range of annual revenue subject to revenue sharing (1)
$13.1 million-$18.9 million
 
$4.2 million-$19.8 million
Revenue volatility
25%
 
25%
Average of probability of commercialization
79.3%
 
67.6%
Sales beta
0.60
 
0.60
Credit rating
BBB
 
BBB
Equity risk premium
6%
 
6%
(1)
Revenue subject to revenue sharing represent management’s estimate of the range of total annual revenue subject to revenue sharing (i.e. annual revenues in excess of $15 million) through December 31, 2016, which is the term of the CVR agreement.

A reconciliation of the level 3 financial instruments as of June 30, 2014 is as follows (in thousands):

Assets:
 
Fair value of level 3 financial instrument assets as of December 31, 2013
$
11,746

Assumed payments made by Pfizer or assignee
(631
)
Fair value adjustments to co-promote termination liability
(10,311
)
Fair value of level 3 financial instrument assets as of June 30, 2014
$
804

 
 
Liabilities:
 
Fair value of level 3 financial instrument liabilities as of December 31, 2013
$
21,057

Assumed payments made by Pfizer or assignee
(631
)
Payments to CVR and other former license holders
(1,668
)
Fair value adjustments to contingent liabilities
2,732

Fair value adjustments to co-promote termination liability
(10,311
)
Fair value of level 3 financial instrument liabilities as of June 30, 2014
$
11,179


3. Variable Interest Entities

The Company determined it holds a variable interest in Viking based on management's assessment that it does not have sufficient resources to carry out its principal activities without the support of the Company. The Company's variable interests in Viking are a loan provided by the Company to Viking and a license agreement executed concurrently. Additionally, the Company has a shared services and sublease agreement with Viking. The Company examines specific criteria and uses judgment when determining if the Company is the primary beneficiary of a VIE and therefore required to consolidate the investment. Factors considered in determining whether the Company is the primary beneficiary include risk and reward sharing, experience and financial condition of its partner, voting rights, involvement in day-to-day operating decisions, representation on Viking's executive committee, and level of economics between the Company and Viking.

In May 2014, the Company entered into a Master License Agreement ("License Agreement") to license the rights to five programs to Viking, an unrelated clinical-stage biopharmaceutical company focused on the development of novel therapies for metabolic and endocrine disorders. As part of this transaction, the Company extended a $2.5 million convertible loan facility to Viking that can be used to pay Viking’s operating and financing-related expenses. Under the terms of the convertible loan facility, the principal amount outstanding accrues interest at a fixed rate equal to the lesser of 5% and the maximum interest rate permitted by law. The loan is due and payable in May 2016, unless the loans are converted into equity prior to such time. Upon the earlier to occur of an Initial Public Offering ("IPO") or qualified financing event, the Company may elect to be repaid in equity equal to 200% of the accrued principal and interest or require Viking to pay in cash an amount equal to 200% of the accrued principal and interest. The Company funded $1.3 million towards the convertible loan facility for both the three and six months ended June 30, 2014.

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The debt conversion feature embedded in the loan is accounted for under ASC Topic 815 Derivatives and Hedging. The valuation of the bifurcated debt conversion feature was performed using Level 3 inputs, requiring Viking to make assumptions about the probability of the occurrence of an IPO or qualified financing and the loan being converted based on the applicable conversion terms.

As partial consideration for the grant of the rights and licenses under the License Agreement, in the event Viking consummates an IPO or other qualified financing event with a minimum raise of $45.0 million, Viking will issue to the Company a certain amount of equity. At the closing of an IPO a number of shares of common stock having an aggregate value of $29.0 million will be issued to the Company, subject to adjustment in certain circumstances. In the event Viking consummates a private financing prior to an IPO, the Company has the option to receive a number of shares of the same class and type of securities issued in the private financing having an aggregate value of $29.0 million, subject to adjustment in certain circumstances. The Company has the right to terminate the License Agreement on or before April 30, 2015 if Viking has neither completed an IPO or received aggregate net proceeds of at least $20.0 million in one or more private financings. The Company also has the right to terminate the License Agreement in the event of insolvency or bankruptcy of Viking. On July 1, 2014, Viking filed an initial Form S-1 with the Securities and Exchange Commission for an IPO. As of the date of this report, the filed Form S-1 has not been declared effective. As of June 30, 2014, no amounts have been recorded for the potential receipt of equity related to a financing transaction in accordance with authoritative guidance.

The following table represents the consolidated assets and liabilities, which are owned by and are obligations of Viking and are with no recourse to the Company, as of June 30, 2014 (in thousands):

 
June 30, 2014
Cash and cash equivalents
$
891

Other current assets
28

Capitalized IPO expenses
1,094

     Total current assets
$
2,013

 
 
Other assets
1

     Total assets
$
2,014

 
 
Accounts payable
$
1,416

Accrued liabilities
52

Current portion of notes payable
345

     Total current liabilities
$
1,813

 
 
Long-term portion of notes payable
1,285

     Total liabilities
$
3,098


The Company has recorded 100% of the losses incurred since May 21, 2014, the effective date of the transaction, as net loss attributable to noncontrolling interest due to the fact that it is considered a primary beneficiary with no equity interest in the VIE. The advances under the loan agreement are included as notes payable by Viking and are eliminated in consolidation.


4. Avinza Co-Promotion

In 2003, the Company and Organon Pharmaceuticals USA Inc. (Organon) entered into an agreement for the co-promotion of Avinza. Subsequently in 2006, the Company signed an agreement with Organon that terminated the Avinza co-promotion agreement between the two companies and returned Avinza co-promotion rights to the Company. In consideration of the early termination, the Company agreed to make quarterly royalty payments to Organon equal to 6.5% of Avinza net sales through December 31, 2012 and thereafter equal to 6.0% of Avinza net sales through patent expiration, currently anticipated to be November 2017.


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Table of Contents

In January 2006, the Company and King Pharmaceuticals, now a subsidiary of Pfizer, entered into an agreement pursuant to which Pfizer acquired all of the Company’s rights in and to Avinza. Pfizer also assumed the Company’s co-promote termination obligation to make royalty payments to Organon based on net sales of Avinza. In connection with Pfizer's assumption of this obligation, Organon did not consent to the legal assignment of the co-promote termination obligation to Pfizer. Accordingly, the Company remains liable to Organon in the event of Pfizer's default of the obligation. Therefore, the Company recorded an asset as of February 26, 2007 to recognize Pfizer's assumption of the obligation, while continuing to carry the co-promote termination liability in the Company's consolidated financial statements to recognize the Company’s legal obligation as primary obligor to Organon. This asset represents a non-interest bearing receivable for future payments to be made by Pfizer and is recorded at its fair value. The receivable and liability will remain equal, and are adjusted each reporting period for changes in the fair value of the obligation including for any changes in the estimate of future net Avinza product sales. This receivable will be assessed on a quarterly basis or when a triggering event occurs for impairment (e.g. in the event Pfizer defaults on the assumed obligation to pay Organon).

On a quarterly basis, management reviews the carrying value of the co-promote termination liability. In February 2014, Actavis launched a generic form of Avinza which resulted in a significant decrease in estimates of future net sales used to value the co-promote termination asset and liability. Due to assumptions and judgments inherent in determining the estimates of future net Avinza sales through November 2017, the actual amount of net Avinza sales used to determine the current fair value of the Company’s co-promote termination asset and liability may be materially different from current estimates.

A summary of the co-promote termination liability as of June 30, 2014 is as follows (in thousands):

Net present value of payments based on estimated future net Avinza product sales as of December 31, 2013
$
11,746

Assumed payments made by Pfizer or assignee
(631
)
Fair value adjustments
(10,311
)
Total co-promote termination liability as of June 30, 2014
804

Less: current portion of co-promote termination liability as of June 30, 2014
391

Long-term portion of co-promote termination liability as of June 30, 2014
$
413



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5. Lease Obligations

The Company leases office and laboratory facilities in California, Kansas and New Jersey. These leases expire between 2014 and 2019, some of which are subject to annual rent increases which range from 3.0% to 3.5%. The Company currently subleases office and laboratory space in California and New Jersey. The following table provides a summary of operating lease obligations and payments expected to be received from sublease agreements as of June 30, 2014 (in thousands):

Operating lease obligations:
 
Lease
Termination
Date
 
Less than 1
year
 
1-3 years
 
3-5 years
 
More than
5 years
 
Total
Corporate headquarters-
San Diego, CA
 
July 2019
 
$
673

 
$
1,399

 
$
1,474

 
$
—

 
$
3,546

Bioscience and Technology Business Center-
Lawrence, KS
 
December 2017
 
55

 
108

 
27

 
—

 
190

Vacated office and research facility-San Diego, CA
 
July 2015
 
2,273

 
190

 
—

 
—

 
2,463

Vacated office and research facility-
Cranbury, NJ
 
August 2016
 
2,563

 
3,050

 
—

 
—

 
5,613

Total operating lease obligations
 
 
 
$
5,564

 
$
4,747

 
$
1,501

 
$
—

 
$
11,812

 
 
 
 
 
 
 
 
 
 
 
 
 
Sublease payments expected to be received:
 
 
 
Less than 1
year
 
1-3 years
 
3-5 years
 
More than
5 years
 
Total
Office and research facility-
San Diego, CA
 
July 2015
 
$
919

 
$
78

 
$
—

 
$
—

 
$
997

Office and research facility-
Cranbury, NJ
 
August 2014 and 2016
 
480

 
566

 
—

 
—

 
1,046

Net operating lease obligations
 
 
 
$
4,165

 
$
4,103

 
$
1,501

 
$
—

 
$
9,769


In 2010, the Company ceased use of its facility located in New Jersey. As a result, the Company recorded lease exit costs of $9.7 million for costs related to the difference between the remaining lease obligations of the abandoned operating leases, which run through August 2016, and management's estimate of potential future sublease income, discounted to present value. In addition, the Company wrote-off property and equipment with a net book value of approximately $5.4 million related to the facility closure.

As of June 30, 2014 and December 31, 2013, the Company had lease exit obligations of $4.3 million and $5.9 million, respectively. For the three and six months ended June 30, 2014, the Company made cash payments, net of sublease payments received of $0.9 million and $1.8 million, respectively. The Company recognized adjustments for accretion and changes in leasing assumptions of $0.1 million and $0.2 million for the three and six months ended June 30, 2014, respectively. For the three and six months ended June 30, 2013, the Company made cash payments, net of sublease payments received of $0.9 million and $1.9 million, respectively. The Company recognized adjustments for accretion and changes in leasing assumptions of $44,000 and $0.1 million for the three and six months ended June 30, 2013, respectively.
Total rent expense under all office leases for each of the three and six months ended June 30, 2014 and 2013 was $0.2 million and $0.4 million, respectively. The Company recognizes rent expense on a straight-line basis. Deferred rent at June 30, 2014 and December 31, 2013 was $0.3 million and $0.4 million, respectively, and is included in other long-term liabilities.

6. Segment Reporting
The Company evaluates performance based on the operating income (loss) of the respective business segments. The segment results may not represent actual results that would be expected if they were independent, stand-alone businesses. Segment information is as follows (in thousands):

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Table of Contents

Balance Sheet Data:
As of June 30, 2014
 
Ligand
 
CyDex
 
Total
Total assets
$
32,577

 
$
67,270

 
$
99,847

 
 
 
 
 
 
 
As of December 31, 2013
 
Ligand
 
CyDex
 
Total
Total assets
$
38,408

 
$
66,305

 
$
104,713

 
 
 
 
 
 
Operating Data:
For the three months ended June 30, 2014
 
Ligand
 
CyDex
 
Total
Net revenues from external customers
$
5,692

 
$
4,916

 
$
10,608

Depreciation and amortization expense
68

 
601

 
669

Operating (loss) income
(867
)
 
2,225

 
1,358

Interest expense, net
181

 
—

 
181

Income tax expense from continuing operations
45

 
2

 
47

 
 
 
 
 
 
 
For the three months ended June 30, 2013
 
Ligand
 
CyDex
 
Total
Net revenues from external customers
3,820

 
5,760

 
$
9,580

Depreciation and amortization expense
59

 
610

 
$
669

Write-off of in-process research and development
—

 
480

 
$
480

Operating (loss) income
(1,200
)
 
2,714

 
$
1,514

Interest expense, net
453

 
—

 
$
453

Income tax expense (benefit) from continuing operations
(145
)
 
35

 
$
(110
)
Gain on sale of Avinza Product Line before income taxes
2,397

 
—

 
$
2,397

 
 
 
 
 
 
 
For the six months ended June 30, 2014
 
Ligand
 
CyDex
 
Total
Net revenues from external customers
12,483

 
$
14,083

 
$
26,566

Depreciation and amortization expense
134

 
1,203

 
1,337

Operating (loss) income
(938
)
 
7,396

 
6,458

Interest expense, net
429

 
—

 
429

Income tax expense from continuing operations
6

 
—

 
6

 
 
 
 
 
 
 
For the six months ended June 30, 2013
 
Ligand
 
CyDex
 
Total
Net revenues from external customers
$
10,057

 
$
11,174

 
$
21,231

Depreciation and amortization expense
117

 
1,222

 
1,339

Write-off of in-process research and development
—

 
480

 
480

Operating income
198

 
5,249

 
5,447

Interest expense, net
1,361

 
—

 
1,361

Income tax expense (benefit) from continuing operations
(205
)
 
29

 
(176
)
Gain on sale of Avinza Product Line before income taxes
2,588

 
—

 
2,588



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Table of Contents

7. Financing Arrangements

The Company has a secured term loan credit facility ("secured debt"). Under the terms of the secured debt, the Company made interest-only payments through February 2013. Subsequent to the interest-only payments, the note amortized with principal and interest payments through the remaining term of the loan. Additionally, the Company made an additional final payment equal to 6% of the total amount borrowed which was due at maturity and was accreted over the life of the loan. The maturity date of the loan was August 1, 2014, and the Company fully repaid the loan as of July 31, 2014.

In March 2013, the Company prepaid $7.0 million of the secured term loan credit facility. Additionally, the Company paid a prepayment fee of 1% of the prepayment amount, or $0.1 million and a prorated final-payment fee of 6% of the final payment, or $0.4 million.

The carrying values and the fixed contractual coupon rates of the Company's financing arrangements as of June 30, 2014 and December 31, 2013 were as follows (in thousands):

 
June 30, 2014
 
December 31, 2013
Convertible notes payable, Viking Therapeutics, Inc.
$
345

 
$
—

Current portion notes payable, 8.64%, due August 1, 2014
1,716

 
6,642

Current portion notes payable, 8.9012%, due August 1, 2014
637

 
2,467

Total current portion of notes payable
$
2,698

 
$
9,109


8. Stockholders’ Equity

The Company grants options and awards to employees, non-employee consultants, and non-employee directors. Only new shares of common stock are issued upon the exercise of stock options. Non-employee directors are accounted for as employees. Options and restricted stock granted to certain directors vest in equal monthly installments over the one-year period following the date of grant. Options granted to employees vest 1/8 on the six month anniversary of the date of grant, and 1/48 each month thereafter for 42 months. Option awards generally expire ten years from the date of grant.

Stock Option Activity

The following is a summary of the Company’s stock option plan activity and related information:

 
Shares
 
Weighted-
Average
Exercise
Price
 
Weighted-Average
Remaining
Contractual Term in
Years
 
Aggregate
Intrinsic Value
(In thousands)
Balance as of December 31, 2013
1,746,709

 
$
16.79

 
7.6
 
$
62,705

Granted
366,184

 
73.81

 
 
 
 
Exercised
(233,929
)
 
15.72

 
 
 
 
Forfeited
(49,967
)
 
16.69

 
 
 
 
Cancelled
(3,814
)
 
84.38

 
 
 
 
Balance as of June 30, 2014
1,825,183

 
28.23

 
7.7
 
$
66,386

Exercisable as of June 30, 2014
945,222

 
16.30

 
6.8
 
$
43,474

Options vested and expected to vest as of June 30, 2014
1,825,183

 
28.23

 
7.7
 
$
66,386


The weighted-average grant date fair value of all stock options granted during the six months ended June 30, 2014 was $47.44 per share. The total intrinsic value of all options exercised during the six months ended June 30, 2014 and 2013 was approximately $13.7 million and $0.8 million, respectively. As of June 30, 2014, there was $17.5 million of total unrecognized compensation cost related to nonvested stock options. That cost is expected to be recognized over a weighted-average period of 2.5 years.


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Net cash received from options exercised during the six months ended June 30, 2014 and 2013 was approximately $3.6 million and $1.1 million, respectively. There is no current tax benefit related to options exercised because of net operating losses for which a full valuation allowance has been established.

As of June 30, 2014, 1.1 million shares were available for future option grants or direct issuance under the Company's 2002 Stock Incentive Plan, as amended.

Restricted Stock Activity

Restricted stock activity for the six months ended June 30, 2014 was as follows:

 
Shares
 
Weighted-
Average Grant
Date Fair Value
Nonvested at December 31, 2013
115,386

 
$
21.93

Granted
41,671

 
72.50

Vested
(74,079
)
 
25.24

Cancelled
(3,972
)
 
18.42

Nonvested at June 30, 2014
79,006

 
$
45.68


Restricted stock awards generally vest over three years. As of June 30, 2014, there was $2.7 million of total unrecognized compensation cost related to nonvested restricted stock. That cost is expected to be recognized over a weighted-average period of 1.7 years.

Employee Stock Purchase Plan

The Company's Employee Stock Purchase Plan, as amended and restated (the "Amended ESPP") allows participants to purchase up to 1,250 shares of Ligand common stock during each offering period, but in no event may a participant purchase more than 1,250 shares of common stock during any calendar year. The length of each offering period is six months, and employees are eligible to participate in the first offering period beginning after their hire date.

The Amended ESPP allows employees to purchase Ligand common stock at the end of each six month period at a price equal to 85% of the lesser of fair market value on either the start date of the period or the last trading day of the period (the "Lookback Provision"). The 15% discount and the Lookback Provision make the Amended ESPP compensatory.  There were 2,230 and 5,016 shares of common stock issued under the amended ESPP during the six months ended June 30, 2014 and 2013, respectively. The Company recorded compensation expense related to the ESPP of $30,627 and $26,000 for the six months ended June 30, 2014 and 2013, respectively. As of June 30, 2014, 77,285 shares were available for future purchases under the Amended ESPP.

Public Offerings

During the three and six months ended June 30, 2014 and 2013, the Company did not issue any common shares pursuant to its at-the-market equity issuance plan.
Corporate Share Repurchases
On May 8, 2013, the Company's Board of Directors authorized the Company to repurchase up to $5.0 million of its common stock for a period of up to one year. The Company did not repurchase any common shares pursuant to the repurchase program.
On July 17, 2014, the Company's Board of Directors authorized the Company to repurchase up to $10.0 million of its common stock from time to time in privately negotiated and open market transactions for a period of up to one year, subject to the Company's evaluation of market conditions, applicable legal requirements and other factors.


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Table of Contents


9. Litigation

The Company records an estimate of a loss when the loss is considered probable and estimable. Where a liability is probable and there is a range of estimated loss and no amount in the range is more likely than any other number in the range, the Company records the minimum estimated liability related to the claim in accordance with ASC Topic 450-Contingencies. As additional information becomes available, the Company assesses the potential liability related to its pending litigation and revises its estimates. Revisions in the Company's estimates of potential liability could materially impact its results of operations.

Securities Litigation
On June 8, 2012, a federal securities class action and shareholder derivative lawsuit was filed in the Eastern District of Pennsylvania against Genaera Corporation and its officers, directors, major shareholders and trustee ("Genaera Defendants") for allegedly breaching their fiduciary duties to Genaera shareholders.  The lawsuit also names the Company and its Chief Executive Officer John Higgins as additional defendants for allegedly aiding and abetting the Genaera Defendants' various breaches of fiduciary duties based on the Company's purchase of a licensing interest in a development-stage pharmaceutical drug program from the Genaera Liquidating Trust in May 2010 and the Company's subsequent sale of half of its interest in the transaction to Biotechnology Value Fund, Inc.
Following an amendment to the complaint and a round of motions to dismiss, the court dismissed the amended complaint with prejudice on August 12, 2013.  Plaintiff appealed that dismissal on September 10, 2013.  Briefing is now complete, and the parties are awaiting the scheduling of oral argument before the Third Circuit, which management anticipates will take place in the next few months.  Management believes it is very likely to prevail on appeal, and, for that reason, believes the litigation presents a remote likelihood of material loss.
 
Other Litigation
On June 19, 2014, a complaint seeking attorneys’ fees in connection with claims related to executive compensation matters described in the Company’s June 6, 2013 supplemental proxy materials was filed in California Superior Court.  Management believes the fees demanded by plaintiffs’ counsel are excessive and intends to defend itself vigorously in the litigation.  Due to the complex nature of the legal and factual issues involved, however, the outcome of this matter is not presently determinable.

ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations

Caution: This discussion and analysis may contain predictions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed in Part II, Item 1A:"Risk Factors." This outlook represents our current judgment on the future direction of our business. These statements include those related to our Captisol-related revenues, our Promacta, Kyprolis, and other product royalty revenues, product returns, and product development. Actual events or results may differ materially from our expectations. For example, there can be no assurance that our revenues or expenses will meet any expectations or follow any trend(s), that we will be able to retain our key employees or that we will be able to enter into any strategic partnerships or other transactions. We cannot assure you that we will receive expected Promacta, Kyprolis, Captisol and other product revenues to support our ongoing business or that our internal or partnered pipeline products will progress in their development, gain marketing approval or achieve success in the market. In addition, ongoing or future arbitration, or litigation or disputes with third parties may have a material adverse effect on us. Such risks and uncertainties, and others, could cause actual results to differ materially from any future performance suggested. We undertake no obligation to make any revisions to these forward-looking statements to reflect events or circumstances arising after the date of this quarterly report. This caution is made under the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act.

Our trademarks, trade names and service marks referenced herein include Ligand. Each other trademark, trade name or service mark appearing in this quarterly report belongs to its owner.

References to “Ligand Pharmaceuticals Incorporated,” “Ligand,” the “Company,” “we” or ”our” include our wholly owned subsidiaries: Ligand JVR, Allergan Ligand Retinoid Therapeutics, Seragen, Inc., Pharmacopeia, Inc., or Pharmacopeia, Neurogen Corporation, or Nuerogen, CyDex Pharmaceuticals, Inc., or CyDex, Metabasis Therapeutics, Inc., or Metabasis, and Nexus VI, Inc.

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Overview
    
We are a biotechnology company that develops and acquires revenue generating assets and coupling them with a lean corporate cost structure. Our goal is to create a sustainably profitable business and generate meaningful value for our stockholders. Since a portion of our business model is based on the goal of partnering with other pharmaceutical companies to commercialize and market our assets, a significant amount of our revenue is based largely on payments made to us by partners for royalties, milestones, event-based payments, and license fees. We recognized the important role of the drug reformulation segment in the pharmaceutical industry and in 2011 added Captisol® to our technology portfolio. Captisol is a formulation technology that has enabled seven FDA approved products, including Onyx's Kyprolis® and Baxter International's Nexterone® and is currently being developed in a number of clinical-stage partner programs. In comparison to our peers, we believe we have assembled one of the largest and most diversified asset portfolios in the industry with the potential to generate significant revenue in the future. The therapies in our development portfolio address the unmet medical needs of patients for a broad spectrum of diseases including hepatitis, multiple myeloma, muscle wasting, Alzheimer’s disease, dyslipidemia, diabetes, anemia, epilepsy, FSGS and osteoporosis. We have established multiple alliances with the world’s leading pharmaceutical companies including GlaxoSmithKline, Onyx Pharmaceuticals (a subsidiary of Amgen, Inc.), Merck, Pfizer, Baxter International, Lundbeck Inc., Eli Lilly and Co., and Spectrum Pharmaceuticals, Inc.

Highlights from the first six months of 2014 include:

•
We received a $1.0 million commercial sales-based contingent payment from Onyx. The payment was triggered by the achievement of over $250 million of annual product sales of Kyprolis in 2013.
•
We received a $1.0 million event-based payment as a result of the recent FDA approval of Merck’s NOXAFIL® which is a new Captisol-enabled formulation of NOXAFIL for intravenous (IV) use. We will also generate revenue from Captisol material sales to Merck for this product under a commercial supply agreement.
•
Our partner Lundbeck LLC announced that the FDA accepted for review a New Drug Application ("NDA") for its investigational therapy intravenous carbamazepine, an intravenous formulation of the anti-epileptic drug carbamazepine. With acceptance of the NDA filing, we earned a $0.2 million event-based payment.
•
We completed the dosing of the last patient in its Glucagon Receptor Agonist Phase 1 Single Ascending Dose (SAD) clinical trial.
•
We received an event-based payment of $0.2 million in connection with an amendment to our license agreement with Sage Therapeutics, Inc. for the additional of a new subfield.
•
We received a $0.1 million project development fee as a result of entering into a licensing agreement and research collaboration with Omthera Pharmaceuticals. The research collaboration will target the development of novel products that utilize the proprietary Ligand-developed LTP TECHNOLOGY™ to improve lipid-lowering activity of certain omega-3 fatty acids. Under the terms of the agreement, we will be eligible to receive payments of up to $44.5 million upon the achievement of specific events, as well as tiered royalties ranging from mid to high single digits of net sales.
•
We entered into a master license agreement with Viking covering the following five programs: FBPase inhibitor program for type 2 diabetes, a Selective Androgen Receptor Modulator (SARM) program for muscle wasting, a Thyroid Hormone Receptor-ß (TRß) Agonist program for dyslipidemia, an Erythropoietin Receptor (EPOR) Agonist program for anemia, and an Enterocyte-Directed Diacylglycerol Acyltransferase-1 (DGAT-1) Inhibitor program for dyslipidemia. The FBPase Inhibitor program was the subject of an option originally granted to Viking in 2012. As part of the transaction, we agreed to extend a $2.5 million convertible loan facility to Viking that will be used to pay Viking's operating and financing-related expenses.
•
We received 125,000 upfront shares of common stock in its partner TG Therapeutics, Inc., as a result of entering into a license agreement. The shares were initially valued at $1.2 million.


Results of Operations

Three and six months ended June 30, 2014 and 2013
Total revenues for the three and six months ended June 30, 2014 were $10.6 million and $26.6 million, respectively, compared to $9.6 million and $21.2 million, respectively, for the same periods in 2013. We reported income from continuing

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operations of $1.3 million and $3.4 million for the three and six months ended June 30, 2014, respectively, compared to $3.7 million and $5.0 million, respectively, for the same periods in 2013.

Royalty Revenue
Royalty revenues were $5.2 million and $13.1 million for the three and six months ended June 30, 2014, respectively, compared to $4.9 million and $10.7 million, respectively, for the same periods in 2013. The increase in royalty revenue is primarily due to an increase in Promacta and Kyprolis royalties, partially offset by a decline in Avinza royalties as a result of generic competition entering the market in February 2014.

Material Sales
We recorded material sales of $3.5 million and $9.2 million for the three and six months ended June 30, 2014, respectively, compared to $4.0 million and $5.5 million, respectively, for the same periods in 2013. The decrease in material sales for the three months ended June 30, 2014 and the increase in material sales for the six months ended June 30, 2014 is due to timing of customer purchases.

Collaborative Research and Development and Other Revenues
We recorded collaborative research and development and other revenues of $1.9 million and $4.3 million for the three and six months ended June 30, 2014, respectively, compared to $0.7 million and $5.0 million, respectively, for the same periods in 2013. The increase of $1.2 million for the three months ended June 30, 2014 is primarily due to an upfront license payment of $1.2 million received in the second quarter of 2014. The decrease of $0.7 million for the six months ended June 30, 2014 is due to timing of event-based payments and upfront license fees earned.

Cost of Sales
Cost of sales were $1.2 million and $3.6 million for the three and six months ended June 30, 2014, respectively, compared to $1.2 million and $1.9 million, respectively, for the same periods in 2013. The increase of $1.7 million for the six months ended June 30, 2014 is primarily due to an increase in material sales.

Research and Development Expenses
Research and development expenses were $2.7 million and $5.8 million for the three and six months ended June 30, 2014, respectively, compared to $2.0 million and $4.5 million, respectively, for the same periods in 2013. The increase of $0.7 million and $1.3 million for the three and six months ended June 30, 2014, respectively, is primarily due to an increase in stock-based compensation expense.

As summarized in the table below, we are developing several proprietary products for a variety of indications. Our programs are not limited to the following, but are representative of a range of future licensing opportunities to expand our partnered asset portfolio.

Program
 
Disease/Indication
 
Development
Phase
 
 
 
 
 
Glucagon Receptor Antagonist
 
Diabetes
 
Phase I
HepDirect™
 
Liver Diseases
 
Preclinical
Oral Human Granulocyte Colony Stimulating Factor
 
Neutropenia
 
Preclinical
LTP Technology Platform
 
Metabolic and Cardiovascular Disease
 
Preclinical
Captisol-enabled Lamotrigine
 
Epilepsy
 
Preclinical

We do not provide forward-looking estimates of costs and time to complete our ongoing research and development projects as such estimates would involve a high degree of uncertainty. Uncertainties include our inability to predict the outcome of complex research, our inability to predict the results of clinical studies, regulatory requirements placed upon us by regulatory authorities such as the FDA and EMA, our inability to predict the decisions of our collaborative partners, our ability to fund research and development programs, competition from other entities of which we may become aware in future periods, predictions of market potential from products that may be derived from our research and development efforts, and our ability to recruit and retain personnel or third-party research organizations with the necessary knowledge and skills to perform certain research. Refer to “Item 1A. Risk Factors” for additional discussion of the uncertainties surrounding our research and development initiatives.

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General and Administrative Expenses
General and administrative expenses were $5.2 million and $10.3 million for the three and six months ended June 30, 2014, respectively, compared to $4.3 million and $8.8 million, respectively, for the same periods in 2013. The increase of $0.9 million and $1.5 million for three and six months ended June 30, 2014, respectively, is primarily due to an increase in stock-based compensation expense.

Lease Exit and Termination Costs
In September 2010, we ceased use of our facility located in Cranbury, New Jersey. As a result, during the three months ended September 30, 2010, we recorded lease exit costs of $9.7 million for costs related to the difference between the remaining lease obligations of the abandoned operating leases, which run through August 2016, and management’s estimate of potential future sublease income, discounted to present value. Actual future sublease income may differ materially from our estimate, which would result in us recording additional expense or reductions in expense. In addition, we wrote-off approximately $5.4 million of property and equipment related to the facility closure and recorded approximately $1.8 million of severance related costs. Lease exit and termination costs were $0.1 million and $0.3 million for the three and six months ended June 30, 2014, respectively, compared to $44,000 and $0.1 million, respectively for the same periods in 2013. The increase for the three and six months ended June 30, 2014 is primarily due to changes in sublease assumptions.

Interest Expense, net
Interest expense was $0.2 million and $0.4 million for the three and six months ended June 30, 2014, respectively, compared to $0.5 million and $1.4 million, respectively, for the same periods in 2013. The decrease in interest expense of $0.3 million and $1.0 million for the three and six months ended June 30, 2014, respectively, is due to a lower principal balance due to the $7.0 million payoff in March 2013 as well as principal amortization.

(Increase) decrease in Contingent Liabilities
We recorded an increase in contingent liabilities of $1.3 million and $3.3 million for the three and six months ended June 30, 2014, respectively, compared to a decrease of $2.7 million and $0.9 million for the same periods in 2013. The increase for the three months ended June 30, 2014 primarily relates to an increase in the liability for amounts potentially due to holders of CVRs related to our CyDex acquisition of $3.2 million and is partially offset by a decrease of $1.9 million in the liability for amounts potentially due to holders of CVRs associated with our Metabasis acquisition. The increase for the six months ended June 30, 2014 primarily relates to an increase of $2.7 million in the liability for amounts potentially due to holders of CVRs related to our CyDex acquisition and an increase of $0.5 million in the liability for amounts potentially due to holders of CVRs associated with our Metabasis acquisition. The decrease for the three months ended June 30, 2013 relates to a decrease of $5.2 million in the liability for amounts potentially due to holders of CVRs and former license holders associated with our CyDex acquisition primarily due to a decrease in amounts potentially due to CyDex CVR holders and former license holders related to Captisol-enabled Clopidogrel. The Medicines Company notified us of the termination of development of Captisol-enabled IV clopidogrel and the return of the rights to the compound to us. The decrease was partially offset by an increase of $2.4 million in amounts potentially due to holders of CVRs associated with our Metabasis acquisition. The decrease for the six months ended June 30, 2013 is primarily due to a decrease of $3.3 million in amounts potentially due to CyDex CVR holders and former license holders related to Captisol-enabled Clopidogrel, and is partially offset by an increase of $2.4 million in Metabasis CVRs.

Income Tax Expense
We recorded an income tax benefit from continuing operations of $47,000 and income tax expense of $6,000 for the three and six months ended June 30, 2014, respectively, compared to income tax expense from continuing operations of $0.1 million and $0.2 million, respectively for the three and six months ended June 30, 2013. Our estimated annual effective rate of 2.09% is primarily attributable to deferred taxes associated with the amortization of acquired IPR&D assets for tax purposes. 

Discontinued Operations

Avinza Product Line
In September 2006, we and King Pharmaceuticals, now a subsidiary of Pfizer, entered into a purchase agreement, or the Avinza Purchase Agreement, pursuant to which Pfizer acquired all of our rights in and to Avinza in the United States, its territories and Canada, including, among other things, all Avinza inventory, records and related intellectual property, and assume certain liabilities as set forth in the Avinza Purchase Agreement.

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Pursuant to the terms of the Avinza Purchase Agreement, we retained the liability for returns of product from wholesalers that had been sold by us prior to the close of this transaction. Accordingly, as part of the accounting for the gain on the sale of Avinza, we recorded a reserve for Avinza product returns.

During the three and six months ended June 30, 2014, there were no pre-tax gains or losses recognized on the sale of the Avinza product line due to subsequent changes in certain estimates and liabilities recorded as of the sale date. During the three and six months ended June 30, 2013, we recognized pre-tax gains of $2.4 million and $2.6 million, respectively, as a result of subsequent changes in certain estimates and liabilities recorded as of the sale date.

Liquidity and Capital Resources

We have financed our operations through offerings of our equity securities, borrowings from long-term debt, issuance of convertible notes, product sales and the subsequent sales of our commercial assets, royalties, collaborative research and development and other revenues, and capital and operating lease transactions.

We have incurred significant losses since inception. At June 30, 2014, our accumulated deficit was $667.7 million and we had working capital of $10.0 million. We believe that cash flows from operations will improve due to Captisol sales, an increase in royalty revenues driven primarily from continued increases in Promacta and Kyprolis sales, recent product approvals and regulatory developments, as well as revenues from new licenses and event-based payments. In the event revenues and operating cash flows do not meet expectations, management plans to reduce discretionary expenses. However, it is possible that we may be required to seek additional financing. There can be no assurance that additional financing will be available on terms acceptable to management, or at all. We believe our available cash, cash equivalents and short-term investments as well as our current and future royalty, license and milestone revenues will be sufficient to satisfy our anticipated operating and capital requirements through at least the next 12 months. We expect to build cash in future months as we continue to generate significant cash flows from operations and have fully repaid our loan with Oxford Financial Group as of July 31, 2014. Our future operating and capital requirements will depend on many factors, including, but not limited to: the pace of scientific progress in our research and development programs; the potential success of these programs; the scope and results of preclinical testing and clinical trials; the time and costs involved in obtaining regulatory approvals; the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims; competing technological and market developments; the amount of royalties on sales of the commercial products of our partners; the efforts of our collaborative partners; obligations under our operating lease agreements; and the capital requirements of any companies we acquire, including Pharmacopeia, Neurogen, Metabasis and CyDex. We believe that the actions presently being taken will generate sufficient operating cash flow for us to continue as a going concern. While we believe in the viability of our strategy to generate sufficient operating cash flow and in our ability to raise additional funds, there can be no assurances to that effect. Our ability to achieve our operational targets is dependent upon our ability to further implement our business plan and generate sufficient operating cash flow.

In January 2011, we entered into a $20.0 million secured term loan credit facility with Oxford Financial Group. The loan was amended in January 2012 to increase the secured credit facility to $27.5 million. The original $20.0 million borrowed under the facility bore interest at a fixed rate of 8.6%. The additional $7.5 million bore interest at a fixed rate of 8.9%. Under the terms of the secured debt, we made interest-only payments through February 2013. Subsequent to the interest-only payments, the note amortized with principal and interest payments through the remaining term of the loan. We were required to make an additional final payment equal to 6% of the total amount borrowed at maturity, which was accreted over the life of the loan. The maturity date of the term loan was August 1, 2014, and we fully repaid the loan as of July 31, 2014.

In March 2013, we prepaid $7.0 million of the secured term loan credit facility. Additionally, we paid a prepayment fee of 1% of the prepayment amount, or $0.1 million, and a prorated final-payment fee of 6% of the final payment, or $0.4 million. As of June 30, 2014, the remaining principal balance of the note was $2.4 million.

In October 2013, we filed a universal shelf registration statement with the Securities and Exchange Commission, or the SEC, that was automatically declared effective due to our status as a well-known seasoned issuer. This registration statement provides additional financial flexibility for us to sell shares of common stock or other equity or debt securities as needed at any time, including through our at-the-market equity issuance program. During the three and six months ended June 30, 2014, we did not issue any common shares through this at-the-market equity issuance program.

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Operating Activities

Operating activities generated cash of $6.6 million for the six months ended June 30, 2014, compared to $9.0 million for the same period in 2013.

The cash generated for the six months ended June 30, 2014 reflects net income of $3.4 million, adjusted by $7.7 million of non-cash items to reconcile net income to net cash generated from operations. These reconciling items primarily reflect an increase in the estimated fair value of contingent liabilities of $3.3 million, depreciation and amortization of $1.3 million, stock-based compensation of $5.1 million, and accretion of notes payable of $0.2 million, partially offset by a non-cash upfront fee received of $1.2 million and a realized gain on investments of $1.0 million. The cash generated during the six months ended June 30, 2014 is further impacted by changes in operating assets and liabilities due primarily to an increase in accounts receivable of $0.9 million, a decrease in other current assets of $0.1 million, a decrease in other long-term assets of $0.2 million and a decrease in accounts payable and accrued liabilities of $3.7 million, partially offset by an increase in inventory of $0.6 million.

The cash generated for the six months ended June 30, 2013 reflects net income of $7.6 million, adjusted by $2.6 million of gain from discontinued operations and $3.9 million of non-cash items to reconcile the net income to net cash generated in operations. These reconciling items primarily reflect depreciation and amortization of $1.3 million, stock-based compensation of $2.6 million, the non-cash change in the estimated fair value of contingent liabilities of $0.9 million, the change in deferred income taxes of $0.2 million and accretion of note payable of $0.2 million. The cash generated during the six months ended June 30, 2013 is further impacted by changes in operating assets and liabilities due primarily to a decrease in accounts receivable of $3.9 million, a decrease in inventory of $0.4 million, and a decrease in other long term assets of $0.1 million, partially offset by increases in other current assets of $0.4 million and decreases in accounts payable and accrued liabilities of $2.6 million, other liabilities of $0.4 million, and a decrease in deferred revenue of $0.3 million. Cash used in operating activities of discontinued operations was $0.6 million for the six months ended June 30, 2013.

Investing Activities

Investing activities used cash of $0.4 million for the six months ended June 30, 2014, compared to $3.7 million for the same period in 2013.

Cash used by investing activities during the six months ended June 30, 2014 primarily reflects payments to CVR holders of $1.7 million, partially offset by proceeds from short-term investments of $1.2 million and proceeds from the sale of equipment of $0.1 million.

Cash used by investing activities during the six months ended June 30, 2013 primarily reflects the purchase of
commercial license rights of $3.6 million.

Financing Activities

Financing activities used cash of $3.3 million for the six months ended June 30, 2014, compared to $11.7 million for the same period in 2013.

Cash used by financing activities for the six months ended June 30, 2014 primarily reflects $6.9 million of repayment of debt, partially offset by proceeds from stock option exercises and our employee stock purchase plan of $3.6 million.
    
Cash used by financing activities for the six months ended June 30, 2013 primarily reflects $12.9 million of repayment
of debt, partially offset by proceeds from stock option exercises and the employee stock purchase plan of $1.2 million.

Other

In connection with the acquisition of Metabasis in January 2010, Metabasis security holders received CVRs under four CVR agreements. The CVRs entitle the holders to cash payments upon the sale or licensing of certain assets and upon the achievement of specified milestones. The fair value of the liability at June 30, 2014 was $4.7 million, and as of December 31, 2013 was $4.2 million.


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In connection with the acquisition of CyDex in January 2011, we issued a series of CVRs and also assumed certain contingent liabilities. In 2011, $0.9 million was paid to the CyDex shareholders upon completion of a licensing agreement with the Medicines Company for the Captisol-enabled Intravenous formulation of Clopidogrel. An additional $2.0 million was paid to the CyDex shareholders upon acceptance by the FDA of Onyx’s NDA, $4.3 million was paid in January 2012 under the terms of the agreement, and an additional $3.5 million was paid upon approval by the FDA of Kyprolis for the potential treatment of patients with relapsed and refractory multiple myeloma. We recorded a cash payment of $0.1 million for the Topiramate orphan drug designation milestone to former license holders. We may be required to make additional payments upon achievement of certain clinical and regulatory milestones to the CyDex shareholders and former license holders. In addition, we will pay CyDex shareholders, for each respective year from 2014 through 2016, 20% of all CyDex-related revenue, but only to the extent that, and beginning only when, CyDex-related revenue for such year exceed $15.0 million; plus an additional 10% of all CyDex-related revenue recognized during such year, but only to the extent that, and beginning only when aggregate CyDex-related revenue for such year exceeds $35.0 million. We have paid $2.8 million to the CyDex shareholders for revenue sharing payments under the terms of the CVR agreement. The estimated fair value of the contingent liabilities recorded as part of the CyDex acquisition at June 30, 2014 was $10.4 million.

Leases and Off-Balance Sheet Arrangements

We lease our office and research facilities under operating lease arrangements with varying terms through November 2021. Some of our agreements provide for increases in annual rents based on changes in the Consumer Price Index or fixed percentage increases ranging from 3.0% to 3.5%. We also sublease a portion of our facilities through August 2016. The sublease agreement provides for a 3% increase in annual rents. We had no off-balance sheet arrangements at June 30, 2014 and December 31, 2013.

Contractual Obligations and Off-Balance Sheet Arrangements

As of June 30, 2014, future minimum payments due under our contractual obligations were as follows (in thousands):

 
Payments Due by Period
 
Total
 
Less than 1 year
 
2-3 years
 
4-5 years
 
More than 5
years
Obligations for uncertain tax positions (1)
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Co-promote termination obligations (2)
$
804

 
$
391

 
$
351

 
$
62

 
$
—

Purchase obligations (3)
$
8,495

 
$
8,495

 
$
—

 
$
—

 
$
—

Contingent liabilities (4)
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Note and interest payment obligations
$
2,354

 
$
2,354

 
$
—

 
$
—

 
$
—

Operating lease obligations (5)
$
11,812

 
$
5,564

 
$
4,747

 
$
1,501

 
$
—


(1)
Expected payments related to obligations for uncertain tax positions cannot be reasonably estimated.
(2)
Co-promote termination obligations represent our legal obligation as primary obligor to Organon due to the fact that Organon did not consent to the legal assignment of the co-promote termination obligation to Pfizer. The liability is offset by an asset which represents a non-interest bearing receivable for future payments to be made by Pfizer.
(3)
Purchase obligations represent our commitments under our supply agreement with Hovione, LLC for Captisol purchases.
(4)
Contingent liabilities to former shareholders and licenseholders are subjective and affected by changes in inputs to the valuation model including management’s assumptions regarding revenue volatility, probability of commercialization of products, estimates of timing and probability of achievement of certain revenue thresholds and developmental and regulatory milestones and affect amounts owed to former license holders and CVR holders. Only payments due as a result of achievement of revenue thresholds or development and regulatory milestones are included in the table above.
(5)
We lease office and research facilities that we have fully vacated under operating lease arrangements expiring in July 2015 and August 2016. We sublet portions of these facilities through the end of our lease. As of June 30, 2014, we expect to receive aggregate future minimum lease payments totaling $2.0 million (nondiscounted) over the duration of the sublease agreement (not included in the table above) as follows: less than one year: $1.4 million, and two to three years: $0.6 million.
    
We are also required under our CyDex CVR Agreement to invest at least $1.5 million per year, inclusive of employee expenses, in the acquired business through the year ended 2015. As of June 30, 2014, we estimate we will exceed that amount for the year ended December 31, 2014.


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Critical Accounting Policies

Certain of our policies require the application of management judgment in making estimates and assumptions that affect the amounts reported in the consolidated financial statements and disclosures made in the accompanying notes. Those estimates and assumptions are based on historical experience and various other factors deemed to be applicable and reasonable under the circumstances. The use of judgment in determining such estimates and assumptions is by nature, subject to a degree of uncertainty. Accordingly, actual results could differ materially from the estimates made. There have been no material changes in our accounting policies as disclosed in the Form 10-K.

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ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


At June 30, 2014, our investment portfolio included investments in available-for-sale equity securities of $7.5 million. These securities are subject to market risk and may decline in value based on market conditions.

We do not hold or issue derivatives, derivative commodity instruments or other financial instruments for speculative trading purposes. Further, we do not believe our cash and cash equivalents and restricted cash and investments have significant risk of default or illiquidity. We made this determination based on discussions with our investment advisors and a review of our holdings. While we believe our cash and cash equivalents and restricted cash and investments do not contain excessive risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value. All of our cash and cash equivalents and restricted cash and investments are held at fair value.

We purchase Captisol from Hovione, located in Lisbon, Portugal. Payments to Hovione are denominated and paid in U.S. dollars, however the unit price of Captisol contains an adjustment factor which is based on the sharing of foreign currency risk between the two parties. The effect of an immediate 10% change in foreign exchange rates would not have a material impact on our financial condition, results of operations or cash flows.
We are exposed to market risk involving rising interest rates. To the extent interest rates rise, our interest costs could increase. An increase in interest costs of 10% would not have a material impact on our financial condition, results of operations or cash flows.


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ITEM 4.
CONTROLS AND PROCEDURES

As of June 30, 2014, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon and as of the date of that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit pursuant to the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Our disclosure controls were designed to provide reasonable assurance that the controls and procedures would meet their objectives. Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable assurance of achieving the designed control objectives and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusions of two or more people, or by management override of the control. Because of the inherent limitations in a cost-effective, maturing control system, misstatements due to error or fraud may occur and not be detected.

There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter of the fiscal year to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (excluding additional controls implemented related to the consolidation of a VIE, Viking Therapeutics, Inc.).



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PART II.
OTHER INFORMATION

Item 1.
Legal Proceedings

From time to time we are subject to various lawsuits and claims with respect to matters arising out of the normal course of our business. Due to the uncertainty of the ultimate outcome of these matters, the impact on future financial results is not subject to reasonable estimates.

Securities Litigation
On June 8, 2012, a federal securities class action and shareholder derivative lawsuit was filed in the Eastern District of Pennsylvania against Genaera Corporation and its officers, directors, major shareholders and trustee ("Genaera Defendants") for allegedly breaching their fiduciary duties to Genaera shareholders.  The lawsuit also names us and our Chief Executive Officer John Higgins as additional defendants for allegedly aiding and abetting the Genaera Defendants' various breaches of fiduciary duties based on our purchase of a licensing interest in a development-stage pharmaceutical drug program from the Genaera Liquidating Trust in May 2010 and our subsequent sale of half of its interest in the transaction to Biotechnology Value Fund, Inc.
Following an amendment to the complaint and a round of motions to dismiss, the court dismissed the amended complaint with prejudice on August 12, 2013.  Plaintiff appealed that dismissal on September 10, 2013.  Briefing is now complete, and the parties are awaiting the scheduling of oral argument before the Third Circuit, which we anticipate will take place in the next few months.  We believe we are very likely to prevail on appeal, and, for that reason, we believe the litigation presents a remote likelihood of material loss.
 
Other Litigation
On June 19, 2014, a complaint seeking attorneys’ fees in connection with claims related to executive compensation matters described in our Company’s June 6, 2013 supplemental proxy materials was filed in California Superior Court.  Management believes the fees demanded by plaintiffs’ counsel are excessive and intends to defend itself vigorously in the litigation.  Due to the complex nature of the legal and factual issues involved, however, the outcome of this matter is not presently determinable.

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ITEM 1A.
RISK FACTORS

The following is a summary description of some of the many risks we face in our business. You should carefully review these risks in evaluating our business, including the businesses of our subsidiaries. You should also consider the other information described in this report.

Revenues based on Promacta and Kyprolis represent a substantial portion of our overall current and/or expected future revenues.

GSK is obligated to pay us royalties on its sales of Promacta and we receive revenue from Onyx based on both sales of Kyprolis and purchases of Captisol material for clinical and commercial uses. These payments are expected to be a substantial portion of our ongoing revenues for some time. As a result, any setback that may occur with respect to Promacta or Kyprolis could significantly impair our operating results and/or reduce the market price of our stock. Setbacks for Promacta and Kyprolis could include problems with shipping, distribution, manufacturing, product safety, marketing, government regulation or reimbursement, licenses and approvals, intellectual property rights, competition with existing or new products and physician or patient acceptance of the product, as well as higher than expected total rebates, returns or discounts.

Revenue from sales of Captisol material to our collaborative partners represents a significant portion of our current revenue and our continued development and supply of Captisol is subject to a number of risks.

In January 2011, we completed our merger with CyDex. All of CyDex's products and product candidates, as well as the technology that it outlicenses, are based on Captisol. As a result, any setback that may occur with respect to Captisol could significantly impair our operating results and/or reduce the market price of our stock. Setbacks for Captisol could include problems with shipping, distribution, manufacturing, product safety, marketing, government regulation or reimbursement, licenses and approvals, intellectual property rights, competition with existing or new products and physician or patient acceptance of the products using Captisol, as well as higher than expected total rebates, returns or discounts for such products.

If products or product candidates incorporating Captisol technology were to cause any unexpected adverse events, the perception of Captisol safety could be seriously harmed. If this were to occur, we may not be able to market Captisol products unless and until we are able to demonstrate that the adverse event was unrelated to Captisol, which we may not be able to do. Further, whether or not the adverse event was a result of Captisol, we could be required by the FDA to submit to additional regulatory reviews or approvals, including extensive safety testing or clinical testing of products using Captisol, which would be expensive and, even if we were to demonstrate that the adverse event was unrelated to Captisol, would delay our marketing of Captisol-enabled products and receipt of revenue related to those products, which could significantly impair our operating results and/or reduce the market price of our stock.

We obtain Captisol from a sole source supplier, and if this supplier were to cease to be able, for any reason, to supply Captisol to us in the amounts we require, or decline to supply Captisol to us, we would be required to seek an alternative source, which could potentially take a considerable length of time and impact our revenue and customer relationships.

We currently depend on our arrangements with our outlicensees to sell products using our Captisol technology. These agreements generally provide that outlicensees may terminate the agreements at will. If our outlicensees discontinue sales of products using our Captisol technology, fail to obtain regulatory approval for products using our Captisol technology, fail to satisfy their obligations under their agreements with us, or choose to utilize a generic form of Captisol should it become available, or if we are unable to establish new licensing and marketing relationships, our financial results and growth prospects would be materially affected. We maintain inventory of Captisol, which has a five year shelf life, at three geographically spread storage locations in the United States and Europe.  If we were to encounter problems maintaining our inventory, such as natural disasters, at one or all three of these locations, it could lead to supply interruptions. Further, under most of our Captisol outlicenses, the amount of royalties we receive will be reduced or will cease when the relevant patent expires. Our high purity patents, U.S. Patent Nos. 7,635,773 and 8,410,077 and foreign equivalents, are not expected to expire until 2029 and our morphology patents, U.S. Patent Nos. 7,629,331 and 8,049,003 and foreign equivalents, are not expected to expire until 2025, but the initially filed patents relating to Captisol expired starting in 2010 in the United States and will expire by 2016 in most countries outside the United States. If our other intellectual property rights are not sufficient to prevent a generic form of Captisol from coming to market and if in such case our outlicensees choose to terminate their agreements with us, our Captisol revenue may decrease significantly. 


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The product candidates of our partners and us face significant development and regulatory hurdles prior to partnering and/or marketing which could delay or prevent licensing, sales and/or milestone revenue.

Before we or our partners obtain the approvals necessary to sell any of our unpartnered assets or partnered programs, we must show through preclinical studies and human testing that each potential product is safe and effective. We and/or our partners have a number of partnered programs and unpartnered assets moving toward or currently awaiting regulatory action. Failure to show any product's safety and effectiveness could delay or prevent regulatory approval of a product and could adversely affect our business. The drug development and clinical trials process is complex and uncertain. For example, the results of preclinical studies and initial clinical trials may not necessarily predict the results from later large-scale clinical trials. In addition, clinical trials may not demonstrate a product's safety and effectiveness to the satisfaction of the regulatory authorities. A number of companies have suffered significant setbacks in advanced clinical trials or in seeking regulatory approvals, despite promising results in earlier trials. The FDA may also require additional clinical trials after regulatory approvals are received. Such additional trials may be expensive and time-consuming, and failure to successfully conduct those trials could jeopardize continued commercialization of a product.

The rates at which we complete our scientific studies and clinical trials depends on many factors, including, but are not limited to, our ability to obtain adequate supplies of the products to be tested and patient enrollment. Patient enrollment is a function of many factors, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial and other potential drug candidates being studied. Delays in patient enrollment for our trials may result in increased costs and longer development times. In addition, our collaborative partners have rights to control product development and clinical programs for products developed under our collaborations. As a result, these collaborative partners may conduct these programs more slowly or in a different manner than expected. Moreover, even if clinical trials are completed, we or our collaborative partners still may not apply for FDA approval in a timely manner or the FDA still may not grant approval.

We rely heavily on collaborative relationships, and any disputes or litigation with our collaborative partners or termination or breach of any of the related agreements could reduce the financial resources available to us, including milestone payments and future royalty revenues.

Our strategy for developing and commercializing many of our potential products, including products aimed at larger markets, includes entering into collaboration agreements with corporate partners and others. These agreements give our collaborative partners significant discretion when deciding whether or not to pursue any development program. Our existing collaborations may not continue or be successful, and we may be unable to enter into future collaborative arrangements to develop and commercialize our unpartnered assets.

In addition, our collaborators may develop drugs, either alone or with others that compete with the types of drugs they are developing with us (or that we are developing on our own). This would result in increased competition for our or our partners' programs. If products are approved for marketing under our collaborative programs, revenues we receive will depend on the manufacturing, marketing and sales efforts of our collaborative partners, who generally retain commercialization rights under the collaborative agreements. Generally, our current collaborative partners also have the right to terminate their collaborations at will or under specified circumstances. If any of our collaborative partners breach or terminate their agreements with us or otherwise fail to conduct their collaborative activities successfully (for example, by not making required payments when due, or at all), our product development under these agreements will be delayed or terminated. Disputes or litigation may also arise with our collaborators (with us and/or with one or more third parties), including those over ownership rights to intellectual property, know-how or technologies developed with our collaborators. Such disputes or litigation could adversely affect our rights to one or more of our product candidates. Any such dispute or litigation could delay, interrupt or terminate the collaborative research, development and commercialization of certain potential products, create uncertainty as to ownership rights of intellectual property, or could result in litigation or arbitration. The occurrence of any of these problems could be time-consuming and expensive and could adversely affect our business.


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Expirations of, challenges to or failure to secure patents and other proprietary rights may significantly hurt our business.

Any conflicts resulting from the patent rights of others could significantly reduce the coverage of our patents and limit our ability to obtain meaningful patent protection. We have had and will continue to have discussions with our current and potential collaborative partners regarding the scope and validity of our patents and other proprietary rights. If a collaborative partner or other party successfully establishes that our patent rights are invalid, we may not be able to continue our existing collaborations beyond their expiration. Any determination that our patent rights are invalid also could encourage our collaborative partners to seek early termination of our agreements. Such invalidation could adversely affect our ability to enter into new collaborations.

We may also need to initiate litigation, which could be time-consuming and expensive, to enforce our proprietary rights or to determine the scope and validity of others' rights. If this occurs, a court may find our patents or those of our licensors invalid or may find that we have infringed on a competitor's rights. In addition, if any of our competitors have filed patent applications in the United States which claim technology we also have invented, the United States Patent and Trademark Office may require us to participate in expensive interference proceedings to determine who has the right to a patent for the technology.

We also rely on unpatented trade secrets and know-how to protect and maintain our competitive position. We require our employees, consultants, collaborative partners and others to sign confidentiality agreements when they begin their relationship with us. These agreements may be breached, and we may not have adequate remedies for any breach. In addition, our competitors may independently discover our trade secrets.

Generally, our success will depend on our ability and the ability of us and our licensors to obtain and maintain patents and proprietary rights for our potential products both in the United States and in foreign countries. Patents may not be issued from any of these applications currently on file, or, if issued, may not provide sufficient protection. Our patent position, like that of many biotechnology and pharmaceutical companies, is uncertain and involves complex legal and technical questions for which important legal principles are unresolved. We may not develop or obtain rights to products or processes that are patentable. Even if we do obtain patents, such patents may not adequately protect the technology we own or have licensed. In addition, others may challenge, seek to invalidate, infringe or circumvent any patents we own or license and rights we receive under those patents may not provide competitive advantages to us. For example, our European patent related to Agglomerated forms of Captisol was limited during an opposition proceeding and could be challenged further on appeal, and the rejection of our European patent application related to High Purity Captisol is currently being appealed.

We have obtained patent protection in the United States through 2025 on one or more Agglomerated forms of Captisol and through 2029 on one or more High Purity forms of Captisol. We also have filed patent applications covering the Captisol product that if issued, would not be set to expire until 2033 (for example, our patent WO 2013/130666, filed Feb. 27, 2013, contains composition of matter and use claims). There is no guarantee that our patents will be sufficient to prevent competitors from creating a generic form of Captisol and competing against us, or from developing combination patents for products that will prevent us from developing products using those APIs. In addition, most of the agreements in our Captisol outlicensing business, provide that once the relevant patent expires, the amount of royalties we receive will be reduced or eliminated.

Our collaborative partners may change their strategy or the focus of their development and commercialization efforts with respect to our partnered programs, and the success of our partnered programs could be adversely affected.

If our collaborative partners terminate their collaborations with us or do not commit sufficient resources to the development, manufacture, marketing or distribution of our partnered programs, we could be required to devote additional resources to our partnered programs, seek new collaborative partners or abandon such partnered programs, all of which could have an adverse effect on our business.

Third party intellectual property may prevent us or our partners from developing our potential products and we may owe a portion of any payments we receive from our collaborative partners to one or more third parties.

Our success will depend on our ability and the ability of our collaborative partners to avoid infringing the proprietary rights of others, both in the United States and in foreign countries. In addition, disputes with licensors under our license agreements may arise which could result in additional financial liability or loss of important technology and potential products and related revenue, if any. Further, the manufacture, use or sale of our potential products or our collaborative partners' products or potential products may infringe the patent rights of others. This could impact Captisol, Promacta, Kyprolis, Avinza, Duavee, Viviant and Conbriza, Nexterone, and other products or potential products.

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Several drug companies and research and academic institutions have developed technologies, filed patent applications or received patents for technologies that may be related to our business. Others have filed patent applications and received patents that conflict with patents or patent applications we have licensed for our use, either by claiming the same methods or compounds or by claiming methods or compounds that could dominate those licensed to us. In addition, we may not be aware of all patents or patent applications that may impact our ability to make, use or sell any of our potential products. For example, U.S. patent applications may be kept confidential while pending in the United States Patent and Trademark Office and patent applications filed in foreign countries are often first published six months or more after filing.

Disputes with our collaborative partners could delay our ability and the ability of our collaborative partners to achieve milestones or our receipt of other payments. In addition, other possible disputes could delay, interrupt or terminate the research, development and commercialization of certain potential products being developed by either our collaborative partners or by us. The occurrence of any of the foregoing problems could be time-consuming and expensive and could adversely affect our business.

Third parties have not directly threatened an action or claim against us, although we do periodically receive other communications or have other conversations with the owners of other patents or other intellectual property. If others obtain patents with conflicting claims, we may be required to obtain licenses to those patents or to develop or obtain alternative technology. We may not be able to obtain any such licenses on acceptable terms, or at all. Any failure to obtain such licenses could delay or prevent us from pursuing the development or commercialization of our potential products.

In general, litigation claims can be expensive and time consuming to bring or defend against and could result in settlements or damages that could significantly impact our results of operations and financial condition. We cannot predict or determine the occurrence or outcome of these matters or reasonably estimate the amount or range of amounts of any fines or penalties that might result from a settlement or an adverse outcome. However, a settlement or an adverse outcome could have a material adverse effect on our financial position, liquidity and results of operations.

If we are unable to maintain the effectiveness of our internal controls, our financial results may not be accurately reported.

The Sarbanes-Oxley Act of 2002 requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. While we anticipate maintaining the integrity of our internal controls over financial reporting and all other aspects of Sarbanes-Oxley Act of 2002, we cannot be certain that a material weakness will not be identified when we test the effectiveness of our control systems in the future. The existence of one or more material weaknesses or significant deficiencies in our internal control over financial reporting could result in errors in our consolidated financial statements. Substantial costs and resources may be required to rectify any internal control deficiencies. If we fail to maintain the adequacy of our internal controls in accordance with applicable standards, we may be unable to conclude on an ongoing basis that we have effective internal controls over financial reporting. If we cannot produce reliable financial reports, our business and financial condition could be harmed, investors could lose confidence in our reported financial information, or the market price of our stock could decline significantly. In addition, our ability to obtain additional financing to operate and expand our business, or obtain additional financing on favorable terms, could be materially and adversely affected, which, in turn, could materially and adversely affect our business, our financial condition and the market value of our securities. Moreover, our reputation with customers, lenders, investors, securities analysts and others may be adversely affected.

We may undertake strategic acquisitions in the future and any difficulties from integrating such acquisitions could adversely affect our stock price, operating results and results of operations.

We may acquire companies, businesses and products that complement or augment our existing business. We may not be able to integrate any acquired business successfully or operate any acquired business profitably. Integrating any newly acquired business could be expensive and time-consuming. Integration efforts often take a significant amount of time, place a significant strain on managerial, operational and financial resources and could prove to be more difficult or expensive than we predict. The diversion of our management's attention and any delay or difficulties encountered in connection with any future acquisitions we may consummate could result in the disruption of our on-going business or inconsistencies in standards and controls that could negatively affect our ability to maintain third-party relationships. Moreover, we may need to raise additional funds through public or private debt or equity financing, or issue additional shares, to acquire any businesses or products, which may result in dilution for stockholders or the incurrence of indebtedness.

As part of our efforts to acquire companies, business or product candidates or to enter into other significant transactions, we conduct business, legal and financial due diligence with the goal of identifying and evaluating material risks involved in the

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transaction. Despite our efforts, we ultimately may be unsuccessful in ascertaining or evaluating all such risks and, as a result, might not realize the intended advantages of the transaction. If we fail to realize the expected benefits from acquisitions we may consummate in the future or have consummated in the past, whether as a result of unidentified risks, integration difficulties, regulatory setbacks, litigation with current or former employees and other events, our business, results of operations and financial condition could be adversely affected. If we acquire product candidates, we will also need to make certain assumptions about, among other things, development costs, the likelihood of receiving regulatory approval and the market for such product candidates. Our assumptions may prove to be incorrect, which could cause us to fail to realize the anticipated benefits of these transactions.

In addition, we will likely experience significant charges to earnings in connection with our efforts, if any, to consummate acquisitions. For transactions that are ultimately not consummated, these charges may include fees and expenses for investment bankers, attorneys, accountants and other advisors in connection with our efforts. Even if our efforts are successful, we may incur, as part of a transaction, substantial charges for closure costs associated with elimination of duplicate operations and facilities and acquired In-Process Research and Development, or IPR&D, charges. In either case, the incurrence of these charges could adversely affect our results of operations for particular quarterly or annual periods.

We may not be able to hire and/or retain key employees.

If we are unable to hire and/or retain key employees, we may not have sufficient resources to successfully manage our assets or our business, and we may not be able to perform our obligations under various contracts and commitments. Furthermore, there can be no assurance that we will be able to retain all of our key management and scientific personnel. If we fail to retain such key employees, it could materially and adversely affect our business, financial condition, results of operations or the market price of our stock.

Aggregate revenues based on sales of our other products may not meet expectations.

Revenues based on sales of Avinza, Duavee, Conbriza and Nexterone may not meet expectations. Any setback that may occur with respect to these products could impair our operating results and/or reduce the market price of our stock. Setbacks for these products could include problems with shipping, distribution, manufacturing, product safety, marketing, government regulation or reimbursement, licenses and approvals, intellectual property rights, competition with existing or new products and physician or patient acceptance of the product, as well as higher than expected total rebates, returns or discounts. These products also are or may become subject to generic competition. Any such setback could reduce our revenue.

If plaintiffs bring product liability lawsuits against us or our partners, we or our partners may incur substantial liabilities and may be required to limit commercialization of our approved products and product candidates, and we may be subject to other liabilities related to the sale of our prior commercial product lines.

As is common in our industry, our partners and we face an inherent risk of product liability as a result of the clinical testing of our product candidates in clinical trials and face an even greater risk for commercialized products. Although we are not currently a party to product liability litigation, if we are sued, we may be held liable if any product or product candidate we develop causes injury or is found otherwise unsuitable during product testing, manufacturing, marketing or sale. Regardless of merit or eventual outcome, liability claims may result in decreased demand for any product candidates or products that we may develop, injury to our reputation, discontinuation of clinical trials, costs to defend litigation, substantial monetary awards to clinical trial participants or patients, loss of revenue and the inability to commercialize any products that we develop. We have product liability insurance that covers our clinical trials up to a $5.0 million annual limit. If we are sued for any injury caused by our product candidates or any future products, our liability could exceed our total assets.

In addition, we have agreed to indemnify Eisai and King Pharmaceuticals (now a subsidiary of Pfizer), under certain circumstances pursuant to the asset purchase agreements we entered into in connection with the sale of our prior commercial product lines.  Some of our indemnification obligations still remain and our potential liability in certain circumstances is not limited to specific dollar amounts. We cannot predict the liabilities that may arise as a result of these matters. Any claims related to our indemnification obligations to Pfizer or Eisai could materially and adversely affect our financial condition. In addition, Pfizer assumed our obligation to make payments to Organon based on net sales of Avinza (the fair value of which was $0.8 million as of June 30, 2014).  We remain liable to Organon in the event Pfizer defaults on this obligation. Any requirement to pay a material amount to Organon could adversely affect our business and the price of our securities. The sale of our prior commercial product lines does not relieve us of exposure to product liability risks on products we sold prior to divesting these product lines. A successful product liability claim or series of claims brought against us may not be insured against and could result in payment of significant amounts of money and divert management's attention from our business.

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If our partners do not reach the market with our partnered programs before our competitors offer products for the same or similar uses, or if our partners are not effective in marketing our partnered programs, our revenues from product sales, if any, will be reduced.

We face intense competition in our development activities. Our competitors might succeed in obtaining regulatory approval for competitive products more rapidly than our partners can for our partnered programs. In addition, competitors might develop technologies and products that are less expensive and perceived to be safer or more effective than those being developed by us or our partners, which could impair our product development and render our technology obsolete.

If our business does not perform according to our expectations, we may not have sufficient resources to operate our business as currently contemplated.
    
We believe that our capital resources, including our currently available cash, cash equivalents, and short-term investments as well as our current and future royalty revenues will be adequate to fund our operations at their current levels at least for the next 12 months. However, changes may occur that would cause us to consume available capital resources before that time and we may need to complete additional equity or debt financings to fund our operations. Our inability to obtain additional financing could adversely affect our business. Financings may not be available at all or on terms favorable to us. In addition, these financings, if completed, may not meet our capital needs and could result in substantial dilution to our stockholders. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate one or more of our research or drug development programs. We may also be required to liquidate our business or file for bankruptcy protection. Alternatively, we may be forced to attempt to continue development by entering into arrangements with collaborative partners or others that require us to relinquish some or all of our rights to technologies or drug candidates that we would not otherwise relinquish.

Our ability to use our net operating losses, or NOLs, to offset taxes that would otherwise be due could be limited or lost entirely.

Our ability to use our NOLs to offset taxes that would otherwise be due is dependent upon our generation of future taxable income before the expiration dates of the NOLs, and we cannot predict with certainty whether we will be able to generate future taxable income. In addition, even if we generate taxable income, realization of our NOLs to offset taxes that would otherwise be due could be restricted by annual limitations on use of NOLs triggered by a past or future “ownership change” under Section 382 of the Internal Revenue Code and similar state provisions. An “ownership change” may occur when there is a 50% or greater change in total ownership of our company by one or more 5% shareholders within a three-year period. The loss of some or all of our NOLs could materially and adversely affect our business, financial condition and results of operations. In addition, California and certain states have suspended use of NOLs for certain taxable years, and other states may consider similar measures. As a result, we may incur higher state income tax expense in the future. Depending on our future tax position, continued suspension of our ability to use NOLs in states in which we are subject to income tax could have an adverse impact on our operating results and financial condition. The calculation of the amount of our net operating loss carryforwards may be changed as a result of a challenge by the IRS or other governmental authority or our learning of new information about the ownership of, and transactions in, our securities.

We use hazardous materials, which may expose us to significant liability.

In connection with our research and development activities, we handle hazardous materials, chemicals and various radioactive compounds. To properly dispose of these hazardous materials in compliance with environmental regulations, we are required to contract with third parties. We believe that we carry reasonably adequate insurance for toxic tort claims. However, we cannot eliminate the risk or predict the exposure of accidental contamination or injury from the handling and disposing of hazardous materials, whether by us or our third-party contractors. Any accident in the handling and disposing of hazardous materials may expose us to significant liability.


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Our shareholder rights plan, concentration of ownership and charter documents may hinder or prevent change of control transactions.

Our shareholder rights plan and provisions contained in our certificate of incorporation and bylaws may discourage transactions involving an actual or potential change in our ownership. In addition, our Board of Directors may issue shares of common or preferred stock without any further action by the stockholders. Our directors and Biotechnology Value Fund, L.P. and its affiliates, or BVF, collectively beneficially own a significant portion of our outstanding common stock. BVF can increase its ownership level up to 19.99% under the terms of an agreement we have with BVF, and BVF has agreed to vote the shares it owns above 15% of our outstanding common stock in accordance with our Board of Director's recommendations in the event that BVF exceeds a 15% ownership level. Such restrictions, circumstances and issuances may have the effect of delaying or preventing a change in our ownership. If changes in our ownership are discouraged, delayed or prevented, it would be more difficult for our current Board of Directors to be removed and replaced, even if you or our other stockholders believe that such actions are in the best interests of us and our stockholders.

Funding of our drug development programs may not result in future revenues.

Our drug development programs may require substantial additional capital to successfully complete, arising from costs to: conduct research, preclinical testing and human studies; establish pilot scale and commercial scale manufacturing processes and facilities; and establish and develop quality control, regulatory, marketing, sales and administrative capabilities to support these programs. While we expect to fund our research and development activities from cash generated from royalties and milestones from our partners in various past and future collaborations to the extent possible, if we are unable to do so, we may need to complete additional equity or debt financings or seek other external means of financing. These financings could depress our stock price. If additional funds are required to support our operations and we are unable to obtain them on terms favorable to us, we may be required to cease or reduce further development or commercialization of our products, to sell some or all of our technology or assets or to merge with another entity.

Our results of operations and liquidity needs could be materially negatively affected by market fluctuations and economic downturn.

Our results of operations could be materially negatively affected by economic conditions generally, both in the United States and elsewhere around the world. Continuing concerns over inflation, energy costs, geopolitical issues, the availability and cost of credit, and the U.S. financial markets have contributed to increased volatility and diminished expectations for the economy and the markets going forward. Domestic and international equity markets periodically experience heightened volatility and turmoil. These events may have an adverse effect on us. In the event of a market downturn, our results of operations could be adversely affected by those factors in many ways, including making it more difficult for us to raise funds if necessary, and our stock price may further decline. We cannot provide assurance that our investments are not subject to adverse changes in market value. If our investments experience adverse changes in market value, we may have less capital to fund our operations.

Our stock price has been volatile and could experience a sudden decline in value.

The market prices for securities of biotechnology and pharmaceutical companies have historically been highly volatile, and the market has recently experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. Continued volatility in the overall capital markets could reduce the market price of our common stock in spite of our operating performance. Further, high stock price volatility could result in higher stock-based compensation expense.

Our common stock has experienced significant price and volume fluctuations and may continue to experience volatility in the future. Many factors may have a significant impact on the market price of our common stock, including, but not limited to, the following factors: results of or delays in our preclinical studies and clinical trials; the success of our collaboration agreements; publicity regarding actual or potential medical results relating to products under development by us or others; announcements of technological innovations or new commercial products by us or others; developments in patent or other proprietary rights by us or others; comments or opinions by securities analysts or major stockholders; future sales of our common stock by existing stockholders; regulatory developments or changes in regulatory guidance; litigation or threats of litigation; economic and other external factors or other disaster or crises; the departure of any of our officers, directors or key employees; period-to-period fluctuations in financial results; and price and volume fluctuations in the overall stock market.


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Impairment charges pertaining to goodwill, identifiable intangible assets or other long-lived assets from our mergers and acquisitions could have an adverse impact on our results of operations and the market value of our common stock.

The total purchase price pertaining to our acquisitions in recent years of Pharmacopeia, Neurogen, Metabasis and CyDex have been allocated to net tangible assets, identifiable intangible assets, in-process research and development and goodwill. To the extent the value of goodwill or identifiable intangible assets or other long-lived assets become impaired, we will be required to incur material charges relating to the impairment. Any impairment charges could have a material adverse impact on our results of operations and the market value of our common stock.

The occurrence of a catastrophic disaster could damage our facilities beyond insurance limits or we could lose key data which could cause us to curtail or cease operations.

We are vulnerable to damage and/or loss of vital data from natural disasters, such as earthquakes, tornadoes, power loss, fire, floods and similar events, as well as from accidental loss or destruction. If any disaster were to occur, our ability to operate our business could be seriously impaired. We have property, liability, and business interruption insurance which may not be adequate 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, financial condition and prospects.


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ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.
DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.
MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.
OTHER INFORMATION

None.

ITEM 6.
EXHIBITS

The Exhibit Index to this Quarterly Report on Form 10-Q is incorporated herein by reference.


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SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date:
August 5, 2014
 
By:
/s/ Nishan de Silva
 
 
 
 
Nishan de Silva
 
 
 
 
Vice President, Finance and Strategy and Chief Financial Officer
 
 
 
 
Duly Authorized Officer and Principal Financial Officer


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EXHIBIT INDEX

Exhibit Number
Description
 
 
10.1†
Loan and Security Agreement, dated May 21, 2014 between the Company and Viking Therapeutics, Inc.
10.2†
Master License Agreement, dated May 21, 2014 between the Company, Metabasis Therapeutics, Inc. and Viking Therapeutics, Inc.
10.3†
Research and License Agreement, dated May 9, 2014 between the Company and Omthera Pharmaceuticals, Inc.
10.4†
License Agreement, dated June 23, 2014 between the Company and TG Therapeutics, Inc.
31.1
Certification by Principal Executive Officer, Pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification by Principal Financial Officer, Pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification by Principal Executive Officer, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification by Principal Financial Officer, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document

† Confidential treatment has been requested for portions of this exhibit. These portions have been omitted and submitted separately to the Securities and Exchange Commission.


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Ligand-Viking-LoanandSecurityAgreement
CERTAIN MATERIAL (INDICATED BY AN ASTERISK) HAS BEEN OMITTED FROM THIS DOCUMENT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Exhibit 10.1
EXECUTION VERSION

LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT dated as of May 21, 2014 (“Agreement”), made by and between VIKING THERAPEUTICS, INC., a Delaware corporation (“Borrower”), and LIGAND PHARMACEUTICALS INCORPORATED, a Delaware corporation (“Lender”), provides the terms on which the Lender shall lend to Borrower and Borrower shall repay the Lender.
1.Defined Terms. As used in this Agreement, unless otherwise defined, the capitalized terms shall have the meanings set forth in Schedule A.
2.    Loans and Terms of Payment and/or Conversion.
(a)    Promise to Pay. Borrower hereby unconditionally promises to pay Lender the outstanding principal amount of all Loans advanced to Borrower by Lender and accrued and unpaid interest thereon and any other amounts due hereunder as and when due in accordance with this Agreement.
(b)    Loans. Subject to the terms and conditions of this Agreement, the Lender agrees to make loans to Borrower in an aggregate amount of Two Million Five Hundred Thousand Dollars ($2,500,000.00) (such loans are hereinafter referred to singly as a “Loan”, and collectively as the “Loans”). After repayment by Borrower, no Loan may be reborrowed.
(c)    Conversion of Loans; Prepayment.
(i)    Upon the consummation of the earlier to occur of a Qualified Private Financing or an Initial Public Offering (the first to occur, an “Equity Financing”), the Lender shall, at its sole option and discretion, elect to either, in an irrevocable writing delivered to Borrower, (a) receive that number of fully paid and nonassessable shares of Borrower Equity as is equal to 200% of the quotient obtained by dividing the entire principal amount of the Loans then outstanding plus all accrued and previously unpaid interest thereon by the lowest per share price paid by investors in the Equity Financing, rounded down to the nearest whole share (the “Conversion Shares”), or (b) require the Borrower to prepay the entire then outstanding principal amount of the Loans plus all accrued and previously unpaid interest thereon in cash equal to an amount that shall equal 200% of the principal amount of the Loans then outstanding plus all accrued and previously unpaid interest thereon (“Prepayment”); provided, however, if the first to occur Equity Financing is a Qualified Private Financing, the Lender may also elect to extend the Maturity Date, at its sole option and discretion, to a date to be agreed upon by Borrower and Lender in writing.
(ii)    Upon the occurrence of a Change of Control prior to the earlier of the occurrence of either (a) the Maturity Date or (b) the closing of the Equity Financing, the Lender shall, at its sole option and discretion, elect to either, in an irrevocable writing delivered to Borrower, (I) receive that number of fully paid and nonassessable shares of the Borrower’s securities, as is equal to 200% of the quotient obtained by dividing the entire principal amount of the Loans then outstanding plus all accrued and previously unpaid interest thereon by the lower of (A) the deemed Common Stock per share price used to calculate the purchase price paid by the acquirer of Borrower in such Change of Control or (B) the lowest per share price paid by investors for shares of New




Preferred prior to the Change of Control (if New Preferred has been issued prior to the Change of Control), in each case rounded down to the nearest whole share, or (II) require the Borrower to make the Prepayment. The Borrower’s securities to be issued in connection with a Change of Control shall be New Preferred (if New Preferred has been issued prior to the Change of Control) or Common Stock, par value $0.00001 per share, of the Borrower (“Common Stock”) (if no New Preferred has been issued prior to the occurrence of the Change of Control) (“Change of Control Securities”).
(d)    Mechanics of Conversion.
(i)    Notice to Lender. The Borrower shall promptly, but in all events at least [***] days prior to consummation of an Equity Financing or [***] days prior to the consummation of a Change of Control, as applicable, deliver to the Lender written notification of the proposed consummation of an Equity Financing or a Change of Control, as applicable, which notice shall describe the material terms and conditions of such Equity Financing or Change of Control (“Notice of Transaction”), and the Lender shall have [***] days from the date of such notice to elect, by written notice to the Borrower, to convert the Loans or require the Prepayment, which election shall be irrevocable and may be made contingent on the closing of the Equity Financing or Change of Control, as applicable. The Borrower shall include in the Notice of Transaction the number of voting securities of the Borrower anticipated to be issued and outstanding following the consummation of the Equity Financing or immediately prior to the Change of Control.
(ii)    Stock Certificates. The Borrower shall, as soon as practicable following consummation of an Equity Financing or Change of Control for which Lender has elected to convert the Loans as permitted hereunder, issue and deliver to the Lender, or to its nominee or nominees, a certificate or certificates for the number of shares of Borrower Securities to which it shall be entitled as aforesaid. Such conversion shall be deemed to have been made, as applicable, immediately prior to the close of business on the date of the closing of the Equity Financing or the Change of Control, as applicable. The person or persons entitled to receive the Borrower Securities issuable upon such conversion shall be treated for all purposes as the record holders of such Borrower Securities on such date.
(iii)    Registration of Borrower Securities Issued Hereunder. Concurrently with the execution of this Agreement, Borrower and Lender and an Affiliate of Lender are entering into a Registration Rights Agreement, dated as of even date herewith.
(iv)    Charges, Taxes and Expenses. Issuance of a certificate for shares of Borrower Securities upon conversion of the Loans shall be made without charge to the Lender for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Borrower, and such certificate shall be issued in the name of the Lender, or such certificates shall be issued in such name or names as may be directed by the Lender. The Lender shall execute such documents, and perform such acts, which are reasonably required to assure that the conversion hereof is consummated in compliance with all applicable laws.

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(v)    No Rights as Stockholder. The conversion rights set forth in this Agreement do not entitle the Lender to any voting rights or other rights as a stockholder of the Borrower prior to the conversion of the Loans into Borrower Securities pursuant to the terms of this Agreement.
(vi)    Restricted Securities. The Lender acknowledges that the Borrower Securities acquired upon the conversion of the Loan will be subject to restrictions upon resale imposed by state and federal securities laws and may be subject to transfer restrictions set forth in the Borrower’s bylaws or in one or more agreements that may be entered into by and among the Borrower, the Lender and the holders of the Borrower Securities.
(e)    Repayment. The Loan will automatically mature and the entire outstanding principal amount, together with accrued interest, shall become due and payable upon written demand by the Lender, which demand may be made at any time after the Maturity Date, unless, prior to such time, the Loan shall have been converted into Borrower’s Equity pursuant to Section 2(c). The Loan may only be prepaid in accordance with Section 2.
(f)    Interest Rate; Default Rate. Subject to this Section 2(f), the principal amount outstanding under the Loans shall accrue interest at a fixed per annum rate of the lesser of (a) five percent (5.0%) and (b) the maximum interest rate permitted by law, which interest shall accrue on each Loan commencing on, and including, the funding date of such Loan (the “Funding Date”), and shall accrue on the principal amount outstanding under such Loan through and including the day on which such Loan is paid (or converted into Borrower Securities) in full. Interest shall be computed on the basis of a three hundred sixty (360) day year consisting of twelve (12) months of thirty (30) days. Upon the occurrence and during the continuance of an Event of Default and upon written notice to the Borrower from the Lender, Obligations shall accrue interest at a fixed per annum rate of the lesser of (a) eight percent (8%) and (b) the maximum interest rate permitted by law (the “Default Rate”). Payment or acceptance of the increased interest rate provided in this Section 2(f) is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Borrower.
(g)    Cash Payments. Except as otherwise expressly provided herein, all cash payments by Borrower under this Agreement or under any other Loan Document, including payments of principal and interest, and all fees, expenses, indemnities and reimbursements, shall be made to the Lender at Lender’s office in immediately available funds on the date specified herein. All cash payments to be made by Borrower hereunder or under any other Loan Document, including payments of principal and interest, and all fees, expenses, indemnities and reimbursements, shall be made without set off, recoupment or counterclaim, in lawful money of the United States and in immediately available funds.
(h)    Withholding. Payments received by the Lender from Borrower hereunder will be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any governmental authority (including any interest, additions to tax or penalties applicable thereto), except as required by law.

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3.    Secured Promissory Note. The Loans shall be evidenced by a Secured Convertible Promissory Note in the form attached as Exhibit A hereto (a “Secured Promissory Note”), and shall be repayable or converted into Borrower Securities as set forth in this Agreement. Borrower irrevocably authorizes the Lender to make or cause to be made, on or about the Funding Date or at the time of receipt of any payment of principal, an appropriate notation on the Secured Promissory Note Record reflecting the making of such Loan or (as the case may be) the receipt of such payment. The outstanding amount of each Loan set forth on the Secured Promissory Note Record shall be prima facie evidence of the principal amount thereof owing and unpaid to the Lender (absent manifest error), but the failure to record, or any error in so recording (other than manifest error), any such amount on the Secured Promissory Note Record shall not limit or otherwise affect the obligations of Borrower under the Secured Promissory Note or any other Loan Document to make payments of principal of or interest on any Secured Promissory Note when due. Upon receipt of an affidavit of an officer of a Lender and a customary indemnification agreement, in a form reasonably acceptable to Borrower, as to the loss, theft, destruction, or mutilation of its Secured Promissory Note, Borrower shall issue, in lieu thereof, a replacement Secured Promissory Note in the same principal amount thereof and of like tenor.
4.    Conditions Precedent to Loan.
(a)    Lender’s obligation to make the initial Loan is subject to the condition precedent that the Lender shall have received, in form and substance reasonably satisfactory to Lender, such documents and evidence of completion of such other matters, as Lender may reasonably deem necessary in connection herewith, including, without limitation:
(iii)    Borrower’s Certificate of Incorporation and Bylaws and good standing certificates certified by the Secretary of State (or equivalent agency) of Borrower’s jurisdiction of organization or formation and each jurisdiction in which Borrower is qualified to conduct business, each as of a date no earlier than thirty (30) days prior to the Effective Date;
(iv)    a completed Perfection Certificate for Borrower (the “Initial Perfection Certificate”);
(v)    duly executed officer’s certificate for Borrower, in a form reasonably acceptable to the Lender;
(vi)    certified copies, dated as of date no earlier than thirty (30) days prior to the Effective Date, of financing statement searches, as the Lender shall reasonably request, accompanied by written evidence (including any UCC termination statements) that the Liens indicated in any such financing statements either constitute Permitted Liens or have been or, in connection with the initial Loan, will be terminated or released;
(vii)    a bailee waiver executed in favor of the Lender in respect of each third party bailee where Borrower maintains Collateral having a book value in excess of [***]; and

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(viii)    evidence reasonably satisfactory to the Lender that the insurance policies required under this Agreement are in full force and effect, together with appropriate evidence showing loss payable clauses or endorsements in favor of the Lender.
(b)    Lender’s obligation to make any Loan hereunder is subject to satisfaction of the following conditions precedent:
(vii)    the representations and warranties in Section 8 shall be true, accurate and complete in all material respects on the Funding Date of each Loan; provided, however, that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date;
(viii)    no Event of Default shall have occurred and be continuing or result from the Loan;
(ix)    in Lender’s sole discretion, there has not been any Material Adverse Effect or any material adverse deviation by Borrower from the Borrower Forecast and Budget presented to and accepted by the Lender;
(x)    a completed Perfection Certificate for Borrower, updated from the most recent Perfection Certificate delivered pursuant to this Section 4, dated as of the Funding Date of each Loan;
(xi)    duly executed officer’s certificate for Borrower dated as of the Funding Date of each Loan, in a form reasonably acceptable to the Lender;
(xii)    a bailee waiver executed in favor of the Lender in respect of each third party bailee which has not previously delivered such a waiver and where Borrower maintains Collateral having a book value in excess of [***]; and
(xiii)    evidence reasonably satisfactory to the Lender that the insurance policies required under this Agreement are in full force and effect, together with appropriate evidence showing loss payable clauses or endorsements in favor of the Lender.
5.    Covenant to Deliver. Borrower agrees to deliver to the Lender each item required to be delivered to the Lender under this Agreement as a condition precedent to any Loan. Borrower expressly agrees that a Loan made prior to the receipt by the Lender of any such item shall not constitute a waiver the Lender of Borrower’s obligation to deliver such item, and any such Loan in the absence of a required item shall be made in the Lender’s sole discretion.
6.    Procedures for Borrowing. Subject to the prior satisfaction of all applicable conditions to the making of a Loan set forth in this Agreement, (a) within three (3) Business Days of the date of this Agreement, Lender shall transfer One Million Dollars ($1,000,000), by wire transfer in immediately available funds, to an account previously designated in writing by Borrower (the date such Loan is received by Borrower, the “Effective Date”); and (b) on the first day of each calendar month beginning with June 2014, Lender shall transfer Two Hundred Fifty Thousand

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Dollars ($250,000), by wire transfer in immediately available funds, to an account previously designated in writing by Borrower. If the day on which a transfer is to be made under this Section 6 is not a Business Day, Lender shall make the transfer on the next Business Day.
7.    Grant of Security Interest.
(a)    As collateral security for the full, prompt, complete and final payment and performance when due (whether at stated maturity, by acceleration or otherwise) of all the Obligations and in order to induce Lender to cause the Loans to be made, the Borrower hereby grants to the Lender a continuing security interest in all of the Borrower’s right, title and interest of whatsoever kind and nature in and to the Collateral (the “Security Interest”), wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof. Borrower represents, warrants, and covenants that the security interest granted herein is and shall at all times continue to be a first priority perfected security interest in the Collateral, subject only to Permitted Liens.
(b)    If this Agreement is terminated, Lender’s Liens in the Collateral shall continue until the Obligations (other than inchoate indemnity obligations) are repaid in full in cash or converted in full into Borrower Securities. Upon payment in full (in cash or conversion into Borrower Securities) of the Obligations (other than inchoate indemnity obligations) and at such time as the Lender’s obligation to make Loans has terminated, the Lender’s Liens in the Collateral shall automatically terminate and all rights therein shall revert to Borrower and the Lender shall, at the sole cost and expense of Borrower, execute and deliver to Borrower releases of its Liens in the Collateral.
(c)    Borrower hereby authorizes Lender to file financing statements or take any other action required to perfect the Security Interest, without notice to Borrower, within all appropriate jurisdictions to perfect or protect Lender’s interest or rights under this Agreement.
8.    Representations and Warranties of the Borrower. The Borrower represents and warrants to the Lender as follows as of the Effective Date and as of each Funding Date:
(a)    The Borrower has the requisite corporate power and authority to enter into this Agreement and otherwise to carry out its obligations hereunder. The execution, delivery and performance by the Borrower of this Agreement and the filings contemplated herein have been duly authorized by all necessary action on the part of the Borrower and no further action is required by the Borrower. This Agreement constitutes a legal, valid and binding obligation of the Borrower enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditor’s rights generally.
(b)    The chief place of business, the chief executive office, other locations of Borrower and each office or location where Borrower keeps the Collateral and records relating thereto are located at the addresses set forth on Schedule 8(b); its type of organization (e.g., corporation), jurisdiction of organization and organization number provided by the applicable

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government authority of its jurisdiction of organization are listed on Schedule 8(b). The Borrower has no subsidiaries.
(c)    The full legal name of the Borrower is as set forth on the signature page hereof. The Borrower has not done in the five (5) years prior to the Effective Date, and does not do, business under any other name (including, without limitation, any trade name or fictitious business name) other than names identified to the Lender in the Perfection Certificate or otherwise pursuant to Section 11(d).
(d)    Except for Permitted Liens, the Borrower is the sole owner of the Collateral (except for exclusive, semi-exclusive and non-exclusive licenses granted by a Borrower in the ordinary course of business which licenses existing as of the date hereof are identified on Schedule 8(d)), free and clear of any Liens, and is fully authorized to grant the Security Interest in and to pledge the Collateral. No security agreement, financing statement, assignment, equivalent security, lien or other instrument similar in effect covering all or any part of the Collateral is on file in any filing or recording office other than those relating to Permitted Liens.
(e)    This Agreement creates in favor of the Lender a valid continuing lien on and security interest in the Collateral securing the payment and performance of the Obligations and, upon making the filings described in the immediately following sentence, a perfected first priority security interest in such Collateral. Except for the filing of financing statements on Form-1 under the UCC with the Secretary of State of the State of Delaware and any required filings with the United States Patent and Trademark Office or the United States Copyright Office, no authorization or approval of or filing with or notice to any governmental authority or regulatory body or any other Person is required either (i) for the grant by a Borrower of, or the effectiveness of, the Security Interest granted hereby or for the execution, delivery and performance of this Agreement by the Borrower or (ii) for the perfection of or exercise by Lender of its rights in and remedies with respect to the Collateral.
(f)    All Equipment that is material to the operation of the business of Borrower and that is in the possession of a third party bailee is set forth on Schedule 8(f), and such schedule sets forth the location of the listed Equipment.
(g)    Schedule 8(g) sets forth a true and complete list of (i) all United States, state and foreign registrations of and applications for Patents, Trademarks, and Copyrights owned by or, in the case of Copyrights, exclusively licensed to, the Borrower and (ii) all Patent Licenses, Trademark Licenses, Trade Secret Licenses and Copyright Licenses relating to any of Borrower’s assets.
(h)    Borrower is Solvent.
(i)    The Borrower Securities, when issued, sold and delivered in accordance with the terms and for the consideration expressed in this Agreement, shall be duly and validly issued (including, without limitation, issued in compliance with applicable federal and state securities laws), and neither the Borrower nor the holder thereof shall be subject to any preemptive or similar

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right with respect to the Borrower Securities, which have not been properly waived or complied with.
(j)    The Borrower is not in default under any material contract, lease, agreement, judgment, decree or order to which it is a party or by which it or its properties may be bound that would reasonably be expected to have a Material Adverse Effect.
(k)    There are no pending actions or proceedings or, to the best of the Borrower’s knowledge, threatened against or affecting the Borrower or its properties before any governmental agency or authority or arbitrator that if determined adversely to the Borrower would reasonably be expected to have a Material Adverse Effect.
(l)    Other than Indebtedness secured by or incurred in connection with Permitted Liens or as set forth on Schedule 8(l), as of the date hereof, the Borrower does not have any Indebtedness in excess of [***]. Schedule 8(l) sets forth a true and complete list of all Indebtedness outstanding.
(m)    The Borrower possesses all permits, franchises, and governmental licenses (the “Permits”), free from burdensome restrictions, that are necessary for the ownership, maintenance and operation of its business as currently conducted and the Borrower is not in violation of any of the foregoing, except where the failure to have any such Permits or the violation of such Permit would not reasonably be expected to have a Material Adverse Effect.
(n)    The properties of the Borrower are insured, with financially sound and reputable insurance companies, in such amounts, with such deductibles and covering such risks as, in the good faith belief of the Borrower, are customarily appropriate for companies engaged in similar businesses and owning similar properties in the localities where the Borrower operates.
9.    Reporting Covenants. So long as any of the Obligations shall remain unpaid or outstanding, Borrower agrees that:
(a)    Books and Records. Borrower shall maintain, at all times, correct and complete books, records and accounts in which complete, correct and timely entries are made of its transactions in accordance with GAAP applied consistently with Borrower’s financial statements required to be delivered pursuant to Section 9(b). Borrower shall, by means of appropriate entries, reflect in such accounts and in all financial statements proper liabilities and reserves for all taxes and proper provision for depreciation and amortization of property and bad debts, all in accordance with GAAP. Borrower shall maintain at all times books and records pertaining to its assets and to the Collateral in such detail, form and scope as Lender shall reasonably request in writing, including, but not limited to, records of all dealings materially affecting the Collateral on an aggregate basis.
(b)    Financial Statements and Other Reports. Borrower shall promptly furnish to Lender the following financial information:
(i)    Monthly Reports. As soon as available, but in any event not later than [***] days after the end of the first two calendar months in each calendar quarter and not later

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than [***] days after the end of the third calendar month in each calendar quarter, Borrower will furnish to Lender the unaudited balance sheet of Borrower as at the end of such month, and unaudited income statements and cash flow statements for Borrower for such month and for the period from the beginning of the Fiscal Year to the end of such month, all in reasonable detail, fairly presenting the financial position and results of operations of Borrower as of the date thereof and for such periods, and prepared in accordance with GAAP (other than the exclusion of footnotes not ordinarily included in interim period financial statements) applied consistently with the audited financial statements required to be delivered pursuant to Section 9(b)(iii). Borrower shall certify by a certificate signed by its Responsible Officer that all such statements have been prepared in accordance with GAAP (other than the exclusion of footnotes not ordinarily included in interim period financial statements) and present fairly Borrower’s financial position as at the dates thereof and its results of operations for the periods then ended, subject to normal year-end adjustments.
(ii)    Quarterly Reports. As soon as available, but in any event not later than [***] days after the end of each fiscal quarter, Borrower will furnish to Lender the unaudited balance sheet of Borrower as at the end of such quarter, and unaudited income statements and cash flow statements for Borrower for such quarter and for the period from the beginning of the Fiscal Year to the end of such quarter, all in reasonable detail, fairly presenting the financial position and results of operations of Borrower as of the date thereof and for such periods, and prepared in accordance with GAAP (other than the exclusion of footnotes not ordinarily included in interim period financial statements) applied consistently with the audited financial statements required to be delivered pursuant to Section 9(b)(iii). Borrower shall certify by a certificate signed by its Responsible Officer that all such statements have been prepared in accordance with GAAP (other than the exclusion of footnotes not ordinarily included in interim period financial statements) and present fairly Borrower’s financial position as at the dates thereof and its results of operations for the periods then ended, subject to normal year-end adjustments.
(iii)    Annual Reports. As soon as available, but in any event not later than [***] days after the close of each Fiscal Year, Borrower will furnish to Lender the unaudited balance sheet as at the end of such Fiscal Year, and unaudited income statements and cash flow statements for Borrower for such Fiscal Year, and the notes thereto, setting forth in each case, starting with the financial statements for the fiscal year ending December 31, 2014, in comparative form figures for the previous Fiscal Year, all in reasonable detail, fairly presenting the financial position and the results of operations of Borrower as at the date thereof and for the Fiscal Year then ended, and prepared in accordance with GAAP (other than the exclusion of footnotes not ordinarily included in interim period financial statements). In addition, as soon as available, but in any event not later than (A) if the Borrower has not consummated an Initial Public Offering, [***] days after the close of each Fiscal Year or (B) if the Borrower has consummated an Initial Public Offering, [***] days after the close of each Fiscal Year, Borrower will furnish to Lender the audited balance sheet as at the end of such Fiscal Year, and income statements, cash flow statements and changes in stockholders’ equity for Borrower for such Fiscal Year, and the notes thereto, setting forth in each case, starting with the financial statements for the fiscal year ending December 31, 2014, in comparative form figures for the previous Fiscal Year, all in reasonable detail, fairly presenting the financial position and the results of operations of Borrower as at the date thereof and for the Fiscal Year then ended, and prepared in accordance with GAAP. The audited annual statements shall be

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examined in accordance with generally accepted auditing standards by and, accompanied by a report thereon of independent certified public accountants of recognized standing selected by Borrower.
(c)    Rolling Monthly Forecast and Budget. Prior to the Effective Date, Borrower has provided to Lender a forecast and budget for Borrower’s operations for the six (6) months following the anticipated effective date of this Agreement, which sets out Borrower’s good faith estimates of its income and expenses on a monthly basis and by project as approved by Borrower’s board of directors. The Parties acknowledge that the form of the forecast and budget to be provided to Lender following the Effective Date is attached hereto as Schedule 9(c) (“Borrower Forecast and Budget”). Prior to the first day of each calendar month thereafter (beginning on June 1, 2014), Borrower shall provide to Lender an updated Borrower Forecast and Budget as approved by Borrower’s board of directors for the six-(6)-month period following the delivery of such Borrower Forecast and Budget.
(d)    Additional Information. Borrower will furnish to Lender:
(i)    promptly, and in no event more than ten (10) days after a Responsible Officer has knowledge or becomes aware thereof, notice of the occurrence of any Event of Default;
(ii)    promptly, and in no event more than ten (10) days after a Responsible Officer has knowledge or becomes aware thereof, written notice of all actions, suits and proceedings before any governmental agency or authority or arbitrator pending, or to the best of Borrower’s knowledge, threatened against or affecting Borrower, including any actions, suits, claims, notices of violation, hearings, investigations or proceedings pending, or to the best of Borrower’s knowledge, threatened against or affecting Borrower, or with respect to the ownership, use, maintenance and operation of its properties, that (A) involve an aggregate liability of [***] or more, or (B) otherwise would reasonably be expected to have a Material Adverse Effect;
(iii)    promptly, and in no event more than ten (10) days after a Responsible Officer has knowledge or becomes aware thereof, written notice of any other condition or event that has resulted, or that would reasonably be expected to result, in a Material Adverse Effect;
(iv)    promptly, and in no event more than ten (10) days, after the giving, sending or filing thereof, copies of all reports and financial information, if any, that Borrower sends to the holders of its capital stock or other securities, and the holders, if any, of any other Indebtedness; and
(v)    such other information respecting the operations, properties, business or financial condition of Borrower (including with respect to the Collateral) as Lender may from time to time reasonably request.
(vi)    Each notice pursuant to clauses (i) through (iii) of this subsection (d) shall be accompanied by a written statement by a Responsible Officer setting forth a reasonable amount of details of the occurrence referred to therein.

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10.    Affirmative Covenants. So long as any of the Obligations shall remain unpaid or outstanding, Borrower agrees that:
(a)    Preservation of Existence, Etc.
(iv)    Borrower will maintain and preserve its corporate existence.
(v)    Borrower will use commercially reasonable efforts to maintain and preserve its rights to transact business and all other rights, Permits and privileges necessary in the normal course of its business and operations and the ownership of its properties, except in connection with any transactions expressly permitted by this Agreement, or where the failure to so maintain or preserve such rights, Permits and privileges would not reasonably be expected to have a Material Adverse Effect.
(b)    Payment of Taxes, Etc. Borrower will use commercially reasonable efforts to pay and discharge all material taxes, fees, assessments and governmental charges or levies imposed upon it or upon its properties or assets prior to the date on which penalties attach thereto, and all lawful material claims for labor, materials and supplies which, if unpaid, might become a Lien upon any properties or assets of Borrower, except to the extent such taxes, fees, assessments or governmental charges or levies, or such claims, are being contested in good faith by appropriate proceedings and are adequately reserved against in accordance with GAAP.
(c)    Maintenance of Insurance. Borrower will use commercially reasonable efforts to carry and maintain in full force and effect, at its own expense and with financially sound and reputable insurance companies, insurance in such amounts, with such deductibles and covering such risks as, in the good faith belief of Borrower, is customarily appropriate for companies engaged in similar businesses and owning similar properties in the localities where Borrower operates. Insurance on the Collateral shall name Lender as a loss payee. Upon the request of Lender, Borrower shall furnish Lender from time to time with full information as to the insurance carried by it and, if so reasonably requested, copies of all such insurance policies. Borrower shall also furnish to Lender, from time to time upon its reasonable request, a certificate of Borrower’s insurance broker or other insurance specialist stating that all premiums then due on the policies relating to Borrower’s insurance have been paid and that such policies are in full force and effect.
(d)    Inspection Rights. Borrower will, at any reasonable time and from time to time upon reasonable prior notice, during normal business hours and subject to Borrower’s reasonable security measures, permit Lender or any of its agents or representatives to visit and inspect any of its properties and to examine the records and books of account of Borrower, and to discuss the business affairs, finances and accounts of Borrower with any of the officers, employees or accountants of Borrower; provided that Lender and its agents and representatives shall hold confidential all such information related to Borrower or any other matters related thereto (other than as is required of Lender for the preparation of its financial statements in accordance with GAAP or as is required pursuant to securities laws applicable to Lender); provided, further, that unless an Event of Default exists, none of Lender or any of its agents or representatives may exercise the rights set forth in this Section 10(d) more than twice per calendar year.

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(e)    Compliance with Laws, Etc. Borrower will comply in all material respects with the requirements of all applicable laws, rules, regulations and orders of any governmental agency or authority and the terms of any material indenture, contract or other instrument to which it may be a party or under which it or its properties may be bound. Borrower will use commercially reasonable efforts to obtain and maintain all licenses, authorizations, consents, filings, exemptions, registrations and other governmental approvals of any governmental agency or authority necessary in connection with the operation and conduct of its business and ownership of its properties.
(f)    Protection of Collateral. Borrower shall comply in all material respects with all laws, regulations and ordinances, and all policies of insurance, relating in a material way to the possession, operation, maintenance and control of the Collateral. Borrower shall not surrender or lose possession of (other than (i) to Lender, (ii) related to sales or other dispositions of inventory in the ordinary course of business or (iii) by transfer of the custody thereof in the ordinary course of business to a third party contracted by Borrower to store any portion of the Collateral), sell, lease, rent, or otherwise dispose of or transfer any of the Collateral or any right or interest therein, except for Permitted Liens and Permitted Transfers.
(g)    Equipment; Collateral Located Outside the United States. Borrower, at Borrower’s expense, will use its commercially reasonable efforts (i) within [***] days of the Effective Date cause each third party bailee of the Equipment included in the Collateral, wherever located and set forth on Schedule 8(f) hereof, to execute and deliver to Lender a bailee agreement, in form and substance reasonably acceptable to Lender, (ii) within [***] days of the Effective Date execute and deliver, and cause to be executed and delivered, such instruments, documents or agreements, in form and substance reasonably satisfactory to Lender, reasonably required by Lender for the creation, perfection or protection of any now-existing Equipment of Borrower located outside the United States, and (iii) execute and deliver, and cause to be executed and delivered, all further instruments and documents, and will take all further action, that may be reasonably required by Lender in order to create, perfect and protect any security interest granted or purported to be granted hereby with respect to all non-Equipment Collateral located outside of the United States, including, without limitation, Intellectual Property. In addition, upon each incremental acquisition by Borrower, in one or more transactions, of Equipment included in the Collateral or non-Equipment Collateral located outside of the United States, having an aggregate value which exceeds [***] in any 12-month period beginning on the Effective Date and any anniversary thereof, Borrower shall use commercially reasonable efforts to provide the bailee agreement or such other instruments, documents or agreements described in subsections (i), (ii) and (iii) above within [***] days, as applicable. Borrower shall amend Schedule 8(f) to reflect the acquisition of any Equipment material to the business of the Borrower from time to time.
(h)    Intellectual Property. The Borrower shall promptly report to the Lender (i) the filing of any application to register any Intellectual Property with the United States Patent and Trademark Office, the United States Copyright Office, or any state registry or foreign counterpart of the foregoing (whether such application is filed by the Borrower or through any agent, employee, licensee, or designee thereof) and (ii) the registration of any Intellectual Property by any such office. The Borrower shall take such steps as may be reasonably requested by the Lender to ensure that the security interest of the Lender is registered with each such recording office.

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(i)    Certificated Security, Chattel Paper or Instrument. With respect to any Collateral that is evidenced by, or constitutes, a Certificated Security, Chattel Paper or Instrument (other than any Chattel Paper or Instruments having a value less than [***] individually or [***] in the aggregate), the Borrower shall cause each originally executed copy thereof to be delivered to the Lender (or its agent or designee) appropriately endorsed to the Lender or endorsed in blank: (i) with respect to any such Collateral in existence on the date hereof, on or prior to the date hereof and (ii) with respect to any such Collateral hereafter arising, within [***] days of the Borrower acquiring rights therein.
(j)    Use of Proceeds. Borrower shall use the proceeds of the Loans solely as working capital and to fund its general business requirements in accordance with the most recent Borrower Forecast and Budget and the provisions of this Agreement. Without limiting the foregoing, the proceeds of the Loans shall not be used to repay any portion of the amounts outstanding under the Outstanding Loans (as defined in Schedule 8(l)).
(k)    Further Assurances and Additional Acts. From time to time, at its sole expense, Borrower will promptly execute and deliver and will cause to be executed and delivered all further instruments and documents, and will take all further action, that may be reasonably necessary or desirable, or that Lender may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Lender to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, Borrower will: (i) (A) execute and file, record or register such financing or continuation statements, or amendments thereto, (B) execute and deliver, and cause to be executed and delivered, agreements establishing that Lender has “control” within the meaning of Article 9 of the UCC of specified items of Collateral to the extent required hereunder, (C) ) execute and deliver such Intellectual Property Security Agreements as are reasonably requested by Lender within five (5) Business Days of any such request, (D) promptly, upon a Responsible Officer obtaining knowledge thereof, deliver to Lender notice of any Commercial Tort Claim for damages greater than [***] it may bring against any person or entity, including the name and address of such person or entity, a detailed description of the facts, an estimate of Borrower’s damages thereunder, copies of any complaint or demand letter submitted by Borrower, and such other information as Lender may request, and, upon request by Lender, deliver any and all documentation required by Lender to perfect its security interest in all rights of Borrower in, to and under such Commercial Tort Claim and (E) deliver such other instruments or notices, in each case, as may be necessary and as Lender may reasonably request in order to perfect and preserve the security interests granted or purported to be granted hereby, (ii) furnish to Lender from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Lender may reasonably request, all in reasonable detail, (iii) at Lender’s request, appear in and defend any action or proceeding that may affect the title of Borrower to or Lender’s security interest in all or any material part of the Collateral, and (iv) use commercially reasonable efforts to obtain any necessary consents of third parties to the perfection of a security interest to Lender with respect to any Collateral or the exercise of any right hereunder. Borrower hereby authorizes Lender to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the further consent of Borrower. In addition to and notwithstanding the foregoing, Borrower hereby irrevocably constitutes and appoints Lender, with full power of

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substitution, as its true and lawful attorney-in-fact, with full irrevocable power and authority in its place and stead and in its name or otherwise, from time to time in Lender’s sole discretion, at Borrower’s sole cost and expense, to take any and all appropriate action and to execute and deliver any and all documents and instruments which Lender may deem reasonably necessary to accomplish the purposes of creating, perfecting, continuing and preserving an indefeasible continuing security interest in any and all of the Collateral in favor of Lender.
11.    Negative Covenants. So long as any of the Obligations shall remain unpaid or outstanding, Borrower agrees that:
(a)    Indebtedness. Borrower will not create, incur, assume or otherwise become liable for or suffer to exist any Indebtedness, whether secured or unsecured, other than:
(i)    Indebtedness of Borrower to Lender hereunder;
(ii)    accounts payable to trade creditors for goods and services and current operating liabilities (not the result of the borrowing of money) incurred in the ordinary course of Borrower’s business in accordance with customary terms and paid within the specified time, unless contested in good faith by appropriate proceedings and reserved for in accordance with GAAP;
(iii)    Indebtedness directly related to the acquisition by Borrower of a product or product line; provided that such Indebtedness is owed to the seller of such product or product line or to a Person financing the acquisition of the same, but only to the extent the portion of the purchase price for the assets thus acquired is financed by Indebtedness; and if such Indebtedness is secured, then such Indebtedness shall be secured solely by the assets for which the acquisition financing was provided;
(iv)    Indebtedness consisting of a refinancing of the Indebtedness permitted in subsection (iii) above; provided that the principal amount of such Indebtedness that is being refinanced does not increase;
(v)    Indebtedness for capital leases as determined in accordance with GAAP not to exceed that amount allocated for capital leases in the annual budget of Borrower, which shall have been approved by the Board of Directors of Borrower;
(vi)    Indebtedness arising from (i) the honoring by a bank or other financial institution of a check, draft or similar instrument against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within ten (10) Business Days of its occurrence; (ii) bankers acceptances, performance, surety, judgment, appeal or similar bonds, instruments or obligations; and (iii) any customary cash management arrangements;
(vii)    Indebtedness in respect of endorsements made in connection with the deposit of items for credit or collection in the ordinary course of business;
(viii)    Indebtedness represented by property, liability and workers’ compensation insurance (which may be in the form of letters of credit); and

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(ix)    Indebtedness set forth on Schedule 8(l), or Indebtedness consisting of a refinancing of the Indebtedness set forth on Schedule 8(l); provided that the principal amount of such Indebtedness that is being refinanced does not increase.
(b)    Change in Nature of Business. Borrower will not engage in any material line of business substantially different from the biopharmaceutical business.
(c)    Restrictions on Fundamental Changes. Borrower will not:
(i)    consummate any acquisition of any Person by means of merger or other form of corporate reorganization in which outstanding shares of such Person are exchanged for securities or other consideration issued, or caused to be issued, by Borrower, or consummate a purchase of substantially all of any Person’s assets unless (A) Borrower is the surviving entity, and (B) both immediately before and after such merger, reorganization or acquisition, no Event of Default shall have occurred or be caused by virtue thereof; or
(ii)    sell, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets without the consent of Lender, such consent not to be unreasonably withheld, conditioned or delayed.
(d)    Change of Name, Etc. The Borrower shall not change its name, identity, corporate structure (e.g., by merger, consolidation, change in corporate form or otherwise), sole place of business, chief executive office, type of organization or jurisdiction of organization or establish any trade names unless it shall have (a) notified the Lender in writing at least ten (10) days prior to any such change or establishment, identifying such new proposed name, identity, corporate structure, sole place of business, chief executive office, jurisdiction of organization or trade name and providing such other information in connection therewith as the Lender may reasonably request and (b) taken all actions reasonably necessary or advisable to maintain the continuous validity, perfection and the same priority of the Lender’s security interest in the Collateral intended to be granted and agreed to hereby.
(e)    Sales of Collateral. Other than Permitted Liens and Permitted Transfers, the Borrower will not transfer, pledge, hypothecate, encumber, license, sell or otherwise dispose of any of the Collateral without the prior written consent of the Lender, such consent not to be unreasonably withheld, conditioned or delayed.
(f)    Distributions. Borrower will not declare or pay any dividends in respect of its capital stock, or purchase, redeem, retire or otherwise acquire for value any of its capital stock now or hereafter outstanding, return any capital to its stockholders as such, or make any loan of assets to its stockholders as such, except that Borrower may, so long as (i) no Event of Default has occurred and is continuing and (ii) the amount paid by Borrower does not exceed [***] in cash or value per year, repurchase shares of its capital stock from any of Borrower’s employees, directors or consultants upon the termination of service of such Person or repurchase shares of its capital stock in connection with Borrower’s stock option or other compensation plans.

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(g)    Transactions with Related Parties. Borrower will not (absent Lender’s prior written consent) enter into any transaction, including the purchase, sale or exchange of property or the rendering of any services, with any Affiliate, any officer or director thereof or any Person that beneficially owns or holds 5% or more of the equity securities, or 5% or more of the equity interest, thereof (a “Related Party”), except for an employment or consulting contract and equity award and similar agreements with Borrower and except for a transaction or contract that is in the ordinary course of business and that is upon fair and reasonable terms not less favorable to Borrower than it would obtain in a comparable arm’s length transaction with a Person not a Related Party; provided, however, that nothing in this subsection shall prohibit any transactions between Borrower and Lender.
12.    Representations and Warranties of Lender. Lender represents and warrants to Borrower that:
(a)    Purchase Entirely for Own Account. The Secured Promissory Note and the Borrower Equity Securities are being acquired for investment for Lender’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and Lender has no present intention of selling, granting any participation in or otherwise distributing the same. Lender does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to the Secured Promissory Note or Borrower Equity Securities.
(b)    No Solicitation. At no time was Lender presented with or solicited by any publicly issued or circulated newspaper, mail, radio, television or other form of general advertising or solicitation in connection with the offer, sale and purchase of the Secured Promissory Note or Borrower Equity Securities.
(c)    Disclosure of Information. Lender has received or has had full access to all of the information Lender considers necessary or appropriate to make an informed investment decision with respect to the Secured Promissory Note and Borrower Equity Securities. Lender has had an opportunity to ask questions and receive answers from Borrower, or is otherwise knowledgeable, regarding the terms and conditions of the offering of the Secured Promissory Note and Borrower Equity Securities and the business, properties, prospects and financial condition of Borrower.
(d)    Investment Experience. Lender understands that the purchase of the Secured Promissory Note and Borrower Equity Securities involves substantial risk. Lender has experience investing in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment and has such knowledge and experience in financial or business matters such that it is capable of evaluating the merits and risks of the investment in the Secured Promissory Note and Borrower Equity Securities and/or has a preexisting personal or business relationship with Borrower and certain of its officers, directors or controlling persons of a nature and duration that enables Lender to be aware of the character, business acumen and financial circumstances of such persons.

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(e)    Accredited Investor. Lender is familiar with the definition of, and qualifies as, an “accredited investor” within the meaning of Rule 501, as in effect as of the Effective Date, of Regulation D promulgated under the Securities Act.
(f)    Restricted Securities. Lender understands that the Secured Promissory Note and Borrower Equity Securities are characterized as “restricted securities” under federal securities laws inasmuch as they are being acquired from Borrower in a transaction not involving a public offering and that, under such laws and applicable regulations, the Secured Promissory Note and Borrower Equity Securities may be resold without registration under the Securities Act only in certain limited circumstances. Lender represents that it is familiar with Rule 144 promulgated under the Securities Act, and understands the resale limitations imposed thereby and by the Securities Act. Lender understands and acknowledges that an investment in the Secured Promissory Note and Borrower Equity Securities involves an extremely high degree of risk and may result in a complete loss of Lender’s investment. Lender understands that the Secured Promissory Note and Borrower Equity Securities have not been and will not be registered under the Securities Act and have not been and will not be registered or qualified in any state in which they are offered and that Lender will not be able to resell or otherwise transfer the Secured Promissory Note and Borrower Equity Securities unless the Secured Promissory Note or Borrower Equity Securities are registered under the Securities Act and registered or qualified under applicable state securities laws, or an exemption from such registration or qualification is available.
(g)    No Public Market. Lender understands and acknowledges that, whether or not the Secured Promissory Note and Borrower Equity Securities may be resold in the future without registration under the Securities Act, no public market exists for the Secured Promissory Note or Borrower Equity Securities and that it is uncertain whether a public market will ever exist for such securities.
(h)    No Liquidity. Lender has no immediate need for liquidity in connection with its investment in the Secured Promissory Note and Borrower Equity Securities, does not anticipate being required to sell the Secured Promissory Note or Borrower Equity Securities in the foreseeable future and has the capacity to sustain a complete loss of its investment in the Secured Promissory Note and Borrower Equity Securities.
(i)    Legends. Lender understands and agrees that the Secured Promissory Note and the certificates evidencing Borrower Equity Securities will bear legends substantially similar to those set forth below in addition to any other legend that may be required by applicable law, Borrower’s Certificate of Incorporation or Bylaws, Section 13 or any other agreement between Borrower and Lender:
(i)    THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND REGISTRATION OR QUALIFICATION UNDER ANY APPLICABLE STATE

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SECURITIES LAWS OR (B) AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED PURSUANT TO AN EXEMPTION UNDER SUCH ACT AND SECURITIES LAWS; and
(ii)    Any legend required by the laws of the State of California, including any legend required by the California Department of Corporations or any other state securities laws.
13.    Lock-Up Period. Lender hereby agrees that it shall not, to the extent requested by Borrower or an underwriter of securities of Borrower, sell or otherwise transfer or dispose of the Secured Promissory Note, Borrower Equity Securities or other securities of Borrower then or thereafter owned by Lender for up to 180 days following the date of the final prospectus filed with the Securities and Exchange Commission relating to an effective registration statement of Borrower filed under the Securities Act (the “Lock-Up Period”). For purposes of this Section 13, the term “Borrower” shall include any wholly-owned subsidiary of Borrower into which Borrower merges or consolidates. In order to enforce the foregoing covenant, Borrower shall have the right to place the restrictive legend below on the Secured Promissory Note and the certificates representing Borrower Equity Securities subject to this Section 13 and to impose stop-transfer instructions with respect to the Secured Promissory Note, Borrower Equity Securities and such other Borrower securities of the Lender (and the shares or securities of every other person subject to the foregoing restriction) until the end of such Lock-Up Period. Lender further agrees to enter into any agreement reasonably required by any underwriter to implement the foregoing provisions within any reasonable timeframe so requested.
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO A LOCK-UP RESTRICTION AS SET FORTH IN A CERTAIN AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SECURITIES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. AS A RESULT OF SUCH AGREEMENT, THESE SECURITIES MAY NOT BE TRADED PRIOR TO 180 DAYS AFTER THE EFFECTIVE DATE OF THE INITIAL PUBLIC OFFERING OF THE COMMON STOCK OF THE ISSUER HEREOF. SUCH RESTRICTION IS BINDING ON TRANSFEREES OF THESE SECURITIES.
14.    Event of Default. Any one of the following shall constitute an event of default (an “Event of Default”) under this Agreement:
(a)    The Borrower fails to make any principal payment under the Secured Promissory Note or fails to pay any interest accruing on the Loans evidenced by the Secured Promissory Note and such failure continues for [***] Business Days after the date on which such payment should have been made;
(b)    The Borrower fails to issue certificates representing the Borrower Equity Securities, as applicable;

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(c)    The Master License Agreement is terminated in accordance with its terms, whether by the Borrower or the Lender;
(d)    (i) any representation and warranty of the Borrower set forth in this Agreement, the Option Agreement or the Master License Agreement shall prove to be incorrect in any material respect or (ii) the Borrower breaches any covenant or agreement in this Agreement, the Option Agreement, the Master License Agreement, the Voting Agreement or that certain side letter agreement dated as of the date hereof with respect to Board Composition and Management Rights and such failure continues for [***] days after the date on which notice thereof shall have been given to the Borrower by the Lender;
(e)    The Borrower fails to pay when due any Indebtedness of the Borrower in an aggregate amount of [***] or greater [***];
(f)    A final judgment or judgments for the payment of money aggregating in excess of [***] (excluding any amounts covered by insurance) are rendered against the Borrower and which judgments are not, within [***] after the entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within [***] days after the expiration of such stay;
(g)    The Borrower shall (i) be dissolved, (ii) fail to remain Solvent, (iii) make an assignment for the benefit of creditors or make or send a notice of intended bulk transfer, (iv) file or commence any petition or proceeding for any relief under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, receivership, liquidation or dissolution law or statute now or hereinafter in effect (whether at law or in equity); or
(h)    Any trustee or receiver is appointed for the Borrower or any property of the Borrower, a meeting of creditors is convened or a committee of creditors is appointed for, or any petition or proceeding for any relief under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, receivership, liquidation or dissolution law or statute now or hereinafter in effect (whether at law or in equity) is filed or commenced against the Borrower, which proceeding is not dismissed within [***].
15.    Duty To Hold In Trust. Upon the occurrence and during the continuance of any Event of Default, following written notice from Lender the Borrower shall, upon receipt by it of any revenue, income or other sums subject to the Security Interest, whether payable pursuant to the Loan or otherwise, or of any check, draft, note, trade acceptance or other instrument evidencing an obligation to pay any such sum, hold the same in trust for the Lender and shall forthwith endorse and transfer any such sums or instruments, or both, to the Lender for application to the satisfaction of the Obligations.
16.    Rights and Remedies Upon Default. Upon occurrence and during the continuance of any Event of Default, the Lender may, without notice or demand, do any or all of the following: (i) deliver notice of the Event of Default to Borrower, (ii) by notice to Borrower declare all Obligations immediately due and payable (but if an Event of Default described in Sections 14(g) or (h) occurs all Obligations shall be immediately due and payable without any action by the Lender) or (iii) by notice to Borrower suspend or terminate the obligations, if any, of the Lender to extend

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credit for Borrower’s benefit under this Agreement or under any other agreement between Borrower and Lender or its Affiliates (but if an Event of Default described in Sections 14(g) or (h) occurs all obligations, if any, of the Lender to extend credit for Borrower’s benefit under this Agreement shall be immediately terminated without any action by the Lender). Without limitation, the Lender shall have the following rights and powers:
(a)    The Lender shall have the right to take possession of the Collateral and, for that purpose, enter, with the aid and assistance of any person, any premises where the Collateral, or any part thereof, is or may be placed and remove the same, and the Borrower shall assemble the Collateral and make it reasonably available to the Lender at places which the Lender shall reasonably select, whether at the Borrower’s premises or elsewhere, and make reasonably available to the Lender, without rent, all of the Borrower’s respective premises and facilities for the purpose of the Lender taking possession of, removing or putting the Collateral in saleable or disposable form.
(b)    The Lender shall have the right to operate the business of the Borrower using the Collateral and shall have the right to assign, sell, lease or otherwise dispose of and deliver all or any part of the Collateral, at public or private sale or otherwise, either with or without special conditions or stipulations, for cash or on credit or for future delivery, in such parcel or parcels and at such time or times and at such place or places, and upon such terms and conditions as the Lender may deem commercially reasonable, all without (except as shall be required by applicable statute and cannot be waived) advertisement or demand upon or notice to the Borrower or right of redemption of the Borrower, which are hereby expressly waived. Upon each such sale, lease, assignment or other transfer of Collateral, the Lender may, unless prohibited by applicable law which cannot be waived, purchase all or any part of the Collateral being sold, free from and discharged of all trusts, claims, right of redemption and equities of the Borrower, which are hereby waived and released.
(c)    The Lender shall have the right to apply to the Obligations any amount held or controlled by the Lender owing to or for the credit or the account of Borrower, including, without limitation pursuant to the Master License Agreement.
17.    Applications of Proceeds from Disposition of Collateral. The proceeds of any such sale, lease or other disposition of the Collateral hereunder shall be applied first, to the expenses of retaking, holding, storing, processing and preparing for sale, selling, and the like (including, without limitation, any taxes, fees and other costs incurred in connection therewith) of the Collateral, to the reasonable attorneys’ fees and expenses incurred by the Lender in enforcing its rights hereunder and in connection with collecting, storing and disposing of the Collateral, and then to satisfaction of the Obligations, and to the payment of any other amounts required by applicable law, after which the Lender shall pay to the Borrower any surplus proceeds.
18.    Costs and Expenses. The Borrower agrees to pay all reasonable out-of-pocket fees, costs and expenses incurred in connection with any filing required hereunder, including without limitation, any financing statements, continuation statements, partial releases and/or termination statements related thereto. The Borrower will also, upon demand, pay to the Lender the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel, which

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the Lender may incur in connection with (i) the enforcement of this Agreement or (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral.
19.    Security Interest Absolute. All rights of the Lender and all Obligations of the Borrower hereunder, shall be absolute and unconditional, irrespective of: (a) any lack of validity or enforceability of any Loan Document, or any portion hereof or thereof; (b) any change in the time, manner or place of payment or performance of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Secured Promissory Note or any other Loan Document; (c) any exchange, release or nonperfection of any of the Collateral, or any release or amendment or waiver of or consent to departure from any other collateral for, or any guaranty, or any other security, for all or any of the Obligations; (d) any action by the Lender to obtain, adjust, settle and cancel in its sole discretion any insurance claims or matters made or arising in connection with the Collateral; or (e) any other circumstance which might otherwise constitute any legal or equitable defense available to the Borrower, or a discharge of all or any part of the Security Interest granted hereby. The Borrower expressly waives presentment, protest, notice of protest, demand, notice of nonpayment and demand for performance. In the event that at any time any transfer of any Collateral or any payment received by the Lender hereunder shall be deemed by final order of a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under the bankruptcy or insolvency laws of the United States, or shall be deemed to be otherwise due to any party other than the Lender, then, in any such event, the Borrower’s obligations hereunder shall survive cancellation of this Agreement, and shall not be discharged or satisfied by any prior payment thereof and/or cancellation of this Agreement, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof. The Borrower waives all right to require the Lender to proceed against any other person or to apply any Collateral which the Lender may hold at any time, or to marshal assets, or to pursue any other remedy. The Borrower waives any defense arising by reason of the application of the statute of limitations to any obligation secured hereby.
20.    Power of Attorney. The Borrower hereby irrevocably appoints the Lender (such appointment being coupled with an interest) as the Borrower’s attorney-in-fact, with full authority in the place and stead of the Borrower and in the name of the Borrower, the Lender or otherwise, from time to time upon the occurrence and during the continuance of any Event of Default in the Lender’s discretion to take any action and to execute any instrument that the Lender may deem reasonably necessary or advisable to accomplish the purposes of this Agreement.
21.    Term of Agreement. This Agreement and the Security Interest shall terminate on the date on which all payments under the Loan have been made in full, including as a result of such Loans converting into Borrower Securities. Upon such termination, the Lender will promptly file, at Lender’s sole cost and expense, all termination statements with respect to any financing or similar statement executed and filed pursuant to this Agreement.
22.    Notices. All notices, consents, requests, approvals, demands, or other communication by any party to this Agreement or any other Loan Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or certified

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mail return receipt requested, with proper postage prepaid; (b) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (c) when delivered, if hand delivered by messenger, or (d) upon acknowledgment of receipt by email, all of which shall be addressed to the party to be notified and sent to the address, facsimile number, or email address indicated below. Any party may change its mailing or email address or facsimile number by giving the other party written notice thereof in accordance with the terms of this Section 22.
If to Borrower, addressed to:
Viking Therapeutics, Inc.
11119 North Torrey Pines Road, Suite 50
San Diego, CA 92037
Attention: Chief Executive Officer
Email: [***]
With a copy (which shall not constitute notice) to:
Paul Hastings LLP
1117 S. California Avenue
Palo Alto, CA 94304
Attention: Jeff Hartlin
Email: jeffhartlin@paulhastings.com
If to Lender, addressed to:
Ligand Pharmaceuticals Incorporated
11119 North Torrey Pines Road, Suite 200
La Jolla, CA 92037
Attention: Vice President
Email: [***]
23.    Usury. In the event any interest is paid on the Secured Promissory Note which is deemed to be in excess of the then legal maximum rate, then that portion of the interest payment representing an amount in excess of the then legal maximum rate shall be deemed a payment of principal and applied against the principal of such Secured Promissory Note, or, if it exceeds such unpaid principal, refunded to Borrower. In determining whether the interest contracted for, charged, or received by Lender exceeds the maximum rate permitted by law, Lender may, to the extent permitted by applicable law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Secured Promissory Note.
24.    California Securities Law. THE SALE OF THE SECURITIES THAT ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART

22



OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
25.    Miscellaneous.
(a)    No course of dealing between the Borrower and the Lender, nor any failure to exercise, nor any delay in exercising, on the part of the Lender, any right, power or privilege hereunder or under the Loan shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege.
(b)    All of the rights and remedies of the Lender with respect to the Collateral, whether established hereby or by the Loan or by any other agreements, instruments or documents or by law shall be cumulative and may be exercised singly or concurrently.
(c)    This Agreement, together with the other Loan Documents, constitutes the entire agreement of the parties with respect to the subject matter hereof and is intended to supersede all prior negotiations, understandings and agreements with respect thereto. Except as specifically set forth in this Agreement, no provision of this Agreement may be modified or amended except by a written agreement specifically referring to this Agreement and signed by the parties hereto.
(d)    In the event that any provision of this Agreement is held to be invalid, prohibited or unenforceable in any jurisdiction for any reason, unless such provision is narrowed by judicial construction, this Agreement shall, as to such jurisdiction, be construed as if such invalid, prohibited or unenforceable provision had been more narrowly drawn so as not to be invalid, prohibited or unenforceable. If, notwithstanding the foregoing, any provision of this Agreement is held to be invalid, prohibited or unenforceable in any jurisdiction, such provision, as to such jurisdiction, shall be ineffective to the extent of such invalidity, prohibition or unenforceability without invalidating the remaining portion of such provision or the other provisions of this Agreement and without affecting the validity or enforceability of such provision or the other provisions of this Agreement in any other jurisdiction.
(e)    No waiver of any breach or default or any right under this Agreement shall be considered valid unless in writing and signed by the party giving such waiver, and no such waiver shall be deemed a waiver of any subsequent breach or default or right, whether of the same or similar nature or otherwise.
(f)    This Agreement shall be binding upon and inure to the benefit of each party hereto and its successors and permitted assigns. Neither this Agreement nor the Secured Promissory Note may be assigned by either party without the prior written consent of the other party, except that: (i) Borrower may assign this Agreement along with the Secured Promissory Note to one or more of its Affiliates, without Lender’s prior consent, and (ii) Lender may assign this Agreement

23



or the Secured Promissory Note to one or more of its Affiliates, or pursuant to a change in control of Lender, without Borrower’s prior consent.
(g)    California law governs the Loan Documents, without regard to principles of conflicts of law, except to the extent the validity, perfection or enforcement of a security interest hereunder in respect of any particular Collateral which are pursuant to mandatory choice of law rules governed by a jurisdiction other than the State of California in which case such law shall govern. Borrower hereby waives personal service of the summons, complaints, and other process issued in such action or suit and agrees that service of such summons, complaints, and other process may be made by registered or certified mail addressed to Borrower at the address set forth in, or subsequently provided by Borrower in accordance with, this Agreement and that service so made shall be deemed completed upon the earlier to occur of Borrower’s actual receipt thereof or three (3) days after deposit in the U.S. mails, proper postage prepaid.
(h)    This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original, and all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.
(i)    To the fullest extent permitted by applicable law, the Borrower shall remain obligated hereunder notwithstanding that, any demand for payment of any of the Obligations made by Lender may be rescinded by Lender and any of the Obligations continued, and the Obligations or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Lender, and the Secured Promissory Note and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as Lender may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by Lender for the payment of the Obligations may be sold, exchanged, waived, surrendered or released.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties hereto have caused this Loan and Security Agreement to be duly executed on the day and year first above written.


BORROWER:
Viking Therapeutics, Inc.
By:     /s/ Brian Lian               
Name: Brian Lian, Ph.D.
Its: CEO

LENDER:
Ligand Pharmaceuticals Incorporated
By:     /s/ Charles Berkman        
Name: Charles Berkman
Its: Vice President, General Counsel and Secretary


SCHEDULE A
DEFINITIONS
As used in this Agreement, the following terms have the following meanings:
(a)    “Affiliate” means: a Person or entity that controls, is controlled by or is under common control with a party, but only for so long as such control exists. For the purposes of this Agreement, the word “control” (including, with correlative meaning, the terms “controlled by” or “under common control with”) means the actual power, either directly or indirectly through one or more intermediaries, to direct the management and policies of such Person or entity, whether by the ownership of at least 50% of the voting stock of such entity, or by contract or otherwise.
(b)    “Borrower Equity” means: (i) if the first to occur Equity Financing is a Qualified Private Financing, the New Preferred and/or other securities of the Borrower to be issued by the Borrower in the Qualified Private Financing; and (ii) if the first to occur Equity Financing is an Initial Public Offering, the securities of the Borrower to be issued by the Borrower in the Initial Public Offering.
(c)    “Borrower Equity Securities” means the securities of Borrower issued or issuable pursuant to the Borrower Equity.
(d)    “Borrower Securities” means the Borrower Equity Securities or the Change of Control Securities, as applicable.
(e)    “Business Day” means a day of the year on which commercial banks are not required or authorized by law to close in San Diego, California
(f)    “Change of Control” has the meaning set forth in the Master License Agreement.
(g)    “Collateral” means all right, title and interest in and to, whether now owned or hereafter acquired and wherever located:
(i)    All Accounts, Chattel Paper (including Tangible Chattel Paper and Electronic Chattel Paper), Documents, Instruments, Promissory Notes, Commercial Tort Claims and contracts (including, without limitation, all claims for damages arising out of any breach of or default thereunder);
(ii)    All Inventory;
(iii)    All Equipment and all Fixtures;
(iv)    All General Intangibles (including, without limitation, Payment Intangibles and domain names) and Software;
(v)    All Trademarks, Patents and copyrights;
(vi)    All cash, Deposit Accounts, Letter-of-Credit Rights, Supporting Obligations, Securities (whether certificated or uncertificated) and Investment Property;
(vii)    All other Goods and personal property of Borrower, whether tangible or intangible, now owned or hereafter acquired by Borrower, wheresoever located;
(viii)    all present and future books, Documents, invoices, records, data, databases, information, statements, correspondence, clinical data, test results, study results and regulatory filings and approvals, in each case, in any form whatsoever; and
(ix)    all replacements, additions, accessions, substitutions, repairs, guaranties and securities for the foregoing, if any, and all Proceeds, products, rents and profits of or from any and all of the foregoing, all proceeds that constitute property, and, to the extent not otherwise included, all payments under insurance (whether or not Lender is the loss payee or beneficiary thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing, in each case, in any form whatsoever.
For clarity, it is the intention of Borrower that the description of the Collateral set forth above be construed to include the broadest possible range of assets described herein.
(h)    “Copyright Licenses” means any and all agreements, licenses and covenants providing for the granting of any right in or to Copyrights or otherwise providing for a covenant not to sue (whether the Borrower is licensee or licensor thereunder) including, without limitation, each agreement referred to in Schedule 8(g).
(i)    “Copyrights” mean all United States and foreign copyrights (including, without limitation, Community designs), including but not limited to copyrights in software and all rights in and to databases, and all Mask Works (as defined under 17 U.S.C. 901 of the U.S. Copyright Act), whether registered or unregistered, moral rights, reversionary interests, termination rights, and, with respect to any and all of the foregoing: (i) all registrations and applications therefor including, without limitation, the registrations and applications required to be listed in Schedule 8(g), (ii) all extensions and renewals thereof, (iii) all rights corresponding thereto throughout the world, (iv) all rights to sue for past, present and future infringements thereof, and (v) all Proceeds of the foregoing, including, without limitation, licenses, royalties, income, payments, claims, damages and proceeds of suit.
(j)    “Equipment” means goods (other than Inventory) whether now owned or hereafter acquired and wherever located including, without limitation, all equipment, machinery, apparatus, motor vehicles, fittings, furniture, furnishings, fixtures, parts, accessories and all replacements and substitutions therefor or accessions thereto.
(k)    “Fiscal Year” means Borrower’s fiscal year for financial accounting purposes. The current Fiscal Year of Borrower will end on December 31, 2014.
(l)    “GAAP” means generally accepted accounting principles in the United States, consistently applied.
(m)    “General Intangibles” means all general intangibles as defined in the UCC, whether now owned or hereafter acquired, including, without limitation, all payment intangibles, and without limiting the generality of the foregoing all of the following whether or not constituting general intangibles as defined in the UCC: all choses in action, causes of action, corporate or other business records, inventions, designs, equipment formulations, manufacturing procedures, quality control procedures, service marks, trade secrets, goodwill, design rights, software, computer information, source codes, codes, records and updates, registrations, licenses, franchises, customer lists, tax refunds, tax refund claims, computer programs, all claims under guaranties, security interests or other security held or granted to secure payment of any of the Receivables by a customer (other than to the extent covered by Receivables), all rights of indemnification and all other intangible property of every kind and nature (other than Receivables).
(n)    “Indebtedness” means (i) all indebtedness or other obligations of Borrower for borrowed money or for the deferred purchase price of property or services; (ii) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses; (iii) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by Borrower; (iv) all reimbursement and other obligations of Borrower in respect of letters of credit and bankers acceptances and all net obligations in respect of interest rate swaps, caps, floors and collars, currency swaps, and other similar financial products; (v) all obligations under leases that have been or should be, in accordance with GAAP as in effect on the date hereof, recorded as capital leases; and (vi) all indebtedness of another Person of the types referred to in clauses (i) through (v) guaranteed directly or indirectly in any manner by Borrower for whom Indebtedness is being determined, or in effect guaranteed directly or indirectly by Borrower through an agreement to purchase or acquire such indebtedness, to advance or supply funds for the payment or purchase of such indebtedness or otherwise assure a creditor against loss, or secured by any Lien upon or in property owned by the Person for whom indebtedness is being determined, whether or not such Person has assumed or become liable for the payment of such indebtedness of such other Person.
(o)    “Initial Public Offering” means a firmly underwritten public offering pursuant to the Securities Act of 1933, as amended (the “Securities Act”), on Form S-1 (as defined in the Securities Act) or any successor form.
(p)    “Intellectual Property” means all Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks and Trademark Licenses.
(q)    “Inventory” means all now owned or hereafter acquired goods, merchandise and other personal property, wherever located, to be furnished under any consignment arrangement, contract of service or held for sale or lease, all raw materials, work in process, finished goods and materials and supplies of any kind, nature or description which are or might be used or consumed in such party’s business or used in selling or furnishing such goods, merchandise and other personal property, and all documents of title or other documents representing them.
(r)    “Investment Property” means all now owned or hereafter acquired securities (whether certificated or uncertificated), securities entitlements, securities accounts, commodities contracts and commodities accounts.
(s)    “Liens” means any mortgage, pledge, security interest, assignment, deposit arrangement, charge or encumbrance, lien or other type of preferential arrangement (other than a financing statement filed by a lessor in respect of an operating lease not intended as security).
(t)    “Loan Document” means this Agreement, the Secured Promissory Note and any other document delivered by Borrower to Lender pursuant to this Agreement or the Secured Promissory Note.
(u)    “Master License Agreement” means that certain Master License Agreement, dated as of May 21, 2014, by and among Borrower, Lender and Metabasis Therapeutics, Inc., an Affiliate of the Lender (as may be amended, restated, supplemented or otherwise modified pursuant to its terms from time to time).
(v)    “Material Adverse Effect” means a material adverse effect on the business, properties, results of operations or financial condition of Borrower.
(w)    “Maturity Date” means May 21, 2016.
(x)    “New Preferred” means any series of preferred stock of the Borrower sold and issued by Borrower after the date of this Agreement.
(y)    “Obligations” means all of the Borrower’s obligations under this Agreement and the Secured Promissory Note, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, as such obligations may be amended, supplemented, converted, extended or modified from time to time.
(z)    “Option Agreement” means that certain Option Agreement, dated as of September 27, 2012, by and between Borrower and an Affiliate of the Lender, as amended pursuant to Amendment No. 1 to Option Agreement, dated as of May 21, 2014 (as may be further amended, restated, supplemented or otherwise modified pursuant to its terms from time to time).
(aa)    “Patent Licenses” shall mean all agreements, licenses and covenants providing for the granting of any right in or to Patents or otherwise providing for a covenant not to sue (whether the Borrower is licensee or licensor thereunder) including, without limitation, each agreement referred to in Schedule 8(g).
(bb)    “Patents” shall mean all United States and foreign patents and certificates of invention, or similar industrial property rights, and applications for any of the foregoing, including, without limitation: (i) each patent and patent application referred to in Schedule 8(g), (ii) all reissues, divisions, continuations, continuations-in-part, extensions, renewals, and reexaminations thereof, (iii) all rights corresponding thereto throughout the world, (iv) all inventions and improvements described therein, (v) all rights to sue for past, present and future infringements thereof, (vi) all licenses, claims, damages, and proceeds of suit arising therefrom, and (vii) all Proceeds of the foregoing, including, without limitation, licenses, royalties, income, payments, claims, damages, and proceeds of suit.
(cc)    “Permitted Liens” means any and all of the following: (i) liens existing as of the date of this Agreement and listed on Schedule 8(d); (ii) liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings; provided, that the Borrower maintains adequate reserves therefor in accordance with GAAP; (iii) liens securing claims or demands of materialmen, artisans, mechanics, carriers, warehousemen, landlords and other like persons arising in the ordinary course of the Borrower’s business and imposed without action of such parties; provided, that the payment thereof is not yet required; (iv) liens arising from judgments, decrees or attachments that do not exceed [***] and to the extent applicable are not covered by a policy of insurance; (v) the following deposits, to the extent made in the ordinary course of business: deposits under worker’s compensation, unemployment insurance, social security and other similar laws, or to secure the performance of bids, tenders or contracts or to secure indemnity, performance or other similar bonds for the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure statutory obligations (other than liens arising under ERISA or environmental liens) or surety or appeal bonds, or to secure indemnity, performance or other similar bonds; (vi) purchase money security interests and liens in connection with financing leases on equipment, (vii) liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by liens of the type described in clause (vi) above, (viii) liens arising solely by virtue of any statutory or common law provisions relating to banker’s liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a depositary institution, (ix) liens on cash advances in favor of a seller of property to be acquired to be applied to the purchase price of such property and (x) liens securing obligations in an aggregate amount not to exceed [***] at any time.
(dd)    “Permitted Transfers” means (i) dispositions by Borrower of worn-out or obsolete Equipment, (ii) dispositions of Equipment not exceeding [***] per year, (iii) sales of inventory, equipment, goods and other assets by Borrower in the ordinary course of business, (iv) the sale of accounts receivable by Borrower arising in the ordinary course of business that are overdue or which the Borrower reasonably determines are difficult to collect, and (v) payment of costs and expenses of the Borrower in the ordinary course of business and which are consistent with the most recently delivered Borrower Forecast and Budget.
(ee)    “Person” means: any natural person, corporation, firm, business trust, joint venture, association, organization, company, partnership or other business entity, or any government or agency or political subdivision thereof.
(ff)    “Qualified Private Financing” means the next bona fide capital financing transaction or series of financing transactions of the Borrower occurring after the Effective Date but prior to the Maturity Date, with one or more financial non-strategic investors with aggregate net proceeds to the Borrower of at least Twenty Million Dollars ($20,000,000), and pursuant to which the Borrower issues or will issue any fully paid and non-assessable shares of the New Preferred and/or other equity securities of the Borrower.
(gg)    “Receivables” means (i) all Accounts, (ii) such contract rights, instruments, documents, chattel paper (including, without limitation, electronic chattel paper), general intangibles relating to accounts, drafts and acceptances, credit card receivables and all other forms of obligations owing arising out of or in connection with the sale or lease of Inventory or the rendition of services, and (iii) all supporting obligations, guarantees and other security for any of the foregoing, whether secured or unsecured, now existing or hereafter created.
(hh)    “Responsible Officer” means the chief executive officer, the president, the chief financial officer or the treasurer of Borrower, or any other senior officer of Borrower having substantially the same authority and responsibility.
(ii)    “Solvent” means: the fair salable value of Borrower’s consolidated assets (including goodwill minus disposition costs) exceeds the fair value of such Borrower’s liabilities; such Borrower is not left with unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay its debts (including trade debts) as they mature in accordance with their terms.
(jj)    “Trademark Licenses” shall mean any and all agreements, licenses and covenants providing for the granting of any right in or to Trademarks or otherwise providing for a covenant not to sue or permitting co-existence (whether the Borrower is licensee or licensor thereunder) including, without limitation, each agreement referred to in Schedule 8(g).
(kk)    “Trademarks” shall mean all United States, and foreign trademarks, trade names, corporate names, Borrower names, business names, fictitious business names, Internet domain names, service marks, certification marks, collective marks, logos, other source or business identifiers, designs and general intangibles of a like nature, all registrations and applications for any of the foregoing including, without limitation: (i) the registrations and applications referred to in Schedule 8(g), (ii) all extensions or renewals of any of the foregoing, (iii) all of the goodwill of the business connected with the use of and symbolized by the foregoing, (iv) the right to sue for past, present and future infringement or dilution of any of the foregoing or for any injury to goodwill, and (v) all Proceeds of the foregoing, including, without limitation, licenses, royalties, income, payments, claims, damages, and proceeds of suit.
(ll)    “UCC” means Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the State of California; provided that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect to, Lender’s Lien on any Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the State of California, the term “UCC” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions.
(mm)    “Voting Agreement” means that certain Voting Agreement, dated as of May 21, 2014, by and among Borrower, Lender, Metabasis Therapeutics, Inc., Brian Lian, Ph.D. and Michael Dinerman, M.D. (as may be amended, restated, supplemented or otherwise modified pursuant to its terms from time to time).
(nn)    In addition, the following terms shall be defined terms having the meaning set forth for such terms in the UCC: “Account”, “Account Debtor”, “Chattel Paper” (including tangible and electronic chattel paper), “Commercial Tort Claims”, “Certificated Security”, “Deposit Account”, “Documents”, “Equipment” (including all accessions and additions thereto), “Electronic Chattel Paper”, “Fixtures”, “Goods”, “Instrument”, “Inventory” (including all goods held for sale or lease or to be furnished under a contract of service, and including returns and repossessions), “Investment Property” (including securities and securities entitlements), “Letter-of-Credit Right” (whether or not the letter of credit is evidenced by a writing), “Payment Intangibles”, “Proceeds”, “Promissory Notes”, “Securities”, “Software”, “Supporting Obligations” and “Tangible Chattel Paper”; provided that, to the extent that the UCC is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the UCC, the definition of such term contained in Article or Division 9 shall govern.

Schedule 8(b)
[***]
Borrower is a corporation, organized in the State of Delaware, with an organization number of 5217215.

Schedule 8(d)
None.

Schedule 8(f)
No Equipment is in the possession of a third party bailee.

Schedule 8(g)
(a)    No Patents, Trademarks, and Copyrights are owned by Borrower.
For a listing of Patents exclusively licensed to Borrower as of the Effective Date, please see the Master License Agreement.
(b)
Master License Agreement.

Schedule 8(l)
As of the date of the Agreement, the following loans to Borrower are outstanding (collectively, the “Outstanding Loans”):
Holder
Issue Date
Principal Amount
Maturity Date
[***]
[***]
5/23/2013
$[***]
[***]
[***]
[***]
10/1/2012
$[***]
[***]
Michael
Dinerman
9/28/2012
$20,000
9/28/14
[***]
[***]
5/24/2013
$[***]
[***]
[***]
[***]
5/24/2013
$[***]
[***]
[***]
[***]
6/27/2013
$[***]
[***]
[***]
[***]
6/11/2013
$[***]
[***]
Brian
Lian
5/15/2013
$55,350
5/15/15
Brian
Lian
9/28/2012
$15,000
9/28/14
[***]
[***]
5/22/2013
$[***]
[***]
[***]
[***]
5/24/2013
$[***]
[***]
TOTAL
 
$310,350
 




24



Schedule 9(c)
Borrower Forecast and Budget



Schedule 9(c)



 
Budget
Budget
Budget
Budget
Budget
Budget
$0
[Month]
[Month]
[Month]
[Month]
[Month]
[Month]
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
   $ -
   $ -
   $ -
   $ -
   $ -
   $ -
Total Revenues
   $ -
   $ -
   $ -
   $ -
   $ -
   $ -
Operating Expenses
 
 
 
 
 
 
R&D expenses
 
 
 
 
 
 
G & A Expense
 
 
 
 
 
 
Total Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Expenses, net
 
 
 
 
 
 
'Change in fair value of conv feature
Interest expense, net
 
 
 
 
 
 
Total Other Expenses, net
 
 
 
 
 
 
Net Loss
   $ -
   $ -
   $ -
   $ -
   $ -
   $ -



 







 
Budget
Budget
Budget
Budget
Budget
Budget
$0
[Month]
[Month]
[Month]
[Month]
[Month]
[Month]
Personnel Costs Subtotal
 
 
 
 
 
 
 
 
 
 
 
 
 
OTHER PROJECT EXPENSES
 
 
 
 
 
 
Travel + Meal Expenses
 
 
 
 
 
 
Licenses & Subscriptions
 
 
 
 
 
 
Conference Attendance Costs
 
 
 
 
 
 
CMC Materials & Supplies
 
 
 
 
 
 
[***]
 
 
 
 
 
 
[***]
 
 
 
 
 
 
Lab Supplies & Services
 
 
 
 
 
 
[***]
 
 
 
 
 
 
Insurance Costs
 
 
 
 
 
 
Outside Service Costs
 
 
 
 
 
 
[***]
 
 
 
 
 
 
[***]
 
 
 
 
 
 
[***]
 
 
 
 
 
 
[***]
 
 
 
 
 
 
[***]
 
 
 
 
 
 
Stock Compensation
 
 
 
 
 
 
Facility Costs
 
 
 
 
 
 
Depreciation
 
 
 
 
 
 
[***]
 
 
 
 
 
 
[***]
 
 
 
 
 
 
Consulting
 
 
 
 
 
 
Other Costs
 
 
 
 
 
 
Total Department Expenses
   $ -
   $ -
 
   $ -
   $ -
 
Cumulative Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
CAPITAL EQUIPMENT
   $ -
   $ -
   $ -
   $ -
   $ -
   $ -






Personnel Costs Subtotal
[Month]
[Month]
[Month]
[Month]
[Month]
[Month]
 
 
 
 
 
 
 
OTHER PROJECT EXPENSES
 
 
 
 
 
 
Travel & Meal Expenses
 
 
 
 
 
 
Subscriptions
 
 
 
 
 
 
Consulting
 
 
 
 
 
 
Conference Attendance Costs
 
 
 
 
 
 
BOD Fees & Expenses
 
 
 
 
 
 
Facility Costs
 
 
 
 
 
 
Stock Compensation
 
 
 
 
 
 
Insurance Costs
 
 
 
 
 
 
Investor Relations
 
 
 
 
 
 
Outside Services
 
 
 
 
 
 
Legal & Patent Costs
 
 
 
 
 
 
Other Costs
 
 
 
 
 
 
Total Department Expenses
-
-
 
-
-
 
Cumulative Expenses
-
-
 
-
-
 
 
 
 
 
 
 
 
CAPITAL EQUIPMENT
 
 
 
 
 
 



Ligand-Viking-MasterLicenseAgreement
CERTAIN MATERIAL (INDICATED BY AN ASTERISK) HAS BEEN OMITTED FROM THIS DOCUMENT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

Exhibit 10.2

MASTER LICENSE AGREEMENT
Dated May 21, 2014
by and between
Ligand Pharmaceuticals Incorporated and Metabasis Therapeutics, Inc., on one hand,
and
Viking Therapeutics, Inc., on the other


MASTER LICENSE AGREEMENT
THIS MASTER LICENSE AGREEMENT (this “Agreement”) is dated as of May 21, 2014 (the “Effective Date”) by and between Metabasis Therapeutics, Inc., a Delaware corporation organized having its place of business at 11119 North Torrey Pines Road, Suite 200, La Jolla, CA 92037 (including its successors and permitted assigns, “Metabasis”) and Ligand Pharmaceuticals Incorporated, a Delaware corporation organized having its place of business at 11119 North Torrey Pines Road, Suite 200, La Jolla, CA 92037 (including its successors and permitted assigns, “Ligand” and, together with Metabasis, the “Ligand Party”) on one hand, and Viking Therapeutics, Inc., a Delaware corporation organized having its place of business at 11119 North Torrey Pines Road, Suite 50, La Jolla, CA 92037 (including its successors and permitted assigns “Viking”). Viking, on the one hand, and Metabasis and Ligand, together on the other hand, shall each be referred to herein as a “Party” or, collectively, as the “Parties.”
RECITALS:
WHEREAS, each Ligand Party is a pharmaceutical company which has engaged in the discovery and development of the Compounds (as hereinafter defined);
WHEREAS, Viking is engaged in the research, development, manufacturing and commercialization of pharmaceuticals products, and Viking is interested in developing and commercializing products containing or comprising the Compounds;
WHEREAS, Metabasis, Ligand and Viking have entered into the Option Agreement pursuant to which Viking has an Option to acquire rights to the FBPase program on the terms and conditions set forth in the Option Agreement; and
WHEREAS, Viking desires to license from Licensor and Licensor wishes to license to Viking, on an exclusive basis, the right to develop and commercialize products comprising the Compounds, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the various promises and undertakings set forth herein, the Parties agree as follows:
ARTICLE I    
DEFINITIONS
Unless otherwise specifically provided herein, the following terms shall have the following meanings:
1.1    “Adverse Event” means any serious untoward medical occurrence in a patient or subject who is administered a Licensed Product.
1.2    “Affiliate” means a Person or entity that controls, is controlled by or is under common control with a Party, but only for so long as such control exists. For the purposes of this Section 1.2, the word “control” (including, with correlative meaning, the terms “controlled by” or “under common control with”) means the actual power, either directly or indirectly through one or more intermediaries, to direct the management and policies of such Person or entity, whether by the ownership of at least 50% of the voting stock of such entity, or by contract or otherwise; provided, however, the use of “Affiliate” in this Agreement: (a) with respect to the Patents and Know-How licensed under Section 2.1(a) by Licensor shall exclude any Patents and Know-How of any Change of Control Affiliate; and notwithstanding anything in this Agreement or otherwise, in all cases, all Patents, Know-How, information and materials included within the rights licensed to Viking under Section 2.1(a) by Licensor prior to the time that such Change of Control occurs shall continue to be included in the licensed rights following such Change of Control; (b) with respect to Licensor’s obligations in Section 2.3 regarding technology transfer shall exclude any Know-How of a Change of Control Affiliate; (c) with respect to Licensor’s obligations in Section 2.5 regarding non-competition shall exclude any Change of Control Affiliate only if such Change of Control Affiliate is already engaged in substantial competitive development and commercialization activities as of the date of the definitive agreement governing such Change of Control and solely with respect to such pre-existing activities; and (d) for all other purposes, including with respect to all other obligations of Licensor under this Agreement, such Change of Control Affiliate shall be bound by the terms of this Agreement following such Change of Control.
1.3    “Calendar Quarter” means each three month period commencing January 1, April 1, July 1 or October 1, provided however that (i) the first Calendar Quarter of the Term shall extend from the Effective Date to the end of the first full Calendar Quarter thereafter, and (ii) the last Calendar Quarter of the Term shall end upon the termination of this Agreement.
1.4    “Calendar Year” means the period beginning on the 1st of January and ending on the 31st of December of the same year; provided however that (i) the first Calendar Year of the Term shall commence on the Effective Date and end on December 31 of the same calendar year as the Effective Date, and (ii) the last Calendar Year of the Term shall commence on January 1 of the Calendar Year in which this Agreement terminates or expires and end on the date of termination of this Agreement.
1.5    “Change of Control” means:
(a)    a transaction or series of related transactions that results in the sale, lease, license or other disposition of all or substantially all of a Party’s or other applicable entity’s assets; or
(b)    a merger or consolidation in which a Party or other applicable entity is not the surviving corporation or in which, if a Party is the surviving corporation, the shareholders of such Party or other applicable entity immediately before the consummation of such merger or consolidation do not, immediately after consummation of such merger or consolidation, possess a majority of the voting power of all of the Party’s or other applicable entity’s outstanding stock and other securities and the power to elect a majority of the members of the Party’s or other applicable entity’s board of directors (or similar governing body); or
(c)    a transaction or series of related transactions (which may include without limitation a tender offer for a Party’s or other applicable entity’s stock or the issuance, sale or exchange of stock of a Party or other applicable entity) if the shareholders of such Party or other applicable entity immediately before the initial such transaction do not, immediately after consummation of such transaction or any of such related transactions, own stock or other securities of the entity that possesses a majority of the voting power of all of the Party’s or other applicable entity’s outstanding stock and other securities and the power to elect a majority of the members of the Party’s or other applicable entity’s board of directors (or similar governing body).
Notwithstanding the foregoing, a Change of Control with respect to a Ligand Party shall not include any of the following: (i) a sale, lease, license, other disposition, merger or consolidation in one transaction or a series of related transactions of all or substantially all of a Ligand Party’s assets to an Affiliate of such Ligand Party; (ii) a reincorporation of a Ligand Party solely to change its jurisdiction; or (iii) a transaction undertaken for the primary purpose of creating a holding company that will be owned in substantially the same proportion by the persons who held the Ligand Party’s securities immediately before such transaction.
1.6    “Change of Control Affiliate” means a Third Party that controls Ligand due to a Change of Control of Ligand occurring after the Effective Date (with “control” having the meaning set forth in “Affiliate” above). For clarity, a Third Party that Ligand or Metabasis controls is not a Change of Control Affiliate.
1.7    “Clinical Trial” means a Phase 1 Trial, a Phase 2 Trial or a Phase 3 Trial.
1.8    “Combination Product” means a product containing a Licensed Product together with one or more other active ingredients, or with one or more products, devices, pieces of equipment or components.
1.9    “Commercialization” or “Commercialize” means any and all activities undertaken at any time for a particular Licensed Product and that relate to the manufacturing for commercial sale, marketing, promoting, distributing, importing or exporting for sale, offering for sale, and selling of a Licensed Product, and interacting with Regulatory Authorities regarding the foregoing.
1.10    “Commercially Reasonable Efforts” means, (a) with respect to the efforts to be expended by any Party with respect to any objective, such reasonable, diligent, and good faith efforts normally used to accomplish a similar objective under similar circumstances, and (b) with respect to any objective relating to Development or Commercialization of a particular Licensed Product by Viking, the application by Viking of efforts and resources, including reasonably necessary personnel, equivalent to the efforts that a similarly situated biotechnology company would typically devote to a product at a similar stage in its product life as such Licensed Product and having profit potential and strategic value comparable to that of such Licensed Product, taking into account, without limitation, commercial, legal and regulatory factors, target product profiles, product labeling, past product performance, the regulatory environment and competitive market conditions in the therapeutic area, safety and efficacy of such Licensed Product, the strength of its proprietary position and such other factors as Viking may reasonably consider, all based on conditions then prevailing. Commercially Reasonable Efforts will not mean that a Party commits that it will actually accomplish the applicable task.
1.11    “Competing Product” means any product an active pharmaceutical ingredient of which is any one or more of the Compounds listed on SCHEDULE 1. For clarity, a Competing Product shall be determined by reference to the Compounds set forth on SCHEDULE 1 as of the Effective Date; provided, that FBPase Compounds shall be determined by reference to FBPase Compounds set forth SCHEDULE 1 as updated as of the date of the payment of the Exercise Fee; provided further, if the Option expires prior to the payment of the Exercise Fee by Viking, no FBPase Compounds shall be deemed listed on SCHEDULE 1.
1.12    “Compound(s)” means (a) DGAT-1 Compounds, (b) EPOR Compounds, (c) SARM Compounds, (d) TR-Beta Compounds, and (e) FBPase Compounds; provided, that no FBPase Compounds shall be included in this definition if the Option expires prior to the payment of the Exercise Fee by Viking.
1.13    “Confidential Information” of a Party means information relating to the business, operations and products of a Party or any of its Affiliates, including but not limited to, any technical information, Know-How, trade secrets, or inventions (whether patentable or not), not known or generally available to the public, that such Party discloses to the other Party under this Agreement, or which otherwise becomes known to the other Party by virtue of this Agreement.
1.14    “Controlled” means, with respect to (a) Patent Rights, (b) Know-How or (c) biological, chemical or physical material, that a Party or one of its Affiliates owns or has a license or sublicense to such Patent Rights, Know-How or material (or in the case of material, has the right to physical possession of such material) and has the ability to grant a sublicense to such Patent Rights, Know-How or material as provided for in this Agreement without violating the terms of any agreement or other arrangement with any Third Party.
1.15    “Cover”, “Covering” or “Covered” means, with respect to a Licensed Product, that the manufacturing, importing, using, selling, or offering for sale of such Licensed Product would, but for a license granted under this Agreement to the relevant Patent Rights, infringe a Valid Claim of the relevant Patent Rights in the country in which the activity occurs.
1.16    “Development” or “Develop” means, with respect to a Licensed Product, the performance of all pre-clinical, clinical and other development (including, without limitation, toxicology, pharmacology, test method development and stability testing, process development, formulation development, quality control development, statistical analysis) and Clinical Trials.
1.17    “DGAT-1 Compounds” means Metabasis’ MB11210 compound, and any other compounds comprised by the DGAT-1 Patents, and any salts, hydrates, solvates, esters, metabolites, intermediates, stereoisomers, polymorphs, and derivatives of such compounds. The DGAT-1 Compounds include those compounds listed on SCHEDULE 1 hereto under the heading “DGAT-1 Compounds” (which is correct as of the Effective Date).
1.18    “DGAT-1 Patents” means all Patent Rights set forth on SCHEDULE 4 hereto under the heading “DGAT-1 Patents” (which is correct as of the Effective Date and which shall be updated as set forth in Section 2.6 to include any new Patent Right Controlled by Licensor during the Term which Covers any DGAT-1 Compounds or the DGAT-1 Program).
1.19    “DGAT-1 Program” means the research and development program particularly pertaining to the DGAT-1 Compounds which was heretofore conducted by Licensor and which is anticipated to be conducted after the Effective Date by Viking.
1.20    “EMA” means the European Medicines Agency or any successor agency.
1.1    “EPOR Compounds” means Ligand’s LG5640 compound, and any other compounds comprised by the EPOR Patents, and any salts, hydrates, solvates, esters, metabolites, intermediates, stereoisomers, polymorphs, and derivatives of such compounds. The EPOR Compounds include those compounds listed on SCHEDULE 1 hereto under the heading “EPOR Compounds” (which is correct as of the Effective Date).
1.2    “EPOR Patents” means all Patent Rights set forth on SCHEDULE 4 hereto under the heading “EPOR Patents” (which is correct as of the Effective Date and which shall be updated as set forth in Section 2.6 to include any new Patent Right Controlled by Licensor during the Term which Covers any EPOR Compounds or the EPOR Program).
1.3    “EPOR Program” means the research and development program particularly pertaining to the EPOR Compounds which was heretofore conducted by Licensor and which is anticipated to be conducted after the Effective Date by Viking.
1.4     “European Commission” means the authority within the European Union that has the legal authority to grant Regulatory Approvals in the European Union based on input received from the EMA or other competent Regulatory Authorities.
1.5    “Exercise Fee” means the option exercise fee payable by Viking to Metabasis pursuant to the Option Agreement and SCHEDULE 6 of this Agreement.
1.6    “FBPase Compounds” means Licensor’s proprietary fructose-1,6-bisphosphatase inhibitors known as CS-917 and MB07803, and any other compounds comprised by the FBPase Patents, and any salts, hydrates, solvates, esters, metabolites, intermediates, stereoisomers, polymorphs, and derivatives of such compounds. The FBPase Compounds include those compounds listed on SCHEDULE 1 hereto under the heading “FBPase Compounds” (which is correct as of the Effective Date but which shall be updated as of the date of the payment of the Exercise Fee).
1.7    “FBPase Patents” means all Patent Rights set forth on SCHEDULE 4 hereto under the heading “FBPase Patents” (which is correct as of the Effective Date but which shall be updated as of the date of the payment of the Exercise Fee and further updated as set forth in Section 2.6 to include any new Patent Right Controlled by Licensor during the Term which Covers any FBPase Compounds or the FBPase Program).
1.8    “FBPase Program” means the research and development program particularly pertaining to the FBPase Compounds conducted by Licensor prior to, and which is anticipated to be conducted by Viking after, the payment of the Exercise Fee.
1.9    “FDA” means the United States Food and Drug Administration, or a successor federal agency thereto.
1.10    “Field” means all therapeutic and diagnostic uses in humans or animals.
1.1    “Financing Transaction” means the earliest to occur of a Public Offering or a Private Financing, in either case in connection with which Viking becomes obligated to issue Viking Securities to Metabasis and Ligand pursuant to this Agreement.
1.2    “First Commercial Sale” means, with respect to a Licensed Product in any country, the first commercial transfer or disposition for value of such Licensed Product in such country to a Third Party by Viking, an Affiliate of Viking or a Sublicensee after Regulatory Approval therefor has been obtained in such country.
1.3    “GAAP” means United States generally accepted accounting principles.
1.4    “Governmental Body” means any: (a) nation, principality, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; (c) governmental or quasi-governmental authority of any nature (including any governmental division, subdivision, department, agency, bureau, branch, office, commission, council, board, instrumentality, officer, official, representative, organization, unit, body or entity and any court or other tribunal); (d) multi-national or supranational organization or body; or (e) individual, entity, or body exercising, or entitled to exercise, any executive, legislative, judicial, administrative, regulatory, police, military or taxing authority or power of any nature.
1.5    “IND” means an Investigational New Drug application submitted to the FDA, or equivalent application submitted to a Regulatory Authority in any regulatory jurisdiction outside the United States, seeking authorization to test a drug product in humans in order to generate data necessary for submission of an NDA.
1.6    “Indication” means a generally acknowledged disease or condition, a significant manifestation of a disease or condition, or symptoms associated with a disease or condition or a risk for a disease or condition. For the avoidance of doubt, all variants of a single disease or condition (whether classified by severity or otherwise) shall be treated as the same Indication.
1.7    “Initiation” means, with respect to a Clinical Trial for a Licensed Product, the enrollment of the first subject or patient in such Clinical Trial.
1.8    “IPO Price” means the offering price to the public, before deducting underwriting discounts and commissions, of the securities of Viking sold and issued in the Public Offering.
1.9    “Know-How” means any scientific or technical information, results and data of any type whatsoever, in any tangible or intangible form whatsoever, that is not in the public domain or otherwise publicly known, including, without limitation, discoveries, inventions, trade secrets, databases, practices, protocols, regulatory filings, methods, processes, techniques, software, works of authorship, plans, concepts, ideas, biological and other materials, reagents, specifications, formulations, formulae, data (including, but not limited to, pharmacological, biological, chemical, toxicological, clinical and analytical information, quality control, trial and stability data), case reports forms, data analyses, reports, studies and procedures, designs for experiments and tests and results of experimentation and testing (including results of research or development), summaries and information contained in submissions to and information from ethical committees, the FDA or other Regulatory Authorities, and manufacturing process and development information, results and data, whether or not patentable, all to the extent not claimed or disclosed in a patent or pending patent application. The fact that an item is known to the public shall not be taken to exclude the possibility that a compilation including the item, and/or a development relating to the item, is (and remains) not known to the public. “Know-How” includes any rights including copyright, moral, trade-secret, database or design rights protecting such Know-How. “Know-How” excludes Patent Rights.
1.10    “Knowledge” means the knowledge, information or belief that [***].
1.11    “Law” or “Laws” means all applicable laws, statutes, rules, regulations, ordinances and other pronouncements having the binding effect of law of any Governmental Body.
1.12     “Licensor” means Metabasis, Ligand and any of their Affiliates.
1.13    “Licensed Product” means any pharmaceutical product, in any dosage form, formulation, presentation or package configuration that is commercialized or undergoing research or pre-clinical or clinical development that contains or comprises, in part or in whole, one or any combination of the following: (i) a DGAT-1 Compound; (ii) an EPOR Compound; (iii) a SARM Compound; (iv) a TR-Beta Compound; and (v) an FBPase Compound; provided, that no FBPase Compounds shall be included in this definition if the Option expires prior to the payment of the Exercise Fee by Viking.
1.14    “Licensed Programs” means (i) the DGAT-1 Program, (ii) EPOR Program, (iii) SARM Program, (iv) TR-Beta Program, and (v) the FBPase Program; provided, that the FBPase Program shall not be included in this definition if the Option expires prior to the payment of the Exercise Fee by Viking.
1.15    “Licensor Know-How” means all Know-How that is Controlled by Licensor and that (a) pertains directly to or is necessary for one or more of the Licensed Programs or (b) is actually used in one or more of the Licensed Programs. The Licensor Know-How shall include, but not be limited to, all Know-How set forth on SCHEDULE 2 hereto (which is correct as of the Effective Date); provided, that no Know-How that pertains directly to, is necessary for or is actually used in the FBPase Program shall be included in this definition if the Option expires prior to the payment of the Exercise Fee by Viking. Promptly following payment of the Exercise Fee, Licensor shall update SCHEDULE 2 to include such additional Know-How that pertains directly to, is necessary for or is actually used in the FBPase Program.
1.16    “Licensor Materials” means all physical quantities of Compounds set forth on SCHEDULE 3 hereto (which is correct as of the Effective Date); provided, that no physical quantities of FBPase Compounds shall be included in this definition if the Option expires prior to the payment of the Exercise Fee by Viking. Promptly following payment of the Exercise Fee, Licensor shall update SCHEDULE 3 to include all physical quantities of FBPase Compounds.
1.17    “Licensor Patents” means (i) the DGAT-1 Patents, (ii) EPOR Patents, (iii) SARM Patents, (iv) TR-Beta Patents, and (v) the FBPase Patents; provided, that no FBPase Patents shall be included in this definition if the Option expires prior to the payment of the Exercise Fee by Viking.
1.18    “Licensor Technology” means the Licensor Patents, the Licensor Know-How and the Licensor Materials.
1.19    “Loan and Security Agreement” means that certain Loan and Security Agreement dated the Effective Date, in the form attached hereto as SCHEDULE 1.49, and as amended, restated, supplemented or otherwise modified from time to time pursuant to its terms.
1.20    “Major Market” means any of the [***].
1.21    “NDA” means a New Drug Application submitted pursuant to the requirements of the FDA, as more fully defined in 21 U.S. CFR § 314.3 et seq., a Biologics License Application submitted pursuant to the requirements of the FDA, as more fully defined in 21 U.S. CFR § 601, and any equivalent application submitted in any country, including a European Marketing Authorization Application, together, in each case, with all additions, deletions or supplements thereto.
1.22    “NDA Approval” means the receipt of notice from the relevant Regulatory Authority that an NDA for a Licensed Product has met all the criteria for marketing approval.
1.23    “Net Sales” means the [***] to unrelated Third Parties for a Licensed Product, on a Licensed Product-by-Licensed Product basis, less:
[***]
Notwithstanding the foregoing, [***] for sales of such Licensed Product among [***] for resale shall not be included in the computation of Net Sales.
In the event that a Licensed Product is Commercialized as part of a Combination Product for a single price, the Net Sales for such Licensed Product shall be calculated by [***] the sales price of such Combination Product [***] in the Combination Product.
1.24    “Option” means the exclusive right and option granted to Viking by Metabasis pursuant to the Option Agreement.
1.25    “Option Agreement” means that certain Option Agreement, dated September 27, 2012, by and among Metabasis, Ligand and Viking, as amended by Amendment No. 1 to Option Agreement, by and among Metabasis, Ligand and Viking dated as of the Effective Date (as may be further amended or restated from time to time pursuant to its terms).
1.26     “Patent Right” means: (a) an issued or granted patent, a pending patent application and any patents that may be issued or granted therefrom and any extension, supplemental protection certificate, registration, confirmation, reissue, reexamination, extension, renewal, continuation, divisional, continuation-in-part, substitute or provisional application of any of the foregoing; and (b) all counterparts or foreign equivalents of any of the foregoing issued by or filed in any country or other jurisdiction.
1.27    “Person” means any natural person, corporation, firm, business trust, joint venture, association, organization, company, partnership or other business entity, or any government or agency or political subdivision thereof.
1.28    “Phase 1 Trial” means, as to a specific Licensed Product, a clinical study in humans of the safety of such Licensed Product, which is prospectively designed to generate sufficient data (if successful) to commence a Phase 2 Trial (or foreign equivalent) of such product, as further defined in Federal Regulation 21 C.F.R. 312.21(a), as amended from time to time, or the corresponding regulation in jurisdictions other than the United States.
1.29    “Phase 2 Trial” means, as to a specific Licensed Product, a clinical study, conducted anywhere in the world in diseased humans, of the feasibility, safety, dose ranging and efficacy of such Licensed Product, that is prospectively designed to generate sufficient data (if successful) to commence a Phase 3 Trial (or foreign equivalent) of such product, as further defined in 21 C.F.R. 312.21(b), as amended from time to time, or the corresponding regulation in jurisdictions other than the United States. For the avoidance of doubt, a Phase 2 Trial requires enrollment of patients with the applicable disease or condition and is aimed to provide a measure of efficacy in addition to short-term tolerability.
1.30    “Phase 3 Trial” means, as to a specific Licensed Product, a clinical study in humans performed to gain evidence of the efficacy of such Licensed Product in a target population, and to obtain expanded evidence of safety for such product that is needed to evaluate the overall benefit-risk relationship of such product and provide an adequate basis for physician labeling, as described in 21 C.F.R. 312.21(c), as amended from time to time, or the corresponding regulation in jurisdictions other than the United States. For the purposes of the milestone payments in SCHEDULE 7, a “Phase 3 Trial” shall be a clinical trial which is submitted by Viking or a Sublicensee to the Regulatory Authority as a Phase 3 Trial or as a pivotal Phase 2clinical trial.
1.31    “Private Financing Price” means the lowest price per share at which Viking sells and issues Viking Securities to an investor, excluding Ligand and Metabasis, in the Private Financing.
1.32    “Regulatory Authority” means (a) the FDA, (b) the EMA or the European Commission, or (c) any regulatory body with similar regulatory authority over pharmaceutical or biotechnology products in any other jurisdiction anywhere in the world.
1.33    “Regulatory Approval” means any and all approvals, licenses, registrations, or authorizations of the relevant Regulatory Authority, necessary for the Commercialization of a Licensed Product in a particular country or jurisdiction (but not including any pricing or reimbursement approvals that are commercially necessary prior to commercial sale of such Licensed Product in such country or jurisdiction).
1.34    “Royalty Term” means, on a Licensed Product-by-Licensed Product and country-by-country basis, the period from the First Commercial Sale of a given Licensed Product in such country until the later of the last date on which such Licensed Product is Covered by a Valid Claim within the Licensor Patents in such country or the [***] anniversary of the First Commercial Sale of such Licensed Product in such country. In a country where a Valid Claim of a Licensor Patent Covering the Licensed Product does not exist, the Royalty Term means, on a Licensed Product-by-Licensed Product and country-by-country basis, the period from the First Commercial Sale of such Licensed Product in such country until the later of [***] or the [***] anniversary of such First Commercial Sale of such Licensed Product in such country.
1.35    “SARM Compounds” means Ligand’s LGD-4033 compound, and any other compounds comprised by the SARM Patents, and any salts, hydrates, solvates, esters, metabolites, intermediates, stereoisomers, polymorphs, and derivatives of such compounds. The SARM Compounds include those compounds listed on SCHEDULE 1 hereto under the heading “SARM Compounds” (which is correct as of the Effective Date).
1.36    “SARM Patents” means all Patent Rights set forth on SCHEDULE 4 hereto under the heading “SARM Patents” (which is correct as of the Effective Date and which shall be updated as set forth in Section 2.6 to include any new Patent Right Controlled by Licensor during the Term which Covers any SARM Compounds or the SARM Program).
1.37    “SARM Program” means the research and development program particularly pertaining to the SARM Compounds which was heretofore conducted by Licensor and which is anticipated to be conducted after the Effective Date by Viking.
1.38     “Sublicensee” means a Person other than an Affiliate of Viking to which Viking (or its Affiliate) has, pursuant to Section 2.2, granted sublicense rights under any of the license rights granted under Section 2.1. “Sublicense” shall be construed accordingly.
1.39    “Tax” or “Taxes” means any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not.
1.40    “Territory” means worldwide.
1.41    “Third Party” means any Person other than Licensor, Viking or its Affiliates, or any Sublicensees.
1.42    “Third Party Action” means any claim or action made by a Third Party against either Party that claims that a Licensed Product, or its use, Development, manufacture or sale infringes such Third Party’s intellectual property rights.
1.43    “TR-Beta Compounds” means Metabasis’ MB07811 and MB10866 compounds, and any other compounds comprised by the TR-Beta Patents, and any salts, hydrates, solvates, esters, metabolites, intermediates, stereoisomers, polymorphs, and derivatives of such compounds. The TR-Beta Compounds include those compounds listed on SCHEDULE 1 hereto under the heading “TR-Beta Compounds” (which is correct as of the Effective Date).
1.44    “TR-Beta Patents” means all Patent Rights set forth on SCHEDULE 4 hereto under the heading “TR-Beta Patents” (which is correct as of the Effective Date and which shall be updated as set forth in Section 2.6 to include any new Patent Right Controlled by Licensor during the Term which Covers any TR-Beta Compounds or the TR-Beta Program).
1.45    “TR-Beta Program” means the research and development program particularly pertaining to the TR-Beta Compounds which was heretofore conducted by Licensor and which is anticipated to be conducted after the Effective Date by Viking.
1.46    “United States” or “US” means the United States of America and its territories and possessions.
1.47    “Valid Claim” means (a) a claim of an issued patent which has not expired or lapsed, which claim (or patent as a whole) has not been held or declared revoked, unenforceable or invalid by a decision of a court or other governmental agency of competent jurisdiction and which claim (or patent as a whole) is not admitted to be invalid or unenforceable through reissue, disclaimer or otherwise, or (b) a claim of a pending patent application that has not been abandoned, finally rejected or expired without the possibility of appeal or refiling [***].
1.48    The definition of each of the following terms is set forth in the section of the Agreement indicated below:
“Action” has the meaning set forth in Section 6.5 (b).
“Claim” has the meaning set forth in Section 9.1.
“Controlling Party” has the meaning set forth in Section 6.6(c).
“Development Plan” has the meaning set forth in Section 3.1.
“Disclosure” has the meaning set forth in Section 11.21.
“Financial Information” has the meaning set forth in Section 11.21.
“Indemnified Party” has the meaning set forth in Section 9.4.
“Indemnifying Party” has the meaning set forth in Section 9.4.
“Licensor Indemnitees” has the meaning set forth in Section 9.1.
“Lock-Up Period” has the meaning set forth in Section 5.1(e).
“Private Financing” has the meaning set forth in Section 5.1(b).
“Public Offering” has the meaning set forth in Section 5.1(b).
“Qualified Financing” has the meaning set forth in Section 10.2(a).
“Securities Act” has the meaning set forth in Section 5.1(b).
“Term” has the meaning set forth in Section 10.1.
“Viking Equity” has the meaning set forth in Section 5.1(b).
“Viking Indemnitees” has the meaning set forth in Section 9.2.
“Viking Securities” has the meaning set forth in Section 5.1(b).
ARTICLE II    
LICENSES AND OTHER RIGHTS
2.1    Grant of License to Viking.
(a)    Subject to the terms and conditions of this Agreement, Licensor hereby grants to Viking and its Affiliates an exclusive (even as to Licensor), perpetual, irrevocable (both of the immediately foregoing, subject to Section 10 below), worldwide, royalty-bearing right and license (with the right to sublicense, and to further sublicense, subject to the provisions of Section 2.2 and the right to have any rights granted exercised by a third party contractor for the benefit and account of Viking) under the Licensor Technology to research, Develop, manufacture, have manufactured, use and Commercialize the Licensed Products in and for the Field.
(b)    Unless and until Viking duly and timely pays the Exercise Fee, Viking, on behalf of itself and its Affiliates, hereby covenants not to exercise the license granted in Section 2.1(a) with respect to the Licensor Technology to research, Develop, manufacture, have manufactured, use or Commercialize any Licensed Product that contains or comprises, in part or in whole, an FBPase Compound (the “FBPase Licensor Technology”). If the Option expires prior to the payment of the Exercise Fee by Viking, the license granted in Section 2.1(a) shall immediately terminate with respect to all FBPase Licensor Technology and neither Viking nor any Affiliate shall have any rights hereunder to such FBPase Licensor Technology or to research, Develop, manufacture, have manufactured, use or Commercialize any Licensed Product that contains or comprises, in part or in whole, an FBPase Compound.
(c)    To the maximum extent permitted by contract or otherwise, each Change of Control Affiliate which becomes a Change of Control Affiliate as a result of a Change of Control of Ligand occurring after the Effective Date but prior to the [***] hereby covenants not to make or bring directly or indirectly (or assist, enable or in any way facilitate any other person or entity in making or bringing) any threat, claim, allegation, assertion, complaint, filing, lawsuit, investigation, administrative proceeding or other legal, governmental or other proceeding or action alleging infringement of, misappropriation of or improper use or exercise of Patent Rights, Know-How or other rights or materials directly or indirectly Controlled by such Change of Control Affiliate against Viking, any of its Affiliates, any of its Sublicensees or such Sublicensees’ Affiliates and any of any of the foregoing’s respective distributors, resellers, customers, end users, manufacturers, vendors, suppliers, contractors, agents or similar parties in connection with the Licensor Materials, Licensed Products or Licensed Programs, the research, Development, manufacture, use or Commercialization of Licensor Materials, Licensed Products and Licensed Programs or the exercise of any rights granted or performance of any obligations under this Agreement.
2.2    Grant of Sublicenses by Viking. Except as set forth in Section 2.2(a) below, Viking shall have the right, subject to providing notice to Ligand, to grant Sublicenses, in whole or in part, under the license granted in Section 2.1 to Licensed Products containing or comprising, in part or in whole, a DGAT-1 Compound, an EPOR Compound, a TR-Beta Compound or, following payment of the Exercise Fee, an FBPase Compound. For clarity, no Sublicenses under the license granted in Section 2.1 to Licensed Products containing or comprising, in part or in whole, an FBPase Compound may be granted by Viking until payment of the Exercise Fee.
(a)    With respect to the license granted in Section 2.1 to Licensed Products containing or comprising, in part or in whole, a SARM Compound, the prior written consent of Ligand shall be required to grant a Sublicense thereunder, such consent not to be unreasonably withheld, delayed or conditioned, provided that Ligand’s prior written consent shall not be required if such Sublicense (i) is granted on or after [***], (iii) is a sublicense of Viking’s right to Develop or for the purposes of Development, or (iv) is a sublicense of Viking’s right to Commercialize or for the purposes of Commercialization where, in each case, the Sublicensee is not entitled to book sales of the applicable Product.
(b)    Viking shall include within every Sublicense express provisions (i) binding the Sublicensee to all of the duties, obligations, restrictions and acknowledgements hereunder of Viking which are applicable, except that the Sublicensees need not pay Royalties or make milestone payments directly to the applicable Ligand Party or provide royalty reports directly to Ligand, and (ii) stating that the Sublicense shall automatically terminate upon the termination of this Agreement. Moreover, such provisions shall (as between Licensor and the Sublicensee) be deemed to be included in all Sublicenses whether or not such provisions are expressly included therein. Viking shall ensure that all of its Sublicensees shall comply with the terms and conditions of this Agreement (as applicable to them) and Viking shall be and remain fully responsible for the compliance by such Sublicensees with the terms and conditions of this Agreement (as applicable to them) as if such Sublicensees were Viking hereunder. The granting by Viking of a Sublicense shall not relieve Viking of any of its obligations hereunder. Except for Sublicenses as expressly allowed herein, Viking acknowledges that it has no right to, and agrees not to purport to, grant to anyone a sublicense under the Licensor Technology.
2.3    Technology Transfer.
(a)    As soon as reasonably practicable after the Effective Date, but in no event later than [***], Licensor will communicate and transfer to Viking, at [***] cost and expense, all Licensor Know-How Controlled by Licensor as of the Effective Date and Licensor Materials available to Licensor as of the Effective Date. Viking shall confirm in writing having received such Licensor Know-How and Licensor Materials delivered by Licensor.
(b)    As soon as reasonably practicable after payment of the Exercise Fee by Viking, but in no event later than [***], Licensor will communicate and transfer to Viking, at [***] cost and expense, all Licensor Know-How related to the FBPase Program Controlled by Licensor as of such date and Licensor Materials related to the FBPase Program available to Licensor as of such date. Viking shall confirm in writing having received such Licensor Know-How and Licensor Materials delivered by Licensor.
(a)    As soon as reasonably practicable after any updates to the Licensor Know-How or the Licensor Materials are created or developed after the Effective Date, but not more frequently than [***], Licensor will communicate and transfer to Viking, at [***] cost and expense, all such Licensor Know-How Controlled by Licensor and Licensor Materials available to Licensor.
2.4    Procedures for Technology Transfer. The technology transfers set forth in Section 2.3 shall occur in an orderly fashion and in a manner such that the value, usefulness and confidentiality of the transferred Licensor Know-How and Licensor Materials are preserved in all material respects.
2.5    Viking Exclusivity.
(a)    Licensor, following the issuance of Viking Securities pursuant to Section 5.1(b) and thereafter during the Royalty Term, shall not directly or indirectly (i) develop, manufacture, have manufactured, use, sell, offer for sale, import or export a Competing Product the active pharmaceutical ingredient of which is any one or more of the DGAT-1 Compounds, EPOR Compounds, SARM Compounds or TR-Beta Compounds listed on SCHEDULE 1, (ii) seek to develop, manufacture, have manufactured, use, sell, offer for sale, import or export any such Competing Product, or (iii) assist, in any respect, any Third Party in developing, manufacturing, having manufactured, using, selling, offering for sale, importing or exporting any such Competing Product.
(b)    Licensor, following payment of the Exercise Fee by Viking and thereafter during the Royalty Term, shall not directly or indirectly (i) develop, manufacture, have manufactured, use, sell, offer for sale, import or export a Competing Product the active pharmaceutical ingredient of which is any one or more of the FBPase Compounds listed on SCHEDULE 1, (ii) seek to develop, manufacture, have manufactured, use, sell, offer for sale, import or export any such Competing Product, or (iii) assist, in any respect, any Third Party in developing, manufacturing, having manufactured, using, selling, offering for sale, importing or exporting any such Competing Product.
(c)    The aforementioned restrictions shall remain in effect in the event of Change of Control of Licensor with respect to Licensor and all Affiliates and shall also apply to any successor or assignee (other than to any substantial competitive development and commercialization activities of a successor/assignee which is a Change of Control Affiliate and which activities were already in existence as of the date of the definitive agreement governing such Change of Control and solely with respect to such pre-existing activities). Notwithstanding the restrictions on Licensor’s activities set forth in this Section 2.5, Viking acknowledges and agrees that Metabasis (or a Third Party collaborator of Metabasis) may develop, manufacture, have manufactured, use, sell, offer for sale, import or export any product the active pharmaceutical ingredient of which is [***] (or any salts, hydrates, solvates, esters, metabolites, intermediates, stereoisomers, polymorphs, and derivatives of such compound), including without limitation, [***]. For clarity, any such product shall not be a “Competing Product” as defined in this Agreement.
2.6    Updating of SCHEDULE 4. From time to time, but not more than [***], Viking may request and Licensor shall update SCHEDULE 4 to include any Patent Right Controlled by Licensor which Covers any Compound or the Licensed Programs not already included in SCHEDULE 4. Any such request shall be in writing.
2.7    No Other Rights or Licenses Granted. Nothing in this Agreement grants to Viking any right or license under any intellectual property or license of Licensor except as set forth in this Agreement.
ARTICLE III    
DEVELOPMENT, MANUFACTURE AND COMMERCIALIZATION OF LICENSED PRODUCTS
3.1    Development of Licensed Products by Viking. Viking shall have the exclusive right, and sole responsibility and decision-making authority, to research and Develop any Licensed Products and to conduct (either itself or through its Affiliates, agents, subcontractors and/or Sublicensees) all clinical trials and non-clinical studies Viking believes appropriate to obtain Regulatory Approval for the Licensed Products in any Indication. The Development of each Licensed Product shall be governed by a Viking development plan that accurately describes the proposed overall program of Development (each, a “Development Plan”), which Development Plan shall be updated by Viking at least [***] annually before the First Commercial Sale of the applicable Licensed Product. Viking shall provide Ligand a copy of the initial Development Plans within [***] and shall provide a copy of all updates thereto within [***]. Viking shall have the sole right and responsibility for preparing the Development Plan for each Licensed Product, and shall in all events have the sole decision-making authority regarding each Development Plan and the Development of the Licensed Product, including the determination of the [***]. Viking shall, at least [***] each [***], provide to Ligand a written update report regarding the progress of the Licensed Programs which are in Development.
3.2    Commercialization. Viking shall have the sole decision-making authority and responsibility and the exclusive right, to Commercialize any Licensed Products itself or through one or more Sublicensees or other Third Parties selected by Viking and shall have the sole decision-making authority and responsibility in all matters relating to the Commercialization of the Licensed Products. On a Licensed Program-by-Licensed program basis, Viking shall, at least [***] each [***] for a related Licensed Product, provide to Ligand an update report regarding the progress of the Licensed Programs.
3.3    Clinical and Commercial Manufacturing. Viking shall have the exclusive right to manufacture or have manufactured any Licensed Product itself or through one or more Sublicensees selected by Viking.
3.4    Diligence by Viking. Subject to Licensor’s fulfillment of its obligations under this Agreement, Viking shall use Commercially Reasonable Efforts to (a) Develop [***] from each Licensed Program, (b) Commercialize [***] from each Licensed Program in at least the [***], (c) on a country-by-country basis, perform the First Commercial Sale no later than [***] following the date of Regulatory Approval for the first Licensed Product from a Licensed Program in a Major Market, and (d) engage in Substantial Development Activities as set forth on SCHEDULE 5.
3.1    Right to Subcontract of Viking. Viking may exercise any of the rights or obligations that Viking may have under this Agreement (including, without limitation, any of the rights licensed in Section 2.1 hereof) by Sublicensing, but any Sublicense granted or entered into by Viking as contemplated by this Section 3.5 or any Sublicensee’s exercise or performance of all or any portion of the rights or obligations that Viking may have under this Agreement shall not relieve Viking from any of its obligations under this Agreement.
3.2    Compliance with Law. Viking agrees that the conduct of the Licensed Programs, the use of the Licensor Technology, and all Development, manufacture and Commercialization of the Licensed Products by it and its Affiliates and Sublicensees shall comply in all material respects with all applicable international, federal, state and local laws, rules and regulations, including, but not limited to, environmental, occupational safety/health, privacy, safety and import/export restrictions, laws, rules and regulations.
3.3    Costs and Expenses. Except as otherwise provided herein or agreed between the Parties, as between Licensor and Viking, Viking shall be solely responsible for all costs and expenses related to Development, manufacture and Commercialization of the Licensed Products, including without limitation costs and expenses associated with all pre-clinical activities and clinical trials, and all regulatory filings and proceedings relating to the Licensed Products.
3.4    Patent Marking. Viking agrees that with respect to each unit or package of Licensed Products sold in a given country, Viking and its Affiliates shall comply with the customary patent marking laws and practices of such country as to the applicable Licensor Patents.
3.5    Trademarks. As between Licensor and Viking, Viking shall have the sole authority to select trademarks for the Licensed Products and shall own all such trademarks. Licensor does not grant Viking the right to use any trademarks of Licensor.
ARTICLE IV    
REGULATORY MATTERS
4.1    Regulatory Filings. As between Licensor and Viking, Viking shall own and maintain all regulatory filings made after the Effective Date and all Regulatory Approvals for the Licensed Products.
4.2    Communications with Authorities. Viking (or one of its Affiliates or Sublicensees) shall be responsible for and act as the sole point of contact for communications with Regulatory Authorities in connection with the Development, Commercialization, and manufacturing of Licensed Products. At the request of Viking, Licensor shall make available to Viking, [***], a qualified representative who shall, together with the representatives of Viking, participate in and contribute to meetings with the Regulatory Authorities with respect to regulatory matters relating solely to the Licensor Technology.
4.3    Adverse Event Reporting. Each Party agrees to comply with any and all Laws that are applicable to it as of the Effective Date and thereafter during the Term in connection with Licensed Product safety data collection and reporting (and, if applicable, recalls). Viking shall report to Ligand any Adverse Event immediately pursuant to Section 11.8.
ARTICLE V    
FINANCIAL PROVISIONS
5.1    Loan and Security Agreement and Issuance of Viking Securities.
(a)    As partial consideration for Licensor’s grant of the rights and licenses to Viking hereunder, Viking has entered into the Loan and Security Agreement, pursuant to which Ligand will extend loans to Viking.
(b)    As partial consideration for Licensor’s grant of the rights and licenses to Viking hereunder, upon the consummation by Viking of a firmly underwritten public offering pursuant to the Securities Act of 1933, as amended (the “Securities Act”), on Form S-1 (as defined in the Securities Act) or any successor form (the “Public Offering”), Viking shall issue to Metabasis and Ligand as set forth on SCHEDULE 6 that number of shares of the same class and type of securities issued and sold by Viking in the Public Offering (“Viking Equity”). such Viking Equity to be issued at the closing of the Public Offering and at the price at which such Viking Equity is sold to the public, as set forth in SCHEDULE 6; provided that, in the event Viking desires to consummate a private financing of its equity securities prior to consummating a Public Offering (the “Private Financing”), then Ligand, on behalf of itself and Metabasis, shall have the option of converting all, but not less than all, of the amounts listed on SCHEDULE 6 into shares of the same class and type of securities issued and sold by Viking in such Private Financing at the closing of such Private Financing and at the price at which the securities are sold to Third Party investors in such Private Financing, in lieu of receiving any Viking Equity. For clarity, if Ligand does not elect to convert the amounts listed on SCHEDULE 6 in a Private Financing, the obligation of Viking to issue Viking Equity under this Section 5.1 to Ligand and Metabasis shall remain in full force and effect, and if Viking thereafter desires to consummate a subsequent Private Financing, Ligand and Metabasis shall have the option set forth above with respect to such subsequent Private Financing. This Agreement and the licenses contemplated under this Agreement shall become effective as of the Effective Date notwithstanding that the Viking securities (including the Viking Equity) (collectively, “Viking Securities”) are not issued or issuable until the closing of a Public Offering or Private Financing, as applicable.
(c)    Concurrently with the execution of this Agreement, Viking, Ligand and Metabasis are entering into a Registration Rights Agreement, dated as of even date herewith, providing for the registration of the resale of the Viking Securities issuable hereunder.
(a)    Immediately following the closing of the Public Offering or Private Financing, as applicable, Viking shall deliver to Ligand and Metabasis a certificate or certificates representing the Viking Securities issued to each of them hereunder. All certificates for the Viking Securities issued hereunder shall bear the following legends:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE SHARES MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
(b)    Licensor hereby agrees (on behalf of itself and its Affiliates) that it shall not, to the extent requested by Viking or an underwriter of securities of Viking, sell or otherwise transfer or dispose of the Viking Securities or other securities of Viking then or thereafter owned by Licensor for up to 180 days following the date of the final prospectus filed with the Securities and Exchange Commission relating to an effective registration statement of Viking filed under the Securities Act (the “Lock-Up Period”). For purposes of this Section 5.1(e), the term “Viking” shall include any wholly-owned subsidiary of Viking into which Viking merges or consolidates. In order to enforce the foregoing covenant, Viking shall have the right to place the restrictive legend below on the certificates representing Viking Securities subject to this Section 5.1(e) and to impose stop-transfer instructions with respect to the Viking Securities and such other Viking securities held by Licensor (and the shares or securities of every other Person subject to the foregoing restriction) until the end of such Lock-Up Period. Licensor further agrees to enter into (and to cause each Affiliate thereof that holds Viking Securities to enter into) any agreement reasonably required by any underwriter to implement the foregoing provisions within any reasonable timeframe so requested, including prior to the issuance of any Viking Securities to Licensor.
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO A LOCK-UP RESTRICTION AS SET FORTH IN A CERTAIN AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SECURITIES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. AS A RESULT OF SUCH AGREEMENT, THESE SECURITIES MAY NOT BE TRADED PRIOR TO 180 DAYS AFTER THE EFFECTIVE DATE OF THE INITIAL PUBLIC OFFERING OF THE COMMON STOCK OF THE ISSUER HEREOF. SUCH RESTRICTION IS BINDING ON TRANSFEREES OF THESE SECURITIES.
5.2    Development and Commercial Milestone Payments. As partial consideration for Licensor’s grant of the rights and licenses to Viking hereunder, Viking shall pay, or cause to be paid, to Metabasis and/or Ligand the one-time, non-refundable milestone payments as set forth on SCHEDULE 7.
5.3    Royalty Payments for Licensed Products.
(a)    As further consideration for Licensor’s grant of the rights and licenses to Viking hereunder, Viking shall, during each applicable Royalty Term, pay to Metabasis and/or Ligand a royalty on aggregate annual worldwide Net Sales of Licensed Products by Viking and its Affiliates and Sublicensees, as and at the percentage rates set forth on SCHEDULE 7.
(b)    The Parties have agreed to the royalty and other payments structure set forth in this Agreement as a convenient and fair mechanism to compensate Licensor for its obligations under this Agreement.
(c)    For purposes of determining [***], only Net Sales that are subject to a royalty payment shall be included in the total amount of Net Sales and any Net Sales that are not subject to a royalty payment shall be excluded. In addition, in no event shall the manufacture of a Licensed Product give rise to a royalty obligation until the particular unit of Licensed Product is sold; but if Net Sales of a particular unit of Licensed Product might or might not be subject to a royalty payment (e.g., manufactured in Country A where the Royalty Term has expired but sold in Country B where the Royalty Term has not expired, or vice versa), the sale shall be deemed to be subject to a royalty payment. For clarity, Viking’s obligation to pay royalties to Metabasis and/or Ligand under this Article V is imposed only once with respect to the same unit of Licensed Product regardless of the number of Licensor Patents pertaining thereto.
(d)    Royalties payable under Section 5.3(a) shall be payable on actual Net Sales and shall accrue at the time provided therefor by GAAP. Royalty obligations that have accrued during a particular [***] shall be paid, on a [***] basis, within [***] days after the end of each [***] during which the royalty obligation accrued; provided that within [***] days after the conclusion of each [***] Viking shall provide notice to Ligand of any adjustments necessary to account for any royalties which were overpaid or underpaid for such prior [***], and the Parties shall promptly true-up based on such adjustments.
5.4    Mode of Payment and Currency. All payments hereunder shall be made by deposit of US Dollars in the requisite amount to such bank account(s) as Ligand may from time to time designate by advance written notice to Viking. With respect to sales not denominated in US Dollars, Viking shall convert the Net Sales from the applicable foreign currency into US Dollars at the exchange rate reported in The Wall Street Journal, Eastern U.S. Edition, for the last trading day of the applicable [***]. Based on the resulting sales in US Dollars, the then applicable royalties shall be calculated.
5.5    Royalty Reports and Records Retention. Within [***] days after the end of each [***] during which the Licensed Products have been sold, Viking shall deliver to Metabasis and/or Ligand, together with the applicable royalty payment due, a written report, on a Licensed Product-by-Licensed Product and a country-by-country basis, of (i) gross invoiced (or otherwise charged) amounts of sales, by Viking and its Affiliates and Sublicensees, of Licensed Product subject to royalty payments for such [***], (ii) amounts deducted by category (following the definition of Net Sales) from such gross invoiced amounts to calculate Net Sales, (iii) Net Sales subject to royalty payments for such [***] and (iv) the corresponding royalty. Such report shall be deemed “Confidential Information” of Viking subject to the obligations of Article VII of this Agreement. For [***] after each sale of a Licensed Product, Viking shall keep (and shall ensure that its Affiliates and Sublicensees shall keep) complete and accurate records of such sale in sufficient detail to confirm the accuracy of the royalty calculations hereunder.
5.6    Late Payments. All payments under this Agreement shall earn interest from the date due until paid at a per annum rate equal to [***], calculated on the number of days such payments are paid after the date such payments are due
5.7    Audits.
(a)    During the Royalty Term and for [***] thereafter, upon the written request of Ligand, and not more than [***] in each [***], Viking shall permit, and shall cause its Affiliates to permit and use commercially reasonable effort to cause its Sublicensees to permit, an independent certified public accounting firm of nationally recognized standing selected by Ligand (who has not been engaged by Ligand or any of its Affiliates to provide services in any other capacity at any time during the [***]), and reasonably acceptable to Viking or such Affiliate or Sublicensee, to have access to and to review, during normal business hours upon reasonable prior written notice, the applicable records of Viking and its Affiliates or Sublicensees to verify the accuracy of the royalty reports and payments under this Article V. Such review may cover: (i) the records for sales made in any [***] before the date of such request, and (ii) only those periods that have not been subject to a prior audit.
(b)    If such accounting firm concludes that additional royalties were owed during such period, Viking shall pay the additional royalties within [***] days after the date such public accounting firm delivers to Viking such accounting firm’s written report. If such accounting firm concludes that an overpayment was made, such overpayment shall be fully creditable against amounts payable in subsequent payment periods or at Viking’s request, shall be reimbursed to Viking within [***] days after the date such public accounting firm delivers such report to Viking. If Viking disagrees with such calculation, Viking shall [***] to recover the additional payment or to increase the amount of credit or reimbursement. [***] shall pay for the cost of any audit by [***], unless [***], in which case [***] shall pay for the reasonable costs of audit.
(c)    Each Party shall treat all information that it receives under this Section 5.7 in accordance with the confidentiality provisions of Article VII of this Agreement, and shall cause its accounting firm to enter into an acceptable confidentiality agreement with the other Party obligating such firm to retain all such financial information in confidence pursuant to such confidentiality agreement, except to the extent necessary for such Party to enforce its rights under the Agreement.
5.8    Taxes. All amounts due hereunder exclude all applicable withholding, sales, use, and other taxes and duties, and Viking shall be responsible for payment of all such taxes (other than taxes based on Licensor’s income) and duties and any related penalties and interest, arising from the payment of amounts due under this Agreement. The Parties agree to cooperate with one another and use commercially reasonable efforts to avoid or reduce tax withholding or similar obligations in respect of royalties, milestone payments, and other payments made by Viking under this Agreement. To the extent Viking is required to withhold taxes on any payment under this Agreement, Viking shall pay the amounts of such taxes to the proper governmental authority in a timely manner and promptly transmit to Ligand official receipts issued by the appropriate taxing authority and/or an official tax certificate, or such other evidence as Ligand may reasonably request, to establish that such taxes have been paid. Ligand shall provide Viking any tax forms that may be reasonably necessary in order for Viking to not withhold tax or to withhold tax at a reduced rate under an applicable bilateral income tax treaty. Ligand shall use commercially reasonable efforts to provide any such tax forms to Viking at least [***] days before the due date for any payment for which Ligand desires that Viking apply a reduced withholding rate. Each Party shall provide the other with reasonable assistance to enable the recovery, as permitted by applicable law, of withholding taxes, value added taxes, or similar obligations resulting from payments made under this Agreement, such recovery to be for the benefit of the Party bearing such withholding tax or value added tax. [***].
ARTICLE VI    
INVENTIONS AND PATENTS
6.1    Certification Under Drug Price Competition and Patent Restoration Act. Each Party shall immediately give written notice to the other Party of any certification of which they become aware filed pursuant to 21 U.S.C. Section 355(b)(2)(A) (or any amendment or successor statute thereto) claiming that any Licensor Patents Covering a Compound or a Licensed Product, or the manufacture or use of each of the foregoing, are invalid or unenforceable, or that infringement will not arise from the manufacture, use or sale in the US of a Licensed Product by a Third Party.
6.2    Listing of Patents. [***] shall have the sole right to determine which of the Licensor Patents, if any, shall be listed for inclusion in the Approved Drug Products with Therapeutic Equivalence Evaluations pursuant to 21 U.S.C. Section 355, or any successor Law in the United States, together with any comparable Laws in any other country.
6.3    Ownership. All Licensor Technology and all intellectual property rights in the same shall be owned by Licensor and nothing in this Agreement shall amend or otherwise affect the same. To the extent, if any, that Viking acquires any right, title or interest in and to any Licensor Technology and intellectual property rights in the same, Viking hereby irrevocably assigns to the applicable Ligand Party any right, title and interest worldwide in and to the same effective immediately upon the inception, conception, creation or development thereof. The right to file, prosecute and maintain Licensor Patents shall be as set forth in Section 6.4 below. Any technology or other Know-How invented or developed after the Effective Date by or for Viking or otherwise in connection with a Licensed Program, including without limitation derivatives or improvements of Licensor Technology (“Developed Know-How”), and all intellectual property rights in the same (“Developed IP” and collectively with Developed Know-How, “Developed Technology”) shall be owned by Viking and nothing in this Agreement shall amend or otherwise affect the same. [***]. If Viking elects not to file, prosecute or maintain Developed IP in Viking’s name in a Major Market, then it shall notify Ligand in writing at least [***] days before any deadline applicable to the filing, prosecution or maintenance of such Developed IP, as the case may be, or any other date by which an action must be taken to establish or preserve such Developed IP in such Major Market. In such case, Licensor shall have the option to pursue the filing or support the continued prosecution or maintenance of such Developed IP in such Major Market, [***], and Viking shall give Licensor reasonable cooperation in connection therewith.
6.4    Patent Prosecution and Maintenance.
(a)    Licensor Patents. Licensor shall have the first right to file, prosecute and maintain Licensor Patents in Licensor’s name. [***] promptly and regularly informed of the course of the filing and prosecution of Licensor Patents or related proceedings (e.g. interferences, oppositions, reexaminations, reissues, revocations or nullifications) in a timely manner, and [***]. At Licensor’s request, Viking will provide Licensor with [***]assistance in prosecuting Licensor Patents to the extent possible.
(b)    Election not to File and Prosecute Licensor Patents. If Licensor elects not to file, prosecute or maintain a Licensor Patent in Licensor’s name in a Major Market, then it shall notify Viking in writing at least [***] days before any deadline applicable to the filing, prosecution or maintenance of such Licensor Patent, as the case may be, or any other date by which an action must be taken to establish or preserve such Licensor Patent in such Major Market. In such case, Viking shall have the option to pursue the filing or support the continued prosecution or maintenance of such Licensor Patent in such Major Market, [***], and Licensor shall give Viking reasonable cooperation in connection therewith; provided that [***] the filing or supporting the continued prosecution or maintenance of such Licensor Patent in such Major Market pursuant to this Section 6.4(b).
6.5    Enforcement of Patents.
(a)    Notice. If either Party believes that a Licensor Patent is being infringed, or that Licensor Know-How has been misappropriated, by a Third Party or if a Third Party claims that any Licensor Patent is invalid or unenforceable, the Party possessing such knowledge or belief shall notify the other Party and provide it with details of such infringement, misappropriation or claim that are known by such Party.
(b)    Right to Bring an Action. If such infringement, misappropriation or claim is in one or more of the Major Markets, [***]] shall have the exclusive right to attempt to resolve such infringement or claim, including by filing an infringement or misappropriation suit, defending against or bringing a declaratory judgment action as to such claim or taking other similar action (each, “initiation” of an “Action”) and (subject to Section 6.5(d)) to compromise or settle such infringement or claim. At [***] request, [***] shall [***] provide [***] with all relevant documentation (as may be requested by [***]) evidencing that [***]. If [***] does not intend to initiate an Action, [***] shall promptly inform [***]. If [***] does not initiate an Action with respect to such an infringement or claim within [***] days following notice thereof, [***] shall have the right to attempt to resolve such infringement, misappropriation claim or other claim, including by initiating an Action, and (subject to Section 6.5(d)) to compromise or settle such infringement, misappropriation claim or other claim. [***] shall have the sole and exclusive right to select counsel for any suit initiated by it pursuant to this Section 6.5. If a Party initiates an Action but then elects not to pursue the Action, the other Party shall have the right (but not the obligation) to take over the Action, in which case the second Party shall be deemed to have been the initiating Party.
(c)    Costs of an Action. Subject to the respective indemnity obligations of the Parties set forth in Article IX and Section 6.5(e), [***] involved in an Action under Section 6.5(b) shall [***] incurred in connection with such Action. [***] shall have the right to join [***] an Action relating to a Licensor Patent or Licensor Know-How, initiated by the other Party.
(d)    Settlement. Neither Party shall settle or otherwise compromise (or resolve by consent to the entry of judgment upon) any Action by admitting that any Licensor Patent is to any extent invalid or unenforceable, or that any Licensor Know-How is not protected or has not been misappropriated, without the other Party’s prior written consent [***].
(e)    Reasonable Assistance. The Party not enforcing or defending Licensor Patents shall provide reasonable assistance to the other Party, including providing access to relevant documents and other evidence and making its employees and consultants available, subject to [***].
(f)    Distribution of Amounts Recovered. Any amounts recovered by the Party initiating an Action pursuant to this Section 6.5, whether by settlement or judgment, shall be allocated in the following order: [***].
6.6    Third Party Actions Claiming Infringement.
(d)    Notice. If a Party becomes aware of any Third Party Action, such Party shall promptly notify the other Party of all details regarding such claim or action that is reasonably available to such Party.
(e)    Right to Defend. [***] shall have the right, at its sole expense, but not the obligation, to defend a Third Party Action described in Section 6.6(a) and (subject to Section 6.6(f)) to compromise or settle such Third Party Action. If [***] such Third Party Action within [***] days of receipt/sending of notice under Section 6.6(a), then [***] shall have the right, at its sole expense, to defend such Third Party Action and (subject to Section 6.6(f)) to compromise or settle such Third Party Action. The Party defending such Third Party Action shall have the sole and exclusive right to select counsel for such Third Party Action.
(f)    Consultation. The Party defending a Third Party Action pursuant to Section 6.6(b) shall be the “Controlling Party”. The Controlling Party shall consult with the non-Controlling Party, pursuant to an appropriate joint defense or common interest agreement, on all material aspects of the defense. The non-Controlling Party shall have a reasonable opportunity for meaningful participation in decision-making and formulation of defense strategy. The Parties shall reasonably cooperate with each other in all such actions or proceedings. The non-Controlling Party will be entitled to join the Third Party Action and be represented by independent counsel of its own choice at its own expense.
(g)    Appeal. In the event that a judgment in a Third Party Action is entered against either Party and an appeal is available, the Controlling Party shall have the first right, but not the obligation, to file such appeal. In the event the Controlling Party does not desire to file such an appeal, it will promptly, in a reasonable time period (i.e., with sufficient time for the non-Controlling Party to take whatever action may be necessary) before the date on which such right to appeal will lapse or otherwise diminish, permit the non-Controlling Party to pursue such appeal [***]. If applicable Law requires the other Party’s involvement in an appeal, the other Party shall be a nominal party of the appeal and shall provide reasonable cooperation to such Party [***].
(h)    Costs of an Action. Subject to the respective indemnity obligations of the Parties set forth in Article IX, [***] shall pay [***] associated with such Third Party Action other than [***] such Third Party Action (as provided in the last sentence of Section 6.6(c)).
(i)    No Settlement Without Consent. Neither Party shall settle or otherwise compromise (or resolve by consent to the entry of judgment upon) any Third Party Action by admitting that any Licensor Patent is to any extent invalid or unenforceable or that any Licensed Product, or its use, Development, manufacture or sale infringes such Third Party’s intellectual property rights, in each case without the other Party’s prior written consent [***]
ARTICLE VII    
CONFIDENTIALITY
7.1    Confidentiality Obligations. Each Party agrees that, for the Term and for [***] years thereafter, such Party shall, and shall ensure that its officers, directors, employees, consultants, contractors and agents shall, keep completely confidential and not publish or otherwise disclose and not use for any purpose except as expressly permitted hereunder any Confidential Information disclosed to it by the other Party pursuant to this Agreement or any predecessor agreement. The foregoing obligations shall not apply to any Confidential Information disclosed by a Party hereunder to the extent that the receiving Party can demonstrate by written records that such Confidential Information:
(e)    was already known to the receiving Party or its Affiliates, other than under an obligation of confidentiality, at the time of disclosure;
(f)    was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving Party;
(g)    became generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the receiving Party (or its consultants, contractors and agents) in breach of this Agreement;
(h)    was subsequently lawfully disclosed to the receiving Party or its Affiliates by a Third Party without an obligation of confidentiality other than in contravention of a confidentiality obligation of such Third Party; or
(i)    was developed or discovered by employees or agents of the receiving Party or its Affiliates who had no access to the Confidential Information of the disclosing Party.
Notwithstanding the above obligations of confidentiality and non-use, a Party may disclose information to the extent that such disclosure is reasonably necessary in connection with:
(i)    filing or prosecuting patent applications, subject to the terms of Section 6.4;
(ii)    prosecuting or defending litigation;
(iii)    conducting pre-clinical studies or clinical trials pursuant to this Agreement;
(iv)    seeking Regulatory Approval of a Licensed Product; or
(v)    complying with applicable Law, including securities Law and the rules of any securities exchange or market on which a Party’s securities are listed or traded.
In addition to the foregoing, Viking may, in furtherance of its rights under this Agreement, disclose Confidential Information of Licensor to any Third Party, provided that such Third Party is bound by obligations of confidentiality/non-use at least as stringent as the ones herein. Viking shall be responsible to Licensor for any breach of confidentiality/non-use by such Third Parties.
In making any disclosures set forth in clauses (i) through (v) above, the disclosing Party shall, where reasonably practicable, give such advance notice to the other Party of such disclosure requirement as is reasonable under the circumstances and will use its reasonable efforts to cooperate with the other Party in order to secure confidential treatment of such Confidential Information required to be disclosed. In addition, in connection with any permitted filing by either Party of this Agreement with any Governmental Body, included but not limited to the Securities and Exchange Commission, the filing Party shall endeavor to obtain confidential treatment of economic, trade secret information and such other information as may be requested by the other Party, and shall provide the other Party with the proposed confidential treatment request with reasonable time for such other Party to provide comments, and shall include in such confidential treatment request all reasonable comments of the other Party.
7.2    Press Releases and Disclosure. Either Party may make press releases or public announcements regarding this Agreement or any matter covered by this Agreement, including the Development or Commercialization of Licensed Products, but such Party shall, except to the extent legally obligated to do so otherwise, use Commercially Reasonable Efforts to provide the text of such planned disclosure to the other Party [***] before disclosure, and will consider all reasonable comments of the other Party regarding such disclosure. Provided, that neither Party shall use the name, trademark, trade name or logo of the other Party, its Affiliates or their respective employee(s) in any publicity, promotion, news release or public disclosure relating to this Agreement or its subject matter, without the prior express written permission of the other Party, such permission not to be unreasonably withheld, except as may be required by Law or required by the rules of an applicable US national securities exchange.
ARTICLE VIII    
REPRESENTATIONS, WARRANTIES AND COVENANTS
8.1    Representations and Warranties. (a) Viking represents and warrants to each of Metabasis and Ligand, and (b) each of Metabasis and Ligand represents and warrants to Viking, in each case as of the Effective Date:
(a)    it is duly organized and validly existing under the Laws of the jurisdiction of its incorporation or organization;
(b)    it has taken all action necessary to authorize the execution and delivery of this Agreement and the performance of its obligations under this Agreement;
(c)    this Agreement is a legal and valid obligation of it, binding upon it and enforceable against it in accordance with the terms of this Agreement, except as enforcement may be limited by applicable bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium and other laws relating to or affecting creditors’ rights generally and by general equitable principles; and the execution, delivery and performance of this Agreement by it does not conflict with, breach or create in any Third Party the right to accelerate, terminate or modify any agreement or instrument to which it is a party or by which it is bound, and does not violate any Law of any Governmental Body having authority over it; and
(d)    it has all right, power and authority to enter into this Agreement, and to perform its obligations under this Agreement.
8.2    Additional Representations and Warranties of Licensor. Each of Metabasis and Ligand (jointly and severally) represents and warrants to Viking that, as of the Effective Date:
(c)    No consent by any Third Party or Governmental Body is required with respect to the execution and delivery of this Agreement by it or the consummation by it of the transactions contemplated hereby;
(d)    To its Knowledge, no claims have been asserted or threatened by any Person (i) challenging the validity, effective status, or ownership of Licensor Technology, and/or (ii) to the effect that the use, reproduction, modification, manufacturing, distribution, licensing, sublicensing, sale or any other exercise of rights in any of Licensor Technology infringes or will infringe on any intellectual property right of any Person; and to its Knowledge, no such claims have been asserted or are threatened;
(e)    To its Knowledge, the Licensor Patents are subsisting and are not the subject of any litigation procedure, discovery process, interference, reissue, reexamination, opposition, appeal proceedings or any other legal dispute;
(f)    The Licensor Patents constitute all Patent Rights owned or Controlled by Licensor that are directly related to, are necessary for or are actually used in the research, Development, manufacture, use and Commercialization of the Licensed Products as currently envisioned;
(g)    Licensor has not subcontracted or licensed to a Third Party the right to Develop a Competing Product;
(h)    the Licensor Know-How listed on SCHEDULE 2 hereto (as amended from time to time on or before the Effective Date) constitutes all Know-How owned or Controlled by Licensor that is directly related to, is necessary for or is actually used in the research, Development, manufacture, use and Commercialization of the Licensed Products as currently envisioned;
(i)    the Licensor Materials listed on SCHEDULE 3 hereto (as amended from time to time on or before the Effective Date) constitute each compound owned or Controlled by Licensor that is directly related to, is necessary for or is actually used in the research, Development, manufacture, use and Commercialization of the Licensed Products as currently envisioned;
(j)    to its Knowledge, no Third Party has filed, pursued or maintained or threatened in writing to file, pursue or maintain any claim, lawsuit, charge, complaint or other action alleging that any Licensor Technology is invalid or unenforceable;
(k)    Licensor has the full right to provide the Licensor Materials to Viking and to transfer to Viking the Licensor Materials to be provided to Viking pursuant to this Agreement; and
(l)    Licensor has not previously licensed, assigned, transferred, or otherwise conveyed any right, title or interest in and to the Licensor Technology to any Third Party for the field of fructose-1,6-bisphosphatase inhibition, including but not limited to any rights to any Licensor Technology or Licensed Products.
8.3    Disclaimer. Notwithstanding the representations and warranties set forth in this Article VIII, Viking acknowledges and accepts the risks inherent in attempting to Develop and Commercialize any pharmaceutical product. There is no implied representation that the Compounds can be successfully Developed or Commercialized. The representations and warranties set forth in this Article VIII are provided in lieu of, and each Party hereby disclaims, all other warranties, express and implied, relating to the subject matter of this Agreement, the Licensor Technology, the Compounds, the Licensed Products and/or any toxicology and/or scientific data provided hereunder including but not limited to the implied warranties of merchantability and fitness for a particular purpose, title and non-infringement of third party rights. Each Party’s representations and warranties under this Agreement are solely for the benefit of the other Party and may be asserted only by the other Party and not by any Affiliate, Sublicensee or any customer of the other Party, its Affiliates or Sublicensees. Each Party, its Affiliates and Sublicensees shall be solely responsible for all representations and warranties that it, its Affiliates or Sublicensees make to any customer, Affiliates or Sublicensees.
ARTICLE IX    
INDEMNIFICATION AND INSURANCE
9.1    Indemnification by Viking. Except to the extent Licensor has an obligation to indemnify Viking pursuant to Section 9.2 below, Viking shall indemnify, defend and hold Licensor and each of their respective employees, officers, directors and agents (the “Licensor Indemnitees”) harmless from and against any and all actions, judgments, settlements, liabilities, damages, penalties, fines, losses, costs and expenses (including reasonable attorneys’ fees and expenses) to the extent arising out of any Third Party claim, demand, action or other proceeding (each, a “Claim”) related to (a) Viking’s performance of its obligations or exercise (by it or its Affiliates or Sublicensees) of its rights under this Agreement; (b) breach by Viking of its representations or warranties set forth in Article VIII; (c) any clinical study conducted by or on behalf of Viking; (d) the research, Development or Commercialization of Licensed Products by Viking, its Affiliates, Sublicensees, distributors or agents; provided, however, that Viking’s obligations pursuant to this Section 9.1 shall not apply (i) to the extent such claims or suits result from the negligence or willful misconduct of any of the Licensor Indemnitees, or (ii) with respect to claims or suits arising out of breach by Licensor of its representations, warranties or covenants set forth in Article VIII.
9.2    Indemnification by Licensor. Licensor shall indemnify, defend and hold Viking and its Affiliates and each of their respective agents, employees, officers and directors (the “Viking Indemnitees”) harmless from and against any and all actions, judgments, settlements, liability, damage, loss, cost or expense (including reasonable attorney’s fees) to the extent arising out of Third Party claims or suits related to (a) Licensor’s performance of its obligations under this Agreement; (b) breach by Licensor of its representations, warranties or covenants set forth in Article VIII; or (c) the research or Development of Compounds before the Effective Date; provided, however, that Licensor’s obligations pursuant to this Section 9.2 shall not apply (i) to the extent that such claims or suits result from the negligence or willful misconduct of any of the Viking Indemnitees or (ii) with respect to claims or suits arising out of a breach by Viking of its representations or warranties set forth in Article VIII.
9.3    No Consequential Damages. IN NO EVENT SHALL EITHER PARTY OR ANY OF ITS AFFILIATES BE LIABLE TO THE OTHER PARTY OR ANY OF ITS AFFILIATES FOR SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES, INCLUDING LOSS OF PROFITS, WHETHER IN CONTRACT, WARRANTY, TORT, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE, ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE SUBJECT MATTER HEREOF, THE TRANSACTIONS CONTEMPLATED HEREIN OR ANY BREACH HEREOF.
9.4    Procedure. The Party intending to claim indemnification under this Article IX (an “Indemnified Party”) shall promptly notify the other party (the “Indemnifying Party”) of any Claim in respect of which the Indemnified Party intends to claim such indemnification, and the Indemnifying Party shall assume the defense thereof using defense counsel reasonably acceptable to the Indemnified Party; provided, however, that if the Indemnifying Party assumes the defense, the Indemnified Party shall have the right to employ counsel separate from counsel employed by the Indemnifying Party in any such action and to participate in the defense thereof, but the fees and expenses of such counsel employed by the Indemnified Party shall be at the sole cost and expense of the Indemnified Party unless the named parties to any action or proceeding include both the Indemnifying Party and the Indemnified Party and a representation of both the Indemnifying Party and the Indemnified Party by the same counsel would be inappropriate due to the actual or potential differing interests between them. (Notwithstanding the foregoing, no delay or deficiency on the part of the Indemnified Party in so notifying the Indemnifying Party will relieve the Indemnifying Party of any liability or obligation under this Agreement except to the extent the Indemnifying Party has suffered actual prejudice directly caused by the delay or other deficiency.) If the Indemnifying Party shall fail to assume the defense of and reasonably defend such Claim, the Indemnified Party shall have the right to retain or assume control of such defense and the Indemnifying Party shall pay (as incurred and on demand) the fees and expenses of counsel retained by the Indemnified Party. The Indemnifying Party shall have the right to settle such Claim; provided, that the Indemnifying Party shall obtain the prior written consent (which shall not be unreasonably withheld or delayed) of the Indemnified Party before entering into any settlement of (or resolving by consent to the entry of judgment upon) such Claim unless (a) there is no finding or admission of any violation of law or any violation of the rights of any Person by an Indemnified Party, no requirement that the Indemnified Party admit negligence, fault or culpability, no requirement that the Indemnified Party take (or refrain from taking) any action and no adverse effect on any other claims that may be made by or against the Indemnified Party and (b) the sole relief provided is monetary damages that are paid in full by the Indemnifying Party. Regardless of who controls the defense, the other Party shall reasonably cooperate in the defense as may be requested. Without limitation, the Indemnified Party, and its directors, officers, advisers, agents and employees, shall cooperate fully with the Indemnifying Party and its legal representatives in the investigation and defense of any Claim.
9.5    Expenses. As the Parties intend complete indemnification, all costs and expenses of enforcing any provision of this Article IX shall also be reimbursed by the Indemnifying Party.
9.6    Insurance. During the Term and for [***] thereafter, Viking shall obtain and maintain, at its own cost and expense, product liability insurance in amounts, that are reasonable and customary in the United States pharmaceutical and biotechnology industry for companies engaged in comparable activities, with Metabasis and Ligand identified as additional named insureds. It is understood and agreed that this insurance shall not be construed to limit Viking’s liability with respect to its indemnification obligations hereunder. Viking shall provide to Ligand upon request a certificate evidencing the insurance Viking is required to obtain and keep in force under this Section 9.6.
ARTICLE X    
TERM AND TERMINATION
10.1    Term. The term of this Agreement shall commence on the Effective Date and, unless earlier terminated as provided in this Article X, shall continue in full force and effect in perpetuity (the “Term”). The Parties confirm that subject to the foregoing sentence, this Agreement shall not be terminated or invalidated by any future determination that any or all of the Licensor Patents have expired or been invalidated.
10.2    Ligand Termination Rights.
(a)    For Convenience. Ligand shall have the right to terminate this Agreement in its entirety immediately by Ligand providing written notice to Viking if, on or before April 30, 2015, Viking has neither (i) completed its Public Offering nor (ii) received aggregate net proceeds of at least Twenty Million Dollars ($20,000,000) in one or more Private Financings (either (i) or (ii), a “Qualified Financing”); provided that in the event Viking has not completed a Qualified Financing by [***].
(b)    Viking Bankruptcy. Ligand shall have the right to terminate this Agreement in its entirety immediately by written notice to Viking if Viking avails itself of or becomes subject to any petition or proceeding under any statute of any state or country relating to insolvency or the protection of the rights of creditors, or any other insolvency or bankruptcy proceeding or similar proceeding for the settlement of Viking’s debt is instituted.
10.3    Termination upon Material Breach. If Viking, on one hand, and a Ligand Party, on the other hand, fails to make a payment of an undisputed amount when due, then Viking if a Ligand Party is the Party in default or Ligand if Viking is the Party in default may give to the defaulting Party a written notice specifying the nature of the default, requiring it to cure such default. If such payment default is not cured within [***] days after the receipt of such notice, then Viking if a Ligand Party is the Party in default or Ligand if Viking is the Party in default shall be entitled to terminate this Agreement immediately by written notice to the Party in default. If a Party defaults on any of its “material and substantial” obligations under this Agreement, then Viking if a Ligand Party is the Party in default or Ligand if Viking is the Party in default may give to the defaulting Party a written notice specifying the nature of the default, requiring it to cure such default. If the Party in default, after using Commercially Reasonable Efforts, does not cure a curable default within [***] days after the receipt of such notice or, if such curable default is not curable within [***] days, as promptly thereafter as possible using Commercially Reasonable Efforts, then Viking if a Ligand Party is the Party in default or Ligand if Viking is the Party in default shall be entitled to terminate this Agreement immediately by written notice to the other Party. For clarity and not be way of limitation, Viking’s diligence obligations under Section 3.4 are “material and substantial” obligations under this Agreement, provided that, notwithstanding this Section 10.3 or otherwise, in the event of a default by Viking of its diligence obligations under Section 3.4 or its obligations under SCHEDULE 5, the remedial process specified in SCHEDULE 5 shall apply and Ligand Party’s right to terminate shall apply only on a Licensed Program-by-Licensed Program basis and only as expressly provided in SCHEDULE 5. For further clarity and not be way of limitation, any breach by Licensor other than the Ligand Party shall be and shall be deemed to be a breach by the Ligand Party.
10.4    Effects of Termination.
(a)    Survival (Applicable to Termination).
(i)    Articles I (Definitions), IX (Indemnification and Insurance) and XI (Miscellaneous Provisions) and Sections 5.5 (Royalty Reports and Records Retention), 5.6 (Late Payments), 5.7 (Audits), 5.8 (Taxes), 6.3 (Ownership), 7.1 (Confidentiality Obligations) and 10.4 (Effects of Termination), and Article VI (to the extent of any Action or Third Party Action which was begun prior to termination) hereof shall survive the termination of this Agreement for any reason.
(ii)    Termination of this Agreement or any Licensed Program shall not relieve the Parties of any liability that accrued hereunder before the effective date of such termination, as to the Agreement or such Licensed Program, as the case may be. In addition, termination of this Agreement or any Licensed Program shall not preclude either Party from pursuing all rights and remedies it may have hereunder or at Law or in equity with respect to any breach of or default under this Agreement or with respect to such Licensed Program nor prejudice either Party’s right to obtain performance of any obligation.
(b)    Other Effects of Termination (Entire Agreement). Upon termination of this Agreement in accordance with the terms hereof:
(i)    all licenses granted to Viking hereunder shall terminate.
(ii)    Viking shall, upon written request by Ligand and subject to Licensor assuming legal responsibility for any clinical trials of the Licensed Products then ongoing, assign and transfer to Licensor (or to such transferee as Ligand may direct) at no cost to Licensor all regulatory documentation and Regulatory Approvals prepared or obtained by or on behalf of Viking before the date of such termination, to the extent solely related to Licensed Products and transferable, and Viking shall have the right to retain one copy of such transferred documentation and Regulatory Approvals for record-keeping purposes. If Ligand does not make any request of Viking pursuant to this subsection (b)(ii), Viking shall wind down any ongoing Clinical Trials with respect to the Licensed Products at no cost to Licensor.
(iii)    Viking shall, upon written request by Ligand, return to Licensor [***] or, if Ligand so instructs, destroy, all relevant records and materials in its possession or control containing or comprising the Licensor Know-How and the Licensor Materials, and all other Confidential Information of Licensor.
(iv)    Viking shall, upon written request by Ligand, sell and transfer to Licensor (or to such transferee as Ligand may direct) at a price equal to 125% of Viking’s costs of goods (determined in accordance with GAAP), any and all chemical, biological or physical materials relating to or comprising the Licensed Products, including clinical supplies of Licensed Products, that are Controlled by Viking (other than Licensor Materials which are addressed in subsection (b)(iii) above). [***] If Ligand has made no such written request within [***] after such termination, Viking shall destroy any and all chemical, biological or physical materials relating to or comprising the Licensed Products, including clinical supplies of Licensed Products, that are Controlled by Viking.
(v)    Viking and its Affiliates and Sublicensees shall be entitled, during the 6 month period following such termination, to sell on the normal business terms in existence before such termination, any finished commercial inventory of Licensed Products which remains on hand as of the date of the termination, provided that Viking shall pay to Licensor the royalties and sales milestones applicable to said subsequent sales in accordance with the terms and conditions set forth in this Agreement. Any finished commercial inventory remaining following such 6 month period shall be offered [***]. It is understood that if Licensor does not accept such offer Viking may, at its sole option and discretion, destroy or retain such finished commercial inventory remaining following such 6 month period, but shall have no license enabling it to sell such materials to a Third Party.
(vi)    Viking shall (if Ligand so requests) assign the trademarks owned by Viking relating to the Licensed Products to Licensor or otherwise transfer rights to such trademarks to Licensor, upon commercially reasonable terms.
(vii)    Viking hereby grants to Licensor, exercisable only upon termination of this Agreement by Ligand under Sections 10.2 or 10.3, a non-exclusive, worldwide, royalty-bearing, sublicensable license under any Patent Rights and Know-How Controlled by Viking (including without limitation any Developed Technology) to the extent necessary to make, have made, import, use, offer to sell and sell the Licensed Products anywhere in the world [***] on reasonable terms and conditions to be agreed upon by the Parties in good faith upon any such termination of this Agreement by Ligand.
(c)    Other Effects of Termination (One or More Licensed Programs). Upon termination of a Licensed Program because of an event of a default by Viking of its diligence obligations under Section 3.4 or its obligations under SCHEDULE 5:
(vi)    all licenses granted to Viking with respect to the Licensor Technology and Licensed Products solely with respect to such terminated Licensed Program hereunder shall terminate.
(vii)    Viking shall, upon written request by Ligand and subject to Licensor assuming legal responsibility for any clinical trials of the Licensed Products solely with respect to such terminated Licensed Program then ongoing, assign and transfer to Licensor (or to such transferee as Ligand may direct), at no cost to Licensor all regulatory documentation and Regulatory Approvals prepared or obtained by or on behalf of Viking before the date of such termination, to the extent solely related to such Licensed Products and transferable, and Viking shall have the right to retain one copy of such transferred documentation and Regulatory Approvals for record-keeping purposes. If Ligand does not make any request of Viking pursuant to this subsection (c)(ii), Viking shall wind down any ongoing Clinical Trials with respect to the Licensed Products solely with respect to such terminated Licensed Program at no cost to Licensor.
(viii)    Viking shall, upon written request by Ligand, return to Licensor, [***] or, if Ligand so instructs, destroy, all relevant records and materials in its possession or control containing or comprising the Licensor Know-How and the Licensor Materials solely with respect to such terminated Licensed Program, and all other Confidential Information of Licensor solely with respect to such terminated Licensed Program.
(ix)    Viking shall, upon written request by Ligand, sell and transfer to Licensor (or to such transferee as Ligand may direct), at a price equal to 125% of Viking’s costs of goods (determined in accordance with GAAP), any and all chemical, biological or physical materials relating to or comprising the Licensed Products solely with respect to such terminated Licensed Program, including clinical supplies of such Licensed Products, that are Controlled by Viking (other than Licensor Materials which are addressed in subsection (c)(iii) above). [***] If Ligand has made no such written request within [***] after such termination, Viking shall destroy any and all chemical, biological or physical materials relating to or comprising such Licensed Products, including clinical supplies of such Licensed Products, that are Controlled by Viking.
(x)    Viking and its Affiliates and Sublicensees shall be entitled, during the 6 month period following termination of such Licensed Program, to sell on the normal business terms in existence before such termination, any finished commercial inventory of Licensed Products solely with respect to such terminated Licensed Program which remains on hand as of the date of the termination, provided that Viking shall pay to Licensor the royalties and sales milestones applicable to said subsequent sales in accordance with the terms and conditions set forth in this Agreement. Any finished commercial inventory remaining following such 6 month period shall be offered [***]. It is understood that if Licensor does not accept such offer Viking may, at its sole option and discretion, destroy or retain such finished commercial inventory remaining following such 6 month period, but shall have no license enabling it to sell such materials to a Third Party.
(xi)    Viking shall (if Ligand so requests) assign the trademarks owned by Viking relating to the Licensed Products solely with respect to such terminated Licensed Program to Licensor, or otherwise transfer rights to such trademarks to Licensor upon commercially reasonable terms.
(xii)    Viking hereby grants to Licensor, exercisable only upon termination of a Licensed Program by Ligand under Section 10.3, a non-exclusive, worldwide, royalty-bearing, sublicensable license under any Patent Rights and Know-How Controlled by Viking (including without limitation any Developed Technology) to the extent necessary to make, have made, import, use, offer to sell and sell the Licensed Products solely with respect to the terminated Licensed Program anywhere in the world [***] on reasonable terms and conditions to be agreed upon by the Parties in good faith upon any such termination of such Licensed Program by Ligand.
(xiii)    For purposes of this Section 10.4(c), (A) references to “Licensor” shall mean (I) Ligand if the terminated Licensed Program is the EPOR Program or the SARM Program, and (II) Metabasis, if the terminated Licensed Program is the DGAT-1 Program, the TR-Beta Program or the FBPase Program; and (B) references to “at no cost to Licensor” shall mean [***].
ARTICLE XI    
MISCELLANEOUS PROVISIONS
11.1    Relationship of the Parties. Nothing in this Agreement is intended or shall be deemed to constitute a partnership, agency, joint venture or employer-employee relationship between the Parties. Neither Party shall have any right nor authority to commit or legally bind the other Party in any way whatsoever including, without limitation, the making of any agreement, representation or warranty and each Party agrees to not purport to do so.
11.2    Assignment.
(a)    Any assignment not in accordance with this Section 11.2 shall be void.
(b)    No assignment shall relieve the assigning Party of any of its responsibilities or obligations hereunder.
(c)    Viking may not transfer or assign its rights or delegate its obligations under this Agreement, in whole or in part, by operation of law or otherwise, to any Third Party without the prior written consent of Ligand, which consent shall not be unreasonably withheld, conditioned or delayed; provided that, notwithstanding the foregoing, Viking may assign its rights and/or delegate its obligations under this Agreement to an Affiliate, to any Person in a transaction in which Viking also assigns all of its right, title and interest in all or substantially all of its assets, including without limitation, intellectual property rights, to the same party contemporaneous with the assignment of this Agreement, or to a successor, whether by way of merger, sale of stock or otherwise, without Ligand’s prior written consent. As a condition to any permitted assignment hereunder, the assignee must expressly assume, in a writing delivered to Ligand (and in a form reasonably acceptable to Ligand) all of Viking’s obligations under this Agreement, whether arising before, at or after the assignment. For clarification, any assignment pursuant to a Change of Control shall be subject to Section 11.18.
(d)    Neither Ligand nor Metabasis may transfer or assign its rights or delegate its obligations under this Agreement, in whole or in part, by operation of law or otherwise, to any Third Party without the prior written consent of Viking, which consent shall not be unreasonably withheld, conditioned or delayed; provided that, notwithstanding the foregoing, each of Ligand and Metabasis may, without Viking’s prior written consent, assign its rights and/or delegate its obligations under this Agreement to an Affiliate, or, with respect to one or more Licensed Programs, to any Person in a transaction in which such Ligand Party also assigns all of its right, title and interest in all of such Licensed Program(s) assets, including without limitation, intellectual property rights, to the same party contemporaneous with the assignment of this Agreement, or to a successor, whether by way of merger, sale of all or substantially all of its assets, sale of stock or otherwise. As a condition to any permitted assignment hereunder, the assignee must expressly assume, in a writing delivered to Viking (and in a form reasonably acceptable to Viking) all of the Ligand Party’s applicable obligations under this Agreement, whether arising before, at or after the assignment.
(e)    Viking or any Ligand Party may assign its right to receive proceeds under this Agreement or grant a security interest in such right to receive proceeds to one or more financial institutions providing financing to such Party pursuant to the terms of a security or other agreement related to such financing.
11.3    Further Actions. Each Party agrees to execute, acknowledge and deliver such further instruments and to do all such other acts as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.
11.4    Force Majeure. Neither Party shall be liable to the other Party or be deemed to have breached or defaulted under this Agreement for failure or delay in the performance of any of its obligations under this Agreement (other than obligations for the payment of money) for the time and to the extent such failure or delay is caused by or results from acts of God, earthquake, riot, civil commotion, terrorism, war, strikes or other labor disputes, fire, flood, failure or delay of transportation, omissions or delays in acting by a governmental authority, acts of a government or an agency thereof or judicial orders or decrees or restrictions or any other like reason which is beyond the control of the respective Party. The Party affected by force majeure shall provide the other Party with full particulars thereof as soon as it becomes aware of the same (including its best estimate of the likely extent and duration of the interference with its activities), and shall use Commercially Reasonable Efforts to overcome the difficulties created thereby and to resume performance of its obligations hereunder as soon as practicable, and the time for performance shall be extended for a number of days equal to the duration of the force majeure.
11.5    Entire Agreement of the Parties; Amendments; Order of Precedence. This Agreement and the Schedules hereto, together with the Option Agreement, constitute and contain the entire understanding and agreement of the Parties respecting the subject matter hereof and cancel and supersede any and all prior or contemporaneous negotiations, correspondence, understandings and agreements between or among the Parties, whether oral or written, regarding such subject matter (provided, that any and all previous nondisclosure/nonuse obligations are not superseded and remain in full force and effect in addition to the nondisclosure/nonuse provisions hereof). In the event of a conflict or inconsistency among this Agreement, the Schedules and the Option Agreement, the order of precedence shall be as follows: (i) this Agreement, (ii) the Schedules and (iii) the Option Agreement. No waiver, modification or amendment of any provision of this Agreement shall be valid or effective unless made in a writing referencing this Agreement and signed by a duly authorized officer of each Party.
11.6    Captions. The captions to this Agreement are for convenience only, and are to be of no force or effect in construing or interpreting any of the provisions of this Agreement.
11.7    Governing Law; Venue. This Agreement shall be governed by and interpreted in accordance with the laws of the State of California, excluding application of any conflict of laws principles that would require application of the Law of a jurisdiction outside of California, and will be subject to the exclusive jurisdiction of the courts of competent jurisdiction located in San Diego County, California.
11.8    Notices and Deliveries. Any notice, request, approval or consent required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been sufficiently given if delivered in person, transmitted by email or by express courier service to the Party to which it is directed at its physical or email address shown below or such other physical or email address as such Party shall have last given by notice to the other Party.
If to Viking, addressed to:
Viking Therapeutics, Inc.
11119 North Torrey Pines Road, Suite 50
La Jolla, CA 92037
Attention: Chief Executive Officer
Email: [***]
With a copy to:        

Jeffrey T. Hartlin
Matthew D. Berger
Paul Hastings LLP
1117 S. California Ave.
Palo Alto, CA 94304
Email:     jeffhartlin@paulhastings.com
Email:     mattberger@paulhastings.com

If to Ligand Party, addressed to:
Ligand Pharmaceuticals Incorporated
Metabasis Therapeutics, Inc.    
11119 North Torrey Pines Road, Suite 200
La Jolla, CA 92037
Attention: Vice President
Email:     [***]
With a copy to:        

General Counsel
Ligand Pharmaceuticals Incorporated
11119 North Torrey Pines Road, Suite 200
La Jolla, CA 92037
Email:     [***]


11.9    Waiver. A waiver by any Party of any of the terms and conditions of this Agreement in any instance shall not be deemed or construed to be a waiver of such term or condition for the future, or of any other term or condition hereof.
11.10    Rights and Remedies are Cumulative. Except to the extent expressly set forth herein, all rights, remedies, undertakings, obligations and agreements contained in or available upon violation of this Agreement shall be cumulative and none of them shall be in limitation of any other remedy or right authorized in law or in equity, or any undertaking, obligation or agreement of either Party.
11.11    Severability. When possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable Law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable Law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. The Parties shall make a good faith effort to replace the invalid or unenforceable provision with a valid one which in its economic effect is most consistent with the invalid or unenforceable provision.
11.12    No Implied License. No right or license is granted to Viking hereunder by implication, estoppel, or otherwise to any know-how, patent or other intellectual property right owned or Controlled by Licensor, except by an express license granted hereunder. No right or license is granted to Licensor hereunder by implication, estoppel, or otherwise to any know-how, patent or other intellectual property right owned or Controlled by Viking or its Affiliates.
11.13    No Right of Set-Off. Notwithstanding anything to the contrary in this Agreement, Viking shall not have a right to set-off any royalties, milestones or other amount due to a Ligand Party under this Agreement against any damages incurred by Viking for a breach by a Ligand Party of this Agreement.
11.14    Equitable Relief. Each Party recognizes that the covenants and agreements herein and their continued performance as set forth in this Agreement are necessary and critical to protect the legitimate interests of the other Party, that the other Party would not have entered into this Agreement in the absence of such covenants and agreements and the assurance of continued performance as set forth in this Agreement, and that a Party’s breach or threatened breach of such covenants and agreements shall cause the opposed Party irreparable harm and significant injury, the amount of which will be extremely difficult to estimate and ascertain, thus, making any remedy at law or in damages inadequate. Therefore, each Party agrees that the other Party shall be entitled to specific performance, an order restraining any breach or threatened breach of such sections of this Agreement, and any other equitable relief (including but not limited to interim injunctive relief), without the necessity of posting of any bond or security. This right shall be in addition to and not exclusive of any other remedy available to such other Party at law or in equity.
11.15    Interpretation. The language used in this Agreement is the language chosen by the Parties to express their mutual intent, and no provision of this Agreement shall be interpreted for or against a Party because that Party or its attorney drafted the provision
11.16    Construction. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” All references herein to Articles, Sections and Schedules shall be deemed references to Articles and Sections of, and Schedules to, this Agreement unless the context shall otherwise require.
11.17    Counterparts. This Agreement may be executed in counterparts, each of which will be deemed an original, and all of which together will be deemed to be one and the same instrument. A facsimile or a portable document format (PDF) copy of this Agreement, including the signature pages, will be deemed an original.
11.18    Viking Change of Control. Viking must notify Ligand at least [***] days prior to completion or consummation of any Viking Change of Control. Prior to a consummation of a Public Offering, Viking may not complete or otherwise consummate a Viking Change of Control without Ligand’s prior written consent. In addition, Ligand shall have the right (in its sole discretion), at any time after receipt of such notice, to elect to require Viking, including its acquiring party, to (a) adopt reasonable procedures to be agreed upon in writing with Ligand to prevent the disclosure of all Confidential Information of Licensor and other information with respect to the Development and Commercialization of Compounds or Licensed Products (the “Licensor Sensitive Information”) beyond Viking personnel having access to and knowledge of Licensor Sensitive Information prior to the Viking Change of Control, (b) control the dissemination of Licensor Sensitive Information disclosed after the Viking Change of Control, which procedures shall include reasonable restrictions on the scope of any Licensor Sensitive Information to be provided by Licensor, and (c) make adequate provision for the issuance of Viking Equity required under this Agreement.
11.19    Ligand Change of Control. Ligand shall notify Viking at least [***] days prior to completion or consummation of any Ligand Party Change of Control. In addition, Viking shall have the right (in its sole discretion), at any time after receipt of such notice, to elect to require the Ligand Party, including its acquiring party, to (a) adopt reasonable procedures to be agreed upon in writing with Viking to prevent the disclosure of all Confidential Information of Viking and its Affiliates and other information with respect to the Development, manufacture and Commercialization of Licensed Products (the “Viking Sensitive Information”) beyond Licensor personnel having access to and knowledge of Viking Sensitive Information prior to the Ligand Party Change of Control and (b) control the dissemination of Viking Sensitive Information disclosed after the Ligand Party Change of Control, which procedures shall include reasonable restrictions on the scope of any Viking Sensitive Information to be provided by Viking or its Affiliates.
11.20    No Solicitation. For a period of [***] years from the Effective Date, Viking shall not solicit, induce, encourage or attempt to induce or encourage any employee of Ligand Party to terminate his or her employment with Ligand Party or to breach any other obligation to Ligand Party. This section is not meant to encompass general solicitations such as may be found in newspaper advertisements and the like.
11.21    Information for Financial Reporting. In addition to any reports provided by the Parties hereunder or under the Loan and Security Agreement, including the reports provided by Viking pursuant to Section 5.5, for as long as the aggregate number of voting shares of Viking capital stock owned by Ligand and Metabasis equals or exceeds [***] of the number of voting shares of Viking capital stock then outstanding, Viking shall provide to Ligand such financial information for each calendar month (the “Financial Information”) within [***] days after the end of the first two calendar months in each calendar quarter and not later than [***] days after the end of the third calendar month in each calendar quarter to allow Ligand to accrue the proper expenses and revenues as required by GAAP and required for consolidated financial reporting, if applicable, under applicable Laws. Viking shall certify by a certificate signed by its chief executive officer, president or chief financial officer that all such financial information has been prepared in accordance with GAAP (other than the exclusion of footnotes not ordinarily included in interim period financial statements) and present fairly Viking’s financial position as at the dates thereof and its results of operations for the periods then ended, subject to normal year-end adjustments. Ligand agrees that, to the extent that Licensor wishes to publicly disclose any of the Financial Information and identify such Financial Information as being the financial information of Viking or any of its Affiliates (the “Disclosure”), Licensor shall (i) provide such Disclosure to Viking at least [***] business days prior to the date that Licensor issues such Disclosure publicly, and (ii) consider in good faith any comments with respect to such Disclosure provided by Viking to Ligand. Any Disclosures previously disclosed by Viking or any of its Affiliates or previously reviewed by Viking may be thereafter disclosed without the need for Viking’s additional review.
11.22    Nature of Rights. The rights granted to Viking hereunder are rights in “intellectual property” within the scope of Section 101 of the United States Bankruptcy Code (the “Code”). Viking shall have the rights set forth in this Agreement with respect to the Licensor Technology when and as developed or created. In addition, Viking, as a licensee of intellectual property rights hereunder, shall have and may fully exercise all rights available to a licensee under the Code, including, without limitation, under Section 365(n) and its successors. In the event Licensor makes a general assignment for the benefit of its creditors; applies for or consents to the appointment of a receiver, trustee or liquidator for substantially all of its assets or such a receiver, trustee or liquidator is appointed; or Licensor has filed against it an involuntary petition of bankruptcy that has not been dismissed within [***] days thereof, or files a voluntary petition of bankruptcy, or a petition or answer seeking reorganization, or seeks to take advantage of any other law relating to relief of debtors; or has wound up or liquidated its business, Viking shall have the right to obtain (and Licensor or any trustee for Licensor or its assets shall, at Viking’s written request, deliver to Viking) a copy of all embodiments (including, without limitation, any work in progress) of any intellectual property rights granted under this Agreement, including, without limitation, all embodiments of the Licensor Technology, Licensor’s Confidential Information or any other intellectual property necessary or useful for Viking to use or exploit any Licensor Technology or to exercise its rights under this Agreement. In addition, Licensor shall take all steps reasonably requested by Viking to perfect, exercise and enforce its rights under this Agreement, including, without limitation, filings in the U.S. Copyright Office and U.S. Patent and Trademark Office, and under the Uniform Commercial Code.

IN WITNESS WHEREOF, the Parties have caused this Master License Agreement to be executed and delivered by their respective duly authorized officers as of the day and year first above written.
METABASIS THERAPEUTICS, INC.
VIKING THERAPEUTICS, INC.
By:     /s/ Charles Berkman        
Name: Charles Berkman
Title: Vice President, General Counsel and Secretary
By:     /s/ Brian Lian               
Name: Brian Lian, Ph.D.
Title: CEO
LIGAND PHARMACEUTICALS INCORPORATED
 
By:     /s/ Charles Berkman        
Name: Charles Berkman
Title: Vice President, General Counsel and Secretary
 


SCHEDULE 1
COMPOUNDS
FBPase Compounds
Count
Compound ID
 
[***]
[***]
 


SCHEDULE 1
COMPOUNDS
SARM Compounds
Count
Compound ID
 
[***]
[***]
 



SCHEDULE 1
COMPOUNDS
EPOR Compounds
Count
Compound ID
 
[***]
[***]
 

SCHEDULE 1
COMPOUNDS
TR-Beta Compounds
Count
Compound ID
 
[***]
[***]
 


SCHEDULE 1
COMPOUNDS
DGAT-1 Compounds
Count
Compound ID
 
[***]
[***]
 


SCHEDULE 2
LICENSOR KNOW-HOW
FBPase Program
Index
Folder
File
[***]
[***]
[***]

SCHEDULE 2
LICENSOR KNOW-HOW
SARM Program
Index
Folder
File
[***]
[***]
[***]

SCHEDULE 2
LICENSOR KNOW-HOW
EPOR Program
Index
Folder Name
File Name
[***]
[***]
[***]

SCHEDULE 2
LICENSOR KNOW-HOW
TR-Beta Program
Index
Folder
File
[***]
[***]
[***]

SCHEDULE 2
LICENSOR KNOW-HOW
DGAT-1 Program
Index
Folder
File
[***]
[***]
[***]



SCHEDULE 3
LICENSOR MATERIALS
FBPase Compounds
[***]

SCHEDULE 3
LICENSOR MATERIALS
SARM Compounds
[***]

SCHEDULE 3
LICENSOR MATERIALS
EPOR Compounds
[***]
SCHEDULE 3
LICENSOR MATERIALS
TR-Beta Compounds

[***]

SCHEDULE 3
LICENSOR MATERIALS
DGAT-1 Compounds
[***]



SCHEDULE 4
LICENSOR PATENT RIGHTS
DGAT-1 PATENTS
Docket No.
Client Reference
Serial No.
Title
Inventors
Date Filed
Comments
[***]
[***]
[***]
[***]
[***]
[***]
[***]

FBPASE PATENTS
Matter Code
App Serial No.
Status
Date Filed
Patent No.
Title
Date Issued
Expiration
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]


EPOR PATENTS
Case No.
Title of Invention:
Country:
Status:
Application No.
Filing Date:
Patent No.
Date Issued:
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]

SARM PATENTS
Case No.
Title
Country
Status
Application No.
Filing Date
Patent No
Date Issued
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]

TR-BETA PATENTS
Case No.
Title of Invention
Country:
Status:
Application No.
Filing Date:
Patent No:
Date Issued:
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]








SCHEDULE 5

ADDITIONAL LICENSED PROGRAM DILIGENCE OBJECTIVES

LICENSED PROGRAMS: In addition, using Commercially Reasonable Efforts, Viking will engage in Substantial Development Activities [***] for the Licensed Programs listed below, unless Viking is precluded from doing so due to regulatory reasons.

“Substantial Development Activities” shall mean the achievement of the following objectives with respect to the applicable Licensed Program:

•
DGAT-1 PROGRAM: [***].

•
EPOR PROGRAM: [***].

•
SARM PROGRAM: [***].

•
TR-BETA PROGRAM: [***].

•
FBPASE PROGRAM: Following payment of the Exercise Fee, Viking shall [***].


In the event (A) that Viking fails to achieve the SARM Program objective set forth above by [***] pursuant to this SCHEDULE 5 or (B) of a default by Viking of a diligence obligation under Section 3.4 with respect to the SARM Program, the Parties shall meet to discuss and (i) determine in good faith whether Viking failed to perform its obligations with respect to the SARM Program under the Agreement, including this SCHEDULE 5, and, if so, (ii) agree upon a mutually acceptable reasonable remediation plan (the “SARM Remediation Plan”), both of the foregoing (A) no later than [***] if the failure is with respect to the Substantial Development Activity for the SARM Program, or (B) no later than [***] days following the default by Viking of a diligence obligation under Section 3.4 with respect to the SARM Program. If it is mutually determined that Viking failed to perform its obligations with respect to the SARM Program under this Agreement, including this SCHEDULE 5, and if the Parties are unable to mutually agree upon a SARM Remediation Plan, then the Chief Executive Officers of each of Ligand and Viking (the “Executive Officers”) shall have a face-to-face meeting to attempt to solve the disagreement within the next [***] days. In the event that the disagreement is still not resolved thereafter, then Ligand will propose, in good faith and after taking into consideration Viking’s position and comments, reasonable modifications to the SARM Remediation Plan last proposed by Viking. If Viking does not accept such modified SARM Remediation Plan, Ligand may terminate the SARM Program with [***] days prior written notice (which shall be deemed to be a termination solely with respect to the SARM Program by Ligand pursuant to Section 10.3 for all purposes under this Agreement).

In the event that Viking anticipates that it will fail to achieve the EPOR Program objective set forth above by [***] pursuant to this SCHEDULE 5, it may elect to extend such date by an additional [***]





months by providing to Ligand before [***] an irrevocable written election to extend such date accompanied by a non-refundable EPOR Program extension fee in the amount of [***], payable by cashier’s check or wire transfer to Ligand. Following receipt of the EPOR Program extension fee, the date for achievement of the EPOR Program objective shall be extended to [***]. For avoidance of doubt, such date may only be extended once.

In the event that (A) Viking fails to achieve the Substantial Development Activity objective as and by the date specified above, with respect to the EPOR Program (as the same may be extended pursuant to this SCHEDULE 5), DGAT-1 Program, TR-Beta Program or FBPase Program pursuant to this SCHEDULE 5 (such EPOR Program, DGAT-1 Program, TR-Beta Program and FBPase Program shall be individually referred to as “Other Licensed Program” and collectively referred to as “Other Licensed Programs”) or (B) of a default by Viking of a diligence obligation under Section 3.4 with respect to an Other Licensed Program, the Parties shall meet to discuss and (i) determine in good faith whether Viking failed to perform its obligations with respect to a particular Other Licensed Program under the Agreement, including this SCHEDULE 5, and, if so, (ii) agree upon a mutually acceptable reasonable remediation plan for the Other Licensed Program (the “Other Licensed Program Remediation Plan”) within [***] following the specified date for such Other Licensed Program or following the default by Viking of a diligence obligation under Section 3.4 with respect to the Other Licensed Program, as applicable. If it is mutually determined that Viking failed to perform its obligations with respect to such Other Licensed Program under the Agreement, including this SCHEDULE 5, and if the Parties are unable to mutually agree upon an Other Licensed Program Remediation Plan, then the Executive Officers shall have a face-to-face meeting to attempt to solve the disagreement within the next [***]. In the event that the disagreement is still not resolved thereafter, then Ligand will propose, in good faith and after taking into consideration Viking’s position and comments, reasonable modifications to the Other Licensed Program Remediation Plan for such Other Licensed Program last proposed by Viking. If Viking does not accept such modified Other Licensed Program Remediation Plan, Ligand may terminate the particular Other Licensed Program with [***] prior written notice (which shall be deemed to be a termination solely with respect to such particular Other Licensed Program by the applicable Ligand Party pursuant to Section 10.3 for all purposes under this Agreement).

If the Parties do not agree on whether Viking failed to perform its obligations under the Agreement, including this SCHEDULE 5, with respect to the EPOR Program (as the same may be extended pursuant to this SCHEDULE 5), then the Executive Officers shall have a face-to-face meeting to attempt to solve the disagreement within the [***] or such longer period of time as may be agreed upon by the Parties. In the event that the disagreement with respect to the EPOR Program is still not resolved thereafter, either Party shall be entitled to commence expedited arbitration proceedings to decide and resolve this single issue in San Diego, California, pursuant to the then-current Rules of Arbitration of the International Chamber of Commerce and the Parties agree to be bound by the award of such tribunal. The arbitration shall consist of a single arbitrator mutually agreed by the Parties or, in the absence of such agreement, each Party shall select an arbitrator and those two arbitrators shall select a third arbitrator, who shall serve as the chair of the tribunal.







SCHEDULE 6

ISSUANCE OF VIKING SECURITIES

Licensed Program
Viking Securities to be Issued To:
Dollar Amount of Viking Securities to be Issued:
Number of Shares of Viking Securities
DGAT-1 Program
Metabasis
[***]
(1)
EPOR Program
Ligand
[***]
(1)
SARM Program
Ligand
[***]
(1)
TR-Beta Program
Metabasis
[***]
(1)
FBPase Program
Metabasis
[***]
(1)
TOTAL
 
$29,000,000
 

(1)
The aggregate number of shares of Viking Securities issued to Ligand and/or Metabasis (collectively) pursuant to Section 5.1(b) and this SCHEDULE 6 shall be as follows.

(a)    In the event the valuation of the Company as of immediately prior to the Financing Transaction, based on the actual shares of capital stock outstanding as of such time (the “Pre-Money Valuation”), is up to or equal to [***], the aggregate number of shares of Viking Securities issued to Ligand and Metabasis (collectively) pursuant to this Agreement shall be equal to:
    
[***]

(b)    In the event the Pre-Money Valuation is greater than [***], the aggregate number of shares of Viking Securities issued to any Ligand and Metabasis (collectively) pursuant to this Agreement shall be equal to:

[***]

** Includes the Exercise Fee





SCHEDULE 7

LICENSED PRODUCT MILESTONES AND ROYALTIES1 

A.    Development and Commercial Milestones.
1.    FBPase Program: Viking shall pay Metabasis the following one-time, non-refundable milestone payments with respect to the first, second, third and fourth different Indication of a Licensed Product containing an FBPase Compound to achieve the following milestone events (without regard to whether the Licensed Product which addresses and achieves a milestone event with respect to a respective Indication also achieved the same (or any other) milestone event as to another one or more of the Indications) and whether achieved by Viking, its Affiliate or its Sublicensee.

Milestone event payable for each Indication up to the fourth Indication
Milestone Payment
[***]
[***]

For the avoidance of doubt, the total maximum milestone payments payable under this Section A.1 for all Licensed Products containing an FBPase Compound and all Indications are $240,000,000.
With respect to each milestone event, the milestone payments to be made under this Section A.1 shall be due and payable only once (or up to four times, as the case may be) as indicated, even if an Indication is discontinued after a milestone payment has been made.
2.    DGAT-1 Program: Viking shall pay Metabasis the following one-time, non-refundable milestone payments with respect to the first and second different Indication of a Licensed Product containing a DGAT-1 Compound to achieve the following milestone events (without regard to whether the Licensed Product which addresses and achieves a milestone event with respect to a respective Indication also achieved the same (or any other) milestone event as to another one or more of the Indications) whether achieved by Viking, its Affiliate or its Sublicensee.

Milestone event payable for each Indication up to the second Indication

Milestone Payment
[***]
[***]






For the avoidance of doubt, the total maximum milestone payments payable under this Section A.2 for all Licensed Products containing a DGAT-1 Compound are $156,000,000.
With respect to each milestone event, the milestone payments to be made under this Section A.2 shall be due and payable only once (or up to two times, as the case may be) as indicated, even if the Development of a particular Licensed Product is discontinued after a milestone payment has been made.
3.    EPOR Program: Viking shall pay Ligand the following one-time, non-refundable milestone payments with respect to the first, second and third different Indication of a Licensed Product containing an EPOR Compound to achieve the following milestone events (without regard to whether the Licensed Product which addresses and achieves a milestone event with respect to a respective Indication also achieved the same (or any other) milestone event as to another Indication) and whether achieved by Viking, its Affiliate or its Sublicensee.

Milestone event payable for each Indication up to the third Indication

Milestone Payment
[***]
[***]

For the avoidance of doubt, the total maximum milestone payments payable under this Section A.3 for all Licensed Products containing an EPOR Compound are $144,000,000.
With respect to each milestone event, the milestone payments to be made under this Section A.3 shall be due and payable only (or up to three times, as the case may be) as indicated, even if the Development of a particular Licensed Product is discontinued after a milestone payment has been made.
4.    SARM Program: Viking shall pay Ligand the following one-time, non-refundable milestone payments with respect to the first and the second different Indication of a Licensed Product containing a SARM Compound to achieve the following milestone events (without regard to whether the Licensed Product which addresses and achieves a milestone event with respect to a respective Indication also achieved the same (or any other) milestone event as to another Indication) and whether achieved by Viking, its Affiliate or its Sublicensee.

Milestone event payable for each Indication up to the second Indication

Milestone Payment
[***]
[***]






For the avoidance of doubt, the total maximum milestone payments payable under this Section A.4 for all Licensed Products containing a SARM Compound are $170,000,000.
With respect to each milestone event, the milestone payments to be made under this Section A.4 shall be due and payable only once (or up to two times, as the case may be) as indicated, even if an Indication is discontinued after a milestone payment has been made.
5.    TR-Beta Program: Viking shall pay Metabasis the following one-time, non-refundable milestone payments with respect to the first, the second and the third different Indication of a Licensed Product containing a TR-Beta Compound to achieve the following milestone events (without regard to whether the Licensed Product which addresses and achieves a milestone event with respect to a respective Indication also achieved the same (or any other) milestone event as to another one or more of the Indications) and whether achieved by Viking, its Affiliate or its Sublicensee.

Milestone event payable for each Indication up to the third Indication

Milestone Payment
[***]
[***]

For the avoidance of doubt, the total maximum milestone payments payable under this Section A.5 for all Licensed Products containing a TR-Beta Compound are $225,000,000.
With respect to each milestone event, the milestone payments to be made under this Section A.5 shall be due and payable only once (or up to three times, as the case may be) as indicated, even if an Indication is discontinued after a milestone payment has been made.
6.    Payment of Development, Commercial and Special Milestones. Viking shall promptly, but in no event later than [***] days following each achievement of a milestone event set forth in this Section A, notify Ligand in writing of the achievement of such milestone event and shall pay the relevant milestone payment within [***] days thereafter.

B.    Sublicense Milestone Payments. Viking shall pay Metabasis a one-time, non-refundable milestone payment of Two Million Five Hundred Thousand Dollars ($2,500,000) upon the occurrence of a First Commercial Sale of an FBPase Compound by a Sublicensee (which, for clarity, shall not include a Sublicense to a contract manufacturer in connection with Commercialization).






Viking shall promptly, but in no event later than [***] days following the achievement of the milestone event set forth in this Section B, notify Ligand in writing of the achievement of such milestone event and shall pay the milestone payment within [***] days thereafter.

C.    Sales Milestone Payments.

1.    DGAT-1. Viking shall pay Metabasis the following one-time, non-refundable milestone payments with respect to Licensed Products containing a DGAT-1 Compound as follows:

Milestone event payable

Milestone Payment
The end of the [***] during which cumulative Net Sales for all Licensed Products containing a DGAT-1 Compound reach or surpass [***]
[***]
The end of the [***] during which cumulative Net Sales for all Licensed Products containing a DGAT-1 Compound reach or surpass [***]
[***]
The end of the [***] during which cumulative Net Sales for all Licensed Products containing a DGAT-1 Compound reach or surpass [***]
[***]

2.    FBPase. Viking shall pay Metabasis the following one-time, non-refundable milestone payments with respect to Licensed Products containing a FBPase Compound as follows:

Milestone event payable

Milestone Payment
The end of the [***] during which cumulative Net Sales for all Licensed Products containing a FBPase Compound reach or surpass [***]
[***]
The end of the [***] during which cumulative Net Sales for all Licensed Products containing a FBPase Compound reach or surpass [***]
[***]
The end of the [***] during which cumulative Net Sales for all Licensed Products containing a FBPase Compound reach or surpass [***]
[***]






3.    EPOR. Viking shall pay Ligand the following one-time, non-refundable milestone payments with respect to Licensed Products containing an EPOR Compound as follows:

Milestone event payable

Milestone Payment
The end of the [***] during which cumulative Net Sales for all Licensed Products containing an EPOR Compound reach or surpass [***]
[***]
The end of the [***] during which cumulative Net Sales for all Licensed Products containing an EPOR Compound reach or surpass [***]
[***]
The end of the [***] during which cumulative Net Sales for all Licensed Products containing an EPOR Compound reach or surpass [***]
[***]

4.    SARM. Viking shall pay Ligand the following one-time, non-refundable milestone payments with respect to Licensed Products containing a SARM Compound as follows:

Milestone event payable

Milestone Payment
The end of the [***] during which cumulative Net Sales for all Licensed Products containing a SARM Compound reach or surpass [***]
[***]
The end of the [***] during which cumulative Net Sales for all Licensed Products containing a SARM Compound reach or surpass [***]
[***]
The end of the [***] during which cumulative Net Sales for all Licensed Products containing a SARM Compound reach or surpass [***]
[***]

5.    TR-Beta. Viking shall pay Metabasis the following one-time, non-refundable milestone payments with respect to Licensed Products containing a TR-Beta Compound as follows:






Milestone event payable

Milestone Payment
The end of the [***] during which cumulative Net Sales for all Licensed Products containing a TR-Beta Compound reach or surpass [***]
[***]
The end of the [***] during which cumulative Net Sales for all Licensed Products containing a TR-Beta Compound reach or surpass [***]
[***]
The end of the [***] during which cumulative Net Sales for all Licensed Products containing a TR-Beta Compound reach or surpass [***]
[***]

6.    Payment of Sales Milestones. Viking shall include in its report delivered each [***] under Section 5.5 of this Agreement a notation regarding the achievement of such milestone event and for which category or categories of Licensed Products it has been achieved. Viking shall pay the relevant milestone payment concurrently with the payment of royalties based on the applicable [***] report.

D.    Royalty Payments.

1.    DGAT-1. Viking shall, during the applicable Royalty Term, pay to Metabasis a royalty on aggregate annual worldwide Net Sales by Viking and its Affiliates and Sublicensees of all Licensed Products with one or more Valid Claims Covering any DGAT-1 Compound contained in such Licensed Products, at the percentage rates set forth below:

Annual worldwide Net Sales of Licensed Products Containing a DGAT-1 Compound per Calendar Year (U.S. Dollars)
Incremental Royalty Rate
For Net Sales of such a Licensed Product from [***] up to and including [***]
[***]%
For that portion of Net Sales of a Licensed Product that is greater than [***] and less than or equal to [***]
[***]%
For that portion of Net Sales of a Licensed Product that is greater than [***]
[***]%

By way of illustration, assume in a Calendar Year that aggregate worldwide annual Net Sales of all such Licensed Products total $950,000,000. The total royalties due and payable by Viking to Metabasis for such Net Sales would be [***], calculated as follows:
[***]
2.    FBPase. Viking shall, during the applicable Royalty Term, pay to Metabasis a royalty on aggregate annual worldwide Net Sales by Viking and its Affiliates and Sublicensees





of all Licensed Products with one or more Valid Claims Covering any FBPase Compound contained in such Licensed Products, at the percentage rates set forth below:

Annual worldwide Net Sales of Licensed Products Containing a FBPase Compound per Calendar Year (U.S. Dollars)
Incremental Royalty Rate
For Net Sales of such a Licensed Product from [***] up to and including [***]
[***]%
For that portion of Net Sales of a Licensed Product that is greater than [***] and less than or equal to [***]
[***]%
For that portion of Net Sales of a Licensed Product that is greater than [***]
[***]%

By way of illustration, assume in a Calendar Year that aggregate worldwide annual Net Sales of all such Licensed Products total $950,000,000. The total royalties due and payable by Viking to Metabasis for such Net Sales would be [***], calculated as follows:
[***]
3.    EPOR. Viking shall, during the applicable Royalty Term, pay to Ligand a royalty on aggregate annual worldwide Net Sales by Viking and its Affiliates and Sublicensees of all Licensed Products with one or more Valid Claims Covering any EPOR Compound contained in such Licensed Products, at the percentage rates set forth below:

Annual worldwide Net Sales of Licensed Products Containing an EPOR Compound per Calendar Year (U.S. Dollars)
Incremental Royalty Rate
For Net Sales of such a Licensed Product from [***] up to and including [***]
[***]%
For that portion of Net Sales of a Licensed Product that is greater than [***] and less than or equal to [***]
[***]%
For that portion of Net Sales of a Licensed Product that is greater than [***]
[***]%

By way of illustration, assume in a Calendar Year that aggregate worldwide annual Net Sales of all such Licensed Products total $950,000,000. The total royalties due and payable by Viking to Ligand for such Net Sales would be [***], calculated as follows:
[***]
4.    SARM. Viking shall, during the applicable Royalty Term, pay to Ligand a royalty on aggregate annual worldwide Net Sales by Viking and its Affiliates and Sublicensees of all Licensed Products with one or more Valid Claims Covering any SARM Compound contained in such Licensed Products, at the percentage rates set forth below:






Annual worldwide Net Sales of Licensed Products Containing a SARM Compound per Calendar Year (U.S. Dollars)
Incremental Royalty Rate
For Net Sales of such a Licensed Product from [***] up to and including [***]
[***]%
For that portion of Net Sales of a Licensed Product that is greater than [***] and less than or equal to [***]
[***]%
For that portion of Net Sales of a Licensed Product that is greater than [***]
[***]%

By way of illustration, assume in a Calendar Year that aggregate worldwide annual Net Sales of all such Licensed Products total $950,000,000. The total royalties due and payable by Viking to Ligand for such Net Sales would be [***], calculated as follows:
[***]
5.    TR-Beta. Viking shall, during the applicable Royalty Term, pay to Metabasis a royalty on aggregate annual worldwide Net Sales by Viking and its Affiliates and Sublicensees of all Licensed Products with one or more Valid Claims Covering any TR-Beta Compound contained in such Licensed Products, at the percentage rates set forth below:
Annual worldwide Net Sales of Licensed Products Containing a TR-Beta Compound per Calendar Year (U.S. Dollars)
Incremental Royalty Rate
For Net Sales of such a Licensed Product from [***]up to and including [***]
[***]%
For that portion of Net Sales of a Licensed Product that is greater than [***] and less than or equal to [***]
[***]%
For that portion of Net Sales of a Licensed Product that is greater than [***]
[***]%

By way of illustration, assume in a Calendar Year that aggregate worldwide annual Net Sales of all such Licensed Products total $950,000,000. The total royalties due and payable by Viking to Metabasis for such Net Sales would be [***], calculated as follows:
[***]
6.    Royalty Payable if no Valid Claim. Notwithstanding the foregoing, in each country where     there is no Valid Claim Covering the applicable Compound contained in the Licensed Products that     would be infringed by the sale of such Licensed Product in such country absent a license with respect     to Licensor Patents under this Agreement, then the applicable royalty rate set forth in this Section D above as applied to the sale of such Licensed Product in each such country shall be [***] as follows: (a) with respect to Licensed Products containing a SARM Compound or a TR-Beta Compound, by [***] (i.e., the applicable royalty rate shall be [***] the rates set forth in the tables above) and such [***] royalty shall be payable for the remaining Royalty Term for such





Licensed Products; and     (b) with respect to all other Licensed Products, by [***] (i.e., the applicable royalty rate shall be [***] the rates set forth in the tables above) and such [***] royalty shall be payable for the remaining Royalty Term for all other Licensed Products.

7.    Required Third Party License. If Viking, after arm’s-length negotiation, obtains a license from a Third Party to an issued and unexpired Patent the claims of which would be infringed by Viking making, using, selling, offering for sale or importing a Licensed Product, Viking may offset [***] of the applicable Licensed Product in the applicable country; provided that in no event shall the royalty rates payable to Licensor with respect to the applicable Licensed Product in the applicable country be reduced by more than [***].










SCHEDULE 8


[***]
 







SCHEDULE 1.49

LOAN AND SECURITY AGREEMENT



 


LigandOmtheraResearchandLicenseAgreement
CERTAIN MATERIAL (INDICATED BY AN ASTERISK) HAS BEEN OMITTED FROM THIS DOCUMENT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Exhibit 10.3

RESEARCH AND LICENSE AGREEMENT
Dated as of May 9, 2014
by and between
Ligand Pharmaceuticals Incorporated
and
Omthera Pharmaceuticals, Inc.






RESEARCH AND LICENSE AGREEMENT
THIS RESEARCH AND LICENSE AGREEMENT (the “Agreement”) is dated as of May 9, 2014 (the “Effective Date”) by and between Ligand Pharmaceuticals Incorporated, a Delaware corporation organized having its place of business at 11119 North Torrey Pines Road, Suite 200, La Jolla, CA 92037 (including its successors and permitted assigns, “Licensor”), and Omthera Pharmaceuticals, Inc., a Delaware corporation with its place of business at 707 State Road, Princeton, NJ 08540 (including its successors and permitted assigns and all of its Affiliates, “Omthera”). Omthera, on the one hand, and Licensor, on the other hand, shall each be referred to herein as a “Party” or, collectively, as the “Parties.”
RECITALS:
WHEREAS, Omthera is engaged in the research, development, manufacturing and commercialization of pharmaceutical products, and Omthera is interested in developing and commercializing products containing or comprising the Compounds; and
WHEREAS, Omthera desires to license from Licensor and Licensor wishes to license to Omthera, on an exclusive basis, the right to develop and commercialize Licensor Liver Targeting Prodrug Technology prodrugs comprising the Compounds.
NOW, THEREFORE, in consideration of the foregoing and of the various promises and undertakings set forth herein, the Parties agree as follows:
ARTICLE I
DEFINITIONS
Unless otherwise specifically provided herein, the following terms shall have the following meanings:
1.1     “Affiliate” means a Person or entity that controls, is controlled by or is under common control with a Party, but only for so long as such control exists. For the purposes of this Section 1.2, the word “control” (including, with correlative meaning, the terms “controlled by” or “under common control with”) means the actual power, either directly or indirectly through one or more intermediaries, to direct the management and policies of such Person or entity, whether by the ownership of at least 50% of the voting stock of such entity, or by contract or otherwise.
1.2    “Agent” means any of the following natural omega-3 fatty acids: (a) EPA (i.e., icosapentaenoic acid) or an EPA ester, (b) DHA (i.e., docosahexaenoic acid) or a DHA ester, (c) a combination of EPA (or an EPA ester) with DHA (or a DHA ester) or (d) any of the individual omega-3 fatty acids or a complex mixture of the omega-3 fatty acids contained (as of the Effective Date) within Epanova™.
1.3    “Calendar Quarter” means each three month period commencing January 1, April 1, July 1 or October 1, provided however that (a) the first Calendar Quarter of the Term shall extend from

1





the Effective Date to the end of the first full Calendar Quarter thereafter, and (b) the last Calendar Quarter of the Term shall end upon the termination or expiration of this Agreement.
1.4    “Calendar Year” means the period beginning on the 1st of January and ending on the 31st of December of the same year, provided however that (a) the first Calendar Year of the Term shall commence on the Effective Date and end on December 31 of the same calendar year as the Effective Date, and (b) the last Calendar Year of the Term shall commence on January 1 of the Calendar Year in which this Agreement terminates or expires and end on the date of termination or expiration of this Agreement.
1.5    “Combination Product” means a product containing a Licensed Product together with one or more other active ingredients, or with one or more products, devices, pieces of equipment or components.
1.6    “Commercialization” or “Commercialize” means any and all activities undertaken at any time for a particular Licensed Product and that relate to the manufacturing, marketing, promoting, distributing, importing or exporting for sale, offering for sale, and selling of the Licensed Product, and interacting with Regulatory Authorities regarding the foregoing.
1.7    “Commercially Reasonable Efforts” means, with respect to the efforts to be expended by a Party or such Party’s applicable Affiliate with respect to any objective, such reasonable, diligent, and good faith efforts normally used to accomplish a similar objective under similar circumstances. Commercially Reasonable Efforts will not mean that a Party commits that it or such Party’s applicable Affiliate will actually accomplish the applicable task. For clarity, references in this Agreement to Commercially Reasonable Efforts by a Party shall be deemed to include such Party’s Affiliate to the extent allowable under this Agreement or as otherwise mutually agreed by the Parties.
1.8    “Competing Product” means any product an active pharmaceutical ingredient of which is a Compound.
1.9    “Compound” means an Agent’s prodrug that utilizes the Licensor Liver Targeting Prodrug Technology and is discovered or Developed by or for the account of a Party pursuant to such Party’s performance of its obligations under this Agreement.
1.10    “Compound Patent” means all Patent Rights which claim a Compound, formulations of a Compound, methods of manufacturing a Compound or its uses (but excluding the Licensor Liver Targeting Prodrug Technology and the Licensor Technology that is Controlled by Licensor or any of its Affiliates as of the Effective Date).
1.11     “Controlled” means, with respect to (a) Patent Rights, (b) Know-How or (c) biological, chemical or physical material, that a Party or one of its Affiliates owns or has a license or sublicense to such Patent Rights, Know-How or material (or in the case of material, has the right to physical possession of such material) and has the ability to grant a license or sublicense to, or assign its right, title and interest in and to, such Patent Rights, Know-How or material as provided for in this Agreement without violating the terms of any agreement or other arrangement with any Third Party.
1.12     “Development” or “Develop” means, with respect to a Licensed Product, the performance of all preclinical and clinical development (including, without limitation, toxicology,

2




pharmacology, test method development and stability testing, process development, formulation development, quality control development, statistical analysis), clinical trials, and manufacturing and regulatory activities that are required to obtain Regulatory Approval of such Licensed Product.
1.13    “EMA” means the European Medicines Agency or any successor agency.
1.14    “European Commission” means the authority within the European Union that has the legal authority to grant Regulatory Approvals in the European Union based on input received from the EMA or other competent Regulatory Authorities.
1.15    “FDA” means the United States Food and Drug Administration, or a successor federal agency thereto.
1.16    “Field” means any and all commercial pharmaceutical uses of a Compound, which shall specifically exclude any over-the-counter uses of such Compound.
1.17    “First Commercial Sale” means, with respect to a Licensed Product in any country, the first commercial transfer or disposition for value of such Licensed Product in such country to a Third Party by Omthera, an Affiliate of Omthera or a Sublicensee after Regulatory Approval therefor has been obtained in such country.
1.18    “GAAP” means United States generally accepted accounting principles.
1.19    “Governmental Body” means any: (a) nation, principality, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; (c) governmental or quasi-governmental authority of any nature (including any governmental division, subdivision, department, agency, bureau, branch, office, commission, council, board, instrumentality, officer, official, representative, organization, unit, body or entity and any court or other tribunal); (d) multi-national or supranational organization or body; or (e) individual, entity, or body exercising, or entitled to exercise, any executive, legislative, judicial, administrative, regulatory, police, military or taxing authority or power of any nature.
1.20    “Joint Scientific Committee” means a committee, with an equal number of scientist representatives appointed by Omthera and by Licensor, respectively, to be established to collaboratively review and advise as to scientific matters encountered in connection with the Development Program. Any deadlocks in the Joint Scientific Committee that are not capable of resolution within [***] days of escalation to the appropriate executive officers of each respective Party shall be resolved by Omthera in its sole reasonable discretion.
1.21    “Know-How” means any scientific or technical information, results and data of any type whatsoever, in any tangible or intangible form whatsoever, that is not in the public domain or otherwise publicly known, including, without limitation, discoveries, inventions, trade secrets, databases, practices, protocols, regulatory filings, methods, processes, techniques, software, works of authorship, plans, concepts, ideas, biological and other materials, reagents, specifications, formulations, formulae, data (including, but not limited to, pharmacological, biological, chemical, toxicological, clinical and analytical information, quality control, trial and stability data), case reports forms, data analyses, reports, studies and procedures, designs for experiments and tests and results of experimentation and testing (including results of research or development), summaries and information

3




contained in submissions to and information from ethical committees, the FDA or other Regulatory Authorities, and manufacturing process and development information, results and data, whether or not patentable, all to the extent not claimed or disclosed in a patent or pending patent application. The fact that an item is known to the public shall not be taken to exclude the possibility that a compilation including the item, and/or a development relating to the item, is (and remains) not known to the public. “Know-How” includes any rights including copyright, moral, trade-secret, database or design rights protecting such Know-How. “Know-How” excludes Patent Rights.
1.22     “Law” or “Laws” means all applicable laws, statutes, rules, regulations, ordinances and other pronouncements having the binding effect of law of any Governmental Body.
1.23    “Licensed Product” means any pharmaceutical product, in any dosage form, preparation, composition, formulation, presentation or package configuration that is Commercialized or undergoing research or preclinical or clinical Development that contains or comprises, in part or in whole, a Compound.
1.24    “Licensor Know-How” means any and all Know-How that (a) is Controlled by Licensor or any of its Affiliates as of the Effective Date or at any time thereafter during the Term and (b) relates directly and particularly to or is reasonably necessary to the practice of the Licensor Liver Targeting Prodrug Technology.
1.25    “Licensor Liver Targeting Prodrug Technology” means Licensor’s program for the development of a liver-specific drug targeting technology for chemically modifying the molecule to render it inactive until the modification is cleaved off by a liver-specific enzyme, including all related intellectual property and other related rights of Licensor, and any and all related clinical and non-clinical data compiled by Licensor, in each case arising from the Licensor’s operation of such program. For the avoidance of doubt, Licensor Liver Targeting Prodrug Technology does not include any liver-specific drug targeting technology for chemically modifying the molecule to render it inactive until the modification is cleaved off by a liver-specific enzyme, including all related intellectual property and other related rights, and any and all related clinical and non-clinical data that arise independently of Development or Commercialization and without unauthorized use of Licensor’s Confidential Information.
1.26     “Licensor Patents” means all Patent Rights that are Controlled by Licensor or any of its Affiliates as of the Effective Date or at any time thereafter during the Term and that relate directly and particularly to and/or are reasonably necessary to the practice of the Licensor Liver Targeting Prodrug Technology. The Licensor Patents shall include, but not be limited to, all Patent Rights set forth on Schedule 1 hereto.
1.27    “Licensor Technology” means the Licensor Patents and the Licensor Know-How. For purposes of the license grant under Section 2.1 and related purposes, “Licensor Technology” also includes Licensor’s interest in jointly owned Inventions.
1.28    “Major Market” means any of the [***].
1.29    “Major Market EU Country” means any of [***].

4




1.30    “NDA” means a New Drug Application submitted pursuant to the requirements of the FDA, as more fully defined in 21 U.S. CFR § 314.3 et seq., a Biologics License Application submitted pursuant to the requirements of the FDA, as more fully defined in 21 U.S. CFR § 601, and any equivalent application submitted in any country, including a European Marketing Authorization Application, together, in each case, with all additions, deletions or supplements thereto.
1.31    “NDA Approval” means the receipt of notice from the relevant US Regulatory Authority that an NDA for a Licensed Product has met all the criteria for marketing approval.
1.32    “Net Sales” means the [***] to unrelated Third Parties for a Licensed Product, less:
[***]
Notwithstanding the foregoing, [***] for sales of Licensed Products among [***] for resale shall not be included in the computation of Net Sales.
In the event that a Licensed Product is commercialized as part of a Combination Product for a single price, the Net Sales for such Licensed Product shall be calculated by [***] the sales price of such Combination Product [***]. “Fair market value” as used in the foregoing sentence shall mean the value established by mutual agreement of the Parties using standard measurement techniques for similar valuations or, in the absence of such agreement by the Parties, the value established by an independent third party selected by Licensor and reasonably acceptable to Ligand using such standard measurement techniques.
1.33     “Patent Right” means: (a) an issued or granted patent, including any extension, supplemental protection certificate, registration, confirmation, reissue, reexamination, extension or renewal thereof; (b) a pending patent application, including any continuation, divisional, continuation-in-part, substitute or provisional application thereof; and (c) all counterparts or foreign equivalents of any of the foregoing issued by or filed in any country or other jurisdiction.
1.34    “Person” means any natural person, corporation, firm, business trust, joint venture, association, organization, company, partnership or other business entity, or any government or agency or political subdivision thereof.
1.35    “Phase I Trial” means clinical trial in which a Licensed Product is administered to human subjects at single and/or multiple dose levels with the primary purpose of determining safety, metabolism, and pharmacokinetic and pharmacodynamic properties of the Licensed Product, and which is consistent with 21 CFR § 312.21(a).
1.36    “Phase II Trial” means a clinical trial of a Licensed Product in human patients conducted for purposes of preliminary determination of efficacy and/or preliminary establishment of appropriate dosage ranges for efficacy and safety in patients, as described under 21 CFR § 312.21(b) (as hereafter modified or amended) and any of its foreign equivalents.
1.37    “Phase III Trial” means a clinical trial of a Licensed Product in human patients, which trial is designed (a) to establish that the Licensed Product is safe and efficacious for its intended use; (b) to define warnings, precautions and adverse reactions that are associated with the Licensed Product in the dosage range to be prescribed; and (c) to be, either by itself or together with one or more other

5




clinical trials having a comparable design and size, the final human clinical trial in support of Regulatory Approval of an NDA of the Licensed Product, and (d) consistent with 21 CFR § 312.21(c). For the purposes of the milestone payments in Section 5.1, a “Phase III Trial” shall be a clinical trial which is submitted by Omthera to the FDA as a Phase III Trial.
1.38     “Proof of Concept” means achievement of both of the following with regard to a particular Agent: (a) after oral administration in an animal model, a novel prodrug of the Agent will have improved liver targeting in comparison to the Agent (with “liver targeting” defined as liver concentration of the Agent relative to the concentration of the Agent in plasma or other tissues) and (b) such novel prodrug of the Agent will have demonstrated significant improvement in activity relative to an applicable standard (to be determined by the Joint Scientific Committee) in reducing triglyceride levels in an animal model (with the Joint Scientific Committee having determined the appropriate animal model and endpoints).
1.39    “Regulatory Authority” means (a) the FDA, (b) the EMA or the European Commission, or (c) any regulatory body with similar regulatory authority over pharmaceutical or biotechnology products in any other jurisdiction anywhere in the world.
1.40    “Regulatory Approval” means any and all approvals, licenses, registrations, or authorizations of the relevant Regulatory Authority, necessary for the Development, manufacture, use, storage, import, transport and Commercialization of the Licensed Product in a particular country or jurisdiction.
1.41    “Royalty Term” means, on a Licensed Product-by-Licensed Product and country-by-country basis, the period from the First Commercial Sale of a given Licensed Product in such country until the latest of (a) expiry of the last-to-expire Compound Patent containing a Valid Claim to the Compound in such country; (b) expiry of the last-to-expire Licensor Patent containing a Valid Claim to the Compound in such country; or (c) the [***] anniversary of the First Commercial Sale of such Licensed Product in such country. In a country where neither any Compound Patent containing a Valid Claim to the Compound nor any Licensor Patent containing a Valid Claim to the Compound has ever existed nor ever exists, the Royalty Term means on a product-by-product and country-by-country basis, the period from the First Commercial Sale of such product in such country until the [***] anniversary of such First Commercial Sale of such product in such country.
1.42    “Sublicensee” means a Person, other than an Affiliate of Omthera, to which Omthera (or its Affiliate) has, pursuant to Section 2.2, granted sublicense rights under any of the license rights granted under Section 2.1. “Sublicense” shall be construed accordingly.
1.43    “Tax” or “Taxes” means any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not.
1.44    “Third Party” means any Person other than Licensor, Omthera or Affiliates of either of them, or any Sublicensees.

6




1.45    “Third Party Action” means any claim or action made by a Third Party against a Party that claims that a Licensed Product, or its use, Development, manufacture or sale infringes such Third Party’s intellectual property rights.
1.46     “United States” or “US” means the United States of America and its territories and possessions.
1.47    “Valid Claim” means a claim of an issued and unexpired patent which has not lapsed or been revoked, abandoned or held unenforceable or invalid by a final decision of a court or governmental or supra-governmental agency of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and which has not been disclaimed, denied or admitted to be invalid or unenforceable through reissue, reexamination or disclaimer or otherwise.
1.48    The definition of each of the following terms is set forth in the section of the Agreement indicated below:
“Action” has the meaning set forth in Section 6.7(b).
“Claim” has the meaning set forth in Section 9.1.
“Confidential Information” has the meaning set forth in Section 7.1.
“Controlling Party” has the meaning set forth in Section 6.8(c).
“Covered” and “Covering” have the meaning set forth in Section 1.40.
“Development Program” has the meaning set forth in Section 3.1.
“Development Term” has the meaning set forth in Section 3.1.
“Disclosing Party” has the meaning set forth in Section 7.1.
“Indemnified Party” has the meaning set forth in Section 9.4.
“Indemnifying Party” has the meaning set forth in Section 9.4.
“Inventions” has the meaning set forth in Section 6.2.
“Licensor Indemnitees” has the meaning set forth in Section 9.1.
“Notice” has the meaning set forth in Section 7.6.
“Omthera Indemnitees” has the meaning set forth in Section 9.2.
“Publishing Party” has the meaning set forth in Section 7.6.
“Receiving Party” has the meaning set forth in Section 7.1.
“Term” has the meaning set forth in Section 10.1.

7




ARTICLE II    
LICENSES AND OTHER RIGHTS
2.1    Grant of License to Omthera. Subject to the terms and conditions of this Agreement, Licensor hereby grants to Omthera and its Affiliates an exclusive (even as to Licensor), worldwide, royalty-bearing right and license (with the right to sublicense, and to further sublicense, subject to the provisions of Section 2.2) under the Licensor Technology to research, Develop, manufacture, have manufactured, use, import and Commercialize the Licensed Products in and for the Field. Licensor and its Affiliates grant no licenses or rights to use other than as expressly set forth herein.
2.2    Grant of Sublicenses by Omthera. Omthera shall have the right, in its sole discretion, to grant Sublicenses, in whole or in part, under the license granted in Section 2.1; provided, however, that the granting by Omthera of a Sublicense shall not relieve Omthera of any of its obligations hereunder; and provided, further, that Omthera’s right to grant a Person a Sublicense shall be subject to Omthera including within such Sublicense express provisions binding the Sublicensee to all of the duties, obligations, restrictions and acknowledgements hereunder of Omthera (with Licensor being an express third-party beneficiary thereof), and stating that the Sublicense shall automatically terminate upon the expiration or earlier termination of this Research and License Agreement. Notwithstanding the foregoing sentence, it is not required that a Sublicense include provisions for the Sublicensee to pay Royalties or make milestone payments directly to Licensor or to provide royalty reports directly to Licensor. Omthera shall ensure that all of its Sublicensees shall comply with the terms and conditions of this Agreement (as applicable to them) and Omthera shall be and remain fully responsible for the compliance by such Sublicensees with the terms and conditions of this Agreement (as applicable to them) as if such Sublicensees were Omthera hereunder. Except for Sublicenses as expressly allowed herein, Omthera acknowledges that it has no right to, and agrees not to purport to, grant to anyone a sublicense under the Licensor Technology.
2.3    Bankruptcy Code. All rights and licenses granted under or pursuant to this Agreement by Licensor to Omthera are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the US Bankruptcy Code, licenses of rights to “intellectual property” as defined under Section 101 of the US Bankruptcy Code. The Parties agree that Omthera, as a licensee of such rights under this Agreement, shall retain and may fully exercise all of its rights and elections under the US Bankruptcy Code.
ARTICLE III    
DEVELOPMENT, MANUFACTURE AND COMMERCIALIZATION
3.1    Preclinical Development of Licensed Products by Omthera with Licensor as “General Contractor.” Omthera shall, throughout the Development Term, use Commercially Reasonable Efforts to Develop one or more Licensed Products, pursuant to an Omthera preclinical development program as contemplated by this Agreement (the “Development Program”). The current working version of the Development Program is attached to this Agreement as Schedule 2. Omthera and Licensor shall use Commercially Reasonable Efforts to collaborate, through the Joint Scientific Committee, to further detail the design of the Development Program. Omthera and Licensor agree that Licensor shall, for the duration of the Development Term, serve as the “general contractor” for the Development Program with responsibility and authority to arrange, manage and oversee all material aspects of the execution of the Development Program. The “Development Term” shall begin on the Effective Date and shall end on the [***] anniversary of the Effective Date; provided, that should the

8




Parties mutually so agree the Development Term shall be extended until the [***] anniversary of the Effective Date. For avoidance of doubt: except in case of termination of this Agreement for material breach under Section 10.2 or termination by Omthera pursuant to Section 10.4, the Development Program and the Development Term (and Omthera’s obligations to Licensor in connection with the Development Program) cannot be ended before the [***] anniversary of the Effective Date. Licensor shall supply, during the Development Term, [***] for the Development Program. In addition, during the Development Term Licensor shall use Commercially Reasonable Efforts to procure [***] all other services and all materials needed for the execution of the Development Program.
3.2    Compensation. As consideration for Licensor’s Development Program work, Omthera shall:    
(a)    Pay to Licensor a one-time, non-refundable project management fee of $100,000 no later than [***] days following the Effective Date.
(b) Pay to Licensor a one-time, non-refundable Development success fee of $1,000,000 no later than [***] days following initial achievement of Proof of Concept.

(c)    Pay to Licensor $[***] per [***] to offset, on an approximated basis, the [***] costs to Licensor of [***]; provided, however, that such figure shall be [***] by [***] for the [***] period in which such [***] occurs and the [***] for the [***] period which is [***]. For the [***] of the Development Term, Omthera shall pay [***] to Licensor on the Effective Date a [***].
(d)    It is understood and agreed that Omthera shall directly contract with any and all CROs for the performance of the Development Plan, except as may be otherwise mutually agreed by the Parties or as specifically set forth in the Development Plan attached hereto and amended from time to time. Without derogation of Section 3.2(c) and the first sentence of this Section 3.2(d), and further subject to reasonable documentation and Omthera’s express prior authorization, Omthera shall reimburse Licensor within [***] days of receipt of an invoice for [***] for authorized services and materials for the execution of the Development Program.
3.3    No Guaranty of Favorable Results. Licensor does not warrant that the Development Program, Omthera’s other preclinical studies and evaluation (if any) and/or Omthera’s clinical studies (if any) will produce any particular results or any favorable results.
3.4    Omthera Responsibility and Authority for Development. Aside from the limited responsibility and authority expressly provided to Licensor for the duration of the Development Term pursuant to Section 3.1, Omthera shall have the exclusive right, and sole responsibility and decision-making authority, to research and Develop any Licensed Products in and for the Field and to conduct (either itself or through its Affiliates, agents, subcontractors and/or Sublicensees) all clinical trials and non-clinical studies Omthera believes appropriate to obtain Regulatory Approval for Licensed Products in and for the Field.
3.5    Commercialization. Omthera shall have the exclusive right, and sole responsibility and decision-making authority, to Commercialize any Licensed Products in and for the Field itself or through one or more Sublicensees or other Third Parties selected by Omthera and shall have the sole decision-

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making authority and responsibility in all matters relating to the Commercialization of Licensed Products.
3.6    Manufacturing. Omthera shall have the exclusive right, and sole responsibility and decision-making authority, to manufacture, at the clinical and/or commercial stage, any Licensed Product in and for the Field itself or through one or more Sublicensees selected by Omthera.
3.7    Exclusivity. Licensor and its Affiliates shall not during the Commercial Term (a) develop, manufacture, have manufactured, use, sell, offer for sale, import or export a Competing Product, (b) seek to develop, manufacture, have manufactured, use, sell, offer for sale, import or export a Competing Product, or (c) assist, in any respect, any Third Party in developing, manufacturing, having manufactured, using, selling, offering for sale, importing or exporting a Competing Product. Except as set forth in this Section 3.7, nothing in this Agreement shall be deemed to limit each Party’s right to use its own technologies and assets (without use of the technologies of another Party hereto) for any purpose at any time.
3.8    Reporting to Licensor. Omthera shall, at least [***], provide to Licensor an update report regarding the progress of all research and Development efforts toward Licensed Products. After the Development Term, Omthera shall, at least [***], provide to Licensor an update report regarding the progress of the Development Program. Omthera shall, at least [***], provide to Licensor an update report regarding the progress of Commercialization of Licensed Products.
3.9    Right to Subcontract of Omthera. Subject to any required compliance with Section 2.2, Omthera may exercise any of the rights or obligations that Omthera may have under this Agreement (including, without limitation, any of the rights licensed in Section 2.1 hereof) by Sublicensing, but any Sublicense granted or entered into by Omthera as contemplated by this Section 3.9 or any Sublicensee’s exercise or performance of all or any portion of the rights or obligations that Omthera may have under this Agreement shall not relieve Omthera from any of its obligations under this Agreement.
3.10    Compliance with Law. Each of the Parties undertakes and agrees that the conduct of the Development Program, the use of the Licensor Technology, and all Development, manufacture and Commercialization of a Licensed Product by it and its Affiliates and Sublicensees shall comply in all material respects with all applicable international, federal, state and local laws, rules and regulations, including, but not limited to, environmental, occupational safety/health, safety and import/export restrictions, laws, rules and regulations. For clarity, the foregoing undertaking shall only be applicable to a Party to the extent such Party (or its Affiliates or Sublicensees) engages in the conduct of the Development Program, the use of the Licensor Technology, and all Development, manufacture and Commercialization of a Licensed Product pursuant to this Agreement, except to the extent that such non-compliance by a Party outside of the scope of this Agreement would otherwise adversely affect or result in a breach of such Party’s obligations or other representations or warranties hereunder.
3.11    Costs and Expenses. As between Licensor and Omthera, Omthera shall be solely responsible for all costs and expenses related to Development, manufacture and Commercialization of the Licensed Products, including without limitation costs and expenses associated with all preclinical activities and clinical trials, and all regulatory filings and proceedings relating to Licensed Products.
3.12    Diligence by Omthera. Omthera shall use Commercially Reasonable Efforts to Develop and to Commercialize at least one Licensed Product in and for the Field in the United States.

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3.13    Patent Marking. Omthera agrees that with respect to each unit or package of Licensed Products sold in a given country, Omthera shall comply with the customary patent marking laws and practices of such country as to the applicable Licensor Patents.
3.14    Trademarks. As between Licensor and Omthera, Omthera shall have the sole authority to select trademarks for Licensed Products and shall own all such trademarks. Licensor does not grant Omthera the right to use any trademarks of Licensor or its Affiliates.
ARTICLE IV    
REGULATORY MATTERS
4.1    Regulatory Filings. As between Omthera and Licensor, Omthera (or its applicable Affiliate) shall own and maintain all regulatory filings made after the Effective Date for Licensed Products and all Regulatory Approvals for Licensed Products.
4.2    Communications with Authorities. Omthera (or one of its Affiliates or Sublicensees) shall be responsible for and act as the sole point of contact for communications with Regulatory Authorities in connection with the Development, Commercialization, and manufacturing of Licensed Products. At the request of Omthera, Licensor shall make available to Omthera a qualified representative who shall, together with the representatives of Omthera, participate in and contribute to meetings with the Regulatory Authorities with respect to regulatory matters relating solely to the Licensor Technology.
4.3    Adverse Event Reporting. Each Party agrees to comply with any and all Laws that are applicable to it as of the Effective Date and thereafter during the Term in connection with Licensed Product safety data collection and reporting (and, if applicable, recalls). Licensor shall report immediately to Omthera any serious untoward medical occurrence in a patient or subject who is administered a Licensed Product. Omthera shall provide [***] to Licensor a listing of each serious untoward medical occurrence in a patient or subject who is administered a Licensed Product and shall, should Licensor expressly so request and Omthera approve (such approval not to be unreasonably withheld), provide Licensor with additional detail as to such ones of such occurrences as Licensor may designate.
ARTICLE V    
Financial Provisions
5.1    Commercial Milestone Payments. As further partial consideration for Licensor’s grant of the rights and licenses to Omthera hereunder, Omthera shall pay to Licensor the following one-time, non-refundable milestone payments upon achievement of the following respective milestone events by Omthera or its Affiliate or Sublicensee with regard to the [***]. Omthera shall promptly, but in no event later than [***] days following each achievement of a milestone event, notify Licensor in writing of the achievement of such milestone event and shall pay the relevant milestone payment within [***] days thereafter.

Milestone Event
Milestone Payment
[***]
[***]


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5.2    Deemed Achievement of Commercial Milestones. Upon achievement of any respective one of the [***] milestone events specified in Section 5.1 with regard to a particular Compound, all “prior” milestone events shall be deemed to be thereby achieved as to such Compound; and if the milestone payment for any such “prior” milestone events so deemed to be thereby achieved has not previously been paid, it shall thereupon also be paid, forthwith. For clarity, any subsequent Compound developed under this Agreement shall not trigger any milestones already paid in connection with an earlier Compound.
5.3    Royalty Payments for Licensed Products.
(a)    With respect to Net Sales of Licensed Products which are Covered under a Licensor Patent: As further consideration for Licensor’s grant of the rights and licenses to Omthera hereunder, Omthera shall pay to Licensor a royalty on aggregate annual worldwide Net Sales of all such Licensed Products by Omthera and its Affiliates and Sublicensees (but excluding Net Sales of a given Licensed Product after its applicable Royalty Term), at the percentage rates set forth below:
Annual Worldwide Net Sales of Such Licensed Products per Calendar Year (US Dollars)
Incremental Royalty Rate
For Net Sales of such Licensed Products from [***] up to and including [***]
[***]%
For that portion of Net Sales of such Licensed Products that is greater than [***]
[***]%

By way of illustration, assume in a Calendar Year that aggregate worldwide annual Net Sales of all such Licensed Products total $[***]. The total royalties due and payable by Omthera to Licensor for such Net Sales would be $[***], calculated as follows:
[***]
(b)    With respect to Net Sales of Licensed Products which are not Covered under any Licensor Patent: In addition, as further consideration for Licensor’s services in connection with the Development Program and/or Licensor’s grant of the Licensed Know-How rights and licenses to Omthera hereunder, as may be applicable, Omthera shall pay to Licensor a royalty (or a payment in the nature of royalties) on aggregate annual worldwide Net Sales of all such Licensed Products by Omthera and its Affiliates and Sublicensees (but excluding Net Sales of a given Licensed Product after its applicable Royalty Term), at the percentage rates set forth below:
Annual Worldwide Net Sales of Such Licensed Products per Calendar Year (US Dollars)
Incremental Royalty Rate
For Net Sales of such Licensed Products from [***] up to and including [***]
[***]%
For that portion of Net Sales of such Licensed Products that is greater than [***]
[***]%


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As used in the foregoing section, “Covered” and “Covering” means, with respect to a Licensed Product, that the manufacturing, importing, using, selling, or offering for sale of such Licensed Product would, but for ownership of or a license granted under the relevant Patent Rights, infringe a Valid Claim of the relevant Patent Rights in the country in which the activity occurs.
(c)    In establishing the royalty/payment in the nature of royalties structure hereunder, the Parties recognize, and Omthera acknowledges, the substantial value of the various obligations being undertaken by Licensor under this Agreement, in addition to the grant of the license under the Licensor Patents, to enable the rapid and effective market introduction of the Licensed Products. The Parties have agreed to the payment structure set forth herein as a convenient and fair mechanism to compensate Licensor for these obligations.
(d)    For purposes of determining whether the Section 5.3(a) or Section 5.3(b) royalty/payment in the nature of royalties threshold has been attained, only Net Sales that are subject to a Section 5.3(a) payment or a Section 5.3(b) payment, respectively, shall be included in the total amount of Net Sales and any Net Sales that are not subject to such a respective payment shall be excluded. In addition, in no event shall the manufacture of a Licensed Product give rise to a royalty/payment in the nature of royalties obligation until the particular unit of Licensed Product is sold; but if Net Sales of a particular unit of Licensed Product might or might not be subject to a royalty/payment in the nature of royalties payment (e.g., manufactured in Country A where the Royalty Term has expired but sold in Country B where the Royalty Term has not expired), the sale shall be deemed to be subject to a royalty/payment in the nature of royalties payment. For clarity, Omthera’s obligation to pay royalties to Licensor under Section 5.3(a) is imposed only once with respect to the same unit of Licensed Product regardless of the number of Licensor Patents pertaining thereto.
(e)    On a Licensed Product by Licensed Product and country-by-country basis, upon expiration of the Royalty Term for a Licensed Product in a country, the rights, licenses and sublicenses granted to Omthera hereunder with respect to such Licensed Product in such country shall continue in effect but become fully paid-up, royalty-free, transferable (to the extent not transferable previously), perpetual and irrevocable.
5.4    Timing of Payment. Royalties/payments in the nature of royalties payable under Section 5.3 shall be payable on actual Net Sales and shall accrue at the time provided therefor by US GAAP. Royalty/payment in the nature of royalties obligations that have accrued during a particular [***] shall be paid, on a [***] basis, within [***] days after the end of each [***] during which the royalty/payment in the nature of royalties obligation accrued; provided that within [***] days after the conclusion of each [***] Omthera shall provide notice to Licensor of any adjustments necessary to account for any royalties/payment in the nature of royalties which were overpaid or underpaid for such prior [***], and the Parties shall promptly true-up based on such adjustments. With respect to each respective royalty payment payable hereunder, Licensor shall prepare and submit to Omthera an invoice for each such payment in a form reasonably acceptable to Omthera.
5.5    Royalty (Etc.) Reports and Records Retention. Within [***] days after the end of each [***] during which Licensed Products have been sold, Omthera shall deliver to Licensor, together with the applicable royalty/payment in the nature of royalties payment due, a written report, on a Licensed Product-by-Licensed Product (and specifying non-Covered status, as applicable) and country-by-country basis, of (a) gross invoiced (or otherwise charged) amounts of sales, by Omthera and its Affiliates

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and Sublicensees, of Licensed Products subject to royalty payments for such [***] (and, if non-Covered, subject to royalty/payment in the nature of royalties payments for such [***]), (b) amounts deducted by category (following the definition of Net Sales) from such gross invoiced amounts to calculate Net Sales, (c) Net Sales subject to royalty or royalty/payment in the nature of royalties payments for such [***] to date and (d) the corresponding royalty or royalty/payment in the nature of royalties. Such report shall be deemed “Confidential Information” of Omthera subject to the obligations of Article VII of this Agreement. For [***] years after each sale of a Licensed Product (whether Covered or not), Omthera shall keep (and shall ensure that its Affiliates and Sublicensees shall keep) complete and accurate records of such sale in sufficient detail to confirm the accuracy of the royalty or royalty/payment in the nature of royalties calculations hereunder.
5.6    Audits.
(a)    From the First Commercial Sale until [***] after the conclusion of the final Royalty Term, upon the written request of Licensor, and not more than [***] in each [***], Omthera shall permit, shall cause its Affiliates to permit, and shall use reasonable efforts to cause its Sublicensees to permit, an independent certified public accounting firm of nationally recognized standing selected by Licensor (who has not been engaged by Licensor to provide services in any other capacity at any time during the [***] period before such selection), and reasonably acceptable to Omthera or such Affiliate or Sublicensee, to have access to and to review, during normal business hours upon reasonable prior written notice, the applicable records of Omthera and its Affiliates or Sublicensees to verify the accuracy of the royalty and royalty/payment in the nature of royalties reports and payments under this Article V. Such review may cover: (i) the records for sales made in any [***]before the date of such request, and (ii) only those periods that have not been subject to a prior audit.
(b)    If such accounting firm concludes that additional royalties and/or royalties/payment in the nature of royalties were owed during such period, Omthera shall pay the additional royalties and/or royalties/payment in the nature of royalties within [***] days after the date such public accounting firm delivers to Omthera such accounting firm’s written report. If such accounting firm concludes that an overpayment was made, such overpayment shall be fully creditable against amounts payable in subsequent payment periods or at Omthera’s request, shall be reimbursed to Omthera within [***] days after the date such public accounting firm delivers such report to Omthera. If Omthera disagrees with such calculation, [***].[***] shall pay for the cost of any audit by [***], unless [***] in which case [***] shall pay for the reasonable costs of audit.
(c)    Each Party shall treat all information that it receives under this Section 5.6 in accordance with the confidentiality provisions of Article VII of this Agreement, and shall cause its accounting firm to enter into an acceptable confidentiality agreement with the audited Party obligating such firm to retain all such financial information in confidence pursuant to such confidentiality agreement, except to the extent necessary for a Party to enforce its rights under the Agreement.
5.7    Mode of Payment and Currency. All payments to Licensor under this Agreement, whether or not in respect of Net Sales or milestone events, shall be made by deposit of US Dollars in the requisite amount to such bank account as Licensor may from time to time designate by advance written notice to Omthera. Conversion of sales or expenses recorded in local currencies to Dollars will be performed in a manner consistent with each Party’s normal practices used to prepare its audited financial statements for external reporting purposes, provided that such practices use a widely accepted

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source of published exchange rates. Based on the resulting sales in US Dollars, the then applicable royalties/payment in the nature of royalties shall be calculated.
5.8    Late Payments. If a Party does not receive payment of any sum due to it on or before the due date therefor, simple interest shall thereafter accrue on the sum due to such Party from the due date until the date of payment at a rate equal to [***], calculated on the number of days such payments are paid after the date such payments are due. Accrual and payment of interest shall not be deemed to excuse or cure breaches of contract arising from late payment or nonpayment.
5.9    Taxes. All amounts due hereunder exclude all applicable sales, use, and other taxes and duties, and Omthera shall be responsible for payment of all such taxes (other than taxes based on Licensor’s income) and duties and any related penalties and interest, arising from the payment of amounts due under this Agreement. The Parties agree to cooperate with one another and use Commercially Reasonable Efforts to avoid or reduce tax withholding or similar obligations in respect of royalties, payments in the nature of royalties, milestone payments, and other payments made by Omthera to Licensor under this Agreement. To the extent Omthera is required to withhold taxes on any payment to Licensor, Omthera shall pay the amounts of such taxes to the proper governmental authority in a timely manner and promptly transmit to Licensor official receipts issued by the appropriate taxing authority and/or an official tax certificate, or such other evidence as Licensor may reasonably request, to establish that such taxes have been paid. Licensor shall provide Omthera any tax forms that may be reasonably necessary in order for Omthera to not withhold tax or to withhold tax at a reduced rate under an applicable bilateral income tax treaty. Licensor shall use Commercially Reasonable Efforts to provide any such tax forms to Omthera at least [***] days before the due date for any payment for which Licensor desires that Omthera apply a reduced withholding rate. Each Party shall provide the others with reasonable assistance to enable the recovery, as permitted by applicable law, of withholding taxes, value added taxes, or similar obligations resulting from payments made under this Agreement, such recovery to be for the benefit of the Party bearing such withholding tax or value added tax. [***].
ARTICLE VI    
Inventions and Patents
6.1    Ownership. Omthera shall own the Compounds and all intellectual property and rights pertaining thereto (but excluding the Licensor Liver Targeting Prodrug Technology and the Licensor Technology that is Controlled by Licensor or any of its Affiliates as of the Effective Date). For the avoidance of doubt, Omthera shall own all Compound Patents [***]. Licensor shall co-operate with Omthera to ensure that assignments of any rights to Omthera which are required to perfect ownership of Compound Patents are carried out by Licensor and its employees or third party contractors. Omthera may choose to file such Compound Patents in a name of an Affiliate, at its sole discretion.
6.2    Inventions and Know-How. Inventorship of inventions and ownership of Know-How made by Omthera or Licensor in the course of the Development Program (“Inventions”) shall be determined in accordance with United States laws of inventorship. Subject to Section 6.1 above:
(f)    Sole party Inventions shall be owned by such Party, subject to such rights and licenses of the other Party as may be expressly granted by this Agreement.
(g)    Joint party Inventions shall be jointly owned by Omthera and Licensor.

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(h)    To the extent any current or future-created Licensor Liver Targeting Prodrug Technology related jointly-owned Inventions are specifically and directly related to the Compounds, Licensor’s interest in them is deemed to be included within the Section 2.1 license grant.
6.3    Inventorship Determination for Licensor Patent Rights. The Parties agree to cooperate and engage in good faith discussions regarding the inventorship of the Licensor Patent Rights appearing in Schedule 1. If the Parties do not mutually agree upon such inventorship, then the Parties agree to engage a mutually acceptable external counsel to determine the inventorship of the Licensor Patent Rights appearing in Schedule 1. Such determination shall be in accordance with United States laws of inventorship. The external counsel will be engaged at least [***] months prior to the [***] of the filing date of any U.S. Provisional Patent Application listed in Schedule 1. The Parties agree to be bound by the inventorship determination of the external counsel.
6.4    Third Party Inventions and Know-How. As between Licensor and Omthera, all inventions and Know-How made by a Third Party in the course of the Development Program shall be owned by [***].
6.5    Patent Prosecution and Maintenance.
(d)    Licensor Patents. Licensor shall have the first right to file, prosecute and maintain Licensor Patents in Licensor’s name. Licensor will, upon forming an intention to file, for any new Inventions, one or more patent applications which would become subject to the License grant in Article II, promptly inform Omthera of such intention, and [***] such Licensor patent application before filing. Licensor will cooperate with Omthera to allow simultaneous filing by Omthera of Omthera owned inventions as patent applications at Omthera’s request. Licensor shall keep Omthera promptly and regularly informed of the course of the filing and prosecution of Licensor Patents or related proceedings (e.g. interferences, oppositions, reexaminations, reissues, revocations or nullifications) in a timely manner, and [***].
(e)    Election Not to File and Prosecute Licensor Patents. Omthera acknowledges and agrees that Licensor shall not be required to maintain Patent Rights for the Licensor Patents, or to file or prosecute Patent Rights for discoveries which might become Licensor Patents. If Licensor elects not to file, prosecute or maintain a Licensor Patent in Licensor’s name in any country, then it shall notify Omthera in writing at least [***] days before any deadline applicable to the filing, prosecution or maintenance of such Licensor Patent, as the case may be, or any other date by which an action must be taken to establish or preserve such Licensor Patent in such country. In such case, Omthera shall have the option to pursue the filing or support the continued prosecution or maintenance of such Licensor Patent in such country, at Omthera’s expense.
(f)     Compound Patents. Omthera shall have the sole right to prepare, file, prosecute and maintain Compound Patents in Omthera’s name (or the name of an Affiliate at Omthera’s discretion). Omthera will, upon forming an intention to file, for any new Inventions, one or more patent applications which would become Compound Patents, promptly inform Licensor of such intention, and [***]. Licensor shall provide all support necessary including data to support such Omthera Patent Rights. Omthera shall bear the cost of prosecuting and maintaining the Omthera Patent Rights. The Parties will consult and cooperate with each other with respect to each Party’s patent strategy.

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(g)    Omthera shall control and fund the preparation, filing, prosecution and maintenance, enforcement and defense of Patent Rights claiming jointly-owned Inventions (with Licensor having the right to review and comment on drafts of patent submissions; and subject to Licensor rights equivalent to those expressed in Section 6.4(b), with Licensor having the rights accorded under Section 6.4(b) to Omthera.
6.6    Certification under Drug Price Competition and Patent Restoration Act. Each of Licensor and Omthera shall immediately give written notice to the other of any certification of which they become aware filed pursuant to 21 U.S.C. Section 355(b)(2)(A) (or any amendment or successor statute thereto) claiming that any Licensor Patents covering a Compound or a Licensed Product, or the manufacture or use of each of the foregoing, are invalid or unenforceable, or that infringement will not arise from the manufacture, use or sale in the US of a Licensed Product by a Third Party.
6.7    Listing of Patents.
(a)    [***] to determine which of the Licensor Patents, if any, shall be listed for inclusion in the Approved Drug Products with Therapeutic Equivalence Evaluations publication pursuant to 21 U.S.C. Section 355, or any successor Law in the United States, together with any comparable Laws in any other country. [***] list any of said Licensor Patents.
(b)    For the avoidance of doubt, [***] to determine which of the Compound Patents, if any, shall be listed for inclusion in the Approved Drug Products with Therapeutic Equivalence Evaluations publication pursuant to 21 U.S.C. Section 355, or any successor Law in the United States, together with any comparable Laws in any other country. [***] shall cooperate with [***] in connection therewith, including [***], in each case, to the extent required or permitted by applicable Law.
6.8    Enforcement of Patents.
(a)    Notice. If either Licensor or Omthera believes that a Licensor Patent is being infringed in the Field by a Third Party or if a Third Party claims that any Licensor Patent is invalid or unenforceable, the Party possessing such knowledge or belief shall notify the other and provide it with details of such infringement or claim that are known by such Party. If Licensor believes that a Compound Patent is being infringed in the Field by a Third Party or that a Third Party claims that any Compound Patent is invalid or unenforceable, Licensor shall notify Omthera and provide Omthera with details of such infringement or claim that are known by Licensor.
(b)    Right to Bring an Action for Licensor’s Patents. If such infringement in the Field or claim is in one or more of the Major Markets in respect of Licensor Patents, [***] shall have the right to attempt to resolve such infringement or claim, including by filing an infringement suit, defending against or bringing a declaratory judgment action as to such claim or taking other similar action (each, “initiation” of an “Action”) and (subject to Section 6.7(e)) to compromise or settle such infringement or claim. [***] may, in its sole discretion and at its expense, join in any such Action and in such case shall reasonably cooperate with [***]. If [***] does not intend to initiate an Action, [***] shall promptly inform [***]. If [***] does not initiate an Action with respect to such an infringement or claim within [***] days following notice thereof, [***] shall have the right to attempt to resolve such infringement or claim, including by initiating an Action, and (subject to Section 6.7(e)) to compromise or settle such infringement or claim. At [***]’s request, [***] shall [***] with all relevant documentation (as may be requested by [***]) evidencing that [***].[***] shall [***] in its Action if [***] determines

17




that this is necessary to demonstrate “[***].”[***] shall have the [***] right to select counsel for any suit initiated by it pursuant to this Section 6.7. If a Party initiates an Action but then elects not to pursue the Action, the other Party shall have the right (but not the obligation) to take over the Action, in which case the second Party shall be deemed to have been the initiating Party.
(c)    Right to Bring an Action for Compound Patents and Jointly Owned Patents. If such infringement or claim is in one or more of the Major Markets in respect of Compound Patents or Jointly Owned Patents, [***] shall have the exclusive right to attempt to resolve such infringement or claim, including by filing an infringement suit, defending against or bringing a declaratory judgment action as to such claim or taking other similar action (each, “initiation” of an “Action”) and (subject to Section 6.7(e)) to compromise or settle such infringement or claim. Any suit by [***] shall be either in the name of [***]. For this purpose, [***] agrees to [***] if so required and shall [***] of such suit as may be reasonably requested by [***].
(d)    Costs of an Action. Subject to the respective indemnity obligations of the Parties set forth in Article IX and subject to Section 6.7(f), [***] involved in an Action under Section 6.7(b) or 6.7(c) shall pay [***] incurred in connection with such Action.
(e)    Settlement. No Party shall settle or otherwise compromise (or resolve by consent to the entry of judgment upon) any Action by admitting that any Licensor Patent is to any extent invalid or unenforceable, or that any Licensor Know-How is not protected or has not been misappropriated, without the other Party’s prior written consent [***]. For the avoidance of doubt, [***].
(f)    Reasonable Assistance. Each Party (if it is not the Party enforcing or defending its Patent Rights) shall provide reasonable assistance to the other Party, including providing access to relevant documents and other evidence and making its employees and consultants available, subject to [***].
(g)    Distribution of Amounts Recovered. Any amounts recovered by the Party initiating an Action pursuant to this Section 6.7, whether by settlement or judgment, shall be allocated in the following order: [***].
6.9    Third Party Actions Claiming Infringement.
(a)    Notice. If either Licensor or Omthera becomes aware of any Third Party Action, such Party shall promptly notify the other of all details regarding such claim or action that is reasonably available to such Party.
(b)    Right to Defend. [***] shall have the right, at its sole expense, but not the obligation, to defend a Third Party Action described in Section 6.8(a) and (subject to Section 6.8(f)) to compromise or settle such Third Party Action. If [***] such Third Party Action within [***] days of receipt/sending of notice under Section 6.8(a), then [***] shall have the right, at its sole expense, to defend such Third Party Action and (subject to Section 6.8(f)) to compromise or settle such Third Party Action. The Party defending such Third Party Action shall have the sole and exclusive right to select counsel for such Third Party Action.
(c)    Consultation. The Party defending a Third Party Action pursuant to Section 6.8(b) shall be the “Controlling Party”. The Controlling Party shall consult with the non-Controlling

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Party, pursuant to an appropriate joint defense or common interest agreement, on all material aspects of the defense. The non-Controlling Party shall have a reasonable opportunity for meaningful participation in decision-making and formulation of defense strategy. The Parties shall reasonably cooperate with each other in all such actions or proceedings. The non-Controlling Party will be entitled to join the Third Party Action and be represented by independent counsel of its own choice at its own expense.
(d)    Appeal. In the event that a judgment in a Third Party Action is entered against either Party and an appeal is available, the Controlling Party shall have the first right, but not the obligation, to file such appeal. In the event the Controlling Party does not desire to file such an appeal, it will promptly, in a reasonable time period (i.e., with sufficient time for the non-Controlling Party to take whatever action may be necessary) before the date on which such right to appeal will lapse or otherwise diminish, permit the non-Controlling Party to pursue such appeal [***]. If applicable Law requires the other Party’s involvement in an appeal, the other Party shall be a nominal party in the appeal and shall provide reasonable cooperation to such Party [***].
(e)    Costs of an Action. Subject to the respective indemnity obligations of the Parties set forth in Article IX, [***] shall pay [***] associated with such Third Party Action other than [***] (as provided in the last sentence of Section 6.8(c)).
(f)    No Settlement without Consent. Neither Licensor or Omthera shall settle or otherwise compromise (or resolve by consent to the entry of judgment upon) any Third Party Action by admitting that any Licensor Patent is to any extent invalid or unenforceable or that any Licensed Product, or its use, Development, importation, manufacture or sale infringes such Third Party’s intellectual property rights, in each case without the other Party’s prior written consent [***] For the avoidance of doubt, [***].
6.10    Other License Provisions.
(a)    All rights and licenses granted under or pursuant to this Agreement by Omthera to Licensor and its Affiliates are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the US Bankruptcy Code, licenses of rights to “intellectual property” as defined under Section 101 of the US Bankruptcy Code. The Parties agree that Licensor and its Affiliates, as licensee of such rights under this Agreement, shall retain and may fully exercise all of Licensor’s and its Affiliates’ rights and elections under the US Bankruptcy Code.
(b)    Omthera grants no licenses or rights to use other than as expressly set forth herein.
(c)    Notwithstanding anything to the contrary in this Article VI, neither Party shall have the right to make an election under the Cooperative Research and Technology Enhancement Act of 2004, 35 U.S.C. 102C when exercising its rights under this Section without the prior written consent of the other Party. With respect to any such permitted election, the Parties shall use reasonable efforts to cooperate and coordinate their activities with respect to any submissions, filings or other activities in support thereof. The Parties acknowledge and agree that this Agreement is a “joint research agreement” as defined in the Cooperative Research and Technology Enhancement Act of 2004.

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ARTICLE VII    
CONFIDENTIALITY
7.1    Definitions. Omthera and Licensor each recognizes that during the Term, it may be necessary for a Party (the “Disclosing Party”) to provide Confidential Information (as defined herein) to another Party (the “Receiving Party”) that is highly valuable, the disclosure of which would be highly prejudicial to such Party. The disclosure and use of Confidential Information shall be governed by the provisions of this Article VII. Neither Omthera nor Licensor shall use the other’s Confidential Information except as expressly permitted in this Agreement. For purposes of this Agreement, “Confidential Information” means all information (including information relating to the business, operations and products of a Party or any of its Affiliates) disclosed by the Disclosing Party to the Receiving Party and which reasonably ought to have been understood to be confidential and/or non-public information at the time disclosed to the Receiving Party, or which is designated in writing by the Disclosing Party as “Confidential” (or equivalent), or which when disclosed orally to the Receiving Party is declared to be confidential by the Disclosing Party and is so confirmed in a writing delivered to the Receiving Party within [***] days after such oral disclosure, including but not limited to any technical information, Know-How, trade secrets, or inventions (whether patentable or not), that such Party discloses to another Party under this Agreement, or otherwise becomes known to another Party by virtue of or that relates to this Agreement.
7.2    Obligation. Licensor and Omthera agree that they will disclose the other Party’s Confidential Information to its own (or its respective Affiliate’s, or with respect to Omthera, its Sublicensees’) officers, employees, consultants and agents only if and to the extent necessary to carry out their respective responsibilities under this Agreement or in accordance with the exercise of their rights under this Agreement, and such disclosure shall be limited to the maximum extent possible consistent with such responsibilities and rights. Except as set forth in the foregoing sentence, no Party shall disclose Confidential Information of the other to any Third Party without the other’s prior written consent. In all events, however, any and all disclosure to a Third Party (or to any such Affiliate or Sublicensee) shall be pursuant to the terms of a non-disclosure/nonuse agreement no less restrictive than this Article VII. The Party which disclosed Confidential Information of the other to any Third Party (or to any such Affiliate or Sublicensee) shall be responsible and liable for any disclosure or use by such Third Party, Affiliate or Sublicensee (or its disclosees) which would have violated this Agreement if committed by the Party itself. No Party shall use Confidential Information of the other except as expressly allowed by and for the purposes of this Agreement. Each Party shall take such action to preserve the confidentiality of each other’s Confidential Information as it would customarily take to preserve the confidentiality of its own Confidential Information (but in no event less than a reasonable standard of care). Upon expiration or termination of this Agreement, each Party, upon the other’s request, shall return or destroy (at Disclosing Party’s discretion) all the Confidential Information disclosed to the other Party pursuant to this Agreement, including all copies and extracts of documents, within [***] days after the request, except for one archival copy (and such electronic copies that exist as part of the Party’s computer systems, network storage systems and electronic backup systems) of such materials solely to be able to monitor its obligations that survive under this Agreement.
7.3    Exceptions. The non-use and non-disclosure obligations set forth in this Article VII shall not apply to any Confidential Information, or portion thereof, that the Receiving Party can demonstrate by competent evidence:

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(a)    at the time of disclosure is in the public domain;
(b)    after disclosure, becomes part of the public domain, by publication or otherwise, through no fault of the Receiving Party or its disclosees;
(c)    is made available to the Receiving Party by an independent Third Party without obligation of confidentiality; provided, however, that to the Receiving Party’s knowledge, such information was not obtained by said Third Party, directly or indirectly, from the Disclosing Party hereunder; or
(d)    is independently developed by an employee of the Receiving Party not accessing or utilizing the Disclosing Party’s information.
In addition, the Receiving Party may disclose information that is required to be disclosed by law, by a valid order of a court or by order or regulation of a governmental agency including but not limited to, regulations of the SEC or in the course of arbitration or litigation; provided, however, that in all cases the Receiving Party shall give the other party prompt notice of the pending disclosure and make a reasonable effort to obtain, or to assist the Disclosing Party in obtaining, a protective order or confidential-treatment order preventing or limiting (to the greatest possible extent and for the longest possible period) the disclosure and/or requiring that the Confidential Information so disclosed be used only for the purposes for which the law or regulation required, or for which the order was issued.
7.4    Third Party Information. The Parties acknowledge that the defined term “Confidential Information” shall include not only a Disclosing Party’s own Confidential Information but also Confidential Information of a Third Party which is in the possession of a Disclosing Party. Omthera and Licensor agree not to disclose to the other any Confidential Information of a Third Party which is in the possession of such Party, unless the other has given an express prior written consent (which specifies the owner of such Confidential Information) to receive such particular Confidential Information.
7.5    Press Releases and Disclosure. Either Party may make press releases or public announcements regarding this Agreement or any matter covered by this Agreement, including the Development or Commercialization of Licensed Products, but such Party shall use Commercially Reasonable Efforts to provide the text of such planned disclosure to the other Party sufficiently in advance of the scheduled disclosure to afford such other Party a reasonable opportunity to review and comment upon the proposed text and the timing of such disclosure, and shall consider all reasonable comments of the other Party regarding such disclosure. (Provided, that no Party shall use the trademark or logo of the other Party, its Affiliates or their respective employee(s) in any publicity, promotion, news release or public disclosure relating to this Agreement or its subject matter, except as may be required by Law or required by the rules of an applicable US national securities exchange or except with the prior express written permission of such other Party, such permission not to be unreasonably withheld.) Notwithstanding the above, once a public disclosure has been made, either Party shall be free to disclose to third parties any information contained in said public disclosure, without further pre-review.
7.6    Publication Rights. During the Term, the following restrictions shall apply with respect to possible disclosure by either Party of the other Party’s Confidential Information relating to Licensed Product in any publication or presentation. A Party (the “Publishing Party”) shall provide the other Party with a copy of any proposed publication or presentation at least [***] days before submission for

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publication by the Publishing Party or its Affiliates so as to provide such other Party with an opportunity to recommend any changes it reasonably believes are necessary to continue to maintain the Confidential Information disclosed by the other Party to the Publishing Party in accordance with the requirements of this Agreement. The incorporation of such recommended changes shall not be unreasonably refused; and if such other Party notifies (“Notice”) the Publishing Party in writing, within [***] days after receipt of the copy of the proposed publication or presentation, that such publication or presentation in its reasonable judgment (a) contains an invention, solely or jointly conceived or reduced to practice by the other Party, for which the other Party reasonably desires to obtain patent protection or (b) could be expected to have a material adverse effect on the commercial value of any Confidential Information disclosed by the other Party to the Publishing Party, the Publishing Party shall prevent such publication or delay such publication for a mutually agreeable period of time. In the case of inventions, a delay shall be for a period reasonably sufficient to permit the timely preparation and filing of a patent application(s) on such invention, and in no event less than [***] days after the date of the Notice. In the case of Confidential Information, any of the non-publishing Party’s Confidential Information shall be deleted as requested. [***].
ARTICLE VIII    
REPRESENTATIONS, WARRANTIES AND COVENANTS
8.1    Representations and Warranties. (a) Omthera represents and warrants to Licensor, and (b) Licensor represents and warrants to Omthera, in each case as of the Effective Date:
(a)    Such Party is a corporation duly organized and validly existing under the Laws of the jurisdiction of its incorporation;
(b)    Such Party has all right, power and authority to enter into this Agreement, and to perform its obligations under this Agreement;
(c)    Such Party has taken all action necessary to authorize the execution and delivery of this Agreement and the performance of its obligations under this Agreement;
(d)    This Agreement is a legal and valid obligation of such Party, binding upon such Party and enforceable against such Party in accordance with the terms of this Agreement, except as enforcement may be limited by applicable bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium and other laws relating to or affecting creditors’ rights generally and by general equitable principles;
(e)    The execution, delivery and performance of this Agreement by such Party does not and will not conflict with, breach or create in any Third Party the right to accelerate, terminate or modify any agreement or instrument to which such Party is a party or by which such Party is bound;
(f)    All consents, approvals and authorizations from all governmental authorities or other Third Parties required to be obtained by such Party in connection with the execution and delivery of this Agreement have been obtained; and the execution, delivery and performance of this Agreement by such Party does not and will not violate any Law of any Governmental Body having authority over such Party;

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(g)    No person or entity has or will have, as a result of the execution and delivery of or as a result of the transactions contemplated by this Agreement, any right, interest or valid claim against or upon such Party for any commission, fee or other compensation as a finder or broker because of any act by such Party or its Affiliates, agents or Sublicensees; and
(h)    It has not entered into any agreement with any Third Party that is in conflict with the rights granted to any other party pursuant to this Agreement.
8.2    Additional Representations and Warranties of Licensor. Licensor represents and warrants to Omthera that:
(e)    No consent by any Third Party or Governmental Body is required with respect to the execution and delivery of this Agreement by Licensor or the consummation by Licensor of the transactions contemplated hereby;
(f)    No claims have been asserted or threatened by any Person (i) challenging the validity, effective status, or ownership of Licensor Technology, and/or (ii) to the effect that the use, reproduction, modification, manufacturing, distribution, licensing, sublicensing, sale or any other exercise of rights in any of Licensor Technology infringes or will infringe on any intellectual property right of any Person; and no such claims have been asserted or are threatened;
(g)    The Licensor Patents are subsisting and are not the subject of any litigation procedure, discovery process, interference, reissue, reexamination, opposition, appeal proceedings or any other legal dispute;
(h)    The Licensor Patents constitute all Patent Rights owned or Controlled by Licensor that relate directly and particularly to or are reasonably necessary to the research, Development, manufacture, use and Commercialization of the Licensed Products as currently envisioned;
(i)    Licensor has not subcontracted or licensed to a Third Party the right to Develop a Competing Product;
(j)    No Third Party has filed, pursued or maintained or threatened in writing to file, pursue or maintain any claim, lawsuit, charge, complaint or other action alleging that any Licensor Technology is invalid or unenforceable; and
(k)    Licensor has not previously licensed, assigned, transferred, or otherwise conveyed any right, title or interest in and to the Licensor Technology to any Third Party for the field of treatment of dyslipidemia in humans, including but not limited to any rights to any Licensor Technology or Licensed Products.
8.3    Disclaimer. Notwithstanding the representations and warranties set forth in this Article VIII, Omthera acknowledges and accepts the risks inherent in attempting to Develop and Commercialize any pharmaceutical product. There is no implied representation that the Compounds can be successfully Developed or Commercialized. The representations and warranties set forth in this Article VIII are provided in lieu of, and EACH PARTY HEREBY DISCLAIMS, all other warranties, express and implied, relating to the subject matter of this Agreement, the Licensor Technology, the Compounds and/or the Licensed Products, including but not limited to the implied warranties of merchantability and

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fitness for a particular purpose, title and non-infringement of third party rights. Each Party’s representations and warranties under this Agreement are solely for the benefit of the other Party and may be asserted only by the other Party and not by any Affiliate, Sublicensee or any customer of the other Party, its Affiliates or Sublicensees. Each Party, its Affiliates and Sublicensees shall be solely responsible for all representations and warranties that it, its Affiliates or Sublicensees make to any customer, Affiliates or Sublicensees.
ARTICLE IX    
INDEMNIFICATION; LIMITATION OF LIABILITY; INSURANCE
9.1    Indemnification by Omthera. Omthera shall indemnify, defend and hold Licensor and its Affiliates, and each of their respective employees, officers, directors and agents (the “Licensor Indemnitees”) harmless from and against any and all actions, judgments, settlements, liabilities, damages, penalties, fines, losses, costs and expenses (including reasonable attorneys’ fees and expenses) to the extent arising out of any Third Party claim, demand, action or other proceeding (each, a “Claim”) related to (a) Omthera’s performance of its obligations or exercise (by it or its Affiliates or Sublicensees) of its rights under this Agreement; or (b) breach by Omthera of its representations and warranties set forth in Article VIII; provided, however, that Omthera’s obligations pursuant to this Section 9.1 shall not apply (x) to the extent such claims or suits result from the gross negligence or willful misconduct of any of the Licensor Indemnitees, or (y) with respect to claims or suits arising out of breach by Licensor of this Agreement, including without limitation of its or their representations and warranties set forth in Article VIII.
9.2    Indemnification by Licensor. Licensor shall indemnify, defend and hold Omthera and its Affiliates and each of their respective agents, employees, officers and directors (the “Omthera Indemnitees”) harmless from and against any and all actions, judgments, settlements, liabilities, damages, penalties, fines, losses, costs and expenses (including reasonable attorneys’ fees and expenses) to the extent arising out of any and all Claims related to (a) Licensor’s performance of its obligations or exercise (by it or its Affiliates) of its or their rights under this Agreement; or (b) breach by Licensor of its representations and warranties set forth in Article VIII; provided, however, that Licensor’s obligations pursuant to this Section 9.2 shall not apply (x) to the extent that such claims or suits result from the gross negligence or willful misconduct of any of the Omthera Indemnitees or (y) with respect to claims or suits arising out of a breach by Omthera of this Agreement, including without limitation its representations and warranties set forth in Article VIII.
9.3    No Consequential Damages. EXCEPT FOR DAMAGES FOR WHICH A PARTY IS RESPONSIBLE PURSUANT TO ITS INDEMNIFICATION OBLIGATIONS SET FORTH IN ARTICLE IX, EACH PARTY SPECIFICALLY DISCLAIMS ALL LIABILITY FOR AND SHALL IN NO EVENT BE LIABLE TO ANY OTHER PARTY OR TO ANY OTHER PARTY’S AFFILIATES FOR ANY INCIDENTAL, SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES, EXPENSES, LOST PROFITS, LOST SAVINGS, INTERRUPTIONS OF BUSINESS OR OTHER DAMAGES OF ANY KIND OR CHARACTER WHATSOEVER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE DEVELOPMENT PROGRAM OR THE LICENSED TECHNOLOGY OR RESULTING FROM THE MANUFACTURE, HANDLING, MARKETING, SALE, DISTRIBUTION OR USE OF LICENSED PRODUCTS, REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT, STRICT LIABILITY OR OTHERWISE, EVEN IF SUCH PARTY WAS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

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9.4    Procedure.
(c)    The Party or other Person intending to claim indemnification under this Article IX (an “Indemnified Party”) shall promptly notify the opposed Party (the “Indemnifying Party”) of any Claim in respect of which the Indemnified Party intends to claim such indemnification (provided, that no delay or deficiency on the part of the Indemnified Party in so notifying the Indemnifying Party will relieve the Indemnifying Party of any liability or obligation under this Agreement except to the extent the Indemnifying Party has suffered actual prejudice directly caused by the delay or other deficiency), and the Indemnifying Party shall assume the defense thereof (with counsel selected by the Indemnifying Party and reasonably satisfactory to the Indemnified Party) whether or not such Claim is rightfully brought; provided, however, that an Indemnified Party shall have the right to retain its own counsel and to participate in the defense thereof, with the fees and expenses to be paid by the Indemnified Party unless the Indemnifying Party does not assume the defense or unless a representation of both the Indemnified Party and the Indemnifying Party by the same counsel would be inappropriate due to the actual or potential differing interests between them, in which case the reasonable fees and expenses of counsel retained by the Indemnified Party shall be paid by the Indemnifying Party. (Provided, that in no event shall the Indemnifying Party be required to pay for more than one separate counsel no matter the number or circumstances of all Indemnified Parties.)
(d)    If the Indemnifying Party shall fail to timely assume the defense of such Claim, the Indemnified Party shall have the right to retain or assume control of such defense and the Indemnifying Party shall pay (as incurred and on demand) the fees and expenses of counsel retained by the Indemnified Party.
(e)    The Indemnifying Party shall not be liable for the indemnification of any Claim settled (or resolved by consent to the entry of judgment) without the written consent of the Indemnifying Party. Also, if the Indemnifying Party shall control the defense of any such Claim, the Indemnifying Party shall have the right to settle such Claim; provided, that the Indemnifying Party shall obtain the prior written consent (which shall not be unreasonably withheld or delayed) of the Indemnified Party before entering into any settlement of (or resolving by consent to the entry of judgment upon) such Claim unless (i) there is no finding or admission of any violation of law or any violation of the rights of any person by an Indemnified Party, no requirement that the Indemnified Party admit negligence, fault or culpability, and no adverse effect on any other claims that may be made by or against the Indemnified Party and (ii) the sole relief provided is monetary damages that are paid in full by the Indemnifying Party and such settlement does not require the Indemnified Party to take (or refrain from taking) any action.
(f)    The Indemnified Party, and its employees and agents, shall cooperate fully with the Indemnifying Party and its legal representatives in the investigations of any Claim.
(g)    Regardless of who controls the defense, each Party hereto shall reasonably cooperate in the defense as may be requested.
9.5    Expenses. As the Parties intend complete indemnification, all costs and expenses of enforcing any provision of this Article IX shall also be reimbursed by the Indemnifying Party.
9.6    Limitation of Liability. EACH PARTY SHALL HAVE NO REMEDY, AND EACH PARTY SHALL HAVE NO LIABILITY, OTHER THAN AS EXPRESSLY SET FORTH IN THIS

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AGREEMENT. EXCEPT WITH RESPECT TO THE INDEMNIFICATION SPECIFICALLY PROVIDED IN ARTICLE IX OR CLAIMS FOR NON-PAYMENT, IN NO EVENT SHALL A PARTY’S TOTAL AGGREGATE LIABILITY FOR ALL CLAIMS ARISING OUT OF OR RELATED TO THIS AGREEMENT EXCEED [***]. NO ACTION, REGARDLESS OF FORM, ARISING OUT OF OR RELATED TO THIS AGREEMENT MAY BE BROUGHT BY EITHER PARTY MORE THAN [***] AFTER SUCH PARTY HAS KNOWLEDGE OF THE OCCURRENCE THAT GAVE RISE TO THE CAUSE OF ACTION OR AFTER EXPIRATION OF THE APPLICABLE STATUTORY LIMITATIONS PERIOD, WHICHEVER IS SOONER.
9.7    Insurance. During the Term and for [***] thereafter, Omthera shall obtain and maintain, at its own cost and expense, product liability insurance (or Omthera’s parent company shall obtain and maintain coverage for Omthera under its own product liability insurance policies) in amounts, that are reasonable and customary in the United States pharmaceutical and biotechnology industry for companies engaged in comparable activities. It is understood and agreed that this insurance shall not be construed to limit Omthera’s liability with respect to its indemnification obligations hereunder. Omthera shall upon request provide to Licensor upon request a certificate evidencing the insurance Omthera is required to obtain and keep in force under this Section 9.7.
ARTICLE X    
TERM AND TERMINATION
10.1    Term and Expiration. The term of this Agreement shall commence on the Effective Date and, unless earlier terminated as provided in this Article X, shall continue in full force and effect, on a country-by-country and Licensed Product-by-Licensed Product basis until the Royalty Term in such country with respect to such Licensed Product expires, at which time this Agreement shall expire in its entirety with respect to such Licensed Product in such country. (The “Term” shall mean the period from the Effective Date until the earlier of termination of this Agreement as provided in this Article X or expiration of this Agreement upon the expiration of the last-to-expire Royalty Term.) The Parties confirm that subject to the foregoing sentence, this Agreement shall not be terminated or invalidated by any future determination that any or all of the Licensor Patents have expired or been invalidated.
10.2    Termination upon Material Breach. If a Party breaches any of its material obligations under this Agreement, the Party not in default may give to the breaching Party a written notice specifying the nature of the default, requiring it to cure such breach, and, if desired, stating its intention to terminate this Agreement if such breach is not cured within [***] days of the breaching Party’s receipt of such notice. If such breach is not cured within [***] days after the receipt of such notice, the Party not in default shall (in addition to and not in lieu of all other available rights and remedies) be entitled to at its option either (a) terminate this Agreement immediately by written notice to the other Party, or (b) continue this Agreement in full force and effect and seek any legal or equitable remedies that the non-breaching Party may have. In case of a breach of an obligation to pay money, which obligation to pay is not disputed in good faith, the cure period shall be [***] days instead of [***] days. The Parties agree that any failure by Omthera to pay when due 100% of such portion of any amount of money owing from Omthera to Licensor as is not disputed in good faith by Omthera (subject to the [***]-day cure period) shall conclusively be deemed to constitute a “material” breach.

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10.3    Termination for Bankruptcy. Licensor may terminate this Agreement immediately upon written notice to Omthera in the event that Omthera has a petition in bankruptcy filed against it that is not dismissed within [***] days of such filing, files a petition in bankruptcy, or makes an assignment for the benefit of creditors. Omthera may terminate this Agreement immediately upon written notice to Licensor in the event that Licensor has a petition in bankruptcy filed against it that is not dismissed within [***] days of such filing, files a petition in bankruptcy, or makes an assignment for the benefit of creditors.
10.4    Termination for Failure to Achieve Development Milestones. Omthera may terminate this Agreement immediately upon written notice to Licensor in the event that (a) any Research Goal (as specified in Schedule 2) is not met on schedule or is not capable of being met or (b) the Research Plan (as specified in Schedule 2) materially exceeds the applicable budget or timeline, as Omthera reasonably determines in its sole discretion. (Provided, however, that Omthera’s right to terminate this Agreement under this Section 10.4 on account of any particular Research Goal not being met on schedule, any particular Research Goal not being capable of being met, the Research Plan materially exceeding the applicable budget at a particular time or the Research Plan materially exceeding the applicable timeline in a particular regard shall lapse if Omthera does not so terminate within [***] days after Licensor notifies Omthera of such particular Research Goal not being met on schedule, such particular Research Goal not being capable of being met, the Research Plan materially exceeding the applicable budget at such particular time or the Research Plan materially exceeding the applicable timeline in such particular regard). In the event of such termination, Omthera shall have no further liability or obligation to Licensor except as specifically set forth in Section 10.6.
10.5    Termination Without Cause by Omthera. From and after December 31, 2014, Omthera may terminate this Agreement for any or no reason upon written notice to Licensor specifying such termination pursuant to this Section.
10.6    Effects of Termination/Expiration.
(d)    Articles I (Definitions), VII (Confidentiality), IX (Indemnification; Limitation of Liability; Insurance) and XI (Miscellaneous Provisions) and Sections 5.5 (Royalty Reports and Records Retention), 5.6 (Audits), 5.8 (Late Payments), 5.9 (Taxes) and 10.6 (Effects of Termination/Expiration) hereof shall survive the expiration or termination of this Agreement for any reason. In addition, upon termination of this Agreement by Omthera pursuant to Sections 10.2 or 10.3, then Section 6.8 (Third Party Actions Claiming Infringement) shall survive the expiration or termination of this Agreement.
(e)    Termination or expiration of this Agreement shall not relieve the Parties of any liability that accrued hereunder before the effective date of such termination or expiration. In addition, termination or expiration of this Agreement shall not preclude either Party from pursuing all rights and remedies it may have hereunder or at Law or in equity with respect to any breach of this Agreement nor prejudice either Party’s right to obtain performance of any obligation.
(f)    Upon termination of this Agreement by Licensor pursuant to Sections 10.2 or 10.3 or by Omthera pursuant to Sections 10.4 or 10.5, all licenses granted to Omthera hereunder shall terminate. In the event of termination by Omthera pursuant to Section 10.2 or 10.3, the licenses granted to Omthera hereunder shall continue in effect but become fully paid-up, royalty-free, transferable (to the extent not transferable previously), perpetual and irrevocable. Notwithstanding anything to the

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contrary herein, in the event of termination by Omthera pursuant to Section 10.5, Omthera shall not continue to research, Develop, manufacture, have manufactured, use, import and Commercialize any Licensed Product that was made or discovered in the Development Program with Licensor Know-How that is solely owned by LIcensor.
ARTICLE XI    
MISCELLANEOUS PROVISIONS
11.1    Relationship of the Parties. Nothing in this Agreement is intended or shall be deemed to constitute a partnership, agency, joint venture or employer-employee relationship between the Parties. No Party shall have any right or authority to commit or legally bind any other Party in any way whatsoever including, without limitation, the making of any agreement, representation or warranty and each Party agrees to not purport to do so.
11.2    Assignment.
(h)    Any assignment not in accordance with this Section 11.2 shall be void.
(i)    No assignment shall relieve the assigning Party of any of its responsibilities or obligations hereunder.
(j)    Omthera may not transfer or assign its rights or licenses or delegate its obligations under this Agreement, in whole or in part, by operation of law or otherwise, to any Third Party without the prior written consent of Licensor, which consent shall not be unreasonably withheld, conditioned or delayed; provided that, notwithstanding the foregoing, Omthera may assign its rights or licenses and/or delegate its obligations under this Agreement to an Affiliate or to a successor to all or substantially all of Omthera’s assets, whether by way of merger, sale of all or substantially all of its assets, sale of stock or otherwise, without Licensor’s prior written consent. As a condition to any permitted assignment hereunder, the assignee must expressly assume, in a writing delivered to Licensor (and in a form reasonably acceptable to Licensor) all of Omthera’s obligations under this Agreement, whether arising before, at or after the assignment.
(k)    Licensor may not transfer or assign its rights or delegate its obligations under this Agreement, in whole or in part, by operation of law or otherwise, to any Third Party without the prior written consent of Omthera, which consent shall not be unreasonably withheld, conditioned or delayed; provided that, notwithstanding the foregoing, Licensor may, without Omthera’s prior written consent, assign its rights and/or delegate its obligations under this Agreement to an Affiliate, or to any person in a transaction in which Licensor also assigns all of its right, title and interest in all of its Licensor Liver Targeting Prodrug Technology assets, including without limitation, intellectual property rights, to the same party contemporaneous with the assignment of this Agreement, or to a successor, whether by way of merger, sale of all or substantially all of its assets, sale of stock or otherwise. As a condition to any permitted assignment hereunder, the assignee must expressly assume, in a writing delivered to Omthera (and in a form reasonably acceptable to Omthera) all of Licensor’s obligations under this Agreement, whether arising before, at or after the assignment.
11.3    Further Actions. Each Party agrees to execute, acknowledge and deliver such further instruments and to do all such other acts as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.

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11.4    Force Majeure. No Party shall be liable to any other Party or be deemed to have breached or defaulted under this Agreement for failure or delay in the performance of any of its obligations under this Agreement (other than obligations for the payment of money) for the time and to the extent such failure or delay is caused by or results from acts of God, earthquake, riot, civil commotion, terrorism, war, strikes or other labor disputes, fire, flood, failure or delay of transportation, omissions or delays in acting by a governmental authority, acts of a government or an agency thereof or judicial orders or decrees or restrictions or any other like reason which is beyond the control of the respective Party. The Party affected by force majeure shall provide the other Party with full particulars thereof as soon as it becomes aware of the same (including its best estimate of the likely extent and duration of the interference with its activities), and shall use Commercially Reasonable Efforts to overcome the difficulties created thereby and to resume performance of its obligations hereunder as soon as practicable, and the time for performance shall be extended for a number of days equal to the duration of the force majeure.
11.5    Entire Agreement of the Parties; Amendments. This Agreement and the Schedules hereto constitute and contain the entire understanding and agreement of the Parties respecting the subject matter hereof and cancel and supersede any and all prior or contemporaneous negotiations, correspondence, understandings and agreements between the Parties, whether oral or written, regarding such subject matter (provided, that any and all previous nondisclosure/nonuse obligations are not superseded and remain in full force and effect in addition to the nondisclosure/nonuse provisions hereof). Each Party acknowledges that it has not relied, in deciding whether to enter into this Agreement on this Agreement’s expressly stated terms and conditions, on any representations, warranties, agreements, commitments or promises which are not expressly set forth within this Agreement. No modification or amendment of any provision of this Agreement shall be valid or effective unless made in a writing referencing this Agreement and signed by a duly authorized officer of each Party.
11.6    Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York, excluding application of any conflict of laws principles.
11.7    Notices and Deliveries. Any notice, request, approval or consent required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been sufficiently given if and only if delivered in person, by email or by express courier service to the Party to which it is directed at its physical or email address shown below or such other physical or email address as such Party shall have last given by such written notice to the other Party.
If to Omthera, addressed to:
Omthera Pharmaceuticals, Inc.
707 State Road
Princeton, NJ 08540
Attention: Chief Medical Officer
Email: [***]
If to Licensor, addressed to:
General Counsel
Ligand Pharmaceuticals Incorporated
11119 North Torrey Pines Road, Suite 200
La Jolla, CA 92037

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Email:     [***]

11.8    Waiver. No waiver of any provision of this Agreement shall be valid or effective unless made in a writing referencing this Agreement and signed by a duly authorized officer of the waiving Party. A waiver by a Party of any of the terms and conditions of this Agreement in any instance shall not be deemed or construed to be a waiver of such term or condition for the future, or of any other term or condition hereof.
11.9    Rights and Remedies are Cumulative. Except to the extent expressly set forth herein, all rights, remedies, undertakings, obligations and agreements contained in or available upon violation of this Agreement shall be cumulative and none of them shall be in limitation of any other remedy or right authorized in law or in equity, or any undertaking, obligation or agreement of the applicable Party.
11.10    Severability. This Agreement is severable. When possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable Law, but if any provision of this Agreement is held to be to any extent prohibited by or invalid under applicable Law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement (or of such provision). The Parties shall make a good faith effort to replace the invalid or unenforceable provision with a valid one which in its economic effect is most consistent with the invalid or unenforceable provision.
11.11    Third Party Beneficiaries. Except for the rights of Indemnified Parties pursuant to Article IX hereof, the terms and provisions of this Agreement are intended solely for the benefit of each Party hereto and their respective successors or permitted assigns and it is not the intention of the Parties to confer third-party beneficiary rights upon any other person, including without limitation Sublicensees. The enforcement of any obligation of Licensor under this Agreement shall only be pursued by Omthera or such Indemnified Party, and not Sublicensees.
11.12    No Implied License. No right or license is granted to Omthera hereunder by implication, estoppel, or otherwise to any know-how, patent or other intellectual property right owned or controlled by Licensor or its Affiliates, except by an express license granted hereunder. No right or license is granted to Licensor hereunder by implication, estoppel, or otherwise to any know-how, patent or other intellectual property right owned or controlled by Omthera or its Affiliates, except by an express license granted hereunder.
11.13    No Right of Set-Off. Notwithstanding anything to the contrary in this Agreement, Omthera shall not have a right to set-off any royalties, milestones or other amount due to Licensor under this Agreement against any damages incurred by Omthera for a breach by Licensor of this Agreement.
11.14    Equitable Relief. Each Party recognizes that the covenants and agreements herein and their continued performance as set forth in this Agreement are necessary and critical to protect the legitimate interests of the other Party, that the other Party would not have entered into this Agreement in the absence of such covenants and agreements and the assurance of continued performance as set forth in this Agreement, and that a Party’s breach or threatened breach of such covenants and agreements will cause the opposed Party irreparable harm and significant injury, the amount of which will be extremely difficult to estimate and ascertain, thus making any remedy at law or in damages inadequate. Therefore, each Party agrees that an opposed Party shall be entitled to specific performance, an order restraining any breach or threatened breach of Article VII and all other provisions of this Agreement,

30




and any other equitable relief (including but not limited to temporary, preliminary and/or permanent injunctive relief), without the necessity of posting of any bond or security. This right shall be in addition to and not exclusive of any other remedy available to such other Party at law or in equity.
11.15    Interpretation. The language used in this Agreement is the language chosen by the Parties to express their mutual intent, and no provision of this Agreement shall be interpreted for or against a Party because that Party or its attorney drafted the provision.
11.16    Construction. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” All references herein to Articles, Sections and Schedules shall be deemed references to Articles and Sections of, and Schedules to, this Agreement unless the context shall otherwise require.
11.17    Counterparts. This Agreement may be executed in counterparts, each of which will be deemed an original, and all of which together will be deemed to be one and the same instrument. A facsimile or a portable document format (PDF) copy of this Agreement, including the signature pages, will be deemed an original.

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IN WITNESS WHEREOF, the Parties have caused this Research and License Agreement to be executed and delivered by their respective duly authorized officers as of the day and year first above written.
OMTHERA PHARMACEUTICALS, INC.    

By: _/s/ Michael H. Davidson, MD ______    
Name:     _Michael H. Davidson, MD______    
Title: __EVP & Chief Medical Officer____    
LIGAND PHARMACEUTICALS INCORPORATED

By: _/s/ Charles Berkman _____________    
Name:     _Charles Berkman_____________    
Title: _VP, General Counsel & Secretary__
    


Schedule 1
Licensor Patent Rights
Matter Code
App Serial No.
Status
Date Filed
Title
[***]
[***]
[***]
[***]
[***]



Schedule 2
Development Program
[***]


32


LigandTGLicenseAgreement
CERTAIN MATERIAL (INDICATED BY AN ASTERISK) HAS BEEN OMITTED FROM THIS DOCUMENT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Exhibit 10.4


LICENSE AGREEMENT
Dated as of June 23, 2014
by and between
Ligand Pharmaceuticals Incorporated
and
TG Therapeutics, Inc.








LICENSE AGREEMENT
THIS LICENSE AGREEMENT (the “Agreement”) is dated as of June 23, 2014 (the “Effective Date”) by and between Ligand Pharmaceuticals Incorporated, a Delaware corporation organized having its place of business at 11119 North Torrey Pines Road, Suite 200, La Jolla, California 92037 (including its successors and permitted assigns, “Licensor”), and TG Therapeutics, Inc., a Delaware corporation with its place of business at 3 Columbus Circle, 15th Floor, New York, New York 10019 (including its successors and permitted assigns and all of its Affiliates, “TGTX”). TGTX, on the one hand, and Licensor, on the other hand, shall each be referred to herein as a “Party” or, collectively, as the “Parties.”
RECITALS:
WHEREAS, TGTX is engaged in the research, development, manufacturing and commercialization of pharmaceutical products, and TGTX is interested in developing and commercializing products containing or comprising the Compounds; and
WHEREAS, TGTX desires to license from Licensor and Licensor wishes to license to TGTX, on an exclusive basis, the right to use, develop and commercialize Licensor Technology in and for a defined field of use.
NOW, THEREFORE, in consideration of the foregoing and of the various promises and undertakings set forth herein, the Parties agree as follows:
ARTICLE I    
DEFINITIONS
Unless otherwise specifically provided herein, the following terms shall have the following meanings:
1.1     “Affiliate” means a Person or entity that controls, is controlled by or is under common control with a Party, but only for so long as such control exists. For the purposes of this Section 1.1, the word “control” (including, with correlative meaning, the terms “controlled by” or “under common control with”) means the actual power, either directly or indirectly through one or more intermediaries, to direct the management and policies of such Person or entity, whether by the ownership of at least 50% of the voting stock of such entity, or by contract or otherwise.
1.2    “Calendar Quarter” means each three month period commencing January 1, April 1, July 1 or October 1, provided however that (a) the first Calendar Quarter of the Term shall extend from the Effective Date to the end of the first full Calendar Quarter thereafter, and (b) the last Calendar Quarter of the Term shall end upon the termination or expiration of this Agreement.
1.3    “Calendar Year” means the period beginning on the 1st of January and ending on the 31st of December of the same year, provided however that (a) the first Calendar Year of the Term shall commence on the Effective Date and end on December 31 of the same calendar year as the Effective Date, and (b) the last Calendar Year of the Term shall commence on January 1 of the Calendar Year in

    


which this Agreement terminates or expires and end on the date of termination or expiration of this Agreement.
1.4    “Combination Product” means a product (a) containing a Licensed Product together with one or more other active ingredients, or (b) with one or more products, devices, pieces of equipment or components, but sold for an integrated price (e.g., with the purchase of one product the customer gets a coupon for the other) or for a single price.
1.5    “Commercialization” or “Commercialize” means any and all activities undertaken at any time for a particular Licensed Product and that relate to the manufacturing, marketing, promoting, distributing, importing or exporting for sale, offering for sale, and selling of the Licensed Product, and interacting with Regulatory Authorities regarding the foregoing.
1.6    “Commercially Reasonable Efforts” means, with respect to the efforts to be expended by a Party or such Party’s applicable Affiliate with respect to any objective, such reasonable, diligent, and good faith efforts normally used to accomplish a similar objective under similar circumstances by a similarly-situated company. Commercially Reasonable Efforts will not mean that a Party commits that it or such Party’s applicable Affiliate will actually accomplish the applicable task.
1.7    “Compounds” means Licensor’s proprietary Interleukin-1 Receptor Associated Kinase-4 (IRAK-4) inhibitors set forth on Schedule 1 and any other salts, solvates, esters, metabolites, hydrates, intermediates, stereoisomers, polymorphs, and derivatives of such compounds, and any other IRAK-4 inhibitors discovered or developed by Licensor during the first six months after the Effective Date and any other salts, solvates, esters, metabolites, hydrates, intermediates, stereoisomers, polymorphs, and derivatives of such compounds.
1.8    “Controlled” means, with respect to (a) Patent Rights, (b) Know-How or (c) biological, chemical or physical material, that a Party or one of its Affiliates owns or has a license or sublicense to such Patent Rights, Know-How or material (or in the case of material, has the right to physical possession of such material) and has the ability to grant a license or sublicense to, or assign its right, title and interest in and to, such Patent Rights, Know-How or material as provided for in this Agreement without violating the terms of any agreement or other arrangement with any Third Party.
1.9     “Covered” means, with respect to a Licensed Product, that the manufacturing, importing, using, selling, or offering for sale of such Licensed Product would, but for ownership of or a license granted hereunder under Licensor’s relevant Patent Rights, infringe a Valid Claim of Licensor’s relevant Patent Rights in the country in which the activity occurs.
1.10    “Development” or “Develop” means, with respect to a Licensed Product, the performance of all preclinical and clinical development (including, without limitation, toxicology, pharmacology, test method development and stability testing, process development, formulation development, quality control development, statistical analysis), clinical trials, and manufacturing and regulatory activities that are required to obtain Regulatory Approval of such Licensed Product.
1.11    “EMA” means the European Medicines Agency or any successor agency.

    


1.12    “European Commission” means the authority within the European Union that has the legal authority to grant Regulatory Approvals in the European Union based on input received from the EMA or other competent Regulatory Authorities.
1.13    “FDA” means the United States Food and Drug Administration, or a successor federal agency thereto.
1.14    “Field” means all prophylactic, palliative, therapeutic or diagnostic uses in humans.
1.15    “First Commercial Sale” means, with respect to a Licensed Product in any country, the first commercial transfer or disposition for value of such Licensed Product in such country to a Third Party by TGTX, an Affiliate of TGTX or a Sublicensee after Regulatory Approval therefor has been obtained in such country.
1.16    “GAAP” means United States generally accepted accounting principles.
1.17    “Governmental Body” means any: (a) nation, principality, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; (c) governmental or quasi-governmental authority of any nature (including any governmental division, subdivision, department, agency, bureau, branch, office, commission, council, board, instrumentality, officer, official, representative, organization, unit, body or entity and any court or other tribunal); (d) multi-national or supranational organization or body; or (e) individual, entity, or body exercising, or entitled to exercise, any executive, legislative, judicial, administrative, regulatory, police, military or taxing authority or power of any nature.
1.18    “Know-How” means any scientific or technical information, results and data of any type whatsoever, in any tangible or intangible form whatsoever, that is not in the public domain or otherwise publicly known, including, without limitation, discoveries, inventions, trade secrets, databases, practices, protocols, regulatory filings, methods, processes, techniques, software, works of authorship, plans, concepts, ideas, biological and other materials, reagents, specifications, formulations, formulae, data (including, but not limited to, pharmacological, biological, chemical, toxicological, clinical and analytical information, quality control, trial and stability data), case reports forms, data analyses, reports, studies and procedures, designs for experiments and tests and results of experimentation and testing (including results of research or development), summaries and information contained in submissions to and information from ethical committees, the FDA or other Regulatory Authorities, and manufacturing process and development information, results and data, whether or not patentable, all to the extent not claimed or disclosed in a patent or pending patent application. The fact that an item is known to the public shall not be taken to exclude the possibility that a compilation including the item, and/or a development relating to the item, is (and remains) not known to the public. “Know-How” includes any rights including copyright, moral, trade-secret, database or design rights protecting such Know-How. “Know-How” excludes Patent Rights.
1.19    “Indication” means a generally acknowledged disease or condition, a significant manifestation of a disease or condition, or symptoms associated with a disease or condition or a risk for a disease or condition, which a Licensed Product is intended to address; provided, however, that with respect to the each of the Product Milestone Events, if each of the first two Indications for which a particular Product Milestone Event has been achieved both involve oncology, no further indication shall (with regard to such particular Product Milestone Event) be deemed to be an Indication unless the

    


further indication is for a non-oncology indication. For the avoidance of doubt, in the event the first two Indications for which a particular Product Milestone Event has been achieved both involve oncology, no additional milestones shall be due under Section 5.2 for any subsequent, oncology-related Indication.
1.20    “Law” or “Laws” means all applicable laws, statutes, rules, regulations, ordinances and other pronouncements having the binding effect of law of any Governmental Body.
1.21    “Licensed Product” means any pharmaceutical product, in any dosage form, preparation, composition, formulation, presentation or package configuration, that is Commercialized or undergoing research or preclinical or clinical Development that contains or comprises, in part or in whole, a Compound. For clarity: if a product is described by the foregoing sentence it is a “Licensed Product” for all purposes hereof whether or not it is Covered and whether or not the manufacturing, importing, using, selling, or offering for sale of such product would, but for a license granted under this Agreement under the Licensor Technology, infringe any Licensor Technology in the country in which the activity occurs.
1.22    “Licensor Know-How” means any and all Know-How that (a) is Controlled by Licensor or any of its Affiliates as of the Effective Date or at any time thereafter during the Term and (b) pertains directly and particularly to the Compounds and (c) is from time to time expressly identified in writing by Licensor to TGTX as constituting Licensor Know-How. For clarity: any and all Know-How which Licensor determines, in its reasonable discretion, not to so expressly identify as being within the definition of Licensor Know-How shall not constitute Licensor Know-How. The Licensor Know-How shall include, but not be limited to, the Know-How listed on Schedule 2 hereto.
1.23    “Licensor Patents” means all Patent Rights that are Controlled by Licensor or any of its Affiliates as of the Effective Date or at any time thereafter during the Term and that pertain directly and particularly to the Compounds, other inhibitors of IRAK-4 and/or IRAK-4 inhibition. The Licensor Patents shall include, but not be limited to, all Patent Rights set forth on Schedule 3 hereto.
1.24    “Licensor Technology” means the Licensor Patents and the Licensor Know-How.
1.25    “Major Market” means any of the (a) United States, (b) the European Union (either in its entirety or including at least one Major Market EU Country, as determined by TGTX in its sole discretion), or (c) Japan.
1.26    “Major Market EU Country” means any of France, Germany and the United Kingdom.
1.27    “NDA” means a New Drug Application submitted pursuant to the requirements of the FDA, as more fully defined in 21 U.S. CFR § 314.3 et seq., a Biologics License Application submitted pursuant to the requirements of the FDA, as more fully defined in 21 U.S. CFR § 601, and any equivalent application submitted in any country, including a European Marketing Authorization Application, together, in each case, with all additions, deletions or supplements thereto.
1.28    “NDA Approval” means the receipt of notice from the relevant US Regulatory Authority that an NDA for a Licensed Product has met all the criteria for marketing approval.
1.29    “Net Sales” means the gross amount invoiced or otherwise charged by TGTX, its Affiliates and Sublicensees to unrelated Third Parties for a Licensed Product, less:

    


(a)
Normal and customary trade, quantity, cash and discounts and credits allowed and taken;
(b)
Discounts, refunds, rebates, chargebacks, retroactive price adjustments, and any other allowances given and taken which effectively reduce the net selling price (other than such which have already diminished the gross amount invoiced such as those outlined in Section 1.29(a) above), including, without limitation, Medicaid rebates, institutional rebates or volume discounts;
(c)
Product returns and allowances;
(d)
Administrative fees paid to group purchasing organizations (e.g., Medicare) and government-mandated rebates;
(e)
Shipping, handling, freight, postage, insurance and transportation charges, but all only to the extent included as a separate line item in the gross amount invoiced;
(f)
Any tax, tariff or duties imposed on the production, sale, delivery or use of the Licensed Product, including, without limitation, sales, use, excise or value added taxes and customs and duties, but all only to the extent included as a separate line item (e.g., “taxes”) in the gross amount invoiced; and
(g)
Bad debt actually written off during the accounting period (provided, that any bad debt write-off so taken which is later reversed shall be added back to Net Sales in the accounting period in which the reversal occurs).
Notwithstanding the foregoing, amounts invoiced by TGTX and its Affiliates and Sublicensees for sales of Licensed Products among TGTX and its Sublicensees and their respective Affiliates for resale shall not be included in the computation of Net Sales.
In the event that a Licensed Product is commercialized as part of a Combination Product for a single price, then for the purpose of determining Net Sales the gross amount invoiced or otherwise charged by TGTX for such Licensed Product shall be calculated by multiplying the sales price of such Combination Product by the fraction A/(A+B) where A is the fair market value of the Licensed Product and B is the fair market value of the other product(s) in the Combination Product; and the applicable deductions from the gross amount invoiced or otherwise charged by TGTX shall be allocated between the Licensed Product and the other product(s) in the Combination Product in the same proportion.
1.30     “Patent Right” means: (a) an issued or granted patent, including any extension, supplemental protection certificate, registration, confirmation, reissue, reexamination, extension or renewal thereof; (b) a pending patent application, including any continuation, divisional, continuation-in-part, substitute or provisional application thereof; and (c) all counterparts or foreign equivalents of any of the foregoing issued by or filed in any country or other jurisdiction, provided however that, with respect to items (b) and (c), no patent application shall be pending for a period of greater than seven years from its actual date of filing.
1.31    “Person” means any natural person, corporation, firm, business trust, joint venture, association, organization, company, partnership or other business entity, or any government or agency or political subdivision thereof.

    


1.32     “Phase I Trial” means a clinical trial of a Licensed Product in human patients conducted primarily for the purpose of determining the safety of and/or the metabolism and pharmacologic actions of the Licensed Product in humans, as described under 21 CFR § 312.21(a) (as hereafter modified or amended) and any of its foreign equivalents.
1.33    “Phase III Trial” means a clinical trial of a Licensed Product in human patients, which trial is designed (a) to establish that the Licensed Product is safe and efficacious for its intended use; (b) to define warnings, precautions and adverse reactions that are associated with the Licensed Product in the dosage range to be prescribed; and (c) to be, either by itself or together with one or more other clinical trials having a comparable design and size, the final human clinical trial in support of Regulatory Approval of the Licensed Product, and (d) consistent with 21 CFR § 312.21(c) (as hereafter modified or amended) and any of its foreign equivalents. Provided that, and for avoidance of doubt: any pivotal trial, which is intended to be or is in fact used as one of the adequate and well-controlled trials for registration in any jurisdiction, shall be deemed to be a Phase III Trial.
1.34    “Product Milestone Events” means the second, third, fourth, fifth, sixth and seventh milestone events specified in Section 5.2.
1.35    “Regulatory Authority” means (a) the FDA, (b) the EMA or the European Commission, or (c) any regulatory body with similar regulatory authority over pharmaceutical or biotechnology products in any other jurisdiction anywhere in the world.
1.36    “Regulatory Approval” means any and all approvals, licenses, registrations, or authorizations of the relevant Regulatory Authority, necessary for the Development, manufacture, use, storage, import, transport and Commercialization of a given Licensed Product in a particular country or jurisdiction. For the avoidance of doubt, Regulatory Approval outside of the United States shall include any pricing or marketing approval needed prior to the sale of a Licensed Product in the Field.
1.37    “Royalty Term” means, on a Licensed Product-by-Licensed Product and country-by-country basis, the period from the First Commercial Sale of a given Licensed Product in such country until the later of (a) expiry of the last-to-expire Licensor Patent containing a Valid Claim to the Compound in such country; or (b) the 10th anniversary of the First Commercial Sale of such Licensed Product in such country. In a country where no Licensor Patent containing a Valid Claim with respect to the Compound has ever existed nor ever exists, the Royalty Term means on a product-by-product and country-by-country basis, the period from the First Commercial Sale of such product in such country until the 10th anniversary of such First Commercial Sale of such product in such country.
1.38    “Sales Milestone Events” means the eighth and ninth milestone events specified in Section 5.2.
1.39    “Share Value” as of a particular date means the mean average of the respective trading days’ closing sale prices of the Shares on the Shares’ principal United States securities exchange for each of the eighteen trading days immediately preceding such date; it being understood that any such closing sale prices shall be adjusted appropriately to reflect the occurrence of any stock split, reverse stock split, recapitalization, reorganization or other such event.

    


1.40    “Shares” means shares of TGTX’s common stock, par value $0.001 per share, as constituted on the Effective Date; the meaning of such term shall be adjusted appropriately to reflect the occurrence of any stock split, reverse stock split, recapitalization, reorganization or other such event.
1.41    “Sublicensee” means a Person, other than an Affiliate of TGTX, to which TGTX (or its Affiliate) has, pursuant to Section 2.2, granted sublicense rights under any of the license rights granted under Section 2.1. “Sublicense” shall be construed accordingly.
1.42    “Tax” or “Taxes” means any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not.
1.43    “Third Party” means any Person other than Licensor, TGTX or Affiliates of either of them, or any Sublicensees.
1.44    “Third Party Action” means any claim or action made by a Third Party against a Party that claims that a Licensed Product, or its use, Development, manufacture or sale infringes such Third Party’s intellectual property rights.
1.45     “United States” or “US” means the United States of America and its territories and possessions.
1.46    “Upfront Shares” means 125,000 Shares.
1.47    “Valid Claim” means a claim of an issued and unexpired patent which has not lapsed or been revoked, abandoned or held unenforceable or invalid by a final decision of a court or governmental agency of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and which has not been disclaimed, denied or admitted to be invalid or unenforceable through reissue, reexamination or disclaimer or otherwise.
1.48    The definition of each of the following terms is set forth in the section of the Agreement indicated below:
“Action” has the meaning set forth in Section 6.5(b).
“Claim” has the meaning set forth in Section 9.1.
“Confidential Information” has the meaning set forth in Section 7.1.
“Controlling Party” has the meaning set forth in Section 6.6(c).
“Development Program” has the meaning set forth in Section 3.1.
“Disclosing Party” has the meaning set forth in Section 7.1.
“Generic Supply” has the meaning set forth in Section 5.4(b).

    


“Indemnified Party” has the meaning set forth in Section 9.4.
“Indemnifying Party” has the meaning set forth in Section 9.4.
“Licensor Indemnitees” has the meaning set forth in Section 9.1.
“Notice” has the meaning set forth in Section 7.6.
“Publishing Party” has the meaning set forth in Section 7.6.
“Receiving Party” has the meaning set forth in Section 7.1.
“Term” has the meaning set forth in Section 10.1.
“TGTX Indemnitees” has the meaning set forth in Section 9.2.

ARTICLE II    
LICENSES AND OTHER RIGHTS
2.1    Grant of License to TGTX. Subject to the terms and conditions of this Agreement, Licensor hereby grants to TGTX and its Affiliates, and TGTX and its Affiliates hereby accept, an exclusive (even as to Licensor), worldwide, royalty-bearing right and license (with the right to sublicense, and to further sublicense, subject to the provisions of Section 2.2) under the Licensor Technology to research, Develop, manufacture, have manufactured, use, import and Commercialize and have Commercialized the Licensed Products in and for the Field. Licensor and its Affiliates grant no licenses or rights to use other than as expressly set forth herein.
2.2    Grant of Sublicenses by TGTX. TGTX shall have the right, in its sole discretion, to grant Sublicenses, in whole or in part, under the license granted in Section 2.1; provided, however, that the granting by TGTX of a Sublicense shall not relieve TGTX of any of its obligations hereunder; and provided, further, that TGTX’s right to grant a Person a Sublicense shall be subject to TGTX including within such Sublicense express provisions binding the Sublicensee to all of the duties, obligations, restrictions and acknowledgements hereunder of TGTX (with Licensor being an express third-party beneficiary thereof), and stating that the Sublicense shall (except as otherwise expressly provided in Section 10.3 or 10.4(c)) automatically terminate upon the expiration or earlier termination of this Agreement. Notwithstanding the foregoing sentence, it is not required that a Sublicense include provisions for the Sublicensee to pay Royalties or make milestone payments directly to Licensor or to provide royalty reports directly to Licensor. TGTX shall ensure that all of its Sublicensees shall comply with the terms and conditions of this Agreement (as applicable to them) and TGTX shall be and remain fully responsible for the compliance by such Sublicensees with the terms and conditions of this Agreement (as applicable to them) as if such Sublicensees were TGTX hereunder. Except for Sublicenses as expressly allowed herein, TGTX acknowledges that it has no right to, and agrees not to purport to, grant to anyone a sublicense under the Licensor Technology.
2.3    Bankruptcy Code. All rights and licenses granted under or pursuant to this Agreement by Licensor to TGTX are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the

    


US Bankruptcy Code, licenses of rights to “intellectual property” as defined under Section 101 of the US Bankruptcy Code. The Parties agree that TGTX, as a licensee of such rights under this Agreement, shall retain and may fully exercise all of its rights and elections under the US Bankruptcy Code.
2.4    Service Agreement. The Parties acknowledge that the Parties may choose in the future to negotiate toward a research agreement in support of the Development Program; however, neither Party shall be obligated to negotiate toward, or to enter into, such a research agreement, and in the absence of any such definitive written research agreement Licensor shall have no obligation to assist TGTX’s research and development.
ARTICLE III    
DEVELOPMENT, MANUFACTURE AND COMMERCIALIZATION
3.1    Diligence by TGTX. TGTX shall use Commercially Reasonable Efforts to Develop and to Commercialize at least one Licensed Product in and for the Field in at least one Major Market. In connection therewith, TGTX shall formulate and execute a preclinical and clinical development program to Develop one or more Licensed Products in and for the Field in at least one Major Market (the “Development Program”).
3.2    No Guaranty of Favorable Results. Licensor does not warrant that the Development Program, TGTX’s other preclinical studies and evaluation (if any) and/or TGTX’s clinical studies (if any) will produce any particular results or any favorable results.
3.3    TGTX Responsibility and Authority for Development. TGTX shall have the exclusive right, and sole responsibility and decision-making authority, to research and Develop any Licensed Products in and for the Field and to conduct (either itself or through its Affiliates, agents, subcontractors and/or Sublicensees) all clinical trials and non-clinical studies TGTX believes appropriate to obtain Regulatory Approval for Licensed Products in and for the Field.
3.4    Commercialization. TGTX shall have the exclusive right, and sole responsibility and decision-making authority, to Commercialize any Licensed Products in and for the Field itself or through one or more Sublicensees or other Third Parties selected by TGTX and shall have the sole decision-making authority and responsibility in all matters relating to the Commercialization of Licensed Products.
3.5    Manufacturing. TGTX shall have the exclusive right, and sole responsibility and decision-making authority, to manufacture, at the clinical and/or commercial stage, any Licensed Product in and for the Field itself or through one or more Sublicensees selected by TGTX.
3.6    Reporting to Licensor. TGTX shall, at least once each Calendar Year, provide to Licensor an update report regarding the progress of all research and Development efforts toward Licensed Products and regarding the progress of Commercialization of Licensed Products.
3.7    Right to Subcontract of TGTX. Subject to any required compliance with Section 2.2, TGTX may exercise any of the rights or obligations that TGTX may have under this Agreement (including, without limitation, any of the rights licensed in Section 2.1 hereof) by Sublicensing, but any Sublicense granted or entered into by TGTX as contemplated by this Section 3.7 or any Sublicensee’s

    


exercise or performance of all or any portion of the rights or obligations that TGTX may have under this Agreement shall not relieve TGTX from any of its obligations under this Agreement.
3.8    Compliance with Law. TGTX undertakes and agrees that the conduct of the Development Program, the use of the Licensor Technology, and all Development, manufacture and Commercialization of Licensed Products by it and its Affiliates and Sublicensees shall comply in all material respects with all applicable international, federal, state and local laws, rules and regulations, including, but not limited to, environmental, occupational safety/health, safety and import/export restrictions, laws, rules and regulations.
3.9    Costs and Expenses. As between Licensor and TGTX, TGTX shall be solely responsible for all costs and expenses related to Development, manufacture and Commercialization of the Licensed Products, including without limitation costs and expenses associated with all preclinical activities and clinical trials, and all regulatory filings and proceedings relating to Licensed Product.
3.10    .Patent Marking. TGTX agrees that with respect to each unit or package of Licensed Products sold in a given country, TGTX shall comply with the customary patent marking laws and practices of such country as to the applicable Licensor Patents.
3.11    Trademarks. As between Licensor and TGTX, TGTX shall have the sole authority to select trademarks for Licensed Products and shall own all such trademarks. Licensor does not grant TGTX the right to use any trademarks of Licensor or its Affiliates.
ARTICLE IV    
REGULATORY MATTERS
4.1    Regulatory Filings. As between TGTX and Licensor, TGTX (or its applicable Affiliate) shall own and maintain all regulatory filings made after the Effective Date for Licensed Products and all Regulatory Approvals for Licensed Products.
4.2    Communications with Authorities. TGTX (or one of its Affiliates or Sublicensees) shall be responsible for and act as the sole point of contact for communications with Regulatory Authorities in connection with the Development, Commercialization, and manufacturing of Licensed Products. At the request of TGTX, Licensor shall make available to TGTX, at no more than a reasonable charge, a qualified representative who shall, together with the representatives of TGTX, participate in and contribute to meetings with the Regulatory Authorities with respect to regulatory matters relating solely to the Licensor Technology.
4.3    Adverse Event Reporting. TGTX agrees to comply with any and all Laws that are applicable to it as of the Effective Date and thereafter during the Term in connection with Licensed Product safety data collection and reporting (and, if applicable, recalls). TGTX shall provide annually to Licensor a listing of each serious untoward medical occurrence in a patient or subject who is administered a Licensed Product and shall, should Licensor expressly so request and TGTX approve (such approval not to be unreasonably withheld), provide Licensor with additional detail as to such ones of such occurrences as Licensor may designate.

    


ARTICLE V    
Financial Provisions
5.1    Upfront Fee. TGTX becomes obligated on the Effective Date to pay Licensor the Upfront Shares in partial consideration of the rights granted to Company under this Agreement. TGTX shall deliver to Licensor a stock certificate representing the Upfront Shares on the Effective Date or within five business days thereafter, provided that in any event such stock certificate is delivered on or before June 30, 2014. Such stock certificate shall be unlegended except for a standard securities-law restrictive legend.
5.2    Commercial Milestone Payments. As further partial consideration for Licensor’s grant of the rights and licenses to TGTX hereunder, TGTX shall pay to Licensor the following one-time, non-refundable milestone payments (a) with regard to the first Licensed Product to achieve the respective Product Milestone Event, for each of the first [***] Indications for which a Licensed Product achieves the respective Product Milestone Event, and (b) upon achievement of each respective Sales Milestone Event by TGTX or its Affiliate or Sublicensee. TGTX shall promptly, but in no event later than 15 days following TGTX or its Affiliate’s receipt of actual knowledge of each achievement of a milestone event, notify Licensor in writing of the achievement of such milestone event and shall pay the relevant milestone payment within 20 days thereafter. All milestone and other Article V payments shall be paid in cash except that in the case of any achievement of the second Product Milestone Event (Enrollment of at least 100 patients (combined) in all clinical trials for the indication), TGTX shall have the right to elect (but only within the notice of achievement referred to in the preceding sentence, and only if such notice of achievement is not delivered untimely) to pay any amounts owed not in the form of cash but rather in the form of a number of Shares equal to amount owed divided by the Share Value as of the date such notice of achievement is delivered; or some portion (designated and specified by TGTX in its discretion within such notice of achievement, which such notice of achievement is not delivered untimely) of the amount owed in cash and the remainder in the form of a number of Shares equal to such remainder divided by the Share Value as of the date such notice of achievement is delivered. (Any such election shall be irrevocable.) If TGTX makes such election it shall deliver to Licensor a stock certificate representing the Shares on the date such notice of achievement is delivered or within five business days thereafter; such stock certificate shall be unlegended except for a standard securities-law restrictive legend.


    


Milestone Event
Milestone Payment
Total Milestone Payments (if achieved with three Indications)
First dosing of any patient in any Phase I Trial
[***]
n/a
Enrollment of at least 100 patients (combined) in all clinical trials for the Indication
$[***] (per Indication)
$[***]
Enrollment of first patient in first Phase III Trial
$[***] (per Indication)
$[***]
NDA filing in the United States for a Licensed Product
$[***] (per Indication)
$[***]
Regulatory Approval in the United States for a Licensed Product
$[***] (per Indication)
$[***]
Regulatory Approval in or for a Major Market EU Country for a Licensed Product
$[***] (per Indication)
$[***]
Regulatory Approval in Japan for a Licensed Product
$[***] (per Indication)
$[***]
The first time aggregate worldwide Net Sales for all Licensed Products exceeds $1,000,000,000 in any Calendar Year
$[***]
n/a
The first time aggregate worldwide Net Sales for all Licensed Products exceeds $3,000,000,000 in any Calendar Year
$[***]
n/a

For avoidance of doubt: it is possible that the first three Indications to achieve a particular milestone event might not be identical with the first three Indications to achieve a different particular milestone event; this non-identity would not affect the validity of the three-time milestone event achievement for either of the milestone events. For the avoidance of doubt, in the event the first two Indications for which a particular Product Milestone Event has been achieved both involve oncology, no additional milestones shall be due under Section 5.2 for any subsequent, oncology-related Indication.

5.3    Deemed Achievement of Commercial Milestones. Upon achievement of any respective Product Milestone Event with regard to a particular Indication, all “prior” milestone events shall be deemed to be thereby achieved as to such Indication; and if the milestone payment for any such “prior” milestone events so deemed to be thereby achieved has not previously been paid, it shall thereupon also be paid, forthwith (unless the deemed-achieved milestone event has already been achieved and paid for three times).
5.4    Royalty, Etc. Payments for Licensed Products.
(a)    With respect to Net Sales of all Licensed Products which are Covered under a Licensor Patent as of the time of the Net Sales: As further consideration for Licensor’s grant of the rights and licenses to TGTX hereunder, TGTX shall pay to Licensor a royalty on aggregate annual worldwide Net Sales of all such Licensed Products by TGTX and its Affiliates and Sublicensees (but excluding Net Sales of a given Licensed Product after its applicable Royalty Term), at the percentage rates set forth below:
Annual Worldwide Net Sales of All (Covered) Licensed Products per Calendar Year (US Dollars)
Incremental Royalty Rate
For Net Sales of such Licensed Products from $0 up to and including $1,000,000,000
6%
For that portion of Net Sales of such Licensed Products that is greater than $1,000,000,000
9.5%

    



By way of illustration, assume in a Calendar Year that aggregate worldwide annual Net Sales of all such Licensed Products total $1,950,000,000. The total royalties due and payable by TGTX to Licensor for such Net Sales would be $150,250,000, calculated as follows:
$1,000,000,000 x 6%    = $60,000,000
$950,000,000 x 9.5%    = $90,250,000
Total Royalty     = $150,250,000
(b)    With respect to Net Sales of all Licensed Products which are not Covered under any Licensor Patent as of the time of the Net Sales: In addition, as further consideration for Licensor’s grant of the Licensed Know-How rights and licenses to TGTX hereunder, TGTX shall pay to Licensor a payment in the nature of royalties on aggregate annual worldwide Net Sales of all such Licensed Products by TGTX and its Affiliates and Sublicensees (but excluding Net Sales of a given Licensed Product after its applicable Royalty Term), at the percentage rates set forth below:
Annual Worldwide Net Sales of All (Uncovered) Licensed Products per Calendar Year (US Dollars)
Incremental Royalty Rate
For Net Sales of such Licensed Products from $0 up to and including $1,000,000,000
4.5%
For that portion of Net Sales of such Licensed Products that is greater than $1,000,000,000
7.125%

Provided, that for the purposes of this Section 5.4(b), only [***]% of the Net Sales of a Licensed Product in a country during the time period when a Generic Supply of such Licensed Product is being lawfully Commercialized in such country, shall be subject to such payment in the nature of royalties and the other [***]% shall be excluded. A “Generic Supply” of a Licensed Product shall be deemed to be being Commercialized in a country if and only if the aggregate market share of all generic versions of such Licensed Product in such country in the calendar year in question is at least [***]%.
(c)    In establishing the royalty/payment in the nature of royalties structure hereunder, the Parties recognize, and TGTX acknowledges, the substantial value of the various obligations being undertaken by Licensor under this Agreement, in addition to the grant of the license under the Licensor Patents, to enable the rapid and effective market introduction of the Licensed Products. The Parties have agreed to the payment structure set forth herein as a convenient and fair mechanism to compensate Licensor for these obligations.
(d)    For purposes of determining whether the Section 5.4(a) or Section 5.4(b) royalty/payment in the nature of royalties threshold has been attained, only Net Sales that are subject to a Section 5.4(a) payment or a Section 5.4(b) payment, respectively, shall be included in the total amount of Net Sales and any Net Sales that are not subject to such a respective payment shall be excluded. In addition, in no event shall the manufacture of a Licensed Product give rise to a royalty/payment in the nature of royalties obligation until the particular unit of Licensed Product is sold; but if Net Sales of a particular unit of Licensed Product might or might not be subject to a royalty/payment in the nature of royalties payment (e.g., manufactured in Country A where the Royalty Term has expired but sold in Country B

    


where the Royalty Term has not expired), the sale shall be deemed to be subject to a royalty/payment in the nature of royalties payment. For clarity, TGTX’s obligation to pay royalties to Licensor under Section 5.4(a) is imposed only once with respect to the same unit of Licensed Product regardless of the number of Licensor Patents pertaining thereto or the number of times such Licensed Product has been sold or transferred to a Person.
(e)    On a Licensed Product by Licensed Product and country-by-country basis, upon expiration of the Royalty Term for a Licensed Product in a country, the rights, licenses and sublicenses granted to TGTX hereunder with respect to such Licensed Product in such country shall continue in effect but become fully paid-up, royalty-free, transferable (to the extent not transferable previously), perpetual and irrevocable.
5.5    Timing of Payment. Royalties/payments in the nature of royalties payable under Section 5.4 shall be payable on actual Net Sales and shall accrue at the time provided therefor by US GAAP. Royalty/payment in the nature of royalties obligations that have accrued during a particular Calendar Quarter shall be paid, on a Calendar Quarter basis, within 30 days after the end of each Calendar Quarter during which the royalty/payment in the nature of royalties obligation accrued; provided that within 50 days after the conclusion of each Calendar Year TGTX shall provide notice to Licensor of any adjustments necessary to account for any royalties/payment in the nature of royalties which were overpaid or underpaid for such prior Calendar Year’s Calendar Quarters, and the Parties shall promptly true-up based on such adjustments, provided however, the lapse of such 50-day period shall not impact the right of TGTX to credit any over-payments discovered during an audit against future royalties due under Section 5.7 hereof.
5.6    Royalty (Etc.) Reports and Records Retention. Within 60 days after the end of each Calendar Quarter during which Licensed Products have been sold, TGTX shall deliver to Licensor, together with the applicable royalty/payment in the nature of royalties payment due, a written report, on a Licensed Product-by-Licensed Product (and specifying non-Covered status, as applicable) and country-by-country basis, of (a) gross invoiced (or otherwise charged) amounts of sales, by TGTX and its Affiliates and Sublicensees, of Licensed Products subject to royalty payments for such Calendar Quarter (and, if non-Covered, subject to royalty/payment in the nature of royalties payments for such Calendar Quarter), (b) amounts deducted by category (following the definition of Net Sales) from such gross invoiced amounts to calculate Net Sales, (c) Net Sales subject to royalty or royalty/payment in the nature of royalties payments for such Calendar Quarter and Calendar Year to date and (d) the corresponding royalty or royalty/payment in the nature of royalties. Such report shall be deemed “Confidential Information” of TGTX subject to the obligations of Article VII of this Agreement. For three years after each sale of a Licensed Product (whether Covered or not), TGTX shall keep (and shall ensure that its Affiliates and Sublicensees shall keep) complete and accurate records of such sale in sufficient detail to confirm the accuracy of the royalty or royalty/payment in the nature of royalties calculations hereunder.
5.7    Audits.
(a)    From the First Commercial Sale (of the first Licensed Product to have a First Commercial Sale) until one Calendar Year after the conclusion of the final Royalty Term, upon the written request of Licensor, and not more than once in each Calendar Year, TGTX shall permit, shall cause its Affiliates and Sublicensees to permit, an independent certified public accounting firm of

    


nationally recognized standing selected by Licensor (who has not been engaged by Licensor to provide services in any other capacity at any time during the three-year period before such selection), and reasonably acceptable to TGTX or such Affiliate or Sublicensee, to have access to and to review, during normal business hours upon reasonable prior written notice, the applicable records of TGTX and its Affiliates or Sublicensees to verify the accuracy of the royalty and payment in the nature of royalties reports and payments under this Article V. Such review may cover: (i) the records for sales made in any Calendar Year ending not more than three years before the date of such request, and (ii) only those periods that have not been subject to a prior audit.
(b)    If such accounting firm concludes that additional royalties and/or royalties/payment in the nature of royalties were owed during such period, TGTX shall pay the additional royalties and/or royalties/payment in the nature of royalties within 15 days after the date such public accounting firm delivers to TGTX such accounting firm’s written report. If such accounting firm concludes that an overpayment was made, such overpayment shall be fully creditable against amounts payable in subsequent payment periods or at TGTX’s request, shall be reimbursed to TGTX within 30 days after the date such public accounting firm delivers such report to TGTX. If TGTX disagrees with such calculation, TGTX may contest such calculation in writing – at which point the parties will work in good faith to submit the matter to a mediator for resolution. If the parties are unable to reach an agreement via mediation, then TGTX may initiate a court action to seek to recover the additional payment or to increase the amount of credit or reimbursement. Licensor shall pay for the cost of any audit by Licensor, unless TGTX has underpaid Licensor by 5% or more for a specific royalty period, in which case TGTX shall pay for the reasonable costs of audit.
(c)    Each Party shall treat all information that it receives under this Section 5.7 in accordance with the confidentiality provisions of Article VII of this Agreement, and shall cause its accounting firm to enter into an acceptable confidentiality agreement with the audited Party obligating such firm to retain all such financial information in confidence pursuant to such confidentiality agreement, except to the extent necessary for a Party to enforce its rights under the Agreement.
5.8    Mode of Payment and Currency. All payments to Licensor under this Agreement, whether or not in respect of Net Sales or milestone events, shall be made by deposit of US Dollars in the requisite amount to such bank account as Licensor may from time to time designate by advance written notice to TGTX. Conversion of sales or expenses recorded in local currencies to Dollars will be performed in a manner consistent with TGTX’s normal practices used to prepare its audited financial statements for external reporting purposes, provided that such practices use a widely accepted source of published exchange rates. Based on the resulting Net Sales in US Dollars, the then applicable royalties/payment in the nature of royalties shall be calculated.
5.9    Late Payments. If a Party does not receive payment of any sum due to it on or before the due date therefor, simple interest shall thereafter accrue on the sum due to such Party from the due date until the date of payment at a rate equal to the lesser of (a) US dollar one-month LIBOR plus 500 basis points, or (b) the maximum rate permissible under applicable Law. Accrual and payment of interest shall not be deemed to excuse or cure breaches of contract arising from late payment or nonpayment.
5.10    Taxes. All amounts due hereunder exclude all applicable sales, use, and other taxes and duties, and TGTX shall be responsible for payment of all such taxes (other than taxes based on Licensor’s income) and duties and any related penalties and interest, arising from the payment of amounts due

    


under this Agreement. The Parties agree to cooperate with one another and use Commercially Reasonable Efforts to avoid or reduce tax withholding or similar obligations in respect of royalties, payments in the nature of royalties, milestone payments, and other payments made by TGTX to Licensor under this Agreement. To the extent TGTX is required to withhold taxes on any payment to Licensor, TGTX shall pay the amounts of such taxes to the proper governmental authority in a timely manner and promptly transmit to Licensor official receipts issued by the appropriate taxing authority and/or an official tax certificate, or such other evidence as Licensor may reasonably request, to establish that such taxes have been paid. Licensor shall provide TGTX any tax forms that may be reasonably necessary in order for TGTX to not withhold tax or to withhold tax at a reduced rate under an applicable bilateral income tax treaty. Licensor shall use Commercially Reasonable Efforts to provide any such tax forms to TGTX at least 45 days before the due date for any payment for which Licensor desires that TGTX apply a reduced withholding rate. Each Party shall provide the others with reasonable assistance to enable the recovery, as permitted by applicable law, of withholding taxes, value added taxes, or similar obligations resulting from payments made under this Agreement, such recovery to be for the benefit of the Party bearing such withholding tax or value added tax. Licensor shall indemnify and hold TGTX harmless from and against any penalties, interest or other tax liability arising from any failure by TGTX (at the express request of Licensor) to withhold or by reduction (at the express request of Licensor) in its withholding.
ARTICLE VI    
Inventions and Patents
6.1    Third Party Inventions and Know-How. As between Licensor and TGTX, all inventions and Know-How made by a Third Party in the course of the Development Program shall be owned by TGTX.
6.2    Patent Prosecution and Maintenance.
Licensor Patents. Licensor shall have the first right to file, prosecute and maintain Licensor Patents in Licensor’s name.
(a)    New or Revised Applications. Licensor will, upon forming an intention to file or revise one or more patent applications which would become or are Licensor Patent Rights subject to the License grant in Article II, promptly inform TGTX of such intention, and will provide TGTX with the opportunity to comment on the content of such Licensor patent application before so filing or revising. Licensor shall consider any such reasonable TGTX comments in good faith.
(b)    Liaising. Licensor shall keep TGTX promptly and regularly informed of the course of the filing and prosecution of Licensor Patents or related proceedings (e.g. interferences, oppositions, reexaminations, reissues, revocations or nullifications) in a timely manner, and to take into consideration the advice and recommendations of TGTX.
(c)    Election Not to File/Prosecute/Maintain Licensor Patents. TGTX acknowledges and agrees that Licensor shall not be required to file, prosecute or maintain Patent Rights for the Licensor Patents, provided, however, if Licensor decides to not pursue or maintain any such Patent Rights then Licensor shall provide TGTX with at least 30 days’ notice before discontinuing the filing, prosecution or maintenance of such Patent Rights so that TGTX may assume responsibility for such activities in Licensor’s name but at TGTX’s expense. In such event, TGTX will no longer owe any royalty obligation on account of such (country-level) Patent Rights assumed by TGTX.

    


6.3    Certification under Drug Price Competition and Patent Restoration Act. Each of Licensor and TGTX shall immediately give written notice to the other of any certification of which they become aware filed pursuant to 21 U.S.C. Section 355(b)(2)(A) (or any amendment or successor statute thereto) claiming that any Licensor Patents covering a Compound or a Licensed Product, or the manufacture or use of each of the foregoing, are invalid or unenforceable, or that infringement will not arise from the manufacture, use or sale in the US of a Licensed Product by a Third Party.
6.4    Listing of Patents. TGTX shall have the sole right to determine which of the Licensor Patents, if any, shall be listed for inclusion in the Approved Drug Products with Therapeutic Equivalence Evaluations publication pursuant to 21 U.S.C. Section 355, or any successor Law in the United States, together with any comparable Laws in any other country. Licensor will co-operate with TGTX to list any of said Licensor Patents.
6.5    Enforcement of Patents.
(a)    Notice. If either Licensor or TGTX believes that a Licensor Patent is being infringed in the Field, or that Licensor Know-How has been misappropriated in the Field, by a Third Party or if a Third Party claims that any Licensor Patent is invalid or unenforceable, the Party possessing such knowledge or belief shall notify the other and provide it with details of such infringement, misappropriation or claim that are known by such Party.
(b)    Right to Bring an Action for Licensor’s Patents. If such infringement, misappropriation or claim is in one or more of the Major Markets in respect of Licensor Patents, Licensor shall have the right to attempt to resolve such infringement, misappropriation or claim, including by filing an infringement suit, defending against or bringing a declaratory judgment action as to such claim or taking other similar action (each, “initiation” of an “Action”) and (subject to Section 6.5(e)) to compromise or settle such infringement or claim. TGTX may, in its sole discretion and at its expense, join in any such Action and in such case shall reasonably cooperate with Licensor. If Licensor does not intend to initiate an Action, Licensor shall promptly inform TGTX. If Licensor does not initiate an Action with respect to such an infringement or claim within 180 days following notice thereof, TGTX shall have the right to attempt to resolve such infringement, misappropriation or claim, including by initiating an Action, and (subject to Section 6.5(e)) to compromise or settle such infringement, misappropriation or claim. At TGTX’s request, Licensor shall immediately provide TGTX with all relevant documentation (as may be requested by TGTX) evidencing that TGTX is validly empowered by the Licensor to initiate an Action. Licensor shall be under the obligation to join TGTX in its Action if TGTX determines that this is necessary to demonstrate “standing to sue.” The Party initiating such Action shall have the sole and exclusive right to select counsel for any suit initiated by it pursuant to this Section 6.5. If a Party initiates an Action but then elects not to pursue the Action, the other Party shall have the right (but not the obligation) to take over the Action, in which case the second Party shall be deemed to have been the initiating Party.
(c)    Costs of an Action. Subject to the respective indemnity obligations of the Parties set forth in Article IX and subject to Section 6.5(f), each Party involved in an Action under Section 6.5(b) shall pay its own costs and expenses incurred in connection with such Action.
(d)    Settlement. No Party shall settle or otherwise compromise (or resolve by consent to the entry of judgment upon) any Action by admitting that any Licensor Patent is to any extent invalid or unenforceable, or that any Licensor Know-How is not protected or has not been misappropriated,

    


without the other Party’s prior written consent, and, in the case of Licensor, Licensor may not settle or otherwise compromise (or resolve by consent to the entry of judgment upon) an Action in a way that adversely affects or would be reasonably expected to adversely affect any of TGTX’s rights or benefits hereunder with respect to any Licensor Technology or any Licensed Product, without TGTX’s prior written consent.
(e)    Reasonable Assistance. Each Party (if it is not the Party enforcing or defending Licensor’s Patent Rights) shall provide reasonable assistance to the other Party, including providing access to relevant documents and other evidence and making its employees and consultants available, subject to the other Party’s reimbursement of any reasonable out-of-pocket expenses incurred on an on-going basis by the non-enforcing or non-defending Party in providing such assistance.
(f)    Distribution of Amounts Recovered. Any amounts recovered by the Party initiating an Action pursuant to this Section 6.5, whether by settlement or judgment, shall be allocated in the following order: (i) to reimburse the Party initiating such Action for any costs incurred; (ii) to reimburse the Party not initiating such Action for its costs incurred in such Action, if it joins (as opposed to taking over) such Action; and (iii) the remaining amount of such recovery shall (A) if TGTX initiated the Action, the remainder shall be allocated to TGTX and the portion thereof attributable to “lost sales” shall be deemed to be Net Sales for the Calendar Quarter in which the amount is actually received by TGTX and TGTX shall pay to Licensor a royalty on such portion based on the royalty rates set forth in Section 5.4(a), and the portion thereof not attributable to “lost sales” shall be allocated to TGTX and (B) if Licensor initiated the Action, the remainder shall be allocated to TGTX and the portion thereof attributable to “lost sales” shall be deemed to be Net Sales for the Calendar Quarter in which the amount is actually received by TGTX and TGTX shall pay to Licensor a royalty on such portion based on the royalty rates set forth in Section 5.4(a), and the portion thereof not attributable to “lost sales” shall be allocated to 50% to Licensor and 50% to TGTX.
6.6    Third Party Actions Claiming Infringement.
(d)    Notice. If either Licensor or TGTX becomes aware of any Third Party Action, such Party shall promptly notify the other of all details regarding such claim or action that is reasonably available to such Party.
(e)    Right to Defend. TGTX shall have the right, at its sole expense, but not the obligation, to defend a Third Party Action described in Section 6.6(a) and (subject to Section 6.6(f)) to compromise or settle such Third Party Action. If TGTX declines or fails to assert its intention to defend such Third Party Action within 40 days of receipt/sending of notice under Section 6.6(a), then Licensor shall have the right, at its sole expense, to defend such Third Party Action and (subject to Section 6.6(f)) to compromise or settle such Third Party Action. The Party defending such Third Party Action shall have the sole and exclusive right to select counsel for such Third Party Action.
(f)    Consultation. The Party defending a Third Party Action pursuant to Section 6.6(b) shall be the “Controlling Party”. The Controlling Party shall consult with the non-Controlling Party, pursuant to an appropriate joint defense or common interest agreement, on all material aspects of the defense. The non-Controlling Party shall have a reasonable opportunity for meaningful participation in decision-making and formulation of defense strategy. The Parties shall reasonably cooperate with each other in all such actions or proceedings. The non-Controlling Party will be entitled

    


to join the Third Party Action and be represented by independent counsel of its own choice at its own expense.
(g)    Appeal. In the event that a judgment in a Third Party Action is entered against either Party and an appeal is available, the Controlling Party shall have the first right, but not the obligation, to file such appeal. In the event the Controlling Party does not desire to file such an appeal, it will promptly, in a reasonable time period (i.e., with sufficient time for the non-Controlling Party to take whatever action may be necessary) before the date on which such right to appeal will lapse or otherwise diminish, permit the non-Controlling Party to pursue such appeal at such non-Controlling Party’s own cost and expense. If applicable Law requires the other Party’s involvement in an appeal, the other Party shall be a nominal party in the appeal and shall provide reasonable cooperation to such Party at such Party’s expense.
(h)    Costs of an Action. Subject to the respective indemnity obligations of the Parties set forth in Article IX, the Controlling Party shall pay all costs and expenses associated with such Third Party Action other than the expenses of the other Party if the other Party elects to join such Third Party Action (as provided in the last sentence of Section 6.6(c)).
(i)    No Settlement without Consent. Neither Licensor or TGTX shall settle or otherwise compromise (or resolve by consent to the entry of judgment upon) any Third Party Action by admitting that any Licensor Patent is to any extent invalid or unenforceable or that any Licensed Product, or its use, Development, importation, manufacture or sale infringes such Third Party’s intellectual property rights, in each case without the other Party’s prior written consent, and, in the case of Licensor, Licensor may not settle or otherwise compromise (or resolve by consent to the entry of judgment upon) a Third Party Action in a way that adversely affects or would be reasonably expected to adversely affect TGTX’s rights and benefits hereunder with respect to any Licensor Technology or any Licensed Product, without TGTX’s prior written consent.
ARTICLE VII    
CONFIDENTIALITY
7.1    Definitions. The Parties recognize that disclosures of Confidential Information between them before the Effective Date were subject to the Confidential Disclosure Agreement between them dated April 29, 2014. TGTX and Licensor each recognizes that during the Term, it may be necessary for a Party (the “Disclosing Party”) to provide Confidential Information (as defined herein) to another Party (the “Receiving Party”) that is highly valuable, the disclosure of which would be highly prejudicial to such Party. The disclosure and use of Confidential Information shall be governed by the provisions of this Article VII. Neither TGTX nor Licensor shall use the other’s Confidential Information except as expressly permitted in this Agreement. For purposes of this Agreement, “Confidential Information” means all information (including information relating to the business, operations and products of a Party or any of its Affiliates) disclosed by the Disclosing Party to the Receiving Party and which reasonably ought to have been understood to be confidential and/or non-public information at the time disclosed to the Receiving Party, or which is designated in writing by the Disclosing Party as “Confidential” (or equivalent), or which when disclosed orally to the Receiving Party is declared to be confidential by the Disclosing Party and is so confirmed in a writing delivered to the Receiving Party within 30 days after such oral disclosure, including but not limited to any technical information, Know-How, trade secrets,

    


or inventions (whether patentable or not), that such Party discloses to another Party under this Agreement, or otherwise becomes known to another Party by virtue of or that relates to this Agreement.
7.2    Obligation. Licensor and TGTX agree that they will disclose the other Party’s Confidential Information to its own (or its respective Affiliate’s, or with respect to TGTX, its Sublicensees’) officers, employees, consultants and agents only if and to the extent necessary to carry out their respective responsibilities under this Agreement or in accordance with the exercise of their rights under this Agreement, and such disclosure shall be limited to the maximum extent possible consistent with such responsibilities and rights. Except as set forth in the foregoing sentence, no Party shall disclose Confidential Information of the other to any Third Party without the other’s prior written consent. In all events, however, any and all disclosure to a Third Party (or to any such Affiliate or Sublicensee) shall be pursuant to the terms of a non-disclosure/nonuse agreement no less restrictive than this Article VII. The Party which disclosed Confidential Information of the other to any Third Party (or to any such Affiliate or Sublicensee) shall be responsible and liable for any disclosure or use by such Third Party, Affiliate or Sublicensee (or its disclosees) which would have violated this Agreement if committed by the Party itself. No Party shall use Confidential Information of the other except as expressly allowed by and for the purposes of this Agreement. Each Party shall take such action to preserve the confidentiality of each other’s Confidential Information as it would customarily take to preserve the confidentiality of its own Confidential Information (but in no event less than a reasonable standard of care). Upon expiration or termination of this Agreement, each Party, upon the other’s request, shall return or destroy (at Disclosing Party’s discretion) all the Confidential Information disclosed to the other Party pursuant to this Agreement, including all copies and extracts of documents, within 60 days after the request, except for one archival copy (and such electronic copies that exist as part of the Party’s computer systems, network storage systems and electronic backup systems) of such materials solely to be able to monitor its obligations that survive under this Agreement.
7.3    Exceptions. The non-use and non-disclosure obligations set forth in this Article VII shall not apply to any Confidential Information, or portion thereof, that the Receiving Party can demonstrate by competent evidence:
(a)    at the time of disclosure is in the public domain;
(b)    after disclosure, becomes part of the public domain, by publication or otherwise, through no fault of the Receiving Party or its disclosees;
(c)    is made available to the Receiving Party by an independent Third Party without obligation of confidentiality; provided, however, that to the Receiving Party’s knowledge, such information was not obtained by said Third Party, directly or indirectly, from the Disclosing Party hereunder; or
(d)    is independently developed by an employee of the Receiving Party not accessing or utilizing the Disclosing Party’s information.
In addition, the Receiving Party may disclose information that is required to be disclosed by law, by a valid order of a court or by order or regulation of a governmental agency including but not limited to, regulations of the SEC or in the course of arbitration or litigation; provided, however, that in all cases the Receiving Party shall give the other party prompt notice of the pending disclosure and make a reasonable effort to obtain, or to assist the Disclosing Party in obtaining, a protective order or confidential-

    


treatment order preventing or limiting (to the greatest possible extent and for the longest possible period) the disclosure and/or requiring that the Confidential Information so disclosed be used only for the purposes for which the law or regulation required, or for which the order was issued.
7.4    Third Party Information. The Parties acknowledge that the defined term “Confidential Information” shall include not only a Disclosing Party’s own Confidential Information but also Confidential Information of a Third Party which is in the possession of a Disclosing Party. TGTX and Licensor agree not to disclose to the other any Confidential Information of a Third Party which is in the possession of such Party, unless the other has given an express prior written consent (which specifies the owner of such Confidential Information) to receive such particular Confidential Information.
7.5    Press Releases and Disclosure. Either Party may make press releases or public announcements regarding this Agreement or any matter covered by this Agreement, including the Development or Commercialization of Licensed Products, but such Party shall use Commercially Reasonable Efforts to provide the text of such planned disclosure to the other Party sufficiently in advance of the scheduled disclosure to afford such other Party a reasonable opportunity to review and comment upon the proposed text and the timing of such disclosure, and shall consider all reasonable comments of the other Party regarding such disclosure. (Provided, that no Party shall use the trademark or logo of the other Party, its Affiliates or their respective employee(s) in any publicity, promotion, news release or public disclosure relating to this Agreement or its subject matter, except as may be required by Law or required by the rules of an applicable US national securities exchange or except with the prior express written permission of such other Party, such permission not to be unreasonably withheld.) Notwithstanding the above, once a public disclosure has been made, either Party shall be free to disclose to third parties any information contained in said public disclosure, without further pre-review.
7.6    Publication Rights. Until the first anniversary of the Effective Date, the following restrictions shall apply with respect to possible disclosure by either Party of the other Party’s Confidential Information relating to Licensed Products in any publication or presentation. A Party (the “Publishing Party”) shall provide the other Party with a copy of any proposed publication or presentation at least 30 days before submission for publication by the Publishing Party or its Affiliates so as to provide such other Party with an opportunity to recommend any changes it reasonably believes are necessary to continue to maintain the Confidential Information disclosed by the other Party to the Publishing Party in accordance with the requirements of this Agreement. The incorporation of such recommended changes shall not be unreasonably refused; and if such other Party notifies (“Notice”) the Publishing Party in writing, within 30 days after receipt of the copy of the proposed publication or presentation, that such publication or presentation in its reasonable judgment (a) contains an invention, solely or jointly conceived or reduced to practice by the other Party, for which the other Party reasonably desires to obtain patent protection or (b) could be expected to have a material adverse effect on the commercial value of any Confidential Information disclosed by the other Party to the Publishing Party, the Publishing Party shall prevent such publication or delay such publication for a mutually agreeable period of time. In the case of inventions, a delay shall be for a period reasonably sufficient to permit the timely preparation and filing of a patent application(s) on such invention, and in no event less than 90 days after the date of the Notice. In the case of Confidential Information, any of the non-publishing Party’s Confidential Information shall be deleted as requested. The Parties hereby agree that the need for such publication review may diminish over time and agree, every six months, to discuss and attempt to agree upon whether and/or when the obligations under this Section 7.6 may be discontinued.

    


ARTICLE VIII    
REPRESENTATIONS, WARRANTIES AND COVENANTS
8.1    Representations and Warranties. (a) TGTX represents and warrants to Licensor, and (b) Licensor represents and warrants to TGTX, in each case as of the Effective Date:
(f)    Such Party is a corporation duly organized and validly existing under the Laws of the jurisdiction of its incorporation;
(g)    Such Party has all right, power and authority to enter into this Agreement, and to perform its obligations under this Agreement;
(h)    Such Party has taken all action necessary to authorize the execution and delivery of this Agreement and the performance of its obligations under this Agreement;
(i)    This Agreement is a legal and valid obligation of such Party, binding upon such Party and enforceable against such Party in accordance with the terms of this Agreement, except as enforcement may be limited by applicable bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium and other Laws relating to or affecting creditors’ rights generally and by general equitable principles;
(j)    To the best of such party’s knowledge, the execution, delivery and performance of this Agreement by such Party does not and will not conflict with, breach or create in any Third Party the right to accelerate, terminate or modify any agreement or instrument to which such Party is a party or by which such Party is bound;
(k)    To the best of such party’s knowledge, all consents, approvals and authorizations from all governmental authorities or other Third Parties required to be obtained by such Party in connection with the execution and delivery of this Agreement have been obtained; and the execution, delivery and performance of this Agreement by such Party does not and will not violate any Law of any Governmental Body having authority over such Party;
(l)    No person or entity has or will have, as a result of the execution and delivery of or as a result of the transactions contemplated by this Agreement, any right, interest or valid claim against or upon such Party for any commission, fee or other compensation as a finder or broker because of any act by such Party or its Affiliates, agents or Sublicensees; and
(m)    To the best of such party’s knowledge, no agreement between it and any Third Party is in conflict with the rights granted to any other party pursuant to this Agreement.
8.2    Additional Representations and Warranties of Licensor. Licensor represents and warrants to TGTX that:
(e)    No consent by any Third Party or Governmental Body is required with respect to the execution and delivery of this Agreement by Licensor or the consummation by Licensor of the transactions contemplated hereby;

    


(f)    No claims have been asserted or threatened by any Person (i) challenging the validity, effective status, or ownership of Licensor Technology, and/or (ii) to the effect that the use, reproduction, modification, manufacturing, distribution, licensing, sublicensing, sale or any other exercise of rights in any of Licensor Technology infringes or will infringe on any intellectual property right of any Person; and no such claims have been asserted or are threatened;
(g)    The Licensor Patents are subsisting and are not the subject of any litigation procedure, discovery process, interference, reissue, reexamination, opposition, appeal proceedings or any other legal dispute;
(h)    The Licensor Patents constitute all Patent Rights owned or Controlled by Licensor that pertain directly and particularly to the research, Development, manufacture, use and Commercialization of the Licensed Products as currently envisioned; and
(i)    No Third Party has filed, pursued or maintained or threatened in writing to file, pursue or maintain any claim, lawsuit, charge, complaint or other action alleging that any Licensor Technology is invalid or unenforceable.
8.3    Disclaimer. Notwithstanding the representations and warranties set forth in this Article VIII, TGTX acknowledges and accepts the risks inherent in attempting to Develop and Commercialize any pharmaceutical product. There is no implied representation that the Compounds can be successfully Developed or Commercialized. The representations and warranties set forth in this Article VIII are provided in lieu of, and EACH PARTY HEREBY DISCLAIMS, all other warranties, express and implied, relating to the subject matter of this Agreement, the Licensor Technology, the Compounds and/or the Licensed Products, including but not limited to the implied warranties of merchantability and fitness for a particular purpose, title and non-infringement of third party rights. Each Party’s representations and warranties under this Agreement are solely for the benefit of the other Party and may be asserted only by the other Party and not by any Affiliate, Sublicensee or any customer of the other Party, its Affiliates or Sublicensees. Each Party, its Affiliates and Sublicensees shall be solely responsible for all representations and warranties that it, its Affiliates or Sublicensees make to any customer, Affiliates or Sublicensees.
ARTICLE IX    
INDEMNIFICATION; LIMITATION OF LIABILITY; INSURANCE
9.1    Indemnification by TGTX. TGTX shall indemnify, defend and hold Licensor and its Affiliates, and each of their respective employees, officers, directors and agents (the “Licensor Indemnitees”) harmless from and against any and all actions, judgments, settlements, liabilities, damages, penalties, fines, losses, costs and expenses (including reasonable attorneys’ fees and expenses) to the extent arising out of any Third Party claim, demand, action or other proceeding (each, a “Claim”) related to (a) TGTX’s performance of its obligations or exercise (by it or its Affiliates or Sublicensees) of its rights under this Agreement; or (b) breach by TGTX of its representations and warranties set forth in Article VIII; provided, however, that TGTX’s obligations pursuant to this Section 9.1 shall not apply (x) to the extent such claims or suits result from the gross negligence or willful misconduct of any of the Licensor Indemnitees, or (y) with respect to claims or suits arising out of breach by Licensor of this Agreement, including without limitation of its or their representations and warranties set forth in Article VIII.

    


9.2    Indemnification by Licensor. Licensor shall indemnify, defend and hold TGTX and its Affiliates and each of their respective agents, employees, officers and directors (the “TGTX Indemnitees”) harmless from and against any and all actions, judgments, settlements, liabilities, damages, penalties, fines, losses, costs and expenses (including reasonable attorneys’ fees and expenses) to the extent arising out of any and all Claims related to (a) Licensor’s performance of its obligations or exercise (by it or its Affiliates) of its or their rights under this Agreement; or (b) breach by Licensor of its representations and warranties set forth in Article VIII; provided, however, that Licensor’s obligations pursuant to this Section 9.2 shall not apply (x) to the extent that such claims or suits result from the gross negligence or willful misconduct of any of the TGTX Indemnitees or (y) with respect to claims or suits arising out of a breach by TGTX of this Agreement, including without limitation its representations and warranties set forth in Article VIII.
9.3    No Consequential, Etc., Damages. EXCEPT FOR DAMAGES FOR WHICH A PARTY IS RESPONSIBLE PURSUANT TO ITS INDEMNIFICATION OBLIGATIONS SET FORTH IN ARTICLE IX, EACH PARTY SPECIFICALLY DISCLAIMS ALL LIABILITY FOR AND SHALL IN NO EVENT BE LIABLE TO ANY OTHER PARTY OR TO ANY OTHER PARTY’S AFFILIATES FOR ANY INCIDENTAL, SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES, EXPENSES, LOST PROFITS, LOST SAVINGS, INTERRUPTIONS OF BUSINESS OR OTHER DAMAGES OF ANY KIND OR CHARACTER WHATSOEVER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE DEVELOPMENT PROGRAM OR THE LICENSED TECHNOLOGY OR RESULTING FROM THE MANUFACTURE, HANDLING, MARKETING, SALE, DISTRIBUTION OR USE OF LICENSED PRODUCTS, REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT, STRICT LIABILITY OR OTHERWISE, EVEN IF SUCH PARTY WAS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
9.4    Procedure.
(a)    The Party or other Person intending to claim indemnification under this Article IX (an “Indemnified Party”) shall promptly notify the opposed Party (the “Indemnifying Party”) of any Claim in respect of which the Indemnified Party intends to claim such indemnification (provided, that no delay or deficiency on the part of the Indemnified Party in so notifying the Indemnifying Party will relieve the Indemnifying Party of any liability or obligation under this Agreement except to the extent the Indemnifying Party has suffered actual prejudice directly caused by the delay or other deficiency), and the Indemnifying Party shall assume the defense thereof (with counsel selected by the Indemnifying Party and reasonably satisfactory to the Indemnified Party) whether or not such Claim is rightfully brought; provided, however, that an Indemnified Party shall have the right to retain its own counsel and to participate in the defense thereof, with the fees and expenses to be paid by the Indemnified Party unless the Indemnifying Party does not assume the defense or unless a representation of both the Indemnified Party and the Indemnifying Party by the same counsel would be inappropriate due to the actual or potential differing interests between them, in which case the reasonable fees and expenses of counsel retained by the Indemnified Party shall be paid by the Indemnifying Party. (Provided, that in no event shall the Indemnifying Party be required to pay for more than one separate counsel no matter the number or circumstances of all Indemnified Parties.)
(b)    If the Indemnifying Party shall fail to timely assume the defense of and reasonably defend such Claim, the Indemnified Party shall have the right to retain or assume control of

    


such defense and the Indemnifying Party shall pay (as incurred and on demand) the fees and expenses of counsel retained by the Indemnified Party.
(c)    The Indemnifying Party shall not be liable for the indemnification of any Claim settled (or resolved by consent to the entry of judgment) without the written consent of the Indemnifying Party. Also, if the Indemnifying Party shall control the defense of any such Claim, the Indemnifying Party shall have the right to settle such Claim; provided, that the Indemnifying Party shall obtain the prior written consent (which shall not be unreasonably withheld or delayed) of the Indemnified Party before entering into any settlement of (or resolving by consent to the entry of judgment upon) such Claim unless (i) there is no finding or admission of any violation of law or any violation of the rights of any person by an Indemnified Party, no requirement that the Indemnified Party admit negligence, fault or culpability, and no adverse effect on any other claims that may be made by or against the Indemnified Party and (ii) the sole relief provided is monetary damages that are paid in full by the Indemnifying Party and such settlement does not require the Indemnified Party to take (or refrain from taking) any action.
(d)    The Indemnified Party, and its employees and agents, shall cooperate fully with the Indemnifying Party and its legal representatives in the investigations of any Claim.
(e)    Regardless of who controls the defense, each Party hereto shall reasonably cooperate in the defense as may be requested.
9.5    Expenses. As the Parties intend complete indemnification, all costs and expenses of enforcing any provision of this Article IX shall also be reimbursed by the Indemnifying Party..
9.6    Limitation of Liability. EACH PARTY SHALL HAVE NO REMEDY, AND EACH PARTY SHALL HAVE NO LIABILITY, OTHER THAN AS EXPRESSLY SET FORTH IN THIS AGREEMENT. EXCEPT WITH RESPECT TO THE INDEMNIFICATION SPECIFICALLY PROVIDED IN ARTICLE IX OR CLAIMS FOR NON-PAYMENT, IN NO EVENT SHALL A PARTY’S TOTAL AGGREGATE LIABILITY FOR ALL CLAIMS ARISING OUT OF OR RELATED TO THIS AGREEMENT EXCEED 50% OF THE AMOUNT PAID BY TGTX TO LICENSOR UNDER THIS AGREEMENT IN THE CASE OF LICENSOR OR EXCEED ONE MILLION DOLLARS IN THE CASE OF TGTX. NO ACTION, REGARDLESS OF FORM, ARISING OUT OF OR RELATED TO THIS AGREEMENT MAY BE BROUGHT BY EITHER PARTY MORE THAN TWO YEARS AFTER SUCH PARTY HAS KNOWLEDGE OF THE OCCURRENCE THAT GAVE RISE TO THE CAUSE OF ACTION OR AFTER EXPIRATION OF THE APPLICABLE STATUTORY LIMITATIONS PERIOD, WHICHEVER IS SOONER.
9.7    Insurance. During the Term and for three years thereafter, TGTX shall obtain and maintain, at its own cost and expense, product liability insurance (or TGTX’s parent company shall obtain and maintain coverage for TGTX under its own product liability insurance policies) in amounts, that are reasonable and customary in the United States pharmaceutical and biotechnology industry for companies engaged in comparable activities, with Licensor identified as an additional named insured. It is understood and agreed that this insurance shall not be construed to limit TGTX’s liability with respect to its indemnification obligations hereunder. TGTX shall upon request provide to Licensor upon request a certificate evidencing the insurance TGTX is required to obtain and keep in force under this Section 9.7.

    


ARTICLE X    
TERM AND TERMINATION
10.1    Term and Expiration. The term of this Agreement shall commence on the Effective Date and, unless earlier terminated as provided in this Article X, shall continue in full force and effect, on a country-by-country and Licensed Product-by-Licensed Product basis until the Royalty Term in such country with respect to such Licensed Product expires, at which time this Agreement shall expire in its entirety with respect to such Licensed Product in such country. (The “Term” shall mean the period from the Effective Date until the earlier of termination of this Agreement as provided in this Article X or expiration of this Agreement upon the expiration of the last-to-expire Royalty Term.) The Parties confirm that subject to the foregoing sentence, this Agreement shall not be terminated or invalidated by any future determination that any or all of the Licensor Patents have expired or been invalidated.
10.2    Termination upon Material Breach. If a Party breaches any of its material obligations under this Agreement, the Party not in default may give to the breaching Party a written notice specifying the nature of the default, requiring it to cure such breach, and, if desired, stating its intention to terminate this Agreement if such breach is not cured. If such breach is not capable of being cured, or is capable of being cured but nonetheless has not within 45 days after the receipt of such notice been cured, then the Party not in default shall (in addition to and not in lieu of all other available rights and remedies) be entitled to at its option either (a) terminate this Agreement immediately by written notice to the other Party, or (b) continue this Agreement in full force and effect and seek any legal or equitable remedies that the non-breaching Party may have. In case of a breach of an obligation to pay money, which obligation to pay is not disputed in good faith, the cure period shall be 15 days instead of 45 days. The Parties agree that any failure by TGTX to pay when due 100% of such portion of any amount of money owing from TGTX to Licensor as is not disputed in good faith by TGTX (subject to the 15-day cure period) shall conclusively be deemed to constitute a “material” breach. Notwithstanding the foregoing provisions, in the event of a good-faith dispute as to whether any alleged breach is in fact a breach, termination under this Section 10.2 in respect of such alleged breach shall not take effect unless and until (y) such dispute is resolved (by court or arbitration decision or otherwise) in favor of the Party alleging the breach or (z) the breaching Party’s denial that the alleged breach is in fact a breach ceases to be in good faith.
10.3    Termination for Bankruptcy. Licensor may terminate this Agreement immediately upon written notice to TGTX in the event that TGTX has a petition in bankruptcy filed against it that is not dismissed within 60 days of such filing, files a petition in bankruptcy, or makes an assignment for the benefit of creditors. If TGTX has before such filing or such assignment entered into a written Sublicense which complies with Section 2.2, then the Sublicensee thereunder shall have the right to, by but only by delivering to Licensor within 30 days after such termination a written election to do so and a written assumption of all of TGTX’s past and future obligations, liabilities and duties under this Agreement, convert its Sublicense into a direct of license from Licensor of the same technology, for the same field and for the same territory, as had been provided for in the Sublicense and otherwise on the same terms and conditions as are set forth in this Agreement as if such Sublicensee were TGTX hereunder. TGTX may terminate this Agreement immediately upon written notice to Licensor in the event that Licensor has a petition in bankruptcy filed against it that is not dismissed within 60 days of such filing, files a petition in bankruptcy, or makes an assignment for the benefit of creditors.

    


10.4    Effects of Termination/Expiration.
(a)    Articles I (Definitions), VII (Confidentiality), IX (Indemnification; Limitation of Liability; Insurance) and XI (Miscellaneous Provisions) and Sections 5.6 (Royalty Reports and Records Retention), 5.7 (Audits), 5.9 (Late Payments), 5.10 (Taxes) and 10.4 (Effects of Termination/Expiration) hereof shall survive the expiration or termination of this Agreement for any reason. In addition, upon termination of this Agreement by TGTX pursuant to Sections 10.2 or 10.3, then Section 6.6 (Third Party Actions Claiming Infringement) shall survive the expiration or termination of this Agreement.
(b)    Termination or expiration of this Agreement shall not relieve the Parties of any liability that accrued hereunder before the effective date of such termination or expiration. In addition, termination or expiration of this Agreement shall not preclude either Party from pursuing all rights and remedies it may have hereunder or at Law or in equity with respect to any breach of this Agreement nor prejudice either Party’s right to obtain performance of any obligation.
(c)    Upon termination of this Agreement by Licensor pursuant to Section 10.2, all licenses granted to TGTX hereunder shall terminate. If TGTX has before the breach entered into a written Sublicense which complies with Section 2.2, then the Sublicensee thereunder shall have the right to, by but only by delivering to Licensor within 30 days after such termination a written election to do so and a written assumption of all of TGTX’s past and future obligations, liabilities and duties under this Agreement and a tender of funds or other action to directly and fully cure TGTX’s breach, convert its Sublicense into a direct of license from Licensor of the same technology, for the same field and for the same territory, as had been provided for in the Sublicense and otherwise on the same terms and conditions as are set forth in this Agreement as if such Sublicensee were TGTX hereunder. In the event of termination by TGTX pursuant to Section 10.2, the licenses granted to TGTX hereunder shall continue in effect but become fully paid-up, royalty-free, transferable (to the extent not transferable previously), perpetual and irrevocable.
ARTICLE XI    
MISCELLANEOUS PROVISIONS
11.1    Relationship of the Parties. Nothing in this Agreement is intended or shall be deemed to constitute a partnership, agency, joint venture or employer-employee relationship between the Parties. No Party shall have any right or authority to commit or legally bind any other Party in any way whatsoever including, without limitation, the making of any agreement, representation or warranty and each Party agrees to not purport to do so.
11.2    Assignment.
(a)    Any assignment not in accordance with this Section 11.2 shall be void.
(b)    No assignment shall relieve the assigning Party of any of its responsibilities or obligations hereunder.
(c)    TGTX may not transfer or assign its rights or licenses or delegate its obligations under this Agreement, in whole or in part, by operation of law or otherwise, to any Third Party without the prior written consent of Licensor, which consent shall not be unreasonably withheld, conditioned

    


or delayed; provided that, notwithstanding the foregoing, TGTX may assign its rights or licenses and/or delegate its obligations under this Agreement to an Affiliate or to a successor to all or substantially all of TGTX’s assets, whether by way of merger, sale of all or substantially all of its assets, sale of stock or otherwise, without Licensor’s prior written consent. As a condition to any permitted assignment hereunder, the assignee must expressly assume, in a writing delivered to Licensor (and in a form reasonably acceptable to Licensor) all of TGTX’s obligations under this Agreement, whether arising before, at or after the assignment.
(d)    Licensor may not transfer or assign its rights or delegate its obligations under this Agreement, in whole or in part, by operation of law or otherwise, to any Third Party without the prior written consent of TGTX, which consent shall not be unreasonably withheld, conditioned or delayed; provided that, notwithstanding the foregoing, Licensor may, without TGTX’s prior written consent, assign its rights and/or delegate its obligations under this Agreement to an Affiliate, or to any person in a transaction in which Licensor also assigns all of its right, title and interest in all or substantially all of its Licensor Technology assets, including without limitation, intellectual property rights, to the same party contemporaneous with the assignment of this Agreement, or to a successor, whether by way of merger, sale of all or substantially all of its assets, sale of stock or otherwise. As a condition to any permitted assignment hereunder, the assignee must expressly assume, in a writing delivered to TGTX (and in a form reasonably acceptable to TGTX) all of Licensor’s obligations under this Agreement, whether arising before, at or after the assignment.
11.3    Further Actions. Each Party agrees to execute, acknowledge and deliver such further instruments and to do all such other acts as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.
11.4    Force Majeure. No Party shall be liable to any other Party or be deemed to have breached or defaulted under this Agreement for failure or delay in the performance of any of its obligations under this Agreement (other than obligations for the payment of money) for the time and to the extent such failure or delay is caused by or results from acts of God, earthquake, riot, civil commotion, terrorism, war, strikes or other labor disputes, fire, flood, failure or delay of transportation, omissions or delays in acting by a governmental authority, acts of a government or an agency thereof or judicial orders or decrees or restrictions or any other like reason which is beyond the control of the respective Party. The Party affected by force majeure shall provide the other Party with full particulars thereof as soon as it becomes aware of the same (including its best estimate of the likely extent and duration of the interference with its activities), and shall use Commercially Reasonable Efforts to overcome the difficulties created thereby and to resume performance of its obligations hereunder as soon as practicable, and the time for performance shall be extended for a number of days equal to the duration of the force majeure.
11.5    Entire Agreement of the Parties; Amendments. This Agreement and the Schedules hereto constitute and contain the entire understanding and agreement of the Parties respecting the subject matter hereof and cancel and supersede any and all prior or contemporaneous negotiations, correspondence, understandings and agreements between the Parties, whether oral or written, regarding such subject matter (provided, that any and all previous nondisclosure/nonuse obligations are not superseded and remain in full force and effect in addition to the nondisclosure/nonuse provisions hereof). Each Party acknowledges that it has not relied, in deciding whether to enter into this Agreement on this Agreement’s expressly stated terms and conditions, on any representations, warranties, agreements, commitments or promises which are not expressly set forth within this Agreement. No modification or

    


amendment of any provision of this Agreement shall be valid or effective unless made in a writing referencing this Agreement and signed by a duly authorized officer of each Party.
11.6    Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York, excluding application of any conflict of laws principles.
11.7    Notices and Deliveries. Any notice, request, approval or consent required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been sufficiently given if and only if delivered in person, by email or by express courier service to the Party to which it is directed at its physical or email address shown below or such other physical or email address as such Party shall have last given by such written notice to the other Party.
If to TGTX, addressed to:
TG Therapeutics, Inc.
3 Columbus Circle, 15th Floor
New York, NY 10019
Attention: Michael S. Weiss, Executive Chairman, Interim President and Chief Executive Officer
Email: msw@opuspointpartners.com
If to Licensor, addressed to:
General Counsel
Ligand Pharmaceuticals Incorporated
11119 North Torrey Pines Road, Suite 200
La Jolla, CA 92037
Email:     [***]

11.8    Waiver. No waiver of any provision of this Agreement shall be valid or effective unless made in a writing referencing this Agreement and signed by a duly authorized officer of the waiving Party. A waiver by a Party of any of the terms and conditions of this Agreement in any instance shall not be deemed or construed to be a waiver of such term or condition for the future, or of any other term or condition hereof.
11.9    Rights and Remedies are Cumulative. Except to the extent expressly set forth herein, all rights, remedies, undertakings, obligations and agreements contained in or available upon violation of this Agreement shall be cumulative and none of them shall be in limitation of any other remedy or right authorized in law or in equity, or any undertaking, obligation or agreement of the applicable Party.
11.10    Severability. This Agreement is severable. When possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable Law, but if any provision of this Agreement is held to be to any extent prohibited by or invalid under applicable Law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement (or of such provision). The Parties shall make a good faith effort to replace the invalid or unenforceable provision with a valid one which in its economic effect is most consistent with the invalid or unenforceable provision.

    


11.11    Third Party Beneficiaries. Except for the rights of Indemnified Parties pursuant to Article IX hereof and the rights of Sublicensees set forth in Sections 10.2 and 10.4(c), the terms and provisions of this Agreement are intended solely for the benefit of each Party hereto and their respective successors or permitted assigns and it is not the intention of the Parties to confer third-party beneficiary rights upon any other person, including without limitation Sublicensees. The enforcement of any obligation of Licensor under this Agreement shall only be pursued by TGTX or such Indemnified Party, and not Sublicensees (except as set forth in Sections 10.2 and 10.4(c)).
11.12    No Implied License. No right or license is granted to TGTX hereunder by implication, estoppel, or otherwise to any know-how, patent or other intellectual property right owned or controlled by Licensor or its Affiliates, except by an express license granted hereunder. No right or license is granted to Licensor hereunder by implication, estoppel, or otherwise to any know-how, patent or other intellectual property right owned or controlled by TGTX or its Affiliates, except by an express license granted hereunder.
11.13    No Right of Set-Off. Except as expressly provided in Section 5.7(b) of this Agreement, TGTX shall not have a right to set-off any royalties, milestones or other amount due to Licensor under this Agreement against any damages incurred by TGTX for a breach by Licensor of this Agreement.
11.14    Equitable Relief. Each Party recognizes that the covenants and agreements herein and their continued performance as set forth in this Agreement are necessary and critical to protect the legitimate interests of the other Party, that the other Party would not have entered into this Agreement in the absence of such covenants and agreements and the assurance of continued performance as set forth in this Agreement, and that a Party’s breach or threatened breach of such covenants and agreements may cause the opposed Party irreparable harm and significant injury, the amount of which will be extremely difficult to estimate and ascertain, thus potentially making any remedy at law or in damages inadequate. Therefore, each Party agrees that an opposed Party shall be entitled to seek specific performance, an order restraining any breach or threatened breach of Article VII and all other provisions of this Agreement, and any other equitable relief (including but not limited to temporary, preliminary and/or permanent injunctive relief). This right shall be in addition to and not exclusive of any other remedy available to such other Party at law or in equity.
11.15    Interpretation. The language used in this Agreement is the language chosen by the Parties to express their mutual intent, and no provision of this Agreement shall be interpreted for or against a Party because that Party or its attorney drafted the provision.
11.16    Construction. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” All references herein to Articles, Sections and Schedules shall be deemed references to Articles and Sections of, and Schedules to, this Agreement unless the context shall otherwise require.
11.17    Counterparts. This Agreement may be executed in counterparts, each of which will be deemed an original, and all of which together will be deemed to be one and the same instrument. A facsimile or a portable document format (.pdf) copy of this Agreement, including the signature pages, will be deemed an original.


    


[the remainder of this page has been left blank intentionally]
IN WITNESS WHEREOF, the Parties have caused this License Agreement to be executed and delivered by their respective duly authorized officers as of the day and year first above written.
LIGAND PHARMACEUTICALS INCORPORATED

By: __/s/ Matthew W. Foehr ___________    
Name:     _Matthew W. Foehr____________    
Title: _EVP / COO____________________

TG THERAPEUTICS, INC.    


By: __/s/ Michael S. Weiss _______________    
Name:     ___Michael S. Weiss______________    
Title: _Executive Chairman, Interim President and Chief Executive Officer


Schedule 1
Compounds

[***]



Schedule 2
Licensor Know-How
Folder Name
File Name
 
 
1.0 Business Development
 
 
[***]
2.0 Summary Reports
 
 
[***]
3.0 Literature
 
 
[***]
4.0 Protocols
 
 
[***]
 
 


Schedule 3
Licensor Patent Rights

Case No.
Title
Country:
Status:
Application No.
Filing Date
Publication No.
Publication Date
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]






    
LGND-EX31.1_6.30.2014


Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John L. Higgins, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of Ligand Pharmaceuticals Incorporated;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:    August 5, 2014

/s/ John L. Higgins
John L. Higgins
President, Chief Executive Officer and Director
(Principal Executive Officer)


LGND-EX31.2_6.30.2014


Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Nishan de Silva, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of Ligand Pharmaceuticals Incorporated;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:    August 5, 2014

/s/ Nishan de Silva
Nishan de Silva
Vice President, Finance and Strategy and Chief Financial Officer
(Principal Financial Officer)


LGND-EX32.1_6.30.2014


Exhibit 32.1

CERTIFICATION BY PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Quarterly Report on Form 10-Q of Ligand Pharmaceuticals Incorporated (the “Company”) for the quarter ended June 30, 2014, I, John L. Higgins, President, Chief Executive Officer and Director of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:

(1)
such Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)
the information contained in such Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, fairly presents, in all material respects, the financial condition and results of operations of the Company.

The foregoing certification is being furnished solely to accompany such Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Date:
August 5, 2014
 
/s/ John L. Higgins
 
 
 
John L. Higgins
President, Chief Executive Officer and Director
(Principal Executive Officer)



LGND-EX32.2_6.30.2014


Exhibit 32.2

CERTIFICATION BY PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Quarterly Report on Form 10-Q of Ligand Pharmaceuticals Incorporated (the “Company”) for the quarter ended June 30, 2014, I, Nishan de Silva, Vice President, Finance and Strategy and Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:

(1)
such Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)
the information contained in such Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, fairly presents, in all material respects, the financial condition and results of operations of the Company.

The foregoing certification is being furnished solely to accompany such Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Date:
August 5, 2014
 
/s/ Nishan de Silva
 
 
 
Nishan de Silva
Vice President, Finance and Strategy and Chief Financial Officer
(Principal Financial Officer)



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