The licensing deal between Kolon Life Science and Mundipharma for osteoarthritis gene therapy Invossa-K has been partially changed, Kolon said.

Under the revised agreement, Kolon Life Science should return 15 billion won ($12.8 million) upfront payment to Mundipharma if Invossa's Korean license gets nullified or the U.S. regulator does not decide on the resumption of the phase-3 clinical trial until Feb. 28, 2020.

Kolon said in a public disclosure on Tuesday that it decided to set up a deposit pledge right for the upfront payment of 15 billion won that it had received from Mundipharma. The right of pledge is to guarantee the return of the upfront payment amid the Invossa mislabeling issue.

The period of the right of pledge starts from May 7, 2019, to the date when the Ministry of Food and Drug Safety approves a resumption of Invossa sales and the U.S. Food and Drug Administration decides on the resumption of the phase-3 trial on Invossa.

Mundipharma can exercise the right if at least one of the following six conditions is met.

The six conditions are: If the FDA decides to discontinue the phase-3 trial of Kolon TissueGene due to data from phase-1 and phase-2 studies; if the FDA does not decide on the resumption of the phase-3 study until February 28, 2020; if the MFDS' suspension of Invossa sales and distribution is permanent, and it is impossible to make any objection using current clinical data until February 28, 2020; if Kolon Life Sciences is found to be in violation of the principles of good faith in connection with the upfront payment; if the pledgee provides a major portion of the company's assets as collateral to a third party, or if the bankruptcy, liquidation or inability to pay the liquidation occurs; and if a possibility of bankruptcy or insolvency occurs.

The remaining upfront payment of 15 billion won, which was scheduled to be paid every quarter, is also suspended for the period of the pledge right.

If the FDA orders to discontinue the phase-3 trial based on data that explained how the cell ingredient of Invossa was changed or does not decide on the resumption of the trial, or the MFDS revokes Invossa license and the company fails to reverse the decision by February 28, 2020, Kolon has to return 15 billion won to Mundipharma. The remaining 15 billion won upfront payment could also be gone, threatening the whole deal to be nullified.

In November, Kolon Life Science licensed out Invossa to Mundipharma targeting the Japanese market. The deal was worth 667.7 billion won, the largest licensing deal ever involving a local drug being exported to a single country. Under the agreement, Kolon received 15 billion won, the half of the upfront payment of 30 billion won, as of March 8.

Initially, Kolon did not have an obligation to return the upfront payment. However, as the company revealed that the second ingredient of Invossa was found to have been kidney-derived cells, not cartilage-derived ones, the two companies agreed to change the conditions of the contract.

As Kolon also inked 230 billion won worth Invossa licensing deal with China Life Medical Center, it is likely to have additional changes in the agreement.

Unlike Mundipharma which closely worked with Kolon for domestic co-marketing, China Life could demand a full nullification of the agreement, sources said.

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