-----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, LpvJCN2JaAFYfjjck/WjVNypQkEDFFJpQ55tFkmGhsIihOfe49g3BTpMMjtKvxNd d8YnG9ZrqT2bXMpUmOhCgw== 0000912057-00-022465.txt : 20000510 0000912057-00-022465.hdr.sgml : 20000510 ACCESSION NUMBER: 0000912057-00-022465 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEORX CORP CENTRAL INDEX KEY: 0000755806 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 911261311 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16614 FILM NUMBER: 622498 BUSINESS ADDRESS: STREET 1: 410 W HARRISON ST CITY: SEATTLE STATE: WA ZIP: 98119 BUSINESS PHONE: 206-286-25 MAIL ADDRESS: STREET 1: 410 W. HARRISON STREET 2: 410 W. HARRISON CITY: SEATTLE STATE: WA ZIP: 98119 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO _______________. Commission File Number 0-16614 NEORX CORPORATION (Exact Name of Registrant as Specified in its Charter) WASHINGTON 91-1261311 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 410 West Harrison Street, Seattle, Washington 98119 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (206) 281-7001 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 --- --- Applicable only to corporate issuers: Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. As of April 21, 2000 there were outstanding 23,544,440 shares of the Company's Common Stock, $.02 par value. TABLE OF CONTENTS QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
PART I FINANCIAL INFORMATION PAGE Item 1. Financial Statements: Balance Sheets as of March 31, 2000 and December 31, 1999 3 Statements of Operations for the three months ended March 31, 2000 and 1999 4 Statements of Cash Flows for the three months ended March 31, 2000 and 1999 5 Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 23 Item 5. Other Information 24 Item 6. Exhibits 24 Signature 25
2 NEORX CORPORATION BALANCE SHEETS (in thousands, except share data)
MARCH 31, DECEMBER 31, 2000 1999 ----------- ------------ (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 954 $ 3,752 Investment securities 17,053 15,289 Prepaid expenses and other current assets 1,173 566 --------- --------- Total current assets 19,180 19,607 --------- --------- FACILITIES AND EQUIPMENT, at cost: Leasehold improvements 3,283 3,283 Equipment and furniture 5,050 5,040 --------- --------- 8,333 8,323 Less: accumulated depreciation and amortization (7,490) (7,405) --------- --------- Facilities and equipment, net 843 918 --------- --------- OTHER ASSETS, NET 514 240 --------- --------- Total assets $ 20,537 $ 20,765 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 1,348 $ 819 Accrued liabilities 698 929 Current portion of convertible subordinated debentures 1,185 1,195 --------- --------- Total current liabilities 3,231 2,943 --------- --------- SHAREHOLDERS' EQUITY: Series preferred stock, $.02 par value, 3,000,000 shares authorized: Convertible exchangeable preferred stock, Series 1, 208,240 shares issued and outstanding (entitled in liquidation to $5,248) 4 4 Common stock, $.02 par value, 60,000,000 shares authorized, 21,811,808 and 21,006,964 shares issued and outstanding, at March 31, 2000 and December 31, 1999, respectively 436 421 Additional paid-in capital 166,508 164,151 Accumulated deficit (149,589) (147,096) Accumulated other comprehensive income (loss) - unrealized gain (loss) on investment securities (53) 342 --------- --------- Total shareholders' equity 17,306 17,822 --------- --------- Total liabilities and shareholders' equity $ 20,537 $ 20,765 ========= =========
See accompanying notes to the financial statements. 3 NEORX CORPORATION STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)
THREE MONTHS ENDED MARCH 31, ---------------------- 2000 1999 -------- -------- REVENUE $ 149 $ 413 -------- -------- OPERATING EXPENSES: Research and development 4,526 2,496 General and administrative 1,537 850 -------- -------- Total operating expenses 6,063 3,346 -------- -------- Loss from operations (5,914) (2,933) OTHER INCOME (EXPENSE): Interest income 267 255 Realized gain on sale of securities 3,310 -- Interest expense (29) (30) -------- -------- Net loss $ (2,366) $ (2,708) ======== ======== Preferred stock dividends (127) (127) -------- -------- Net loss applicable to common shares $ (2,493) $ (2,835) ======== ======== Net loss per common share - basic and diluted $ (.12) $ (.13) ======== ======== Weighted average common shares outstanding - basic and diluted 21,363 21,007 ======== ========
See accompanying notes to the financial statements. 4 NEORX CORPORATION STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
THREE MONTHS ENDED MARCH 31, ----------------------- 2000 1999 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (2,366) $ (2,708) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 85 93 Common stock issued for services 81 -- Stock warrants issued for services 206 -- Decrease (increase) in prepaid expenses and other assets (581) 83 Increase (decrease) in accounts payable 529 (5) Decrease in accrued liabilities (358) (251) Decrease in deferred revenue -- (250) -------- -------- Net cash used in operating activities (2,404) (3,038) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of investment securities 3,465 13,304 Purchases of investment securities (5,624) (11,372) Facilities and equipment purchases (10) (31) -------- -------- Net cash provided by (used in) investing activities (2,169) 1,901 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of capital lease obligations -- (4) Proceeds from stock options exercised 1,775 -- -------- -------- Net cash provided by (used in) financing activities 1,775 (4) -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS (2,798) (1,141) CASH AND CASH EQUIVALENTS: Beginning of period 3,752 1,910 -------- -------- End of period $ 954 $ 769 ======== ========
See accompanying notes to the financial statements. 5 NEORX CORPORATION NOTES TO FINANCIAL STATEMENTS Note 1. Basis of Presentation The interim financial statements contained herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the Company's annual report on Form 10-K for the year ended December 31, 1999. In the opinion of management, the interim financial statements reflect all adjustments, consisting only of normal recurring accruals necessary to present fairly the Company's financial position as of March 31, 2000 and the results of its operations and cash flows for the quarters ended March 31, 2000 and 1999. The results of operations for the quarter ended March 31, 2000 are not necessarily indicative of the expected operating results for the full year. Note 2. Shareholders' Equity Changes in shareholders' equity from December 31, 1999 to March 31, 2000 are as follows (in thousands):
Balance, December 31, 1999 $17,822 Proceeds from stock options exercised 1,775 Common stock issued for services 81 Stock warrants issued for services 506 Conversion of subordinated debentures 10 Preferred stock dividends (127) Net loss (2,366) Accumulated other comprehensive loss - unrealized loss on investment securities (395) ------- Balance, March 31, 2000 $17,306 =======
6 NEORX CORPORATION NOTES TO FINANCIAL STATEMENTS (Continued) Note 3. Loss per share The following is a reconciliation of the numerator and denominator of the basic and diluted loss per share computations for the three months ended March 31, 2000 and 1999 (in thousands, except per share data):
Three months ended March 31, ------------------------ 2000 1999 -------- -------- Net loss $ (2,366) $ (2,708) Less: preferred stock dividends (127) (127) -------- -------- Net loss applicable to common shares $ (2,493) $ (2,835) ======== ======== Weighted average common shares outstanding - basic and diluted 21,363 21,007 ======== ======== Net loss per common share - basic and diluted $ (.12) $ (.13) ======== ========
The numerator and denominator of the basic and diluted loss per share calculations for the quarters ended March 31, 2000 and 1999 were the same, as including the effect of options to purchase additional shares of common stock would have been antidilutive. Excluded for the quarters ended March 31, 2000 and 1999 were 2,890,453 and 3,316,867 shares of common stock issuable under stock options, respectively. In addition, 45,930 and 46,318 shares of common stock issuable upon conversion of the Company's convertible subordinated debentures and 237,394 shares of common stock issuable upon conversion of its Series 1 Preferred Stock are not included in the calculation of diluted loss per share for the quarters ended March 31, 2000 and 1999, respectively, because the effect of including such shares would have been antidilutive. Outstanding warrants to purchase 305,000 shares of common stock at March 31, 2000 were also excluded from the calculation. 7 NEORX CORPORATION NOTES TO FINANCIAL STATEMENTS (continued) Note 4. Comprehensive Loss The Company's total comprehensive loss for the quarters ended March 31, 2000 and 1999 was $2,761,000 and $2,722,000, respectively. The comprehensive loss for the quarter ended March 31, 2000 consisted of net loss of $2,366,000 and unrealized loss on investment securities of $395,000. The comprehensive loss for the quarter ended March 31, 1999 consisted of net loss of $2,708,000 and unrealized loss on investment securities of $14,000. Note 5. Subsequent Event In April 2000, the Company sold 1,727,045 shares of common stock in a private placement and received net proceeds of $18,015,000. The Company intends to use the net proceeds from the private placement to advance its research and development programs including its proprietary Skeletal Targeting Radiation ("STR") and PRETARGET(R) candidates, as well as for other general corporate purposes. The shares of common stock sold in the offering were not registered under the Securities Act of 1933, and cannot be offered or sold absent registration or an applicable exemption from registration. The Company has filed a Registration Statement on Form S-3 to register the shares. 8 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition This discussion on Form 10-Q contains forward-looking statements. These statements relate to future events or future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may, will, should, expect, plan, intend, anticipate, believe, estimate, predict, potential or continue," the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. Many factors could affect the Company's actual results. In evaluating these statements, you should specifically consider various factors, including those factors described under "Additional factors that may affect results" below. These factors may cause our actual results to differ materially from any forward-looking statement. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements after the date of this report to conform such statements to actual results or to changes in our expectations. QUARTER ENDED MARCH 31, 2000 COMPARED TO QUARTER ENDED MARCH 31, 1999. Revenues for the quarter ended March 31, 2000 were $149,000 compared to $413,000 for the quarter ended March 31, 1999, and consisted primarily of licensing revenue from non-strategic patent technologies. Total operating expenses for the quarter ended March 31, 2000 increased 81% to $6,063,000 from $3,346,000 in the quarter ended March 31, 1999. Research and development expenses for the quarter ended March 31, 2000 increased 81% to $4,526,000 from $2,496,000 for the same time period in 1999. The increase in research and development expenses for the quarter ended March 31, 2000 is primarily the result of start-up expenses for the design and construction of the manufacturing process for NeoRx's Skeletal Targeted Radiotherapy ("STR") project and clinical trial costs. 9 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) General and administrative expenses for the quarter ended March 31, 2000 increased 81% to $1,500,000 from $850,000 for the quarter ended March 31, 1999. General and administrative expenses for the quarter ended March 31, 2000 increased primarily due to increased non-cash expenses relating to warrants issued to unrelated parties as compensation for services, in addition to higher costs for personnel and investor relations. Other income for the first quarter of 2000 includes $3.3 million of realized gains on the sale of the Company's shares of Angiotech Pharmaceuticals, Inc. Interest income for the quarter ended March 31, 2000 increased to $267,000 from $255,000 for the same time period in 1999. The increase is due to higher rates of return on the Company's investments. LIQUIDITY AND CAPITAL RESOURCES. Cash and investment securities as of March 31, 2000 were $18,007,000 compared to $19,041,000 at December 31, 1999. The balance of cash and investment securities decreased primarily as a result of the 2000 year-to-date net loss. The Company has a line of credit available from PPD, Inc., of up to $5 million to assist in funding its phase III trial of its STR product in development. In April 2000, the Company sold 1,727,045 shares of common stock via a private placement and received net proceeds of $18,015,000. The Company expects that its capital resources and interest income will be sufficient to finance its currently anticipated working capital and capital requirements at least through the second quarter of 2001. The Company's working capital and capital requirements will depend upon numerous factors, including results of research and development activities, clinical trials and expenses associated with expanding marketing, competitive and technological developments. The Company will need to raise substantial additional funds to conduct research and development activities, 10 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) preclinical studies and clinical trials necessary to bring its potential products to market, and to establish marketing and manufacturing capabilities. The Company intends to seek additional funding through arrangements with corporate collaborators, public or private equity financing, out-licensing certain technologies, or other sources. Adequate funds may not be available when needed or on terms acceptable to the Company. NEW ACCOUNTING PRONOUNCEMENTS. In December 1999, the United States Securities and Exchange Commission ("SEC") released Staff Accounting Bulletin No. 101 ("SAB 101") "Revenue Recognition in Financial Statements", which must be applied in the Company's second fiscal quarter of 2000. SAB 101 provides guidance on revenue recognition and the SEC staff's views on the application of accounting principles to selected revenue recognition issues. The interpretation of SAB 101 is currently uncertain as it relates to biotechnology companies and, consequently, the impact on the Company's financial statements is unknown. The Company is in the process of determining the potential impact on its financial statements. In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44, "Accounting for Certain Transactions involving Stock Compensation". Interpretation No. 44 clarifies the application of Accounting Principles Board Opinion No. 25 ("APB 25") and is effective July 1, 2000. Interpretation No. 44 clarifies the definition of "employee" for purposes of applying APB 25, the criteria for determining whether a plan qualifies as a noncompensatory plan, the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and the accounting for an exchange of stock compensation awards in a business combination. NeoRx Corporation does not expect the adoption of Interpretation No. 44 to have a material impact on its financial statements. ADDITIONAL FACTORS THAT MAY AFFECT RESULTS. In addition to the other information contained in this report, the following factors could affect our actual results and could cause our actual results to differ materially from those achieved in the past or expressed in our forward looking statements. 11 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) We Expect to Continue to Operate at a Loss, and We May Never Become Profitable We have not been profitable since our inception on May 11, 1984, and we cannot be certain that we will ever achieve and sustain profitability. To date, we have been engaged in research and development activities and have not generated any revenues from product sales. The process of developing our products will require significant research and development, preclinical testing and clinical trials, as well as regulatory approvals. We expect these activities, together with our general and administrative expenses, to result in operating losses for the foreseeable future. Our ability to achieve profitability will depend, in part, on our ability to successfully complete development of our proposed products and on our ability to successfully obtain required regulatory approvals and manufacture and market our products. We do not expect that any proposed product which is currently in research and development will be commercially available for at least several years, if ever. We May Need to Raise Additional Capital Which May Not Be Available Based on our current operating plan, we believe that our working capital will be sufficient to satisfy our capital requirements through at least the second quarter of 2001. This belief is based on certain assumptions which may prove to be incorrect. Substantial additional capital will be required for our operations. We intend to seek additional financing, which may take the form of public or private financings, including equity financings, which would be dilutive to existing shareholders, and through other arrangements, including relationships with corporate partners for the development of certain of our products. We may not be able to obtain such additional capital or enter into relationships with corporate partners on a timely basis, on favorable terms, or at all. If adequate funds are not available, we may be required to delay, reduce or eliminate expenditures for certain of our programs or products or to enter into relationships with corporate partners to develop or commercialize products or technologies that we would otherwise seek to develop or commercialize independently. 12 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) Our Potential Products Must Undergo Rigorous Clinical Testing and Regulatory Approvals, Which Could Substantially Delay or Prevent Us from Marketing Any Products Before obtaining regulatory approvals for the commercial sale of any of our proposed products, the products will be subjected to extensive preclinical and clinical testing to demonstrate their safety and efficacy in humans. Results of initial preclinical and clinical testing of products under development are not necessarily indicative of results that will be obtained from subsequent or more extensive preclinical and clinical testing. Furthermore, we cannot be certain that clinical trials of products under development will be completed or will demonstrate the safety and efficacy of such products at all, or to the extent necessary to obtain regulatory approvals. Companies in the biotechnology industry have suffered significant setbacks in advanced clinical trials, even after achieving promising results in earlier trials. The failure to adequately demonstrate the safety and efficacy of a therapeutic product under development could delay or prevent regulatory approval of such product. The rate of completion of clinical trials depends on, among other factors, the enrollment of patients. Patient enrollment is a function of many factors, including 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. Difficulty attaining planned patient enrollment in our current clinical trials or future clinical trials may result in increased costs, program delays or both. We May Not Be Able to Obtain Government Approval in a Timely Manner to Market and Sell Our Potential Products or Approval May Be Withdrawn The manufacture and marketing of our proposed products and our research and development activities are subject to regulation for safety, efficacy and quality by numerous government authorities in the United States and other countries. Clinical trials, manufacturing, and marketing are subject to the rigorous testing and approval processes of the U.S. Food and Drug Administration, commonly referred to as the FDA, and equivalent foreign regulatory authorities. Clinical trials and regulatory approvals can take a 13 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) number of years to accomplish and require the expenditure of substantial resources. It may not be possible to start or successfully complete clinical trials within any specified time period. Delays in obtaining approvals can occur for a number of reasons, including our failure to obtain necessary supplies of finished products, monoclonal antibodies or other materials or to the failure attract a sufficient number of available patients to support the claims necessary for regulatory approvals. The FDA approval process is typically lengthy and expensive, and approval is never certain. Because of the risks and uncertainties in biochemical development, our potential products could take a significantly longer time to gain regulatory approvals than we expect or may never gain FDA approval. If we do not receive these necessary approvals from the FDA, we will not be able to generate substantial revenues and will not become profitable. We may encounter significant delays or excessive costs in our efforts to secure regulatory approvals. FDA approvals may not be obtained on a timely basis, if at all, and any approvals granted may cover less than all of the clinical indications for which we sought approval or may contain significant limitations in the form of warnings, precautions or contraindications with respect to conditions of use. Delays in obtaining, or the imposition of limitations upon, FDA approvals would adversely affect or prevent the marketing of products developed by us and our ability to receive royalty or other product revenues. The manufacture and marketing of our products would, after approval, be subject to continuing FDA review, and later discovery of previously unknown problems with a product, manufacturer or facility may result in restrictions, including potential withdrawal of the product from the market. In addition, U.S. federal and state agencies and congressional committees have expressed interest in further regulation of biotechnology. We are unable to estimate the extent and impact of regulation in the biotechnology field resulting from any future federal, state or local legislation or administrative action. For clinical investigation and marketing outside the United States, we and our potential collaborative partners also are subject to foreign regulatory requirements. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary widely among countries and can involve additional testing. The time required to obtain approval may 14 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) differ from that required to obtain FDA approvals. The foreign regulatory approval processes include all of the risks associated with obtaining FDA approvals set forth above, and approval by the FDA does not ensure approval by the health authorities of any other country. If We Fail To Negotiate and Maintain Collaborative Arrangements with Third Parties, Our Manufacturing, Sales and Marketing Activities May Be Delayed or Reduced We have no experience in commercial manufacturing, sales, marketing or distribution. In most cases, our strategy for commercialization of our potential products requires entering into various arrangements with corporate collaborators, licensors, licensees and others to manufacture, distribute and market such products; we will depend on the successful performance of third parties. Although we believe that parties to our existing and any future arrangements will have an economic incentive to perform their contractual responsibilities successfully, these activities will not be within our control. In February 2000, we engaged International Isotopes, Inc. to build a manufacturing facility for our Skeletal Targeted Radiation product, which we refer to as STR, for Phase III clinical trials. International Isotopes will be responsible for all aspects of the manufacture of STR, including process qualification, quality control, packaging and shipping, from its Denton, Texas radiopharmaceutical facility. International Isotopes' failure to perform its contractual responsibilities effectively could have an adverse effect on our business. We cannot assure you that we will be successful in maintaining our existing relationships or that we will be able to negotiate additional collaborative arrangements in the future. The absence, suspension or termination of current or future relationships with collaborative partners could have a material adverse effect on the development of our products and could result in the loss of material revenues to us, either of which could have a material adverse effect on our business, financial condition and results of operations. In the biotechnology industry, termination of relationships, for any reason, has been known to cause material adverse impacts on a company's share price. 15 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) We Are Dependent On Suppliers for the Timely Delivery of Materials and Services and We Have Experienced, and May Experience In the Future, Interruptions In Supply We depend on the timely delivery from suppliers of certain materials and services. In connection with our research, preclinical studies and clinical trials, we periodically have experienced interruption in the supply of monoclonal antibodies. Interruptions in these and other supplies could occur in the future. We, together with our potential partners, will need to develop sources for commercial quantities of Holmium-166 and Yttrium-90, the radionuclides used in our proposed cancer therapeutic products, for the bone seeking agent used in our STR product, and for the antibody, streptavidin and clearing agent used in our PRETARGET(R) products. We or our potential partners may be unable to develop such sources. Uncertainties Regarding Human Immune Response To Foreign Proteins May Limit The Effectiveness of Our Proposed Cancer Therapy Products We plan to use monoclonal antibodies coupled to streptavidin (a protein of bacterial origin) in our PRETARGET(R) cancer therapy products. These molecules appear as foreign proteins to the human immune system, which develops its own antibody in response. We plan to use humanized antibodies, where needed, to minimize the "human anti-mouse antibody" (HAMA) response which otherwise might restrict the number of doses that can be safely or effectively administered, thus limiting the product's efficacy. The "human anti-streptavidin antibody" (HASA) response may also limit the number of doses. We believe that modifying streptavidin may reduce HASA. Although we may utilize humanized antibodies and are modifying streptavidin, we cannot be certain that either would reduce the extent to which HASA and HAMA may limit the effectiveness of our cancer therapy products. We Face Substantial Competition In The Development Of Cancer Therapies and May Not Be Able To Successfully Compete and Our Potential Products May Be Rendered Obsolete By Rapid Technological Change The competition for development of cancer therapies is intense. There are numerous competitors developing products to treat each of 16 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) the diseases for which we are seeking to develop products. Some competitors have adopted product development strategies targeting cancer cells with monoclonal antibodies. Many emerging companies, including but not limited to IDEC Pharmaceuticals, Cytogen Corp. and Coulter Pharmaceuticals, have corporate partnership arrangements with large, established companies to support research, development and commercialization efforts of products that may be competitive with those which we are developing. In addition, a number of established pharmaceutical companies, including, but not limited to SmithKline Beecham, Nycomed Amersham, Mallinkrodt, Inc. and Bristol-Myers Squibb, are developing proprietary technologies or have enhanced their capabilities by entering into arrangements with, or acquiring, companies with proprietary monoclonal antibody-based technology or other technologies applicable to the treatment of cancer. Many of our existing or potential competitors have or have access to substantially greater financial, research and development, marketing and production resources than we do and may be better equipped than us to develop, manufacture and market competing products. Our competitors may have, or may develop and introduce, new products that would render our technology and products under development less competitive, uneconomical or obsolete. We also expect to face increasing competition from universities and other non-profit research organizations. These instructions carry out a significant amount of research and development in the field of antibody-based technology. These institutions are becoming increasingly more aware of the commercial value of their findings and more active in seeking patent and other proprietary rights, as well as licensing revenues. Our Success Is Dependent Upon Our Ability To Effectively Protect Our Patents And Proprietary Rights, Which We May Not Be Able To Do The patent position of biotechnology firms is generally highly uncertain and involves complex legal and factual questions. Currently, no consistent policy has emerged regarding the breadth of claims allowed in biotechnology patents. Products and processes important to us are subject to this uncertainty. Accordingly, we cannot be certain that our patent applications will result in additional patents being issued or that, if issued, patents will afford protection against competitors with similar technology. We 17 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) cannot be certain that any patents issued to us will not be infringed by or designed around by others or that others will not obtain patents that we would need to license or design around. Moreover, the technology applicable to our products is developing rapidly. Research institutes, universities and biotechnology companies, including our competitors, have filed applications for, or have been issued, numerous patents and may obtain additional patents and proprietary rights relating to products or processes competitive with or relating to ours. The scope and validity of such patents, the extent to which we may be required to obtain licenses thereunder or under other proprietary rights and the cost and availability of licenses, are unknown. To the extent licenses are required, they may not be available on commercially reasonable terms, if at all. We also rely on unpatented proprietary technology. Others may independently develop substantially equivalent proprietary information and techniques or gain access to our proprietary technology or disclose such technology. We may not be able to meaningfully protect our rights in such unpatented proprietary technology. Product Liability Claims In Excess Of The Amount Of Our Insurance Would Adversely Affect Our Financial Condition The testing, manufacturing, marketing and sale of the human healthcare products which we have under development entail an inherent risk that product liability claims will be asserted against us. Although we are insured against such risks up to a $10 million annual aggregate limit in connection with clinical trials and commercial sales of our products under development, we cannot be certain that our present product liability insurance is adequate. A product liability claim in excess of our insurance coverage could have a material adverse effect on us and may prevent us from obtaining product liability insurance in the future on affordable terms. In addition, we cannot be certain that product liability coverage will continue to be available in sufficient amounts or at an acceptable cost. Our Use Of Radioactive and Other Hazardous Materials Exposes Us To The Risk Of Material Environmental Liabilities, and We May Incur Significant Additional Costs To Comply With Environmental Laws In The Future 18 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) Our research and development and clinical manufacturing processes involve the controlled use of small amounts of hazardous and radioactive materials. As a result, we are subject to foreign, federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials and wastes in connection with our research and development activities and our manufacturing of clinical trial materials. Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by such laws and regulations, we may be required to incur significant costs to comply with environmental and health and safety regulations in the future. Further, the risk of accidental contamination or injury from hazardous and radioactive materials cannot be completely eliminated. In the event of such an accident, we could be held liable for any resulting damages, and any such liability could exceed our resources. Even If We Bring Products To Market, Changes in Health Care Reimbursement Could Adversely Affect our Ability To Effectively Price Our Products Or Obtain Adequate Reimbursement For Sales Of Our Products The levels of revenues and profitability of pharmaceutical companies may be affected by the continuing efforts of government and third-party payors to contain or reduce the costs of healthcare through various means. For example, in certain foreign markets pricing or profitability of prescription pharmaceuticals is subject to governmental control. In the United States, there have been, and we expect that there will continue to be, a number of federal and state proposals to implement similar governmental controls. It is uncertain what legislative proposals will be adopted or what actions federal, state or private payors for healthcare goods and services may take in response to any healthcare reform proposals or legislation. Even in the absence of statutory change, market forces are changing the healthcare sector. We cannot predict the effect healthcare reforms may have on our business, and we cannot be certain that any such reforms will not have a material adverse effect on us. Further, to the extent that such proposals or reforms have a material adverse effect on the business, financial condition and profitability of other pharmaceutical companies that are prospective collaborators for certain of our potential 19 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) products, our ability to commercialize our products under development may be adversely affected. In addition, both in the United States and elsewhere, sales of prescription pharmaceuticals depend in part on the availability of reimbursement to the consumer from third-party payors, such as governmental and private insurance plans. Third-party payors are increasingly challenging the prices charged for medical products and services. If we succeed in bringing one or more products to market, we cannot be certain that these products will be considered cost-effective and that reimbursement to the consumer will be available or will be sufficient to allow us to sell our products on a competitive or profitable basis. The Loss of Key Employees Could Adversely Affect Our Operations Our success will depend in part on the efforts of certain key scientists and management personnel. Because of the specialized nature of our business, our ability to maintain our competitive position will depend in part on our ability to attract and retain qualified personnel. Competition for such personnel is intense. We cannot be certain that we will be able to hire sufficient qualified personnel on a timely basis or retain such personnel. The loss of key management or scientific personnel could have a material adverse effect on our business. We do not maintain key person insurance on any of our scientists or management personnel. Our Stock Price is Volatile and, as a Result, You Could Lose Some or All of Your Investment There has been a history of significant volatility in the market prices of securities of pharmaceutical and biotechnology companies, including our common stock, and it is likely that the market price of our common stock will continue to be highly volatile. Announcements by us or our competitors concerning acquisitions, technological innovations or new commercial products, results of clinical trials, developments concerning patents, proprietary rights and potential infringement, and the expense and time associated with obtaining government approvals for marketing of our products may have a significant effect on our business and on the relative market price of the our common stock. In addition, public concern about the safety of the products we develop, comments by securities analysts, and general market conditions may have a 20 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) significant effect on the market price of our common stock. The realization of any of these risks could have a material adverse impact on the market price of our common stock and may result in a loss of some, or even all of your investment. In the past, securities class action litigation has often been brought against companies following periods of volatility in their stock prices. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert our management's time and resources, which could cause our business to suffer. Certain Provisions In Our Restated Articles Of Incorporation and Washington State Law Could Discourage a Change of Control of NeoRx Our restated articles of incorporation authorize our board of directors to issue up to 3,000,000 shares of preferred stock and to determine the price, rights, preference, privileges and restrictions, including voting rights, of those shares without any further vote or action by our shareholders. The issuance of preferred stock could have the effect or delaying, deferring or preventing a change of control of NeoRx, even if this change would benefit our shareholders. In addition, the issuance of preferred stock may adversely affect the market price of the common stock and the voting and other rights of the holders of common stock. We have adopted a Shareholder' Rights Plan intended to protect the rights of shareholders by deterring coercive or unfair takeover tactics. The board of directors declared a dividend to holders of our common stock of one preferred share purchase right for each outstanding share of the common stock. The right is exercisable 10 days following the offer to purchase or acquisition of beneficial ownership of 20% of the outstanding common stock by a person or group of affiliated persons. Each right entitles the registered holder, other than the acquiring person or group, to purchase from NeoRx one-hundredth of one share of Series A Junior Participating Preferred Stock at the price of $40, subject to adjustment. The rights expire April 10, 2006. In lieu of exercising the right by purchasing one one-hundredth of one share of Series A Preferred Stock, the holder of the right, other than the acquiring person or group, may purchase for $40 that number of shares of our common stock having a market value of twice that price. 21 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (continued) Washington law imposes restrictions on some transactions between a corporation and significant shareholders. Chapter 23B.19 of the Washington Business Corporation Act prohibits a target corporation, with some exception, from engaging in particular significant business transactions with an acquiring person, which is defined as a persons or group of persons that beneficially owns 10% or more of the voting securities of the target corporation, for a period of five years after the acquisition, unless the transaction or acquisition of shares is approved by a majority of the members of the target corporation's board of directors prior to the acquisition. Prohibited transactions include, among other things: - - a merger or consolidation with, disposition of assets to, or issuance or redemption of stock to or from the acquiring person; - - termination of 5% or more of the employees of the target corporation; or - - receipt by the acquiring person of any disproportionate benefit as a shareholder. A corporation may not opt out of this statute. This provision may have the effect of delaying, deterring or preventing a change in control of NeoRx. Problems Related to the Year 2000 Issue Could Adversely Affect Our Business Prior to January 1, 2000, we devoted substantial resources in an effort to ensure that our proprietary software, the third-party software on which we rely, and the underlying systems and protocols did not contain errors or defects associated with Year 2000 date functions. Since January 1, 2000, we have not experienced any disruption to our business as a result of any Year 2000 problems or otherwise. If problems do arise, they could adversely affect our business. 22 Item 3. Quantitative and Qualitative Disclosures about Market Risk The Company is exposed to the impact of interest rate changes and changes in the market values of its investments. INTEREST RATE AND INVESTMENT RISK The Company's exposure to market rate risk for changes in interest rates relates primarily to the Company's debt securities included in its investment portfolio. The Company does not have any derivative financial instruments. The Company invests in debt instruments of the U.S. Government and its agencies and high-quality corporate issuers. Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, the Company's future investment income may fall short of expectations due to changes in interest rates or the Company may suffer losses in principal if forced to sell securities which have declined in market value due to changes in interest rates. At March 31, 2000, the Company owned government debt instruments in the amount of $11.5 million and corporate debt securities in the amount of $5.6 million. The Company's exposure to losses as a result of interest rate changes is managed through investing primarily in securities with maturities of one year or less. 23 Item 5. Other Information On February 3, 2000, the Company entered into an agreement with Pharmaceutical Product Development, Inc. ("PPD") in which the Company received a revolving line of credit of up to $5,000,000. This revolving line of credit is to be used in assisting the funding of the Company's phase III trial of its STR product in development. Any proceeds drawn on the revolving line of credit and interest due must be repaid on the earlier of the date of the first commercial sale of the STR product or the date it is determined that the STR product cannot or will not be launched. On February 21, 2000, the Company entered into an agreement with International Isotopes, Inc. ("I3") in which I3 has agreed to design the clinical manufacturing facility and process for the STR product in development and manufacture and supply the STR product. The Company has agreed to pay for such services. Item 6. Exhibits Sequentially Exhibit Number Exhibit Numbered Page 10.1 * Credit Facility Agreement between 26 NeoRx Corporation and PPD 10.2 * Clinical Manufacture and Supply 41 Agreement between NeoRx Corporation and I3 27 Financial Data Schedule 42 * Portions of this exhibit have been omitted pursuant to a request for confidential treatment dated May 4, 2000. 24 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NeoRx Corporation (Registrant) Date: May 9, 2000 By: /s/ Richard L. Anderson --------------------------------- Richard L. Anderson President, Chief Operating Officer, Secretary (Principal Financial and Accounting Officer) 25 EX-10.1 2 EX-10.1 REDACTED VERSION CREDIT FACILITY AGREEMENT THIS AGREEMENT, dated February 3, 2000, is made by and between NeoRx Corporation ("NR") and Pharmaceutical Product Development, Inc. ("PPD"). W I T N E S S E T H WHEREAS, NR has requested a Five Million Dollar ($5,000,000) revolving credit facility for the purposes hereinafter set forth; and WHEREAS, PPD has agreed to make the requested credit facility available to NR under the terms and conditions herein set forth; NOW, THEREFORE, FOR AND IN CONSIDERATION OF the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINITIONS. ADVANCES means all sums advanced by PPD to NR under the Commitment. AGREEMENT means this agreement. BUSINESS DAY means a day other than a Saturday, Sunday or other day on which commercial banks in Wilmington, North Carolina are authorized or required by law to close. CHANGE OF CONTROL means a merger, consolidation, acquisition of all or substantially all of the property or stock, liquidation or other reorganization of NR (the "Reorganization") as a result of which the shareholders of NR receive cash, stock or other property in exchange for their common stock of NR and the holders of NR's voting equity securities immediately prior to the Reorganization together own less than a majority interest of the voting securities of the successor corporation following the Reorganization. CLINICAL TRIAL SERVICES means those services provided to conduct NR's clinical trial entitled "A Phase II/III Multicenter, Randomized, Open-Label Trial Evaluating High Dose Melphalan plus Holmium-166-DOTMP versus High dose Melphalan alone in Patients with Multiple Myeloma when Given in Conjunction with Peripheral Blood Stem Cell Transplantation" (the "Trial"), including clinical project management, monitoring and site management, and administrative support; quality management, assurance and regulatory services to include document control, investigator files, and file and site audits; medical management and pharmacovigilence including [*] DESIGNATES PORTIONS OF THIS DOCUMENT THAT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED SEPARATELY WITH THE COMMISSION. study set-up and maintenance, non-reportable SAEs and Clintrace set-up and maintenance; data management services including CRF design, database set-up and maintenance, data entry, data review and clean-up and clinical quality audits, project management, import of external data, and data transfers; biostatistics services including protocol review and/or writing, randomization plan and/or schedule, analysis plan, DSMB analyses, interim analysis, and final analysis; IVR system services including randomization; investigator meetings and services; patient participation; raw materials; product doses; IRB services; CRF printing and shipping; and other related costs or expenses to conduct the Trial approved in advance by PPD. COMMITMENT means a credit facility made available hereunder by PPD to NR in an amount not to exceed Five Million Dollars ($5,000,000) to be used solely for payment of Clinical Trial Services, including but not limited to Clinical Trial Services performed by PPD. COMMITMENT PERIOD means the period from and including the Effective Date to but excluding the earlier of (i) the Termination Date, or (ii) the date on which the Commitment hereunder shall have been terminated in accordance with the provisions hereof. EFFECTIVE DATE means February 3, 2000. EVENT OF DEFAULT shall have the meaning assigned to such term in Section 6.1 of this Agreement. FIRST COMMERCIAL SALE means the initial transfer in the ordinary course of business by NR or its sublicensees of the STR Product after regulatory approval in exchange for cash or some equivalent to which value can be assigned. Transfer for research, development or testing purposes shall not constitute the First Commercial Sale. GAAP means generally accepted accounting principles in the United States applied on a consistent basis. GOVERNMENTAL AUTHORITY means any federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. INTEREST RATE means [ * ] NET SALES means the total amount received by NR from the sale of the STR Product , including royalties (if any), less (a) customary trade, quantity, or cash discounts and commissions allowed and taken by brokers or agents, (b) amounts repaid or credited by reason of rejection or return, (c) sales, use and/or taxes or duties, import and/or export duties, and other similar governmental charges paid, but not including income taxes, and (d) to the extent separately stated on purchase orders, invoices, or other documents of sale, insurance costs and outbound transportation charges prepaid or 2 allowed related to shipment of the STR Product. "Net Sales" shall not include license fees or milestone payments paid to NR that are not conditioned on the sale of the STR Product by the licensee. NOTE shall have the meaning assigned to such term in Section 2.5 hereof. PERSON means any individual, partnership, joint venture, firm, corporation, limited liability company, association trust or enterprise (whether or not incorporated) or any Governmental Authority. REQUIREMENT OF LAW means as to any Person the certificate of incorporation and bylaws or other organizational or other governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to any such Person or to which any of its material property is subject. SEC means the United States Securities and Exchange Commission. STR PRODUCT means the Skeletal Targeted Radiotherapy product known as Holmium-166 DOTMP. TERMINATION DATE means the earlier of (i) the second anniversary of the Trigger Date, (ii) the effective date of a Change in Control of NR which materially diminishes NR's financial ability to repay the Commitment, (iii) thirty (30) days after NR sells, licenses or otherwise in any manner disposes of substantially all of its interest in the Holmium-166 DOTMP compound, or its successor compound(s) or derivatives, (iv) the date of termination by NR for any reason other than material breach of or material nonperformance under that certain Master Services Agreement Addendum of even date between NR and PPD Development, Inc. for the further development of the Holmium-166 DOTMP compound, or (v) any other date on which this Agreement or the Commitment hereunder is terminated or deemed terminated as herein provided. TRIGGER DATE means the earlier of (i) the date of the First Commercial Sale of the STR Product or (ii) the date on which it is determined that the STR Product cannot or will not, whichever is applicable, be launched. SECTION 2. CREDIT FACILITY. 2.1 CREDIT FACILITY. During the Commitment Period, subject to the terms and conditions hereof PPD shall make available to NR the Commitment. The continuing obligation of PPD to make the Commitment available to NR hereunder is subject to the condition that the Representations and Warranties of NR set forth herein are true and correct in all material respects throughout the Commitment Period. Within the limits set forth herein and in the Note, NR may borrow under this section, repay or, to the extent permitted by Section 2.6, prepay the Commitment at any time during 3 the Commitment Period. PPD shall have no obligation to make available a credit facility in excess of the amount of the Commitment. 2.2 NOTICES. Any request by NR for an Advance hereunder shall be made by written notice to PPD not later than the fifth Business Day prior to the requested date of issuance of the Advance. Said notice shall be in the form of APPENDIX I attached and shall specify in detail the Clinical Trial Services for which the requested Advance is to be used. PPD may request such additional documentation or evidentiary material as it deems reasonably necessary, in its sole discretion, to verify that the Advance will be used for payment of Clinical Trial Services. Each such request shall be deemed a reaffirmation by NR that the Representations and Warranties set forth herein are true and correct in all material respects as of such date. Notwithstanding anything to the contrary contained in this Agreement, PPD shall be under no obligation to make any Advance hereunder if there shall have occurred any condition or event which constitutes an Event of Default or which, with the giving of notice or lapse of time, or both, would, unless cured or waived, become an Event of Default. 2.3 INTEREST RATE. Commencing on the Effective Date, Advances made under the Commitment hereunder shall bear interest at a per annum rate equal to the Interest Rate; provided, however, that after the occurrence and during the continuance of an Event of Default, the principal and, to the extent permitted by law, interest on Advances made under the Commitment and any other amounts owing hereunder shall bear interest, payable upon demand, at a rate equal to the lesser of (i) the Interest Rate plus two percent (2%), or (ii) the maximum rate permitted without causing a violation of a Requirement of Law. 2.4 REPAYMENT. Unless sooner paid, the principal amount of Advances made under the Commitment and all accrued and unpaid interest thereon shall be payable as follows: (i) Commencing thirty (30) days after the Trigger Date, the principal amount of all Advances made to NR which are outstanding under the Commitment and all accrued and unpaid interest thereon shall be paid in twenty-four (24) equal monthly installments, with the first installment being thirty (30) days after the Trigger Date, and subsequent installments being due on the same day of each succeeding calendar month thereafter, with the last payment being due on the second anniversary of the Trigger Date, until or unless all outstanding amounts under the Commitment have been previously paid in full. Each installment shall be applied first to the payment of interest on the then unpaid principal amount of Advances made under the Commitment and the residue in reduction of the unpaid principal amount of Advances outstanding. If (i) additional Advances are made to NR under the Commitment after the Trigger Date or (ii) payments are made pursuant to clause (ii) of this Section 2.4, the amount of the monthly installments payable hereunder shall be recalculated and adjusted accordingly on the next payment date. 4 (ii) Commencing on the last day of the fourth calendar month following the month in which the First Commercial Sale of the STR Product occurs and on the last day of each succeeding month until all of the unpaid principal amount of the Advances made under the Commitment and the interest thereon has been paid in full, [ * ] Each payment shall be applied first to the payment of interest on the then unpaid principal amount of Advances made under the Commitment and the residue in reduction of the unpaid principal amount of Advances outstanding. 2.5 NOTE. Advances made pursuant to the Commitment shall be evidenced by a single promissory note of NR dated the Effective Date, payable to the order of PPD in an amount equal to the Commitment, in the form of SCHEDULE A hereto (as amended, modified, extended, supplemented, removed, or replaced, the Note). 2.6 PREPAYMENTS. Advances made under the Commitment may be prepaid in whole or in part in any time without premium or penalty. 2.7 PAYMENTS AND COMPUTATION. Payments shall be made hereunder in U. S. Dollars in immediately available funds, without offset, reduction or withholding of any kind, at the offices of PPD provided in the notice section of this Agreement. Computations of interest hereunder shall be made on the basis of actual number of days elapsed over a year of 365 days. Whenever any payment of principal of, or interest on, Advances made under the Commitment shall be due on a day that is not a Business Day, the date for payment thereof shall be extended to the next succeeding Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. SECTION 3. CONDITIONS. The effectiveness of this Agreement and the continuing obligations of PPD hereunder is expressly conditioned upon (i) the accuracy and truth of the Representations and Warranties on the Effective Date and throughout the Commitment Period, (ii) the aggregate Advances made under the Commitment will not exceed the amount of the Commitment, and (iii) the receipt by PPD of the warrant to purchase shares of NR common stock as provided for in that certain NeoRx Corporation warrant issued on even date to PPD. SECTION 4. REPRESENTATIONS AND WARRANTIES. 4.1 CORPORATE ORGANIZATION. NR is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, is qualified to do business in each jurisdiction where failure to so qualify would have a material adverse effect on NR, and is in compliance with all Requirements of Law except to the extent such failure to be in compliance would not have a material adverse effect on NR. 5 4.2 ENFORCEABLE OBLIGATION. NR has the power and authority and legal right to enter into, deliver and perform under this Agreement and has taken all necessary action to authorize the execution, delivery and performance by it of this Agreement. This Agreement constitutes a legal, valid and binding obligation of NR, enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights or by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 4.3 LEGAL PROCEEDINGS. No claim, litigation or proceeding before any arbitrator or Governmental Authority is pending, or, to the knowledge of NR, threatened which if there is a reasonable likelihood of adverse determination would reasonably be expected to have a material adverse effect on NR. 4.4 NO DEFAULT. No Event of Default or event or condition which with notice or lapse of time, or both, would constitute an Event of Default, presently exists. SECTION 5. COVENANTS. 5.1 FINANCIAL STATEMENTS. NR will furnish or cause to be furnished to PPD: (i) SEC FILINGS. Complete Form 10-K's and Form 10-Q's within one (1) business day after said forms are filed from time to time with the SEC. (ii) OTHER INFORMATION. Promptly upon request, such additional financial and other information as PPD may reasonably request from time to time. All financial statements shall be complete and correct in all material respects (subject, in the case of interim statements, to normally recurring year-end audit adjustments) and shall be prepared in reasonable detail and in accordance with GAAP throughout the periods reflected therein (except as approved by such accountants and disclosed therein) and further accompanied by a description of, and an estimation of the effect on the financial statements on account of, a change in the application of accounting principles from a prior period. 5.2 COMPLIANCE WITH LAWS. NR will comply with all material Requirements of Law and all requirements of any Governmental Authority, except where the necessity of such compliance has been contested in good faith through appropriate proceedings. 5.3 BOOKS AND RECORDS. NR will keep proper books and records in conformity with GAAP and all material Requirements of Law. PPD hereby reserves the right to have such books and records reviewed and audited by a national recognized 6 independent certified public accounting firm reasonably acceptable to NR with respect to all amounts owed by NR to PPD under Section 2.4(ii) hereof. Prior to any audit, said firm shall enter into a confidentiality agreement with NR for such audit which is reasonably acceptable to the parties. If the result of such audit reveals amounts due to PPD in excess of Five Percent (5%) of the amount actually paid to PPD for the period in question, (i)NR shall pay such amount determined by such audit to be due to PPD, plus interest thereon at the Interest Rate, if there is outstanding any unpaid principal or interest under the Commitment, but only to the extent of such unpaid principal or interest, and (ii) NR shall reimburse PPD for the cost of said audit. SECTION 6. EVENTS OF DEFAULT. 6.1 EVENT OF DEFAULT. The occurrence of any one or more of the following events shall constitute an Event of Default under this Agreement: (i) NR shall fail to pay any amount when due under the Commitment or the Note within ten (10) days after NR's receipt of written notice from PPD to pay same; (ii) NR shall fail to observe or perform any covenant or agreement contained in this Agreement or the Note other than those covered by clause (i) above, which breach or nonperformance is not cured within thirty (30) days after NR's receipt of notice of same; (iii) any representation, warranty, certification or statement made by NR in any financial statement or other document delivered pursuant to this Agreement shall prove to have been incorrect in any material respect when made (or deemed made); (iv) NR shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to the appointment of or taking possession by any such official in any involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; (v) an involuntary case or other proceeding shall be commenced against NR seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of sixty (60) days, or an 7 order for release shall be entered against NR under the federal bankruptcy laws as now or hereafter in effect; or (vi) one or more judgments or orders for payment of money in an aggregate amount in excess of One Million Dollars ($1,000,000) shall be rendered against NR and such judgment or order shall continue unsatisfied or unstayed for a period of thirty (30) days. 6.2 REMEDIES. Upon the occurrence of an Event of Default, and at any time thereafter, and during the continuation of any Event of Default, PPD may immediately terminate the Commitment which shall thereupon terminate, and by notice to NR (i) declare the unpaid principal of the Note, together with any accrued and unpaid interest owing thereon, to be, and the Note and the outstanding Advances and all other indebtedness or obligations owing hereunder or under any of other instrument referenced herein or in connection herewith or therewith, shall thereupon become immediately due and payable without presentment, demand, protest or other notice of any kind, all which are hereby waived by NR, and (ii) enforce any other rights and interests available at law or in equity, including rights of set off. Notwithstanding the foregoing, in the case of an Event of Default described in clauses (v) or (vi) of Section 6.1 relating to bankruptcy and insolvency, the Note, the Advances, and all accrued interest, fees and other indebtedness and other amounts owing hereunder or under any other instrument given by NR to PPD shall become immediately due and payable without presentment, demand, protest or the giving of any other notice or other action by PPD, all of which are hereby waived by NR. SECTION 7. MISCELLANEOUS. 7.1 NOTICES. Notices and other communications shall be effective, when duly given, (i) when received, (ii) when transmitted by telecopier or other facsimile device to the numbers set out below if transmitted before 5:00 p.m. on a Business Day, or otherwise on the next following Business Day, (iii) the day following the day on which delivered prepaid by a reputable national overnight air courier service, (iv) the third Business Day following the day sent by certified or registered mail postage prepaid, in each case to the parties at the address shown below, or at such other address as may be specified by written notice to the other parties: if to PPD: Pharmaceutical Product Development, Inc. 3151 South 17th Street Wilmington, NC 28412 Attention: Chief Financial Officer Telephone: (910) 251-0081 Fax: (910) 772-7056 if to NR: NeoRx Corporation 410 West Harrison Street Seattle, WA 98119 8 Attention: President Telephone: (206) 286-2514 Fax: (206) 284-7112 with a copy to: LAWCO of Washington 1201 Third Avenue, Suite 4000 Seattle, WA 98101 Telephone: (206) 583-8888 Fax: (206) 583-8500 7.2 BENEFIT OF AGREEMENT. This Agreement shall be binding upon and shall inure to the benefit of the respective successors and the permitted assigns of the parties hereto; provided, that neither PPD nor NR may assign or transfer any of its obligations or interests without the other's prior written consent. 7.3 NO WAIVER. No failure or delay on the part of PPD in exercising any right, power or privilege hereunder or under the Note and no course of dealing between PPD, on the one hand, and NR, on the other hand, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under the Note preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and privileges provided herein are cumulative and not exclusive to any rights or remedies which PPD would otherwise have. 7.4 AMENDMENTS. Neither this Agreement nor the Note may be amended or modified, nor shall consents or waivers be effective, except with the written consent of the parties hereto. 7.5 PAYMENT OF EXPENSES. NR shall pay all reasonable out-of-pocket costs and expenses of PPD in connection with the enforcement of this Agreement, the Note and any other documents and instruments referred to herein or therein including, without limitation, in connection with any such enforcement, the reasonable fees and disbursements of counsel for PPD. In the event of any dispute hereunder before any tribunal of any kind which is authorized to resolve said dispute, the prevailing party's costs and expenses, including reasonable attorney's fees, shall be paid by the non-prevailing party. 7.6 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same agreement. It shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. 7.7 HEADINGS. The headings of the sections and subsections hereof are provided for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 9 7.8 SURVIVAL. The indemnities and payment obligations hereunder and the Representations and Warranties made herein or in connection herewith shall survive the making and repayment of Advances made under the Commitment and termination of the Commitment hereunder. 7.9 GOVERNING LAW. This Agreement and the rights and obligations of the parties hereunder shall be governed by and construed in accordance with the laws of the State of North Carolina. 7.10 CONSENT TO JURISDICTION. NR (a) submits to personal jurisdiction in the State of North Carolina, the courts thereof and the United States District Courts sitting therein, for the enforcement of this Agreement and the Note, (b) waives any and all personal rights under the laws of any jurisdiction to object on any basis (including, without limitation, inconvenience of forum) to jurisdiction or venue within the State of North Carolina for the purpose of litigation to enforce this Agreement or the Note, and (c) agrees that service of process may be made upon it by personal delivery or certified or registered mail in the manner prescribed in Section 7.1 for the giving of notice to NR. Nothing herein contained, however, shall prevent PPD from bringing any action against NR within any other state or jurisdiction. [NEXT PAGE IS SIGNATURE PAGE] 10 IN WITNESS WHEREOF, this Agreement has been executed as of the date first herein set forth. Pharmaceutical Product Development, Inc. By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Attest: ---------------------------- -------------------Secretary [Corporate Seal] NEORX CORPORATION By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Attest: ---------------------------- -------------------Secretary [Corporate Seal] 11 APPENDIX I Request for Advance This Request for Advance ("Request") dated as of _______________, 20__, is by and between NeoRx Corporation ("NR") and Pharmaceutical Product Development, Inc. ("PPD"). Advances made by PPD pursuant to its Commitment to NR under the Credit Facility Agreement (the "Credit Agreement") dated February 3, 2000 by and between NR and PPD shall be made available on the fifth Business Day following receipt of this Request at the offices of PPD in Wilmington, NC. Unless otherwise indicated in this Request, all capitalized terms used in this Request shall have the same meaning ascribed to them in the Credit Agreement. 1. AMOUNT REQUESTED ($) : 2. DESCRIPTION OF PROPOSED USE OF FUNDS (Note: Must be for payment of Clinical Trial Services) : ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- 3. THIS REQUEST REPRESENTS A REAFFIRMATION BY NR THAT THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THE CREDIT AGREEMENT ARE TRUE AND CORRECT IN ALL MATERIAL RESPECTS AS OF THE DATE OF THIS REQUEST. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THE CREDIT AGREEMENT, PPD SHALL BE UNDER NO OBLIGATION TO MAKE ANY ADVANCE HEREUNDER IF THERE SHALL HAVE OCCURRED ANY CONDITION OR EVENT THAT CONSTITUTES AN EVENT OF DEFAULT OR WHICH, WITH THE GIVING OF NOTICE OR LAPSE OF TIME, OR BOTH, WOULD, UNLESS CURED OR WAIVED, BECOME AN EVENT OF DEFAULT. IN WITNESS HEREOF, NR has caused this Request to be duly executed by its authorized officer as of the date first above written. NEORX CORPORATION By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- [*] DESIGNATES PORTIONS OF THIS DOCUMENT THAT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED SEPARATELY WITH THE COMMISSION. SCHEDULE A PROMISSORY NOTE $5,000,000 February 3, 2000 FOR VALUE RECEIVED, the undersigned, NeoRx Corporation ("NR") promises to pay to the order of Pharmaceutical Product Development, Inc. ("PPD"), its endorsees, successors and assigns, on or before the Termination Date the principal sum of Five Million Dollars ($5,000,000) or, if less, the aggregate unpaid principal amount of all advances made by PPD pursuant to its Commitment to NR under the Agreement, in lawful money of the United States in immediately available funds at the office of PPD as provided in the Credit Facility Agreement of even date by and between PPD and NR (the "Credit Agreement") or as otherwise directed by PPD pursuant to the terms of the Credit Agreement, together with interest, in like money funds, on the unpaid principal amount hereof at the rates and on the dates as set forth in the Agreement. This Note is issued pursuant to, and is entitled to the benefits of the Credit Agreement (as the same may be amended or modified and in effect from time to time), to which Credit Agreement reference is hereby made for a statement of the terms and conditions under which this Note may be prepaid or its maturity date accelerated. Capitalized terms used herein and not otherwise defined herein are used with the meanings attributed to them in the Credit Agreement. In the event payment of amounts due hereunder are accelerated under the terms of the Credit Agreement, all such amounts shall become immediately due and payable without presentment, demand, protest or notice of any kind, all of which are hereby waived. TIME IS OF THE ESSENCE WITH RESPECT TO THIS NOTE. In addition and not in limitation of the foregoing provisions of the Credit Agreement, NR further agrees to pay all expenses of collection, including reasonable attorneys' fees, if this Note shall be collected by an attorney at law, or in bankruptcy, receivership or other court proceedings. This Note shall be governed by and construed in accordance with the laws of the State of North Carolina. This Note is intended to be effective as an instrument executed under seal. PRESENTMENT, DEMAND, PROTEST, NOTICE OF DISHONOR AND NOTICE OF ANY KIND ARE HEREBY WAIVED BY NR. Executed under hand and seal of NR on the date first above written. NeoRx Corporation By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Attest: ---------------------------- -------------------Secretary EX-10.2 3 EX-10.2 CLINICAL MANUFACTURE AND SUPPLY AGREEMENT THIS AGREEMENT (the "Agreement") is entered into on February 21, 2000 by and between International Isotopes Inc., a Texas corporation, with its principal place of business at 3100 Jim Christal Road, Denton, Texas 76207 ("I3"), and NeoRx Corporation, a Washington corporation, with its principal place of business at 410 West Harrison Street, Seattle, Washington 98119-4007 ("NeoRx"). WITNESSETH WHEREAS, NeoRx has obtained an exclusive license under certain patents and the right to use certain technology and processes to make, use, sell and distribute the Product (as hereafter defined), which is a radiopharmaceutical product, for clinical and commercial purposes; and WHEREAS, I3 is in the business of manufacturing a full range of radiochemicals and radiopharmaceuticals, and is the sole owner of a radiopharmaceutical manufacturing facility located in Denton, Texas (the "Building"); and WHEREAS, NeoRx and I3 have entered into that certain Design Phase Agreement, through which I3 has agreed to design the Clinical Manufacturing Facility and Process for the benefit of NeoRx, and NeoRx has agreed to pay I3 for such services; and WHEREAS, the parties desire to set forth the terms under which I3 will install and qualify the Clinical Manufacturing Facility and Process within the Building to be used for Processing the Product for use in Clinical Trials; WHEREAS, NeoRx desires that I3 manufacture and supply to and on behalf of NeoRx certain quantities of the Product for use in Clinical Trials, and I3 is willing to perform such services to and on behalf of NeoRx, all in accordance with the terms and conditions set forth in this Agreement; NOW THEREFORE, in consideration of the foregoing promises and agreements set forth herein, the parties agree as follows: ARTICLE I - DEFINITIONS 1.1 "Affiliate" of a Party means any corporation or other business entity controlled by, controlling or under common control with such Party. For this purpose, "control" means direct or indirect beneficial ownership of thirty-five percent (35%) or more of the voting and income interest in such corporation or other business entity. 1.2 "Building" means the entire 25,000 square foot radiopharmaceutical manufacturing facility owned by I3 and located in Denton, Texas. 1.3 "Calibration Time" is 12:00 noon Central Time on the day following the manufacturing date of a particular Batch of Product. [ * ] DESIGNATES PORTIONS OF THIS DOCUMENT THAT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED SEPARATELY WITH THE COMMISSION. 1.4 "Certificate of Analysis" means a written certificate produced by I3 verifying that a particular dose of Product meets all Product Specifications, and that the methodology used to Process the Product met all Requirements, cGMP and all other applicable laws and regulations. 1.5 "Change Control" means a procedure, governed by I3's Standard Operating Procedures, for assessing the potential impact on the regulatory status, validation status, and safety of any proposed change to a Validated Process or the validated equipment and utilities associated with that Process prior to implementation of that change. 1.6 "Clinical Batch" means a production batch of the Product intended to have uniform character and quality that is Processed by I3 in accordance with the terms and conditions of this Agreement. [ * ] 1.7 "Clinical Facility Information" means all written information given to the FDA to support the approval of the Clinical Manufacturing Facility as being qualified and Validated to manufacture the Product for Clinical Trials. 1.8 "Clinical Facility Qualification Plan" has the meaning as set forth in Section 2.1(b). 1.9 "Clinical Facility Qualification Report" has the meaning as set forth in Section 2.4(a). 1.10 "Clinical Facility Validation Plan" has the meaning as set forth in Section 2.1(c). 1.11 "Clinical Facility Validation Report" has the meaning as set forth in Section 2.4(b). 1.12 "Clinical Manufacturing Facility" means that portion of the Building that will be designed and constructed in accordance with the Construction Specifications for use as a radiopharmaceutical manufacturing facility, and which is to be dedicated to the clinical manufacture of the Product. 1.13 "Clinical Trials" means any trials for clinical development of pharmaceutical products defined as "Phase I," "Phase II," "Phase III," or "Treatment IND" in FDA regulations, as amended from time to time. 1.14 "Construction Specifications" means the specifications for the construction, characteristics and operations of the Clinical Manufacturing Facility and the Process as set forth in the Construction Design Plans attached hereto as Exhibit A, which may be amended from time to time by written agreement of the parties. 1.15 "Construction Fee" has the meaning as set forth in Section 2.2. 1.16 "cGMP" means the current good manufacturing practices required by the FDA and set forth in the FD&C Act or FDA regulations, policies, or guidelines in effect at a particular time for the manufacture, testing and quality control of pharmaceutical materials as applied to -2- drugs except to the extent that another jurisdiction within the North American Market imposes standards for the manufacture, testing and quality control of pharmaceutical materials as applied to drugs are higher or more stringent than those required by the FDA, in which case such standards will apply. 1.17 "Dedicated Moveable Equipment" means all equipment except hot cells and glove boxes purchased by NeoRx for exclusive use in Processing the Product. 1.18 "Dedicated Fixed Equipment" means hot cells and glove boxes purchased by NeoRx for exclusive use in Processing the Product. 1.19 [ * ] 1.20 "Effective Date" means the date this Agreement is entered into, as indicated in the first paragraph of this Agreement. 1.21 "Facility Master File" or "FMF" means the Facility Master File dossier prepared by I3 and filed with the FDA, which provides the FDA with specific (and proprietary) chemistry, manufacturing and controls information for the Building. 1.22 "FDA" means the United States Federal Food and Drug Administration. 1.23 "FD&C Act" means the United States Federal Food, Drug and Cosmetic Act, as amended. 1.24 "IND" means an Investigational New Drug application and any supplements thereto, as defined in FDA regulations, as amended from time to time. 1.25 "Installation Qualification" means the program employed by I3 by which it is established that the equipment and systems used in the Process are capable of consistently operating within established limits and tolerance for purposes of Processing the Product for use in Clinical Trials. 1.26 "Inventions" has the same meaning as set forth in Section 11.2(a). 1.27 "Master Batch Record" means the document which sets forth the methodology and formulae for Processing each Batch. I3 may amend the Master Batch Record from time to time; provided, however, that I3 shall make such amendment only in accordance with its written Standard Operating Procedures governing Change Control for a validated process, and shall notify the FDA Master File dossier and NeoRx of such amendment prior to the implementation thereof. 1.28 "Milestones" means the Milestones as set forth on Exhibit B, which reflect the timeline during which I3 will complete the construction, qualification and validation of the Clinical Manufacturing Facility, as such construction, qualification and validation are further described in Article II. -3- 1.29 "New Drug Application" or "NDA" means the application for marketing a new drug product filed by NeoRx with the FDA. 1.30 "Operation Qualification" means the program employed by I3 by which it is established that the equipment and systems used in the Process are capable of Processing Product that consistently meets the Requirements. 1.31 "Performance Qualification" means the program by which it is established that the Process, and all equipment and systems associated therewith, are effective and reproducible. 1.32 "PHS Act" means the United States Public Health Service Act, as amended. 1.33 "Primary Completion Date" has the meaning as set forth in Section 2.1. 1.34 "Processing," "Process," and "Processed" shall have comparable meanings and mean the act of manufacturing, handling, storing, analyzing, packaging in dosage form, inspecting and labeling Product in accordance with the Master Batch Record, Product Specifications, the Requirements, cGMP and all other applicable federal, state and local laws and regulations for the manufacture of the Product for use in Clinical Trials. 1.35 "Process Qualification" means a defined set of procedures, materials and controls by which three (3) consecutive Clinical Batches are produced according to the Master Batch Record procedures and the resulting Diagnostic and Therapeutic Doses meet all Product Specifications. 1.36 "Process Validation" means the defined set of procedures, materials, and controls as set forth in the Clinical Facility Information, by which documented evidence provides a high degree of assurance that the Process will consistently produce the Product that meets all Product Specifications and other quality criteria and attributes as mutually agreed upon by the parties and as set forth in the applicable I3 process validation protocol. 1.37 "Product" means a [ * ] 1.38 "Product Specifications" means the composition of the Product, along with the set of analytical tests, methods, and acceptance criteria for Product attributes which must be met in order to prove that the Product meets the standards of quality, purity, identity and strength accepted by the FDA for this substance. Product Specifications are a critical part of the Requirements and are filed with the FDA as part of an FMF, NDA, IND or otherwise and set forth in the Clinical Facility Information. All Product Specifications are set forth on Exhibit C, which may be amended from time to time by written agreement of the parties and as dictated by the FDA and applicable laws and regulations. 1.39 "Proprietary Information" means all information concerning a party (the "Disclosing Party") which is furnished to or created by (such as notes, analysis, compilations, studies, interpretations or other documents) the other party or its directors, officers, employees, -4- agents, advisors or Affiliates (collectively, the "Receiving Party") as a result of entering into this Agreement and in furtherance hereof. 1.40 "Purchase Order" means the written or electronic document sent by NeoRx from time to time to I3 that sets forth the number of Diagnostic and/or Therapy Doses ordered and the expected delivery dates. 1.41 "Quality Control Tests" means the analytical testing of Product attributes performed by I3 according to the test methods specified by the Requirements, to determine whether a given dose meets its Product Specifications. 1.42 "Requirements" means those Product Specifications, Process parameters, cGMP and other governmental requirements relating to the Product, as set forth in Exhibit D, which may be revised from time to time upon written agreement of the parties and as dictated by the FDA and applicable laws and regulations. Upon such revision, I3 shall immediately implement any modified documents and/or procedures pertinent to the revised Requirements. Should the revision to the Requirements have a material effect on the cost of Processing the Product, the parties agree to meet and negotiate in good faith any price changes for the purchase of the Product. 1.43 "Standard Operating Procedures" ("SOPs") means I3's internal written standard operating procedures, controlled by I3's quality assurance unit, governing all aspects of manufacturing and testing Product under cGMP. 1.44 [ * ] 1.45 "Validated" means the condition of having passed standards for Installation Qualification, Operation Qualification and Performance Qualification, as well as meeting all Construction Specifications, all Process Validation requirements, and validation of the analytical methods. 1.46 "Validation Completion Date" has the meaning as set forth in Section 2.1. 1.47 "Waste" means all (a) rejected or unusable Product, (b) Product not purchased by NeoRx for whatever reason, and (c) waste relating to I3's Processing of Product. ARTICLE II - CONSTRUCTION OF MANUFACTURING FACILITY AND PROCESS 2.1 CONSTRUCTION OF CLINICAL MANUFACTURING FACILITY (a) CONSTRUCTION. I3 will construct the Clinical Manufacturing Facility and Process in accordance with the Construction Specifications and the Milestones. [ * ] (b) QUALIFICATION. I3 will prepare and NeoRx will approve a qualification plan for the Clinical Manufacturing Facility and Process (the "Clinical Facility Qualification Plan"), which will set forth the steps to be followed by I3 in causing the Clinical Manufacturing Facility and -5- Process to be qualified for use in clinical trials. I3 shall prepare and execute, and deliver to NeoRx no later than thirty (30) days after the Primary Completion Date, a final Clinical Facility Qualification Report indicating that the construction of the Clinical Manufacturing Facility and the Process are complete and qualified and that I3 has satisfied all aspects of the Clinical Facility Qualification Plan. I3 acknowledges that any or all data included in the final Clinical Facility Qualification Report may be used by NeoRx for purposes of completing the CMC section of the IND. (c) VALIDATION. I3 will prepare and NeoRx will approve a validation plan for the Clinical Manufacturing Facility and Process (the "Clinical Facility Validation Plan"), which will set forth the steps to be followed by I3 in causing the Clinical Manufacturing Facility, analytical methods and Process to be Validated. [ * ] I3 acknowledges that any or all data included in the final Clinical Facility Validation Report may be used by NeoRx for purposes of completing the CMC section of the NDA. (d) COSTS. I3 shall be solely responsible for the payment of all costs in connection with the construction of the Clinical Manufacturing Facility and Process and obtaining all equipment associated therewith other than Dedicated Moveable Equipment and Dedicated Fixed Equipment; provided, however, that if, upon the prior written consent of NeoRx, I3 writes specifications for and purchases the Dedicated Moveable Equipment and Dedicated Fixed Equipment on behalf of NeoRx, then NeoRx shall reimburse I3 for the cost of such Dedicated Equipment plus a 10% markup. (e) DEDICATED EQUIPMENT. NeoRx shall be solely responsible for the cost of Dedicated Moveable Equipment and Dedicated Fixed Equipment (collectively, the "Dedicated Equipment"), whether such equipment is purchased or leased by NeoRx or I3. NeoRx shall remain the sole owner of all Dedicated Equipment that is purchased, and will maintain UCC filings documenting NeoRx's ownership therein during the Term of this Agreement. Upon the expiration of this Agreement, I3 shall promptly return at NeoRx's sole expense all Dedicated Equipment to NeoRx in good working condition less reasonable wear and tear; provided, however, that if NeoRx indicates in writing to I3 that NeoRx intends to sell the Dedicated Fixed Equipment at any time within sixty (60) days of the expiration or termination of this Agreement (the "Sales Notice"), I3 shall have the right to purchase the Dedicated Fixed Equipment from NeoRx at a rate equal to the original book value minus 10% for each year the Dedicated Fixed Equipment has been in service; provided, further, that I3 must exercise its right, if any, to purchase the Dedicated Fixed Equipment within thirty (30) days of NeoRx sending the Sales Notice to I3. 2.2 CONSTRUCTION FEE In consideration of I3's construction of the Clinical Manufacturing Facility, NeoRx shall pay to I3 a flat fee of [ * ] (the "Construction Fee"). NeoRx shall pay the Construction Fee to I3 in the following four installments: (a) [ * ] upon full execution of this Agreement; (b) [ * ] upon completion and execution of the Clinical Facility Qualification Plan, as described in Section 2.1(b); (c) [ * ] upon completion and execution of the final Clinical Facility Validation Report, as described in Section 2.1(b); and (d) [ * ] upon filing the NDA package associated -6- with the Product. NeoRx's obligation to pay each installment is conditioned upon its receipt of an invoice from I3 for the payment of each installment; provided, however, that NeoRx's obligation to pay the final installment of the Construction Fee is conditioned on NeoRx's acceptance of a final NDA package associated with the Product. 2.3 PERFORMANCE CHARACTERISTICS I3 will construct the Clinical Manufacturing Facility so that it shall have the capacity to Process Product (a) in accordance with the Product Specifications, the Requirements, cGMP and all applicable federal, state and local laws, regulations, rules and orders and (b) in the amounts set forth in Section 3.3. The Clinical Manufacturing Facility shall be built according to the development documents created in the Design Phase Services Agreement that was executed between the parties on September 20, 1999. 2.4 CLINICAL FACILITY REPORTS (a) QUALIFICATION. At such times as are set forth in the Clinical Facility Qualification Plan, I3 shall prepare and submit to NeoRx a report (the "Clinical Facility Qualification Report") summarizing the activities performed pursuant to the Clinical Facility Qualification Plan, including but not limited to facility qualifications that are needed to begin producing Product for Phase III Clinical Trials. I3 shall also prepare and submit to NeoRx a final Clinical Facility Qualification Report, as described in Section 2.1(b), at such time as the Clinical Manufacturing Facility and Process are Qualified, but no later than thirty (30) days after the Primary Completion Date. (b) VALIDATION. At such times as are set forth in the Clinical Facility Validation Plan, I3 shall prepare and submit to NeoRx a report (the "Clinical Facility Validation Report") summarizing the activities performed pursuant to the Clinical Facility Validation Plan. I3 shall also prepare and submit to NeoRx a final Clinical Facility Validation Report, as described in Section 2.1(c), at such time as the Clinical Manufacturing Facility and Process are Validated, but no later than six (6) months after the Primary Completion Date. 2.5 FACILITY EXCLUSIVITY During the Term, I3 may not use the Clinical Manufacturing Facility for any purpose other than Producing Product pursuant to this Agreement or for conducting such additional activities as instructed by NeoRx and agreed upon by the parties. 2.6 REPAIRS AND MAINTENANCE I3 shall perform all maintenance required to maintain the Clinical Manufacturing Facility and Process in good operating condition as required by the Construction Specifications, Requirements, cGMP and all other applicable federal, state and local laws, regulations, rules or orders. In the event of any conflict between the applicable laws, regulations, rules or orders of any jurisdictions, I3 will notify NeoRx of such conflict and the parties shall act in good faith to resolve such conflict or to determine which laws, regulations, rules or orders take precedence; -7- provided, however, that at all times the Parties shall comply with the requirements of cGMP. The cost of all repairs and maintenance to the Clinical Manufacturing Facility and/or Process, and the replacement of any equipment other than Dedicated Equipment, shall be borne by I3. NeoRx will bear all expenses for repairs to or replacement of the Dedicated Equipment provided that I3 has been operating the Dedicated Equipment under normal operating procedures and conditions. 2.7 MODIFICATIONS If, at any time during the Term of this Agreement after the Clinical Manufacturing Facility and Process are Validated, the parties determine that modifications to the Clinical Manufacturing Facility or Process are required as a result of errors committed by I3 in carrying out the Clinical Facility Qualification Plan, then I3 shall make such modifications and bear all costs and expenses associated therewith. The costs for all other modifications to the Clinical Manufacturing Facility or Process as determined, or agreed to, by NeoRx, including those needed to meet agreed upon changes in the Requirements or complete agreed upon additional construction, shall be borne solely by NeoRx, subject to NeoRx's prior written authorization. 2.8 DEDICATED PERSONNEL During the Term of this Agreement, I3 shall dedicate the personnel listed on Exhibit E to the (a) construction, qualification and Validation of the Clinical Manufacturing Facility, the Commercial Manufacturing Facility (as described in the Commercial Manufacturing and Supply Agreement) and the Process, and (b) the Processing of the Product. If any person listed on Exhibit E terminates his or her employment with I3 during the Term of this Agreement, I3 shall replace that individual within two (2) months with someone of the same level of experience. ARTICLE III- MANUFACTURE & SUPPLY; OTHER SERVICES 3.1 NEORX'S SOURCE OF PRODUCT (a) NORTH AMERICA. During the Term of this Agreement, NeoRx will obtain from I3 at least [ * ] of its requirements of the Product for use in Clinical Trials performed in North America that are associated with the use of the Product for treatment of multiple myeloma; provided, [ * ] Accordingly, NeoRx may, from time to time during the Term, obtain from third party manufacturers up to twenty percent (20%) of its requirements of the Product for use in multiple myeloma related Clinical Trials performed in North America. (b) OTHER. [ * ] I3 shall have no obligation or right to Process Product that is to be used for such purposes. 3.2 PROCESS AND SUPPLY OF PRODUCT (a) GENERAL. I3 shall (a) Process the Product in strict conformity with the Requirements, cGMP requirements and all other applicable laws, rules and regulations, (b) maintain all documentation and quality control records regarding the Products as described -8- herein, and (c) supply the Product to the appropriate party in accordance with the terms of this Agreement. I3 shall have no right to use, test or distribute the Product for any reason other than as expressly provided in this Agreement. (b) PROCESS AND SUPPLY. During the Term, I3 will Process and supply to NeoRx such doses of the Product as NeoRx may order from I3 pursuant to Purchase Orders. To fulfill the Purchase Orders, each week during the Term of this Agreement I3 shall Process such Batches, or partial Batches, as is necessary to produce only the number of doses of the Product ordered and scheduled for delivery during such week. (c) SITE OF PROCESSING; SUBCONTRACTING. I3 will Process all of the Product at the Clinical Manufacturing Facility. Under no circumstances will I3 Process any Product at any other location or subcontract out to a third party all or any part of the Processing or testing of the Product without NeoRx's prior written consent. (d) APPROVAL FOR MANUFACTURING CHANGES. I3 agrees that no changes will be made to any materials, Requirements, equipment, Processing or Quality Control Tests without NeoRx's prior written approval. Subsequent to such approval from NeoRx, I3 may then make such approved changes, so long as, in any event, (i) such changes are permitted by applicable governmental regulations and the terms of any licenses, registrations, authorizations or approvals previously granted by the applicable governmental entity with respect to the Product and (ii) NeoRx receives copies of all documentation relating to such approved changes. If the changes require the additional license, registration, authorization, or approval of any applicable governmental entity, I3 may not implement the changes until it receives written notice from NeoRx that the governmental entity has authorized or approved the change. I3 shall cooperate fully with NeoRx in preparing, and will provide all necessary data and information for, a submission requesting authorization or approval of a change in materials, Requirements, equipment, Processing or Quality Control Tests. 3.3 I3'S PROCESS CAPABILITIES During the Term of this Agreement I3 will be capable of Processing and shipping up to [ * ] The parties acknowledge and agree that during the Term of the Agreement, the actual number of Clinical Batches I3 will Process and ship per week will be dependant on the Purchase Orders I3 receives from NeoRx. 3.4 SCHEDULED FACILITY SHUTDOWN The parties agree that during the final two weeks of December of each year, I3 will cease production of the Product to conduct maintenance to the Clinical Manufacturing Facility and Process. 3.5 ORDERS AND FULFILLMENT (a) PURCHASE ORDERS. NeoRx shall deliver to I3 (i) by the close of business on Monday of each week during the Term of this Agreement, a written or electronic Purchase Order -9- for the number of batches, and delivery dates, that NeoRx desires to purchase for delivery during the following calendar week and (ii) by the close of business on Thursday of each week during the Term of this Agreement, an amendment to the Purchase Order described in clause (i) that specifies the number of each fill size of Diagnostic Doses and/or Therapy Doses that NeoRx desires to purchase for delivery during the following calendar week. Each dose shall be shipped in such manner, and to such location, as directed by NeoRx. (b) ADDITIONAL PROVISIONS IN PURCHASE ORDERS. To the extent any Purchase Order, invoice or acknowledgement form contains any provisions additional or contrary to the provisions of this Agreement, such additional or contrary provision shall have no force or effect and the terms of this Agreement shall control. (c) NOTICE OF INABILITY TO FULFILL. I3 shall notify NeoRx by telephone and in writing immediately if I3 acquires any information that it will not be able to fulfill the then most recent Purchase Orders. I3 shall promptly notify NeoRx by telephone and in writing of any other production issues (including any proposed or potential shutdown of the Clinical Manufacturing Facility for any reason) or other information of which I3 becomes aware which may affect the regulatory status of the Product or the ability of I3 to supply Product in accordance with this Agreement and the Purchase Orders. 3.6 PROJECTED PURCHASES Within thirty (30) days after the Effective Date, NeoRx shall provide a twelve (12) month forecast (each, a "Forecast") to I3 that shows the projected monthly number of Clinical Batches to be purchased. This Forecast shall be maintained as a twelve (12) month rolling schedule and shall be updated at least quarterly or more often if significant changes in demand are forecast. In addition, NeoRx shall prepare a schedule of projected weekly purchases (each a "Weekly Purchase Schedule") of Clinical Batches for the first three (3) months following the Effective Date. This Weekly Purchase Schedule shall be maintained as a three (3) month rolling schedule and will be updated at least monthly. The parties acknowledge that any projections or estimates set forth in any Forecast or Weekly Purchase Schedule are subject to change by reason of unknown or unforeseen factors. Accordingly, the parties agree that such estimates shall not be binding on NeoRx and may be modified weekly by NeoRx in light of its actual purchasing needs provided that NeoRx will not order from I3 any Product in excess of I3's maximum production capabilities as described in Section 3.3. 3.7 COMPLIANCE WITH LAW; HANDLING OF PRODUCT While the Product is in its possession or under its control, I3 shall be responsible for complying with all applicable federal, state and local governmental statutory and regulatory requirements, including requirements relating to the manufacture, handling, storage, labeling, packaging, transportation and shipment of the Product. In performing its obligations under this Agreement, I3 shall comply with all applicable environmental and health and safety laws and shall be solely responsible for determining how to carry out these obligations; provided, however, that I3 shall consult with NeoRx where cGMP or labeling issues arise. In addition to the foregoing, at all times I3 will take all reasonable actions necessary to avoid spills and other -10- safety concerns to persons, and damage to property or the environment resulting from the Product or any intermediates or raw materials thereof. 3.8 TESTING AND DOCUMENTATION I3 shall certify monthly in writing, to NeoRx's reasonable satisfaction, that each Batch was produced and tested in compliance with (i) the Requirements, (ii) cGMP requirements, (iii) the IND or NDA (whichever is applicable) relevant to the Product, and (iv) all other applicable regulatory documents, in accordance with procedures agreed between I3 and NeoRx. The tests and analyses provided in the Requirements and the written certification referenced therein may be amended from time to time by mutual written consent of the parties. I3 shall also provide to NeoRx a Certificate of Analysis for each Clinical Batch that I3 processes. 3.9 OTHER SERVICES I3 shall perform the following services during the Term of the Agreement: (a) Obtaining, installing and qualifying all equipment to be used in Processing the Product; provided, however, that NeoRx may obtain by purchase or lease certain of the Dedicated Equipment as agreed to by the parties. (b) Validating in accordance with cGMP all analytical methods and manufacturing processes, which are to be developed by NeoRx in consultation with I3. All changes to an established Validation Process shall be agreed upon by the parties prior to the implementation thereof. (c) Performing ongoing Quality Control Tests and stability studies on the Product according to agreed upon test methods and specifications, and retaining samples of Product associated with each such test and stability study. I3 shall perform such other tests as are consistent with cGMP, as are required by the FDA and/or any other governmental entity with respect to I3's manufacture of the Product hereunder. I3 shall maintain all retained samples in a suitable storage facility (under conditions as agreed to by the parties) for such time as NeoRx may reasonably require. All such samples shall be available for inspection and testing by NeoRx at reasonable times and upon reasonable notice. (d) Training all appropriate I3 and NeoRx personnel with respect to the operation of the Processes, the specifications of which are to be agreed upon by the parties. (e) Maintaining the Clinical Manufacturing Facility and Process so that it complies with the Construction Specifications and Requirements throughout the Term of this Agreement, and ensuring that each dose of Product delivered to NeoRx meets all Product Specifications. 3.10 WASTE DISPOSAL I3 shall be responsible for the treatment and/or disposal of all Waste generated at I3 during the manufacturing process in accordance with established federal, state and local -11- environmental and OSHA laws and regulations, and the maintenance of detailed and complete records related thereto. ARTICLE IV - RAW MATERIALS 4.1 (166)HOLMIUM CHLORIDE NeoRx will contract with a third party for the supply of (166)Holmium chloride, which will be delivered to I3 directly. The delivery of (166)Holmium chloride to I3 shall be pursuant to the delivery terms to be stated in the supply agreement between NeoRx and the third party supplier of (166)Holmium chloride, or as otherwise agreed to by NeoRx and such third party supplier. NeoRx, in consultation with I3, will establish a procedure for just-in-time delivery of (166)Holmium chloride from third party suppliers to I3, with the amount of each delivery dependant on the actual Purchase Orders received by I3 during the Term of this Agreement. The (166)Holmium chloride shall be delivered to I3 in sufficient time to allow all Processing, testing, packaging and release of the Product to be completed the same day for delivery to the freight carrier for shipment that day. Any late deliveries of (166)Holmium chloride may cause I3 to miss the evening shipment deadline, in which case I3 shall not be held accountable or liable for the costs thereof. NeoRx shall be responsible for the cost of all (166)Holmium chloride, including all charges associated with the shipment of the (166)Holmium chloride to the Manufacturing Facility. I3 agrees that it will use the (166)Holmium chloride provided by NeoRx only for Processing the Product, unless otherwise instructed by NeoRx. NeoRx shall remain the sole owner of all (166)Holmium chloride that is purchased, and will maintain UCC filings documenting NeoRx's ownership therein during the Term of this Agreement. I3 is responsible for either (a) verifying the quality of the (166)Holmium chloride to ensure that it will meet the Requirements when Processing the Product, or (b) relying on certificates from the manufacturers of the (166)Holmium chloride with spot-checks performed by I3. I3 shall notify NeoRx immediately of any (166)Holmium chloride that is not suitable for Processing the Product, and I3 shall not be accountable for the cost thereof or for late shipments as a result of its receipt of unsuitable (166)Holmium chloride. 4.2 DOTMP NeoRx will contract with a third party for the supply of DOTMP, which will be delivered to I3 directly. The delivery of DOTMP to I3 shall be pursuant to the delivery terms to be stated in the supply agreement between NeoRx and the third party supplier of DOTMP, or as otherwise agreed to by NeoRx and such third party supplier. NeoRx, in consultation with I3, shall determine the amount of DOTMP that I3 will maintain in inventory for use in Processing the Product. NeoRx shall be responsible for the cost of all DOTMP and will perform stability studies on the bulk DOTMP; provided, however, that I3 shall perform stability studies for radiolabeled DOTMP in addition to any other stability studies performed pursuant to Section 3.8(c). I3 agrees that it will use the DOTMP provided by NeoRx only for Processing the Product, unless otherwise instructed by NeoRx. NeoRx shall remain the sole owner of all DOTMP that is purchased, and will maintain UCC filings documenting NeoRx's ownership therein during the Term of this Agreement. -12- I3 is responsible for either (a) verifying the quality of the DOTMP to ensure that it will meet the Requirements when Processing the Product, or (b) relying on certificates from the manufacturers of the DOTMP with spot-checks performed by I3. I3 shall notify NeoRx immediately of any DOTMP that is not suitable for Processing the Product, and I3 shall not be accountable for the cost thereof or for late shipments as a result of its receipt of unsuitable DOTMP. 4.3 OTHER I3 will contract with third parties and pay for the supply of all raw materials, other than shipment boxes (as described in Section 6.2(c)), (166)Holmium chloride (as described in Section 4.1) and DOTMP (as described in Section 4.2), that are necessary to manufacture and package the Product in dosage form. I3 shall be responsible for obtaining the type and amount of all such other raw materials necessary to fulfill all Purchase Orders, the cost of which shall be covered by I3; accordingly, NeoRx shall not be responsible for paying suppliers directly, or reimbursing I3, for the cost of obtaining such raw materials other than through the payment to I3 of the purchase price for the Product as described in Article V. 4.4 UNAVAILABILITY OR SCARCITY OF (166)HOLMIUM CHLORIDE OR DOTMP The parties acknowledge that NeoRx's obligation to supply (166)Holmium chloride and DOTMP to I3 is conditional upon its ability to obtain a sufficient supply of such raw materials. NeoRx will use reasonable efforts to notify I3 upon NeoRx's knowledge of a shortage of either (166)Holmium chloride or DOTMP if such shortage will impact the manufacture of the Product. ARTICLE V - PURCHASE PRICE AND PAYMENT 5.1 BATCH FEE For each [ * ] Clinical Batch of Product Processed by I3 during the Term of this Agreement, NeoRx shall pay to I3 a fee based on the following schedule: BATCH PER WEEK PRICE PER BATCH -------------- --------------- [ * ] [ * ] The price per Batch includes the cost of labor, materials and overhead to manufacture and test the finished vials and is exclusive of the cost of (166)Holmium chloride, DOTMP, Shipment Boxes, Customer Service and distribution. 5.2 MINIMUM PURCHASE AGREEMENT Upon the Clinical Manufacturing Facility becoming fully operational and the Process meeting all Process Qualifications as required pursuant to Section 2.1(a), and through the Term of this Agreement, NeoRx agrees to purchase from I3 a minimum of one Clinical Batch per week other than during (a) the final two weeks of December of each year, during which I3 will cease production of the Product to conduct maintenance to the Clinical Manufacturing Facility and -13- Process as stated in Section 3.4, or (b) any week during which the Manufacturing Facility is not in operation. 5.3 SHIPPING CHARGES NeoRx, in consultation with I3, shall arrange for the shipment of the Product from the Clinical Manufacturing Facility to NeoRx, or such other location as determined by NeoRx. NeoRx shall be responsible for the payment of all shipping charges (including, without limitation, freight, handling, insurance, customs, duties and all other transportation related items) associated with such shipments. NeoRx shall make all payment directly. 5.4 INVOICES I3 shall invoice NeoRx bi-weekly for any Product Processed by I3 in response to Purchase Orders during the two weeks prior to the date of each invoice. NeoRx shall pay for such Product within thirty (30) days of its receipt of such invoice, with a two (2%) discount allowed for payment in full within ten (10) days from the date of NeoRx's receipt of such invoice. I3 shall reference the applicable Purchase Orders on all invoices. If NeoRx disagrees in good faith for any reason with the amount of an invoice, NeoRx shall notify I3 in writing of such disagreement within ten (10) business days of receipt of such invoice, and the Parties shall promptly endeavor to resolve the dispute in good faith according to Section 13.3; provided, however, that NeoRx shall timely pay all amounts not in dispute. If NeoRx is found to have incorrectly disputed any amount of any invoice, NeoRx shall promptly pay such amount to I3 together with interest at an annual rate of eighteen percent (18%) from the date of the invoice through the date of payment. 5.5 MARKET CHANGES In the event of any unanticipated and severe changes in market conditions or other circumstances affecting the costs of the Product, the parties agree to discuss such changed circumstances and to negotiate in good faith appropriate adjustments to the price of the Product to reflect such changes. ARTICLE VI - DELIVERY 6.1 DELIVERY All Product purchased by NeoRx hereunder shall be delivered F.O.B. place of manufacture. All Product to be shipped from the Clinical Manufacturing Facility pursuant to a NeoRx Purchase Order shall be identified and designated by I3 as to specified doses (and complete shipping advice) for delivery to NeoRx as soon as possible in I3's Process of the Product. I3 shall be responsible for properly packaging each Clinical Dose for shipment and preparing the shipping labels according to the corresponding Purchase Order. -14- 6.2 PACKAGING AND SHIPPING MATERIALS (a) PACKAGING AND SHIPPING MATERIALS. NeoRx will provide all packaging and shipping materials, other than labels, associated with shipments of the Product. NeoRx will be responsible for testing to United States Department of Transportation standards. All costs associated with developing and obtaining the packaging and shipping materials, other than labels, shall be borne by NeoRx. (b) LABEL ARTWORK. NeoRx, in consultation with I3, will provide final artwork for all labels used on the packaging and shipping materials, which shall comply with all FDA regulations. All costs associated with the purchase and supply of such labels shall be borne byI3. (c) SHIPMENT BOXES. NeoRx will contract with third parties for the supply of lead shipment boxes to be used by I3 in shipping the Product to or on behalf of NeoRx. NeoRx shall remain the sole owner of all shipment boxes that are purchased, and will maintain UCC filings documenting NeoRx's ownership therein during the Term of this Agreement. Upon the termination of this Agreement, I3 shall promptly return all shipment boxes in I3's inventory to NeoRx. 6.3 INSPECTION AND ACCEPTANCE (a) REJECTION OF DOSES. All Product shipped from the Clinical Manufacturing Facility shall comply with the Product Specifications and Requirements. Each dose of Product delivered by I3 according to a Purchase Order shall be accompanied by a Certificate of Analysis relating to such dose. Any party receiving a dose of Product from I3 pursuant to a Purchase Order may reject such dose if (i) I3 fails to deliver a Certificate of Analysis prior to use of such dose or as required by the FDA, (ii) such party finds that the dose does not meet the Product Specifications, (iii) NeoRx finds that such dose was not Processed in strict accordance with the Requirements and other terms of this Agreement, or (iv) such party finds that the dose was shipped improperly or untimely. If any party rejects a dose pursuant to the preceding sentence, then the party will return such dose to I3 along with a written notice stating the reasons justifying such rejection, and I3 shall promptly replace such rejected doses. I3 will be responsible for all costs associated with any rejected doses, up to the value of the rejected dose, and will reimburse NeoRx for any damages, costs and expenses incurred by NeoRx as a result of such rejected dose(s) up to an amount equal to the value of the rejected dose(s). (b) DISAGREEMENT WITH REJECTION. If I3 disagrees with NeoRx's determination that a shipment of Product does not meet the Product Specifications and Requirements, the parties will (i) replace the rejected dose(s) as soon as practicable, and then (ii) meet to review all relevant data to determine the cause of such rejection. The parties will make every reasonable effort to resolve the disagreement amicably. If the parties cannot resolve the disagreement, the parties will select a mutually agreeable outside consulting firm to review all applicable and pertinent information and data to determine the cause of the rejection. The party against whom the consulting firm rules shall bear all costs associated with the rejected dose(s) and the consulting firm. If both parties are deemed to share responsibility for the rejection, then such costs shall be allocated on a pro-rata share of the assigned blame. If the cause cannot be determined then each -15- party shall pay 50% of the costs. I3 cannot be in breach of this Agreement because of an improper rejection or the inability to promptly supply replacement Product after an improper rejection. ARTICLE VII - REPRESENTATIONS AND WARRANTIES 7.1 LABOR AND EQUIPMENT I3 represents that it shall furnish all qualified labor, validated equipment and facilities necessary to Process Product in the amounts, and in the timely manner, as set forth in each Purchase Order. 7.2 RAW MATERIALS I3 represents that it will purchase all raw materials, other than (166)Holmium chloride, DOTMP and Shipment Boxes necessary to Process, label and store the Product in strict accordance with the Requirements, cGMP and all applicable laws or regulations and shall be responsible for vendor qualification and all raw material testing in accordance with written standard operating procedures and applicable I3 raw material specifications for chemical and microbiological characteristics, and shall comply with all applicable federal, state and local laws and regulations. 7.3 CLINICAL MANUFACTURING FACILITY AND PROCESS I3 represents that it will maintain the Clinical Manufacturing Facility and Process according to the Requirements, Construction Specifications, cGMP and all applicable laws and regulations. 7.4 PROCESSING REQUIREMENTS I3 extends to NeoRx and to any purchaser of Products from or through NeoRx the following warranties: Each and every dose of the Product that I3 sells to NeoRx shall on and before delivery to or on behalf of NeoRx: (a) Be Processed, manufactured, produced, packaged and labeled in strict accordance with (i) the Requirements, (ii) all federal (including FDA), state and local laws, statutes, regulations or other requirements relating thereto and applicable to the intended use of such Product, (iii) cGMP, (iv) FMF pertaining to the Process and the Facility (which I3 will file with the FDA), and (v) any information provided by I3 to NeoRx for inclusion in a NDA or IND. I3 grants to NeoRx permission to reference I3's FMF in NeoRx's regulatory filings with the FDA pertaining to the Product. (b) Not be adulterated or misbranded within the meaning of the Federal Food, Drug and Cosmetic Act, 21 USC 301 ET SEQ., the Fair Packaging and Labeling Act, 15 USC 1451 ET SEQ., or other applicable federal, state or local statutes, regulations or other requirements. For purposes of this warranty, the Product shall be adulterated or misbranded on or before the date of delivery to the end user if as a result of any defect in the manufacture, preparation, packaging or -16- storage of the Product by I3 prior to the delivery to the end user, the Product subsequently became adulterated or misbranded under the Federal Food, Drug and Cosmetic Act or equivalent state laws. 7.5 RECORDS RELATING TO WASTE DISPOSAL I3 represents that it shall obtain and maintain all waste generator licenses, disposal manifests and other records in accordance with applicable federal, state and local laws and regulations. 7.6 CHANGES TO PRODUCT AND PROCESS I3 represents that it shall not implement any changes, material or otherwise, relating to the Product, its Requirements (including Product Specifications), or Validated Process without NeoRx's prior written approval of such change. A change is defined as any variation in the written procedures currently in place that (i) impacts the regulatory commitments for the Product, (ii) may require revalidation, (iii) may affect the quality, purity, identity or strength of the Product or dose of the Product or (iv) would necessarily result in changing, altering or modifying the Requirements, test methods, sampling procedures, qualification procedures, Facility Master File or Master Batch Record relating to the Product. 7.7 CHANGES AND WRITTEN AUTHORIZATION Changes, extensions, or other modifications to this Agreement may be made by mutual agreement at any time during the period of performance hereof. Changes to this Agreement will be executed only by individual(s) authorized by the respective parties to make such changes. Changes will take the form of a fully executed modification to this Agreement. 7.8 SAFETY PROCEDURES I3 represents that it shall have primary responsibility for adopting and enforcing safety procedures for the handling and production of the Products at the Clinical Manufacturing Facility that comply in all material respects with all federal, state and local environmental and occupational safety and health requirements. 7.9 LIMITATIONS ON WARRANTIES (a) Except as otherwise expressly set forth in this agreement, I3 makes no representations and extends no warranties of any kind, either express or implied, including any express or implied warranties of merchantability or fitness for a particular purpose. (b) Except as otherwise expressly set forth in this agreement, NeoRx makes no representations and extends no warranties of any kind. -17- 7.10 LIMITATION ON LIABILITY Other than as expressly set forth in this agreement, neither party shall be liable to the other for direct, indirect, special, incidental, or consequential damages (including loss of profits) whether based on contract, tort, or any other legal theory. ARTICLE VIII - PERMITS; RECORDS AND AUDITS 8.1 LICENSES AND PERMITS (a) NEORX. NeoRx shall be responsible for obtaining and maintaining such drug licenses, registrations, listings, authorizations and approvals as the FDA or any other applicable governmental entity may require to enable the use of Product in Clinical Trials and marketing of the Product wherever such activities will occur. I3 shall take all reasonable actions necessary to assist NeoRx in obtaining and maintaining all such licenses, registrations, listings, authorizations and approvals. NeoRx and/or its designee shall serve as the point of contact with the FDA and any other applicable governmental entity concerning such licenses, registration, authorizations or approvals, but may, as appropriate, request I3's assistance with FDA and/or other applicable governmental entity communications. (b) I3. I3 shall be responsible, in coordination with NeoRx, for obtaining and maintaining all necessary licenses, registrations, authorizations, and approvals, other than those required to market the Product or use it in Clinical Trials, which are necessary to perform its obligations under this Agreement, including its activities relating to the manufacturing, handling, storing, labeling, packaging, transporting and shipping the Product under cGMP conditions and other regulatory requirements including, but not limited to, the use and handling of radioactive materials. I3 shall provide NeoRx with copies of any correspondence sent from I3 to governmental entities relating to the Product at the time such correspondence is sent by I3; provided, if it becomes necessary for I3 to provide any NeoRx proprietary and/or confidential information to any third party or governmental authorities, it shall not do so without the express written authorization of NeoRx, and then only after adequate steps have been taken to ensure the confidentiality of such information. I3 shall provide NeoRx with copies of any comments, responses, notices or other correspondence received by I3 from any governmental entity relating to the Product within two (2) days of receipt of such correspondence by I3 purged of any I3 proprietary information and/or trade secrets. 8.2 OPERATIONAL RECORDS During the Term of this Agreement, and for five (5) years after I3's Processing any Product (unless a longer time is required by applicable law), I3 shall maintain records and samples necessary to evidence compliance with (a) all applicable governmental laws, regulations and other requirements relating to the manufacture of the Product; (b) relevant sections of the IND or NDA (whichever is applicable) relevant to the Product, and corresponding licenses, registrations, authorizations or approvals for foreign jurisdiction(s) as advised by NeoRx; and (c) the Product Specifications. I3 may also retain records with respect to its obligations and performance under this Agreement. I3 shall also maintain ongoing detailed and complete records -18- relating to (a) Purchase Orders received, (b) raw materials purchased and stored, (c) Product manufactured, (d) manufacturing steps and processes, (e) quality assurance and quality control procedures for the Product, (f) qualification reports, (g) shipment of the product and any returns (h) disposal of Waste, and the like. I3 will provide reasonable access thereto to NeoRx from time to time upon NeoRx's reasonable request. 8.3 GOVERNMENTAL RECORDS AND AUDITS (a) RECORDS AND AUDITS. I3 will cooperate with NeoRx as requested thereby in obtaining and maintaining all FDA and other regulatory approvals necessary to enable NeoRx to use the Products as intended under this Agreement. I3 shall prepare and supply to NeoRx all documents and updates to records with regard to Processing the Products that are required by the FDA. I3 shall submit to all inquiries and inspections by the FDA. I3 shall promptly notify NeoRx of any FDA interactions and/or correspondence relating to I3's operations that could relate, directly or indirectly, to the Product. I3 shall provide NeoRx with copies of all documents, reports or communications received from any federal, state or local governmental authorities that relate in any way to I3's Processing and/or storing the Product and all I3 documents responding thereto. I3 shall immediately inform NeoRx of all FDA audits pertinent to NeoRx's Product or Requirements and shall permit NeoRx's personnel and representatives who are trained in I3's audit procedures to be present and participate in such audits. Similarly, NeoRx shall inform I3 in advance of FDA planned audits of NeoRx if such audits relate directly to the Products. I3 shall immediately provide NeoRx with copies of any regulatory letters or other documents issued by the FDA and received by I3 in connection with the audit or any inspection relating to the Product, and allow NeoRx to participate in the drafting of responses to any FDA inspectional observations or regulatory letters. (b) INSPECTIONS. If NeoRx is required by any governmental authority to have inspected or approved the site of manufacturing or storing the Product or any raw materials related thereto, I3 shall permit officials of the governmental authority to inspect the facility where the Product is manufactured or stored. NeoRx has the right to have a NeoRx representative present in the Clinical Manufacturing Facility during all scheduled FDA inspections of the Clinical Manufacturing Facility and/or Process. 8.4 STABILITY TESTING AND SAFETY RECORDS I3 shall maintain full, accurate and complete records and reports with respect to all stability testing and sample retention and shall supply NeoRx with copies thereof as requested by NeoRx along with reasonable samples and specimens of Product on which such testing was performed to the extent that providing samples and specimens does not negatively impact I3's ability to maintain the stability or sample retention program. In addition, at least once per quarter and at any time upon ten days' written notice from NeoRx, I3 shall provide NeoRx with copies of all Certificates of Analysis and may audit I3's records relating solely to I3's manufacture of the Product. -19- 8.5 INSPECTIONS I3 shall permit employees and/or representatives of NeoRx to be present in the Clinical Manufacturing Facility during normal business hours in order to determine whether the Products are being Processed (including manufacturing, receiving, sampling, analyzing, handling, packaging and labeling) and shipped, and Waste is being disposed of, in conformity with the terms of this Agreement. NeoRx acknowledges that its employees and/or representatives may be required to first execute I3's confidentiality agreements and to complete all necessary I3 training and shall at all times comply with established health and safety procedures as set forth in that document and I3's overall health and safety requirements specified to them at the time they are in the Clinical Manufacturing Facility. In addition to the foregoing, and in conformity with FDA rules and regulations as well as all laws, rules and regulations as may be applicable to NeoRx, I3 shall further permit employees or representatives of NeoRx to inspect and sample Products designated for delivery to NeoRx and otherwise provide NeoRx with such information as it may reasonably be required to determine whether the Products are being Processed in accordance with FDA rules and regulations as well as all laws, rules and regulations as may be applicable to NeoRx and the provisions of this Agreement. NeoRx shall reject all or any portion of any Products designated by I3 for delivery to NeoRx that do not meet the Product Specifications and Requirements; and upon such rejection, NeoRx shall have no payment obligation to I3 with respect to such rejected Products. I3 shall promptly replace any Products that are rejected by NeoRx. If I3 disagrees with NeoRx's determination that a shipment of Product does not meet the Product Specifications and Requirements the two parties will seek resolution of the disagreement per Section 6.3 (b) of this document. ARTICLE IX - REGULATORY MATTERS 9.1 GENERAL I3 and NeoRx shall be jointly responsible for the maintenance of any and all regulatory documents covering the Product, the Process, and/or the Clinical Manufacturing Facility and shall make all such documents available to NeoRx for its review upon NeoRx's request. 9.2 NEW DRUG APPLICATIONS I3 shall cooperate with NeoRx with respect to any NDA or IND obligations relating to the Product that are imposed by the FDA or foreign regulations (including without limitation the completion of the Chemistry and Manufacturing Controls section of such NDA), and NeoRx shall be the exclusive owner of the NDA and IND. I3 agrees to comply with all commitments made in the NDA and IND regarding I3's manufacturing responsibilities as described herein and therein. 9.3 NOTICE OF SAFETY RELATED INFORMATION I3 shall provide NeoRx with prompt notice of any information it receives relating to the safety of the Product, including any confirmed or unconfirmed information on adverse, serious, or unexpected events associated with the use or toxicity of the Product regardless of the source. -20- For serious (based on a good faith evaluation), unexpected events, notice must be given by telephone within one (1) business day after receipt of the information and followed by written notice not less than one (1) week thereafter. NeoRx, with I3's cooperation, shall be responsible for responding to the FDA and filing any reports with the FDA concerning such reactions (including Drug Experience Reports) caused by the Product. 9.4 NEW REGULATORY REQUIREMENTS Each party shall promptly notify the other of new or amended regulatory requirements of which it becomes aware that are relevant to the Processing of the Product under this Agreement and that are required by the FDA, other applicable governmental entity or other applicable laws or governmental regulations, and shall confer with each other with respect to the best means to comply with such requirements. ARTICLE X - RECALLS The parties agree to immediately inform each other in writing of all incidents and/or any Product that is alleged or proved to be the subject of recall, market withdrawal or correction and shall cooperate with each other in such recall, market withdrawal or correction. Any such recall, market withdrawal or correction shall be at the sole expense of I3 if the Product does not meet the Processing Requirements specified in Section 7.4. NeoRx shall have sole responsibility for the conduct of the recall and interface with customer and regulatory authorities in connection with the recall. NeoRx will Keep I3 apprised of all aspects of the recall and shall consult with I3 on all critical aspects of the recall. The parties shall disclose to each other all information necessary to prevent recurrence of the event or circumstance. ARTICLE XI - CONFIDENTIALITY; OWNERSHIP AND DISCLOSURES 11.1 CONFIDENTIAL INFORMATION Except to the extent expressly authorized by this Agreement, during the Term of this Agreement and for seven (7) years thereafter, neither Party shall: (a) disclose, publish, or make available any Proprietary Information disclosed to it by the other to any third party, including employees who do not need to know or have access to such Proprietary Information; or (b) sell, transfer, or otherwise use or exploit any such Proprietary Information disclosed to it by the other Party; or (c) knowingly permit the sale, transfer, use or exploitation by a third party of any such Proprietary Information which may have been disclosed to such third party, including employees who do not need to know or have access to such Proprietary Information. -21- 11.2 OWNERSHIP (a) INVENTIONS. NeoRx and I3 agree that NeoRx owns all intellectual property rights related to the Product and each owns preexisting intellectual property rights related to the development of the Clinical Manufacturing Facility and Process and that all right, title and interest in all such prior intellectual property rights shall remain in the respective party (collectively these rights shall be called "Background Rights"). NeoRx shall solely own the intellectual rights in any inventions, improvements and discoveries, if any, which are developed jointly by the parties or by I3 individually associated directly with the Product. I3 and NeoRx shall own jointly the intellectual rights in the inventions, improvements and discoveries (collectively the "Joint Inventions"), if any, which are developed jointly by the parties or by I3 individually associated with the Clinical Manufacturing Facility or Process, including all rights to seek or obtain patent coverage for all or any part of the Clinical Manufacturing Facility or Process. The parties agree to work together in good faith to protect any such Joint Inventions, including the filing of any patent applications. As co-owners of the Joint Inventions and any patents related thereto (a) I3 shall not exploit such Joint Inventions or related patents, through license or otherwise, with respect to any radiolabeled product based on the DOTMP or EDTMP family, and (b) NeoRx shall have full power and authority to exploit such Joint Inventions in any manner NeoRx deems appropriate, including the granting of licenses related thereto, and I3 hereby consents to NeoRx making any such license and agrees to execute any documents necessary to acknowledge such consent; provided, however, that NeoRx will not allow any manufacturer that competes directly with I3 to use the Joint Inventions, through license or otherwise, unless such use is associated with the production of NeoRx products or a derivative thereof. In the event that either party elects not to participate equally in the cost of filing, prosecuting and maintaining in force patent applications or patents or other action to protect Joint Inventions, then the other party shall have the right, at its sole expense, to pursue such protection and shall be entitled to retain all right, title and interest in any resulting patents subject to the other party retaining an irrevocable, royalty free, nonexclusive license to use such Joint Inventions (a "Joint Invention License"). In the event I3 obtains a Joint Invention License, I3 shall not exploit such Joint Invention License, through sublicense, use or otherwise, with respect to any radiolabeled product based on the DOTMP or EDTMP family. In the event NeoRx obtains a Joint Invention License, it shall have full power and authority to exploit such Joint Invention License in any manner NeoRx deems appropriate, including the granting of sublicenses related thereto, and I3 hereby consents to NeoRx making any such sublicense and agrees to execute any documents necessary to acknowledge such consent; provided, however, that NeoRx will not allow any manufacturer that competes directly with I3 to use the Joint Inventions, through sublicense or otherwise, unless such use is associated with the production of NeoRx products or a derivative thereof. (b) PROPRIETARY INFORMATION. Each party's respective Proprietary Information that is supplied to the other party to assist it in carrying out its obligations hereunder shall remain the property of the supplying party and shall be returned to such party upon termination of this Agreement. -22- 11.3 LIMITATIONS; DISCLOSURES (a) LIMITATIONS. For purposes of this Agreement, the term Proprietary Information shall not include information which: (i) is in the public domain or becomes generally available to the public through no fault of either party; or (ii) the Receiving Party can show by documentary evidence was within its possession or control prior to its being furnished to the Receiving Party by or on behalf of the Disclosing Party pursuant hereto, free of any obligation of confidentiality; or (iii) the Receiving Party can show by documentary evidence that came into its possession or control subsequent to the date of this agreement from a third party free of any obligation of confidentiality; or (iv) was independently developed by the Receiving Party without the aid, application or use of the Proprietary Information disclosed; or (v) is required to be disclosed by applicable law order of any governmental authority of competent jurisdiction (provided, that in such event, the Receiving Party shall provide the other party with notice of such law or order and provide reasonable cooperation in connection with any attempt to challenge or limit the scope of such disclosure). (b) DISCLOSURES. During the Term of this Agreement, neither Party shall make any press release or other disclosure of the terms of this Agreement without the prior written consent of the other Party, except as required by a court of competent jurisdiction and pursuant to the disclosure requirements of federal or state regulatory agencies, including the Securities and Exchange Commission. NeoRx and I3 shall jointly redact all Proprietary Information from this Agreement for filing with the Securities and Exchange Commission, and will jointly make a request for confidential treatment of such redactions. ARTICLE XII - INDEMNIFICATION AND INSURANCE 12.1 INDEMNIFICATION BY NEORX NeoRx shall defend, indemnify, and hold harmless I3, its officers, agents, employees and Affiliates from any loss, claim, action, damage, expense or liability (including defense costs and reasonable attorneys' fees) arising out of NeoRx's (a) breach, violation or nonfulfillment of any of its covenant, agreements, representations or warranties under this Agreement, (b) handling, possession, or use of the Products, (c) negligent acts or omissions or willful misconduct, or (d) breach of any third party's trade secret rights, except for and to the extent that such loss, claim, action, damage, expense or liability is based on, arises out of, or is due to I3's (i) breach of any of its representations or warranties hereunder, (ii) negligent act or omission, (iii) willful misconduct, (iv) failure to Process the Product according to the Requirements or consistent with -23- the applicable sections of the IND or NDA (whichever is applicable) and any corresponding licenses, registrations, authorizations or approvals of any governmental entity, or (v) failure to manufacture, handle, store, label, package, transport or ship the product in accordance with cGMP or any other applicable law, regulation, or other requirements of any applicable governmental entity. 12.2 INDEMNIFICATION BY I3 I3 shall defend, indemnify, and hold harmless NeoRx, its officers, agents, employees and Affiliates from any loss, claim, action, damage, expense or liability (including defense costs and reasonable attorneys' fees) arising out of or related to I3's (a) breach, violation or nonfulfillment of any of its covenants, agreements, representations or warranties under this Agreement, (b) negligent acts or omissions or willful misconduct, (c) disposal of any Waste, (d) failure to Process the Products in accordance with the Requirements, cGMP, any applicable laws or regulations, or the applicable sections of the IND or NDA (whichever is applicable) or any corresponding licenses, registrations, authorizations or approvals of any governmental entity (e) manufacture, handling, storage, labelling, packaging or delivery of the Product, or (f) breach of any third party's trade secret rights, except for and to the extent that loss, claim, action, damage, expense or liability is based on, arises out of, or is due to NeoRx's (i) negligent act or omission or willful misconduct or (ii) breach of any its warranties or representations hereunder. 12.3 INJURIES TO EMPLOYEES NeoRx agrees that, in the event of a personal injury to a NeoRx employee in the course of his/her employment, NeoRx or its insurance carrier will be responsible for worker's compensation payments to such employee. I3 agrees that, in the event of a personal injury to a I3 employee in the course of his/her employment, I3 or its insurance carrier will be responsible for worker's compensation payments to such employee. 12.4 INDEMNIFICATION NOT A WAIVER A party's right to demand and receive indemnification pursuant to this Article XII shall not be such party's exclusive remedy, and the exercise by such party of its right to demand and receive indemnification pursuant to this Article XII shall not be deemed to prejudice, or to constitute or operate as a waiver of, any other right or remedy that such party may be entitled to exercise at law or equity. 12.5 PROCEDURE Each party agrees to give the indemnifying party (a) prompt notice of any claim or suit coming within the purview of the indemnities contained in this Article XII, (b) all relevant facts in its possession or control, subject to the treatment of such information pursuant to Article XI, (c) the right to exclusive control of the defense of any action (at the indemnifying party's sole expense), and (d) its cooperation in the defense of any such action. -24- 12.6 INSURANCE (a) PRODUCT LIABILITY INSURANCE. NeoRx shall obtain and maintain in effect, with financially sound and reputable insurers, product liability insurance or indemnity policies which name I3 as an additional insured, with respect to the manufacture, sale and use of commercial products produced by NeoRx that contain Products. Such insurance policies shall be in an amount not less than $5 million/$5 million for bodily injury and $5 million for property damage. (b) PRODUCT LIABILITY CLAIMS. Each party shall give the other prompt written notice of any injury alleged to have occurred as a result of the use of any Product, specifying the time, place and circumstances thereof and the names and addresses of the persons involved. Each party shall also forward promptly to the other copies of all papers received in respect of any matter arising out of the alleged injury. (c) MANUFACTURER'S INSURANCE. I3 shall obtain and maintain in effect, with financially sound and reputable insurers, appropriate insurance policies, with a minimum aggregate coverage of not less than $5,000,000 per annum, naming NeoRx as an additional insured, with respect to the Processing of the Products according to the Requirements. (d) EVIDENCE OF INSURANCE. Each party shall supply to the other copies of certificates of insurance giving evidence of procurement of the insurance in the amounts specified in this Article XII (including the naming of the other party as an additional insured, if required). ARTICLE XIII - TERM AND TERMINATION 13.1 TERM (a) Subject to the parties' ability to terminate this Agreement as set forth in this Article XIII, the "Initial Term" of this Agreement shall commence on the Effective Date and shall continue through [ * ] (the "Initial Term"). (b) Upon the expiration of the Initial Term, NeoRx shall have the option of extending this Agreement for up to an additional three (3) year term (the "Extension Term"); provided, that NeoRx shall exercise its option, if at all, in writing no later than six (6) months prior to the end of the Initial Term. The Initial Term and the Extension Term, if applicable, unless the Agreement is terminated by either party pursuant to the terms of this Agreement, are collectively referred to herein as the "Term." 13.2 TERMINATION BY EITHER PARTY Either party may terminate this Agreement at any time after the happening of any of the following events; provided, however, that the party terminating this Agreement shall provide the other with written notice of such termination prior to the date thereof: (a) either party breaching any of its agreements, covenants, representations or warranties as set forth in this Agreement and the breaching party fails to cure such breach within fifteen (15) days of written notice thereof from the non-breaching party; or -25- (b) I3 fails to timely fulfill (i) [ * ] or (ii) [ * ], in accordance with this Agreement and the applicable Purchase Orders; provided, however, that prior to terminating this Agreement, a senior executive officer of NeoRx and a senior executive officer of I3 will meet in good faith within fifteen (15) days of I3's failure to timely fulfill the Purchase Orders as described above in an attempt to resolve any disputes or delays; or (c) a party is declared insolvent or bankrupt by a court of competent jurisdiction, or a party is served with an involuntary petition against it as part of an insolvency proceeding and such petition is not dismissed within sixty (60) days after the filing thereof, or a voluntary petition of bankruptcy is filed in any court of competent jurisdiction by a party, or a party makes or executes any assignment for the benefit of creditors, or a receiver is appointed to control the business of a party; or (d) if clinical or market data do not support the clinical development or commercialization of the Product, or if the FDA refuses to grant approval for the clinical development or commercialization of the Product within a commercially reasonable time, based on response data derived from clinical trials; or (e) the FDA, Texas Department of Health or other regulatory agency orders I3 to cease Processing the Product or orders NeoRx to cease commercially supplying Product; or (f) the parties fail to meet two (2) consecutive Milestones; provided, however, that prior to terminating this Agreement, a senior executive officer of NeoRx and a senior executive officer of I3 will meet in good faith within fifteen (15) days of the parties' failure to meet the second consecutive Milestone in an attempt to resolve any disputes or delays; or (g) I3 fails to meet either the Primary Completion Date or the Validation Completion Date, in accordance with Article II; provided, however, that prior to terminating this Agreement, a senior executive officer of NeoRx and a senior executive officer of I3 will meet in good faith within fifteen (15) days of the parties' failure to meet either Completion Date in an attempt to resolve any disputes or delays. Notwithstanding any provision in this Agreement to the contrary, I3 shall continue to Process the Product, and deliver Product in response to any Purchase Order, through the date of termination, unless such Process and delivery requirements are waived in writing by NeoRx. 13.3 DISPUTES Except as set forth in Sections 6.3 and 8.5, in the event of a good faith dispute regarding the interpretation of this Agreement, the parties agree they will endeavor to resolve such dispute amicably. In the event a dispute cannot be resolved by the parties, then upon the written request of any party that includes a summary of the dispute, the Chief Executive Officers, or other senior executive officer, of each party shall promptly meet and endeavor to resolve the dispute through good-faith negotiations within thirty (30) days of their receipt of the dispute. If any dispute goes unresolved after following the foregoing procedures, either party may terminate this Agreement. -26- 13.4 RETURN OF INFORMATION Upon expiration or termination of this Agreement, I3 shall return to NeoRx all originals and copies of manuals, correspondence documents, records, and all written Proprietary Information it may have received or created concerning the preparation of Product. 13.5 ASSIGNMENT (a) NEORX. NeoRx may not assign its rights and/or delegate its obligations under this Agreement to any third party without I3's prior written consent; provided, however, that NeoRx may assign its rights and/or delegate its obligations under this Agreement, without I3's prior written consent, to a third party solely in connection with the sale, merger or transfer of substantially all of the assets to which this Agreement relates, provided such assignee or delegate agrees to be bound by the terms of this Agreement, and provided that such action would not in any way impair or jeopardize any pending or actual regulatory approval for the manufacture of Product or adversely affect the regulatory status of the Product. (b) I3. I3 may not assign its rights and/or delegate its obligations under this Agreement to any third party without NeoRx's prior written consent; provided, however, that I3 may assign its rights and/or delegate its obligations under this Agreement, without NeoRx's prior written consent, to a third party solely in connection with a merger, provided that such third party agrees to be bound by the terms of this Agreement, and provided that such action would not in any way impair or jeopardize any pending or actual regulatory approval for the manufacture of Product or adversely affect the regulatory status of the Product. 13.6 RIGHTS ON TERMINATION (a) CONTINUING OBLIGATIONS. Upon termination of this Agreement, each of the parties shall continue to be bound by its obligations under Articles VII and XI and Sections 12.1 through 12.5 of this Agreement. (b) NEORX'S ADDITIONAL REMEDIES. If NeoRx terminates this Agreement pursuant to Section 13.2(a) (for I3's breach of this Agreement) or Section 13.2(b) (for I3's failure to timely fulfill Purchase Orders) or 13.2(c) (for I3 being declared insolvent or bankrupt), then: (i) Within sixty (60) days of such termination, I3 shall pay a cancellation fee to NeoRx equal to [ * ]; provided, however, that if I3 has assigned any of its rights and/or delegated any of its obligations under this Agreement to any third party, then the cancellation fee owing to NeoRx shall be [ * ]. The parties acknowledge and agree that NeoRx's actual damages in the event of the termination of this Agreement as described above would be extremely difficult or impracticable to determine; therefore, the parties acknowledge that the termination fee reflects as accurately as possible actual costs that would be incurred by NeoRx, is a reasonable estimate of just compensation for such costs, and is not a penalty; and -27- (ii) I3 shall pay to NeoRx the amount of any excess costs or expense incurred by NeoRx to obtain Product from a third party manufacturer; and (iii) within thirty (30) days of such termination, I3 shall deliver to NeoRx (A) all Dedicated Moveable Equipment in its then current condition, subject to any regulatory requirements to the contrary, at I3's expense, and (B) a commercially reasonable plan to transition the Processing of the Product to a third party manufacturer. NeoRx shall be responsible for the implementation of such transition plan. In the event that I3 fails to deliver to NeoRx any Dedicated Moveable Equipment within such thirty (30) days, then at NeoRx's discretion (C) I3 shall immediately deliver the Dedicated Moveable Equipment to NeoRx, (D) NeoRx may purchase replacement equipment and I3 shall reimburse NeoRx for all costs and expenses in making such purchase, or (E) I3 shall immediately pay to NeoRx an amount equal to such equipment's replacement value regardless of whether NeoRx purchases replacement equipment. In the event I3 fails to deliver to NeoRx a commercially reasonable transition plan, then within sixty (60) days of termination I3 shall pay to NeoRx [ * ]; and (iv) within seventy-five (75) days of such termination, I3 shall deliver to NeoRx all Dedicated Fixed Equipment in its then current condition, subject to any regulatory requirements to the contrary, at I3's expense. In the event that I3 fails to deliver to NeoRx any Dedicated Fixed Equipment within such seventy-five (75) days, then at NeoRx's discretion (A) I3 shall immediately deliver the Dedicated Moveable Equipment to NeoRx, (B) NeoRx may purchase replacement equipment and I3 shall reimburse NeoRx for all costs and expenses in making such purchase, or (C) I3 shall immediately pay to NeoRx an amount equal to such equipment's replacement value regardless of whether NeoRx purchases replacement equipment; and (iv) during the six (6) months following termination, if requested by NeoRx I3 shall provide at least one hundred and sixty (160) person-hours of the time of I3 employees, at no cost to NeoRx, to assist NeoRx in establishing a third party facility for Processing the Product; and (v) within thirty (30) days of such termination, I3 shall transfer to NeoRx all remaining raw materials and shipping materials already paid for by NeoRx (including, without limitation DOTMP), Batch records, standard test methods and Specifications in I3's possession, along with all data, documentation and other information directly relating to the Process subject to any regulatory requirements to the contrary; and (vi) immediately upon such termination, I3 shall cease using and shall return to NeoRx any and all of NeoRx's Proprietary Information; and (vii) I3 will, to the extent it is able to do so, continue to supply Product as may be requested by NeoRx, at the prices set forth herein until the earlier of (A) nine (9) months from the date of such termination, (B) the natural expiration date of this Agreement, or (C) the date upon which NeoRx has established an alternative source of manufacturing and supply services with respect to the Product, which source is capable of -28- performing at levels satisfactory to NeoRx and has received all requisite regulatory and legal approvals to perform such manufacturing and supply services. (c) I3'S ADDITIONAL REMEDIES. If I3 terminates this Agreement pursuant to Section 13.2(a) (for NeoRx's material breach of this Agreement) or 13.2(c) (for NeoRx being declared insolvent or bankrupt), then: (i) within thirty (30) days of such termination, NeoRx shall pay to I3 any amounts not yet paid for the Construction Fee under this Agreement; and (ii) within sixty (60) days of such termination, NeoRx shall pay a cancellation fee to I3 equal to [ * ]. The parties acknowledge and agree that I3's actual damages in the event of the termination of this Agreement as described above would be extremely difficult or impracticable to determine; therefore, the parties acknowledge that the termination fee reflects as accurately as possible actual costs that would be incurred by I3, is a reasonable estimate of just compensation for such costs, and is not a penalty. ARTICLE XIV - FORCE MAJEURE Neither Party hereto shall be liable to the other in damages for any delay or default in such Party's performance hereunder if such delay or default is caused by conditions beyond such Party's control including, but not limited to, delays by the FDA or other governmental agency at no fault of a party, acts of God, war, insurrection, civil commotion, destruction of production facilities or materials by earthquake, fire, flood or storm, labor disturbances including strikes or lockouts or epidemic ("Force Majeure"). Each Party hereto agrees to promptly notify the other Party of any event of Force Majeure and to employ all reasonable efforts toward prompt resumption of its performance hereunder when possible if such performance is delayed or interrupted by reason of such event; provided, however, that either party may terminate this Agreement if the parties cannot fully resume performance hereunder within thirty (30) days of the happening of an event of Force Majeure. ARTICLE XV - MISCELLANEOUS 15.1 ASSIGNMENT This Agreement shall be binding upon and inure to the benefit of the Parties, their successors and permitted assigns. 15.2 GOVERNING LAW; VENUE; ATTORNEYS' FEES This Agreement, and all matters relating hereto, shall be governed, construed and interpreted in accordance with the laws of the State of Washington, without giving effect to principles of conflicts of law. If either party is reasonably required to initiate legal action to enforce this Agreement, the prevailing party in such legal action shall be entitled to recover its reasonably attorneys' fees and costs. -29- 15.3 ENTIRE AGREEMENT This Agreement, along with each Purchase Order, contains the entire understanding of the parties hereto relating to the subject matter contained herein, supersedes all prior agreements, promises and understandings of the parties. This Agreement may not be modified, amended or any provision waived except by unanimous written consent of the parties. 15.4 NOTICES All notices, demands, requests and other communications shall be in writing or by written telecommunication, and shall be given when delivered personally to the addressee or, if mailed, by certified mail, return receipt requested, postage prepaid, or sent by written telecommunication, when delivered to the addresses specified in the opening paragraph of this Agreement. Either party may from time to time change its address, facsimile number or designated individual by notice to the other party. Such notice, demand, request, and other communications shall be deemed to have been given as of the date so delivered or transmitted by facsimile (as long as the transmitting machine confirms successful transmission) or, if mailed, three (3) business days after the date so mailed, or, if sent by overnight courier service, one (1) business day after the date so sent. 15.5 RELATIONSHIP OF PARTIES The parties are acting herein as independent contractors and independent employers. Nothing herein contained shall create or be construed as creating a partnership, joint venture, joint employer or agency relationship between the parties and no party shall have the authority to bind the other in any respect. 15.6 NO WAIVER Any terms, covenants, or obligations of any party may be waived at any time in writing executed by the party or parties for whose benefit such terms exist. The failure to enforce any provision of this Agreement shall not constitute a waiver of any term hereof. No waiver in any one or more instances shall be deemed to be a further or continuing waiver of any other condition or any breach of any other terms, covenants or representations. 15.7 SEVERABILITY In the event that any provision of this Agreement shall be held invalid, illegal or unenforceable under applicable law such provision shall be made to conform to the law, and the remainder of this Agreement shall remain valid and enforceable, unless such invalidity, illegality or unenforceability substantially diminishes the rights and obligations, taken as a whole, of any party. -30- 15.8 AGREEMENT APPROVAL Each party hereby represents and warrants that all necessary corporate approvals for this Agreement have been obtained, and the person whose signature appears below has the authority necessary to execute this Agreement on behalf of the party indicated. 15.9 CAPTIONS The captions in this Agreement are solely for convenience of reference and shall not be used for purposes of interpreting or construing the provisions hereof. 15.10 NON-SOLICITATION During the term of this Agreement and for one (1) year thereafter, the Parties agree not to solicit for employment each other's employees except those employees who have been terminated or laid off by either Party. 15.11 COUNTERPARTS This Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same agreement. 15.12 FURTHER ASSURANCES Each party agrees that it shall execute such further documents and perform such further acts as may be necessary to comply with the terms of this Agreement. 15.13 INTELLECTUAL PROPERTY No trademark, trade name, logo, trade dress, copyright or license therein, or other intellectual property rights (collectively, "Intellectual Property") are conveyed by this Agreement, and neither party shall have the right to use the other party's Intellectual Property for any purpose whatsoever without prior written consent. 15.14 PRICING All references to pricing in this Agreement shall be in terms of U.S. dollars. [signatures on following page] -31- IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by duly their authorized representatives, effective on this date first set forth above. INTERNATIONAL ISOTOPES INC. NEORX CORPORATION By: By: ------------------------------ ------------------------------ Name: Name: ---------------------------- ---------------------------- Its: Its: ----------------------------- ----------------------------- -32- EXHIBIT A CONSTRUCTION DESIGN PLAN [See attached materials] -33- EXHIBIT B MILESTONES [ * ] -34- EXHIBIT C FINAL COMPOUNDED PRODUCT SPECIFICATIONS [ * ] -35- EXHIBIT D REQUIREMENTS PROCESSING PROCEDURES I3 shall Process each Batch in conformance with cGMP, Master Batch Records and all applicable federal, state and local laws and regulations. In addition, each Batch being Processed by I3 shall be subject to the following Batch Processing Procedures: (1) I3 will Process each Batch according to the conditions of the process which was validated according to I3's Process Validation Protocol and Validation Report. (2) All Quality Control Tests will be performed using the Validation test methods listed in the Product Specifications, and employing validated laboratory instrumentation. (3) At NeoRx's request, I3 will ship (at I3's cost) to NeoRx or its assigned contractor test samples of Batches in such amounts as determined by the parties. -36- EXHIBIT E DEDICATED PERSONNEL [ * ] -37- EX-27 4 EX-27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 3/31/00 10(a) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 954 17,053 0 0 0 19,180 8,333 7,490 20,537 2,046 1,185 0 4 436 16,866 20,537 0 149 0 0 6,063 0 29 (2,366) 0 (2,366) 0 0 0 (2,366) (.12) (.12)
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