DEVELOPMENT OF HUPERZINE A TRANSDERMAL DELIVERY SYSTEM Term Sheet March 8, 2006
DEVELOPMENT
OF HUPERZINE A TRANSDERMAL
DELIVERY
SYSTEM
Term
Sheet
March
8, 2006
Product
Development Term Sheet ("Agreement")
This
Amended Term Sheet shall replace the Term Sheet dated August 18, 2005 and shall
set forth
the
terms of the agreement between Xel Herbaceuticals, Inc. (Xel) and Neuro Hitech
Pharmaceuticals,
Inc. (NHPI), (collectively the "Parties") for the development of a Huperzine
A
Transdermal
Delivery System (hereinafter the "Product").
1.0 Definitions.
As
used
herein, the following terms shall have the following meanings:
1.1 "Product"
shall
mean transdermal matrix and liquid reservoir patches containing a
therapeutically effective amount of Huperzine A as an active agent, and
optionally a permeation
enhancer. It is anticipated that such Product would eventually be submitted
for
the
United States FDA and other Foreign Governmental Drug Agency approval for a
variety
of memory and cognitive related indications.
1.2 "Intellectual
Property" shall
mean any government prescribed mechanism for protecting
the Product, including but not limited to issued patents, pending patent
applications including continuation, continuation-in-part, and divisional
applications, reissue and reexamined applications, as well as related know-how,
including confidential and
trade
secret information.
1.3 "Confidential
Information" shall
mean all information, knowledge, know-how, or
data,
regardless of form, whether written, oral, photographic, electronic, magnetic,
computer, or otherwise, that is treated or designated by either of the Parties
as confidential
or proprietary. Confidential Information, if supplied in written form, shall
be
marked "confidential" (or words of similar import) and, if disclosed other
than
in writing, shall
be
confirmed to the receiving party in writing as "confidential" within 30 days
after its disclosure. The Parties agree to utilize all Confidential Information
solely for the purposes
of carrying out the terms of the present Agreement.
1.4 "Initial
Territory" shall
mean the geographic territory of the United States of America
and Canada.
1.5 "Supplemental
Territory" shall
mean all
the
countries of the world with the exception
of China, Taiwan, Hong Kong, Macau and Singapore.
1.6 "Product
Development Program" shall
mean a multi-stage research and development
program to develop a Product. Stage I of the Product Development Program
is generally outlined in Exhibit I.
2.0 The
Option. It
is
agreed that Xel shall initiate and conduct Stage I of a Product Development
Program,
and that in exchange for the funding thereof, NHPI shall receive the option
of
licensing Intellectual
Property Rights for the Product in the Initial and Supplemental Territories,
said option
to
be exercised by NHPI upon written notice to Xel within 120 days of the
completion of Stage
I
of the Product Development Program in the event that at least one patent is
issued in the United
States. In the event that no patent is issued by the completion of Stage I
of
the Product Development
Program, NHPI has up to 360 days to exercise its option upon written notice
to
Xel.
The
information contain
in this
communication is confidential and is intended for
the use
of
individual or
entity named herein.
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3.0 The
License Agreement. It
is
agreed that in the event that NHPI exercises its option to enter a
license
for the Intellectual Property Rights to the Product owned by Xel, the parties
shall negotiate a license agreement therefore in good faith; such agreement
shall include the following terms:
3.1 Exclusivity: The
license agreement shall grant NHPI the exclusive right to manufacture,
market, use, and sell the Product in the Initial Territory and the Supplemental
Territory.
3.2 Right
to Sublicense: The
license agreement shall grant the right of NHPI to sublicense
the Intellectual Property Rights of the Product to third parties upon mutual
agreement
with Xel in the selection of third parties and Xel's agreement not to be
unreasonably
withheld. A percentage of royalties collected by NHPI shall be paid to Xel
in
accordance with the terms set forth below.
3.3 Milestone
Payments. The
license agreement shall contain the following milestone terms
3.31 In
the
event that NHPI decides to exercise its option to license the rights to
manufacture, market, sell, and use the Product in the Initial Territory and
to
develop the Product on its own without a third party and Xel obtains a United
States Patent whose claims
cover the Product:
A.
$400,000 within ten (1.0) days
of
exercising its option to license the rights to manufacture,
market, sell, and use the Product in the Initial Territory;
B.
$100,000 upon completion of the GMP Prototype Development Stage;
C.
$100,000 upon completion of the submission of US IND;
D.
$200,000 upon completion of Phase II clinical
study;
E.
$400,000 upon completion of Phase III clinical study;
F.
$600,000 upon completion of the submission of US NDA;
G.
$1,000,000 upon approval of US NDA.
3.32
In
the event that NHPI decides to exercise its option to license the rights to
manufacture,
market, sell, and use the Product in the Initial Territory and to develop the
Product
on its own without a third party and Xel doesn't obtain a United States Patent
whose
claims cover Product, the amounts listed in subsection 3.31 shall be reduced by
fifty
percent [50%] until such time as Xel does obtain a United States Patent whose
claims
cover the Product, at which time the unpaid fifty percent [50%] of all milestone
payments
previously made shall be due.
3.33
In
the event that NHPI decides to exercise its option to license the rights
to
manufacture,
market, sell, and use the Product in the Initial Territory and to develop the
Product in conjunction with a third party, NHPI shall pay to Xel fifty percent
[50%] of any
initial signing fees and milestone fees (any fees for R&D purposes shall be
excluded) paid
by
such third party in the event of a US Patent is obtained, and if there is no
US
Patent
NHPI
shall
pay to Xel twenty five percent (25%) of such fees.
The
information contain
in this
communication is confidential and is intended for
the use
of
individual or
entity named herein.
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3.34
In
the event that NHPI decides to exercise its option to license the rights to
manufacture,
market, sell, and use the Product in the Supplemental Territory and to
develop
the Product on its own without a third party, NHPI shall pay to Xel $400,000
within
120 days of the completion of Stage I of the Product Development Program in
the
event that at least one international patent is issued (e.g.
Japan
or
the European Community.)
In addition milestone payments shall be due in the Supplemental Territory
(e.g.
Japan
or
European Community) in accordance with 3.31 B-G with appropriate modifications
for each particular Regulatory Jurisdiction.
3.35
In
the event that NHPI decides to exercise its option to license the rights to
manufacture,
market, sell, and use the Product in the Supplemental Territory and to
develop
the Product on its own without a third party, NHPI shall pay to Xel $400,000
within
360 days of the completion of Stage I of the Product Development Program in
the
event
that no international patent covering the Product is issued to Xel. In addition
milestone
payments shall be due in the Supplemental Territory (e.g.
Japan
or
European Community)
in accordance with 3.31 B-G and 3.32 above with appropriate modifications
for
each
particular Regulatory Jurisdiction.
3.36
In
the event that NHPI decides to exercise its option to license the rights to
manufacture,
market, sell, and use the Product in the Supplemental Territory and to
develop
the Product in conjunction with a third party, NHPI shall pay to Xel fifty
percent [50%]
of
any initial signing fees and milestone fees (any fees for R&D purposes shall
be excluded) paid by such third party in the event of a International Patent
is
issued, and if there
is
no International Patent NHPI shall pay to Xel twenty five percent
[25%].
3.37
Other countries licensing opportunities outside of Japan and the European
Community
shall be negotiated by the parties in good faith.
4.0 Royalties: The
license agreement shall contain a schedule of royalty payments to be made
by
NHPI
to Xel as follows:
4.1 Product
sold by NHPI in a country of the Initial Territory in which the Product is
covered
that by at least one Patent issued in that country of the Initial
Territory:
Net
Sales
of < $20,000,000/year –
7%
Net
Sales
of $20,000,001 - $40,000,000/year –
8%
Net
Sales
of $40,000,001 -
$75,000,000/year –
9%
Net
Sales
of > $75,000,000/year –
10%
Upon
expiration of the last to expire Patent, the foregoing royalty shall be
reduced
to 2% of Net Sales.
The
information contain
in this
communication is confidential and is intended for
the use
of
individual or
entity named herein.
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In
the
event that a generic Product is launched in the Initial Territory before the
Patent expiration, the foregoing royalty shall be reduced to 2% of Net
Sales.
In
the
event that NHPI shall exercise its option to license Product in the Supplemental
Territory, the parties shall negotiate in good faith, royalties to be
paid
in each country of the Supplemental Territory.
4.2 Product
sold by NHPI in a country of the Initial Territory in which the Product is
not
covered
that by at least one Patent issued in that country of the Initial
Territory:
Net
Sales
of < $20,000,000/year –
3%
Net
Sales
of $20,000,001 - $40,000,000/year –
3.5%
Net
Sales
of $40,000,001 - $75,000,000/year –
4%
Net
Sales
of > $75,000,000/year –
5%
Such
royalties shall be payable for a period of 10 years from the date of
NHPI's
first receipt of Net Sales.
In
the
event that NHPI shall exercise its option to license Product in the Supplemental
Territory, the parties shall negotiate in good faith, royalties to be
paid
in each country of the Supplemental Territory.
4.3 Product
sold by third party sublicensees of NHPI:
NHPI
shall pay Xel 20% of any royalty received by NHPI from NHPI's sublicensees,
however, in the event that the Product is not protected by at least one Patent
issued in the country of the Initial or Supplemental Territories, NHPI
shall pay 10% of any royalty received by NHPI from NHPI's sub licensees.
5.0. Ownership
of Rights.
5.1 All
Intellectual Property and Confidential Information concerning or related to
the
Product developed by either party prior to the effective date of this term
sheet, as well as all Intellectual Property and Confidential Information not
concerning, or unrelated to the Product, shall remain the exclusive property
of
the party who owns or controls that Intellectual Property and Confidential
Information as of the date of entering into this agreement.
5.2 All
Intellectual Property and Confidential Information produced during Stage I
of
the Product
Development Program shall be jointly owned by Xel and NHPI.
5.3 In
the event that NHPI elects not to exercise its Option to enter a license
agreement upon
the
completion of Stage I and Xel elects to further develop the Product without
NHPI, Xel shall pay to NHPI thirty percent [30%] of net profits realized from
such further
development up to an amount equivalent to double the total amount received
from
NHPI
in
Stage I, excluding the signing fee of $250,000, in exchange for full ownership
of the
jointly owned Intellectual Property and Confidential Information developed
in
Stage I.
The
information contain
in this
communication is confidential and is intended for
the use
of
individual or
entity named herein.
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5.4 In
the event that NHPI exercises its option to enter into a license agreement,
in
the Initial Territory but not the Supplemental Territory, Xel or its duly
authorized licensees, shall
have the right to present any data generated during Stage I of the Product
Development Program in support of a regulatory filing in any country outside
the
Initial Territory
upon payment of a reasonable amount to NHPI. Such amount shall be negotiated
in good faith between the parties on an as needed basis.
6.0 Full
Disclosure: Xel
agrees that during the life of this Agreement, that it shall upon reasonable
notice, make available for NHPI's inspection, its facilities as well as all
documents and
information, including Confidential Information, related to the Intellectual
Property of the Product
including without limitation, copies of all pending patent applications and
issued patents in the Supplemental Territory, and patents or patent applications
licensed from third parties in the
Supplemental Territory (if applicable).
7.0 Product
Development Program –
Stage
I. Upon
execution of this Agreement, Xel will promptly
commence the Product Development Program -
Stage
I
that will conclude with a prototype
Product that is suitable for clinical studies. The development cost and
timelines for this
program are specified in the Agreement (Exhibit I) with the following financial
terms:
7.1 Signing
fee of $250,000 by NHPI to Xel upon execution of this agreement;
7.2 Monthly
fees of $92,500 will be paid to Xel for each month from the commencement
the
Product Development Program – Stage I. Estimated duration of the development
program
is sixteen [
16]
months (Exhibit 1).
7.3 Reports
& Audit. To allow for flexibility in Xel's workflow and accounting
practices, Xel
shall
provide reconciliation reports of its monthly expenses including a calculated
profit
of
twenty percent [20%] to NHPI at the end of quarterly period. At the end of
each
quarterly
reporting period and based on that quarterly reconciliation report, NHPI will
make
a
once per quarter adjustment of the monthly fee paid to Xel to either increase
or
decrease
the first immediately following monthly payment as needed. NHPI shall have
rights
to
audit such expenses once each three months with 15 days written notice and
reasonable
accommodation to Xel.
7.4 Overruns.
The parties recognize that the cost of completing the program may exceed
the
budgeted amount. To fairly apportion the amount of any overruns, NHPI shall
be
responsible
for and shall reimburse Xel for all of reasonable overruns (both internal and
external
expenses) for performing the Product Development Program –
Stage
I
up to an amount
of
two hundred fifty thousand dollars [$250,000] and Xel shall be responsible
for
funding
all overruns over two hundred fifty thousand dollars [$250,000].
8.0 Xx.
Xxxxxx X Xxxxx shall serve as a scientific advisor to NHPI in relation to this
Project, the
term
of which regarding compensation and other expense will be negotiated at a later
date.
The
information contain
in this
communication is confidential and is intended for
the use
of
individual or
entity named herein.
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9.0 Xel
Represents and Warrants that it has legal right and title to all Intellectual
Property relating
to the Product, that it is currently unaware of any third party patent or
intellectual property
right which the manufacture, use or sale of the Product would infringe, that
it
has the right
to
enter into this agreement and that such action does not create any conflict
with
any other agreement
to which it is a party.
10.0 This
Agreement shall be governed by New York law.
/s/
Xxxx X. Xxxxx
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/s/
Xxxxxx Xxxxxxx
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Xxxx
X. Xxxxx
|
Xxxxxx
Xxxxxxx
|
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CEO
|
President
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Xel
Herbaceuticals, Inc.
|
Neuro
Hitech Pharmaceuticals, Inc.
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Date:
03/08/2006
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Date:
03/15/2006
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The
information contain
in this
communication is confidential and is intended for
the use
of
individual or
entity named herein.
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