-----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, LdaLn7ocGN62A0p53jdquFVR4k1QPlBI68jkiKkvwKajvuSpWy/p4aPN282dSD4b 0lLb8sPtSKUj3fktLGe5Vg== 0001047469-99-010399.txt : 19990322 0001047469-99-010399.hdr.sgml : 19990322 ACCESSION NUMBER: 0001047469-99-010399 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990319 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMMUNEX CORP /DE/ CENTRAL INDEX KEY: 0000719529 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 510346580 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-12406 FILM NUMBER: 99568345 BUSINESS ADDRESS: STREET 1: 51 UNIVERSITY ST CITY: SEATTLE STATE: WA ZIP: 98101 BUSINESS PHONE: 2065870430 MAIL ADDRESS: STREET 1: 51 UNIVERSITY STREET CITY: SEATLE STATE: WA ZIP: 98101 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-12406 IMMUNEX CORPORATION (exact name of registrant as specified in its charter) WASHINGTON 51-0346580 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 51 University Street, Seattle, WA 98101 (Address of principal executive offices) Registrant's telephone number, including area code (206) 587-0430 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. [ ] The approximate aggregate market value of the voting stock held by nonaffiliates of the registrant as of March 9, 1999 was: $2,938,459,987. Common stock outstanding at March 9, 1999: 40,418,354 shares. Documents incorporated by reference: (1) Portions of the Company's definitive Proxy Statement for the annual meeting of shareholders to be held on April 29, 1999, are incorporated by reference in Part III. TABLE OF CONTENTS
PAGE ---- PART I ITEM 1. BUSINESS...............................................................................1 General................................................................................1 Marketed Products......................................................................1 RHEUMATOID ARTHRITIS..........................................................1 ONCOLOGY......................................................................2 Research and Product Development ......................................................3 INVESTIGATIONAL PRODUCTS IN HUMAN CLINICAL TRIALS.............................3 MARKETED PRODUCTS IN HUMAN CLINICAL TRIALS FOR ADDITIONAL CLINICAL INDICATIONS.................................................3 PRECLINICAL RESEARCH AND DEVELOPMENT PIPELINE.................................4 CYTOKINE PRODUCTS.............................................................4 ADDITIONAL CYTOKINES AND OTHER NEW MOLECULES..................................6 OTHER BIOLOGICAL PRODUCTS.....................................................7 RECEPTOR PRODUCTS ............................................................7 RESEARCH COLLABORATIONS......................................................10 NON-BIOLOGICAL ONCOLOGY PRODUCTS.............................................11 Relationship with AHP and Cyanamid....................................................12 1993 MERGER..................................................................12 GOVERNANCE AGREEMENT.........................................................12 1993 MERGER RELATED AGREEMENTS...............................................13 TACE AGREEMENTS..............................................................13 TNFR LICENSE AND DEVELOPMENT AGREEMENT.......................................13 ENBREL PROMOTION AGREEMENT...................................................14 PRODUCT RIGHTS AGREEMENT.....................................................15 Relationship with Hoechst AG..........................................................16 Marketing and Distribution............................................................17 GENERALLY....................................................................17 ENBREL.......................................................................17 ONCOLOGY PRODUCTS............................................................17 DISTRIBUTION.................................................................17 Competition...........................................................................17 GENERALLY....................................................................17 LEUKINE......................................................................18 NOVANTRONE...................................................................19 ENBREL.......................................................................19 GENERIC ONCOLOGY PRODUCTS....................................................20 Raw Materials and Supply..............................................................20 Government Regulation.................................................................21 Patents, Licenses and Trademarks......................................................22 GENERALLY....................................................................22 PATENTS ON BIOLOGICAL PRODUCTS...............................................22 PATENTS ON NON-BIOLOGICAL ONCOLOGY PRODUCTS..................................24 PATENT AND TECHNOLOGY LICENSES...............................................24 TRADEMARKS...................................................................24 Properties............................................................................24 Personnel.............................................................................25 Risk Factors..........................................................................25 ITEM 2. PROPERTIES............................................................................30 ITEM 3. LEGAL PROCEEDINGS.....................................................................30 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................................................................30
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PAGE ---- PART II ITEM 5. MARKET PRICE OF THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS..................................................31 ITEM 6. SELECTED FINANCIAL DATA...............................................................31 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..........................................32 Introduction..........................................................................32 Results of Operations.................................................................32 OVERVIEW.....................................................................32 REVENUES.....................................................................32 OPERATING EXPENSES...........................................................33 OTHER INCOME (EXPENSE).......................................................34 PROVISION FOR INCOME TAXES...................................................35 Liquidity and Capital Resources.......................................................35 Outlook .............................................................................36 Year 2000.............................................................................36 Market Risk...........................................................................37 ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK............................................................38 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...........................................38 Consolidated Balance Sheets...........................................................39 Consolidated Statements of Operations.................................................40 Consolidated Statements of Shareholders' Equity.......................................41 Consolidated Statements of Cash Flows.................................................42 Notes to Consolidated Financial Statements............................................43 Note 1. Organization and Basis of Presentation..............................43 Note 2. Summary of Significant Accounting Policies..........................43 Note 3. Investments.........................................................45 Note 4. Property, Plant and Equipment.......................................46 Note 5. Long-term Obligations...............................................46 Note 6. Shareholders' Equity................................................47 Note 7. Income Taxes........................................................49 Note 8. Employee Benefits...................................................51 Note 9. Transactions with AHP...............................................51 Note 10. Commitments and Contingencies......................................53 Note 11. Subsequent Events..................................................54 Note 12. Quarterly Financial Results (unaudited)............................54 Report of Ernst & Young LLP, Independent Auditors............................55 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.......................................56 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...................................56 ITEM 11. EXECUTIVE COMPENSATION...............................................................56 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................................................56 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................................56 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K..................................................................57
iii PART I ITEM 1. BUSINESS Our disclosure and analysis in this report and in our 1998 Annual Report to shareholders contain forward-looking statements. See RISK FACTORS, below. GENERAL Immunex Corporation (which may be referred to as IMMUNEX, WE, US, or OUR) is a biopharmaceutical company that discovers, develops, manufactures and markets innovative therapeutic products for the treatment of human diseases, including cancer, infectious diseases and immunological disorders such as rheumatoid arthritis. Immunex was founded in 1981. Our products improve the quality of life of people and help them enjoy longer, healthier and more productive lives. Our products are currently marketed in the United States (U.S.), and are available by prescription only. American Home Products Corporation (AHP), through one of its wholly owned subsidiaries, American Cyanamid Company (CYANAMID), owns approximately 54.1% of the outstanding common stock of Immunex. AHP is one of the world's largest research-based pharmaceutical and health care products companies. Our home page on the Internet is at www.immunex.com. You can learn about Immunex by visiting that site. Information contained on our Web site does not constitute part of this report. Our business is regulated primarily by the United States Food and Drug Administration (FDA). The FDA regulates the products we sell, our manufacturing processes and our promotion and advertising. See GOVERNMENT REGULATION, below. MARKETED PRODUCTS Almost all of our product revenues come from products in two major therapeutic classes: rheumatoid arthritis (also referred to as RA) and oncology. Our marketed products in the U.S. can be grouped as follows:
RHEUMATOID ARTHRITIS ONCOLOGY ENBREL-Registered Trademark- (etanercept) LEUKINE-Registered Trademark- (sargramostim, GM-CSF) NOVANTRONE-Registered Trademark- (mitoxantrone for injection concentrate) THIOPLEX-Registered Trademark- (thiotepa for injection) Methotrexate sodium injectable Leucovorin calcium AMICAR-Registered Trademark- (aminocaproic acid)
We own rights to ENBREL in the U.S. and Canada (NORTH AMERICA), and AHP owns ex-North American rights to ENBREL. We own worldwide rights to LEUKINE and U.S. rights to the other marketed products listed above. A summary of our marketed products is provided below. RHEUMATOID ARTHRITIS ENBREL. ENBREL, our newest product, was approved by the FDA on November 2, 1998, and launched in the U.S. on November 4, 1998. ENBREL is our brand name, or trademark, for etanercept. Etanercept is the assigned generic name for this product, which is described more fully below. ENBREL is the first in a new class of RA drugs known as biologic response modifiers, a new approach to RA management and the first breakthrough treatment in many years for people with RA. RA is a serious autoimmune disorder that causes the body's immune system to attack the lining of the joints and can lead to joint deformity or destruction, organ damage, disability and premature death. The FDA has approved ENBREL for the following indications or uses: - reduction of signs and symptoms of moderately to severely active RA in patients who have had an inadequate response to one or more disease modifying antirheumatic drugs (DMARDS), and 1 - in combination with methotrexate in patients who do not respond adequately to methotrexate alone. The dosage of ENBREL for adult patients with RA is 25 mg given twice weekly as a subcutaneous (under the skin) injection. ENBREL is sold in a powder formulation. AHP and Immunex are marketing ENBREL in the U.S. under the ENBREL Promotion Agreement discussed later. See RELATIONSHIP WITH AHP AND CYANAMID, below. ENBREL acts by supplementing the body's natural process of regulating levels of tumor necrosis factor (TNF), a protein known to be pivotal to the RA disease process. In clinical trials, ENBREL has been shown to reduce pain and duration of morning stiffness and improve swollen and tender joints, enabling patients to better participate in daily activities. ENBREL acts by binding to and neutralizing TNF. TNF is one of the dominant cytokines or proteins that play an important role in the cascade of reactions that cause the inflammatory process of RA. ENBREL inhibits the binding of TNF molecules to cell surface TNF receptors (TNFR). The binding of ENBREL to TNF renders the bound TNF biologically inactive, resulting in significant reduction in inflammatory activity. ONCOLOGY LEUKINE. LEUKINE, which was our first marketed product, was launched in the U.S. in 1991. LEUKINE is our trademark for sargramostim. LEUKINE is sometimes referred to as granulocyte-macrophage colony stimulating factor or GM-CSF. LEUKINE is a recombinant (man-made) form of a protein, called a cytokine, that is almost identical to a protein normally produced in your body. This cytokine helps to increase the number and improve the function of white blood cells. White blood cells, which are made in the bone marrow, help prevent infections. LEUKINE is marketed in the U.S. by our oncology specialty sales force. LEUKINE is only available in the U.S. While LEUKINE is available in both multi-dose liquid and powder formulations, most of our sales are of the multi-dose liquid formulation. The FDA has approved LEUKINE for the following indications: - facilitating allogeneic and autologous bone marrow transplant (BMT) therapies currently used for treatment of acute leukemia, lymphoma, and Hodgkin's disease and in rescuing patients whose BMT grafts have failed, - for accelerating neutrophil recovery and reducing mortality in treatment of patients with acute myelogenous leukemia (AML), and - for use in peripheral blood progenitor cell (PBPC) mobilization and post-transplantation support. NOVANTRONE. NOVANTRONE is our trademark for mitoxantrone for injection concentrate. NOVANTRONE is a compound similar to doxorubicin and idarubicin, but with a molecular change that provides less damage to the heart. NOVANTRONE is sold in a concentrated liquid form for injection. The FDA has approved NOVANTRONE for the following indications: - initial therapy of acute nonlymphocytic leukemia (ANLL), and - in combination with steroids, for treatment of patients with pain related to hormone refractory prostate cancer (HRPC). When used in combination with steroids, therapy with NOVANTRONE has been demonstrated to significantly reduce pain and improve quality of life in patients with HRPC. In 1997, the FDA authorized us to supplement the approved labeling for NOVANTRONE to cite clinical results showing its potential, in combination with corticosteroids, to reduce levels of prostate-specific antigen (PSA), an important indicator used by many physicians and patients to monitor prostate cancer. THIOPLEX. THIOPLEX is our trademark for a powder formulation of thiotepa for injection. Thiotepa is a cytotoxic agent (kills cells) approved for the palliative (alleviation of symptoms without curing the underlying disease) treatment of a wide variety of tumor types. The FDA has approved THIOPLEX for a number of oncology indications. We have been selling and distributing THIOPLEX in the U.S. since FDA approval of a supplemental new drug application (SNDA) in December 1994. METHOTREXATE INJECTABLE. Methotrexate injectable is an antimetabolite (a substance that replaces a particular metabolite) used in the treatment of certain neoplastic (tumor) diseases. Patients with breast cancer, non-Hodgkin's lymphoma (NHL) and lung cancer benefit from methotrexate. Methotrexate injectable has significant generic competition. We distribute methotrexate injectable in the U.S. under a distribution agreement with Cyanamid. LEUCOVORIN CALCIUM. Leucovorin is used in methotrexate rescue therapy and in modulation of 5-fluorouracil drug therapy in advanced colorectal cancer. We sell both tablet and powder formulations of leucovorin. Leucovorin has significant generic competition. 2 AMICAR. AMICAR is our trademark for aminocaproic acid. AMICAR is a fibrinolysis-inhibitory agent useful in enhancing hemostasis (prevention of bleeding) when fibrinolysis contributes to bleeding. AMICAR is used to decrease bleeding in certain surgical procedures and other medical situations. We sell syrup, tablet and powder injectable formulations of AMICAR. RESEARCH AND PRODUCT DEVELOPMENT Since Immunex was founded in 1981, we have focused our scientific efforts on understanding the biology of the immune system. Our goal is to understand the complex interactions between cells that can trigger the underproduction or overabundance of key immune system components, leading to serious human diseases. From this singular research focus we have created a portfolio of proprietary molecules and other technology that has produced a number of promising biological therapeutic candidates. We spent $120.0 million in 1998, $109.3 million in 1997 and $96.6 million in 1996 on Immunex-sponsored research and development. These amounts include expenses related to third-party research collaborations and the acquisition of product rights from certain third parties. INVESTIGATIONAL PRODUCTS IN HUMAN CLINICAL TRIALS We are currently testing the following proprietary investigational biotechnology products in human clinical trials. We own worldwide rights to these products.
PRODUCT CLINICAL INDICATION DEVELOPMENT STATUS ------- ------------------- ------------------ - MOBIST(TM) (Flt3 ligand, or Peripheral blood stem cell Phase II Flt3-L), a cytokine that induces mobilization and transplantation, the proliferation of blood dendritic cell growth and progenitor cells and specialized mobilization, immunotherapy of immune cells (dendritic cells) cancer - NUVANCE(TM) (Interleukin-4 receptor, or IL-4R), a soluble Asthma Phase I/II receptor that binds to and neutralizes Interleukin-4 (IL-4) - CD40 Ligand (CD40-L), an immune B-cell lymphomas, solid tumors Phase I system molecule that plays a primary role in various immune processes and directly arrests the growth of certain tumors
MARKETED PRODUCTS IN HUMAN CLINICAL TRIALS FOR ADDITIONAL CLINICAL INDICATIONS Immunex recognizes that an efficient way to generate increased revenue is by adding new indications to a product that is already on the market. We have increased our focus on development activities to find potential new indications for our existing drugs. Our goal is to build pharmaceutical franchises and expand the commercial usefulness and revenue-producing ability of our key products. Our marketed products listed below have been or are being tested in clinical trials for the following potential additional clinical indications:
MARKETED PRODUCT ADDITIONAL CLINICAL INDICATION DEVELOPMENT STATUS ---------------- ------------------------------ ------------------ - ENBREL Juvenile rheumatoid arthritis (JRA) Supplemental biologics license application (SBLA) filed with FDA (November 1998) Disease modification of early RA Phase III Chronic heart failure (CHF) Phase II/III
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MARKETED PRODUCT ADDITIONAL CLINICAL INDICATION DEVELOPMENT STATUS ---------------- ------------------------------ ------------------ - LEUKINE Treatment of neutropenia resulting from Biologics license application chemotherapy in solid tumors (BLA) filed with FDA (March 1993) Treatment of patients infected with the human immunodeficiency virus (HIV), malignant melanoma, treatment of mucositis Phase III Anti-tumor adjuvancy, vaccine adjuvancy Phase II - NOVANTRONE Progressive multiple sclerosis (MS) Phase III NHL Phase II
PRECLINICAL RESEARCH AND DEVELOPMENT PIPELINE Innovation by our research and development operations is very important to the success of our business. Our goal is to discover, develop and bring to market innovative products that address major unmet health care needs. This goal has been supported by our substantial research and development investments. To get the most value from our molecular portfolio, we are focusing first on those product candidates with the largest market potential. Our most promising preclinical candidates are listed below.
MOLECULE POTENTIAL CLINICAL UTILITY STATUS -------- -------------------------- ------ - Interleukin-1 receptor Type II Anti-inflammatory, Pre-investigational new (IL-1R TYPE II) osteoporosis, stroke, myeloma drug application (IND) development - TNF related apoptosis inducing Anti-tumor Pre-IND development ligand (TRAIL) - Interleukin-15 (IL-15) Mucositis (side effect of Late preclinical chemotherapy from cancer) - TNF-alpha converting enzyme Anti-inflammatory Late preclinical; (TACE) antagonist collaboration with AHP - 4-1BB ligand (4-1BBL) Anti-tumor Late preclinical - ORK Anti-angiogenesis (cancer) Late preclinical - RANK Osteoporosis Early preclinical - p35 program Asthma, inflammation Early preclinical
CYTOKINE PRODUCTS Our biotechnology products are recombinant analogs of cytokines and cytokine receptors. Cytokines are protein messengers that coordinate the functions of immune cells (white blood cells) and certain other cells and tissues. Immune cells include the following: - granulocytes and macrophages, which are scavenger cells specialized for uptake and disposal of foreign particles or infectious agents, - B-cells, which produce antibodies to "flag" foreign particles or diseased cells for destruction, 4 - helper T-cells, which control and coordinate the function of other immune cells, and - dendritic cells, which take up and process protein antigens for presentation to T-cells and B-cells. We have developed recombinant cytokine products capable of expanding and activating these immune cell populations, all of which must interact to provide a normal immune response. We have also cloned and expressed genes encoding cytokine receptors. Using genetic engineering techniques, we have produced soluble versions of cytokine receptors, including fusions of soluble receptors with fragments of human antibodies, that have been shown to be capable of suppressing cytokine-induced responses by specifically binding to and inactivating their target cytokines. We have also cloned and expressed genes coding for certain enzymes that are involved in secretion of cytokines, intracellular signalling proteins involved in immune responses, and viral proteins that interact with human immune proteins. These enzymes, signalling proteins, and viral proteins are being investigated as targets for small molecule drug discovery or as protein therapeutics. LEUKINE (SARGRAMOSTIM, GM-CSF). As mentioned earlier, LEUKINE is the subject of regulatory filings and clinical trials intended to result in additional FDA-approved indications. These filings and trials are described below. Apart from our efforts to secure approval of LEUKINE in chemotherapy-induced neutropenia (CIN), a number of clinical trials were conducted in 1998 or are underway to investigate whether LEUKINE could be approved for other uses. These investigational uses include HIV infections, malignant melanoma, mucositis, anti-tumor adjuvancy and vaccine adjuvancy. - HIV INFECTIONS. We are conducting a clinical development program to study LEUKINE as a potential adjunctive AIDS therapy. In 1998, results of a Phase III randomized, placebo-controlled, blinded clinical trial indicated that patients who received LEUKINE in addition to either RETROVIR-Registered Trademark- (zidovudine) or in combination with another nucleoside analog, experienced reductions in viral load and increases in CD4+ cell counts. Viral load is an important marker used by physicians and patients to monitor HIV disease progression, and CD4+ cells help fight infections. CD4+ cells are progressively depleted by HIV disease. In this clinical trial, the most frequently reported adverse event was anemia, occurring at a similar rate in both the LEUKINE and placebo groups. RETROVIR is a trademark of GlaxoWellcome Inc. Results of an earlier small Phase I clinical trial reported in 1998 showed that LEUKINE was well tolerated and may have contributed to reductions in viral load and increases in CD4+ cell counts in a number of patients that received LEUKINE in combination with stable protease inhibitor regimens. In addition to the clinical trials for Leukine discussed above, we have completed a pivotal Phase III clinical trial studying the impact of LEUKINE on the incidence of opportunistic infections, survival, viral load, and CD4+ cell counts. Results of this Phase III clinical trial, which involved late-stage AIDS patients with CD4+ cell counts of less than 100, are expected in early 1999. - MALIGNANT MELANOMA. In 1997 we announced positive results of an open-label Phase II clinical trial of LEUKINE as an adjuvant therapy following surgery to remove tumors in patients with advanced melanoma who were at high risk for relapse or death. This trial demonstrated that using LEUKINE as a therapy following surgery increased the one-year survival rate of patients with advanced stages of malignant melanoma when compared to matched historical control patients. We are supporting a controlled Phase III trial of LEUKINE in this patient population with a cooperative oncology group. - CIN. In March 1993, we filed an amendment to our BLA for LEUKINE to obtain FDA approval for an additional label indication for prophylaxis of CIN. Since the 1993 filing, we have supplemented our original filing with additional data as it became available. In April 1995, the FDA Biological Response Modifiers Committee declined to recommend approval of LEUKINE for the CIN indication. However, we maintain our BLA amendment at the FDA, and we are continuing to seek approval of the CIN indication. Although we believe that this amendment to the BLA for LEUKINE is approvable, no assurances can be given regarding the duration or outcome of the FDA review process. - MUCOSITIS. Data from pilot clinical trials have indicated that LEUKINE may ameliorate chemotherapy/radiotherapy induced oral mucositis. We are initiating a controlled Phase III clinical trial of this potential indication with a cooperative oncology group. - ANTI-TUMOR ADJUVANCY. Besides the clinical trial of LEUKINE in malignant melanoma mentioned above, we are also supporting clinical trials conducted by a cooperative oncology group to study the potential of LEUKINE as an immune adjuvant therapy in breast cancer. 5 - VACCINE ADJUVANT. Clinical trials are also being conducted with various third parties to investigate the potential of LEUKINE as a vaccine adjuvant. MOBIST (FLT3-L). In 1993, we cloned cDNAs encoding Flt3-L, which is a ligand for the Flt3 receptor. Flt3-L binds to a receptor located on primitive hematopoietic cells, and has been shown to be capable of mobilizing PBPCs alone, and in combination with other cytokines such as LEUKINE or granulocyte-colony stimulating factor (G-CSF). In 1997, we completed Phase I safety trials of MOBIST as a PBPC mobilizer. The trials, which were conducted in healthy volunteers, showed that both single and multiple doses of MOBIST could be safely administered. The multiple-dose trial also showed that MOBIST increased the number of circulating PBPCs. Phase II trials of MOBIST, in conjunction with either LEUKINE or G-CSF, were begun in 1998 in patients with breast cancer or NHL. MOBIST may also be useful as an anti-tumor agent or vaccine adjuvant, as a result of its capacity to generate dendritic cells. In 1998, we also commenced Phase II trials of MOBIST as an anti-tumor agent in patients with prostate cancer or NHL, and in patients with malignant melanoma. Results of these clinical trials are expected in 1999. Clinical trials of MOBIST conducted to date have demonstrated that MOBIST was well tolerated and provided sustained increases in dendritic cell populations. We are evaluating the best approach to using this characteristic of MOBIST to facilitate immunotherapy of cancer or infectious diseases. CD40-L. We have also cloned cDNAs encoding a ligand for the cell surface receptor CD40. This ligand appears to be a required signal in the development of an antibody-based immune response and is required for the generation of cytotoxic T-cells. Thus, CD40-L may be useful as a vaccine adjuvant. In addition, soluble CD40-L has been shown to be useful in directly arresting the growth of certain B-cell lymphomas and epithelial cancers in laboratory experiments. In 1998 we commenced a Phase I trial of CD40-L in patients with B-cell NHL and solid tumors. The results of this clinical trial are expected in early 1999. If the results of this clinical trial are positive, in 1999 we intend to begin Phase II clinical trials of CD40-L. Our soluble CD40-L stops the growth of tumor cells in mice, as demonstrated by preclinical research conducted by investigators at Immunex, at the National Cancer Institute and elsewhere. In addition, in 1998 we reported preclinical data that showed that mice treated with a combination of MOBIST and CD40-L demonstrated a higher rate of tumor rejection than either molecule alone. Thus, it may be possible to develop combination cytokine therapies involving the use of MOBIST and CD40-L. It has also been shown that CD40-L induces chemokines and down modulates chemokine receptors on cells infected with HIV. Since HIV uses chemokine receptors to gain entry to these cells, CD40-L may have the potential to prevent HIV infection of new cells. INTERLEUKIN-2 (IL-2). IL-2 is a cytokine that controls the proliferation and activation of T-cells. It can both augment normal immune functions and help restore deficient immune responses. In 1983, we entered into license agreements with Hoffmann-La Roche, Inc. and its parent, F. Hoffmann La Roche & Company, Limited Company of Basel, Switzerland (ROCHE), under which we receive royalties on worldwide sales of IL-2 products by Roche and its sublicensees, including Chiron Corporation. Chiron's PROLEUKIN-Registered Trademarks- IL-2 is available in over 45 countries, and is approved in the U.S as a treatment for metastatic kidney cancer and metastatic melanoma, a form of skin cancer. Chiron is also studying the use of IL-2 to treat patients with HIV infection. PROLEUKIN is a trademark of Chiron. ADDITIONAL CYTOKINES AND OTHER NEW MOLECULES Our scientists have cloned genes encoding several additional cytokines and other new molecules that are now being characterized in preclinical studies. - TRAIL. We have cloned TRAIL, which induces apoptosis (cell death) of a number of tumor cell types. Recombinant TRAIL, either alone or in combination with chemotherapy, has been shown to be effective at reducing tumor growth and tumor incidence in animals. - IL-15. We have cloned and expressed cDNAs encoding a cytokine known as IL-15, a growth factor that shares certain biological activities with IL-2. In preclinical studies, IL-15 has been shown to protect intestinal epithelial cells in the mucosa from the harmful effects of chemotherapy or radiation. Other potential uses of IL-15 that have been suggested by preclinical studies include use as a treatment for HIV infection or as a treatment for muscle atrophy. We are currently evaluating our development strategy for IL-15, which may include licensing IL-15 rights to a collaborator or strategic alliance partner for continued development. 6 - 4-1BBL. Recombinant 4-1BBL is a stimulator of anti-tumor immune responses via its effects on T-cells. We produced this molecule and tested it in IN VIVO tumor models in 1998. Combination studies of 4-1BBL with MOBIST in tumor models suggest that these two cytokines have synergistic effects when used together. - ORK. We cloned the human receptor tyrosine kinase called ORK and have received a patent on the DNA encoding ORK in 1995. ORK is the receptor for the angiopoietins which stimulate the process of blood vessel development. We have constructed a soluble ORK molecule, which has been shown to prevent tumor angiogenesis (new blood vessel development) and retard tumor growth in experimental models of cancer. - RANK. Stimulation of the receptor named RANK results in development of osteoclasts which resorb bone. We are developing a soluble RANK receptor as an inhibitor of osteoclast development for osteoporosis. - P35 PROGRAM. p35 is a protein of viral origin that binds to chemokines (proteins involved in the inflammatory pathway). We are collaborating with ArQule, Inc. to develop a small molecule chemokine antagonist for use in various inflammatory conditions. See RESEARCH COLLABORATIONS, below. OTHER BIOLOGICAL PRODUCTS Several other novel cytokines are currently at earlier stages of IN VITRO assessment with third-party collaborators. We have cloned and expressed cDNAs for a family of molecules known as "ligands for eph-related protein kinases" (LERKS), and in 1995, we granted an exclusive, royalty-bearing worldwide license for neurobiology uses under our LERKS patent rights and technology to Genentech, Inc. In 1996, we entered into an agreement with Biogen, Inc. for development outside the U.S. of anti-CD40-L antibodies in the treatment of humans for all indications other than oncology. RECEPTOR PRODUCTS Cytokines act upon their target cells by binding to specific cell surface receptors. The binding of a cytokine to its receptor triggers a complex series of events within a responsive cell that transmits the cytokine's signal to that cell. This signal can stimulate cell division or production of antibodies, enzymes or other cytokines. In this way, circulating cytokines can control and coordinate the function of cells located throughout the body. Using genetic engineering techniques, our scientists have produced soluble versions of cytokine receptors. A soluble cytokine receptor retains the ability to bind to a specific cytokine, but lacks that portion of the natural receptor that is attached to a cell. This property enables the soluble cytokine receptor to circulate in the body after administration, where it can bind to and inactivate cytokines, preventing interaction of the cytokines with immune cells and thereby neutralizing the development of an autoimmune or inflammatory response. With our success in obtaining FDA approval of ENBREL, we believe that soluble cytokine receptors can be effective as therapeutics to counteract autoimmune or inflammatory diseases. We have developed a comprehensive array of cytokine receptor technologies, which has led to us obtaining proprietary rights relating to ENBREL (TNFR p80), NUVANCE (IL-4R), Interleukin-1 receptor Type I (IL-1R TYPE I), IL-1R Type II, Interleukin-7 receptor (IL-7R), G-CSF receptor (G-CSFR), IL-15 receptor, Interleukin-17 receptor and TRAIL receptors. ENBREL, a TNF receptor fusion protein, was approved by the FDA in November 1998, and we are conducting additional clinical trials of ENBREL as a treatment for early RA and CHF. We are also conducting clinical trials of NUVANCE as a therapy for asthma. We have decided to proceed with the development of a natural soluble form of IL-1R Type II as a potential treatment for inflammation, osteoporosis or other Interleukin-1 (IL-1) related diseases. We have also commenced a licensing program under our cytokine receptor patents to enable other companies to use our patented cytokine receptors in drug screening. Under this program, we granted a license to use G-CSFR for drug screening to one company in 1997 and to a second company in 1998. We are continuing license discussions with other companies also interested in using G-CSFR or our IL-1R receptors in drug screening. ENBREL. TNF is a cytokine produced by activated T-cells and macrophages in the course of severe immune reactions. TNF has been implicated in the pathogenesis of RA, sepsis, asthma, graft-versus-host disease, inflammatory bowel disease, insulin-dependent diabetes, CHF and numerous other clinical conditions. We have produced a soluble TNF receptor fusion protein (TNFR:FC) that combines two p80 TNF-binding domains derived from TNF receptor with a fragment of a human antibody molecule. Our trademark for TNFR:Fc, generically known as etanercept, is ENBREL. ENBREL exhibits a long serum half-life and has been shown to be capable of rapidly lowering serum TNF levels. 7 We have successfully developed ENBREL as a new, therapeutic breakthrough for RA based on TNF inhibition. In September 1997, we announced the results of our pivotal Phase III randomized, placebo-controlled, blinded clinical trial of ENBREL in advanced RA, a progressively crippling disorder. Positive and statistically significant results in favor of treatment with ENBREL were achieved for all primary and secondary clinical endpoints, the key measurements used to judge the drug's effectiveness. The drug was found to be generally safe and well tolerated. These data confirmed results previously reported from the similarly designed Phase II trial of ENBREL in advanced RA. In March 1998, we announced the results of a Phase III randomized, placebo-controlled, blinded clinical trial of ENBREL in combination with methotrexate versus methotrexate alone in patients with RA. The results demonstrated that RA patients treated with ENBREL in combination with methotrexate experienced a statistically significant decrease in disease activity and an increase in their functional ability when compared to methotrexate alone. In addition, the results indicated that the combination therapy of ENBREL and methotrexate was generally well tolerated, and that there was no significant difference in the rate of occurrence of side effects between the treatment groups in the trial. In March 1998, we announced that the FDA designated ENBREL as a "Fast Track Product" for the treatment of advanced RA patients. Under the FDA Modernization Act of 1997, Fast Track Product designation meant that the FDA would take appropriate actions to expedite the development and review of ENBREL. The designation of ENBREL as a Fast Track Product by the FDA initiated the application and review process for ENBREL. We submitted portions of our BLA for ENBREL to the FDA in March 1998, and completed the BLA submission with the FDA on May 7, 1998 to request a license to market ENBREL for treatment of patients with active RA. The FDA assigned "priority review" status to our BLA, and accepted the BLA for filing on June 22, 1998. On September 16, 1998, ENBREL was unanimously recommended for approval for the treatment of active RA by the FDA Arthritis Advisory Committee. The Advisory Committee recommended that ENBREL be approved for use alone in patients who have failed other DMARDs. In addition, the Advisory Committee recommended that ENBREL be approved for use in combination with methotrexate. On November 2, 1998, ENBREL was approved by the FDA. ENBREL is indicated for the reduction of signs and symptoms of moderately to severely active RA in patients who have had an inadequate response to one or more DMARDs. ENBREL can be used in combination with methotrexate in patients who do not respond adequately to methotrexate alone. The most frequently reported adverse events in studies with ENBREL were mild to moderate injection site reactions. However, the long-term effects of treatment with ENBREL on the development or course of serious infection, malignancy and autoimmune disease are unknown. In 1998, we announced that ENBREL was generally well tolerated by RA patients receiving long-term therapy in an open-label safety study of administration of ENBREL to patients that received the drug in the earlier Phase II clinical trial, with some patients having received the drug for up to two years. In early 1998, we completed a pharmacokinetic study with ENBREL demonstrating comparability of product manufactured at our Bothell, Washington mammalian cell-based protein manufacturing facility and product manufactured by our contract manufacturer, Boehringer Ingelheim Pharma KG (BI PHARMA). In November 1998, Immunex filed a new drug submission (NDS) for ENBREL for the treatment of active RA with the Canadian Health Protection Bureau (CHPB). We cannot be certain that the CHPB will approve this NDS. ENBREL is the subject of regulatory filings and clinical trials intended to result in additional FDA-approved indications. These filings and trials are described below. These investigational uses currently include JRA, disease modification of early RA, and CHF. In addition, a number of clinical trials are underway or will be conducted with third party investigators in 1999 to investigate the use of ENBREL in multiple other disease settings. - JRA. In 1998 we completed a clinical trial of ENBREL in patients with JRA, which began in 1997. The results were consistent with results already reported from clinical trials of ENBREL in patients with adult RA. The results indicated that children and teenagers suffering from JRA experienced less pain and swelling in their joints and decreased incidence of disease activity on ENBREL, compared with patients on placebo. JRA is an immune system disease that strikes before age 16. On November 25, 1998, we filed an SBLA with the FDA for ENBREL to treat children and teenagers (age 4-17) with moderately to severely active polyarticular course JRA. We cannot be certain that the FDA will approve this SBLA. 8 - DISEASE MODIFICATION OF EARLY RA. In early 1999 we intend to announce the results of a large Phase III randomized, placebo-controlled, blinded clinical trial of ENBREL in earlier-stage methotrexate-naive RA patients. This Phase III clinical trial is aimed at documenting the ability of ENBREL to slow the progression of joint damage in RA disease over a year of treatment. If the results of this clinical trial are positive, in 1999 we intend to file an SBLA with the FDA for ENBREL for this additional indication. - CHF. In November 1997, results were announced of a small Phase I clinical trial of ENBREL in patients with CHF. The results indicated that a single dose of ENBREL reduced circulating levels of TNF and improved certain clinical parameters. A Phase I randomized, placebo-controlled, blinded, multiple-dose clinical trial of ENBREL in patients with CHF has been completed, and based upon the results announced in March 1998, two large Phase II/III randomized, placebo-controlled, blinded clinical trials of ENBREL will be commenced in early 1999 in patients with CHF. One of these Phase II/III clinical trials will be conducted in the U.S., and the other Phase II/III clinical trial will be conducted in Europe and Australia by AHP, our collaborator in the development of ENBREL. NUVANCE (IL-4R). IL-4 is a cytokine that promotes production of specific types of antibodies, including the IgE antibody involved in allergic and asthmatic reactions. NUVANCE, which is a soluble IL-4R, has been shown to inhibit IL-4-dependent immune responses in animal models. NUVANCE is our trademark for IL-4R. Based on these preclinical studies, and on the results of certain clinical trials with NUVANCE, we believe that soluble IL-4R may be effective in the treatment of asthma and we intend to devote significant resources to developing NUVANCE for this disease. In February 1997, we announced the results of a Phase I clinical trial of NUVANCE in mild asthmatic patients. This dose-escalating trial, which involved a single dose of NUVANCE by inhalation of a nebulized, water-based formulation, showed that the product was well tolerated at the doses tested. During the course of the trial, patients reported reduced use of steroids and a decrease in asthma symptoms. In 1997, we repeated this Phase I trial of NUVANCE in moderate asthmatic patients, adding a placebo-control group, and similar results were obtained in 1998. We are continuing our clinical development of NUVANCE in Phase I/II clinical trials in moderate asthmatics. In early 1999 we completed a Phase I/II repeat dose clinical trial to evaluate primarily the safety of nebulized NUVANCE in adult patients with moderate asthma. Efficacy parameters were also evaluated in this clinical trial. Based on the results of this first multi-dose clinical trial of NUVANCE, Immunex has decided to expedite the clinical development of NUVANCE. In this Phase I/II clinical trial, NUVANCE was well-tolerated for up to 12 weeks of once weekly treatment, and there were no serious adverse events related to the drug. The first Phase II clinical trial of NUVANCE is anticipated to start in the second quarter of 1999 and will evaluate the safety and efficacy of NUVANCE for the long-term control of asthma. In this Phase II clinical trial, we plan to deliver NUVANCE as an aerosol by a proprietary pulmonary (inhalation into the lungs) drug delivery system owned by a third-party collaborator. In early 1999 we also intend to complete a Phase I safety and pharmacokinetic study of intravenous, subcutaneous and nebulized NUVANCE. IL-1R TYPE II. IL-1 alpha and IL-1 beta bind to cell surface receptors of two types: Type I and Type II. Overproduction or inappropriate production of IL-1 has been implicated in the development of autoimmune, inflammatory and allergic diseases such as diabetes, asthma, systemic lupus erythematosus and inflammatory bowel disease, and also in the development of osteoporosis, RA, septic shock, stroke and periodontal disease. We have produced genetically engineered soluble IL-1 receptors of two types, designated Type I and Type II, and have conducted clinical trials of IL-1R Type I. Recent studies indicate that IL-1R Type II is superior to IL-1R Type I as an antagonist of IL-1, and we are currently focused on preclinical testing of IL-1R Type II. Based upon this data, we believe that IL-1R Type II may be of therapeutic value in the treatment of a number of inflammatory diseases such as those mentioned above, either alone or in combination with ENBREL. In late 1998 we designated IL-1R Type II as a pre-development molecule, and in 1999 we intend to begin process scale-up to produce IL-1R Type II for future toxicology studies. 9 RESEARCH COLLABORATIONS There is a race in the biotechnology industry to discover and develop novel therapeutics, in part by utilizing the rapidly accumulating knowledge concerning the human genome. Several biotechnology companies have accumulated significant genetic information from large-scale genomic DNA sequencing. Much of this data is expected to be incorporated into patent applications by these companies. The impact of such patent application activity upon our future gene discovery efforts is currently unknown. We have entered into a number of important research collaborations, using varied technology platforms, in an effort to provide us with a competitive edge in our continuing efforts to identify new drug candidates. A summary of these research collaborations is set forth below. DIGITAL GENE TECHNOLOGIES. In December 1997 we announced a genomics research collaboration with Digital Gene Technologies, Inc. (DGT) using DGT's patented total gene expression analysis (TOGA(TM)) platform to discover novel approaches to the diagnosis and treatment of inflammatory diseases of the gastrointestinal (GI) system, including inflammatory bowel disease. TOGA is a method of identifying and determining the concentration of nearly all of the genes active in a sample cell or tissue. This program significantly enhances our discovery research programs in the field of GI biology. TOGA allows us to link our biological models to an important new technology that may provide us with new molecules to develop as therapeutics or as targets for small molecule discovery. For exclusivity in the field of GI inflammation, we have paid an up-front fee to DGT, with additional fees due over the course of the five-year agreement. In addition, we will pay DGT for assay processing and identification of new molecules. For each molecule successfully developed in the U.S. and Europe, we have agreed to pay DGT certain clinical milestone payments, plus a royalty on worldwide sales of such molecule. In July 1998 we announced that we had obtained an experimentation license for the first molecule resulting from this collaboration. GENETICS INSTITUTE. In April 1998, we became a participant in Genetics Institute's DiscoverEase-Registered Trademark- program with a goal of faster identification of immune system proteins that may have therapeutic value. Genetics Institute (also referred to as GI) is a wholly owned subsidiary of AHP. As a participant in this program, we have access to the DiscoverEase protein library, which is a collection of proprietary novel, human, secreted proteins, the corresponding genes, and a relational database of associated information. As mediators of key biological processes, secreted proteins represent a valuable source of therapeutic candidates, targets for small molecule drug development, and disease markers useful for the development of diagnostic tests. We intend to analyze the proteins using our repertoire of biological assays and bioinformatics expertise to identify proteins having immune system function and potential therapeutic value. The DiscoverEase business structure provides for low up-front fees to allow us to conduct broad laboratory and preclinical research on the library genes and proteins, and downstream fees that are based on the successful development and commercialization of therapeutic candidates. GI retains the rights, at the time of filing an IND, to co-develop and co-commercialize a protein therapeutic. Immunex has not yet licensed any candidates identified in the DiscoverEase program. ARQULE. In March 1998, we entered into a collaboration with ArQule, Inc. to discover and develop new products for the treatment of inflammatory diseases. The collaboration provides us with access to ArQule's Mapping Array(TM) program to identify small molecule therapeutics, based on a new chemokine gene discovered by us known as p35. ArQule's Mapping Array program is comprised of libraries of novel, diverse, small organic, pure compounds used for screening against biological targets in new product discovery. ArQule is using proprietary assays from us that utilize a novel inhibitor of multiple chemokines to identify compounds with biological activity from ArQule's Mapping Array program. The data provided by this program is expected to speed the identification of specific active drug leads. Once active leads are identified, we will elect whether to continue preclinical development with ArQule, or to license the active leads on an exclusive basis, in exchange for milestone and royalty payments to ArQule for successful clinical and commercial development. Chemokines control the attraction of white blood cells to tissues, a process essential for inflammation and host responses to infection. An efficient inhibitor of chemokines could have potential as a therapeutic in a wide variety of diseases, such as asthma, acute respiratory distress syndrome, arthritis, atherosclerosis, inflammatory bowel disease and psoriasis. MEDAREX. In January 1999 we entered into a licensing agreement with Medarex, Inc. involving Medarex's HuMAb-Mouse(TM) technology. Under this agreement, we obtained the rights to use the HuMAb-Mouse technology for an unlimited number of targets for up to 10 years. We will pay Medarex technology access fees, and Medarex could receive research payments, license fees and milestone payments, as well as royalties on commercial sales. The HuMAb-Mouse technology is a transgenic mouse system that creates high affinity, fully human antibodies instead of mouse antibodies. Using standard, well proven laboratory techniques, scientists can produce these antibodies in a matter of months. Incorporating the HuMAb-Mouse technology into our broad drug discovery program is expected to significantly enhance our continuing efforts to identify new drug candidates. The ability to generate human antibodies against our proprietary antigens will permit us to develop potential therapeutics without the risks associated with non-human antibodies. 10 GENESIS. Since 1994 we have collaborated with Genesis Research and Development Corporation Limited, a New Zealand company. Genesis has sequenced cDNA libraries for specialized cell types to create a proprietary DNA database for Immunex. We are testing several genes identified by Genesis. NON-BIOLOGICAL ONCOLOGY PRODUCTS BACKGROUND. As a result of the merger in 1993 (the 1993 MERGER) of the predecessor to the current Immunex Corporation and Lederle Oncology Corporation, a subsidiary of Cyanamid created for the purpose of merging Cyanamid's Lederle Laboratories oncology business in North America with our biopharmaceutical business, we acquired certain intellectual property rights, including marketing rights, in North America relating to certain non-biological oncology products, including the following products that we currently market in the U.S.: NOVANTRONE (mitoxantrone for injection concentrate), leucovorin calcium, THIOPLEX (thiotepa for injection), Amicar (aminocaproic acid) and methotrexate sodium injectable. See MARKETED PRODUCTS, above. As part of the 1993 Merger, we also acquired rights to certain other non-biological oncology products that have been either discontinued, sold or returned to AHP. The rights that we acquired as a result of the 1993 Merger include patents, know-how, trademarks, clinical and other supporting data, registrations and approvals from the FDA. Cyanamid also transferred to us its U.S. oncology marketing and sales force, but did not transfer to us any manufacturing facilities, research assets, other tangible assets or other personnel. We entered into a number of agreements with Cyanamid and its subsidiaries at the time of the 1993 Merger relating to these products. See RELATIONSHIP WITH AHP AND CYANAMID, below. NOVANTRONE. In addition to its current FDA-approved indications discussed above, NOVANTRONE is the subject of clinical trials intended to provide data to support an additional FDA-approved indication for progressive multiple sclerosis (MS), as discussed below. Other clinical trials are being conducted by third parties with NOVANTRONE to investigate its potential in NHL. - PROGRESSIVE MS. NOVANTRONE has been tested in two European clinical trials in patients with MS. In 1997, it was reported that data from the smaller European Phase II clinical trial was positive. In 1998, we reported that in preliminary results of the second European trial, which was a larger Phase III clinical trial, NOVANTRONE had a statistically significant impact on relapse rate and disability progression in patients with progressive MS. Magnetic resonance imaging (MRI) data were also reported that supported these clinical findings. In this Phase III clinical trial, NOVANTRONE was administered by short, intravenous infusion once every three months. Other treatments currently approved for MS require a subcutaneous or intramuscular self-injection on a daily or weekly basis. In 1999 we intend to file an SNDA with the FDA to expand the use of NOVANTRONE for the treatment of patients with progressive MS. We cannot be certain that the data from these clinical trials will be deemed sufficient by the FDA to demonstrate the efficacy of NOVANTRONE in this patient population. Further, we cannot be certain that the FDA will approve this SNDA for NOVANTRONE. PACLITAXEL. Paclitaxel is a chemotherapeutic agent that is used in treatment of various cancers. Bristol-Myers Squibb Company (BMS) currently markets paclitaxel for treatment of metastatic breast and ovarian cancers in North America under the trademark TAXOL-Registered Trademark-. BMS's marketing exclusivity for paclitaxel in the U.S. under the Drug Price Competition and Patent Term Restoration Act of 1984 (Waxman-Hatch Legislation) expired December 29, 1997. We submitted an abbreviated new drug application (ANDA) to the FDA for generic Paclitaxel Injection on August 8, 1997, which was accepted for review by the FDA on October 7, 1997. Our ANDA contains a certification by Immunex, known as a "Paragraph IV" certification, that U.S. Patents 5,641,803 and 5,670,537 held by BMS and relating to methods of using TAXOL in the treatment of cancer patients are invalid and not infringed by the filing of our paclitaxel ANDA. On January 8, 1998, BMS filed a complaint in the U.S. District Court in Newark, New Jersey, alleging infringement by Immunex of these two U.S. patents pertaining to TAXOL. We had anticipated the legal action by BMS, and because of BMS's legal action, the FDA will withhold approval of our ANDA until the earlier of June 2000, which is approximately seven and one-half years after the original approval of TAXOL, or until a court enters a final judgment finding the BMS patents invalid, unenforceable or not infringed. In June 1998, we announced a collaboration with Baker Norton Pharmaceuticals, a wholly owned subsidiary of IVAX Corporation, to market paclitaxel products in the U.S., subject to FDA approval. Baker Norton agreed to buy our paclitaxel ANDA that was filed with the FDA, as well as our paclitaxel inventory, in exchange for $6.9 million. The FDA has confirmed that Immunex's ANDA is the first filed with the FDA for a generic paclitaxel product. If Immunex and Baker Norton prevail in the pending patent litigation with BMS, and the FDA approves this ANDA, the paclitaxel injection product that is covered by this ANDA would be entitled to 180 days of shared market exclusivity with TAXOL prior to the entry of any other generic paclitaxel products. The FDA is expected to continue its review of this ANDA during the litigation. However, there can be no assurance that our new collaboration with Baker Norton will be successful or that this generic paclitaxel 11 product will be granted co-exclusivity, that the FDA will approve our ANDA, or that BMS will not obtain or enforce additional patents relating to TAXOL. If a paclitaxel injection product based on our ANDA is marketed in the U.S., Baker Norton will pay us royalties based on net sales of this generic paclitaxel injection product. Also, at Baker Norton's request, we will help them promote this generic paclitaxel injection product using our oncology sales force. Baker Norton has agreed to pay us additional fees for these promotional efforts. Both Immunex and Baker Norton have filed ANDAs requesting FDA approval of generic paclitaxel products and have certified in these ANDA applications that certain use patents held by BMS relating to TAXOL are invalid or not infringed by the products covered by these ANDAs. BMS has challenged this certification, filing lawsuits for infringement of its patents. Baker Norton has also filed a counterclaim against BMS to invalidate its patents, and has also asserted claims against BMS for violation of federal anti-trust laws and unfair competition. Baker Norton, as part of our collaboration, will direct the defense of both lawsuits, and we will reimburse Baker Norton for a percentage of its paclitaxel patent litigation expenses relating to these ANDA applications. Baker Norton also filed an NDA with the FDA for PAXENE-Registered Trademark-, its branded form of paclitaxel, for use in the treatment of Kaposi's sarcoma. Baker Norton appointed us to promote PAXENE in the U.S. if the FDA approves that product. We will earn fees based on all sales of PAXENE in the U.S. during the time that we promote PAXENE. RELATIONSHIP WITH AHP AND CYANAMID 1993 MERGER As a result of the 1993 Merger discussed earlier, Cyanamid currently owns approximately 54.1% of our outstanding common stock. In late 1994, AHP purchased all of the common stock of Cyanamid. Thus, AHP owns Cyanamid's interest in our common stock. Before AHP's purchase of Cyanamid, we entered into an agreement with AHP under which AHP agreed to protect our rights under our agreements with Cyanamid and be bound by Cyanamid's obligations under these agreements. As discussed below, AHP or various divisions or affiliates of AHP, including Wyeth-Ayerst Research, Wyeth-Ayerst Laboratories and Wyeth-Ayerst International, Inc., have assumed some of the rights and obligations of Cyanamid under the various agreements that we entered into with Cyanamid at or after the time of the 1993 Merger. In the following discussion, AHP refers to AHP, or its various divisions or affiliates, including Cyanamid. GOVERNANCE AGREEMENT At the same time that we entered into the 1993 Merger, we entered into an Amended and Restated Governance Agreement (GOVERNANCE AGREEMENT) with Cyanamid. AHP assumed the rights and obligations of Cyanamid under the Governance Agreement, which includes, among other matters, certain agreements relating to the following: - the corporate governance of Immunex, including the composition of our Board of Directors (BOARD), - rights of AHP to purchase additional shares of our stock from Immunex if certain events occur, - future purchases and sales of our stock by AHP, - the right of members of our Board designated by AHP to approve certain of our corporate actions, - the requirement that a supermajority of the members of our Board approve certain of our corporate actions, and - payments to be made by AHP to us in the event that the products acquired under the 1993 Merger and certain of our other products did not achieve net sales targets. We received a total of $204.5 million under this provision of the Governance Agreement, which expired on December 31, 1997. AHP made its final payment to us under this provision, in the amount of $60.0 million, in February 1998. AHP had been subject to certain standstill restrictions included in the Governance Agreement that prevented AHP from purchasing additional shares of our stock except under certain circumstances. These restrictions on AHP expired on June 1, 1998. The practical effect of the lapse of these restrictions is to make us more susceptible to an unsolicited tender offer by AHP for the shares of our stock that AHP does not currently own. 12 AHP is still prohibited from transferring shares of our stock except under an underwritten public offering, or as permitted by the volume and manner of sale limitations of Rule 144 under the Securities Act of 1933, as amended, or to a wholly owned AHP subsidiary. Also, except under an underwritten public offering, AHP may not transfer an amount in excess of 1% of the outstanding shares of our stock on any given day, nor may any AHP transfer result in the creation of a 5% shareholder of our stock. AHP may, however, transfer all, but not less than all, of its shares of our stock provided that the purchaser has offered to purchase all outstanding shares of our stock on the same terms, and also provided that we have first been notified and allowed three months to find an alternative purchaser. These restrictions on transfer of our stock continue beyond June 1, 1998. 1993 MERGER RELATED AGREEMENTS At the time of the 1993 Merger, Cyanamid, Immunex and certain of their respective subsidiaries entered into certain related agreements, some of which have been amended and which are now superseded. Immunex and AHP are parties to numerous agreements that AHP assumed from Cyanamid or that Immunex entered into directly with AHP. One of these agreements was a Research and Development Agreement, which was replaced in July 1996 by a new Research Agreement (the 1996 RESEARCH AGREEMENT) among Immunex, Cyanamid and AHP. The 1996 Research Agreement and another related agreement together provided for the commercialization of new oncology products by Immunex in North America, and by AHP elsewhere. Under the 1996 Research Agreement, we were obligated to contribute up to 50% of AHP's oncology discovery research expenditures, up to a maximum amount of $16.0 million per year (adjusted annually for inflation beginning in 1997) and we had the option to elect which oncology products we would continue to support beyond the discovery stage. To the extent we developed products or technology other than new oncology products and determined not to market such products or technology by ourselves, we agreed to offer AHP exclusive marketing rights to any such products or technology before offering any marketing rights to third parties. The 1996 Research Agreement was replaced in July 1998 with a new Product Rights Agreement that we entered into with AHP and Cyanamid, as discussed below. Other agreements entered into as part of the 1993 Merger provide for, among other matters, the supply and toll manufacture by Cyanamid or its subsidiaries for Immunex of the non-biological oncology products referred to earlier, and various other implementing licenses and distribution agreements. These agreements, in particular the Governance Agreement, together with the new Product Rights Agreement, establish the framework for the ongoing relationship between Immunex and AHP. TACE AGREEMENTS In December 1995, we entered into certain research and license agreements with AHP under which we granted AHP exclusive worldwide rights to develop compounds that inhibit an enzyme known as TACE. TACE is involved in the processing of cell-bound TNF to provide circulating TNF. There is evidence that inhibiting this enzyme may be beneficial in treating inflammatory diseases and conditions such as RA. Under the agreements, AHP will screen compounds using recombinant TACE provided by Immunex. We will receive license fees, research payments, commercial development milestone payments and royalties on any compounds that are commercialized by AHP. In September 1997, in conjunction with the ENBREL Promotion Agreement with AHP discussed below, the parties amended one of the TACE agreements in order to substantially increase the royalty payable by AHP to us on the first TACE molecule approved by the FDA, if any. TNFR LICENSE AND DEVELOPMENT AGREEMENT In July 1996, we entered into a TNFR License and Development Agreement with AHP (TNFR AGREEMENT), under which we retained North American marketing rights to ENBREL, and AHP retained marketing rights to ENBREL outside of North America. The TNFR Agreement also addresses joint project management, cost sharing for development activities related to ENBREL, manufacturing responsibilities, intellectual property protection and other pertinent terms. Previously, AHP's rights in ENBREL had been stated in the 1993 Research and Development Agreement between Immunex and Cyanamid, which has been superseded. Under the TNFR Agreement, we have agreed with AHP to negotiate the terms of a supply agreement for the commercial supply of ENBREL to AHP outside North America. In November 1998, Immunex and AHP entered into an ENBREL Supply Agreement with BI Pharma for the commercial supply of ENBREL to Immunex in North America and to AHP outside of North America. See RAW MATERIALS AND SUPPLY, below. We are negotiating a related supply agreement with AHP for certain services that we will perform for AHP relating to the supply of ENBREL by BI Pharma outside North America. 13 ENBREL PROMOTION AGREEMENT In September 1997, we entered into an ENBREL Promotion Agreement with AHP, under which AHP, acting through its Wyeth-Ayerst Laboratories division, has the rights to promote ENBREL to all appropriate customer segments in North America for all approved indications other than oncology. We have reserved the right to promote ENBREL in North America for any approved oncology indications. Under the terms of this long-term Promotion Agreement, AHP may pay Immunex up to $100.0 million in nonrefundable scheduled payments for the North American promotion rights to ENBREL. We have already received $65.0 million of these scheduled payments, as follows: - $15.0 million upon signing of the ENBREL Promotion Agreement, which was earned in September 1997, - $20.0 million when our BLA for ENBREL for advanced RA was accepted for review by the FDA, which was earned in June 1998, and - $30.0 million upon FDA approval of ENBREL, which was earned in November 1998. AHP may pay us an additional $35.0 million in scheduled payments under the ENBREL Promotion Agreement as follows: - $15.0 million if and when a disease modification claim for ENBREL is obtained from the FDA, - $10.0 million on first achieving $200.0 million in net sales for ENBREL in North America in any rolling 12-month period, and - $10.0 million on first achieving $400.0 million in net sales for ENBREL in North America in any rolling 12-month period. We cannot be certain of the likelihood or timing of receiving any of these final three scheduled payments. Under the ENBREL Promotion Agreement, AHP has agreed to reimburse us for more than a majority of the clinical and regulatory expenses made by or on behalf of us in connection with the filing and approval of any new indications for ENBREL in North America, excluding oncology and RA indications. AHP's reimbursement of such clinical and regulatory expenses under the ENBREL Promotion Agreement is in addition to the existing cost-sharing arrangement between the parties for certain development costs related to ENBREL as set forth in the TNFR Agreement. The additional AHP reimbursement for clinical and regulatory expenses under the ENBREL Promotion Agreement, a portion of which is payable upon regulatory filing of any such new indication and the remainder of which is payable upon regulatory approval of any such new indication, if any, applies for that part of the North American clinical and regulatory expenses for ENBREL for which we are otherwise financially responsible under the cost sharing provisions in the TNFR Agreement. AHP has also agreed to reimburse us under the ENBREL Promotion Agreement for less than a majority of certain patent expenses related to ENBREL, including any up-front license fees and milestones, as well as patent litigation and interference expenses. In addition, AHP has agreed to pay substantially more than a majority of the commercial expenses (meaning marketing expenses and sales force costs) for ENBREL incurred prior to any commercial launch of ENBREL in North America, and to pay a declining but still majority percentage of the commercial expenses incurred during the two years following any commercial launch of ENBREL in North America. Thereafter, we will share such commercial expenses in North America with AHP on an equal basis. Under the ENBREL Promotion Agreement, we may elect at any time to supplement AHP's detailing (meaning visiting and communicating with physicians by AHP's sales representatives to increase physician prescribing preferences for ENBREL) and promotion of ENBREL in the U.S. with our own sales force to detail ENBREL for any approved indications promoted by AHP. We have the same right in Canada if ENBREL is approved there. We will pay the majority of our sales force costs for two years beginning on the date, if any, our sales force begins detailing ENBREL, and we will share our sales force costs with AHP on an equal basis thereafter. 14 We record any and all product sales of ENBREL in North America under the ENBREL Promotion Agreement. We will pay AHP a percentage of any and all annual gross profits of ENBREL in North America attributable to all indications for ENBREL other than oncology indications on a scale that increases as gross profits increase. We will retain a majority percentage of these gross profits in North America on an annual basis. Also, we will pay AHP certain residual royalties on a declining scale based on any and all net sales of ENBREL in North America in the three years following the expiration or termination of AHP's detailing and promotion of ENBREL. We do not receive either royalties or a share of gross profits from sales of ENBREL outside of North America, since AHP owns rights to ENBREL outside of North America. If AHP sells or distributes a biologic product in North America that is directly competitive with Enbrel, as defined in the ENBREL Promotion Agreement, and subject to certain exclusions, AHP will give us prior written notice and, upon our request, we will attempt in good faith to either establish mutually acceptable terms with AHP under which we will co-promote this competitive biologic product (or other terms for a commercial relationship) with AHP, or negotiate an adjustment to the gross profits allocated to AHP under the ENBREL Promotion Agreement. If we are unable to establish such terms with AHP within 90 days of our request, we may at our option reacquire from AHP all marketing rights to ENBREL in North America and terminate the ENBREL Promotion Agreement, subject to our payment of certain amounts to AHP. If AHP obtains a biologic product that is directly competitive with ENBREL through the acquisition of another company and we reacquire the marketing rights to Enbrel in North America, AHP's primary field sales force that had detailed ENBREL in the relevant territory within North America for a specified period may not sell, detail or otherwise distribute the competitive biologic product for a specified period in North America. The ENBREL Promotion Agreement required the parties to form the ENBREL Management Committee, which is composed of an equal number of representatives from Immunex and from AHP. The ENBREL Management Committee has responsibility for such areas as strategic planning, approval of an annual marketing plan and product pricing. PRODUCT RIGHTS AGREEMENT Immunex, AHP and Cyanamid entered into a Product Rights Agreement dated July 1, 1998 under which several prior agreements among the parties were terminated and under which we granted AHP an option to obtain exclusive, royalty-bearing worldwide licenses to certain of our products for all clinical indications (PRODUCT CALLS). The Product Rights Agreement terminated all provisions of our 1996 Research Agreement with AHP and Cyanamid, except for certain rights of first refusal held by AHP. As a result, our $16.0 million (adjusted annually for inflation) annual oncology research payment obligation to AHP under the 1996 Research Agreement is canceled. We completed our payment obligations to AHP under the 1996 Research Agreement by the payment of $8.2 million in 1998. In addition, our exclusive North American rights to certain oncology products resulting from AHP research and development, and AHP's exclusive rights outside North America to certain oncology products resulting from our research and development, are both terminated. Under the Product Rights Agreement, AHP keeps certain rights of first refusal which had been included in the 1996 Research Agreement. AHP may exercise these rights of first refusal if our Board decides that Immunex will not market a product or technology by itself in any part of the world where Immunex has or acquires marketing rights. AHP's right of first refusal applies to our products and technologies in all fields, including NUVANCE, but the right of first refusal does not apply to LEUKINE, MOBIST, CD40-L, IL-15, and certain other Immunex products. The Product Rights Agreement provides AHP with a Product Call for up to four Immunex products over a period discussed below. The Product Rights Agreement also provides that AHP must exercise a Product Call for an Immunex product within certain time periods, or else it will lose the right to use a Product Call on that Immunex product. Certain Immunex products are excluded from AHP's Product Calls, including ENBREL, NUVANCE, LEUKINE, MOBIST, CD40-L, IL-15, any product marketed by Immunex as of July 1, 1998, and certain other products. If AHP exercises a Product Call for an Immunex product, AHP and Immunex will enter into an ELECTED PRODUCT AGREEMENT granting AHP exclusive worldwide rights (or if less than exclusive worldwide rights are held by us, all of our rights) to this Immunex product for all indications. Under the Elected Product Agreement, AHP will pay us an initial fee, milestone payments and royalties on any future worldwide net sales of this Immunex product after regulatory approvals. The initial fee, milestone payments and royalties are determined by the development stage of the product when AHP exercises the Product Call. In total, the initial fees and milestone payments range from $25.0 million if we have given the product IND status, up to $70.0 million if we have given notice to AHP that data from the first positive Phase II clinical trial results are available for the product. The royalties AHP pays to us increase based on the development stage of the product and based upon the product attaining certain annual net sales thresholds. 15 Under the Product Rights Agreement, we have the right to keep ownership to up to two of our products for which AHP has exercised Product Calls (CONVERSION RIGHT) in exchange for our commitment to pay certain milestone payments and royalties to AHP and, in the case of the second Conversion Right only, an initial fee. Our milestone payments to AHP are fixed at one-half the amount AHP would otherwise pay us for a Product Call, and our royalties payable to AHP are always fixed at the lowest of the four levels of royalties that AHP would otherwise pay us after exercising a Product Call. If we exercise one of our Conversion Rights for an Immunex product, which must be exercised within 30 days after AHP exercises one of its Product Calls, we will enter into a CONVERTED PRODUCT AGREEMENT with AHP for the product that will provide for Immunex payments to AHP as discussed above, unless AHP has exercised its option to obtain a replacement Product Call (as discussed below). We may not exercise our Conversion Rights on both of the first two Product Calls exercised by AHP. If we exercise a Conversion Right, AHP may within 30 days elect to obtain one replacement Product Call from Immunex. If AHP makes this election, AHP waives its right to receive an initial fee (if applicable), milestone payments and royalties from us on this converted product. If either party exercises its rights under the Product Rights Agreement and acquires or retains rights to an Immunex product, the company that exercised these rights assumes independent development responsibility for that product, including the payment of all costs for future product development. The Product Rights Agreement also terminates certain prior agreements between Immunex and Cyanamid. Under one of those terminated agreements, we had granted to Cyanamid exclusive ownership rights outside North America to certain oncology products resulting from our research and development efforts. As a result of the termination, the applicable oncology product rights outside North America previously granted to Cyanamid have been returned to Immunex in exchange for royalty payments from Immunex to AHP on future sales of LEUKINE, MOBIST, and IL-15 outside North America. These products are not currently approved or sold outside North America. The Product Rights Agreement also terminated the agreement between Immunex and AHP for the development of MOBIST, under which we granted AHP exclusive rights to MOBIST outside North America and AHP committed to paying us a royalty equal to five percent of the net sales of MOBIST outside North America. AHP's rights to exercise Product Calls under the Product Rights Agreement terminate upon the first to occur of the following events: - AHP has exercised Product Calls and entered into Elected Product Agreements for four of our products, subject to our two Conversion Rights and AHP's replacement Product Call, - June 30, 2008, with an additional year if we exercise both of our Conversion Rights, or - upon the later of June 30, 2003 or the date by which AHP has been given a total of eight opportunities to exercise a Product Call, except that this number increases to nine opportunities in certain circumstances. AHP's rights of first refusal to our products and technologies terminate upon the later of - June 30, 2003 or - the date that AHP or its affiliates no longer own a majority of our stock. RELATIONSHIP WITH HOECHST AG Under a 1984 research and license agreement that has been amended periodically, Immunex and Hoechst AG, through its former subsidiary Behringwerke AG, conducted collaborative research in the field of colony stimulating factors (CSFs). Behringwerke has been assimilated into Hoechst and its separate corporate existence ceased in 1997. Under the agreement, we granted exclusive worldwide license rights to Behringwerke to develop, manufacture and market CSF products in consideration for technology transfer payments, research support payments, and royalties on sales of licensed products. Immunex and Behringwerke, together with Behringwerke's U.S. affiliate, Hoechst-Roussel Pharmaceuticals, Inc. (now named Hoechst Marion Roussel Inc.) collaborated in the clinical development of GM-CSF (sargramostim) in the U.S. As a consequence of agreements with Behringwerke and Hoechst that were completed in 1989, 1993 and 1994, we reacquired worldwide rights to LEUKINE GM-CSF and all related technologies in consideration of cash payments, licenses and technology transfers relating to our soluble cytokine receptors, and royalties on sales of LEUKINE. In 1992 we reacquired Behringwerke's worldwide rights to TNFR, and we subsequently licensed rights to TNFR outside North America to AHP as part of the 1993 Merger. In April 1998 we reacquired Hoechst Marion Roussel's rights outside North America to our soluble receptors IL-4R, IL-1R Type I, IL-1R Type II and IL-7R, and as a result of these transactions, we have agreed to pay Hoechst Marion Roussel royalties on worldwide sales of products based on TNFR (including ENBREL), IL-4R (including Nuvance), IL-1R Type I, IL-1R Type II or IL-7R. 16 MARKETING AND DISTRIBUTION GENERALLY Through our marketing and professional services organization, we explain the approved uses and advantages of our products to medical professionals in the U.S. We work to gain access to managed care organization formularies (lists of recommended or approved medicines and other products compiled by pharmacists and physicians) by demonstrating the qualities and treatment benefits of our products. AHP's marketing organization, working together with us, performs similar activities for ENBREL. Marketing of prescription pharmaceuticals depends to a degree on complex decisions about the scope of clinical trials made years before product approval. All drugs must complete clinical trials required by regulatory authorities to show they are safe and effective for treating one or more particular medical problems. A manufacturer may choose, however, to undertake additional studies to demonstrate additional advantages of a product, such as a better safety profile or greater cost effectiveness than existing therapies. Those studies can be costly, the results are uncertain, and they can take years to complete. Balancing these considerations makes it difficult to decide whether and when to undertake such additional studies. When these studies are successful, they can have a major impact on approved claims and marketing strategies. ENBREL Under the ENBREL Promotion Agreement, the Wyeth-Ayerst Laboratories division of AHP currently markets ENBREL to appropriate customer segments in the U.S. for the FDA approved indications for ENBREL. These customer segments include health care providers such as doctors and hospitals, pharmacy benefit managers and managed care organizations. We also have the right to supplement AHP's detailing of ENBREL in the U.S. with our own sales force for certain customer segments. See RELATIONSHIP WITH AHP AND CYANAMID, above. Several hundred AHP sales representatives currently detail ENBREL in the U.S. In addition to AHP's and Immunex's coordinated marketing efforts for ENBREL in the U.S., we have added a group of approximately 30 allied health professionals to support educational needs of health care providers in the U.S. relating to ENBREL. ONCOLOGY PRODUCTS We market our other products to health care providers in the U.S. through an oncology specialty sales force that consists of approximately 108 sales representatives and sales managers. Currently our sales representatives conduct details in the U.S. for the following products: LEUKINE, NOVANTRONE and THIOPLEX. DISTRIBUTION We distribute our products through pharmaceutical wholesalers and specialty distributors, as well as to end users such as oncology clinics, physicians' offices, hospitals and pharmacies. However, for at least the U.S. launch period for ENBREL, rather than stocking inventory of product at wholesalers, we are drop-shipping wholesaler orders for ENBREL directly to pharmacies for end users. We receive and process product orders through a centralized customer service and sales support group. Shipping, warehousing and certain data processing services are provided on a fee basis by an outside contractor. COMPETITION GENERALLY Competition in researching, developing, manufacturing and marketing biopharmaceuticals and other oncology products is intense. We are marketing a group of cancer products and simultaneously developing an extensive portfolio of cytokines, cytokine receptors and other immunological therapeutic products. In addition, we are collaborating with AHP to market ENBREL for RA in the U.S. There are other companies, including established pharmaceutical and biotechnology companies, that are researching, developing and marketing products, based on related or competing technologies, that will compete with products being developed by us. 17 The principal means of competition vary among various product categories. The following technological innovations are all important to success in our business: - efficacy, - safety, - patients' ease of use, and - cost effectiveness. Our business focuses on unmet medical needs and improving therapies. Our emphasis on innovation has led to significant research and development investments at Immunex. See RESEARCH AND PRODUCT DEVELOPMENT, above. We compete with other pharmaceutical firms in performing research and clinical testing, acquiring patents, developing efficient manufacturing processes, securing regulatory approvals and marketing the resulting products to physicians. We believe that our strategic focus on immunology has resulted in expertise that can be applied to reduce development times, create innovative and cost-saving research techniques, optimize product quality, and discover new products and applications. We possess manufacturing facilities to produce recombinant protein products using microbial or mammalian cell culture technologies. Professional clinical, legal, regulatory affairs, marketing and sales staffs have been developed to enhance Immunex's scientific resources. We possess an oncology specialty sales force and offer comprehensive professional services, including continuing medical educational programs, publications, literature searches and treatment information. These professional services are important because, historically, new anticancer drugs have provided incremental treatment advances, but few outright cures. Therefore, physicians rely heavily on peer-reviewed clinical data in making treatment decisions. Most of the cancer products that we market have established competitors. Significant competitors in the field of oncology include BMS and Amgen. These competitors, in certain cases, have substantially greater capital resources, greater marketing experience, and larger research and development staffs and manufacturing facilities than we do. LEUKINE Several companies are marketing or developing products that compete or are expected to compete with LEUKINE, as listed below. - AMGEN. Amgen has been marketing its competing G-CSF product since early 1991 and has achieved a majority share of the U.S. market for CSFs. - GENETICS INSTITUTE, INC. In late 1997, Genetics Institute, a division of AHP, received FDA approval of NEUMEGA-Registered Trademark-(Interleukin-11) for treatment of thrombocytopenia caused by cancer chemotherapy. Since NEUMEGA is being marketed by Genetics Institute for use in combination with G-CSF in patient populations in which LEUKINE is now being used, sales of LEUKINE may be adversely affected. We are cooperating with AHP to study the use of LEUKINE and NEUMEGA together in clinical trials in patients with breast cancer and AML. If such clinical trials are positive, Immunex and AHP intend to pursue an expanded label in the U.S. for their respective products, LEUKINE and NEUMEGA, to include the use of such products in combination in certain patient populations. - CANGENE CORPORATION. Cangene is developing a STREPTOMYCES-derived GM-CSF product. Cangene commenced a Phase III multicenter clinical trial in the U.S. with its GM-CSF product in early 1998 for the mobilization of peripheral blood stem cells in patients with breast cancer. If the FDA approves the Cangene GM-CSF product, sales of LEUKINE could be adversely affected. 18 NOVANTRONE A number of companies, including those listed below, are marketing products that compete with NOVANTRONE for its current indications or are expected to compete with NOVANTRONE for a potential new indication in progressive MS. - PHARMACIA & UPJOHN, INC. (P&U). P&U has been marketing IDAMYCIN-Registered Trademark- (idarubicin) for AML and EMCyt(R) (estramustine) for prostate cancer. - BEDFORD LABORATORIES. Bedford Laboratories, a division of Ben Venue Laboratories, Inc., is marketing Cerubidine-Registered Trademark- (daunorubicin) for AML. - BIOGEN. Biogen is marketing AVONEX-Registered Trademark- (interferon beta-1a) for relapsing-remitting MS. - BERLEX LABORATORIES, INC. Berlex is marketing BETASERON-Registered Trademark- (interferon beta-1b) for relapsing-remitting MS. Berlex filed for FDA approval of an expanded indication for BETASERON for secondary progressive MS in June, 1998. - TEVA PHARMACEUTICALS INDUSTRIES LIMITED. Teva is marketing COPAXONE-Registered Trademark- (glatiramer acetate for injection) for relapsing-remitting MS. ENBREL A number of companies, including those listed below, are developing biological products that are expected to compete with ENBREL. If any of these products are approved by the FDA for RA, sales of ENBREL could be adversely affected. - CENTOCOR INC. Centocor is developing a monoclonal antibody known as REMICADE-Registered Trademark-(infliximab), an anti-inflammatory agent that has completed Phase III trials in RA. The FDA approved REMICADE for treatment of Crohn's disease in August 1998. Centocor filed for FDA approval of an expanded indication for REMICADE for RA in January 1999. Unlike ENBREL, which is administered by subcutaneous injection, REMICADE must be given intravenously. Since REMICADE is given intravenously, it is likely that REMICADE will be covered by Medicare. Since Medicare presently will not reimburse for drugs that are self-administered, we have not assumed that Medicare would cover prescriptions for ENBREL. As a result, REMICADE may have a reimbursement advantage for patients whose drug therapies are covered by Medicare. - AMGEN. Amgen is developing ANTRIL(TM) (anakinra), a IL-1RA (receptor antagonist) that is in Phase I/II clinical trials, as well as a TNFbp (binding protein) that is in Phase I clinical trials. - BAYER AG AND BASF AG. Both Bayer and BASF are developing monoclonal antibodies or antibody fragments that bind to TNF. - ROCHE. Roche is developing TENEFUSE(TM) (lenercept), a TNFR:Fc fusion protein based upon a distinct and different TNF receptor designated "p55." In late 1997, Roche terminated its Phase III trial of lenercept in RA. Roche has continued clinical development of lenercept in sepsis. - SMITHKLINE BEECHAM PLC (SKB). SKB is developing a second generation anti-CD4 monoclonal antibody (IDEC-151) in collaboration with IDEC Pharmaceuticals Corporation, which is in Phase II clinical trials for RA. However, SKB announced the suspension of these clinical trials in January 1999. Other companies, as listed below, have developed non-biological products for patients with RA. We do not currently expect such products to compete with ENBREL in patients with advanced RA, but such products may compete directly with ENBREL in patients with earlier stage RA. ENBREL is not currently approved by the FDA in patients with earlier stage RA. Due to its mechanism of action, we believe that ENBREL may be effective in combination with some of these products in development, as well as with some existing DMARDs for RA. This belief is based on clinical results demonstrating that RA patients treated with ENBREL in combination with the DMARD methotrexate experienced a statistically significant decrease in disease activity and an increase in their functional ability when compared to methotrexate alone. 19 - HOECHST MARION ROUSSEL. Hoechst Marion Roussel received FDA approval of ARAVA-Registered Trademark- (leflunomide) in September 1998 for the treatment of active RA in adults to reduce signs and symptoms and to retard structural damage as evidenced by x-ray erosions and joint space narrowing. ARAVA is an oral treatment for RA, and it is priced significantly less than ENBREL. - MONSANTO COMPANY. Monsanto received FDA approval of CELEBREX-Registered Trademark- (celecoxib) in December 1998 for relief of the signs and symptoms of osteoarthritis and adult RA. CELEBREX is a COX-2 inhibitor, and is priced significantly less than ENBREL. CELEBREX is an oral treatment and is co-promoted by G.D. Searle & Co., the pharmaceutical business unit of Monsanto, and Pfizer Inc. COX-2 inhibitors are a new class of drugs for arthritis and pain that are generally as effective as current initial RA therapy with non-steroidal anti-inflammatory drugs (NSAIDS). - MERCK. Merck is developing a COX-2 inhibitor known as VIOXX(TM) (MK-966). Vioxx has completed Phase III clinical trials and Merck has filed for FDA approval of this compound. GENERIC ONCOLOGY PRODUCTS Competition in the sale of generic pharmaceutical products is intense due to the entry of multiple sources for each product after expiration of patents and exclusivity grants previously covering such products. Manufacturers of generic products compete aggressively, primarily on the basis of price. We currently face aggressive generic competition from numerous suppliers on methotrexate injectable and leucovorin calcium, resulting in lower prices and lower sales. THIOPLEX (thiotepa for injection) may be subject to generic competition in the future. RAW MATERIALS AND SUPPLY Along with our third-party manufacturers, we purchase raw materials essential to our business in the ordinary course of business from numerous suppliers. Substantially all the raw materials used to manufacture our recombinant protein products and other products are available from multiple sources. No serious shortages or delays in obtaining raw materials were encountered in 1998. All finished dosage forms of ENBREL are manufactured by BI Pharma and packaged by a third-party contract packager. We manufacture all LEUKINE bulk drug substance, which is then filled and finished by third parties. All finished dosage forms for our non-biological oncology products are manufactured by AHP subsidiaries or sourced by AHP from third-party manufacturers. Bulk active raw materials for our non-biological oncology products are either manufactured by AHP subsidiaries or sourced by AHP from third-party manufacturers. Aminocaproic acid for AMICAR is sourced through an unaffiliated third-party vendor and manufactured by a sole-source supplier, Daiichi Pharmaceutical Co. Ltd., a Japanese company. We presently do not have our own fill and finish capabilities for producing and labeling final drug products from bulk drug substances or bulk proteins. We rely upon unaffiliated third parties and AHP for the fill and finish of all drug products we market. In November 1998, Immunex and AHP entered into a long-term ENBREL Supply Agreement with BI Pharma to manufacture commercial quantities of ENBREL. Our sales of ENBREL are entirely dependent on BI Pharma's manufacture of the product. Before the completion of the ENBREL Supply Agreement, we had operated under short-term arrangements with BI Pharma to manufacture quantities of commercial inventory of ENBREL sufficient to launch the product in the U.S., and we had made significant purchase commitments to BI Pharma for inventory of ENBREL. Immunex and AHP have made additional significant purchase commitments to BI Pharma under the ENBREL Supply Agreement to manufacture commercial inventory of ENBREL. Under the ENBREL Supply Agreement, BI Pharma has reserved certain production capacity for ENBREL, and our purchase commitments for ENBREL are manufactured from that reserved production capacity. The ENBREL Supply Agreement contains provisions for increasing or decreasing BI Pharma's reserved production capacity for ENBREL, subject to certain lead-times and other related terms. Because of the long lead-time required for ordering raw materials for ENBREL and for the scheduling of BI Pharma's facilities, we are required to submit a rolling three-year forecast for the manufacture of the bulk drug for ENBREL, and a rolling forecast for a shorter period for the number of finished vials of ENBREL to be manufactured from the bulk drug. A significant portion of each of the above forecasts becomes a purchase commitment when issued to BI Pharma. Also, we have relocated one of our senior executives in product quality to Germany to facilitate technical interactions with BI Pharma related to ENBREL. 20 BI Pharma's pricing of ENBREL is dependent on certain production assumptions that the parties have made relating to the production efficiency of manufacturing ENBREL. The pricing for ENBREL is also subject to certain volume discounts depending on the amount of ENBREL ordered during each calendar year. BI Pharma's volume discount pricing of ENBREL to us will be firm throughout 1999, but will be subject to annual increases for inflation and also subject to annual adjustments depending on certain production efficiencies and the actual cost of producing ENBREL. Immunex and AHP will be responsible for substantial payments to BI Pharma if Immunex and AHP fail to utilize a certain percentage of the production capacity that BI Pharma has reserved for ENBREL each calendar year, or if the ENBREL Supply Agreement is terminated prematurely under certain conditions. Since ENBREL was recently launched in the U.S. in November 1998, the market demand for ENBREL in the U.S. has not yet matured and cannot be predicted with certainty. We are not certain that BI Pharma will be able to successfully manufacture sufficient inventory of ENBREL to satisfy both the commercial demand for ENBREL in the U.S. as estimated in our current U.S. marketing forecasts and the demand for ENBREL outside the U.S. Our sales of ENBREL could be adversely affected if we experienced production shortages of ENBREL within BI Pharma's existing reserved production capacity for ENBREL. We are actively working with BI Pharma to ensure that it will have sufficient manufacturing capacity to meet worldwide commercial demand for ENBREL. However, we are not certain that BI Pharma has or can acquire sufficient production capacity for ENBREL in a timely manner should additional indications for ENBREL be approved by the FDA and other regulatory authorities around the world, or should commercial demand for ENBREL exceed BI Pharma's ability to manufacture sufficient commercial inventory of ENBREL. GOVERNMENT REGULATION The manufacturing and marketing of pharmaceutical products in the U.S. requires the approval of the FDA under the Food, Drug and Cosmetic Act. Similar approvals by comparable agencies are required in foreign countries. The FDA has established mandatory procedures and safety standards that apply to the clinical testing, manufacture and marketing of pharmaceutical and biotechnology products. Obtaining FDA approval for a new therapeutic product may take several years and involve expenditure of substantial resources. Data from human clinical trials are submitted to the FDA in a new drug application (NDA) for drugs or a biologics license application (BLA) for biologics. For products to be marketed in Canada, these submissions are made to the Canadian Health Protection Bureau (CHPB) in a new drug submission (NDS). Data from human clinical trials for new indications or uses for approved products are submitted to the FDA in a supplemental new drug application (SNDA) for drugs and in a supplemental biologics license application (SBLA) for biologics. Data regarding manufacturing and bioequivalence of generic drug products are submitted to the FDA in an abbreviated new drug application (ANDA) and to the CHPB in an abbreviated NDS (A/NDS). Preparing any of these regulatory submissions involves considerable data collection, verification and analysis. The federal government regulates certain recombinant DNA research activity through National Institutes of Health guidelines for research involving recombinant DNA molecules (NIH GUIDELINES). We comply with the NIH Guidelines which, among other things, restrict or prohibit certain recombinant DNA experiments and establish levels of biological and physical containment of recombinant DNA molecules that must be met for various types of research. Many other laws regulate our operations, including among others, the Occupational Safety and Health Act, the Environmental Protection Act, the Nuclear Energy and Radiation Control Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation, and Liability Act, Title III of the Superfund Amendments and Reauthorization Act (Community Right-to-Know and Emergency Response Act), national restrictions on technology transfer, federal regulations on the protection of human subjects in clinical studies, the protection of animal welfare in preclinical studies, import, export and customs regulations and other present or possible future local, state or federal regulation. From time to time Congressional Committees and federal agencies have indicated an interest in implementing further regulation of biotechnology and its applications. 21 PATENTS, LICENSES AND TRADEMARKS GENERALLY Patents, trade secrets and other proprietary rights are very important to Immunex. We have obtained U.S. and foreign patents and have filed applications for additional U.S. and foreign patents covering numerous aspects of our technology. We cannot be certain that any of our pending or future applications will result in issued patents or that the rights granted thereunder will provide competitive advantage to Immunex or our licensees. We also rely on trade secrets, unpatented proprietary know-how and continuing technological innovation to develop and maintain our competitive position. We cannot be certain that others will not acquire or independently develop the same or similar technology, or that Immunex's issued patents will not be circumvented, invalidated or rendered obsolete by new technology. Due to unresolved issues regarding the scope of protection provided by certain of our patents, as well as the possibility of patents being granted to others, we cannot be certain that the patents owned by or licensed to us and our licensees will provide substantial protection or commercial benefit. The rapid rate of development and the intense research efforts throughout the world in biotechnology, the significant time lag between the filing of a patent application and its review by appropriate authorities and the lack of sufficient legal precedents concerning the validity and enforceability of certain types of biotechnology patent claims make it difficult to predict accurately the breadth or degree of protection that patents will afford Immunex's or our licensees' biotechnology products or their underlying technology. It is also difficult to predict whether valid patents will be granted based on biotechnology patent applications or, if such patents are granted, to predict the nature and scope of the claims of such patents or the extent to which they may be enforceable. Under U.S. law, although a patent has a statutory presumption of validity, the issuance of a patent is not conclusive as to validity or as to the enforceable scope of its claims. Accordingly, we cannot be certain that our patents will afford protection against competitors with similar inventions, nor can we be certain that our patents will not be infringed or designed around by others or that others will not obtain patents that we would need to license or design around. It is our policy to respect the valid patent rights of others. We have obtained patent licenses from various parties covering technologies relating to our products. However, we may need to acquire additional licenses or, if such licenses are denied or are not available on commercially reasonable terms, successfully prevail in the event that litigation is commenced by patent owners to interfere with the development or commercialization of our products. We intend to pursue protection of all forms of intellectual property, including, but not limited to, patents, trade secrets, Orphan Drug exclusivity, and benefits of the Waxman-Hatch Legislation, for all significant inventions, discoveries and developments in our various areas of research. PATENTS ON BIOLOGICAL PRODUCTS GM-CSF. We have been issued three U.S. patents covering an altered, or analog, form of GM-CSF (sargramostim), that we market under the LEUKINE trademark. From July 1990 to January 1998, a GM-CSF interference proceeding had been pending in the U.S. Patent and Trademark Office (USPTO) directed to human GM-CSF DNAs. The interference had been declared between competing U.S. patent applications filed by or licensed to Immunex, Novartis AG, Research Corporation Technologies, Inc. (RCT), Schering-Plough, Inc. and Biogen. As of February 1995, all parties to the interference except Immunex and Novartis had been eliminated from future participation in the priority determination. Proceedings in the interference had been suspended since 1995 to permit the parties to negotiate a settlement of the interference. In 1997, the USPTO issued RCT a patent covering DNAs encoding mammalian GM-CSF proteins, including human, outside of the pending interference. Immunex and RCT entered into a royalty-bearing nonexclusive license under such patent in 1997. In January 1998, Novartis and Immunex signed a global GM-CSF Settlement Agreement. Under this agreement, we agreed to concede priority to Novartis in the interference, and Novartis agreed not to assert its GM-CSF patent rights to prevent us from making, using or selling sargramostim in the U.S., or making sargramostim in the U.S. for export to and sale in Canada or any country in which Novartis or Schering-Plough do not hold GM-CSF patent rights. In consideration of the foregoing immunity from suit, we agreed to grant Novartis immunity from suit under certain patent rights we own relating to methods of using GM-CSF, and to pay Novartis royalties in respect of our future sales of Leukine. In addition, as part of the resolution of the GM-CSF interference among the various parties, in early 1998 we paid Genetics Institute, Inc. $5.0 million. 22 ENBREL. ENBREL (etanercept, TNFR:Fc) is a fusion protein consisting of a dimer of two subunits, each comprising a TNF receptor domain derived from a TNF receptor known as "p80," fused to a segment derived from a human antibody molecule known as an "Fc domain." We believe that we were the first to isolate a recombinant DNA encoding p80 TNFR and also the first to express the protein using recombinant DNA technology. We have been issued two U.S. patents covering DNAs encoding p80 TNFR, as well as a U.S. patent covering methods of using TNFR:Fc, including the treatment of RA. We were granted a European patent in December 1995 covering p80 TNFR DNAs, proteins and related technology. Two other companies, however, BASF and Yeda Research & Development Company, Ltd. (YEDA), filed patent applications disclosing partial amino acid sequence information of certain TNF-binding proteins (TBPS) shortly prior to the time we filed our patent applications, claiming the full-length p80 TNFR DNAs and proteins corresponding in part to the TBPs disclosed by BASF and Yeda. BASF was issued a U.S. patent based on its TBP disclosure with claim limitations that exclude TNFR:Fc. In January 1999, Immunex entered into a settlement agreement with Ares-Serono International S.A., a Swiss company, and its affiliate Inter-Lab Ltd., an Israeli company (collectively, SERONO) under which Immunex and Serono agreed to settle certain potential disputes concerning patents and patent applications filed by Yeda and controlled by Serono that relate to TBPs. Pursuant to the settlement, Serono has agreed not to assert any of the foregoing patent rights against the manufacture, use or sale of ENBREL in any territory in consideration of the payment by Immunex to Serono of certain fees, and royalties for a specified term in respect of the net sales of ENBREL sold or manufactured in designated countries where Yeda's patent rights have been filed. Roche and Amgen, through Synergen Inc., also filed patent applications directed to p80 TNFR DNAs after the date we filed our patent application. No patents covering full-length TNFR or the intact extracellular domain of TNFR have been issued to Roche. In January 1998, the EPO granted a patent to Amgen claiming DNA and amino acid sequences encoding a variant of p80 TNFR disclosed in the Synergen application that differs from that disclosed in our granted patents covering p80 TNFR. We have filed an opposition to this Amgen patent. Since an application giving rise to our patents covering TNFR and disclosing the relevant DNA sequence was filed earlier than Synergen's first application disclosing the relevant DNA sequence, we believe that the Amgen patent cannot be legally asserted to cover TNFR:Fc, which includes the sequences patented by us. If BASF, Roche or Amgen were able to validly assert TNFR patents to cover TNFR:Fc, Immunex's or AHP's commercialization of ENBREL could be impeded in any territories in which such patents were in force. A U.S. patent has also been issued to the Board of Regents of the University of Texas System (U.T.) that contains claims relating to TNFR:Fc fusions. U.T. has assigned this patent to us. We have also been granted a royalty-bearing worldwide exclusive license under patent rights jointly owned by Hoechst and Massachusetts General Hospital (HOECHST/MASS GENERAL) claiming cytokine receptor-Fc fusion proteins, including TNFR:Fc. Genentech has been issued U.S. patents having claims directed to certain fusion proteins comprising Fc domains and certain processes for making such proteins, and has also filed corresponding European applications that have not yet been granted. Roche has filed patent applications with claims covering TNFR:Fc fusions, which were filed after the Hoechst/Mass General patent applications licensed to Immunex. A patent containing such claims has been granted to Roche in Japan. We believe that an interference may be declared in the U.S. involving the Hoechst/Mass General, U.T. and Roche patents and patent applications. We have also completed a comprehensive analysis of the validity and scope of the Genentech patents, which indicates that substantial defenses may exist to the enforcement of such patents. If Genentech was able to validly assert its fusion patents to cover ENBREL, or if additional TNFR:Fc patents were granted to Roche, Immunex's or AHP's commercialization of ENBREL could be impeded in any territories in which such patents were in force. In general, with respect to any of the patents discussed above, it is our intention to mount a vigorous defense should any patent be asserted against activities relating to ENBREL, or, in appropriate cases, to take a license under appropriate terms. At this time, however, it remains uncertain whether any of these patents will be asserted against activities relating to ENBREL, and, if so, the outcome of any litigation or licensing negotiations. MOBIST FLT3-L. In 1996 we were granted a U.S. patent covering Flt3-L DNA. In 1998, we were granted a U.S. patent covering methods of using Flt3-L. We are currently seeking other U.S. and foreign patents for Flt3-L proteins, DNAs and various methods of using Flt3-L. NUVANCE IL-4R. We have been granted a total of five U.S. patents relating to IL-4R proteins and DNAs, methods for inhibiting IL- 4R mediated immune or inflammatory responses, and antibodies immunoreactive with IL-4R. IL-4R patents have also been granted to us in Europe and certain other foreign countries. We have additional U.S. and foreign patent applications pending relating to IL-4R. CD40-L. In 1998 we were granted a U.S. patent for soluble fusion proteins that include soluble portions of CD40-L and methods of making them. We have also received a U.S. patent relating to the use of soluble CD40-L to treat neoplastic diseases. We have additional U.S. and foreign patent applications pending relating to CD40-L. 23 TRAIL. In 1998 we were granted a U.S. patent covering the DNA encoding TRAIL. This is believed to be the first U.S. patent granted for this molecule. We have additional U.S. and foreign patent applications pending relating to TRAIL. IL-1R TYPE II. In 1998 we were granted a U.S. patent covering methods of using soluble IL-1R Type II to regulate an IL-1 mediated immune or inflammatory response in a mammal. Previously we have received two U.S. patents covering the DNA and the protein for IL-1R Type II. We have additional U.S. and foreign patent applications pending relating to IL-1R Type II. TACE. In 1998 we were granted a U.S. DNA and protein patent on TACE, which includes claims to methods of using TACE to discover TACE inhibitors. This is believed to be the first patent issued for this molecule. We have additional U.S. and foreign patent applications pending relating to TACE. We have licensed our TACE technology to AHP and are working together to develop and test small molecule TACE inhibitors. See RELATIONSHIP WITH AHP AND CYANAMID, above. PATENTS ON NON-BIOLOGICAL ONCOLOGY PRODUCTS NOVANTRONE. NOVANTRONE (mitoxantrone) is a proprietary product that is covered by several U.S. and Canadian patents. The patent covering the mitoxantrone compound in the U.S. expired in August 1997. However, a separate U.S. patent covering pharmaceutical formulations containing mitoxantrone does not expire until July 2000. A U.S. patent covering methods of using mitoxantrone to treat leukemia and solid tumors does not expire until April 2006, and another U.S. patent covering methods of using mitoxantrone to treat neuroimmunologic diseases, including MS, does not expire until June 2005. THIOPLEX. AHP holds a manufacturing process patent on thiotepa in the U.S. and Canada. METHOTREXATE, LEUCOVORIN CALCIUM, AMICAR. Although methotrexate is the subject of certain patents held by AHP, the protection afforded by such patents is not material. We have no patent protection on leucovorin calcium or AMICAR. PATENT AND TECHNOLOGY LICENSES Under our royalty-bearing patent and technology license agreements, we are obligated to pay royalties on sales of products produced using the licensed technologies. Following the expiration of the Cohen-Boyer patents in 1997, we are no longer obligated to pay royalties under such patents for our recombinant DNA based products. However, we continue to pay royalties to university licensors of certain yeast and mammalian-cell expression technologies employed in making LEUKINE and certain other products. We are also obligated to pay royalties to Hoechst, Novartis and RCT on sales of LEUKINE, and have agreed to pay royalties to Hoechst, Mass General and Serono on sales of ENBREL. We may elect to enter into additional royalty-bearing license agreements with licensors of patents claiming technologies related to ENBREL. Although the total royalty burden for ENBREL is subject to the successful completion of negotiations with such licensors, it is not expected to adversely affect Immunex's ability to successfully commercialize ENBREL. We cannot be sure, however, that patent license negotiations with any licensors can be successfully completed, or that the total royalties payable under any agreements resulting from such negotiations will not have a material adverse effect on our business. TRADEMARKS We own all of our trademarks used in our business. PROPERTIES Our principal place of business is located in two adjacent buildings located in the 1200 block of Western Avenue in Seattle, Washington. These buildings, comprising a total of 160,000 square feet, house our primary laboratory and office facilities, as well as a 10,000 square foot fermentation and pharmaceutical manufacturing facility that has been licensed by the FDA to produce LEUKINE. The current lease terms for these buildings extend through August 2000, with three five-year renewal options at market value. In addition to our primary facility, we lease a total of approximately 113,000 square feet of additional office and research space in several other buildings located in downtown Seattle. The total current rent payments for the foregoing facilities was approximately $4.0 million in 1998 and is forecast to be approximately $4.7 million in 1999. 24 We own a manufacturing and development center in Bothell, Washington that includes a large-scale microbial manufacturing facility and a separate mammalian cell-based protein manufacturing facility. These facilities were used to produce ENBREL for our clinical trials in 1997; however, such facilities lack sufficient capacity to produce commercial quantities of ENBREL. See RAW MATERIALS AND SUPPLY, above. In 1999, we intend to begin construction of a new process development facility at our site in Bothell, Washington. This new process development facility is expected to speed process improvements and development of our recombinant products. We are currently exploring several alternatives in order to meet our long-term facility needs. We own approximately 20 acres of undeveloped land adjacent to our manufacturing and development center in Bothell, Washington. In addition, in 1998 we completed the purchase of a 29-acre parcel of land located in Seattle, Washington, known as Terminal 88, for the possible long-term development of a new campus for our corporate offices and research facilities. PERSONNEL In our innovation-intensive business, our employees are vital to our success. We believe we have good relationships with our employees, and none of our employees are covered by a collective bargaining agreement. As of December 31, 1998, we employed a total of 1,007 people in our operations, of whom 141 have doctoral degrees. The employee count for three of our key functions is as follows: - Research and development--441, - Manufacturing--179, and - Sales and marketing--186. Each of our employees has entered into a confidentiality agreement that contains terms requiring disclosure of ideas, developments, discoveries or inventions conceived during employment, and assignment to us of all proprietary rights to these matters. Our ability to maintain our competitive position will depend, in part, upon our continued ability to attract and keep qualified scientific and managerial people, and certain key employees. Competition for these people is intense, and there can be no assurance that we will be able to attract and keep these people. RISK FACTORS Our disclosure and analysis in this report and in our 1998 Annual Report to shareholders contain some forward-looking statements. Forward-looking statements provide our current expectations or forecasts of future events. In particular, these include statements relating to future actions, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, and financial results. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. Any or all of our forward-looking statements in this report, in the 1998 Annual Report and in any other public statements we make may turn out to be wrong. Inaccurate assumptions we might make and known or unknown risks and uncertainties can affect our forward-looking statements. Consequently, no forward-looking statement can be guaranteed and our actual results may differ materially. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and Annual Reports on Form 10-K. Also note that we provide the following cautionary discussion of risks, uncertainties and possibly inaccurate assumptions relevant to our business. These are factors that we think could cause our actual results to differ materially from expected and historical results. Other factors besides those listed here could also adversely affect us. OUR FUTURE OPERATING RESULTS ARE UNCERTAIN AND LIKELY TO FLUCTUATE We have had a history of operating losses and future operating performance is never certain. Our accumulated deficit at December 31, 1998 is $479.0 million. We anticipate that our operating and capital expenditures will increase significantly in 1999 and in future years due primarily to: - Spending to support the launch and sale of ENBREL, 25 - Working capital requirements for inventory of ENBREL, - Growth in research and development expenses as we progress with the development of our clinical and preclinical product candidates, - Increased purchases of capital equipment including construction of a new process development facility in 1999, and - Possible development of Terminal 88 in Seattle, Washington into our new corporate offices and research facilities. In addition, our current production facilities cannot produce sufficient quantities of some of our products for all clinical trials or commercial sales, including ENBREL. If we decide to add manufacturing capability, we will incur significant capital expenditures. Our ability to generate sufficient cash flow to fund such activities is dependent on our ability to improve operating performance. This in turn depends, among other things, on increasing sales of our existing products, especially ENBREL, and successfully completing product development efforts and obtaining timely regulatory approvals of our lead clinical products. We may also decide to raise money through various financing transactions or partner with other companies to license our technology or share the development of our products. Our accumulated cash reserves and cash generated from operations is becoming increasingly dependent on ENBREL and our other products and technologies. We may not successfully develop and commercialize these products and technologies in the future. Further, our assumptions regarding the levels of revenue and expenses for these products and technologies may be inaccurate. OUR PRECLINICAL AND CLINICAL TESTING RESULTS ARE UNCERTAIN Before obtaining regulatory approvals for the sale of any of our new products, we must subject these products to extensive preclinical and clinical testing to demonstrate their safety and effectiveness for humans. Results of initial preclinical and clinical testing are not necessarily indicative of results to be obtained from later preclinical and clinical testing. Furthermore, we may not complete our clinical trials of products under development and the results of the trials may fail to demonstrate the safety and effectiveness of such products to the extent necessary to obtain regulatory approvals, which could delay or prevent regulatory approval of such products. Other companies in the biotechnology industry have suffered significant setbacks in advanced clinical trials, even after achieving promising results in earlier trials. The rate of completion of clinical trials depends on, among other factors, the enrollment of patients. Enrollment of patients depends on such factors as the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the study and the existence of competitive clinical trials. Any delay in planned patient enrollment in our current or future clinical trials may result in increased costs, program delays or both. WE MAY NOT DEVELOP NEW PRODUCTS SUCCESSFULLY Our long-term profitability depends on the successful commercialization of our existing products, especially ENBREL, and on the development and commercialization of products currently under development. We may not develop these products successfully or receive regulatory approval. Furthermore, even if these products are developed and approved, we or our contract manufacturers may fail to manufacture these products or our currently marketed products in quantities necessary for commercialization, or these products may not receive market acceptance. GOVERNMENTAL REGULATORY AGENCIES MAY NOT APPROVE OUR PRODUCTS Because our products are pharmaceutical products, the FDA and similar governmental agencies in foreign countries impose substantial requirements on our products before they permit us to manufacture, market and sell them to the public. To meet these requirements, we must spend substantial resources on costly and time-consuming procedures, such as lengthy and detailed laboratory tests and clinical trials. It typically takes years to meet these requirements for a product and the length of time involved depends on the type, complexity and novelty of the product. We cannot predict when we might submit product applications or submissions for FDA or other regulatory review for our products under development. The FDA or other governmental agencies may approve only certain uses of our products or may subject our products to additional testing and surveillance programs. In addition, the FDA or other governmental agencies may withdraw or limit their approval for noncompliance with regulatory standards or the occurrence of unforeseen problems following initial marketing. 26 Governmental regulation may cause us to delay marketing new products for a considerable period of time or spend more resources to meet additional requirements. Such governmental regulation ultimately may provide a competitive advantage to our competitors. The FDA or other governmental agencies may not approve on a timely basis, if at all, some or all of our future products or may not approve some or all of our applications for additional indications for our previously approved products. In addition, if another company that is developing a product similar to one of our products suffers adverse clinical results, this could have a negative impact on the regulatory process and timing for our product. If we fail to obtain regulatory approval for one of our products, or even if such approval is delayed, our marketing of this and our other products, as well as our liquidity and capital resources, could be adversely affected. In addition, we may be adversely affected by future legislation or administrative action that results in new governmental regulations. We are also subject to various federal, state and local laws, regulations and recommendations relating to safe working conditions, laboratory and manufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents, used in connection with our research. See GOVERNMENT REGULATION, above. WE MAY NOT GET REIMBURSED FROM THIRD PARTIES Our ability to sell our products depends substantially on government authorities, private health insurers and other organizations, such as health maintenance organizations (HMOS), reimbursing most of the costs of our products and related treatments. To date, we have been able to obtain sufficient reimbursement for most of our oncology products, but we may not be able to obtain similar levels of reimbursement for ENBREL or for our future products. We may not receive sufficient government and third-party reimbursement to permit us to realize an appropriate return on our investment in developing new therapies, including ENBREL. Since Medicare presently will not reimburse for drugs that are self-administered, we have assumed that Medicare will not cover prescriptions for ENBREL. Government authorities or third parties (or both), may decrease the amount of reimbursement we currently receive for certain products or that we anticipate we will receive for future products. Finally, low reimbursement amounts may reduce the demand for, or the price of, our products, adversely affecting our business. As a part of their efforts to control health care costs, government and other third-party payors are limiting their coverage of, and the extent of reimbursement for, new therapeutic products. If adequate coverage and reimbursement levels are not provided by government and third-party payors for uses of our therapeutic products, including ENBREL, we will have great difficulty marketing these products. Several recent trends may lower the price for therapeutic products, including: - Third-party payors are challenging the prices charged for medical products and services, - Managed healthcare is increasing in the U.S., - Organizations, such as HMOs, that control or significantly influence the purchase of healthcare services and products, are growing, - Legislative proposals are being introduced to reform healthcare or reduce government insurance programs, and - Healthcare providers are instituting cost-containment measures, including practice protocols and guidelines and clinical pathways. All of these trends could affect our ability to sell our existing and future products. We cannot predict whether additional legislation or regulation relating to the healthcare industry or third-party coverage and reimbursement will be enacted in the future or the effect such legislation or regulation could have on our business. WE HAVE A LIMITED MANUFACTURING CAPABILITY Currently, we do not ourselves possess sufficient manufacturing capacity to manufacture our forecasted commercial requirements for ENBREL or all of our mammalian cell-based protein products under development. In 1998, Immunex and AHP entered into a long-term ENBREL Supply Agreement with BI Pharma to manufacture commercial inventory of ENBREL. BI Pharma is our sole supplier of ENBREL. We do not know whether BI Pharma will be able to successfully manufacture sufficient quantities of ENBREL for commercial supply. Therefore, we may have to invest substantial sums to construct 27 facilities sufficient to meet our long-term manufacturing requirements for ENBREL and other products, or to assist BI Pharma to increase its manufacturing capacity for ENBREL. See RAW MATERIALS and SUPPLY, above. WE ARE DEPENDENT ON OTHERS AHP either manufactures through its subsidiaries or sources through third-party manufacturers all finished dosage forms and bulk active raw materials for our non-biological oncology products, including Novantrone. AHP is dependent on a single supplier for all of the essential raw material for AMICAR. Substantially all the raw materials used to manufacture our recombinant protein products are available from multiple sources. We also rely upon an unaffiliated third party and AHP for the fill and finish of all drug products we market. If AHP subsidiaries or third-party manufacturers or suppliers were to cease production or otherwise fail to supply such materials or products to AHP or us, we would be unable to obtain these products for an indeterminate period of time. We are entirely dependent upon BI Pharma for manufacturing our commercial inventory of ENBREL. Since ENBREL was recently launched in the U.S. in November 1998, the market demand for ENBREL in the U.S. has not yet matured and cannot be predicted. We are not certain that BI Pharma will be able to successfully manufacture sufficient inventory of ENBREL to satisfy both the commercial demand for ENBREL in the U.S. as estimated in our current U.S. marketing forecasts and the demand for ENBREL outside the U.S. As a result, our sales of ENBREL could be adversely affected if we experienced production shortages of ENBREL within BI Pharma's existing reserved production capacity for ENBREL. We are actively working with BI Pharma to ensure that it will have sufficient manufacturing capacity to meet worldwide commercial demand for ENBREL. However, we are not certain that BI Pharma has or can acquire sufficient production capacity for ENBREL in a timely manner should additional indications for ENBREL be approved by the FDA and other regulatory authorities around the world, or should existing commercial demand for ENBREL exceed BI Pharma's ability to manufacture sufficient commercial inventory of ENBREL. If BI Pharma ceases production or otherwise fails to supply ENBREL, we would be unable to obtain this product for an indeterminate period of time. See RAW MATERIALS AND SUPPLY, above. THE STATUS OF OUR PATENTS AND PROPRIETARY RIGHTS IS UNCERTAIN Because of the length of time and expense associated with bringing new products through development and the governmental approval process to the marketplace, the biotechnology and pharmaceutical industries rely on patent and trade secret protection for significant new technologies, products and processes. We, like other biotechnology and pharmaceutical firms, apply for, prosecute and maintain patents for our products and technologies. The enforceability of patents issued to biotechnology and pharmaceutical firms, however, often is highly uncertain. The legal considerations surrounding the validity of patents in our field are in a state of transition. In the future, the historical legal standards surrounding questions of the validity of patents may not be applied and the current defenses as to issued patents may not protect our patents. In addition, the degree and range of protection a patent affords is uncertain. Finally, we may be unsuccessful in obtaining patents and in avoiding infringements of patents granted to others. While we pursue patent protection for products and processes where appropriate, we also rely on trade secrets, know-how and continuing technological advancement to develop and maintain our competitive position. Our policy is to have each employee enter into a confidentiality agreement that contains provisions prohibiting the disclosure of confidential information to anyone outside Immunex. These confidentiality agreements also contain provisions requiring disclosure of ideas, developments, discoveries or inventions conceived during employment, and assign to us all proprietary rights to such matters. Research and development contracts and relationships with our scientific consultants provide access to aspects of our know-how that are protected generally under confidentiality agreements with the parties involved. These confidentiality agreements may not be honored and we may be unable to protect our rights to our unpatented trade secrets. Moreover, other people or entities may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets. We may be required to obtain licenses to patents or other proprietary rights from third parties. Licenses required under any patents or proprietary rights may not be made available on terms acceptable to us, if at all. If we do not obtain the required licenses, we could encounter delays in product development while we attempt to redesign products or methods. We also could discover that the development, manufacture or sale of products requiring such licenses is simply not possible. In addition, we could incur substantial costs in defending any patent litigation brought against us or in asserting our patent rights, including those licensed to us by others, in a suit against another party. Our competitors have obtained or are seeking patents which, if issued or granted, may have a material adverse effect on our ability to successfully commercialize ENBREL. See PATENTS, LICENSES AND TRADEMARKS, above. 28 TECHNOLOGICAL CHANGE AND COMPETITION We are engaged in fields characterized by extensive research efforts and rapid technological development. New drug discoveries and developments in the fields of genomics, rational drug design and other drug discovery technologies are accelerating. Many companies and institutions, both public and private, exist that are engaged in developing synthetic pharmaceuticals and biotechnological products for human therapeutic application, including the applications we have targeted. A number of our competitors have substantially more capital, research and development, regulatory, manufacturing, marketing, human and other resources and experience than we have. Furthermore, large pharmaceutical companies have been consolidating with each other, which has increased the resources available to them and concentrated the intellectual property assets in a few such competitors. Such competitors may develop products that are more effective or less costly than any of our current or future products. Such competitors also may produce and market their products more successfully then we do. These competitors may develop technologies and products that are more effective than any we develop or that render our technology and products obsolete or noncompetitive. See COMPETITION, above. WE MAY HAVE PRODUCT LIABILITY Product liability is a major risk in the testing and marketing of biotechnology and pharmaceutical products. This risk exists in human clinical trials and for products that receive regulatory approval for commercial sale. We may incur significant product liability exposure. We currently maintain product liability insurance coverage, which our management believes to be adequate, based on our product portfolio, sales volumes and claims experience to date and we intend to continue such coverage. In the future, insurers may not offer us product liability insurance, may raise the price of such insurance or may limit the coverage of such insurance. In addition, we may not be able to maintain such insurance in the future on acceptable terms and such insurance may not provide us with adequate coverage against potential liabilities either for clinical trials or commercial sales. Successful product liability claims in excess of our insurance may adversely affect our business. WE MAY HAVE ENVIRONMENTAL LIABILITY Our research and development activities involve the controlled use of hazardous materials, chemicals, viruses and radioactive compounds. We are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of such materials and certain waste products. Although we believe that our safety procedures for the handling and disposal of such materials comply with the standards prescribed by such laws and regulations, we cannot eliminate the risk of accidental contamination or injury from these materials. In the event of such an accident, we could be held liable for any damages that result and any such liability could exceed our resources. We may be required to incur significant costs to comply with environmental laws and regulations in the future. Current or future environmental laws or regulations may materially adversely affect our operations, business or assets. See GOVERNMENT REGULATION, above. YEAR 2000 ISSUE The "Year 2000" issue is the result of computer programs being unable to differentiate between the year 1999 and the year 2000 because they were written using two digits rather than four to define the applicable year. This could result in a system failure or miscalculations with respect to current programs. We are heavily dependent upon the proper functioning of our own computer systems and software applications. Any failure or malfunctioning on the part of these or other systems could adversely affect our business in ways that we currently do not know and cannot discern, quantify or otherwise anticipate. We have established a Year 2000 Committee which has determined that certain software, hardware and equipment will have to be modified or replaced so that they will properly utilize dates beyond December 31, 1999. See MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - YEAR 2000, below. We anticipate that the required modifications and replacements of our critical systems and applications will be completed prior to the Year 2000. However, we may be unable to implement these modifications and replacements and, even if we do make these modifications and replacements, they may not be effective in addressing the problems identified. If the required modifications and replacements are not completed in a timely manner or are not successful, our business could be materially affected. 29 We currently only have limited information on Year 2000 compliance by our key third-party suppliers, service providers, distributors, wholesalers and other entities with which we have a business relationship (BUSINESS PARTNERS). Our Business Partners' operations could be adversely affected if they do not successfully and timely achieve Year 2000 compliance. If our Business Partners experience Year 2000 compliance issues, then our business could be materially affected. We cannot guarantee that our plan will adequately address the Year 2000 issue in a timely manner or that we will be able to modify and replace any or all of our critical systems and applications in accordance with our plan. In addition, we cannot assure that any modifications or replacements will effectively address the Year 2000 issue. If we do not complete the required upgrades on time, or if they are not successful, our business could be materially affected. Furthermore, we cannot guarantee that other companies will make necessary, timely and successful conversions to their systems on which our systems depend. Although we intend in the second half of 1999 to develop a contingency plan detailing actions that we will take in the event the execution of our Year 2000 plan is not successfully completed on a timely basis, we have not yet developed such a plan. ITEM 2. PROPERTIES See PROPERTIES, above, under Item 1. ITEM 3. LEGAL PROCEEDINGS We are involved in an interference involving a patent issued to Yeda that discloses and claims certain TBP multimers. Because of the license with Serono discussed above, we do not believe that an adverse result in this interference would have a material adverse effect on our operations or prospects. See PATENTS, LICENSES AND TRADEMARKS, above. However, additional interferences may be declared involving other products or technologies being developed by Immunex, including ENBREL, MOBIST or CD40-L. We are not a party to any other material litigation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of our shareholders during the fourth quarter of our fiscal year ended December 31, 1998. 30 PART II ITEM 5. MARKET PRICE OF THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Immunex's common stock is traded on The Nasdaq Stock Market under the symbol IMNX. The following table sets forth for each period indicated the high and low sales prices for Immunex's common stock as quoted on The Nasdaq Stock Market. Share prices shown are before our two-for-one stock split effective for shareholders of record on March 11, 1999.
1998 1997 ------------------------ -------------------------- HIGH LOW HIGH LOW --------- ---------- ----------- ------------ 1st Quarter 75 3/8 47 1/8 33 18 7/8 2nd Quarter 73 5/8 57 1/2 39 23 1/4 3rd Quarter 73 1/2 48 68 1/4 32 7/8 4th Quarter 126 3/8 47 7/8 80 3/8 45 1/4
There were approximately 1,142 holders of record of Immunex's common stock as of March 9, 1999, which does not include the number of shareholders whose shares are held of record by a broker or clearing agency, but does include such a broker or clearing agency as a holder of record. We have not paid any cash dividends since our inception. We currently do not intend to pay any cash dividends in the foreseeable future, but intend to retain all earnings, if any, for use in our business operations. In connection with our stock option plan, we have issued shares of Immunex common stock upon exercise of employee stock options. Under the terms of the Governance Agreement with AHP, AHP has the right to purchase shares from Immunex to maintain AHP's percentage ownership interest following the issuance of Immunex common stock. See RELATIONSHIP WITH AHP AND CYANAMID in Item 1, above. Immunex issued 111,283 shares of common stock to AHP for $6,877,000 in 1998 and issued 28,223 shares of common stock to AHP for $1,280,000 in 1997. We believe that the sale of these securities was exempt from registration under the Securities Act of 1933, as amended, under Section 4.2 thereof. ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The following table shows selected financial data for the fiscal years 1994 to 1998.
1998 1997 1996 1995 1994 ----------- ----------- ----------- ----------- ----------- Revenues $ 243,450 $ 185,297 $ 151,198 $ 156,616 $ 144,332 Net income (loss) 986 (15,772) (53,632) (11,300) (33,104) Net income (loss) per common share, basic and diluted 0.02 (0.40) (1.35) (0.29) (0.85) Total Assets 325,325 227,333 177,787 174,037 192,665 Long-term obligations, including current portion 5,826 9,093 12,071 5,324 50,611 Shareholders' equity 247,463 176,156 137,710 136,643 111,927
31 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION Our disclosure and analysis in this report and in our 1998 Annual Report to shareholders contain some forward-looking statements. Forward-looking statements provide our current expectations or forecasts of future events. In particular, these include statements relating to future actions, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, and financial results. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. Any or all of our forward-looking statements in this report, in the 1998 Annual Report and in any other public statements we make may turn out to be wrong. Inaccurate assumptions we might make and known or unknown risks and uncertainties can affect our forward-looking statements. Consequently, no forward-looking statement can be guaranteed and our actual results may differ materially. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and Annual Reports on Form 10-K. Factors that we think could cause our actual results to differ materially from expected and historical results include, but are not limited to, those discussed in the "Risk Factors" section in Item 1 above. RESULTS OF OPERATIONS OVERVIEW In 1998, we generated net income of $1.0 million, compared to net losses of $15.8 million and $53.6 million in 1997 and 1996, respectively. The improvement in operating results in each of the years presented reflects increased product sales and contract revenues. The improvement in 1998 revenues was due largely to the approval and launch of ENBREL-Registered Trademark- (etanercept) in November 1998 following United States (U.S.) Food and Drug Administration (FDA) approval of ENBREL for treatment of advanced rheumatoid arthritis and continued growth in sales of LEUKINE-Registered Trademark- (sargramostim, GM-CSF). Furthermore, contract revenue totaling $50.0 million was earned during 1998 under the terms of an ENBREL Promotion Agreement with American Home Products Corporation (AHP). In 1997, growth in sales of our products LEUKINE and NOVANTRONE-Registered Trademark- (mitoxantrone) contributed to the revenuE increase. In addition, $15.0 million was earned in 1997 under the ENBREL Promotion Agreement. The revenue increases in 1998 and 1997 were partially offset by spending for the development of ENBREL, investment in our other research and development projects, and increased spending for selling, general and administrative activities. REVENUES (in millions)
1998 1997 1996 ---------- --------- ---------- ENBREL $ 12.7 $ -- $ -- LEUKINE 63.8 52.7 43.1 NOVANTRONE 48.8 51.6 36.7 Other product sales 44.6 45.4 49.7 ---------- --------- ---------- Total product sales 169.9 149.7 129.5 Royalty and contract revenue 73.5 35.6 21.7 ---------- --------- ---------- Total revenue $ 243.4 $ 185.3 $ 151.2 ---------- --------- ---------- ---------- --------- ----------
The improvement in product sales in 1998, as compared to 1997, was due to the launch of ENBREL in November 1998 and increased demand for LEUKINE, as noted above. Changes in sales levels of our other marketed products, as a whole, declined slightly during 1998. Also, at the end of 1997, we sold the marketing rights to certain products in Canada to a wholly owned subsidiary of AHP. Accordingly, no revenue was earned from sales of those products in 1998. 32 Sales growth in 1997, as compared to 1996, was attributable to sales increases for both LEUKINE and NOVANTRONE. Increased sales of LEUKINE resulted from the launch of a liquid formulation in January 1997 and increased selling and marketing efforts. Sales of NOVANTRONE benefited from an expanded label indication from the FDA in November 1996, which allows marketing the product to patients with pain related to hormone refractory prostate cancer (HRPC). On November 2, 1998, the FDA approved ENBREL for treatment of advanced rheumatoid arthritis. Sales of ENBREL commenced on November 4, 1998, and totaled $12.7 million for 1998. Additional sales history for ENBREL is needed before a meaningful assessment of the acceptance of ENBREL into the rheumatoid arthritis market in the U.S. can be completed. Under the terms of the ENBREL Promotion Agreement, AHP is promoting ENBREL in the U.S. through its Wyeth-Ayerst sales and marketing organization. AHP shares in the gross profits from U.S. sales of ENBREL and the companies share the selling, marketing, distribution and other costs to support sales of ENBREL. Demand for LEUKINE increased significantly beginning in 1997 following the launch of a liquid formulation of LEUKINE. Previously, LEUKINE was only available in a powdered formulation that required reconstitution prior to administration. The liquid formulation provided improved convenience that resulted in increased acceptance of LEUKINE. Sales of NOVANTRONE leveled in 1998 following an initial increase in demand after the product received an expanded label indication for treatment of HRPC by the FDA in December 1996. In 1998, we recognized that the sales gains achieved in 1997 were not going to continue throughout the year, due to what we believe to be increased usage of competitive products for the treatment of advanced prostate cancer. The increased competition led to a decline in sales of NOVANTRONE in the fourth quarter of 1998. We cannot predict the extent to which the decline in sales experienced in the fourth quarter will continue. In general, the amount of royalty and contract revenue recognized by Immunex each year has been largely dependent upon business opportunities that have been identified and the occurrence of certain events or achievement of milestones under existing contracts. Therefore, the timing and amounts of these revenues may fluctuate significantly from year to year. Royalty and contract revenue increased significantly in 1998 due to revenues earned under the ENBREL Promotion Agreement with AHP. In addition to promoting ENBREL in North America, as discussed above, AHP agreed to make payments to Immunex upon the occurrence of certain events. In 1998, we earned $50.0 million under the ENBREL Promotion Agreement. Of the $50.0 million, $20.0 million was earned when the Biologics License Application (BLA) for ENBREL was accepted for review by the FDA and the other $30.0 million was earned when the FDA approved ENBREL. In June 1998, we sold our U.S. rights to paclitaxel injection, a generic form of TAXOL-Registered Trademark-, to Baker Norton Pharmaceuticals, a wholly owned subsidiary of IVAX Corporation. The sale generated revenues of $6.9 million from license fees and sale of bulk paclitaxel inventory. Other license fees and contract revenues totaled $8.9 million in 1998, of which $4.0 million was earned under existing agreements with AHP. Royalty revenue also increased moderately, totaling $7.7 million for the year. The increase in royalty and contract revenue in 1997, as compared to 1996, was due primarily to the receipt of $15.0 million upon signing of the ENBREL Promotion Agreement. Other license fees and contract revenues totaled $13.8 million in 1997, compared to $16.0 million in 1996. Of these totals, $10.0 million was earned in 1997 and $6.0 million was earned in 1996 under agreements with AHP. Royalty revenue increased to $6.9 million in 1997 from $5.7 million in 1996. OPERATING EXPENSES Cost of product sales was 19.6%, 16.4% and 16.9% of product sales in 1998, 1997 and 1996, respectively. The increase in the cost of product sales percentage in 1998 was due to the following: - Launch of ENBREL in November 1998 (ENBREL, like LEUKINE, is a biologic. Biologics generally have a higher manufacturing cost than traditional pharmaceutical products and, in the case of our biologic products, are subject to multiple royalty obligations), - Unfavorable change in product mix, and - Increased royalties payable on LEUKINE in 1998. The unfavorable change in product mix in 1998 reverses a more favorable trend in 1997 whereby increased sales of certain products had resulted in an overall decrease in our cost of product sales percentage. The decrease in 1997 was partially offset by increased period costs incurred during the year and deteriorating margins on sales of leucovorin calcium. Research and development expense increased to $120.0 million in 1998 compared to $109.3 million and $96.6 million in 1997 and 1996, respectively. We continue to invest significantly in the development of our product candidates and 33 have increased spending on discovery research activities. Spending for the development of ENBREL increased further in 1998, reflecting expenditures for clinical trials, expenses associated with the regulatory filings for ENBREL, and spending by AHP for the development of ENBREL in Europe, the costs of which we share equally with AHP. In addition, expenditures for development of NUVANCE(TM) (IL-4 receptor) aND MOBist(TM) (Flt3-L) increased duriNG 1998 due to both expanded clinical trials for these product candidates and increased costs of manufacturing the product requirements for the clinical trials. Research and development expense in 1998 also includes the acquisition of the rights outside North America to IL-4 receptor and other receptor product candidates for $10.0 million from Hoechst Marion Roussel, Inc. The above increases were partially offset in 1998 by decreased clinical expenses for LEUKINE and decreased manufacturing costs for CD40 Ligand. In addition, as discussed below, funding of AHP's oncology discovery research program ceased effective July 1, 1998. In July 1998, we ended our oncology collaboration with AHP by terminating the research agreement and certain other agreements and entering into a new Product Rights Agreement with AHP. As a result of the termination of the research agreement, our obligation to fund AHP's oncology discovery research program ceased effective July 1, 1998. In addition, as a result of the Product Rights Agreement, certain territorial rights that each party had to the other party's cancer product candidates was also terminated. Under the terms of the Product Rights Agreement, AHP may acquire exclusive worldwide rights to up to four of our future product candidates. If AHP exercises any of these rights, we would be eligible for certain payments and royalties on future sales of such products. However, we may elect to retain the worldwide rights to up to two of such products. In such case, AHP would be eligible for certain payments and royalties on future sales of such products. The increase in research and development expense in 1997, as compared to 1996, was due largely to increased development costs for ENBREL and, to a lesser extent, increased investment in discovery research. In 1997, accelerating development of ENBREL became our primary focus. We significantly expanded our clinical studies for ENBREL and increased our manufacturing effort to meet the clinical product requirements for such studies. Spending on our other product candidates also increased in 1997 as these products progressed through early phase clinical studies or were being prepared for the start of clinical studies. Selling, general and administrative expense totaled $93.8 million, $71.3 million and $70.0 million in 1998, 1997 and 1996, respectively. The increase in 1998 expense was due primarily to spending on pre-launch activities and on launch related selling and marketing activities for ENBREL. Under the terms of the ENBREL Promotion Agreement, AHP assumed a majority of these expenses and will share in the gross profits from the U.S. sales of ENBREL. Our obligation for such expenses, including AHP's share of gross profits from U.S. sales of ENBREL, totaled $14.8 million in 1998. We have also incurred additional expenses on corporate infrastructure related to growth of Immunex. This was primarily due to the following: - Increased staffing levels, - Expenses associated with information systems, including efforts to address Year 2000 issues, and - Rent and facilities costs associated with expanded office space. The increase in selling, general and administrative expense in 1997, as compared to 1996, was due primarily to the following: - Selling and marketing programs for LEUKINE and NOVANTRONE, - Expenses associated with information systems, and - Patent procurement and defense activities. The above expense increases were offset by decreased litigation expenses in 1997. We incurred legal defense costs totaling $4.7 million in 1996 related to litigation that was settled in November 1996. OTHER INCOME (EXPENSE) Interest income increased to $6.8 million in 1998, from $3.8 million and $2.2 million in 1997 and 1996, respectively. The improvement reflects an increase in funds available for investment purposes and the interest earned on these funds. Our cash and marketable securities increased significantly beginning in early 1997 due primarily to payments received from AHP as settlement of their 1996 and 1997 revenue shortfall obligations assumed under certain agreements entered into during the merger of Immunex and American Cyanamid Company (CYANAMID). (See Note 9 in our Notes to Consolidated Financial Statements for a discussion of our agreements with AHP). In addition, the improvement in operating results led to positive cash flows from operating activities in both 1997 and 1998. In November 1996, we settled ongoing litigation and recorded a charge of $18.1 million to other expense as our share of the obligation under the settlement. 34 PROVISION FOR INCOME TAXES The provision for income taxes totaled $2.2 million, $0.2 million and $0.2 million in 1998, 1997 and 1996, respectively. To the extent that income subject to tax was offset by pre-merger net operating tax loss carryforwards, accounting rules require that we report a tax provision with the offset to the goodwill account. This tax provision is a non-cash transaction because we will utilize our net operating tax loss carryforwards to satisfy the federal tax liability. At December 31, 1998, our net operating tax loss carryforwards totaled approximately $252.0 million. The provision for income taxes in 1997 and 1996 consisted only of our tax obligation in the states in which we sell our products. LIQUIDITY AND CAPITAL RESOURCES Cash, cash equivalents and marketable securities totaled $144.8 million and $86.5 million at December 31, 1998 and 1997, respectively. Our cash reserves are held in a variety of interest-bearing instruments including government and corporate obligations and money market accounts. Operating activities provided cash of $23.2 million in 1998, compared to $15.1 million in 1997, and resulted in a net use of cash in operating activities of $43.0 million in 1996. The increase in 1998 was due primarily to the improvement in operating results. In addition, changes in working capital provided cash reflecting an increase in accounts payable and other current liabilities offset partially by growth in both accounts receivable and inventory. These changes are primarily due to the U.S. launch of ENBREL in November 1998 and growth in our operations. The improvement in 1997, as compared to 1996, was also due largely to the improvement in operating results and a favorable change in working capital requirements. Our working capital requirements will increase significantly in 1999 as we enter our first full year of selling ENBREL in the U.S. Under an ENBREL Supply Agreement entered into in November 1998 with AHP and with Boehringer Ingelheim Pharma KG (BI PHARMA), our contract manufacturer of ENBREL, we have commitments to purchase inventory totaling $198.0 million over the next two years. A portion of this inventory will be purchased by AHP from BI Pharma. In addition to inventory of ENBREL, our accounts receivable will be directly affected by U.S. sales of ENBREL and accounts payable will be affected by costs incurred under the ENBREL Promotion Agreement. Accordingly, operating cash flows are highly uncertain in 1999 and are highly dependent on sales and inventory levels of ENBREL. Excluding net purchases of marketable securities, net cash used in investing activities increased to $34.7 million in 1998, compared to $9.4 million and $5.9 million in 1997 and 1996, respectively. The increased use of cash in 1998 was due to: - Increase in property, plant and equipment, which includes the acquisition of property for possible development and relocation of our corporate offices and research facilities for $15.7 million, and - Payment of $5.0 million under a GM-CSF patent interference settlement. The increase in net cash used in investing activities in 1997, as compared to 1996, was due to increased purchases of property, plant and equipment. Beginning in 1998, capital expenditures increased beyond what had traditionally been a maintenance level of investment. This trend is expected to continue in 1999 as we expand our infrastructure, increase purchases of manufacturing and research equipment, and upgrade or replace systems and equipment as part of our Year 2000 compliance program. Furthermore, we have initiated a project to expand our process development capacity. The project to construct a new process development facility is currently in the design phase and construction is expected to begin in mid-1999. Costs for the process development facility are estimated to be approximately $15.0 million in 1999. Net cash provided by financing activities totaled $70.5 million, $56.0 million and $52.4 million in 1998, 1997 and 1996, respectively. In February 1998, we received the final revenue shortfall obligation from AHP totaling $60.0 million. In 1998 an additional $6.8 million was received from the exercise of employee stock options and $6.9 million was received from the issuance of 111,283 shares of common stock to AHP. Under the terms of a Governance Agreement with AHP, AHP can purchase additional shares of our common stock in order to maintain its percentage ownership. The purchase price is equal to the fair market value of the shares, as determined in accordance with the Governance Agreement, on the date of AHP's purchase. These cash inflows were partially offset by payments of a deferred litigation settlement. 35 The increase in cash provided by financing activities in 1997, as compared to 1996, was due primarily to an increase in the Revenue Guaranty payment received in each year. In 1997, we received $56.0 million compared to $45.3 million in 1996. This was offset by the cash flow impact of the deferred obligation related to the settlement of litigation. OUTLOOK The U.S. launch of ENBREL in November 1998 has had, and will have, a significant impact on our operations. If current trends continue, ENBREL will be our highest selling product in 1999. Not only will this increase product sales, but also will increase our cost of sales percentage. Cost of product sales for all products as a percentage of product sales in the fourth quarter of 1998, the first quarter that ENBREL was sold, increased to 22.1%, as compared to 19.6% for all of 1998. Our cost of sales percentage is expected to increase further in 1999 as sales of ENBREL become a larger percentage of total product sales. Spending on selling and marketing activities will also increase significantly in 1999 to support the marketing and sales of ENBREL. While the launch process of a new pharmaceutical product is expensive, we will only incur a portion of such expenses. Under the terms of the ENBREL Promotion Agreement, AHP will assume a majority of the marketing and selling costs for ENBREL in the U.S. for the first two years after launch, after which time we will share equally those costs with AHP. In addition, we share with AHP a percentage of the gross profits associated with U.S. sales of ENBREL. Therefore, spending in 1999 and beyond will include our portion of the ongoing selling, marketing and distribution expenses and profit sharing related to ENBREL in the U.S. We are seeking opportunities to increase sales of LEUKINE and NOVANTRONE by obtaining approval of new uses for these products. We are conducting clinical studies of LEUKINE in infectious disease and new oncology indications. In 1998, we obtained data from a Phase III study of NOVANTRONE in patients with progressive multiple sclerosis. In 1999, we intend to file a supplemental New Drug Application with the FDA to obtain approval to market NOVANTRONE in this indication. A portion of our revenues will continue to be derived from existing license, royalty and other such agreements. Under the ENBREL Promotion Agreement, additional revenues may be earned if certain events are achieved. We will earn $15.0 million under the ENBREL Promotion Agreement if ENBREL is approved with a claim for disease modification for early rheumatoid arthritis. A Phase III study of ENBREL for disease modification is expected to be completed in the second quarter of 1999. If the results are positive, we expect to file a supplemental BLA for ENBREL with the FDA for disease modification for early rheumatoid arthritis. The timing and approval of this application is uncertain. In addition, if net sales of ENBREL in North America exceed $200.0 million in any 12 consecutive months, we will earn a one-time payment $10.0 million under the ENBREL Promotion Agreement. We will earn an additional one-time payment of $10.0 million under the ENBREL Promotion Agreement if net sales of ENBREL in North America exceed $400.0 million in any 12 consecutive months. In the future we may enter into additional agreements to license marketing or technology rights. The timing of such agreements, if any, and the revenue recognized from those agreements cannot be predicted. Spending for our internal research and development programs is expected to be consistent with expense levels incurred in 1998. However, the timing and progression of certain clinical studies can impact these expense levels. Clinical studies can be very expensive and the costs can fluctuate significantly depending on the size of the study and how quickly patients are enrolled in a study. Accordingly, it is uncertain what level of spending will be required to support the ongoing clinical studies for ENBREL in early rheumatoid arthritis patients and for treatment of chronic heart failure. We are also progressing with clinical trials with NUVANCE for treatment of asthma and with certain other product candidates. Growth in selling, general and administrative expense will largely reflect the launch, selling, marketing and distribution of ENBREL, discussed above. We also expect spending to increase moderately to support growth in corporate infrastructure. YEAR 2000 The "Year 2000" issue is the result of computer programs being unable to differentiate between the year 1900 and the year 2000 because they were written using two digits rather than four to define the applicable year. This could result in a system failure or miscalculations with respect to current programs. We have established a Year 2000 Committee with representatives from all of the functional areas at Immunex. The Year 2000 Committee has initiated a comprehensive review of our computer systems and software applications (INFORMATION TECHNOLOGY) and equipment that utilize date 36 sensitive computer chips (EMBEDDED CHIPS). Embedded Chips are utilized in our security systems and certain manufacturing, laboratory and office equipment. Based on this review, we have determined that certain software, hardware and equipment will have to be modified or replaced so that they will properly utilize dates beyond December 31, 1999. Furthermore, we have initiated contact with key third-party suppliers, service providers, distributors, wholesalers and other entities with which we have a business relationship (BUSINESS PARTNERS) to determine their compliance with Year 2000 requirements. We anticipate that required modifications and replacements of our critical systems and applications will be completed prior to the year 2000. However, if such modifications are not completed in a timely manner, or if there were a similar such failure on the part of our Business Partners, there could be a material adverse impact on our operations. Our plan to resolve the Year 2000 issues is organized into three functional areas: Information Technology, Embedded Chips and Business Partners. For each functional area, there are three phases: Phase I: Assessment; Phase II: Testing and Remediation; and Phase III: Implementation and Contingency Planning. The Phase I activities for Information Technology is complete and a substantial portion of the Phase I activities for Embedded Chips and Business Partners is complete. Various testing and remediation projects are in process and many have been completed. As a result of this process, certain software applications have been identified that are not Year 2000 compliant and replacement of those software applications is in process. The Company is interviewing its Business Partners to assess Year 2000 readiness. Progress of our Business Partners to become Year 2000 compliant will be monitored and remediation and contingency planning will be made as needed. The estimated completion dates of each phase of the three functional areas are as follows:
Information Technology Embedded Chips Business Partners ---------------------- -------------- ----------------- Phase I Complete 1999 First Quarter 1999 First Quarter Phase II 1999 Second Quarter 1999 Second Quarter 1999 Second Quarter Phase III 1999 Third Quarter 1999 Third Quarter 1999 Third Quarter
We are utilizing both internal and external resources to identify, correct and test our computer systems, equipment and other applications for Year 2000 compliance. Our total cost for the Year 2000 project is estimated at approximately $6.8 million ($2.3 million of expense and $4.5 million capital). Through December 31, 1998, we have incurred approximately $1.5 million ($0.5 million of expense and $1.0 million capital). These costs do not include any internal costs. We will utilize our existing cash reserves to fund our Year 2000 compliance program. We have not identified our most reasonably likely worst case scenario with respect to possible losses in connection with Year 2000 related problems. We plan on completing this analysis in mid-1999. We have not begun the contingency planning process. Contingency plan development is scheduled for completion in the second half of 1999. MARKET RISK We invest our cash reserves in marketable securities consisting primarily of U.S. government and corporate obligations. Our marketable securities are subject to interest rate risk. If market interest rates increase by 10%, the effect on our operating results would not be material. In addition, we own common stock in two biotechnology companies with a cost of $3.0 million. 37 ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK See MARKET RISK, above, under Item 7. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page in Form 10-K --------- Consolidated Balance Sheets at December 31, 1998 and 1997. 39 Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996. 40 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996. 42 Notes to Consolidated Financial Statements for the years ended December 31, 1998, 1997 and 1996. 43 - 54 Report of Ernst & Young LLP, Independent Auditors. 55
38 IMMUNEX CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
December 31, 1998 1997 --------- --------- ASSETS Current assets: Cash and cash equivalents $ 43,600 $ 66,176 Marketable securities 101,245 19,493 Accounts receivable - trade, net 21,570 10,588 Accounts receivable - AHP 967 3,555 Accounts receivable - other 6,402 4,088 Inventories 23,475 9,031 Prepaid expenses and other current assets 4,726 3,662 --------- --------- Total current assets 201,985 116,593 Property, plant and equipment, net 90,092 73,645 Other assets: Property held for future development 6,129 5,768 Investments in common stock 3,837 6,859 Intangible product rights and other, net 15,935 13,286 Goodwill, net 7,347 11,182 --------- --------- Total assets $ 325,325 $ 227,333 --------- --------- --------- --------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 39,256 $ 29,007 Accounts payable - AHP 13,950 1,917 Accrued compensation and related items 13,756 8,572 Current portion of long-term obligations 3,477 3,460 Other current liabilities 5,074 2,588 --------- --------- Total current liabilities 75,513 45,544 Long-term obligations 2,349 5,633 Commitments and contingencies Shareholders' equity: Preferred stock, $.01 par value, 5,000,000 shares authorized, none outstanding -- -- Common stock, $.01 par value, 100,000,000 shares authorized, 40,161,261 and 39,718,023 outstanding at December 31, 1998 and 1997, respectively 725,192 711,485 Guaranty payment receivable from AHP -- (60,032) Unrealized gain on investments, net 1,228 4,646 Accumulated deficit (478,957) (479,943) --------- --------- Total shareholders' equity 247,463 176,156 --------- --------- Total liabilities and shareholders' equity $ 325,325 $ 227,333 --------- --------- --------- ---------
See accompanying notes. 39 IMMUNEX CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts)
Year ended December 31, 1998 1997 1996 --------- --------- --------- Revenues: Product sales $ 169,907 $ 149,672 $ 129,528 Royalty and contract revenue 73,543 35,625 21,670 --------- --------- --------- 243,450 185,297 151,198 Operating expenses: Cost of product sales 33,285 24,552 21,860 Research and development 119,954 109,312 96,612 Selling, general and administrative 93,777 71,275 69,968 --------- --------- --------- 247,016 205,139 188,440 --------- --------- --------- Operating loss (3,566) (19,842) (37,242) Other income (expense): Interest income 6,793 3,790 2,156 Interest expense (425) (596) (293) Other income (expense), net 384 1,088 (18,093) --------- --------- --------- 6,752 4,282 (16,230) --------- --------- --------- Income (loss) before income taxes 3,186 (15,560) (53,472) Provision for income taxes 2,200 212 160 --------- --------- --------- Net income (loss) $ 986 $ (15,772) $ (53,632) --------- --------- --------- --------- --------- --------- Net income (loss) per common share Basic $ 0.02 $ (0.40) $ (1.35) --------- --------- --------- --------- --------- --------- Diluted $ 0.02 $ (0.40) $ (1.35) --------- --------- --------- --------- --------- --------- Number of shares used for per share amounts Basic 39,875 39,637 39,602 --------- --------- --------- --------- --------- --------- Diluted 41,890 39,637 39,602 --------- --------- --------- --------- --------- ---------
See accompanying notes. 40 IMMUNEX CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands, except share data)
Guaranty Payment Accumu- Common Stock Receivable lated Other Accumu- Total $.01 Par Value from Comprehen- lated Shareholders' Shares Amount AHP sive Income Deficit Equity ----------- ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1995 39,601,899 $ 592,470 $ (45,288) $ -- $ (410,539) $ 136,643 Net loss for the year ended December 31, 1996 -- -- -- -- (53,632) (53,632) Unrealized gain on Investments -- -- -- 9,406 -- 9,406 ----------- Comprehensive loss (44,226) Issuance of common stock upon the exercise of stock options 326 5 -- -- -- 5 Guaranty payment received from AHP -- -- 45,288 -- -- 45,288 Guaranty payment receivable from AHP -- 56,000 (56,000) -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1996 39,602,225 648,475 (56,000) 9,406 (464,171) 137,710 Net loss for the year ended December 31, 1997 -- -- -- -- (15,772) (15,772) Unrealized loss on investments, net -- -- -- (4,760) -- (4,760) ----------- Comprehensive loss (20,532) Issuance of common stock upon the exercise of stock options 87,575 1,698 -- -- -- 1,698 Net proceeds from issuance of common stock to AHP 28,223 1,280 -- -- -- 1,280 Guaranty payment received from AHP -- -- 56,000 -- -- 56,000 Guaranty payment receivable from AHP -- 60,032 (60,032) -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1997 39,718,023 711,485 (60,032) 4,646 (479,943) 176,156 Net income for the year ended December 31, 1998 -- -- -- -- 986 986 Unrealized loss on investments, net -- -- -- (3,418) -- (3,418) ----------- Comprehensive loss (2,432) Issuance of common stock upon the exercise of stock options 331,955 6,830 -- -- -- 6,830 Net proceeds from issuance of common stock to AHP 111,283 6,877 -- -- -- 6,877 Guaranty payment received from AHP -- -- 60,032 -- -- 60,032 ----------- ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1998 40,161,261 $ 725,192 $ -- $ 1,228 $ (478,957) $ 247,463 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
See accompanying notes. 41 IMMUNEX CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Year ended December 31, 1998 1997 1996 --------- --------- --------- Cash flows from operating activities: Net income (loss) $ 986 $ (15,772) $ (53,632) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 18,119 16,930 15,157 Deferred income tax provision (see Note 7) 1,900 -- -- Cash flow impact of changes to: Accounts receivable (10,708) (90) 2,269 Inventories (6,493) (138) (591) Prepaid expenses and other current assets (947) 55 (1,990) Accounts payable, accrued compensation and other current liabilities 20,371 14,078 (4,262) --------- --------- --------- Net cash provided by (used in) operating 23,228 15,063 (43,049) activities Cash flows from investing activities: Purchases of property, plant and equipment (29,389) (7,409) (4,656) Proceeds from sales and maturities of marketable 40,169 13,804 -- securities Purchases of marketable securities (121,745) (33,158) -- Acquisition of rights to marketed products (5,000) -- -- Other (312) (1,985) (1,255) --------- --------- --------- Net cash used in investing activities (116,277) (28,748) (5,911) Cash flows from financing activities: Guaranty payment received from AHP 60,032 56,000 45,288 Proceeds from issuance of common stock 6,877 1,280 -- Proceeds from exercise of stock options 6,831 1,698 -- Deferred portion of settlement obligation -- -- 7,703 Payment under settlement obligation (2,391) (2,235) -- Other (876) (743) (607) --------- --------- --------- Net cash provided by financing activities 70,473 56,000 52,384 --------- --------- --------- Net increase (decrease) in cash and cash equivalents (22,576) 42,315 3,424 Cash and cash equivalents, beginning of period 66,176 23,861 20,437 --------- --------- --------- Cash and cash equivalents, end of period $ 43,600 $ 66,176 $ 23,861 --------- --------- --------- --------- --------- ---------
See accompanying notes. 42 IMMUNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION Immunex Corporation (which may be referred to as IMMUNEX, WE, US or OUR) is a biopharmaceutical company that discovers, develops, manufactures and markets innovative therapeutic products for the treatment of human diseases, including cancer, infectious diseases and immunological disorders such as rheumatoid arthritis. We operate in a highly regulated and competitive environment. Our business is regulated primarily by the United States (U.S.) Food and Drug Administration (FDA). The FDA regulates the products we sell, our manufacturing processes and our promotional activities. Obtaining approval for a new therapeutic product is never certain, may take several years and is very costly. Competition in researching, developing and marketing pharmaceutical products is intense. Any of the technologies covering our existing products or products under development could become obsolete or diminished in value by discoveries and developments of other organizations. The U.S. is our current market for pharmaceutical products. Our sales to clinics and hospitals are primarily through wholesalers and specialty distributors. The consolidated financial statements are prepared in conformity with generally accepted accounting principles. In preparing the financial statements, management must make some estimates and assumptions that may affect reported amounts and disclosures. On June 1, 1993, the predecessor to the current Immunex Corporation merged with a subsidiary of American Cyanamid Company (CYANAMID). Cyanamid received the number of shares equal to 53.5% of our common stock and dilutive securities outstanding immediately following the merger. In late 1994, American Home Products Corporation (AHP) acquired all of Cyanamid's outstanding shares of common stock. AHP and certain of its subsidiaries and affiliates assumed the rights and obligations of Cyanamid. As a result, AHP now holds a majority interest in Immunex. We have also entered into additional agreements with AHP (see Note 9). All references to AHP include AHP and its various affiliates, divisions and subsidiaries, including Cyanamid. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include our accounts and our wholly owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation. CASH EQUIVALENTS Cash equivalents include items almost as liquid as cash, such as demand deposits or securities with maturity periods of 90 days or less when purchased. Our cash equivalents are carried at fair market value. MARKETABLE SECURITIES Marketable securities consist of securities available-for-sale, which are stated at fair value with the unrealized gains and losses included as a component of shareholders' equity on the balance sheet. Cost of securities is calculated using the specific-identification method. Securities available-for-sale at December 31, 1998 and 1997 consisted primarily of U.S. government and corporate obligations. 43 IMMUNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED INVENTORIES Inventories are stated at the lower of cost, using a weighted-average method, or market. The components of inventories at December 31 are as follows (in thousands):
1998 1997 --------- -------- Raw materials $ 807 $ 1,069 Work in process 17,953 5,377 Finished goods 4,715 2,585 --------- -------- Total inventory $ 23,475 $ 9,031 --------- -------- --------- --------
DEPRECIATION AND AMORTIZATION The cost of buildings and equipment is depreciated evenly over the estimated useful lives of the assets, which range from three to 31.5 years. Leasehold improvements are amortized evenly over either their estimated useful life, or the term of the lease, whichever is lower. PROPERTY HELD FOR FUTURE DEVELOPMENT We own some property intended for the possible future expansion of our manufacturing facilities. This property has been recorded at cost. INVESTMENTS IN COMMON STOCK We own common stock in two biotechnology companies. These investments are accounted for as securities available-for-sale and recorded at fair value on the balance sheet (see Note 3). GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill is being amortized evenly over a 10-year period. Accumulated amortization totaled $11,319,000 in 1998 and $9,384,000 in 1997. Due to the tax effect of certain transactions during 1998, we recorded a tax provision and reduced our goodwill by $1,900,000 (see Note 7). Intangible product rights and other intangible assets are amortized evenly over their estimated useful lives, ranging from five to 15 years. Accumulated amortization totaled $7,069,000 in 1998 and $5,595,000 in 1997. COMPREHENSIVE INCOME (LOSS) Immunex adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," as of January 1, 1998. SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on Immunex's net income (loss) or shareholders' equity. Statement No. 130 requires unrealized gains and losses on available-for-sale securities to be included in other comprehensive income. Prior to adoption they were reported separately in shareholders' equity. Prior year financial statements have been reclassified to conform to the requirements of SFAS No. 130. REVENUES Product sales are recognized when product is shipped. We perform ongoing credit evaluations of our wholesalers, specialty distributors and our end customers, if appropriate, and we do not require collateral. Product sales are recorded net of reserves for estimated chargebacks, returns, discounts, Medicaid rebates and administrative fees. We maintain reserves at a level that we believe is sufficient to cover estimated future requirements. Allowances for discounts, returns and bad debts, which are netted against accounts receivable, totaled $11,627,000 in 1998 and $8,653,000 in 1997. Reserves for chargebacks, Medicaid rebates and administrative fees are included in accounts payable and totaled $12,610,000 in 1998 and $9,715,000 in 1997. Revenues received under royalty, licensing and other contractual agreements are recognized based on the terms of the underlying agreements. 44 IMMUNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED NET INCOME (LOSS) PER COMMON SHARE Immunex adopted SFAS No. 128, "Earnings Per Share," in 1997. SFAS No. 128 requires the calculation and presentation of "Basic" and "Diluted" earnings per share. Basic earnings per share is calculated by dividing net income or net loss by the weighted average number of common shares outstanding. Diluted earnings per share is calculated by dividing net income or net loss by the weighted average common shares outstanding plus the dilutive effect of outstanding stock options. If we report a net loss, diluted earnings per share will be the same as basic earnings per share because the effect of outstanding stock options being added to weighted average shares outstanding would reduce the loss per share. Therefore, outstanding stock options are not included in the calculation during net loss periods. RECLASSIFICATIONS For comparison purposes, certain prior year amounts in the consolidated financial statements have been reclassified to conform to current year presentations. NOTE 3. INVESTMENTS Our investments are considered available-for-sale and are stated at fair value on the balance sheet with the unrealized gains and losses included as a component of shareholders' equity as comprehensive income. For both 1998 and 1997, there were no material realized gains or losses. Immunex's investment guidelines state that the maximum average life of any one security shall be five years with the maximum weighted average life of the investment portfolio being three years. At December 31, 1998, all of Immunex's investments met these guidelines. Information about our investments follows (in thousands):
Gross Gross Fair Amortized Unrealized Unrealized Year Ended December 31, 1998 Value Cost Gains Losses --------- --------- --------- --------- Type of security: Commercial paper $ 4,178 $ 4,194 $ -- $ (16) Corporate debt securities 52,547 52,351 252 (56) U.S. government and agency obligations 54,460 54,208 299 (47) Common stock (see Note 2) 3,837 3,041 796 -- --------- --------- --------- --------- $ 115,022 $ 113,794 $ 1,347 $ (119) --------- --------- --------- --------- --------- --------- --------- --------- YEAR ENDED DECEMBER 31, 1997 Type of security: Commercial paper $ 4,988 $ 4,988 $ -- $ -- Corporate debt securities 3,048 3,045 3 -- U.S. government and agency obligations 23,940 23,804 136 -- Common stock (see Note 2) 6,859 2,352 4,507 -- --------- --------- --------- --------- $ 38,835 $ 34,189 $ 4,646 $ -- --------- --------- --------- --------- --------- --------- --------- --------- Classification in the balance sheet: 1998 1997 --------- --------- Cash and cash equivalents $ 9,940 $ 12,483 Marketable securities 101,245 19,493 Investment in common stock 3,837 6,859 --------- --------- $ 115,022 $ 38,835 --------- --------- --------- ---------
45 IMMUNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4. PROPERTY, PLANT AND EQUIPMENT The major categories of property, plant and equipment, at historical cost, consist of the following (in thousands):
1998 1997 --------- --------- Land $ 17,851 $ 2,140 Buildings and improvements 50,097 50,001 Equipment 64,727 53,230 Leasehold improvements 23,469 21,469 --------- --------- 156,144 126,840 Less accumulated depreciation and amortization (66,052) (53,195) --------- --------- Property, plant and equipment, net $ 90,092 $ 73,645 --------- --------- --------- ---------
NOTE 5. LONG-TERM OBLIGATIONS Long-term obligations consist of the following (in thousands):
1998 1997 ------- ------- Deferred state sales tax on manufacturing facility, due in annual installments in 1999 and 2000 $ 1,889 $ 2,576 Deferred portion of litigation settlement obligation 3,077 5,468 Other 860 1,049 ------- ------- 5,826 9,093 Less current portion (3,477) (3,460) ------- ------- $ 2,349 $ 5,633 ======= =======
In November 1996, we settled litigation. In accordance with the terms of the settlement, a payment was made at the time of the settlement, to be followed by four successive annual payments. The deferred payments have been discounted using a rate of 7%. We had no interest bearing debt in 1998, 1997 or 1996. With the exception of deferred state sales tax, the balance sheet carrying value for our long-term obligations approximates fair value. The fair value was calculated by discounting future cash flows using our current estimated incremental borrowing rate. At December 31, 1998 and 1997, the fair value of deferred state sales tax was calculated as $1,700,000 and $2,203,000, respectively. 46 IMMUNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6. SHAREHOLDERS' EQUITY STOCK OPTIONS We may grant stock options, both incentive and non-qualified, to any employee, including officers, under our stock option plan (the Plan). There have been 6,225,267 shares of common stock reserved for the Plan. Options are granted by a committee of our Board of Directors. Under the Plan, options are not granted with exercise prices less than the fair market value of our common stock at the date of grant. Each outstanding option has a term of 10 years from the date of grant and becomes exercisable at a rate of 20% per year beginning one year from the date of grant. We also have a stock option plan with 100,000 shares of common stock reserved for nonemployee directors that provides each independent director a grant of an option to purchase 10,000 shares of common stock on the day such director is initially elected or appointed to the Board of Directors and an annual grant of 5,000 shares thereafter. Each option is granted with an exercise price equal to fair market value of our common stock at the date of grant. Each outstanding option has a term of 10 years from the date of grant and becomes exercisable at a rate of 20% per year beginning one year from the date of grant. Immunex has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Stock options are granted with an exercise price equal to the fair market value of the stock on the date of grant and, accordingly, we do not record compensation expense for stock option grants. The pro-forma disclosures, assuming that the fair value of option grants were recorded as compensation, for each of the years presented is not likely to be representative of the effects in future years because it does not take into consideration pro-forma amortization of compensation expense related to grants made prior to 1995. The following table summarizes results as if we had recorded compensation expense for the 1998, 1997 and 1996 option grants (in thousands, except per share amounts):
1998 1997 1996 ---------- ----------- ---------- Net income (loss) - as reported $ 986 $ (15,772) $ (53,632) Net loss - pro forma (11,413) (20,643) (55,336) Net income (loss) per common share, basic and diluted - as reported $ 0.02 $ (0.40) $ (1.35) Net loss per common share, basic and diluted - pro forma (0.29) (0.52) (1.40)
The estimated fair value of options granted in 1998, 1997 and 1996 was calculated using the Black-Scholes option pricing model with the following weighted average assumptions:
1998 1997 1996 ------------- ------------- ------------- Estimated fair value $ 35.35 $ 15.43 $ 8.33 Expected life in years 6 6 6 Risk-free interest rate 4.6% - 5.7% 6.0% - 6.6% 6.3% - 6.7% Volatility 52% 45% 45% Dividend yield -- -- --
47 IMMUNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6. SHAREHOLDERS' EQUITY, CONTINUED Information with respect to Immunex's stock option plans is as follows:
Weighted Shares Subject Exercise Average to Option Price Range Exercise Price ---------- --------------- -------- Options outstanding balance at December 31, 1995 1,085,370 $ 11.75 - 31.50 $ 22.85 Granted 1,216,000 12.44 - 15.88 15.79 Exercised (326) 11.75 - 15.00 14.00 Canceled (228,480) 11.75 - 31.50 21.53 ---------- --------------- -------- Options outstanding balance at December 31, 1996 2,072,564 $ 11.75 - 31.50 $ 18.85 Granted 1,227,650 24.25 - 76.75 30.75 Exercised (87,575) 11.75 - 31.50 19.43 Canceled (110,111) 12.25 - 41.75 21.62 ---------- --------------- -------- Options outstanding balance at December 31, 1997 3,102,528 $ 11.75 - 76.75 $ 23.35 Granted 1,393,750 62.25 - 70.63 63.06 Exercised (331,955) 11.75 - 41.75 20.57 Canceled (178,999) 12.25 - 76.75 46.87 ---------- --------------- -------- Options outstanding balance at December 31, 1998 3,985,324 $ 11.75 - 76.75 $ 36.42 ---------- --------------- -------- ---------- --------------- -------- Shares available for future grants at December 31, 1998 1,920,087 ---------- ----------
The following table summarizes information about options outstanding at December 31, 1998:
Outstanding Exercisable ---------------------------------------------- ----------------------- Weighted Average Weighted Weighted Range of Remaining Average Average Exercise Prices Options Contractual Life Exercise Price Options Exercise Price --------------- ------- ---------------- -------------- ------- -------------- $ 11.75 - 15.00 323,396 6 years $ 14.47 240,116 $ 14.64 15.88 - 15.88 887,480 7 years 15.88 289,400 15.88 17.50 - 18.88 107,420 5 years 18.78 85,180 18.76 24.25 - 24.25 851,000 8 years 24.25 140,740 24.25 27.25 - 41.75 394,543 5 years 31.97 324,543 31.36 62.25 - 76.75 1,421,485 9 years 64.09 21,400 76.75 - ------------------ ------------ ------------ ----------- ----------- $ 11.75 - 76.75 3,985,324 $ 36.42 1,101,379 $ 22.62 - ------------------ ------------ ------------ ----------- ----------- - ------------------ ------------ ------------ ----------- -----------
GUARANTY PAYMENTS RECEIVABLE FROM AHP AHP was required to make payments or contribute products to us if revenues from certain marketed products did not achieve established levels through December 31, 1997. This was limited to a maximum amount in each year. Such payments were treated as additional contributions to shareholders' equity. We recorded a receivable from AHP of $60,032,000 in 1997 and $56,000,000 in 1996 for the revenue shortfall. All receivables have been collected. 48 IMMUNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7. INCOME TAXES Significant components of the provision for income taxes are as follows (in thousands):
1998 1997 1996 ------ ------ ------ Current taxes Federal $ -- $ -- $ -- State 300 132 148 ------ ------ ------ $ 300 $ 132 $ 148 Deferred taxes Federal $ -- $ -- $ -- State -- -- -- ------ ------ ------ $ -- $ -- $ -- Non-cash accounting entry to record tax expense and to reduce balance sheet goodwill associated with Cyanamid merger (see Note 9) $1,900 $ -- $ -- ------ ------ ------ Total $2,200 $ 132 $ 148 ------ ------ ------ ------ ------ ------
During 1998 we generated taxable income. Our taxable income was offset by utilizing net operating loss (NOL) carryforwards that originated prior to the 1993 Cyanamid merger. The benefit from utilizing these NOLs has been recorded as a non-cash charge to tax expense and as a reduction of goodwill by $1,900,000. Income taxes paid for 1998, 1997 and 1996 totaled $275,000, $132,000 and $148,000 respectively. Reconciliation of the U.S. federal statutory tax rate to Immunex's effective tax rate is as follows:
1998 1997 1996 ------ ------ ------ U.S. federal statutory tax rate 35.0% (35.0)% (35.0)% Non-deductible amortization of goodwill 17.4 4.6 1.3 Increase in valuation reserve -- 29.7 32.0 State taxes (net of federal tax benefit) 6.1 1.4 0.3 Other 10.6 0.7 1.7 ------ ------ ------ Effective tax rate 69.1% 1.4% 0.3% ------ ------ ------ ------ ------ ------
49 IMMUNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7. INCOME TAXES, CONTINUED Significant components of tax assets and liabilities at December 31 (in thousands):
1998 1997 --------- --------- Deferred tax assets: Net operating loss carryforwards $ 88,194 $ 88,232 Research and experimental credits 16,814 13,152 In-process research and development 3,901 1,063 Accounts receivable allowances 4,070 3,029 Accrued liabilities 1,885 2,832 Other 912 1,763 --------- --------- Total deferred tax assets 115,776 110,071 Valuation allowance for deferred tax assets (109,526) (101,054) --------- --------- Net deferred tax assets 6,250 9,017 Deferred tax liabilities: Tax over book depreciation 1,515 2,334 Purchase accounting adjustments 2,157 2,694 Other 2,578 3,989 --------- --------- Total deferred tax liabilities 6,250 9,017 --------- --------- $ -- $ -- --------- --------- --------- ---------
Our deferred tax assets consist primarily of the benefit resulting from unused NOL carryforwards and research and experimentation credit carryforwards. The amounts of these carryforwards are approximately $252,000,000 and $16,800,000 respectively at December 31, 1998. The carryforwards expire from 1999 through 2013. In 1998, approximately $3,000,000 of NOL carryforwards and $360,000 of research and experimentation credits expired. Our ability to generate sufficient future taxable income to realize the benefits of our net deferred tax assets is uncertain. Therefore, a reserve of $109,526,000 and $101,054,000 has been recorded for financial reporting purposes at December 31, 1998 and 1997 respectively. This represents an increase in the reserve of approximately $8,472,000 and $7,441,000 during 1998 and 1997 respectively. The amount of the reserve is the difference between our deferred tax assets and our deferred tax liabilities. The balance sheet effect of this reserve is to completely offset the value of our net deferred tax assets for financial reporting purposes. To the extent we are able to generate taxable income in the future, NOL carryforwards will be utilized in the following order (in thousands): - Pre-1993 Cyanamid merger NOL to be utilized to offset goodwill and intangible product rights $ 32,460 - Pre and post-1993 Cyanamid merger NOL to be utilized to offset future tax expense 178,417 - Pre and post-1993 Cyanamid merger NOL to be utilized to increase paid-in capital for the unrecorded tax benefit of stock options 41,123 ------------ Total NOL carryforward $ 252,000 ------------ ------------
50 IMMUNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8. EMPLOYEE BENEFITS As a retirement plan, we offer a defined contribution plan covering all full-time salaried employees. The plan is a salary deferral arrangement pursuant to Internal Revenue Code section 401(k) and is subject to the provisions of the Employee Retirement Income Security Act of 1974. We match 100% of the first 2% of an employee's deferred salary and 50% of the next 4% of an employee's deferred salary. Employees with five or more years of service receive a match of 100% of the first 2% of deferred salary and 75% of the next 4% of deferred salary. We recorded compensation expense resulting from matching contributions to the plan of $2,164,000 in 1998, $1,900,000 in 1997 and $1,707,000 in 1996. NOTE 9. TRANSACTIONS WITH AHP On June 1, 1993, the predecessor to the current Immunex Corporation merged with a subsidiary of Cyanamid. In late 1994, all of the outstanding shares of common stock of Cyanamid were acquired by AHP. AHP and certain of its subsidiaries and affiliates have assumed the rights and obligations of Cyanamid under various agreements entered into at the time of the merger or thereafter. In addition, we have entered into additional agreements with AHP. Significant transactions under these agreements are discussed in the paragraphs below and the impact on our statement of operations is summarized in the following table (in thousands):
1998 1997 1996 -------- -------- -------- Revenues: Product sales $ 758 $ 2,590 $ 1,957 Royalty and contract revenue 56,687 29,218 10,024 -------- -------- -------- 57,445 31,808 11,981 Operating expenses: Cost of product sales 511 1,281 936 Research and development, net (2,251) 715 20,314 Selling, general and administrative 14,800 -- -- -------- -------- -------- 13,060 1,996 21,250 -------- -------- -------- Net contribution to operating results $ 44,385 $ 29,812 $ (9,269) -------- -------- -------- -------- -------- --------
ENBREL PROMOTION AGREEMENT In 1997, we entered into an ENBREL Promotion Agreement with AHP. Under the terms of the ENBREL Promotion Agreement, AHP is promoting ENBREL in the U.S. through Wyeth-Ayerst's sales and marketing organization. Immunex distributes a portion of the gross profits from U.S. sales of ENBREL to AHP and furthermore, reimburses AHP for a portion of the selling, marketing, distribution and other costs incurred in the U.S. sales of ENBREL. Our obligation for such expenses, including AHP's share of gross profits from ENBREL, totaled $14,800,000 in 1998. In addition, under the ENBREL Promotion Agreement, we received contracted payments of $50,000,000 and $15,000,000 from AHP in 1998 and 1997, respectively. TACE AGREEMENTS In December 1995, we licensed exclusive worldwide rights to tumor necrosis factor alpha converting enzyme (TACE) technology to AHP. Immunex received payments of $4,000,000, $6,000,000 and $4,000,000 in 1998, 1997 and 1996, respectively, under these agreements. The TACE agreements also include additional milestone payments and royalties on future product sales. Under the agreements, AHP will be responsible for developing inhibitors of TACE. RESEARCH AND DEVELOPMENT In July 1998, we ended our oncology collaboration with AHP by terminating the research agreement and certain other agreements and entered into a new Product Rights Agreement. As a result of the termination of the research agreement, our funding requirements of AHP's oncology discovery research program ceased effective July 1, 1998. Under the superseded agreement, we paid $8,258,000, $16,240,000 and $21,156,000 in 1998, 1997 and 1996, respectively, to support AHP's oncology research programs. 51 IMMUNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9. TRANSACTIONS WITH AHP, CONTINUED Under the terms of the Product Rights Agreement, AHP may acquire exclusive worldwide rights to up to four of our future product candidates. If AHP exercises any of these rights, we would be eligible for certain payments and royalties on future sales of such products. However, we may elect to retain the worldwide rights to up to two of such products. In such case, AHP would be eligible for certain payments and royalties on future sales of such products. Immunex and AHP have an agreement to share equally the development costs of ENBREL in the U.S. and Canada (NORTH AMERICA) and Europe. We also had a similar agreement related to MOBIST. However, the agreement related to MOBIST was terminated as a result of the Product Rights Agreement, discussed above. AHP's share of the development costs under these two agreements totaled $10,719,000, $18,768,000 and $3,923,000 in 1998, 1997 and 1996, respectively. In order to retain the rights to ENBREL outside North America, AHP paid Immunex $2,000,000 in 1996. The agreement under which AHP made this payment was superseded by the agreement to share equally the development costs of ENBREL, discussed above. ONCOLOGY PRODUCT LICENSE AGREEMENT As a result of the Product Rights Agreement, certain territorial rights that each party had to the other party's cancer product candidates were terminated. Under the terms of the superseded agreements, AHP was entitled to a royalty bearing license outside North America to any products resulting from our oncology research and development activities. AHP reimbursed us for certain costs related to manufacturing and process development. We recognized revenue under the superseded agreement of $1,246,000 and $1,645,000 in 1997 and 1996, respectively. No related revenue was earned in 1998. Under the terms of a subsequent agreement, Immunex and AHP agreed to collaborate in the development of paclitaxel injection, a generic form of TAXOL-Registered Trademark-, an oncology product marketed by Bristol-Myers Squibb Company. We incurred costs under the agreement of $3,243,000 and $3,081,000 in 1997 and 1996, respectively. There were no such costs incurred in 1998. In June 1998, we sold our U.S. rights to paclitaxel injection to a third party, and accordingly are no longer incurring such development expenses. AHP and its sublicensees have a royalty bearing license to sell certain of our existing oncology products outside North America. We earned royalties under the agreement totaling $2,687,000, $2,972,000 and $2,379,000 in 1998, 1997 and 1996, respectively. SUPPLY AND MANUFACTURING Immunex and AHP are parties to a supply agreement and a toll manufacturing agreement under which AHP manufactures and supplies the reasonable commercial requirements of certain oncology products at a price equal to 125% of AHP's or its subsidiaries' manufacturing costs. Immunex and AHP also have a methotrexate distributorship agreement whereby AHP agreed to supply methotrexate at certain established prices which are adjusted annually. Immunex purchased inventory totaling $6,172,000 in 1998 and $7,905,000 in 1997 from AHP and its subsidiaries under these agreements. In addition, AHP billed us $458,000 in 1998, $988,000 in 1997 and $686,000 in 1996 for other expenses under such agreement. DISTRIBUTION We were party to a distributorship agreement with Wyeth-Ayerst Canada, Inc, a wholly owned subsidiary of AHP, under which Wyeth-Ayerst Canada distributed certain oncology products in Canada. We supplied oncology products to Wyeth-Ayerst Canada at certain established prices, which were subject to annual adjustment. Inventory totaling $2,010,000 in 1997 and $1,511,000 in 1996 was sold by us to Wyeth-Ayerst Canada. In December 1997, we sold our rights to these products in Canada to AHP for $4,000,000. We have agreed to supply the commercial requirements of our products to Wyeth-Ayerst Laboratories Puerto Rico, Inc., a wholly owned subsidiary of AHP. Net revenue recognized under this agreement totaled $758,000 in 1998, $580,000 in 1997 and $446,000 in 1996. 52 IMMUNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS REVENUE GUARANTY AHP was required to make payments or contribute products to Immunex if revenues from certain marketed products did not achieve established levels through December 31, 1997 (see Note 6). At December 31, 1997, we recorded a receivable from AHP of $60,032,000 related to the revenue shortfall in 1997, which was received by us in February 1998. OPTION TO PURCHASE ADDITIONAL COMMON STOCK OF IMMUNEX Immunex and AHP are parties to a 1993 Governance Agreement under which AHP has the option to purchase from us on a quarterly basis, additional shares of Immunex common stock to the extent necessary to maintain AHP's percentage ownership interest as of the immediately preceding quarter. The per share purchase price of such shares is equal to the fair market value of such shares, as determined in accordance with the Governance Agreement, on the date of AHP's purchase. AHP exercised its option and purchased 111,283 shares in 1998 and 28,223 shares in 1997 for $6,877,000 and $1,280,000 in 1998 and 1997, respectively. NOTE 10. COMMITMENTS AND CONTINGENCIES We lease office and laboratory facilities under certain noncancelable operating leases that expire through December 2002. These leases provide us with options to renew the leases at fair market rentals through August 2015. A summary of minimum future rental commitments under noncancelable operating leases at December 31, 1998 follows (in thousands):
Year Ended December 31, Operating Leases ----------------------- ---------------- 1999 $ 4,620 2000 3,195 2001 920 2002 799 Thereafter - ---------------- Total minimum lease payments $ 9,534 ---------------- ----------------
Rental expense on operating leases was $4,000,000 in 1998, $3,339,000 in 1997 and $2,781,000 in 1996. We are utilizing a contract manufacturer for the production of ENBREL. At December 31, 1998, we had made commitments to purchase inventory totaling approximately $198,000,000 over the next two years. A portion of this inventory will be purchased by AHP from the contract manufacturer. Various license agreements exist that require Immunex to pay royalties based on a percentage of sales of products manufactured using licensed technology or sold under license. Royalty costs incurred under these agreements are included in cost of product sales and totaled $12,997,000 in 1998, $8,139,000 in 1997, and $6,136,000 in 1996. Certain of these agreements contain minimum annual royalty provisions as follows (in thousands):
Minimum Annual Year Ended December 31, Royalty Payment ----------------------- --------------- 1999 $ 8,630 2000 8,380 2001 8,380 2002 8,380 Per year thereafter 3,380
We have a 1992 settlement agreement with Hoechst Roussel Pharmaceuticals, Inc. (HRPI). Under this agreement, a payment of $2,000,000 will be made to HRPI if we receive an expanded label indication for LEUKINE for treatment of chemotherapy-induced neutropenia. Immunex is party to routine litigation incident to our business. We believe the ultimate resolution of these matters will not have a material adverse impact on our future financial position and results of operations. 53 IMMUNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11. SUBSEQUENT EVENTS On January 11, 1999, we entered into an agreement with another party to settle certain patent issues related to ENBREL. As a result of the agreement, we paid an initial license fee of $11,000,000, of which $4,500,000 will be reimbursed by AHP. A subsequent milestone fee of $5,000,000 will be paid if ENBREL is approved in Europe, of which $2,500,000 will be reimbursed by AHP. Royalties will also be payable under the agreement on net sales of ENBREL. On February 23, 1999, our Board of Directors approved a two-for-one stock split of Immunex common stock. Shareholders of record on March 11, 1999 will be issued a certificate representing one additional share of our common stock for each share held on March 11, 1999. Share and per share amounts reported in our Consolidated Financial Statements and Footnotes have not been adjusted to reflect the two-for-one stock split. NOTE 12. QUARTERLY FINANCIAL RESULTS (UNAUDITED) Our consolidated operating results for each quarter of 1998 and 1997 are summarized as follows (in thousands):
Three Months Ended ------------------------------------------------------------ March 31 June 30 September 30 December 31 -------- ------- ------------ ----------- Year ended December 31, 1998: Product sales $ 38,816 $ 39,961 $ 40,125 $ 51,005 Royalty and contract revenue 3,050 24,194(1) 9,051 37,248(3) Cost of sales 7,090 7,691 7,242 11,262 Research and development expenses 26,906 36,910(2) 26,894 29,244 Selling, general and administrative expenses 18,437 20,780 21,593 32,967 Operating income (loss) (10,567) (1,226) (6,553) 14,780 Net income (loss) $ (9,024) $ 195 $ (4,925) $ 14,740 Net income (loss) per common share: Basic $ (0.23) $ 0.00 $ (0.12) $ 0.37 Diluted $ (0.23) $ 0.00 $ (0.12) $ 0.35 Year ended December 31, 1997: Product sales $ 35,899 $ 38,961 $ 37,674 $ 37,138 Royalty and contract revenue 3,548 4,045 18,287(4) 9,745 Cost of sales 6,278 6,228 6,207 5,839 Research and development expenses 23,962 26,770 28,003 30,577 Selling, general and administrative expenses 18,358 19,541 16,489 16,887 Operating income (loss) (9,151) (9,533) 5,262 (6,420) Net income (loss) $ (8,701) $ (8,699) $ 6,199 $ (4,571) Net income (loss) per common share: Basic $ (0.22) $ (0.22) $ 0.16 $ (0.12) Diluted $ (0.22) $ (0.22) $ 0.15 $ (0.12)
(1) Includes $20.0 million earned under the ENBREL Promotion Agreement with AHP when the BLA for ENBREL was accepted for review by the FDA. (2) Includes $10.0 million paid to acquire the rights outside North America to certain receptor product candidates we are developing. (3) Includes $30.0 million earned under the ENBREL Promotion Agreement with AHP when the FDA approved ENBREL. (4) Includes $15.0 million earned upon signing of the ENBREL Promotion Agreement with AHP. 54 Report of Ernst & Young LLP, Independent Auditors Shareholders and Board of Directors Immunex Corporation We have audited the accompanying consolidated balance sheets of Immunex Corporation as of December 31, 1998 and 1997, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Immunex Corporation as of December 31, 1998 and 1997, and the consolidated results of its operations and its cash flows for the each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Seattle, Washington January 29, 1999 55 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is incorporated by reference from the sections labeled "Proposed Election of Directors" and "Executive Officers" in Immunex's definitive Proxy Statement for the annual meeting of shareholders to be held on April 29, 1999. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference from the section labeled "Executive Compensation" in Immunex's definitive Proxy Statement for the annual meeting of shareholders to be held on April 29, 1999. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference from the sections labeled "Principal Shareholders" and "Security Ownership of Management" in Immunex's definitive Proxy Statement for the annual meeting of shareholders to be held on April 29, 1999. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference from the section labeled "Relationship with American Home Products Corporation and American Cyanamid Company" in Immunex's definitive Proxy Statement for the annual meeting of shareholders to be held on April 29, 1999. 56 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Form 10-K: 1. FINANCIAL STATEMENTS. The following consolidated financial statements are included in Part II, Item 8:
Page in Form 10-K --------- Consolidated Balance Sheets at December 31, 1998, and 1997. 39 Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996. 40 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1998, 1997 and 1996. 41 Consolidated Statements of Cash Flows for the years December 31, 1998, 1997 and 1996. 42 Notes to Consolidated Financial Statements for the years ended December 31, 1998, 1997 and 1996. 43 - 54 Report of Ernst & Young LLP, Independent Auditors. 55
2. FINANCIAL STATEMENT SCHEDULE. The following schedule supporting the foregoing consolidated financial statements for the years ended December 31, 1998, 1997 and 1996 is filed as part of this Form 10-K:
Page in Form 10-K --------- II - Valuation and Qualifying Accounts 62
All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto. 57 3. EXHIBITS
Exhibit Number Description ------ ----------- 2.1 Amended and Restated Agreement and Plan of Merger, dated as of December 15, 1992, among Immunex, American Cyanamid Company, Lederle Parenterals, Inc. and Lederle Oncology Corporation. (Exhibit 2.1) (C) 3.1 Certificate of Incorporation, as filed with the Secretary of State of Washington on April 14, 1994. (Exhibit 3.1) (E) 3.2 Amended and Restated Bylaws. (Exhibit 3.4) (C) 10.1 Real Estate Purchase and Sale Agreement by and between Cornerstone-Columbia Development Company ("CCDC") and Immunex dated November 12, 1986; Master Lease, dated as of August 20, 1981 between OTR, an Ohio General Partnership, and CCDC; Assignment of Master Lease between CCDC and Immunex dated December 17, 1986; Consent to Assignment of Master Lease from OTR to CCDC, Immunex and Weyerhaeuser Real Estate Company, dated December 8, 1986. (Exhibit 10.22) (A) 10.2 Amendment to Master Lease dated May 1, 1994, between Immunex and Watumull Enterprises, LTD. (Exhibit 10.2) (E) 10.3 Amended and Restated Lease Agreement dated December 21, 1994, between Immunex and the Central Life Assurance Company. (Exhibit 10.3) (E) 10.4 Amended and Restated Governance Agreement, dated as of December 15, 1992, among Immunex, American Cyanamid Company and Lederle Oncology Corporation. (Exhibit 2.2) (C) *10.5 Settlement Agreement, dated as of July 22, 1992, among Immunex, Hoechst-Roussel Pharmaceuticals Inc. and Behringwerke AG. (Exhibit 10.13) (B) 10.6 United States Royalty-Bearing Trademark License Agreement between Immunex and American Cyanamid Company dated as of June 1, 1993. (Exhibit 10.5) (D) *10.7 Toll Manufacturing Agreement between Immunex Carolina Corporation, a wholly owned subsidiary of Immunex, and Lederle Parenterals, Inc. dated as of June 1, 1993. (Exhibit 10.6) (D) *10.8 Supply Agreement between Immunex and American Cyanamid Company dated as of June 1, 1993. (Exhibit 10.7) (D) **10.9 Separation Agreement between Immunex and Stephen A. Duzan dated as of May 26, 1993. (Exhibit 10.8) (D) 10.10 Agreement between Immunex and American Home Products Corporation dated as of September 23, 1994. (Exhibit 10.24) (E) 10.11 Real Estate Purchase and Sales Agreement between Immunex and the Port of Seattle dated as of July 18, 1994. (Exhibit 10.17) (G) 10.12 TNFR License and Development Agreement between Immunex and the Wyeth-Ayerst Laboratories division of American Home Products Corporation dated as of July 1, 1996. (Exhibit 10.2) (F) 10.13 Immunex Corporation 1993 Stock Option Plan as Amended and Restated on February 13, 1997. (Exhibit 10.23) (G) 10.14 Immunex Corporation Stock Option Plan for Nonemployee Directors Amended and Restated on February 23, 1999. 63-66 *10.15 ENBREL Promotion Agreement between Immunex and American Home Products Corporation dated as of September 25, 1997. (Exhibit 10.1) (H)
58 10.16 Fourth Amendment to Real Estate Purchase and Sale Agreement between Immunex and the Port of Seattle dated as of December 1, 1997. (Exhibit 10.23) (I) *10.17 Product Rights Agreement among Immunex, American Home Products Corporation and American Cyanamid Company dated as of July 1, 1998. (Exhibit 10.1) (J) ***10.18 ENBREL Supply Agreement among Immunex, American Home Products Corporation and Boehringer Ingelheim Pharma KG dated as of November 5, 1998. 67-125 21.1 Subsidiaries of the Registrant. 126 23.1 Consent of Ernst & Young LLP, Independent Auditors. 127 24.1 Power of Attorney. 128 27.1 Financial Data Schedule.
- ------------------------------------ * Confidential treatment granted as to certain portions. ** Executive compensation plan or arrangement. *** Confidential treatment requested as to certain portions (A) Incorporated by reference to designated exhibit included with Immunex's Annual Report on Form 10-K for the fiscal year ended December 31, 1986. (B) Incorporated by reference to designated exhibit included with Immunex's Annual Report on Form 10-K for the fiscal year ended December 31, 1992. (C) Incorporated by reference to designated exhibit included in the Registration Statement on Form S-4 (SEC File No. 33-60254) filed by Lederle Oncology Corporation March 18, 1993. (D) Incorporated by reference to designated exhibit included with Immunex's Current Report on Form 8-K dated June 4, 1993. (E) Incorporated by reference to designated exhibit included with Immunex's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. (F) Incorporated by reference to designated exhibit included with Immunex's Current Report on Form 8-K dated July 1, 1996. (G) Incorporated by reference to designated exhibit included with Immunex's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. (H) Incorporated by reference to designated exhibit included with Immunex's Current Report on Form 8-K dated September 25, 1997. (I) Incorporated by reference to designated exhibit included with Immunex's Annual Report on Form 10-K for the fiscal year ended December 31, 1997. (J) Incorporated by reference to designated exhibit included with Immunex's Current Report on Form 8-K dated July 1, 1998. (b) REPORTS ON FORM 8-K. None. 59 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, hereunto duly authorized. IMMUNEX CORPORATION REGISTRANT By: /S/ Douglas G. Southern March 15, 1999 ------------------------------------------------- Douglas G. Southern Senior Vice President, Chief Financial Officer and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: /s/ Edward V. Fritzky March 15, 1999 - ---------------------------------------------------- Edward V. Fritzky Chief Executive Officer, Chairman of the Board and Director (Principal Executive Officer) Douglas E. Williams* March 15, 1999 - ---------------------------------------------------- Douglas E. Williams Sr. Vice President-Discovery Research and Director /s/ Peggy V. Phillips March 15, 1999 - ---------------------------------------------------- Peggy V. Phillips Sr. Vice President-Pharmaceutical Development and Director /s/ Douglas G. Southern March 15, 1999 - ---------------------------------------------------- Douglas G. Southern Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) Joseph J. Carr* March 15, 1999 - ---------------------------------------------------- Joseph J. Carr Director Kirby L. Cramer* March 15, 1999 - ---------------------------------------------------- Kirby L. Cramer Director Robert I. Levy* March 15, 1999 - ---------------------------------------------------- Robert I. Levy Director John E. Lyons* March 15, 1999 - ---------------------------------------------------- John E. Lyons Director Joseph M. Mahady* March 15, 1999 - ---------------------------------------------------- Joseph M. Mahady Director Edith W. Martin* March 15, 1999 - ---------------------------------------------------- Edith W. Martin Director 60 *By: /S/ Douglas G. Southern March 15, 1999 - --------------------------------------------------- Douglas G. Southern Attorney-in-Fact 61 SCHEDULE II IMMUNEX CORPORATION VALUATION AND QUALIFYING ACCOUNTS Years ended December 31, 1998, 1997 and 1996 (in thousands)
Balance at Additions Charged to Balance at Beginning of Period Product Sales Deductions End of Period ------------------- ------------- ---------- ------------- Year ended December 31, 1996: Reserve for discounts, returns and bad debts $ 6,276 $11,358 $10,453 $ 7,181 ------- ------- ------- ------- ------- ------- ------- ------- Reserve for chargebacks, Medicaid rebates and administrative fees $ 9,303 $38,608 $40,331 $ 7,580 ------- ------- ------- ------- ------- ------- ------- ------- Year ended December 31, 1997: Reserve for discounts, returns and bad debts $ 7,181 $11,649 $10,177 $ 8,653 ------- ------- ------- ------- ------- ------- ------- ------- Reserve for chargebacks, Medicaid rebates and administrative fees $ 7,580 $47,769 $45,634 $ 9,715 ------- ------- ------- ------- ------- ------- ------- ------- Year ended December 31, 1998: Reserve for discounts, returns and bad debts $ 8,653 $12,147 $ 9,173 $11,627 ------- ------- ------- ------- ------- ------- ------- ------- Reserve for chargebacks, Medicaid rebates and administrative fees $ 9,715 $54,794 $51,899 $12,610 ------- ------- ------- ------- ------- ------- ------- -------
62 EX-10.14 2 EXHIBIT 10.14 Exhibit 10.14 IMMUNEX CORPORATION STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS AMENDED AND RESTATED ON FEBRUARY 23, 1999 SECTION 1. PURPOSES The purposes of the Immunex Corporation Stock Option Plan for Nonemployee Directors (this "Plan") are to attract and retain the services of experienced and knowledgeable nonemployee directors of Immunex Corporation (the "Company") and to provide an incentive for such directors by providing an opportunity for stock ownership in the Company. SECTION 2. SHARES SUBJECT TO THE PLAN Subject to adjustment in accordance with Section 6 hereof, the total number of shares of the Company's common stock (the "Common Stock") for which options may be granted under this Plan is 100,000 as such Common Stock was constituted on December 13, 1993 (the "Shares"). The Shares shall be shares currently authorized but unissued or subsequently acquired by the Company and shall include shares representing the unexercised portion of any option granted under this Plan which expires or terminates without being exercised in full. SECTION 3. ADMINISTRATION OF THE PLAN The administrator of this Plan (the "Plan Administrator") shall be the Board of Directors of the Company (the "Board"). Subject to the terms of this Plan, the Plan Administrator shall have the power to construe the provisions of this Plan, to determine all questions arising hereunder and to adopt and amend such rules and regulations for the administration of this Plan as it may deem desirable. SECTION 4. PARTICIPATION IN THE PLAN 4.1 ELIGIBLE DIRECTORS Each member of the Board elected or appointed who is not otherwise an employee of the Company, any parent or subsidiary corporation, or a director appointed by American Cyanamid Company or American Home Products Corporation pursuant to the Amended and Restated Governance Agreement dated as of December 15, 1992 (an "Eligible Director") shall be eligible to participate in this Plan. 4.2 INITIAL GRANTS Each Eligible Director who is elected or appointed for the first time after the date of adoption of this Plan shall automatically receive the grant of an option to purchase 10,000 Shares on the day such Eligible Director is initially elected or appointed. 4.3 ANNUAL GRANTS Each Eligible Director continuing service as an Eligible Director immediately following an Annual Meeting of Shareholders shall automatically receive an option to purchase 5,000 Shares immediately following each year's Annual Meeting of Shareholders as an annual grant; provided, however, that an Eligible Director who has received an initial grant of an option to purchase 10,000 Shares on such date shall not receive an annual grant until the next Annual Meeting. SECTION 5. OPTION TERMS Each option granted to an Eligible Director under this Plan and the issuance of Shares hereunder shall be subject to the following terms: 5.1 OPTION AGREEMENT Each option granted under this Plan shall be evidenced by an option agreement (an "Agreement") duly executed on behalf of the Company. Each Agreement shall comply with and be subject to the terms and conditions of this Plan. Any Agreement may contain such other terms, provisions and conditions not inconsistent with this Plan as may be determined by the Plan Administrator. 63 5.2 OPTION EXERCISE PRICE The option exercise price for an option granted under this Plan shall be the closing price, or if there is no closing price, the mean between the high and the low sale price of the Shares covered by the option on the day the option is granted on the Nasdaq Stock Market or, if no Common Stock was traded on such date, on the IMMEDIATELY preceding date on which Common Stock was so traded. 5.3 VESTING AND EXERCISABILITY Each option granted to an Eligible Director shall vest and become exercisable in accordance with the following schedule:
Period of Eligible Directors' Continuous Service as a Director With the Company From the Date the Option is Portion of Total Option Which Is Granted Exercisable - --------------------------------------------------------- --------------------------------- Less than twelve months 0% Twelve months 20% Twenty-four months 40% Thirty-six months 60% Forty-eight months 80% Sixty months or greater 100%
5.4 TIME AND MANNER OF EXERCISE OF OPTION Each option may be exercised in whole or in part at any time and from time to time; provided, however, that no fewer than 100 Shares (or the remaining Shares then purchasable under the option, if less than 100 Shares) may be purchased upon any exercise of any option hereunder and that only whole Shares will be issued pursuant to the exercise of any option. Any option may be exercised by giving written notice, signed by the person exercising the option, to the Company stating the number of Shares with respect to which the option is being exercised, accompanied by payment in full for such Shares, which payment may be in whole or in part (a) in cash or by check, (b) in shares of Common Stock already owned for at least six months by the person exercising the option, valued at fair market value at the time of such exercise, or (c) by delivery of a properly executed exercise notice, together with irrevocable instructions to a broker, to properly deliver to the Company the amount of sale or loan proceeds to pay the exercise price, all in accordance with the regulations of the Federal Reserve Board. 5.5 TERM OF OPTIONS Each option shall expire ten years from the date of the granting thereof, but shall be subject to earlier termination as follows: (a) In the event that an optionee ceases to be a director of the Company for any reason other than the death of the optionee the unvested portion of the options granted to such optionee shall terminate immediately and the vested portion of the options granted to such optionee may be exercised by him or her only within three months after the date such optionee ceases to be a director of the Company. 64 (b) In the event of the death of an optionee, whether during the optionee's service as a director or during the three month period referred to in Section 5.5(a), the unvested portion of the options granted to such optionee shall terminate immediately and the vested portion of the options granted to such optionee shall be exercisable, and such options shall expire unless exercised within twelve months after the date of the optionee's death, by the legal representatives or the estate of such optionee, by any person or persons whom the optionee shall have designated in writing on forms prescribed by and filed with the Company or, if no such designation has been made, by the person or persons to whom the optionee's rights have passed by will or the laws of descent and distribution. 5.6 TRANSFERABILITY During an optionee's lifetime, an option may be exercised only by the optionee. Options granted under this Plan and the rights and privileges conferred thereby shall not be subject to execution, attachment or similar process and may not be transferred, assigned, pledged or hypothecated in any manner (whether by operation of law or otherwise) other than by will or by the applicable laws of descent and distribution. In addition, the Plan Administrator may permit a recipient of an option to designate in writing during the optionee's lifetime a beneficiary to receive and exercise options in the event of the optionee's death (as provided in Section 5.5(b)). Any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of any option under this Plan or of any right or privilege conferred thereby, contrary to the provisions of this Plan, or the sale or levy or any attachment or similar process upon the rights and privileges conferred hereby, shall be null and void. 5.7 HOLDING PERIOD If an individual subject to Section 16 of the Exchange Act of 1934, as amended (the "Exchange Act") sells shares of Common Stock obtained upon the exercise of any option granted under this Plan within six months after the date the option was granted, such sale may result in short-swing profit recovery under Section 16(b) of the Exchange Act. 5.8 PARTICIPANT'S OR SUCCESSOR'S RIGHTS AS SHAREHOLDER Neither an optionee nor the optionee's successor(s) in interest shall have any rights as a shareholder of the Company with respect to any Shares subject to an option granted to the optionee until such person becomes a holder of record of such Shares. 5.9 LIMITATION AS TO DIRECTORSHIP Neither this Plan, nor the granting of an option, nor any other action taken pursuant to this Plan shall constitute or be evidence of any agreement or understanding, express or implied, that an optionee has a right to continue as a director for any period of time or at any particular rate of compensation. 5.10 REGULATORY APPROVAL AND COMPLIANCE The Company shall not be required to issue any certificate or certificates for Shares upon the exercise of an option granted under this Plan, or record as a holder of record of Shares the name of the individual exercising an option under this Plan, without obtaining to the complete satisfaction of the Plan Administrator the approval of all regulatory bodies deemed necessary by the Plan Administrator, and without complying, to the Plan Administrator's complete satisfaction, with all rules and regulations under federal, state or local law deemed applicable by the Plan Administrator. SECTION 6. CAPITAL ADJUSTMENTS The aggregate number and class of Shares for which options may be granted under this Plan, the number and class of Shares covered by each outstanding option and the exercise price per Share thereof (but not the total price) shall all be proportionately adjusted for any stock dividends, stock splits, recapitalizations, combinations or exchanges of shares, split-ups, split-offs, spinoffs, or other similar changes in capitalization. Notwithstanding the foregoing, if an automatic grant occurs within ninety days following any such change in capitalization, the aggregate number and class of Shares subject to such automatic grant shall be proportionately adjusted to be the same number and class of Shares that would be subject to the automatic grant had it been outstanding immediately prior to the date of such change in capitalization. Upon the effective date of a dissolution or liquidation of the Company, or of a reorganization, merger or consolidation of the Company with one or more corporations that results in more than 70% of the outstanding voting shares of the Company being owned by one or more affiliated corporations or other affiliated entities, or of a transfer of all or substantially all the assets or more than 70% of the then outstanding shares of the Company to another corporation or other entity, this Plan and all options granted 65 hereunder shall terminate. In the event of such dissolution, liquidation, reorganization, merger, consolidation, transfer of assets or transfer of stock, each optionee shall be entitled, for a period of twenty days prior to the effective date of such transaction, to purchase the full number of shares under his or her option which he or she otherwise would have been entitled to purchase during the remaining term of such option. Adjustments under this Section 6 shall be made by the Plan Administrator, whose determination shall be final. In the event of any adjustment in the number of Shares covered by any option, any fractional Shares resulting from such adjustment shall be disregarded and each such option shall cover only the number of full Shares resulting from such adjustment. SECTION 7. EXPENSES OF THE PLAN All costs and expenses of the adoption and administration of this Plan shall be borne by the Company; none of such expenses shall be charged to any optionee. SECTION 8. COMPLIANCE WITH RULE 16B-3 It is the intention of the Company that this Plan comply in all respects with the requirements for a "formula plan" within the meaning attributed to that term for purposes of Rule 16b-3 promulgated under Section 16(b) of the Exchange Act. Therefore, if any Plan provision is later found not to be in compliance with such requirements, that provision shall be deemed null and void, and in all events this Plan shall be construed in favor of its meeting such requirements. SECTION 9. TERMINATION AND AMENDMENT OF THE PLAN The Board may amend, terminate or suspend this Plan at any time, in its sole and absolute discretion; provided, however, that if required to qualify this Plan as a formula plan for purposes of Rule 16b-3 under Section 16(b) of the Exchange Act, no amendment may be made more than once every six months that would change the amount, price, timing or vesting of the options, other than to comply with changes in the Internal Revenue Code of 1986, as amended, or the rules and regulations thereunder; provided further that no amendment that would (a) increase the number of Shares that may be issued under this Plan, or (b) otherwise require shareholder approval under any applicable law or regulation shall be made without the approval of the Company's shareholders. SECTION 10. DURATION This Plan shall continue in effect until December 13, 2003 unless it is sooner terminated by action of the Board or the Company's shareholders, but such termination shall not affect the terms of any then-outstanding options. Adopted by the Company's Board of Directors on December 13, 1993 and approved by the Company's shareholders on April 27, 1994. Amended and restated by the Board on February 13, 1997. Amended and restated by the Board on February 23, 1999. 66 EX-10.18 3 EXHIBIT 10.18 Exhibit 10.18 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ENBREL SUPPLY AGREEMENT AMONG IMMUNEX CORPORATION, AMERICAN HOME PRODUCTS CORPORATION AND BOEHRINGER INGELHEIM PHARMA KG DATED AS OF NOVEMBER 5, 1998 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 67
TABLE OF CONTENTS PAGE ARTICLE 1. DEFINITIONS.................................................1 ARTICLE 2. COORDINATORS................................................9 ARTICLE 3. SUPPLY OF BULK DRUG SUBSTANCE, DRUG PRODUCT AND FINISHED PRODUCT...............................10 ARTICLE 4. PRE-FIRST COMMERCIAL SALE FIRM ORDERS; FORECASTS; FIRM ORDERS; DELIVERIES.........................13 ARTICLE 5. PRODUCTION CAPACITY; PRODUCT PRICE; PAYMENT................21 ARTICLE 6. BIP PRODUCT WARRANTIES; SPECIFICATIONS.....................26 ARTICLE 7. PACKAGING..................................................29 ARTICLE 8. CLAIMS.....................................................29 ARTICLE 9. MANUFACTURING AUDITS; CERTIFICATE OF COMPLIANCE; REGULATORY MATTERS.............................30 ARTICLE 10. RECALLS....................................................34 ARTICLE 11. QUALITY ASSURANCE; QUALITY CONTROL; VALIDATION; STABILITY......................................35 ARTICLE 12. BIP'S OBLIGATIONS AS MANUFACTURER..........................37 ARTICLE 13. LICENSE GRANTS.............................................40 ARTICLE 14. USE OF DATA; OWNERSHIP OF INTELLECTUAL PROPERTY; [*]; FUTURE ACTIVITIES...........................41 ARTICLE 15. REPRESENTATIONS AND WARRANTIES.............................41 ARTICLE 16. INDEMNIFICATION............................................42 ARTICLE 17. CONFIDENTIALITY............................................44 ARTICLE 18. PRESS RELEASES; USE OF NAMES...............................47
68 PAGE
ARTICLE 19. TERM; TERMINATION..........................................47 ARTICLE 20. FORCE MAJEURE..............................................52 ARTICLE 21. ASSIGNMENT.................................................54 ARTICLE 22. DISPUTE RESOLUTION.........................................54 ARTICLE 23. MISCELLANEOUS..............................................55
EXHIBITS: EXHIBIT A BULK DRUG SUBSTANCE SPECIFICATIONS EXHIBIT B DRUG PRODUCT SPECIFICATIONS EXHIBIT C FINISHED PRODUCT SPECIFICATIONS EXHIBIT D VOLUME DISCOUNT PRICING MATRIX FOR BULK DRUG SUBSTANCE [*] EXHIBIT E VOLUME DISCOUNT PRICING MATRIX FOR FILLING AND LYOPHILIZATION OPERATIONS FOR [*] EXHIBIT F VOLUME DISCOUNT PRICING MATRIX FOR LABELING OPERATIONS FOR [*] EXHIBIT G FIRM ORDER PLANNING SYSTEM OF [*] COMMERCIAL SUPPLY, PRE-FDA APPROVAL EXHIBIT H COORDINATORS AND WYETH REPRESENTATIVE 69 ENBREL SUPPLY AGREEMENT THIS ENBREL SUPPLY AGREEMENT ("AGREEMENT") is made effective as of November 5, 1998, by and among IMMUNEX CORPORATION, a corporation of the State of Washington, having its principal place of business at 51 University Street, Seattle, Washington 98101, U.S.A., together with its Affiliates (as defined herein) ("IMMUNEX"), AMERICAN HOME PRODUCTS CORPORATION, a corporation of the State of Delaware having its corporate headquarters at Five Giralda Farms, Madison, New Jersey 07940, U.S.A. ("AHPC"), acting through its Wyeth-Ayerst Laboratories division, having offices at 555 East Lancaster Avenue, St. Davids, Pennsylvania 19087, U.S.A. ("WYETH"), and BOEHRINGER INGELHEIM PHARMA KG (the successor of Dr. Karl Thomae GmbH ("THOMAE")), a German corporation having a place of business at Birkendorfer Stra(beta)e 65, 88397 Biberach an der Riss, Federal Republic of Germany ("BIP"). BACKGROUND Immunex and Wyeth wish to distribute commercially in their respective territories a certain Immunex proprietary biological product known as TNFR:Fc in finished dosage form for human use. BIP has the experience and expertise necessary to perform manufacturing, analytical testing and quality assurance services for the manufacturing and labeling of such product for sale hereunder, and BIP owns specialized cell culture, processing, protein purification, filling and lyophilization facilities that are suitable for commercial production of such product. Immunex and Wyeth desire BIP to perform such services and sell commercial quantities of such product hereunder, and BIP desires to perform such services and sell commercial quantities of such product to Immunex on its behalf and on behalf of Wyeth hereunder, all on the terms and conditions set forth in this Agreement. AGREEMENT IN CONSIDERATION OF the mutual covenants set forth in this Agreement, the Parties (as defined herein) hereby agree as follows: ARTICLE 1. DEFINITIONS The following terms, whether used in the singular or plural, shall have the meanings assigned to them below for purposes of this Agreement. 1.1 "ACQUISITION COST" shall mean the actual invoiced price paid by a Party to any Third Party (as defined herein) for acquiring any materials used in the manufacture of the Product (as defined herein) hereunder, including, but not limited to, shipping and handling costs and customs duties incurred and paid by such Party in connection with the acquisition of such materials, and also including [*] percent ([*]%) of the above amounts to cover such Party's storage and overhead costs. This definition, including the [*] percent ([*]%) markup, shall only apply in the circumstances set forth in Section 6.3(a)(5) and Section 19.3(c)(1) hereof. 1.2 "AFFILIATE" shall mean any corporation or business entity of which a Party owns directly or indirectly, fifty percent (50%) or more of the assets or outstanding stock, or any corporation which a Party directly or indirectly controls, or any parent corporation that owns, directly or indirectly, fifty percent (50%) or more of the assets or outstanding stock of a Party or directly or indirectly controls a Party. For purposes of this Agreement, any Party and the other Affiliates it controls shall not be deemed to be Affiliates of any other Party. 1.3 "ANNUAL QUANTITY" shall mean the number of kg of Bulk Drug Substance (as defined herein) for which Buyer (as defined herein) has submitted Firm Orders (as defined herein) with respect to a particular Calendar Year (as defined herein). 1.4 "ANNUAL SURCHARGE" shall have the meaning set forth in Section 5.2(b) hereof. 70 1.5 "BIP CONFIDENTIAL INFORMATION" shall mean all technical and other information relating to the Biberach Facility (as defined herein) and associated BIP technologies that are disclosed or supplied to, or used on behalf of (as recorded in relevant BIP documentation), Immunex and/or Wyeth by BIP pursuant to this Agreement, whether patented or unpatented, including, without limitation, trade secrets, know-how, processes, concepts, ideas, experimental methods and results and business and scientific plans. 1.6 "BLA" shall mean a biologics license application, or any successor filing thereto with the FDA (as defined herein) that generally replaces a biologics license application. 1.7 "BATCH" shall mean (a) with respect to Bulk Drug Substance, a Bulk Drug Substance Lot (as defined herein), (b) with respect to Drug Product (as defined herein), a Large Lyophilization Chamber Lot (as defined herein), (c) with respect to Finished Product (as defined herein), a Large Lyophilization Chamber Lot, or (d) any other size batch as agreed to by the Parties in writing from time to time. 1.8 "BIBERACH FACILITY" shall mean (a) BIP's facility at Birkendorfer Stra(beta)e 65, 88397 Biberach an der Riss, Federal Republic of Germany, at which the Product is manufactured (the "ORIGINAL BIBERACH FACILITY") or (b) such other facility of BIP or a BIP Affiliate at which the Product is manufactured, provided, however, BIP's manufacturing of the Product may not be transferred from the Original Biberach Facility without the prior written approval of Immunex and Wyeth, and provided further, that any transfer of production of the Product from the Original Biberach Facility to any other Biberach Facility shall be permitted only to the extent that such transfer is approved by all applicable regulatory authorities and the possible interference and any resulting delay in BIP's performance of its obligations hereunder, as well as any impact on the Product Price (as defined herein), are agreed upon by the Parties. 1.9 "BULK DRUG SUBSTANCE" shall mean [*] Product (as defined herein) [*] which has been purified to a concentrated form from one or more Bulk Drug Substance Lots and can be stored in a liquid or frozen form under appropriate conditions. [*] 1.10 "BULK DRUG SUBSTANCE LOT" shall mean a single [*] ([*]) L fermentation scale lot of purified Product, processed to result in Bulk Drug Substance, which lot shall be manufactured in compliance with cGMP (as defined herein) and in conformance with the Bulk Drug Substance Specifications (as defined herein). 1.11 "BULK DRUG SUBSTANCE RUN" shall mean a single run of the Process (as defined herein) at the [*] ([*]) L fermentation scale, which run is calculated to result in a Bulk Drug Substance Lot. 1.12 "BULK DRUG SUBSTANCE SPECIFICATIONS" shall mean specifications developed by Immunex and Wyeth as set forth in the Product BLA for Bulk Drug Substance which describe testing methods and acceptance criteria for each Bulk Drug Substance Lot generated, and which are attached hereto as EXHIBIT A, as such specifications may be amended from time to time by mutual agreement of the Parties, including without limitation such amendments as may be required to obtain approval of the Drug Product from the FDA, EMEA (as defined herein) and other applicable regulatory authorities in the Territory (as defined herein). BIP shall not unreasonably withhold its agreement to such specification amendments after agreement of the Parties on the commercial impact of any such amendments. 1.13 "BUYER" shall mean Immunex; provided, however, that Buyer shall mean Wyeth if (a) this Agreement is terminated solely with respect to the Immunex Territory (as defined herein) for any reason, or (b) Immunex or its permitted successor(s) is no longer a party to this Agreement for any reason. 1.14 "CGMP" shall mean the regulatory requirements for current good manufacturing practices promulgated by the FDA under the FD&C Act (as defined herein), 21 C.F.R. ss. 210 ET SEQ. and under the PHS Act (as defined herein), 21 C.F.R. ss.ss. 600-610, or the applicable regulatory guidance documents promulgated by the EMEA, as the case may be, as the same may be amended from time to time. 1.15 "CALENDAR QUARTER" shall mean each three (3)-month period commencing the first day of January, April, July and October of each Calendar Year. 71 1.16 "CALENDAR YEAR" shall mean each twelve (12)-month period commencing January 1st of each year during the Supply Term (as defined herein) through the end of the Supply Term. The obligations of the Parties with respect to the Maximum Request (as defined herein), Annual Quantity, Product Price, Annual Surcharge and other applicable terms hereunder shall be prorated during 1998 and during the last year of the Supply Term to reflect that such years during the Supply Term may be shorter than a full twelve (12)-month year. 1.17 "CELL LINE" shall mean a proprietary Immunex Chinese Hamster Ovary ("CHO") cell line that expresses the Product. [*]. 1.18 "CERTIFICATE OF ANALYSIS" shall mean a document listing the date of manufacturing, tests performed, specifications, test date(s), and test results, including photographs and chromatograms as applicable, as required by the Bulk Drug Substance Specifications, the Drug Product Specifications (as defined herein) and the Finished Product Specifications (as defined herein), as the case may be, the accuracy of which has been certified by a Party. The Parties shall from time to time agree upon a format or formats for the Certificate of Analysis to be used hereunder. 1.19 "CERTIFICATE OF COMPLIANCE" shall mean a document (a) listing the expiration date and quantity of a particular Batch of Bulk Drug Substance, Drug Product and/or Finished Product, (b) certifying that such Batch was manufactured in accordance with all Specifications (as defined herein), cGMP, the BLA/EMEA-dossier for the Product (as applicable), and all applicable FDA and EMEA regulations, and (c) certifying that such Batch is acceptable for release. The Parties shall from time to time agree upon a format or formats for the Certificate of Compliance to be used hereunder. 1.20 "CONFIDENTIAL INFORMATION" shall mean Immunex/Wyeth Confidential Information (as defined herein) or BIP Confidential Information, as the context requires. 1.21 "CONTRACT YEAR" shall mean the period of twelve (12) consecutive calendar months commencing on the first day of the month following First Commercial Sale (as defined herein). 1.22 "DELIVERY DATE" shall mean a date for which delivery of Bulk Drug Substance, Drug Product and/or Finished Product, as the case may be, is stated in a Firm Order. 1.23 "DELIVERY DATE CONFIRMATION" shall mean a written confirmation sent by BIP to Buyer confirming the Delivery Dates specified in Firm Orders issued hereunder. 1.24 "DETAILED FORECAST SCHEDULE" shall have the meaning set forth in Section 4.3(a) hereof. 1.25 "DRUG PRODUCT" shall mean Bulk Drug Substance which has been appropriately formulated, compounded, filled into containers and lyophilized ([*]) by BIP without labeling ([*]). 1.26 "DRUG PRODUCT SPECIFICATIONS" shall mean specifications developed by Immunex and Wyeth as set forth in the Product BLA that describe testing methods and acceptance criteria for Drug Product, as well as in-process specifications, and which are attached hereto as EXHIBIT B, as such specifications may be amended from time to time by mutual agreement of the Parties, including without limitation such amendments as may be required to obtain approval of the Drug Product from the FDA, EMEA and other regulatory authorities in the Territory. BIP shall not unreasonably withhold its agreement to such specification amendments after agreement of the Parties on the commercial impact of any such amendments. 1.27 "EMEA" shall mean the European Medicines Evaluation Agency, or any successor agency. 1.28 "EMEA-DOSSIER" shall mean an application-filing for registration with the EMEA, or any successor filing thereto with the EMEA that generally replaces such dossier. 72 1.29 "EFFECTIVE DATE" shall mean the date first above written, which shall be the effective date of this Agreement. 1.30 "FD&C ACT" shall mean the United States Federal Food, Drug and Cosmetic Act, as the same may be amended from time to time. 1.31 "FDA" shall mean the United States Food and Drug Administration, or any successor agency. 1.32 "FINISHED PRODUCT" shall mean Bulk Drug Substance which has been appropriately formulated, compounded, filled into containers, lyophilized ([*]) and labeled by BIP, suitable for shipment in bulk packaging to Immunex, Wyeth and/or their respective designee(s) for final commercial packaging. 1.33 "FINISHED PRODUCT SPECIFICATIONS" shall mean specifications developed by Immunex and Wyeth as set forth in the Product BLA that describe testing methods and acceptance criteria for Finished Product, and which are attached hereto as EXHIBIT C, as such specifications may be amended from time to time by mutual agreement of the Parties, including without limitation such amendments as may be required to obtain approval of the Finished Product from the FDA, EMEA and other regulatory authorities in the Territory. BIP shall not unreasonably withhold its agreement to such specification amendments after agreement of the Parties on the commercial impact of any such amendments. 1.34 "FIRM ORDER" shall mean (a) the binding and partly binding portions of each Rolling Forecast Planning Schedule (as defined herein) for Bulk Drug Substance submitted by Buyer hereunder in accordance with Section 4.2(b) hereof, (b) the binding portion of each Detailed Forecast Schedule for Bulk Drug Substance, Drug Product and/or Finished Product submitted by Buyer hereunder in accordance with Section 4.3(c) hereof, and (c) any separate order agreed upon in writing by Buyer and BIP that is specified as a firm order, which on receipt thereof by BIP shall constitute a binding order in accordance with the terms set forth in Article 4 hereof for Bulk Drug Substance, Drug Product and/or Finished Product, as set forth in such Rolling Forecast Planning Schedule, Detailed Forecast Schedule, or written separate order, as the case may be. 1.35 "FIRST COMMERCIAL SALE" shall mean November 4, 1998, the date of the first commercial sale of Finished Product following regulatory approval of the Product by the FDA. 1.36 [*] 1.37 [*] 1.38 "IMMUNEX/WYETH CONFIDENTIAL INFORMATION" shall mean the Cell Line, Master Cell Bank (as defined herein), Working Cell Bank (as defined herein), Process, [*] Product, [*], and all technical and other information relating thereto that is disclosed or supplied to BIP by Immunex and/or Wyeth pursuant to this Agreement, whether patented or unpatented, including, without limitation, trade secrets, know-how, processes, concepts, ideas, experimental methods and results and business and scientific plans. 1.39 "IMMUNEX TERRITORY" shall mean the U.S. (as defined herein) and Canada. 1.40 "LARGE LYOPHILIZATION CHAMBER LOT" shall mean, with respect to the lyophilization cycles of Bulk Drug Substance to be completed by BIP hereunder in converting Bulk Drug Substance to Drug Product or Finished Product, a large scale lyophilization chamber lot with a maximum capacity of [*] ([*]) 2R (4 ml) vials, and with an average yield of [*] ([*]) 2R (4 ml) vials. The Parties agree that, consistent with standard operating procedures agreed upon by Buyer and BIP from time to time, pooling and splitting of Bulk Drug Substance by BIP will be allowed if feasible to support maximizing any Large Lyophilization Chamber Lot cycles. 1.41 "MASTER CELL BANK" shall mean Immunex's reference deposit or collection of vials of the Cell Line, from which the Working Cell Bank is derived. 73 1.42 "MAXIMUM REQUEST" shall mean that quantity of Bulk Drug Substance [*] in accordance with Section 5.1(a) - (c) hereof. 1.43 "MINIMUM QUANTITY" shall mean [*] percent ([*]%) of the Maximum Request. 1.44 "PHS ACT" shall mean the Public Health Service Act, Biological Products, as amended, as the same may be amended from time to time. 1.45 "PARTY" or "PARTIES" shall mean BIP, Immunex and/or Wyeth, as the context requires. 1.46 "PHASE I AGREEMENT" shall mean the Contract Research Agreement Feasibility Study for Evaluation of TNFR:Fc Process (Phase I) among Immunex, AHPC and Thomae effective as of August 1, 1996. 1.47 "PHASE I PROJECT" shall mean the Phase I contract research program described in the Phase I Agreement, in which Immunex transferred the Process to Thomae to be implemented, scaled-up and evaluated at the [*] ([*]) L fermentation scale in the Biberach Facility. 1.48 "PHASE II AGREEMENT" shall mean the Production Scale-Up Agreement: TNFR:Fc Process (Phase II) among Immunex, AHPC and Thomae effective as of April 1, 1997. 1.49 "PHASE II PROJECT" shall mean the Phase II scale-up program described in the Phase II Agreement. The primary objectives of the Phase II Project were for Thomae to scale-up the Process from the [*] ([*]) L fermentation scale to the [*] ([*]) L fermentation scale at the Original Biberach Facility, including down stream processing, to complete [*] ([*]) Bulk Drug Substance Lots, and to convert the Bulk Drug Substance from such [*] ([*]) Bulk Drug Substance Lots to Drug Product and/or Finished Product. 1.50 [*] 1.51 "PRODUCT" shall mean the pharmaceutical product TNFR:Fc, [*]. 1.52 "PRODUCT PRICE" shall mean the prices for [*] Product as determined in accordance with the terms of this Agreement. 1.53 "PRODUCTION ASSUMPTIONS" shall mean the fermentation crude Product titer (mg/L) and purification yield assumptions with respect to a Bulk Drug Substance Lot, as set forth in Section 5.3(a) hereof, as such Production Assumptions may be adjusted in accordance with Section 5.3(b) and (c) hereof. 1.54 "ROLLING FORECAST PLANNING SCHEDULE" shall have the meaning set forth in Section 4.2 hereof. 1.55 [*] 1.56 [*] 1.57 "SPECIFICATIONS" shall mean the Bulk Drug Substance Specifications, the Drug Product Specifications and the Finished Product Specifications, as the context requires. 1.58 "SUPPLY TERM" shall have the meaning set forth in Section 19.1 hereof. 1.59 [*] 1.60 "TERRITORY" shall mean all countries of the world. 1.61 "THIRD PARTY" shall mean any party other than Immunex, Wyeth, BIP and their respective Affiliates. 1.62 "U.S." shall mean the United States of America, its territories and possessions, and the Commonwealth of Puerto Rico. 74 1.63 "UNIT" shall mean a 2R (4 ml) vial containing either (a) [*] ([*]) mg or (b) twenty-five (25) mg of Drug Product or Finished Product, as the case may be. Other presentations as requested hereunder in writing from time to time by Immunex after consultation with Wyeth shall be agreed upon in writing with BIP. 1.64 "WORKING CELL BANK" shall mean a vialed collection of serially subcultivated cells generated by Immunex and/or BIP that is derived from the Master Cell Bank. The Working Cell Bank is used to establish seed cultures of the Cell Line to initiate the Process. 1.65 "WYETH TERRITORY" shall mean all of the countries of the world outside of the Immunex Territory. 1.66 Each of the following definitions are found in the body of this Agreement as indicated:
SECTION "ACCEPTED UNUSED CAPACITY" 5.1(a)(3) "ADDITIONAL MANUFACTURING CAPACITY" 3.3(a) "ADDITIONAL MANUFACTURING CAPACITY PLAN" 3.3(d) "ANNUAL AUDIT" 9.1(a) "BUSINESS COORDINATORS" 2.1(a) "CMC" 12.6(a)(2) "DATE OF SHIPMENT" 4.5(a)(4) "EURO" 5.9 "EVENT AUDIT" 9.1(b)(2) "FORCE MAJEURE EVENT" 20.1 "INDEMNITEE" 16.3(a) "INDEMNITOR" 16.3(a) "LIABILITIES" 16.1(a) "REGULATORY FILING GROUP" 12.6(c) "TECHNICAL COORDINATORS" 2.1(a) "THIRD PARTY VENDORS" 6.3(c) "WARNING LETTER" 9.1(b)(2)(i) "WYETH REPRESENTATIVE" 2.1(b)
ARTICLE 2. COORDINATORS 2.1 APPOINTMENT OF COORDINATORS AND WYETH REPRESENTATIVE. (a) COORDINATORS. Buyer and BIP shall each appoint an authorized business representative and a backup business representative ("BUSINESS COORDINATORS"). In addition, Buyer and BIP shall each appoint an authorized technical representative and a backup technical representative ("TECHNICAL COORDINATORS"). The initial Business Coordinators and Technical Coordinators are listed on EXHIBIT H attached hereto and made a part hereof. Buyer and BIP may each replace their respective Business Coordinators and Technical Coordinators at any time for any reason by providing written notice thereof to the other Parties. (b) WYETH REPRESENTATIVE. Wyeth shall appoint a Wyeth representative and a backup Wyeth representative (collectively, the "WYETH REPRESENTATIVE"), which representative shall receive all notices other than legal notices which are required or permitted to be given to Wyeth under this Agreement. The initial Wyeth Representative is listed on EXHIBIT H hereto. Wyeth may replace its Wyeth Representative at any time for any reason by providing written notice thereof to the other Parties. 2.2 RESPONSIBILITY OF COORDINATORS. (a) BUSINESS COORDINATORS. The Business Coordinators shall be responsible for communications, other than legal notices, between the Parties related to forecasts, Firm Orders and deliveries of Bulk Drug Substance, Drug Product and Finished Product hereunder, and other matters related thereto. 75 (b) TECHNICAL COORDINATORS. The Technical Coordinators shall be responsible for communications, other than legal notices, between the Parties in matters of quality, manufacturing, project management and compliance with respect to Bulk Drug Substance, Drug Product and Finished Product, and other matters related thereto. [*] (c) COMMUNICATIONS. Both the Business Coordinators and the Technical Coordinators will be available on a regular basis for consultation at pre-arranged times during the course of the Supply Term. Additional modes or methods of communication and decision making may be implemented as set forth herein and as agreed upon by the Parties from time to time. As agreed upon by the applicable Coordinators and/or by the applicable BIP Coordinator(s) and the Wyeth Representative from time to time, BIP shall allow the Buyer Technical Coordinator and a reasonable number of other appropriate Immunex and Wyeth personnel to be present in BIP's facilities at agreed upon times during the Supply Term. While at any BIP facility, the Buyer Business Coordinator, Buyer Technical Coordinator and any other Immunex and Wyeth personnel shall comply with all applicable BIP security and safety policies and procedures. ARTICLE 3. SUPPLY OF BULK DRUG SUBSTANCE, DRUG PRODUCT AND FINISHED PRODUCT 3.1 MANUFACTURE AND SUPPLY OF BULK DRUG SUBSTANCE, DRUG PRODUCT AND FINISHED PRODUCT. (a) BULK DRUG SUBSTANCE; DRUG PRODUCT. (1) During the Supply Term, BIP shall [*] manufacture and sell, and Buyer shall [*] on its behalf purchase, in each case within the Maximum Request, Bulk Drug Substance and Drug Product, and Buyer shall on behalf of Wyeth issue Firm Orders to BIP for Bulk Drug Substance and Drug Product for payment by Wyeth to BIP, subject to the terms and conditions of this Agreement, for sale or other distribution in the Territory. (2) From time to time during the Supply Term, and within the provisions of the Rolling Forecast Planning Schedule and the Detailed Forecast Schedule set forth in Section 4.2 and 4.3 hereof, respectively, Buyer reserves the option to purchase, and in such event BIP shall manufacture and sell, Bulk Drug Substance for delivery to Immunex, Wyeth, or/or their respective designee, for final fill and finish by a party other than BIP. Unless otherwise agreed by BIP, Buyer shall not purchase more than [*] percent ([*]%) of its requirements of Product in the form of such separate purchases of Bulk Drug Substance. The foregoing provision shall not apply to purchases of Bulk Drug Substance hereunder to be stored by BIP and that BIP will subsequently convert to Drug Product and/or Finished Product. (b) FINISHED PRODUCT. Buyer shall have the option from time to time (and within the provisions of the Detailed Forecast Schedule) during the Supply Term to purchase Finished Product from BIP, and BIP shall in such event manufacture and sell, and Buyer shall on its behalf purchase, Finished Product, and Buyer shall on behalf of Wyeth issue Firm Orders to BIP for Finished Product for payment by Wyeth to BIP, subject to the terms and conditions of this Agreement, for sale or other distribution in the Territory. (c) SPECIFICATIONS; CGMP. All Bulk Drug Substance, Drug Product and Finished Product manufactured by BIP hereunder shall conform to the Specifications applicable thereto and be manufactured in compliance with cGMP. 3.2 BACK-UP SUPPLIER(S) OF BULK DRUG SUBSTANCE AND/OR DRUG PRODUCT. Immunex and Wyeth shall together have the right to solicit estimates from and qualify for FDA, EMEA or other regulatory authority approval one or more back-up suppliers to manufacture and supply Bulk Drug Substance and/or Drug Product to Buyer for sale in the Territory, and to perform any other services assigned to BIP hereunder in the event that at any time during the Supply Term [*]. In such event, Buyer may purchase such additional quantities of Bulk Drug Substance and/or Drug Product in excess of the quantities BIP is able to supply Buyer pursuant to this Agreement from such alternative back-up supplier(s), or Buyer may manufacture such quantities itself. If and when Buyer purchases or intends to 76 purchase from any such alternative back-up supplier(s), the Maximum Request may not be adjusted downward by Buyer in connection therewith. [*] 3.3 RIGHT OF FIRST REFUSAL FOR ADDITIONAL MANUFACTURING CAPACITY. (a) CONDITION PRECEDENT TO RIGHT OF FIRST REFUSAL. In the event that at any time during the Supply Term, BIP is unable to supply all of Immunex's and Wyeth's requirements of Bulk Drug Substance and/or Drug Product in excess of the Maximum Request for sale in the Territory, and Immunex and Wyeth make a determination that they will need additional manufacturing capacity in excess of the Maximum Request (as of the Effective Date) for Bulk Drug Substance and/or Drug Product for an extended period (the "ADDITIONAL MANUFACTURING CAPACITY"), Immunex and Wyeth shall, subject to Section 3.2 above, offer BIP all rights to provide such Additional Manufacturing Capacity in accordance with the terms set forth in this Section 3.3. (b) NOTICE REQUIREMENTS. Immunex and Wyeth shall provide written notice to the BIP Business Coordinator of any such determination with respect to Additional Manufacturing Capacity as set forth in Section 3.3(a) above. Such notice shall include sufficient information to enable BIP to reasonably evaluate its ability to provide Immunex and Wyeth such Additional Manufacturing Capacity, including, but not limited to, the number of additional kilos of Bulk Drug Substance and/or the number of additional Units of Drug Product required per Calendar Year, a proposed timeline for providing such Additional Manufacturing Capacity that is reasonable under the circumstances, the length of time that Immunex and Wyeth would be prepared to commit to use an acceptable percentage of such Additional Manufacturing Capacity, and any other pertinent terms. (c) COMMENCEMENT OF TIME PERIOD. Upon BIP's receipt of such notice from Immunex and Wyeth pursuant to Section 3.3(b) above, the Parties shall have a period of [*] ([*]) days in which to establish mutually acceptable terms and conditions under which BIP shall build or otherwise acquire the Additional Manufacturing Capacity, including, but not limited to, acceptable timelines for engineering and construction of new or expanded manufacturing facilities, the actual production capacity to be committed by BIP to Immunex and Wyeth, the Product Price for such additional quantities of Bulk Drug Substance and/or Drug Product, the level of commitment to BIP required by Immunex and Wyeth after such Additional Manufacturing Capacity is built and qualified, and any other pertinent terms. If the Parties are able to establish mutually acceptable terms and conditions governing such Additional Manufacturing Capacity under this Section 3.3(c), then the Parties shall as soon thereafter as practicable negotiate in good faith an addendum to this Agreement to cover any changes in this Agreement as a result of such Additional Manufacturing Capacity, including, but not limited to, the items described in the immediately preceding sentence. At the end of the [*] ([*])-day period referred to in this Section 3.3(c), as such period may be extended by mutual written agreement of the Parties, if the Parties are unable to establish mutually acceptable terms and conditions governing such Additional Manufacturing Capacity, Immunex and Wyeth shall have the right to offer manufacturing rights for such Additional Manufacturing Capacity to a Third Party or to Immunex, AHP or any of their Affiliates, on terms that, taken as a whole, are no less favorable to Immunex and Wyeth than the terms last offered to BIP. If Immunex and Wyeth desire to enter into an agreement with a Third Party or between themselves and/or their Affiliates on terms that, taken as a whole, are more favorable to such Third Party, Immunex, AHP or any of their Affiliates than the terms last offered to BIP, then Immunex and Wyeth shall not enter into an agreement with such Third Party or between themselves and/or their Affiliates unless Immunex and Wyeth first offer such new terms to BIP. BIP shall then have [*] ([*]) days from receipt of such additional offer to accept or reject such new terms. 77 (d) ADDITIONAL MANUFACTURING CAPACITY PLAN. BIP shall prepare and deliver a capital investment plan for such Additional Manufacturing Capacity (the "ADDITIONAL MANUFACTURING CAPACITY PLAN") to Immunex and Wyeth within [*] ([*]) days after the Parties have reached any agreement under Section 3.3(c) above. The Additional Manufacturing Capacity Plan shall describe in reasonable detail the activities BIP proposes to undertake and/or has already undertaken in increasing BIP's production capacity as agreed upon by the Parties, and shall include information regarding the expected timing of construction of the increased capacity, and the expected timing of purchases of capital equipment that must be specially ordered. BIP shall thereafter use all commercially reasonable efforts to build and qualify the increased manufacturing capacity in accordance with the timelines agreed by the Parties. If Immunex and Wyeth can reasonably demonstrate that BIP is failing to use all commercially reasonable efforts to build and qualify the increased manufacturing capacity within such timelines, Immunex and Wyeth may refer this matter to dispute resolution under Section 22.2 hereof. If the Parties are unable to resolve such dispute in accordance with the terms of Section 22.2 hereof, Immunex and Wyeth shall be free to enter into an agreement with a Third Party or between themselves and/or their Affiliates to provide such Additional Manufacturing Capacity. ARTICLE 4. PRE-FIRST COMMERCIAL SALE FIRM ORDERS; FORECASTS; FIRM ORDERS; DELIVERIES 4.1 PRE-FIRST COMMERCIAL SALE -- FIRST FIVE (5) FIRM ORDERS. (a) PRE-FIRST COMMERCIAL SALE FIRM ORDERS FOR BULK DRUG SUBSTANCE. (1) On [*], Buyer sent a letter to BIP with respect to the first Firm Order for Bulk Drug Substance, which letter authorized BIP to manufacture sufficient Bulk Drug Substance required to yield [*] ([*]) twenty-five (25) mg Units of Drug Product and/or Finished Product to be scheduled for delivery during the fourth Calendar Quarter of 1998. (2) On [*], Buyer sent a letter to BIP with respect to the second and third Firm Orders for Bulk Drug Substance, which letter authorized BIP to manufacture Bulk Drug Substance required to yield (i) [*] ([*]) twenty-five (25) mg Units of Drug Product and/or Finished Product to be scheduled for delivery during the first Calendar Quarter of 1999 (second Firm Order) and [*] ([*]) twenty-five (25) mg Units of Drug Product and/or Finished Product to be scheduled for delivery during the second Calendar Quarter of 1999 (third Firm Order). (3) On [*], Buyer sent a letter to BIP with respect to the fourth Firm Order for Bulk Drug Substance, which letter authorized BIP to manufacture Bulk Drug Substance required to yield [*] ([*]) twenty-five (25) mg Units of Drug Product and/or Finished Product to be scheduled for delivery during the third Calendar Quarter of 1999. [*] (4) On [*], Buyer sent a letter to BIP with respect to the fifth Firm Order for Bulk Drug Substance, which letter authorized BIP to manufacture Bulk Drug Substance required to yield [*] ([*]) twenty-five (25) mg Units of Drug Product and/or Finished Product to be scheduled for delivery during the fourth Calendar Quarter of 1999. (5) Buyer's first five (5) Firm Orders for Bulk Drug Substance are detailed in EXHIBIT G attached hereto. EXHIBIT G sets forth details concerning timelines for Buyer's first five (5) Firm Orders for Bulk Drug Substance during the period prior to First Commercial Sale in the Immunex Territory, and timelines for converting such Bulk Drug Substance into [*] ([*]) mg and/or twenty-five (25) mg vials of Drug Product and/or Finished Product. In accordance with EXHIBIT G, Buyer shall have the flexibility in deciding when to have BIP convert Bulk Drug Substance from such first five (5) Firm Orders into [*] ([*]) mg and/or twenty-five (25) mg vials of Drug Product and/or Finished Product for sale in the first five (5) Calendar Quarters after First Commercial Sale and thereafter in the Immunex Territory, recognizing that there is inherent uncertainty in predicting the timing of FDA approval of the Product BLA. 78 (6) In accordance with Section 4.3 hereof, Buyer shall on a monthly basis provide BIP with a Detailed Forecast Schedule for converting Bulk Drug Substance from such first five (5) Firm Orders into Drug Product and/or Finished Product. As part of each such Detailed Forecast Schedule, Buyer shall specify the number of [*] ([*]) mg vials and the number of twenty-five (25) mg vials that BIP shall produce from such Bulk Drug Substance from the first five (5) Firm Orders. Buyer's forecasted quarterly requirements for supply of Drug Product and/or Finished Product during the five (5) Calendar Quarters referenced in Section 4.1(a)(1) - (4) above are set forth in Table 1 below: TABLE 1 QUARTERLY FORECASTED REQUIREMENTS OF DRUG PRODUCT AND/OR FINISHED PRODUCT FOR FIRST FIVE CALENDAR QUARTERS AFTER FIRST COMMERCIAL SALE IN THE IMMUNEX TERRITORY
CALENDAR QUARTER BULK DRUG SUBSTANCE REQUIRED TO YIELD THE FOLLOWING NUMBER OF UNITS (25 MG VIAL EQUIVALENTS) 4th Calendar Quarter 1998 [*] 1st Calendar Quarter 1999 [*] 2nd Calendar Quarter 1999 [*] 3rd Calendar Quarter 1999 [*] 4th Calendar Quarter 1999 [*] TOTALS [*]
(b) APPLICABLE DATES. The dates applicable to (1) ordering raw materials, (2) issuing a Firm Order for Bulk Drug Substance, (3) invoicing for Bulk Drug Substance, (4) issuing a Firm Order date for filling operations for converting Bulk Drug Substance into [*] ([*]) mg and/or twenty-five (25) mg vials of Drug Product and/or Finished Product, consistent with BIP's finite lyophilization capacity, (5) invoicing for such filling operations, and (6) other related BIP activities with respect to the quantities of Drug Product and/or Finished Product set forth in Table 1 above are set forth in EXHIBIT G hereto. (c) FIRST FIVE FIRM ORDERS GOVERNED BY THIS AGREEMENT. Upon the Effective Date, the letters referenced in Section 4.1(a) above dated [*], representing the first through the fifth Firm Orders, shall be deemed to have been made hereunder and shall be superseded by this Agreement, and the terms and conditions of this Agreement shall govern such first through fifth Firm Orders. 4.2 POST-FIRST COMMERCIAL SALE -- THREE (3)-YEAR ROLLING FORECAST PLANNING SCHEDULE FOR BULK DRUG SUBSTANCE. (a) MONTHLY ROLLING FORECAST PLANNING SCHEDULE UNTIL [*]. Beginning on or before the tenth day of each month after First Commercial Sale until [*], or as otherwise agreed upon by BIP and Buyer, Buyer shall submit to BIP, a three (3)-year "ROLLING FORECAST PLANNING SCHEDULE" for Bulk Drug Substance to be manufactured by BIP. The three (3)-year period shall be that period which commences on the first day of the [*] month after Buyer submits each Rolling Forecast Planning Schedule. By way of example only, when the Rolling Forecast Planning Schedule for [*] is submitted, the three (3)-year planning horizon covered by such schedule shall commence on [*] and shall end on [*]. Beginning in [*], or as otherwise agreed upon by BIP and Buyer, the applicable Rolling Forecast Planning Schedule shall be submitted on a quarterly basis as set forth in Section 4.2(c) below. (b) DETERMINATION OF BINDING PORTION OF EACH ROLLING FORECAST PLANNING SCHEDULE. Each three (3)-year Rolling Forecast Planning Schedule issued after First Commercial Sale shall be [*], as follows: 79 (1) The forecasts for Bulk Drug Substance within the [*]. (2) The forecasts for Bulk Drug Substance within the [*]. Such forecasts within the [*] of the three (3)-year Rolling Forecast Planning Schedule can be increased by Buyer by up to [*] percent ([*]%) by providing written notice thereof to BIP, provided that any such increase, when added together with the forecasted amount, shall be subject to an upper limit of either the Maximum Request or the Maximum Request plus BIP's then-currently available production capacity for the Product as represented by any Accepted Unused Capacity (see Section 5.1(a)(3) hereof), whichever upper limit is greater. Any increases above such amount are subject to Section 4.2(d) below. The following restrictions shall apply if such forecasts within the [*]: (i) Within months [*] ([*]) to [*] ([*]), the forecast can be [*] by up to [*] percent ([*]%); (ii) Within months [*] ([*]) to [*] ([*]), the forecast can be [*] by up to [*] percent ([*]%); (iii) Within months [*] ([*]) to [*] ([*]), the forecast can be [*] by up to [*] percent ([*]%); and (iv) Within months [*] ([*]) to [*] ([*]), the forecast can be [*] by up to [*] percent ([*]%). [*] (3) The forecasts for Bulk Drug Substance within the [*]. (c) QUARTERLY ROLLING FORECAST PLANNING SCHEDULE BEGINNING IN [*]. Beginning in [*], or as otherwise agreed by BIP and Buyer, Buyer shall submit updates to the Rolling Forecast Planning Schedule on a quarterly basis, by the tenth day of the last month of each Calendar Quarter during the Supply Term, I.E., at June ---- 10th, September 10th, December 10th and March 10th. The three (3)-year period shall be that period which commences on the first day of the [*] month after Buyer submits each quarterly update to the Rolling Forecast Planning Schedule. By way of example only, when the Rolling Forecast Planning Schedule for [*] is submitted, the three (3)-year planning horizon covered by such schedule shall commence on [*] and shall end on [*]. No Rolling Forecast Planning Schedule needs to be given for any period after the expiration of the Supply Term. (d) ADDITIONAL REQUIREMENTS OF BULK DRUG SUBSTANCE. BIP shall use all commercially reasonable efforts to supply to Buyer any requirements of Bulk Drug Substance which are in excess of those quantities specified (and any increases to such quantities as permitted by Section 4.2(b)(2) above) in the then-current Rolling Forecast Planning Schedule as set forth in Section 4.2(b)(1) and Section 4.2(b)(2) above. BIP shall notify Buyer within thirty (30) days of receipt of each Rolling Forecast Planning Schedule regarding BIP's ability or inability, as the case may be, to supply Buyer's requirements of Bulk Drug Substance in excess of those quantities specified in the immediately preceding sentence. In addition, to the extent the Maximum Request has been increased as set forth in Section 5.1(a)(2) hereof for the respective period, Buyer shall be permitted to increase its Firm Orders hereunder up to the revised Maximum Request. 80 (e) SAFETY STOCK. As soon as practicable after the Effective Date, BIP shall endeavor at its expense to build a safety stock of [*]. The applicable safety stock quantities will be calculated based on Buyer's then current binding monthly Firm Orders for Bulk Drug Substance, Drug Product and Finished Product, as applicable. BIP shall use all commercially reasonable efforts to build any additional safety stock of Bulk Drug Substance requested by Buyer from time to time in excess of the [*] supply set forth in this Section 4.3(e), provided, however, that BIP may invoice Buyer for such additional safety stock of Bulk Drug Substance in accordance with Section 4.4(b)(1) hereof. 4.3 DETAILED FORECAST SCHEDULE FOR BULK DRUG SUBSTANCE, DRUG PRODUCT AND/OR FINISHED PRODUCT. (a) MONTHLY DETAILED FORECAST SCHEDULE. Beginning on the tenth day of each month after the Effective Date, Buyer shall submit to BIP, a "DETAILED FORECAST SCHEDULE" for (1) the number of kg of Bulk Drug Substance (within the limitations of Section 3.1(a)(2) above), if any, and (2) the number of Units of Drug Product and/or Finished Product, to be delivered to Immunex, Wyeth and/or their respective designee on Delivery Dates (by week) specified therein during the [*] period commencing on the first day of the [*] month following, including the allocation between [*] ([*]) mg and twenty-five (25) mg vials of Drug Product and/or Finished Product being ordered, and also including an allocation between the Immunex Territory and the Wyeth Territory, respectively. By way of example only, when the Detailed Forecast Schedule for December 10, 1998 is submitted, the [*] period covered by such Detailed Forecast Schedule shall commence on [*] and shall end on [*]. Except as set forth in Section 4.3(b) and (c) below, such Detailed Forecast Schedule shall be non-binding and shall not constitute an obligation of Buyer to purchase the quantities of Drug Product and/or Finished Product set forth therein. With respect to Bulk Drug Substance, such Detailed Forecast Schedule shall only serve to provide the Delivery Dates applicable thereto, and shall not supersede the binding portion of the then current Rolling Forecast Planning Schedule. (b) PRE-FIRST COMMERCIAL SALE FIRST FIVE (5) ORDERS. With respect to the first five (5) Firm Orders issued during the pre-First Commercial Sale period in accordance with Section 4.1 hereof, the Detailed Forecast Schedule provided under Section 4.3(a) above shall be considered Firm Orders in accordance with the timelines set forth in EXHIBIT G hereto. (c) BINDING PORTION OF EACH DETAILED FORECAST SCHEDULE. Except as set forth in Section 4.3(b) above, the first [*] ([*]) months of each [*] ([*])-month period covered by a Detailed Forecast Schedule delivered by Buyer to BIP pursuant to Section 4.3(a) above shall be considered Firm Orders for the quantities of Bulk Drug Substance, Drug Product and/or Finished Product to be delivered on Delivery Dates that are specified in such Detailed Forecast Schedule, subject to any adjustments to such Delivery Dates as set forth in Section 4.3(d) below. [*] (d) DELIVERY DATE CONFIRMATIONS; SHIPPING SCHEDULE. Within [*] ([*]) days after Buyer submits each Firm Order to BIP hereunder, BIP shall issue a Delivery Date Confirmation confirming to Buyer in writing the Delivery Dates specified in such Firm Order. In addition, Buyer and BIP have agreed upon a shipping schedule with a [*] shipping horizon for deliveries of Drug Product and/or Finished Product hereunder, as such shipping schedule may generally be modified from time to time upon agreement of Buyer and BIP. (e) SUPPLY OF DRUG PRODUCT AND/OR FINISHED PRODUCT PURSUANT TO FIRM ORDERS; ADDITIONAL REQUIREMENTS OF DRUG PRODUCT AND/OR FINISHED PRODUCT. BIP shall convert Bulk Drug Substance to Drug Product and deliver such Drug Product and/or Finished Product in accordance with Firm Orders and the Delivery Dates set forth therein. Any revisions to such Firm Orders requested by Buyer shall be negotiated between Buyer and BIP in good faith, and BIP shall use all commercially reasonable efforts to (1) deliver any quantities of Drug Product and/or Finished Product in excess of those quantities specified in such Firm Orders as directed by Buyer and (2) reallocate the mix as between the number of Batches of Drug Product and the number of Batches of Finished Product specified in the applicable Detailed Forecast Schedule. In addition, and notwithstanding Section 4.3(c) above, if there is a production shortfall under Section 4.5(b) hereof, 81 Buyer shall be permitted to reallocate its then current Detailed Forecast Schedule between [*] ([*]) mg and twenty-five (25) mg vials of Drug Product and/or Finished Product, as reasonably needed in order to respond to then current market needs for the Product, and BIP shall use all commercially reasonable efforts to accommodate such reallocation. (f) SHELF LIFE MANAGEMENT. When converting Bulk Drug Substance to Drug Product hereunder, and except as otherwise agreed, BIP shall first utilize the Bulk Drug Substance Lots with the earliest date of manufacture in order to maximize the shelf life of Bulk Drug Substance. 4.4 PURCHASE QUANTITIES. (a) BATCH ORDERS; FIRM ORDERS TO SPECIFY UNITS. Except as otherwise set forth herein or agreed upon between Buyer and BIP, all Bulk Drug Substance, Drug Product and Finished Product ordered hereunder must be ordered in Batch sizes or whole multiples thereof. Except as otherwise provided in Section 4.1(a) hereof or agreed upon between Buyer and BIP, each Firm Order for Drug Product and/or Finished Product issued pursuant to Section 4.3 hereof shall specify the quantity of Units of Drug Product and/or Finished Product being ordered, as well as the allocation between [*] ([*]) mg and twenty-five (25) mg vials of Drug Product and/or Finished Product being ordered. (b) VARIANCES IN QUANTITIES SHIPPED; INVOICING PREREQUISITES. Quantities actually shipped pursuant to a given Firm Order may vary from the quantities reflected in such Firm Order by up to [*] percent ([*]%) and still be deemed to be in compliance with such Firm Order. In addition, with respect to each Batch that is part of a particular Firm Order being shipped hereunder, BIP may ship and Immunex and/or Wyeth, as the case may be depending on the destination of the applicable shipment (I.E., Immunex for the Immunex Territory and Wyeth for the Wyeth Territory), shall be required to pay for (in accordance with the terms hereof) shipments of additional quantities of Drug Product and/or Finished Product that vary by greater than [*] percent ([*]%) from the quantities reflected in the applicable Firm Order, it being understood that quantities of Drug Product and/or Finished Product actually produced from each Batch will vary based on such factors as actual success rate, fermentation crude Product titer, and purification yield, and provided further, that BIP shall notify Immunex in a timely manner prior to such shipment of the amount of any such excess quantities of Drug Product and/or Finished Product being shipped hereunder. However, Immunex and Wyeth, as applicable, shall only be invoiced and required to pay for the quantities of Bulk Drug Substance and Drug Product/Finished Product which (1) in the case of Bulk Drug Substance, are accompanied by a Certificate of Analysis and a Certificate of Compliance with respect to such Bulk Drug Substance and (2) in the case of Drug Product/Finished Product, BIP actually ships to Immunex, Wyeth and/or their respective designee, and are accompanied by a Certificate of Analysis and a Certificate of Compliance with respect to such Drug Product/Finished Product. 4.5 DELIVERIES. (a) FILLING FIRM ORDERS; SHELF LIFE. (1) Subject to Section 4.4(b) above, BIP shall fulfill each Firm Order submitted pursuant to Sections 4.1, 4.2, and 4.3 hereof for such quantities of Bulk Drug Substance, Drug Product and Finished Product specified in such Firm Order. Drug Product and Finished Product ordered pursuant to Sections 4.1 and 4.3 hereof shall be delivered by each applicable Delivery Date specified in the Firm Orders applicable thereto. (2) Upon delivery to Immunex, Wyeth and/or their respective designee, all Drug Product and Finished Product shall have at least the percentage set forth in Table 2 below of its then-approved (by the FDA or EMEA, as applicable) shelf life remaining at the "Date of Shipment" (as defined below), provided that if the then-approved shelf life of the Drug Product and Finished Product is not listed in Table 2 below, then such Drug Product and Finished Product shall have at least [*] ([*]) of its then-approved (by the FDA or EMEA, as applicable) shelf life remaining at the Date of Shipment. [*] 82
TABLE 2 SHELF LIFE OF DRUG PRODUCT AND FINISHED PRODUCT SHELF LIFE MINIMUM REMAINING SHELF LIFE AT DATE OF SHIPMENT [*] months [*] months [*] months [*] months [*] months [*] months [*] months [*] months [*] months [*] months
(3) With respect to the "[*] months" row under the "Shelf Life" column in Table 2 above, from and after the Effective Date and through [*], BIP shall use all commercially reasonable efforts to achieve a minimum remaining shelf life of Drug Product and Finished Product at the date of shipment of [*] ([*]) months. During such period, BIP shall use special efforts to closely coordinate with Buyer so that the schedule for producing Batches of Drug Product and Finished Product within the Biberach Facility is calculated to result in a [*] ([*])-month shelf life for Drug Product and Finished Product. (4) For purposes of determining the date from which the shelf life of Drug Product and Finished Product shall be calculated under this Section 4.5(a), the term "DATE OF SHIPMENT" shall mean the earlier of (i) the scheduled Delivery Date (subject to the terms of Section 4.3(d) above) for a shipment of Drug Product or Finished Product, as applicable, provided that BIP is completely ready to ship such Drug Product or Finished Product according to the terms hereunder on such Delivery Date and that Buyer has not delayed taking such shipment by such Delivery Date through any fault of BIP, or (ii) the date such shipment of Drug Product or Finished Product, as applicable, is actually delivered to Buyer's designated carrier(s) in Biberach/Germany. (b) PRODUCTION SHORTFALLS; DELIVERY DELAYS. If at any time during the Supply Term there is a shortfall or anticipated shortage of Bulk Drug Substance, Drug Product, Finished Product, and/or any other essential raw materials or other components used in the production of Bulk Drug Substance, Drug Product and/or Finished Product, and/or any delay in shipment or delivery occasioned by BIP, which shortfall or delay is reasonably likely to result in BIP's inability to meet any Delivery Date(s) hereunder, then BIP shall (1) immediately notify Buyer in writing as to the reason for the shortage of supply and/or delay, and provide an indication of the duration of the shortfall and/or delay and (2) use all commercially reasonable efforts to allocate to Buyer as much Bulk Drug Substance, Drug Product, Finished Product and such essential raw materials and components as are available as a matter of priority to meet Firm Orders issued hereunder. BIP shall not grant higher priority to any Third Party than to Buyer with respect to such raw materials and components. Nothing in this Section 4.5(b) releases BIP from its obligations to supply Bulk Drug Substance, Drug Product and Finished Product under Section 4.5(a) above. In addition, BIP shall also promptly notify Buyer in writing when any such shortfall and/or delay is over. (c) DELIVERY SHORTFALLS. Unless otherwise directed in writing by Buyer within [*] after Buyer's receipt of notice from BIP under Section 4.5(b) above that a manufacturing shortfall and/or delay as described above is over, BIP shall use all commercially reasonable efforts to make up all shortfalls in delivery in accordance with a Firm Order as promptly as possible and shall promptly supply Bulk Drug Substance, Drug Product and Finished Product (as applicable) to Immunex, Wyeth and/or their respective designee, as appropriate, to meet such Firm Order. 83 4.6 DELIVERY TERMS. BIP shall arrange for shipment of Bulk Drug Substance, Drug Product or Finished Product, as the case may be, to Immunex, Wyeth and/or their respective designee, at the expense of the Party receiving such shipment, and in accordance with Buyer's instructions, including instructions as to designated carrier(s) to utilize. BIP shall not transport or ship Bulk Drug Substance, Drug Product or Finished Product until the Party receiving such shipment informs BIP that it has obtained all appropriate approvals and consents of any governmental authority necessary for the transportation or shipment of such Bulk Drug Substance, Drug Product or Finished Product, as the case may be. BIP shall comply with all applicable German laws and regulations regarding the transportation or shipment of Bulk Drug Substance, Drug Product and/or Finished Product, as the case may be. Title to, and risk of loss of, Bulk Drug Substance, Drug Product and/or Finished Product, as the case may be, shall remain with BIP until delivery to the designated carrier specified by Buyer in Biberach/Germany, at which time the Party to receive such delivery shall assume title to and risk of loss of the Bulk Drug Substance, Drug Product or the Finished Product, as the case may be. ARTICLE 5. PRODUCTION CAPACITY; PRODUCT PRICE; PAYMENT 5.1 PRODUCTION CAPACITY. (a) MAXIMUM REQUEST; [*]; MILESTONE PAYMENTS. (1) MAXIMUM REQUEST. BIP shall provide Immunex and Wyeth with reserved production capacity, including lyophilization and filling capacity, for Bulk Drug Substance, Drug Product and Finished Product for the Supply Term based on the initial Maximum Request of [*] ([*]) kg per Calendar Year, provided that Buyer may issue Firm Orders for Bulk Drug Substance, Drug Product and/or Finished Product greater than such amount to the extent BIP's free available production capacity for Bulk Drug Substance, Drug Product and/or Finished Product exceeds [*] ([*]) kg per Calendar Year. The Parties acknowledge and agree that the initial Maximum Request of [*] ([*]) kg of Bulk Drug Substance per Calendar Year is based on the initial Production Assumptions set forth in Section 5.3(a) hereof, and the assumption as of the Effective Date that a total of [*] ([*]) Bulk Drug Substance Runs initially reserved for Immunex and Wyeth [*]. The Parties also understand, however, that BIP's actual production of Bulk Drug Substance could be either more or less than [*] ([*]) kg per Calendar Year, depending on such factors as the actual success rate, fermentation crude Product titer, and purification yield. (2) UPWARD ADJUSTMENTS TO MAXIMUM REQUEST. (i) REALLOCATION OF EXISTING PRODUCTION CAPACITY. Prior to the beginning of each Calendar Year, BIP shall inform Buyer of any increases to the Maximum Request [*]. Any such increases to the Maximum Request based on allocating additional existing production capacity to Buyer shall require mutual written agreement of the Parties, including agreement with respect to the number of Calendar Years for which such increase to the Maximum Request shall be applicable, and any such increase to the Maximum Request shall be effective as of January 1 of the applicable new Calendar Year. After the end of the last Calendar Year in which the Maximum Request was increased as provided under this paragraph, and unless otherwise agreed upon in writing by the Parties, the Maximum Request shall automatically revert to the level that applied immediately prior to the effective date of such increase (I.E., the level that was in effect prior to the first year of the applicable ---- increase under this paragraph), subject to any downward adjustments to the Maximum Request that may have occurred under Section 5.1(b) hereof during the period of any such increase to the Maximum Request. (ii) INCREASED PRODUCTION CAPACITY. In addition to potential increases in the Maximum Request described in Section 5.1(a)(2)(i) above, the Maximum Request shall also be subject to upward adjustment upon mutually agreed terms, including an acceptable lead-time (E.G., construction of additional production capacity) (see Section 3.3 hereof regarding Additional Manufacturing Capacity). 84 (3) [*] (4) [*] (b) DOWNWARD ADJUSTMENTS TO MAXIMUM REQUEST. The Maximum Request shall be subject to downward adjustment(s) by Immunex and Wyeth by no more than [*] percent ([*]%) per step (except as provided below), and shall, unless otherwise agreed by BIP, in no case result in less than [*] ([*]) kg of Bulk Drug Substance as the Maximum Request as follows: (1) by [*] year after First Commercial Sale; (2) by [*] year after First Commercial Sale; and (3) [*]. Notwithstanding the foregoing, to the extent that the BIP production capacity idled as a result of any Immunex and Wyeth downward adjustment in the Maximum Request under this Section 5.1(b) will be utilized by BIP generally and for a sufficiently long period to manufacture one or more biological products of Immunex, Wyeth, BIP, any of their Affiliates or any Third Parties within the general time period corresponding to the effective date of such downward adjustment to the Maximum Request under Section 5.1(c) below, then the [*] percent ([*]%) per step limitation provided above may be increased. In such event, BIP shall provide Immunex and Wyeth with notice of the amount of any potential percentage increase to the [*] percent ([*]%) limit on downward adjustments in the Maximum Request that are available to Immunex and Wyeth with respect to their most recently exercised downward adjustment in the Maximum Request, such percentage increase to generally be proportional to the amount of such idle BIP production capacity that will be utilized as set forth above. Upon request by Immunex and Wyeth, BIP shall provide Immunex and Wyeth with accurate and complete information such as is necessary for the calculation of any potential increase in such downward adjustment in the Maximum Request, provided that BIP shall have no obligation to identify the Third Parties whose products are being manufactured by BIP, or to identify the products themselves. The Parties shall negotiate in good faith on a case-by-case basis any potential percentage increase to the downward adjustment in the Maximum Request hereunder. After the completion of such negotiations, Immunex and Wyeth shall promptly and in any event within [*] ([*]) days provide BIP written notice regarding whether and the extent to which Immunex and Wyeth have elected to take advantage of any such percentage increase by making a further downward adjustment to the Maximum Request. (c) EFFECTIVE DATE OF DOWNWARD ADJUSTMENTS TO MAXIMUM REQUEST. Due to BIP's lead-time necessary to make capacity adjustments, the downward adjusted Maximum Request and the corresponding price column for Bulk Drug Substance and Drug Product in EXHIBIT D and EXHIBIT E hereto shall be valid from (1) [*] year after First Commercial Sale with respect to adjustments according to Section 5.1(b)(1) above, (2) [*] year after First Commercial Sale with respect to adjustments according to Section 5.1(b)(2) above and (3) upon the expiration of the [*] ([*])-month notice period with respect to adjustments according to Section 5.1(b)(3) above. By way of example only, if First Commercial Sale of the Product occurred on December 1, 1998, and if Buyer provides notice of a downward adjustment of the Maximum Request by [*] year following First Commercial Sale, I.E., [*], as permitted in Section 5.1(b)(2) above, then the ---- downward adjusted Maximum Request and the corresponding price column for Bulk Drug Substance and Drug Product in EXHIBIT D and EXHIBIT E hereto would be valid from [*], which would be [*] year after First --------- --------- Commercial Sale. 5.2 BULK DRUG SUBSTANCE PRICING; ANNUAL SURCHARGE; INVOICING. (a) BULK DRUG SUBSTANCE PRICING. The price for the Annual Quantity of Bulk Drug Substance is set forth in the Volume Discount Pricing Matrix for Bulk Drug Substance [*] set forth in EXHIBIT D hereto. [*] (b) [*] 85 (c) INVOICING IMMUNEX AND WYETH FOR BULK DRUG SUBSTANCE, DRUG PRODUCT AND FINISHED PRODUCT. BIP may either (1) invoice Immunex ([*], as set forth in Section 5.7(c) hereof) and Wyeth ([*]) separately for Bulk Drug Substance in accordance with Section 4.4(b)(1) hereof, or (2) invoice Immunex ([*], as set forth in Section 5.7(c) hereof) and Wyeth ([*]) for Drug Product or Finished Product (including the Bulk Drug Substance component) delivered in accordance with Section 4.4(b)(2) hereof by utilizing the pricing formulas set forth in Sections 5.4 and 5.5 hereof, respectively. If BIP chooses to invoice Immunex and Wyeth separately for Bulk Drug Substance as set forth in (1) above, then when BIP invoices Immunex and Wyeth for the incremental cost to produce Drug Product or Finished Product by utilizing the pricing formulas set forth in Sections 5.4 and 5.5 hereof, respectively, BIP shall at the time of such invoice for Drug Product or Finished Product issue a credit to Immunex and Wyeth, as appropriate, for an amount which represents that portion of the cost of Bulk Drug Substance previously paid by Immunex and Wyeth that is attributable to any filling losses associated with filling the Drug Product or Finished Product applicable to such invoice. By way of example only, if in manufacturing Drug Product or Finished Product, BIP experienced a filling loss of [*] percent ([*]%) of the Bulk Drug Substance used for such filling, then when BIP invoices Immunex and Wyeth for the incremental costs for such filling activities, BIP would issue a credit to Immunex and Wyeth, as applicable, for [*] percent ([*]%) of the cost previously paid by Immunex and Wyeth for such Bulk Drug Substance. 5.3 ADJUSTMENT OF BULK DRUG SUBSTANCE PRICING BASED ON PRODUCTION ASSUMPTIONS. (a) INITIAL PRODUCTION ASSUMPTIONS. The Production Assumptions shall initially be established at a fermentation crude Product titer of [*] ([*]) mg/L and a purification yield of [*] percent ([*]%), with an agreed upon total amount of Bulk Drug Substance yielded per Bulk Drug Substance Lot of [*] ([*]) g. The Production Assumptions shall be subject to an annual review and potential adjustment as set forth in Section 5.3(b) below. (b) [*] (c) [*] 5.4 DRUG PRODUCT PRICING. (a) DRUG PRODUCT PRICING. The Drug Product price per Unit (I.E., 2R (4 ml) vial) will be calculated as follows: [*] (b) INITIAL DRUG PRODUCT PRICING. [*] (c) INVOICING FOR DRUG PRODUCT. BIP may either invoice Immunex ([*], as set forth in Section 5.7(c) hereof) and Wyeth ([*]) (1) separately for Drug Product, including the Bulk Drug Substance component, in accordance with the formula set forth in Section 5.4(a) above or (2) for the incremental filling and lyophilization costs of Drug Product as set forth in EXHIBIT E hereto, in each case in accordance with Section 4.4(b)(2) hereof. 5.5 FINISHED PRODUCT PRICING. (a) FINISHED PRODUCT PRICING. The Finished Product price per Unit will be calculated by adding to the applicable Drug Product price per Unit the applicable labeling cost per Unit in accordance with the Volume Discount Pricing Matrix for Labeling Operations for [*] set forth in EXHIBIT F hereto. [*] (b) INVOICING FOR FINISHED PRODUCT. BIP may either invoice Immunex ([*], as set forth in Section 5.7(c) hereof) and Wyeth [*] (1) separately for Finished Product, including the Bulk Drug Substance component, in accordance with the formula set forth in Section 5.5(a) above or (2) for the incremental labeling material and labeling operations costs of Finished Product set forth in EXHIBIT F hereto, in each case in accordance with Section 4.4(b)(2) hereof. 86 5.6 PRICE ADJUSTMENTS. (a) ANNUAL PRODUCT PRICE ADJUSTMENT. The initial Product Price for Bulk Drug Substance (EXHIBIT D), the incremental additional filling and lyophilization costs for Drug Product (EXHIBIT E) and the incremental additional labeling material and labeling operations costs for Finished Product (EXHIBIT F) [*] may each be increased by BIP by [*] percent ([*]%) annually beginning [*] for increasing cost of labor and raw materials. (b) COST INCREASES. (1) In case any cost (in terms of cost of raw material, labor and/or regulatory authority requirements) of producing Bulk Drug Substance, Drug Product and/or Finished Product increases by more than [*] percent ([*]%) in any Calendar Year, [*], the Parties shall agree upon the direct amount of such increase based on good faith negotiations, provided that any price increase taken by BIP under Section 5.3(b) and/or Section 5.6(a) hereof shall be credited toward any corresponding increase under this Section 5.6(b). The direct amount of any such increase as agreed upon under this Section 5.6(b)(1) shall be payable by Immunex and Wyeth pursuant to a separate BIP invoice within [*] ([*]) days after receipt thereof. (2) If Buyer can reasonably demonstrate to BIP that any equivalent materials or components used for producing Bulk Drug Substance, Drug Product and/or Finished Product can be purchased at a lower price than BIP's cost of such materials, and that such materials or components can be supplied on a reasonably consistent and reliable basis, then BIP shall accept such lower price for purposes of Section 5.6(b) and Section 5.6(c) below. (c) [*] 5.7 PAYMENT DUE DATES; PAYMENT CURRENCY. (a) PAYMENT DUE DATES. Subject to Section 4.4(b) hereof, the Product Price for Bulk Drug Substance, Drug Product and/or Finished Product delivered to Immunex, Wyeth and/or their respective designees under this Agreement shall be payable to BIP by the Party taking delivery within [*] ([*]) days from the date of the invoice therefor and receipt of the related delivery. (b) PAYMENT CURRENCY. All payments due to BIP under this Agreement shall be made in (1) [*], as set forth in Section 5.7(c) below and (2) [*], in each case by wire transfer to an account to be designated in writing by BIP from time to time. (c) [*] 5.8 RELIEF FROM ANNUAL SURCHARGE. An Annual Surcharge shall not be payable hereunder for any Calendar Year(s) (a) in which BIP fails to deliver Bulk Drug Substance hereunder in sufficient quantities to fill actual Firm Orders for Bulk Drug Substance for such Calendar Year(s), (b) under the circumstances set forth in Section 3.2 hereof; and (c) under the circumstances set forth in Section 20.5(b) hereof. 5.9 SHIFT FROM DEUTSCHE MARK TO EURODOLLAR; EUROPEAN UNION EURODOLLAR CONVERSION. As of January 1, 1999, the "EURO" will replace the Deutsche Mark at the fixed official exchange rate announced by the European Central Bank and shall be the valid currency in Europe from that date forward. Consequently, all amounts in this Agreement shown in Deutsche Mark shall be converted to the Euro at this fixed official exchange rate and the word "Deutsche Mark" or "DM" shall automatically be replaced by "Euro" throughout this Agreement. [*]. 87 ARTICLE 6. BIP PRODUCT WARRANTIES; SPECIFICATIONS 6.1 WARRANTIES BY BIP. (a) PRODUCT WARRANTIES. BIP hereby warrants to Immunex and Wyeth that the Bulk Drug Substance, Drug Product and Finished Product, at the time of sale and shipment to Immunex, Wyeth and/or their respective designees by BIP hereunder shall: (1) with respect to Bulk Drug Substance, conform to the Bulk Drug Substance Specifications; (2) with respect to Drug Product, conform to the Drug Product Specifications; (3) with respect to Finished Product, conform to the Finished Product Specifications; (4) be manufactured in compliance with the requirements of cGMP; (5) be manufactured in compliance with the requirements of all applicable national, state and local laws, ordinances and governmental rules and regulations of Germany and the EMEA; and (6) be transferred free and clear of any liens or encumbrances of any kind. The warranties set forth in this Section 6.1 shall be continuing warranties and shall be applicable to all Bulk Drug Substance, Drug Product and Finished Product shipped or delivered by BIP to Immunex, Wyeth and/or their respective designees hereunder. (b) BIBERACH FACILITY WARRANTIES. BIP hereby warrants that it owns or lawfully controls the Biberach Facility, [*]. 6.2 DISCLAIMER BY BIP. BIP makes no warranty that the Bulk Drug Substance, Drug Product or the Finished Product will be merchantable or fit for any particular purpose, nor does BIP make any other warranties with respect to the Bulk Drug Substance, Drug Product or the Finished Product, except as expressly stated in this Agreement. 6.3 SPECIFICATION CHANGES. (a) SPECIFICATION CHANGES. In the event that Immunex and Wyeth wish to change the Specifications, or in the event Immunex and Wyeth are required to change the Specifications pursuant to applicable law, rule or regulation or in response to the order or request of a governmental authority or regulatory body, the following provisions will apply. (1) Buyer shall promptly advise BIP in writing of any such change(s) to the Specifications, and BIP shall promptly advise Buyer as to any scheduling and/or Product Price adjustments which may result from any such change(s), if any. The notification and approval procedure shall be in accordance with standard operating procedures (I.E., change control procedures) agreed upon by Buyer and BIP from time to time. (2) Prior to implementation of such change(s) to the Specifications, the Parties agree to negotiate in good faith in an attempt to reach agreement on (i) the new Product Price, if any, for any Bulk Drug Substance, Drug Product and/or Finished Product manufactured hereunder by BIP which embodies such change(s) to the Specifications, giving due consideration to the effect of such change(s) on BIP's direct manufacturing costs for Bulk Drug Substance, Drug Product and/or Finished Product and (ii) any other amendments to this Agreement which may be necessitated by such changes (E.G., an adjustment to the lead time for Firm Orders). 88 (3) Buyer will reimburse BIP for the reasonable and necessary expenses incurred by BIP as a result of any such change(s) to the Specifications, including, but not limited to, reimbursing BIP for its validation and analytical development costs and capital expenditure costs. (4) BIP shall cooperate with Immunex and Wyeth in good faith to implement all changes to the Specifications as soon as practicable after notice thereof, but in any event within [*] ([*]) days' "lead time," unless otherwise agreed upon by the Parties or required by an applicable regulatory authority. Buyer shall not unreasonably require BIP to implement changes to the Specifications within such [*] ([*])-day period if such changes would typically require BIP a longer period of time to implement. (5) If any such change(s) to the Specifications renders obsolete or unusable any raw materials for Bulk Drug Substance or packaging components for Drug Product or Finished Product, and to the extent such raw materials or packaging components may not be either returned to the appropriate vendor for a credit or utilized by BIP for its other manufacturing operations, Buyer shall purchase from BIP, at BIP's Acquisition Cost, that amount of inventory of such raw materials and/or packaging components, as the case may be, so rendered obsolete or unusable, not to exceed the amount of such raw materials and/or packaging components which would have been required for BIP to manufacture and supply the total quantity of Bulk Drug Substance, Drug Product and/or Finished Product specified in Firm Orders issued hereunder. (b) PROCEDURE FOR SPECIFICATION CHANGES BY BIP. BIP shall not change the Specifications, the Process, or any test method or procedures for manufacturing Bulk Drug Substance, Drug Product or Finished Product without the prior written approval of the Buyer. The procedure for deviation and change control approval shall be set forth in standard operating procedures agreed upon by the Parties from time to time. (c) [*] (d) BIP RESPONSIBILITY. Notwithstanding anything herein to the contrary, neither Immunex or Wyeth shall have any obligation to reimburse BIP for any expenses (other than payment of the Product Price) incurred by BIP which are related to enabling BIP to manufacturer Bulk Drug Substance, Drug Product and Finished Product in conformance with then current Specifications and in compliance with cGMP. (e) POST-FDA PRODUCT APPROVAL PROCESS MODIFICATIONS. (1) Any post-FDA Product approval modifications to the Process shall be subject to mutual agreement of the Parties, such approval not to be unreasonably withheld. (2) [*] (3) If the Parties, after good faith discussions, are unable to reasonably determine that particular post-FDA Product approval modifications to the Process agreed upon hereunder will benefit both Buyer and BIP, Buyer will (unless otherwise agreed upon by BIP) reimburse BIP for the reasonable and necessary expenses incurred by BIP which are directly related to enabling BIP to manufacture Bulk Drug Substance, Drug Product and Finished Product in accordance with any such particular post-FDA Product approval modifications to the Process. 89 ARTICLE 7. PACKAGING 7.1 IN GENERAL. BIP shall package and label the Drug Product according to the Drug Product Specifications and according to packaging procedures mutually agreed upon by Buyer and BIP. To the extent Finished Product is the subject of Firm Orders hereunder, BIP shall package and label the Finished Product according to the Finished Product Specifications and according to packaging procedures mutually agreed upon by Buyer and BIP. 7.2 ARTWORK FOR FINISHED PRODUCT. Within a reasonable time prior to the first Delivery Date of Finished Product hereunder, and at least [*] ([*]) days prior to any subsequent modification to the artwork for Finished Product, Buyer shall in a timely manner provide at no cost to BIP, the digital artwork for all packaging components to be used in the manufacture of Finished Product for the Immunex Territory and the Wyeth Territory, which artwork shall meet the Finished Product Specifications. Notwithstanding the foregoing, BIP shall use its reasonable efforts to accommodate modifications to such artwork in a shorter time period. ARTICLE 8. CLAIMS 8.1 CLAIMS. (a) NOTICE OF CLAIMS. In the event that any Bulk Drug Substance, Drug Product or Finished Product delivered hereunder shall fail to conform with any warranty or any of the Specifications applicable thereto, Buyer may reject the same after production or after shipment by giving written notice thereof to BIP within [*] ([*]) days after shipment (or in the case of a latent defect, within [*] ([*]) days after discovery of such latent defect, but in no case later than [*] after delivery to the designated carried specified by Buyer in Biberach, Germany), which notice shall specify the manner in which such Bulk Drug Substance, Drug Product or Finished Product, as the case may be, fails to conform to any warranty or Specification applicable thereto. Alternatively, rather than initially issuing a notice of rejection, Buyer may give written notice to BIP within the time period set forth in this Section 8.1(a) of a Buyer decision to investigate whether a potentially nonconforming shipment should be rejected, which investigation shall, unless otherwise agreed upon by Buyer and BIP, be completed within the time period set forth in this Section 8.1(a). (b) NO BIP LIABILITY. If it is determined by agreement of the Parties (or in the absence of such agreement, by a mutually acceptable qualified Third Party whose fees shall be paid by the non-prevailing Party) that the nonconformity is due to damage to such Bulk Drug Substance, Drug Product or Finished Product caused by the Party receiving such shipment or its agents subsequent to delivery of such Bulk Drug Substance, Drug Product or Finished Product by BIP to the designated carried specified by Buyer in Biberach, Germany, BIP shall have no liability to such Party with respect thereto. (c) BIP LIABILITY; REPLACEMENT OF PRODUCT. If it is determined by agreement of the Parties (or in the absence of such agreement, by a mutually acceptable qualified Third Party whose fees shall be paid by the non-prevailing Party) that the nonconformity is caused by BIP, BIP shall as soon as reasonably possible if available from either safety stock (see Section 4.2(e) hereof) or from an existing production campaign, but if not so available, then in no event later than [*] ([*]) days with respect to Bulk Drug Substance and [*] ([*]) days with respect to Drug Product or Finished Product (and within the maximum available capacity of the Biberach Facility), replace such nonconforming Bulk Drug Substance, Drug Product or Finished Product, as the case may be, with conforming Bulk Drug Substance, Drug Product or Finished Product, as the case may be, at no additional cost to Immunex and Wyeth. 90 (d) DISPOSITION OF NONCONFORMING PRODUCT. In any case where Immunex or Wyeth expects to make a claim against BIP with respect to damaged or otherwise nonconforming Bulk Drug Substance, Drug Product or Finished Product, Immunex and Wyeth shall not dispose of or allow to be disposed such Bulk Drug Substance, Drug Product or Finished Product, as the case may be, without written authorization and instructions of BIP either to dispose of or return to BIP such Bulk Drug Substance, Drug Product or Finished Product. Upon written request by Buyer, BIP agrees promptly to give the requesting Party such authorization and instructions within a reasonable period of time. ARTICLE 9. MANUFACTURING AUDITS, CERTIFICATE OF COMPLIANCE; REGULATORY MATTERS 9.1 MANUFACTURING AUDITS. (a) ANNUAL AUDIT. BIP shall permit Immunex and Wyeth to conduct an "ANNUAL AUDIT" once each Calendar Year during the Supply Term upon at least [*] ([*]) days' prior notice to BIP and during BIP's normal business hours, (1) to review the originals of all batch records and other primary documents at BIP's facilities relating to the Product and in connection with BIP's manufacturing activities hereunder and (2) to conduct manufacturing audits at the Biberach Facility. To the extent practicable, any such Annual Audit shall be conducted jointly by Immunex and Wyeth personnel. (b) EVENT AUDIT. (1) In addition to the Annual Audit referred to in Section 9.1(a) above, BIP shall permit Immunex and Wyeth to conduct an Event Audit (as defined below) from time to time during the Supply Term upon such reasonable prior notice to BIP as is appropriate under the circumstances and during BIP's normal business hours, (i) to review the originals of all batch records and other primary documents at BIP's facilities relating to the Product and in connection with BIP's manufacturing activities hereunder and (ii) to conduct manufacturing audits at the Biberach Facility. (2) An "EVENT AUDIT" shall be permitted in any of the following circumstances: (i) BIP shall have received a "WARNING LETTER" from the FDA or EMEA relating to the manufacture, packaging or labeling of the Product by BIP; (ii) Buyer has rejected a shipment of Bulk Drug Substance, Drug Product or Finished Product for a failure to meet any warranty or Specifications relating thereto; (iii) Immunex or Wyeth shall have received a series of complaints (I.E., [*]) from Third Parties within any Calendar Year relating to the manufacturing, packaging or labeling process of such Drug Product or Finished Product; or (iv) in the event of unusual data trends with respect to the manufacturing, testing, packaging or labeling of Bulk Drug Substance, Drug Product or Finished Product by BIP, including, but not limited to, a series of lot failures or stability failures. (c) TERMS GENERALLY APPLICABLE TO AUDITS. To the extent practicable, any Annual Audit or Event Audit shall be conducted jointly by Immunex and Wyeth personnel and by a reasonable number of such personnel. During any Annual Audit or Event Audit, as the case may be, and upon Immunex's or Wyeth's request, BIP shall make available for Immunex's and Wyeth's review BIP's batch records for Bulk Drug Substance, Drug Product and/or Finished Product, other raw materials and packaging components used in the manufacture or packaging of Bulk Drug Substance, Drug Product and/or Finished Product hereunder, and quality assurance and quality control documents, procedures and test results for Bulk Drug Substance, Drug Product and/or Finished Product, and any documents required under cGMPs or applicable regulatory guidelines. BIP shall use its reasonable efforts to facilitate any such Annual Audits and Event Audits. BIP 91 shall provide written responses to the auditing Party within [*] ([*]) days after BIP's receipt of any audit observations delivered by the auditing Party. While at any BIP facility, Immunex and Wyeth personnel shall comply with all applicable BIP security and safety policies and procedures. 9.2 CERTIFICATE OF ANALYSIS AND CERTIFICATE OF COMPLIANCE; MANUFACTURING ISSUES; RELEASE ACTIVITIES; RECORDS. (a) CERTIFICATE OF ANALYSIS AND CERTIFICATE OF COMPLIANCE; MANUFACTURING ISSUES; RELEASE ACTIVITIES. BIP shall furnish the following to Immunex, Wyeth and/or their respective designee on or before the date of each shipment or invoice with respect to Bulk Drug Substance, Drug Product and/or Finished Product hereunder: (1) a Certificate of Analysis; (2) a Certificate of Compliance; and (3) [*]. In addition, for each Batch of Bulk Drug Substance, Drug Product and/or Finished Product manufactured hereunder, Buyer and BIP shall each perform their respective release activities as are set forth in standard operating procedures agreed upon by Buyer and BIP from time to time. BIP shall also furnish to Buyer any testing samples of Bulk Drug Substance, Drug Product and/or Finished Product that may be reasonably requested by Buyer for assay and testing purposes. (b) RECORDS. BIP shall maintain all of its manufacturing and analytical records, all records of shipments of Bulk Drug Substance, Drug Product and/or Finished Product hereunder, and all validation data relating to Bulk Drug Substance, Drug Product and/or Finished Product for the time periods required by applicable laws and regulations of the FDA and EMEA. BIP agrees that, in response to any complaint or in the defense by Immunex and/or Wyeth (as applicable) of any litigation, hearing, regulatory proceeding or investigation relating to Bulk Drug Substance, Drug Product and/or Finished Product, BIP shall use reasonable efforts to make available to Immunex and/or Wyeth (as applicable) during normal business hours and upon reasonable prior written notice, such BIP employees and records reasonably necessary to permit the effective response to, defense of, or investigation of such matters, subject to appropriate confidentiality protections. Immunex and/or Wyeth (as applicable) shall reimburse BIP for all reasonable out-of-pocket costs and expenses incurred by BIP in connection with the performance of BIP's obligations under the preceding sentence. 9.3 COMPLAINTS. (a) IMMUNEX TERRITORY. Immunex shall maintain complaint files in accordance with cGMP for the Immunex Territory. BIP shall provide Immunex and Wyeth with a copy of any complaints received by BIP from the Immunex Territory with respect to the Product within [*] ([*]) hours of receipt of notice thereof. Immunex shall promptly provide BIP and Wyeth with a copy of any complaints received by Immunex from the Immunex Territory relating to the manufacture of the Product. Immunex or its designee shall have responsibility for responding to all complaints from the Immunex Territory, and for promptly providing BIP and Wyeth with a copy of any responses to complaints, relating to the manufacture of the Product. Immunex or its designee shall have responsibility for reporting any complaints relating to the Product from the Immunex Territory to the FDA and any other regulatory authority in the Immunex Territory, including, but not limited to, complaints relating to the manufacture of the Product, as well as adverse drug experience reports. BIP shall provide a response to Immunex, with a copy to Wyeth, within [*] ([*]) days of a written request therefor with respect to any complaint by a Third Party in the Immunex Territory regarding the manufacturing, packaging or storage of the Product by BIP. (b) WYETH TERRITORY. Wyeth shall maintain complaint files in accordance with cGMP for the Wyeth Territory. BIP shall provide Wyeth and Immunex with a copy of any complaints received by BIP from the Wyeth Territory with respect to the Product within [*] ([*]) hours of receipt of notice thereof. Wyeth shall promptly provide BIP and Immunex with a copy of any complaints received by Wyeth from the Wyeth Territory relating to the manufacture of the Product. Wyeth or its designee shall have responsibility for responding to all complaints from the Wyeth Territory, and for promptly providing BIP and Immunex with a copy of any responses to complaints, relating to the manufacture of the Product. Wyeth or its designee shall have responsibility for reporting any complaints relating to the Product from the Wyeth Territory to the EMEA and any other regulatory authority in the Wyeth Territory, including, but not limited to, complaints relating to the manufacture of the Product, as well 92 as adverse drug experience reports. BIP shall provide a response to Wyeth, with a copy to Immunex, within [*] ([*]) days of a written request therefor with respect to any complaint by a Third Party in the Wyeth Territory regarding the manufacturing, packaging or storage of the Product by BIP. 9.4 REGULATORY CORRESPONDENCE. (a) NOTIFICATION TO OTHER PARTIES OF REGULATORY CORRESPONDENCE. Each Party shall promptly (and in any event, within [*] days of the date of receipt of notice) notify the other Parties in writing of, and shall provide the other Parties with copies of, any correspondence and other documentation received or prepared by such Party in connection with any of the following events: (1) receipt of a regulatory letter, Warning Letter, or similar item, from the FDA, EMEA or any other regulatory authority directed to the manufacture, packaging, and storage of Bulk Drug Substance, Drug Product and/or Finished Product, or in connection with any general cGMP inspections applicable to any BIP facility associated with BIP's activities hereunder; (2) any recall, market withdrawal or correction of any Batch of Bulk Drug Substance, Drug Product and/or Finished Product from any market in the Immunex Territory or Wyeth Territory; and (3) any regulatory comments relating to the manufacture of Bulk Drug Substance, Drug Product and/or Finished Product requiring a response or action by a Party. (b) REGULATORY CORRESPONDENCE REQUIRING A BIP RESPONSE. In the event BIP receives any regulatory letter or comments from any federal, state or local regulatory authority directed to its manufacture of Bulk Drug Substance, Drug Product and/or Finished Product requiring a response or action by BIP, including, but not limited to, receipt of a Form 483 (Inspectional Observations) or a Warning Letter, Immunex and/or Wyeth (as applicable) promptly will provide BIP with any data or information required by BIP in preparing any response relating to BIP's manufacture of Bulk Drug Substance, Drug Product and/or Finished Product, and will cooperate fully with BIP in preparing such response. BIP shall provide Immunex and Wyeth with a copy of each such response for Immunex's and Wyeth's review and comment prior to BIP's submission of the response. BIP shall give all due consideration to any Immunex and Wyeth comments to each such proposed BIP response. 9.5 INSPECTIONS; NON-COMPLIANCE; FAILURE TO MANUFACTURE. (a) INSPECTIONS. In the event the Biberach Facility will be inspected by representatives of any federal, state or local regulatory agency directed to BIP's manufacture of Bulk Drug Substance, Drug Product and/or Finished Product, BIP shall notify Immunex and Wyeth within [*] ([*]) hours upon learning of such inspection, and shall supply Immunex and Wyeth with copies of any correspondence or portions of correspondence which relate to Bulk Drug Substance, Drug Product and/or Finished Product. [*] (b) NON-COMPLIANCE; FAILURE TO MANUFACTURE. In the event that any regulatory agency shall determine, as a result of an inspection described in Section 9.5(a) above, that BIP is not in compliance with applicable laws or regulations, BIP shall at its expense (but subject to Section 6.3(b) hereof) use all reasonable efforts to cure such non-compliance as soon as practicable if such determination was made by the FDA or the EMEA. Any potential BIP curative efforts referred to in the immediately preceding sentence related to any such determinations by regulatory agencies other than the FDA or the EMEA shall be mutually agreed upon by the Parties. In the event BIP receives a Warning Letter from the FDA or EMEA and as a result BIP is unable to manufacture Bulk Drug Substance, Drug Product and/or Finished Product for a particular period, then the provisions of Section 20.4 and Section 20.5 hereof shall apply, MUTATIS MUTANDIS, it being understood that BIP's inability to manufacture Bulk Drug Substance, Drug Product and/or Finished Product for the reasons set forth in this Section 9.5 shall not automatically be deemed a Force Majeure Event if BIP's inability to manufacture was caused by BIP's gross negligence or willful misconduct. 9.6 REGULATORY CONTACTS. Each Party shall notify the other Parties in a timely manner of any meetings or substantive discussions with the FDA, EMEA or any other regulatory authority that directly relate to the manufacture, supply and/or quality control of the Product manufactured by BIP hereunder, and the other Parties shall have the right but not the obligation to have at least one representative participate in such meetings or discussions referred to above. 93 ARTICLE 10. RECALLS 10.1 RECALLS. (a) IMMUNEX TERRITORY. Each Party shall notify the other Parties promptly (and in any event within [*] days of receipt of written notice) if any Batch of Bulk Drug Substance, Drug Product or Finished Product is alleged or proven to be the subject of a recall, market withdrawal or correction in any country in the Immunex Territory. Immunex and BIP shall cooperate in the handling and disposition of such recall, market withdrawal or correction in the Immunex Territory; provided, however, in the event of a disagreement as to any matters related to such recall, market withdrawal or correction, other than the determination of who shall bear the costs as set forth in the immediately following sentence, Immunex, after consultation with Wyeth, shall have final authority with respect to such matters in the Immunex Territory, which authority shall be exercised reasonably and in good faith. Immunex shall bear the cost of all recalls, market withdrawals or corrections of Bulk Drug Substance, Drug Product or Finished Product in the Immunex Territory unless such recall, market withdrawal or correction shall have been the result of BIP's breach of any of its warranties set forth in Section 6.1 hereof or shall have been the result of BIP's grossly negligent breach of any of its obligations hereunder, in which case BIP shall upon substantiation bear the cost of such recall, market withdrawal or correction. Immunex or its agent shall in all events be responsible for conducting any recalls, market withdrawals or corrections with respect to the Product in the Immunex Territory. (b) WYETH TERRITORY. Each Party shall notify the other Parties promptly (and in any event within [*] days of receipt of written notice) if any Batch of Bulk Drug Substance, Drug Product or Finished Product is alleged or proven to be the subject of a recall, market withdrawal or correction in any country in the Wyeth Territory. Wyeth and BIP shall cooperate in the handling and disposition of such recall, market withdrawal or correction in the Wyeth Territory; provided, however, in the event of a disagreement as to any matters related to such recall, market withdrawal or correction, other than the determination of who shall bear the costs as set forth in the immediately following sentence, Wyeth, after consultation with Immunex, shall have final authority with respect to such matters in the Wyeth Territory, which authority shall be exercised reasonably and in good faith. Wyeth shall bear the cost of all recalls, market withdrawals or corrections of Bulk Drug Substance, Drug Product or Finished Product in the Wyeth Territory unless such recall, market withdrawal or correction shall have been the result of BIP's breach of any of its warranties set forth in Section 6.1 hereof or shall have been the result of BIP's grossly negligent breach of any of its obligations hereunder, in which case BIP shall upon substantiation bear the cost of such recall, market withdrawal or correction. Wyeth or its agent shall in all events be responsible for conducting any recalls, market withdrawals or corrections with respect to the Product in the Wyeth Territory. (c) [*] ARTICLE 11. QUALITY ASSURANCE; QUALITY CONTROL; VALIDATION; STABILITY 11.1 RESPONSIBILITY FOR QUALITY ASSURANCE AND QUALITY CONTROL. Responsibility for quality assurance and quality control of Bulk Drug Substance, Drug Product and Finished Product shall be allocated between Buyer and BIP as set forth in standard operating procedures agreed upon by Buyer and BIP from time to time. In general, (a) BIP shall be responsible for performing a manufacturer's lot release on all Bulk Drug Substance, Drug Product and Finished Product and (b) Buyer shall be responsible for performing final release of all Bulk Drug Substance, Drug Product and Finished Product. 94 11.2 VALIDATION OF BIBERACH FACILITY, UTILITIES AND EQUIPMENT. BIP shall maintain cGMP validation status on the Biberach Facility, as well as the utilities and equipment used in the manufacture of Bulk Drug Substance, Drug Product and Finished Product, and shall make validation reports applicable thereto available to Buyer for onsite review. 11.3 VALIDATION OF PRODUCT MANUFACTURING PROCESS. BIP shall maintain cGMP validation status of process procedures with respect to the manufacturing, filling, packaging, shipping and cleaning procedures that are used in the manufacture of Bulk Drug Substance, Drug Product and Finished Product, and shall provide copies of validation reports applicable thereto to Buyer on a frequency and in a format to be agreed upon by BIP and Buyer. 11.4 CHANGE CONTROL. Any changes to the Biberach Facility, utilities, equipment or processes used in the manufacturing, filling, packaging, shipping and cleaning with respect to the manufacture of Bulk Drug Substance, Drug Product and Finished Product shall occur pursuant to change control procedures agreed upon by BIP and Buyer. Such change control procedures shall require BIP to obtain approval of the Buyer prior to the implementation of any change on Product specific documents having an impact on the respective Specifications for Bulk Drug Substance, Drug Product and Finished Product. BIP shall have responsibility for validating any such changes to cGMP standards. 11.5 STABILITY. (a) STABILITY TESTING. BIP shall conduct all necessary stability testing with Bulk Drug Substance Lots to comply with cGMP. Buyer shall inform BIP from time to time of any additional stability testing to be done by BIP in order to comply with any other applicable regulatory guidelines. All such stability testing shall be conducted in accordance with stability protocols agreed upon by Buyer. Such stability testing shall include annual stability lots, supportive data for process changes and deviations or reprocessing of Bulk Drug Substance, Drug Product and Finished Product. Such stability testing shall also include testing as agreed upon by the Parties to validate the lead times for shipment, the shelf life of Bulk Drug Substance, Drug Product and Finished Product, and the Specifications applicable to shipment, storage and handling of Bulk Drug Substance, Drug Product and Finished Product. (b) TRENDING OF STABILITY DATA. BIP shall also perform routine trending of stability data and shall provide such data to Buyer at intervals to be agreed upon by the Parties. Buyer shall approve all stability dispositions and changes to stability protocols or stability specifications as defined in the appropriate standard operating procedure. ARTICLE 12. BIP'S OBLIGATIONS AS MANUFACTURER 12.1 CONTROL OF MASTER CELL BANK AND WORKING CELL BANK. BIP shall maintain a portion of the Master Cell Bank and Working Cell Bank in safe and secure storage under its control in its facilities and shall not permit the transfer of the Master Cell Bank or Working Cell Bank to any Third Party that is not specifically authorized by Immunex and Wyeth. BIP shall comply with all applicable FDA and EMEA regulatory requirements relating to general safety and biosafety in handling the Master Cell Bank and Working Cell Bank and any raw materials used in manufacturing Bulk Drug Substance, Drug Product and Finished Product hereunder. 12.2 MANUFACTURING CAPABILITIES. BIP shall at all relevant times throughout the Supply Term (a) own or lawfully control all the necessary plant, equipment and facilities and (b) have sufficient numbers of appropriately qualified personnel, in each case to enable BIP to manufacture Bulk Drug Substance, Drug Product and Finished Product in accordance with the Specifications and in quantities sufficient to fulfill the Firm Orders made within the Maximum Request under this Agreement. 95 12.3 COMPLIANCE WITH LAW. BIP shall perform all work hereunder, including, but not limited to, manufacturing, labeling, packaging and shipping all Bulk Drug Substance, Drug Product and Finished Product, in conformance with cGMP and in conformance with all applicable national, state and local laws, ordinances and governmental rules or regulations of Germany and the EMEA. 12.4 BIBERACH FACILITY. BIP undertakes that the Biberach Facility where BIP will manufacture Bulk Drug Substance, Drug Product and Finished Product, and all the procedures used in manufacturing and processing, shall be in accordance with cGMP and shall enable BIP to maintain manufacturing of Bulk Drug Substance, Drug Product and Finished Product according to the applicable Specifications. 12.5 STORAGE FACILITIES. BIP shall provide sufficient and suitable storage facilities that meet the Specifications for Bulk Drug Substance, Drug Product and Finished Product for all quantities of Bulk Drug Substance, Drug Product and Finished Product ordered according to the provisions of this Agreement. 12.6 REGULATORY DOCUMENTATION. (a) IMMUNEX TERRITORY. (1) BIP shall provide Immunex in a timely manner with a copy of any BIP manufacturing and control records for Bulk Drug Substance, Drug Product and Finished Product which are required for any Immunex regulatory filings with respect to the Product in the Immunex Territory, which records shall be in BIP's standard formats unless otherwise agreed upon by Immunex and BIP. (2) BIP shall provide Immunex with all documents reasonably requested by Immunex relating to the FDA's and EMEA's pre-approval inspection of the Biberach Facility, including, but not limited to, development reports, chemistry, manufacturing and controls ("CMC") sections of Immunex's BLA for the Product, as well as available stability data. In addition, BIP and Wyeth shall each provide Immunex within [*] ([*]) days after the end of each annual reporting period for the Product (as calculated consistent with appropriate regulations and guidelines) with such information as is reasonably requested in writing by Immunex for the preparation of the annual report with respect to the manufacturing and control of the Product for such annual reporting period. Thereafter, Immunex shall provide to BIP and Wyeth at least [*] ([*]) days prior to Immunex's filing with the respective regulatory authorities a copy of such Immunex annual report, and Immunex shall take into consideration any BIP and Wyeth comments to such annual report with respect to the Product. (b) WYETH TERRITORY. (1) BIP shall provide Wyeth in a timely manner with a copy of any BIP manufacturing and control records for Bulk Drug Substance, Drug Product and Finished Product which are required for any Wyeth regulatory filings with respect to the Product in the Wyeth Territory, which records shall be in BIP's standard formats unless otherwise agreed upon by Wyeth and BIP. (2) BIP shall provide Wyeth with all documents reasonably requested by Wyeth relating to the FDA's and EMEA's pre-approval inspection of the Biberach Facility, including, but not limited to, development reports, CMC sections of Wyeth's EMEA-dossier for the Product, as well as available stability data. In addition, BIP and Immunex shall each provide Wyeth within [*] ([*]) days after the end of each annual reporting period for the Product (as calculated consistent with appropriate regulations and guidelines) with such information as is reasonably requested in writing by Wyeth for the preparation of the annual report with respect to the manufacturing and control of the Product for such annual reporting period. Thereafter, Wyeth shall provide to BIP and Immunex at least [*] ([*]) days prior to Wyeth's filing with the respective regulatory authorities a copy of such Wyeth annual report, and 96 Wyeth shall take into consideration any BIP and Immunex comments to such annual report with respect to the Product. (c) REGULATORY FILING GROUP. The Parties shall establish a working group consisting of one or more representatives of each Party (the "REGULATORY FILING GROUP") to coordinate the activities of and the flow of information among the Parties in support of regulatory filings with respect to the Product in the Territory. The Regulatory Filing Group shall not have decision making authority, but shall promote cooperation and assistance necessary to support regulatory filings with respect to the Product. Meeting schedules and methods of communication shall be informally established by the Regulatory Filing Group. Each Party may change its representative(s) in the Regulatory Filing Group at any time for any reason. 12.7 MATERIALS AND INFORMATION TO BE DELIVERED BY BIP. (a) [*] (b) [*] (c) MANUFACTURING DATA. To assist Buyer in its forecasting and ordering of Bulk Drug Substance, Drug Product and Finished Product hereunder, BIP shall collect data on the yield from each Bulk Drug Substance Lot, as well as the date of manufacture of each such Bulk Drug Substance Lot and each Batch of Drug Product and Finished Product. BIP shall furnish such data to Buyer on a regular basis throughout the Supply Term in the form of a monthly manufacturing status report in BIP's standard format unless otherwise agreed upon by Buyer and BIP. (d) [*] (e) OTHER INFORMATION. BIP shall provide such other information and materials as are agreed upon by the Parties from time to time. 12.8 RETENTION AND RESERVE SAMPLES. BIP shall isolate, identify and, subject to Section 19.3(e)(3) hereof, retain retention and reserve samples of all raw materials and in-process production steps used in the production of Bulk Drug Substance, Drug Product and Finished Product for such period as agreed upon by the Parties. BIP shall retain quantities of such retention and reserve samples at least equal to [*] ([*]) times the amounts required to perform full testing of such retention and reserve samples. All retention and reserve samples shall be promptly provided by BIP to Buyer at Buyer's request, provided that BIP may retain one set of such samples for documentation purposes. Shipment of such samples shall be at Buyer's cost and risk. 12.9 ANALYTICAL TESTING. BIP shall not perform any analytical testing on Bulk Drug Substance, Drug Product or Finished Product unless agreed to by Buyer. In addition, any decision hereunder to implement any new analytical methods or testing with respect to Bulk Drug Substance, Drug Product or Finished Product shall in each case be a joint decision of Buyer and BIP. 12.10 THIRD PARTY VENDORS. The Parties acknowledge that effectively managing and coordinating the Third Party Vendors (as defined in Section 6.3(c) hereof) is extremely important and in each of the Parties' best interests. [*] 12.11 DOCUMENTATION. Any records and documentation provided to Immunex and/or Wyeth hereunder in connection with BIP's manufacture of Bulk Drug Substance, Drug Product or the Finished Product shall be accurate in all material respects. 12.12 YEAR 2000. BIP is currently working to ensure that the functionality and performance of the Biberach Facility and the computer systems and computer programs which affect or may affect the manufacturing or testing of Bulk Drug Substance, Drug Product and/or Finished Product hereunder will not be affected 97 by dates prior to, during and after the year 2000. BIP shall use all commercially reasonable efforts to ensure that it will be able to fulfill the Firm Orders made within the Maximum Request under this Agreement prior to, during and after the year 2000. ARTICLE 13. LICENSE GRANTS 13.1 LICENSE TO USE OF CELL LINE AND INTELLECTUAL PROPERTY. Immunex and Wyeth hereby grant to BIP a limited right and license to use the Cell Line, Process and Immunex/Wyeth Confidential Information solely for the purpose of manufacturing and delivering Bulk Drug Substance, Drug Product and Finished Product hereunder. 13.2 LICENSE TO BIP CONFIDENTIAL INFORMATION. In consideration of the development fees previously paid to BIP by Immunex and Wyeth under the Phase I Agreement and Phase II Agreement, and in consideration of amounts paid hereunder, BIP hereby grants to Immunex and Wyeth a worldwide, royalty-free, perpetual, license to use BIP Confidential Information that is or may during the Supply Term be used in carrying out the Process to test, develop, register, make, have made, use, market, distribute, import, offer for sale and sell the Product. Such license to Immunex and Wyeth shall be (1) exclusive as to BIP and all Third Parties for any Product specific BIP Confidential Information, subject only to BIP's retained rights under this Agreement to develop and manufacture Product solely on behalf of Immunex and Wyeth, and (2) non-exclusive for any non-Product specific BIP Confidential Information. With respect to the Product, Immunex and Wyeth's license rights to make and have made as set forth in this Section 13.2 shall be applicable in the circumstances set forth in Sections 3.2 and 3.3 hereof, and shall also be applicable after the Supply Term. ARTICLE 14. USE OF DATA; OWNERSHIP OF INTELLECTUAL PROPERTY; [*]; FUTURE ACTIVITIES 14.1 USE OF MANUFACTURING DATA. In consideration of the amounts paid hereunder, BIP shall carry out its obligations hereunder and BIP shall transfer and/or otherwise make available to Immunex and Wyeth in accordance with the terms hereof all relevant information obtained and reasonably requested by Buyer in the course of manufacturing the Bulk Drug Substance, Drug Product and Finished Product. However, this shall not apply to information regarding BIP's facility and technical equipment. Immunex and Wyeth shall have the right to use all such transferred information, with the exception of BIP Confidential Information, for any purpose without further obligation to BIP. 14.2 OWNERSHIP OF INTELLECTUAL PROPERTY. Immunex and Wyeth shall jointly own the Cell Line, Master Cell Bank, Working Cell Bank, and the Product, as well as any and all improvements or enhancements made to the Cell Line, Master Cell Bank, Working Cell Bank and/or the Product while in BIP's possession or control. Immunex and Wyeth shall also jointly own all Immunex/Wyeth Confidential Information. BIP shall own all BIP Confidential Information, provided, however, that notwithstanding anything herein to the contrary, and irrespective of whether any BIP Confidential Information is utilized with respect to any improvements or enhancements made to the Cell Line, Master Cell Bank, Working Cell Bank and/or the Product, Immunex and Wyeth shall be the sole and exclusive owners of the Cell Line, Master Cell Bank, Working Cell Bank and the Product. 14.3 [*] 14.4 FUTURE ACTIVITIES. (a) [*] (b) NON-ASSERTION. Immunex and Wyeth shall not assert any right to use the Biberach Facility at any future date as a result of its use of the Biberach Facility pursuant to this Agreement, except as expressly provided for herein. 98 ARTICLE 15. REPRESENTATIONS AND WARRANTIES 15.1 IMMUNEX AND WYETH. Immunex and Wyeth hereby represent and warrant to BIP that: (a) Immunex and Wyeth are free to supply the Cell Line and Immunex/Wyeth Confidential Information to BIP; (b) Immunex and Wyeth are not aware of any special or unusual hazards involved in handling the Cell Line or the Product; (c) Immunex and Wyeth have the corporate power and authority and the legal right to enter into this Agreement and to perform their respective obligations hereunder; and (d) Immunex and Wyeth have taken all necessary corporate action on their part to authorize the execution and delivery of this Agreement and the performance of their respective obligations hereunder. This Agreement has been duly executed and delivered on behalf of Immunex and Wyeth, and constitutes a legal, valid, binding obligation, enforceable against Immunex and Wyeth in accordance with its terms. 15.2 BIP. BIP hereby represents and warrants to Immunex and Wyeth that: (a) BIP is the owner of the BIP Confidential Information; (b) BIP owns or lawfully controls the Biberach Facility, and has a sufficient number of employees with such expertise and experience as is necessary or appropriate to produce Bulk Drug Substance, Drug Product and Finished Product in accordance with the terms hereof and in quantities sufficient to fulfill the Firm Orders made within the Maximum Request under this Agreement; (c) BIP is not aware of any special or unusual hazards that would arise as a result of its carrying out of its obligations hereunder; (d) BIP has the corporate power and authority and the legal right to enter into this Agreement and to perform its obligations hereunder; and (e) BIP has taken all necessary corporate action on its part to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder. This Agreement has been duly executed and delivered on behalf of BIP, and constitutes a legal, valid, binding obligation, enforceable against BIP in accordance with its terms. ARTICLE 16. INDEMNIFICATION 16.1 INDEMNIFICATION BY IMMUNEX AND WYETH. (a) INDEMNIFICATION BY IMMUNEX. Subject to the extent of any indemnification from BIP pursuant to Section 16.2 below, Immunex shall indemnify, defend and hold BIP, its Affiliates, and their respective directors, officers, employees and agents harmless from and against all losses, damages, liabilities, settlements, penalties, fines, costs and expenses (including, without limitation, reasonable attorneys' fees and expenses), (collectively, the "LIABILITIES") to the extent such Liabilities arise out of or result from (1) any claim, lawsuit or other action by a Third Party caused by the manufacture, use, handling, distribution, marketing or sale of the Bulk Drug Substance, Drug Product or Finished Product in the Immunex Territory, (2) any material breach of the representations, warranties and covenants made by Immunex hereunder, or (3) Immunex's grossly negligent acts or omissions or willful misconduct. 99 (b) INDEMNIFICATION BY WYETH. Subject to the extent of any indemnification from BIP pursuant to Section 16.2 below, Wyeth shall indemnify, defend and hold BIP, its Affiliates, and their respective directors, officers, employees and agents harmless from and against all Liabilities to the extent such Liabilities arise out of or result from (1) any claim, lawsuit or other action by a Third Party caused by the manufacture, use, handling, distribution, marketing or sale of the Bulk Drug Substance, Drug Product or Finished Product in the Wyeth Territory, (2) any material breach of the representations, warranties and covenants made by Wyeth hereunder, or (3) Wyeth's grossly negligent acts or omissions or willful misconduct. (c) ADDITIONAL INDEMNIFICATION BY IMMUNEX AND WYETH. Immunex and Wyeth shall indemnify, defend and hold BIP, its Affiliates, and their respective directors, officers, employees and agents harmless from and against all Liabilities to the extent such Liabilities arise out of or result from [*]. 16.2 INDEMNIFICATION BY BIP. Subject to the extent of any indemnification from Immunex and/or Wyeth pursuant to Section 16.1(a), (b), and (c) above, BIP shall indemnify, defend and hold Immunex, Wyeth and their respective Affiliates, directors, officers, employees and agents harmless from and against all Liabilities to the extent such Liabilities arise out of or result from (a) any material breach of the representations, warranties and covenants made by BIP under Sections [*] hereof or (b) BIP's grossly negligent acts or omissions or willful misconduct in the manufacture or labeling of the Bulk Drug Substance, Drug Product or Finished Product. 16.3 INDEMNIFICATION PROCEDURES. (a) IDENTIFICATION OF INDEMNITOR AND INDEMNITEE. An "INDEMNITOR" means Immunex with respect to Section 16.1(a) hereof, Wyeth with respect to Section 16.1(b) hereof, Immunex and Wyeth with respect to Section 16.1(c) hereof, and BIP with respect to Section 16.2 hereof. An "INDEMNITEE" means any of BIP, its Affiliates, and their respective directors, officers, employees and agents with respect to Section 16.1(a), (b), and (c) hereof, and any of Immunex, Wyeth, and their respective Affiliates, directors, officers, employees and agents with respect to Section 16.2 hereof. (b) INDEMNIFICATION PROCEDURES. An Indemnitee which intends to claim indemnification under Section 16.1 or 16.2 hereof shall promptly notify the Indemnitor in writing of any claim, lawsuit or other action in respect of which the Indemnitee, its Affiliates, or any of their respective directors, officers, employees and agents intend to claim such indemnification. The Indemnitee shall permit, and shall cause its Affiliates and their respective directors, officers, employees and agents to permit, the Indemnitor, at its discretion, to settle any such claim, lawsuit or other action and agrees to the complete control of such defense or settlement by the Indemnitor; provided, however, such settlement does not adversely affect the Indemnitee's rights hereunder or impose any obligations on the Indemnitee in addition to those set forth herein in order for it to exercise such rights. No such claim, lawsuit or other action shall be settled without the prior written consent of the Indemnitor and the Indemnitor shall not be responsible for any legal fees or other costs incurred other than as provided herein. The Indemnitee, its Affiliates and their respective directors, officers, employees and agents shall cooperate fully with the Indemnitor and its legal representatives in the investigation and defense of any claim, lawsuit or other action covered by this indemnification. The Indemnitee shall have the right, but not the obligation, to be represented by counsel of its own selection and expense. 16.4 SURVIVAL OF INDEMNIFICATION OBLIGATIONS. The provisions of this Article 16 shall survive the termination or expiration of this Agreement for a period of [*] ([*]) years. 16.5 DISCLAIMER OF CONSEQUENTIAL DAMAGES. In no event shall any Party be liable to the other Parties for incidental, special, or consequential damages, including, but not limited to, any claims for damages based upon lost profits. The foregoing limitation on damages shall not be applicable to damages which arise out of the willful misconduct of a Party. 100 16.6 LIMITATION OF LIABILITY OF BIP. BIP's total liability under this Agreement with respect to any Calendar Year shall not exceed [*] percent ([*]%) of the aggregate Product Price for any and all Firm Orders for Bulk Drug Substance, Drug Product and Finished Product with respect to such Calendar Year. For each year within the period set forth in Section 16.4 above, the relevant year for calculating BIP's limitation of liability shall be the last full Calendar Year during the Supply Term. ARTICLE 17. CONFIDENTIALITY 17.1 CONFIDENTIALITY OBLIGATIONS. (a) BIP CONFIDENTIALITY OBLIGATIONS. BIP shall not disclose Immunex/Wyeth Confidential Information to any Third Party other than (1) its employees or employees of affiliated companies of the Boehringer Ingelheim group who have a need to know such information in order to perform their duties in carrying out BIP's obligations hereunder, (2) contractors who are bound by similar obligations of confidentiality and who have a need to know such information in order to provide direction to BIP or Immunex and/or Wyeth, or (3) regulatory authorities, for example, the FDA, that require such information in order to review a BLA or other regulatory filing. (b) IMMUNEX AND WYETH CONFIDENTIALITY OBLIGATIONS. Immunex and Wyeth shall not disclose any BIP Confidential Information to any Third Party other than (1) their employees, consultants, Affiliates, agents or contractors who are bound by similar obligations of confidentiality and who have a need to know such information in order to provide direction to Immunex and/or Wyeth or to BIP, or (2) regulatory authorities, for example, the FDA, that require such information in order to review a BLA or other regulatory filing. 17.2 TERMS OF AGREEMENT. Subject to Section 17.4 hereof, and except for any disclosure as is deemed necessary, in the reasonable judgment of the responsible Party, to comply with national, federal or state laws or regulations with respect to regulatory reporting or disclosure obligations, neither Party shall, without the prior written consent of the other Party, disclose in any manner to any Third Party the terms and conditions of this Agreement. For purposes of this Section 17.2, Immunex and Wyeth shall be deemed the same Party. 17.3 EXCLUSIONS. The obligations of confidentiality and nonuse applicable to Immunex/Wyeth Confidential Information and BIP Confidential Information shall not apply to any information which: (a) at the time of disclosure, is known publicly or thereafter becomes known publicly through no fault of the recipient, its Affiliates or agents; (b) becomes available to the recipient from a Third Party which is not legally prohibited from disclosing such information, provided such information was not acquired directly or indirectly from the disclosing Party; (c) was developed by the recipient independently of information obtained from the disclosing Party; (d) was already known to the recipient before receipt from the disclosing Party, as shown by its prior written records; or 101 (e) is released with the prior written consent of the disclosing Party. 17.4 NOTIFICATION OF MANDATORY DISCLOSURE. (a) NOTIFICATION AND CONSULTATION. In the event that any Party is required by applicable statute or regulation or by judicial or administrative process to disclose any part of another Party's Confidential Information which is disclosed to it hereunder, the recipient shall (1) promptly notify the disclosing Party of each such requirement and identify the documents so required thereby, so that the disclosing Party may seek an appropriate protective order or other remedy and/or waive compliance by the recipient with the provisions of this Agreement and (2) consult with the disclosing Party on the advisability of taking legally available steps to resist or narrow the scope of such requirement. (b) LIMITED DISCLOSURE. If, in the absence of such a protective order or such a waiver by the disclosing Party of the provisions of this Agreement, the recipient is nonetheless required by mandatory applicable law to disclose any part of the other Party's Confidential Information which is disclosed to it hereunder, the recipient may disclose such Confidential Information without liability under this Agreement, except that the recipient shall furnish only that portion of the Confidential Information which is legally required. 17.5 NO LICENSES; MAINTENANCE OF CONFIDENTIALITY; NONUSE OBLIGATIONS. (a) NO LICENSES. Except as expressly provided in Article 13 hereof, no right or license, either express or implied, under any patent or proprietary right is granted hereunder by virtue of the disclosure to BIP of Immunex/Wyeth Confidential Information, or the disclosure to Immunex and/or Wyeth of BIP Confidential Information hereunder. (b) MAINTENANCE OF CONFIDENTIALITY. Each Party shall use reasonable and customary precautions to safeguard the other Parties' Confidential Information, including ensuring that all employees, consultants, agents or contractors who are provided access to such Confidential Information are informed of the confidential and proprietary nature of such Confidential Information and agree that all such Confidential Information is required to be maintained confidential. (c) NONUSE OBLIGATIONS. Immunex/Wyeth Confidential Information shall not be utilized by BIP except for purposes of this Agreement, without first obtaining Immunex's and Wyeth's prior written consent to such utilization. BIP Confidential Information shall not be utilized by Immunex or Wyeth except as set forth in this Agreement, without first obtaining BIP's prior written consent to such utilization. 17.6 SURVIVAL OF CONFIDENTIALITY OBLIGATIONS. The provisions of this Article 17 shall survive the termination or expiration of this Agreement for a period of [*] ([*]) years. ARTICLE 18. PRESS RELEASES; USE OF NAMES 18.1 PRESS RELEASES. No press release, publicity or other form of public written disclosure related to this Agreement shall be permitted by either Party to be published or otherwise disclosed unless the other Party has indicated its consent to the form of the release in writing, except for any disclosure as is deemed necessary, in the reasonable judgment of the responsible Party, to comply with national, federal or state laws or regulations with respect to regulatory reporting or disclosure obligations. For purposes of this Section 18.1, Immunex and Wyeth shall be deemed the same Party. 18.2 USE OF NAMES. BIP shall not make use of the name of the other Parties in any advertising or promotional material, or otherwise, without the prior written consent of the other Parties. 102 ARTICLE 19. TERM; TERMINATION 19.1 TERM; RENEWAL. Unless sooner terminated pursuant to the terms of this Agreement, the term of this Agreement shall commence upon the Effective Date and shall continue thereafter for not less than [*] ([*]) Contract Years from the Effective Date (the "SUPPLY TERM"). This Agreement and the Supply Term shall automatically continue from Contract Year-to-Contract Year thereafter unless terminated by either Party by providing at least [*] prior written notice to the other Party, provided that neither Party may provide such notice prior to the end of the [*] Contract Year, and provided further that BIP may not provide such notice prior to the end of the [*] Contract Year. For purposes of this Section 19.1, Immunex and Wyeth shall be deemed the same Party. 19.2 TERMINATION. This Agreement may be terminated prior to the period set forth in Section 19.1 above as follows: (a) MATERIAL BREACH. (1) BIP MATERIAL BREACH. This Agreement may be terminated in its entirety by Immunex and Wyeth upon written notice thereof to BIP in the event of a material breach by BIP which is not cured within [*] ([*]) days from written notice to BIP specifying in reasonable detail the nature of such breach or longer if BIP delivers a certificate that such material breach is not reasonably capable of being cured within [*] ([*]) days and that BIP is working diligently to cure such breach, but in no event shall the time for curing such breach exceed an additional [*] ([*]) days. (2) IMMUNEX MATERIAL BREACH. This Agreement may be terminated in its entirety solely with respect to the Immunex Territory by BIP upon written notice thereof to Immunex in the event of a material breach by Immunex which is not cured within [*] ([*]) days from written notice to Immunex specifying in reasonable detail the nature of such breach or longer if Immunex delivers a certificate that such material breach is not reasonably capable of being cured within [*] ([*]) days and that Immunex is working diligently to cure such breach, but in no event shall the time for curing such breach exceed an additional [*] ([*]) days. In such event, Wyeth and BIP shall thereafter enter into good faith negotiations to amend this Agreement by making any necessary and appropriate revisions as may be mutually agreed upon. (3) WYETH MATERIAL BREACH. This Agreement may be terminated in its entirety solely with respect to the Wyeth Territory by BIP upon written notice thereof to Wyeth in the event of a material breach by Wyeth which is not cured within [*] ([*]) days from written notice to Wyeth specifying in reasonable detail the nature of such breach or longer if Wyeth delivers a certificate that such material breach is not reasonably capable of being cured within [*] ([*]) days and that Wyeth is working diligently to cure such breach, but in no event shall the time for curing such breach exceed an additional [*] ([*]) days. In such event, Immunex and BIP shall thereafter enter into good faith negotiations to amend this Agreement by making any necessary and appropriate revisions as may be mutually agreed upon. (b) MUTUAL AGREEMENT. This Agreement may be terminated in its entirety at any time upon mutual written agreement between all the Parties signed by an executive officer of each Party. (c) PRODUCT NOT COMMERCIALIZED. (1) IMMUNEX TERRITORY. This Agreement may be terminated by Immunex (after consultation with Wyeth) solely with respect to the Immunex Territory upon at least [*] prior written notice to BIP if (i) the BLA for the Product is not approved by the FDA by [*] or (ii) the Product is not commercialized in the Immunex Territory for any reason. In such event, Wyeth and BIP shall thereafter enter into good faith negotiations to amend this Agreement by making any necessary and appropriate revisions as may be mutually agreed upon. 103 (2) WYETH TERRITORY. This Agreement may be terminated by Wyeth (after consultation with Immunex) solely with respect to the Wyeth Territory upon at least [*] prior written notice to BIP if (i) the EMEA-dossier for the Product is not approved by the EMEA by [*] or (ii) the Product is not commercialized in the Wyeth Territory for any reason. In such event, Immunex and BIP shall thereafter enter into good faith negotiations to amend this Agreement by making any necessary and appropriate revisions as may be mutually agreed upon. (d) WITHDRAWAL OF PRODUCT. (1) IMMUNEX TERRITORY. This Agreement may be terminated by Immunex (after consultation with Wyeth) solely with respect to the Immunex Territory upon at least [*] prior written notice to BIP if the BLA for the Product is withdrawn by Immunex. In such event, unless Wyeth has terminated the Agreement with respect to the Wyeth Territory pursuant to Section 19.2(d)(2) below, Wyeth and BIP shall thereafter enter into good faith negotiations to amend this Agreement by making any necessary and appropriate revisions as may be mutually agreed upon. (2) WYETH TERRITORY. This Agreement may be terminated by Wyeth (after consultation with Immunex) solely with respect to the Wyeth Territory upon at least [*] prior written notice to BIP if the EMEA-dossier for the Product is withdrawn by Wyeth or any of its Affiliates. In such event, unless Immunex has terminated the Agreement with respect to the Immunex Territory pursuant to Section 19.2(d)(1) above, Immunex and BIP shall thereafter enter into good faith negotiations to amend this Agreement by making any necessary and appropriate revisions as may be mutually agreed upon. (e) FAILURE TO SUPPLY. This Agreement may be terminated in its entirety by Immunex and Wyeth upon at least [*] prior written notice to BIP if in any [*] consecutive months during the Supply Term, BIP shall have delivered in at least [*] of those months less than [*] percent ([*]%) of Drug Product and Finished Product it is required to deliver in those months pursuant to Firm Orders delivered hereunder, unless such failure to supply shall have been the result of a Force Majeure Event. (f) BIBERACH FACILITY. This Agreement may be terminated in its entirety by Immunex and Wyeth upon written notice thereof to BIP in the event that BIP or its Affiliates cease to own or otherwise lawfully control the Biberach Facility to the extent necessary to manufacture the Product in accordance with the terms hereof in quantities sufficient to fulfill the Firm Orders made within the Maximum Request under this Agreement, provided that this Agreement may not be terminated under this Section 19.2(f) if the conditions specified above are cured within [*] from written notice to BIP specifying in reasonable detail the nature of the breach giving rise to notice under this Section 19.2(f). (g) FORCE MAJEURE. This Agreement may be terminated in its entirety by Immunex and Wyeth upon at least [*] prior written notice under the circumstances set forth in Section 20.4 hereof. (h) [*] 19.3 CONSEQUENCES OF TERMINATION. (a) PAYMENT OF AMOUNTS DUE; CUMULATIVE REMEDIES. Expiration or termination of this Agreement for any reason shall not exempt any Party from paying to any other Party any amounts due to such Party and outstanding at the time of such expiration or termination. Except as expressly stated otherwise herein, remedies hereunder are cumulative, and nothing in this Agreement shall prevent any Party, in the case of a breach, from not terminating this Agreement and seeking to enforce its rights hereunder. 104 (b) PURCHASE OF BULK DRUG SUBSTANCE, DRUG PRODUCT AND FINISHED PRODUCT. Upon expiration or termination of this Agreement, whichever is sooner (but in the case of termination, only if directed by the terminating Party in the notice of termination), BIP shall manufacture and ship, and Immunex and/or Wyeth, as applicable, shall purchase in accordance with the provisions hereof, any and all amounts of Bulk Drug Substance, Drug Product and Finished Product ordered pursuant to Firm Orders issued hereunder prior to the date on which notice of such termination is given, or prior to the expiration date, as applicable. (c) OTHER FINANCIAL OBLIGATIONS. Upon termination of this Agreement in its entirety pursuant to Section 19.2(b) hereof, or upon termination of this Agreement in whole or in part by Immunex and/or Wyeth pursuant to Section 19.2(c), (d), or (h) hereof, and unless otherwise agreed upon by the Parties in the event this Agreement is terminated with respect to the Immunex Territory or the Wyeth Territory, but not both territories, the following provisions shall apply: (1) Immunex and/or Wyeth, as the case may be, shall purchase from BIP at BIP's Acquisition Cost all raw materials, intermediates and packaging components acquired by BIP specifically for the manufacture and packaging of Product hereunder; provided, however, the amount of raw materials, intermediates and packaging components which Immunex and Wyeth are obligated to purchase under this Section 19.3(c)(1) at any time shall not exceed the amount of raw materials and packaging components reasonably necessary to fulfill outstanding Firm Orders for Bulk Drug Substance, Drug Product and Finished Product at such time, [*]; and (2) Immunex and/or Wyeth, as the case may be, may purchase from BIP all finished Bulk Drug Substance, Drug Product and Finished Product then in BIP's possession or which BIP can manufacture in a timely manner with then existing finished Bulk Drug Substance (which had not been ordered pursuant to Firm Orders) at the then current Product Price and in accordance with the provisions hereof. (d) PAYMENTS FOR PREMATURE TERMINATION. BIP shall be entitled to reimbursement by Immunex and Wyeth for the following wind-down costs in the event that this Agreement is terminated in its entirety pursuant to Section 19.2(b) hereof or by Immunex and Wyeth pursuant to Section 19.2(c), (d), or (h) hereof, it being understood that Immunex and Wyeth's total liability under this Section 19.3(d) shall in no event exceed the following amounts, calculated as follows: (1) [*] after any termination of this Agreement referred to in this Section 19.3(d), Immunex and Wyeth shall pay BIP the applicable Product Price upon delivery according to the terms hereof of any Firm Orders of Bulk Drug Substance, Drug Product and Finished Product that are outstanding as of the effective date of such termination, subject to an offset for any amounts paid to BIP pursuant to Section 19.3(b) hereof, provided that for purposes of this section, the Firm Order period for Bulk Drug Substance shall be limited to [*]; (2) [*] (3) [*] (4) [*] 105 (5) For any of the [*] ([*]) years referred to in this Section 19.3(d), Immunex and Wyeth shall have the right to reduce or eliminate the applicable termination payment for such year on a proportional basis to the extent that Immunex, Wyeth and/or any of their Affiliates are able to utilize BIP's production capacity (such capacity being measured by the Annual Quantity as of the effective date of termination, which is the base upon which Immunex and Wyeth's termination payments are measured) with one or more of their biological products of comparable volume per product and technology, including but not limited to, in-licensed biological products. The applicable technology transfer and development costs, if any, and the supply price for such products shall be negotiated in good faith on a case-by-case basis between the Parties. By way of example only, if BIP's manufacturing of such biological products utilizes fifty percent (50%) of BIP's production capacity (such capacity being measured by such Annual Quantity) during a particular year, then the termination payment otherwise owed by Immunex and Wyeth for such year would also be reduced by fifty percent (50%). (6) For any of the [*] ([*]) years referred to in this Section 19.3(d), BIP shall also provide a proportional reduction in the applicable termination payment for such year owed by Immunex and Wyeth to the extent that [*]. (d) FIRM ORDERS. Upon termination of this Agreement in its entirety by Immunex and Wyeth pursuant to Section 19.2(a)(1), (e), (f) or (g) hereof, Buyer may, in its discretion, cancel, in whole or in part, any Firm Orders previously submitted. (e) MASTER CELL BANK AND WORKING CELL BANK; RETURN OF IMMUNEX/WYETH CONFIDENTIAL INFORMATION; RETURN OF RETENTION AND RESERVE SAMPLES. Upon expiration or termination of this Agreement in its entirety, unless otherwise directed by Buyer, BIP shall promptly (1) return or at Buyer's election destroy the Master Cell Bank and Working Cell Bank as well as the material derived from its culture, any such destruction to be certified in writing to Immunex by an authorized BIP officer, (2) return all Immunex/Wyeth Confidential Information to Buyer, except for a single copy and/or sample for documentation purposes only, and (3) return to Buyer all retention and reserve samples being held by BIP pursuant to Section 12.8 hereof, provided that BIP may retain one set of such samples for documentation purposes only. (f) RETURN OF BIP CONFIDENTIAL INFORMATION. Upon expiration or termination of this Agreement in its entirety, and at BIP's written request, Immunex and Wyeth shall promptly return all BIP Confidential Information to BIP that is unrelated to the Process, except for a single copy and/or sample to be retained by Immunex and Wyeth for documentation purposes only. (g) ACCRUED RIGHTS, SURVIVING OBLIGATIONS. Except as set forth herein, any termination or expiration of this Agreement shall be without prejudice to any right which shall have accrued to the benefit of any Party and shall not relieve any Party of any obligation which has accrued prior to the effective date of such termination or expiration, which obligations shall remain in full force and effect for the period provided therein or, if no period is provided therein, then such obligations shall remain in full force and effect indefinitely. ARTICLE 20. FORCE MAJEURE 20.1 EFFECTS OF FORCE MAJEURE. No Party shall be in breach of this Agreement if there is any failure of performance under this Agreement (except for payment of any amounts due hereunder) occasioned by any act of God, fire, act of government or state, war, civil commotion, insurrection, embargo, prevention from or hindrance in obtaining energy or other utilities, labor disputes of whatever nature or any other reason beyond the control and without the fault or negligence of the Party affected thereby (a "FORCE MAJEURE EVENT"). Such excuse shall continue as long as the Force Majeure Event continues. Upon cessation of such Force Majeure Event, the affected Party shall promptly resume performance hereunder. 106 20.2 NOTICE OF FORCE MAJEURE. Each Party agrees to give the other Parties prompt written notice of the occurrence of any Force Majeure Event, the nature thereof, and the extent to which the affected Party will be unable fully to perform its obligations hereunder. Each Party further agrees to use reasonable efforts to correct the Force Majeure Event as quickly as possible and to give the other Parties prompt written notice when it is again fully able to perform such obligations. 20.3 ALLOCATION OF CAPACITY. If, as a result of a Force Majeure Event, BIP at any time is unable fully to supply outstanding Firm Orders for Bulk Drug Substance, Drug Product and Finished Product, as the case may be, BIP shall use reasonable efforts to equitably allocate its available resources and production capacity among BIP, Buyer and BIP's other customers, as the case may be, taking into consideration the respective requirements of each during a reasonable time period prior to the allocation, as well as such requirements during the allocation period. BIP shall not grant a higher priority to any Third Party than to Buyer with respect to shipment of products from the Biberach Facility. 20.4 TERMINATION. If, as a result of a Force Majeure Event, BIP is unable fully to perform its obligations hereunder for any consecutive period of [*] ([*]) days, unless the Parties mutually agree in writing upon a shorter time period, Immunex and Wyeth shall have the right to terminate this Agreement in its entirety, upon providing written notice thereof to BIP, such termination to be effective [*] ([*]) days from the effective date of such notice. If this Agreement is terminated pursuant to this Section 20.4, then upon Immunex's and Wyeth's written request, BIP will provide reasonable assistance to Immunex and Wyeth in locating an alternative manufacturer for the Product. Immunex and Wyeth shall reimburse BIP for its reasonable costs incurred in rendering such assistance. 20.5 REDUCTION IN MAXIMUM REQUEST AND MINIMUM QUANTITY; PRODUCT PRICES; ANNUAL SURCHARGE. (a) MAXIMUM REQUEST AND MINIMUM QUANTITY REDUCTION. The Maximum Request and Minimum Quantity in the applicable Calendar Year(s) shall be reduced proportionately for the duration of any Force Majeure Event which prevents BIP from manufacturing Bulk Drug Substance hereunder. [*] (b) PRODUCT PRICE ADJUSTMENT. The Product Price set forth in EXHIBIT D, EXHIBIT E, and EXHIBIT F hereto shall be adjusted proportionately so that Buyer is not forced to pay a higher Product Price on account of BIP's inability to manufacture or deliver Bulk Drug Substance, Drug Product and/or Finished Product hereunder for the duration of any Force Majeure Event. [*] A comparable adjustment would also be made to the Product Price for Drug Product and Finished Product under EXHIBIT E and EXHIBIT F hereto, respectively. [*] ARTICLE 21. ASSIGNMENT 21.1 ASSIGNMENT. This Agreement shall be binding upon the successors and assigns of the Parties and the name of a Party appearing herein shall be deemed to include the names of its successors and assigns. No Party may assign its interest under this Agreement without the prior written consent of the other Parties, such consent not to be unreasonably withheld; provided, however, any Party may assign its interest under this Agreement, without the prior written consent of the other Parties, (a) to an Affiliate, so long as the assigning Party unconditionally guarantees the obligations of such Affiliate or (b) to a successor of the assigning Party's business by reason of merger, sale of all or substantially all of its assets or other form of acquisition, provided that such successor agrees in writing to assume all of the obligations of the assigning Party under this Agreement. Any purported assignment without a required consent shall be void. No assignment shall relieve any Party of responsibility for the performance of any obligation which accrued prior to the effective date of such assignment. 107 ARTICLE 22. DISPUTE RESOLUTION 22.1 EXCLUSIONS. Section 22.2 below shall not apply to any disputes arising under Article 16 (Indemnification) or Article 17 (Confidentiality) hereof. 22.2 DISPUTE RESOLUTION. The Parties recognize that a BONA FIDE dispute as to certain matters may from time to time arise during the term of this Agreement which relates to a Party's rights and/or obligations hereunder. In the event of the occurrence of such a dispute, any Party may, by written notice to the other Parties, have such dispute referred to their respective officers designated below, or their successors, for attempted resolution by good faith negotiations within [*] ([*]) days after such notice is received. Such designated officers are as follows: For Immunex - Kenneth B. Seamon, Ph.D., Senior Vice President, Drug Development For Wyeth - Roy Sturgeon, Ph.D., Senior Vice President, Quality Assurance For BIP - Dr. Dieter Jacob, member of the BIP board In the event the designated officers are not able to resolve such dispute within such [*] ([*])-day period, or such other period of time as the Parties may mutually agree in writing, each Party shall have the right to pursue any and all remedies available at law or in equity. ARTICLE 23. MISCELLANEOUS 23.1 NOTICES. Other than notices within the jurisdiction of the respective Business Coordinators, Technical Coordinators and the Wyeth Representative, which shall be given to those individuals, any notice required or permitted to be given hereunder by any Party shall be in writing and shall be (a) delivered personally, (b) sent by registered mail, return receipt requested, postage prepaid, (c) sent by a nationally-recognized courier service guaranteeing next-day or second day delivery, charges prepaid, or (d) delivered by facsimile (with the original promptly sent by any of the foregoing manners), to the addresses or facsimile numbers of the other Parties set forth below, or at such other addresses as may from time to time be furnished by similar notice by any Party. The effective date of any notice hereunder shall be the date of receipt by the receiving Party. If to BIP: Boehringer Ingelheim Pharma KG Birkendorfer Stra(beta)e 65 D-88397 Biberach an der Riss Federal Republic of Germany Attention: Dr. Wolfram Carius Head of Biopharmaceutical Manufacture Fax: 0 73 51/54-51 31 Phone: 0 73 51/54-48 00 with a copy to: Boehringer Ingelheim GmbH Binger Stra(beta)e 173 D-55216 Ingelheim Federal Republic of Germany Attention: Prof. Dr. Rolf G. Werner Head of Industrial Biopharmaceuticals Worldwide 108 If to Immunex: Immunex Corporation 51 University Street Seattle, Washington 98101 Attention: Douglas G. Southern Senior Vice President and Chief Financial Officer Fax: (206) 292-9271 Phone: (206) 389-4350 with a copy to: Immunex Corporation 51 University Street Seattle, Washington 98101 Attention: General Counsel If to Wyeth: Wyeth-Ayerst Laboratories 555 E. Lancaster St. Davids, Pennsylvania 19807 Attention: Michael McMullen Vice President Global Materials Management Fax: (610) 688-9498 Phone: (610) 971-5920 with a copy to: American Home Products Corporation Five Giralda Farms Madison, New Jersey 07940 Attention: General Counsel 23.2 APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the laws of the place of domicile of the Party sued (without reference to the respective choice of law rules) and the courts of the place of domicile of the Party sued shall have exclusive jurisdiction over all legal matters and proceedings hereunder. The Parties expressly exclude the application to this Agreement of the United Nations Convention on Contracts for the International Sale of Goods. 23.3 HEADINGS. The table of contents and all headings in this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement. 23.4 EXHIBITS. All exhibits referred to herein form an integral part of this Agreement and are incorporated into this Agreement by such reference. 23.5 SEVERABILITY. Each Party hereby expressly agrees that it has no intention to violate any public policy, statutory or common laws, rules, regulations, treaty or decision of any government agency or executive body thereof of any country or community or association of countries; that if any word, sentence, paragraph, clause or combination thereof in this Agreement is found by a court or executive body with judicial powers having jurisdiction over this Agreement or any Party hereto, in a final unappealed order, to be in violation of any such provisions in any country or community or association of countries, such words, sentences, paragraphs, clauses or combination shall be inoperative in such country or community or association of countries and the remainder of this Agreement shall remain binding upon the Parties, so long as enforcement of the remainder does not violate the Parties' overall intentions in this transaction. 109 23.6 INDEPENDENT CONTRACTORS. Each of the Parties is an independent contractor and nothing herein contained shall be deemed to constitute the relationship of partners, joint venturers, nor of principal and agent between the Parties. No Party shall hold itself out to Third Parties as purporting to act on behalf of, or serving as the agent of, any other Party. For purposes of this Section 23.6, Immunex and Wyeth shall be deemed the same Party. 23.7 WAIVER. No waiver of any term, provision or condition of this Agreement whether by conduct or otherwise in any one or more instances shall be deemed to be or construed as a further or continuing waiver of any such term, provision or condition or of any other term, provision or condition of this Agreement. 23.8 COUNTERPARTS. This Agreement and any amendment hereto may be executed in any number of counterparts, each of which shall for all purposes be deemed to be an original and all of which shall constitute the same instrument. 23.9 ENTIRETY; AMENDMENTS. This Agreement, including any exhibits attached hereto and referenced herein, constitutes the full understanding of the Parties and a complete and exclusive statement of the terms of their agreement with respect to the specific subject matter hereof (I.E., supply of Product), and no terms, conditions, understandings or agreements purporting to modify or vary the terms thereof shall be binding unless it is hereafter made in writing and signed by each of the Parties. No modification to this Agreement shall be effected by the acknowledgment or acceptance of any purchase order or shipping instruction forms or similar documents containing terms or conditions at variance with or in addition to those set forth herein. In the event of a conflict between this Agreement and the exhibits hereto, the terms of this Agreement shall control. This Agreement may be amended and supplemented only by a written instrument signed by each of the Parties. 23.10 [*] [This space is intentionally left blank.] 110 IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the Effective Date. IMMUNEX CORPORATION AMERICAN HOME PRODUCTS CORPORATION, ACTING THROUGH ITS WYETH-AYERST LABORATORIES DIVISION By: By: -------------------------------- -------------------------------- Douglas G. Southern Robert Essner Senior Vice President and Executive Vice President Chief Financial Officer Date: 12th November 1998 Date: 12th November 1998 BOEHRINGER INGELHEIM PHARMA KG ppa. ppa. - -------------------------------- -------------------------------- Dr. Dieter Jacob Prof. Dr. Rolf G. Werner Member of Board Head of Industrial Biopharmaceuticals Date: 11th November 1998 Date: 11th November 1998 111 EXHIBIT A BULK DRUG SUBSTANCE SPECIFICATIONS The TNFR:Fc Bulk Drug Substance (BDS) is tested according to the test methods and specifications listed below to provide assurance of quality, potency, strength, purity, identity and safety, and have been established as required for material release. The release testing specifications are defined in SOP [*], Specifications for [*] Bulk Solution (25 mg/mL).
PROCEDURE ACCEPTANCE CRITERIA - --------- ------------------- [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
112 EXHIBIT B DRUG PRODUCT SPECIFICATIONS The TNFR:Fc Drug Product is tested according to the test methods and specifications listed below to provide assurance of quality, potency, strength, purity, identity, and safety and have been established as required for material release. The release testing specifications are defined in SOP [*] ([*] mg dosage form) and [*] (25 mg dosage form).
PROCEDURE ACCEPTANCE CRITERIA - --------- -------------------- [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
113 EXHIBIT C FINISHED PRODUCT SPECIFICATIONS Each unique lot of labeled ENBREL(TM) Drug Product is tested according to the test methods and specifications listed below to provide assurance of product identity, dosage form and correct vial labeling. PROCEDURE ACCEPTANCE CRITERIA [*] [*] [*] [*] [*] [*] 114 EXHIBIT D VOLUME DISCOUNT PRICING MATRIX FOR BULK DRUG SUBSTANCE [*] See attached. 115 EXHIBIT D VOLUME DISCOUNT PRICING MATRIX FOR BULK DRUG SUBSTANCE PRODUCTION ASSUMPTIONS: [*] IMMUNEX MAXIMUM REQUEST OF CAPACITY PER YEAR FOR [*] BULK PRODUCTION/SUPPLY PRICE PER GRAM [*] 116 EXHIBIT E VOLUME DISCOUNT PRICING MATRIX FOR FILLING AND LYOPHILIZATION OPERATIONS FOR [*] See attached. 117 EXHIBIT E VOLUME DISCOUNT PRICING MATRIX FOR FILLING AND LYOPHILIZATION OPERATIONS FOR [*]
PRODUCTION ASSUMPTIONS: [*] [*] [*]
IMMUNEX REQUEST OF CAPACITY PER YEAR FOR [*] FILLING/LYOPHILIZATION/SUPPLY PRICE PER VIAL [*] * = see Section 5.4 of the agreement 118 EXHIBIT F VOLUME DISCOUNT PRICING MATRIX FOR LABELING OPERATIONS FOR [*] See attached. 119 EXHIBIT F VOLUME DISCOUNT PRICING MATRIX FOR LABELING OPERATIONS FOR [*]
PRODUCTION ASSUMPTIONS: [*] [*]
[*] * = see Section 5.4(b) of the agreement 120 EXHIBIT G FIRM ORDER PLANNING SYSTEM OF [*] COMMERCIAL SUPPLY, PRE-FDA APPROVAL See attached. 121 EXHIBIT G FIRM ORDER PLANNING SYSTEM OF [*] COMMERCIAL SUPPLY PRE FDA APPROVAL
YEAR [*] [*] MONTH OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC - --------------------- ------ ------- ----- ------ ----- ------- ------- ------- ----- ------ ------ ------ ------ ------ ------ [*]
122 EXHIBIT G ROLLING FORECAST PLANNING SYSTEM OF [*] COMMERCIAL SUPPLY PRE FDA APPROVAL
YEAR [*] [*] MONTH OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC - -------------------- ------ ------- ----- ------ ----- ------- ------- ------- ------ ------ ------ ------ ------ ------ ------ [*]
123 EXHIBIT G ROLLING FORECAST PLANNING SYSTEM OF [*] COMMERCIAL SUPPLY PRE FDA APPROVAL
YEAR [*] [*] MONTH OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC - -------------------- ------ ------- ----- ------ ----- ------- ------- ------- ------ ------ ------ ------ ------ ------ ------ [*]
124 EXHIBIT H COORDINATORS AND WYETH REPRESENTATIVE
COORDINATORS IMMUNEX: Business Coordinator: Judy Gikas Senior Pharmaceutical Planner Backup Business Coordinator: Dale Scott Enbrel Project Director, Pharmaceutical Development Technical Coordinator: Kay Stremler Director of International Quality Operations Backup Technical Coordinator: Annette Vahratian Director of Commercial Quality Operations BIP: Business Coordinator: Thomas Maier Business Economist Backup Business Coordinator: Alois Konrad Head of Project Management, Logistic Planning Technical Coordinator: Dr. Armin Fiedler Customer Coordinator Technical Affairs Backup Technical Coordinator: Dr. Eberhard Bill Head of Protein Chemistry WYETH REPRESENTATIVE Wyeth Representative: Michael McMullen Vice President Global Materials Management Backup Wyeth Representative: David Zisa Senior Director Strategic Planning
125 EX-21.1 4 EXHIBIT 21.1 Exhibit 21.1 SUBSIDIARIES OF THE REGISTRANT SUBSIDIARIES: Immunex Manufacturing Corporation Incorporated in the State of Washington 51 University Street Seattle, WA 98101 126 EX-23.1 5 EXHIBIT 23.1 Exhibit 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 33-59061 and 33-78694) pertaining to the Immunex Corporation 1993 Stock Option Plan as Amended and Restated on February 13, 1997 and the Immunex Corporation Stock Option Plan for Nonemployee Directors Amended and Restated on February 23, 1999 of our report dated January 29, 1999, with respect to the consolidated financial statements and schedule of Immunex Corporation included in its Annual Report (Form 10-K) for the year ended December 31, 1998. ERNST & YOUNG LLP Seattle, Washington March 17, 1999 127 EX-24.1 6 EXHIBIT 24.1 Exhibit 24.1 POWER OF ATTORNEY KNOW ALL BY THESE PRESENT that the individuals whose signatures appear below, in their capacities as officers and directors of Immunex Corporation, hereby constitute and appoint Douglas G. Southern their true and lawful attorney-in-fact, with full power of substitution, to sign on behalf of the undersigned Immunex's Annual Report on Form 10-K for the 1998 fiscal year pursuant to Section 13 of the Securities and Exchange Act of 1934 and to file the same, with exhibits thereto and any other documents in connection therewith, with the Securities and Exchange Commission. Each of the undersigned does hereby ratify and confirm all that such attorney-in-fact may do or cause to be done by virtue hereof. SIGNATURE TITLE DATE /S/ Joseph J. Carr Director March 1, 1999 - ----------------------------------- ------------- (Joseph J. Carr) /S/ Kirby L. Cramer Director February 26, 1999 - ----------------------------------- ----------------- (Kirby L. Cramer) /S/ Robert I. Levy Director February 26, 1999 - ----------------------------------- ----------------- (Robert I. Levy) /S/ John E. Lyons Director February 25, 1999 - ----------------------------------- ----------------- (John E. Lyons) /S/ Joseph M. Mahady Director March 2, 1999 - ----------------------------------- ------------- (Joseph M. Mahady) /S/ Edith W. Martin Director February 25, 1999 - ----------------------------------- ----------------- (Edith W. Martin) /S/ Douglas E. Williams Sr. Vice March 8, 1999 - ----------------------------------- President-Discovery ------------- (Douglas E. Williams) Research and Director 128 EX-27 7 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITES ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 43,600 101,245 21,570 1,147 23,475 201,985 156,144 66,052 325,325 75,513 0 0 0 725,192 (477,729) 325,325 169,907 243,450 33,285 247,016 384 236 425 3,186 2,200 986 0 0 0 986 0.02 0.02
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