Manufacturing Services Agreement Between Patheon Pharmaceuticals, Inc. And The Registrant Da

Exhibit 10.5


Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.


MANUFACTURING SERVICES AGREEMENT


BETWEEN


PATHEON PHARMACEUTICALS INC.


AND


CRITICAL THERAPEUTICS, INC.


May 9, 2007


TABLE OF CONTENTS


ARTICLE 1.................................................................. 1


INTERPRETATION............................................................. 1
1.1 DEFINITIONS....................................................... 1
1.2 CURRENCY.......................................................... 5
1.3 SECTIONS AND HEADINGS............................................. 5
1.4 SINGULAR TERMS.................................................... 5
1.5 SCHEDULES......................................................... 5


ARTICLE 2.................................................................. 6


PATHEON'S MANUFACTURING SERVICES........................................... 6
2.1 MANUFACTURING SERVICES......................................... . 6
2.2 STANDARD OF PERFORMANCE........................................ . 7


ARTICLE 3.................................................................. 9


CLIENT'S OBLIGATIONS....................................................... 9
3.1 PAYMENT........................................................... 9
3.2 TABLET CORES...................................................... 9


ARTICLE 4.................................................................. 10


CONVERSION FEES AND COMPONENT COSTS........................................ 10
4.1 FIRST YEAR PRICING................................................ 10
4.2 SUBSEQUENT YEARS' PRICING......................................... 10
4.3 ADJUSTMENTS TO PRICING............................................ 11
4.4 ADJUSTMENTS DUE TO TECHNICAL CHANGES.............................. 13
4.5 MULTI-COUNTRY MANUFACTURING AND PACKAGING REQUIREMENTS............ 13


ARTICLE 5.................................................................. 14


ORDERS, DELIVERY, INVOICING, PAYMENT, PRODUCT DEFICIENCIES................. 14
5.1 ORDERS AND FORECASTS.............................................. 14
5.2 RELIANCE BY PATHEON............................................... 14
5.3 MINIMUM ORDERS.................................................... 15
5.4 SHIPMENTS......................................................... 15
5.5 LATE SHIPMENT AND SHELF LIFE...................................... 15
5.6 INVOICES AND PAYMENT.............................................. 17


ARTICLE 6.................................................................. 17


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PRODUCT CLAIMS AND RECALLS................................................. 17
6.1 PRODUCT CLAIMS.................................................... 17
6.2 PRODUCT RECALLS AND RETURNS....................................... 19
6.3 DISPOSITION OF DEFECTIVE OR RECALLED PRODUCTS..................... 20
6.4 CUSTOMER QUESTIONS AND COMPLAINTS................................. 20
6.5 SOLE REMEDY....................................................... 20


ARTICLE 7.................................................................. 21


CO-OPERATION............................................................... 21
7.1 QUARTERLY REVIEW.................................................. 21
7.2 GOVERNMENTAL AGENCIES............................................. 21
7.3 RECORDS AND ACCOUNTING BY PATHEON................................. 21
7.4 INSPECTION........................................................ 22
7.5 ACCESS............................................................ 22
7.6 REPORTS........................................................... 22
7.7 FDA FILINGS....................................................... 22
7.8 TECHNOLOGY TRANSFERS.............................................. 23


ARTICLE 8.................................................................. 23


TERM AND TERMINATION....................................................... 23
8.1 INITIAL TERM...................................................... 23
8.2 TERMINATION BY PATHEON OR CLIENT.................................. 23
8.3 TERMINATION FOR CAUSE............................................. 23
8.4 PRODUCT DISCONTINUATION........................................... 24
8.5 PATHEON OBLIGATIONS ON TERMINATION................................ 24
8.6 CLIENT OBLIGATIONS ON TERMINATION................................. 25


ARTICLE 9.................................................................. 26


REPRESENTATIONS, WARRANTIES AND COVENANTS.................................. 26
9.1 AUTHORITY......................................................... 26
9.2 NON-INFRINGEMENT.................................................. 26
9.3 DEBARRED PERSONS.................................................. 27
9.4 PERMITS........................................................... 27
9.5 COMPLIANCE WITH LAWS.............................................. 27
9.6 NO WARRANTY....................................................... 27


ARTICLE 10................................................................. 28


REMEDIES AND INDEMNITIES................................................... 28
10.1 CONSEQUENTIAL DAMAGES............................................. 28


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10.2 LIMITATION OF LIABILITY........................................... 28
10.3 PATHEON........................................................... 28
10.4 CLIENT............................................................ 29


ARTICLE 11................................................................. 29


CONFIDENTIALITY............................................................ 29


ARTICLE 12................................................................. 30


DISPUTE RESOLUTION......................................................... 30
12.1 COMMERCIAL DISPUTES............................................... 30
12.2 TECHNICAL DISPUTE RESOLUTION...................................... 30


ARTICLE 13................................................................. 31


MISCELLANEOUS.............................................................. 31
13.1 INVENTIONS........................................................ 31
13.2 INTELLECTUAL PROPERTY............................................. 32
13.3 INSURANCE......................................................... 32
13.4 INDEPENDENT CONTRACTORS........................................... 32
13.5 NO WAIVER......................................................... 33
13.6 ASSIGNMENT........................................................ 33
13.7 FORCE MAJEURE..................................................... 33
13.8 ADDITIONAL PRODUCT................................................ 33
13.9 NOTICES........................................................... 34
13.10 SEVERABILITY...................................................... 35
13.11 ENTIRE AGREEMENT.................................................. 35
13.12 OTHER TERMS....................................................... 35
13.13 NO THIRD PARTY BENEFIT OR RIGHT................................... 36
13.14 EXECUTION IN COUNTERPARTS......................................... 36
13.15 GOVERNING LAW..................................................... 36


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MANUFACTURING SERVICES AGREEMENT


THIS MANUFACTURING SERVICES AGREEMENT (THE "AGREEMENT") made as of the 9th day of May, 2007 (the "EFFECTIVE DATE")


BY AND BETWEEN:


PATHEON PHARMACEUTICALS INC.,
a corporation existing under the laws of the State of
Delaware,


(hereinafter referred to as "PATHEON"),


- and -


CRITICAL THERAPEUTICS, INC.,
a corporation existing under the laws of the State of
Delaware,


(hereinafter referred to as the "CLIENT").


THIS AGREEMENT WITNESSES THAT in consideration of the rights conferred and the obligations assumed herein, and for other good and valuable consideration (the receipt and sufficiency of which are acknowledged by each party), and intending to be legally bound the parties agree as follows:


ARTICLE 1


INTERPRETATION


1.1 DEFINITIONS.


The following terms shall, unless the context otherwise requires, have the respective meanings set out below and grammatical variations of such terms shall have corresponding meanings:


"ACTIVE MATERIAL" means the compound
1-(1-benzo[b]thien-2-ylethyl)-1-hydroxyurea, also known as zileuton;


"TABLET CORE CREDIT VALUE" means the value to be attributed to the Tablet
Cores for the purposes of Section 2.3 of this Agreement, as set forth in
Schedule D hereto;


"AFFILIATE" means:


(a) a business entity which owns, directly or indirectly, a majority
interest in a party to this Agreement, by stock ownership or
otherwise; or


(b) a business entity at least 50% of which is owned by a party to this
Agreement, either directly or indirectly, by stock ownership or
otherwise; or


(c) a business entity, the majority ownership of which is directly or
indirectly common to the majority ownership of a party to this
Agreement;


"ANNUAL VOLUME" means the minimum volume of Product to be manufactured by
Patheon in any Year of this Agreement for purposes of calculating the fees
as set forth in Schedule B hereto;


"BATCH DOCUMENTATION" means all documentation relating to the production
and analysis of the Product including, but not limited to, executed
manufacturing and packaging batch records, in process and product release
test data, certificate of compliance with cGMPs and certificates of
analysis for all Products and Components, as set forth in Articles 3 and 4
of the Quality Agreement.


"BUSINESS DAY" means a day other than a Saturday, Sunday or a day that is a
statutory holiday in the State of Ohio and/or the Commonwealth of
Massachusetts;


"CGMPS" means current good manufacturing practices as described in Parts
210 and 211 of Title 21 of the United States' Code of Federal Regulations
together with the latest FDA guidance documents pertaining to manufacturing
and quality control practice, all as updated, amended and revised from time
to time;


"COMMENCEMENT DATE" means the first day upon which commercial manufacturing
of the Product shall commence;


"COMPONENTS" means, collectively, all packaging components, raw materials
and ingredients (including labels, product inserts and other labelling for
the Products), required to be used in order to produce the Products in
accordance with the Specifications, other than the Tablet Cores;


"CONFIDENTIALITY AGREEMENT" means the agreement relating to the
non-disclosure of confidential information between Patheon and the Client
dated February 27, 2007 and attached hereto as Schedule J;


"DEFICIENCY NOTICE" shall have the meaning ascribed thereto in Section
6.1(a);


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"EXW" means ex works, as that term is defined in INCOTERMS 2000;


"FDA" means the United States government department known as the Food and
Drug Administration;


"FIRM ORDERS" has the meaning specified in Section 5.1(b);


"INTELLECTUAL PROPERTY" includes, without limitation, rights in patents,
patent applications, formulae, trade-marks, trade-mark applications,
trade-names, Inventions, copyrights, and industrial designs;


"INVENTION" means information relating to any innovation, improvement,
development, discovery, computer program, device, trade secret, method,
know-how, process, technique or the like, whether or not written or
otherwise fixed in any form or medium, regardless of the media on which it
is contained and whether or not patentable or copyrightable;


"INVENTORY" means all inventories of Components and work-in-process
produced or held by Patheon in connection with the manufacture of the
Product.


"MANUFACTURE OR MANUFACTURING" means any steps, processes, and activities
necessary to produce the Product namely, the coating of zileuton
controlled-release tablet cores, including without limitation the
manufacturing, processing, packaging, labelling, quality control testing,
release or storage of Product;


"MANUFACTURING SERVICES" means the manufacturing, quality control, quality
assurance and stability testing, packaging and related services, as
contemplated in this Agreement, required to produce Product;


"MANUFACTURING SITE" means Patheon's facilities located at 2110 East
Galbraith Road, Cincinnati, Ohio;


"MINIMUM RUN QUANTITY" means the minimum number of batches of a Product to
be produced during the same cycle of manufacturing as set forth in Schedule
B hereto;


"PH. EUR." means the then current European Pharmacopeia;


"PRODUCT" means a coated controlled-release tablet formulation of the
Active Material as described in the NDA 20-052 submitted by Client to the
FDA;


"PRODUCTION" means the coating of controlled-release tablet cores;


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"QUALITY AGREEMENT" means the agreement dated May 9, 2007 entered into
between the parties hereto setting out the quality assurance standards to
be applicable to the Manufacturing Services provided by Patheon, which
agreement is attached hereto as Schedule G;


"SPECIFICATIONS" means the manufacturing processes, lists of tests,
references to any analytical procedures and appropriate criteria which are
numerical limits, ranges or other criteria for tests described in order to
establish a set of criteria to which each Product at any stage of
Manufacture should conform to be considered acceptable for its intended use
which is provided by the Client to Patheon in accordance with the
procedures listed in Schedule A hereto and which contains documents
relating to such Product, including, without limitation:


(a) specifications for Components and incoming controlled-release tablet
cores including the test methods for the Components and
controlled-release tablet cores;


(b) manufacturing specifications, directions and processes;


(c) storage requirements;


(d) all environmental, health and safety information relating to the
Product including material safety data sheets;


(e) the finished Product specifications, packaging specifications and
shipping requirements for the Product including test methods for the
Product; and


(f) the testing of Active Material on a contract basis, when required on
behalf of the Client for the purposes of release of Active Material
for use in the Product, in accordance with the requirements and test
methods defined in the NDA 20-052.


all as updated, amended and revised from time to time by the Client in
accordance with the terms of this Agreement;


"TABLET CORES" means uncoated controlled-release zileuton tablets.


"TECHNICAL DISPUTE" has the meaning specified in Section 12.2;


"TERRITORY" means in the geographic area of the United States, its
territories and possessions;


"THIRD PARTY RIGHTS" means the Intellectual Property of any third party;


"USP" shall mean the then current United States Pharmacopeia;


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"WAREHOUSE SITE" means Patheon Pharmaceuticals Inc., Blue Ash Warehouse,
4750 Lake Forest Drive, Cincinnati, OH 45242, USA


"YEAR" means in the case of the first year of this Agreement the period
from the Commencement Date up to and including December 31 of the same
calendar year, and thereafter shall mean a calendar year.


1.2 CURRENCY.


Unless otherwise indicated, all monetary amounts are expressed in this Agreement in the lawful currency of the United States of America.


1.3 SECTIONS AND HEADINGS.


The division of this Agreement into Articles, sections, subsections and Schedules and the insertion of headings are for convenience of reference only and shall not affect the interpretation of this Agreement. Unless otherwise indicated, any reference in this Agreement to a Section or Schedule refers to the specified Section or Schedule to this Agreement. In this Agreement, the terms "THIS AGREEMENT", "HEREOF", "HEREIN", "HEREUNDER" and similar expressions refer to this Agreement and not to any particular part, Section, Schedule or the provision hereof.


1.4 SINGULAR TERMS.


Except as otherwise expressly provided herein or unless the context otherwise requires, all references to the singular shall include the plural and vice versa.


1.5 SCHEDULES.


The following Schedules are attached to, incorporated in and form part of this Agreement:


Schedule A - Procedure for Shipment and Acceptance of Product
Specifications and Test Methods
Schedule B - Minimum Run Quantity, Minimum Annual Volume & Fees
Schedule C - Stability Testing
Schedule D - Tablet Core Credit Value
Schedule E - Batch Numbering & Expiration Dates
Schedule F - Technical Dispute Resolution
Schedule G - Quality Agreement
Schedule H - Quarterly Tablet Core Inventory Report


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Schedule I - Report of Annual Tablet Core Inventory Reconciliation and
Calculation of Actual Annual Yield
Schedule J - Confidentiality Agreement


ARTICLE 2


PATHEON'S MANUFACTURING SERVICES


2.1 MANUFACTURING SERVICES.


Patheon shall provide the Manufacturing Services for the Territory for the fees specified in Schedules B and C in order to produce Products for the Client solely at the Manufacturing Site. Tablet Cores, Products and Components shall only be stored at the Warehouse Site. If Manufacturing Services have not commenced within 12 months of the Effective Date, Patheon reserves the right to amend fees set out in Schedules B and C. Client shall purchase at least 50% of its requirements of Products for sale in the Territory for each Year of the Term from Patheon pursuant to the terms of this Agreement. In providing the Manufacturing Services, Patheon shall perform each of the following services:


(a) Tablet Coating. Patheon shall apply a gloss coat to Tablet Cores
supplied by or on behalf of the Client.


(b) Quality Control and Quality Assurance. Patheon shall perform the
quality control and quality assurance testing specified in the Quality
Agreement. Each time Patheon ships Products to the Client or the
Client's designated agent, Patheon shall provide the Client with a
certificate of analysis that sets out the test results for each batch
of Products, and that certifies that such batch has been evaluated by
Patheon's Quality Control/Quality Assurance department and that the
Products comply with the Specifications. At the same time, Patheon
shall provide the Client with a certificate of cGMPs conformance for
the Product. If requested by the Client, Patheon shall also provide
full manufacturing and packaging batch records and release raw data to
Client.


(c) Components. Patheon shall purchase all Components with the exception
of those that are supplied by the Client. Further, Patheon shall test
all Components to USP and EP standards or as otherwise specified by
the Specifications, at Patheon's expense.


(d) Stability Testing. Patheon shall conduct stability testing on the
Products in accordance with the protocols set out in the
Specifications for the separate fees specified in Schedule C. Patheon
shall not make any changes to these testing


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protocols without prior written approval from the Client. In the event
that any batch of Products fails stability testing, Patheon and the
Client shall jointly determine the proceedings and methods to be
undertaken to investigate the causes of such failure, including which
party shall bear the cost of such investigation, provided that Patheon
shall not be liable for any such costs unless there has been a failure
by it to provide the Manufacturing Services in accordance with the
Specifications and cGMPs. Patheon will provide any and all data and
results relating to the stability testing upon request by the Client.


(e) Packaging. Patheon shall package the Products with labels, product
inserts and other packaging as set out in the Specifications. In
addition, Patheon shall make arrangements for and implement the
imprinting of batch numbers and expiration dates for each Product
shipped. Such batch numbers and expiration dates shall be affixed on
the Products and on the shipping carton of each Product as outlined in
the Specifications and as required by cGMPs. The system used by
Patheon for batch numbering and expiration dates is detailed in
Schedule E hereto. The Client may, in its sole discretion, make
changes to labels, product inserts and other packaging for the
Products, which changes shall be submitted by the Client to all
applicable governmental agencies and other third parties responsible
for the approval of the Products. The Client shall be responsible for
the cost of labelling obsolescence when changes occur. Patheon hereby
consents to the use of its name on the Products label or anywhere else
on the Products.


2.2 STANDARD OF PERFORMANCE.


Patheon shall provide the Manufacturing Services in accordance with the Specifications and cGMPs.


2.3 COATED TABLET YIELD


(a) Reporting. On a quarterly basis, Patheon shall provide the Client
with an inventory report to include the following information:


QUANTITY RECEIVED: Number of Tablet Cores, listed by lot number,
received at the Manufacturing Site from or on behalf of the
Client which comply with the Specifications during the applicable
period. It is understood for the purposes of this Section 2.3
that the number of Tablet Cores is determined by Patheon using a
calculation based upon average Tablet Core weight and that
between the parties some variation in the number of Tablet Cores
may result. The parties agree that Patheon's calculation of the
number of Tablet Cores shall control.


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QUANTITY DISPENSED: The number of Tablet Cores, listed by lot
number, dispensed for coating during the applicable period and,
for certainty, shall not include Tablet Cores that must be
retained by Patheon as samples or used in connection with testing
(if applicable).


QUANTITY NOT DISPENSED: The number of Tablet Cores, listed by lot
number, which are not dispensed for coating due to insufficient
quantities for a validated pan-load size during the applicable
period.


QUANTITY CONVERTED: The total amount of Product tablets produced,
listed by lot number, delivered by Patheon and, except as
provided in Section 5.5(c), not rejected, recalled or returned in
accordance with Section 6.1 or 6.2 as a result of a failure by
Patheon to provide Manufacturing Services in accordance with
Specifications and cGMPs.


Within 60 days after the end of each Year, Patheon shall prepare an annual reconciliation of Tablet Cores in accordance with the reconciliation report form annexed hereto as Schedule I including the calculation of the "ACTUAL ANNUAL YIELD" or "AAY" for the Product at the Manufacturing Site during the Year, which AAY is the percentage of the Quantity Converted calculated as follows:


Quantity Dispensed during the Year
----------------------------------
Quantity Converted during the Year


After Patheon has produced a minimum of [**] commercial production batches of Product and has produced commercial and validation production batches for at least [**] months at a Manufacturing Site (collectively, the "TARGET YIELD DETERMINATION BATCHES") pursuant to this Agreement, the Parties will mutually agree on the target yield in respect of such Product at such Manufacturing Site (each, a "TARGET YIELD"); provided, however, that the Target Yield Determination Batches shall not include any batches that, in Patheon's reasonable judgment, were produced in production runs involving technical difficulties or involving an extraordinary loss of Tablet Cores. Thereafter, Patheon shall strive to maintain Actual Annual Yield levels for each Product above the applicable Target Yield.


(b) Shortfa ...