Product Development and Supply Agreement

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PRODUCT DEVELOPMENT AND SUPPLY AGREEMENT


THIS AGREEMENT is entered into as of the 30th day of August, 1996 (the "Effective Date"), by and between TIMERx Technologies, a division of Penwest, Ltd., a Washington corporation, with principal place of business at 2981 Route 22, Patterson, New York 12563 ("TIMERx Technologies"), and SCHWARZ PHARMA INC., a Delaware corporation, with principal place of business at 5600 County Line Road, Mequon, Wisconsin 53092 ("Schwarz Pharma").


A. TIMERx Technologies has developed a controlled-release agent covered by one or more patents, patent applications, know-how and other proprietary technology, which agent TIMERx Technologies markets under the name and mark "TIMERx(R)" ("TIMERx").


B. Schwarz Pharma is interested in developing for manufacture the active pharmaceutical ingredient verapamil ("Verapamil") and desires to formulate Verapamil into a solid-dosage controlled-release delivery system for oral administration in humans in two dosage strengths to be therapeutically equivalent AB rated to the drug currently sold under the brand name "Covera-HS."


C. The parties, under a separate agreement (the "Diltiazem Agreement"), are engaging in certain activities relating to the development and testing of a product incorporating diltiazem and TIMERx, and designed to be bioequivalent to the product currently being marketed in the United States under the name "Cardizem CD." The parties now desire to engage in a separate program of research, development, and testing activities designed to determine if a drug that is bioequivalent to Covera-HS can be developed using TIMERx. If such activities under this separate program are successful, Schwarz Pharma desires to contract for a supply of TIMERx for use in the manufacture of such a controlled-release form of Verapamil, and TIMERx Technologies is willing to supply the same provided that Schwarz Pharma agrees to obtain all of its requirements of TIMERx from TIMERx Technologies as provided herein.


NOW, THEREFORE, the parties hereby agree as follows:


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1. DEFINITIONS.


1.1 "AFFILIATE" of TIMERx Technologies or of Schwarz Pharma shall mean entities that, directly or indirectly, own and control the voting of more than 50% of the voting capital shares of such party ("Parent"), or more than 50% of the voting capital shares (or equivalent control) of which is, directly or indirectly, owned, and the voting of which is controlled, by such party or its Parent, as of the Effective Date. For purposes of this definition and this Agreement no Affiliate shall remain such unless it continues to meet the foregoing criteria. Current Affiliates of TIMERx Technologies and Schwarz Pharma are listed as such in Exhibit .


1.2 "APPROVAL DATE" shall mean the date on which a Designated Product in either dosage strength is first approved by the U.S. Food and Drug Administration (herein "FDA") (the "U.S. Approval Date") or other equivalent regulatory authority in the Territory for commercial sale in oral solid-dosage form for administration in humans, pursuant to an Abbreviated New Drug Application (or the equivalent in such other regulatory authority) ("ANDA").


1.3 "CERTIFICATION PERIOD" with respect to the United States shall mean the period beginning at the end of the Development Period and ending on the earlier of:


1.3.1 the U.S. Approval Date;


1.3.2 the termination of this Agreement as provided herein. With respect to Canada and/or Mexico, the Certification Period, if any, will mean the period described as such for that nation in Section 3.3.


1.4 "COMPETING GENERIC VERSION" shall mean a drug that meets all of the following criteria:


1.4.1 it is Therapeutically Equivalent to the applicable Designated Product being studied, manufactured, or marketed, as the case may be;


1.4.2 it has been fully approved for commercial sale in oral solid-dosage form for administration in humans by the FDA (for all purposes of this Agreement, "solid- dosage form" shall include tablets, capsules, hydrogels, or any combination thereof);


1.4.3 it is actively on the market and immediately available for retail sale throughout the United States other than under the brand "Covera" or "Covera-HS"; and


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1.4.4 it is not marketed by Schwarz Pharma, any of its Affiliates, or under a license or sublicense from Schwarz Pharma or its Affiliates or sublicensees in any tier.


1.5 "CONFIDENTIAL TECHNOLOGY" shall mean all technology that is, at the relevant time hereunder, protected or required to be protected by both parties hereto as confidential information pursuant to Section 7 hereof.


1.6 "DESIGNATED PRODUCT" shall mean a Therapeutically Equivalent solid- dosage form of a controlled-release pharmaceutical for oral administration in humans that combines Verapamil with TIMERx and other excipients. The parties contemplate that the Designated Product will be developed and marketed in the following dosage strengths: 180mg and 240mg.


1.7 "DEVELOPMENT PERIOD" shall mean the period from the Effective Date through the earlier of the termination of this Agreement as provided herein or the successful completion, through demonstration of bioequivalence to FDA standards, of the Pivotal Biostudies.


1.8 "DISSOLUTION PROFILE STUDIES" shall mean the studies contemplated in Section 2.2.


1.9 "FORMULATED TIMERx" shall mean TIMERx and certain additives in a formulation to be developed hereunder specifically for use in the Designated Product.


1.10 "LICENSE TERM" shall mean the cumulative period covered by the Development Period, the Certification Period, and the Marketing Period.


l.11 "MARKETING PERIOD" with respect to a nation shall mean the period beginning on the Approval Date for such nation and ending on the earlier of:


1.11.1 the twentieth anniversary of the Effective Date; or


1.11.2 the termination of the License Term and/or this Agreement as provided herein.


1.12 "MILESTONE FEE SCHEDULE" shall mean the schedule set forth in Exhibit .


1.13 "NET SALES" shall mean that portion of the net sales (or equivalent current value, where Designated Product is used without being sold, other than as to reasonable quantities of samples of Designated Products marketed as branded drugs, if any) recognized by Schwarz Pharma or its Affiliate, or a sublicensee of either (excluding sales by Schwarz Pharma to its Affiliate or sublicensee, or by Schwarz Pharma's Affiliate to Schwarz Pharma or its sublicensee, for resale to a third party), calculated in accordance with United States Generally Accepted Accounting Principles


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("GAAP") consistently applied, which pertains to the Designated Product. The calculation of Net Sales shall include amounts specifically identifiable to the Designated Product and amounts allocated to the Designated Product in accordance with GAAP, it being understood that amounts which are not specifically identifiable to the Designated Product by virtue of their being identifiable to a group of products or services that includes the Designated Product shall be allocated to the Designated Product in a consistent and equitable manner which will not unduly or disproportionately reduce Net Sales of the Designated Product. Net Sales shall be considered "made" as of the date of the applicable invoice. Amounts to be included in the calculation of Net Sales shall be those representing:


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1.14 "PILOT BIOSTUDIES" shall mean the biostudies to be conducted by Schwarz Pharma as more fully described in Section 2.3 and Exhibit 1.14.


1.15 "PIVOTAL BIOSTUDIES" shall mean the biostudies contemplated in Section 2.4, it being understood that such Pivotal Biostudies are those that will be designed and conducted in a manner to support the submission to the FDA of an ANDA for the Designated Products (whether or not such ANDA is ultimately approved).


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1.16 "PROJECT CONTACT(S)" shall mean the persons appointed by each party to serve as contact persons between the parties during the Development Period and the Certification Period. The initial Project Contact for TIMERx Technologies for business matters is Dr. Paul K. Wotton, and the initial Project Contact for TIMERx Technologies for technical and scientific matters is Dr. Anand Baichwal. The initial Project Contact for Schwarz Pharma for business matters is Dr. Klaus Veitinger, and the initial Project Contact for Schwarz Pharma for technical and scientific matters is Dr. Tammy Antonucci. Each party shall promptly notify the other party of any substitution of other personnel as its Project Contact(s). Each party may select and supervise its other project staff as needed.


1.17 "ROYALTIES" shall mean the royalties payable to TIMERx Technologies pursuant to Section 4.3 hereof.


1.18 "SCHWARZ PHARMA IMPROVEMENTS" shall mean any and all improvements, modifications, alterations, or enhancements to any of the inventions covered by the TIMERx Technologies Patents, TIMERx Technologies' Confidential Technology, or the TIMERx Production Technology, that are developed for or are otherwise related to or useful with the Designated Product and that are developed, owned, or controlled by Schwarz Pharma or any of its Affiliates or sublicensees, or in which Schwarz Pharma or any of its Affiliates or sublicensees otherwise has any rights or interests during the term of this Agreement; together with all United States and foreign intellectual property and other rights and interests of Schwarz Pharma and its Affiliates and sublicensees thereto and therein, including without limitation patents, trade secrets, copyright, periods of market exclusivity, and other related rights or interests.


1.19 "SCHWARZ PHARMA TEST AND REGULATORY DATA" shall mean any and all test data, test designs and protocols, clinical studies and results thereof, government licenses and applications therefor, government certifications and findings, and related materials, information and rights (including without limitation information regarding bioavailability and bioequivalence, and any adverse drug reactions), developed, commissioned or otherwise obtained by Schwarz Pharma or any of its Affiliates or sublicensees during the term of this Agreement for the uses intended by this Agreement relating to TIMERx, Schwarz Pharma Improvements, the Designated Product, TIMERx Technologies Patents, TIMERx Production Technology and/or TIMERx Technologies' Confidential Technology; together with all intellectual property and other rights and interests of Schwarz Pharma and its Affiliates and sublicensees thereto and therein, worldwide.


1.20 "SOLID-DOSAGE UNIT" shall mean any individual tablet, capsule, hydrogel, or any combination thereof, manufactured to be a solid-dosage form of the Designated Product in the following dosage strengths: 180mg and 240mg.


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1.21 "SPECIFICATIONS" shall mean such standards and analytical methods established by TIMERx Technologies and Schwarz Pharma by agreement during the Development Period; provided, however, that once such specifications are established in an application for regulatory approval, such specifications shall become the Specifications referred to herein, and shall remain unchanged, unless either changes are required by the regulatory authorities or are mutually agreed to by the parties. It is understood and agreed that the Specifications for Formulated TIMERx for use in Designated Product to be sold outside the United States shall be the same as those for Formulated TIMERx for use in Designated Product to be sold in the United States, because this will be required for the technically satisfactory production, regulatory approval, and exploitation of the Designated Product. Accordingly, in no event will Schwarz Pharma permit the Designated Product to be certified for sale outside the United States on any other basis, unless TIMERx Technologies has consented thereto in writing after detailed consultation with Schwarz Pharma.


1.22 "TERRITORY" shall, subject to Section 3.3, mean Canada, Mexico, the United States, and the territories and possessions thereof.


1.23 "THERAPEUTICALLY EQUIVALENT" shall mean that a drug of a given dosage strength is rated AB bioequivalent to the drug, in the same dosage strength, currently sold in the United States under the brand name "Covera-HS".


1.24 "TIMERx TECHNOLOGIES PATENTS" shall mean:


1.24.1 those United States patents and foreign equivalents in the Territory and United States and foreign patent applications in the Territory listed in Exhibit and all divisions, continuations, reissues, or extensions thereof, any periods of marketing exclusivity relating thereto, and any letters patent that issue thereon; and


1.24.2 TIMERx Technologies' rights under United States and foreign patents in the Territory, if any, obtained and in force during the License Term covering any of TIMERx Technologies' improvements, modifications, alterations, or enhancements to any of the inventions covered by the TIMERx Technologies Patents that are developed for or are otherwise related to or useful with the Designated Product.


1.25 "TIMERx PRODUCTION TECHNOLOGY" shall mean TIMERx Technologies' rights under the TIMERx Technologies Patents and any and all other patents, patent applications, and other technology belonging to TIMERx Technologies or which TIMERx Technologies has the right to practice and to sublicense from time to time during the term of this Agreement that directly relate to, are desirable for, or are necessary for the production of, Formulated TIMERx for use in the Designated Product.


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1.26 "TIMERX TECHNOLOGIES TEST AND REGULATORY DATA" shall mean any and all test data, test designs and protocols, clinical studies and results thereof, government licenses and applications therefor, government certifications and findings, and related materials, information and rights (including without limitation information regarding bioavailability and bioequivalence, and any adverse drug reactions), developed, commissioned or otherwise obtained by TIMERx Technologies or any of its Affiliates during the term of this Agreement relating to TIMERx, TIMERx Technologies Patents, and/or TIMERx Production Technology and that are developed for or are otherwise related to or useful with the Designated Product; together with all intellectual property and other rights and interests of TIMERx Technologies and its Affiliates thereto and therein in the Territory.


1.27 "UNIT PRICE" shall mean the price for Formulated TIMERx as stated in Exhibit hereto, ************************* by TIMERx Technologies to reflect changes in the ******************************************************** *************************.


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2. DEVELOPMENT PERIOD.


2.1 In consideration of TIMERx Technologies' entering into this Agreement, Schwarz Pharma shall pay TIMERx Technologies upon the Effective Date a nonrefundable initial fee of ***********.


2.2 During the Development Period, TIMERx Technologies will exert its continuing best efforts to conduct in vitro Dissolution Profile Studies in accordance with its normal practices of a TIMERx formulation designed to be Therapeutically Equivalent to Covera-HS in each of the dosage strengths. TIMERx Technologies will ************************************************************* ************************. Regardless of the outcome or results of such study, Schwarz Pharma agrees to pay TIMERx Technologies a fee therefor equal to *******, payable in four equal monthly installments of ******* each, the first such installment to be due and payable thirty days after the Effective Date.


2.3 Following successful completion of the Dissolution Profiles Studies, Schwarz Pharma will exert its continuing best efforts to perform the Pilot Biostudies by engaging the laboratory stated in Exhibit to conduct the same in accordance with that Exhibit and with a study design and budget mutually agreed by Schwarz Pharma and TIMERx Technologies. Schwarz Pharma will pay all costs of the initial Pilot Biostudy with respect to one or both dosage strengths, as needed, ********************************************************** ******************************************************************************** ************************. The initial Pilot Biostudy will be completed within four months of such agreement to proceed. If the initial Pilot Biostudy requires further optimization of the TIMERx formulation, Schwarz Pharma agrees to pay similarly all the costs for an additional biostudy to develop a formulation of TIMERx Therapeutically Equivalent to each desired dosage strength of Covera-HS. ******************************************************************************** ******************************************************************************** ******************************************************************************** ************************.


2.4 Within thirty days following the completion of a successful Pilot Biostudy (i.e., a formulation of TIMERx is indicated within the limits of such study to be Therapeutically Equivalent to either of the desired dosage strengths of Covera- HS), Schwarz Pharma shall pay TIMERx Technologies a fee determined as set forth in the Milestone Fee Schedule, ************************ ******************************************************************************* ************************ ********. Within twelve months of successful completion of such Pilot Biostudies, Schwarz Pharma exert its continuing best effort to perform and complete at its expense *********************************** . TIMERx Technologies will cooperate in such


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effort. Upon successful completion of a Pivotal Biostudy through demonstration of AB rated bioequivalence to FDA standards, Schwarz Pharma will pay TIMERx Technologies a fee determined as set forth in the Milestone Fee Schedule, ******************************************************************************* ************************************************************.


2.5 Each party's Project Contact(s) will provide written reports to the other party's Project Contact(s) at least quarterly (and more often upon reasonable request of the other party) throughout the Development Period, stating in detail all efforts made and in process, and all significant progress achieved and difficulties encountered in the reporting party's portion of the development effort since the last such report. Each of the Project Contacts will also be available throughout the Development Period to answer any reasonable questions from the other party's Project Contacts, as appropriate.


2.6 Each party will, promptly and throughout the Development Period, provide to the other all necessary information in or coming into its possession or reasonably available to it to support the goals of the Development Period. Notwithstanding anything else to the contrary contained herein, nothing shall require either party to disclose confidential information for which such party has an obligation of confidentiality to a third party. Each party understands and agrees that the other does not warrant or commit that the Designated Product will be successfully developed, and neither party shall have any liability or responsibility to the other or to third parties for any such failure of the development process hereunder, except wherein such failure occurs as a result of a party's intentional misconduct, negligence, or breach of its duties or obligations under this Agreement.


2.7 Except as provided otherwise in the cost reimbursement provisions of Section 2.3, Schwarz Pharma will supply to TIMERx Technologies, without charge, all Verapamil and Covera-HS (in both dosage strengths) reasonably required to support the ******************************************** ***************** for such effort, and each party shall otherwise bear its own expenses for all activities during the Development Period.


2.8 As the term is used in this Section 2 and in Section3 , the exertion of a party's best efforts will mean that (i) such party will exert on a continuing basis such reasonable efforts as would be normal for sponsors or applicants for regulatory approval of drugs under ANDAs generally, and (ii) this project will receive a priority at least as high as any of such party's other generic drug development efforts (if such a priority would lead to the exertion of greater efforts than those described in clause (i).


2.9 Either party may terminate this Agreement before completion of the Development Period by delivery of 30 days' written notice to the other, if, due to


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unfavorable or inconclusive results to that time, no further development efforts are likely to lead to the successful development of the Designated Product. In addition, Schwarz Pharma may terminate this Agreement prior to the completion of the Development Period by delivery of 30 days' written notice to TIMERx Technologies if at any time it determines (and reasonably demonstrates to TIMERx Technologies) that, due to changed circumstances following the date this Agreement is signed, the potential commercial viability of the Designated Product will not justify the devotion of the best efforts of Schwarz Pharma called for during the remainder of the Development Period or during the Certification Period. No such termination under this section will lessen any duty of Schwarz Pharma to make any of the payments called for hereunder, which have accrued prior to the effective date of such termination.


3. CERTIFICATION PERIOD.


3.1 During the Certification Period with respect to the United States, Schwarz Pharma will exert its continuing best efforts, at its expense, to prepare and file an ANDA or ANDAs for the Designated Products with the FDA and to prosecute the same successfully to the granting of an FDA license to market the Designated Product in both of the dosage strengths. TIMERx Technologies will, promptly and throughout the Certification Period, provide to Schwarz Pharma all necessary information in or coming into TIMERx Technologies' possession or reasonably available to it for such purpose. Also, during the Certification Period, ********************************************************* ************************.


3.2 Schwarz Pharma shall exert its continuing best efforts to conduct or arrange for, at Schwarz Pharma's expense, all further testing and studies during the Certification Period, including as to efficacy, bioavailability, bioequivalence, and safety and toxicology, in connection with the development, licensing, manufacture and marketing of the Designated Product, and for compliance with all requirements imposed by the government of the United States with respect to the Designated Products, and, if there is a Certification Period for Canada and/or Mexico pursuant to Section 3.3, also as imposed by the government of such nation(s). TIMERx Technologies will, promptly and throughout the Certification Period, provide to Schwarz Pharma all necessary information in or coming into TIMERx Technologies' possession or reasonably available to it for such purpose.


3.3 If, at any time or times during the License Period, TIMERx Technologies reasonably demonstrates to Schwarz Pharma that


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(i) Covera-HS or an AB bioequivalent to it has been approved for marketing in Canada or Mexico, or such approval has been applied for and is reasonably likely to be granted; and


(ii) TIMERx Technologies or a third party is interested in good faith in undertaking to market the Designated Product in such nation pursuant to the equivalent of an ANDA in such nation,


then TIMERx Technologies shall afford Schwarz Pharma a period of 60 days in which to agree that a Certification Period with respect to such nation, and governed by this Section 3, shall commence hereunder, during which Schwarz Pharma will exert its continuing best efforts, at its expense, to prepare and file such ANDA-equivalent applications for the Designated Products with the regulatory authorities in such nation, and to prosecute the same successfully to the granting of marketing approvals from such authorities for the Designated Product in both of the dosage strengths. It is understood that Schwarz Pharma may meet such obligations with respect to such nation through the efforts of its sublicensee, which may be TIMERx or the third party (if any) identified by TIMERx Technologies and referenced in clause (ii) above, to whom Schwarz Pharma may sublicense its rights as set forth in this Agreement. (If TIMERx Technologies is the sublicensee, the same terms and conditions of this Agreement shall apply to the sublicense.) If Schwarz Pharma fails to agree in writing within such period to prepare, file and prosecute an ANDA equivalent, either directly or throug ...