Commercial Partners

On December 18, 2008, we entered into a license, co-development and co-commercialization agreement with Daiichi Sankyo Co., Ltd. for our lead compound, tivantinib (ARQ 197), to conduct research, clinical trials and the commercialization of tivantinib in human cancer indications in the U.S., Europe, South America and the rest of the world, excluding Japan, China (including Hong Kong), South Korea and Taiwan, where Kyowa Hakko Kirin has exclusive rights for development and commercialization (see below).

The agreement provides for a $60 million cash upfront licensing payment from Daiichi Sankyo to us, which we received in December 2008, and an additional $560 million in potential development, regulatory and sales milestone payments. Upon commercialization, we will receive tiered, double-digit royalties from Daiichi Sankyo on net sales of tivantinib commensurate with the magnitude of the transaction. We retain the option to participate in the commercialization of tivantinib in the U.S. We and Daiichi Sankyo will share equally the costs of Phase 2 and Phase 3 clinical studies, with our share of Phase 3 costs payable solely from milestone and royalty payments by Daiichi Sankyo, allowing us to have significant control over our use of cash during times of intensive clinical development activities.

On April 27, 2007, we entered into an exclusive license agreement with Kyowa Hakko Kirin to develop and commercialize tivantinib in Japan and parts of Asia, including China (including Hong Kong), South Korea and Taiwan. In connection with the agreement, Kyowa made a $30 million upfront payment to ArQule. The agreement provides for a total of $123 million in upfront and potential development and regulatory milestone plus undisclosed sales milestones. Upon commercialization, ArQule will receive tiered royalties in the mid-teen to low-twenty percent range on net sales of tivantinib in the Asian territory. Kyowa Hakko Kirin is responsible for clinical development and commercialization, including all costs associated therewith.

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