0902005 Informal Interpretation

From: (REDACTED)
Sent: Wednesday, February 18, 2009 1:00 PM
To: Verne. B. Michael
Cc: (REDACTED)

Subject: HSR LicensingQuestion

Mike,

Our client, X,invented a family of compounds. It transferred exclusive rights to thosecompounds to V for a restricted set of indications, and retained rights as toall other indications. To date, the compounds have not yielded exciting resultsin the transferred field, but there is some reason to believe they might beuseful in the retained fields. X is considering various alternatives toresearch the compounds for one of the retained indications.

The firstalternative contemplated is a research and development contract in which X paysV to research the compounds within X's field of use. This makes sense given V'sexperience in working with the compound. At a defined point in the process, Xwill decide if it wishes to pursue the agreed indication. If it does, it willpay V milestone payments and, assuming the compound is commercialized,royalties on sales. If X decides not to go forward, V will have an option toacquire the compounds for all indications at a nominal price.

The secondalternative is for X to grant V non-exclusive rights to the IP in thepreviously retained fields (i.e., X and V will both have rights to make andsell the product) and pay V to research the compound for the target indication.At an agreed point in the development process, X will have an option toreacquire those nonexclusive rights from V by making milestone payments andcommitting to royalties on sales as described in the first option. If X does notreacquire the nonexclusive rights, V would have the right for nominalcompensation to make its non-exclusive rights to the additional indicationsexclusive.

The thirdalternative is for X to transfer the rights to use the compounds for allindications to V, to pay V to conduct the research, and for X to have an optionto reacquire the exclusive rights to the IP at a defined point in the researchby paying milestone payments and royalties as in the first two options.

We believe thefirst alternative is nonreportable unless X decides not to go forward with theproject and V exercises its right to acquire the additional rights in atransaction that meets the thresholds. We understand that the third alternativeinvolves two potentially reportable transactions, the transfer of additionalexclusive rights from X to V and the reacquisition of those exclusive rights byX if it exercises its option, with reporting required if all the relevantthresholds are met.

In the secondalternative, if X exercises its option to re-acquire the non-exclusive rightsfrom V and all the relevant thresholds are met, would the exercise of theoption be reportable?

Let us know if itwould be helpful to discuss.