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Research and Development Agreement - Nanogen Inc. and Elan Corp. plc

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NANOGEN
HOWARD C. BIRNDORF
CHAIRMAN AND CHIEF EXECUTIVE OFFICER


December 12, 1997


                                                    VIA FAX (011) 353-1-662-4963

Thomas G. Lynch
Chief Financial Officer
Elan Corporation, plc
Lincoln House
Lincoln Place
Dublin 2, Ireland

        RE: Letter Agreement

Dear Tom:

        This letter constitutes an offer by Nanogen to enter into a Research and
Development Agreement with Elan. Upon execution and return by the designated
individuals identified at the end of this letter, this Letter Agreement will
constitute our binding Agreement. The terms and conditions of our agreement are
as follows:

RESEARCH AND DEVELOPMENT AGREEMENT

- Elan to sponsor a milestone-based Research and Development Agreement (the "R&D
  Agreement") at Nanogen pursuant to the Exhibit A Research Program attached
  hereto covering the following areas:

     - Support development of a microarray-based instrumentation platform for
       genomic research applications.

     - Design and development of multi-site chips and cartridges to support
       custom arrays for research applications and development of specific
       arrays for high-throughput use.

     - Development of formats and chips for discrimination of sequence
       variations as demonstrated in: single nucleotide polymorphisms (SNPs),
       allelic variations, genotyping, mutation detection, etc.

     - Development of formats and chips for use in expression monitoring of RNA
       levels for use in gene discovery, drug discovery, target validation,
       animal studies and toxicity studies.

     - Development of software for sample tracking and database applications
       using array technology-derived data.
<PAGE>   2

Elan Corporation, plc
December 12, 1997
Page Two


                                      ***

COMMENCEMENT DATE

-       It is the parties' intention to formally commence the Research Program
        in the first quarter 1998. Within sixty (60) days from the execution
        date hereof, the parties will meet to prepare and finalize a definitive
        agreement and will agree upon mutually acceptable research milestones
        for the first year of research conducted hereunder.

SCOPE

-       The R&D Agreement shall be non-exclusive.

TERM

-       Subject to the completion of annual milestones to be agreed, the R&D
        Agreement shall have a term of five (5) years. The first year's funding
        shall be payable in all events.

RESEARCH PLAN AND BUDGET

-       The R&D Agreement will be conducted in accordance with a Research Plan
        and Budget as agreed between the parties. The parties shall prepare
        Research Plans and Budgets in accordance with the Research Program on an
        annual basis throughout the term of the Agreement. The initial Research
        Plan and Budget for the conduct of research through the first year is
        attached hereto as Exhibit A. The Research Plan and Budget shall be
        reviewed by the Research Management Committee on an annual basis. The
        final Research Plan and Budgets will be approved by the Executive
        Committee and may be revised based on mutual agreement between the
        parties.

PROGRAM MANAGEMENT

-       A Research Management Committee ("RMC"), comprising two (2) members each
        from Nanogen and Elan, will be established by the parties. The RMC will
        be responsible for preparing an overall Research Program, establishing
        and adhering to annual research

***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
<PAGE>   3

Elan Corporation, plc
December 12, 1997
Page Three


        milestones and for fulfilling the overall goals of the R&D Agreement.
        The RMC will also be responsible for the day-to-day management of the
        R&D Agreement and for supervising, managing and monitoring the progress
        of the Research Program and for ensuring the open exchange of
        information. The Research Program will provide for an overview of the
        R&D Agreement, the assignment of roles and responsibilities of the
        respective parties and the establishment of, and adherence to, annual
        milestones and budgets.

EXECUTIVE COMMITTEE

-       An Executive Committee, comprising two (2) members each from Nanogen and
        Elan, will be established. The Executive Committee will be responsible
        for overseeing the RMC and for setting the strategic goals for the
        collaboration, approving annual Research Plans and Budgets and annual
        research milestones. The committee will meet in person (or by video or
        teleconference) at least twice annually and minutes shall be taken at
        each such meeting and distributed to each of the parties.

DISPUTE RESOLUTION

-       The parties intend to incorporate a clause into the definitive agreement
        to the effect that every effort will be made to resolve disputes
        internally, with litigation as a last resort.

-       All decisions made by the RMC shall be unanimous.

-       All issues not unanimously agreed upon by the RMC shall be submitted to
        the Executive Committee for resolution.

-       All issues not unanimously agreed upon by the Executive Committee shall
        be submitted to the Chief Executive Officer of Nanogen and the Chief
        Financial Officer of Elan for resolution.

-       All issues not resolved by the above designated officers shall be
        submitted to mediation or arbitration.

FUNDING

-       Subject to completion of annual research milestones, Elan to fund the
        Research Program with annual research fees in the following amounts
        payable in U.S. Dollars in quarterly installments at the beginning of
        each fiscal quarter starting on the date of commencement of the Research
        Program:

<PAGE>   4

Elan Corporation, plc
December 11, 1997
Page Four


<TABLE>
<CAPTION>
<S>                           <C>
              ***                 *** 
                              -------------
             TOTAL:           $11.0 million

</TABLE>

ROYALTIES

-       In consideration for the foregoing payments, Nanogen to pay Elan a
        royalty of ***% on Net Revenues of products developed pursuant to the
        R&D Agreement and sold to third parties until Elan's R&D funding is
        recouped, and ***% thereafter for a period of ten (10) years.

INTELLECTUAL PROPERTY

-       All technology, know-how, trade secrets, discoveries, and inventions
        developed pursuant to the Research Program ("Program Intellectual
        Property") shall be owned by Nanogen. Nanogen shall grant to Elan a
        royalty-free license to use such Program Intellectual Property solely
        for Elan's internal use.

PUBLICATIONS

-       All publications resulting from or relating to research conducted
        pursuant to the R&D Agreement shall be reviewed and approved by Nanogen
        and Elan prior to disclosure or publication in order to protect any
        trade secrets, inventions or intellectual property rights inherent in
        such research.

BETA SITE

-       In further consideration for the foregoing payments, Nanogen shall make
        its instrument platform available to Elan, subject to export laws, on a
        preferential basis for beta testing when available.

EQUITY

-       Elan agrees to purchase shares in a private placement concurrent with
        Nanogen's Initial Public Offering in the amount of $5 million at the IPO
        price to the public.


***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
<PAGE>   5

Elan Corporation, plc
December 11, 1997
Page Five


CONFIDENTIALITY

-       Each party agrees to maintain in confidence all confidential information
        provided by the other party throughout the term of this Agreement.
        Except for such disclosure as is deemed necessary in the reasonable
        judgment of a party to comply with applicable laws or regulations, no
        announcement or communication relating to the terms of this Letter
        Agreement will be made without the other party's prior written approval,
        which approval shall not be unreasonably withheld.

        This Letter Agreement will remain in full force and effect until such
time as it is specifically superseded by future definitive agreement(s) relating
to the subject matter hereof.

                                   Very truly yours,

                                   /s/ HOWARD C. BIRNDORF

                                   Howard C. Birndorf
                                   Chairman and Chief Executive Officer

HCB/dz

cc:     Harry J. Leonhardt, Esq.
        Tina S. Nova, Ph.D.
        Pat Dillon

AGREED AND ACCEPTED BY:

By: /s/ Thomas G. Lynch
   -----------------------------
        Thomas G. Lynch
        Elan Corporation, plc

Date: December 18, 1997
     ---------------------------
<PAGE>   6
                                   EXHIBIT A

NANOGEN/ELAN RESEARCH PROGRAM

The purpose of this program is to allow Nanogen and Elan to collaborate in the
area of technology development. This will be a non-exclusive relationship and
will provide Elan with early access to Nanogen technology for use in Elan
discovery and development programs. In summary, this R&D plan primarily focuses
on technology development during years one through three with applications
specific to Elan's needs being developed in years two through five. It is
expected that the research management committee (RMC) will be responsible for
the definition and prioritization of milestones, goals and detailed research
plans for application development during the research term. As such, only the
technology development goals for years one through three are outlined below.

YEAR ONE R&D PLAN:

                                     * * *



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***

YEAR ONE MILESTONE

YEARS TWO/THREE R&D PLAN:

                                     * * *



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<PAGE>   8
YEAR TWO MILESTONE:  ***

YEARS THREE THROUGH FIVE R&D PLAN:  ***

BUDGET JUSTIFICATION BASED ON *** PER FTE

YEAR ONE ***


***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
<PAGE>   9
YEAR TWO ***


YEARS THREE THROUGH FIVE ***


***CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION