OPTEON

1. Topic 22 Strategic Alliances WIPO-KIPO-KIPA IP Panorama Business School Investment Summit 10 October 2008 Geneva OPTEON Philip Mendes Level 3, 33 Queen St Brisbane QLD, Australia Ph + 61 7 3211 9033 Fax + 61 7 3211 9025 philip@opteon.com.au

2. Outline Commercialisation of IP License Strategic Alliance Co-Development Co-Marketing Passive Partnership

3. Outline Commercialisation of IP License Strategic Alliance Co-Development Co-Marketing Sk IP $ $

4. Passive features of a license • Licensor grants exploitation rights to a licensee • Licensee pays royalties and other remuneration to the Licensor • Licensor is passive • Has no further exploitation rights • Licensor has no need to actively do anything • Licensor passively sits by and collects royalties Licensor IP $ Licensee

5. Strategic Alliance • In a strategic alliance both parties contribute to their joint venture their respective resources and capability • Aim is to add greater value to their respective positions • By doing so, to • Increase their financial return • To access the capability of their partner which they themselves lack • To acquire skills that they themselves may lack Strategic Partner Strategic Partner

6. Co-Development AgreementsCo-Marketing Agreements • Co-Development Agreement • Partners collaborate scientifically to further develop the IP • Take the IP further along the development path • Licensor increase the value of the IP as a result of the collaboration • Co-Marketing Agreement • Partners co-market the products of their alliance • One may manufacture only, and the other may sell products only • They may sell products competitively in the same territory • Or, they may sell in different territories • Licensor retains some marketing rights, achieving greater financial upside

7. Strategic Alliance Financial Terms • Strategic Alliance Financial Terms • Payment of research monies • Purchase or lending of assets (which has a monetary value) • Provision of expertise (which has a monetary value) • Collaborative research (which has a monetary value) • Loans • Equity subscription • Convertible notes • Strategic Alliance other financially valuable terms • Acquiring new skills • Acquiring new technology • Creating new technology

8. Strategic Alliance Financial Terms • Payment of research monies • Licensee pays an agreed amount for research and development to be continued by Licensor • Licensor owns the New IP that results of that further R&D • New IP may be jointly owned • Different categories of New IP may be solely owned by the Licensor and Licensee • Licensee may pay research monies at an FTE rate that the Licensee is accustomed to pay • Licensor may do the research more cost effectively, and profits from the contract research

9. Strategic Alliance Financial Terms • Provision of assets and expertise • To assist the further R&D: • Licensor may purchase an asset (lab equipment) and give it to the Licensor • Licensee may lend an asset, which is returned to the Licensee at the completion of the research • Licensee may provide expertise, giving the Licensor access to that expertise • All of these have a monetary value to the Licensor • Licensor receives something of value which is required, without having to pay for it

10. Strategic Alliance Financial Terms • Collaborative research • Licensor and Licensee collaborate in the further R&D • Each pays its own expenses in the collaboration • New IP: • Licensor owns the New IP that results of that further R&D • New IP may be jointly owned • Different categories of New IP may be solely owned by the Licensor and Licensee • Again, the Licensor receives something of value

11. Strategic Alliance Financial Terms • Loans • Licensee makes loans to the Licensor • Money lent has to be repaid, but on favorable terms • Generous rate of interest • Generous repayment arrangements • Loan may or may not be secured • Loans used by Licensor to: • Fund further R&D • Pay for its marketing and promotion expenses in a co-marketing alliance

12. Strategic Alliance Financial Terms • Equity Payments • Licensee subscribes for shares in the Licensor • Share subscription monies used to • Fund further R&D • Pay for its marketing and promotion expenses in a co-marketing alliance • Not repayable • Licensee acquires an equity stake in the Licensor, and therefore has an equity stake in the Licensor’s financial benefits under the terms of the license

13. Strategic Alliance Financial Terms • Convertible Notes • A Convertible Note is a loan, which either • Is repaid by money, or • Is repaid by the issue of shares in the receiver of the loan (the Licensor) • Election as to repayment or satisfaction with equity is made by: • Licensor only, or • Licensee only, or • Either licensor or licensee • Loan monies used by Licensor to: • Fund further R&D • Pay for its marketing and promotion expenses in a co-marketing alliance

14. Strategic Alliance Financial Terms • Genentech and Xoma – Raptiva License • Xoma licensed Genentech 1996 compound (FDA approved Oct 2003, now marketed as Raptiva, for psoriasis (skin condition) • 1999 deal amendment: • Future development costs to be shared 25% Xoma and 75% Genentech • Future co-marketing costs to be shared 25% Xoma and 75% Genentech • Future profits on sales shared 25% Xoma and 75% Genentech • Genentech provides Xoma loan facility up to $80m to fund future development (that is, clinical studies) • Genentech provides Xoma loan facility up to $15m to fund future marketing • Xoma can elect to • Repay loan • Issue equity instead of repaying loan • Defer payment of up to $40m of loan against future profit share • Xoma mortgages its future profit share to Genentech as security for repayment

15. Strategic Alliance Financial Terms • Pluristem Life Systems and Stem Cell Innovations deal • Deal announced 22 February 2007 • Pluristem licenses STI PLX-I product - stems cells obtained from the placenta and expanded by using Pluristem bioreactor that mimics physiological environments • Cells are immune privileged – reduction or absence of rejection of the cells in a patient – first application in bone marrow transplantation • Deal terms: • Up front – not cash - but instead 23 million fully paid shares Plurstem receives in STI • Additionally, STI issues 28 million shares to Pluristem, and Pluristem issues 66 million shares to STI • Undisclosed royalties • Undisclosed milestone payments

16. Strategic Alliance Financial Terms • Pluristem Life Systems and Stem Cell Innovations deal • What is achieved by: • Up front shares instead of cash • Share swap where Licensor and Licensee each obtain shares in the other ? • Licensor’s perspective: • If technology fails and there are no sales • Licensor has shares in licensee and shares in Licensee’s profit across the whole of its business – other than the failed technology • If technology succeeds and there are sales • Licensor gets the usual royalties and milestones • Additionally, licensee’s shareholders are diluted from those benefits as Licensee now holds shares, but licensor’s shareholders now share in licensee’s profits across the successful technology, as well as the Licensee’s other business • Win – Win for licensor in both cases

17. Greater financial returns • In a license the licensor collects up front payments, milestone payments, and royalties, based on the value of the IP at the time that the license is negotiated • In a strategic alliance there is the prospect of • More types of financial returns • Increased financial returns of the same type • Co Development Alliance • Both parties contribute to further develop of IP to take it further along the development path. • By the licensor doing so the licensor increases the value of the Licensor’s IP, justifying greater up fronts, milestone payments, and royalties than just in a passive license • Co-Marketing Agreement • Licensor may earn additional financial return as a manufacturer • Licensor may earn additional financial return as a seller of products

18. Acquiring new skills • In a co-development agreement the alliance partners may work collaboratively • Opportunity therefore for skills transfer • That is, the staff of one alliance partner sharing their skills with the staff of the other alliance partner, and in that way to upskill the staff of the other • May be technical skills • Skill in generating transgenic animals • Skills extracting, isolating, or synthesizing the active chemical from biodiverse resources • May be management skills • managing pre-clinical studies such as animal studies, toxicology studies etc • Managing the regulatory pathway to product registration

19. Acquiring new skills • Skills transfer can occur by • Collaborative teams working side by side and learning from each other • Internships where one alliance partner trains another at its own facilities • Observation, participation, and experiencing • Skills transfer benefits both alliance partners by • Increasing the skill and capability of each other’s staff for the purposes of the alliance • Skills transfer benefits one partner separately • Increasing the skill and capability of one partner’s staff that can be used in other projects unconnected with the alliance

20. Acquiring new technology • In a Co-Development Agreement one partner may make its IP available to the other • For the purposes of the collaboration • For purposes outside the collaboration • Collaboration benefits by the access to the IP of the strategic partner for the co-development program • Strategic partners benefit independently by access to the IP of the other for other research programs outside the collaboration • Access to research tools • Animal models, vectors, cell lines, other biological material • Access to IP to pursue areas of investigation outside the collaboration • There may be preferential rights to access New IP given to the provider of the technology • Eg, option to negotiate a license

21. Creating new technology • Purpose of the Alliance is to create New IP • Builds on the licensor partner’s IP • May create new unrelated independent IP • Purpose of the collaboration is to build on the existing IP to further develop it and to bring a product to market • That is the ultimate aim of the collaboration by the alliance partners • Side benefit is the creation of IP that may be beneficial to one alliance partner only • That partner’s IP position is enhanced, and its IP capability is strengthened

22. Ownership of new technology • Who should own that new IP ? • Common Model #1 • Partner A owns new IP that improves its own existing IP • Partner B owns new IP that improves its own existing IP • Partners A and B jointly own new IP outside categories 1 & 2 • Common Model #2 • No new IP is separately owned • All new IP is jointly owned by both Partners A & B • What are the implications ?

23. Ownership of new technology • More complex models: • Partner A has a platform technology for producing vaccines against viruses • Partner B has patents in the gene sequence and function of particular virus and its interest is producing therapeutic drugs • Categories of new IP • New IP that solely relates to vaccine technology • New IP that solely relates to therapeutic drug against Partner B’s virus of interest • New IP that solely relates to therapeutic drug against viruses broadly • New IP that relates to 1 and 2 but not 3 • New IP that relates to 1 and 3 but not 2 • New IP that relates to 2 and 3 but not 1 • How is ownership of these various categories of New IP dealt with ? • How does each partner ensure that it shares with the other what is intended to be shared, but does not prejudice its own core business by having to share new IP affecting its own core business ?

24. Co-Marketing • Broad definition: encompasses two things • Manufacturing • Partner A may retain manufacturing rights • Upside financially by profits from manufacturing • National economic benefits • Creates investment • Creates employment • Improves balance of payments • Selling • Upside financially by profits from selling products • Territory • Need not be exclusive manufacturing or selling rights • May be rights for specific geographical areas, eg Asia

25. Conclusion Benefits of strategic alliance • Upside financial payments • Increased financial resources • Cash • Transfer assets • Equity • Loans • Skills Transfer • Technical • Management • IP Acquisition • Platforms • Research Tools • IP Creation • In field of collaboration • Outside field of collaboration • Co-marketing • Manufacturing • Selling Benefits of licensing • Financial payments