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Microcide was founded in December 1992 to discover, develop and commercialize novel antibiotics for the treatment of serious bacterial infections. For over three years, Microcide has been applying its proprietary Targeted Genomics technology whereby it creates and uses bacterial and fungal genetic mutants to quickly and directly identify genes required either for in vitro viability or for pathogenicity in man. Creating genetic potentiation assays rather than biochemical assays, Microcide utilizes many targets simultaneously in high throughput screening to create multi-dimensional biological profiles of each compound tested. The advantages of such an approach are its focus only on the pharmaceutically relevant portion of an organism's genome, and its utilization of many targets simultaneously, thereby generating a wealth of biological information not only on the compounds tested, but also on the interrelated functioning of the genes themselves. During 1997, Microcide explored ways to extend this methodology to mammalian systems and has developed an approach using Surrogate Genetics. Iconix plans to engineer human genes in surrogate hosts to create high throughput assays (Activity Reporter Cells) to screen for small molecule agonists or antagonists. By rapidly identifying chemical modulators of human genes in parallel for targets of known and unknown function, Surrogate Genetics is expected to allow Iconix to generate powerful databases of metabolic pathways, gene functions and compound sensitivities -- and, specific inhibitors identified in the assays are expected to represent useful leads for drug development. After a thorough analysis of various alternatives, Microcide determined that the Surrogate Genetics technology would best be pursued through Iconix for a number of reasons. First, Microcide's core mission is the discovery and development of antimicrobials, and the Company is determined to maintain focus on that mission. Second, establishment of Iconix should enhance the ability to recruit and incent key personnel as well as to create focus on its core mission of extending Surrogate Genetics to as many therapeutic categories as possible. Finally, the establishment of Iconix and the equity financing of $12.5 million provides Iconix with the financial resources to aggressively advance its research approach, allows Iconix to independently seek financing in the future, and retains for Microcide a significant equity stake in the future performance of Iconix. Microcide and Iconix plan to have a close working relationship over the next several years through a Core Technology Development and License Agreement, a Support Services Agreement and an Antiviral and Surrogate Genetics Research Collaboration. Through the Technology Agreement, Microcide and Iconix will work together over the next three years to jointly develop and utilize new technology in the areas of molecular diversity, high throughput screening, biological and chemical informatics, and genome sciences, leveraging these capabilities across both companies. Pursuant to the Support Services Agreement, Microcide will provide Iconix with a number of services including accounting and finance, facilities, and various scientific support services. In addition, Microcide becomes Iconix's first corporate partner through a three-year Antiviral Research Collaboration. During this term, extendible at Microcide's option for two additional one-year periods, Iconix will apply Surrogate Genetics to a number of viral disease targets in the search for novel inhibitors. Microcide will provide Iconix with research support of $6.1 million over the three years of the collaboration. Microcide will have worldwide development, manufacturing and marketing rights to antiviral products which emerge from the collaboration and Iconix will receive milestone payments of $11 million for the first product and $10.5 million for subsequent products, in addition to royalties on worldwide sales.