Manufacturing Services Agreement

EXHIBIT 10.3

*(NOTE: CERTAIN PORTIONS OF THIS DOCUMENT HAVE BEEN MARKED TO INDICATE THAT CONFIDENTIAL INFORMATION HAS BEEN OMITTED, CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THIS CONFIDENTIAL INFORMATION. THE CONFIDENTIAL PORTIONS HAVE BEEN PROVIDED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION)

Execution Version

MANUFACTURING SERVICES AGREEMENT

This MANUFACTURING SERVICES AGREEMENT (" Agreement" ) is made this 11th day of September, 2007, by and between Catalent Pharma Solutions, LLC, having a place of business at 2200 Lake Shore Drive, Woodstock, Illinois 60098, USA (" Catalent" ) and Inspire Pharmaceuticals, Inc. (" Inspire" ), having its principal place of business at 4222 Emperor Boulevard, Suite 200, Durham, North Carolina 27703, USA.

A. Catalent provides contract pharmaceutical development, manufacturing, packaging, analytical, and sales and marketing services to the pharmaceutical industry.

B. Inspire has certain technology relating to the certain pharmaceutical product and wants Catalent to assist in the manufacture, filling, packaging and testing of such products as provided in this Agreement and the attachments hereto.

C. Inspire desires to engage Catalent to provide certain services to Inspire in connection with the processing of Inspire' s Product (defined below); and Catalent desires to provide such services pursuant to the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants, terms and conditions set forth below, the parties agree as follows:

ARTICLE 1 DEFINITIONS

The following terms have the following meanings in this Agreement:

1.1" Affiliate(s)" means any corporation, firm, partnership or other entity which controls, is controlled by or is under common control with a party. For purposes of this definition, " control" shall mean the ownership of at least fifty percent (50%) of the voting share capital of such entity or any other comparable equity or ownership interest; provided, that Affiliates of Catalent shall not include any entity that controls PTS Holdings Corp. or any entity controlled by or under common control with any such controlling entity (other than PTS Holdings Corp. and entities controlled by it). 1.2" API" means the active pharmaceutical ingredient for the Product, which has been released by Inspire and provided to Catalent, along with a certificate of analysis, as provided in this Agreement.

1.3

" Applicable Laws" means all laws, ordinances, rules and regulations within the Territory applicable to the Processing of the Product or any aspect thereof and the obligations of Catalent or Inspire, as the context requires under this Agreement, including, without limitation, (i) all applicable federal, state and local laws and regulations of each Territory;


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(ii) the U.S. Federal Food, Drug and Cosmetic Act, and (iii) the Good Manufacturing Practices promulgated by the Regulatory Authorities, as amended from time to time (" GMPs" ).

1.4" Batch" means a specific quantity of a Product comprising a number of units of Product mutually agreed upon between the parties, and that (a) is intended to have uniform character and quality within specified limits, and (b) is Processed according to a single manufacturing order during the same cycle of Processing. 1.5" Calendar Quarter" means a period of three (3) consecutive months commencing on January 1, April 1, July 1 or October 1 of any calendar year.

1.6" Confidential Information" shall have the meaning set forth in Section 11.2. 1.7" Contract Year" means each consecutive twelve (12) month period beginning on the Effective Date and each anniversary thereof. 1.8" Defective Product" shall have the meaning set forth in Section 5.2.

1.9" Dispute" shall have the meaning set forth in Section 18.9.

1.10" Dosage Container" means any final dosage form container(s) the parties may agree upon in writing from time to time. 1.11" Effective Date" means the date this Agreement was fully executed.

1.12" Facilities" means Catalent' s facilities located in Woodstock, Illinois or such other facility as agreed in writing by the parties. 1.13" FDA" means the United States Food and Drug Administration.

1.14" Firm Commitment" shall have the meaning set forth in Section 4.2.

1.15" Inspire Materials" shall have the meaning set forth in Section 3.1.

1.16" Intellectual Property" means all intellectual property (whether or not patented), including without limitation, patents, patent applications, know-how, trade secrets, copyrights, trademarks, designs, concepts, technical information, manuals, standard operating procedures, instructions or specifications.

1.17" Minimum Requirement" shall have the meaning set forth in Section 4.1.

1.18

" Process" , " Processed" , or " Processing" means the sterile compounding, filling, producing and/or packaging of the API, other Inspire Materials and Raw Materials into Product, and any testing, labeling, storage, release, shipment and/or disposal of any of the foregoing, in each case in accordance with the Specifications and the terms and


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conditions set forth in this Agreement.

1.19" Processing Date" means the day on which the Product is to be first Processed by Catalent. 1.20" Producer Price Index" means the index known as the United States Bureau of Labor Statistics, Producer Price Index, Pharmaceutical Preparation Manufacturing (Series ID: PCU325412325412), not seasonally adjusted, as it appears in the periodical PPI Detailed Report as published for the region in which the Facility is located, or a comparable successor index. 1.21" Product" means the fully compounded bulk drug solution Processed into Dosage Containers and packaged in accordance with the Specifications. 1.22" Purchase Order" shall have the meaning set forth in Section 4.3.

1.23" Raw Materials" means all raw materials, supplies, components and packaging necessary to manufacture and ship the Product in accordance with the Specifications, as provided in Exhibit A , but not including the API or other Inspire Materials.

1.24" Regulatory Authority" means any governmental regulatory authority within a Territory involved in regulating any aspect of the development, manufacture, market approval, sale, distribution, packaging or use of the Product.

1.25" Rolling Forecast" shall have the meaning set forth in Section 4.2.

1.26" Specifications" means the procedures, requirements, standards, quality control testing and other data and the scope of services set forth in (i) the master batch record and/or master packaging batch record applicable to the Product, as amended in accordance with the terms of Article 8 of this Agreement, (ii) Exhibit A and (iii) any additional specifications. 1.27" Term" shall have the meaning set forth in Section 15.1.

1.28" Territory" means the United States of America and Canada (upon approval by the Canadian Regulatory Authority). 1.29" Unit Pricing" shall have the meaning set forth in Section 7.1.

ARTICLE 2

VALIDATION, PROCESSING & RELATED SERVICES 2.1 Supply and Purchase of Product . During the Term, Catalent shall Process the Inspire Materials and the Products at the Facility in accordance with the Specifications, the Applicable Laws and the terms and conditions of this Agreement and the Quality Agreement. Inspire shall purchase the Product from Catalent in accordance with the terms and conditions of this


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Agreement.

2.2 Other Related Services . Catalent shall provide other services upon terms and conditions agreed to by the parties in writing from time to time.

ARTICLE 3

MATERIALS

3.1 API . Inspire shall supply or cause to be supplied to Catalent for Processing, at Inspire' s sole cost, the API and applicable reference standards in quantities sufficient to meet Inspire' s requirements for the Product as further set forth in Article 4. Prior to delivery of any of the API or reference standard to Catalent for Processing, Inspire shall provide to Catalent a copy of the API Material Safety Data Sheet (" MSDS" ), if any, as amended, and any subsequent revisions thereto. Inspire shall supply the API, reference standards, and certificate of analysis [CONFIDENTIAL] (INCOTERMS 2000) the Facility no later than sixty (60) days before the scheduled Processing Date upon which such API will be used by Catalent. Upon receipt of the API, Catalent shall conduct identification testing of the API. Catalent shall use the API and any other materials (if any) supplied by Inspire to Catalent, including derivatives thereof (such API, other materials and derivatives, collectively " Inspire Materials" ), solely and exclusively for Processing under this Agreement. All Inspire Materials are and shall at all times remain the sole property of Inspire, whether such Inspire Materials remain unused or are contained in any work-in-progress or finished product, and may not be provided to any third parties. In the event that Catalent' s negligence, willful misconduct, or breach of any representation, warranty or obligation in this Agreement results in loss, destruction or damage to Inspire Materials such that they cannot be used in connection with Processing under this Agreement, subject to Section 16.1 hereof, Catalent shall reimburse Inspire for Inspire' s cost of replacement Inspire Materials to replace such lost, destroyed or damaged Inspire Materials. Inspire Materials shall be returned to Inspire upon the earlier of (a) Inspire' s request or (b) the termination or expiration of the term of this Agreement. In the alternative, if Inspire requests that Inspire Materials be destroyed, Catalent shall destroy such Inspire Materials at Inspire' s expense and certify in writing that such Inspire Materials have been destroyed in accordance with all Applicable Laws. Catalent shall provide to Inspire monthly reports of all API in its possession.

3.2 Raw Materials . Catalent shall be responsible for procuring, inspecting, testing and releasing adequate Raw Materials as necessary to meet the Firm Commitment, unless otherwise agreed to by the parties in writing. If Inspire requires a specific supplier for any Raw Material, Inspire shall be responsible for the timeliness, quantity and quality of supply of such Raw Materials. Inspire will be responsible for all costs associated with qualification of a new supplier of a Raw Material not previously qualified by Catalent. Unless a particular Raw Material can be replaced with the same raw material from another supplier, Catalent shall not be liable for any delay in delivery of Product if (i) Catalent is unable to obtain, in a timely manner, a particular Raw Material necessary to Process the Product, and (ii) Catalent placed orders for such Raw Materials promptly following receipt of Inspire' s Firm Commitment.

3.3 Artwork and Packaging . Inspire shall provide or approve, prior to the procurement of applicable components, all artwork, advertising and packaging information necessary to Process


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the Product. Such artwork, advertising and packaging information is and shall remain the exclusive property of Inspire, and Inspire shall be solely responsible for the content thereof. Such artwork, advertising and packaging information or any reproduction thereof may not be used by Catalent following the termination of this Agreement, or during the Term of this Agreement in any manner other than solely for the purpose of performing its obligations hereunder.

3.4 Reimbursement for Materials . In the event of (i) a Specification change for any reason, (ii) termination by Catalent pursuant to Section 15.2(a) or expiration of this Agreement; or (iii) obsolescence of any Raw Material in Catalent' s inventory, Inspire shall bear the cost of any unused Raw Materials resulting therefrom, provided that Catalent purchased such Raw Materials in quantities consistent with the first three (3) months of Inspire' s Rolling Forecast and any minimum purchase obligations required by the Raw Material supplier, and provided further that Catalent shall use reasonable commercial efforts to mitigate such costs by using any such unused Raw Materials in the manufacture of other products. Upon Inspire' s request, Catalent will provide Inspire with documentary proof of its mitigation efforts under this section.

ARTICLE 4

MINIMUM COMMITMENT, PURCHASE ORDERS & FORECASTS

4.1 Minimum Requirement . During each Contract Year, Inspire shall purchase the minimum number of units of Product (" Minimum Requirement" ) set forth on Exhibit B . The Purchase Order (defined below) placed pursuant to Section 4.3 for the last full or partial Calendar Quarter, as may be the case, of each Contract Year shall be in an amount equal to the difference between (i) the Minimum Requirement and (ii) the aggregate volume of all units purchased during such Contract Year. Such Purchase Order may have a delivery date any time prior the end of the first full Calendar Quarter of the subsequent Contract Year; provided, however, that in no event will units of Product ordered pursuant to such Purchase Order and delivered during the subsequent Contract Year be included when determining Inspire' s compliance with such subsequent Contract Year' s Minimum Requirement. Notwithstanding the foregoing, Inspire' s obligation to purchase any Minimum Requirement under this Section 4.1 shall be reduced for any Contract Year by the number of units of Product within the [CONFIDENTIAL] therefor (other than delays due to investigations required under the Quality Agreement for deviations or out of specification determinations or delays caused by Inspire' s failure to comply with its obligations under this Agreement) during the applicable Contract Year. 4.2 Forecast . On or before the first (1 st ) day of each calendar month, Inspire shall furnish to Catalent a written twelve (12) month rolling forecast of the quantities of Product that Inspire intends to order from Catalent during such period (" Rolling Forecast" ). The first three (3) months of such Rolling Forecast shall constitute a binding order for the quantities of Product specified therein (" Firm Commitment" ) and the following nine (9) months of the Rolling Forecast shall be non-binding, good faith estimates. Upon receipt of a Rolling Forecast, Catalent shall promptly inform Inspire of potential capacity limitations it anticipates with respect to the non-binding portion of the Rolling Forecast and the parties shall thereafter cooperate to either modify the non-binding portion of such forecast or to otherwise accommodate the potential


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capacity limitation.

4.3 Purchase Orders . On or before the first (1 st ) day of each Calendar Quarter, Inspire shall submit a binding, non-cancelable purchase order for the Firm Commitment portion of the Processing (i.e., Processing during the three (3) months immediately following such submission), which specifies the actual number of Batches to be Processed, the approximate number of Dosage Containers in each Batch, and the requested delivery dates for each Batch (" Purchase Order" ). Upon Catalent' s receipt of any Purchase Order, the aggregate Product volumes set forth therein that are consistent with the quantities of Product that were forecasted to be ordered in the period covered thereby in the Rolling Forecast furnished in the month immediately preceding submission of such Purchase Order, and any additional amounts as may be required to satisfy Inspire' s Minimum Requirement for a Purchase Order submitted for the last full or partial Calendar Quarter of any Contract Year, shall be binding upon Catalent. Requested delivery dates in Purchase Orders shall be no earlier than [CONFIDENTIAL] following submission of the order. Catalent shall notify Inspire of receipt of the Purchase Order within five (5) business days of receipt, and within five (5) business days thereafter Inspire and Catalent shall meet (via telephone or in person) to discuss the Purchase Order and agree upon the delivery dates and destinations for delivery of the Product by the carrier. Catalent shall not unreasonably withhold agreement to any delivery dates or destinations for delivery of the Product requested by Inspire. In the event of a conflict between the terms of any Purchase Order and this Agreement, this Agreement shall control. Notwithstanding the foregoing, Catalent will accommodate, without cost to Inspire, increases in Purchase Orders of up to [CONFIDENTIAL] over the quantities of Product that were forecasted to be ordered for the period covered thereby in the Rolling Forecast furnished in the month immediately preceding submission of such Purchase Order, and Catalent shall use commercially reasonable efforts to supply Inspire with quantities of Product which are in excess of such forecasted quantities, subject in the case of amounts in excess of such [CONFIDENTIAL] increase to Catalent' s other supply commitments and manufacturing and equipment capacity. During the first Contract Year, Inspire may increase orders [CONFIDENTIAL] above forecast not to exceed [CONFIDENTIAL] units, provided Purchase Orders for all such Product are delivered at least [CONFIDENTIAL] in advance of the earliest requested delivery date as specified in this Section.

4.4 Catalent' s Cancellation of Purchase Orders . In the event Inspire refuses or fails to make scheduled deliveries of the API in accordance with Section 3.1, Catalent reserves the right to cancel all, or any part of, a Purchase Order for which such undelivered API would be required upon written notice to Inspire, and Catalent shall have no further obligations or liability with respect to such Purchase Order to the extent of such cancellation. 4.5 Unplanned Delay or Elimination of Processing . Catalent shall deliver Product as provided in Purchase Orders and on the delivery dates agreed therein, subject to the terms and conditions of this Agreement. Catalent shall provide Inspire with as much advance notice as possible (and will use its best efforts to provide at least thirty (30) days advance notice where possible) if Catalent determines that any Processing will be delayed or eliminated for any reason.

4.6 Pre-Execution Purchase Orders . The parties acknowledge that, as of the Effective Date, [CONFIDENTIAL] has placed one or more purchase orders with Catalent for the


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manufacture and supply to Inspire of finished product containing the API. All finished product so ordered shall be deemed " Product" for all purposes under this Agreement and such purchase orders shall be treated as having been delivered hereunder. In the event of a conflict between the terms of any such purchase order and this Agreement, this Agreement shall control. 4.7 Meetings . The parties shall meet from time to time as appropriate during the Term in order to discuss the forecasts delivered by Inspire pursuant to this Agreement, as well as other matters relevant to the supply of Products, including any potential strategies for improving the productivity, efficiency, and quality of the process by which the Product is manufactured and supplied hereunder.

ARTICLE 5

TESTING; SAMPLES; RELEASE

5.1 Sample; Testing; Acceptance . Inspire shall notify Catalent within [CONFIDENTIAL] following delivery of Product to Inspire if Inspire has determined that such Product does not meet the warranty set forth in Section 10.1 and shall provide Catalent a sample of such non-conforming Product. Catalent will provide written notice of whether Catalent agrees or disagrees that the Batch is non-conforming within [CONFIDENTIAL] of its receipt of Inspire' s notice. If Catalent agrees that the Batch is non-conforming or if the Batch is determined to be non-conforming by an independent third party laboratory as set forth below in this Section 5.1, Catalent shall, at Inspire' s option, re-perform the services in accordance with this Agreement and provide replacement Product to Inspire within [CONFIDENTIAL] of receipt of Inspire' s notice of non-conformity (or, if applicable, the receipt of the third party laboratory' s determination as anticipated below), or credit any payments made by Inspire for such Product. In addition, Catalent shall reimburse Inspire for Inspire Materials used in such non-conforming Product (subject to the limitation of liability in Section 16.1). If Catalent does not agree with Inspire' s determination that such Product is non-conforming, then after reasonable efforts to resolve the disagreement, either party may submit a sample of such Product to a mutually agreed upon independent third party laboratory to determine whether the Product is non-conforming. The independent party' s results shall be final and binding. Unless otherwise agreed to by the parties in writing, the costs associated with such testing and review shall be borne by the non-prevailing party.

5.2 Replacement of Defective Product . In accordance with the terms set forth in this Agreement, Catalent shall, at Inspire' s option under Section 5.1, replace, at Catalent' s sole expense, all Product that does not comply with the warranty set forth in Section 10.1 (" Defective Product" ). THE OBLIGATION OF CATALENT PURSUANT TO SECTION 5.1 TO (I) REPLACE DEFECTIVE PRODUCT OR CREDIT INSPIRE FOR SUCH DEFECTIVE PRODUCT AND (II) REIMBURSE INSPIRE FOR API AND OTHER INSPIRE MATERIALS USED IN SUCH DEFECTIVE PRODUCT (SUBJECT TO THE LIMITATION OF LIABILITY FOR API AND OTHER INSPIRE MATERIALS IN SECTION 16.1) SHALL, SUBJECT TO INSPIRE' S RIGHTS IN SECTION 15.2(A), BE INSPIRE' S SOLE AND EXCLUSIVE REMEDY UNDER THIS AGREEMENT FOR RECEIPT OF DEFECTIVE PRODUCT AND IS IN LIEU OF ANY OTHER WARRANTY, EXPRESS OR IMPLIED. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, THE


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FOREGOING LIMITATION WILL NOT APPLY TO ANY LIABILITY OF CATALENT UNDER SECTION 9.7 OR SECTION 13.1 OF THIS AGREEMENT. 5.3 Supply of Material for Replacement Product . In the event Catalent is required to replace Product pursuant to Sections 5.1 or 5.2, above, Inspire shall, subject to Section 5.1, supply Catalent with sufficient quantities of the API in accordance with Section 3.1 as necessary for Catalent to complete such replacement.

ARTICLE 6

DELIVERY 6.1 Delivery . Catalent shall segregate and store all Product until acceptance as set forth in Section 5.1 above. Catalent shall tender the Product for delivery, [CONFIDENTIAL] (INCOTERMS 2000) the Facility, to carriers designated by Inspire pursuant to this Section 6.1. Catalent shall have responsibility for and bear the risk of loss of any Product until delivery to Inspire at the Facility. Inspire shall be responsible for all costs and risk of loss associated with shipment of the Product. Inspire shall designate at least three (3) carriers to ship the Product and then designate the priority of such qualified carriers to Catalent. Catalent shall ensure that the Products are delivered pursuant to this Section 6.1 [CONFIDENTIAL] . Catalent shall retain at Inspire' s cost and expense (including payment of the applicable purchase price for such retained Product) such quantities of Product from each Batch of Product delivered sufficient to conduct two full testings of Product in accordance with the Specifications and the Quality Agreement. Catalent shall include the applicable Purchase Order number and quantity of Product with each shipment of Product, as well as the applicable Batch records required under Section 9.1.

6.2 Failure to Take Delivery . If Inspire fails to take delivery on any scheduled delivery date of an order of Product delivered in accordance with the applicable Purchase Order, Catalent promptly shall notify Inspire in writing of such failure, and Inspire shall be invoiced on the first day of each month for the reasonable and documented storage costs incurred by Catalent in connection with such stored Product after the fourteenth day following such notice from Catalent. For each such Batch of Product not picked up for delivery by Inspire' s appointed carrier on the agreed delivery date, Inspire agrees that: (i) Inspire has made a fixed commitment to purchase s ...