Manufacturing Agreement

Exhibit 10.1

EXECUTION COPY

MANUFACTURING AGREEMENT
(KEFLEX)

This MANUFACTURING AGREEMENT (the " Manufacturing Agreement" ) is entered into as of June 30, 2004 (the " Effective Date" ), by and between Advancis Pharmaceutical Corporation (" Advancis" ), a corporation organized and existing under the laws of the State of Delaware, and Eli Lilly and Company (" Lilly" ), a corporation organized and existing under the laws of the State of Indiana. Advancis and Lilly are sometimes referred to herein individually as a " Party" and collectively as " Parties" .

RECITALS

WHEREAS, Lilly and Advancis have entered into an Asset Purchase Agreement of even date herewith (the " Asset Purchase Agreement" );

WHEREAS, subject to the terms and conditions set forth in this Manufacturing Agreement, Advancis wishes to have Lilly manufacture and supply certain pharmaceutical products to Advancis; and

WHEREAS, subject to the terms and conditions set forth in this Manufacturing Agreement, Lilly wishes to manufacture and supply such products for and to Advancis.

NOW, THEREFORE, in consideration of the premises, and for other good and valuable consideration, the Parties, intending to be legally bound, hereby agree as follows:


ARTICLE 1
DEFINITIONS

For purposes of this Manufacturing Agreement, the following terms will have the meanings set forth below:

1.1 Capitalized terms not otherwise defined herein will have the meaning given to them in the Asset Purchase Agreement. 1.2 " Asset Purchase Agreement" will have the meaning set forth in the first WHEREAS clause of this Manufacturing Agreement. 1.3 " Audit" means a review of facilities, processes, procedures and documents as described in Section 3.3 of this Manufacturing Agreement. 1.4 " cGMP" means current Good Manufacturing Practices pursuant to 21 C.F.R. a7a711,210 211 et seq. , as such may be amended from time to time. 1.5 " Contract Period" means the period beginning as of the Effective Date and ending on the date of expiration or termination of this Manufacturing Agreement pursuant to Article 8. 1.6 " Disputed Product" will have the meaning set forth in Section 5.3(b). 1.7 " Effective Date" will have the meaning set forth in the first paragraph of this Manufacturing Agreement. 1.8 " FDCA" means the Federal Food, Drug and Cosmetic Act (21 U.S.C. a7 301 et seq. ), as may be amended from time to time, together with any rules and regulations promulgated thereunder.

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1.9 " Forecast" will have the meaning set forth in Section 4.2. 1.10 " Initial Forecast" will have the meaning set forth in Section 4.2. 1.11 " Latent Defect" means a defect that causes the Product to fail to conform to the Specifications and that was not discoverable upon reasonable inspection and testing by Advancis at the time of receipt of the Product. 1.12 " Lilly Error" means any error due to the negligent performance, failure to perform or misconduct in the performance by Lilly or its officers, agents or employees of any obligation imposed upon or assigned to Lilly under this Manufacturing Agreement. 1.13 " Manufacturing Responsibility Document" or " MRD" , means an agreement between the Parties which sets forth additional written instructions regarding the manufacture and supply of Product. The MRD will be compiled and agreed upon by the Parties as soon as practicable after the Effective Date. In the event of conflict between the terms of the MRD on the one hand, and the terms of the Asset Purchase Agreement, this Manufacturing Agreement, or the Quality Agreement, on the other hand, the terms of the Asset Purchase Agreement, Manufacturing Agreement or Quality Agreement, as applicable, will govern. 1.14 " Manufacturing Sites" will have the meaning set forth in Section 2.2. 1.15 " NDA" means the United States New Drug Application 50-405 for Keflex, oral capsules and all other submissions, supplements or amendments as of the Effective Date pertaining thereto. 1.16 " Party" or " Parties" will have the meaning set forth in the first paragraph of this Manufacturing Agreement.

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1.17 " Product" means only the presentations of finished cephalexin pharmaceutical product set forth in Schedule 1.17 attached hereto marketed under the Assigned Trademarks in the United States. 1.18 " Purchase Prices" will have the meaning set forth in Section 2.2. 1.19 " Quality Agreement" means an agreement between the Parties which describes certain quality and regulatory responsibilities relating to the manufacture and release for sale of the Product by Lilly to Advancis. The Quality Agreement will be compiled and agreed upon by the Parties as soon as practicable after the Effective Date. The Quality Agreement will be subject to and not inconsistent with the terms of this Manufacturing Agreement and the Asset Purchase Agreement, and in the event of conflict between terms of this Manufacturing Agreement or the Asset Purchase Agreement, as applicable, on one hand, and the Quality Agreement on the other, this Manufacturing Agreement or the Asset Purchase Agreement, as applicable, will govern. Sections of the Quality Agreement may be modified from time to time through the issuance of a revised section signed on behalf of each of the Parties by an authorized representative incorporating the modification and stating the effective date and revision number of the modification; provided, however, that no such modification will be inconsistent with the terms of this Manufacturing Agreement and the Asset Purchase Agreement, and in the event of conflict between such modifications, on the one hand, and this Manufacturing Agreement or the Asset Purchase Agreement, on the other, this Manufacturing Agreement or the Asset Purchase Agreement, as applicable, will govern. A reference to " MRD/Quality Agreement" in this Manufacturing Agreement will mean the MRD and/or Quality Agreement as the context requires. 1.20 " Specifications" means the specifications for manufacturing and packaging the Product as set forth in the NDA and in Schedule 1.20 attached hereto. 1.21 " Supply Team" will have the meaning set forth in Section 10.1.

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1.22 " Territory" means the fifty (50) states and the District of Columbia constituting the United States of America, including Puerto Rico. 1.23 " Transition Period" means the period of time from [***] during which Lilly is providing transition services to Advancis pursuant to the Transition Services Agreement.

ARTICLE 2
PAYMENTS; PURCHASE AND PRICE OF PRODUCT;
CERTAIN TRANSITION MATTERS

2.1 Purchases During Transition Period.

(a) During the Transition Period, Advancis will purchase and Lilly will sell to Advancis Inventory for distribution and sale in Territory at the times and in the amounts set forth in the Transition Services Agreement.

(b) On [***], Advancis will purchase and Lilly will sell to Advancis all remaining amounts of Inventory not previously sold to Advancis pursuant to subparagraph (a) above.

(c) The quantity of Product comprising the Inventory will be applied towards Lilly' s maximum supply obligations set forth in Sections 4.1 and 4.3. Lilly will have no obligation to re-label or over-label the Inventory. Advancis will not re-label or over-label any Inventory without the prior written consent of Lilly, which consent will not be unreasonably withheld. Advancis shall purchase the Inventory at the Purchase Price as defined in Section 2.2 below. For quantities purchased during the Transition Period, payment shall be made in accordance with the Transition Services Agreement. At any time within 30 days following [***], representatives of Advancis shall have the right to physically inspect the Inventory purchased pursuant to subparagraph (b) above. To the extent that a variance exists between the quantity of Product purported to be sold to Advancis and the actual quantity shown by the inspection, the Parties agree to reconcile the difference within 30 days of Advancis providing notice to Lilly of such variance. The Parties shall mutually agree upon the procedures to be followed in any such inspection.

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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2.2 Purchases Following Transition Period.

(a) As of the end of the Transition Period and during the term of this Manufacturing Agreement, subject to the terms of this Manufacturing Agreement, Lilly will manufacture and supply Product (in addition to the Inventory) for and to Advancis during the Contract Period and Advancis will purchase from Lilly, Product for resale in the Territory during the Contract Period. Advancis will pay the purchase prices for Product set forth on Schedule 2.2A attached hereto (the " Purchase Prices" ). The Purchase Prices include all applicable freight and insurance expenses in order for the Product to be shipped in compliance with Section 4.5. The expiration date with respect to all Product purchased by Advancis pursuant to this Section 2.2 will be no earlier than [***] from the date of shipment from Lilly to Advancis. Lilly will have no obligation to manufacture or package Product for Advancis in any presentation not set forth in Schedule 1.17 . Schedule 2.2B lists Lilly' s and its Affiliates' sites where Product will be manufactured (the " Manufacturing Sites" ). Lilly may change from which Manufacturing Site it supplies at its sole discretion, so long as all Manufacturing Sites are NDA registered and FDA approved for the Product and provided that any change in Manufacturing Site does not create any delay in Lilly performing its obligations under this Manufacturing Agreement. Lilly shall provide Advancis with prior written notice of any change in Manufacturing Sites.

(b) Not later than [***], Advancis shall notify Lilly in writing whether Advancis desires Lilly to mount one final manufacturing campaign prior to the end of the Contract Period such that Advancis has Product supply for resale following the end of the Contract Period. Subject to the Purchase Maximums provided in Section 4.1 such notice shall specify the quantity of Product that Advancis desires to purchase. Lilly will use its commercially reasonable efforts to produce such Product prior to the expiration of the Contract Period, and Advancis shall purchase such Product at the Purchase Prices set forth in Schedule 2.2A .

(c) Lilly acknowledges and agrees that Advancis is not obligated to purchase any United States labeled Product in Lilly' s possession which is not included in the Inventory (the " Excess Product" ). Lilly shall either destroy the Excess

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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Product or donate the Excess Product to recognized charitable relief organizations (which may be based in the United States) for use outside the United States. The foregoing sentence shall not apply to the Lilly Finished Product Health Service Supplies. 2.3 Terms of Payment. Advancis agrees to pay all invoices within sixty (60) days from the date of the applicable invoice, provided that all invoices are dated the date of shipment of applicable Product. All payments to Lilly will be made by Federal Reserve wire transfer to an account previously designated in writing by Lilly. All payments made under this Manufacturing Agreement will be made in United States currency. Any payments not made when due shall be subject to interest as provided in Section 2.4 of the Asset Purchase Agreement. 2.4 Extension of Credit. Advancis acknowledges that Lilly will establish a credit line for Advancis to facilitate its purchases of the Product on the terms set forth in Section 2.3 and that Lilly may periodically review and adjust this credit line as it deems appropriate. In consideration for providing this credit line, Advancis agrees to provide Lilly, upon request, the financial information reasonably necessary for Lilly to perform credit reviews; provided, however, that if Advancis does not provide such information, or if Lilly' s analysis of that information does not meet Lilly' s standard credit approval guidelines, then Lilly will have the right to ask for cash in advance of shipment should Advancis experience a condition of insolvency, or if notice of intent to terminate has been issued pursuant to Section 8.2 of this Manufacturing Agreement. 2.5 Transition Services Agreement. Simultaneously herewith, the Parties shall execute and deliver the Transition Services Agreement pursuant to which, among other things, Lilly will provide warehousing, distribution and other transition services to Advancis, including sales and accounts receivable functions. During the term of the Transition Services Agreement, to the extent that any provision of this Manufacturing Agreement

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conflicts with the Transition Services Agreement, the Transition Services Agreement shall apply. 2.6 No Excuse. Notwithstanding any provision of this Manufacturing Agreement to the contrary, Advancis will not be excused from or relieved of its obligations to pay the amounts described in this Article 2 by any claimed or actual event of force majeure, commercial or other impracticability or impossibility, or frustration of essential purpose.

ARTICLE 3
MANUFACTURING AND QUALITY

3.1 Manufacturing. Lilly will manufacture, package, label, test, prepare for shipment and ship Product to Advancis from Lilly' s facilities, or the facilities of a Third Person under subcontract with Lilly, at the times and in the quantities set forth by Advancis in a purchase order pursuant to Section 4.3, subject, however, to the quantity restrictions set forth in Sections 4.1 and 4.2. Each shipment of Product: (i) will have been manufactured in accordance with cGMP in effect at the time of manufacture, (ii) will not be adulterated or misbranded by Lilly within the meaning of the FDCA, (iii) will not have been manufactured, sold or shipped in violation of any Applicable Laws in any material respect, and (iv) upon delivery to Advancis, FOB a common carrier located in the United States designated by Advancis, will convey good title to such Product to Advancis and such conveyance will be free and clear of any Encumbrance other than Encumbrances created by Advancis. Lilly will provide to Advancis with each shipment of Product appropriate documentation, to be mutually agreed upon by the Parties, confirming that the Product meets the Specifications then in effect, including a certificate of analysis and Lilly' s standard release documents 3.2 Modifications.

(a) Advancis will inform Lilly in writing as soon as reasonably practical of any proposed modification to the Specifications or analytical requirements (" Modification" ). For the purpose of this Section 3.2, the term Modification shall not

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include any proposed change to the Specifications that relates solely to the identification of the Parties, their respective trade names and trademarks or Third Person manufacturers, packers or distributors on the Current Labeling or the New Labeling (as such terms are defined in Article 5); such changes shall be governed solely by Article 5.

(b) If Lilly is willing and able to make a Modification, Lilly will inform Advancis in writing of the amount of any additional costs and expenses (including capital expenditures, regulatory and any other costs) Lilly would actually incur due to the Modification. If Advancis elects to adopt the Modification, Advancis will promptly reimburse Lilly for any required capital expenditures, regulatory and other costs associated with the Modification and the Purchase Price will be increased to reflect any increase in on-going Product manufacturing costs resulting from the Modification (exclusive of any indirect costs associated with capital expenditures actually paid for by Advancis). Any assets acquired by Lilly on Advancis' behalf pursuant to this Section 3.2 and paid for by Advancis will be maintained by Lilly in the normal course of business and, to the extent severable from Lilly' s facility without unreasonable damage or unreasonable disruption to such facility, returned to Advancis as soon as practicable after the termination or expiration of this Manufacturing Agreement. Advancis will also promptly pay for any additional analytical tests or any other additional requirements resulting from such Modifications. If Lilly is unable or unwilling to comply with a proposed Modification or if Advancis is unwilling to pay Lilly' s costs to implement a Modification or the increase in Purchase Price associated therewith, then Advancis will withdraw the proposed Modification and the Specifications will remain in full force and effect.

(c) Lilly will follow the above-described procedure, including the payment of any capital expenditures, regulatory and other costs, if it proposes a Modification. Lilly will not implement any Modification (other than with respect to minor changes to secondary packaging not otherwise prohibited under Section 5.1) without Advancis' prior written consent, which consent will not be unreasonably withheld. Either Party will notify the other as soon as practical of any Modifications that are required by Applicable Law and that could have an impact on such Party' s performance of this Manufacturing

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Agreement. Any such Modifications will be deemed (and treated as) Modifications proposed by Advancis under this Section 3.2; provided, however, that if Advancis is not willing to pay for such Modification that is required by Applicable Laws as described in this Section 3.2 or Lilly is unable to implement such Modification that is required by Applicable Laws after exercising commercially reasonable efforts, either Party may terminate this Manufacturing Agreement as of the earlier of (i) the date Applicable Laws require the implementation of such Modification that is required by Applicable Laws, or (ii) thirty (30) days after written notice from one Party to the other. Every proposed Modification will be treated separately. Notwithstanding the foregoing, Lilly shall not have the right to terminate this Manufacturing Agreement pursuant to this Section 3.2 if Advancis is unwilling to pay the additional costs associated with any Modification proposed by Lilly, other than Modifications that are required for regulatory reasons or otherwise reasonably necessary for Lilly to continue to manufacture Product in a commercially reasonable manner.

(d) In no event will Lilly be required to make (or not to make) a Modification that is prohibited (or required) by applicable regulations or regulatory authorities. Advancis will have sole responsibility for obtaining any and all necessary regulatory approvals from the FDA for Modifications and for reporting any Modifications to the FDA as appropriate.

(e) Lilly represents and warrants that as of the Effective Date it has no present intent to make any material Modifications for any reason, including any anticipated change in Applicable Laws. Lilly shall indemnify Advancis in accordance with Section 11 for any breach of this representation and warranty.

3.3 Quality Control and Assurance; cGMP Audit.

(a) Quality Control and Assurance . Lilly will manufacture the Product in compliance with the Specifications. Lilly will perform quality control and quality assurance testing on the Product to be delivered to Advancis hereunder in accordance with the Specifications, cGMP and the MRD/Quality Agreement.

(b) Access to Lilly Facilities by Advancis Representatives . Upon no less than fifteen (15) days' written notice to Lilly and no more than one time during the Contract

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Period, Lilly will permit Advancis to conduct an Audit of Lilly' s facilities related to the Product during regular business hours for the purpose of making quality control inspections to assure cGMP compliance of the facilities used in the manufacturing, receiving, sampling, analyzing, storing, handling, packaging and shipping of Product, including, but not limited to, in the receipt, storage and issuance of raw materials, labeling and packaging components, and ingredients thereof. Notwithstanding the immediately preceding sentence, in the event of either (i) a rejection of Product by Advancis pursuant to Section 5.3, because of a failure to meet Specifications (ii) a change in Manufacturing Site pursuant to Section 2.2(a), or (iii) a negative regulatory inspection that could impact Product quantity or supply of Product to Advancis, then Advancis will have the right to conduct one additional Audit under the provisions of this Section 3.3(b) during the Contract Period. Lilly shall notify Advancis immediately after a negative regulatory inspection that could impact Product quality or supply of product to Advancis. Any Advancis representatives will be advised of the confidentiality obligations of Article 9 below, and will follow such security and facility access procedures as are reasonably designated by Lilly.

Lilly may require that at all times the Advancis representatives be accompanied by a Lilly representative and that the Advancis representatives not enter areas of the facility used in production of the Product at times other than when the production of Product is occurring to assure protection of Lilly or Third Person confidential information. Lilly will provide Advancis with a written response to any written Audit observations provided by Advancis as soon as reasonably practicable, but in any event no later than forty-five (45) days of Lilly' s receipt thereof, provided, however, that Lilly will have no obligation to further act upon such Audit, but will consider the Audit in good faith.

(c) Safety Procedures . Lilly will have responsibility for developing, adopting and enforcing safety procedures for the handling and production of Product by Lilly and the handling and disposal of all waste relating thereto. Such responsibilities will terminate as to Product upon delivery thereof to Advancis' common carrier.

(d) Access to Advancis Facilities by Lilly Representatives. Upon no less than fifteen (15) days' written notice to Advancis and no more than one time during the Contract Period, Advancis will permit Lilly to conduct an Audit of the specific Advancis'

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facilities used in the receiving, sampling, analyzing, storing, handling, packaging and shipping of Product during regular business hours for the purpose of making quality control inspections to assure cGMP compliance. Notwithstanding the immediately preceding sentence, in the event of a rejection of Product by Advancis pursuant to Section 5.3, below, because of a failure to meet Specifications, then Lilly will have an additional right to conduct an Audit under the provisions of this Section 3.3. Any Lilly representatives will be advised of the confidentiality obligations of Article 9 below, and will follow such security and facility access procedures as are reasonably designed by Advancis. Advancis may require that at all times the Lilly representatives be accompanied by an Advancis representative and that the Lilly representatives not enter areas of the facility unrelated to the Product. Advancis will provide Lilly with a written response to any written Audit observations provided by Lilly within forty-five (45) days of Advancis' receipt thereof; provided, however, that Advancis will have no obligation to further act upon such Audit, but will consider the Audit in good faith. 3.4 Records and Accounting by Lilly. Lilly will, with respect to each lot of Product produced by it hereunder, for the longer of (i) any period required by Applicable Laws, or (ii) a period of one (1) year after the expiry of the expiration dating of such lot, keep accurate records of the manufacture and testing of the Product produced by it hereunder, including, without limitation, all such records which are required under Applicable Laws. Access to such records will be made available by Lilly to Advancis during normal business hours upon Advancis' reasonable written request. 3.5 Bulk Active Pharmaceutical Ingredient. Lilly currently obtains bulk active pharmaceutical ingredient (" API" ) used in Lilly' s manufacture of Product from [***]. Lilly will acquire, at its own cost and expense, the API in such quantities as are necessary to enable Lilly to manufacture and supply the desired quantities of the Product during the Contract Period. Lilly will perform all quality control procedures with respect to the API in accordance with the Specifications. Lilly will use its commercially reasonable efforts to secure an adequate supply of API from [***], or if practicable, an alternative supplier, but shall have no liability for any failure to perform by [***] or any alternative supplier. Lilly

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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shall also use its commercially reasonable efforts to cause [***] or any alternative supplier to cooperate with Advancis in connection with matters related to this Manufacturing Agreement, including granting Advancis the right to inspect [***] facilities.

ARTICLE 4
PURCHASE OF PRODUCT; FORECASTS

4.1 Maximum Purchase Amounts. Lilly will not be required to supply Advancis with more than the maximum quantities of Product specified in Schedule 4.1 during the Contract Period (the " Purchase Maximum" ). In the event Advancis requests Product in excess of the Purchase Maximum, Lilly agrees to discuss in good faith supplying Advancis with such quantities, but will have no obligation to so provide Advancis with such quantities. For purposes of this Manufacturing Agreement, Lilly will be deemed to have " supplied" Product to Advancis on the date that Lilly has delivered Product to Advancis in accordance with Section 4.5, below. 4.2 Forecasts.

(a) In addition to the notice provided in Section 2.2(b), within forty-five days following the Effective Date (the " Initial Forecast" ) and on or before the first day of each Calendar Quarter thereafter, Advancis will provide to Lilly Advancis' estimate of the total quantity of Product to be delivered for the following Calendar Quarter and the remaining Calendar Quarters of the Contract Period, broken down into calendar months (each a " Forecast" ). For each of the first three (3) Calendar Quarters of the Initial Forecast (Q3' 04, Q4' 04, Q1' 05), (i) Advancis will be obligated to purchase [***] of the quantities of Product forecasted pursuant to purchase orders submitted by Advancis to Lilly, and (ii) Lilly will, be obligated to supply Advancis with quantity ordered by Advancis unless the quantity exceeds [***] of the quantities of Product forecasted. Thereafter, for each remaining Calendar Quarter, Advancis will be obligated to purchase [***] of the quantities of Product forecasted for such Calendar Quarter in the Forecast in which such Calendar Quarter was the third (3rd) Calendar Quarter of the Forecast, and

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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Lilly will be obligated to supply Advancis with quantity ordered by Advancis unless the quantity exceeds [***] of the quantities of Product forecasted for such Calendar Quarter in the Forecast in which such Calendar Quarter was the third (3rd) Calendar Quarter of the Forecast. Except as otherwise set forth in this Section 4.2 or elsewhere in this Manufacturing Agreement, the Parties agree that the Forecasts will be for general planning purposes only, and will not be binding on Lilly or Advancis. The provisions of this Section 4.2(a) are subject to the maximum purchase obligations in Section 4.1.

(b) Unique and Unused Components or Materials. Reasonable quantities of unique components, or materials that are used in the manufacture of the Product, will be purchased by Lilly in reliance by Lilly on the Initial Forecast and each Forecast. If Advancis thereafter requests any change to the quantities previously forecasted for a Calendar Quarter in a Forecast that causes any obsolescence of any such unique components or materials purchased by Lilly, Advancis will be responsible to Lilly for the reasonable and direct costs and expenses actually incurred associated wi ...