© 2012 Cooley LLP, Five Palo Alto Square, 3000 El Camino Real, Palo Alto, CA The content of this packet is an introduction to Cooley LLP’s capabilities and is not intended, by itself, to provide legal advice or create an attorney-client relationship. Prior results do not guarantee future outcome. The First Deal Small Contract Terms with Big Consequences Lila Hope, Ph.D., J.D. Partner, Cooley LLP

What is a Contract? An agreement with specific terms between two or more persons or entities in which there is a promise to do something in return for a valuable benefit (known as consideration). - lawdictionary.com. Simplified. 2

Examples of Contracts  Social contract  NIH grant  Invention assignment agreement 3

Typical Contractual Relationships of a Biotech Company Discovery and Pre- clinical Studies Clinical Development Commercialization 4 Research license and product in-licenses Research collaborations; Sponsored research Corporate partnering (product collaborations) Employment and consulting agreements; CDAs; MTAs; services agreements Manufacturing agreements Clinical trial agreements Distribution agreements

How to Think about a Contract?  What does it enable?  What does it obligate?  What does it prevent? 5

How to Think about a Contract?  What does it enable?  Product license  Technology license  Option; Right of first negotiation  Technology and material transfer  What does it obligate?  What does it prevent? 6

Example of a Product License  Licensor hereby grants Licensee an exclusive license, [with the right to grant sublicenses,] under the Licensed Patents and Licensed Know- How to research, develop, make, have made, use, sell, offer for sale, import and export Licensed Products in the Licensed Field in the Licensed Territory. 7

Example of a Research License  Licensor hereby grants Licensee an [exclusive], [non-transferrable], [non-sublicenseable] license, under the Licensed Patents and Licensed Know- How to [conduct certain activities].  Often combined with a commercial license to make, use and sell products resulting from such activities. 8

Option vs. ROFN  Who is in the driver’s seat?  Duration  Consideration 9

Right to Prosecute and Enforce Patents  Right to prosecute patents  First right  Back-up right  Right to enforce patents 10

How to Think about a Contract?  What does it enable?  What does it obligate?  Diligence  Payments  What does it prevent? 11

Diligence Obligations  Commercially reasonable efforts vs. best efforts  Diligence timelines  Delays beyond reasonable control  Alternatives such as maintenance fee and minimum spending obligation  Consequence of breach  Termination  Loss of exclusivity  Loss of Territory  Pay to extend 12

Payments  Upfront license fee  Patent fees (who prosecutes?)  Milestone payments (whose activity?)  Royalty payments (which products?)  Sublicense revenue 13

What is Included in Sublicense Revenue, and what is not?  Upfront payment  Payment for equity  R&D support  Manufacturing and other service fees  Milestone payments  Royalties  Allocation to technology  Sublicense vs. sale of assets 14

How to Think about a Contract?  What does it enable?  What does it obligate?  What does it prevent?  Negative covenants  Exclusivity obligations 15

Thinking about Exclusivity  Target exclusivity  Pathway exclusivity  Indication exclusivity  Scaffold-based exclusivity  Assay-based exclusivity  Period of exclusivity  Does exclusivity transfer? – Consider affiliates, collaborators and acquirors 16

Thank You Lila Hope, Ph.D., J.D. Partner, Cooley LLP (650)