DNAprint Genomics (DNAG)

[mingwan0]

The PSRF and Mark Shriver agreements

From the 10K for 2002 filed on 15 April 2003:

http://www.sec.gov/Archives/edgar/data/1127354/000107087603000035/dnap10ksb2002.htm

"...in collaboration with The Pennsylvania State University, the Company is studying the genetic basis underlying natural skin shade variation."

The key source document is the 10Q filed on 14 August 2002, which contains the agreement with Penn State Research Foundation (PSRF) and the agreement with Mark Shriver (together with the amendment to the latter):

http://www.sec.gov/Archives/edgar/data/1127354/000107087602000071/0001070876-02-000071-index.htm

This document also summarizes the agreement with Mark Shriver:

"During June 2002, we entered into an agreement with an individual, who is also a member of our Scientific Advisory Board, to collaborate with us to develop a kit product that could be used to infer Ancestry Admixture Ratios in individual human beings."

So there is ostensibly a clear difference in the scope of the agreements with PSRF and Mark Shriver. Let's turn to the agreements themselves.

Here are the key points from the Mark Shriver ("CONSULTANT") consulting agreement was signed on June 12 2002:

http://www.sec.gov/Archives/edgar/data/1127354/000107087602000071/shriverconsultagmt.htm

"DNAPRINT is the patent owner of certain SNP markers and methods, and desires to collaborate with CONSULTANT to develop a kit product that could be used to infer Ancestry Admixture Ratios in individual human beings."

"CONSULTANT is the inventor of certain compositions and methods useful for determining Ancestry Admixture Ratios in individual human beings. CONSULTANT is also the owner of certain DNA samples collected from individuals of various ancestries, and of certain rights therein. CONSULTANT wishes to commercialize his compositions and methods."

The parties agreed to develop a diagnostic kit for the inference of Ancestry Admixture Ratios. The goals of the project were to create a panel of AIMs that can infer admixture with respect to a list of target ancestral groups, to evaluate the panel for fitness as a commercial product, to obtain a license from a 3rd party manufacturer to allow DNAP to commercialize the product, and to commercialize and provide support for the product.

It was agreed that DNAP could modify Shriver’s software with the intent of commercializing them.

The term of the agreement was 2 years, after which the agreement would renew for consecutive two year terms unless terminated.

"CONSULTANT agrees and understands that any and all data, software improvements, methods, compositions and commercial rights are the property of DNAPRINT, and that CONSULTANT acquires no rights therein and that it can use DNAPRINT data, including any Documentation, only for legitimate scientific research as previously approved by DNAPRINT, and for no other purpose whatsoever."

"Genotyping data is the property of DNAPRINT, and CONSULTANT may not sell, loan, disclose or present DNAPRINT data in any manner whatsoever, unless requested by or agreed to by DNAPRINT."

"CONSULTANT warrants to DNAPRINT that he is the inventor of record for the compositions and methods contributed by CONSULTANT to the project."

In the amendment to this agreement the parties executed a confidentiality agreement, DNAP agreed to indemnify and hold Consultant harmless for any damages or losses arising as a result of modifications it made to his software, there was a formal definition of the term "net sales", and the parties agreed that the terms of the original contract would apply to any future projects which might be developed by the parties.

So much for the Mark Shriver agreement. Here are the main points of the PSRF agreement:

http://www.sec.gov/Archives/edgar/data/1127354/000107087602000071/psulicenseagmt.htm

Mark Shriver, a PSU employee, in the course of basic research, has collected certain human DNA samples and certain subjectively measured and self-reported biogeographical ancestry and ethnicity data, eye color, hair color & skin color pigmentation data, and sun exposure history information relating to said samples.

PSRF is the owner of said SAMPLES & TECHNICAL INFORMATION and has the right to grant licenses;

WHEREAS, LICENSEE wishes to collaborate with the UNIVERSITY and to perform further internal research and development on the SAMPLES & TECHNICAL INFORMATION, as part of its effort to develop commercial products in the FIELD that will be related to, rely on, using, incorporating and/or referencing the SAMPLES & TECHNICAL INFORMATION;

WHEREAS, LICENSEE wishes to obtain and PSRF is willing to grant a license to said SAMPLES & TECHNICAL INFORMATION

"FIELD" shall mean the research, development and commercialization of genomic informational kits for purposes of identifying eye colors, hair colors, skin pigmentation, skin response to burn, for uses in forensics and prenatal diagnostic.

"SAMPLES & TECHNICAL INFORMATION" shall mean certain human DNA samples and certain subjectively measured and self-reported biogeographical ancestry and ethnicity data, eye color, hair color & skin color pigmentation data, and sun exposure history information relating to said samples.

PSRF hereby grants to LICENSEE an exclusive right and license in the TERRITORY for the FIELD, without right to sublicense, to SAMPLES & TECHNICAL INFORMATION and PATENTS RIGHTS and to the extent not prohibited by other patents, to collaborate with the UNIVERSITY and to research, develop, make, have made, use, lease, and sell LICENSED PRODUCTs for the term set forth herein, unless this License Agreement shall be earlier terminated according to the terms and conditions contained herein.

PSRF reserves the rights for itself and the UNIVERSITY to use SAMPLES & TECHNICAL INFORMATION and to practice under the PATENT RIGHTS for their own research and educational purposes, including, without limitation, any new information, methods and compositions developed, whether patentable or not, as a result of the use of SAMPLES & TECHNICAL INFORMATION by the collaborative efforts and LICENSEE's internal research efforts contemplated under this Agreement.

In partial consideration of the rights granted by this License Agreement, LICENSEE shall pay to PSRF a non-refundable, License Issue Fee of ten thousand one hundred and fifty dollars ($10,150.00 USD) upon execution of this License Agreement. Said License Issue Fee shall be paid upon the Effective Date of this License Agreement.

In addition to the foregoing License Issue Fee, LICENSEE shall pay PSRF a running royalty of twenty-five percent (25%) of NET SALES of LICENSED PRODUCTS within the field of skin pigmentation.

(There was also an agreement to give PSRF a minimum amount, which was based on a sliding scale that rose to a maximum of $40,000 per annum.)

LICENSEE shall pay PSRF Additional Running Royalties of three and a half percent (3.5%) of NET SALES as defined herein for LICENSED PRODUCTS sold within the field of eye and hair pigmentation.

PSRF and LICENSEE shall be joint owners and joint named assignees of all PATENT RIGHTS filed, prosecuted and maintained as a result of LICENSEE's collaboration with the UNIVERSITY and LICENSEE's research and development work relating to, relying on, using, incorporating and referencing SAMPLES & TECHNICAL INFORMATION.

There were also clauses that stated that manufacturing was to be mainly undertaken in the USA, and limits on export of data and commodities related to PSRF.

"LICENSEE shall have the right to terminate this Agreement at any time on six (6) months' notice to PSRF, and upon payment of all amounts due PSRF through the effective date of the termination."

"Upon termination of this License Agreement for any reason, nothing herein shall be construed to release either party from any obligation that matured prior to the effective date of such termination; and Articles I, VIII, IX, X, XV and paragraphs 14.5 and 14.6 shall survive any such termination.

LICENSEE may, however, after the effective date of such termination, sell all LICENSED PRODUCTs, and complete LICENSED PRODUCTs in the process of manufacture at the time of such termination and sell the same, provided that LICENSEE submit the reports required by Article V hereof."

The things that survive termination of the agreement are: contract definitions, indemnifications, export controls, non-use of PSU/PSRF names, and normal miscellaneous provisions. Article V relates to reports and records that allow PSRF to confirm it's royalty payments.

So where does that leave us?

There seems to be a discrepancy between the two agreements about who the owner of samples is (and the rights therein), unless different samples are referred to - but I do not think this is the case.

It seems to me that DNAP has clear rights in relation to the AIMs as per the agreement with Mark Shriver, which is still in place.

Even though the PSRF samples include biogeographical ancestry and ethnicity data, the agreement is very clear in the scope of products: kits for identifying eye colors, hair colors, skin pigmentation, skin response to burn, for uses in forensics and prenatal diagnostics.

PSRF/PSU do not seem to be assignees of the pigmentation patent (DNAP are sole assignees), which was originally filed on 25 May 2001. I am not sure whether or not PSRF/PSU should be assignees. I would assume that they should be?

It seems to me that PSRF (and PSU) can use any new information, methods, and compositions arising from collaboration or DNAP's internal research efforts.

It also seems that DNAP can complete any products in development at the time of termination and sell the same. There are a few items that survive the contract that DNP need to be aware of and (confusingly) we still seem to have to submit royalty reports even though payments do not survive termination of the contract.

Unless I have missed something there is no big deal here. The question remains though, why did DNAP give notice to terminate the contract?