“FTE” means with regards to individuals located in the United States, [**] person hours of effort (and an equivalent number of person hours per applicable labor Laws in countries other than the United States) from one or more employees or contract employees of Translate Bio or any of its Affiliates directly engaged in performing activities under this Agreement. For clarity, sixty (60) minutes of work performed by one employee (or aggregated across multiple employees) on a relevant activity shall be considered one person hour.
“FTE Costs” means the FTE Rate multiplied by the number of FTEs performing activities hereunder.
“FTE Rate” means a rate of [**] U.S. dollars ($[**]) per FTE which is inclusive of salaries, bonus, benefits and overhead.
“Manufacturing Costs” means the direct and indirect costs and expenses incurred by a Party to manufacture a Product consisting solely of:
(i) direct labor costs (salaries, wages, employee benefits, overtime costs and shift premiums) (and, for clarity, such labor costs shall be actual costs, and not the FTE Rate);
(ii) direct materials (including raw materials and intermediates and interim packaging) costs;
(iii) a fair and reasonable allocation of operating costs of facilities and equipment;
(iv) quality, release and in-process control costs;
(v) charges for reasonable spoilage, scrap or rework costs;
(vi) amounts (without mark-up) that are paid to a Third Party, in connection with the manufacture of the Product or any component thereof;
(vii) the reasonable allocation of facility overhead, both fixed and variable, to such manufacturing operation (including the allocable costs of administrators and managers overseeing manufacturing and production) maintenance, engineering, safety, finance, capital equipment depreciation to the extent such capital equipment is utilized with respect to Product, supply chain management, management of agreements with Third Party contract manufacturers (excluding costs of any external counsel retained to negotiate or enforce any such agreement), and inventory write off; and
(viii) any non-refundable or non-creditable indirect taxes, customs and excise duties, or similar taxes;
provided, however that in each case of items (i) through (viii) above, inclusive, to the extent specifically identifiable to the manufacture of a Product. The term “Manufacturing Costs” excludes costs related to the operation of any facility incurred while using such facility to manufacture products other than Products.
“Net Sales” means
(a) the aggregate of the gross invoiced (or, if no invoice, otherwise charged) sales prices for Product that is sold or transferred for value by Sanofi or any of its Affiliates or any Sublicensee to a Third Party minus the following amounts incurred or paid (and not reimbursed) as recognized by IFRS or GAAP, as applicable, with respect to such sales or transfers for value (regardless of the period in which such amounts are incurred or paid):
(i) trade, cash, prompt payment or quantity discounts;
(ii) returns, refunds, allowances, rebates and chargebacks;
(iii) retroactive price reductions applicable to sales of the Product;
(iv) fees paid to distributors, wholesalers, selling agents (excluding any sales representatives of a Party or any of its Affiliates), group purchasing organizations and managed care entities;
(v) credits or allowances for product replacement, whether cash or trade;
(vi) any tax, tariff, duty or governmental charge levied on the sales, transfer, transportation or delivery of the Product (including any tax such as a value added or similar tax or government charge), other than franchise or income tax of any kind whatsoever;
(vii) the actual or accrued amount of write-offs for bad debt;
(viii) payments to Governmental Authorities to support the funding of health systems (e.g., fees, taxes, mandatory rebates or reimbursements to social security systems); and
(ix) a [**] percent ([**]%) allowance for the sum of insurance, shipping and freight costs directly related to the delivery of the Product and special packaging;
(b) plus, as set forth in Article 12, any Recoveries.
“Out-Of-Pocket Costs” shall mean those costs and expenses, including applicable taxes, paid to Third Parties, such as Service Providers, but excluding Manufacturing Costs.
3. RESEARCH, DEVELOPMENT AND REGULATORY
3.2 Collaboration Costs. The estimated costs for Translate Bio’s Collaboration Activities will be as set forth in the applicable Collaboration Budget; provided, however, that Sanofi shall be responsible for paying FTE Costs, Out-of-Pocket Costs and Manufacturing Costs up to [**] percent ([**]%) of such costs set forth in the applicable Collaboration Budget with respect to the Translate Bio Collaboration Activities. Any variation in excess of [**] percent ([**]%) of the Collaboration Budget will require Sanofi’s express prior written consent.
4. MANUFACTURING & TECHNOLOGY AND PROCESS TRANSFER
4.3 Manufacturing Costs/Annual Updates.
4.3.1 Prior to execution of a Supply Agreement, Translate Bio shall include as part of the Collaboration Budget, the estimated Manufacturing Costs associated with supplying Product for clinical trials for the specific year of the Collaboration and a projection as to Manufacturing Costs associated with supplying Product for clinical trials in years two and three hence, in each case, based on Sanofi’s estimate of the amount of each Product for clinical trials for the then-current year and for clinical trials in years two and three hence.
7. COLLABORATION FUNDING, LICENSE AND OPTION ISSUE FEES, OPTION EXERCISE FEES, MILESTONES, ROYALTIES
7.1 Collaboration Funding. In consideration of the performance by Translate Bio of the Translate Bio Collaboration Activities in the Collaboration, Sanofi shall pay Translate Bio the agreed sum set out in the Collaboration Budget for each of (a) FTE Costs, (b) Out-Of-Pocket Costs, and (c) Manufacturing Costs. Each of FTE Costs, Out-Of-Pocket Costs or Manufacturing Costs is a “Cost Category” which shall be accounted for separately by Translate Bio and in no event shall Translate Bio include costs or expenses from one such Cost Category in another such Cost Category. In the event that the Collaboration Budget or Supply Agreement includes certain Out-of-Pocket Costs or Manufacturing Costs which Translate Bio is [**], Sanofi shall [**] the full amount of those Out-of-Pocket Costs and Manufacturing Costs to Translate Bio.
7.2 License and Option Issue Fees. As partial consideration of the license and option rights granted herein, Sanofi shall pay Translate Bio the agreed upfront fee of [**] dollars ($[**]) in respect of the licenses granted to the Licensed Technology and an additional [**] dollars ($[**]) in respect of the Option rights granted herein, in both cases within [**] after receiving all of the following (i) Translate Bio’s invoice, (ii) Translate Bio’s wire transfer information required to process the payment and (iii) Translate Bio’s residency forms. Translate Bio’s invoice shall not be dated earlier than the Closing Date.
7.3 Option Exercise Fees. In the event that Sanofi exercises its Option for an Optioned Field, Sanofi shall, concurrently with the exercise of such Option, pay Translate Bio the agreed sum of five million dollars ($5,000,000.00) (the “Option Exercise Fee”) per Optioned Field exercised by such Option.
7.4 Milestones. As partial consideration of the license rights granted herein, Sanofi agrees to pay Translate Bio the following amounts upon achievement of the milestones set forth below by Sanofi, its Affiliates or Sublicensees (or, to the extent anticipated in the applicable Collaboration Plan, by or on behalf of Translate Bio) (each a “Milestone”) in accordance with Section 8.1, except as expressly provided for in Section 7.4.5:
7.4.1 The following development milestones shall be paid by Sanofi once per Licensed Field the first time such Milestone is achieved by a Product in such Licensed Field: [milestone table redacted]
7.4.2 In the event that, with respect to any Product in a Licensed Field, a Milestone in clause (b) or (c) is first achieved before the Milestone in clause (a) is first achieved, a Milestone in clause (c) is first achieved before the Milestone in clause (b) is first achieved, or a Milestone in clause (d) or (e) is first achieved before a Milestone in clause (a), (b) or (c) is first achieved, then such Milestone in such earlier clause shall be paid and such Milestone shall be deemed to have been achieved when such Milestone in such later clause is achieved.
7.4.3 Technology and Process Transfer Milestone. Sanofi will pay Translate Bio a one-time payment of ten million dollars ($10,000,000.00) following the earlier of (a) execution of the Technology and Process Transfer Memorandum in accordance with Section 4.7.4 or (b) Deemed Completion as provided for in Section 4.7.8 (the “Technology and Process Transfer Milestone”).
7.4.4 Sales Milestones. Sanofi will pay Translate Bio the following sales milestones on aggregate, annual, royaltybearing Net Sales with respect to all Products in a Licensed Field, once per Licensed Field (the “Sales Milestones”): When aggregate royalty-bearing annual Net Sales for all Products in a Licensed Field first reach the following thresholds: Sales Milestone payment: (i) $[**] to less than $[**] [**] (ii) $[**] to less than $[**] [**] (iii) $[**] or more [**] No more than [**] Sales Milestones per the table above may be earned in any calendar year, and where [**] are earned, Sanofi will pay [**] such Sales Milestone when achieved and may defer payment of [**] Sales Milestone for [**]. For example, if aggregate royalty-bearing annual Net Sales for all Products in a Licensed Field first reach $[**] or more, Sanofi shall pay Translate Bio the Sales Milestone in item [**] above plus [**] Sales Milestone, which [**] Sales Milestone shall be elected by Translate Bio by written notice to Sanofi following receipt of payment of the [**] Sales Milestone. The [**] Sales Milestone [**].
7.4.5 Special Payment Terms for Milestones under Shire Agreement. Sanofi shall make commercially reasonable efforts to pay the Milestones listed in Section 7.4.1 or 7.4.3 payable to Translate Bio hereunder within [**], provided that Translate Bio notifies Sanofi in writing within [**] of the Closing Date of which such Milestones would trigger a milestone payment by Translate Bio to Shire under the Shire Agreement, and further provided that failure by Sanofi to pay any such Milestone within such [**] shall not constitute material breach of this Agreement, and no interest shall be payable under Section 8.6 on invoices issued by Translate Bio in respect of such payments, in each case unless such Milestone remains unpaid for more than [**] following receipt of such invoice.
7.5 Royalties and Royalty Reductions
7.5.1 Royalties. As partial consideration of the license rights granted herein, Sanofi agrees to pay Translate Bio royalties on quarterly Net Sales with respect to all Products in a Licensed Field, as follows, which royalties shall be paid during the applicable Royalty Term with respect to each such Product: The portion of aggregate annual Net Sales ($) for all Products in a Licensed Field royalty (%) [**] [**] [**] [**] [**] [**] [**] [**]
7.5.2 Third Party Royalty Reductions. Subject to Section 7.6, when Translate Bio’s royalty obligations to any Third Party under the Pre-Existing Agreements have expired, been terminated, or are reduced, the royalty Sanofi would pay Translate Bio pursuant to Section 7.5.1 would be reduced by [**] per cent ([**]%) of the amount that Translate Bio’s royalty to such Third Party is reduced. For example, if Translate Bio’s royalties payable under the Shire Agreement are reduced to [**]%, then Sanofi’s royalty under Section 7.5.1 would be reduced by [**]% in each applicable royalty tier.
7.5.3 No Valid Claim. If the sale of a royalty-bearing Product is not encumbered by any Third Party Obligation and the manufacture, use, offer for sale, sale, or importation or other exploitation of such Product also is not Covered by a Valid Patent Claim of (a) a Licensed Patent, or (b) a Collaboration Patent or (c) a Patent which is a Licensed Improvement, or (d) a Derived Patent, but such Product is or was developed, made, offered for sale, sold, imported or otherwise exploited using (x) Licensed Know-How or Licensed Materials, (y) Know-How or Materials which is Translate Bio Collaboration Technology or (z) Know-How or Materials which is a Licensed Improvement, then the royalty rates in Section 7.5.1 shall be reduced by [**] per cent ([**]%).
7.5.4 Combination Products. For the purposes of calculating royalties pursuant to this Section 7.5, the value of the Product is to be computed as follows: [**].
7.5.5 Multi-Component Product. In the event that Sanofi, or any Affiliate or Sublicensee sells a multi-component vaccine product which includes more than one Product (“Multi-Component Product”), the royalty on royalty-bearing Net Sales would be paid only once. The royalty-bearing Net Sales of the Multi-Component Product shall be proportioned between Licensed Fields as follows: [**]. The proportioned Net Sales for each Product within a Licensed Field contained in such Multi-Component Product would be added to the aggregate annual Net Sales for the applicable Licensed Field.
7.6 Royalty Stacking.
7.6.1 If Translate Bio or Sanofi acquires (through purchase or license) rights to any royalty-bearing technologies from any Third Party (e.g. in addition to the technologies that are the subject matter of the Pre-Existing Agreements or otherwise form part of the Licensed Technology as of the Execution Date), which technologies are needed by Sanofi in order to develop, manufacture or commercialize a Product requiring another or different component of mRNA technology than that licensed by Translate Bio herein (e.g., a specific vector, cationic lipid, LNP or other formulations thereof not forming part of the Licensed Technology or a Licensed Improvement, including rights to technology needed for freedom to operate the Licensed Technology or a Licensed Improvement), then if [**], then: (a) the royalty payable by Sanofi to Translate Bio on such Product pursuant to Section 7.5.1 shall not apply, and Sanofi shall pay Translate Bio a royalty of [**] percent ([**]%) on Net Sales plus the amount of the Third Party Obligations; and (b) if the royalties owed by Sanofi to any Third Parties and Translate Bio, collectively, on such Product exceed [**] percent ([**]%) then Sanofi shall not be obligated to pay Translate Bio [**]. Examples of the calculation of royalty stacking in accordance with this Section 7.6.1 are set out in Schedule 7.6.1 (Royalty Stacking).
7.6.2 If [**], Sanofi may offset [**] percent ([**]%) of the royalty Sanofi owes to such Third Parties which amount exceeds such [**] percent ([**]%) threshold against the royalty payable to Translate Bio pursuant to Section 7.5.1. but by no more than [**] per cent ([**]%) and provided that in no event shall Sanofi pay Translate Bio a royalty on such Product of less than [**] per cent ([**]%) on Net Sales plus the amount of the Third Party Obligations.
7.6.3 In no event shall the amount of the royalties payable by Sanofi to Translate Bio under this Section 7.6 in respect of a (a) Product, other than a [**], in a given quarter be less than [**] percent ([**]%) of Net Sales of such Product in such quarter plus the aggregate amount of Third Party Obligations for such Product for such quarter; or (b) a [**] in a given quarter be less than [**] percent ([**]%) of Net Sales of such Product in such quarter plus the aggregate amount of Third Party Obligations for such Product for such quarter.
7.6.4 No Multiple Royalties. One royalty only shall be payable under Section 7.5.1 by Sanofi to Translate Bio for any unit of Product, even if such Product is Covered by more than one Patent within the Licensed Technology, Translate Bio Collaboration Technology, Licensed Improvements or Derived Patent.
7.7 Fully Paid-Up License. The license granted to Sanofi under Section 9.1 shall become fully-paid-up in respect of each Product in each country after the end of the applicable Royalty Term.