Item 1.01 Entry into a Material Definitive Agreement.
On December 28, 2016, our wholly owned subsidiary, 356 Royalty Inc. (356 Royalty), entered into a Transaction Agreement with Eisai Inc. and
Eisai Inc.s parent company, Eisai Co., Ltd. (collectively with Eisai Inc., Eisai). Concurrently with the Transaction Agreement, on December 28, 2016, our wholly owned subsidiary, Arena Pharmaceuticals GmbH (Arena
GmbH), entered into a Supply Agreement with Eisai.
Pursuant to the Transaction Agreement and the Supply Agreement, we have agreed to transfer to
Eisai certain patents, regulatory approvals, samples, records, know-how related to BELVIQ, trademarks (including the trademarks BELVIQ, BELVIQ XR and VENESPRI), our agreements with distributors of BELVIQ in South Korea, Taiwan and Israel, and domain
names related to BELVIQ.
The Transaction Agreement and the Supply Agreement replace the Second Amended and Restated Marketing and Supply Agreement
(Second Amended Agreement), dated November 7, 2013, by and among Arena GmbH and Eisai, under which we granted Eisai exclusive commercialization rights for BELVIQ in all of the countries in the world, except for South Korea, Taiwan,
Australia, New Zealand and Israel.
Transaction Agreement
Pursuant to the Transaction Agreement, 356 Royalty is granting Eisai an exclusive, royalty-bearing license, or transferring intellectual property, to develop,
manufacture and commercialize lorcaserin in all countries and territories of the world (collectively, the Territory). In consideration for the rights granted to Eisai under the Transaction Agreement, Eisai has agreed to make tiered
royalty payments to 356 Royalty on the net sales of lorcaserin in the Territory. The royalty rates range from 9.5% on annual global net sales less than or equal to $175 million, 13.5% on annual global net sales greater than $175 million but less
than or equal to $500 million and 18.5% on annual global net sales greater than $500 million.
356 Royalty is eligible to receive up to $26 million in
milestone payments under the Transaction Agreement, $25 million of which will be payable upon the achievement of a sales milestone, and $1 million of which will be payable upon the achievement of a regulatory milestone.
Eisai will be solely responsible for all costs and expenses in connection with the development of BELVIQ, and Arena GmbH will be relieved of its obligation
under the Second Amended Agreement to pay for its share of development costs for BELVIQ, which could have exceeded $80 million over the next three years. Eisai will have the exclusive right and responsibility to plan and implement all research and
development of BELVIQ at its own cost and expense, including conducting all regulatory activities and all clinical and development activities. Additionally, Eisai has agreed to (a) conduct all studies required by the U.S. Food and Drug
Administration as a condition of obtaining and maintaining regulatory approval of BELVIQ in the United States, (b) continue the current study assessing whether BELVIQ reduces the incidence of major cardiovascular events, (c) continue the
current study assessing whether BELVIQ reduces the incidence of conversion to Type 2 diabetes mellitus, and (d) use commercially reasonable efforts to develop and seek regulatory approval of BELVIQ in each of China, Japan and the European
Union.
Eisai will be solely responsible, and have the exclusive rights, for commercializing BELVIQ in the Territory and will be responsible for
manufacturing BELVIQ, except for any manufacturing to be conducted by Arena GmbH under the Supply Agreement. Eisai will be responsible for using commercially reasonable efforts to commercialize lorcaserin products in the United States, the European
Union, China and Japan (the Major Markets) after regulatory approval in the applicable market.
356 Royalty and Eisai will each bear 50% of
all expenses and losses arising from any product liability claim during a specified period after the date of the Transaction Agreement. Thereafter, 356 Royalty and Eisai will each bear 50% of all expenses and losses arising from any alleged
defective manufacturing of BELVIQ by Arena GmbH under the Supply Agreement, and Eisai will be solely responsible for any expenses and losses associated with other product liability claims.
Eisai has agreed to certain standstill provisions, pursuant to which it Eisai is obligated to refrain from taking
certain actions with respect to Arenas common stock during the term of the Transaction Agreement and for two years thereafter.
The Transaction
Agreement will remain in effect until terminated by 356 Royalty or Eisai with respect to all countries in the Territory. 356 Royalty may terminate the Transaction Agreement with respect to a Major Market if Eisai permanently ceases development and
commercialization of lorcaserin products in such Major Market, or in its entirety if Eisai permanently ceases development and commercialization of lorcaserin products in the Territory. 356 Royalty may also terminate the Transaction Agreement if
Eisai challenges any patent controlled by 356 Royalty related to lorcaserin as of the effective date of the Transaction Agreement (licensed patents), if Eisai is debarred under the United States Federal Food, Drug, and Cosmetic Act, or
if Eisai is in material breach of the standstill provisions. Eisai may terminate the Transaction Agreement if as a result of its change of control, it would be in breach of certain competition restrictions.
In the event the Transaction Agreement is terminated by 356 Royalty due to Eisais failure to develop and commercialize lorcaserin products, Eisais
challenging of any of the licensed patents or Eisais debarment or material breach of the standstill provisions, or by Eisai after a change of control that would result in Eisai being in breach of certain competition restrictions, Eisai will
grant Arena an exclusive, royalty-free license to certain patent rights and know-how necessary or useful for the development and commercialization of lorcaserin products in the Territory, re-assign the assets purchased by Eisai under the Transaction
Agreement and Supply Agreement, and provide certain other transition assistance.
Supply Agreement
Under the Supply Agreement, Arena GmbH has agreed to manufacture and supply, and Eisai has agreed to purchase, all of Eisais requirements (or specified
minimum quantities if such quantities are greater than Eisais requirements), subject to certain exceptions, for BELVIQ and BELVIQ XR for the development and commercial use of such products in the Territory for an initial 24-month period, which
initial period may be extended by Eisai for an additional six months upon payment of an extension fee of CHF 2 million. Eisai will pay Arena GmbH agreed upon prices to deliver finished drug product during this time. Additionally, Eisai has agreed to
make up to CHF 13 million in payments to Arena GmbH to support the maintenance of Arena GmbHs manufacturing facility in Switzerland during the initial 24-month period supply period, and up to CHF 6 million during the six-month
extension period, if any.
Pursuant to the Supply Agreement, Arena GmbH will transfer to Eisai all know-how and materials necessary for Eisai to
manufacture BELVIQ at the facility in accordance with Arena GmbHs manufacturing processes used at the effective date of the Supply Agreement or 24 months prior.
Pursuant to the Supply Agreement, Arena GmbH will grant to Eisai during the term of the Transaction Agreement an exclusive license under Arena GmbHs
rights in the know-how and records controlled by Arena GmbH used for the development, manufacture or commercialization of BELVIQ in the Territory in accordance with the Supply Agreement.
On the effective date of the Supply Agreement, Eisai will purchase all of Arena GmbHs inventory of the precursor materials for manufacturing BELVIQ then
in Arena GmbHs possession. In exchange for these materials Eisai will make a one-time payment to Arena GmbH of $10 million (USD).
Absent early
termination, the Supply Agreement will remain in effect until (a) the last day of the initial 24-month supply period, or the last day of the six-month extension period (if any), or up to two weeks thereafter if so requested by Eisai, or
(b) in the event of an acquisition of Arena or Arena GmbH by a third party, or of an assignment of the Supply Agreement by Arena GmbH to a third party, five years after the effective date of the Supply Agreement. After the initial 24-month
period of the Supply Agreement, either Arena GmbH or Eisai may terminate the Supply Agreement upon the other partys material breach that remains uncured 60 days after receiving written notice thereof. The Supply Agreement will also terminate
automatically upon termination of the Transaction Agreement.
Forward-Looking Statements
Statements in this report on Form 8-K that are not statements of historical fact are forward-looking statements, which involve a number of risks and
uncertainties. Such forward-looking statements include, without limitation, payments to be made or received pursuant to the Transaction Agreement or the Supply Agreement and activities to be performed under such agreements. Words such as
believe, anticipate, plan, expect, intend, will, may, goal, potential and similar expressions are intended to identify forward-looking
statements, though not all forward-looking statements necessarily contain these identifying words. For such statements, we claim the protection of the Private Securities Litigation Reform Act of 1995. Actual events or results may differ materially
from our expectations. Factors that could cause actual results to differ materially from the forward-looking statements include, but are not limited to, risks related to: the implementation and continuation of the Transaction Agreement and the
Supply Agreement; dependence on counterparty performance; risks related to commercializing drugs, including regulatory, manufacturing and supply issues and the availability and use of BELVIQ; cash and revenues generated from BELVIQ, including the
impact of competition; government and commercial reimbursement and pricing decisions; unexpected or unfavorable new data; and Arenas or Eisais ability to defend patent rights. Additional factors that could cause actual results to differ
materially from those stated or implied by Arenas forward-looking statements are disclosed in our filings with the Securities and Exchange Commission. These forward-looking statements represent our judgment as of the time of this report on
Form 8-K. We disclaim any intent or obligation to update these forward-looking statements, other than as may be required under applicable law.