Second Amendment And Restated Development

CONFIDENTIAL


EXHIBIT 10.6


SECOND AMENDED AND RESTATED


DEVELOPMENT AND COMMERCIALIZATION AGREEMENT


between


ALZA CORPORATION


and


DURECT CORPORATION


*Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.


TABLE OF CONTENTS


PAGE


**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.


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SECOND AMENDED AND RESTATED
---------------------------
DEVELOPMENT AND COMMERCIALIZATION AGREEMENT
-------------------------------------------


This Second Amended and Restated Development and Commercialization Agreement (the "Agreement") is effective as of April 28, 1999 ("Effective Date") between ALZA Corporation, a Delaware corporation ("ALZA"), and Durect Corporation, a Delaware corporation ("Durect").


RECITALS
--------


A. ALZA and Durect have previously entered into that certain Development and Commercialization Agreement with an effective date of April 21, 1998 and subsequently entered into an Amended and Restated Development and Commercialization Agreement with an effective date of April 28, 1999 (collectively "Previous Agreement") for the development, manufacture and marketing of pharmaceutical products utilizing proprietary technology of ALZA relating to the DUROS(R) System for the controlled delivery of drugs in certain fields, as set forth herein.


B. The parties wish to amend such Previous Agreement and restate their understandings herein.


NOW THEREFORE, in consideration of the mutual covenants and agreements provided herein, the parties hereby agree as follows:


SECTION 1 - DEFINITIONS
-----------------------


For purposes of this Agreement, the following terms shall have the respective meanings set forth below:


1.1 "Affiliate" shall mean a corporation or any other entity that
--------- directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under


**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.


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common control with, the designated party, but only for so long as the relationship exists. "Control" shall mean ownership of shares of stock having at least 50% of the voting power entitled to vote for the election of directors in the case of a corporation, and at least 50% of the interests in profits in the case of a business entity other than a corporation.


1.2 "Catheter" shall mean a device for transporting Drug from the
-------- System to a specific anatomical site for delivery, which device is selected, identified or developed by Durect (and not by ALZA) for use in a Product.


1.3 "Commercialization" shall mean the ongoing process and activities
----------------- generally engaged in by a company marketing life-science products to establish and maintain a nationwide presence for a product, including, but not limited to offering for sale, selling, marketing, promoting, distributing and importing such product.


1.4 "Confidential Information" shall mean all non-public Technical
------------------------ Information, whether in oral, written or other tangible form that one party discloses to the other under this Agreement and designates as confidential at the time of disclosure or within 30 days thereafter.


1.5 "Development Costs" shall mean ALZA's fully-allocated costs of
----------------- performing the development activities for the Program, as calculated in accordance with Exhibit E.


1.6 "Drug" shall mean an active pharmaceutical agent, in its pure
---- form or in a formulation, that is incorporated in a System to create a Product under the terms and conditions of this Agreement.


1.7 "Durect Field" shall mean, subject to modification under the
------------ terms of this Agreement, one of the following fields of use, and no others:


(a) "CNS Field" shall mean delivery of drugs for the treatment of
--------- pain, [* * *] directly into a component of the central nervous system from an implantable pump via a catheter; provided, however, solely with respect to a Product using Sufentanil as the Drug, there shall be no requirement that the Drug be delivered via a catheter.


(b) "Middle/Inner Ear Field" shall mean delivery of drugs
---------------------- directly into the middle and/or inner ear from an implantable or external pump via a catheter.


**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.


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(c) "Pericardium Field" shall mean delivery of drugs directly
----------------- into the pericardial sac from an implantable pump via a catheter.


(d) "Vascular Graft Field" shall mean delivery of drugs
-------------------- consisting of and limited to [* * *] directly into vascular grafts from an implantable pump via a catheter .


(e) "Cancer Antigen Field" shall mean delivery from an
-------------------- implantable pump of an anti-cancer antigen from the list of anti-cancer antigens attached hereto as Exhibit A or a combination of such anti-cancer antigens, solely for treatment by immunization therapy. Such list of anti-cancer antigens may be reviewed for additions or deletions from time to time by representatives of ALZA and Durect, such determination to be made by mutual written agreement at the discretion of each party.


To provide further clarification, the Durect Fields shall not include applications of any ALZA drug delivery technology other than applications of DUROS(R) Technology as set forth in this Agreement.


1.8 "DUROS(R) Technology" shall mean all Technical Information
------------------- relating to the System.


1.9 "FDA" shall mean the United States Food and Drug Administration
--- or any successor United States governmental agency performing similar functions with respect to pharmaceutical products.


1.10 "IND" shall mean the application for Investigation of a New Drug
--- submitted to the FDA.


1.11 "Intellectual Property Rights" shall mean trade secrets, patents,
---------------------------- copyrights, know-how and similar rights of any type under the laws of any governmental authority, domestic or foreign, including all applications and registrations relating to any of the foregoing.


1.12 "Major Market Country" shall mean any one of Canada, France,
-------------------- Germany, Italy, Japan, the United Kingdom and the United States.


1.13 "Minimum Payments" shall have the meaning set forth in Section
---------------- 6.2 hereof.


**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.


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1.14 "Minimum Payment Year" shall mean a period of four consecutive
-------------------- Payment Computation Periods beginning with the first day of the Payment Computation Period following the Payment Computation Period during which all necessary regulatory approvals to market the Product in a Major Market Country have been received, and each successive four Payment Computation Periods thereafter. The first four Payment Computation Periods shall be the First Minimum Payment Year; the next four Payment Computation Periods shall be the Second Minimum Payment Year; etc.


1.15 "NDA" shall mean a "New Drug Application," "Product License
--- Application," or other application for approval to market a product submitted to the FDA, as amended or supplemented from time to time.


1.16 "Net Sales" shall mean the amounts invoiced on sales of a Product
--------- by Durect and its Affiliates and Subcontractors to independent, unrelated third parties in bona fide arms-length transactions, less the following deductions actually allowed by Durect, its Affiliates and Subcontractors and taken by such third parties and not otherwise recovered by or reimbursed to Durect, or its Affiliates or Subcontractors: (i) trade, cash and quantity discounts; (ii) taxes or government charges levied on the sale of Product to the extent added to the sales price and set forth separately as such in the amount invoiced; (iii) amounts repaid or credited by reason of rejections, defects or returns or because of rebates or retroactive price reductions; and (iv) delivery charges (including transportation and insurance costs) actually included in the Net Sales invoiced. Net sales shall not include the prices charged (at fair market value) for separate products such as catheter access devices, syringes, gloves, and gauze pads, that may be either sold separately from the Product or bundled with the Product in the form of a kit; provided, however, that any Net Sales shall be deemed to include the amount or fair market value of any consideration (other than consideration described in Section 6.1(b)) received by Durect or its Affiliates or Subcontractors that can be attributable to a Product, whether such consideration is in cash or payments in kind. Net Sales shall not include sales of a Product between or among Durect and its Affiliates and Subcontractors.


**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.


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1.17 "Payment Computation Period" shall mean each three month period,
-------------------------- or any portion thereof, ending March 31, June 30, September 30, or December 31 of each year during the term of this Agreement.


1.18 "Primary Field" shall mean the [***].
-------------


1.19 "Product" shall mean at any time: (i) any human pharmaceutical
------- product consisting of a Drug incorporated in or combined with a System and (except in cases where the Durect Field definition does not require a catheter) Catheter, which product is: (A) designed for use in a Durect Field; and (B) selected as a Product under Section 2.2; or (ii) another product that is substantially similar to the Product of clause (i), for example, a different strength (i.e., a different amount of active ingredient delivered in the same
---- pattern and by the same route of administration), or having only cosmetic changes such as size, color, shape, etc., or similar nontherapeutic changes.
----


1.20 "Product Candidate" shall mean any human pharmaceutical product
----------------- consisting of a Drug incorporated in or combined with a System and (except in cases where the Durect Field definition does not require a catheter) Catheter, which product is designed for use in a Durect Field and which enters the Screening Stage of development (as described in Exhibit C). Product Candidates shall be listed on Schedule 1, which Schedule shall be amended from time to time as required by adding those Product Candidates in accordance with Section 2.1 and deleting those Product Candidates that have become Products or are no longer being developed as provided hereunder. A Product Candidate shall become a Product when it enters the Feasibility Stage of development (as described in Exhibit C).


1.21 "Product Payments" shall mean the payments described in Section
---------------- 6.1.


1.22 "Program" shall mean all activities for developing and obtaining
------- regulatory approval to Commercialize Product(s) developed under this Agreement in the Durect Fields in the Territory.


1.23 "Program Information" shall mean any Technical Information
------------------- developed or acquired by either party and/or a Subcontractor under or in connection


**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.


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with the Program, and any Technical Information developed by one party using any other Program Information or any of the other party's Confidential Information.


1.24 "Regulatory Data" shall mean the medical, toxicological,
--------------- pharmacological and clinical data included within Technical Information to the extent necessary to, required for, or included in any governmental regulatory filing to obtain or maintain regulatory approval to market a Product.


1.25 "Secondary Fields" shall mean the [***].
----------------


1.26 "Subcontractors" shall mean any third party persons or entities
-------------- (other than wholesalers) to which Durect or any Durect Affiliate directly or indirectly grants any right to Commercialize a Product as provided for hereunder.


1.27 "Supply Agreement" shall mean an agreement for the supply of
---------------- Durect's, its Affiliates' and Subcontractors' total requirements of each Product by ALZA, referenced in Section 5.6.


1.28 "Subterritory" shall mean one of the following:
------------


Subterritory A -- The United States, Canada and Mexico.
Subterritory B -- European Community
Subterritory C -- Japan and the Far East (as described in Exhibit
D).
Subterritory D -- All other countries of the Territory


1.29 "System" shall mean a drug delivery system which includes and is
------ contained within an implantable (or externally worn) osmotic pump intended to function by releasing the active agent or agents on a controlled basis. The term "System" shall include all materials, technology and attributes contained within, or incorporated in the osmotic pump (other than the Drug itself) and shall include the formulation and stabilization of a therapeutic agent (such as the Drug) in the System. The System shall not include a Catheter as defined in Section 1.2, or (except to the extent agreed upon in writing by the parties) any docking mechanism or other components used to connect a Catheter to the osmotic pump, and shall not include by way of example, any delivery system that is ingested in the gastrointestinal tract or that delivers drug through substantially intact skin.


**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.


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1.30 "Technical Information" shall mean know-how, trade secrets,
--------------------- formulations, inventions, data (including Regulatory Data), technology, processes and information necessary or useful to the Products and/or the Program, which a party hereto has the lawful and contractual right to disclose to the other party, and any and all Intellectual Property Rights therein and thereto. "Technical Information" shall include, without limitation, processes and analytical methodology used in development, testing, analysis and manufacture, and medical, clinical, toxicological and other scientific data. Notwithstanding the foregoing, "Technical Information" shall not include trademarks. Subject to the foregoing, ALZA Technical Information shall include: (A) DUROS Technology (including but not limited to all information relating to manufacture of Systems) and any other Technical Information owned by or licensed to ALZA prior to April 21, 1998; (B) ALZA's Program Information (as set forth in Section 8.1); and (C) Technical Information developed by ALZA outside the Program after April 21, 1998 ("ALZA Technical Information"); and Durect Technical Information shall include: (a) Technical Information owned by or licensed to Durect prior to April 21, 1998; (b) Durect's Program Information (as set forth in Section 8.1); and (c) Technical Information developed by Durect outside the Program after April 21, 1998 ("Durect Technical Information").


1.31 "Territory" shall mean all of the countries of the world, but
--------- shall exclude, for any Product: (i) countries which may be eliminated from the Territory from time to time in accordance with this Agreement, and (ii) any countries for which Durect does not have rights to commercialize the Drug incorporated in such Product.


1.32 "Work Plan" and "Cost Estimate" shall have the meaning set forth
--------- ------------- in Section 2.3.


SECTION 2- DEVELOPMENT PROGRAM
------------------------------


2.1 Product Development. Subject to the terms and conditions herein,
------------------- Durect shall diligently develop Products under the Program in accordance with this Agreement, including making available such of its personnel, and taking such steps as are


**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.


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reasonably necessary, in order to carry out its obligations. In the event Durect desires to initiate development work on a new product, it shall send to ALZA a written notice setting forth a description of the proposed new product and projected target dates for the filing of an IND, start of Phase III and filing of an NDA (each a "Milestone"), which target dates shall be reasonable by industry standards and shall be consistent with the timeline used by Durect for internal planning and presentation to investors. Upon ALZA's written approval of the target dates for the Milestones, which approval shall not be unreasonably withheld, the proposed new product shall be added as a Product Candidate to Schedule 1. From time to time, the parties will review the target dates for the Milestones in good faith and, by mutual written agreement, revise and update the target dates if necessary. Durect shall notify ALZA in writing when a Product Candidate is ready to pass into the clinical development stage as outlined in Exhibit C, in which event it shall be added as a Product to Schedule 2. Subject to the terms and conditions of this Agreement, the addition or deletion of a Product Candidate or Product to Schedule 1 or Schedule 2 shall be determined based on the reasonable, good faith judgment of Durect, provided that any proposed Product Candidate or proposed Product will not be added in the event that: (i) such proposed Product Candidate or proposed Product was within the past 12 months removed by ALZA from the Program pursuant to Section 2.5; or (ii) ALZA determines, reasonably and in good faith, based on medical or technical reasons, that the proposed Product Candidate or proposed Product is not suitable for development because development or Commercialization of such proposed Product or Product Candidate would be likely to be harmful to the reputation of ALZA and/or DUROS Technology, provided, however, that: (a) ALZA's determination pursuant to this clause (iii) shall be subject to review by a mutually acceptable third party expert in the event of disagreement by the parties as to such determination, and (b) ALZA shall not initiate development of such proposed Product Candidate (or proposed Product), pursuant to Section 5.3 or otherwise, for its own account or with a third party for a period of [***] years from the date of ALZA's determination without first proposing such proposed Product Candidate (or proposed Product) to Durect for development and providing Durect with a period of [***] days in which to accept or reject such proposed Product Candidate (or


**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.


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Proposed Product) in writing and diligently initiate development under the terms of this Agreement.


2.2 Sharing of Information.
----------------------
During the term of this Agreement, representatives of ALZA and Durect shall meet within 30 days after the end of each calendar quarter, unless mutually agreed to by the parties, to discuss and provide information regarding the status of development, clinical programs, regulatory applications and development costs and expenses incurred for the Products and Product Candidates listed on Schedules 1 and 2 including without limitation progress against diligence obligations. Upon request by ALZA or Durect, the parties shall also meet from time to time to discuss improvements made to the System by each party. In addition, each party shall promptly provide any information as reasonably requested by the other party from time to time regarding its activities and progress with respect to the Program. The information exchanged by the parties pursuant to this Section 2.2 shall be in confidence subject to the terms of Section 4.1.


2.3 Work Plans and System Development.
---------------------------------
(a) In the event that Durect desires that ALZA provide certain development services relating to any Product or Product Candidate, and ALZA agrees to provide such services to Durect, Durect and ALZA shall develop a mutually acceptable development plan ("Work Plan") for each Product Candidate (or Product) which shall set forth: (i) the development activities to be performed by ALZA and estimated time schedule therefor; (ii) and the estimated Development Costs therefor ("Cost Estimates"); which Work Plans and Cost Estimates shall be signed by an authorized officer of each party. ALZA shall diligently perform those development activities assigned to it under the Work Plan and shall use diligent efforts to complete tasks in the Work Plan in an expeditious and cost-effective manner.


(b) Development work for the System may be performed by Durect or ALZA (to the extent agreed upon in the Work Plans). Durect shall have the right to subcontract to third parties development of System components (but not


**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.


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System design). The subcontracting of all other System development work will be subject to the prior written consent of ALZA. If Durect desires to subcontract out the development of System components as permitted herein to any third party, prior to providing any information relating to Systems to such third party, Durect shall notify ALZA of the identity of such third party, and Durect shall enter into a confidentiality and invention assignment agreement with such third party in a form previously approved by ALZA which expressly makes ALZA a third- party beneficiary of such agreement and permits ALZA to directly enforce its terms. Unless agreed to in writing by ALZA, the rights granted to Durect to perform development work for the System pursuant to this Section 2.3 shall terminate after a change in control of Durect in which Durect becomes controlled by a third party company, in which event ALZA shall have the right to elect to perform all development work relating to the System and ALZA and Durect shall enter into a Work Plan for such System development work which shall provide for the continued diligent performance of such System development work so as to minimize disruption of Product timelines. If ALZA elects not to perform development work relating to the System after such change in control, then Durect shall continue to have the right to perform development work relating to the System as set forth in this Section 2.3. For the purposes of this Section 2.3, "control" shall have the same meaning as set forth in Section 1.1. All other Product development activities may be performed by Durect, ALZA (to the extent agreed upon in Work Plans) or subcontracted to third parties.


2.4 Development Payments. In consideration for ALZA's work on the
-------------------- Program, Durect shall pay to ALZA its Development Costs provided that Durect shall not be obligated to pay Development Costs in excess of those provided for in approved Work Plans and Cost Estimates, and ALZA shall not be obligated to perform work-which would result in Development Costs exceeding such approved Cost Estimates.


2.5 Durect Field(s) Diligence and Loss of Rights. Durect shall
-------------------------------------------- approve, fund and take other actions necessary to provide for development of Products in each of the Durect Fields in accordance with the minimum diligence requirements set forth in Exhibit F, and to pursue and fund proof of principle work for Products in the Secondary


**Material has been omitted pursuant to a request for confidential treatment, and such material has been filed separately with the SEC.


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Fields in accordance with Exhibit F. If Durect fails to meet the diligence requirements relating to a Durect Field as set forth in Exhibit F, for which such failure continues for [* * *] days after-the delivery of written notice thereof by ALZA, then ALZA's sole and exclusive remedy shall be to terminate the restrictions on ALZA provided for in Section 5.3 upon written notice from ALZA solely in the Durect Field in which such requirements were not met (or such Durect Field as is otherwise provided for in Exhibit F under "Consequences for Fields"), in which event such Durect Field shall be deemed to be eliminated from the "Durect Fields" definition, and thereafter no Product Candidates shall be added to Schedule 1 within such Durect Field and no Products shall be added to Schedule 2 for such Durect Field except for those Product Candidates existing at the time of such elimination and for which the screening stage has been or subsequently is successfully completed. Notwithstanding the elimination of any Durect Field hereunder, Durect shall continue to have rights to the Product Candidates and Products already included in Schedules 1 and 2 as of the date that such field is eliminated so long as it continues to meet its obligations for such Product Candidates and/or Products, including those set forth in Exhibit F, provided, however, that if Durect fails to meet such obligations with respect to a Product Candidate or Product and such failure continues for [* * * ] days after the delivery of written notice thereof by ALZA, then ALZA may eliminate such Product Candidate or Product from this Agreement and ALZA shall have the rights set forth in Section 11.6.


2.6 Regulatory Activities.
---------------------
(a) Durect shall diligently take all steps necessary to obtain regulatory approval to market each Product in each Major Mark ...