Nationwide Children’s Hospital
In October 2013, we entered into an exclusive license agreement with NCH, which we amended and restated in its entirety in January 2016, or the NCH SMA License. Pursuant to the NCH SMA License, NCH granted us an exclusive, worldwide license under certain patent rights to make, have made, use, sell, offer for sale and import any products covered by the NCH SMA License, or NCH SMA licensed products, and a non‑exclusive, worldwide license under certain technical information to develop and manufacture the NCH SMA licensed products, in the field of therapies and treatments of SMA. The patent rights exclusively in‑licensed from NCH and relevant to our contemplated SMA product are a currently pending patent application being pursued only in the United States. The patent application claims AVXS‑101 as a composition of matter and its use in treating SMA. If a patent issues from this patent application, it will expire in 2029. We have the right to subcontract the manufacturing of products using the licensed rights, such as AVXS‑101. We also have the right to sublicense the licensed technology to third parties through multiple tiers.
Pursuant to the NCH SMA License, NCH filed an investigational new drug application, or IND, for AVXS‑101 for the treatment of SMA Type 1. Under the NCH SMA License, we received an option to elect to become the sponsor of the IND. Such option could be exercised on or after October 14, 2015. On October 14, 2015, we exercised the option and, as of November 6, 2015, we became the sponsor of the IND. However, NCH has reversionary rights in the case of an act or omission constituting negligence or willful misconduct with respect to our control of the IND that has or could reasonably be expected to have a material adverse effect on the clinical trials conducted under the IND and such act or omission has not been cured within a certain period of time following receipt of written notice and demand from NCH.
The NCH SMA License sets forth a development plan for our development of the licensed technology to make and sell NCH SMA licensed products, including AVXS‑101 for the treatment of SMA Type 1, throughout the world. We are required to achieve certain development milestones, including a specified minimum funding obligation of $9.4 million for the development of NCH SMA licensed products by 2021, which requirement NCH acknowledged we had fulfilled in whole as of the date of the amendment and restatement of the NCH SMA License. We are also required, if commercially reasonable, to market NCH SMA licensed products after regulatory approval, satisfy the market demand for such products in those countries in which we have obtained regulatory approval where it is commercially reasonable to do so and continue to develop additional NCH SMA licensed products within the field. In the event we fail to comply with such obligations, subject to certain conditions, NCH has the right to either terminate the NCH SMA License or convert our license into a non‑exclusive license with respect to the applicable NCH SMA licensed product in the applicable country. In addition, we are responsible for all clinical trial costs that are not covered by grants or certain other sources.
In consideration for license rights granted to us, we initially issued NCH and The Ohio State University, or OSU, 331,053 shares of our common stock. Until May 2015, when we had reached a certain stipulated market capitalization, we were obligated to issue additional shares to NCH and OSU from time to time so that their aggregate ownership represented 3% (which percentage will be prorated downward if either NCH or OSU transfer any of such shares) of our issued and outstanding capital stock on a fully‑diluted basis.
Following the first commercial sale of a NCH SMA licensed product, we must begin paying NCH an aggregate low‑single digit royalty on net sales of NCH SMA licensed products by us, our affiliates and sublicensees during the term of the NCH SMA License, with annual minimum royalties, in dollar amounts ranging from low five digits to low six digits, that increase over time. If we unsuccessfully challenge any of the licensed patents, the royalty rate increases from low single digits to mid‑single digits. These royalty rates are further subject to reduction in the event we have to license third‑party patents to exploit the licensed technology.
With certain exceptions, we are required to make certain development milestone based payments to NCH. In addition, we must also pay NCH a portion of sublicensing revenue received from our sublicense of the rights to licensed technology at percentages between low‑double digits and low‑teens.
We do not have the right to control prosecution of the in‑licensed patent rights, however NCH shall consult with us on material matters regarding the prosecution of such patent rights, and NCH has the first right to enforce any patents issuing from the in‑licensed patent rights and if NCH does not enforce the rights within a certain time frame, then