ImmunoGen, Inc.
IMMUNOGEN INC (Form: 10-Q, Received: 05/10/2012 14:14:17)

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 March 31, 2012

 

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 0-17999

 

ImmunoGen, Inc.

 

Massachusetts

 

04-2726691

(State or other jurisdiction of incorporation or
organization)

 

(I.R.S. Employer Identification No.)

 

830 Winter Street, Waltham, MA 02451

(Address of principal executive offices, including zip code)

 

(781) 895-0600

(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.   x Yes  o No

 

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). x Yes  o No

 

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 the 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). o Yes  x   No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Shares of common stock, par value $.01 per share:  77,295,075 shares outstanding as of May 1, 2012.

 

 

 



Table of Contents

 

IMMUNOGEN, INC.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2012

TABLE OF CONTENTS

 

Item

 

Page Number

 

Part I

 

1.

Financial Statements (Unaudited):

 

 

 

 

1a.

Consolidated Balance Sheets as of March 31, 2012 and June 30, 2011

3

 

 

 

1b.

Consolidated Statements of Operations for the three and nine months ended March 31, 2012 and 2011

4

 

 

 

1c.

Consolidated Statements of Cash Flows for the nine months ended March 31, 2012 and 2011

5

 

 

 

1d.

Notes to Consolidated Financial Statements

6

 

 

 

2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

 

 

 

3.

Quantitative and Qualitative Disclosures about Market Risk

32

 

 

 

4.

Controls and Procedures

32

 

 

 

 

Part II

 

 

 

 

1A.

Risk Factors

33

 

 

 

6.

Exhibits

33

 

 

 

 

Signatures

34

 

2



Table of Contents

 

ITEM 1.  Financial Statements

 

IMMUNOGEN, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

In thousands, except per share amounts

 

 

 

March 31,
2012

 

June 30,
2011

 

ASSETS

 

 

 

 

 

Cash and cash equivalents

 

$

175,260

 

$

191,206

 

Accounts receivable

 

1,430

 

4,668

 

Unbilled revenue

 

1,284

 

1,488

 

Inventory

 

931

 

480

 

Restricted cash

 

319

 

1,019

 

Prepaid and other current assets

 

2,588

 

2,664

 

Total current assets

 

181,812

 

201,525

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation

 

11,751

 

13,409

 

Long-term restricted cash

 

2,549

 

2,549

 

Other assets

 

216

 

158

 

 

 

 

 

 

 

Total assets

 

$

196,328

 

$

217,641

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Accounts payable

 

$

2,635

 

$

3,213

 

Accrued compensation

 

4,113

 

4,723

 

Other accrued liabilities

 

3,874

 

3,305

 

Current portion of deferred lease incentive

 

979

 

979

 

Current portion of deferred revenue

 

3,197

 

2,346

 

Total current liabilities

 

14,798

 

14,566

 

 

 

 

 

 

 

Deferred lease incentive, net of current portion

 

6,850

 

7,583

 

Deferred revenue, net of current portion

 

69,914

 

51,545

 

Other long-term liabilities

 

3,836

 

3,978

 

Total liabilities

 

95,398

 

77,672

 

Commitments and contingencies (Note E)

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Preferred stock, $.01 par value; authorized 5,000 shares; no shares issued and outstanding

 

 

 

Common stock, $.01 par value; authorized 100,000 shares; issued and outstanding 77,190 and 76,281 shares as of March 31, 2012 and June 30, 2011, respectively

 

772

 

763

 

Additional paid-in capital

 

581,700

 

569,843

 

Accumulated deficit

 

(481,542

)

(430,637

)

Total shareholders’ equity

 

100,930

 

139,969

 

Total liabilities and shareholders’ equity

 

$

196,328

 

$

217,641

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

3



Table of Contents

 

IMMUNOGEN, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

In thousands, except per share amounts

 

 

 

Three Months Ended
March 31,

 

Nine Months Ended
March 31,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Research and development support

 

$

1,320

 

$

2,190

 

$

3,333

 

$

5,690

 

License and milestone fees

 

999

 

858

 

8,211

 

3,534

 

Clinical materials

 

933

 

2,163

 

1,861

 

3,576

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

3,252

 

5,211

 

13,405

 

12,800

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

16,933

 

15,763

 

49,653

 

45,192

 

General and administrative

 

5,021

 

4,550

 

14,696

 

11,602

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

21,954

 

20,313

 

64,349

 

56,794

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

(18,702

)

(15,102

)

(50,944

)

(43,994

)

 

 

 

 

 

 

 

 

 

 

Other income, net

 

33

 

99

 

39

 

1,870

 

 

 

 

 

 

 

 

 

 

 

Loss before provision for income taxes

 

(18,669

)

(15,003

)

(50,905

)

(42,124

)

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(18,669

)

$

(15,003

)

$

(50,905

)

$

(42,124

)

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per common share

 

$

(0.24

)

$

(0.22

)

$

(0.66

)

$

(0.62

)

 

 

 

 

 

 

 

 

 

 

Basic and diluted weighted average common shares outstanding

 

76,961

 

68,067

 

76,615

 

67,996

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

4



Table of Contents

 

IMMUNOGEN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

In thousands, except per share amounts

 

 

 

Nine Months ended March 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Net loss

 

$

(50,905

)

$

(42,124

)

Adjustments to reconcile net loss to net cash (used for) provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

3,463

 

3,656

 

(Gain) loss on sale/disposal of fixed assets

 

(23

)

3

 

Amortization of deferred lease incentive

 

(733

)

(734

)

Gain on sale of marketable securities

 

 

(341

)

Loss (gain) on forward contracts

 

47

 

(197

)

Stock and deferred share unit compensation

 

7,859

 

4,268

 

Deferred rent

 

(81

)

42

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

3,238

 

(476

)

Unbilled revenue

 

204

 

(921

)

Inventory

 

(451

)

515

 

Prepaid and other current assets

 

64

 

(1,091

)

Restricted cash

 

700

 

255

 

Other assets

 

(58

)

24

 

Accounts payable

 

(578

)

(495

)

Accrued compensation

 

(610

)

(333

)

Other accrued liabilities

 

529

 

804

 

Deferred revenue

 

19,220

 

43,088

 

Net cash (used for) provided by operating activities

 

(18,115

)

5,943

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Proceeds from maturities or sales of marketable securities

 

 

1,201

 

Purchases of property and equipment, net

 

(1,782

)

(1,532

)

(Payments) proceeds from settlement of forward contracts

 

(56

)

132

 

Net cash used for investing activities

 

(1,838

)

(199

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from stock options exercised

 

4,007

 

913

 

Net cash provided by financing activities

 

4,007

 

913

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

(15,946

)

6,657

 

 

 

 

 

 

 

Cash and cash equivalents, beginning balance

 

191,206

 

109,156

 

 

 

 

 

 

 

Cash and cash equivalents, ending balance

 

$

175,260

 

$

115,813

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

5



Table of Contents

 

IMMUNOGEN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2012

 

A.             Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements at March 31, 2012 and June 30, 2011 and for the three and nine months ended March 31, 2012 and 2011 include the accounts of ImmunoGen, Inc., or the Company, and its wholly owned subsidiaries, ImmunoGen Securities Corp. and ImmunoGen Europe Limited. The consolidated financial statements include all of the adjustments, consisting only of normal recurring adjustments, which management considers necessary for a fair presentation of the Company’s financial position in accordance with accounting principles generally accepted in the U.S. for interim financial information. Certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted. The preparation of interim financial statements requires the use of management’s estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim financial statements and the reported amounts of revenues and expenditures during the reported periods. The results of the interim periods are not necessarily indicative of the results for the entire year. Accordingly, the interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2011.

 

Subsequent Events

 

The Company has evaluated all events or transactions that occurred after March 31, 2012 up through the date the Company issued these financial statements.  During this period, the Company did not have any material recognizable or unrecognizable subsequent events.

 

Revenue Recognition

 

The Company enters into licensing and development agreements with collaborative partners for the development of monoclonal antibody-based anticancer therapeutics. The terms of these agreements contain multiple deliverables which may include (i) licenses, or options to obtain licenses, to the Company’s Targeted Antibody Payload, or TAP, technology, (ii) rights to future technological improvements, (iii) research activities to be performed on behalf of the collaborative partner, (iv) delivery of cytotoxic agents and (v) the manufacture of preclinical or clinical materials for the collaborative partner. Payments to the Company under these agreements may include non-refundable license fees, option fees, exercise fees, payments for research activities, payments for the manufacture of preclinical or clinical materials, payments based upon the achievement of certain milestones and royalties on product sales. The Company follows the provisions of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 605-25, “Revenue Recognition — Multiple-Element Arrangements,” and ASC Topic 605-28, “Revenue Recognition — Milestone Method,” in accounting for these agreements. In order to account for these agreements, the Company must identify the deliverables included within the agreement and evaluate which deliverables represent separate units of accounting based on if certain criteria are met, including whether the delivered element has stand-alone value to the collaborator. The consideration received is allocated among the separate units of accounting, and the applicable revenue recognition criteria are applied to each of the separate units.

 

At March 31, 2012, the Company had the following two types of agreements with the parties identified below:

 

·                                           Exclusive development and commercialization licenses to use the Company’s TAP technology and/or certain other intellectual property to develop compounds to a single target antigen (referred to herein as single-target licenses, as distinguished from the Company’s right-to-test agreements described elsewhere):

 

Amgen (two single-target licenses)

 

Bayer HealthCare (one single-target license)

 

Biotest (one single-target license)

 

Roche, through its Genentech unit (five single-target licenses)

 

Sanofi (license to multiple individual targets)

 

6



Table of Contents

 

·                                           Option/research agreement for a defined period of time to secure development and commercialization licenses to use the Company’s TAP technology to develop anticancer compounds to specified targets on established terms (referred to herein as right-to-test agreements):

 

Amgen

 

Sanofi

 

Novartis

 

Eli Lilly and Company

 

There are no performance, cancellation, termination or refund provisions in any of the arrangements that contain material financial consequences to the Company.

 

Exclusive Licenses

 

The deliverables under an exclusive license agreement generally include the exclusive license to the Company’s TAP technology with respect to a specified antigen target, and may also include deliverables related to rights to future technological improvements, research activities to be performed on behalf of the collaborative partner and the manufacture of preclinical or clinical materials for the collaborative partner.

 

Generally, exclusive license agreements contain non-refundable terms for payments and, depending on the terms of the agreement, provide that the Company will (i) at the collaborator’s request, provide research services at negotiated prices which are generally consistent with what other third parties would charge, (ii) at the collaborator’s request, manufacture and provide to it preclinical and clinical materials or deliver cytotoxic agents at negotiated prices which are generally consistent with what other third parties would charge, (iii) earn payments upon the achievement of certain milestones and (iv) earn royalty payments, generally until the later of the last applicable patent expiration or 10 to 12 years after product launch. In the case of trastuzumab emtansine (T-DM1), however, the minimum royalty term is 10 years and the maximum royalty term is 12 years on a country-by-country basis.  Royalty rates may vary over the royalty term depending on the Company’s intellectual property rights. The Company may provide technical assistance and share any technology improvements with its collaborators during the term of the collaboration agreements.  The Company does not directly control when any collaborator will request research or manufacturing services, achieve milestones or become liable for royalty payments. As a result, the Company cannot predict when it will recognize revenues in connection with any of the foregoing.

 

In determining the units of accounting, management evaluates whether the exclusive license has stand-alone value from the undelivered elements to the collaborative partner based on the consideration of the relevant facts and circumstances for each arrangement. Factors considered in this determination include the research capabilities of the partner and the availability of TAP technology research expertise in the general marketplace. If the Company concludes that the license has stand alone value and therefore will be accounted for as a separate unit of accounting, the Company then determines the estimated selling prices of the license and all other units of accounting based on market conditions, similar arrangements entered into by third parties, and entity-specific factors such as the terms of the Company’s previous collaborative agreements, recent preclinical and clinical testing results of therapeutic products that use the Company’s TAP technology, the Company’s pricing practices and pricing objectives, the likelihood that technological improvements will be made, the likelihood that technological improvements made will be used by the Company’s collaborators and the nature of the research services to be performed on behalf of its collaborators and market rates for similar services.

 

Upfront payments on single-target licenses are deferred if facts and circumstances dictate that the license does not have stand-alone value.  Prior to the adoption of Accounting Standards Update (ASU) No. 2009-13, “Revenue Arrangements with Multiple Deliverables” on July 1, 2010, the Company determined that its licenses lacked stand-alone value and were combined with other elements of the arrangement and any amounts associated with the license were deferred and amortized over a certain period, which the Company refers to as the Company’s period of substantial involvement.  The determination of the length of the period over which to defer revenue is subject to judgment and estimation and can have an impact on the amount of revenue recognized in a given period. Historically the Company’s involvement with the development of a collaborator’s product candidate has been significant at the early stages of development, and lessens as it progresses into clinical trials. Also, as a drug candidate gets closer to commencing pivotal testing the Company’s collaborators have sought an alternative site to manufacture the product, as the Company’s facility does not produce pivotal or commercial drug product. Accordingly, the Company generally estimates this period of substantial involvement to begin at the inception of the collaboration agreement and conclude at the end of non-pivotal Phase II testing. The Company believes this period of substantial involvement is, depending on the nature of the license, on average six and one-half years. Quarterly, the Company reassesses its periods of substantial involvement over which the Company amortizes its upfront license fees and makes

 

7



Table of Contents

 

adjustments as appropriate. In the event a collaborator elects to discontinue development of a specific product candidate under a single target license, but retains its right to use the Company’s technology to develop an alternative product candidate to the same target or a target substitute, the Company would cease amortization of any remaining portion of the upfront fee until there is substantial preclinical activity on another product candidate and its remaining period of substantial involvement can be estimated. In the event that a single target license were to be terminated, the Company would recognize as revenue any portion of the upfront fee that had not previously been recorded as revenue, but was classified as deferred revenue, at the date of such termination.  Subsequent to the adoption of ASU No. 2009-13, the Company determined that its research licenses lack stand-alone value and are considered for aggregation with the other elements of the arrangement and accounted for as one unit of accounting.

 

Upfront payments on single-target licenses may be recognized upon delivery of the license if facts and circumstances dictate that the license has stand-alone value from the undelivered elements, which generally include rights to future technological improvements, research services, delivery of cytotoxic agents and the manufacture of preclinical and clinical materials.

 

The Company recognizes revenue related to research services that represent separate units of accounting as they are performed, as long as there is persuasive evidence of an arrangement, the fee is fixed or determinable, and collection of the related receivable is probable.  The Company recognizes revenue related to the rights to future technological improvements over the estimated term of the applicable license.

 

The Company may also provide cytotoxic agents to its collaborators or produce preclinical and clinical materials at negotiated prices which are generally consistent with what other third parties would charge. The Company recognizes revenue on cytotoxic agents and on preclinical and clinical materials when the materials have passed all quality testing required for collaborator acceptance and title and risk of loss have transferred to the collaborator.  Arrangement consideration allocated to the manufacture of preclinical and clinical materials in a multiple-deliverable arrangement is below the Company’s full cost, and the Company’s full cost is not expected to ever be below its contract selling prices for its existing collaborations.

 

The Company may also produce research material for potential collaborators under material transfer agreements. Additionally, the Company performs research activities, including developing antibody specific conjugation processes, on behalf of its collaborators and potential collaborators during the early evaluation and preclinical testing stages of drug development. The Company records amounts received for research materials produced or services performed as a component of research and development support revenue. The Company also develops conjugation processes for materials for later stage testing and commercialization for certain collaborators. The Company is compensated at negotiated rates and may receive milestone payments for developing these processes which are recorded as a component of research and development support revenue.

 

The Company’s license agreements have milestone payments which for reporting purposes are aggregated into three categories: (i) development milestones, (ii) regulatory milestones, and (iii) sales milestones.  Development milestones are typically payable when a product candidate initiates or advances into different clinical trial phases.  Regulatory milestones are typically payable upon submission for marketing approval with the FDA or other countries’ regulatory authorities or on receipt of actual marketing approvals for the compound or for additional indications.  Sales milestones are typically payable when annual sales reach certain levels.

 

At the inception of each agreement that includes milestone payments, the Company evaluates whether each milestone is substantive and at risk to both parties on the basis of the contingent nature of the milestone.  This evaluation includes an assessment of whether (a) the consideration is commensurate with either (1) the entity’s performance to achieve the milestone, or (2) the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the entity’s performance to achieve the milestone, (b) the consideration relates solely to past performance and (c) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement.  The Company evaluates factors such as the scientific, regulatory, commercial and other risks that must be overcome to achieve the respective milestone, the level of effort and investment required to achieve the respective milestone and whether the milestone consideration is reasonable relative to all deliverables and payment terms in the arrangement in making this assessment.

 

Non-refundable development and regulatory milestones that are expected to be achieved as a result of the Company’s efforts during the period of substantial involvement are considered substantive and are recognized as revenue upon the achievement of the milestone, assuming all other revenue recognition criteria are met.  Milestones that are not considered substantive because we do not contribute effort to the achievement of such milestones are generally achieved after the period of substantial involvement and are recognized as revenue upon achievement of the milestone, as there are no undelivered elements remaining and no continuing performance obligations, assuming all other revenue recognition criteria are met.

 

8



Table of Contents

 

Right-to-Test Agreements

 

The Company’s right-to-test agreements provide collaborators the right to (a) test the Company’s TAP technology for a defined period of time through a right-to-test, or research, license, (b) take options, for a defined period of time, to specified targets and (c) upon exercise of those options, secure or “take” licenses to develop and commercialize products for the specified targets on established terms.  Under these agreements, fees may be due to the Company (i) at the inception of the arrangement (referred to as “upfront” fees or payments), (ii) upon taking an option with respect to a specific target (referred to as option fees or payments earned, if any, when the option is “taken”), (iii) upon the exercise of a previously taken option to acquire a development and commercialization license(s) (referred to as exercise fees or payments earned, if any, when the development and commercialization license is “taken”), or (iv) some combination of all of these fees.

 

The accounting for right-to-test agreements is dependent on the nature of the options granted to the collaborative partner.  Options are considered substantive if, at the inception of a right-to-test agreement, the Company is at risk as to whether the collaborative partner will choose to exercise the options to secure development and commercialization licenses.  Factors that are considered in evaluating whether options are substantive include the overall objective of the arrangement, the benefit the collaborator might obtain from the agreement without exercising the options, the cost to exercise the options relative to the total upfront consideration, and the additional financial commitments or economic penalties imposed on the collaborator as a result of exercising the options.

 

For right-to-test agreements where the options to secure a development and commercialization licenses to the Company’s TAP technology are considered substantive, the Company does not consider the development and commercialization licenses to be a deliverable at the inception of the agreement.  For those right-to-test agreements entered into prior to the adoption of ASU No. 2009-13 where the options to secure development and commercialization licenses are considered substantive, the Company has deferred the upfront payments received and recognizes this revenue over the period during which the collaborator could elect to take options for development and commercialization licenses. These periods are specific to each collaboration agreement. If a collaborator takes an option to acquire a development and commercialization license under these agreements, any substantive option fee is deferred and recognized over the life of the option, generally 12 to 18 months. If a collaborator exercises an option and takes a development and commercialization license to a specific target, the Company attributes the exercise fee to the development and commercialization license.  Upon exercise of an option to acquire a development and commercialization license, the Company would also attribute any remaining deferred option fee to the development and commercialization license and apply the multiple-element revenue recognition criteria to the development and commercialization license and any other deliverables to determine the appropriate revenue recognition, which will be consistent with the Company’s accounting policy for upfront payments on single-target licenses. In the event a right-to-test agreement were to be terminated, the Company would recognize as revenue any portion of the upfront fee that had not previously been recorded as revenue, but was classified as deferred revenue, at the date of such termination. None of the Company’s right-to-test agreements entered into subsequent to the adoption of ASU No. 2009-13 has been determined to contain substantive options.

 

For right-to-test agreements where the options to secure development and commercialization licenses to the Company’s TAP technology are not considered substantive, the Company considers the development and commercialization licenses to be a deliverable at the inception of the agreement and applies the multiple-element revenue recognition criteria to determine the appropriate revenue recognition.  None of the Company’s right-to-test agreements entered into prior to the adoption of ASU No. 2009-13 has been determined to contain non-substantive options.

 

The Company does not directly control when any collaborator will exercise its options for development and commercialization licenses. As a result, the Company cannot predict when it will recognize revenues in connection with any of the foregoing.

 

Fair Value of Financial Instruments

 

Fair value is defined under ASC Topic 820, “Fair Value Measurements and Disclosures,” as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.  The standard describes a fair value hierarchy to measure fair value which is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:

 

·                             Level 1 - Quoted prices in active markets for identical assets or liabilities.

 

·                             Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

9



Table of Contents

 

·                             Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

As of March 31, 2012, the Company held certain assets that are required to be measured at fair value on a recurring basis.  The following table represents the fair value hierarchy for the Company’s financial assets measured at fair value on a recurring basis as of March 31, 2012 (in thousands):

 

 

 

Fair Value Measurements at March 31, 2012 Using

 

 

 

 

 

Quoted Prices in
Active Markets for
Identical Assets

 

Significant Other
Observable Inputs

 

Significant
Unobservable
Inputs

 

 

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Cash, cash equivalents and restricted cash

 

$

178,128

 

$

178,128

 

$

 

$

 

 

As of June 30, 2011, the Company held certain assets that are required to be measured at fair value on a recurring basis. The following table represents the fair value hierarchy for the Company’s financial assets measured at fair value on a recurring basis as of June 30, 2011 (in thousands):

 

 

 

Fair Value Measurements at June 30, 2011 Using

 

 

 

 

 

Quoted Prices in
Active Markets for
Identical Assets

 

Significant Other
Observable Inputs

 

Significant
Unobservable
Inputs

 

 

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Cash, cash equivalents and restricted cash

 

$

194,774

 

$

194,774

 

$

 

$

 

 

The fair value of the Company’s cash equivalents is based primarily on quoted prices from active markets.

 

Unbilled Revenue

 

The majority of the Company’s unbilled revenue at March 31, 2012 and June 30, 2011 represents research funding earned prior to those dates based on actual resources utilized under the Company’s agreements with various collaborators.

 

Inventory

 

Inventory costs relate to clinical trial materials being manufactured for sale to the Company’s collaborators. Inventory is stated at the lower of cost or market as determined on a first-in, first-out (FIFO) basis.

 

Inventory at March 31, 2012 and June 30, 2011 is summarized below (in thousands):

 

 

 

March 31,
2012

 

June 30,
2011

 

 

 

 

 

 

 

Raw materials

 

$

220

 

$

480

 

Work in process

 

711

 

 

 

 

 

 

 

 

Total

 

$

931

 

$

480

 

 

Raw materials inventory consists entirely of DM1 or DM4, the Company’s proprietary cell-killing agents, which are included in all TAP product candidates currently in preclinical and clinical testing with the Company’s collaborators. The Company considers more than a twelve month supply of raw materials that is not supported by firm, fixed orders and/or projections from its collaborators to be excess and establishes a reserve to reduce to zero the value of any such excess raw material inventory with a corresponding charge to research and development expense. In accordance with this policy, during the nine-month periods ended March 31, 2012 and March 31, 2011 the Company recorded $748,000 and $741,000, respectively, of expense related to excess inventory.  The Company recorded $286,000 of expense related to excess inventory during the three-month period ended March 31, 2011. There was no expense related to excess inventory recorded during the current three-month period, however, the Company recorded $34,000 of expense to write down certain raw material inventory to its net realizable value.

 

Computation of Net Loss per Common Share

 

Basic and diluted net loss per share is calculated based upon the weighted average number of common shares outstanding

 

10



Table of Contents

 

during the period. The Company’s common stock equivalents, as calculated in accordance with the treasury-stock method, are shown in the following table (in thousands):

 

 

 

Three Months Ended
March 31,

 

Nine Months Ended
March 31,

 

 

 

2012

 

2011

 

2012

 

2011

 

Options outstanding to purchase common stock

 

7,036

 

6,850

 

7,036

 

6,850

 

 

 

 

 

 

 

 

 

 

 

Common stock equivalents under treasury stock method

 

2,670

 

1,978

 

2,456

 

1,799

 

 

The Company’s common stock equivalents have not been included in the net loss per share calculation because their effect is anti-dilutive due to the Company’s net loss position.

 

Stock-Based Compensation

 

As of March 31, 2012, the Company is authorized to grant future awards under one employee share-based compensation plan, which is the ImmunoGen, Inc. 2006 Employee, Director and Consultant Equity Incentive Plan, or the 2006 Plan. The 2006 Plan provides for the issuance of Stock Grants, the grant of Options and the grant of Stock-Based Awards for up to 8,500,000 shares of the Company’s common stock, as well as any shares of common stock that are represented by awards granted under the previous stock option plan, the ImmunoGen, Inc. Restated Stock Option Plan, or the Former Plan, that are forfeited, expire or are cancelled without delivery of shares of common stock; provided, however, that no more than 5,900,000 shares shall be added to the Plan from the Former Plan, pursuant to this provision. Option awards are granted with an exercise price equal to the market price of the Company’s stock at the date of grant. Options vest at various periods of up to four years and may be exercised within ten years of the date of grant.

 

The fair value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model with the assumptions noted in the following table. As the Company has not paid dividends since inception, nor does it expect to pay any dividends for the foreseeable future, the expected dividend yield assumption is zero. Expected volatility is based exclusively on historical volatility data of the Company’s stock. The expected term of stock options granted is based exclusively on historical data and represents the period of time that stock options granted are expected to be outstanding. The expected term is calculated for and applied to one group of stock options as the Company does not expect substantially different exercise or post-vesting termination behavior among its option recipients. The risk-free rate of the stock options is based on the U.S. Treasury rate in effect at the time of grant for the expected term of the stock options.

 

 

 

Three Months Ended
March 31,

 

Nine Months Ended
March 31,

 

 

 

2012

 

2011

 

2012

 

2011

 

Dividend

 

None

 

None

 

None

 

None

 

Volatility

 

58.91%

 

60.27%

 

59.76%

 

58.76%

 

Risk-free interest rate

 

1.41%

 

2.77%

 

2.19%

 

2.43%

 

Expected life (years)

 

7.1

 

7.3

 

7.1

 

7.2

 

 

Using the Black-Scholes option-pricing model, the weighted average grant date fair values of options granted during the three months ended March 31, 2012 and 2011 were $7.31 and $5.87 per share, respectively, and $9.03 and $5.44 per share for options granted during the nine months ended March 31, 2012 and 2011, respectively.

 

Stock compensation expense related to stock options granted under the 2006 Plan was $2.3 million and $7.6 million during the three and nine months ended March 31, 2012, respectively, compared to stock compensation expense of $1.1 million and $4.0 million for the three and nine months ended March 31, 2011, respectively.

 

As of March 31, 2012, the estimated fair value of unvested employee awards was $13.0 million, net of estimated forfeitures. The weighted-average remaining vesting period for these awards is approximately two and a half years.

 

During the nine months ended March 31, 2012, holders of options issued under the Company’s equity plans exercised their rights to acquire an aggregate of approximately 863,000 shares of common stock at prices ranging from $2.91 to $11.18 per share.  The total proceeds to the Company from these option exercises were approximately $4.0 million.

 

11



Table of Contents

 

Financial Instruments and Concentration of Credit Risk

 

The Company’s cash equivalents consist principally of money market funds with underlying investments primarily being U.S. Government-issued securities and high quality, short-term commercial paper. All of the Company’s cash and cash equivalents are maintained with three financial institutions in the U.S.

 

Derivative instruments include a portfolio of short duration foreign currency forward contracts intended to mitigate the risk of exchange fluctuations for existing or anticipated receivable and payable balances denominated in foreign currency. Derivatives are estimated at fair value and classified as other current assets or liabilities. The fair values of these instruments represent the present value of estimated future cash flows under the contracts, which are a function of underlying interest rates, currency rates, related volatility, counterparty creditworthiness and duration of the contracts. Changes in these factors or a combination thereof may affect the fair value of these instruments.

 

The Company does not designate foreign currency forward contracts as hedges for accounting purposes, and changes in the fair value of these instruments are recognized in earnings during the period of change.  Because the Company enters into forward contracts only as an economic hedge, any gain or loss on the underlying foreign-denominated existing or anticipated receivable or payable balance would be offset by the loss or gain on the forward contract. For the three and nine months ended March 31, 2012, net gains (losses) recognized on forward contracts were $9,000 and $(47,000), respectively, and are included in the accompanying consolidated statements of operations as other income, net. For the three and nine months ended March 31, 2011, net gains recognized on forward contracts were $43,000 and $197,000, respectively. As of March 31, 2012, the Company had outstanding forward contracts with notional amounts equivalent to approximately $353,000 (€262,000), all maturing on or before October 7, 2013. As of June 30, 2011, the Company had outstanding forward contracts with notional amounts equivalent to approximately $1.6 million (€1.1 million). The Company does not anticipate using derivative instruments for any purpose other than hedging exchange rate exposure.

 

Segment Information

 

During the three and nine months ended March 31, 2012, the Company continued to operate in one reportable business segment which is the business of discovery of monoclonal antibody-based anticancer therapeutics.

 

The percentages of revenues recognized from significant customers of the Company in the three and nine months ended March 31, 2012 and 2011 are included in the following table:

 

 

 

Three Months Ended
March 31,

 

Nine Months Ended
March 31,

 

Collaborative Partner:

 

2012

 

2011

 

2012

 

2011

 

Amgen

 

38%

 

39%

 

33%

 

45%

 

Bayer HealthCare

 

24%

 

6%

 

14%

 

8%

 

Biotest

 

5%

 

19%

 

9%

 

10%

 

Novartis

 

22%

 

9%

 

14%

 

7%

 

Sanofi

 

5%

 

22%

 

27%

 

26%

 

 

There were no other customers of the Company with significant revenues in the three and nine months ended March 31, 2012 and 2011.

 

Recent Accounting Pronouncements

 

In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement.” This ASU clarifies the concepts related to highest and best use and valuation premise, blockage factors and other premiums and discounts, the fair value measurement of financial instruments held in a portfolio and of those instruments classified as a component of shareholders’ equity. The guidance includes enhanced disclosure requirements about recurring Level 3 fair value measurements, the use of nonfinancial assets, and the level in the fair value hierarchy of assets and liabilities not recorded at fair value. The provisions of this ASU are effective prospectively for annual periods, and interim periods within those years, beginning on or after December 15, 2011. Early application is prohibited. The Company does not expect the adoption of these provisions to have a significant impact on its financial statements.

 

In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income.” This ASU intends to enhance comparability and transparency of other comprehensive income components. The guidance provides an option to present total comprehensive income, the components of net income and the components of other comprehensive income in a single continuous statement or two

 

12



Table of Contents

 

separate but consecutive statements. This ASU eliminates the option to present other comprehensive income components as part of the statement of changes in shareholders’ equity. The provisions of this ASU will be applied retrospectively for annual periods, and interim periods within those years, beginning after December 15, 2011. Early application is permitted. The Company does not expect the adoption of these provisions to have a significant impact on its financial statements.

 

B.             Collaborative Agreements

 

Roche

 

In May 2000, the Company granted Roche, through its Genentech unit, an exclusive license to the Company’s maytansinoid TAP technology for use with antibodies or other proteins that target HER2, such as trastuzumab.  Under the terms of this agreement, Roche has exclusive worldwide rights to develop and commercialize maytansinoid TAP compounds with antibodies that target HER2.  Roche is responsible for the manufacturing, product development and marketing of any products resulting from the agreement.  The Company is compensated for any preclinical and clinical materials that the Company manufactures under the agreement.  The Company received a $2 million non-refundable upfront payment from Roche upon execution of the agreement.  The Company is also entitled to receive up to a total of $44 million in milestone payments, plus royalties on the commercial sales of any resulting products.  Total milestones are categorized as follows: development milestones — $13.5 million; and regulatory milestones — $30.5 million.  Through March 31, 2012, the Company has received and recognized $13.5 million in milestone payments related to T-DM1, which were all development milestones.  Roche began Phase II evaluation of T-DM1 in July 2007 and the Company received and recognized a $5 million milestone payment with this event.  Roche began Phase III evaluation of T-DM1 in February 2009 and the Company received and recognized a $6.5 million milestone payment with this event.  At the time of execution of this agreement, there was significant uncertainty as to whether these received and recognized milestones would be achieved. In consideration of this, as well as the Company’s past involvement in the research and manufacturing of this product candidate, these milestones were deemed substantive. The next potential milestone the Company will be entitled to receive will be a regulatory milestone for marketing approval of T-DM1.  As this could occur first in either the U.S. or Europe, the next potential milestone due will be either $10.5 million with first approval in the U.S. or $5 million with first approval in Europe. Based on an evaluation of the effort contributed to the achievement of these milestones, the Company has determined these milestones are not substantive.

 

Roche, through its Genentech unit, also has licenses for the exclusive right to use the Company’s maytansinoid TAP technology with antibodies to four undisclosed targets, which were granted under the terms of a separate May 2000 right-to-test agreement with Genentech.  For each of these licenses the Company received a $1 million license fee and is entitled to receive up to a total of $38 million in milestone payments and also royalties on the sales of any resulting products.  The total milestones are categorized as follows: development milestones — $8 million; regulatory milestones — $20 million; and sales milestones — $10 million.  The Company has not received any milestone payments from these agreements through March 31, 2012.  Roche is responsible for the manufacturing, product development, and marketing of any products resulting from these licenses.  The next potential milestone the Company will be entitled to receive under any of these agreements will be a development milestone for filing of an Investigational New Drug (IND) application which will result in a $1 million payment being due.  At the time of execution of each of these development and commercialization licenses, there was significant uncertainty as to whether this milestone would be achieved. In consideration of this, as well as the Company’s past involvement in the research and manufacturing of these product candidates, this milestone was deemed substantive.  Roche no longer has the right to take additional licenses under the right-to-test agreement.  The Company received a non-refundable upfront payment totaling $5 million for the eight-year term of the right-to-test agreement.  The upfront fees were deferred and recognized ratably over the period during which Genentech could elect to obtain product licenses.

 

Amgen

 

In September 2000, the Company entered into a ten-year right-to-test agreement with Abgenix, Inc., which was later acquired by Amgen.  The agreement provides Amgen with the right to (a) test the Company’s maytansinoid TAP technology with Amgen’s antibodies under a right-to-test, or research, license, (b) take options, with certain restrictions, to specified targets on either an exclusive or non-exclusive basis for specified option periods and (c) upon exercise of those options, take exclusive or non-exclusive licenses to use the Company’s maytansinoid TAP technology to develop and commercialize products for the specified targets on previously agreed-upon terms.  The Company received a $5 million upfront payment in September 2000.  Amgen no longer has the right to take additional options under the agreement, although multiple outstanding options remain in effect for the remainder of their respective option periods. For each exclusive development and commercialization license taken, the Company is entitled to receive an exercise fee of $1 million and up to a total of $34 million in milestone payments, plus royalties on the commercial sales of any resulting products.  The total milestones per development and commercialization license are categorized as follows: development milestones — $9 million; regulatory milestones — $20 million; and sales milestones — $5 million. Amgen is responsible for the manufacturing, product development and marketing of any products resulting from the agreement.

 

Under the right-to-test agreement, in September 2009 and November 2009, Amgen took two development and commercialization licenses and the Company received an exercise fee of $1 million for each license taken.  The Company has deferred each $1 million exercise fee and is recognizing these amounts as revenue ratably over the respective estimated periods of its substantial involvement.  In November 2011, the IND applications to the FDA for two compounds developed under the September 2009 and November 2009 development and commercialization licenses became active, which triggered two $1 million milestone payments to the Company. These payments are included in license and milestone fees for the nine

 

13



Table of Contents

 

months ended March 31, 2012. At the time of execution of each of these development and commercialization licenses, there was significant uncertainty as to whether these received and recognized milestones would be achieved. In consideration of this, as well as the Company’s past involvement in the research and manufacturing of these product candidates, these milestones were deemed substantive.  The next potential milestone the Company will be entitled to receive under either of these development and commercialization licenses will be a development milestone for the first dosing of a patient in a Phase II clinical trial, which will result in a $3 million payment being due. At the time of execution of each of these development and commercialization licenses, there was significant uncertainty as to whether this milestone would be achieved.  In consideration of this, as well as the Company’s past involvement in the research and manufacturing of these product candidates, this milestone was deemed substantive.

 

In September 2010, Amgen took a combination of exclusive and non-exclusive options with respect to specific targets.  For each option taken, Amgen paid the Company nominal option fees.  In March 2012, Amgen extended a number of these options for nominal extension fees and all other options lapsed.

 

Sanofi

 

In July 2003, the Company entered into a broad collaboration agreement with Sanofi (formerly Aventis) to discover, develop and commercialize antibody-based products.  The collaboration agreement provides Sanofi with worldwide development and commercialization rights to new antibody-based products directed to targets that are included in the collaboration, including the right to use the Company’s TAP technology and its humanization technology in the creation of products developed to these targets.  The product candidates (targets) currently in development under the collaboration include SAR3419 (CD19), SAR566658 (DS6, also known as CA6), SAR650984 (CD38) and at least one earlier-stage compound that has yet to be disclosed. Sanofi is responsible for the manufacturing, product development and marketing of any products resulting from the agreement.

 

For each of the targets included in the collaboration at this time, the Company is entitled to receive up to a total of $21.5 million in milestone payments, plus royalties on the commercial sales of any resulting products. The total milestones are categorized as follows: development milestones — $7.5 million; and regulatory milestones — $14 million.  Through March 31, 2012, the Company has received and recognized an aggregate of $16 million in milestone payments for compounds covered under this agreement now or in the past, including a $3 million milestone payment related to the initiation of a Phase IIb clinical trial (as defined in the agreement) for SAR3419, which is included in license and milestone fee revenue for the nine months ended March 31, 2012, as well as a $1 million milestone payment earned in September 2010 related to the initiation of Phase I clinical testing of SAR566658 which is included in license and milestone fee revenue for the nine months ended March 31, 2011.  At the time of execution of this agreement, there was significant uncertainty as to whether these received and recognized milestones would be achieved. In consideration of this, as well as the Company’s past involvement in the research and manufacturing of these product candidates, these milestones were deemed substantive.  The next potential milestone the Company will be entitled to receive with respect to each of SAR566658 and SAR650984 will be a development milestone for initiation of a Phase IIb clinical trial (as defined in the agreement), which will result in each case in a $3 million payment being due.  The next potential milestone the Company will be entitled to receive with respect to SAR3419 will be for initiation of a Phase III clinical trial, which will result in a $3 million payment being due.  The next potential milestone the Company will be entitled to receive for each of the unidentified targets will be a development milestone for commencement of a Phase I clinical trial, which will result in a $1 million payment being due, or a preclinical milestone which will result in a $500,000 payment being due.  At the time of execution of this agreement, there was significant uncertainty as to whether these milestones would be achieved.  In consideration of this, as well as the Company’s past involvement in the research and manufacturing of these product candidates, these milestones were deemed substantive.

 

In December 2006, the Company entered into a separate right-to-test agreement with Sanofi.  The agreement provides Sanofi with the right to (a) test the Company’s maytansinoid TAP technology with Sanofi’s antibodies to targets that were not included in the collaboration agreement described above under a right-to-test, or research, license, (b) take exclusive options, with certain restrictions, to specified targets for specified option periods and (c) upon exercise of those options, take exclusive licenses to use the Company’s maytansinoid TAP technology to develop and commercialize products for the specified targets on the terms agreed upon at the inception of the right-to-test agreement.  For each development and commercialization license taken, the Company is entitled to receive an exercise fee of $2 million and up to a total of $30 million in milestone payments, plus royalties on the commercial sales of any resulting products. The total milestones are categorized as follows: development milestones — $10 million; and regulatory milestones — $20 million.  No development and commercialization license has yet been taken under this agreement. Execution of the first license will entitle the Company to receive an exercise fee in the amount of $2 million.  Sanofi is responsible for the manufacturing, product development and marketing of any products resulting from the agreement.

 

The Company received an aggregate of $4 million under the right-to-test agreement, of which $500,000 was received in December 2006 upon execution of the agreement, and $3.5 million of which was received in August 2008 upon Sanofi’s activation of its rights under the agreement. The right-to-test agreement had a three-year original term from the activation date and was renewed by Sanofi in August 2011for its final three-year term by payment of a $2 million fee. The Company has deferred the $2 million extension fee and is recognizing this amount as revenue over the period during which Sanofi can take an option for a development and commercialization license.

 

14



Table of Contents

 

Biotest

 

In July 2006, the Company entered into a development and license agreement with Biotest AG.  The agreement grants Biotest exclusive rights to use the Company’s maytansinoid TAP technology to develop and commercialize therapeutic compounds to the target CD138.  Biotest is responsible for the manufacturing, product development and marketing of any products resulting from the agreement.  The Company received a $1 million upfront payment upon execution of the agreement and could receive up to a total of $35.5 million in milestone payments, as well as royalties on the commercial sales of any resulting products.  The total milestones are categorized as follows: development milestones — $4.5 million; and regulatory milestones — $31 million.  The Company receives payments for manufacturing any preclinical and clinical materials made at the request of Biotest.  In September 2008, Biotest began Phase I evaluation of BT062 which triggered a $500,000 milestone payment to the Company.  At the time of execution of this agreement, there was significant uncertainty as to whether this received and recognized milestone would be achieved. In consideration of this, as well as the Company’s past involvement in the research and manufacturing of this product candidate, this milestone was deemed substantive.  The next potential milestone the Company will be entitled to receive will be a development milestone for commencement of a Phase IIb clinical trial (as defined in the agreement) which will result in a $2 million payment being due.  At the time of execution of this agreement, there was significant uncertainty as to whether this milestone would be achieved. In consideration of this, as well as the Company’s past involvement in the research and manufacturing of this product, this milestone was deemed substantive.

 

The agreement also provides the Company with the right to elect, at specific stages during the clinical evaluation of any compound created under the agreement, to participate in the United States development and commercialization of that compound in lieu of receiving the milestone payments not yet earned and royalties on sales in the United States.  The Company can exercise this right during an exercise period specified in the agreement by notice and payment to Biotest of a $15 million opt-in fee.  Upon exercise of this right, we would share equally with Biotest the associated costs of product development and commercialization in the United States along with the profit, if any, from product sales in the United States.

 

Bayer HealthCare

 

In October 2008, the Company entered into a development and commercialization license agreement with Bayer HealthCare. The license grants Bayer HealthCare exclusive rights to use the Company’s maytansinoid TAP technology to develop and commercialize products to the mesothelin target. Bayer HealthCare is responsible for the manufacturing, product development and marketing of any products resulting from the agreement. The Company received a $4 million upfront payment upon execution of the agreement, and—for each product developed and marketed by Bayer HealthCare under this development and commercialization license—the Company is entitled to receive up to a total of $170.5 million in milestone payments, plus royalties on the commercial sales of any resulting products. The total milestones are categorized as follows: development milestones — $16 million; regulatory milestones — $44.5 million; and sales milestones — $110 million. Through March 31, 2012, the Company has received and recognized an aggregate of $3 million in milestone payments under this agreement. At the time of execution of this agreement, there was significant uncertainty as to whether these received and recognized milestones would be achieved. In consideration of this, as well as the Company’s past involvement in the research and supply of cytotoxic agent for this product candidate, these milestones were deemed substantive. The next potential milestone the Company will be entitled to receive will be a development milestone for commencement of a non-pivotal Phase II clinical trial, which will result in a $4 million payment being due. At the time of execution of this agreement, there was significant uncertainty as to whether this milestone would be achieved.  In consideration of this, as well as the Company’s past involvement in the research and supply of cytotoxic agent for this product candidate, this milestone was deemed substantive.

 

The Company had previously deferred the $4 million upfront payment received and was recognizing this amount as revenue ratably over the estimated period of substantial involvement. The Company had previously estimated this development period would conclude at the end of non-pivotal Phase II testing.  During the first quarter of fiscal 2012, Bayer HealthCare initiated Phase I clinical testing of its product candidate.  In reaching this stage of clinical testing, Bayer HealthCare developed its own processes for manufacturing required clinical material and produced clinical material in its own manufacturing facility.  Considering that Bayer HealthCare was able to accomplish this without significant reliance on the Company, and considering that the Company’s expected future involvement will be primarily supplying Bayer HealthCare with small quantities of cytotoxic agents for a limited period of time, the Company believes its period of substantial involvement will end prior to the completion of non-pivotal Phase II testing. As a result of this determination, beginning in September 2011, the Company is recognizing the balance of the upfront payment as revenue ratably through September 2012.  This change in estimate results in an increase to license and milestone fees of approximately $856,000 for the nine months ending March 31, 2012 and $1.2 million for the fiscal year ending June 30, 2012 compared to amounts that would have been recognized pursuant to the Company’s previous estimate.

 

Novartis

 

In October 2010, the Company entered into a three-year right-to-test agreement with Novartis Institutes for BioMedical Research, Inc. (Novartis).  The agreement provides Novartis with the right to (a) test the Company’s TAP technology with Novartis’ antibodies under a right-to-test, or research, license, (b) take exclusive options, with certain restrictions, to specified targets for specified option periods and (c) upon exercise of those options, take exclusive licenses to use the Company’s TAP technology to develop and commercialize products for a specified number of individual targets on terms agreed upon at the inception of the right-to-test agreement. The initial three-year term of the right-to-test agreement may be extended by Novartis for up to two additional one-year periods by payment of additional consideration.  The terms of the right-to-test agreement require Novartis to exercise its options for the development and commercialization licenses by the end of the term of the research license.  The Company received a $45 million upfront payment in connection with the execution of the right-to-test agreement, and for each development and commercialization license for a specific target, the Company is entitled to receive an exercise fee of $1 million and up to a total of $200.5 million in milestone payments, plus royalties on the commercial sales of any resulting products.  The total milestones are categorized as follows: development milestones — $22.5 million; regulatory milestones — $77 million; and sales milestones — $100 million.  No development and commercialization license has yet been taken under this agreement.  Execution of the first license will entitle the Company to receive an exercise fee in the amount of $1 million.  The Company also is entitled to receive payments for research and development activities performed on behalf of Novartis.  Novartis is responsible for the manufacturing, product development and marketing of any products resulting from this agreement.

 

15



Table of Contents

 

In accordance with ACS 605-25 (as amended by ASU No. 2009-13), the Company identified all of the deliverables at the inception of the right-to-test agreement.  The significant deliverables were determined to be the right-to-test, or research, license, the exclusive development and commercialization licenses, rights to future technological improvements, and the research services.  The options to obtain development and commercialization licenses in the right-to-test agreement were determined not to be substantive and, as a result, the exclusive development and commercialization licenses were considered deliverables at the inception of the right-to-test agreement.  Factors that were considered in determining the options were not substantive included (i) the overall objective of the agreement was for Novartis to obtain development and commercialization licenses, (ii) the size of the exercise fee of $1 million for each development and commercialization license obtained is not significant relative to the $45 million upfront payment that was due at the inception of the right-to-test agreement, (iii) the limited economic benefit that Novartis could obtain from the right-to-test agreement unless it exercised its options to obtain development and commercialization licenses, and (iv) the lack of economic penalties as a result of exercising the options.

 

The Company has determined that the research license together with the development and commercialization licenses represent one unit of accounting as the research license does not have stand-alone value from the development and commercialization licenses due to the lack of transferability of the research license and the limited economic benefit Novartis would derive if they did not obtain any development and commercialization licenses.  The Company has also determined that this unit of accounting has stand-alone value from the rights to future technological improvements and the research services.  The rights to future technological improvements and the research services are considered separate units of accounting as each of these was determined to have stand-alone value.  The rights to future technological improvements have stand-alone value as Novartis would be able to use those items for its intended purpose without the undelivered elements.  The research services have stand-alone value as similar services are sold separately by other vendors.  The estimated selling prices for these units of accounting were determined based on market conditions, similar arrangements entered into by third parties and entity-specific factors such as the terms of the Company’s previous collaborative agreements, recent preclinical and clinical testing results of therapeutic products that use the Company’s TAP technology, the Company’s pricing practices and pricing objectives, the likelihood that technological improvements will be made, the likelihood that technological improvements made will be used by Novartis, and the nature of the research services to be performed for Novartis and market rates for similar services.  The arrangement consideration (which is comprised of the $45 million upfront payment, the exercise fee for each license, and the expected fees for the research services to be provided under the arrangement) was allocated to the deliverables based on the relative selling price method.  The Company will recognize as license revenue an equal amount of the total arrangement consideration allocated to the development and commercialization licenses as each individual license is delivered to Novartis upon Novartis’ exercise of its options to such licenses.  At the time the first development and commercialization license is taken, the amount of the total arrangement consideration allocated to future technological improvements will commence to be recognized as revenue ratably over the period the Company is obligated to make available any technological improvements, which is the equivalent to the estimated term of the license.  The Company estimates the term of a development and commercialization license to be approximately 25 years, which reflects management’s estimate of the time necessary to develop and commercialize products pursuant to the license plus the estimated royalty term.  The Company will be required to reassess the estimated term at each subsequent reporting period.  The Company does not control when Novartis will exercise its options for development and commercialization licenses. As a result, the Company cannot predict when it will recognize the related development and commercialization license revenue except that it will be within the term of the research license.  The Company will recognize research services revenue as the related services are delivered.

 

No license revenue has been recognized related to the right-to-test agreement through March 31, 2012 as the options to take development and commercialization licenses were not considered to be substantive and no development and commercialization licenses have been taken.  Accordingly, the entire $45 million upfront payment is included in long-term deferred revenue at March 31, 2012.

 

Lilly

 

In December 2011, the Company entered into a three-year right-to-test agreement with Eli Lilly and Company (Lilly).  The agreement provides Lilly with the right to (a) take exclusive options, with certain restrictions, to specified targets for specified option periods, (b) test the Company’s maytansinoid TAP technology with Lilly’s antibodies directed to the optioned targets under a right-to-test, or research, license, and (c) upon exercise of those options, take exclusive licenses to use the Company’s maytansinoid TAP technology to develop and commercialize products for a specified number of individual targets on terms agreed upon at the inception of the right-to-test agreement.  The terms of the right-to-test agreement require Lilly to exercise its options for the development and commercialization licenses by the end of the term of the research license.  The Company received a $20 million upfront payment in connection with the execution of the right-to-test agreement, and for the first development and commercialization license taken, the Company is entitled to receive up to a total of $200.5 million in milestone payments, plus royalties on the commercial sales of any resulting products.  For each subsequent development and commercialization license taken, the Company is entitled to receive an

 

16



Table of Contents

 

exercise fee in the amount of $2 million and up to a total of $199 million in milestone payments, plus royalties on the commercial sales of any resulting products.  The total milestones are categorized as follows: development milestones — $30.5 million for the first development and commercialization license and $29 million for each subsequent license; regulatory milestones — $70 million; and sales milestones — $100 million. No development and commercialization license has yet been taken under this agreement.  The next payment the Company could receive would either be a $5 million development milestone payment with the initiation of a Phase I clinical trial under the first development and commercialization license taken, or a $2 million exercise fee for the execution of a second license.  At the time of execution of this agreement, there was significant uncertainty as to whether the milestone related to initiation of a Phase I clinical trial under the first development and commercialization license would be achieved.  In consideration of this, as well as the Company’s expected involvement in the research and manufacturing if these product candidates, this milestone was deemed substantive. The Company also is entitled to receive payments for delivery of cytotoxic agents to Lilly and research and development activities performed on behalf of Lilly.  Lilly is responsible for the manufacturing, product development and marketing of any products resulting from this collaboration.

 

In accordance with ASC 605-25 (as amended by ASU No. 2009-13), the Company identified all of the deliverables at the inception of the right-to-test agreement.  The significant deliverables were determined to be the right-to-test, or research, license, the exclusive development and commercialization licenses, rights to future technological improvements, delivery of cytotoxic agents and the research services.  The options to obtain development and commercialization licenses in the right-to-test agreement were determined not to be substantive and, as a result, the exclusive development and commercialization licenses were considered deliverables at the inception of the right-to-test agreement.  Factors that were considered in determining the options were not substantive included (i) the overall objective of the agreement was for Lilly to obtain development and commercialization licenses, (ii) the size of the exercise fees of $2 million for each development and commercialization license taken beyond the first license is not significant relative to the $20 million upfront payment that was due at the inception of the right-to-test agreement, (iii) the limited economic benefit that Lilly could obtain from the right-to-test agreement unless it exercised its options to obtain development and commercialization licenses, and (iv) the lack of economic penalties as a result of exercising the options.

 

The Company has determined that the research license together with the development and commercialization licenses represent one unit of accounting as the research license does not have stand-alone value from the development and commercialization licenses due to the lack of transferability of the research license and the limited economic benefit Lilly would derive if they did not obtain any development and commercialization licenses.  The Company has also determined that this unit of accounting has stand-alone value from the rights to future technological improvements, the delivery of cytotoxic agents and the research services.  The rights to future technological improvements, delivery of cytotoxic agents and the research services are considered separate units of accounting as each of these was determined to have stand-alone value.  The rights to future technological improvements have stand-alone value as Lilly would be able to use those items for their intended purpose without the undelivered elements. The research services and cytotoxic agents have stand-alone value as similar services and products are sold separately by other vendors. The estimated selling prices for these units of accounting were determined based on market conditions, similar arrangements entered into by third parties and entity-specific factors such as the terms of the Company’s previous collaborative agreements, recent preclinical and clinical testing results of therapeutic products that use the Company’s TAP technology, the Company’s pricing practices and pricing objectives, the likelihood that technological improvements will be made, the likelihood that technological improvements made will be used by Lilly, market rates for the manufacture of cytotoxic agents, and the nature of the research services to be performed for Lilly and market rates for similar services.  The arrangement consideration (which is comprised of the $20 million upfront payment, the exercise fee, if any, for each license, the expected fees for the research services to be provided and the cytotoxic agent to be delivered under the arrangement) was allocated to the deliverables based on the relative selling price method.  The Company will recognize as license revenue an equal amount of the total arrangement consideration allocated to the development and commercialization licenses as each individual license is delivered to Lilly upon Lilly’s exercise of its options to such licenses.  At the time the first license is taken, the amount of the total arrangement consideration allocated to future technological improvements will commence to be recognized as revenue ratably over the period the Company is obligated to make available any technological improvements, which is the equivalent to the estimated term of the license.  The Company estimates the term of development and commercialization license to be approximately 25 years, which reflects management’s estimate of the time necessary to develop and commercialize therapeutic products pursuant to the license plus the estimated royalty term.  The Company will be required to reassess the estimated term at each subsequent reporting period.  The Company does not control when Lilly will exercise its options for development and commercialization licenses.  As a result, the Company cannot predict when it will recognize the related development and commercialization license revenue except that it will be within the term of the research license.  The Company will recognize research services revenue and revenue from the delivery of cytotoxic agents as the related services and cytotoxic agents are delivered.

 

No license revenue has been recognized related to this agreement through March 31, 2012 as the options to take development and commercialization licenses were not considered to be substantive and no development and commercialization licenses have been delivered.  Accordingly, the entire $20 million upfront payment is included in long-term deferred revenue at March 31, 2012.

 

Additional information on the agreements the Company has with these companies, as well as other companies, is described elsewhere in this Quarterly Report and in the Company’s 2011 Annual Report on Form 10-K.

 

17



Table of Contents

 

C.     Capital Stock

 

2001 Non-Employee Director Stock Plan

 

During the three and nine months ended March 31, 2012, the Company recorded approximately $18,000 and $22,000 in expense, respectively, related to stock units outstanding under the Company’s 2001 Non-Employee Director Stock Plan, or the 2001 Plan, compared to $(3,000) in expense reduction recorded during both the three and nine months ended March 31, 2011, respectively. The value of the stock units is adjusted to market value at each reporting period as the redemption amount of stock units for this plan will be paid in cash. No stock units have been issued under the 2001 Plan subsequent to June 30, 2004. Pursuant to the 2001 Plan, in November 2011, the Company paid a retiring director approximately $115,000 to settle outstanding stock units.

 

Compensation Policy for Non-Employee Directors

 

During the three and nine months ended March 31, 2012, the Company recorded approximately $67,000 and $236,000 in compensation expense, respectively, related to deferred share units issued and outstanding under the Company’s Compensation Policy for Non-Employee Directors, compared to $93,000 and $242,000 in compensation expense recorded during the three and nine months ended March 31, 2011, respectively. Pursuant to the Compensation Policy for Non-Employee Directors, the redemption amount of deferred share units issued will be paid in shares of common stock of the Company on the date a director ceases to be a member of the Board. Annual retainers vest quarterly over approximately one year from the date of grant, contingent upon the individual remaining a director of ImmunoGen as of each vesting date, and the number of deferred share units awarded is based on the market value of the Company’s common stock on the date of the award. All unvested deferred stock awards will automatically vest immediately prior to the occurrence of a change of control. Pursuant to the Compensation Policy for Non-Employee Directors, in November 2011, the Company issued two retiring directors an aggregate 46,298 shares of common stock of the Company to settle outstanding deferred share units.

 

In September 2010, the Board revised the Compensation Policy for Non-Employee Directors to provide that, in addition to the compensation they received previously, they would also become entitled to receive stock option awards having a grant date fair value of $30,000, determined using the Black-Scholes option pricing model measured on the date of grant, which would be the date of the annual meeting of shareholders.  These options will vest quarterly over approximately one year from the date of grant.  Any new directors will receive a pro-rated award, depending on their date of election to the Board.  The directors received a total of 33,187 and 49,688 options during the nine months ended March 31, 2012 and 2011, respectively, and the related compensation expense is included in the amounts discussed in the “Stock-Based Compensation” section of footnote A above.

 

D.    Cash and Cash Equivalents

 

As of March 31, 2012 and June 30, 2011, the Company held $175.3 million and $191.2 million, respectively, in cash, U.S. Government treasury bills and money market funds consisting principally of U.S. Government-issued securities and high quality, short-term commercial paper which were classified as cash and cash equivalents.

 

E.     Commitments and Contingencies

 

Leases

 

Effective July 27, 2007, the Company entered into a lease agreement with Intercontinental Fund III for the rental of approximately 89,000 square feet of laboratory and office space at 830 Winter Street, Waltham, MA. The Company uses this space for its corporate headquarters, research and other operations. The initial term of the lease is for twelve years with an option for the Company to extend the lease for two additional terms of five years. The Company is required to pay certain operating expenses for the leased premises subject to escalation charges for certain expense increases over a base amount.  The Company entered into a sublease in December 2009 for 14,100 square feet of this space in Waltham through January 2015, with the sublessee having a conditional option to extend the term for an additional two years.

 

Effective April 2012, the Company entered into a sublease agreement for the rental of 7,310 square feet of laboratory and office space at 830 Winter Street, Waltham, MA from Histogenics Corporation. The initial term of the sublease is for three years with a conditional option for the Company to extend the lease through October 2017.  The Company is required to pay certain operating expenses for the leased premises subject to escalation charges for certain expense increases over a base amount.

 

18



Table of Contents

 

At March 31, 2012, the Company also leases a facility consisting of 43,850 square feet in Norwood, MA under an agreement through 2018 with an option to extend the lease for an additional term of five years. The Company is required to pay certain operating expenses for the leased premises subject to escalation charges for certain expense increases over a base amount.

 

The minimum rental commitments for the Company’s facilities, including real estate taxes and other expenses, for the next five fiscal years and thereafter under the non-cancelable operating lease agreements discussed above are as follows (in thousands):

 

2012 (three months remaining)

 

$

1,557

 

2013

 

6,229

 

2014

 

6,318

 

2015

 

6,435

 

2016

 

6,207

 

Thereafter

 

22,430

 

Total minimum lease payments

 

$

49,176

 

Total minimum rental payments from sublease

 

(1,866

)

Total minimum lease payments, net

 

$

47,310

 

 

Collaborative Agreements

 

The Company is contractually obligated to make potential future success-based regulatory milestone payments in conjunction with certain collaborative agreements. These payments are contingent upon the occurrence of certain future events and, given the nature of these events, it is unclear when, if ever, the Company may be required to pay such amounts. Further, the timing of any future payment is not reasonably estimable. As of March 31, 2012, the maximum amount that may be payable in the future under such arrangements is approximately $43.0 million.

 

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

 

OVERVIEW

 

Since our inception, we have been principally engaged in the development of novel, targeted therapeutics for the treatment of cancer using our expertise in cancer biology, monoclonal antibodies, highly potent cytotoxic, or cell-killing, agents, and the design of linkers that enable these agents to remain stably attached to the antibodies while in the blood stream and released in their fully active form after delivery to a cancer cell. An anticancer compound made using our Targeted Antibody Payload, or TAP, technology consists of a monoclonal antibody that binds specifically to an antigen target found on cancer cells with multiple copies of one of our proprietary cell-killing agents attached to the antibody using one of our engineered linkers. Its antibody component enables a TAP compound to bind specifically to cancer cells that express a particular target antigen, the highly potent cytotoxic agent serves to kill the cancer cell, and the engineered linker controls the release and activation of the cytotoxic agent inside the cancer cell. Our TAP technology is designed to enable the creation of highly effective, well-tolerated anticancer products. All of the TAP compounds currently in clinical testing contain either DM1 or DM4 as the cytotoxic agent. Both DM1 and DM4, collectively DMx, are our proprietary derivatives of a naturally occurring substance called maytansine. We also have expertise in antibodies and cancer biology to develop “naked,” or non-conjugated, antibody anticancer product candidates.

 

We have used our proprietary TAP technology in conjunction with our in-house antibody expertise to develop our own anticancer product candidates. We have also entered into collaborative agreements that enable companies to use our TAP technology to develop commercial product candidates to specified targets. Under the terms of our collaborative agreements, we are generally entitled to upfront fees, milestone payments and royalties on any commercial product sales. In addition, under certain agreements we are compensated for research and development activities performed at our collaborative partner’s request at negotiated prices which are generally consistent with what other third parties would charge. We are compensated to manufacture preclinical and clinical materials and deliver cytotoxic agent at negotiated prices which are generally consistent with what other third parties would charge. Currently, our collaborative partners are Amgen, Bayer HealthCare, Biotest, Eli Lilly and Company, Novartis, Roche and Sanofi. We expect that substantially all of our revenue for the foreseeable future will result from payments under our collaborative arrangements.  Details for some of our collaborative agreements with recent activity follow. Details for our other significant agreements can be found in our 2011 Annual Report on Form 10-K

 

Amgen —In September 2000, we entered into a ten-year right-to-test agreement with Abgenix, Inc. which was later acquired by Amgen.  The agreement provides Amgen with the right to (a) test our maytansinoid TAP technology with Amgen’s antibodies under a right-to-test, or research, license, (b) take options, with certain restrictions, to specified targets on either an exclusive or non-exclusive basis for specified option periods and (c) upon exercise of those options, take exclusive or non-exclusive licenses to use our maytansinoid TAP technology to develop and commercialize products for the specified targets on previously agreed-upon terms.

 

19



Table of Contents

 

Under the right-to-test agreement, in September 2009 and November 2009, Amgen took two development and commercialization licenses and we received an exercise fee of $1 million for each license taken. We have deferred each $1 million exercise fee and are recognizing these amounts as revenue ratably over the respective estimated periods of our substantial involvement. For each development and commercialization license taken, we are entitled to receive an exercise fee of $1 million and up to a total of $34 million in milestone payments, plus royalties on the commercial sales of any resulting products.  In November 2011, the Investigational New Drug (IND) applications for two compounds developed under the September 2009 and November 2009 development and commercialization licenses became active, which triggered two $1 million milestone payments to us. These payments are included in license and milestone fees for the nine months ended March 31, 2012.

 

Sanofi —In July 2003, we entered into a broad collaboration agreement with Sanofi (formerly Aventis) to discover, develop and commercialize antibody-based products. The collaboration agreement provides Sanofi with worldwide commercialization rights to new antibody-based products directed to targets that are included in the collaboration.  For each of the targets included in the collaboration at this time, we are entitled to receive up to a total of $21.5 million in milestone payments, plus royalties on the commercial sales of any resulting products. Through March 31, 2012, we have received and recognized an aggregate of $16 million in milestone payments under this agreement for compounds covered under this agreement now or in the past, including a $3 million milestone payment earned related to the initiation of a Phase IIb clinical trial (as defined in the agreement) for SAR3419, which is included in license and milestone fee revenue for the nine months ended March 31, 2012, as well as a $1 million milestone payment earned in September 2010 related to the initiation of a Phase I clinical trial for SAR566658, which is included in license and milestone fee revenue for the nine months ended March 31, 2011.

 

In December 2006, we entered into a separate right-to-test agreement with Sanofi.  The agreement provides Sanofi with the right to (a) test our maytansinoid TAP technology with Sanofi’s antibodies to targets that were not included in the collaboration agreement described above under a right-to-test, or research, license, (b) take exclusive options, with certain restrictions, to specified targets for specified time periods and (c) upon exercise of those options, take exclusive licenses to use our maytansinoid TAP technology to develop and commercialize products for the specific targets on the terms agreed upon at the inception of the right-to-test agreement. We are entitled to receive an exercise fee and milestone payments potentially totaling $32 million under each development and commercialization license taken under the right-to-test agreement, as well as royalties on the commercial sales of any resulting products. We are also entitled to manufacturing payments for any materials made on behalf of Sanofi. We received an aggregate of $4 million under the right-to-test agreement, of which $500,000 was received in December 2006 upon execution of the agreement, and $3.5 million of which was received in August 2008 upon Sanofi’s activation of its rights under the agreement. The right-to-test agreement had a three-year original term from the activation date and was renewed by Sanofi in August 2011for its final three-year term by payment of a $2 million fee. We have deferred the $2 million extension fee and are recognizing this amount as revenue over the period during which Sanofi can take an option for a development and commercialization license.

 

Bayer HealthCare — In October 2008, we entered into a development and commercialization license agreement with Bayer HealthCare. The license grants Bayer HealthCare exclusive rights to use our maytansinoid TAP technology to develop and commercialize products to the mesothelin target. Bayer HealthCare is responsible for the manufacturing, product development and marketing of any products resulting from the license. We received a $4 million upfront payment upon execution of the agreement, and—for each product developed and marketed by Bayer HealthCare under the development and commercialization license—we are entitled to receive up to a total of $170.5 million in milestone payments, plus royalties on the commercial sales of any resulting products. Through March 31, 2012, we have received and recognized an aggregate of $3 million in milestone payments under this agreement.

 

We had previously deferred the $4 million upfront payment received and were recognizing this amount as revenue ratably over the estimated period of substantial involvement. We had previously estimated this development period would conclude at the end of non-pivotal Phase II testing.  During the first quarter of fiscal 2012, Bayer HealthCare initiated Phase I clinical testing of its product candidate.  In reaching this stage of clinical testing, Bayer HealthCare developed its own processes for manufacturing required clinical material and produced clinical material in its own manufacturing facility.  Considering that Bayer was able to accomplish this without significant reliance on us, and considering that our expected future involvement will be primarily supplying Bayer HealthCare with small quantities of cytotoxic agents for a limited period of time, we believe our period of substantial involvement will end prior to the completion of non-pivotal Phase II testing. As a result of this determination, beginning in September 2011, we are recognizing the balance of the upfront payment as revenue ratably through September 2012.  This change in estimate results in an increase to license and milestone fees of approximately $856,000 for the nine months ending March 31, 2012 and $1.2 million for the fiscal year ending June 30, 2012 compared to amounts that would have been recognized pursuant to our previous estimate.

 

Lilly - In December 2011, we entered into a three-year right-to-test agreement with Eli Lilly and Company (Lilly). The agreement provides Lilly with the right to (a) take exclusive options, with certain restrictions, to specified targets for specified option periods, (b) test our maytansinoid TAP technology with Lilly’s antibodies directed to the optioned targets under a right-to-test, or research, license. and (c) upon exercise of those options, take exclusive licenses to use our maytansinoid TAP technology to develop and commercialize products for a specified number of individual targets on terms agreed upon at the inception of the right-to-test

 

20



Table of Contents

 

agreement.  The terms of the right-to-test agreement require Lilly to exercise its options for the development and commercialization licenses by the end of the term of the research license. We received a $20 million upfront payment in connection with the execution of the right-to test agreement, and for each development and commercialization license for an antigen target, we are entitled to receive exercise fees and milestone payments totaling up to approximately $200 million, plus royalties on the commercial sales of any resulting products. The actual milestone and royalty payments due to us will be based upon the terms of the development and commercialization license applicable to the exercise of each option. We also are entitled to receive payments for research and development activities performed on behalf of Lilly. Lilly is responsible for the manufacturing, product development and marketing of any products resulting from this collaboration.

 

No license fee revenue has been recognized related to this agreement through March 31, 2012 because none of the delivered elements, primarily the research license, had stand-alone value. We expect to begin to record license fee revenue upon delivery of development and commercialization licenses to Lilly upon Lilly’s exercise of its options to such licenses. We do not control when, or if, Lilly will exercise its options for development and commercialization licenses. As a result, we cannot predict when we will recognize license fee revenue. Accordingly, the entire $20 million upfront payment is included in long-term deferred revenue at March 31, 2012.

 

To date, we have not generated revenues from commercial product sales and we expect to incur significant operating losses for the foreseeable future. As of March 31, 2012, we had approximately $175.3 million in cash and cash equivalents compared to $191.2 million in cash, cash equivalents and marketable securities as of June 30, 2011.

 

We anticipate that future cash expenditures will be partially offset by collaboration-derived proceeds, including milestone payments, royalties and upfront fees. Accordingly, period-to-period operating results may fluctuate dramatically based upon the timing of receipt of the proceeds. We believe that our established collaboration agreements, while subject to specified milestone achievements, will provide funding to assist us in meeting obligations under our collaborative agreements while also providing funding for the development of internal product candidates and technologies. However, we can give no assurances that such collaborative agreement funding will, in fact, be realized in the time frames we expect, or at all. Should we or our partners not meet some or all of the terms and conditions of our various collaboration agreements, we may be required to pursue additional strategic partners, secure alternative financing arrangements, and/or defer or limit some or all of our research, development and/or clinical projects. However, we cannot provide assurance that any such opportunities presented by additional strategic partners or alternative financing arrangements will be entirely available to us, if at all.

 

Critical Accounting Policies

 

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to our collaborative agreements and inventory. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.

 

Revenue Recognition

 

We enter into licensing and development agreements with collaborative partners for the development of monoclonal antibody-based anticancer therapeutics. The terms of these agreements contain multiple deliverables which may include (i) licenses, or options to obtain licenses, to our TAP technology, (ii) rights to future technological improvements, (iii) research activities to be performed on behalf of the collaborative partner, (iv) delivery of cytotoxic agents and (v) the manufacture of preclinical or clinical materials for the collaborative partner. Payments to us under these agreements may include non-refundable license fees, option fees, exercise fees, payments for research activities, payments for the manufacture of preclinical or clinical materials, payments based upon the achievement of certain milestones and royalties on product sales. We follow the provisions of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 605-25, “Revenue Recognition — Multiple-Element Arrangements,” and ASC Topic 605-28, “Revenue Recognition — Milestone Method,” in accounting for these agreements. In order to account for these agreements, we must identify the deliverables included within the agreement and evaluate which deliverables represent separate units of accounting based on if certain criteria are met, including whether the delivered element has stand-alone value to the collaborator. The consideration received is allocated among the separate units of accounting, and the applicable revenue recognition criteria are applied to each of the separate units.

 

At March 31, 2012, we had the following two types of agreements with the parties identified below:

 

·                                           Exclusive development and commercialization licenses to use our TAP technology and/or certain other intellectual property to develop compounds to a single target antigen (referred to herein as single-target licenses, as distinguished from our right-to-test agreements described elsewhere):

 

21



Table of Contents

 

Amgen (two single-target licenses)

 

Bayer HealthCare (one single-target license)

 

Biotest (one single-target license)

 

Roche, through its Genentech unit (five single-target licenses)

 

Sanofi (license to multiple individual targets)

 

·                                           Option/research agreement for a defined period of time to secure development and commercialization licenses to use our TAP technology to develop anticancer compounds to specified targets on established terms (referred to herein as right-to-test agreements):

 

Amgen

 

Sanofi

 

Novartis

 

Eli Lilly and Company

 

There are no performance, cancellation, termination or refund provisions in any of the arrangements that contain material financial consequences to us.

 

Exclusive Licenses

 

The deliverables under an exclusive license agreement generally include the exclusive license to our TAP technology with respect to a specified antigen target, and may also include deliverables related to rights to future technological improvements, research activities to be performed on behalf of the collaborative partner and the manufacture of preclinical or clinical materials for the collaborative partner.

 

Generally, exclusive license agreements contain non-refundable terms for payments and, depending on the terms of the agreement, provide that we will (i) at the collaborator’s request, provide research services at negotiated prices which are generally consistent with what other third parties would charge, (ii) at the collaborator’s request, manufacture and provide to it preclinical and clinical materials or deliver cytotoxic agents at negotiated prices which are generally consistent with what other third parties would charge, (iii) earn payments upon the achievement of certain milestones and (iv) earn royalty payments, generally until the later of the last applicable patent expiration or 10 to 12 years after product launch. In the case of trastuzumab emtansine (T-DM1), however, the minimum royalty term is 10 years and the maximum royalty term is 12 years on a country-by-country basis.  Royalty rates may vary over the royalty term depending on our intellectual property rights. We may provide technical assistance and share any technology improvements with our collaborators during the term of the collaboration agreements.  We do not directly control when any collaborator will request research or manufacturing services, achieve milestones or become liable for royalty payments. As a result, we cannot predict when we will recognize revenues in connection with any of the foregoing.

 

In determining the units of accounting, management evaluates whether the exclusive license has stand-alone value from the undelivered elements to the collaborative partner based on the consideration of the relevant facts and circumstances for each arrangement. Factors considered in this determination include the research capabilities of the partner and the availability of TAP technology research expertise in the general marketplace. If we conclude that the license has stand alone value and therefore will be accounted for as a separate unit of accounting, we then determine the estimated selling prices of the license and all other units of accounting based on market conditions, similar arrangements entered into by third parties, and entity-specific factors such as the terms of our previous collaborative agreements, recent preclinical and clinical testing results of therapeutic products that use our TAP technology, our pricing practices and pricing objectives, the likelihood that technological improvements will be made, the likelihood that technological improvements made will be used by our collaborators and the nature of the research services to be performed on behalf of our collaborators and market rates for similar services.

 

Upfront payments on single-target licenses are deferred if facts and circumstances dictate that the license does not have stand-alone value.  Prior to the adoption of Accounting Standards Update (ASU) No. 2009-13, “Revenue Arrangements with Multiple Deliverables” on July 1, 2010, we determined that our licenses lacked stand-alone value and were combined with other elements of the

 

22



Table of Contents

 

arrangement and any amounts associated with the license were deferred and amortized over a certain period, which we refer to as our period of substantial involvement.  The determination of the length of the period over which to defer revenue is subject to judgment and estimation and can have an impact on the amount of revenue recognized in a given period. Historically our involvement with the development of a collaborator’s product candidate has been significant at the early stages of development, and lessens as it progresses into clinical trials. Also, as a drug candidate gets closer to commencing pivotal testing our collaborators have sought an alternative site to manufacture its product, as our facility does not produce pivotal or commercial drug product. Accordingly, we generally estimate this period of substantial involvement to begin at the inception of the collaboration agreement and conclude at the end of non-pivotal Phase II testing. We believe this period of substantial involvement is, depending on the nature of the license, on average six and one-half years. Quarterly, we reassess our periods of substantial involvement over which we amortize our upfront license fees and make adjustments as appropriate. In the event a collaborator elects to discontinue development of a specific product candidate under a single target license, but retains its right to use our technology to develop an alternative product candidate to the same target or a target substitute, we would cease amortization of any remaining portion of the upfront fee until there is substantial preclinical activity on another product candidate and its remaining period of substantial involvement can be estimated. In the event that a single target license were to be terminated, we would recognize as revenue any portion of the upfront fee that had not previously been recorded as revenue, but was classified as deferred revenue, at the date of such termination.  Subsequent to the adoption of ASU No. 2009-13, we determined that our research licenses lack stand-alone value and are considered for aggregation with the other elements of the arrangement and accounted for as one unit of accounting.

 

Upfront payments on single-target licenses may be recognized upon delivery of the license if facts and circumstances dictate that the license has stand-alone value from the undelivered elements, which generally include rights to future technological improvements, research services, delivery of cytotoxic agents and the manufacture of preclinical and clinical materials.

 

We recognize revenue related to research services that represent separate units of accounting as they are performed, as long as there is persuasive evidence of an arrangement, the fee is fixed or determinable, and collection of the related receivable is probable.  We recognize revenue related to the rights to future technological improvements over the estimated term of the applicable license.

 

We may also provide cytotoxic agents to our collaborators or produce preclinical and clinical materials for them at negotiated prices which are generally consistent with what other third parties would charge. We recognize revenue on cytotoxic agents and on preclinical and clinical materials when the materials have passed all quality testing required for collaborator acceptance and title and risk of loss have transferred to the collaborator. Arrangement consideration allocated to the manufacture of preclinical and clinical materials in a multiple-deliverable arrangement is below our full cost, and our full cost is not expected to ever be below our contract selling prices for our existing collaborations.

 

We may also produce research material for potential collaborators under material transfer agreements. Additionally, we perform research activities, including developing antibody specific conjugation processes, on behalf of our collaborators and potential collaborators during the early evaluation and preclinical testing stages of drug development. We record amounts received for research materials produced or services performed as a component of research and development support revenue. We also develop conjugation processes for materials for later stage testing and commercialization for certain collaborators. We are compensated at negotiated rates and may receive milestone payments for developing these processes which are recorded as a component of research and development support revenue.

 

Our license agreements have milestone payments which for reporting purposes are aggregated into three categories: (i) development milestones, (ii) regulatory milestones, and (iii) sales milestones.  Development milestones are typically payable when a product candidate initiates or advances into different clinical trial phases.  Regulatory milestones are typically payable upon submission for marketing approval with the FDA or other countries’ regulatory authorities or on receipt of actual marketing approvals for the compound or for additional indications.  Sales milestones are typically payable when annual sales reach certain levels.

 

At the inception of each agreement that includes milestone payments, we evaluate whether each milestone is substantive and at risk to both parties on the basis of the contingent nature of the milestone.  This evaluation includes an assessment of whether (a) the consideration is commensurate with either (1) the entity’s performance to achieve the milestone, or (2) the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the entity’s performance to achieve the milestone, (b) the consideration relates solely to past performance and (c) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement.  We evaluate factors such as the scientific, regulatory, commercial and other risks that must be overcome to achieve the respective milestone, the level of effort and investment required to achieve the respective milestone and whether the milestone consideration is reasonable relative to all deliverables and payment terms in the arrangement in making this assessment.

 

Non-refundable development and regulatory milestones that are expected to be achieved as a result of our efforts during the

 

23



Table of Contents

 

period of substantial involvement are considered substantive and are recognized as revenue upon the achievement of the milestone, assuming all other revenue recognition criteria are met.  Milestones that are not considered substantive because we do not contribute effort to the achievement of such milestones are generally achieved after the period of substantial involvement and are recognized as revenue upon achievement of the milestone, as there are no undelivered elements remaining and no continuing performance obligations, assuming all other revenue recognition criteria are met.

 

Right-to-Test Agreements

 

The Company’s right-to-test agreements provide collaborators the right to (a) test our TAP technology for a defined period of time through a right-to-test, or research, license, (b) take options, for a defined period of time, to specified targets and (c) upon exercise of those options, secure or “take” licenses to develop and commercialize products for the specified targets on established terms.  Under these agreements, fees may be due to us (i) at the inception of the arrangement (referred to as “upfront” fees or payments), (ii) upon taking an option with respect to a specific target (referred to as option fees or payments earned, if any, when the option is “taken”), (iii) upon the exercise of a previously taken option to acquire a development and commercialization license(s) (referred to as exercise fees or payments earned, if any, when the development and commercialization license is “taken”), or (iv) some combination of all of these fees.

 

The accounting for right-to-test agreements is dependent on the nature of the option granted to the collaborative partner.  Options are considered substantive if, at the inception of a right-to-test agreement, we are at risk as to whether the collaborative partner will choose to exercise the options to secure development and commercialization licenses.  Factors that are considered in evaluating whether options are substantive include the overall objective of the arrangement, the benefit the collaborator might obtain from the agreement without exercising the options, the cost to exercise the options relative to the total upfront consideration, and the additional financial commitments or economic penalties imposed on the collaborator as a result of exercising the options.

 

For right-to-test agreements where the options to secure development and commercialization licenses to our TAP technology are considered substantive, we do not consider the development and commercialization licenses to be a deliverable at the inception of the agreement.  For those right-to-test agreements entered into prior to the adoption of ASU No. 2009-13 where the options to secure a development and commercialization license are considered substantive, we have deferred the upfront payments received and recognize this revenue over the period during which the collaborator could elect to take options for development and commercialization licenses. These periods are specific to each collaboration agreement. If a collaborator takes an option to acquire a development and commercialization license under these agreements, any substantive option fee is deferred and recognized over the life of the option, generally 12 to 18 months. If a collaborator exercises an option and takes a development and commercialization license to a specific target, we attribute the exercise fee to the development and commercialization license.  Upon exercise of an option to acquire a development and commercialization license, we would also attribute any remaining deferred option fee to the development and commercialization license and apply the multiple-element revenue recognition criteria to the development and commercialization license and any other deliverables to determine the appropriate revenue recognition, which will be consistent with our accounting policy for upfront payments on single-target licenses. In the event a right-to-test agreement were to be terminated, we would recognize as revenue any portion of the upfront fee that had not previously been recorded as revenue, but was classified as deferred revenue, at the date of such termination. None of our right-to-test agreements entered into subsequent to the adoption of ASU No. 2009-13 has been determined to contain substantive options.

 

For right-to-test agreements where the options to secure development and commercialization licenses to our TAP technology are not considered substantive, we consider the development and commercialization license to be a deliverable at the inception of the agreement and apply the multiple-element revenue recognition criteria to determine the appropriate revenue recognition.  None of our right-to-test agreements entered into prior to the adoption of ASU No. 2009-13 has been determined to contain non-substantive options.

 

We do not directly control when any collaborator will exercise its options for development and commercialization licenses. As a result, we cannot predict when it will recognize revenues in connection with any of the foregoing.

 

There were no other significant changes to our critical accounting policies from those disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2011.

 

24



Table of Contents

 

RESULTS OF OPERATIONS

 

Comparison of Three Months ended March 31, 2012 and 2011

 

Revenues

 

Our total revenues for the three months ended March 31, 2012 and 2011 were $3.3 million and $5.2 million, respectively. The $1.9 million decrease in revenues in the three months ended March 31, 2012 from the same period in the prior year is attributable to a decrease in research and development support revenue and clinical materials revenue, partially offset by an increase in license and milestone fees, all of which are discussed below.

 

Research and development support revenue was $1.3 million for the three months ended March 31, 2012 compared with $2.2 million for the three months ended March 31, 2011. These amounts primarily represent research funding earned based on actual resources utilized under our agreements with our collaborators shown in the table below. Also included in research and development support revenue are fees for developing antibody-specific conjugation processes on behalf of our collaborators and potential collaborators during the early evaluation and preclinical testing stages of drug development. The amount of research and development support revenue we earn is directly related to the number of our collaborators and potential collaborators, the stage of development of our collaborators’ product candidates and the resources our collaborators allocate to the development effort. As such, the amount of research and development support revenue may vary widely from quarter to quarter and year to year. Total revenue recognized from research and development support from each of our collaborative partners in the three-month periods ended March 31, 2012 and 2011 is included in the following table (in thousands):

 

 

 

Three Months Ended March 31,

 

Research and Development Support

 

2012

 

2011

 

Collaborative Partner:

 

 

 

 

 

Amgen

 

$

277

 

$

984

 

Bayer HealthCare

 

20

 

172

 

Biotest

 

132

 

336

 

Lilly

 

164

 

 

Novartis

 

723

 

479

 

Sanofi

 

4

 

52

 

Other

 

 

167

 

Total

 

$

1,320

 

$

2,190

 

 

Revenues from license and milestone fees for the three months ended March 31, 2012 increased $141,000 to $999,000 from $858,000 in the same period ended March 31, 2011.  The amount of license and milestone fees we earn is directly related to the number of our collaborators and potential collaborators, the resources our collaborators allocate to the advancement of the product candidates, the number of clinical trials our collaborators conduct and the speed of enrollment and overall success in those trials. As such, the amount of license and milestone fees may vary widely from quarter to quarter and year to year.  Total revenue from license and milestone fees recognized from each of our collaborative partners in the three-month periods ended March 31, 2012 and 2011 is included in the following table (in thousands):

 

 

 

Three Months Ended March 31,

 

License and Milestone Fees

 

2012

 

2011

 

Collaborative Partner:

 

 

 

 

 

Amgen

 

$

279

 

$

299

 

Bayer HealthCare

 

521

 

154

 

Biotest

 

32

 

32

 

Centocor

 

 

14

 

Sanofi

 

167

 

359

 

Total

 

$

999

 

$

858

 

 

Deferred revenue of $73.1 million as of March 31, 2012 primarily represents payments received from our collaborators pursuant to our license agreements, including a $20 million upfront payment received from Lilly during the current quarter and a $45 million upfront payment received from Novartis during fiscal 2011, both of which we have yet to earn pursuant to our revenue recognition policy.

 

Clinical materials revenue decreased $1.2 million in the three months ended March 31, 2012, to $933,000 from $2.2 million in the three months ended March 31, 2011. We are compensated at negotiated prices which are generally consistent with what other third-parties would charge. The amount of clinical materials revenue we earn, and the related cost of clinical materials charged to research and development expense, is directly related to the number of clinical trials our collaborators are preparing or have underway, the speed of enrollment in those trials, the dosage schedule of each clinical trial and the time period, if any, during which patients in the trial receive clinical benefit from the clinical materials, and the supply of clinical-grade material to our collaborators for process development and analytical purposes. As such, the amount of clinical materials revenue revenue and the related cost of clinical materials charged to research and development expense may vary significantly from quarter to quarter and year to year.

 

25



Table of Contents

 

Research and Development Expenses

 

Our research and development expenses relate to (i) research to evaluate new targets and to develop and evaluate new antibodies, linkers and cytotoxic agents, (ii) preclinical testing of our own and, in certain instances, our collaborators’ product candidates, and the cost of our own clinical trials, (iii) development related to clinical and commercial manufacturing processes and (iv) manufacturing operations which also includes raw materials.

 

Research and development expense for the three months ended March 31, 2012 increased $1.1 million to $16.9 million from $15.8 million for the three months ended March 31, 2011. The increase was primarily due to (i) lower overhead utilization absorbed by the manufacture of clinical materials on behalf of our collaborators; (ii) increased clinical trial costs; and (iii) increased salaries and related expenses due primarily to additional headcount and higher stock compensation cost. The number of our research and development personnel increased to 212 as of March 31, 2012 compared to 197 at March 31, 2011. The higher stock compensation costs in the current period are driven by higher stock prices and increases in the number of annual options granted. Partially offsetting these increases, during the current period there was a decrease in cost of clinical materials revenue related to decreased orders of such clinical materials from our partners due to timing of supply requirements. A more detailed discussion of research and development expense in the period follows.

 

We are unable to accurately estimate which potential product candidates, if any, will eventually move into our internal preclinical research program. We are unable to reliably estimate the costs to develop these products as a result of the uncertainties related to discovery research efforts as well as preclinical and clinical testing. Our decision to move a product candidate into the clinical development phase is predicated upon the results of preclinical tests. We cannot accurately predict which, if any, of the discovery stage product candidates will advance from preclinical testing and move into our internal clinical development program. The clinical trial and regulatory approval processes for our product candidates that have advanced or that we intend to advance to clinical testing are lengthy, expensive and uncertain in both timing and outcome. As a result, the pace and timing of the clinical development of our product candidates is highly uncertain and may not ever result in approved products. Completion dates and development costs will vary significantly for each product candidate and are difficult to predict. A variety of factors, many of which are outside our control, could cause or contribute to the prevention or delay of the successful completion of our clinical trials, or delay or prevent our obtaining necessary regulatory approvals. The costs to take a product through clinical trials are dependent upon, among other factors, the clinical indications, the timing, size and design of each clinical trial, the number of patients enrolled in each trial, and the speed at which patients are enrolled and treated. Product candidates may be found to be ineffective or to cause unacceptable side effects during clinical trials, may take longer to progress through clinical trials than anticipated may fail to receive necessary regulatory approvals or may prove impractical to manufacture in commercial quantities at reasonable cost or with acceptable quality.

 

The lengthy process of securing FDA approvals for new drugs requires the expenditure of substantial resources. Any failure by us to obtain, or any delay in obtaining regulatory approvals would materially adversely affect our product development efforts and our business overall. Accordingly, we cannot currently estimate, with any degree of certainty, the amount of time or money that we will be required to expend in the future on our product candidates prior to their regulatory approval, if such approval is ever granted. As a result of these uncertainties surrounding the timing and outcome of our clinical trials, we are currently unable to estimate when, if ever, our product candidates that have advanced into clinical testing will generate revenues and cash flows.

 

We do not track our research and development costs by project. Since we use our research and development resources across multiple research and development projects, we manage our research and development expenses within each of the categories listed in the following table and described in more detail below (in thousands):

 

 

 

Three Months Ended March 31,

 

Research and Development Expense

 

2012

 

2011

 

Research

 

$

4,070

 

$

3,925

 

Preclinical and Clinical Testing

 

5,665

 

4,198

 

Process and Product Development

 

1,736

 

1,773

 

Manufacturing Operations

 

5,462

 

5,867

 

Total Research and Development Expense

 

$

16,933

 

$

15,763

 

 

Research :   Research includes expenses associated with activities to identify and evaluate new targets and to develop and evaluate new antibodies, linkers and cytotoxic agents for our products and in support of our collaborators. Such expenses primarily include personnel, contract services, facilities and lab supplies. Research expenses for the three months ended March 31, 2012 increased $145,000 compared to the three months ended March 31, 2011. This increase is primarily the result of an increase in salaries and related expenses and an increase in disposables used in research activities, partially offset by decreased contract service expense due to less outsourced research-related studies for potential new compounds conducted during the current period.

 

Preclinical and Clinical Testing :   Preclinical and clinical testing includes expenses related to preclinical testing of our own and, in certain instances, our collaborators’ product candidates, regulatory activities, and the cost of our own clinical trials. Such

 

26



Table of Contents

 

expenses include personnel, patient enrollment at our clinical testing sites, consultant fees, contract services, and facility expenses. Preclinical and clinical testing expenses for the three months ended March 31, 2012 increased $1.5 million to $5.7 million compared to $4.2 million for the three months ended March 31, 2011. This increase is primarily the result of (i) an increase in salaries and related expenses, including higher stock compensation cost; (ii) an increase in clinical trial costs due to site expansion and higher patient enrollment for the IMGN901 studies, start-up costs for the IMGN853 trial and increased data management costs for the IMGN388 trial; and (iii) an increase in contract service expense related to in vivo studies conducted for a pre-IND product candidate and a potential new linker and a cytotoxic agent during the period.

 

Process and Product Development :   Process and product development expenses include costs for development of clinical and commercial manufacturing processes for our own and collaborator compounds. Such expenses include the costs of personnel, contract services and facility expenses. For the three months ended March 31, 2012, total development expenses decreased $37,000 compared to the three months ended March 31, 2011. This decrease is primarily the result of a decrease in contract service expense, partially offset by an increase in salaries and related expenses.

 

Manufacturing Operations:   Manufacturing operations expense includes costs to manufacture preclinical and clinical materials for our own and our collaborator’s product candidates, and quality control and quality assurance activities and costs to support the operation and maintenance of our conjugate manufacturing facility. Such expenses include personnel, raw materials for our and our collaborators’ preclinical studies and clinical trials, development costs with contract manufacturing organizations, manufacturing supplies, and facilities expense. For the three months ended March 31, 2012, manufacturing operations expense decreased $405,000 to $5.5 million compared to $5.9 million in the same period last year. The decrease in the three months ended March 31, 2012 as compared to the three months ended March 31, 2011 is primarily the result of a decrease in cost of clinical materials revenue related to decreased orders of such clinical materials from our partners. Partially offsetting this decrease, overhead utilization absorbed by the manufacture of clinical materials on behalf of our collaborators decreased and salaries and related expense increased during the current period.

 

General and Administrative Expenses

 

General and administrative expenses for the three months ended March 31, 2012 increased $471,000 to $5.0 million compared to $4.6 million for the three months ended March 31, 2011. This increase is primarily due to an increase in salaries and related expenses, particularly stock compensation cost. The higher stock compensation costs in the current period are driven by higher stock prices and increases in the number of annual options granted.

 

Other Income, net

 

Other income, net for the three months ended March 31, 2012 and 2011 is included in the following table (in thousands):

 

 

 

Three Months Ended March 31,

 

Other Income, net

 

2012

 

2011

 

Interest Income

 

$

18

 

$

56

 

Other Income, net

 

15

 

43

 

Total Other Income, net

 

$

33

 

$

99

 

 

Comparison of Nine Months ended March 31, 2012 and 2011

 

Revenues

 

Our total revenues for the nine months ended March 31, 2012 and 2011 were $13.4 million and $12.8 million, respectively. The $605,000 increase in revenues in the nine months ended March 31, 2012 from the same period in the prior year is attributable to an increase in license and milestone fees, partially offset by a decrease in research and development support revenue and clinical materials revenue, all of which are discussed below.

 

Research and development support revenue was $3.3 million for the nine months ended March 31, 2012 compared with $5.7 million for the nine months ended March 31, 2011. These amounts primarily represent research funding earned based on actual resources utilized under our agreements with our collaborators shown in the table below. Also included in research and development support revenue are fees for developing antibody-specific conjugation processes on behalf of our collaborators and potential collaborators during the early evaluation and preclinical testing stages of drug development. The amount of research and development

 

27



Table of Contents

 

support revenue we earn is directly related to the number of our collaborators and potential collaborators, the stage of development of our collaborators’ product candidates and the resources our collaborators allocate to the development effort. As such, the amount of research and development support revenue may vary widely from quarter to quarter and year to year. Total revenue recognized from research and development support from each of our collaborative partners in the nine-month periods ended March 31, 2012 and 2011 is included in the following table (in thousands):

 

 

 

Nine Months Ended March 31,

 

Research and Development Support

 

2012

 

2011

 

Collaborative Partner:

 

 

 

 

 

Amgen

 

$

818

 

$

3,332

 

Bayer HealthCare

 

27

 

415

 

Biotest

 

436

 

606

 

Lilly

 

171

 

 

Novartis

 

1,867

 

844

 

Sanofi

 

14

 

124

 

Other

 

 

369

 

Total

 

$

3,333

 

$

5,690

 

 

Revenues from license and milestone fees for the nine months ended March 31, 2012 increased $4.7 million to $8.2 million from $3.5 million in the same period ended March 31, 2011.  Included in license and milestone fees for the nine months ended March 31, 2012 was a $3 million milestone payment related to the initiation of Phase II clinical testing of SAR3419 achieved under our collaboration agreement with Sanofi and two $1 million milestone payments related to clinical milestones achieved under our license agreements with Amgen. Included in license and milestone fees for the nine months ended March 31, 2011 was a $1 million milestone payment related to the initiation of Phase I clinical testing of SAR566658 achieved under the collaboration agreement with Sanofi. The amount of license and milestone fees we earn is directly related to the number of our collaborators and potential collaborators, the resources our collaborators allocate to the advancement of the product candidates, the number of clinical trials our collaborators conduct and the speed of enrollment and overall success in those trials. As such, the amount of license and milestone fees may vary widely from quarter to quarter and year to year.  Total revenue from license and milestone fees recognized from each of our collaborative partners in the nine-month periods ended March 31, 2012 and 2011 is included in the following table (in thousands):

 

 

 

Nine Months Ended March 31,

 

License and Milestone Fees

 

2012

 

2011

 

Collaborative Partner:

 

 

 

 

 

Amgen

 

$

2,879

 

$

823

 

Bayer HealthCare

 

1,318

 

462

 

Biogen Idec

 

270

 

28

 

Biotest

 

97

 

97

 

Centocor

 

19

 

48

 

Sanofi

 

3,628

 

2,076

 

Total

 

$

8,211

 

$

3,534

 

 

Clinical materials revenue decreased $1.7 million in the nine months ended March 31, 2012, to $1.9 million from $3.6 million in the nine months ended March 31, 2011. We are compensated at negotiated prices which are generally consistent with what other third-parties would charge The amount of clinical materials revenue we earn, and the related cost of clinical materials charged to research and development expense, is directly related to the number of clinical trials our collaborators are preparing or have underway, the speed of enrollment in those trials, the dosage schedule of each clinical trial and the time period, if any, during which patients in the trial receive clinical benefit from the clinical materials, and the supply of clinical-grade material to our collaborators for process development and analytical purposes. As such, the amount of clinical materials revenue and the related cost of clinical materials charged to research and development expense may vary significantly from quarter to quarter and year to year.

 

Research and Development Expenses

 

Research and development expense for the nine months ended March 31, 2012 increased $4.5 million to $49.7 million from $45.2 million for the nine months ended March 31, 2011. The increase was primarily due to (i) increased contract service expenses to advance our linkers and internal product candidates; (ii) increased clinical trial costs (iii) lower overhead utilization absorbed by the manufacture of clinical materials on behalf of our collaborators; and (iv) increased salaries and related expenses due primarily to additional headcount and higher stock compensation cost. The higher stock compensation costs in the current period are driven by

 

28



Table of Contents

 

higher stock prices and increases in the number of annual options granted.  Partially offsetting these increases, during the current period there was a decrease in cost of clinical materials revenue related to decreased orders of such clinical materials from our partners due to timing of partner supply requirements and a decrease in antibody development and supply expense due to timing of internal supply requirements.  A more detailed discussion of research and development expense in the period follows.

 

We are unable to accurately estimate which potential product candidates, if any, will eventually move into our internal preclinical research program. We are unable to reliably estimate the costs to develop these products as a result of the uncertainties related to discovery research efforts as well as preclinical and clinical testing. Our decision to move a product candidate into the clinical development phase is predicated upon the results of preclinical tests. We cannot accurately predict which, if any, of the discovery stage product candidates will advance from preclinical testing and move into our internal clinical development program. The clinical trial and regulatory approval processes for our product candidates that have advanced or that we intend to advance to clinical testing are lengthy, expensive and uncertain in both timing and outcome. As a result, the pace and timing of the clinical development of our product candidates is highly uncertain and may not ever result in approved products. Completion dates and development costs will vary significantly for each product candidate and are difficult to predict. A variety of factors, many of which are outside our control, could cause or contribute to the prevention or delay of the successful completion of our clinical trials, or delay or prevent our obtaining necessary regulatory approvals. The costs to take a product through clinical trials are dependent upon, among other factors, the clinical indications, the timing, size and design of each clinical trial, the number of patients enrolled in each trial, and the speed at which patients are enrolled and treated. Product candidates may be found to be ineffective or to cause unacceptable side effects during clinical trials, may take longer to progress through clinical trials than anticipated, may fail to receive necessary regulatory approvals or may prove impractical to manufacture in commercial quantities at reasonable cost or with acceptable quality.

 

The lengthy process of securing FDA approvals for new drugs requires the expenditure of substantial resources. Any failure by us to obtain, or any delay in obtaining regulatory approvals would materially adversely affect our product development efforts and our business overall. Accordingly, we cannot currently estimate, with any degree of certainty, the amount of time or money that we will be required to expend in the future on our product candidates prior to their regulatory approval, if such approval is ever granted. As a result of these uncertainties surrounding the timing and outcome of our clinical trials, we are currently unable to estimate when, if ever, our product candidates that have advanced into clinical testing will generate revenues and cash flows.

 

We do not track our research and development costs by project. Since we use our research and development resources across multiple research and development projects, we manage our research and development expenses within each of the categories listed in the following table and described in more detail below (in thousands):

 

 

 

Nine Months Ended March 31,

 

Research and Development Expense

 

2012

 

2011

 

Research

 

$

12,458

 

$

11,156

 

Preclinical and Clinical Testing

 

15,538

 

11,871

 

Process and Product Development

 

5,303

 

5,363

 

Manufacturing Operations

 

16,354

 

16,802

 

Total Research and Development Expense

 

$

49,653

 

$

45,192

 

 

Research :   Research includes expenses associated with activities to identify and evaluate new targets and to develop and evaluate new antibodies, linkers and cytotoxic agents for our products and in support of our collaborators. Such expenses primarily include personnel, contract services, facilities and lab supplies. Research expenses for the nine months ended March 31, 2012 increased $1.3 million compared to the nine months ended March 31, 2011. This increase is primarily the result of an increase in salaries and related expenses.

 

Preclinical and Clinical Testing :   Preclinical and clinical testing includes expenses related to preclinical testing of our own and, in certain instances, our collaborators’ product candidates, regulatory activities, and the cost of our own clinical trials. Such expenses include personnel, patient enrollment at our clinical testing sites, consultant fees, contract services, and facility expenses. Preclinical and clinical testing expenses for the nine months ended March 31, 2012 increased $3.6 million to $15.5 million compared to $11.9 million for the nine months ended March 31, 2011. This increase is primarily the result of (i) an increase in salaries and related expenses; (ii) an increase in contract service expense related to in vivo studies conducted for IMGN853, a pre-IND product candidate and a potential new linker and a cytotoxic agent during the period; and (iii) an increase in clinical trial costs due primarily to site expansion and higher patient enrollment for the IMGN901 studies and start-up costs for the IMGN529 and IMGN853 trials. Partially offsetting these increases, consulting service expense decreased due primarily to a decrease in third-party regulatory assistance required during the current period due to the addition of internal resources.

 

Process and Product Development :   Process and product development expenses include costs for development of clinical and commercial manufacturing processes for our own and collaborator compounds. Such expenses include the costs of personnel, contract services and facility expenses. For the nine months ended March 31, 2012, total development expenses decreased $60,000

 

29



Table of Contents

 

compared to the nine months ended March 31, 2011. This decrease is primarily the result of a decrease in contract service expense, partially offset by an increase in salaries and related expenses.

 

Manufacturing Operations:   Manufacturing operations expense includes costs to manufacture preclinical and clinical materials for our own and our collaborator’s product candidates, and quality control and quality assurance activities and costs to support the operation and maintenance of our conjugate manufacturing facility. Such expenses include personnel, raw materials for our and our collaborators’ preclinical studies and clinical trials, development costs with contract manufacturing organizations, manufacturing supplies, and facilities expense. For the nine months ended March 31, 2012, manufacturing operations expense decreased $448,000 compared to the same period last year. The decrease in the nine months ended March 31, 2012 as compared to the nine months ended March 31, 2012 is primarily the result of a decrease in antibody development and supply expense and a decrease in cost of clinical materials revenue related to decreased orders of such clinical materials from our partners. Partially offsetting these decreases, overhead utilization absorbed by the manufacture of clinical materials on behalf of our collaborators decreased and salaries and related expense increased during the current period.  Also contract service expense increased during the period due primarily to greater linker development costs, increased fill/finish costs, particularly for IMGN388 and IMGN901, and increased stability and analytical testing of our internal antibodies.

 

General and Administrative Expenses

 

General and administrative expenses for the nine months ended March 31, 2012 increased $3.1 million to $14.7 million compared to $11.6 million for the nine months ended March 31, 2011. This increase is primarily due to an increase in salaries and related expenses, particularly stock compensation cost and an increase in professional fees, particularly consulting fees and public reporting charges. The higher stock compensation costs in the current period are driven by higher stock prices and increases in the number of annual options granted.

 

Other Income, net

 

Other income, net for the nine months ended March 31, 2012 and 2011 is included in the following table (in thousands):

 

 

 

Nine Months Ended March 31,

 

Other Income, net

 

2012

 

2011

 

Interest Income

 

$

40

 

$

160

 

Net Realized Gains on Investments

 

 

341

 

Other (Expense) Income, net

 

(1

)

1,369

 

Total Other Income, net

 

$

39

 

$

1,870

 

 

Net Realized Gains on Investments

 

During the nine months ended March 31, 2011, we sold the remaining marketable securities held in our investment portfolio, resulting in a net realized gain of $341,000.

 

Other (Expense) Income, net

 

During the nine months ended March 31, 2011, we recognized $1.2 million of federal grant funding awarded under the Patient Protection and Affordable Care Act of 2010 to develop new anticancer therapies.

 

LIQUIDITY AND CAPITAL RESOURCES

 

 

 

March 31,

 

June 30,

 

 

 

2012

 

2011

 

 

 

(In thousands)

 

Cash and cash equivalents

 

$

175,260

 

$

191,206

 

Working capital

 

167,014

 

186,959

 

Shareholders’ equity

 

100,930

 

139,969

 

 

30



Table of Contents

 

 

 

Nine Months Ended March 31,

 

 

 

2012

 

2011

 

 

 

(In thousands)

 

Cash (used for) provided by operating activities

 

$

(18,115

)

$

5,943

 

Cash used for investing activities

 

(1,838

)

(199

)

Cash provided by financing activities

 

4,007

 

913

 

 

Cash Flows

 

We require cash to fund our operating expenses, including the advancement of our own clinical programs, and to make capital expenditures. Historically, we have funded our cash requirements primarily through equity financings in public markets and payments from our collaborators, including equity investments, license fees, milestones and research funding. As of March 31, 2012, we had approximately $175.3 million in cash and cash equivalents. Net cash (used for) provided by operations was $(18.1) million and $5.9 million for the nine months ended March 31, 2012 and 2011, respectively. The principal use of cash in operating activities for all periods presented was to fund our net loss. Cash used for operations for the nine months ended March 31, 2012 benefited from the $20 million upfront payment received from Lilly in January 2012 with the establishment of a technology access collaboration between the companies.  Cash provided by operations for the nine months ended March 31, 2011 benefited from the $45 million upfront payment received from Novartis in October 2010 with the establishment of a technology access collaboration between the companies.

 

Net cash used for investing activities was $(1.8) million and $(199,000) for the nine months ended March 31, 2012 and 2011, respectively, and primarily represents cash outflows for capital expenditures offset by cash inflows from the sales and maturities of marketable securities in the prior period. Capital expenditures, primarily for the purchase of new equipment, were $1.8 million and $1.5 million for the nine-month periods ended March 31, 2012 and 2011, respectively.

 

Net cash provided by financing activities was $4.0 million and $913,000 for the nine months ended March 31, 2012 and 2011, respectively, which represents proceeds from the exercise of approximately 863,000 and 190,000 stock options, respectively.

 

We anticipate that our current capital resources and expected future collaborator payments under existing collaborations will enable us to meet our operational expenses and capital expenditures through fiscal year 2014. However, we cannot provide assurance that such future collaborative agreement funding will, in fact, be received. Should we or our partners not meet some or all of the terms and conditions of our various collaboration agreements, we may be required to pursue additional strategic partners, secure alternative financing arrangements, and/or defer or limit some or all of our research, development and/or clinical projects.

 

Contractual Obligations

 

There have been no other material changes to our contractual obligations outside the ordinary course of business from those disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2011.

 

Recent Accounting Pronouncements

 

In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement.” This ASU clarifies the concepts related to highest and best use and valuation premise, blockage factors and other premiums and discounts, the fair value measurement of financial instruments held in a portfolio and of those instruments classified as a component of shareholders’ equity. The guidance includes enhanced disclosure requirements about recurring Level 3 fair value measurements, the use of nonfinancial assets, and the level in the fair value hierarchy of assets and liabilities not recorded at fair value. The provisions of this ASU are effective prospectively for annual periods, and interim periods within those years, beginning on or after December 15, 2011. Early application is prohibited. The Company does not expect the adoption of these provisions to have a significant impact on our financial statements.

 

In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income.” This ASU intends to enhance comparability and transparency of other comprehensive income components. The guidance provides an option to present total comprehensive income, the components of net income and the components of other comprehensive income in a single continuous statement or two separate but consecutive statements. This ASU eliminates the option to present other comprehensive income components as part of the statement of changes in shareholders’ equity. The provisions of this ASU will be applied retrospectively for annual periods, and interim periods within those years, beginning after December 15, 2011. Early application is permitted. The Company does not expect the adoption of these provisions to have a significant impact on our financial statements.

 

Forward-Looking Statements

 

This quarterly report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information which are based on forecasts of future results and estimates of amounts that are not yet determinable. There are a number of factors that could cause actual events or results to be significantly

 

31



Table of Contents

 

different from those described in the forward-looking statements. Forward-looking statements might include, but are not limited to, one or more of the following subjects:

 

·                   future products revenues, expenses, liquidity and cash needs;

·                   anticipated agreements with collaboration partners;

·                   anticipated clinical trial timelines or results;

·                   anticipated research and product development results;

·                   projected regulatory timelines;

·                   descriptions of plans or objectives of management for future operations, products or services;

·                   forecasts of future economic performance; and

·                   descriptions or assumptions underlying or relating to any of the above items.

 

Forward-looking statements can be identified by the fact that they do not relate to historical or current facts. They use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “opportunity,” “plan,” “potential,” “believe” or words of similar meaning. They may also use words such as “will,” “would,” “should,” “could” or “may”. Given these uncertainties, you should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. You should review carefully the risks and uncertainties identified in this Quarterly Report on Form 10-Q, including the cautionary information set forth under Part II, Item 1A., Risk Factors, and our Annual Report on Form 10-K for the year ended June 30, 2011. We may not revise these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

None.

 

ITEM 3.                         Quantitative and Qualitative Disclosure about Market Risk

 

Our market risks, and the ways we manage them, are summarized in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the fiscal year ended June 30, 2011. Since then there have been no material changes to our market risks or to our management of such risks.

 

ITEM 4.                         Controls and Procedures

 

(a)          Disclosure Controls and Procedures

 

The Company’s management, with the participation of its principal executive officer and principal financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the Company’s principal executive officer and principal financial officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were adequate and effective.

 

(b)          Changes in Internal Controls

 

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

32



Table of Contents

 

PART II. OTHER INFORMATION

 

ITEM 1A.                Risk Factors

 

You should carefully review and consider the information regarding certain factors that could materially affect our business, financial condition or future results set forth under Item 1A. (Risk Factors) in our Annual Report on Form 10-K for the fiscal year ended June 30, 2011. There have been no material changes from the factors disclosed in our 2011 Annual Report on Form 10-K, although we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the Securities and Exchange Commission.

 

ITEM 6.                         Exhibits

 

Exhibit No.

 

Description

10.1*

 

Development and License agreement dated as of October 20, 2008 by and between the Registrant and Bayer HealthCare AG

10.2*

 

Multi-Target Agreement dated as of October 8, 2010 by and between the Registrant and Novartis Institutes for BioMedical Research, Inc.

10.3*

 

Multi-Target Agreement dated as of December 19, 2011 by and between the Registrant and Eli Lilly and Company XBRL Instance Document

31.1

 

Certification of Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

 

Certification of Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

32†

 

Certifications of Principal Executive Officer and Principal Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS**

 

XBRL Taxonomy Extension Schema

101.SCH**

 

XBRL Taxonomy Extension Calculation Linkbase

101.CAL**

 

XBRL Taxonomy Extension Definition Linkbase

101.DEF**

 

XBRL Taxonomy Extension Label Linkbase

101.LAB**

 

XBRL Taxonomy Extension Presentation Linkbase

101.PRE**

 

 

 


 

Furnished, not filed.

 

 

 

*

 

Portions of this Exhibit were omitted, as indicated by [***], and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment.

 

 

 

**

 

Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

 

33



Table of Contents

 

SIGNATURES

 

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

 

 

 

ImmunoGen, Inc.

 

 

 

Date: May 10, 2012

By:

/s/ Daniel M. Junius

 

 

Daniel M. Junius

 

 

President, Chief Executive Officer (Principal Executive Officer)

 

 

 

Date: May 10, 2012

By:

/s/ Gregory D. Perry

 

 

Gregory D. Perry

 

 

Executive Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)

 

34


 

Exhibit 10.1

 

DEVELOPMENT AND LICENSE AGREEMENT

 

This Development and License Agreement (this “Agreement”) is made effective as of the date of the last signature below (the “Effective Date”) by and between Bayer HealthCare AG, a German corporation (“Bayer”), with its principal place of business at D-51369 Leverkusen, Germany, and ImmunoGen, Inc., a Massachusetts corporation (“ImmunoGen”), with its principal place of business at 830 Winter Street, Waltham, Massachusetts 02451, USA.  Bayer and ImmunoGen are sometimes each hereinafter referred to individually as a “Party” and collectively as the “Parties”.

 

WHEREAS, Bayer is the owner of or otherwise controls certain rights in proprietary technology and know-how relating to certain Anti-Mesothelin Cell Binding Agents; and

 

WHEREAS, ImmunoGen is the owner of or otherwise controls certain rights in proprietary technology and know-how relating to or otherwise useful in the conjugation of MAY Compounds to binding proteins; and

 

WHEREAS, pursuant to the terms and conditions set forth herein, Bayer desires to obtain from ImmunoGen, and ImmunoGen desires to grant to Bayer, a license under certain of ImmunoGen’s Technology and Patent Rights to develop and commercialize one or more Licensed Products.

 

NOW, THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereby agree as follows:

 

1.                                       DEFINITIONS

 

Whenever used in the Agreement with an initial capital letter, the terms defined in this Section 1 shall have the meanings specified.

 

1.1.                             Adverse Event means any untoward medical occurrence in a human clinical trial subject or in a patient who is administered a Licensed Product, whether or not having a causal relationship with such Licensed Product, including, without limitation, any unfavorable and unintended sign (including, without limitation, abnormal laboratory findings of clinical concern), symptom or disease temporally associated with the use of such Licensed Product.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 



 

1.2.                             Affiliate means, with respect to any Person, any other Person that, directly or indirectly through one or more Affiliates, controls or is controlled by or is under common control with such Person.  For purposes of this Section 1.2, “control” means (a) ownership of fifty percent (50%) or more of the shares of stock entitled to vote for the election of directors, in the case of a corporation, or fifty percent (50%) or more of the equity interests in the case of any other type of legal entity, (b) status as a general partner in the case of any partnership, or (c) any other arrangement whereby a Person controls or has the right to control the board of directors or equivalent governing body or management of another Person.

 

1.3.                             Anti-Mesothelin Cell Binding Agent means any Antibody or other amino acid-based or nucleotide-based molecule that selectively and specifically binds to Mesothelin.

 

1.4.                             Antibody means a polyclonal or monoclonal antibody, whether multiple or single chain, recombinant or naturally occurring, whole or fragment, and any variants, derivatives or constructs thereof, including but not limited to, antigen binding portions including Fab, Fab’, F(ab’)2, Fv, dAb and CDR fragments, single chain antibodies (scFv), chimeric antibodies, diabodies and polypeptides (including humanized versions thereof) that contain at least a portion of an immunoglobulin that is sufficient to confer specific antigen binding to the polypeptide.

 

1.5.                             Applicable Laws means all federal, state, local, national and supra-national laws, statutes, rules and regulations, including any rules, regulations, guidelines or requirements of Regulatory Authorities, national securities exchanges or securities listing organizations that may be in effect from time to time during the Term and applicable to a particular activity hereunder.

 

1.6.                             Bayer Background Technology means any Technology used by Bayer or provided by Bayer for use, in the Research Program that is useful in the Field and that is (a) Controlled by Bayer as of the Effective Date or (b) Controlled by Bayer and developed or conceived by employees of, or consultants to, Bayer on and after the Effective Date in the conduct of activities outside the Research Program and without the use of any Licensed Technology.

 

1.7.                             Bayer Improvements means Improvements conceived or first reduced to practice solely by one or more employees of or others obligated to assign inventions to Bayer or

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

2



 

any Affiliate of Bayer in connection with the Development or Commercialization of any Licensed Product.

 

1.8.                             Bayer Program Technology means any Program Technology conceived or first reduced to practice solely by employees of, or others obligated to assign inventions to, Bayer or any Affiliate of Bayer.

 

1.9.                             Clinical Materials means any MAY  Compound, Licensed Product or other materials (e.g., linker) supplied by ImmunoGen to Bayer pursuant to Section 4.3 or the terms of a Supply Agreement for use in human clinical testing.

 

1.10.                      Commercialization or Commercialize means, with respect to any Licensed Product, any and all activities with respect to such Licensed Product relating to commercialization in the Field in the Territory, including pre-launch and launch activities, marketing, manufacturing for commercial sale, promoting, detailing, distributing, offering for sale and selling such Licensed Product, importing such Licensed Product for sale, conducting additional human clinical trials, reporting of Adverse Events and interacting with Regulatory Authorities regarding the foregoing.  When used as a verb, “Commercialize” means to engage in Commercialization and “Commercialized” has a corresponding meaning.

 

1.11.                      [***] means a product (a) that consists of [***] and (b) the Development or Commercialization of which same product [***].

 

1.12.                      Confidential Information means (a) with respect to ImmunoGen, all tangible embodiments of the Licensed Patent Rights and Licensed Technology; (b) with respect to Bayer, all information and Technology related to the Anti-Mesothelin Cell Binding Agents Controlled by Bayer and otherwise included in any Regulatory Filings made, and Regulatory Approvals received, by Bayer with respect to Licensed Products; and (c) with respect to each Party, all information and Technology which is disclosed by or on behalf of such Party (in such capacity, the “Disclosing Party”) to the other Party (in such capacity, the “Receiving Party”) hereunder or to any of the Receiving Party’s employees, consultants, Affiliates or sublicensees, except to the extent that the Receiving Party can demonstrate by written record or other suitable physical evidence that such information, (i) as of the date of disclosure is demonstrably known to the Receiving Party or its Affiliates other than by virtue of a prior confidential disclosure to such Party or its Affiliates; (ii) as of the date of disclosure is in, or subsequently enters, the public

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

3



 

domain through no fault or omission of the Receiving Party; (iii) is obtained by the Receiving Party from a Third Party having a lawful right to make such disclosure free from any obligation of confidentiality to the Disclosing Party; or (iv) is independently developed by or for the Receiving Party without reference to or reliance upon any Confidential Information of the Disclosing Party.

 

1.13.                      Confidentiality Agreements means, collectively, (a) that certain Reciprocal Confidentiality Agreement effective January 19, 2006 by and between ImmunoGen and Berlex Biosciences, a division of Berlex, Inc. (predecessor-in-interest to Bayer), and (b) that certain Mutual Confidentiality Agreement effective July 7, 2008 by and between ImmunoGen and Bayer.

 

1.14.                      [***] means the[***] published from time to time by [***].  As of the Effective Date, the [***] can be found at [***].

 

1.15.                      Control or Controlled means, with respect to any Patent Rights, Technology or Proprietary Materials, the possession by a Party of the ability to grant a license or sublicense of such Patent Rights or Technology and the rights thereto or to supply such Proprietary Materials as provided for in this Agreement without violating the terms of any arrangement or agreement between such Party or its Affiliates and any Third Party.

 

1.16.                      Cost means, with respect to any Preclinical Materials or Clinical Materials manufactured by ImmunoGen, ImmunoGen’s fully-burdened costs (including the costs associated with product testing and release activities) of producing and packaging such Preclinical Materials or Clinical Materials, including the sum of the following components: (a) direct costs, including (i) materials directly used in producing and packaging such Preclinical Materials or Clinical Materials and (ii) with respect to any Preclinical Materials or Clinical Materials obtained by ImmunoGen from a Third Party and supplied to Bayer without modification, the amount paid by ImmunoGen to such Third Party for the same; (b) manufacturing overhead costs attributable to the cost of goods under the foregoing clause (a)(i), including manufacturing and quality labor and manufacturing and quality supervisory services, operating and administrative costs of the manufacturing and quality departments and occupancy costs which are allocable to company departments based on space occupied or headcount, or another activity-based method; (c) any other reasonable and customary

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

4



 

out-of-pocket costs borne by ImmunoGen for the testing, transport, customs clearance, duty, insurance and/or storage of such Preclinical Materials or Clinical Materials; and (d) ImmunoGen’s general and administrative costs, including purchasing, human resources, payroll, information system and accounting, which are directly attributable or reasonably allocable to company departments based on space occupied or headcount or another activity-based method.  Manufacturing overhead costs under the foregoing clause (b) and general and administrative costs under the foregoing clause (d) are allocable to each batch of Preclinical Material and/or Clinical Material produced based upon [***], as the use may be, at ImmunoGen’s facilities.  Notwithstanding the foregoing, Cost shall not include the cost of purchasing any Dedicated Equipment pursuant to Section 4.4 of this Agreement.

 

1.17.                      Dedicated Equipment means any equipment, instrument or machinery used by ImmunoGen exclusively in the manufacturing of Preclinical Materials or Clinical Materials.

 

1.18.                      Derived means obtained, developed, created, synthesized, designed, derived or resulting from or generated from, based upon, or otherwise containing (whether directly or indirectly, or in whole or in part).

 

1.19.                      Development and Develop means, with respect to any Licensed Product, all activities with respect to such Licensed Product relating to research and development in connection with seeking, obtaining or maintaining any Regulatory Approval for such Licensed Product in the Field in the Territory, including without limitation, all pre-clinical research and development activities, test method development and stability testing, regulatory toxicology studies, formulation, process development, manufacturing scale-up, development-stage manufacturing, quality assurance/quality control development, statistical analysis and report writing, clinical trial design and operations, preparing and filing Drug Approval Applications, reporting of Adverse Events, and all regulatory affairs related to the foregoing.  When used as a verb, “Developing” means to engage in Development and “Developed” has a corresponding meaning.

 

1.20.                      Drug Approval Application means, with respect to a Licensed Product in a particular country or region, an application for Regulatory Approval for Commercialization of such Licensed Product in such country or region including, without limitation: (a) an NDA or

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

5



 

sNDA; (b) a counterpart of an NDA or sNDA, including any MAA, in any country or region in the Territory; and (c) all supplements and amendments to any of the foregoing.

 

1.21.                      FDA means the United States Food and Drug Administration and any successor agency or authority thereto.

 

1.22.                      FDCA means the United States Food, Drug and Cosmetic Act, as amended.

 

1.23.                      Field means all human therapeutic, prophylactic and diagnostic uses.

 

1.24.                      First Commercial Sale means the date of the first commercial transfer or disposition for value to a Third Party of a Licensed Product by or on behalf of Bayer or any Affiliate or Sublicensee of Bayer.

 

1.25.                      Full Time Equivalent or FTE means a full time person dedicated to the Research Program, or in the case of less than a full-time dedicated person, a full-time, equivalent person year, based on a total of at least [***] hours or [***] weeks per year of work, on or directly related to the Research Program, and which is carried out by employees, contractors or agents of ImmunoGen having the appropriate scientific expertise to conduct such activities.

 

1.26.                      FTE Cost means, for any period during the Term of this Agreement, the FTE Rate multiplied by the number of FTEs expended over such period.

 

1.27.                      FTE Rate means, for the [***], $[***]; and, for [***], the result obtained by [***] by the sum of [***] where [***] is a [***], the [***] of which is the [***] the [***] as of the [***] of the [***] and the [***] as of the [***] and the [***] of which is the [***] as of the [***].

 

1.28.                      GLP means the then current Good Laboratory Practice standards promulgated or endorsed by the FDA or, in the case of foreign jurisdictions, comparable regulatory standards promulgated or endorsed by the applicable Regulatory Authority, including those procedures expressed or implied in the Regulatory Filings.

 

1.29.                      GMP means all good manufacturing practices under Title 21 of the United States Code of Federal Regulations, as amended from time to time.

 

1.30.                      ImmunoGen Program Technology means any Program Technology conceived or first reduced to practice solely by employees of, or others obligated to assign inventions to, ImmunoGen or any Affiliate of ImmunoGen.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

6



 

1.31.                      ImmunoGen Improvement means Improvements conceived or first reduced to practice solely by one or more employees of, or others obligated to assign inventions to, ImmunoGen or any Affiliate of ImmunoGen.

 

1.32.                      Improvement means any enhancement, improvement or modification to the Licensed Technology or the Licensed Patent Rights.  Improvements include, without limitation, enhancements, improvements or modifications of [***].

 

1.33.                      IND means (a) an Investigational New Drug Application (as defined in the FDCA and regulations promulgated thereunder) or any successor application or procedure required to initiate clinical testing of a Licensed Product in the United States; (b) a counterpart to an Investigational New Drug Application that is required in any other country or region in the Territory before beginning clinical testing of a Licensed Product in humans in such country or region; and (c) all supplements and amendments to any of the foregoing.

 

1.34.                      Initiation means, with respect to any clinical study, the first date that a human subject is dosed in such clinical study.

 

1.35.                      Joint Improvements means Improvements conceived or first reduced to practice jointly by (a) one or more employees of, or others obligated to assign inventions to, ImmunoGen or any Affiliate of ImmunoGen, and (b) one or more employees of, or others obligated to assign inventions to, Bayer or any Affiliate of Bayer.

 

1.36.                      Joint Program Technology means any Program Technology (other than Joint Improvements) conceived or first reduced to practice jointly by (a) one or more employees of, or other persons obligated to assign inventions to, ImmunoGen or any Affiliate of ImmunoGen, and (b) one or more employees of, or other persons obligated to assign inventions to, Bayer or any Affiliate of Bayer.

 

1.37.                      Licensed Patent Rights means any Patent Rights which are Controlled by ImmunoGen as of the Effective Date or become Controlled by ImmunoGen during the Term (including ImmunoGen’s interest in any Patent Rights covering Joint Program Technology and Joint Improvements) that include one or more claims that cover Licensed Technology.  Certain Licensed Patent Rights as of the Effective Date are set forth in Schedule A attached hereto and incorporated herein by reference.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

7



 

1.38.                      Licensed Product means any product that incorporates, is comprised of, or is otherwise Derived from, a conjugate of an Anti-Mesothelin Cell Binding Agent Controlled by Bayer with a MAY Compound.

 

1.39.                      Licensed Technology means any Technology which is Controlled by ImmunoGen as of the Effective Date or becomes Controlled by ImmunoGen during the Term (including ImmunoGen’s interest in any Joint Program Technology and Joint Improvements), which is necessary or useful for Bayer to exercise the licenses granted to it pursuant to Section 2.1.

 

1.40.                      MAA means an application filed with the relevant Foreign Regulatory Authorities in Europe seeking Regulatory Approval to market and sell any Licensed Product in Europe or any country or territory therein for a particular indication within the Field.

 

1.41.                      MAY Compound means any and all maytansinoid compounds (including, without limitation, maytansinol, ansamitocins, DM1 and DM4), whether produced by a botanical source, natural fermentation, chemical synthesis or otherwise, and shall include, without limitation, all variants, fragments or derivatives of any of the foregoing, in each case Controlled by ImmunoGen.

 

1.42.                      Mesothelin means the protein sequence defined in Schedule  B attached hereto and incorporated herein by reference.

 

1.43.                      MTA means that certain Material Transfer and Evaluation Agreement between Berlex Biosciences, a division of Berlex, Inc. (predecessor-in-interest to Bayer), and ImmunoGen dated June 19, 2006, as amended on August 7, 2006, March 19, 2007, December 13, 2007 and August 25, 2008.

 

1.44.                      NDA means a new drug application (as defined in Title 21 of the United States Code of Federal Regulations, as amended from time to time) filed with the FDA seeking Regulatory Approval to market and sell any Licensed Product in the United States for a particular indication within the Field.

 

1.45.                      Net Sales means, as to each calendar quarter during the Term, the [***] charged for all Licensed Products sold by Bayer or its Affiliates or Sublicensees to Third Parties throughout the Territory during such calendar quarter, less the following amounts incurred or

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

8



 

paid by Bayer or its Affiliates or Sublicensees during such calendar quarter with respect to sales of Licensed Products regardless of the calendar quarter in which such sales were made:

 

(a)                                    (i) [***] actually allowed or taken, including [***] to [***] or [***]; (ii) [***] actually [***] or [***], including [***] such as [***] or [***]; (iii) [***] or [***] actually allowed or granted from the [***]; and (iv) [***] actually [***] to [***] as reflected on the same invoice as for the sale of Licensed Product;

 

(b)                                   [***] or [***] actually [***] or [***] for [***] of or [***] of, [***] Licensed Products;

 

(c)                                    any charges for[***], and [***] related to the [***] of Licensed Product to the extent [***] in the [***];

 

(d)                                   any [***] or [***] levied on the [***] or [***] of a Licensed Product (including any [***] such as a [***] or similar [***] or [***]) borne by the [***] thereof, other than [***] or [***] of any kind whatsoever; and

 

(e)                                    any [***] or [***] duties or their [***] borne by the [***].

 

Net Sales shall not include [***] or [***] between [***] and [***], unless the Licensed Product is [***] by the [***].

 

In the event a Licensed Product is sold as a [***] of a [***] or [***] that consists of a Licensed Product together with another [***] for the [***] (a “Combination Product”), the Net Sales from the Combination Product, for the purposes of determining royalty payments hereunder, shall be determined by multiplying the Net Sales of the Combination Product (as defined in the standard Net Sales definition above) during the applicable royalty reporting period by the fraction A/A+B, where A is the [***] of the Licensed Product when sold separately [***] in the country in which the Combination Product is sold [***] and of the [***] and [***], and B is the [***] of the other product(s) included in the Combination Product when sold separately [***] in the country in which the Combination Product is sold [***] and of the [***] and [***], in each case during the applicable royalty reporting period or, if sales of the Licensed Product alone did not occur in such period, then in the [***] in which [***] of such Licensed Product occurred.  In the event that such [***] cannot be determined for the Licensed Product, on the one hand, and all other product(s) included in the Combination Product, on the other, Net Sales for the purposes of determining royalty payments shall be [***].

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

9



 

1.46.                      Patent Rights means the rights and interests in and to any and all issued patents and pending patent applications (including inventor’s certificates, applications for inventor’s certificates, statutory invention registrations, applications for statutory invention registrations, utility models and any foreign counterparts thereof) in any country or jurisdiction in the Territory, including any and all provisionals, non-provisionals, substitutions, continuations, continuations-in-part, divisionals and other continuing applications, supplementary protection certificates, renewals, and all letters patent on any of the foregoing, and any and all reissues, reexaminations, extensions, confirmations, registrations and patents of addition on any of the foregoing.

 

1.47.                      Person means an individual, sole proprietorship, partnership, limited partnership, limited liability partnership, corporation, limited liability company, business trust, joint stock company, trust, incorporated association, joint venture or similar entity or organization, including a government or political subdivision, department or agency of a government.

 

1.48.                      Phase II Clinical Study means, as to a particular Licensed Product for a particular indication, a controlled and lawful study in humans of the safety, dose ranging and efficacy of such Licensed Product for such indication, which is prospectively designed to generate sufficient data (if successful) to commence a Pivotal Clinical Study of such Licensed Product for such indication.

 

1.49.                      Pivotal Clinical Study means, as to a particular Licensed Product for a particular indication, a controlled and lawful study in humans of the safety and efficacy of such Licensed Product for such indication, which is prospectively designed to demonstrate statistically whether such Licensed Product is safe and effective for use in such indication in a manner sufficient to file a Drug Approval Application to obtain Regulatory Approval to market and sell that Licensed Product in any country in the Territory for the indication under investigation in such study.

 

1.50.                      Pivotal Equivalent Decision means the date on which Bayer or its Sublicensee decides, based on notification and input from the applicable Regulatory Authority, that the data and results generated from the Phase II Clinical Studies of a Licensed Product for a particular indication are sufficient, without any Pivotal Clinical Study of such Licensed Product for such

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

10



 

indication, to support the filing of a Drug Approval Application to obtain Regulatory Approval to market and sell that Licensed Product in the applicable country or region for the indication under investigation.

 

1.51.                      Preclinical Materials means any MAY Compound, Licensed Product or other materials (e.g., linker) supplied by ImmunoGen to Bayer in accordance with Section  4.2 for the purpose of conducting research activities or preclinical testing with respect to a Licensed Product.

 

1.52.                      Program Technology means any Technology conceived or reduced to practice in the conduct of the Research Program or in connection with the Development of any Licensed Product.

 

1.53.                      Proprietary Materials means any tangible chemical, biological or physical research materials that are furnished by or on behalf of one Party to the other Party in connection with this Agreement, regardless of whether such materials are specifically designated as proprietary by the transferring Party.

 

1.54.                      Regulatory Approval means any and all approvals (including pricing and reimbursement approvals), product and establishment licenses, registrations or authorizations of any kind of any Regulatory Authority necessary for the development, pre-clinical or human clinical testing, manufacture, quality testing, supply, use, storage, importation, export, transport, marketing and sale of a Licensed Product (or any component thereof) for use in the Field in any country or other jurisdiction in the Territory.

 

1.55.                      Regulatory Authority means the FDA or any counterpart to the FDA outside the United States, or other national, supra-national, regional, state or local regulatory agency, department, bureau, commission, council or other governmental entity with authority over the distribution, importation, exportation, manufacture, production, use, storage, transport, clinical testing or sale of a Licensed Product.

 

1.56.                      Regulatory Filings means, collectively: (a)  all INDs, NDAs, establishment license applications, drug master files, applications for designation as an “Orphan Product” under the Orphan Drug Act, for “Fast Track” status under Section 506 of the FDCA (21 U.S.C. § 356) or for a Special Protocol Assessment under Section 505(b)(4)(B) and (C) of the FDCA (21 U.S.C. § 355(b)(4)(B)) or all other similar filings (including MAAs and counterparts to any of the foregoing in any country or region in the Territory) as may be required by any Regulatory

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

11



 

Authority for the Development or Commercialization of a Licensed Product in the Territory; (b) all supplements and amendments to any of the foregoing; and (c) all data and other information contained in, and correspondence relating to, any of the foregoing.

 

1.57.                      Research Budget means the budget for the Research Plan as agreed to by the Parties.

 

1.58.                      Research Plan means the written plan describing the research activities to be carried out by each Party pursuant to this Agreement under the Research Program.

 

1.59.                      Research Program means the research activities in the Field commencing on the Effective Date to be conducted by the Parties pursuant to Section 3.1 of this Agreement and reflected in the Research Plan.

 

1.60.                      Serious Adverse Event means an Adverse Event occurring at any dose of a drug that (a) results in death or poses a threat to life; (b) requires or prolongs hospitalization; (c) results in persistent or significant disability or incapacity; (d) is medically significant; or (e) results in a congenital anomaly or birth defect.

 

1.61.                      Sublicensee means any Affiliate or Third Party to which Bayer grants a sublicense of the rights granted to Bayer pursuant to this Agreement.

 

1.62.                      Technology means, collectively, all inventions, discoveries, improvements, trade secrets and proprietary methods or materials, whether or not patentable, including, without limitation, macromolecular sequences, data, formulations, processes, techniques, know-how and results (including negative results).

 

1.63.                      Territory shall mean all countries and jurisdictions of the world.

 

1.64.                      Third Party shall mean, as to a Party, any entity other than that Party and its respective Affiliates.

 

1.65.                      Valid Claim shall mean any claim within an issued, unexpired patent [***] within the Licensed Patent Rights that (a) has not been [***] cancelled, withdrawn, abandoned or rejected by any administrative agency or other body of competent jurisdiction, and (b) has not been revoked, held invalid, or declared unpatentable or unenforceable in a decision of a court or other body of competent jurisdiction that is [***] or [***], and (c) has not been rendered unenforceable through disclaimer or otherwise, and (d) is not lost through an interference proceeding.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

12



 

Additional Definitions .   In addition, each of the following definitions shall have the respective meanings set forth in the section of the Agreement indicated below:

 

Definition

 

Section

Agreement

 

Recitals

Bayer Indemnitees

 

10.1(b)

Combination Product

 

1.45

Disclosing Party

 

1.12

Dispute

 

11.12

Effective Date

 

Recitals

ImmunoGen Indemnitees

 

10.1(a)

Indemnified Party

 

10.2

Indemnifying Party

 

10.2

Infringement

 

7.4(a)(i)

Infringement Notice

 

7.4(a)(i)

JDC

 

3.4(a)

Losses

 

10.1(a)

Receiving Party

 

1.12

Supply Agreement

 

4.3

Party/Parties

 

Recitals

Term

 

8.1

Third Party Claims

 

10.1(a)

Third Party Payments

 

5.3(b)

Upfront Fee

 

5.1(a)

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

13



 

2.                                       GRANT OF RIGHTS

 

2.1                                License Grants .

 

(a)                                   Development and Commercialization License .

 

(i)                                      License to Bayer .  Subject to the terms and conditions of this Agreement, ImmunoGen hereby grants to Bayer an exclusive, royalty-bearing license, including the right to grant sublicenses as described in Section 2.1(a)(ii) below, under the Licensed Patent Rights and Licensed Technology to Develop, have Developed, Commercialize and have Commercialized Licensed Products in the Field in the Territory.

 

(ii)                                   Right to Sublicense .  Bayer shall have the right to grant sublicenses under the license rights granted to it under Section 2.1(a)(i) hereof with respect to any Licensed Product to any of its Affiliates and to any Third Party, provided, that: (A) it shall be a condition of any such sublicense that the Sublicensee agrees to be bound by all terms of this Agreement applicable to the Development and Commercialization of Licensed Products in the Field in the Territory (including, without limitation, Sections 3.2(b) and 3.3); (B) Bayer shall provide written notice to ImmunoGen of any such proposed sublicense at least [***] prior to such execution and provide redacted copies to ImmunoGen of each such sublicense within [***]; (C) Bayer shall be deemed to have [***] that each such Sublicensee will [***] applicable to the subject matter of such sublicense; and (D) Bayer shall [***], including, without limitation, the [***], as a result of any such sublicense.

 

(b)                                  Research Licenses .

 

(i)                                      Research License to Bayer .  Subject to the terms and conditions of this Agreement, during the Term of this Agreement, ImmunoGen hereby grants to Bayer a fully paid-up, non-exclusive, royalty-free, worldwide license, without the right to grant sublicenses, under the Licensed Technology and Licensed Patent Rights for the sole purpose of conducting the activities it is required to perform as part of the Research Program.

 

(ii)                                   Research License to ImmunoGen .  Subject to the terms and conditions of this Agreement, during the Term of this Agreement, Bayer hereby grants to ImmunoGen a fully paid-up, non-exclusive, royalty-free, worldwide license, without the right to grant sublicenses, under the Bayer Background Technology and Bayer’s interest in any

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

14



 

Improvements and Program Technology, for the sole purpose of conducting the activities it is required to perform as part of the Research Program.

 

2.2                                Retained Rights and Covenants .

 

(a)                                   Retained Rights .  Subject to the other terms of this Agreement (including, without limitation, Section 2.2(b)), ImmunoGen retains the right to use the Licensed Technology and practice the Licensed Patent Rights (a) to perform its obligations under this Agreement (including without limitation its obligation to manufacture Preclinical Materials and Clinical Materials in accordance with Section 4 of this Agreement); (b) to develop, have developed, commercialize, have commercialized, make, have made, use, have used, sell, have sold, offer for sale, import, have imported, export and have exported [***]; and (c) for any and all uses [***].

 

(b)                                  Covenants .  Notwithstanding anything to the contrary contained in Section 2.2(a) or 2.3 of this Agreement, ImmunoGen hereby agrees during the Term of this Agreement, that it shall not [***].

 

2.3                                Improvement License to ImmunoGen .   Bayer hereby grants to ImmunoGen a non-exclusive, fully paid, irrevocable, royalty-free license[***] under Bayer’s interest in Improvements Controlled by Bayer (a) to manufacture Clinical Materials or Preclinical Materials pursuant to the terms of this Agreement, or each applicable Supply Agreement; [***]; and (c) to otherwise exploit such Improvements for all uses [***].

 

2.4                                Use of Licensed Technology .   In connection with any Licensed Technology transferred to Bayer pursuant to this Agreement, Bayer hereby agrees that (a) it shall not use such Licensed Technology for any purpose other than exercising its rights or performing its obligations hereunder; (b) it shall use such Licensed Technology only in compliance with all Applicable Laws; (c) it shall not transfer any such Licensed Technology to any Third Party without the prior written consent of ImmunoGen, except as expressly permitted hereby; (d) except for the rights expressly set forth herein, Bayer shall not have any other rights, title or interest in or to such Licensed Technology as a result of such transfer by ImmunoGen; and (e) any activities by ImmunoGen to facilitate Bayer’s use of the Licensed Technology shall be conducted as part of the Research Program.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

15



 

3.                                       RESEARCH PROGRAM; DEVELOPMENT AND COMMERCIALIZATION
OF LICENSED PRODUCTS

 

3.1                                Research Program .

 

(a)                                   Implementation of Research Program .  As soon as practicable after the Effective Date, the Parties shall prepare a mutually agreed upon Research Plan which shall set forth with reasonable specificity the research objectives and tasks to be conducted by the Parties under the Research Program.  The Research Program shall be designed to facilitate the selection of the appropriate Anti-Mesothelin Cell Binding Agents, MAY Compounds and linkers to be used in preparing Licensed Products and the conduct of initial research with respect to the Licensed Products.  At Bayer’s request, the Research Program shall also be designed to facilitate Bayer’s use of the Licensed Technology (including, without limitation, ImmunoGen’s conjugation Technology), subject to Section 2.4.  The Research Program shall be conducted pursuant to a Research Budget agreed to by the Parties.  The Parties expect that the Research Program, and related Research Budget, will be amended and updated from time to time during the Term of this Agreement, which amendments and updates shall be submitted to the JDC and shall be subject to its approval.  Each Party undertakes that the activities assigned to it in a Research Plan shall be conducted diligently and in good scientific manner in accordance with accepted laboratory practices and in compliance with any and all laws, regulations and bioethical conventions applicable to the jurisdiction in which those activities take place.

 

(b)                                  Collaborative Efforts and Reports .  The Parties agree that the successful execution of the Research Program will require the collaborative use of both Parties’ areas of expertise.  The Parties shall keep the JDC and each other fully informed about the status of the Research Program.  Scientists at ImmunoGen and Bayer shall cooperate in the performance of the Research Program and, subject to any confidentiality obligations to Third Parties, shall exchange information and materials in a mutually acceptable secure manner as necessary to carry out the Research Program, subject to the provisions of Section 6 hereof.

 

(c)                                   Supply of Proprietary Materials .  From time to time during the Research Program Term, either Party (in such capacity, the “Transferring Party”) may supply the other Party (in such capacity, the “Recipient Party”) with its Proprietary Materials for use in the

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

16



 

Research Program.  In connection therewith, the Recipient Party hereby agrees that (i) it shall not use Proprietary Materials for any purpose other than exercising any rights granted to it or reserved by it hereunder; (ii) it shall use the Proprietary Materials only in compliance with all Applicable Laws; (iii) it shall not transfer any Proprietary Materials to any Third Party without the prior written consent of the Transferring Party, except as expressly permitted hereby; (iv) the Transferring Party shall retain full ownership of all such Proprietary Materials; and (v) upon the expiration or termination of this Agreement, the Recipient Party shall at the instruction of the Transferring Party either destroy or return any Proprietary Materials which are not the subject of the grant of a continuing license hereunder.

 

3.2                                Development and Commercialization .

 

(a)                                   Responsibility .  Subject to Section 3.3 of this Agreement, on and after the Effective Date, Bayer shall have sole responsibility for the Development and Commercialization of Licensed Products in the Field in the Territory, including, without limitation: (i) the conduct of all research and pre-clinical Development activities (including the assessment of alternative designs for the Licensed Products, the selection of the final Anti-Mesothelin Cell Binding Agents, MAY Compounds and linkers to be used in the Licensed Products and the selection of the Licensed Products to be Developed, all preclinical and IND-enabling studies, including toxicology testing, any pharmaceutical development work on formulations or process development relating to any such Licensed Products); (ii) all activities related to human clinical trials; (iii) all activities relating to the manufacture and supply of Anti-Mesothelin Cell Binding Agents, MAY Compounds and Licensed Products, to the extent such activities relate to the Development and Commercialization of Licensed Products (including all required process development and scale up work with respect thereto); and (iv) all Commercialization activities relating to any Licensed Product.  Without limiting the generality of the foregoing, Bayer shall have sole responsibility for (A) making all Regulatory Filings for Licensed Products and filing all Drug Approval Applications and otherwise seeking all Regulatory Approvals regarding such matters and (B) reporting of all Adverse Events to Regulatory Authorities if and to the extent required by Applicable Laws.  All activities relating to Development and Commercialization of Licensed Products under this Agreement shall be undertaken at Bayer’s sole cost and expense, except as otherwise expressly provided in this Agreement.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

17



 

(b)                                  Due Diligence .  Bayer will use [***] to Develop Licensed Products and to undertake investigations and actions required to obtain appropriate Regulatory Approvals necessary to market Licensed Products, in the Field and in the Territory and, if approved, to Commercialize Licensed Products, [***].  In determining whether Bayer is using the efforts described in this Section 3.2(b) to [***] a Licensed Product, the Parties shall consider, among other things, whether such Licensed Product is [***].  [***] shall mean that at any given time Bayer shall be [***] engaging in one or more of the following [***] activities for a given Licensed Product: [***].

 

(c)                                   Compliance .  Bayer shall perform its obligations to Develop Licensed Products in good scientific manner and in compliance in all material respects with all Applicable Laws, provided that, with respect to each activity so performed that will or would reasonably be expected to be submitted to a Regulatory Authority in support of an Regulatory Filing, Bayer shall comply in all material respects with the regulations and guidance of the FDA that constitute GLP or GMP (or, if and as appropriate under the circumstances, other comparable regulation and guidance of any applicable Regulatory Authority in any country or region in the Territory).

 

3.3                                Updates and Reports; Notification of Milestones; Exchange of Adverse Event Information .

 

(a)                                   Updates and Reports .  Bayer shall provide ImmunoGen with brief written reports no less frequently than on each anniversary of the Effective Date during the Term of this Agreement (commencing with the first anniversary of the Effective Date) which shall summarize Bayer’s efforts to Develop and Commercialize such Licensed Products in the Field in the Territory, identify the Drug Approval Applications that Bayer and its Sublicensees have filed, sought or obtained in the prior [***] period, and any they reasonably expect to make, seek or attempt to obtain in the following [***] period.  The Parties agree that the minutes of the JDC meetings may serve as reports hereunder, to the extent such minutes adequately address the above issues.

 

(b)                                  Notification of Milestone Achievement .  Bayer shall provide ImmunoGen with prompt written notice of the occurrence of any event giving rise to an obligation to make a milestone payment to ImmunoGen under Section 5.1(b), which shall in any event be no later than [***] after the occurrence of such event, and shall provide ImmunoGen with prompt written

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

18



 

notice of the occurrence of the First Commercial Sale of any Licensed Product in any country.  In the event that, notwithstanding the fact that Bayer has not given any such notice, ImmunoGen believes any such milestone event has occurred, it shall so notify Bayer in writing, and shall provide to Bayer the data and information demonstrating that the conditions for payment have been achieved.  Within [***] of its receipt of such notice, the Parties shall meet to review the data and information and shall agree in good faith whether or not the conditions for payment have been achieved.

 

(c)                                   Adverse Event Reports .  In addition to the updates described in Section 3.3(a), Bayer shall provide ImmunoGen with all Adverse Event information and product complaint information relating to Licensed Products as such information is compiled or prepared by Bayer in the ordinary course of business in connection with the Development or Commercialization of any Licensed Product, in accordance with procedures to be agreed upon by the Parties and, in any event, within the time frames consistent with reporting obligations under Applicable Laws.  To the extent that it may apply to a Licensed Product, ImmunoGen agrees to provide Bayer with Serious Adverse Event and product complaint information relating to any product containing a conjugate of an Antibody with a MAY Compound that is compiled and prepared by ImmunoGen or any Third Party collaborator in the ordinary course of business in connection with the development, commercialization or sale of any such product, in accordance with procedures to be agreed upon by the Parties; provided, however, that the foregoing shall not require ImmunoGen to violate any agreements with or confidentiality obligations owed to any Third Party.

 

(d)                                  Correspondence for Licensed Products.   To the extent reasonably practicable and subject to any Third Party confidentiality obligations, Bayer shall provide ImmunoGen with copies of any material documents or correspondence pertaining to ImmunoGen’s manufacture of Preclinical Materials, Clinical Materials or any Licensed Product and prepared for submission to any Regulatory Authority and any material documents or other correspondence received from any Regulatory Authority pertaining to ImmunoGen’s manufacture of Preclinical Materials, Clinical Materials or any Licensed Product.  ImmunoGen shall complete its review within [***] after receipt of the proposed submission. When requested in writing, ImmunoGen shall provide reasonable assistance to Bayer in obtaining Regulatory

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

19



 

Approvals for Licensed Product.  Notwithstanding the foregoing, Bayer shall have the sole responsibility for, and ImmunoGen agrees that Bayer shall be the sole owner of, any Regulatory Approval for the Licensed Product.

 

(e)                                   Confidential Information .  All reports, updates, Adverse Event reports, product complaints and other information provided by the Disclosing Party to the Receiving Party under this Agreement (including under this Section 3.3), shall be considered Confidential Information of the Disclosing Party, subject to the terms of Section 6.

 

3.4                                Joint Development Committee .

 

(a)                                   Mandate and Establishment of Committee .  Promptly after the Effective Date, the Parties shall form a joint development committee (the “JDC”) to serve as a forum for coordination and communication between the Parties with respect to the Research Program and the Development of Licensed Products, and to assist Bayer in its exercise of its rights to make or have made Licensed Products under this Agreement.  Within [***] after the Effective Date, the Parties shall each nominate an equal number of representatives (which shall be no less than two (2) each) for membership on the JDC.  Each Party may change its representative(s) as it deems appropriate by notice to the other Party.

 

(b)                                  Chair of Committee; Meetings .  The chair of the JDC shall be one of the Bayer representatives on the JDC, as designated by Bayer.  The JDC shall meet on a quarterly basis or other schedule agreed upon by the Parties, unless the Parties mutually agree in advance of any scheduled meeting that there is no need for such meeting.  In such instance, the next JDC meeting shall also be scheduled as agreed upon by the Parties.  The location of meetings of the JDC shall alternate between ImmunoGen’s offices and Bayer’s offices, unless otherwise agreed by the Parties. As agreed upon by the Parties, JDC meetings may be face-to-face or may be conducted through teleconferences or videoconferences.  In addition to its JDC representatives, each Party shall be entitled to have other employees attend such meetings to present and participate, though not in a decision-making capacity.  Each Party shall bear its own costs and expenses, including travel and lodging expense, that may be incurred by JDC representatives or other attendees at JDC meetings, as a result of such meetings hereunder.  Minutes of each JDC meeting will be transcribed and issued to members of the JDC by the chair (or his or her

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

20



 

designee) within thirty (30) days after each meeting, and such minutes shall be reviewed and modified as mutually required to obtain approval of such minutes promptly thereafter.

 

3.5                                [***].

 

4.                                       SUPPLY AND MANUFACTURING OBLIGATIONS

 

4.1                                Supply of Materials .   Bayer shall be responsible, at its sole cost, for manufacturing or having manufactured through Third Party contract manufacturers, all materials (including without limitation, all Anti-Mesothelin Cell Binding Agents, MAY Compounds and Licensed Products) to enable it to Develop and Commercialize Licensed Products (including as required for any pre-clinical, clinical and commercial use of Licensed Products, including process development and scale-up).

 

4.2                                Supply of Preclinical Materials by ImmunoGen .   Notwithstanding anything to the contrary in Section 4.1, during the Term of this Agreement, Bayer may request ImmunoGen to supply Bayer with such quantities of Preclinical Materials as may be reasonably required by Bayer in order to conduct all pre-clinical Development activities [***] relating to Licensed Products.  Bayer shall order all amounts of Preclinical Materials, and ImmunoGen shall deliver all such ordered amounts, in accordance with advance ordering timeframes and delivery timeframes and specifications to be agreed upon by the Parties.  To the extent Bayer requests ImmunoGen to manufacture any Licensed Product, Bayer shall supply ImmunoGen with quantities of Anti-Mesothelin Cell Binding Agents sufficient to enable ImmunoGen to produce such Licensed Product.  ImmunoGen shall use commercially reasonable efforts to deliver to Bayer such amounts of Preclinical Materials as are ordered by Bayer in accordance with the foregoing (including such agreed upon timeframes) in a timely manner; provided, that, to the extent such Preclinical Materials are Licensed Products, ImmunoGen’s obligations shall be contingent on ImmunoGen’s receipt of the required quantities of Anti-Mesothelin Cell Binding Agents from Bayer.  In connection with any ordering of Preclinical Materials by Bayer, ImmunoGen shall provide Bayer promptly with ImmunoGen’s good faith estimate of the Cost for manufacture and supply of such Preclinical Materials.  ImmunoGen’s price to supply Preclinical Materials to Bayer shall equal [***] for such Preclinical Materials.  In connection with such supply, Bayer hereby agrees that (a) it shall not use the Preclinical Materials in any human

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

21



 

subject; (b) it shall use the Preclinical Materials in compliance with all Applicable Laws; and (c) it (as a matter of contract between itself and ImmunoGen) shall assume all liability for damages that may arise from the use, storage and disposal of any Preclinical Materials.  Bayer shall be entitled to transfer Preclinical Materials to any Third Party under terms obligating such Third Party not to transfer or use such Preclinical Materials except in compliance with the foregoing clauses (a) and (b) of the preceding sentence.

 

4.3                                Supply of Clinical Materials by ImmunoGen .   If, during the Term of this Agreement, Bayer requests in writing that ImmunoGen supply Bayer with such quantities of Clinical Materials as may be reasonably required by Bayer in order to conduct human clinical studies of such Clinical Materials through the completion of non-pivotal Phase II Clinical Studies for such Clinical Materials, ImmunoGen will use commercially reasonable efforts to supply Bayer with such Clinical Materials pursuant to the terms of a supply agreement (the “Supply Agreement”) to be negotiated in good faith by the Parties.  The Supply Agreement shall provide, among other things, that (a) ImmunoGen shall deliver all ordered amounts of Clinical Materials in accordance with forecasting parameters, advance ordering timeframes and delivery timeframes to be agreed upon by the Parties in the Supply Agreement; (b) in connection with any ordering of Clinical Materials by Bayer, ImmunoGen shall provide Bayer with ImmunoGen’s good faith estimate of the Cost for manufacture and supply of such Clinical Materials; (c) ImmunoGen’s price to supply Clinical Materials to Bayer shall equal [***] for such Clinical Materials; and (d) Bayer shall use such Clinical Materials solely for human clinical testing up to and including conduct of non-pivotal Phase II Clinical Studies.  The Supply Agreement may take the form of a master supply agreement, together with work orders specifically related to the supply of Clinical Materials.  Further, the Parties shall enter into such additional agreements related to GMP, quality and technical terms as are necessary for regulatory purposes.  Bayer hereby agrees that (i) it shall use the Clinical Materials in compliance with all Applicable Laws and (ii) it (as a matter of contract between itself and ImmunoGen) shall assume all liability for damages that may arise from the use, storage and disposal of such Clinical Materials.  Bayer shall be entitled to transfer Clinical Materials to any Third Party under terms obligating such Third Party not to transfer or use such Clinical Materials except in compliance with all Applicable Laws.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

22



 

4.4                                Purchase of Dedicated Equipment .   If, during the Term of this Agreement, ImmunoGen determines in good faith that it is necessary or advisable to purchase Dedicated Equipment in order to perform any of its obligations to manufacture Preclinical Materials or Clinical Materials under Sections 4.2 or 4.3 of this Agreement, then ImmunoGen shall provide Bayer with written notice of such determination, along with the estimated price for such purchase and quality parameters for the Dedicated Equipment, for Bayer’s approval of such price and features.  Promptly after the consummation of such purchase, assuming that Bayer has provided its approval hereunder, ImmunoGen shall provide Bayer with a copy of the invoice or invoices reflecting such purchase, and Bayer shall reimburse ImmunoGen for the purchase of all such approved Dedicated Equipment hereunder within [***] of its receipt of such invoice from ImmunoGen; provided, however, that no costs reimbursed by Bayer hereunder (or depreciation of such purchased equipment or instruments) shall be included within the calculation of any Costs under this Agreement.  Bayer shall have title and ownership of all such Dedicated Equipment purchased pursuant to this Section 4.4, and shall have the right to reclaim or retain possession of such Dedicated Equipment at its expense upon reasonable notice at such time as it is no longer required for use by ImmunoGen to carry out this Agreement.  Notwithstanding the foregoing, the purchase of items including, but not limited to, routine lab equipment, biological materials, products and reagents reasonably required by ImmunoGen to conduct the Research Program shall be included in the Research Budget.

 

4.5                                Process Development Activities .   To the extent that Bayer requests that ImmunoGen manufacture Preclinical Materials or Clinical Materials as described in this Section 4, ImmunoGen shall conduct such process development activities as the Parties agree are necessary to produce the quantities of Preclinical Materials or Clinical Materials so ordered.  From time to time after the Effective Date, the Parties shall agree in writing upon the number of FTEs required of ImmunoGen for the performance of such process development activities and Bayer shall pay the FTE Cost for such FTEs reflected in such written agreement.  Any Preclinical Materials or Clinical Materials used by ImmunoGen in connection with such process development activities shall be included within the calculation of Cost to be paid by Bayer pursuant to Sections 4.2 or 4.3 of this Agreement or the Supply Agreement.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

23



 

5.                                       PAYMENTS AND ROYALTIES

 

5.1                                Milestone Payments for Licensed Products .

 

(a)                                   Upfront Fee .  In consideration of the grant of the license described in Section 2.1 hereof, Bayer hereby agrees to pay ImmunoGen an upfront fee (the “Upfront Fee”) in the amount of $4,000,000 payable in immediately available funds within [***] of the Effective Date, which Upfront Fee shall be non-refundable and non-creditable.

 

(b)                                  Milestones .  In further consideration of the grant of the license by ImmunoGen hereunder, and subject to the other terms of this Agreement, Bayer will make the following payments to ImmunoGen within [***] after the first occurrence of each of the milestones set forth below for each Licensed Product Developed and Commercialized hereunder:

 

Milestone

 

Milestone Payment

 

 

 

Bayer Decision Point 3 (D3) or equivalent decision:

 

 

Start Preclinical Development

 

$

1.0 Million

 

 

 

IND filing for a Licensed Product

 

$

2.0 Million

 

 

 

Initiation of first non-pivotal Phase II

 

 

Clinical Study for a Licensed Product

 

$

4.0 Million

 

 

 

[***]

 

[***]

 

If Initiation of [***] or [***] for the [***] of a Licensed Product occurs before the [***] of a Licensed Product, the milestone payment payable upon the earlier of[***] or [***] for the first indication of a Licensed Product shall be increased from $[***] to $[***].  It is hereby acknowledged and agreed that any milestone payment shall be made [***].  All milestone payments shall be nonrefundable and noncreditable.  Bayer shall notify ImmunoGen of the achievement of each milestone hereunder for each Licensed Product as provided in Section 3.3(b) above.

 

5.2                                Research Funding .   In consideration of the performance by ImmunoGen of the Research Program, Bayer will pay ImmunoGen for all FTEs used by ImmunoGen in such Research Program and pursuant to the Research Budget, as described in the Research Plan or

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

24



 

agreed to by the Parties, at a rate per FTE equal to the FTE Rate.  From time to time after the Effective Date, the Parties shall agree in writing upon the number of FTEs required of ImmunoGen for agreed-upon portions of the Research Program and Bayer shall pay the FTE Cost for the FTEs reflected in such written agreement.  If, at any time during the Term of this Agreement, ImmunoGen determines that the actual number of FTEs for a particular period agreed to by the Parties is expected to exceed the FTE number set forth in such written agreement for such period by more than [***], ImmunoGen shall give Bayer prompt written notice of same and the Parties shall discuss in good faith whether to approve the use of such additional FTEs or to decrease the activities to be performed, such that such increased FTEs are not necessary.  ImmunoGen will maintain complete and accurate records which are relevant to its expenditure of Research Program funding provided to it by Bayer pursuant to this Section 5.2 as well as the purchase of any Dedicated Equipment pursuant to Section 4.4 hereof.

 

5.3                                Payment of Royalties; Royalty Rates; Accounting for Royalties and Records .

 

(a)                                   Royalty Payments .  For each Licensed Product, commencing on the first date of First Commercial Sale of such Licensed Product in any country or jurisdiction in the Territory, Bayer shall pay to ImmunoGen the following royalties based on Net Sales of such Licensed Product sold by Bayer, its Affiliates and its Sublicensees, on an incremental basis in each calendar year during the royalty term specified in Section 5.5, at the following rates:

 

For Annual Worldwide Net Sales

 

 

of Licensed Products

 

Royalty Rate (% of Annual Net Sales)

 

 

 

[***]

 

 

[***]

 

The Parties acknowledge and agree that royalties may be payable hereunder with respect to sales of Licensed Products in a country in which [***] in such country and under such circumstances, such royalties shall be in consideration of the commercial advantage, know-how and background information gained from the Licensed Technology.

 

(b)                                  Third Party Royalty Offset .  If, [***], Bayer [***] to one or more Third Parties in consideration for a [***], in the absence of which Bayer [***] (collectively, “Third Party Payments”), then Bayer shall have the right to reduce the royalties otherwise due to ImmunoGen pursuant to Section 5.3(a) with respect to sales [***] of such Licensed Products [***] by an amount equal to [***] the amount of such Third Party Payments.  Notwithstanding

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

25



 

the following, any such reductions under this Section 5.3(b) shall in no event reduce the royalty for such Licensed Product payable under Section 5.3(a) to [***] in [***].

 

5.4                                One Royalty .   Only one royalty, calculated at the highest applicable royalty rate under this Section 5, shall be payable to ImmunoGen hereunder for each sale of a Licensed Product.

 

5.5                                Royalty Term .   Bayer shall pay royalties with respect to each Licensed Product on a country-by-country and Licensed Product-by-Licensed Product basis until the later of (a) [***] from the First Commercial Sale of such Licensed Product in such country or (b) the expiration of the last to expire Valid Claim of the Licensed Patent Rights covering the Licensed Product in such country.  Following such royalty term, Bayer shall have a fully paid-up, irrevocable, freely transferable and sublicensable license in such country under the relevant Licensed Patent Rights and Licensed Technology, to Develop, have Developed, Commercialize, have Commercialized, make, have made, use, have used, sell, have sold, offer for sale, export, have exported, import and have imported such Licensed Product in such country.

 

5.6                                Payment Terms .

 

(a)                                   Payment of Milestones; Payment of Royalties; Royalty Reports .  Bayer shall make any milestone payments owed to ImmunoGen hereunder in United States Dollars, using the wire transfer provisions of Section 5.6(d) within [***] of the occurrence of the applicable milestone.  Bayer shall make any royalty payments owed to ImmunoGen in United States Dollars, quarterly within [***] following the end of each calendar quarter for which such royalties are deemed to occur (as provided in the next sentence), using the wire transfer provisions of Section 5.6(d).  For purposes of determining when a sale of any Licensed Product occurs under this Agreement, the sale shall be deemed to occur on the earlier of (i) the date the Licensed Product is shipped or (ii) the date of the invoice to the purchaser of the Licensed Product.  Each royalty payment shall be accompanied by a report for each country in the Territory in which sales of Licensed Products occurred in the calendar quarter covered by such statement, specifying: the gross sales (if available) and Net Sales in each country’s currency; the applicable royalty rate under this Agreement; the royalties payable in each country’s currency, including an accounting of deductions taken in the calculation of Net Sales; the applicable

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

26



 

exchange rate to convert from each country’s currency to United States Dollars under this Section 5.6; and the royalties payable in United States Dollars.

 

(b)                                  Accounting .  All payments hereunder shall be made in U.S. dollars.  Royalties shall be calculated based on Net Sales in the currency of each country in which Net Sales have occurred, and shall be converted (as applicable) to U.S. Dollars as follows.  With respect to each calendar quarter, whenever conversion of payments from any foreign currency shall be required, such conversion shall be made using the arithmetic average of the spot rates on (a) the first Business Day (as defined below) of the calendar quarter to which such payments relate and (b) the last Business Day of each month of such calendar quarter to which such payments relate.  The “closing mid-point rates” found in the “Exchange Rates” table published by The Wall Street Journal , or any other publication as agreed to by the Parties, shall be used as the source of spot rates to calculate the average as defined in the preceding sentence.  For purposes of the foregoing, “Business Day” means a day on which banking institutions in New York, New York are open for business.

 

(c)                                   Tax Withholding .   All payments made by Bayer to ImmunoGen hereunder shall be free and clear of any taxes, duties, levies, fees or charges, except for withholding taxes, if any.  Bayer shall make any applicable withholding payments due on behalf of ImmunoGen and shall provide ImmunoGen with reasonable proof of payment of such withholding taxes, together with an accounting of the calculations of such taxes, within [***] after such payment is remitted to the proper authority.  Any withheld tax remitted by Bayer to the proper authority shall be treated as having been paid by Bayer to ImmunoGen for all purposes of this Agreement.  The Parties will cooperate reasonably in completing and filing documents required under the provisions of any applicable laws in connection with the making of any required withholding tax payment, or in connection with any claim to a refund of or credit for any such payment.

 

(d)                                  Wire Transfers .  All payments hereunder shall be made to ImmunoGen by bank wire transfer in immediately available funds to the account designated by ImmunoGen by written notice to Bayer from time to time.

 

5.7                                Overdue Payments .   Subject to the other terms of this Agreement, royalties or milestones not paid within the time period set forth in this Section 5 shall bear interest from the due date until paid in full, at a rate equal to the lesser of (a) [***] or (b) the maximum interest

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

27



 

rate permitted by applicable law in regard to such payments.  Such royalty or milestone payment when made shall be accompanied by all interest so accrued.  Such interest and the payment and acceptance thereof shall not negate or waive the right of ImmunoGen to any other remedy, legal or equitable, to which it may be entitled because of the delinquency of the payment.

 

5.8                                Records Retention; Audit .

 

(a)                                   Records Retention .  Commencing as of the date of First Commercial Sale of the first Licensed Product, Bayer and its Affiliates and Sublicensees shall keep for at least [***] from [***] complete and accurate records of sales by Bayer or its Affiliates or Sublicensees, as the case may be, of each Licensed Product, in sufficient detail to allow the accuracy of the royalties to be confirmed.  For purposes of facilitating ImmunoGen’s audit rights under Section 5.8(b), one complete and accurate set of such records shall be maintained at all times in the United States.

 

(b)                                  Audit .  Subject to the other terms of this Section 5.8(b), at the request of ImmunoGen, upon at least [***] prior written notice, but no more often than [***], and at its sole expense (except as otherwise provided herein), Bayer shall permit an independent certified public accountant reasonably selected by ImmunoGen and reasonably acceptable to Bayer to inspect (during regular business hours) the relevant records required to be maintained by Bayer under Section 5.8(a) in the United States.  At ImmunoGen’s request, the accountant shall be entitled to audit the [***] of Bayer’s records for purposes of verifying Bayer’s royalty calculations.  To the extent requested by Bayer, the accountant shall enter into a confidentiality agreement with both Parties substantially similar to the provisions of Section 6 limiting the disclosure and use of such information by such accountant to authorized representatives of the Parties and the purposes germane to this Section 5.8.  Results of any such audit shall be made available to both Parties and shall be binding on both Parties.  ImmunoGen agrees to treat the results of any such accountant’s review of Bayer’s records under this Section 5.8(b) as Confidential Information of Bayer subject to the terms of Section 6.  If any such audit reveals a deficiency in the calculation of royalties resulting from any underpayment by Bayer, Bayer shall [***] pay ImmunoGen the amount remaining to be paid [***], and if such underpayment is by [***], Bayer shall pay the costs and expenses of the audit.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

28



 

6.                                       TREATMENT OF CONFIDENTIAL INFORMATION

 

6.1                                Confidentiality .

 

(a)                                   Confidentiality Obligations .  ImmunoGen and Bayer each recognizes that the other Party’s Confidential Information constitutes highly valuable assets of such other Party.  ImmunoGen and Bayer each agrees that, subject to Section 6.1(b), during the Term and for an additional [***] thereafter, (i) it will not disclose, and will cause its Affiliates and sublicensees not to disclose, any Confidential Information of the other Party and (ii) it will not use, and will cause its Affiliates not to use, any Confidential Information of the other Party, in either case, except as expressly permitted hereunder.  Without limiting the generality of the foregoing, each Party shall take such action, and shall cause its Affiliates and sublicensees to take such action, to preserve the confidentiality of the other Party’s Confidential Information as such Party would customarily take to preserve the confidentiality of its own Confidential Information and shall, in any event, use at least reasonable care to preserve the confidentiality of the other Party’s Confidential Information.

 

(b)                                  Limited Disclosure .  Each Receiving Party shall be entitled to disclose the Disclosing Party’s Confidential Information to employees, consultants and Affiliates of the Receiving Party to enable the Receiving Party to exercise its rights or to carry out its responsibilities under this Agreement, provided that such disclosure shall only be made to persons who are bound by written obligations as described in Section 6.1(c).  In addition, the Disclosing Party’s Confidential Information may be disclosed by the Receiving Party (i) on a need-to-know basis to the Receiving Party’s legal and financial advisors and (ii) as reasonably necessary in connection with any actual or potential (A) permitted sublicense of the Receiving Party’s rights hereunder, (B) debt or equity financing of the Receiving Party or (C) purchase by any Third Party of all the outstanding capital stock or all or substantially all of the assets of the Receiving Party or any merger or consolidation involving the Receiving Party; provided that in each case the Person receiving the Disclosing Party’s Confidential Information agrees in writing to maintain the confidentiality of such Confidential Information with terms at least as protective as those contained in Section 6.1(a).  In addition, the Receiving Party may disclose the Disclosing Party’s Confidential Information to the extent such disclosure (1) is reasonably

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

29



 

necessary to file, prosecute or maintain patents or patent applications, or to file, prosecute or defend litigation related to patents or patent applications, in accordance with this Agreement, or (2) as required by Applicable Laws, provided that in the case of any disclosure under this clause (2), the Receiving Party shall (x) if practicable, provide the Disclosing Party with reasonable advance notice of and an opportunity to comment on any such required disclosure, (y) if requested by the Disclosing Party, cooperate in all reasonable respects with the Disclosing Party’s efforts to obtain confidential treatment or a protective order with respect to any such disclosure, at the Disclosing Party’s expense, and (z) use good faith efforts to incorporate the comments of the Disclosing Party in any such disclosure or request for confidential treatment or a protective order.

 

(c)                                   Employees and Consultants .  ImmunoGen and Bayer each hereby represents and warrants that all of its employees and consultants, and all of the employees and consultants of its Affiliates, who participate in the activities contemplated by this Agreement or who otherwise have access to Confidential Information of the other Party are or will, prior to their participation or access, be bound by written obligations to maintain such Confidential Information in confidence and not to use such information except as expressly permitted hereunder.  Each Party agrees to use, and to cause its Affiliates to use, reasonable efforts to enforce such obligations.

 

6.2                                Publicity .   The Parties acknowledge that the terms of this Agreement constitute the Confidential Information of each Party and may not be disclosed except as permitted by Section 6.1(b).  Anything contained in this Agreement to the contrary notwithstanding, the Parties, upon the execution of this Agreement, shall mutually agree to a press release with respect to this Agreement and, once such press release is approved for disclosure by both Parties, either Party may make subsequent and repeated public disclosure of the contents thereof without further approval of the other Party.  After issuance of such press release, neither Party shall publish, present or otherwise disclose publicly any material related to the Research Program or the Development or Commercialization of a Licensed Product without the prior written consent of the other Party; provided that notwithstanding the foregoing, (a) neither Party will be prevented from complying with any duty of disclosure it may have pursuant to Applicable Laws; (b) either Party shall be permitted to publish such material in

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

30



 

scientific journals or present such material at scientific conferences in accordance with Section 6.3; and (c) both Parties (i) hereby acknowledge that the respective other Party’s ability to attract and raise capital is substantially dependent on its ability to publish, present or otherwise announce publicly developments in its research and development programs or in its product development pipeline and (ii) agree that they shall not unreasonably withhold, condition or delay their respective consent to any request by the respective other Party to publish, present or otherwise announce publicly developments in the Research Program or the Development or Commercialization of Licensed Products, including, without limitation, any announcement of the occurrence of any milestone event under Section 5.1(b).

 

6.3                                Publications and Presentations .   The Parties acknowledge that scientific publications and presentations must be strictly monitored to prevent any adverse effect from premature publication or dissemination of results of the activities hereunder.  Each Party agrees that, except as required by Applicable Laws, it shall not publish or present, or permit to be published or presented, the results of the Research Program or the Development or Commercialization of a Licensed Product to the extent such results refer to or otherwise relate to the Licensed Technology or Licensed Patent Rights (the “Covered Results”) without the prior review by and approval of the other Party.  Each Party shall provide to the other Party the opportunity to review each of the submitting Party’s proposed abstracts, manuscripts or presentations (including, without limitation, information to be presented verbally) that relate to the Covered Results at least [***] prior to its intended presentation or submission for publication, and such submitting Party agrees, upon written request from the other Party given within such [***], not to submit such abstract or manuscript for publication or to make such presentation until the other Party is given up to [***] from the date of such written request to seek appropriate patent protection for any Covered Rights in such publication or presentation that it reasonably believes may be patentable.  Once such abstracts, manuscripts or presentations have been reviewed and approved by each Party, the same abstracts, manuscripts or presentations do not have to be provided again to the other Party for review for a later submission for publication.  Each Party also shall have the right to require that any of its Confidential Information that is disclosed in any such proposed publication or presentation be deleted prior to such publication or presentation.  In any permitted publication or presentation by a Party, the other Party’s

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

31



 

contribution shall be duly recognized, and co-authorship shall be determined in accordance with customary industry standards.

 

6.4                                Remedies .   Each Party, as the Receiving Party, acknowledges that money damages would not be a sufficient remedy for any breach of the confidentiality obligations set forth in this Section 6, and the Disclosing Party shall be entitled to specific performance and injunctive relief as remedies for any such breach.  Anything contained in this Agreement to the contrary notwithstanding, such remedies will not be deemed to be the exclusive remedies for breach of the confidentiality obligations set forth in this Section 6 but will be in addition to all other remedies available at law or equity to the Disclosing Party.

 

6.5                                Integration .   As to the subject matter of this Agreement, this Section 6 supersedes any confidential disclosure agreements between the Parties, including, without limitation, the Confidentiality Agreements and the confidentiality provisions of the MTA.  Any confidential information of a Party under any such agreement shall be treated as Confidential Information of such Party hereunder, subject to the terms of this Section 6.

 

7.                                       PROVISIONS CONCERNING THE FILING, PROSECUTION AND
MAINTENANCE OF PATENT RIGHTS

 

7.1                                Ownership of Intellectual Property .

 

(a)                                   Solely-Owned Technology .  As between the Parties, ImmunoGen shall be the sole owner of (i) the Licensed Patent Rights and the Licensed Technology, (ii) all ImmunoGen Program Technology, and (iii) all ImmunoGen Improvements.  As between the Parties, and subject to Section 7.3(b), Bayer shall be the sole owner of (A) all Bayer Background Technology, (B) all Bayer Program Technology and (C) all Bayer Improvements.  The Party solely owning any Technology or Improvements hereunder shall be the sole owner of all Patent Rights with respect thereto. All determinations of inventive contribution shall be as determined by United States laws of inventorship.  The Party solely owning an invention hereunder will be solely responsible, at its own cost and expense and in its sole discretion, for the filing, prosecution and maintenance of any Patent Rights with respect thereto.

 

(b)                                  Joint Technology .  All Joint Program Technology and Joint Improvements shall be jointly owned by ImmunoGen and Bayer.  All determinations of inventive contribution

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

32



 

shall be as determined by United States laws of inventorship.  The Parties shall also jointly own any Patent Rights covering any such Joint Program Technology and Joint Improvements.

 

(c)                                   Disclosure .  As regards any Program Technology hereunder, each Party shall provide to the other Party any invention disclosure made during the course of performance of this Agreement and relating to activities carried out hereunder within [***] after such Party receives such disclosure from its employees or others obligated to assign inventions to such Party.

 

7.2                                Patent Filing, Prosecution and Maintenance .

 

(a)                                   Licensed Patent Rights .   ImmunoGen, acting through patent counsel or agents of its choice, shall be responsible, at its sole cost and expense and in its sole discretion, for the preparation, filing, prosecution and maintenance of all Licensed Patent Rights (other than Licensed Patent Rights covering Joint Program Technology or Joint Improvements).

 

(b)                                  Bayer Improvements .  Bayer, acting through patent counsel or agents of its choice, shall be responsible, at its sole cost and expense and in its sole discretion, for the preparation, filing, prosecution and maintenance of all Patent Rights covering Bayer Improvements.  Bayer will keep ImmunoGen reasonably informed of the status of the filing, prosecution and maintenance of any such Patent Rights, including, without limitation, by using commercially reasonable efforts to provide ImmunoGen a reasonable time prior to taking or failing to take any action that would affect the scope or validity of any such filing (including the substantially narrowing, cancellation or abandonment of any claim(s) without retaining the right to pursue such subject matter in a separate application, or the failure to file or perfect the filing of any claim(s) in any country), with prior written notice of such proposed action or inaction so that ImmunoGen has a reasonable opportunity to review and comment.

 

(c)                                   Joint Program Technology and Joint Improvements .

 

(i)                                      Bayer, acting through patent counsel and agents of its choice, shall be responsible, at its sole cost and expense and in its sole discretion, for the preparation, filing, prosecution and maintenance of all Patent Rights covering Joint Program Technology.

 

(ii)                                   ImmunoGen, acting through patent counsel and agents of its choice, shall be responsible, at its sole cost and expense and in its sole discretion, for the

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

33



 

preparation, filing, prosecution and maintenance of all Patent Rights covering Joint Improvements.

 

(iii)                                The Party undertaking responsibility for the filing, prosecution and maintenance of any Patent Rights covering Joint Program Technology or Joint Improvements will keep the other Party reasonably informed of the status of such filing, prosecution and maintenance, including, without limitation, by using commercially reasonable efforts to provide the other Party a reasonable time prior to taking or failing to take any action that would affect the scope or validity of any such filing (including the substantially narrowing, cancellation or abandonment of any claim(s) without retaining the right to pursue such subject matter in a separate application, or the failure to file or perfect the filing of any claim(s) in any country), with prior written notice of such proposed action or inaction so that the other Party has a reasonable opportunity to review and comment.

 

(d)                                  Cooperation .  Each Party agrees to cooperate reasonably with the other Party in the preparation, filing, prosecution and maintenance of any Patent Rights pursuant to this Section 7.2.  Such cooperation includes, but is not limited to, executing all papers and instruments, or requiring employees or others to execute such papers or instruments, so as to effectuate the ownership of such Patent Rights and to enable the filing and prosecution thereof in any country or region.

 

7.3                                Abandonment .

 

(a)                                   Licensed Patent Rights; Joint Improvements .  If ImmunoGen decides to abandon or to allow to lapse, or otherwise determines not to prosecute, any of the Licensed Patent Rights or Patent Rights covering Joint Improvements for which it is the filing party under Sections 7.2(a) and 7.2(c)(ii) in any country or region in the Territory, ImmunoGen shall inform Bayer of such decision promptly and, in any event, so as to provide Bayer a reasonable amount of time to meet any applicable deadline to establish or preserve such Patent Rights in such country or region.  Bayer shall have the right to assume responsibility for continuing the prosecution of such Patent Rights in such country or region and paying any required fees to maintain such Patent Rights in such country or region or defending such Patent Rights, in each case at Bayer’s sole expense and through patent counsel or agents of its choice.  Bayer shall not become an assignee of such Licensed Patent Rights or of ImmunoGen’s interest in such Patent

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

34



 

Rights covering Joint Improvements as a result of its assumption of such responsibility.  Upon transfer of ImmunoGen’s responsibility for prosecuting, maintaining and defending any of the Licensed Patent Rights or Patent Rights covering Joint Improvements under this Section 7.3(a), ImmunoGen shall promptly deliver to Bayer copies of all necessary files related to such Patent Rights with respect to which responsibility has been transferred and shall take all actions and execute all documents reasonably necessary for Bayer to assume such prosecution, maintenance and defense.

 

(b)                                  Bayer Improvements; Joint Program Technology .  If Bayer decides to abandon or allow to lapse, or otherwise determines not prosecute, any of the Patent Rights covering Bayer Improvements or Patent Rights covering Joint Program Technology for which it is the filing party under Sections 7.2(b) and 7.2(c)(i) in any country or region in the Territory, Bayer shall inform ImmunoGen of such decision promptly and, in any event, so as to provide ImmunoGen a reasonable amount of time to meet any applicable deadline to establish or preserve such Patent Rights in such country or region.  ImmunoGen shall have the right to assume responsibility for continuing the prosecution of such Patent Rights in such country or region and paying any required fees to maintain such Patent Rights in such country or region or defending such Patent Rights, in each case at ImmunoGen’s sole expense and through patent counsel or agents of its choice.  ImmunoGen shall not become an assignee of Bayer’s interest in such Patent Rights covering Joint Program Technology as a result of its assumption of such responsibility.  Upon transfer of Bayer’s responsibility for prosecuting, maintaining and defending any of the Patent Rights covering Bayer Improvements under this Section 7.3(b), Bayer shall [***].  Upon transfer of Bayer’s responsibility for prosecuting, maintaining and defending any of the Patent Rights covering Bayer Improvements or Joint Program Technology, Bayer shall promptly deliver to ImmunoGen copies of all necessary files related to such Patent Rights with respect to which responsibility has been transferred and shall take all actions and execute all documents reasonably necessary for ImmunoGen to assume such prosecution, maintenance and defense and, in the case of Patent Rights covering Bayer Improvements, to [***].

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

35



 

7.4                                Third Party Infringement .

 

(a)                                   If either Party becomes aware of any possible infringement of, or submission by any Third Party of an abbreviated new drug application under the Hatch-Waxman Act that is covered by, any Licensed Patent Rights that cover a Licensed Product or any Bayer Improvement (an “Infringement”), that Party shall promptly notify the other Party and provide it with all details of such Infringement of which it is aware (each, an “Infringement Notice”).

 

(b)                                  ImmunoGen shall have the first right and option, but not the obligation, to eliminate such Infringement with respect to Licensed Patent Rights (other than Patent Rights covering Joint Program Technology) that cover Licensed Products by reasonable steps, which may include the institution of legal proceedings or other action.  All costs, including, without limitation, attorneys’ fees, relating to such legal proceedings or other action shall be borne by ImmunoGen.  If ImmunoGen does not take commercially reasonable steps to eliminate the Infringement within [***] from any Infringement Notice (or [***] in the case of an Infringement under the Hatch-Waxman Act), then Bayer shall have the right and option to do so at its expense, provided that if ImmunoGen has commenced negotiations with an alleged infringer for elimination of such Infringement within such [***] (or, if applicable, such [***]) period, then ImmunoGen shall have an additional [***] (or in the case of an infringement under the Hatch-Waxman Act, [***]) to conclude its negotiations before Bayer may take steps to eliminate such Infringement.

 

(c)                                   Bayer shall have the first right and option, but not the obligation, to eliminate such Infringement with respect to Patent Rights covering Bayer Improvements or Joint Program Technology by reasonable steps, which may include the institution of legal proceedings or other action.  All costs, including, without limitation, attorneys’ fees, relating to such legal proceedings or other action shall be borne by Bayer.  If Bayer does not take commercially reasonable steps to eliminate the Infringement within [***] from any Infringement Notice (or [***] in the case of an Infringement under the Hatch-Waxman Act), then ImmunoGen shall have the right and option to do so at its expense, provided that if Bayer has commenced negotiations with an alleged infringer for elimination of such Infringement within such [***] (or, if applicable, such [***]) period, then Bayer shall have an additional [***] (or in the case of an

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commiss