e10vq

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GMg3UOnChNr0danEPo0eBOegFCoMehLnLy4IEDlRTxfmHyHKRVRc9YW4JoQGe5G9 /hQpLQCV6HqeVkDBMkCgyw== 0000950123-10-075009.txt : 20100809 0000950123-10-075009.hdr.sgml : 20100809 20100809160748 ACCESSION NUMBER: 0000950123-10-075009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20100630 FILED AS OF DATE: 20100809 DATE AS OF CHANGE: 20100809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CYPRESS BIOSCIENCE INC CENTRAL INDEX KEY: 0000716054 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 222389839 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12943 FILM NUMBER: 101001699 BUSINESS ADDRESS: STREET 1: 4350 EXECUTIVE DRIVE,SUITE 325 CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 8584522323 MAIL ADDRESS: STREET 1: 4350 EXECUTIVE DRIVE,SUITE 325 CITY: SAN DIEGO STATE: CA ZIP: 92121 FORMER COMPANY: FORMER CONFORMED NAME: IMRE CORP DATE OF NAME CHANGE: 19920703 10-Q 1 a56962e10vq.htm FORM 10-Q e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)


þ		Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2010, 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 0-12943

CYPRESS BIOSCIENCE, INC.

(Exact Name of Registrant as specified in its charter)


DELAWARE (State or other jurisdiction of incorporation or organization)		22-2389839 (I.R.S. Employer Identification No.)

4350 Executive Drive, Suite 325, San Diego, California 92121
(Address of principal executive offices) (zip code)

(858) 452-2323
(Registrant’s telephone number including area code)

Indicate by check (ü) 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. Yes þ No o

Indicate by check (ü) whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date 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). Yes o No o

Indicate by check (ü) 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.


Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

At August 5, 2010, 38,588,190 shares of Common Stock, par value $.001, of the registrant were issued and outstanding.

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION

Item 1 – Condensed Consolidated Financial Statements			3

Condensed Consolidated Balance Sheets as of June 30, 2010 (unaudited) and December 31, 2009			3

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2010 and 2009 (unaudited)			4

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and 2009 (unaudited)			5

Notes to Condensed Consolidated Financial Statements (unaudited)			6

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations			15

Item 3 – Quantitative and Qualitative Disclosures About Market Risk			26

Item 4 – Controls and Procedures			27

PART II — OTHER INFORMATION			28

Item 1 – Legal Proceedings			28

Item 1A – Risk Factors			28

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds			47

Item 3 – Defaults Upon Senior Securities			47

Item 5 – Other Information			47

Item 6 – Exhibits			47

Signatures			48
EX-10.2
EX-31.1
EX-31.2
EX-32

ITEM 1 – CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CYPRESS BIOSCIENCE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


	June 30,			December 31,
	2010			2009
	(Unaudited)			(Note)
ASSETS
Current assets:
Cash and cash equivalents	$	8,314,738		$	38,617,954
Restricted cash		30,000,000			—
Short-term investments		97,202,605			103,055,417
Receivable from Forest Laboratories		6,985,324			5,611,476
Prepaid expenses and other current assets		943,444			4,792,134

Total current assets		143,446,111			152,076,981

Property and equipment, net		1,114,761			1,273,026
Goodwill		21,928,598			21,928,598
Restricted cash		487,111			487,111
Other assets		283,994			298,994

Total assets	$	167,260,575		$	176,064,710


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	746,642		$	1,172,916
Accrued compensation		1,127,823			4,640,265
Accrued liabilities		454,304			221,487
Payable to Forest Laboratories		—			336,313
Current portion of deferred revenue		5,202,056			5,202,056

Total current liabilities		7,530,825			11,573,037

Deferred rent		20,423			20,423
Deferred revenue, net of current portion		20,799,108			23,400,136
Other liabilities		487,111			487,111

Stockholders’ equity:
Preferred stock, $.001 par value; 15,000,000 shares authorized; no shares issued and outstanding		—			—
Common stock, $.001 par value; 90,000,000 shares of common stock authorized; 38,588,190 and 38,375,206 shares issued and outstanding at June 30, 2010 (unaudited) and December 31, 2009, respectively		38,588			38,375
Additional paid-in capital		341,109,501			336,825,601
Accumulated other comprehensive income		85,548			171,017
Accumulated deficit		(202,810,529	)		(196,450,990	)

Total stockholders’ equity		138,423,108			140,584,003

Total liabilities and stockholders’ equity	$	167,260,575		$	176,064,710

See accompanying notes to consolidated financial statements.

Note: The balance sheet at December 31, 2009 has been derived from the audited financial statements at that date but does not include all of the information and disclosures required by U.S. generally accepted accounting principles.

CYPRESS BIOSCIENCE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Revenues:
Revenues under collaborative agreement	$	842,845		$	930,350		$	1,693,951		$	8,323,247
Commercial revenues		8,100,900			4,819,024			15,173,600			5,281,684
Revenues from personalized medicine services		177,318			56,062			373,031			58,899

Total revenues		9,121,063			5,805,436			17,240,582			13,663,830

Operating expenses:
Cost of personalized medicine services		520,029			498,803			1,089,126			858,195
Research and development		1,178,554			2,048,667			2,156,413			9,286,059
Selling, general and administrative		9,347,055			12,356,877			20,677,228			22,414,128

Total operating expenses		11,045,638			14,904,347			23,922,767			32,558,382

Loss from operations		(1,924,575	)		(9,098,911	)		(6,682,185	)		(18,894,552	)

Interest income		132,858			490,008			322,646			1,125,145


Net loss	$	(1,791,717	)	$	(8,608,903	)	$	(6,359,539	)	$	(17,769,407	)


Net loss per share – basic and diluted	$	(0.05	)	$	(0.23	)	$	(0.17	)	$	(0.47	)


Shares used in computing net loss per share –basic and diluted		38,377,546			38,059,838			38,376,383			38,021,042

See accompanying notes to consolidated financial statements.

CYPRESS BIOSCIENCE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,
	2010			2009
Operating Activities
Net loss	$	(6,359,539	)	$	(17,769,407	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		287,832			223,574
Amortization of premium/discount on short-term investments		607,835			265,909
Share-based compensation for stock and options issued to employees		4,284,113			4,525,946
Non-cash portion of asset acquisition		—			487,109
Changes in operating assets and liabilities		(4,168,398	)		19,012,401

Net cash (used in) provided by operating activities		(5,348,157	)		6,745,532

Investing Activities
Purchases of short-term investments		(52,519,545	)		(56,981,170	)
Proceeds from sale of short-term investments		57,679,053			61,756,450
Deposit of restricted cash		(30,000,000	)		(487,109	)
Purchases of property and equipment		(114,567	)		(442,444	)

Net cash (used in) provided by investing activities		(24,955,059	)		3,845,727

Financing Activities
Proceeds from exercise of stock options		—			399,735

Net cash provided by financing activities		—			399,735


(Decrease) increase in cash and cash equivalents		(30,303,216	)		10,990,994
Cash and cash equivalents at beginning of period		38,617,954			52,490,414

Cash and cash equivalents at end of period	$	8,314,738		$	63,481,408

See accompanying notes to consolidated financial statements.

CYPRESS BIOSCIENCE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Business

We are a pharmaceutical company dedicated to the development of innovative drugs targeting large unmet medical needs for patients suffering from a variety of disorders of the central nervous system (“CNS”). Our only marketed product is Savella. Development-stage assets include CYP-1020 for cognitive impairment in schizophrenia, as well as AVISE-SLE^SM, a lupus diagnostic testing service, for which development is ongoing. AVISE-SLE^SM is included in our personalized medicine services business, which we intend to sell or cease operating by the end of the third quarter of 2010.

2. Basis of Presentation

The accompanying financial statements have been prepared by our management without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and U.S. generally accepted accounting principles for interim financial statements. Certain information and disclosures normally included in complete audited year end financial statements have been condensed or omitted. In the opinion of our management, all adjustments necessary for a fair presentation of the accompanying unaudited condensed consolidated financial statements are reflected herein. All such adjustments are normal and recurring in nature. Interim results are not necessarily indicative of results for the full year. For more information, these financial statements should be read in conjunction with the audited financial statements and the related disclosures included in our Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 31, 2010.

Further, in connection with the preparation of the condensed consolidated financial statements and in accordance with the applicable accounting standards for the disclosure of events that occur after the balance sheet date but before the financial statements are issued, we evaluated all events or transactions that occurred after the balance sheet date of June 30, 2010 and have determined that no material subsequent events requiring recognition or disclosure in our financial statements occurred during this time period other than as disclosed in Note 14.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.

The condensed consolidated financial statements include the accounts of Cypress Bioscience, Inc. and its wholly-owned subsidiary, Proprius Pharmaceuticals, Inc., collectively referred to as Cypress Bioscience, Inc. All significant intercompany accounts and transactions have been eliminated.

3. Recent Accounting Pronouncements

In March 2010, the Financial Accounting Standards Board (“FASB”) ratified the authoritative guidance regarding the milestone method of revenue recognition. It was concluded that the milestone method is a valid application of the proportional performance model when applied to research or development arrangements. The guidance states than an entity can make an accounting policy election to recognize a payment that is contingent upon the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. The guidance is effective for fiscal years beginning on or

after June 15, 2010, although early adoption is permitted. We are currently evaluating the effect that this guidance will have on our consolidated financial position and results of operations.

In January 2010, the FASB issued updated authoritative guidance related to fair value measurements which requires certain new disclosures including the following: 1) amounts transferred in and out of Level 1 and Level 2 fair value measurements and the reasons for those transfers, which is effective for interim and annual periods beginning after December 15, 2009; and 2) activities in Level 3 fair value measurements including purchases, sales, issuances and settlements, which is effective for annual periods beginning after December 15, 2010. During the six months ended June 30, 2010, we adopted accounting guidance requiring additional disclosure of the fair value of financial instruments for interim and annual reporting periods. The adoption did not have a material impact on the condensed consolidated financial statements. See Note 11, Fair Value Disclosures.

In October 2009, the FASB amended its authoritative guidance regarding multiple-deliverable revenue arrangements. This guidance addresses how to separate deliverables and how to measure and allocate consideration to one or more units of accounting. Specifically, the guidance requires that consideration be allocated among multiple deliverables based on relative selling prices. The guidance establishes a selling price hierarchy of (1) vendor-specific objective evidence, (2) third-party evidence and (3) estimated selling price. We will be required to adopt this amended guidance effective for the fiscal year beginning January 1, 2011, although earlier adoption is permitted. We are currently evaluating the effect that this guidance will have on our consolidated financial position and results of operations.

4. Short-Term Investments

Our short-term investments consist of securities of the U.S. government or its agencies and corporate debt securities. We have classified our short-term investments as available-for-sale and carry them at fair value with unrealized gains and losses, if any, reported as a separate component of stockholders’ equity and included in comprehensive income or loss. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Realized gains and losses and declines in value judged to be other-than-temporary, if any, on available-for-sale securities are included in interest income. The cost of securities sold is based on the specific-identification method. Interest on securities classified as available-for-sale is included in interest income.

At June 30, 2010 and December 31, 2009, short-term investments consisted of the following:


	June 30, 2010
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
U.S. government and agency debt	$	87,997,614	$	46,184	$	(9,998	)	$	88,033,800
Corporate debt securities		9,119,443		49,362		—			9,168,805

	$	97,117,057	$	95,546	$	(9,998	)	$	97,202,605


	December 31, 2009
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
U.S. government and agency debt	$	93,037,626	$	159,185	$	(28,944	)	$	93,167,867
Corporate debt securities		9,846,774		45,410		(4,634	)		9,887,550

	$	102,884,400	$	204,595	$	(33,578	)	$	103,055,417

Contractual maturities for short-term investments at June 30, 2010 were as follows:


	Fair Value
Due within 1 year	$	76,563,004
After 1 year but within 2 years		20,639,601

Total	$	97,202,605

5. Revenue Recognition

Revenue is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the price is fixed or determinable; and collectability is reasonably assured. Some of our agreements contain multiple elements and in accordance with these agreements, we may be eligible for upfront license fees, sponsored development reimbursements, funding for certain of our employees, co-promotion reimbursement, development and commercial milestones and royalties. Consideration received for milestones under research and development arrangements will be recognized at the date of achievement if the milestone is non-refundable, substantive in nature, and the achievement was not reasonably assured at the inception of the agreement. Milestone payments are not considered substantive if any portion of the associated milestone payment is determined to not relate solely to past performance or if a portion of the consideration earned from achieving the milestone may be refunded.

Revenues under our collaborative agreement include upfront license fees, sponsored development reimbursements, funding for certain of our employees, and development milestones. Amounts received for upfront license fees under multiple-element arrangements are deferred and recognized over the period such arrangements require on-going services or performance. Amounts received for sponsored development activities, including funding received for certain of our employees, are recognized as research costs are incurred over the period specified in the related agreement or as the services are performed. Amounts received for development milestones are recognized upon achievement if they meet the research and development milestone recognition policy. Any amounts received prior to satisfying revenue recognition criteria are recorded as deferred revenue.

Commercial revenues include royalties on product sales of Savella, revenue from the New Drug Application (“NDA”) approval milestone, sales-based milestones, and reimbursement for co-promotion of Savella. Royalty revenue is recognized based on royalties reported by Forest Laboratories, Inc. (“Forest Laboratories”) during the quarter with such payment due within 45 days after quarter end. The royalty rate as stated in the agreement with Forest Laboratories is subject to prospective adjustment based on Forest Laboratories’ total payment obligations to us and Pierre Fabre Medicament (“Pierre Fabre”); however, the royalty rate cannot be reduced below the stipulated floor. Revenue from the NDA approval milestone achieved in January 2009, net of sublicense fees, is being recognized ratably over the period of 13 years from the date the milestone was achieved, which corresponds with the obligation period (which is equivalent to the patent life). As we have an obligation to reimburse Forest Laboratories for a portion of the cost for samples of Savella, this milestone was not considered substantive and therefore, we

determined that the consideration received from Forest Laboratories was inseparable from the on-going obligation. We regularly review the period of time that we expect to be satisfying these obligations, and if there are changes in facts and circumstances, we reassess the period of time that revenue is being recognized and adjust the period accordingly. Revenue related to sales-based milestones, net of sublicense fees, is recognized upon the achievement of the specified milestones, where such milestones are substantive, were not readily assured at the inception of the agreement and are non-refundable. Co-promotion reimbursement revenue is recognized in the period in which the detailing calls (measured on a per physician call basis) are performed using an estimated reimbursement rate based on historical cost information provided to us by Forest Laboratories. We recognize this revenue as services have been rendered, the reimbursement rate is determinable and collectability is reasonably assured. The corresponding costs associated with the co-promotion reimbursement are included as a component of selling, general and administrative expense on the Condensed Consolidated Statement of Operations.

In connection with our personalized medicine services, such services are performed based on a written test requisition form. We generally bill third-party payers for these services upon generation and delivery of a report to the ordering physician. As such, we take assignment of benefits and the risk of collection with the third-party payer. We currently do not have any contracts with private third-party payers. As relatively new tests, the personalized medicine services offered by us may not be covered under third-party payer reimbursement policies. Consequently, we pursue case-by-case reimbursement where policies are not in place or payment history has not been established. We usually bill the patient directly for amounts owed after multiple requests for payment have been denied or only partially paid by the insurance carrier as allowed by law. As a result, at the time of delivery of the report to the ordering physician, and in the absence of a reimbursement contract or sufficient payment history, collectibility cannot reasonably be assured and revenues are therefore only recognized at the time cash is collected.

6. Research and Development Expenses

Research and development expenses consist primarily of salaries and related personnel expenses for our research and development personnel, fees paid to external service providers to conduct clinical trials, patient enrollment costs, fees and milestone payments under our license, collaboration and development agreements, validation activities for our personalized medicine services and costs for facilities (including our laboratory), supplies, materials and equipment. All such costs are charged to research and development expenses as incurred. Clinical trial costs are a significant component of our research and development expenses and include costs associated with third-party contractors. We accrue clinical trial expenses based on work performed, which relies on estimates of total costs incurred based on patient enrollment, completion of patient studies and other events. Actual clinical trial costs may differ from estimated clinical trial costs and are adjusted during the period in which they become known. There were no material adjustments for the three and six months ended June 30, 2010 and 2009 for a change in clinical trial cost estimates.

7. Net Loss Per Share

Net loss per share is computed using the weighted average number of shares of common stock outstanding and is presented for basic and diluted net loss per share. Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period increased to include, if dilutive, the number of additional common shares that would have been outstanding if the potential common shares had been issued. The dilutive effect of outstanding stock options, restricted stock units and warrants is reflected in diluted net loss per share by application of the treasury stock method. We have excluded all outstanding stock options, restricted stock units and warrants from the calculation of diluted loss per share for the three and six months ended June 30, 2010 and 2009 because such securities are antidilutive for these periods. The total

number of potential common shares excluded from the calculation of diluted loss per common share was 81,343 and 654,550 for the three months ended June 30, 2010 and 2009, respectively, and 134,327 and 709,755 for the six months ended June 30, 2010 and 2009, respectively.

On January 4, 2010, we granted 100,000 restricted stock units to our chief executive officer. The restricted stock units vest in full after three years subject to our chief executive officer’s continuous service through such date. Such securities were not included in the computation of basic earnings per share for the three and six months ended June 30, 2010 as the effect would be antidilutive.

8. Comprehensive Loss

The components of comprehensive loss are as follows:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Net loss	$	(1,791,717	)	$	(8,608,903	)	$	(6,359,539	)	$	(17,769,407	)
Unrealized gain (loss) on short-term investments		49,268			130,730			(85,469	)		(148,867	)

Comprehensive loss	$	(1,742,449	)	$	(8,478,173	)	$	(6,445,008	)	$	(17,918,274	)

9. Stock-Based Compensation

Total stock-based compensation expense, which relates to stock options granted to employees and non-employee directors and restricted stock awards recognized for the three and six months ended June 30, 2010 and 2009, was comprised as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2010		2009		2010		2009
Cost of personalized medicine services	$	44,688	$	37,305	$	95,910	$	74,101
Research and development expenses		286,395		340,223		198,817		697,388
Selling, general and administrative expenses		1,286,895		1,341,657		3,501,653		3,074,456

	$	1,617,978	$	1,719,185	$	3,796,380	$	3,845,945

During March 2010, certain employees who were granted performance-based stock options resigned from their employment with us and accordingly, the performance conditions for such stock options will no longer be achieved. In accordance with the accounting treatment for stock-based compensation, the stock-based compensation expense previously recognized was reversed in the period of change by recording a cumulative adjustment. Accordingly, during the three months ended March 31, 2010, we recognized an adjustment related to such performance-based options in the amount of $0.6 million, consisting of $0.3 million related to research and development expenses and $0.3 million related to selling, general and administrative expenses.

As of June 30, 2010, we had $9.2 million of unamortized compensation cost related to unvested stock option awards, which is expected to be recognized over a remaining weighted average vesting period of 2.2 years.

As of June 30, 2010, we had $0.5 million of unamortized compensation cost related to unvested restricted stock awards, which is expected to be recognized over a remaining weighted average vesting period of 2.5 years.

10. Licensing Transaction

BioLineRx License Agreement

In June 2010, we entered into a license agreement with BioLineRx Ltd. (“BioLineRx”) whereby we acquired an exclusive North American license for the development and commercialization of BioLineRx’s novel antipsychotic for the treatment of schizophrenia (CYP-1020). The terms of the agreement included an upfront payment of $30.0 million, with potential clinical and regulatory milestones of up to $160.0 million through to approval in the United States (the majority of which are related to improvement in cognition), potential commercial milestones of $85.0 million, and a potential additional $90.0 million associated with approval for additional indications in the United States or for approval in other countries in North America. In addition, we will fund all continuing development activities of CYP-1020 and are obligated to pay BioLineRx a royalty based on net sales.

The effectiveness of the license agreement is subject to the consent of the Office of Chief Scientist of the Ministry of Industry, Trade and Labor of the State of Israel (“OCS”), and OCS may condition providing its consent on the parties’ agreeing to modifications to the license agreement. We and BioLineRx have agreed to work together to attempt to secure OCS approval on terms that minimize financial and non-financial obligations on the parties that may be imposed as a condition to receipt of the OCS consent. We are not required to agree to any modifications to the license agreement that would have, or would be likely to have, a material adverse impact on our rights and obligations under the license agreement. As a result of the requirement for OCS consent, the upfront payment in the amount of $30.0 million has been placed into an escrow account pending receipt of a satisfactory OCS consent and effectiveness of the license agreement and accordingly, has been classified as restricted cash.

The term of the agreement generally extends until the cessation of all commercialization activities for the product in North America. The term during which we are obligated to pay BioLineRx royalties for the product generally expires on a country by country basis upon the expiration of the later of (i) the expiration of the last-to-expire valid claim of a licensed patent covering the use, import, manufacture or commercialization of the product in such country, (ii) the expiration of regulatory exclusivity covering the product in such country, and (iii) the date on which sales of generic forms of the product in such country are a specified percentage of the aggregate sales of both product and such generic forms in such country.

11. Fair Value Disclosures

The following table presents information about our financial assets measured at fair value on a recurring basis as of June 30, 2010, and indicates the fair value hierarchy of the valuation techniques utilized by us to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. We classify money market funds as Level 1 assets. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. We classify U. S. government and agency debt and corporate debt securities as Level 2 assets. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. At June 30, 2010, we did not hold any Level 3-classified financial assets or liabilities. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety has been determined based on the lowest level input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.


			Fair Value Measurements at June 30, 2010
			Quoted Prices in		Significant Other		Significant
	Balance as of		Active Markets		Observable Inputs		Unobservable
Description	June 30, 2010		(Level 1)		(Level 2)		Inputs (Level 3)
Financial instruments owned:
Money market funds	$	8,251,104	$	8,251,104	$	—	$	—
U.S. government and agency debt		88,033,800		—		88,033,800		—
Corporate debt securities		9,168,805		—		9,168,805		—

Total financial instruments owned	$	105,453,709	$	8,251,104	$	97,202,605	$	—

12. Segment Information

During the three months ended September 30, 2009, we made the determination that our two product lines, consisting of therapeutic products (Savella) and the personalized medicine services (Avise products), met the criteria to be reported as separate operating segments. Prior to the three months ended September 30, 2009, we operated in a single operating segment with revenues generated from our License and Collaboration Agreement with Forest Laboratories and financial results prepared and reviewed by management as a single operating segment.

As noted above, we have two reportable business segments: therapeutic products and personalized medicine services. The therapeutic products segment includes Savella for the management of fibromyalgia. The personalized medicine services segment includes specialized diagnostic tests to provide physicians with actionable information to help manage their patients’ care, including predicting the likelihood of developing disease or optimizing therapy.

We manage the commercial organization and related support organizations through a centralized management team. Our business segment performance is managed and evaluated on net revenues, cost of personalized medicine services and research and development expenses. We do not allocate selling, general and administrative expenses to our business segments for performance assessment.

The following table reports net revenues, cost of personalized medicine services and research and development expenses for our reportable segments for the three and six months ended June 30, 2010 and 2009:


	Therapeutic		Personalized
	Products		Medicine Services			Total
Three months ended June 30, 2010:
Revenues	$	8,943,745	$	177,318		$	9,121,063
Cost of personalized medicine services		—		520,029			520,029
Research and development		941,873		236,681			1,178,554

Segment operating income (loss)		8,001,872		(579,392	)		7,422,480

Operating expenses:
Selling, general and administrative							9,347,055

Loss from operations						$	(1,924,575	)

Three months ended June 30, 2009:
Revenues	$	5,749,374	$	56,062		$	5,805,436
Cost of personalized medicine services		—		498,803			498,803
Research and development		1,627,383		421,284			2,048,667

Segment operating income (loss)		4,121,991		(864,025	)		3,257,966

Operating expenses:
Selling, general and administrative							12,356,877

Loss from operations						$	(9,098,911	)


	Therapeutic		Personalized
	Products		Medicine Services			Total
Six months ended June 30, 2010:
Revenues	$	16,867,551	$	373,031		$	17,240,582
Cost of personalized medicine services		—		1,089,126			1,089,126
Research and development		1,667,740		488,673			2,156,413

Segment operating income (loss)		15,199,811		(1,204,768	)		13,995,043

Operating expenses:
Selling, general and administrative							20,677,228

Loss from operations						$	(6,682,185	)


Six months ended June 30, 2009:
Revenues	$	13,604,931	$	58,899		$	13,663,830
Cost of personalized medicine services		—		858,195			858,195
Research and development		6,738,901		2,547,158			9,286,059

Segment operating income (loss)		6,866,030		(3,346,454	)		3,519,576

Operating expenses:
Selling, general and administrative							22,414,128

Loss from operations						$	(18,894,552	)

The following table reports assets that are identifiable to our therapeutic products and personalized medicine services segments as of June 30, 2010 and December 31, 2009:


	Therapeutic		Personalized		Corporate and
	Products		Medicine Services		Unallocated		Total
As of June 30, 2010
Receivable from Forest Laboratories	$	6,985,324	$	—	$	—	$	6,985,324
Prepaid expenses and other current assets		—		7,242		936,202		943,444
Property and equipment, net		—		463,273		651,488		1,114,761
Goodwill(1)		—		—		21,928,598		21,928,598
Other assets		—		263,994		20,000		283,994

As of December 31, 2009:
Receivable from Forest Laboratories	$	5,611,476	$	—	$	—	$	5,611,476
Prepaid expenses and other current assets		—		7,242		4,784,892		4,792,134
Property and equipment, net		—		471,602		801,424		1,273,026
Goodwill(1)		—		—		21,928,598		21,928,598
Other assets		—		278,994		20,000		298,994

(1) Goodwill relates entirely to the therapeutic products reporting unit.

13. Commitments and Contingencies

Under our 2010 Bonus Plan, executive officers and certain employees are eligible for bonuses ranging from 0% to 150% of their annual salary based on meeting the objectives as stipulated in the plan. The total annual target bonus could range from $0 to $1.7 million. As of June 30, 2010, we have not accrued for a bonus under the 2010 Bonus Plan as the achievement of such bonuses is uncertain and the amount cannot be reasonably estimated. Any bonuses earned under the 2010 Bonus Plan would be paid in 2011.

14. Subsequent Events

Reduction in Force

On August 4, 2010, we announced staff reductions affecting 123 of our employees as part of our agreement with Forest Laboratories to discontinue our rights to co-promote Savella and our decision to discontinue or sell our personalized medicine services business. As a result, during the third quarter of 2010, we communicated to affected employees a plan of organizational restructuring through involuntary terminations. We expect to incur restructuring-related charges of approximately $4.0 million to $4.5 million during 2010 in connection with our workforce reduction. We will retain all other rights under our agreement with Forest Laboratories including our royalty on Savella sales. Additionally, Forest Laboratories has agreed to pay us a one-time fee of $2.0 million to help facilitate with this transition. Further, in connection with our reduction in force, we announced that we will either discontinue or sell our personalized medicine services business by the end of the third quarter of 2010.

Unsolicited Takeover Offer

On July 19, 2010, we received an unsolicited proposal from Ramius LLC (“Ramius”) to acquire the Company for $4.00 per share in cash. Our Board of Directors reviewed the Ramius proposal with our financial and legal advisors, and on August 5, 2010, we wrote to Ramius advising them that our Board of Directors had unanimously concluded that the Ramius proposal grossly undervalues our current business and future prospects and consequently is not in the best interest of our stockholders.

ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Except for the historical information contained herein, the information contained herein contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), including, in particular, statements about our plans, strategies and prospects. These statements, which may include words such as “may,” “will,” “expect,” “believe,” “intend,” “plan,” “anticipate,” “estimate,” “should,” or similar words, are based on our current beliefs, expectations and assumptions and are subject to a number of risks and uncertainties. Although we believe that our beliefs, expectations and assumptions reflected in these statements are reasonable, our actual results and financial performance may prove to be very different from what we might have predicted on the date of this Form 10-Q. Factors that could cause or contribute to differences include, but are not specifically limited to, our shift in strategy to focus on research and development in the area of the central nervous system, the risks that CYP-1020 may not demonstrate adequate safety and/or efficacy in later clinical trials to continue with its development, may not have adequate intellectual property right protection to support its continued development in our territory, may be unable to obtain FDA or similar regulatory approval as a drug candidate for any of many reasons relating to the regulatory approval process, or may address a commercial market that is smaller than currently anticipated by us and that does not support its continued development, or that we may otherwise fail to successfully develop and commercialize CYP-1020 in our territory, the risks that our restructuring-related charges may be greater than expected or require more cash than expected and that our anticipated reduction in operating costs from the restructuring may be less than expected, our corporate partner’s ability to sell Savella, our ability to acquire or in-license and develop any compounds or products to treat any other indications that we may pursue in the area of the central nervous system or otherwise engage in strategic acquisitions, in-licenses, collaborations or other transactions, our cash position and the period over which our existing cash is expected to be sufficient to fund our operations, as well as the other risks detailed in this Form 10-Q and in our other Securities and Exchange Commission (“SEC”) filings.

We undertake no obligation to publicly release revisions in such forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrences of unanticipated events or circumstances, except as required by securities and other applicable laws.

We own or have rights to various copyrights, trademarks and service marks used in our business, including the following: Cypress Bioscience, Inc., Avise PG^SM, Avise MCV^SMandAvise SLE^SM. Savella^TM is a trademark of Forest Laboratories, Inc. This report also includes other trademarks, service marks, and trade names of other companies.

Company Overview

We have undergone a recent shift in strategy, returning to our historical focus on research and development in the area of the central nervous system, or CNS. Our current strategy is dedicated to the development of innovative drugs targeting large unmet medical needs for patients suffering from a variety of disorders of the CNS. Since 1999, we have received multiple FDA approvals, including Prosorba^™, a medical device for rheumatoid arthritis, and Savella^® (milnacipran HCl), for fibromyalgia. Development-stage assets include CYP-1020 for cognitive impairment in schizophrenia, as well as AVISE-SLE^SM, a lupus diagnostic testing service, for which development is ongoing. AVISE-SLE^SM is included in our personalized medicine services business, which we intend to sell or cease operating by the end of the third quarter of 2010. In connection with our new focus on research and development, on August 4, 2010, we announced that we had discontinued our rights under our agreement with Forest Laboratories to co-promote Savella. Forest agreed to pay us a one-time payment of $2.0 million to help facilitate with this transition. We will retain all other rights under our agreement with Forest including our 15% royalty on

Savella sales and may pursue the opportunity to re-activate the co-promotion right through discussions with Forest in the future. Forest has indicated that it will maintain promotional levels behind Savella. The winding down of the commercial organization decreases our cost structure and we estimate will result in a decrease in annual operating costs of approximately $10.0 million, which will allow us to focus on establishing our CNS pipeline.

Research and Development Strategy

CYP-1020

In June 2010, we announced our first transaction in line with our renewed strategy of focusing on developing drugs targeting CNS by entering into an exclusive North American license for the development and commercialization of BioLineRx’s novel antipsychotic (CYP-1020), a promising potential treatment for schizophrenia due to its potential ability to improve cognitive function. The total upfront payment to BioLineRx was $30 million, with total potential clinical and regulatory milestones of up to $160 million through to approval in the United States (the majority of which are related to improvement in cognition), potential commercial milestones of $85 million, and a potential additional $90 million associated with approval for additional indications in the United States or for approval in other countries in North America. In addition, we will fund all continuing development activities of CYP-1020 and pay BioLineRx a royalty based on sales.

Results of the phase 2b EAGLE (Effective Antipsychosis via GABA Level Enhancement) clinical study conducted by BioLineRx demonstrated that CYP-1020 at the 20-30mg dose range exhibited clinically relevant and statistically significant improvement on the cognition endpoint assessed using the Brief Assessment of Cognition in Schizophrenia (BACS) neuropsychological test battery. The 20-30mg dose range of CYP-1020 was superior to both the active comparator (risperidone) and placebo at endpoint on the BACS total score (p=0.027 for both), with positive trends in all subsets within the BACS. CYP-1020 was also effective as a treatment for the other symptoms of acute schizophrenia exacerbation, as measured by the Positive and Negative Symptom Scale (PANSS). The CYP-1020 high dose group (20-30mg/day) experienced a statistically significant reduction in the PANSS from baseline versus placebo (LS mean -23.6 vs. -14.4; p=0.002). The superiority of CYP-1020 (20-30mg/day) over placebo was also supported by additional secondary efficacy measures such as the clinical global impression of severity (CGI-S) and change (CGI-C). Additionally, the incidence of serious adverse events was low in the CYP-1020 (20-30mg/day) group (0%) compared to risperidone (3.3%) and placebo (6.5%), and recent results from an extension trial showed that patients receiving CYP-1020 (20-30mg/day) for six additional weeks maintained the improvements on the PANSS and CGI that had been observed after the initial six weeks of treatment and, more importantly, showed continuing improvement in cognitive function as assessed by the BACS. The 12-weeks of treatment were not associated with any increased toxicities.

Savella

In January 2009, we received approval from the U.S. Food and Drug Administration (“FDA”) to market Savella (milnacipran HCl) for the management of fibromyalgia (“FM”). Milnacipran HCl has been approved for a non-pain condition in over 50 countries, with commercial experience outside the U.S. since 1997. We obtained an exclusive license in the U.S. and Canada to milnacipran from Pierre Fabre Medicament (“Pierre Fabre”) in 2001. In January 2004, we entered into a collaboration agreement with Forest Laboratories, Inc. (“Forest Laboratories”), a leading marketer of CNS drugs with a strong franchise in the primary care and psychiatric markets. As part of this collaboration with Forest Laboratories, we sublicensed our rights to milnacipran to Forest Laboratories for the United States, with an option to extend the territory to include Canada, which was exercised in July 2007. As part of our agreements with both Forest Laboratories and Pierre Fabre, we have licensed any patents that may issue from our patent applications related to FM and milnacipran to Forest Laboratories and Pierre Fabre. Additional

information on our ongoing post approval clinical development program for Savella can be found at www.clinicaltrials.gov.

Following the January 2009 FDA approval to market Savella for the management of FM, Savella was shipped to wholesalers and became available at pharmacies at the end of April 2009. Savella is a dual-reuptake inhibitor that preferentially blocks the reuptake of norepinephrine with higher potency than serotonin (in vitro). These two neurotransmitters are thought to play a central role in the symptoms for FM. We recently transitioned all obligations to promote Savella for FM to our corporate partner, Forest Laboratories. We receive a 15% royalty on total net sales of Savella.

From time to time we have ongoing Proof of Concept (“POC”) stage therapeutic product opportunities in development. We are also actively continuing to evaluate various other potential strategic transactions for development stage and commercial product opportunities in the CNS area where we can leverage our technical, clinical and regulatory expertise, and are considering a variety of potential transaction structures.

Prior Commercial Strategy

On August 4, 2010, we announced that we had discontinued our rights under our agreement with Forest Laboratories to co-promote Savella for fibromyalgia. Forest agreed to pay us a one-time payment of $2.0 million to help facilitate with this transition. We will retain all other rights under our agreement with Forest including our royalty on Savella sales and may pursue the opportunity to re-activate the co-promotion right through discussions with Forest in the future. Forest has confirmed it will maintain promotional levels behind Savella.

In an effort to further reduce our cost structure, we will also either discontinue or sell our personalized medicine services business by the end of the third quarter of 2010. We estimate that these actions will decrease our operating costs by approximately $10.0 million on an annualized basis. Operating results for the remainder of 2010 will be adversely affected by restructuring-related charges, which we currently estimate will be approximately $4.0 million to $4.5 million. Additionally, we announced that we will decrease our workforce by approximately 86% affecting 123 of our employees.

Avise PG and Avise MCV, our two personalized medicine services, had been detailed to rheumatologists until recently. At this time, physician orders for our Avise personalized medicine services will continue to be performed; however, active marketing of these products has been discontinued with the elimination of sales operations. We are actively seeking a buyer for our personalized medicine services business.

Our prior commercial strategy was based on the belief that offering integrated personalized medicine services and pharmaceutical products through the same sales organization would facilitate physician access and improve the quality of the sales call, as well as help establish us as a leader targeting these specific specialists. When we began promoting Savella in May 2009 with our 115 field based personnel, we called on the same rheumatologists that we began calling upon in October 2008 for our first two personalized medicine services. However, we were unable to achieve the synergies we had anticipated and the sales force and our personalized medicine services business each operated at a loss, and we recently determined to disband our sales force and to either sell or cease the operations of our personalized medicine services.

In February 2009, we announced the closing of a transaction to acquire Cellatope Corporation’s (“Cellatope”) technology platform that uses cell-bound complement activation products (“CB-CAP” or “AVISE-SLE”) to diagnose and monitor debilitating autoimmune disorders, including systemic lupus erythematosus (“SLE/Lupus”). We acquired the CB-CAP technology in a transaction that included a $2.0

million cash payment to Cellatope for the diagnostic technology as well as an additional $3.0 million potential milestone payment associated with the commercial development of the SLE/Lupus monitoring application. We are continuing to develop AVISE-SLE. AVISE-SLE is included in our personalized medicine services business, which we intend to sell or cease operating by the end of the third quarter of 2010.

In March 2008, we announced the closing of the acquisition of Proprius that included an upfront payment of approximately $37.5 million in cash. The Proprius acquisition also included $37.5 million in potential milestone related payments, which are no longer eligible for payment because we have officially terminated development of the early clinical-stage therapeutic candidates that we acquired in the acquisition of Proprius.

We were incorporated in Delaware in 1981.

Offer by Ramius

On July 19, 2010, we received an unsolicited proposal from Ramius LLC to acquire the Company for $4.00 per share in cash. Our Board of Directors reviewed the Ramius proposal with our financial and legal advisors, and on August 5, 2010, we wrote to Ramius advising them that our Board of Directors had unanimously concluded that the Ramius proposal grossly undervalues our current business and future prospects and consequently is not in the best interest of our stockholders.

Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and the related notes contained elsewhere in this quarterly report.

Comparison of Three Months Ended June 30, 2010 and 2009

Revenues Under Collaborative Agreements

We recognized revenues under our collaborative agreement with Forest Laboratories of $0.8 million for the three months ended June 30, 2010 compared to $0.9 million for the three months ended June 30, 2009. The revenues under collaborative agreements recorded during the three months ended June 30, 2010 and 2009 consisted entirely of amounts earned or reimbursed to us pursuant to our license and collaboration agreement with Forest Laboratories, entered into in January 2004, for the development and marketing of Savella. Such revenues included the recognition of the $25.0 million upfront payment received in January 2004 from Forest Laboratories on a straight-line basis over a period of 8 years, an additional $1.0 million license payment received from Forest Laboratories in July 2007 to extend the territory to include Canada recognized on a straight-line basis over the remainder of the 8 year amortization period, sponsored development reimbursements and funding received from Forest Laboratories for certain of our employees devoted to the development of Savella. The amount of sponsored development reimbursements from Forest Laboratories and funding received from Forest Laboratories for certain of our employees devoted to the development of Savella changes periodically and may be eliminated based on the level of development activity.

Commercial Revenues

We recognized commercial revenues of $8.1 million for the three months ended June 30, 2010 compared to $4.8 million for the three months ended June 30, 2009.

The following table summarizes the components of commercial revenues for the three months ended June 30, 2010 and 2009:


	Three Months Ended
	June 30,
	2010		2009
Royalty revenue	$	3,074,917	$	1,441,353
Revenue from milestones		400,143		462,660
Co-promotion reimbursement		4,625,840		2,915,011

	$	8,100,900	$	4,819,024

We recognized royalty revenue of $3.1 million for the three months ended June 30, 2010 based on net sales of Savella during the period as reported by Forest Laboratories compared to $1.4 million for the three months ended June 30, 2009. The increase in royalty revenue is due to increased sales during the three months ended June 30, 2010 compared to the three months ended June 30, 2009 as Savella was launched during May 2009 resulting in a full quarter of activity during the three months ended June 30, 2010.

Revenue from milestones for the three months ended June 30, 2010 and 2009 consisted of the recognition of $0.5 million related to the $25.0 million milestone payment, net of the $1.25 million sublicense payment to Pierre Fabre, received in January 2009 upon NDA approval, and less sampling obligations of $0.1 million for the three months ended June 30, 2010. The milestone will be recognized on a straight-line basis, less sampling obligations, over the ongoing commercial obligation period, which is estimated to be 13 years.

Co-promotion reimbursement revenue of $4.6 million and $2.9 million for the three months ended June 30, 2010 and 2009, respectively, consisted of reimbursement from Forest Laboratories for detail calls provided by our sales force during the period, as well as reimbursement for certain marketing costs incurred by us. The increase in co-promotion reimbursement revenue is due to increased detail calls during the three months ended June 30, 2010 compared to the three months ended June 30, 2009 as Savella was launched during May 2009 resulting in a full quarter of promotion activity during the three months ended June 30, 2010. Additionally, during the three months ended June 30, 2010, we recognized $0.7 million in deferred co-promotion reimbursement revenue related to non-target detail calls performed in prior periods that were validated by Forest Laboratories during the three months ended June 30, 2010.

The co-promotion reimbursement for detail calls is determined based on the number of detailing calls made by our sales force (measured on a per physician call basis) during the period, each of which is reimbursed at a rate equal to the cost of such effort to Forest Laboratories had it been accomplished by the Forest Laboratories sales force. The corresponding costs associated with our co-promotion reimbursement are included as a component of selling, general and administrative expense on the Consolidated Statement of Operations.

On August 3, 2010, we entered into an agreement with Forest Laboratories to discontinue our rights to co-promote Savella effective as of that date. As a result, we will no longer be recognizing co-promotion reimbursement revenue after August 3, 2010. We will retain all other rights under our agreement with Forest Laboratories including our royalty on Savella sales. Additionally, Forest Laboratories has agreed to pay us a one-time fee of $2.0 million to help facilitate with this transition.

Revenues From Personalized Medicine Services

We recognized revenue from personalized medicine services of $0.2 million during the three months ended June 30, 2010 compared to $0.1 million during the three months ended June 30, 2009. Our personalized medicine services business was launched during the fourth quarter of 2008 with revenues from personalized medicine services recognized as cash payments for the services are received. The

personalized medicine services business has long collection cycles for accounts receivables, including reimbursements by third-party payers, such as Medicare and other governmental payer programs, hospitals, private insurance plans and managed care organizations.

On August 4, 2010, we announced our decision to discontinue or sell our personalized medicine services business by the end of the third quarter of 2010. Physician orders for our personalized medicine services will continue to be performed; however, active marketing of these services will be discontinued with the elimination of our sales force.

Cost of Personalized Medicine Services

Cost of personalized medicine testing services primarily consisted of the compensation and benefits (including bonuses, if any, and stock-based compensation) of laboratory personnel, laboratory supplies, outside laboratory costs, shipping and distribution costs and facility-related expenses. We incurred costs of $0.5 million during the three months ended June 30, 2010 compared to $0.5 million during the three months ended June 30, 2009. The slight increase in cost of personalized medicine services during the three months ended June 30, 2010 is primarily due to an increase in compensation and benefit costs associated with an increase in laboratory personnel headcount. As stated above, we will discontinue or sell our personalized medicine services business by the end of third quarter of 2010.

Research and Development

Research and development expenses for the three months ended June 30, 2010 were $1.2 million compared to $2.0 million for the three months ended June 30, 2009. The decrease in research and development expenses is primarily attributable to a decrease in costs incurred during the three months ended June 30, 2010 in connection with our proof of concept studies for new compounds. Also contributing to the decrease was compensation expense recognized during the three months ended June 30, 2009 for contingent payments in connection with our acquisition of Proprius. Such compensation expense was fully recognized by March 2010. As a result of our license agreement with BioLineRx entered into during June 2010 for the development and commercialization of CYP-1020 and our renewed focus on CNS drug development, we expect research and development expenses to increase in future periods.

Selling, General and Administrative

Selling, general and administrative expenses for the three months ended June 30, 2010 and 2009 is comprised of the following:


	Three Months Ended
	June 30,
	2010		2009
Sales and marketing	$	5,545,557	$	6,914,921
General and administrative		3,801,498		5,441,956

	$	9,347,055	$	12,356,877

Sales and marketing expenses decreased to $5.5 million for the three months ended June 30, 2010 from $6.9 million for the three months ended June 30, 2009. The decrease in sales and marketing expenses is primarily due to a decrease in costs to support our commercial organization, as well as a decrease in costs incurred in connection with marketing and promotional activities for our personalized medicine services business. As a result of our agreement with Forest Laboratories to discontinue our rights to co-promote Savella effective August 3, 2010, we expect further decreases in sales and marketing expenses in future periods.

General and administrative expenses decreased to $3.8 million for the three months ended June 30, 2010 from $5.4 million for the three months ended June 30, 2009. The decrease in general and administrative expenses during the three months ended June 30, 2010 is primarily due to compensation expense recognized during the three months ended June 30, 2009 for contingent payments in connection with our acquisition of Proprius. Such compensation expense was fully recognized by March 2010. As a result of an unsolicited takeover offer received in July 2010, we expect increased general and administrative costs in future periods associated with our takeover defense.

Interest Income

Interest income for the three months ended June 30, 2010 was $0.1 million compared to $0.5 million for the three months ended June 30, 2009. The decrease in interest income for the three months ended June 30, 2010 compared to the corresponding period in 2009 is primarily due to a general decrease in interest rates and related yields experienced during the three months ended June 30, 2010 compared to the three months ended June 30, 2009, as well as lower average balances available for investment during the three months ended June 30, 2010.

Recently Announced Restructuring

Comparison of Six Months Ended June 30, 2010 and 2009

Revenues Under Collaborative Agreements

We recognized revenues under our collaborative agreement with Forest Laboratories of $1.7 million for the six months ended June 30, 2010 compared to $8.3 million for the six months ended June 30, 2009. Revenues during the six months ended June 30, 2009 included a $6.5 million reimbursement for the remaining two-thirds of the costs paid in advance by us in connection with the second Phase III trial for Savella received from Forest Laboratories in January 2009 upon approval of our New Drug Application (“NDA”). The revenues under collaborative agreements recorded during the six months ended June 30, 2010 and 2009 consisted entirely of amounts earned or reimbursed to us pursuant to our license and collaboration agreement with Forest Laboratories, entered into in January 2004, for the development and marketing of Savella. Such revenues included the recognition of the $25.0 million upfront payment received in January 2004 from Forest Laboratories on a straight-line basis over a period of 8 years, an additional $1.0 million license payment received from Forest Laboratories in July 2007 to extend the territory to include Canada recognized on a straight-line basis over the remainder of the 8 year amortization period, sponsored development reimbursements and funding received from Forest Laboratories for certain of our employees devoted to the development of Savella. The amount of sponsored development reimbursements from Forest Laboratories and funding received from Forest Laboratories for certain of our employees devoted to the development of Savella changes periodically and may be eliminated based on the level of development activity.

Commercial Revenues

We recognized commercial revenues of $15.2 million for the six months ended June 30, 2010 compared to $5.3 million for the six months ended June 30, 2009.

The following table summarizes the components of commercial revenues for the six months ended June 30, 2010 and 2009:


	Six Months Ended
	June 30,
	2010		2009
Royalty revenue	$	5,683,689	$	1,441,353
Revenue from milestones		775,358		925,320
Co-promotion reimbursement		8,714,553		2,915,011

	$	15,173,600	$	5,281,684

We recognized royalty revenue of $5.7 million for the six months ended June 30, 2010 based on net sales of Savella during the period as reported by Forest Laboratories compared to $1.4 million for the six months ended June 30, 2009. The increase in royalty revenue is due to increased sales during the six months ended June 30, 2010 compared to the six months ended June 30, 2009 as Savella was launched during May 2009 resulting in a full period of activity during the six months ended June 30, 2010.

Revenue from milestones for the six months ended June 30, 2010 and 2009 consisted of the recognition of $0.9 million related to the $25.0 million milestone payment, net of the $1.25 million sublicense payment to Pierre Fabre, received in January 2009 upon NDA approval, and less sampling obligations of $0.1 million for the six months ended June 30, 2010. The milestone will be recognized on a straight-line basis, less sampling obligations, over the ongoing commercial obligation period, which is estimated to be 13 years.

Co-promotion reimbursement revenue of $8.7 million and $2.9 million for the six months ended June 30, 2010 and 2009, respectively, consisted of reimbursement from Forest Laboratories for detail calls provided by our sales force during the period, as well as reimbursement for certain marketing costs incurred by us. The increase in co-promotion reimbursement revenue is due to increased detail calls during the six months ended June 30, 2010 compared to the six months ended June 30, 2009 as Savella was launched during May 2009 resulting in a full period of promotion activity during the six months ended June 30, 2010. Additionally, during the six months ended June 30, 2010, we recognized $0.7 million in deferred co-promotion reimbursement revenue related to non-target detail calls performed in prior periods that were validated by Forest Laboratories during the three months ended June 30, 2010.

Revenues From Personalized Medicine Services

We recognized revenue from personalized medicine services of $0.4 million during the six months ended June 30, 2010 compared to $0.1 million during the six months ended June 30, 2009. Our personalized medicine services business was launched during the fourth quarter of 2008 with revenues from personalized medicine services recognized as cash payments for the services are received. The

Cost of Personalized Medicine Services

Cost of personalized medicine testing services primarily consisted of the compensation and benefits (including bonuses, if any, and stock-based compensation) of laboratory personnel, laboratory supplies, outside laboratory costs, shipping and distribution costs and facility-related expenses. We incurred costs of $1.1 million during the six months ended June 30, 2010 compared to $0.9 million during the six months ended June 30, 2009. The increase in cost of personalized medicine services during the six months ended June 30, 2010 is primarily due to an increase in compensation and benefit costs associated with an increase in laboratory personnel headcount, as well as increased overhead costs related to an increase in the volume of tests performed during the period.

Research and Development

Research and development expenses for the six months ended June 30, 2010 were $2.2 million compared to $9.3 million for the six months ended June 30, 2009. The decrease in research and development expenses is primarily attributable to a $3.0 million milestone payment owed to Pierre Fabre upon NDA approval in January 2009 and a $2.0 million payment recognized as research and development expense during the three months ended March 31, 2009 in connection with our asset purchase agreement with Cellatope, as well as a decrease in costs incurred during the six months ended June 30, 2010 in connection with our proof of concept studies for new compounds.

Selling, General and Administrative

Selling, general and administrative expenses for the three months ended June 30, 2010 and 2009 is comprised of the following:


	Six Months Ended
	June 30,
	2010		2009
Sales and marketing	$	11,253,063	$	13,458,452
General and administrative		9,424,165		8,955,676

	$	20,677,228	$	22,414,128

Sales and marketing expenses decreased to $11.3 million for the six months ended June 30, 2010 from $13.5 million for the six months ended June 30, 2009. The decrease in sales and marketing expenses is primarily due to a decrease in costs to support our commercial organization, as well as a decrease in costs incurred in connection with marketing and promotional activities for our personalized medicine services business.

General and administrative expenses increased to $9.4 million for the three months ended June 30, 2010 from $9.0 million for the six months ended June 30, 2009. The increase in general and administrative expenses is primarily due to higher legal fees in connection with increased patent filing and business development activity and increased stock-based compensation expense related to the acceleration of certain stock option grants for certain employees who resigned during the six months ended June 30, 2010.

Interest Income

Interest income for the six months ended June 30, 2010 was $0.3 million compared to $1.1 million for the six months ended June 30, 2009. The decrease in interest income for the six months ended June 30, 2010 compared to the corresponding period in 2009 is primarily due to a general decrease in interest rates and related yields experienced during the six months ended June 30, 2010 compared to the six months ended June 30, 2009, as well as lower average balances available for investment during the six months ended June 30, 2010.

Liquidity and Capital Resources

At June 30, 2010, we had cash, cash equivalents and short-term investments of $105.5 million compared to cash, cash equivalents and short-term investments of $141.7 million at December 31, 2009. Working capital at June 30, 2010 totaled $135.9 million (including restricted cash of $30.0 million) compared to $140.5 million at December 31, 2009. We have invested a substantial portion of our available cash in money market funds, marketable debt instruments of governmental agencies and corporate debt securities. We have established guidelines relating to our investments to preserve principal and maintain liquidity.

Net cash used in operating activities as disclosed in our Condensed Consolidated Statement of Cash Flows was $5.3 million for the six months ended June 30, 2010 compared to net cash provided by operating activities of $6.7 million for the six months ended June 30, 2009. The primary source of cash from operations during the six months ended June 30, 2010 was commercial revenues, including royalty revenue and the co-promotion reimbursement received from Forest Laboratories, offset by cash used in operations including $4.2 million for changes in operating assets and liabilities and non-cash charges of $5.2 million. The primary source of cash from operations during the six months ended June 30, 2009 was the $25.0 million milestone payment and the $6.5 million reimbursement of expenses received from Forest Laboratories, offset by cash used in operations including $4.7 million for changes in operating assets and liabilities (excluding impact of initial deferred revenue amount from milestone payment) and non-cash charges of $5.5 million.

Net cash used in investing activities as disclosed in our Condensed Consolidated Statement of Cash Flows was $25.0 million for the six months ended June 30, 2010 compared to net cash provided by investing activities of $3.8 million for the six months ended June 30, 2009. The fluctuation in net cash from investing activities resulted primarily from the $30.0 million upfront payment in connection with the BioLineRx license agreement, which has been placed in escrow pending receipt of satisfactory OCS consent and effectiveness of the license agreement, as well as timing differences in investment purchases, sales and maturities and the fluctuations in our portfolio mix between cash equivalents and short-term investment holdings. We expect similar fluctuations to continue in future periods.

As disclosed in our Condensed Consolidated Statement of Cash Flows, we had no cash from financing activities for the six months ended June 30, 2010 compared to $0.4 million for the six months ended June 30, 2009. The decrease in net cash provided by financing activities during the six months ended June 30, 2010 compared to the corresponding prior year period was primarily the result of no exercises of stock options during the six months ended June 30, 2010 compared to proceeds of approximately $0.4 million from the exercise of stock options during the six months ended June 30, 2009.

The following table summaries our long-term contractual obligations as of June 30, 2010:


			Less than
			1 year		1 - 3 years		3 - 5 years		More than 5 years
	Total		(2010)		(2011-2013)		(2014-2015)		(2016 +)
Operating leases	$	1,928,037	$	450,734	$	1,456,921	$	20,382	$	—

Total	$	1,928,037	$	450,734	$	1,456,921	$	20,382	$	—

Other commercial and contractual commitments include potential milestone payments of up to $0.5 million to Pierre Fabre and sublicense payments to Pierre Fabre based on 5% of any upfront and milestone payments received from Forest Laboratories, milestone payments of up to $335.0 million to BioLineRx in connection with potential clinical, regulatory and commercial milestones related to the development of CYP-1020, milestone payments up to approximately $37.0 million in connection with license agreements related to our POC programs that are not currently in active development and milestone payments up to $3.0 million to Cellatope in connection with the commercial development of AVISE-SLE^SM. In the event we move forward with development of a product or service under any of these arrangements, in most instances, we would also be obligated to make royalty payments.

Additionally, we are obligated to reimburse Forest Laboratories for a portion of the active ingredient costs for samples of Savella. The amount of such obligation will vary depending on Forest Laboratories’ annual marketing plan. We estimate our portion of sampling costs over the term of the agreement could range from approximately 20% to 40% of the milestone payment received upon NDA approval.

Unless and until we can consistently generate significant cash from our operations, we expect to continue to fund our operations with existing cash resources that were primarily generated from the proceeds of offerings of our equity securities and from revenue under our license and collaboration agreement with Forest Laboratories and, if available to us, with cash from financings.

Our current expected primary cash needs on both a short-term and long-term basis are for the development of CYP-1020, the development of candidates under our POC trials, if any, and general research, working capital and other general corporate purposes and the identification, acquisition or license, and development of, potential future products and services. Excluding the amounts payable under our agreements with Pierre Fabre, BioLineRx, Cellatope and various licensors under our POC trials, the costs of in-licensing or acquiring additional compounds or companies and funding clinical development for any product (other than CYP-1020 and our ongoing POC trials) that we may in-license or acquire, and costs associated with our takeover defense, we estimate that based on our current business plan, net cash required to fund operating expenses will approximate $45.0 million to $50.0 million for the year 2010 (which amount includes the $30.0 million upfront payment to BioLineRx currently in escrow). In addition, one of our ongoing goals is to continue to identify and in-license new products and product candidates. In the event we acquire, license or develop any new products or product candidates in addition to CYP-1020, or begin any new POC, the amount to fund our operations for 2010 would increase, possibly materially. We expect that our net losses will continue for at least the next several years as we seek to acquire, license or develop additional products and product candidates in addition to CYP-1020. Such losses may fluctuate, the fluctuations may be substantial, and we may never become profitable.

Based on our current business plan, we believe our cash and cash equivalents and short-term investments balances at June 30, 2010 are sufficient to fund operations through at least 2011. However, we are actively continuing to evaluate various potential strategic transactions, including the potential acquisitions of products, product candidates and companies, and other alternatives, in addition to CYP-1020. In order to acquire or develop additional products and product candidates in addition to CYP-1020,

we will likely require additional capital. The amount of capital we require is dependent upon many forward-looking factors that could significantly increase our capital requirements, including the following:

	•		the costs and timing of development and regulatory approvals for all our products and product candidates;

	•		the extent to which we acquire or invest in other products, product candidates and businesses;

	•		the costs of in-licensing drug candidates;

	•		The extent to which we achieve milestones under our license and collaboration agreements, including with BioLineRx, and become obligated for milestone payments under those agreements;

	•		the ability of Forest Laboratories to reach sales milestones and other events under our collaboration agreement; and

	•		the costs of commercialization of any future products and product candidates.

Because we are unable to predict the outcome of the foregoing factors, some of which are beyond our control, we are unable to estimate with certainty our mid to long-term capital needs. Unless and until we can generate a sufficient amount of product revenue, if ever, we expect to finance future capital needs through public or private equity or debt offerings or collaboration and licensing arrangements, as well as interest income earned on cash balances. We do not currently have any commitments or specific plans for future external funding. We may not be able to raise additional capital and the funds we raise, if any, may not allow us to maintain our current and planned operations. If we are unable to obtain additional capital, we may be required to delay, scale back or eliminate some or all of our development of existing or future product candidates and discontinue the evaluation or completion of any proposed acquisitions or strategic transactions.

To date, we have not had any relationships with unconsolidated entities or financial partnerships, such as entities referred to as structured finance or special purpose entities, which are established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies

There were no significant changes in critical accounting policies or estimates from those at December 31, 2009.

ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We have invested our excess cash in U.S. government securities, corporate debt securities and money market funds with strong credit ratings. As a result, our interest income is most sensitive to changes in the general level of U.S. interest rates. We do not use derivative financial instruments, derivative commodity instruments or other market risk sensitive instruments, positions or transactions in any material fashion. Accordingly, we believe that, while the investment-grade securities we hold are subject to changes in the financial standing of the issuer of such securities, we are not subject to any material risks arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk sensitive instruments. A hypothetical 1% adverse move in interest rates along the entire interest rate yield curve over a three month period would not materially affect the fair value of our financial instruments that are exposed to changes in interest rates.

ITEM 4 — CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the timelines specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

There has been no change in our internal controls over financial reporting during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II OTHER INFORMATION


Item 1		- Legal Proceedings

From time to time we are involved in certain litigation arising out of our operations. We are not currently engaged in any legal proceedings that we expect would materially harm our business or financial condition.


Item 1A		- Risk Factors

We have marked with an asterisk those risk factors that reflect substantive changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2009.

Risks related to our business

*The public announcement and related consideration of the Ramius proposal and offer has resulted in uncertainty that may be disruptive to our business.

On July 19, 2010, we received an unsolicited letter from Ramius LLC in which Ramius indicated that it was prepared to acquire the Company for $4.00 per share. As described elsewhere in this report, our Board of Directors has unanimously concluded that the Ramius proposal grossly undervalues our current business and future prospects and consequently is not in the best interest of our stockholders.

We believe that the public announcement and related consideration of the Ramius proposal and offer (and any similar proposal or offer that Ramius or another party may make in the future) has resulted, and may continue to result, in uncertainty for our current and potential business partners. This uncertainty may cause these companies to change or terminate their business relationship with us. In addition, we may not be able to attract and retain key management, research and development, technical, financial and other personnel as a result of this uncertainty. Moreover, the review and consideration of the Ramius proposal and offer (and any similar proposal or offer that Ramius or another party may make in the future) has been, and may continue to be, a significant distraction for our management and employees, and have required, and may continue to require, the expenditure of significant time, costs and other resources by us.

*We may not receive an acceptable consent from the OCS to our license agreement with BioLineRx, which could cause us to terminate the license agreement.

On June 20, 2010, we entered into an exclusive North American license agreement for the development and commercialization of BioLineRx’s novel antipsychotic (CYP-1020) for the treatment of schizophrenia. BioLineRx is based in Jerusalem, Israel with US offices in Rockville, Maryland. As a result of funds received by BioLineRx from the Office of Chief Scientist of the Ministry of Industry, Trade and Labor of the State of Israel, or the OCS, with respect to BioLineRx’s preclinical and clinical program related to CYP-1020, the effectiveness of the license agreement is subject to the consent of the OCS and OCS may condition providing its consent on the parties’ agreeing to modifications in the license agreement. We and BioLineRx have agreed to work together to attempt to secure OCS approval on terms that minimize financial and non-financial obligations on the parties that may be imposed as a condition to receipt of the OCS consent. The upfront payment was placed into an escrow account pending receipt of a satisfactory OCS consent and effectiveness of the license agreement. We are not required to agree to any modifications to the license agreement that would have, or would be likely to have, a material adverse impact on our rights and obligations under the license agreement, and there can be no assurances as to whether OCS will provide an acceptable consent to us or the timing of our receiving any such consent.

*We may not be able to successfully develop and commercialize CYP-1020.

As with any drug development, we must commit time, effort and resources to the development of CYP-1020, and we may not be able to successfully develop and commercialize CYP-1020 based on any of the many different risks that characterize highly uncertain drug development research and development and commercialization activities, either on the timelines and budgets we expect or at all. For example, CYP-1020 may not demonstrate adequate safety and/or efficacy in future clinical trials to continue with its development, may not have adequate intellectual property right protection to support its continued development in the territory covered by our license, may be unable to obtain FDA or similar regulatory approval as a drug candidate for any of many reasons relating to the regulatory approval process, or may address a commercial market that is smaller than currently anticipated by us and that does not support its continued development, or we may otherwise fail to successfully develop and commercialize CYP-1020 in the territory covered by our license.

*We may not receive regulatory approval from the FDA or any other regulatory body required for the commercial sale of CYP-1020 in the United States or elsewhere for any number of reasons.

Even though results from BioLineRx’s EAGLE phase 2b clinical trial showed a clinically relevant and statistically significant improvement based on the pre-determined endpoints, the regulatory approval of a new drug candidate typically takes many years and the outcome is uncertain. We may not be able to repeat the results BioLineRx achieved in future clinical trials as we move through the regulatory process for development and approval of CYP-1020, which could cause us to cease further development of CYP-1020. Further, it is possible that CYP-1020 will prove to be effective for psychosis but not cognition. We consider CYP-1020 to have considerable pro-cognitive potential and, to the extent CYP-1020 does not prove to be effective for cognition, we may choose to discontinue development of CYP-1020.

As part of the regulatory approval process, we must conduct, at our own expense, additional clinical trials for CYP-1020 sufficient to demonstrate its safety and efficacy to the satisfaction of the FDA and other regulatory agencies in the United States and other countries where CYP-1020 will be marketed if approved. The number of clinical trials that will be required varies depending on a number of factors including, the type of product, the disease or condition that the product is in development for, the regulations applicable to any particular product, and the outcome of additional clinical trials. The regulatory process typically also includes a review of the manufacturing process to ensure compliance with applicable regulations and standards, including the cGMP (current good manufacturing practice) requirements. The FDA can delay, limit or decline to grant approval for many reasons, including:

	•		CYP-1020 may not be safe or effective;

	•		we may not achieve statistical significance for the primary endpoint (such as improving the cognitive deficits associated with schizophrenia);

	•		FDA officials may interpret data from preclinical testing, clinical trials and/or pharmacovigilance data from use of CYP-1020 outside of the United States in different ways than we interpret such data;

	•		the FDA might not approve our manufacturing processes or facilities, or the processes or facilities of any future collaborators or contract manufacturers we may engage;

	•		the FDA may change its approval policies or adopt new regulations; and

	•		the FDA may request additional data.

*We may not be successful in implementing our Research and Development, or R&D, strategy.

Our focus for our recently renewed R&D strategy is pursuing in-licensing and collaboration transactions for CNS drug development candidates that target large unmet medical needs covering a variety of CNS disorders. The BioLineRx transaction is an example of our pursuing this strategy. The successful development of CYP-1020 or any other compound that we may license or acquire is uncertain. Factors, in addition to the above named regulatory factors, that could adversely impact or cause us to cease our development efforts include:

	•		CYP-1020 or other compounds may, even if approved, address smaller commercial markets than we anticipate;

	•		we may not have adequate intellectual property right protection to support continued development efforts of CYP-1020 or any other product;

	•		any termination of our license agreement with BioLineRx due to our uncured material breach under that agreement or for any other reason;

	•		disputes with BioLineRx under our license agreement with BioLineRx;

	•		we may not be able to license or acquire any other compounds for future R&D;

	•		the competitive landscape may change, making products in development less competitive than alternative treatments, and therefore not commercially viable;

	•		we may not be able to obtain a label that includes improvement of cognition during the approval process that would support commercialization of CYP-1020 or any other product; and

	•		we may not be able to adequately fund development of one or multiple products.

*We rely on third parties for our sales activities.

We recently announced a plan to decrease our workforce by approximately 86%, which will result in the elimination of our sales force and marketing personnel. In connection with this plan, we agreed with Forest Laboratories to discontinue our right to co-promote Savella. As a result, we currently do not have the ability to directly sell, market or distribute any product we develop, and are dependent on Forest for all sales and commercialization activities relating to Savella. With respect to any product we develop, we may have to obtain the assistance of a pharmaceutical company or other entity with a large distribution system and a large direct sales force, or build a substantial marketing and sales force with appropriate technical expertise and supporting distribution capabilities. We may not be able to enter into such arrangements with third parties in a timely manner or on acceptable terms or to establish such sales, marketing and distribution capabilities of our own. To the extent that we enter into co-promotion or other licensing arrangements, our product revenues are likely to be lower than if we directly marketed and sold our products, and any revenues we receive will depend upon the efforts of third parties, and these efforts may not be successful.

* We rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for any of our other future product candidates.

As we have in the past, we expect to continue to rely on third parties to conduct our clinical trials. Because we do not conduct our own clinical trials, we must rely on the efforts of others and cannot always control or predict accurately the timing of such trials, the costs associated with such trials or the procedures

that are followed for such trials. We expect to continue to rely on third parties to conduct all of our future clinical trials. If these third parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to their failure to adhere to our clinical protocols or for other reasons, or if they fail to maintain compliance with applicable government regulations and standards, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize any of our future product candidates.

*Recent healthcare legislation may have an extensive impact on our business.

The United States Congress recently enacted legislation to reform the healthcare system. A major goal of the new healthcare reform law was to provide greater access to healthcare coverage for more Americans. Accordingly, the new healthcare reform law requires individual U.S. citizens and legal residents to maintain qualifying health coverage, imposes certain requirements on employers with respect to offering health coverage to employees, amends insurance regulations regarding when coverage can be provided and denied to individuals, and expands existing government healthcare coverage programs to more individuals in more situations. Among other things, the new healthcare reform law specifically:

	•		establishes annual, non-deductible fees on any entity that manufactures or imports certain branded prescription drugs, beginning 2011;

	•		increases minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program, retroactive to January 1, 2010;

	•		redefines a number of terms used to determine Medicaid drug rebate liability, including average manufacturer price and retail community pharmacy, effective October 2010; and

	•		extends manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations, effective March 2010.

This new legislation may have extensive impact on our business, including but not limited to the royalty we may ultimately receive from Forest on sales of Savella, the type and costs of providing health care for our employees, the expenses we may incur in connection with drugs we may develop and reimbursement we may receive for certain drugs we may develop.

* Our business may be harmed if our restructuring plan does not achieve the anticipated results or causes undesirable consequences.

We recently announced the restructuring of our business which will result in our decreasing our workforce by approximately 86%. This restructuring plan may yield unintended consequences, such as attrition beyond our intended reduction in workforce and reduced employee morale, which may cause our employees who were not affected by the reduction in workforce to seek alternate employment. Additional attrition could impede our ability to meet our operational goals, which could have a material adverse effect on our financial performance. In addition, as a result of the reductions in our workforce, we face an increased risk of employment litigation. Furthermore, employees whose positions were eliminated in connection with this restructuring plan may seek future employment with our competitors. Although all our employees are required to sign a confidentiality agreement with us at the time of hire, we cannot assure you that the confidential nature of our proprietary information will be maintained in the course of such future employment. We cannot assure you that we will not undertake additional restructuring activities in the future, that any of our restructuring efforts will be successful, or that we will be able to realize the cost savings and other anticipated benefits from our previous or any future restructuring plans.

*We are dependent on our collaboration with Forest Laboratories to commercialize Savella and to obtain additional regulatory approvals.

Pursuant to the terms of our license and collaboration agreement with Forest Laboratories, we granted Forest Laboratories an exclusive sublicense for the development and marketing of Savella, for all indications in the United States. Forest Laboratories exercised its option to extend the territory to include Canada. Forest Laboratories is responsible for funding the further development of Savella, including further clinical trials and further regulatory approval. With the FDA approval of Savella, and following our agreement with Forest Laboratories to discontinue our right to co-promote Savella, Forest Laboratories has the sole responsibility for the marketing and sale of the approved product and we will share responsibility for compliance with regulatory requirements. We have limited control over the amount and timing of resources that Forest Laboratories will dedicate to the further development and marketing of Savella. Our ability to generate milestone and royalty payments from Forest Laboratories depends on Forest Laboratories’ ability to achieve market acceptance of Savella for the management of FM.

We are subject to a number of additional risks associated with our dependence on our collaboration with Forest Laboratories, including:

	•		Forest Laboratories could fail to devote sufficient resources to the commercialization, marketing and distribution of Savella or any other products developed under our collaboration agreement, including by failing to develop or expand sales forces if such sales forces appear necessary for the most effective promotion of Savella or any other approved product;

	•		We and Forest Laboratories could disagree as to post approval development plans, including the number and timing of clinical trials, or as to which additional indications for Savellashould be pursued, if any, and therefore Savella may never be sold for any indications other than FM;

	•		Forest Laboratories could fail to comply with applicable regulatory guidelines with respect to the marketing and manufacturing of Savella which could result in administrative or judicially imposed sanctions, including warning letters, civil and criminal penalties, injunctions, product seizures or detention, product recalls, total or partial suspension of production and refusal to approve any new drug applications;

	•		Forest Laboratories could independently develop, develop with third parties or acquire products that could compete with Savella, including drugs approved for other indications used by physicians off-label for the treatment of FM;

	•		Forest Laboratories could abandon or underfund the post approval development of Savella, repeat or conduct additional clinical trials or require a new formulation of milnacipran for further clinical testing, or delay the commencement of any post approval clinical trials for Savella for the management of FM; and

	•		Disputes regarding the collaboration agreement that delay or terminate the post approval development or commercialization, may delay or prevent the achievement of clinical or regulatory objectives that would result in the payment of milestone payments or result in significant litigation or arbitration.

Furthermore, Forest Laboratories may terminate our collaboration agreement upon our material breach or our bankruptcy and may also terminate our agreement upon 120 days’ notice in the event Forest Laboratories reasonably determines that the development program indicates issues of safety or efficacy that are likely to prevent or significantly delay the filing or approval of any future NDA or to result in labeling or indications that would significantly adversely affect the marketing of any product developed under the agreement. If any of these events occur, we may not be able to find another collaborator for further

development or commercialization, and even if we elected to pursue further development and continued commercialization of Savella, we might not be able to do so successfully on a stand-alone basis and would experience substantially increased capital requirements that we might not be able to fund.

We rely upon an exclusive license from Pierre Fabre in order to develop and sell Savella, and our ability to pursue the further development and commercialization of Savella for the management of FM depends upon the continuation of our license from Pierre Fabre.

Our license agreement with Pierre Fabre provides us with an exclusive license to develop and sell any products with the compound milnacipran as an active ingredient for any indication in the United States and Canada, with a right to sublicense certain rights to Forest Laboratories under our collaboration with Forest Laboratories. Either we or Pierre Fabre may terminate the license agreement for cause upon 90 days’ prior written notice to the other party upon the bankruptcy or dissolution of the other party, or upon a breach of any material provision of the agreement if the breach is not cured within 90 days following the written notice. Furthermore, Pierre Fabre has the right to terminate the agreement upon 90 days’ prior notice to us if we and Forest Laboratories terminate our development and marketing activities with respect to Savella, if we challenge certain patent rights of Pierre Fabre and under specified other circumstances. If our license agreement with Pierre Fabre were terminated, we would lose our rights to develop and commercialize products using the compound milnacipran as an active ingredient, as the compound is manufactured under Pierre Fabre patents and using Pierre Fabre know-how and trade secrets, and it would be unlikely that we could obtain the active ingredient in milnacipran from any other source.

*We rely upon Pierre Fabre as our exclusive supplier of the active ingredient in Savellaand if Pierre Fabre fails to supply us sufficient quantities of the active ingredient it may delay or prevent us from further commercializing Savella.

Pursuant to our purchase and supply agreement with Pierre Fabre, Pierre Fabre is the exclusive supplier to us and Forest Laboratories of the active pharmaceutical ingredient in Savella. Neither we nor Forest Laboratories have facilities for the manufacture of the active pharmaceutical ingredient in Savella. Currently, Pierre Fabre manufactures milnacipran in its facility in Gaillac, France. Pierre Fabre is the only worldwide supplier of milnacipran, which is currently approved for sale for a non-pain indication outside the United States. Pierre Fabre’s facility has been initially inspected by the FDA for compliance with current good manufacturing practices (“cGMP”) requirements and after this initial inspection, may be inspected from time to time. In addition, Pierre Fabre has qualified an additional manufacturing facility, and the second manufacturing site that has been identified by Pierre Fabre is also subject to inspection by the FDA for compliance with cGMP. In the event an inspection results in written deficiencies, it may result in a disruption or termination of the supply to us and Forest Laboratories of milnacipran. We do not have control over Pierre Fabre’s or its sublicensee’s compliance with cGMP requirements. If Pierre Fabre fails to timely and economically supply Forest Laboratories with sufficient quantities for commercial sale of Savella, Forest Laboratories’ ability to successfully commercialize Savella, and the royalty payments we derive from the sale and market acceptance of Savella, could be adversely affected.

Furthermore, our purchase and supply agreement may be terminated for cause either by us or by Pierre Fabre upon 90 days’ prior written notice to the other party upon a material breach of the agreement if the breach is not cured within 90 days following the written notice. We have the right to manufacture milnacipran if Pierre Fabre does not have a required buffer stock or in the event that we terminate our license agreement with Pierre Fabre under certain circumstances. If our purchase and supply agreement with Pierre Fabre is terminated, we are unlikely to be able to qualify another supplier of the active ingredient within a reasonable time period, and our ability to further develop and commercialize Savella will be significantly impaired.

Our agreements with Pierre Fabre and Forest Laboratories restrict our ability to develop specified compounds, which limits how we can expand our product candidates.

Under our agreements with Pierre Fabre and Forest Laboratories, Forest Laboratories has agreed to pay Pierre Fabre and us a royalty, in the event that Forest Laboratories sells a product other than milnacipran for FM for a specified period of time, which shall not be less than three years. We are, in turn, obligated to pay a portion of the royalty we receive from Forest Laboratories to Pierre Fabre. In addition, each of us is subject to limitations related to each party’s development of any serotonin norephinephrine reuptake inhibitor (“SNRI”) products other than milnacipran. These limitations include: (i) a prohibition on developing an SNRI product for specified indications for which milnacipran is being developed; and (ii) a prohibition on developing an SNRI product for any indication for a specified time period, and after such specified time period, a requirement that if one of the parties launches and sells an SNRI product that is prescribed off-label for any indication for which milnacipran is being developed, the selling party must reimburse the other parties for lost sales due to the off-label use.

* Provisions in our collaboration agreement with Forest Laboratories and our license agreement with Pierre Fabre may prevent or delay a change in control.

We lose our decision-making authority with respect to the development of Savella if we engage in a merger, consolidation or sale of all or substantially all of our assets, or if another person or entity acquires at least 50% of our voting capital stock. In addition, in the event that we have a change of control that is not approved by our Board or in the event the surviving entity has an FM product and does not divest such product within 12 months, Forest Laboratories may elect to terminate our co-promotion rights for any product developed under the collaboration agreement (other than with respect to Savella, which co-promotion rights we have already agreed to discontinue). Our license agreement with Pierre Fabre provides that Pierre Fabre may elect to terminate the agreement upon a change in control transaction in which a third party acquirer of us controls an SNRI product, and the acquirer does not take certain actions (e.g., divestiture of such SNRI product) within a specified time period to cure the breach of certain restrictions in the agreement that results from such SNRI product. These provisions may have the effect of delaying or preventing a change in control or a sale of all or substantially all of our assets, or may reduce the number of companies interested in acquiring us.

* We are at an early stage of commercialization and we may never generate any significant revenues.

We are at an early stage of development as a biotechnology company and have only one commercial product, Savella, that is currently marketed. We recently announced that we have agreed with Forest Laboratories to discontinue our rights to co-promote Savella, and our revenue from future sales of Savella will be solely derived from royalties on sales by Forest Laboratories. Further, our current product candidates, as well as any future products that we may acquire or develop, will require significant additional development, appropriate regulatory approval, and additional investments before they can be commercialized, if ever. Our product development and product acquisition efforts may not lead to any further commercial products, either because the product candidates are not shown to be safe and effective, or because we have inadequate financial or other resources to pursue clinical development of the product candidate or because the FDA, CMS or state authorities do not grant or otherwise withdraw or revoke a regulatory approval.

If we are unable to develop on a timely basis or at all any additional products, we will be unable to generate sufficient revenues (including revenues from royalties based on sales of Savella by Forest Laboratories), may be unsuccessful in raising additional capital and may cease our operations.

Our failure to comply with the HIPAA security and privacy regulations and other state regulations may increase our operational costs.

The Health Insurance Portability and Accountability Act (“HIPAA”) privacy and security regulations establish comprehensive federal standards with respect to the uses and disclosures of personal health information (“PHI”) by health plans and healthcare providers, in addition to setting standards to protect the confidentiality, integrity and availability of electronic PHI. The regulations establish a complex regulatory framework on a variety of subjects, including:

	•		the circumstances under which uses and disclosures of PHI are permitted or required without a specific authorization by the patient, including but not limited to treatment purposes, activities to obtain payments for services and healthcare operations activities;

	•		a patient’s rights to access, amend and receive an accounting of certain disclosures of PHI;

	•		the content of notices of privacy practices for PHI; and

	•		administrative, technical and physical safeguards required of entities that use or receive PHI electronically.

We have implemented policies and procedures related to compliance with the HIPAA privacy and security regulations, as required by law. The privacy regulations establish a uniform federal “floor” and do not supersede state laws that are more stringent. Therefore, we are required to comply with both federal privacy regulations and varying state privacy laws. The federal privacy regulations restrict our ability to use or disclose patient identifiable laboratory data, without patient authorization, for purposes other than payment, treatment or healthcare operations (as defined by HIPAA), except for disclosures for various public policy purposes and other permitted purposes outlined in the privacy regulations. The privacy and security regulations provide for significant fines and other penalties for wrongful use or disclosure of PHI, including potential civil and criminal fines and penalties. Although the HIPAA statute and regulations do not expressly provide for a private right of damages, we also could incur damages under state laws to private parties for the wrongful use or disclosure of confidential health information or other private personal information.

*Our business presents the risk of product liability claims.

We may be subject to legal actions asserting product liability claims relating to the use of Savella. Although we currently maintain $10.0 million in insurance for product liability claims, litigation is inherently subject to uncertainties and we may be required to expend substantial amounts in the defense or resolution of any product liability claims made relating to the use of Savella, some or all of which may not be covered by insurance.

We also plan to continue conducting clinical trials on humans using milnacipran from time to time, and to conduct clinical trials using CYP-1020 and possibly POC stage development candidates on humans, and the use of milnacipran, CYP-1020 and these other development candidates may result in adverse effects. Although we are aware that there are side effects associated with milnacipran, CYP-1020 and other potential development candidates, we will never be able to predict all possible harm or side effects that may result from the treatment of patients with milnacipran, CYP-1020 or any of our future product candidates, and the amount of insurance coverage we currently hold may not be adequate to protect us from any liabilities. We may not have sufficient resources to pay any liability resulting from such a claim beyond our insurance coverage.

The FDA approval of any future product candidate is uncertain and will involve the commitment of substantial time and resources.

We may never receive regulatory approval from the FDA or any other regulatory body required for the commercial sale of any future products in the United States for any number of reasons.

The regulatory approval of a new drug typically takes many years and the outcome is uncertain. Despite the time and resources expended, regulatory approval is never guaranteed. If we fail to obtain regulatory approval for any future therapeutic product candidates, we will be unable to market and sell any future therapeutic products and therefore may never generate any revenues from product sales for future therapeutic product candidates or become profitable. In addition, our collaborators, or our third-party manufacturers’ failure to comply with the FDA and other applicable United States or foreign regulations may subject us to administrative or judicially imposed sanctions, including warning letters, civil and criminal penalties, injunctions, product seizure or detention, product recalls, total or partial suspension of production and refusal to approve new drug approval applications.

As part of the regulatory approval process, we must conduct, at our own expense, preclinical research and clinical trials for each product candidate sufficient to demonstrate its safety and efficacy to the satisfaction of the FDA and other regulatory agencies in the United States and other countries where the product candidate will be marketed if approved. The number of preclinical studies and clinical trials that will be required varies depending on the product, the disease or condition that the product is in development for and the regulations applicable to any particular product. The regulatory process typically also includes a review of the manufacturing process to ensure compliance with applicable regulations and standards, including the cGMP requirements. The FDA can delay, limit or decline to grant approval for many reasons, including:

	•		a product candidate may not be safe or effective;

	•		we may not achieve statistical significance for the primary endpoint;

	•		FDA officials may interpret data from preclinical testing, clinical trials, and/or pharmacovigilance data in different ways than we interpret such data;

	•		the FDA might not approve our manufacturing processes or facilities, or the processes or facilities of any future collaborators or contract manufacturers we may engage;

	•		the FDA may change its approval policies or adopt new regulations; and

	•		the FDA may request additional data.

*In light of our regulatory approval for Savella and if we ever receive regulatory approval for any other future product candidate, we will be subject to ongoing FDA regulatory obligations and continuing regulatory review by applicable regulatory authorities.

Our regulatory approval for Savella has been and regulatory approval for any future product candidates (including CYP-1020) will be limited to the indications, dosages and restrictions on the product label. The FDA has approved Savellafor the management of fibromyalgia, and has imposed additional limitations on the indicated uses, has required post-marketing surveillance and the performance of potentially costly post-marketing studies. Even though we have received FDA approval for Savella, as we have seen with other products on the market, Savella or any of our other future product candidates may later exhibit adverse effects that limit or prevent their widespread use or that force us to withdraw those product candidates from the market. We and Forest Laboratories continue to be subject to strict FDA regulation after approval, including regulation of product labeling and packaging, adverse event reporting, manufacture, storage,

advertising, promotion and recordkeeping. Any unforeseen problems with an approved product or any violation of regulations could result in restrictions on the product, including its withdrawal from the market.

*Even if our product candidates are approved, the market may not accept these products or our existing products.

Savella, CYP-1020 or any other future product candidates that we may develop and for which we obtain the required regulatory approvals may not gain market acceptance among physicians, patients, healthcare payers and the medical community. A number of factors may limit the market acceptance of our products including the following:

	•		timing of market entry relative to competitive products;

	•		extent of marketing efforts by us and with respect to Savella, the marketing and promotion efforts of Forest Laboratories;

	•		rate of adoption by healthcare practitioners;

	•		rate of a product’s acceptance by the target community;

	•		availability of alternative therapies;

	•		price of our products relative to alternative therapies;

	•		availability of third-party reimbursement; and

	•		the prevalence or severity of side effects or unfavorable publicity concerning our products or similar products.

If Savella or CYP-1020 or any other future product candidates that we may develop do not achieve market acceptance, we may lose our investment in that product or product candidate, which may cause our stock price to decline, and our financial condition and results of operations could also be harmed.

*Our competitors may develop and market products that are less expensive, more effective or safer, which may diminish or eliminate the commercial success of any products we may commercialize.

The pharmaceutical industry is highly competitive and requires an ongoing, extensive search for technological innovation. It also requires, among other things, the ability to effectively discover, develop, test, commercialize, market and promote products, including communicating the effectiveness, safety and value of products to actual and prospective customers, including medical professionals. Many of our competitors have greater resources than we have. This enables them, among other things, to spread their marketing and promotion costs over a broader revenue base. Other competitive factors in the pharmaceutical industry include quality and price, product technology, reputation and access to technical information.

It is possible that future developments by our competitors could make our products or technologies less competitive or obsolete. Our future growth depends, in part, on our ability to provide products which are more effective than those of our competitors and to keep pace with rapid medical and scientific change. Sales of our products may decline rapidly if a new product is introduced by a competitor, particularly if a new product represents a substantial improvement over any of our existing products. In addition, the high level of competition in our industry could force us to reduce the price at which we sell our products or require us to spend more to market our products.

With respect to our pharmaceutical product for the management of FM, Savella (milnacipran HC1), in June 2007, the FDA approved Pfizer Inc.’s drug pregabalin (Lyrica^®) for the management of FM and in

June 2008 approved Eli Lilly and Company’s duloxetine (Cymbalta^®) for the management of FM. Duloxetine is a serotonin norepinephrine reuptake inhibitor, and as a dual reuptake inhibitor is therefore similar in pharmacology to Savella. Tricyclic antidepressants (“TCAs”), which are available as inexpensive generic formulations, are also used to treat FM and are less expensive than Savella, as are other generic antidepressants and pain products commonly used to treat FM. Pfizer Inc.’s drug pregabalin (Lyrica^®) and Eli Lilly and Company’s duloxetine (Cymbalta^®) are competitive with Savella and these products and any other future products will affect Savella‘s sales and may cause sales to be lower than anticipated, as can the numerous generic antidepressants and pain products commonly used off-label to treat FM.

The market potential for FM is considerable and a number of pharmaceutical companies focused on therapies for alleviating pain or antidepressant therapies could decide to evaluate their current product candidates for the treatment of FM at any time. Due to the prevalence and incidence of FM, we anticipate that most, if not all, of the major pharmaceutical companies will have significant research and product development programs in FM. We expect significant competition both in the United States and in foreign markets for Savella and in each of the target markets for any drugs that we seek to develop.

With respect to CYP-1020 being developed for schizophrenia, it is likely that the market for antipsychotics will continue to evolve during the development of CYP-1020. If and when CYP-1020 is approved for the treatment of schizophrenia, its safety or efficacy may not be competitive with future antipsychotic therapies. In particular, while a pro-cognitive antipsychotic would represent an important step forward given today’s pharmacotherapies for schizophrenia, it may be that a pro-cognitive antipsychotic will not be competitive with future therapies and, as such, would fail to generate significant revenues.

Our competition for pharmaceutical products will be partially determined by the potential indications that are ultimately cleared for marketing by regulatory authorities, the timing of any clearances and market introductions and whether any currently available drugs, or drugs under development by others, are effective in the same indications. Accordingly, the relative speed with which we can develop, complete the clinical trials for, receive regulatory clearance for and supply commercial quantities of products to the market is expected to be an important competitive factor. We expect that competition among products approved for sale will be based, among other factors described above, on product efficacy, safety, tolerability, cost, reliability, availability, payer reimbursement policies and patent protection.

* We are subject to uncertainty relating to health care reform measures and reimbursement policies which, if not favorable to our products or product candidates, could hinder or prevent the commercial success of our product or product candidates.

The continuing efforts of the government, insurance and managed care organizations and other health care payers to contain or reduce prescription drug costs may adversely affect:

	•		our ability to set a price we believe is fair for our products;

	•		our ability to generate revenues and achieve or maintain profitability;

	•		the future revenues and profitability of our potential customers, suppliers and collaborators; and

	•		the availability of capital.

Successful commercialization of Savella in the United States will depend in part on the extent to which government, insurance and managed care organizations and other health care payers establish appropriate coverage for Savella and related treatments. Third-party payers are increasingly challenging the prices charged for prescription drugs. Third-party payers are also encouraging the use of generic drugs. These trends could influence health care coverage policies, as well as legislative proposals to reform health care or reduce government insurance programs and result in the exclusion of our products and product candidates

from coverage and reimbursement programs or lower the prices of our products and product candidates. Our revenues from royalties on sales of Savella by Forest Laboratories and from the sale of any products we develop in the future could be significantly reduced as a result of these cost containment measures and reforms.

* We rely on our employees and consultants for their scientific and technical expertise in connection with our business operations.

We rely significantly on the scientific and technical expertise of our employees and consultants to conduct our business. We recently announced a plan to decrease our workforce by approximately 86%, reducing our number of full-time employees to approximately 23, and accordingly we will continue to rely heavily on each of our employees. In addition, because we have a small number of employees, we rely much more on consultants than do other companies. If any of our relationships with our employees or consultants are terminated, we may lose access to scientific knowledge and expertise necessary for the further development of Savella or further development and commercialization of CYP-1020 or any future product candidates. We expect to continue to rely on consultants and our current employees for scientific and technical knowledge and expertise essential to our business. Additionally, our employment agreement with our chief executive officer provides for “at will” employment, which means that he may terminate his services to us at any time.

* We have a history of operating losses and we may never be profitable.

We have incurred substantial losses during our history. For the six months ended June 30, 2010 and the years ended December 31, 2009 and 2008, we incurred net losses of $6.4 million, $28.3 million and $18.2 million, respectively. As of June 30, 2010, we had an accumulated deficit of $202.8 million. We do not expect to be profitable in the near future, and our ability to become profitable will depend largely upon our ability to develop, market and commercialize any products we may develop, as well as on Forest Laboratories’ ability to further develop, market and commercialize Savella. We may not become profitable in the foreseeable future and may never achieve profitability.

*We will need substantial additional funding and may be unable to raise capital when needed, which could force us to scale back or eliminate the development of future product candidates or to discontinue pursuing any proposed acquisitions, or which could adversely affect our ability to realize the expected benefits of any completed acquisitions.

Our acquisition of CYP-1020 required an upfront payment to BioLineRx of $30.0 million, with total potential clinical and regulatory milestones of up to $160.0 million, potential commercial milestones of $85.0 million, and a potential additional $90.0 million associated with approval for additional indications in the United States or for approval in other countries in North America. In addition, we will fund all continuing development activities. We are also incurring expenses in connection with the continuing evaluation of potential acquisitions or other strategic transactions and will incur additional expenses in the event we close any such transactions or enter into any co-promotion, in-licensing or collaboration agreements in connection with any such transactions, or invest in any POC studies. We are also incurring expenses for advisors and for other activities related to responding to the unsolicited acquisition offer from Ramius LLC. We may also be required to pay a $3.0 million milestone payment in connection with our acquisition of Cellatope. We do not have any committed external sources of funding and although we expect to have revenues, it is likely our revenues will be less than we expect to spend in the year 2010 and that at some time in the future we will likely need to raise additional capital through the sale of equity or debt. The amount of capital we will require will depend upon many factors, including but not limited to, how much is ultimately required to develop the products that are in development and the evaluation, pursuit and potential closing of any strategic transactions. If we are unable to raise capital when we need it, we may have to scale back or eliminate some or all of our development of existing or future product candidates and discontinue

the evaluation, pursuit or completion of any proposed acquisitions or strategic transactions, and we may be unable to realize the expected benefits of any completed acquisitions or strategic transactions.

* Raising additional funds by issuing securities, or through collaboration and licensing arrangements, may cause dilution to existing stockholders, restrict our operations, or require us to relinquish propriety rights.

We may attempt to raise additional funds through public or private equity offerings or through debt financings. However, the recent credit crisis and the current economic conditions may prevent us from raising money through debt or equity financings. We may also issue equity or other securities in connection with corporate collaborations and licensing arrangements, or raise funds through arrangements like these. To the extent that we are able to raise additional capital by issuing equity securities, or otherwise issue equity securities in connection with corporate collaboration and licensing arrangements or otherwise, our existing stockholders’ ownership percentage will be diluted to a greater extent than would have occurred in the past due to the level of our stock price relative to earlier periods. Any financing or other transaction that involves our issuing securities that we do engage in may also include provisions that restrict our operations. In addition, if we raise additional funds through collaborations and licensing arrangements, it may be necessary to relinquish potential valuable rights to our potential products on terms that are not favorable to us.

* The investment of our cash balance and short-term investments are subject to risks which may cause losses and affect the liquidity of these investments.

As of June 30, 2010, we had $8.3 million in cash and cash equivalents and $97.2 million in short-term investments. We have historically invested these amounts in U.S. government securities, corporate debt securities, commercial paper, certificates of deposit and money market funds. Certain of these investments are subject to general credit, liquidity, market and interest rate risks. During the six months ended June 30, 2010, we determined that any declines in the fair value of our investments were temporary. There may be further declines in the value of these investments, which we may determine to be other-than-temporary. These market risks associated with our investment portfolio may have a negative adverse effect on our results of operations, liquidity and financial condition.

We may lose our net operating loss carryforwards, which could prevent us from offsetting future taxable income.

We have incurred substantial losses during our history and do not expect to become profitable in 2010 and may never achieve profitability. To the extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire. All unused federal net operating losses will expire 15 or 20 years after any year in which they were generated. The carryforward period is 15 years for losses incurred prior to 1996 and 20 years for losses incurred subsequent to 1997. Our federal net operating losses will begin to expire in 2010, and our California tax loss carryforwards will begin to expire in 2012. Additionally, the future utilization of our net operating loss carryforwards to offset future taxable income is subject to annual limitations, pursuant to Internal Revenue Code Sections 382 and 383, as a result of ownership changes that have occurred in prior years, which could prevent us from fully utilizing our net operating loss carryforwards.

* Our stock price has been very volatile and will likely continue to be volatile.

The market prices of the stock of technology companies, particularly biotechnology companies, have been highly volatile. For the period from January 1, 2007 through December 31, 2009, the low and high sales prices for our common stock ranged from $4.90 to $18.20. For the six months ended June 30, 2010, our low and high sales prices were $2.25 and $6.22, respectively. As of June 30, 2010, the last reported sale price of our common stock was $2.30. Our stock price has been and will likely continue to be affected by

market volatility, as well as by our own performance. Our stock has recently traded at prices that value our company below our actual available cash, and we recently received an unsolicited takeover offer from Ramius LLC, as described above. We expect our stock price to be volatile in the near future, particularly in light of the pending unsolicited takeover offer from Ramius. The following factors, among other risk factors, may also have a significant effect on the market price of our common stock:

	•		entering into an agreement for the acquisition or licensing of any products, product candidates or companies, or an agreement with any corporate collaborator, as was the case when we recently announced our deal with BioLineRx;

	•		the commercial sales of Savella;

	•		development of other product candidates;

	•		developments in our relationship with Forest Laboratories, including the further amendment or termination of our agreement;

	•		developments in our relationship with Pierre Fabre, including the termination of our agreement;

	•		developments in our relationship with BioLineRx, including the termination of our agreement;

	•		developments in connection with the unsolicited takeover offer by Ramius LLC and other developments with third parties that may submit similar offers;

	•		our available cash;

	•		announcements of technological innovations or new products by us or our competitors;

	•		developments in our patent or other proprietary rights;

	•		fluctuations in our operating results;

	•		our ability to successfully implement our restructuring plans;

	•		litigation initiated by or against us;

	•		developments in domestic and international governmental policy or regulation; and

	•		economic and other external factors or other disaster or crisis.

* The concentration of ownership among our existing officers, directors and principal stockholders may result in the entrenchment of management, prevent other stockholders from influencing significant corporate decisions and depress our stock price.

As of June 30, 2010, our executive officers, directors and stockholders who hold at least 5% of our stock beneficially owned and controlled approximately 55% of our outstanding common stock. If these officers, directors and principal stockholders act together, they will be able to help entrench management and to control matters requiring approval by our stockholders, including a financing in which we sell more than 20% of our voting stock at a discount to the market price, the removal of any directors up for election, the election of the members of our board of directors, mergers, a sale of all or substantially all of our assets, going private transactions and other fundamental transactions. This concentration of ownership could also depress our stock price.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our second amended and restated certificate of incorporation and our third amended and restated bylaws may delay, impede or prevent an acquisition or change in control of us. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, who are responsible for appointing the members of our management team. These provisions include, among others, a requirement that our board of directors be divided into three classes with directors serving three year terms and with only one class of directors being elected in any given year, a requirement that special meetings of our stockholders may only be called by the chairman of the board, our chief executive officer or a majority of our board of directors and a prohibition on actions by our stockholders by written consent. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits, with some exceptions, stockholders owning in excess of 15% of our outstanding voting stock from merging or combining with us. Our charter documents also establish advance notice requirements for nominations for election to our board of directors and for proposing matters that can be acted upon at stockholder meetings. Although we believe these provisions together provide for an opportunity to receive higher bids by requiring potential acquirers to negotiate with our board of directors, they would apply even if the offer may be considered beneficial by some stockholders.

We expect to continue incurring significant costs as a result of enacted and proposed changes in laws and regulations relating to corporate governance matters.

Changes in the laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002 and rules adopted by the SEC and by The NASDAQ Stock Market LLC, have resulted and we expect will continue to result in significant costs to us. In particular, our efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations regarding our required assessment of our internal controls over financial reporting and our independent registered public accounting firm’s audit of internal control over financial reporting has required the commitment of significant financial and managerial resources. We expect these efforts to require the continued commitment of significant financial resources and management time related to compliance activities. Additionally, these laws and regulations could make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.

If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements could be impaired, which could adversely affect our ability to operate our business and investors’ view of us.

As a public reporting company, we are required to comply with the Sarbanes-Oxley Act of 2002, including Section 404 related to internal controls, and the related rules and regulations of the SEC, including expanded disclosures and accelerated reporting requirements and more complex accounting rules. Compliance with Section 404 and other requirements will increase our costs and will continue to require additional management resources. We may need to continue to implement additional finance and accounting systems, procedures and controls to satisfy reporting requirements. If we are unable to obtain future unqualified reports as to the effectiveness of our internal control over financial reporting, investors could lose confidence in the reliability of our internal control over financial reporting, which could adversely affect our ability to raise financing and operate our business as well as our stock price.

Risks related to our intellectual property

* We rely primarily on method of use patents to protect our proprietary technology for Savella, and our ability to compete may decrease or be eliminated if we are not able to protect our proprietary technology.

Our ability to realize the full potential for royalties we are entitled to collect from Forest Laboratories’ sale of Savella (milnacipran HCl), our only therapeutic product, may decrease or be eliminated if we are not able to protect our proprietary technology. The composition of matter patent for milnacipran (U.S. Patent 4,478,836) expired in June 2002, and a method of synthesis patent (U.S. Patent 5,034,041) expired in December 2009. Accordingly, we rely on the patent for the method of use of milnacipran to treat FM (U.S. patent 6,602,911), pain (U.S. Patent 6,992,110) and the method of use of milnacipran to treat symptoms of chronic fatigue syndrome (U.S. Patent 6,635,675) issued to us, to protect our proprietary technology with respect to the development of milnacipran. The method of use patent directly relevant to our current milnacipran product candidate is the U.S. patent 6,602,911; the other two method of use patents may have future applicability. We have also filed additional patent applications related to milnacipran and to the use of milnacipran for FM (and other related pain syndromes and disorders), although no patents have issued on these patent applications. Because there is no patent protection for the composition of matter of milnacipran, other companies may be able to sell milnacipran in competition with Forest Laboratories for indications for which we do not have use patent protection unless we and Forest Laboratories are able to obtain additional protection through milnacipran-related patents or additional use patents that may issue from our pending patent applications or from regulatory exclusivity. It may be more difficult to establish infringement of methods of synthesis, formulation or use patents as compared to a patent on a compound. If we or Forest Laboratories are not able to obtain and enforce these patents, a competitor could use milnacipran for a treatment or use not covered by any of our patents.

The validity of a United States patent depends, in part, on the novelty of the invention it discloses. The pharmaceutical industry is characterized by constant investment in new drug discovery and development, and this results in a steady stream of publications regarding the product of this investment, any of which would act to defeat the novelty of later-discovered inventions. Issued United States patents enjoy a presumption of validity that can only be overcome by clear and convincing evidence. However, patents are nonetheless subject to challenge and can be invalidated if a court determines, retrospectively, that despite the action of the U.S. Patent and Trademark Office in issuing the patent, the corresponding patent application did not meet the statutory requirements. If a competitor or other third party were to successfully challenge our patents, and claims in these patents are narrowed or invalidated, our ability to protect the related product from competition would be compromised.

We also expect to rely on the United States Drug Price Competition and Patent Term Restoration Act, commonly known as the Hatch-Waxman Amendments, for protection of Savella and our other future products. The Hatch-Waxman Amendments provide data exclusivity for new molecular entities, such as that in Savella. Once a drug containing a new molecule is approved by the FDA, the FDA cannot accept an abbreviated NDA for a generic drug containing that molecule for five years, although the FDA may accept and approve a drug containing the molecule pursuant to an NDA supported by independent clinical data. Amendments have been proposed that would narrow the scope of Hatch-Waxman exclusivity and permit generic drugs to compete with our drug. After the Hatch-Waxman exclusivity period expires, assuming our patents are valid, we still expect to rely on our method of use patents to protect our proprietary technology with respect to the development of milnacipran. The patent positions of pharmaceutical companies are uncertain and may involve complex legal and factual questions. We may incur significant expense in protecting our intellectual property and defending or assessing claims with respect to intellectual property owned by others. Any patent or other infringement litigation by or against us is likely and could result in significant expense to us, including diversion of the resources of management.

Others may file patent applications or obtain patents on similar technology or compounds that compete with Savella for the treatment of FM, for CYP-1020 or for any of the products that may be developed under

any POC trials we conduct. We cannot predict the breadth of claims that will be allowed and issued in patent applications. Once patents have issued, we cannot predict how the claims will be construed or enforced. We may infringe on intellectual property rights of others without being aware of the infringement. If another party claims we are infringing their technology, we could have to defend an expensive and time consuming lawsuit, pay a large sum if we are found to be infringing, or be prohibited from selling or licensing our products unless we obtain a license or redesign our product, which may not be possible.

We also rely on trade secrets and proprietary know-how to develop and maintain our competitive position. Some of our current or former employees, consultants or scientific advisors, or current or prospective corporate collaborators, may unintentionally or willfully disclose our confidential information to competitors or use our proprietary technology for their own benefit. Furthermore, enforcing a claim alleging the infringement of our trade secrets would be expensive and difficult to prove, making the outcome uncertain. Our competitors may also independently develop similar knowledge, methods and know-how or gain access to our proprietary information through some other means.

*Our ability to compete may decline if we do not adequately protect our proprietary rights.

Our commercial success depends on obtaining and maintaining proprietary rights to our products and product candidates and technologies and their uses as well as successfully defending these rights against third party challenges. We will only be able to protect our products and product candidates, proprietary technologies and their uses from unauthorized use by third parties to the extent that valid and enforceable patents or effectively protected trade secrets cover them.

Our ability to obtain patent protection for our products and product candidates and technologies is uncertain due to a number of factors, including:

	•		we may not have been the first to make the inventions covered by our pending patent applications or issued patents;

	•		we may not have been the first to file patent applications for our products and product candidates or the technologies we rely upon;

	•		others may independently develop similar or alternative technologies or duplicate any of our technologies;

	•		our disclosures in patent applications may not be sufficient to meet the statutory requirements for patentability;

	•		any or all of our pending patent applications may not result in issued patents;

	•		we may not seek or obtain patent protection in all countries that will eventually provide a significant business opportunity;

	•		any patents issued to us or our collaborators may not provide a basis for commercially viable products, may not provide us with any competitive advantages or may be challenged by third parties;

	•		some of our technologies may not be patentable;

	•		others may design around our patent claims to produce competitive products which fall outside of the scope of our patents; or

	•		others may identify prior art which could invalidate our patents.

Even if we obtain patents covering our product candidates or technologies, we may still be barred from making, using and selling our product candidates or technologies because of the patent rights of others. Others may have filed and in the future are likely to file patent applications covering compounds, genes, or gene products or other materials that are similar or identical to ours. Numerous U.S. and foreign issued patents and pending patent applications owned by others exist in the area of the fields in which we have developed and are developing products. These could materially affect our ability to develop our product candidates or sell our products. Because patent applications can take many years to issue, there may be currently pending applications, unknown to us, which may later result in issued patents that our products and product candidates or technologies may infringe. These patent applications may have priority over patent applications filed by us. Disputes may arise regarding the ownership or inventorship of our inventions. It is difficult to determine how such disputes will be resolved. Others may challenge the validity of our patents. If our patents are found to be invalid we will lose the ability to exclude others from making, using or selling the inventions claimed therein.

Some of our research collaborators and scientific advisors have rights to publish data and information to which we have rights. If we cannot maintain the confidentiality of our technology and other confidential information in connection with our collaborations, then our ability to receive patent protection or protect our proprietary information will be impaired. In addition, in-licensed technology is important to our business. We generally will not control the patent prosecution, maintenance or enforcement of in-licensed technology.

*A dispute concerning the infringement or misappropriation of our proprietary rights or the proprietary rights of others could be time consuming and costly and an unfavorable outcome could harm our business.

There is significant litigation in the industry regarding patent and other intellectual property rights. We may be exposed to future litigation by third parties based on claims that our products and product candidates, technologies or activities infringe the intellectual property rights of others. If our drug development activities are found to infringe any such patents, we may have to pay significant damages. There are many patents relating to chemical compounds and the uses thereof. If our compounds are found to infringe any such patents, we may have to pay significant damages. A patentee could prevent us from making, using or selling the patented compounds. We may need to resort to litigation to enforce a patent issued to us, protect our trade secrets or determine the scope and validity of third party proprietary rights. From time to time, we may hire scientific personnel formerly employed by other companies involved in one or more areas similar to the activities conducted by us. Either we or these individuals may be subject to allegations of trade secret misappropriation or other similar claims as a result of their prior affiliations. If we become involved in litigation, it could consume a substantial portion of our managerial and financial resources, whether we win or lose. We may not be able to afford the costs of litigation. Any legal action against our company or our collaborators could lead to:

	•		payment of damages, potentially treble damages, if we are found to have willfully infringed such parties’ patent rights;

	•		injunctive or other equitable relief that may effectively block our ability to further develop, commercialize and sell products and product candidates; or

	•		we or our collaborators having to enter into license arrangements that may not be available on commercially acceptable terms, if at all.

As a result, we could be prevented from commercializing current or future products and product candidates.

*The patent applications of pharmaceutical and biotechnology involve highly complex legal and factual questions, which could negatively impact our patent position.

The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions. The U.S. Patent and Trademark Office’s standards are uncertain and could change in the future. Consequently, the issuance and scope of patents cannot be predicted with certainty. Patents, if issued, may be challenged, invalidated or circumvented. U.S. patents and patent applications may also be subject to interference proceedings and U.S. patents may be subject to reexamination proceedings in the U.S. Patent and Trademark Office (and foreign patents may be subject to opposition or comparable proceedings in the corresponding foreign patent office), which proceedings could result in either loss of the patent or denial of the patent application or loss or reduction in the scope of one or more of the claims of the patent or patent application. In addition, such interference, reexamination and opposition proceedings may be costly. Accordingly, rights under any issued patents may not provide us with sufficient protection against competitive products or processes.

In addition, changes in or different interpretations of patent laws in the United States and foreign countries may permit others to use our discoveries or to develop and commercialize our technology and products without providing any compensation to us. The laws of some countries do not protect intellectual property rights to the same extent as United States laws and those countries may lack adequate rules and procedures for defending our intellectual property rights. For example, some countries, including many in Europe, do not grant patent claims directed to methods of treating humans, and in these countries patent protection may not be available at all to protect our product or product candidates.

If we fail to obtain and maintain patent protection and trade secret protection of our products and product candidates, proprietary technologies and their uses, we could lose our competitive advantage and competition we face would increase, reducing our potential revenues and adversely affecting our ability to attain or maintain profitability.

Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable

Item 3 — Defaults Upon Senior Securities

Not applicable

Item 5 — Other Information

Not applicable

Item 6 — Exhibits


3.1		Second Amended and Restated Certificate of Incorporation. (1)

3.2		Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation. (2)

3.3		Fourth Amended and Restated By-Laws. (3)

4.1		Form of Stock Certificate. (4)

10.1		2010 Executive Bonus Plan. (5)

10.2		Amended and Restated License Agreement, dated June 20, 2010, by and between the Registrant and BioLineRx Ltd. (**)

22.1		Submission of Matters to a vote of Security Holders. (6)

31.1		Certification of Chief Executive Officer pursuant to Rule 13a — 14(a) or Rule 15d — 14(a) of the Securities Exchange Act of 1934, as amended.

31.2		Certification of Chief Financial Officer pursuant to Rule 13a — 14(a) or Rule 15d — 14(a) of the Securities Exchange Act of 1934, as amended.

32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a — 14(b) or Rule 15d — 14(b) of the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


(1)		Incorporated by reference to Appendix C of our Definitive Proxy Statement filed with the SEC on August 11, 2003

(2)		Incorporated by reference to Exhibit 3.2 to Form 10-Q for the quarter ended September 30, 2009 filed with the SEC on November 9, 2009.

(3)		Incorporated by reference to Exhibit 3.1 to Form 8-K filed with the SEC on May 6, 2009.

(4)		Incorporated by reference to Exhibit 4.1 to Form S-1 Registration Statement No. 33-41225.

(5)		Incorporated by reference to Exhibit 10.1 to Form 8-K filed with the SEC on April 12, 2010.

(6)		Incorporated by reference to Form 8-K filed with the SEC on June 15, 2010.

(**)		Confidential treatment has been requested for certain portions of this exhibit.

SIGNATURES

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


	Cypress Bioscience, Inc.
Date: August 9, 2010	By:	/s/ JAY D. KRANZLER
		Chief Executive Officer and Chairman of the
		Board (Principal Executive Officer)


Date: August 9, 2010	By:	/s/ SABRINA MARTUCCI JOHNSON
		Chief Financial Officer, Chief Operating
		Officer and Executive Vice President (Principal Financial Officer)

EX-10.2 2 a56962exv10w2.htm EX-10.2 exv10w2

Exhibit 10.2

Execution Copy
***Text Omitted and Filed Separately
with the Securities and Exchange Commission.
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4)
and 240.24b-2.

AMENDED AND RESTATED LICENSE AGREEMENT

This Amended and Restated License Agreement (the “Agreement”) is entered into as of June 20, 2010 (the “Execution Date”) between Cypress Bioscience, Inc., a corporation organized and existing under the laws of the State of Delaware and having its principal place of business at 4350 Executive Drive, Suite 325, San Diego, CA 92121 (“Cypress”), and BioLineRx Ltd., a corporation organized and existing under the laws of the State of Israel and having a principal place of business at 19 Hartum Street, P.O. Box 45158, Jerusalem 91450, Israel (collectively, “BioLineRx”). BioLineRx and Cypress are sometimes referred to herein individually as a “Party” and collectively as the “Parties.”

RECITALS

Whereas, BioLineRx is a clinical-stage biopharmaceutical company developing clinical and pre-clinical candidates for central nervous system diseases, oncology, cardiovascular, auto-immune and metabolic diseases; and

Whereas, Cypress has substantial expertise in the research, development, manufacture, distribution, sales and marketing of pharmaceutical products; and

Whereas, BioLineRx controls certain intellectual property covering BL-1020, a first in class antipsychotic that combines dopamine antagonism with GABAergic activity, and is engaged in the development of BL-1020 for central nervous system diseases; and

Whereas, BioLineRx desires to grant to Cypress, and Cypress desires to obtain, exclusive rights to pre-commercialize, manufacture and commercialize product(s) containing BL-1020, all on the terms and conditions set forth herein; and

Whereas, the Parties executed that certain License Agreement on June 20, 2010 and now wish to amend and restate that License Agreement as set out herein;

Now Therefore, in consideration of the foregoing premises and the mutual promises, covenants and conditions contained in this Agreement, the Parties agree as follows:

ARTICLE 1

DEFINITIONS

As used in this Agreement, the following initially capitalized terms, whether used in the singular or plural form, shall have the meanings set forth in this Article 1.

1.1 “Acceptance” has the meaning set forth in Section 8.2(b).

1.2 “Acquisition” has the meaning set forth in Section 15.5.

1.3 “Affiliate” means, with respect to a particular Party, a person, corporation, partnership, or other entity that controls, is controlled by or is under common control with such Party. For the purposes of this definition, the word “control” (including, with correlative meaning, the terms “controlled by” or “under the common control with”) means the actual power, either directly or indirectly through one or more intermediaries, to direct or cause the direction of the management and policies of such entity, whether by the ownership of fifty percent (50%) or more of the voting stock of such entity, or by contract or otherwise.

1.4 “BioLineRx Indemnitees” has the meaning set forth in Section 11.2.

1.5 “BioLineRx Know-How” means all Information that is Controlled by BioLineRx or its Affiliates as of the Effective Date or at any time during the Term (including BioLineRx’s interest in any Joint Inventions) and is necessary or useful for the Pre-Commercialization, Commercialization or manufacture of the Products in the Field in accordance with the terms of this Agreement. For clarity, BioLineRx Know-How excludes the BioLineRx Patents. Notwithstanding the foregoing, BioLineRx Know-How shall not include Information controlled by an acquiror or merger partner of BioLineRx that: (a) such acquiror or merger partner of BioLineRx controlled prior to the date of closing of such acquisition or merger; or (b) was developed after the date of closing of such acquisition or merger without using BioLineRx Know-How, Cypress Know-How, Joint Know-How or inventions claimed in BioLineRx Patents, Cypress Patents or Joint Patents, and in the case of (b) is not used in connection with Pre-Commercialization or Commercialization.

1.6 “BioLineRx Patents” means all Patents in the Cypress Territory (a) that are Controlled by BioLineRx or its Affiliates as of the Effective Date or at any time during the Term (including BioLineRx’s interest in any Joint Patents), and (b) directed to the Pre-Commercialization, Commercialization or manufacture of the Products in the Field in the Cypress Territory. Notwithstanding the foregoing, BioLineRx Patents shall not include Patents controlled by an acquiror or merger partner of BioLineRx that: (i) such acquiror or merger partner of BioLineRx controlled prior to the date of closing of such acquisition or merger; or (ii) were developed after the date of closing of such acquisition or merger without using BioLineRx Know-How, Cypress Know-How, Joint Know-How or inventions claimed in BioLineRx Patents, Cypress Patents or Joint Patents, and in the case of (ii) are not used in connection with Pre-Commercialization or Commercialization. The BioLineRx Patents existing as of the Effective Date are set forth on Exhibit B attached hereto, listed under UA Patents and BioLineRx Patents, as applicable.

1.7 “BioLineRx Pre-Commercialization Activities” has the meaning set forth in Section 4.3(a).

1.8 “BioLineRx Pre-Commercialization Expenses” has the meaning set forth in Section 4.7(c).

1.9 “BioLineRx Regulatory Data” means Regulatory Data generated by or on behalf of BioLineRx (or its Affiliates, licensees or sublicensees) after the Effective Date, and Controlled by BioLineRx during the Term.

1.10 “BioLineRx Prosecuted Patents” has the meaning set forth in Section 9.4(b).

1.11 “BioLineRx Technology” means the BioLineRx Patents and BioLineRx Know-How.

1.12 “BL-1020” means BioLineRx’s proprietary compound known as BL-1020, having the chemical structure set forth on Exhibit A, or salt, solvate, polymorph, or other non-covalent derivate thereof.

1.13 “Commercialization,” with a correlative meaning for “Commercialize” and “Commercializing,” means all activities in the Cypress Territory undertaken before and after obtaining Regulatory Approvals relating specifically to the pre-launch, launch, promotion, detailing, medical education and medical liaison activities, marketing, pricing, reimbursement, sale, and distribution of the Products in the Cypress Territory, including: (a) strategic marketing, sales force detailing, advertising, medical education and liaison, and market and Product support; (b) any post-marketing clinical studies (other than those included in Pre-Commercialization) for use in generating data to be submitted to Regulatory Authorities (and all associated reporting requirements); and (c) all customer support, Product distribution, invoicing and sales activities.

1.14 “Commercialization Plan” has the meaning set forth in Section 6.1(a).

1.15 “Commercially Reasonable Efforts” means carrying out of obligations or tasks by a Party using a level of efforts consistent with the exercise of good faith and prudent scientific and business judgment in an active and ongoing program as applied by a Party to the pre-commercialization and commercialization of its own pharmaceutical products at a similar stage of development and with similar market potential.

1.16 “Confidential Information” means, with respect to a Party, all reports and other Information of such Party that is disclosed to the other Party under this Agreement, whether in oral, written, graphic, or electronic form. All Information disclosed by a Party pursuant to the Mutual Non Disclosure Agreement between the Parties dated January 28, 2010, as amended through the Effective Date, shall be deemed to be such Party’s Confidential Information disclosed hereunder.

1.17 “Control” means, with respect to any material, Information, or intellectual property right, that a Party owns or has a license to such material, Information, or intellectual property right and, in each case, has the ability to grant to the other Party access, a license, or a sublicense (as applicable) to the foregoing on the terms and conditions set forth in this Agreement.

1.18 “Cypress Indemnitees” has the meaning set forth in Section 11.1.

1.19 “Cypress Know-How” means all Information that is Controlled by Cypress or its Affiliates as of the Effective Date or at any time during the Term (including Cypress’ interest in any Joint Inventions) and is necessary or useful for the Pre-Commercialization, Commercialization or manufacture of the Products in the Field in accordance with the terms of

this Agreement. For clarity, Cypress Know-How excludes the Cypress Patents. Notwithstanding the foregoing, Cypress Know-How shall not include Information controlled by an acquiror or merger partner of Cypress that: (a) such acquiror or merger partner of Cypress controlled prior to the date of closing of such acquisition or merger; or (b) was developed after the date of closing of such acquisition or merger without using BioLineRx Know-How, Cypress Know-How, Joint Know-How or inventions claimed in BioLineRx Patents, Cypress Patents or Joint Patents, and in the case of (b) is not used in connection with Pre-Commercialization or Commercialization.

1.20 “Cypress Patents” means all Patents (a) that are Controlled by Cypress or its Affiliates as of the Effective Date or at any time during the Term (including Cypress’ interest in any Joint Patents) and (b) with a Valid Claim covering the Pre-Commercialization, Commercialization or manufacture of the Products in the Field in the Cypress Territory. Notwithstanding the foregoing, Cypress Patents shall not include Patents controlled by an acquiror or merger partner of Cypress that: (i) such acquiror or merger partner of Cypress controlled prior to the date of closing of such acquisition or merger; or (ii) were developed after the date of closing of such acquisition or merger without using BioLineRx Know-How, Cypress Know-How, Joint Know-How or inventions claimed in BioLineRx Patents, Cypress Patents or Joint Patents, and in the case of (ii) are not used in connection with Pre-Commercialization or Commercialization.

1.21 “Cypress Pre-Commercialization Activities” has the meaning set forth in Section 4.4(b).

1.22 “Cypress Pre-Commercialization Expenses” has the meaning set forth in Section 4.7(b).

1.23 “Cypress Regulatory Data” means Regulatory Data generated by or on behalf of Cypress (or its Affiliates, licensees or sublicensees) after the Effective Date, and Controlled by Cypress during the Term.

1.24 “Cypress Prosecuted Patents” has the meaning set forth in Section 9.4(a)(2).

1.25 “Cypress Technology” means the Cypress Patents and Cypress Know-How.

1.26 “Cypress Territory” means the United States, Canada and Mexico, including each of their territories, possessions and provinces, as the case may be.

1.27 “Dollar” means a U.S. dollar, and “$” shall be interpreted accordingly.

1.28 “Effective Date” means the date on which the written consent of the OCS with respect to this Agreement has been obtained in accordance with Section 2.1 (whether such OCS consent is granted for an associated form of Agreement modified in accordance with Section 2.1 or for the Execution Date Agreement).

1.29 “Excluded Claim” has the meaning set forth in Section 14.4.

1.30 “Execution Date Agreement” has the meaning set forth in Section 2.1.

1.31 “Executives” has the meaning set forth in Section 3.1(d).

1.32 “FDA” means the United States Food and Drug Administration and any successors thereof.

1.33 “Field” means the use of the Product for the prevention, diagnosis and treatment of all human diseases.

1.34 “First Commercial Sale” means the first sale of a Product by Cypress or its sublicensees to a Third Party in a given regulatory jurisdiction within the Cypress Territory after Regulatory Approval for such Product has been obtained in such jurisdiction.

1.35 “Generic Product” means, with respect to a Product in the Field in the Cypress Territory, another pharmaceutical product that is: (a) a Product; (b) is bioequivalent to such Product with respect to pharmacokinetic properties; and (c) is (i) either approved for use in the Cypress Territory by the Regulatory Authority, or (ii) launched by a Third Party in the Cypress Territory pursuant to Paragraph IV of the Drug Price Competition and Patent Term Restoration Act of 1984, as amended, or any successor regulations (or its comparable regulation in a jurisdiction within the Cypress Territory).

1.36 “Governmental Authority” means any multi-national, federal, state, local, municipal, provincial or other government authority of any nature (including any governmental division, prefecture, subdivision, department, agency, bureau, branch, office, commission, council, court or other tribunal).

1.37 “Indemnify” has the meaning set forth in Section 11.1.

1.38 “Indication” means Initial Indication or Additional Indication. As used herein, “Initial Indication” means a class of human disease or condition listed in The Diagnostic and Statistical Manual of Mental Disorders, 4^th Edition (“DSM-IV”) within the DSM-IV defined class of “Schizophrenia and Other Psychotic Disorders” (as the DSM-IV may be amended or updated during the Term), for which a Product has been approved by a Regulatory Authority; and “Additional Indication” means a separately defined, well-categorized class of human disease or condition, other than the Initial Indication, for which a Product has been approved by a Regulatory Authority. For clarity, pediatric extension of the Initial Indication is not an Additional Indication.

1.39 “Information” means any data, results, technology, business information and information of any type whatsoever, in any tangible or intangible form, including know-how, trade secrets, practices, techniques, methods, processes, inventions, developments, specifications, formulations, formulae, materials or compositions of matter of any type or kind (patentable or otherwise), software, algorithms, marketing reports, expertise, test data (including pharmacological, biological, chemical, biochemical, toxicological, preclinical and clinical test data), manufacturing know-how and data, analytical and quality control data, stability data, other study data and procedures.

1.40 “Initiation” has the meaning set forth in Section 8.2(b).

1.41 “JAMS Rules” has the meaning set forth in Section 14.3.

1.42 “Joint Inventions” has the meaning set forth in Section 9.1(b).

1.43 “Joint Patents” has the meaning set forth in Section 9.1(b).

1.44 “Joint Steering Committee” or “JSC” has the meaning set forth in Section 3.1(a)

1.45 “Laws” means all laws, statutes, rules, regulations, ordinances and other pronouncements having the effect of law of any federal, national, multinational, state, provincial, county, city or other political subdivision, domestic or foreign.

1.46 “Losses” has the meaning set forth in Section 11.1.

1.47 “Major Country” means any one of the following countries: France, Germany, Italy, Spain and the United Kingdom.

1.48 “[...***...] Study” means the ongoing pre-clinical study which is being conducted by [...***...] for BioLineRx, which is BioLineRx’s only ongoing pre-clinical study concerning the Product as of the Execution Date.

1.49 “NDA” means a new drug application as defined in the United States Federal Food, Drug, and Cosmetic Act (and any successor acts thereto), as amended from time to time.

1.50 “Net Sales” means, with respect to a particular time period, the total amounts invoiced by Cypress and its Affiliates or sublicensees for sales of Products made during such time period to unrelated Third Parties in the Cypress Territory, less the following deductions to the extent actually allowed or incurred with respect to such sales:

(a) trade discounts, credits or allowances including cash and quantity discounts provided by means of chargebacks, rebates and administrative fees charged by customers or health care organizations determined based upon sales;

(b) credits or allowances additionally granted for damaged, outdated, spoiled, returned or rejected Products, including in connection with recalls;


***		Confidential Treatment Requested

(c)freight, shipping and insurance charges, to the extent included in the invoiced amount;

(d) Taxes, tariffs, duties or other governmental charges (other than income taxes) levied on, absorbed or otherwise imposed on sales of the Products in the Cypress Territory, as adjusted by any refunds, provided that such Taxes, tariffs, duties and other governmental charges are included in the applicable invoiced amount and identified in the applicable invoice; and

(e) rebates, discounts or other payments on sales of Products that are mandated by a Governmental Authority.

Notwithstanding the foregoing, amounts invoiced by Cypress and its Affiliates or sublicensees for the sale of Products between Cypress and its Affiliates or sublicensees for resale shall not be included in the computation of Net Sales hereunder. For purposes of determining Net Sales, a “sale” shall not include reasonable transfers or dispositions, at no cost, as samples or for charitable purposes, or transfers or dispositions at no cost for preclinical, clinical or regulatory purposes.

Each of the deductions set forth above shall be reasonable and customary, and in accordance with United States Generally Accepted Accounting Principles (“GAAP”).

If Cypress proposes to Commercialize a Product as part of a Bundled Product (as defined below), Cypress shall inform BioLineRx of such proposal and the Parties will discuss in good faith whether, and under what conditions, such Bundled Product should be Commercialized. For purposes of this paragraph, “Bundled Product” means products (including one or more Products) that are either (A) packaged together for sale or shipment as a single unit or sold at a single price or (B) marketed or sold collectively as a single product. For clarity, a Bundled Product is not a Combination Product (as defined below).

For the purpose of determining royalties due to BioLineRx, Cypress shall calculate Net Sales of Combination Products (as defined below) by multiplying Net Sales of such Combination Product by a fraction A/A+B, where A is the sale price of the Product portion of such Combination Product when sold separately and B is the sale price of the other active ingredient(s) in such Combination Product when sold separately; provided, however, that if the Product portion of such Combination Product or any of the other active ingredients in such Combination Product is not then sold separately, then Cypress shall calculate Net Sales of such Combination Products by the fraction C/C+D, where C is a reasonable estimate of the fair market value of the Product portion of such Combination Product, D is a reasonable estimate of the fair market value of the other active ingredients in such Combination Product, and the estimates of C and D are determined by mutual agreement of the Parties. As used in this Section 1.50, “Combination Product” means a product in which one or more active ingredients that are not Products are sold in a single formulation with a Product.

1.51 “Non-Breaching Party” has the meaning set forth in Section 13.2(a).

1.52 “Notified Party” has the meaning set forth in Section 13.2(a).

1.53 “OCS” has the meaning set forth in Section 2.1.

1.54 “Ordinary Shares” has the meaning set forth in Section 8.2(a).

1.55 “Patents” means (a) pending patent applications, issued patents, utility models and designs; (b) reissues, renewals, substitutions, confirmations, registrations, validations, re-examinations, additions, extensions, continuations, continued prosecution applications, continuations-in-part, or divisions of or to any patent applications, issued patents, utility models or designs; and (c) the equivalent or counterpart of the foregoing.

1.56 “Pharmacovigilance Agreement” has the meaning set forth in Section 5.3.

1.57 “Phase 3 Clinical Trial” means a pivotal human clinical trial on sufficient numbers of patients which is designed to (a) establish that a Product is safe and efficacious for its intended use; (b) define warnings, precautions and adverse reactions that are associated with such Product in the dosage range to be prescribed; and (c) support Regulatory Approval of such Product, as further defined in 21 C.F.R. 312.21(c), as amended from time to time, or the corresponding regulation in jurisdictions within the Cypress Territory other than the United States. For clarity, a Phase 2/3 Clinical Trial shall be considered to be a Phase 3 Clinical Trial if it is considered by a Regulatory Authority to be a pivotal clinical trial for the Product as determined at the time of Acceptance by the FDA of an NDA for a Product in the United States.

1.58 “Pre-Commercialization,” with a correlative meaning for “Pre-Commercialize” and “Pre-Commercializing,” means all activities in the Cypress Territory relating to preparing and conducting preclinical testing, toxicology testing, human clinical studies, and regulatory activities (e.g., regulatory applications) with respect to the Products, together with the formulation and manufacturing of the Products for the purpose of conducting the foregoing activities and manufacturing scale-up of the Product necessary for Commercialization, all for the purpose of obtaining, maintaining or expanding Regulatory Approval. This includes preparation, submission, review, and development of data or information for the purpose of submission to a Governmental Authority in the Cypress Territory to obtain Regulatory Approval of Products. Pre-Commercialization shall include clinical development and regulatory activities for additional dosage forms or formulations of a Product after Regulatory Approval of such Product, including clinical trials initiated following receipt of Regulatory Approval for the purpose of maintaining or expanding Regulatory Approval or any clinical trial to be conducted after Regulatory Approval which was mandated by the applicable Regulatory Authority as a condition of such Regulatory Approval.

1.59 “Pre-Commercialization Costs” has the meaning set forth in Section 4.6.

1.60 “Pre-Commercialization Plan” has the meaning set forth in Section 4.2(a).

1.61 “Prime” means the then-current prime rate reported by JPMorgan Chase in New York City.

1.62 “Product(s)” means BL-1020 in any dosage form or formulation or mode of administration, alone or in combination with other therapeutically active ingredients.

1.63 “Regulatory Data” means data and filings generated and prepared for the purpose of obtaining, maintaining or expanding regulatory approvals in a jurisdiction, including analytical and manufacturing data, data generated from preclinical, clinical and non-clinical trials and other studies, and clinical data relating to the Products. For the avoidance of doubt, Regulatory Data shall not include Product Inventions.

1.64 “Regulatory Data Costs” means direct and indirect costs incurred or paid by a Party and reasonably attributable to the generation of Regulatory Data, including, by way of example, costs incurred or paid in the conduct of associated clinical trials, statistical analysis of clinical data, manufacturing scale-up and patient recruitment. The Parties shall consult with each other and mutually agree on an appropriate mechanism for establishing Regulatory Data Costs, which mechanism shall be approved by the JSC (or directly by the Parties if the JSC is disbanded).

1.65 “Product Infringement” has the meaning set forth in Section 9.5(a).

1.66 “Product Inventions” has the meaning set forth in Section 9.3.

1.67 “Product Marks” has the meaning set forth in Section 6.3.

1.68 “Regulatory Approval” means, with respect to a Product in any country or jurisdiction in the Cypress Territory, all approvals, registrations, licenses or authorizations from the relevant Regulatory Authority in such country or jurisdiction that is specific to such Product and necessary to manufacture or market and sell such Product in such country or jurisdiction.

1.69 “Regulatory Authority” means, in a particular country or regulatory jurisdiction in the Cypress Territory, any applicable Governmental Authority responsible for granting Regulatory Approval.

1.70 “Regulatory Exclusivity” means market exclusivity granted by a Governmental Authority in the Cypress Territory designed to prevent the entry of Generic Product(s) onto the market in the Field, including new chemical entity exclusivity, new use or indication exclusivity, new formulation exclusivity, orphan drug exclusivity and pediatric exclusivity, or any equivalent of the foregoing in the Cypress Territory.

1.71 “Regulatory Filings” means, with respect to the Products, any submission to a Regulatory Authority of any appropriate regulatory application specific to Products, and shall include any submission to a regulatory advisory board in the Cypress Territory and any supplement or amendment thereto.

1.72 “Retained Territory” means all countries and territories in the world outside the Cypress Territory.

1.73 “Royalty Term” has the meaning set forth in Section 8.3(b).

1.74 “SEC” has the meaning set forth in Section 12.4(a).

1.75 “Share Amount” has the meaning set forth in Section 8.2(a).

1.76 “Sole Inventions” has the meaning set forth in Section 9.1(a).

1.77 “Sublicense Agreement” has the meaning set forth in Section 2.4.

1.78 “Successful Completion” has the meaning set forth in Section 8.2(b).

1.79 “TASE’s Approval” has the meaning set forth in Section 8.2(a).

1.80 “Taxes” means taxes (other than income taxes), duties, tariffs or other governmental charges levied on the sale of Products, including consumption taxes.

1.81 “Term” means the term of this Agreement, as determined in accordance with Article 13.

1.82 “Territory” means the Cypress Territory or the Retained Territory, as applicable.

1.83 “Third Party” means any person or entity other than BioLineRx or Cypress or an Affiliate of either of them.

1.84 “Third-Party Claim” has the meaning set forth in Section 11.1.

1.85 “Third Party Data” has the meaning set forth in Section 4.7(e).

1.86 “Third Party Partner” has the meaning set forth in Section 4.7(e).

1.87 “Third-Party Payment” has the meaning set forth in Section 8.3(c).

1.88 “UA Patents” has the meaning set forth in Section 9.4(a).

1.89 “Upfront Fee” has the meaning set forth in Section 8.1.

1.90 “Upstream Agreement” means that certain Research and License Agreement between BioLineRx Ltd. and Bar-Ilan Research and Development Company Ltd. and Ramot at Tel-Aviv University Ltd. (collectively, the latter two parties are referred to herein as the “Upstream Licensors”) dated April 15, 2004, as amended through the Execution Date.

1.91 “Valid Claim” means, with respect to any country in the Cypress Territory: (a) a claim of an issued and unexpired patent (as may be extended through supplementary protection

certificate or patent term extension or the like) included within the BioLineRx Patents, the Cypress Patents or the Joint Patents to the extent such claim has not been (i) held invalid or unenforceable by a non-appealed or un-appealable decision of a court or government agency or other appropriate body of competent jurisdiction and has not been admitted invalid through disclaimer or dedication to the public, and (ii) has not expired, been determined to be unenforceable, been cancelled, withdrawn, abandoned, or (b) a claim of a pending patent application included within the BioLineRx Patents, the Cypress Patents or the Joint Patents.

1.92 Construction. Except where expressly stated otherwise in this Agreement, the following rules of interpretation apply to this Agreement: (a) “include,” “includes” and “including” are not limiting and shall be deemed to be followed by “without limitation”; (b) definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms; (c) references to an agreement, statute or instrument mean such agreement, statute or instrument as from time to time amended, modified or supplemented; (d) references to a Person are also to its permitted successors and assigns; (e) the plain meaning of the description for a defined term, and other headings to this Agreement are for convenience only, and shall have no force or effect in construing or interpreting any of the provisions of this Agreement or any other legal effect; (f) references to “Parties”, “Article”, “Section”, “Exhibit” or “Schedule” refer to the Parties to, an Article or Section of, or any Exhibit or Schedule to, this Agreement, unless otherwise indicated; (g) the word “will” shall be construed to have the same meaning and effect as the word “shall” and vice versa; (h) the word “or” has, except where otherwise indicated or where the context otherwise requires, the inclusive meaning represented by the phrase “and/or”; and (i) references to dollars are references to U.S. Dollars.

ARTICLE 2
LICENSES AND EXCLUSIVITY

2.1 Effective Date. The Parties acknowledge that the Office of the Chief Scientist of the Ministry of Industry, Trade and Labor of the State of Israel (the “OCS”) must consent to this Agreement before this Agreement is made effective. BioLineRx shall use its best efforts to obtain the written consent of the OCS to this Agreement in the form executed by the Parties as of the Execution Date (“Execution Date Agreement”) within [...***...] days after the Execution Date. If the OCS has not provided such consent during such [...***...] days, then BioLineRx shall have the right, and Cypress shall have the right to require BioLineRx, to continue to use best efforts to obtain such consent. In addition, (i) Cypress shall have the right to have a representative present at all meetings, conference calls and any other interactions between BioLineRx’s representatives and the OCS relating to such consent, and (ii) BioLineRx shall (A) provide Cypress with a reasonable opportunity to review and approve any communications related to the request for consent submitted to the OCS or prepared in anticipation of an in-person meeting, conference call or any other such interactions and (B) keep Cypress fully informed as to the progress of such request for consent and shall consult with Cypress in good faith with respect thereto. The Parties acknowledge that it may be necessary prior to the Effective Date to modify the Execution Date Agreement to comply with the specific, formal


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written requests of the OCS and the Parties shall consider any such proposed modifications in good faith; provided that (a) all financial obligations that may be imposed by the OCS as a pre-condition to obtaining OCS consent to this Agreement shall be the sole responsibility of BioLineRx; (b) the Parties will cooperate in good faith to minimize financial and non-financial obligations (which obligations must be commercially reasonable) that may be imposed by the OCS as a pre-condition to obtaining OCS consent to this Agreement; and (c) after the Parties have considered any such proposed modifications in good faith, Cypress shall not be required to agree to any modifications to the Execution Date Agreement that would have, or would be likely to have, a material adverse impact on Cypress’ rights or obligations as set forth in the Execution Date Agreement. Notwithstanding anything herein to the contrary, the provisions of this Execution Date Agreement other than this Section 2.1 and Sections 8.1 and 13.5 shall not be effective until the Effective Date. From and after the Effective Date, the entire Agreement shall be in full force and effect.

2.2 Licenses to Cypress. Subject to the terms of this Agreement, BioLineRx hereby grants to Cypress:

(a) an exclusive (even as to BioLineRx), royalty-bearing license, with the right to grant sublicenses (through multiple tiers) subject to Section 2.4 below, under the BioLineRx Technology, to Pre-Commercialize, use (solely for the purpose of carrying out its obligations and exercising its rights under this Agreement), sell, offer for sale, have sold, import and otherwise Commercialize the Products in the Field in the Cypress Territory, and subject to Section 7.1, to make and have made Products for Commercialization in the Cypress Territory (provided that Cypress shall not be deemed to have exceeded the scope of this right and license to the extent that Commercialization activities conducted by or on behalf of Cypress in compliance with applicable Law, internal policies and procedures and using Commercially Reasonable Efforts via the Internet or other global electronic means or methods targeted to persons within the Field in the Cypress Territory may reach persons outside of the Field or the Cypress Territory); and further provided that BioLineRx retains all rights to make and have made Products, and to license manufacture of Products, outside of the Cypress Territory;

(b) a non-exclusive, fully-paid, royalty-free license, with the right to grant sublicenses (through multiple tiers) subject to Section 2.4 below, under Product Inventions, to use any Product Inventions for the pre-commercialization, manufacture and commercialization of products other than the Products in the Cypress Territory; and

(c) subject to Section 4.7(c), an exclusive, fully-paid, royalty-free license, with the right to grant sublicenses (through multiple tiers) subject to Section 2.4 below, to use BioLineRx Regulatory Data to Pre-Commercialize, Commercialize or manufacture the Products in the Cypress Territory, including the right to use any and all such BioLineRx Regulatory Data in any Regulatory Filings.

2.3 Licenses to BioLineRx. Subject to the terms of this Agreement, Cypress hereby grants to BioLineRx:

(a) a non-exclusive, fully-paid, royalty-free license under the Cypress Technology to perform BioLineRx’s obligations under this Agreement (with the right to grant sublicenses to a mutually agreed-upon Third Party service provider or agent, in accordance with the then-effective Pre-Commercialization Plan; provided that the service provider to be used in the conduct of the [...***...]Study is hereby mutually agreed-upon); and

(b) subject to Section 4.7(b), an exclusive, fully-paid, royalty-free license, with the right to grant sublicenses (through multiple tiers) subject to Section 2.4 below, to use Cypress Regulatory Data to research, develop, make, have made, use, sell, offer for sale and import Products in the Retained Territory, including the right to use any and all Cypress Regulatory Data in any regulatory filings in the Retained Territory.

2.4 Sublicenses. Each Party shall have the right to grant sublicenses under the licenses in Section 2.2 or 2.3, as applicable, to its Affiliates or Third Parties, in the case of BioLineRx, without the prior written consent of Cypress, and in the case of Cypress, only with the prior written consent of BioLineRx (not to be unreasonably withheld, conditioned or delayed). The sublicensing Party shall remain primarily responsible for the performance of the obligations hereunder by each of its sublicensees. The sublicensing Party shall, within [...***...] days after granting any sublicense, notify the other Party of the grant of such sublicense and provide the other Party with a true and complete copy of such sublicensing agreement. Each sublicense agreement shall be consistent with the terms and conditions under this Agreement, and, to the extent applicable to the UA Patents or to the BioLineRx Know-How licensed under the Upstream Agreement and sublicensed to Cypress hereunder, each sublicense agreement entered into by Cypress shall be in compliance and not inconsistent with the terms and conditions of the Upstream Agreement (including the limitation on Cypress’ ability to sublicense as set forth in Section 5.2.2.3 of the Upstream Agreement and the requirement to obtain BioLineRx’s prior written consent as set forth in Section 5.2.2.5 of the Upstream Agreement). Each Party shall, in each agreement under which it grants a sublicense under the licenses set forth in Section 2.2 or 2.3, as applicable (each, a “Sublicense Agreement”), include the following terms and conditions: (i) the sublicensee is required to provide the following to the sublicensing Party if such Sublicense Agreement terminates: (A) the assignment and transfer of ownership and possession of all Regulatory Filings and Regulatory Approvals held or possessed by such sublicensee, and (B) the assignment of, or a freely sublicenseable exclusive license to, all intellectual property Controlled by such sublicensee with a Valid Claim covering the Pre-Commercialization, Commercialization or manufacture of the Products in the Field in the applicable Territory and was created by or on behalf of such sublicensee during the exercise of its rights or fulfillment of its obligations pursuant to such Sublicense Agreement; and (ii) upon the reasonable request of a Cypress sublicensee in good standing under its Cypress sublicense which wishes to retain its continuous rights granted to it by Cypress under such sublicense, BioLineRx and such sublicensee shall enter into a direct license agreement, the terms of which shall be substantially similar to the terms of this Agreement (adjusted to take into account any differences in territory or field in such sublicense).


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2.5 Negative Covenants.

(a) Cypress Negative Covenants. Cypress covenants that it will not, and it will not permit any of its Affiliates or sublicensees to, use or practice any BioLineRx Technology outside the scope of the license granted to it under Section 2.2 above.

(b) BioLineRx Negative Covenants.

(1) BioLineRx covenants that it will not, and it will not permit any of its Affiliates or sublicensees to, use or practice any Cypress Technology outside the scope of the license granted to it under Section 2.3.

(2) BioLineRx covenants that, with respect to Cypress’ or its sublicensees’ under this Agreement acts of making, having made, using, selling, offering for sale or importing of or otherwise Commercializing Products in the Field in the Cypress Territory in accordance with this Agreement during the Term, BioLineRx will not bring suit against Cypress or such sublicensees to enforce Patents that BioLineRx owns or Controls as of the Effective Date or during the Term and that claims priority to a common priority document in the priority chain of any BioLineRx Patent set forth in Exhibit B. The covenant not to sue described in this Section 2.5(b)(2) shall bind any assignee, licensee or transferee of BioLineRx with respect to such Patents.

2.6 BioLineRx Retained Rights; No Implied License.

(a) Retained Rights. BioLineRx retains the right to practice and license the BioLineRx Technology outside the scope of the license granted to Cypress in Section 2.2(a) above.

(b) No Implied License. Except as set forth herein, neither Party shall acquire any license or other intellectual property interest, by implication or otherwise, under any trademarks, patents or patent applications Controlled by the other Party. For clarity, (a) BioLineRx shall not have any license rights to Cypress Regulatory Data, Cypress Patents or Cypress Know-How in the Cypress Territory, and (b) Cypress shall not have any license rights to BioLineRx Regulatory Data, Product Inventions or BioLineRx Technology in the Retained Territory.

2.7 Upstream Agreement. Subject to this Section 2.7, BioLineRx shall have sole responsibility for exercising its rights and discharging its obligations under the Upstream Agreement.

(a) Copy. On or before the Execution Date, BioLineRx has delivered to Cypress a true and complete copy of the Upstream Agreement. Cypress acknowledges and agrees that the sublicense granted in Section 2.2(a) under the BioLineRx Technology which has been licensed to BioLineRx under the Upstream Agreement is subject to the terms and conditions of the Upstream Agreement.

(b) Cypress Covenants. Cypress covenants not to take or fail to take any action that violates a material term of the Upstream Agreement applicable to Cypress as a sublicensee of BioLineRx under the Upstream Agreement, or that would cause BioLineRx to be in breach of any of the material terms of the Upstream Agreement. The Parties agree and acknowledge that BioLineRx shall remain responsible for payments due under the Upstream Agreement.

(c) BioLineRx Covenants.

(1) BioLineRx will not modify, amend or waive any provision of the Upstream Agreement in such a manner that could reasonably be expected to have an adverse impact on Pre-Commercialization, manufacture or Commercialization hereunder, without the prior written consent of Cypress, such consent not to be unreasonably withheld, conditioned or delayed.

(2) BioLineRx will immediately (but in no event later than [...***...] business days) notify Cypress if BioLineRx fails to meet any of its obligations, including any payment obligations, under the Upstream Agreement or receives notice from the Upstream Licensors alleging any such failure.

(d) Cypress Step-in Rights. If a failure described in Section 2.7(c)(2) above occurs, the Executives shall promptly meet and confer on how best to proceed to effect a cure of such failure. BioLineRx will keep Cypress timely informed of its efforts to cure or remedy such failure. Cypress will have the right to step-in and meet the failed obligations, including the right to make payment on behalf of BioLineRx, and BioLineRx will take all necessary steps such that the Upstream Licensors accepts performance by Cypress on behalf of BioLineRx for such obligations. Before Cypress exercises its right to step-in under this Section 2.7(d), Cypress shall deliver to BioLineRx written notice of its intent to exercise such “step-in” right, which exercise shall not occur sooner than [...***...] days after receipt by Cypress of written notice of any such failure. Any amounts owed by BioLineRx and paid by Cypress pursuant to the immediately preceding sentence will be credited towards any amount due to BioLineRx from Cypress under this Agreement.

2.8 Further Cooperation by the Parties. The Parties shall cooperate in good faith to effectively and efficiently implement the objectives of this Agreement, which shall include cooperation to coordinate the implementation of the arrangements contemplated in this Article 2. Following the Effective Date, BioLineRx will reasonably make available to Cypress BioLineRx personnel with appropriate skill and experience, at BioLineRx’s expense, for this purpose. BioLineRx and Cypress will cooperate to minimize the expenses associated with such activities.

2.9 Restrictive Covenants. As to such countries outside of their respective Territory, each Party (i) shall not, and will ensure that its sublicensees will not, engage in any advertising or promotional activities relating to the Product directed primarily to prospective purchasers of the Product located in the other Party’s Territory, and shall use Commercially Reasonable Efforts to ensure that Commercialization activities conducted by or on behalf of such Party via the Internet or other global electronic means or methods are only targeted to persons within the Field


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and in its Territory, and (ii) shall not, and will ensure that its sublicensees will not, take orders from any prospective purchaser of the Product located in countries in the other Party’s Territory. If a Party or its sublicensees receives any order from a prospective purchaser of Product located in a country in the other Party’s Territory, such Party or sublicensee shall immediately refer that order to the other Party and shall not accept any such order or deliver or tender (or cause to be delivered or tendered) any Product under such order. If either Party has a reasonable basis to conclude that its customer, sublicensee or distributor, or a customer, sublicensee or distributor of the other Party, is engaged in the sale or distribution of Products outside of the selling Party’s Territory, then the selling Party shall take all reasonable steps (including cessation of sales to such customer, sublicensee or distributor) necessary to limit such sale or distribution outside such Party’s Territory.

ARTICLE 3

OVERVIEW; MANAGEMENT

3.1 Joint Steering Committee.

(a) Formation. With thirty (30) days after the Effective Date, the Parties will establish a joint steering committee (the “Joint Steering Committee” or “JSC”) to oversee and coordinate the Parties’ activities under this Agreement with respect to Pre-Commercialization, Commercialization and manufacture activities with respect to the Products in the Field in the Cypress Territory.

(b) Members. Each Party shall initially appoint three (3) representatives to the JSC, each of whom will have sufficient seniority and expertise within the applicable Party to make decisions arising with the scope of the JSC’s responsibilities. The JSC may change its size from time to time by mutual consent of the Parties, provided that the JSC shall at all times consist of an equal number of representatives of each of BioLineRx and Cypress. Each Party may replace its JSC representatives at any time upon written notice to the other Party. The JSC may invite non-members to participate in the discussions and meetings of the JSC, provided that such participants shall have no voting authority at the JSC. The JSC shall have a chairperson, who shall serve for a term of one year, and who shall be selected alternately, on an annual basis, by BioLineRx or Cypress. The initial chairperson shall be selected by Cypress. The role of the chairperson shall be to convene and preside at meetings of the JSC and to ensure the preparation of minutes, but the chairperson shall otherwise have no additional powers or rights beyond those held by the other JSC representatives.

(c) Meetings. The JSC shall meet at least quarterly during the Term unless the Parties mutually agree in writing to a different frequency for such meetings. No later than [...***...] business days prior to any regularly scheduled meeting of the JSC, the chairperson of the JSC shall prepare and circulate an agenda for such meeting and, as soon as practicable, materials for the meeting; provided, however, that either Party may propose additional topics to be included on such agenda prior to such meeting. The JSC may meet in person, by videoconference or by teleconference. Each Party will bear the expense of its respective JSC members’ participation in JSC meetings. Meetings of the JSC shall be effective only if at least


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one (1) representative of each Party is present or participating in such meeting. The chairperson of the JSC will be responsible for preparing reasonably detailed written minutes of all JSC meetings that reflect, without limitation, material decisions made at such meetings. The JSC chairperson shall send draft meeting minutes to each member of the JSC for review within [...***...] business days after each JSC meeting. The members of the Committee shall have [...***...] to provide comments. The JSC chairperson shall incorporate timely received comments and distribute revised minutes to all members of the JSC for their final review and approval within the later of [...***...] days after the relevant meeting or the next regularly scheduled meeting of the JSC. For clarity, if the JSC is not able to approve any minutes, it shall thereafter be deemed to be a dispute and shall be subject to the dispute resolution set forth in Section 3.1(d).

(d) JSC Actions. Unless otherwise set forth in this Agreement, the JSC will take action by unanimous consent, with each Party’s representatives’ having a single vote on the JSC, irrespective of the number of representatives actually in attendance at a meeting. In the event of a disagreement between the BioLineRx members and Cypress members of the JSC, either Party may refer the matter to one senior executive of each Party (i.e., the Chief Executive Officer of such Party or the chairman of the Board of Directors of such Party, the “Executives”) for resolution. If such Executives cannot resolve the matter within [...***...] business days, then such Executive of Cypress shall have the final decision making authority on such matter, provided that any final determination made by such Executive of Cypress shall be consistent with the terms of this Agreement; further provided that, within the first [...***...] months following the date on which the Pre-Commercialization Plan is incorporated by reference herein pursuant to Section 4.2, Cypress shall not make any decision with respect to the Pre-Commercialization Plan so as to materially delay the anticipated Pre-Commercialization schedule or commercial launch of the Products without the consent of BioLineRx.

3.2 Costs of Governance. The Parties agree that the costs incurred by each Party in connection with its participation in the JSC shall be borne solely by such Party.

3.3 Discontinuation of JSC. The JSC shall continue to exist throughout the Term unless (a) the Parties mutually agree to disband the JSC, or (b) a Party provides to the other Party written notice of its intention to disband and no longer participate in such JSC. Once a Party has provided written notice as referred to in subclause (b) above, the JSC will be disbanded and the JSC shall have no further authority under this Agreement. Thereafter, direct interaction of the Parties shall be substituted for the JSC’s roles, responsibilities and actions. For example, the Parties thereafter shall consult (as set forth in Section 4.1(b)) and keep each other informed (as set forth in Section 4.4(c)) on a regular basis on pre-commercialization activities conducted for their respective Territories, and the Parties shall consult and keep each other informed on commercialization activities conducted in their respective Territories (as set forth in Section 6.1(b)), with Cypress retaining sole responsibility for Pre-Commercialization and Commercialization.


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ARTICLE 4

PRE-COMMERCIALIZATION

4.1 Overview of Pre-Commercialization.

(a) Overview. The Parties desire and intend to collaborate with respect to the Pre-Commercialization in the Cypress Territory in the Field, under the oversight of the JSC (or if the JSC is disbanded, as set forth in Section 3.3), as and to the extent set forth in this Agreement. As described in more detail in this Article 4, Cypress shall be solely responsible for the conduct of Pre-Commercialization with the goal of obtaining Regulatory Approval, in accordance with the Pre-Commercialization Plan. In addition, BioLineRx shall be responsible for the BioLineRx Pre-Commercialization Activities.

(b) Consultation. Each Party shall provide advice, suggestions and constructive feedback on the other Party’s pre-commercialization strategy, plans and activities in its respective Territory (especially in view of such Party’s rights outside the other Party’s Territory, and the Parties’ desire to achieve (to the extent appropriate) global harmonization of Product pre-commercialization activities worldwide), either through the JSC or directly if the JSC is disbanded. The other Party will reasonably and in good faith consider any advice, suggestions, constructive feedback, comments and recommendations that such Party may have with respect to the other Party’s pre-commercialization of the Product in its respective Territory.

4.2 Pre-Commercialization Plan.

(a) General. Within [...***...] days of the Execution Date, Cypress shall propose a draft plan for the initial Pre-Commercialization of the Products in the United States. Such draft plan shall thereafter be reviewed and mutually agreed by the Parties within [...***...] days of the Execution Date and upon such agreement shall be incorporated by reference herein (as the same may be further updated from time to time as set forth in Section 4.2(b), the “Pre-Commercialization Plan”). The Pre-Commercialization Plan shall describe (i) the proposed overall program of Pre-Commercialization in the Cypress Territory, including clinical trials and associated timelines; (ii) timelines for key Regulatory Authority meetings, filing of applications for Regulatory Approval, and receipt of Regulatory Approvals, (iii) the anticipated tasks and responsibilities of Cypress and BioLineRx under the Pre-Commercialization Plan, and (iv) an associated comprehensive budget for all Pre-Commercialization Costs. In the event of any inconsistency between the Pre-Commercialization Plan and this Agreement, the terms of this Agreement shall prevail.

(b) Updates to Pre-Commercialization Plan. From time to time during the Term, and at least on a [...***...] basis, Cypress shall propose updates and amendments, as appropriate, to the then-current Pre-Commercialization Plan, subject to BioLineRx’s consent (if applicable) as set forth in Section 3.1(d). Each updated or amended Pre-Commercialization Plan shall become effective and supersede the previous Pre-Commercialization Plan.

(c) Rationalization with Upstream Agreement. BioLineRx shall promptly update or amend the Development Plan (as defined in the Upstream Agreement) to ensure that such Development Plan is consistent with the Pre-Commercialization Plan. In addition, Cypress hereby agrees that BioLineRx may provide a copy of the Pre-Commercialization Plan (as it may be updated from time to time) to the Upstream Licensors, which shall constitute the


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Development Plan related to the Products for the Cypress Territory.

4.3 BioLineRx Pre-Commercialization Activities

(a) BioLineRx shall use Commercially Reasonable Efforts to diligently continue and complete the [...***...] Study (the “BioLineRx Pre-Commercialization Activities”). Upon the reasonable request of Cypress that BioLineRx conduct additional Pre-Commercialization activities in the Cypress Territory, and with the written agreement of BioLineRx to undertake such additional Pre-Commercialization activities, such additional Pre-Commercialization activities performed by BioLineRx shall be added to the BioLineRx Pre-Commercialization Activities. BioLineRx shall conduct all BioLineRx Pre-Commercialization Activities in accordance with the Pre-Commercialization Plan and standard scientific principles and under the oversight of the JSC (or if the JSC is disbanded as set forth in Section 3.3).

(b) For as long as BioLineRx is conducting BioLineRx Pre-Commercialization Activities, the status, progress and results of BioLineRx Pre-Commercialization Activities shall be discussed in detail at meetings of the JSC, and BioLineRx shall provide the JSC with a written summary report on the status and progress of such BioLineRx Pre-Commercialization Activities at least [...***...] business days prior to each scheduled JSC meeting, or, if the JSC meeting occurs less frequently than once per calendar quarter, on a quarterly basis. If the JSC has been disbanded, such BioLineRx Pre-Commercialization Activities shall be discussed directly with Cypress, and such written summary reports and requested information shall be provided directly to Cypress (with the costs associated with such activities being borne by the Party incurring them). In addition, BioLineRx shall make available to Cypress such information about BioLineRx Pre-Commercialization Activities as may be requested by Cypress from time to time.

(c) Beginning on the Effective Date and continuing through receipt of first Regulatory Approval, BioLineRx shall have the right to have one representative of BioLineRx at the Cypress facility located in San Diego, California, for the purpose of visiting such facility, meeting with Cypress personnel involved in Pre-Commercialization, or accessing Product-related information available at this facility. In the event that BioLineRx places such representative at the Cypress facility, such BioLineRx representative may be made available to reasonably assist Cypress as a participant in the Pre-Commercialization in the Field in the Cypress Territory; provided that BioLineRx has no obligation to provide such representative/participant. The costs and expenses associated with such representative, including relocation, housing, per diem and other expenses, shall be borne solely by BioLineRx. In addition, such representative shall comply with Cypress’ standard policies applicable to consultants, including undertaking his or her participant activities at the Cypress facility under Cypress’ direction.

4.4 Cypress Pre-Commercialization Activities

(a) Cypress shall use Commercially Reasonable Efforts to conduct Pre-Commercialization activities necessary to seek and obtain Regulatory Approval for the Products in the Field throughout the Territory.


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(b) Without limiting the generality of Section 4.4(a), Cypress shall diligently conduct all Pre-Commercialization activities, including seeking Regulatory Approval in the Field, other than the BioLineRx Pre-Commercialization Activities (the “Cypress Pre-Commercialization Activities”). Cypress shall conduct all Cypress Pre-Commercialization Activities in accordance with the Pre-Commercialization Plan and standard scientific principles. Without limiting the foregoing, Cypress shall first seek Regulatory Approval for the Product in the Initial Indication.

(c) The status, progress and results of Cypress’s Pre-Commercialization Activities shall be discussed in detail at meetings of the JSC, and Cypress shall provide the JSC with a written summary report on the status and progress of such Cypress Pre-Commercialization Activities at least [...***...] business days prior to each scheduled JSC meeting, or, if the JSC meeting occurs less frequently that once per calendar quarter, on a quarterly basis. If the JSC has been disbanded, such status, progress and results shall be reviewed directly between the Parties on at least a quarterly basis (with the costs associated with any such review being borne by the Party incurring them). In addition, Cypress shall make available to BioLineRx such information about Cypress Pre-Commercialization Activities as may be reasonably requested by BioLineRx from time to time.

4.5 Compliance.

(a) Each Party agrees that in performing its obligations under this Agreement: (i) it shall comply in all material respects with all applicable Laws; and (ii) it will not employ or engage any Person who has been debarred by any regulatory authority, or, to such Party’s knowledge, is the subject of debarment proceedings by a regulatory authority. Cypress shall have the right to engage subcontractors for the performance of its obligations under the Pre-Commercialization Plan, and shall cause the subcontractor(s) engaged by it to be bound by written obligations of confidentiality and invention assignment consistent with those contained herein. Cypress remains primarily responsible for the performance of such subcontractor(s). For clarity, BioLineRx shall not have the right to engage subcontractors for the performance of the BioLineRx Pre-Commercialization Activities without the prior written consent of Cypress, not to be unreasonably withheld, conditioned or delayed; provided that, as of the Execution Date, Cypress has consented to the engagement of [...***...] for the [...***...] Study.

(b) Each Party shall maintain complete, current and accurate records of all work conducted by it under the Pre-Commercialization Plan (including activities relating to chemistry, manufacture and control), and all data and other Information resulting from such work. Such records shall fully and properly reflect all work done and results achieved in the performance of the Pre-Commercialization activities in good scientific manner appropriate for regulatory and patent purposes. Each Party shall have the right to review all records maintained by the other Party at reasonable times, upon a reasonable written request.

4.6 Pre-Commercialization Costs. Cypress shall bear all costs incurred in carrying out Pre-Commercialization activities (including BioLineRx Pre-Commercialization Activities) in accordance with the approved Pre-Commercialization Plan (“Pre-Commercialization Costs”).


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4.7 Access to Data.

(a) The Parties acknowledge each other’s interests in global harmonization of Product pre-commercialization activities worldwide, including in connection with generating Regulatory Data. Notwithstanding Section 2.9, each Party has the right to conduct clinical trials and other studies in the other Party’s portion of the Territory for the purpose of generating Regulatory Data in support of regulatory submissions to the regulatory authorities in its own portion of the Territory as follows: (i) Cypress may perform Product clinical trials outside of the Cypress Territory in accordance with the Pre-Commercialization Plan, but such clinical trials may only be used in connection with obtaining Regulatory Approval and Commercialization in the Field in the Cypress Territory; and (ii) BioLineRx may perform Product clinical trials inside the Cypress Territory, but such clinical trials may only be used in connection with obtaining regulatory approval and commercialization of Products outside of the Cypress Territory. In the event that either Party performs clinical trials in the other Party’s Territory and such clinical trials require the submission of regulatory filings with a regulatory authority in the other Party’s Territory, then the Parties shall coordinate and determine which Party shall file such regulatory filing in the applicable Territory.

(b) Subject to the reimbursement of Cypress Pre-Commercialization Expenses as set forth in this Section 4.7(b), Cypress shall, in a timely manner and compliant with all applicable Laws provide BioLineRx with the right to use any and all Cypress Regulatory Data in accordance with Section 2.3(b). BioLineRx shall reimburse Cypress for [...***...] of the Regulatory Data Costs incurred or paid by Cypress (or its Affiliates, licensees or sublicensees) plus interest accrued at Prime from the date any such Regulatory Data Costs are incurred (such [...***...] share of Regulatory Data Costs plus interest, the “Cypress Pre-Commercialization Expenses”) as follows: (A) in the event BioLineRx or its Affiliates enter into a definitive agreement with a Third-Party granting any rights in the Cypress Regulatory Data for use in either the European Union or the Retained Territory as a whole, BioLineRx shall pay to Cypress a lump sum amount equal to [...***...] of the Cypress Pre-Commercialization Expenses; provided, however, that in no event shall such amount exceed [...***...] of any upfront payment received by BioLineRx or its Affiliates upon the execution of such definitive agreement; provided, further, that BioLineRx shall carry forward any unpaid amounts due under this subsection (A) to the payment described in subsection (B); (B) in the event such Third-Party includes any Cypress Regulatory Data in a regulatory filing for regulatory approval of a Product in the Retained Territory, BioLineRx shall pay to Cypress a lump sum amount equal to [...***...] of the Cypress Pre-Commercialization Expenses plus any amounts carried forward from the payment described in subsection (A) above, provided, however, that in no event shall such amount exceed [...***...] of any milestone payment received by BioLineRx in connection with such regulatory filing under such Third Party agreement; and (C) BioLineRx shall pay to Cypress any remaining unpaid Cypress Pre-Commercialization Expenses upon receipt of regulatory approval in a jurisdiction in the Retained Territory. Notwithstanding the foregoing, in the event that BioLineRx solely by itself (or with its Affiliates) develops, manufactures or sells the Products in the Retained Territory, in any Major Country or in [...***...], BioLineRx shall reimburse Cypress for the Cypress Pre-Commercialization Expenses in accordance with subsection (C) above (but in such event shall owe no payments under subsections (A) and (B) above).


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(c) Subject to the reimbursement of BioLineRx Pre-Commercialization Expenses set forth in this Section 4.7(c), BioLineRx shall, in a timely manner and compliant with all applicable Laws provide Cypress with the right to use any and all BioLineRx Regulatory Data in accordance with Section 2.2(c). Cypress shall reimburse BioLineRx for [...***...] of the Regulatory Data Costs incurred or paid by BioLineRx (or its Affiliates, licensees or sublicensees) plus interest accrued at Prime from the date any such Regulatory Data Costs are incurred ([...***...]) share of Regulatory Data Costs plus interest, the “BioLineRx Pre-Commercialization Expenses”) as follows: (A) Cypress shall pay to BioLineRx a lump sum amount equal to [...***...] of the BioLineRx Pre-Commercialization Expenses upon submission of an NDA in the United States by Cypress or its sublicensees which NDA includes any BioLineRx Regulatory Data; and (B) Cypress shall pay to BioLineRx any remaining unpaid BioLineRx Pre-Commercialization Expenses upon receipt of Regulatory Approval of such NDA in the United States.

(d) Each Party shall provide to the other Party summary reports generated in the conduct of pre-commercialization activities in such Party’s Territory, as well as written summaries of the regulatory filings regarding the Products in such Party’s Territory, upon completion of each phase of clinical trials or completion of tests within pre-clinical and non-clinical studies (such summary reports shall not be deemed Regulatory Data). All such Information exchanged hereunder (including such summary reports and written summaries) shall include sufficient information to enable the recipient Party to understand each study and its results. In addition, upon reasonable request by a Party in writing in advance, the other Party shall provide access at its facility(ies) to the extent necessary to enable the requesting Party to review on-site the study-specific portions of detailed Product-related analyses, raw data generated by a Party related to Products, Information, written Product-related reports, and regulatory filings that are made a part of, are related to, or are quoted in such summary reports or such written summaries. Except as provided in this Section 4.7(d), the requesting Party shall not make or remove any copies of any Regulatory Data or other documentation to which the requesting Party was given access. Any out-of-pocket costs that are incurred by the Party granting such access to the requesting Party shall be fully reimbursed by the requesting Party promptly after receipt of invoice(s) for such out-of-pocket costs. If the requesting Party decides that it wishes to obtain a copy of the full report regarding such Regulatory Data, the requesting Party shall provide written notice of such decision to the other Party. The Parties will discuss the manner in which such full report copy (which shall constitute Regulatory Data) will be produced and provided to the requesting Party, with the expenses of copying such full report to be paid by the requesting Party.

(e) Each Party acknowledges and understands that the other Party may license or sublicense (as the case may be) rights to the Products in the Field in their respective Territory to one or more Third Party licensees or sublicensees (as applicable), for Pre-Commercialization and Commercialization (each a “Third Party Partner”), and pursuant to such arrangements, such Party or such Third Party Partner will generate additional Regulatory Data for use in seeking regulatory approval in such Party’s Territory (the “Third Party Data”). Each Party must include in its contractual agreement(s) with such Third Party Partners the right to transfer to the other Party for its use in its respective Territory any Third Party Data, subject to the requesting Party reimbursing the other Party as set forth in this Section 4.7, as applicable.


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(f) Confidentiality. All pre-clinical, analytical, non-clinical, and clinical data and associated reports disclosed by one Party to the other under this Agreement shall be deemed Confidential Information of the disclosing Party, subject to the permitted uses and disclosures described in this Section 4.7 (including pursuant to the licenses granted under Section 2.2).

ARTICLE 5

REGULATORY MATTERS

5.1 Initial Transfer. Within [...***...] days after the Effective Date, BioLineRx shall transfer to Cypress ownership of IND No. [...***...]. BioLineRx will provide Cypress with an electronic copy of such IND and copies of all material Regulatory Filings submitted to Regulatory Authorities. BioLineRx and Cypress shall execute such documents and take such actions as are reasonably necessary to effectuate the foregoing transfers.

5.2 Cypress Regulatory Responsibilities.

(a) Cypress shall own all Regulatory Filings and Regulatory Approvals, and shall be solely responsible for preparing any and all Regulatory Filings at its sole expense in accordance with the Pre-Commercialization Plan, subject to the terms of this Article 5. BioLineRx shall consult with Cypress as Cypress may reasonably request in connection with the preparation and filing of such Regulatory Filings.

(b) Cypress shall keep BioLineRx informed of material regulatory developments specific to Products throughout the Cypress Territory, and BioLineRx may contribute to the regulatory plans and strategies for the Products in the Cypress Territory, in each case through the JSC or directly if the JSC has been disbanded.

(c) Cypress shall be solely responsible for any discussions with any Regulatory Authority related to any Pre-Commercialization in the Field, provided that Cypress will inform BioLineRx of any material discussions in advance to the extent practicable, and will reasonably consider any input from BioLineRx in preparation for such discussions.

(d) To the extent permitted by the applicable Regulatory Authority and as requested by BioLineRx, Cypress shall allow representatives of BioLineRx to participate in any material scheduled conference calls and meetings between Cypress and the Regulatory Authority. If BioLineRx elects not to participate in such calls or meetings, Cypress shall keep BioLineRx reasonably apprised of the discussions between Cypress and the Regulatory Authority that take place during such calls or meetings.

(e) Cypress shall be responsible to ensure, at its sole expense, that the Pre-Commercialization, manufacture and Commercialization of the Products in the Cypress Territory are in compliance with applicable Laws in all material respects, including all rules and regulations promulgated by applicable Regulatory Authorities. Specifically and without limiting the foregoing, Cypress shall file all compliance filings, certificates and safety reporting (subject to Section 5.2(a)) in the Cypress Territory at its sole expense.


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(f) With respect to all Regulatory Filings, Cypress shall, and shall ensure that its sublicensees will: (i) submit only data and information that are free from fraud or material falsity; (ii) not use bribery or the payment of illegal gratuities in connection with its Regulatory Filings for the Products; and (iii) submit only data and information that are accurate in all material respects for purposes of supporting Regulatory Approval.

5.3 Adverse Events. Within [...***...] of the Execution Date, the Parties shall discuss in good faith and enter into a pharmacovigilance and adverse event reporting agreement setting forth the worldwide pharmacovigilance procedures for the Parties with respect to such Product, such as safety data sharing, adverse events reporting and prescription events monitoring (the “Pharmacovigilance Agreement”).

5.4 Additional Regulatory Negative Covenants. If either Party believes that the other Party, as the case may be, is taking or intends to take any action with respect to the Products that would reasonably be expected to have a material adverse impact upon the regulatory status of the Products in the Retained Territory or the Cypress Territory, as applicable, such Party shall have the right to bring the matter to the attention of the JSC (or directly to the other Party if the JSC is disbanded). Without limiting the foregoing, with respect to the Products, unless the Parties otherwise agree: (a) Cypress shall not communicate with any regulatory authority having jurisdiction in the Retained Territory, unless so ordered by such regulatory authority, in which case Cypress shall provide immediately to BioLineRx written notice of such order; (b) Cypress shall not submit any regulatory filings or seek regulatory approvals for the Products in the Retained Territory (other than in connection with clinical trials as permitted pursuant to Section 4.1); (c) BioLineRx shall not communicate with any Regulatory Authority, unless so ordered by such Regulatory Authority, in which case BioLineRx shall provide immediately to Cypress written notice of such order; and (d) BioLineRx shall not submit any Regulatory Filings or seek Regulatory Approvals (other than in connection with clinical trials as permitted pursuant to Section 4.1).

5.5 Recalls. If any regulatory authority issues or requests a recall or takes a similar action in connection with the Product in a Party’s Territory, or if a Party determines that an event, incident or circumstance has occurred that may result in the need for a recall or market withdrawal of Product in such Party’s Territory, such Party will notify the other Party thereof by telephone or facsimile and use Commercially Reasonable Efforts to discuss such event, incident or circumstance with the other Party in order to jointly determine the appropriate course of action (except in the case of a recall mandated by a regulatory authority in the applicable Territory, in which case a Party may act without such advance notice but will notify the other Party as soon as possible), and shall provide to the other Party copies of all relevant correspondence, notices and the like. Subject to the foregoing sentence, Cypress will retain ultimate responsibility for deciding whether to conduct a recall of Product in the Field in the Cypress Territory and the manner in which any such recall will be conducted.


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ARTICLE 6

COMMERCIALIZATION

6.1 Overview of Commercialization in the Cypress Territory.

(a) Overview. Cypress will be solely responsible for all aspects of the Commercialization in the Field, which shall be conducted in material compliance with all applicable Laws and in accordance with a Commercialization plan for the United States to be prepared by Cypress and provided to BioLineRx reasonably in advance of the First Commercial Sale (the “Commercialization Plan”). Such Commercialization Plan shall include the activities and timelines in preparation for the launch of each such Product and after such Product launch, and shall be updated on at least [...***...] basis by Cypress. As between the Parties, Cypress shall book sales for the Products in the Cypress Territory.

(b) Consultation. Each Party may provide advice, suggestions and constructive feedback on the other Party’s commercialization strategy, plans and activities (especially in view of such Party’s rights outside the other Party’s Territory, and the Parties’ desire to achieve (to the extent appropriate) global harmonization of Product commercialization activities worldwide), either through the JSC or directly once the JSC is disbanded. The other Party will reasonably and in good faith consider any advice, suggestions, constructive feedback, comments and recommendations that such Party may have with respect to the other Party’s commercialization of the Product. For clarity, as between the Parties, each Party shall be solely responsible for commercialization of the Product in its respective Territory.

6.2 Cypress Performance.

(a) Commercial Diligence. Cypress shall use Commercially Reasonable Efforts to Commercialize in the Field throughout the Cypress Territory. Without limiting the generality of the foregoing, Cypress shall conduct all Commercialization activities in accordance with the Commercialization Plan, with a level of effort that is consistent with industry standards and is designed to maximize the overall commercial opportunity for the Product, and shall use Commercially Reasonable Efforts to launch the first Product in the Cypress Territory within [...***...] after obtaining Regulatory Approval and to market Products following such launch.

(b) Reports. From and after the date that is [...***...] months before the anticipated date of First Commercial Sale, Cypress shall update BioLineRx at least [...***...] in each calendar quarter regarding Cypress’s Commercialization activities, including at BioLineRx’s reasonable request providing annual sales guidance forecasts. In addition, from and after the date that is [...***...] months before the anticipated date of First Commercial Sale, Cypress shall present a written quarterly report to BioLineRx summarizing Cypress’s Commercialization activities pursuant to this Agreement, at a level of detail reasonably requested by BioLineRx and sufficient to enable BioLineRx to determine Cypress’s compliance with its diligence obligations pursuant to this Section 6.2. In addition to such quarterly updates and written reports, upon the reasonable request of BioLineRx, Cypress shall provide to BioLineRx on an interim basis then-current Commercialization figures and data of Cypress and its sublicensees that are reportable to


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BioLineRx under this Agreement. For clarity, all reports and information shared with BioLineRx pursuant to this Section 6.2(b) shall be deemed Cypress Confidential Information.

6.3 Trademark. As soon as a Party determines the trademarks to be used in commercializing the Products in its respective Territory, such Party shall promptly notify the other Party and thereafter, as between the Parties, shall have the sole right to use such trademark(s) throughout the Territory. Cypress shall have the right to brand the Products using Cypress related trademarks and any other trademarks and trade names it determines appropriate for the Products after good-faith consideration of any comments from BioLineRx related thereto (“Product Marks”). Cypress shall own all rights in the Product Marks and will be responsible for filing, prosecution, maintenance and defense of all registrations of the Product Marks, and will be responsible for the payment of any costs relating to filing, prosecution, maintenance and defense of all Product Marks in the Territory. BioLineRx shall not, and shall ensure that its Affiliates and sublicensees will not make any use of any trademark similar to any of the Product Marks. Cypress shall not, and shall ensure that its Affiliates and sublicensees will not, make any use of any trademark similar to the trademark used by BioLineRx in commercializing the Products in the Retained Territory. Notwithstanding the foregoing, Cypress may use, as required by applicable Law, the corporate trademark or logo of BioLineRx in connection with Commercialization; provided that each such usage shall be in compliance with BioLineRx’s then-current guidelines for such trademark or logo usage (which shall be provided to Cypress upon its request and thereafter upon each update or amendment).

ARTICLE 7

MANUFACTURING

7.1 Manufacture by or on Behalf of Cypress. Cypress shall be solely responsible for manufacture and supply of Product for use in the Pre-Commercialization and Commercialization after the Effective Date of the Agreement, for pre-clinical, clinical and commercial purposes. Manufacture of Products for use in the Pre-Commercialization and Commercialization will be performed in the Cypress Territory, and may be performed by Cypress itself or on behalf of Cypress by a Third Party. Notwithstanding the foregoing, if Cypress wishes to engage a Third Party to manufacture Product outside the Cypress Territory, BioLineRx must consent to Cypress’ engagement of Cypress’ intended Third-Party manufacturer, which consent shall not be unreasonably withheld or delayed. If BioLineRx consents to Cypress’ use of a Third-Party manufacturer outside the Cypress Territory, all Product manufactured outside of the Cypress Territory shall be solely for use in Pre-Commercialization and Commercialization. Cypress shall bear all costs and expenses incurred by the Parties in connection with the manufacturing and supply of the Products for the Cypress Territory after the Effective Date, including all clinical manufacturing costs, the cost of qualifying its facilities, and the cost of qualifying a Third Party supplier for manufacture of the Products.

7.2 Coordination of Manufacturing. As appropriate, the Parties will discuss the most efficient structure for the manufacture and supply of Product for the Parties’ Pre-Commercialization and Commercialization. If the Parties determine that coordination in Product manufacturing is appropriate, the Parties will establish a joint manufacturing committee to

coordinate such manufacturing efforts. Each Party shall designate as its committee representatives individuals who have the requisite experience and knowledge to discuss the manufacture of Products. Such coordinated manufacturing efforts may include, for example, an agreement among the Parties and a Third-Party contract manufacturer in Israel, or an agreement between Cypress and a Third-Party contract manufacturer that grants to BioLineRx a right to obtain a supply of Product from such Third-Party contract manufacturer.

7.3 Manufacturing Technology Transfer. In accordance with Section 7.2, the Parties shall cooperate to expedite transfer of Product manufacturing Know-How Controlled by BioLineRx to a facility designated by Cypress, where manufacturing will be conducted by or on behalf of Cypress. BioLineRx will make available to Cypress to facilitate such transfer up to [...***...] FTE with appropriate skill and experience during a consecutive [...***...] month period at an appropriate time, at BioLineRx’s expense. BioLineRx and Cypress will cooperate to minimize the expenses associated with such transfer and to ensure that the transfer of such Product manufacturing is effectively coordinated.

ARTICLE 8

FINANCIAL PROVISIONS

8.1 Upfront Fee. Within one business day after the Execution Date, Cypress shall deposit with a mutually agreed-upon escrow agent Thirty Million dollars ($30,000,000) (the “Upfront Fee"), pursuant to the terms and conditions set forth in an Escrow Agreement (in a form reasonably acceptable to both Parties; provided that, in the event of a conflict between the Escrow Agreement and this Agreement, this Agreement shall govern) providing for the release to BioLineRx from the escrow established under the Escrow Agreement of the Upfront Fee on the Effective Date and also providing that in the event of termination of this Agreement pursuant to Section 13.5, the Upfront Fee shall be released to Cypress from the escrow established under the Escrow Agreement on the effective date of termination. Upon release to BioLineRx, the Upfront Fee shall be non-refundable and non-creditable.

8.2 Milestone Payments. Cypress shall make the following non-refundable and non-creditable milestone payments to BioLineRx within [...***...] days after the first achievement of each milestone event for a Product in the Field in the Cypress Territory as set forth in this Section 8.2 by Cypress or its Affiliates or sublicensees. Each milestone payment by Cypress to BioLineRx hereunder shall be payable only once, regardless of the number of times achieved by the Products, provided that, if more than one sales milestones that are triggered by annual aggregate Net Sales that have not been previously paid are triggered at the end of any particular calendar year, then each and every of such sales milestones shall be deemed to have been achieved upon the end of such calendar year and the corresponding milestone payments triggered by each and every of such sales milestones shall become due at the end of such calendar year; provided, however, that if such cumulative milestone payments imposes a financial burden upon Cypress, the timing of such payments may be reasonably adjusted by up to [...***...].


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Milestone Event	Milestone Payment
Regulatory Milestones
[...***...]		[...***...]
[...***...]		[...***...]
[...***...]		[...***...]
[...***...]		[...***...]
[...***...]		[...***...]
[...***...]		[...***...]
[...***...]		[...***...]
[...***...]		[...***...]
[...***...]		[...***...]
[...***...]		[...***...]
Sales Milestones
[...***...]		[...***...]


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Milestone Event	Milestone Payment
[...***...]		[...***...]
[...***...]		[...***...]
[...***...]		[...***...]

(a) The [...***...] regulatory milestone #1 may be paid as follows, in Cypress’ sole discretion: (i) [...***...] in cash; or (ii) subject to the approval of the Tel Aviv Stock Exchange (“TASE’s Approval”), [...***...] in cash and [...***...] in consideration of the purchase of that number of ordinary shares of BioLineRx (the “Ordinary Shares") equal to the lower of (A) [...***...] divided by the average of the closing price of the Ordinary Shares on the [...***...] days preceding the date on which regulatory milestone #1 (Initiation of the first Phase 3 Clinical Trial for a Product) occurs, and (B) [...***...] of BioLineRx’s issued share capital (where such number of Ordinary Shares (as set forth in (A) or (B), as applicable) is referred to as the “Share Amount”). If the value represented by the Share Amount is less than [...***...], then the cash consideration will be adjusted so that the total consideration in respect of regulatory milestone #1 will equal [...***...]. Upon the reasonable request of Cypress following the occurrence of regulatory milestone #1, BioLineRx will provide to Cypress all documentation and information related to the Ordinary Shares, including any restrictions or limitations on such Ordinary Shares. Cypress shall make its election under this Section 8.2(a) within [...***...] days following the achievement of regulatory milestone #1. If Cypress elects to receive Ordinary Shares, BioLineRx shall issue Cypress the Share Amount following the receipt of the consideration in respect of the Share Amount. In addition, to the extent necessary to permit Cypress to re-sell the Share Amount without restriction, BioLineRx shall, promptly following the issuance of the Share Amount, use its best efforts to complete the registration for re-sale of the Share Amount issued hereunder within [...***...] days of the issuance of the Share Amount to Cypress. BioLineRx shall use its best efforts to receive TASE’s Approval promptly following the Execution Date.

(b) For purposes of this Section 8.2, the following definitions shall apply: (i) [...***...]; (ii) [...***...]; and (iii) [...***...].

(c) For clarity, if an [...***...] (as


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described in regulatory milestone #3) is not required for [...***...] (regulatory milestone #4) [...***...], then upon such [...***...], Cypress shall be deemed to have achieved both regulatory milestones #3 and #4, and Cypress shall pay BioLineRx [...***...] ([...***...] for achievement of regulatory milestone #3 and [...***...] for achievement of regulatory milestone #4).

8.3 Royalties.

(a) Royalty Rates. Cypress shall pay to BioLineRx a running royalty at the following royalty rates, on Net Sales in the Cypress Territory during the Royalty Term.


Aggregate Annual Net Sales of the	Royalty Rate Applicable to Such Net
Products in the Cypress Territory	Sales
[...***...]		[...***...]
[...***...]		[...***...]
[...***...]		[...***...]
[...***...]		[...***...]

For example, if the aggregate annual Net Sales to which the royalty obligations in this Section 8.3(a) apply were [...***...], the [...***...] royalty rate would apply to the first [...***...] of such Net Sales, the [...***...] royalty rate would apply to the next [...***...] of such Net Sales, and the [...***...] royalty rate would apply to the final [...***...] of such Net Sales.

(b) Royalty Term. The royalty payment obligation under Section 8.3 shall apply, on a country-by-country and Product-by-Product basis in the Cypress Territory, during the period of time beginning upon the First Commercial Sale of such Product in such country, and ending upon the later of: (i) the expiration of the last-to-expire Valid Claim of a BioLineRx Patent covering the use, import, manufacture or Commercialization of such Product in such country; provided that, for purposes of this Section 8.3(b)(i) only, such “last-to-expire Valid Claim” shall not be a claim of a pending patent application within the BioLineRx Patents if such claim has been on file with the applicable patent office in such country for more than [...***...] years from the earlier of its date of filing or earliest claim of priority under 35 U.S.C. §119 or §120 (and its successors in the United States) or its equivalent in the applicable country in the Cypress Territory; (ii) the expiration of Regulatory Exclusivity covering such Product in such country; and (iii) the date on which sales of Generic Products in such country are (on a unit basis) at least [...***...] of the total units sold of both Products and such Generic Products in such country; provided that, in the event that a pending (but not an issued) Valid Claim of a BioLineRx Patent exists in such country on the date described in this clause (iii), only


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the later of clauses (ii) and (iii) will be used to determine the end of Cypress’ royalty payment obligation (such period, the “Royalty Term”).

(c) Royalty and Milestone Adjustments for Third Party Intellectual Property. BioLineRx shall be responsible for any and all royalties and other payments made prior to the Effective Date or that become due after the Effective Date under any Third Party agreements in effect as of the Effective Date with respect to the Products in the Cypress Territory. Following the Effective Date, if it is necessary for Cypress to obtain a license to Know-How or Patents from any Third Party that claim or cover the composition of matter, manufacture, use, handling, storage, sale or other disposition of Products in the Cypress Territory in order for Cypress or its sublicensees to Pre-Commercialize or Commercialize (in the reasonable opinion of an independent patent attorney) and Cypress pays such Third Party any up-front fee, milestone, royalty, or other payment in consideration of obtaining such license (each, a “Third Party Payment”), then Cypress shall have the right to deduct from royalty payments due BioLineRx under Section 8.3(a), [...***...] of any such Third Party Payments made by Cypress; provided, however, that in no event shall such credit cause any royalty amounts payable to BioLineRx for any particular calendar quarter, to be reduced by more than [...***...] of the royalty amounts that would otherwise be payable for such period; provided, further, that Cypress may deduct from royalty payments in future calendar quarters any amounts that it did not deduct due to the foregoing limitations.

(d) Royalty Reduction. For a particular Product and in a particular country in the Cypress Territory, if a Generic Product is launched and sales of such Generic Product are: (i) at least [...***...] but less than [...***...] of the total units sold of both Products and such Generic Products in such country during a calendar quarter, thereafter the royalties due to BioLineRx shall be reduced by [...***...] from what would otherwise have been due under Section 8.3(a); and (ii) at least [...***...] but less than [...***...] of the total units sold of both Products and such Generic Products in such country during a calendar quarter, thereafter the royalties due to BioLineRx shall be reduced by [...***...] from what would otherwise have been due under Section 8.3(a).

(e) Royalty Payments and Reports. Subject to 8.3(b) above, within [...***...] days after the end of each calendar quarter, Cypress shall deliver to BioLineRx a report containing the following information for the prior calendar quarter: (i) the gross sales associated with each Product sold by Cypress and its sublicensees; (ii) a calculation of Net Sales of each Products that are sold by Cypress and (if applicable) sublicensees; and (iii) a calculation of payments due to BioLineRx with respect to the foregoing. Concurrent with these reports, Cypress shall remit to BioLineRx any royalty payment due for the applicable calendar quarter. If no royalties are due to BioLineRx for such reporting period, the report shall so state. Any extension of time in which BioLineRx is required to report/pay under the Upstream Agreement shall similarly extend the time for delivery of reports and payments under this Section 8.3(e).

8.4 Foreign Exchange. Net Sales made in currencies other than dollars will be converted into dollars using the closing exchange rates reported in The Wall Street Journal (U.S., Western Edition) on the last business day of the applicable calendar quarter.


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8.5 Payment Method; Late Payments. All payments due hereunder shall be made by wire transfer of immediately available funds into an account designated by a Party. If a Party does not receive payment of any sum due to it on or before the due date, simple interest shall thereafter accrue on the sum due to such Party until the date of payment at the per annum rate of [...***...] over Prime or the maximum rate allowable by applicable Law, whichever is lower.

8.6 Records; Audits. Each Party will maintain complete and accurate records in sufficient detail to permit the other Party to confirm the accuracy of the calculation of payments under this Agreement, as well as to confirm Pre-Commercialization Costs and Regulatory Data Costs. Upon reasonable prior notice, such records shall be available during regular business hours for a period of [...***...] years from the end of the calendar year to which they pertain for examination at the expense of the applicable Party, and not more often than [...***...] each calendar year, by an independent certified public accountant selected by such Party and reasonably acceptable to the other Party, for the sole purpose of verifying the accuracy of the financial reports or payments furnished by the other Party pursuant to this Agreement. Any such auditor shall not disclose to the other Party a Party’s Confidential Information. Any amounts shown to be owed but unpaid shall be paid within [...***...] days from the accountant’s report, plus interest (as set forth in Section 8.5) from the original due date. The auditing Party shall bear the full cost of such audit unless such audit discloses an underpayment by the audited Party of more than [...***...] of the amount due, in which case the audited Party shall bear the full cost of such audit.

8.7 Taxes.

(a) Payments to BioLineRx. Cypress acknowledges that under current US law, regulatory interpretations, and treaties it will not be required to deduct and withhold, nor will it deduct and withhold, any United States Tax from any payments made to BioLineRx pursuant to Sections 8.1 or 8.2 (solely with respect to regulatory milestone payments). If any of the payments required to be made by Cypress to BioLineRx under Section 8.2 (other than with respect to Regulatory Milestones) or Section 8.3 is subject to a deduction of Tax or withholding Tax, then, subject to Section 8.7(b) below, the sum payable by Cypress (in respect of which such deduction or withholding is required to be made) shall be made to BioLineRx after deduction of the amount required to be so deducted or withheld, which deducted or withheld amount shall be remitted in accordance with applicable Laws. In all events, it is acknowledged that Cypress may deduct and withhold the required Taxes from payments due to BioLineRx in the event of any


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changes in Tax law, administrative interpretations or treaties that may change current rules as applicable to such payments, subject to providing BioLineRx with at least sixty (60) days’ advance notification of the intention to withhold such Taxes and giving BioLineRx an opportunity to provide a written Tax opinion or other form of evidence that such Taxes should not be withheld, which will be given reasonable consideration by Cypress.

(b) Tax Cooperation. The Parties shall use all reasonable and legal efforts to reduce or eliminate Tax withholding or similar obligations in respect of royalties, milestone payments, and other payments made by Cypress to BioLineRx under this Agreement. To the extent Cypress is required to deduct and withhold taxes on any payment to BioLineRx, Cypress shall pay the amounts of such Taxes to the proper Governmental Authority in a timely manner and promptly transmit to BioLineRx an official Tax certificate or other documentation of the payment of any such withholding Taxes, including copies of receipts or other evidence reasonably required and sufficient to enable BioLineRx to document such tax withholdings adequately for purposes of claiming foreign tax credits and similar benefits. BioLineRx shall provide Cypress any Tax forms that may be reasonably necessary in order for Cypress to not withhold tax or to withhold Tax at a reduced rate under an applicable bilateral income Tax treaty. BioLineRx shall use reasonable efforts to provide any such tax forms to Cypress at least thirty (30) days prior to the due date for any payment for which BioLineRx desires that Cypress apply a reduced withholding rate. Each Party shall provide the other with reasonable assistance to enable the recovery, as permitted by applicable law, of withholding Taxes, value added taxes, or similar obligations resulting from payments made under this Agreement, such recovery to be for the benefit of the Party bearing such withholding Tax or value added Tax. Cypress shall require its sublicensees in the Cypress Territory to cooperate with BioLineRx in a manner consistent with this Section 8.7(b).

ARTICLE 9

INTELLECTUAL PROPERTY

9.1 Ownership of Inventions. Following the Effective Date:

(a) Each Party shall own any inventions made solely by its own employees, agents, or independent contractors in the course of conducting its activities under this Agreement, together with all intellectual property rights therein, that cover or claim the Products (“Sole Inventions”); and

(b) The Parties shall jointly own any inventions that are made jointly by employees, agents, or independent contractors of each Party in the course of conducting its activities under this Agreement, together with all intellectual property rights therein, that cover or claim the Products (“Joint Inventions”). All Patents claiming patentable, jointly owned Joint Inventions shall be referred to herein as “Joint Patents.” Except to the extent otherwise set forth in this Agreement, each Party shall be entitled to practice and exploit the Joint Inventions without the duty of accounting or seeking consent from the other Party consistent with the terms of this Agreement.

Inventorship shall be determined in accordance with U.S. patent laws. For clarity, all BioLineRx Sole Inventions which come within the definition of BioLineRx Technology shall be subject to the licenses set forth in this Agreement.

9.2 Disclosure of Inventions. Each Party shall promptly disclose to the other Party any invention disclosures, or other similar documents, submitted to it by its employees, agents or independent contractors describing inventions that are either Sole Inventions or Joint Inventions, and all Information relating to such inventions to the extent necessary for the preparation, filing and maintenance of any Patent with respect to such invention.

9.3 Assignment of Product Inventions. Notwithstanding anything to the contrary in Section 9.1, and subject to the license set forth in Section 2.2(b), Cypress hereby assigns and shall assign to BioLineRx, for no additional consideration, all right, title and interest in and to any Sole Inventions owned by Cypress that cover or claim the Products (“Product Inventions”). Cypress shall execute, and cause its employees, agents and subcontractors to execute (directly or through assignment to Cypress and assignment by Cypress to BioLineRx), assignments to BioLineRx of all right, title and interest in and to any such Product Inventions, and any Patents directed to such assigned Product Inventions shall be BioLineRx Patents, subject to the licenses set forth in this Agreement. BioLineRx shall consult with Cypress regarding the advisability of seeking patent protection for any Product Invention. Should the Parties determine that such protection is advisable, BioLineRx shall prosecute and reasonably maintain in the Retained Territory all of the patents and patent applications with claims covering such Product Inventions. BioLineRx shall provide Cypress with a reasonable opportunity to comment on all draft filings for the Product Inventions in the Retained Territory prior to their submission to the relevant patent authority. Should BioLineRx decide that it is no longer interested in maintaining or prosecuting a particular Patent with claims covering a Product Invention in a country or other jurisdiction in the Retained Territory, it shall promptly advise Cypress, and Cypress may assume such prosecution and maintenance at its sole expense. Any such Product Invention shall be the sole and exclusive property of BioLineRx. Cypress shall require any sublicensee to assign any Product Inventions to Cypress in accordance with the terms of this Section 9.3 as applicable to Cypress.

9.4 Prosecution of Patents.

(a) Cypress Prosecuted Patents. The Parties shall cooperate with each other to achieve (to the extent appropriate) global harmonization of filing, prosecution and maintenance of BioLineRx Patents, recognizing that Cypress shall be pursuing BioLineRx Patent-related activities in the Cypress Territory and BioLineRx shall be pursuing BioLineRx Patent related activities in the Retained Territory. The Parties acknowledge that certain BioLineRx Patents have been licensed to BioLineRx under the Upstream Agreement and are sublicensed to Cypress in the Cypress Territory under this Agreement (the “UA Patents”). With respect to these UA Patents, Cypress and BioLineRx shall consult regarding the preparation, filing, prosecution and maintenance of such UA Patents in the Cypress Territory in accordance with Section 4.1 of the Upstream Agreement.

(1) Subject to Section 9.4(a)(3) below, all UA Patents shall be prepared, filed, prosecuted and maintained through a law or patent attorney firm mutually agreed upon by Cypress and BioLineRx, at [...***...]. Such firm shall take into account the Parties’ intention that Cypress will prepare, file, prosecute, obtain and maintain the UA Patents in a manner that will provide the maximum economic advantage and return to the Parties. Further, counsel shall confer with Cypress and BioLineRx regarding the content of patent applications contained within the UA Patents, the prosecution of the UA Patents and the content of communications with the relevant patent agencies in the Cypress Territory regarding the UA Patents, prior to any communications with such agencies. Without limiting the generality of the foregoing, Cypress shall have the first right to conduct Patent-related activities in the Cypress Territory regarding such UA Patents, and Cypress shall ensure that BioLineRx is provided with (i) a reasonable opportunity to review and comment on such UA Patent-related activities regarding such UA Patents, and (ii) a copy of communications from any patent authority in the Cypress Territory regarding such UA Patents, and shall provide drafts of any substantive filings, responses or other communications to be made to such patent authorities a reasonable amount of time in advance of submitting such filings, responses or other communications for BioLineRx’s review and comment. Cypress shall reasonably consider comments by BioLineRx in connection with the UA Patent-related activities regarding the UA Patents so long as such comments are received by Cypress a reasonable amount of time in advance of any filing deadlines.

(2) Subject to Section 9.4(a)(3) below, all BioLineRx Patents (other than UA Patents), including all Patents with claims covering Product Inventions, and all Joint Patents in the Cypress Territory (collectively, the “Cypress Prosecuted Patents”) shall be prepared, filed, prosecuted and maintained by Cypress, at Cypress’ sole expense.

(3) If Cypress decides to cease the Patent-related activities regarding any UA Patent or Cypress Prosecuted Patent, it shall notify BioLineRx in writing sufficiently in advance so that BioLineRx may, at its discretion, assume the responsibility for such Patent-related activities regarding such UA Patent or such Cypress Prosecuted Patent, at BioLineRx’s sole expense. Joint Patents which constitute such Cypress Prosecuted Patents shall be assigned to BioLineRx. Thereafter, such UA Patents or such Cypress Prosecuted Patents shall be included in the BioLineRx Prosecuted Patents and the terms of Section 9.4(b) shall apply to such Patents.

(b) BioLineRx Prosecuted Patents. BioLineRx shall have the sole right to prepare, file, prosecute and maintain all UA Patents and Cypress Prosecuted Patents for which the responsibility for Patent-related activities regarding such UA Patents or Cypress Prosecuted Patents has transferred to BioLineRx pursuant to Section 9.4(a)(3) above (the “BioLineRx Prosecuted Patents”).

(c) Cooperation in Prosecution. Each Party shall provide the other Party all reasonable assistance and cooperation in the efforts provided above in this Section 9.4, including providing any necessary powers of attorney and executing any other required documents or instruments for such efforts (without charge to the other Party).


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9.5 Infringement of Patents by Third Parties.

(a) Notification. Each Party shall promptly notify the other Party in writing of any existing or threatened infringement of the BioLineRx Patents in the Cypress Territory through the Pre-Commercialization or Commercialization in the Field by a Third Party, of which such Party becomes aware, including any equivalent filing in the Cypress Territory to a “patent certification” filed in the United States under 21 U.S.C. §355(b)(2) or 21 U.S.C. §355(j)(2), and of any declaratory judgment, opposition, or similar action alleging the invalidity, unenforceability or non-infringement of any of the BioLineRx Patents in the Cypress Territory (collectively “Product Infringement”).

(b) Product Infringement.

(1) For any Product Infringement, each Party shall share with the other Party all Information available to it regarding such alleged infringement. With respect to any UA Patent, the Parties’ rights and obligations recited in this Section 9.5 are subject to BioLineRx’s obligations under Section 10.1 of the Upstream Agreement; BioLineRx shall exercise its rights thereunder to the extent requested by Cypress under this Section 9.5. Cypress shall have the first right, but not the obligation, to bring an appropriate suit or other action in the Cypress Territory against any person or entity engaged in such Product Infringement, subject to Section 9.5(b)(2) through 9.5(b)(4), below. If Cypress fails to institute and prosecute an action or proceeding in the Cypress Territory to abate the Product Infringement within a period of [...***...] days after the first notice is delivered under Section 9.5(a), then BioLineRx (or one of the Upstream Licensors, if Section 10.1.3 of the Upstream Agreement is applicable) shall have the right, but not the obligation, to commence a suit or take action in the Cypress Territory to enforce the applicable BioLineRx Patents against such Third Party perpetrating such Product Infringement, at its own cost and expense. In the event that BioLineRx (or an Upstream Licensor, if applicable) exercises such right to commence such suit or to take action in the Cypress Territory regarding such Product Infringement, Cypress shall reasonably cooperate with BioLineRx (or the Upstream Licensor, if applicable) in connection with such BioLineRx Patent enforcement efforts.

(2) Each Party shall provide to the Party enforcing any such rights under this Section 9.5(b) reasonable assistance in such enforcement, at such enforcing Party’s request and expense, including joining such action as a party plaintiff if required by applicable Law to pursue such action. The enforcing Party shall keep the other Party regularly informed of the status and progress of such enforcement efforts and shall reasonably consider the other Party’s comments on any such efforts.

(3) Each Party shall bear all of its own internal costs incurred in connection with its activities under this Section 9.5(b). In the event a Party commences a Product Infringement action in the Cypress Territory, it shall bear all external costs and expenses for such action.

(4) The Party not bringing an action with respect to Product Infringement under this Section 9.5(b) shall be entitled to separate representation in such matter


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by counsel of its own choice, but such Party shall at all times cooperate fully with the Party bringing such action.

(c) Infringement Other Than a Product Infringement. For any and all infringement of any BioLineRx Patent other than a Product Infringement (including the enforcement of BioLineRx Patents against infringement in the Retained Territory), as between the Parties, BioLineRx shall have the sole and exclusive right to bring an appropriate suit or other action against any person or entity engaged in such other infringement, in its sole discretion, and as between the Parties shall bear all related expenses and retain all related recoveries. BioLineRx shall keep Cypress regularly informed of the status and progress of such enforcement efforts and shall reasonably consider Cypress’ comments on any such efforts.

(d) Settlement. Cypress shall not settle any claim, suit or action that it brought under this Section 9.5 involving BioLineRx Patents in any manner that would negatively impact such Patents or that would limit or restrict the ability of BioLineRx to pre-commercialize, make, import, use, offer for sale, sell or otherwise commercialize Products anywhere in the Retained Territory or to make or have made Product anywhere in the world for such pre-commercialization, use, sale or import anywhere in the Retained Territory, without the prior written consent of BioLineRx, which consent shall not be unreasonably withheld or delayed. Nothing in this Article 9 shall require BioLineRx to consent to any settlement that would have a material adverse impact upon any BioLineRx Patent in the Retained Territory, or to the pre-commercialization, commercialization, manufacture, use, importation, offer for sale or sale of the Products in the Retained Territory.

(e) Allocation of Proceeds. The enforcing Party shall retain monetary damages recovered from any Third Party in a suit or action brought by it under this Section 9.5 after first reimbursing the Parties for any expenses incurred by the Parties in such litigation (including, for this purpose, a reasonable allocation of expenses of internal counsel); provided that, in the event Cypress is the Party bringing suit, the amount of such recovery which is lost profits (but not including any other damages) and which is retained by Cypress after such reimbursement shall be included in Net Sales and shall be subject to the royalty payment by Cypress to BioLineRx under Section 8.3.

9.6 Infringement of Third Party Rights in the Cypress Territory. Subject to the indemnification obligation as set forth in Article 11, if any Product used or sold by Cypress or its sublicensees becomes the subject of a Third Party’s claim or assertion of infringement of a Third Party Patent granted by a jurisdiction within the Cypress Territory, Cypress shall promptly notify BioLineRx of such event and the Parties shall promptly meet to properly handle the claim or assertion and take the appropriate course of action.

ARTICLE 10

REPRESENTATIONS AND WARRANTIES

10.1 Mutual Representations and Warranties. Each Party hereby represents and warrants to the other Party that, as of the Effective Date:

(a) Corporate Existence and Power. It is a company or corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction in which it is incorporated, and has full corporate power and authority and the legal right to own and operate its property and assets and to carry on its business as it is now being conducted and as contemplated in this Agreement, including the right to grant the licenses granted by it hereunder.

(b) Authority and Binding Agreement. It has the corporate power and authority and the legal right to enter into this Agreement and perform its obligations hereunder; it has taken all necessary corporate action on its part required to authorize the execution and delivery of the Agreement and the performance of its obligations hereunder; and the Agreement has been duly executed and delivered on behalf of such Party, and constitutes a legal, valid, and binding obligation of such Party that is enforceable against it in accordance with its terms, subject to and limited by: (i) applicable bankruptcy, insolvency, reorganization, moratorium, and other laws generally applicable to creditors’ rights; and (ii) judicial discretion in the availability of equitable relief.

(c) No Conflict. The execution and delivery of this Agreement, and the performance by such Party of its obligations under this Agreement, including the grant of rights to the other Party pursuant to this Agreement, does not and will not: (i) conflict with, nor result in any violation of or default under any instrument, judgment, order, writ, decree, contract or provision to which such Party is otherwise bound; (ii) give rise to any lien, charge or encumbrance upon any assets of such Party or the suspension, revocation, impairment, forfeiture or non-renewal of any material permit, license, authorization or approval that applies to such Party, its business or operations or any of its assets or properties; or (iii) conflict with any rights granted by such Party to any Third Party or breach any obligation that such Party has to any Third Party.

(d) Required Consents. It has obtained, or is not required to obtain, the consent, approval, order, or authorization of any Third Party, or has completed, or is not required to complete, any registration, qualification, designation, declaration or filing with, any Governmental Authority, in connection with the execution and delivery of this Agreement and the performance by such Party of its obligations under this Agreement, including any grant of rights to the other Party pursuant to this Agreement.

10.2 Additional Representations and Warranties of BioLineRx. For purposes of this Section 10.2, the phrase “the knowledge of BioLineRx” means the actual knowledge of BioLineRx’s executive officers (as defined in Rule 16a-1(f) promulgated under the Securities Exchange Act of 1934, as amended from time to time (or any successor rule)) and the senior employee of BioLineRx responsible for patent matters, in each case after reasonable inquiry. BioLineRx represents and warrants to Cypress that, as of the Execution Date:

(a) It has not received any written notice from any Third Party asserting or alleging that research or development of any Product by BioLineRx infringed or misappropriated the intellectual property rights of such Third Party.

(b) There are no actual, pending, or to BioLineRx’s knowledge, alleged or threatened adverse actions, suits, claims, interferences or formal governmental investigations involving the Products or the BioLineRx Technology relating to the Products by or against BioLineRx in or before any court, governmental or regulatory authority.

(c) To the knowledge of BioLineRx, there are no asserted claims, interferences, oppositions or demands of any Third Party against the BioLineRx Technology in the Territory.

(d) BioLineRx owns or otherwise Controls the BioLineRx Know-How; BioLineRx is the exclusive licensee under the Upstream Agreement of the BioLineRx Patents.

(e) There are no liens or security interests currently existing on or to the BioLineRx Technology that could reasonably be expected to adversely affect Cypress’ rights and licenses under this Agreement.

(f) To the knowledge of BioLineRx, there is not any pending claim or litigation which alleges that its activities under the Upstream Agreement or its use of the BioLineRx Technology have violated the intellectual property rights of any Third Party.

(g) The Upstream Agreement is in full force and effect, subject to bankruptcy, insolvency, reorganization or similar laws affecting the rights of creditors generally and to equitable principles.

(h) Exhibit B to this Agreement sets forth all of the “Licensor Patent Rights” under the Upstream Agreement which claim the Product, or methods of making or using the Product, in the Field in the Cypress Territory, as the term “Licensor Patent Rights” is defined in the Upstream Agreement.

(i) To the knowledge of BioLineRx, no event has occurred which, after the giving of notice or the lapse of time or both, would constitute a material breach by BioLineRx under the Upstream Agreement or would constitute a material breach by the Upstream Licensors.

(j) BioLineRx has not received notice of any potential Licensed Product proposed by one or both of the Upstream Licensors that incorporates BL-1020.

(k) To the knowledge of BioLineRx, no license from a Third Party is required to practice the rights granted to BioLineRx under the Upstream Agreement with respect to the Products in the Field in the Cypress Territory.

(l) All of the studies and tests of the Products conducted by or on behalf of BioLineRx prior to the Execution Date were conducted in all material respects in accordance with (i) applicable Laws of the jurisdiction where conducted at the time such studies and test were conducted; and (ii) the prevailing scientific standards applicable to the conduct of such studies and activities.

BioLineRx shall update the representations and warranties in this Section 10.2 as of the Effective Date. Any revision of a BioLineRx representation or warranty in such updated Section 10.2 shall not be grounds for termination by Cypress for BioLineRx’s breach of Section 10.2. Notwithstanding the foregoing sentence, if prior to the Effective Date, the representations and warranties set forth in Sections 10.2(a), (b), (c), (g) or (i) above with respect to the Cypress Territory are no longer true and correct, then BioLineRx shall notify Cypress in writing, and in such event either Cypress or BioLineRx may terminate this Agreement prior to the Effective Date.

10.3 Covenants.

(a) No Debarment. In the course of the Pre-Commercialization or Commercialization, each Party shall not use any employee or consultant who has been debarred by any Regulatory Authority, or, to the best of such Party’s knowledge, is the subject of debarment proceedings by a Regulatory Authority.

(b) Amendment of Upstream Agreement. Promptly following the Effective Date but in all events at least [...***...] prior to the anticipated date of First Commercial Sale, the Parties will diligently work to amend certain provisions of the Upstream Agreement to enable them to more efficiently progress the pre-commercialization and commercialization of the Product throughout the Territory, including Sections 8.1.1 and 13.3.2 of the Upstream Agreement.

10.4 Disclaimer. Cypress understands that the Products are the subject of ongoing clinical research and development and that BioLineRx cannot assure the safety or efficacy of the Products, or that the Products will be approved by any Regulatory Authority in the Cypress Territory.

10.5 No Other Representations or Warranties. EXCEPT AS EXPRESSLY STATED IN THIS ARTICLE 10, NO REPRESENTATIONS OR WARRANTIES WHATSOEVER, WHETHER EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT, OR NON-MISAPPROPRIATION OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS, IS MADE OR GIVEN BY OR ON BEHALF OF A PARTY.

ARTICLE 11

INDEMNIFICATION

11.1 Indemnification by BioLineRx. BioLineRx hereby agrees to defend, hold harmless and indemnify (collectively, “Indemnify”) Cypress or its Affiliates, agents, directors, officers and employees (the “Cypress Indemnitees”) from and against any and all liabilities, expenses or losses, including reasonable legal expenses and attorneys’ fees (collectively “Losses”) in each case resulting from Third Party suits, claims, actions and demands (each, a “Third Party Claim”) arising directly or indirectly out of (a) a breach of any of BioLineRx’s obligations under this Agreement, including BioLineRx’s representations and warranties set


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forth in Article 10, (b) the research, development, manufacture, use, handling, storage or other disposition of Products by or on behalf of BioLineRx in the conduct of BioLineRx Pre-Commercialization Activities, or (c) the research, development, manufacture, use, handling, storage, sale or other commercialization or disposition of Products in the Retained Territory by BioLineRx, its Affiliates or agents. BioLineRx’s obligation to Indemnify the Cypress Indemnitees pursuant to this Section 11.1 shall not apply to the extent that (i) the Cypress Indemnitees fail to comply with the indemnification procedures set forth in Section 11.3 and BioLineRx’s defense of the relevant Losses is materially prejudiced by such failure, or (ii) any Losses arise from, are based on, or result from the negligence or willful misconduct of any Cypress Indemnitee or sublicensee or from any activity for which Cypress is obligated to Indemnify the BioLineRx Indemnitees under Section 11.2.

11.2 Indemnification by Cypress. Cypress hereby agrees to Indemnify BioLineRx or its Affiliates, licensees, agents, directors, officers, employees and the Licensor Indemnitees (as defined in the Upstream Agreement) (the “BioLineRx Indemnitees”) from and against any and all Losses in each case resulting from Third Party Claims arising directly or indirectly out of (a) a breach of any of Cypress’ obligations under this Agreement, including Cypress’ representations and warranties set forth in Article 10; or (b) the Pre-commercialization, manufacture, use, handling, storage, sale or other Commercialization or disposition of Products in the Cypress Territory by or on behalf of Cypress or its sublicensees, including as a result of any infringement claims or product liability claims. Cypress’ obligation to Indemnify the BioLineRx Indemnitees pursuant to this Section 11.2 shall not apply to the extent that (i) the BioLineRx Indemnitees fail to comply with the indemnification procedures set forth in Section 11.3 and Cypress’ defense of the relevant Losses is materially prejudiced by such failure, or (ii) any Losses arise from, are based on, or result from the negligence or willful misconduct of any BioLineRx Indemnitee or from any activity for which BioLineRx is obligated to Indemnify the Cypress Indemnitees under Section 11.1.

11.3 Procedure. The indemnified Party shall provide the indemnifying Party with prompt notice of the Third Party Claim which might give rise to an indemnification obligation pursuant to this Article 11 indicating the nature of the claim and the basis therefore. The indemnifying Party shall have the right, at its option, to assume the defense of, at its own cost and by its own counsel, any such Third Party Claim involving the asserted liability of the indemnified Party. If any indemnifying Party shall undertake to compromise or defend any such asserted liability, it shall promptly notify the indemnified Party of its intention to do so, and the indemnified Party shall agree to cooperate with the indemnifying Party and its counsel in the compromise of, or defense against, any such asserted liability; provided, however, that the indemnifying Party shall not, as part of any settlement or other compromise, admit to liability for which the indemnifying Party is not fully indemnifying the indemnified Party or agree to an injunction with respect to activities of the indemnified Party without the written consent of the indemnified Party, not to be unreasonably withheld, conditioned or delayed. Notwithstanding an election by the indemnifying Party to assume the defense of any Third Party Claim as set forth above, such Indemnified Party shall have the right (at its own cost if the indemnifying Party has elected to assume such defense) to employ separate counsel and to participate in the defense of any Third Party Claim. All costs incurred by an indemnified Party in connection with enforcement of its rights under Sections 11.1 or 11.2, as applicable, shall also be reimbursed by

the indemnifying Party promptly after final determination that such indemnified Party is entitled to such indemnification by the indemnifying Party.

11.4 Limitation of Liability. NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY SPECIAL, INCIDENTAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES OR LOSS OF PROFITS ARISING FROM OR RELATING TO ANY BREACH OF THIS AGREEMENT, REGARDLESS OF ANY NOTICE OF THE POSSIBILITY OF SUCH DAMAGES. NOTWITHSTANDING THE FOREGOING NOTHING IN THIS SECTION 11.4 IS INTENDED TO OR SHALL LIMIT OR RESTRICT THE INDEMNIFICATION RIGHTS OR OBLIGATIONS OF ANY PARTY UNDER SECTIONS 11.1 OR 11.2, OR DAMAGES AVAILABLE FOR A PARTY’S BREACH OF CONFIDENTIALITY OBLIGATIONS IN ARTICLE 12.

11.5 Insurance. Each Party shall procure and maintain insurance, including product liability insurance, adequate to cover its obligations hereunder and which are consistent with normal business practices of prudent companies similarly situated at all times during which any Product is being clinically tested in human subjects or commercially distributed or sold by such Party. It is understood that such insurance shall not be construed to create a limit of either Party’s liability with respect to its indemnification obligations under this Article 11. Each Party shall provide the other Party with written evidence of such insurance upon request. Each Party shall provide the other Party with written notice at least thirty (30) days prior to the cancellation, non-renewal or material change in such insurance or self-insurance which materially adversely affects the rights of the other Party hereunder.

ARTICLE 12

CONFIDENTIALITY

12.1 Confidentiality. Except to the extent expressly authorized by this Agreement or otherwise agreed in writing by the Parties, each Party agrees that, for the Term and for a period of five (5) years thereafter, it shall keep confidential and shall not publish or otherwise disclose and shall not use for any purpose other than as provided for in this Agreement (which includes the exercise of any rights or the performance of any obligations hereunder) any Confidential Information of the other Party. The foregoing confidentiality and non-use obligations shall not apply to any portion of the Confidential Information that the receiving Party can demonstrate by competent written proof:

(a) was already known to the receiving Party, other than under an obligation of confidentiality, at the time of disclosure by the other Party;

(b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving Party;

(c) became generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the receiving Party in breach of this Agreement;

(d) is subsequently disclosed to the receiving Party by a Third Party who has a legal right to make such disclosure; or

(e) is subsequently independently discovered or developed by the receiving Party without the aid, application, or use of the disclosing Party’s Confidential Information, as evidenced by a contemporaneous writing.

12.2 Authorized Disclosure. Notwithstanding the obligations set forth in Section 12.1, a Party may disclose the other Party’s Confidential Information and the terms of this Agreement (which terms shall be the Confidential Information of both Parties) to the extent:

(a) such disclosure: (i) is reasonably necessary for filing or prosecuting Patent rights as contemplated by this Agreement; (ii) is reasonably necessary for prosecuting or defending litigation as contemplated by this Agreement or (iii) is reasonably necessary in connection with the obtaining of the consent of the OCS to this Agreement; or

(b) such disclosure is reasonably necessary: (i) to such Party’s directors, attorneys, independent accountants or financial advisors for the sole purpose of enabling such directors, attorneys, independent accountants or financial advisors to provide advice to the receiving Party, provided that in each such case on the condition that such directors, attorneys, independent accountants and financial advisors are bound by confidentiality and non-use obligations consistent with those contained in this Agreement; or (ii) to actual or potential investors or acquirors solely for the purpose of evaluating an actual or potential investment or acquisition; provided that in each such case on the condition that such actual or potential investors or acquirors are bound by confidentiality and non-use obligations consistent with those contained in the Agreement;

(c) such disclosure is required by judicial or administrative process, provided that in such event such Party shall promptly inform the other Party of such required disclosure and provide the other Party an opportunity to challenge or limit the disclosure obligations. Confidential Information that is disclosed by judicial or administrative process shall remain otherwise subject to the confidentiality and non-use provisions of this Article 12, and the Party disclosing Confidential Information pursuant to law or court order shall take all steps reasonably necessary, including seeking of confidential treatment or a protective order, to ensure the continued confidential treatment of such Confidential Information; and

(d) such disclosure is reasonably necessary to its collaborators in its respective Territory (including CROs, hospitals, doctors, consultants, subcontractors and Affiliates) for the purpose of the Pre-Commercialization, Commercialization or manufacture, solely for the purpose of carrying out such collaboration, on the condition that such collaborators are bound by confidentiality and non-use obligations consistent with those contained in the Agreement.

12.3 Publication. Each Party to this Agreement recognizes that the publication of papers containing results of and other information regarding pre-commercialization of Products in the Field (except as provided hereinafter), including oral presentations and abstracts, may be beneficial to both Parties provided such publications are subject to reasonable controls to protect Confidential Information. In particular, it is the intent of the Parties to maintain the confidentiality of any Confidential Information included in any Patent Controlled by a Party until such Patent has been published. Accordingly, the other Party shall have the right and obligation to review and approve any paper proposed for publication or other public disclosure by the other Party, including oral presentations and abstracts. Before either Party may submit any paper, oral presentation or abstract for publication or other public disclosure, the Party proposing publication shall deliver a complete copy of such materials or proposed public disclosure to the other Party prior to submitting the paper to a publisher or the date set for presentation. The other Party shall review any such paper and give its comments to the publishing Party within [...***...] days of the delivery of such paper or proposed public disclosure to the other Party. With respect to oral presentation materials, the other Party shall make reasonable efforts to expedite review of such materials, and shall return such items as soon as practicable to the publishing Party with appropriate comments, if any, but in no event later than [...***...] days from the date of delivery to the other Party. With respect to abstracts, the other Party shall make reasonable efforts to expedite review of such abstracts, and shall return such items as soon as practicable to the publishing Party with appropriate comments, if any, but in no event later than [...***...] days from the date of delivery to the other Party. The publishing Party shall comply with the other Party’s request to delete references to the non-publishing Party’s Confidential Information in any such paper, proposed public disclosure or other materials. Notwithstanding anything to the contrary in this Agreement, neither Party shall have the right to publish in any form any Confidential Information of the other Party without such other Party’s prior written consent.

12.4 Publicity; Use of Names. Subject to Section 12.2 and the rest of this Section 12.4, no disclosure of the terms of this Agreement may be made by either Party or its Affiliates, and no Party shall use the name, trademark, trade name or logo of the other Party, its Affiliates or their respective employee(s) in any publicity, promotion, news release or other public disclosure relating to this Agreement or its subject matter, without the prior express written permission of the other Party, except as may be required by Law.

(a) A Party may disclose this Agreement and its terms in securities filings with the Securities Exchange Commission or other regulatory agency (“SEC”) (or equivalent foreign agency, including the Israel Securities Authority or the Tel Aviv Stock Exchange) to the extent required by Law after complying with the procedure set forth in this Section 12.4. In such event, the Party seeking such disclosure will prepare a draft confidential treatment request and a proposed redacted version of this Agreement to request confidential treatment for this Agreement, and the other Party agrees to promptly (and in any event, no more than seven (7) days after receipt of such confidential treatment request and proposed redactions (or such lesser period of time as required by Law)) give its input in a reasonable manner in order to allow the Party seeking disclosure to file its request within the time lines proscribed by applicable SEC regulations or equivalent foreign agency regulations. The Party seeking such disclosure shall exercise Commercially Reasonable Efforts to obtain confidential treatment of the Agreement


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from the SEC or equivalent foreign agency as represented by the redacted version reviewed by the other Party.

(b) Further, each Party acknowledges that the other Party may be legally required to make public disclosures (including in filings with the SEC or other agency) of the execution and delivery of this Agreement as well as certain material developments or material information generated under this Agreement and agrees that each Party may make such disclosures as required by Law, provided that the Party seeking such disclosure first provides the other Party a copy of the proposed disclosure, and provided further that (except to the extent that the Party seeking disclosure is required to disclose such information to comply with applicable Law) if the other Party demonstrates to the reasonable satisfaction of the Party seeking disclosure, within [...***...] business days of such Party’s providing the copy, that the public disclosure of previously undisclosed information will materially adversely affect the pre-commercialization or commercialization of a Product being pre-commercialized or commercialized in the applicable Territory, the Party seeking disclosure will remove from the disclosure such specific previously undisclosed information as the other Party shall reasonably request to be removed.

(c) Notwithstanding the foregoing, and subject to BioLineRx’s obligations under Section 9.1 of the Upstream Agreement (if applicable), the Parties will agree on language of one or more press releases announcing this Agreement.

(d) During the Term, and subject to Section 14.2 of the Upstream Agreement and Section 12.4(c) above, each Party shall have the right to issue a press release or make a public announcement concerning the material terms of this Agreement or the Pre-Commercialization or Commercialization under this Agreement, such as announcing the commencement and completion of clinical studies for the Products in countries of the Cypress Territory, the filing and obtaining of Regulatory Approvals for the Products in countries of the Cypress Territory, the First Commercial Sale of the Products in countries of the Cypress Territory, and the publication of data and results in accordance with Section 12.3. If a Party desires to issue such a press release or make such a public announcement, it shall provide the other Party with reasonable advance notice of the content thereof. The other Party shall have the right to review and comment on such proposed press release or announcement and the Party proposing such press release or public announcement shall take into consideration and incorporate when appropriate the comment from the other Party.

(e) The Parties agree that after a public disclosure pursuant to Sections 12.4(a). (b), (c) or (d) has been reviewed and approved by the other Party, the disclosing Party may make subsequent public disclosures or issue a press release disclosing the same content as was contained in such public disclosure without having to obtain the other Party’s prior consent and approval.

(f) Cypress acknowledges that BioLineRx is required to furnish the Upstream Licensors a fully executed copy of this Agreement, promptly after the Execution Date, pursuant to Section 5.2.3 of the Upstream Agreement.


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12.5 Equitable Relief. Each Party acknowledges that a breach of this Article 12 may not reasonably or adequately be compensated in damages in an action at law and that such a breach shall cause the other Party irreparable injury and damage. By reason thereof, each Party agrees that the other Party may be entitled, in addition to any other remedies it may have under this Agreement or otherwise, to seek preliminary and permanent injunctive and other equitable relief to prevent or curtail any breach of the obligations relating to Confidential Information set forth herein by the other Party.

ARTICLE 13

TERM AND TERMINATION

13.1 Term. The Term of this Agreement will commence on the Effective Date and, unless earlier terminated pursuant to this Article 13, shall remain in effect until the cessation of all Commercialization in the Cypress Territory. Upon the expiration of the Royalty Term in a given country in the Cypress Territory, (a) the license granted to Cypress under the BioLineRx Technology in such country shall become fully-paid, royalty-free and non-exclusive, and (b) BioLineRx and the Upstream Licensors shall be free to use the BioLineRx Technology to develop, make and have made, use, offer to sell, sell, have sold, import, export, otherwise transfer physical possession of or otherwise transfer title to Products and to grant others licenses under the BioLineRx Technology to do the same in such country.

13.2 Termination for Breach.

(a) Notice. If either Party believes that the other Party is in material breach of this Agreement, then the Party holding such belief (the “Non-breaching Party”) may deliver notice of such breach to the other Party (the “Notified Party”). The Notified Party shall have thirty (30) days after receipt of such notice to cure such breach, or, if such breach is not susceptible of cure within the stated 30-day period and the Notified Party uses diligent good faith efforts to cure such breach, the stated 30-day period shall be extended by an additional thirty (30) days.

(b) Failure to Cure. If the Notified Party fails to cure a material breach of this Agreement as provided for in Section 13.2(a), then the Non-Breaching Party may terminate this Agreement immediately upon written notice to the Notified Party.

(c) Disputes. If a Party gives notice of termination under this Section 13.2 and the other Party disputes whether such termination is proper under this Section 13.2, then the issue of whether this Agreement may properly be terminated (i.e., whether a material breach occurred or whether a material breach was cured) shall be resolved in accordance with Article 14. If as a result of such dispute resolution process it is determined that the notice of termination was proper, then such termination shall be deemed to have been effective thirty (30) days following the date of the notice of breach (or such other time period applicable pursuant to Section 13.2(a)). If, as a result of such dispute resolution process, it is determined that the notice of termination was improper, then no termination shall have occurred and this Agreement shall remain in effect.

13.3 Termination for Convenience or for Adverse Regulatory Actions. Cypress shall have the right to terminate this Agreement in its entirety for any reason or no reason at all by providing BioLineRx with at least one hundred eighty (180) days prior written notice to BioLineRx of such termination. In addition, Cypress may, in its sole discretion, terminate this Agreement in its entirety, upon at least thirty (30) days written notice to BioLineRx in the event of any significant adverse clinical events or other adverse toxicity, safety or efficacy data relating to a Product or if Cypress determines that there is no basis for filing an NDA for a Product.

13.4 Termination for Patent Challenge. BioLineRx shall have the right to terminate this Agreement in its entirety upon at least thirty (30) days prior written notice to Cypress if (a) Cypress or any of its Affiliates or sublicensees files a lawsuit or brings any other legal or administrative proceeding, or knowingly assists or supports any Third Party in filing a lawsuit or bringing any other legal or administrative proceeding, challenging any of the BioLineRx Patents licensed hereunder, including any action in connection with an opposition, re-examination, revocation, invalidation or cancellation proceeding, or requests a declaration of an interference against or otherwise attacks the validity or enforceability of any BioLineRx Patents licensed hereunder, or contests or disputes BioLineRx’s entitlement to or ownership of any BioLineRx Patents licensed hereunder, and (b) Cypress or its Affiliate or sublicensee (as applicable) fails to cease such lawsuit, proceeding, action, request, attack, contest or dispute within the thirty (30) day period following Cypress’ receipt of such notice from BioLineRx. In such event, the Agreement shall terminate upon expiration of the thirty (30) day notice period (and the cure and dispute provisions set forth above in Section 13.2 shall not apply).

13.5 Termination Prior to Effective Date. Notwithstanding anything to the contrary in this Article 13, (a) Cypress may terminate this Agreement following a response from the OCS and each Party’s discharge of its obligations under Section 2.1, with no liability to BioLineRx or Cypress, if (i) Cypress exercises its right to withhold agreement to modifications to the Execution Date Agreement in accordance with Section 2.1(c); or (ii) the OCS does not grant its consent to the Execution Date Agreement or a modified Execution Date Agreement, as such modified Execution Date Agreement and the process for modification are described in Section 2.1; or (b) either Party may terminate this Agreement as set forth in the last paragraph of Section 10.2. The provisions of Section 8.1 (including the Escrow Agreement) and this Section 13.5 shall survive such termination, but all other terms, provisions, representations, rights and obligations contained in this Agreement shall terminate.

13.6 Termination of Upstream Agreement. The Parties acknowledge that, upon termination of the Upstream Agreement (in whole or in part), pursuant to Section 5.2.2.2 of the Upstream Agreement, Cypress has the right to request that the Upstream Licensors enter into a new agreement with Cypress on substantially the same terms as those contained in this Agreement.

13.7 Effect of Termination of the Agreement.

(a) Upon any termination of this Agreement the following shall apply:

(1) Regulatory Filings; Data. To the extent permitted by

applicable Laws, Cypress shall transfer and assign to BioLineRx all Regulatory Filings, Regulatory Approvals, and Cypress Regulatory Data.

(2) Cypress License and Assignment. Cypress hereby grants to BioLineRx an exclusive, royalty-free license, with the right to grant multiple tiers of sublicenses, under Cypress Technology to Pre-Commercialize, make, have made, use, sell, offer for sale, have sold, import and otherwise Commercialize the Products in the Cypress Territory, which license shall be effective as of the date of such termination. Cypress hereby assigns to BioLineRx, effective only (A) in the event of such termination, (B) upon BioLineRx’s confirmation that BioLineRx desires such assignment at the date of termination, and (C) after reimbursement of all out-of-pocket costs related to such Product Marks, all of its rights and interests in and to the Product Marks (other than the corporate names of Cypress).

(3) Transition Assistance. Cypress shall provide such assistance, at BioLineRx’s request and cost, as may be reasonably necessary for BioLineRx to commence or continue developing, Pre-Commercializing or Commercializing Products in the Cypress Territory, to the extent Cypress is then performing or has performed such activities, including transferring or amending, as appropriate, upon request of BioLineRx, any agreements or arrangements with Third Party vendors to sell Products in the Cypress Territory. To the extent that any such contract between Cypress and a Third Party is not assignable to BioLineRx, Cypress shall arrange a transition period in which to provide such services with the goal of promptly transitioning the arrangement to BioLineRx.

(4) Licenses. The licenses granted in Article 2 shall terminate, and the other rights and obligations of the Parties under this Agreement also shall terminate.

(b) Accrued Obligations. In any event, expiration or termination of this Agreement shall not relieve the Parties of any liability which accrued hereunder prior to the effective date of such expiration or termination or to which a Party may be contractually committed as of such effective date nor preclude either Party from pursuing all rights and remedies it may have hereunder or at law or in equity with respect to any breach of this Agreement, nor prejudice either Party’s right to obtain performance of any obligation.

13.8 Bankruptcy. All rights and licenses granted under this Agreement by one Party to the other Party are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of rights to “intellectual property” as defined under Section 101(35A) of the Bankruptcy Code. The Parties agree that a Party shall retain and may fully exercise all of its rights and elections under the Bankruptcy Code in the event of a bankruptcy by the other Party. The Parties further agree that in the event of the commencement of a bankruptcy proceeding by or against one Party under the Bankruptcy Code, the other Party shall be entitled to complete access to any such intellectual property pertaining to the rights granted in the licenses hereunder of the Party by or against whom a bankruptcy proceeding has been commenced and all embodiments of such intellectual property.

13.9 Survival. The following provisions shall survive any expiration or termination of this Agreement for the period of time specified: The provisions of Article 1, to the extent

definitions are embodied in the following listed Articles and Sections of this Agreement; Articles 11, 12, 14 (with respect to a dispute arising prior to the effective date of termination or expiration) and 15; and Sections 2.4 (with respect to any direct license requested by a sublicensee), 4.7 (with respect to Regulatory Data generated prior to the effective date of termination or expiration), 5.5 (with respect to Product dispositions prior to the effective date of termination or expiration), Sections 8.2 and 8.3 (with respect to milestones achieved, and royalty payments and reports concerning Net Sales made, prior to the effective date of termination or expiration), 8.4 through 8.7, 9.1 through 9.3, 10.5, 13.7, and this 13.9. In addition, any other provisions either required to interpret and enforce the Parties’ rights and obligations under this Agreement shall also survive, but only to the extent required for the full observation and performance of this Agreement, or which by their express terms, survive such expiration or termination of this Agreement.

ARTICLE 14

DISPUTE RESOLUTION

14.1 Disputes. The Parties recognize that disputes as to certain matters may from time to time arise during the Term which relate to either Party’s rights or obligations hereunder. It is the objective of the Parties to establish procedures to facilitate the resolution of disputes arising under this Agreement in an expedient manner by mutual cooperation and without resort to litigation. To accomplish this objective, the Parties agree to follow the procedures set forth in this Article 14 to resolve any controversy or claim arising out of, relating to or in connection with any provision of this Agreement, if and when a dispute arises under this Agreement, other than a dispute related to an alleged breach of this Agreement or the Upstream Agreement by BioLineRx, as to which Cypress may elect to pursue any available legal or equitable remedy, subject to the limitation on liability set forth in this Agreement.

14.2 Internal Resolution. With respect to all disputes arising between the Parties under this Agreement, including any alleged breach under this Agreement or any issue relating to the interpretation or application of this Agreement, if the Parties are unable to resolve such dispute within [...***...] days after such dispute is first identified by either Party in writing to the other, the Parties shall refer such dispute to the Executives of the Parties for attempted resolution by good faith negotiations within [...***...] days after such notice is received.

14.3 Binding Arbitration. If the Executives are not able to resolve such disputed matter within [...***...] days and either Party wishes to pursue the matter, each such dispute, controversy or claim that is not an Excluded Claim (defined in Section 14.4 below) shall be finally resolved by binding arbitration administered by JAMS pursuant to JAMS’ Streamlined Arbitration Rules and Procedures then in effect (the “JAMS Rules”), and judgment on the arbitration award may be entered in any court having jurisdiction thereof. The Parties agree that:

(a) The arbitration shall be conducted by a panel of three persons experienced in the pharmaceutical business: within [...***...] days after initiation of arbitration, each Party shall select one person to act as arbitrator and the two Party-selected arbitrators shall select a third arbitrator within [...***...] days of their appointment. If the arbitrators selected by the


***		Confidential Treatment Requested

Parties are unable or fail to agree upon the third arbitrator, the third arbitrator shall be appointed by JAMS. The place of arbitration shall be New York, New York U.S.A., and all proceedings and communications shall be in English. The panel of arbitrators shall decide the issue within [...***...] days after appointment of the third arbitrator, and shall render this decision in writing and provide reasons for the decision and any award.

(b) Either Party may apply to the arbitrators for interim injunctive relief until the arbitration award is rendered or the controversy is otherwise resolved. Either Party also may, without waiving any remedy under this Agreement, seek from any court having jurisdiction any injunctive or provisional relief necessary to protect the rights or property of that Party pending the arbitration award. The arbitrators shall have no authority to award punitive or any other type of damages not measured by a Party’s compensatory damage. Each Party shall bear its own costs and expenses and attorneys’ fees and an equal share of the arbitrators’ fees and any administrative fees of arbitration regardless of the outcome of such arbitration.

(c) A Party shall be entitled to deduct or otherwise offset any damage finally awarded under a proceeding initiated under Section 14.3 against payments due under this Agreement.

(d) Except to the extent necessary to confirm an award or as may be required by law, neither a Party nor an arbitrator may disclose the existence, content, or results of an arbitration without the prior written consent of both Parties. In no event shall an arbitration be initiated after the date when commencement of a legal or equitable proceeding based on the dispute, controversy or claim would be barred by the applicable New York statute of limitations.

14.4 Excluded Claim. As used in Section 14.3, the term “Excluded Claim” shall mean a dispute, controversy or claim that concerns (a) the scope, validity, enforceability, inventorship or infringement of a patent, patent application, trademark or copyright; or (b) any antitrust, anti-monopoly or competition law or regulation, whether or not statutory.

ARTICLE 15

MISCELLANEOUS

15.1 Entire Agreement; Amendment. This Agreement, including the Exhibits hereto, sets forth the complete, final and exclusive agreement and all the covenants, promises, agreements, warranties, representations, conditions and understandings between the Parties hereto with respect to the subject matter hereof and supersedes, as of the Effective Date, all prior agreements and understandings between the Parties with respect to the subject matter hereof. There are no covenants, promises, agreements, warranties, representations, conditions or understandings, either oral or written, between the Parties other than as are set forth herein and therein. No subsequent alteration, amendment, change or addition to this Agreement shall be binding upon the Parties unless reduced to writing and signed by an authorized officer of each Party.


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15.2 Force Majeure. Each Party shall be excused from the performance of its obligations under this Agreement to the extent that such performance is prevented by force majeure and the nonperforming Party promptly provides notice of the prevention to the other Party. Such excuse shall be continued so long as the condition constituting force majeure continues and the nonperforming Party takes reasonable efforts to remove the condition. For purposes of this Agreement, force majeure shall include conditions beyond the reasonable control of the nonperforming Party, including an act of God or terrorism, involuntary compliance with any regulation, law or order of any government, war, civil commotion, epidemic, failure or default of public utilities or common carriers, destruction of production facilities or materials by fire, earthquake, storm or like catastrophe. Notwithstanding the foregoing, a Party shall not be excused from making payments owed hereunder because of a force majeure affecting such Party. If a force majeure persists for more than ninety (90) days, then the Parties will discuss in good faith the modification of the Parties’ obligations under this Agreement in order to mitigate the delays caused by such force majeure.

15.3 Notices. Any notice required or permitted to be given under this Agreement shall be in writing, shall specifically refer to this Agreement, and shall be addressed to the appropriate Party at the address specified below or such other address as may be specified by such Party in writing in accordance with this Section 15.3, and shall be deemed to have been sufficiently given for all purposes when received, if in writing and personally delivered, facsimile transmission (receipt verified) or overnight express courier service (signature required), prepaid, to the Party for which such notice is intended, at the address set forth for such Party below.


		If to BioLineRx:		BioLineRx Ltd.
				19 Hartum Street
				PO Box 45158
				Jerusalem, 91450, Israel
				Attention: Dr. Kinneret Savitsky
				With a copy to: CFO
				FAX: +972 (2) 548-9101

		With copies to (which shall not constitute notice):

				Cooley LLP
				11951 Freedom Drive
				Reston, VA 20190-5656
				Attention: Ken Krisko, Esq.
				Fax: 703-456-8100

		If to Cypress:		Cypress Bioscience, Inc.
				4350 Executive Drive, Suite 325
				San Diego, California 92121
				Attention: Dr. Jay D. Kranzler
				With a copy to: Legal Department
				Fax: +1 (858) 452-1222


		With copies to (which shall not constitute notice):
				Latham & Watkins LLP
				12636 High Bluff Drive, Suite 400
				San Diego, California 92130
				Attention: Faye H. Russell, Esq.
				Fax: +1 (858) 523-5450

15.4 No Strict Construction; Headings. This Agreement has been prepared jointly and shall not be strictly construed against either Party. Ambiguities, if any, in this Agreement shall not be construed against any Party, irrespective of which Party may be deemed to have authored the ambiguous provision. The headings of each Article and Section in this Agreement have been inserted for convenience of reference only and are not intended to limit or expand on the meaning of the language contained in the particular Article or Section.

15.5 Assignment. Neither Party may assign or transfer this Agreement or any rights or obligations hereunder without the prior written consent of the other, except that a Party may make such an assignment without the other Party’s consent to Affiliates or to a successor to substantially all of the business of such Party to which this Agreement relates (whether by merger, sale of stock, sale of assets or other transaction) (the “Acquisition”). Any permitted successor or assignee of rights or obligations hereunder shall, in writing to the other Party, expressly assume performance of such rights or obligations. Any permitted assignment shall be binding on the successors of the assigning Party. Any assignment or attempted assignment by either Party in violation of the terms of this Section 15.5 shall be null, void and of no legal effect.

15.6 Performance by Affiliates. Each Party may discharge any obligations and exercise any right hereunder through any of its Affiliates, and when any such Affiliate is discharging such obligations or exercising such right, the terms and conditions of this Agreement applicable to such Party also shall be applicable to such Affiliate. Each Party hereby guarantees the performance by its Affiliates of such Party’s obligations under this Agreement, and shall cause its Affiliates to comply with the provisions of this Agreement in connection with such performance. Any breach by a Party’s Affiliate of any of such Party’s obligations under this Agreement shall be deemed a breach by such Party, and the other Party may proceed directly against such Party without any obligation to first proceed against such Party’s Affiliate.

15.7 Further Actions. Each Party agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.

15.8 Severability. If any one or more of the provisions of this Agreement is held to be invalid or unenforceable by any court of competent jurisdiction from which no appeal can be or is taken, the provision shall be considered severed from this Agreement and shall not serve to invalidate any remaining provisions hereof. The Parties shall make a good faith effort to replace

any invalid or unenforceable provision with a valid and enforceable one such that the objectives contemplated by the Parties when entering this Agreement may be realized.

15.9 No Waiver. Any delay in enforcing a Party’s rights under this Agreement or any waiver as to a particular default or other matter shall not constitute a waiver of such Party’s rights to the future enforcement of its rights under this Agreement, except with respect to an express written and signed waiver relating to a particular matter for a particular period of time.

15.10 Independent Contractors. Each Party shall act solely as an independent contractor, and nothing in this Agreement shall be construed to give either Party the power or authority to act for, bind, or commit the other Party in any way. Nothing herein shall be construed to create the relationship of partners, principal and agent, or joint-venture partners between the Parties.

15.11 No Third Party Beneficiaries. Except for rights and obligations specifically referred to herein that apply to Affiliates, sublicenses or licensees of the Parties, nothing in this Agreement is intended to confer on any Person other than BioLineRx or Cypress any rights or obligations under this Agreement, and there are no intended Third Party beneficiaries to this Agreement.

15.12 English Language. This Agreement was prepared in the English language, which language shall govern the interpretation of, and any dispute regarding, the terms of this Agreement. To the extent this Agreement requires a Party to provide to the other Party Information, correspondence, notice or other documentation, such Party shall provide such Information, correspondence, notice or other documentation in the English language.

15.13 Governing Law. This Agreement and all disputes arising out of or related to this Agreement or any breach hereof shall be governed by and construed under the laws of the State of New York, without giving effect to any choice of law principles that would require the application of the laws of a different state.

15.14 Counterparts. This Agreement may be executed in one (1) or more counterparts by original or facsimile signature, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

In Witness Whereof, the Parties have executed this Agreement in duplicate originals by their duly authorized officers as of the Execution Date.


BioLineRx Ltd.		Cypress Bioscience, Inc.

By: Name:	/s/ Kinneret Livnat-Savitsky Kinneret Livnat-Savitsky, PhD	By: Name:	/s/ Jay D. Kranzler Jay D. Kranzler, MD, PhD
Title:	Chief Executive Officer	Title:	Chief Executive Officer

Exhibit A

Chemical Structure of BL-1020

[...***...]


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Exhibit B

BioLineRx Patents

(all of the BioLineRx Patents set forth in Exhibit B as of the Execution Date are UA Patents)

Family I

Filing Date

Issue Date

Our Ref

Title

Country

Earliest Priority

Entry Date

Application No.

Patent No.

Status

[...***...]

Family II

Filing Date

Issue Date

Ref

Title

Country

Earliest Priority

Entry Date

Application No.

Patent No.

Status

[...***...]


***		Confidential Treatment Requested

Filing Date

Issue Date

Ref

Title

Country

Earliest Priority

Entry Date

Application No.

Patent No.

Status

[...***...]

Family III

Filing Date

Issue Date

Ref

Title

Country

Earliest Priority

Entry Date

Application No.

Patent No.

Status

[...***...]

Family IV

Filing Date

Issue Date

Ref

Title

Country

Earliest Priority

Entry Date

Application No.

Patent No.

Status

[...***...]


***		Confidential Treatment Requested

Family V

Filing Date

Issue Date

Ref

Title

Country

Earliest Priority

Entry Date

Application No.

Patent No.

Status

[...***...]


***		Confidential Treatment Requested

EX-31.1 3 a56962exv31w1.htm EX-31.1 exv31w1

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302

I, Jay D. Kranzler, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cypress Bioscience, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2010


By:		/s/ JAY D. KRANZLER Jay D. Kranzler
		Chief Executive Officer

EX-31.2 4 a56962exv31w2.htm EX-31.2 exv31w2

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302

I, Sabrina Martucci Johnson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cypress Bioscience, Inc.;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2010


By:		/s/ SABRINA MARTUCCI JOHNSON Sabrina Martucci Johnson
		Chief Financial Officer

EX-32 5 a56962exv32.htm EX-32 exv32

Exhibit 32

CERTIFICATION PURSUANT TO SECTION 906*

In connection with the accompanying Quarterly Report of Cypress Bioscience, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2010 (the “Report”), I, Jay D. Kranzler, Chief Executive Officer of the Company, and I, Sabrina Martucci Johnson, Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 9, 2010


/s/ JAY D. KRANZLER		/s/ SABRINA MARTUCCI JOHNSON

Chief Executive Officer		Chief Financial Officer


*		This certification accompanies the Report to which it relates, is not deemed “filed” with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company made under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Report, except to the extent that the Company specifically incorporates this certification by reference therein.

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