UNITED STATES
`SECURITIES AND EXCHANGE COMMISSION
`Washington, D.C. 20549
`______________________
`
`FORM 10-K
`
`(Mark
`One)
`
` ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
` EXCHANGE ACT OF 1934
`
`For the fiscal year ended March 31, 2002
`
`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 0-19267
`
`ALKERMES, INC.
`(Exact name of registrant as specified in its charter)
`
`Pennsylvania
`(State or other jurisdiction of
`incorporation or organization)
`
`23-2472830
`(I.R.S. Employer Identification No.)
`
`64 Sidney Street, Cambridge, MA
`(Address of principal executive offices)
`
`02139-4234
`(Zip Code)
`
`(617) 494-0171
`Registrant’s telephone number, including area code
`
`Securities registered pursuant to Section 12(b) of the Act: None
`
`Securities registered pursuant to Section 12(g) of the Act:
`Common Stock, par value $.01 per share (“Common Stock”)
`3 ¾% Convertible Subordinated Notes due 2007
`(Title of Class)
`
` 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),
` No
`and (2) has been subject to such filing requirements for the past 90 days. Yes
`
` Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not
`contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements
`incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
`
` Based upon the last sale price of the Registrant’s Common Stock on June 14, 2002, the aggregate market value of the 62,034,915
`outstanding shares of voting and non-voting common equity held by non-affiliates of the Registrant was $998,762,132.
`APOTEX EXHIBIT 1012
`Apotex v. Alkermes
`IPR2025-00514
`
`

`

` As of June 14, 2002, 64,287,054 shares of the Registrant’s Common Stock were issued and outstanding, and 382,632 shares of the
`Registrant’s Non-Voting Common Stock were issued and outstanding.
`
`DOCUMENTS INCORPORATED BY REFERENCE
`
`Portions of the Definitive Proxy Statement to be filed within 120 days after March 31, 2002 for the Registrant’s Annual
`Shareholders’ Meeting are incorporated into Part III of this Report on Form 10-K.
`
`

`

`TABLE OF CONTENTS
`
`PART I
`Item 1. Business
`Item 2. Properties
`Item 3. Legal Proceedings
`Item 4. Submission of Matters to a Vote of Security Holders
`PART II
`Item 5. Market for Our Common Stock and Related Stockholder Matters
`Item 6. Selected Financial Data
`Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alkermes, Inc. and
`Subsidiaries
`Item 7A. Quantitative and Qualitative Disclosures about Market Risk
`Item 8. Financial Statements and Supplementary Data
`CONSOLIDATED BALANCE SHEETS
`CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
`CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
`CONSOLIDATED STATEMENTS OF CASH FLOWS
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
`Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
`PART III
`Item 10. Directors and Executive Officers of the Registrant
`Item 11. Executive Compensation
`Item 12. Security Ownership of Certain Beneficial Owners and Management
`Item 13. Certain Relationships and Related Transactions
`PART IV
`Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
`SIGNATURES
`Exhibit Index
`Ex 10.19 Manufacturing and Supply Agreement
`Ex 10.19(a) Letter Agreement and Exhibits
`Ex-10.19(b) Addendum to Manufacturing Agreement
`Ex-10.35 Amendment to Agreement and Plan of Merger
`Ex-21 Subsidiaries of the Registrant
`Ex-23 Consent of Deloitte and Touche LLP
`
`

`

`Item 1. Business
`
`PART I
`
` The following Business section contains forward-looking statements which involve risks and uncertainties. Our actual results could
`differ materially from those anticipated in these forward-looking statements as a result of certain factors. See “Risk Factors” and
`“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements.”
`
`General
`
` Alkermes, Inc. (together with its subsidiaries, referred to as “we”, “us”, “our” or the “Registrant”), a Pennsylvania corporation
`organized in 1987, is an emerging pharmaceutical company developing products based on applying its sophisticated drug delivery
`technologies to enhance therapeutic outcomes. Our areas of focus include: controlled, extended-release of injectable drugs using our
`ProLease® and Medisorb® delivery systems, and the development of inhaled pharmaceuticals based on our proprietary Advanced
`Inhalation Research, Inc. (“AIR™”) pulmonary delivery system. Our business strategy is twofold. We partner our proprietary technology
`systems and drug delivery expertise with many of the world’s finest pharmaceutical companies and we also develop novel, proprietary
`drug candidates for our own account. We have a pipeline of products in various stages of development. In addition to our Cambridge,
`Massachusetts headquarters, research and manufacturing facilities, we operate research and manufacturing facilities in Ohio and a
`medical affairs office in Cambridge, England.
`
`Recent Developments
`
` In August 2001, Janssen Pharmaceutica, L.P. filed a new drug application (“NDA”) for Risperdal Consta™ with the U.S. Food and
`Drug Administration (“FDA”) and similar regulatory filings have been submitted to other drug regulatory agencies worldwide. On
`June 28, 2002, Johnson & Johnson Pharmaceutical Research and Development, LLC (“J&J PRD”) an affiliate of our collaborative
`partner Janssen Pharmaceutica, Inc. (“Janssen”), received a non-approvable letter for Risperdal Consta from the FDA. Risperdal Consta
`is a Medisorb long-acting formulation of Janssen’s anti-psychotic drug Risperdal®. There can be no assurance that the issues raised in
`the letter will be resolved on a timely basis, if at all. The impact of the FDA’s non-approvable letter on the other regulatory filings made
`worldwide is not known at this time. There can be no assurance that Risperdal Consta will be approved by the FDA or other regulatory
`agencies, on a timely basis, if at all. See “Risk Factors—J&J PRD received a non-approvable letter for Risperdal Consta from the FDA
`and the future of Risperdal Consta is uncertain.”
`
` In December 2001, we entered into a strategic alliance with Reliant Pharmaceuticals, LLC (“Reliant”), a privately held
`pharmaceutical company marketing branded, prescription pharmaceutical products to primary care physicians in the U.S. This
`relationship provides us with a strategic partner for the acquisition, development, marketing and sales of proprietary pharmaceutical
`products. At that time, we made a $100 million equity investment in Reliant in exchange for approximately a 19% ownership interest in
`the company. On March 20, 2002, we announced the signing of a merger agreement pursuant to which Reliant would become a wholly
`owned subsidiary in a tax-free transaction and we would be obligated to issue a maximum 31.25 million shares of our common stock.
`The closing of the transaction is subject to various conditions, including the approval by our shareholders and members of Reliant and
`the receipt of customary regulatory approvals. In addition, both we and Reliant have rights to terminate the merger agreement before the
`closing of the merger in certain circumstances, including if the closing has not occurred prior to August 31, 2002, if certain
`representations, warranties and covenants have been breached or if the average closing price of Alkermes common stock is below $17.70
`per share for the ten trading days before the closing of the transaction. There can be no assurance that the transaction will be
`consummated and, if consummated, there can be no assurance that: (1) the businesses will be integrated successfully or that expected
`advantages of the combined companies will be achieved; (2) the market and sale of the combined businesses’ products will develop as
`expected; and (3) we will not have to raise substantial funds to operate the combined businesses.
`
`2
`
`

`

`Business Strategy
`
` We are building a pharmaceutical company in strategic steps, using our unique drug delivery capabilities and technologies as the
`means to develop our first commercial products—first with partners, then on our own. The key elements to our strategy are:
`
` Develop and acquire broadly applicable drug delivery systems and apply them to multiple pharmaceutical products. We develop or
`acquire drug delivery systems that have the potential to be applied to multiple proteins, peptides and small molecule pharmaceutical
`compounds to create new product opportunities.
`
` Collaborate with pharmaceutical and biotechnology companies to develop and finance product candidates. We have entered into
`multiple collaborations with pharmaceutical and biotechnology companies to develop product candidates incorporating our technologies,
`to provide us with funding for product development independent of capital markets and to share development risk.
`
` Apply drug delivery systems to both approved drugs and drugs in development. We are applying our drug delivery technologies to
`novel applications and formulations of pharmaceutical products that have already been approved by the FDA or other regulatory
`authorities. In such cases, we and our partners can develop a novel dosage form or application with the knowledge of a drug’s safety and
`efficacy profile and a body of clinical experience from which to draw information for the design of clinical trials and for regulatory
`submissions. We also are applying our technologies to pharmaceuticals in development that could benefit from one of our delivery
`systems.
`
` Establish independent product development capabilities and infrastructure. Based upon the knowledge we have learned and the
`best practices we have adopted from our pharmaceutical company partners, our experienced scientists have built our in-house product
`development organization that enables us to develop product candidates for our collaborators and for ourselves. Our product
`development experience and infrastructure give us flexibility in structuring development programs and the ability to conduct both
`feasibility studies and clinical development programs for our collaborators and for ourselves.
`
` Expand our pipeline with additional product candidates for our own account. We are now developing product candidates for our
`own account by applying our drug delivery technologies to certain off-patent pharmaceuticals. For example, we are developing
`Vivitrex™, a Medisorb formulation of naltrexone, for the treatment of alcoholism and opiate dependence. In addition, we may in-license
`or acquire certain compounds to develop on our own.
`
`3
`
`

`

`Product Candidates in Development
`
` The following table summarizes the primary indications, technology, development stage and collaborative partner for our product
`candidates. This table is qualified in its entirety by reference to the more detailed descriptions appearing elsewhere in this Form 10-K.
`The results from preclinical testing and early clinical trials may not be predictive of results obtained in subsequent clinical trials and
`there can be no assurance that our or our collaborators’ clinical trials will demonstrate the safety and efficacy of any product candidates
`necessary to obtain regulatory approval.
`
` Product Candidate
`Nutropin Depot™
`(hGH)
`Risperdal Consta™
`
` Indication
`Growth Hormone
`Deficiency – Pediatric
`Schizophrenia
`
` Technology
`ProLease®
`
`Medisorb®
`
`Vivitrex™
`Vivitrex™
`Nutropin Depot™
`(hGH)
`Albuterol
`Cereport® and Carboplatin
`
` Alcohol Dependence
` Opioid Dependence
`Growth Hormone
`Deficiency – Adults
` Asthma
`Pediatric Brain Tumor
`
` Medisorb®
` Medisorb®
`ProLease®
`
` AIR™
`Cereport®
`
`r-hFSH (recombinant
`human follicle
`stimulating hormone)
`AC2993 (Exendin-4)
`Insulin
`
`hGH
`
`Multiple small
`molecule products
`Others
`
`Infertility
`
`ProLease®
`
` Diabetes
`Diabetes
`
` Medisorb®
`AIR™
`
`Growth Hormone
`Deficiency
`Respiratory Disease
`
`AIR™
`
`AIR™
`
`Various
`
`AIR™, Medisorb®
`and ProLease®
`
`
`
`
`
`
`Stage(1)
`Marketed
`
`Filed for
`regulatory
`approvals(2)
`Phase III
`Phase II
`Phase III
`
` Collaborative
` Partner
`Genentech
`
`Janssen
`
` Alkermes(3)
` Alkermes(3)
`Genentech
`
`Phase II completed Alkermes
`Phase I/II(4)
`Alkermes Clinical
`Partners, L.P. (5)
`Serono
`
`Phase I completed
`
`Phase II
`Clinical phase
`undisclosed
`Phase I completed
`
` Amylin
`Lilly
`
`Lilly
`
`Phase I completed/
`Preclinical
`Preclinical
`
`GlaxoSmithKline
`
`Undisclosed
`
`(1)
`
`See “Government Regulation” for definitions of “Phase I,” “Phase II” and “Phase III” clinical trials. “Phase I/II” clinical trials
`indicates that the compound is being tested in humans for safety and preliminary indications of biological activity in a limited
`patient population. “Phase II/III” clinical trials indicates that the trial is being conducted in patients and is testing the safety and
`efficacy of the compound. “Preclinical” indicates that we or our partners are conducting formulation, efficacy, pharmacology
`and/or toxicology testing of a compound in animal models or biochemical assays.
`(2) On June 28, 2002, J&J PRD received a non-approvable letter from the FDA for Risperdal Consta. See “Recent Developments” and
`“Risk Factors—J&J PRD received a non-approvable letter for Risperdal Consta from the FDA and the future of Risperdal Consta
`is uncertain.”
`This program has been funded in part with federal funds from the National Institute on Alcohol Abuse and Alcoholism, National
`Institutes of Health.
`(4)
`This clinical trial is being sponsored and conducted by the Pediatric Branch of the National Cancer Institute.
`(5) ALZA Corporation (“ALZA”) has an option to obtain co-development and worldwide marketing rights to Cereport.
`
`(3)
`
`4
`
`

`

`Products under Development
`
` Nutropin Depot. We have developed a ProLease formulation of Genentech’s recombinant human growth hormone (rhGH)
`Nutropin, known as Nutropin DepotTM, in collaboration with Genentech. In December 1999, the FDA approved Nutropin Depot for use
`in growth hormone deficient children and, in June 2000, Nutropin Depot was commercially launched. This new formulation requires
`only one or two doses a month (which may require more than one injection per dose) compared to current growth hormone therapies that
`require multiple doses per week. Growth hormone deficiency (“GHD”) results in short stature and potentially other developmental
`defects. rhGH is approved for use in the treatment of children with growth hormone deficiency, Turner’s syndrome, chronic renal
`insufficiency and other indications. We are manufacturing Nutropin Depot.
`
` We and Genentech have also agreed to continue the clinical development for Nutropin Depot in adults with growth hormone
`deficiency. This decision follows completion of a Phase I trial of Nutropin Depot in growth hormone deficient adults. We have initiated a
`Phase III clinical trial, funded by Genentech, which commenced in December 2001.
`
` The GHD market is highly competitive and we cannot assure you that the marketing and sales of Nutropin Depot will be successful
`or that it will gain significant market share. Additionally, we cannot assure you that we will be able to continue to manufacture Nutropin
`Depot on a commercial scale or economically, or that we will be able to derive significant revenues from sales of Nutropin Depot. If we
`cannot continue to manufacture Nutropin Depot on a commercial scale or economically or if we do not derive significant revenues from
`Nutropin Depot, a material adverse effect on our business and financial position could occur.
`
` Risperdal Consta. We have developed a Medisorb long-acting formulation of Janssen’s anti-psychotic drug Risperdal (Risperdal
`Consta). Janssen is an affiliate of Johnson & Johnson. In August 2001, Janssen Pharmaceutica Products, LP submitted an NDA for
`Risperdal Consta with the FDA. Similar regulatory filings have been submitted to other drug regulatory agencies worldwide. On June 28,
`2002, J&J PRD received a non-approvable letter from the FDA. See “Recent Developments.” Risperdal tablets are currently used for
`relief of symptoms associated with schizophrenia. Schizophrenia is a brain disorder the symptoms of which include disorganized
`thinking, delusions and hallucinations. We are manufacturing Risperdal Consta and will manufacture it for commercial sales, if and
`when it is approved.
`
` There can be no assurance that the NDA or other foreign regulatory filings will be approved. See “Risk Factors — J&J PRD
`received a non-approvable letter for Risperdal Consta from the FDA and the future of Risperdal Consta is uncertain.” Even if Risperdal
`Consta is approved by the FDA or other regulatory agencies, the anti-psychotic market is highly competitive and the revenues received
`from the sale of Risperdal Consta may not be significant and will depend on numerous factors outside of our control. Additionally, we
`cannot assure you that we will be able to manufacture Risperdal Consta on a commercial scale or economically. Any failure to obtain (or
`significant delay in obtaining), regulatory approval, gain market share, derive significant revenues or manufacture at commercial scale or
`economically would have a material adverse effect on our business and financial position.
`
` Vivitrex. We are developing a Medisorb formulation of naltrexone, an FDA-approved drug used for the treatment of alcohol and
`opioid dependence, which is currently available in daily oral dosage form. Vivitrex is based on our Medisorb injectable extended-release
`technology and is designed to provide once-a-month dosing to enhance patient adherence by removing the need for daily dosing. In
`December 2001, we completed a second, multi-center clinical trial of Vivitrex, the data from which was presented at the Annual Meeting
`of the American College of Neuropsychopharmacology. This trial tested the safety, tolerability and pharmacokinetics of repeated doses
`of Vivitrex administered monthly to alcohol-
`
`5
`
`

`

`dependent patients. In March 2002, we initiated a Phase III clinical trial in alcohol-dependent patients testing the safety and efficacy of
`repeated doses of Vivitrex. We will manufacture Vivitrex for both clinical trials and commercial sales, if any.
`
` Albuterol. We have formulated and have conducted a Phase II clinical trial for our proprietary AIR formulation of albuterol sulfate,
`which is designed to provide both immediate and long-term relief from asthma symptoms. We are currently conducting market research
`and exploring partnership opportunities to determine the next steps for this program. We will manufacture the AIR formulation of
`Albuterol for both clinical trials and commercial sales, if any.
`
`r-hFSH (recombinant human follicle stimulating hormone). We are developing a ProLease formulation of r-hFSH with Serono for
`the treatment of infertility. This long-acting formulation is designed to provide patients with an alternative to multiple daily injections. A
`Phase I clinical trial for this product candidate has been completed. Serono has decided to move forward with the clinical development of
`the product candidate and development work is underway. Serono is responsible for clinical studies for this program. We will
`manufacture the long-acting formulation of r-hFSH for clinical trials and commercial sales, if any.
`
` AC2993 (synthetic Exendin-4). We are developing a Medisorb formulation of AC2993, a drug being developed for use in the
`treatment of diabetes. Phase I clinical trials have been completed for our Medisorb formulation of AC2993 and Phase II clinical trials
`have been commenced. Amylin is responsible for clinical trials and we will manufacture the Medisorb formulation of AC2993 for both
`clinical trials and commercial sales, if any.
`
` Inhaled Insulin. We are working with Lilly to develop inhaled formulations of insulin including short- and long-acting insulin and
`other potential products for the treatment of diabetes based on our AIR pulmonary drug delivery technology. Multiple early stage clinical
`trials have been completed for a short-acting formulation, which is currently in clinical development. Lilly is responsible for clinical
`trials and we will manufacture the formulations of insulin for clinical trials. Upon commercial launch, if any, we will manufacture such
`products in quantities anticipated for initial commercial launch and beyond and Lilly will otherwise manufacture such products for
`commercial sales, if any. In February 2002, Lilly signed an agreement to invest in our commercial-scale production facility for inhaled
`pharmaceutical products based in Chelsea, Massachusetts.
`
` Inhaled human growth hormone. We are working with Lilly to develop an inhaled formulation of human growth hormone based on
`our AIR pulmonary drug delivery technology. In January, we announced the decision to move forward with multiple-dose Phase I
`clinical studies for inhaled human growth hormone following the successful completion of a single dose Phase I trial. Lilly is responsible
`for clinical trials and we will manufacture the formulation of human growth hormone for both clinical trials and commercial sales, if any.
`
` Respiratory diseases. We are working with GlaxoSmithKline (“GSK”) to develop certain product candidates for respiratory disease
`based on our AIR pulmonary drug delivery technology. In September 2001, Alkermes announced the completion of the first clinical trial
`pursuant to the collaboration. Additional development work has been completed, and we and GSK are currently determining appropriate
`next steps. We and GSK each have certain rights and obligations with regard to manufacturing any formulations for commercial sales, if
`any.
`
`Collaborative Arrangements
`
` Our business strategy includes forming collaborations to provide technological, financial, marketing, manufacturing and other
`resources. We have entered into several corporate collaborations.
`
`6
`
`

`

` Genentech
`
` Pursuant to a development agreement with Genentech, Genentech exercised its option to obtain from us a license for a ProLease
`formulation of rhGH. In April 1999, Alkermes and Genentech amended and restated the November 1996 license agreement to expand
`our collaboration for Nutropin Depot, an injectable long-acting formulation of Genentech’s recombinant human growth hormone based
`upon our ProLease drug delivery system. Nutropin Depot for pediatric use was launched in the U.S. in June 2000 by Genentech. Under
`the agreement, we and Genentech have been conducting expanded development activities, including clinical trials in an additional
`indication (adult growth hormone deficiency), process development and manufacturing. We will be responsible for conducting additional
`clinical trials and for manufacturing Nutropin Depot for the adult indication and are to receive manufacturing revenues and royalties on
`product sales in this indication, if any.
`
` Genentech has the right to terminate the agreement for any reason upon six months’ written notice. In addition, either party may
`terminate the agreement upon the other party’s material default which is not cured within 90 days of written notice, or upon the other
`party’s insolvency or bankruptcy.
`
` We executed a Manufacture and Supply Agreement with Genentech in April 2001 for the manufacture and supply of Nutropin
`Depot to Genentech for commercial sales. Pursuant to the terms of the agreement we are the sole supplier and manufacturer of Nutropin
`Depot. The Manufacture and Supply Agreement terminates on expiration of the license agreement. In addition, either party may
`terminate the agreement upon a material breach by the other party which is not cured within 90 days’ written notice, upon 60 days’
`written notice in the event of the other party’s insolvency or bankruptcy or upon 90 days’ written notice in the event a force majeure
`event occurs and continues for more than six months.
`
` Janssen
`
` Pursuant to a development agreement, we are collaborating with Janssen, an affiliate of Johnson & Johnson, in the development of
`Risperdal Consta an extended-release formulation of Risperdal utilizing our Medisorb technology. Under the development agreement,
`Janssen provided development funding to us for the development of Risperdal Consta and is responsible for securing all necessary
`regulatory approvals. In August 2001, Janssen Pharmaceutica Products, LP submitted an NDA to the FDA and also submitted similar
`filings to other drug regulatory agencies worldwide. On June 28, 2002, J&J PRD received a non-approvable letter for Risperdal Consta
`from the FDA. See "Recent Developments'' and "Risk Factors — J&J PRD received a non-approvable letter for Risperdal Consta from
`the FDA and the future of Risperdal Consta is uncertain." We will manufacture Risperdal Consta for commercial sale, if and when it is
`approved, and will receive manufacturing revenues and royalties on sales, if any.
`
` Under related license agreements, Janssen and an affiliate have exclusive worldwide licenses from us to manufacture, use and sell
`Risperdal Consta. Under the license agreements, Janssen is required to pay us certain royalties with respect to all Risperdal Consta sold
`to customers. Janssen can terminate the development agreement or the license agreements upon 30 days’ prior written notice.
`
` Pursuant to a manufacture and supply agreement, Janssen has appointed us as the exclusive supplier of Risperdal Consta for
`commercial sales, if any. The agreement terminates on expiration of the license agreements. In addition, either party may terminate the
`agreement upon a material breach by the other party which is not resolved within 60 days’ written notice or upon written notice in the
`event of the other party’s insolvency or bankruptcy. Janssen may terminate the agreement upon six-months’ written notice after such
`event; provided, however, Janssen cannot terminate the agreement without good cause during the two-year period following
`commencement of commercial manufacturing unless it also terminates the license agreements. Pursuant to a related agreement, we are
`expanding our production facility, which will be used to manufacture Risperdal Consta, if and when it is approved, in exchange for
`certain guaranteed
`
`7
`
`

`

`payments, including reimbursement for certain expenditures if Janssen terminates the collaboration agreements before commercial
`launch.
`
` Serono
`
` Pursuant to a development agreement dated December 1999, we are collaborating with Serono for the development of a ProLease
`formulation of r-hFSH (recombinant human follicle stimulating hormone) for the treatment of infertility. Serono is to provide us with
`research and development funding and milestone payments. We are responsible for formulation and preclinical testing and Serono will
`be responsible for conducting clinical trials and securing regulatory approvals and, together with its affiliates, for the marketing of any
`products that result from the collaboration. We will manufacture any such products for clinical trials and commercial sale and will
`receive manufacturing revenues and royalties on sales, if any.
`
` Serono may terminate the development agreement for any reason, upon 90 days’ written notice if such termination notice occurs
`prior to the first commercial launch of a product under the development agreement, or upon six months’ written notice if such notice
`occurs subsequent to such event. In addition, either party may terminate the development agreement upon a material breach by the other
`party of such agreement which is not cured within 60 days’ written notice.
`
` Lilly
`
` Insulin
`
` We entered into a development and license agreement with Lilly in April 2001 for the development of inhaled formulations of
`insulin, including short- and long-acting insulin and other potential products for the treatment of diabetes, based on our AIR pulmonary
`drug delivery technology. Pursuant to the agreement, we are responsible for formulation and preclinical testing as well as development of
`a device to use in connection with any products. Lilly has paid or will pay to us certain initial fees, research funding and milestone
`payments upon achieving certain development and commercialization goals. Lilly has exclusive worldwide rights to make, use and sell
`products resulting from such development. Lilly will be responsible for clinical trials, obtaining all regulatory approvals and marketing
`any insulin products. We will manufacture any such products for clinical trials and both we and Lilly will manufacture such products for
`commercial sales, if any. We will receive certain royalties based upon such product sales, if any.
`
` Lilly has the right to terminate the agreement upon 90 days’ written notice at any time prior to the first commercial launch of a
`product, or upon six months’ written notice at any time after such first commercial launch. In addition, either party may terminate the
`agreement upon a material breach or default by the other party which is not cured within 90 days’ written notice.
`
` We entered into an agreement with Lilly in February 2002 that provides for an investment by Lilly in our commercial-scale
`production facility for inhaled pharmaceutical products based on our AIR pulmonary drug delivery technology. This new facility is
`designed to accommodate the manufacturing of multiple products and is currently under construction in Chelsea, Massachusetts. Lilly’s
`investment will be used to fund pulmonary insulin production and packaging capabilities. This funding will be secured by Lilly’s
`ownership of specific equipment to be located and used in the facility. We have the right to purchase the equipment from Lilly, at any
`time, at the then-current net book value.
`
`8
`
`

`

` hGH
`
` We entered into a development and license agreement with Lilly in February 2000 for the development of an inhaled formulation
`of human growth hormone based on our AIR pulmonary drug delivery technology. Pursuant to the agreement we are responsible for
`formulation and preclinical testing as well as development of a device to use in connection with any products. Lilly has paid or will pay
`to us certain initial fees, research funding and milestone payments upon achieving certain development and commercialization goals and
`we will also receive royalty payments based on product sales, if any. Lilly has exclusive worldwide rights to make, use and sell products
`resulting from such development. Lilly will be responsible for clinical trials, obtaining all regulatory approvals and marketing any
`products. We will manufacture any such products for clinical trials and commercial sales and receive manufacturing revenues and
`royalties on product sales, if any.
`
` Lilly has the right to terminate the agreement upon 90 days’ written notice at any time prior to the first commercial launch of a
`product, or upon six months’ written notice at any time after such first commercial launch. In addition, either party may terminate the
`agreement upon a material breach or default by the other party which is not cured within 90 days’ written notice.
`
` GlaxoSmithKline
`
` We entered into a license agreement with GSK in May 2000 for the use of our AIR technology in the development of multiple
`product candidates for indications in four respiratory disease categories. Under the agreement, GSK has exclusive worldwide rights to
`products resulting from the collaboration in exchange for development funding, milestones and royalties. GSK is responsible for
`conducting clinical trials, obtaining regulatory approvals and marketing any resulting products on a worldwide basis. We each have
`manufacturing rights for commercial sales and we will receive certain manufacturing revenues and royalties on product sales, if any.
`
` GSK has the right to terminate the agreement at any time with 60-days’ written notice.