COLLABORATION AGREEMENT

1.1

“Affiliate” means (a) a business entity which owns, directly or indirectly, more than fifty percent (50%) of the voting shares or other means of control of a Party; or (b) a business entity in which more than fifty percent (50%) of the voting shares or other means of control are owned by a Party, either directly or indirectly; or (c) a business entity, the majority ownership of which is directly or indirectly common to the majority ownership of a Party. Anything to the contrary in this paragraph notwithstanding, [***], a [***] corporation (“[***]”), and [***], a [***] corporation (“[***]”), shall not be deemed an Affiliate of Roche until the existing [***] agreements pursuant to which Roche has relinquished [***] rights in [***] and [***], respectively, expire or are earlier terminated or otherwise are in relevant part no longer of force or effect or earlier if Roche provides written notice to Pharmasset of its intent to have [***] and/or [***] treated as an Affiliate under this Agreement.

1.2

“Agreement Term” means the term of this Agreement, as more fully described in Section 17.1.

1.3

“API” means active pharmaceutical ingredient.

1.4

“Bundled Product” means Product(s) sold to a Third Party for use with one or more other products or services, wherein the Product(s) and the other product or services are sold for one unit price, even though packaged separately.

1.5

“Claim” shall have the meaning given in Section 19.1(a).

1.6

“CMC Derisking Activities” shall have the meaning given in Schedule 8.

1.7

“CMC Subcommittee” shall have the meaning given in Section 8.1(e).

1.8

“Collaboration” means discovery and development by the Parties of Primary Compounds and Potential Licensed Compounds during the Collaboration Period, and thereafter development and commercialization of Licensed Compounds by Roche and Pharmasset, in each case pursuant to this Agreement.

1.9

“Collaboration Period” means the period of time commencing January 1, 2005 and ending [***], unless extended by Roche as per Section 4.4.

1.10

“Combination Product” means any co-formulated product containing both a pharmaceutically active agent that causes it to be considered a Product and one or more other pharmaceutically active agents that are not Licensed Compounds.

1.11

“Compound Claim” shall mean, for a given Product, a claim in a Pharmasset Patent Right, Joint Patent Right or Roche Patent Right Covering the molecule per se of a Licensed Compound that is contained, in whole or as a component thereof, as an active ingredient of such Product.

1.12

“Control” or “Controlled” means, with respect to any intellectual property right, possession by a Party of the ability (whether by ownership, license or otherwise) to grant access, a license or a sublicense to such intellectual property right without violating the terms of any agreement or other arrangement with any Third Party.

1.13

“Cost of Goods” means the manufacturing [***] of either (a) [***], or (b) [***], provided that such [***]. Cost of Goods shall include [***] and [***]. Notwithstanding the foregoing, in the event that [***]. For clarity, “Cost of Goods” shall be [***].

1.14

“Cover” (including the variations such as “Covered”, “Coverage” or “Covering”) means that the selling of a given compound or product would infringe a Patent Right (including pending claims that, if issued, would be infringed so long as the pendency of the patent application and any parent applications to which such patent application claim priority have not been pending for more than ten (10)

years) in the absence of a license under such Patent Right. The determination of whether a compound or product is Covered by a particular Patent Right shall be made on a country-by-country basis.

1.15

“Development Plan” means the plan of development for a Licensed Compound developed by the Parties, outlining the global development of such Licensed Compound through Regulatory Approval. The initial Development Plan for the Primary Compound is attached as Schedule 1. The Parties may amend each Development Plan from time to time through the Joint Development and Marketing Committee in accordance with Section 9.3.

1.16

“Dispute” shall have the meaning given in Section 18.2.

1.17

“Effective Date” shall have the meaning given in the first paragraph hereof.

1.18

“End of Phase 1” means, for a given Potential Licensed Compound, the completion of all the criteria listed in Schedule 5 during the Collaboration Period.

1.19

“EU MAA Filing” means an application for marketing authorization filed in any country in the European Union or Switzerland for a given Product.

1.20

“European Approval” means all Regulatory Approvals necessary for selling and marketing a Product in an European Major Market Country.

1.21

“European Major Market Country” means the [***].

1.22

“European Union” means the countries comprising the European Union as of the Effective Date.

1.23

“Executives” shall have the meaning given in Section 8.1(c).

1.24

“Expiration Date” shall have the meaning given in Section 17.1.

1.25

“FDA” means the US Food and Drug Administration.

1.26

“Field” means human healthcare for all indications, including the HCV Indication.

1.27

“GLP Tox Completion” means, for a given Potential Licensed Compound, the transmittal to Roche of all of the data from all of the studies and activities criteria listed in Schedule 4, in the form of a final report, including statistical analysis of such data.

1.28

“HCV Indication” means treatment or prevention of hepatitis C virus infection in humans.

1.29

“HCV Target Screening Patent License” means any license to a Patent Right Covering an assay, technology platform or research tool for screening drug

candidates that inhibit HCV polymerase, but shall not include any Pre-existing Pharmasset Third Party License.

1.30

“IND” means an Investigational New Drug Application filed with the FDA, or the foreign equivalent, for human clinical testing of a drug.

1.31

“Initiation of Phase 1” means the date that a patient is first dosed with a Product in a Phase 1 clinical trial.

1.32

“Initiation of Phase 2” means the date that a patient is first dosed with a Product in a Phase 2 clinical trial whose interim assessment, as decided by the Joint Development and Marketing Committee, will be used to support a Phase 3 clinical trial.

1.33

“Initiation of Phase 3” means the date that a patient is first dosed with a Product in a Phase 3 clinical trial. In the event a Phase 2 clinical trial and a Phase 3 clinical trial constitute component parts of a combined trial, “Initiation of Phase 3” means the formal commencement date pursuant to the applicable protocol of the Phase 3 clinical trial component part.

1.34

“Japan Approval” means all Regulatory Approvals necessary for selling and marketing a Product in Japan.

1.35

“Japan NDA Filing” means an application for marketing authorization filed in Japan for a given Product.

1.36

“JDMC” shall have the meaning given in Section 8.1.

1.37

“Joint Inventions shall have the meaning given in Section 14.1(a).

1.38

“Joint Patent Rights” shall have the meaning given in Section 14.1(c).

1.39

“JRC” shall have the meaning given in Section 8.2.

1.40

“Know-How” means data, knowledge and information, including materials, samples, chemical manufacturing data, toxicological data, pharmacological data, preclinical data, assays, platforms, formulations, specifications, quality control testing data, that are necessary or useful for the discovery, manufacture, development or commercialization of Licensed Compounds or Products.

1.41

“Launch” means, with respect to a Product in a country, the date of the first commercial sale to a Third Party of the given Product following Regulatory Approval in the given country.

1.42

“Licensed Collaboration Compound” means a Licensed Compound other than a Primary Compound.

1.43

“Licensed Compound” means Primary Compound, and if Roche exercises its Option for a given Potential Licensed Compound, then also the given Potential Licensed Compound and its pro-drugs.

1.44

“Major Market Countries” means the [***] and any European Major Market Country.

1.45

“Option” shall have the meaning given in Section 2.1(c).

1.46

“Option Exercise Period” means the period commencing on the Effective Date and ending ninety (90) days after the end of the Collaboration Period.

1.47

“Party” means Roche or Pharmasset, and “Parties” means Roche and Pharmasset.

1.48

“Patent” means any patent or patent application, in any country, including any patents issuing on such patent application, and further including any substitution, extension or supplementary protection certificate, reissue, reexamination, renewal, division, continuation or continuation-in-part of any of the foregoing and any independently patentable improvements to any of the foregoing.

1.49

“Patent Rights” means all rights under any Patent.

1.50

“Pharmasset Adjusted Gross Sales” means the amount of [***] of (i) [***], (ii) [***], (iii) [***], (iv) [***] and (v) [***]. [***] will be [***]. For the avoidance of doubt, the [***]. The calculation for Pharmasset Adjusted Gross Sales shall be consistently applied and made in accordance with financial and accounting standards used by Pharmasset in preparing its audited financial statements.

1.51

“Pharmasset Indemnified Parties” shall have the meaning given in Section 19.1(a).

1.52

“Pharmasset Inventions” shall have the meaning given in Section 14.1(b).

1.53

“Pharmasset Know-How” means all Know-How that Pharmasset owns, or otherwise has the right to grant rights to use, during the Agreement Term.

1.54

“Pharmasset Net Sales” means Pharmasset Adjusted Gross Sales [***] of [***] on a [***] (e.g. [***]). The calculation for Pharmasset Net Sales shall be consistently applied and made in accordance with financial and accounting standards used by Pharmasset in preparing its audited financial statements.

1.55

“Pharmasset Patents” means Patents included in the Pharmasset Patent Rights.

1.56

“Pharmasset Patent Rights” means all Patent Rights that are necessary or useful for the discovery, manufacture, development or commercialization of Licensed Compounds or Products, that Pharmasset owns or otherwise Controls, and has the right to grant rights under, during the Agreement Term, including without limitation, those Patent Rights arising from Pharmasset Inventions.

1.57

“Pharmasset Territory” means Latin America (i.e., Mexico, the Caribbean, and Central and South America) and the Korean peninsula (i.e., North Korea and South Korea).

1.58

“Phase 1” means the first phase of human clinical trials of a drug required by the FDA or other equivalent regulatory authority to gain evidence of safety in enrollees, as described in 21 C.F.R. Part 312, as it may be amended.

1.59

“Phase 2” means the second phase of human clinical trials of a drug required by the FDA or other equivalent regulatory authority to gain evidence of efficacy in the target population, determine optimal dosage, and obtain expanded evidence of safety for Product(s), as described in 21 C.F.R. Part 312, as it may be amended.

1.60

“Phase 3” means the third phase of human clinical trials of a drug required by the FDA or other equivalent regulatory authority to gain evidence of efficacy in the target population and obtain expanded evidence of safety for Product(s), as described in 21 C.F.R. Part 312, as it may be amended.

1.61

“POC Study” means a [***] Phase 1 study designed to show clinical proof of concept in a multiple-ascending-dose study.

1.62

“Potential Licensed Compound” means any [***] (excluding any [***]) owned or Controlled by Pharmasset, other than a Primary Compound, which has been screened for HCV polymerase inhibition and has been shown to have activity against HCV polymerase, in accordance with Schedule 1.62. Potential Licensed Compound shall not include Gemcitibine or derivatives or pro-drugs thereof. For clarity, no [***] shall, at any time [***], be deemed [***].

1.63

“Pre-Existing Pharmasset Third Party Licenses” means the Third-Party licenses obtained by Pharmasset on or before the Effective Date of this Agreement listed in Schedule 7A hereto.

1.64

“Pre-Existing Roche Third Party Licenses” means the Third-Party licenses obtained by Roche on or before the Effective Date of this Agreement listed in Schedule 7B hereto.

1.65

“Primary Compound” means the compound known as PSI-6130 and its pro-drugs.

1.66

“Primary Product” means any and all products that include, in whole or as a component thereof, Primary Compound.

1.67

“Product” means any and all products that include, in whole or as a component thereof, Licensed Compound or Licensed Collaboration Compound.

1.68

“Reasonable Diligence” means the [***] standard of effort as used by such Party, or in any [***], for the activities to be undertaken pursuant to this Agreement for [***]. It is understood that such [***]. The Parties acknowledge that [***] do not always

[***]. Whether [***] has exercised Reasonable Diligence (i) with respect to [***], (ii) with respect to [***].

1.69

“Regulatory Approval” means any approvals (including pricing and reimbursement approvals), licenses, registrations or authorizations of any national or international or local regulatory authority, department, bureau or other governmental entity, necessary for the manufacture, marketing and sale of a Product in a regulatory jurisdiction in the Territory.

1.70

“Relinquished Compound” means a Potential Licensed Compound for which Roche has relinquished rights in accordance with Sections 2.1(h), 4.2(a)(iii) or 4.2(b)(ii).

1.71

“Relinquished Product” shall have the meaning given in Section 2.1(h).

1.72

“Research Plan” means the plan of research attached as Schedule 2, developed by the Parties, outlining the work expected to be performed with respect to a Potential Licensed Compound or a pro-drug of the Primary Compound as part of the Collaboration, as such plan may be updated from time to time as provided in this Agreement.

1.73

“Rights” shall have the meaning given in Section 2.1(h).

1.74

“Roche Adjusted Gross Sales” means the amount of [***], of (i) [***], (ii) [***], (iii) [***], (iv) [***], and (v) [***]. [***] will be [***]. For the avoidance of doubt, [***].

1.75

“Roche Indemnified Parties” shall have the meaning given in Section 19.1(b).

1.76

“Roche Inventions” shall have the meaning given in Section 14.1(a).

1.77

“Roche Know-How” means all Know-How that Roche owns, or otherwise has the right to grant rights to use, during the Agreement Term.

1.78

“Roche Net Sales” means Roche Adjusted Gross Sales [***] of (i) [***], or (ii) [***] on a [***] (e.g. [***]). [***].

1.79

“Roche Patents” means Patents included within the Roche Patent Rights.

1.80

“Roche Patent Rights” means all Patent Rights that are necessary or useful for the discovery, manufacture, development or commercialization of Licensed Compounds or Products, that Roche owns or otherwise Controls, and has the right

to grant rights under, during the Agreement Term, including without limitation, those Patent Rights arising from Roche Inventions.

1.81

“Roche Territory” means all countries and territories in the world other than the Pharmasset Territory.

1.82

“Third Party” means a person or entity other than (i) Pharmasset or any of its Affiliates or (ii) Roche or any of its Affiliates.

1.83

“US” means the United States of America and its possessions and territories.

1.84

“US Launch” means Launch in the US.

1.85

“US NDA Filing” means a New Drug Application filed with the FDA for a Product.

1.86

“Valid Claim” means a claim in a Patent that Covers a Product and (i) has not been held permanently revoked, unenforceable or invalid by a final unappealable decision of a court or government agency of competent jurisdiction over such claim, (ii) has not been admitted to be invalid or unenforceable through disclaimers, consent decrees or otherwise or (iii) in the case of a patent application, has not been pending for more than [***] ([***]) years after the filing of its first priority application.

1.87

“Valid Compound Claim” means a Valid Claim that is a Compound Claim.

2.1

License Grants; Option .

(a)

Subject to the terms and conditions of this Agreement, Pharmasset hereby grants to Roche, with respect to Primary Compound, an exclusive license, including the right to grant sublicenses in accordance with Section 2.3, under the Pharmasset Patent Rights, and to use the Pharmasset Know-How, solely to make, use, offer for sale, sell and import such Products containing a Primary Compound in the Roche Territory.

(b)

Subject to the terms and conditions of this Agreement, Roche hereby grants to Pharmasset, with respect to each Licensed Compound, an exclusive license, including the right to grant sublicenses in accordance with Section 2.3, under the Roche Patent Rights, and to use the Roche Know-How, solely to make, use, offer for sale, sell and import Products containing such Licensed Compounds in the Pharmasset Territory.

(c)

Subject to the terms and conditions of this Agreement, commencing on the Effective Date and ending at the conclusion of the Option Exercise Period, Pharmasset hereby grants to Roche, with respect to each Potential Licensed Compound, the right to exercise an option (“Option”) to obtain an exclusive license, including the right to grant sublicenses in

accordance with Section 2.3, under the Pharmasset Patent Rights, and to use the Pharmasset Know-How, in each case solely to make, use, offer for sale, sell and import Products containing such Potential Licensed Compound in the Roche Territory.

(d)

If Roche has exercised its Option for a particular Potential Licensed Compound, then, subject to the terms and conditions of this Agreement, Roche shall thereby have, with respect to such designated Potential Licensed Compound, an exclusive license, including the right to grant sublicenses in accordance with Section 2.3, under the Pharmasset Patent Rights, and to use the Pharmasset Know-How, in each case solely to make, use, offer for sale, sell and import Products containing Potential Licensed Compound in the Roche Territory.

(e)

Notwithstanding anything else contained herein to the contrary, Pharmasset at all times reserves such rights in the Pharmasset Patents and the Pharmasset Know-How as is necessary to allow Pharmasset to research and develop Potential Licensed Compounds, and manufacture Licensed Compounds and Products, anywhere in the world.

(f)

Roche may exercise its Option for a given Potential Licensed Compound by giving Pharmasset written notice to such effect prior to the conclusion of the Option Exercise Period, and by (i) making payment to Pharmasset of either (A) the payment specified in Section 4.2(a)(i) or (B) the payment specified in Section 4.2(a)(ii), or (ii) taking such other actions to exercise its Option as provided in Sections 3.1(d), 4.2(c), or 4.2(d).

(g)

Prior to [***] but after [***], Pharmasset may, [***].

(h)

If Roche declines to exercise its Option pursuant to Section 2.1(c) for a given Potential Licensed Compound, either pursuant to Section 4.2, or in response to Pharmasset’s request pursuant to Section 2.1(g), Roche shall relinquish its right to license that particular Potential Licensed Compound and any Products containing such Potential Licensed Compound as a Licensed Compound; and any such relinquished Potential Licensed Compound shall be deemed a Relinquished Compound. During the [***] if Pharmasset wishes to [***], then the following procedures must be followed and the following conditions must be satisfied before Pharmasset may [***]:

(i)

[***];

(ii)

[***];

(iii)

[***]. Nothing in this Section 2.1(h)(iii) shall require [***]; and

(iv)

[***].

2.2

Pharmasset’s Rights to Grant Licenses to Third Parties . Pharmasset shall not, without Roche’s prior written consent, grant a right or license to any Third Party, under any Pharmasset Patent Right, in the Roche Territory, to make, use, offer for sale, sell or import any [***] (excluding any [***]) for an HCV Indication, except as otherwise provided in Section 2.1(h). Pharmasset may, without Roche’s prior consent, grant a right or license to any Third Party under any Pharmasset Patent Right, to make, use, offer for sale, sell or import any [***], which is not a Licensed Compound or Potential Licensed Compound, for any other indication, except as provided in Section 2.1(h).

2.3

Sublicense Rights .

(a)

Subject to the restriction set forth in Section 2.3(b) below, the rights and licenses granted to Roche shall include the right of Roche to grant sublicenses to its Affiliates and Third Parties to make, use, offer for sale, sell or import Products in the Territory for use in the Field. If Roche grants such a sublicense, Roche shall ensure that all of the applicable terms and conditions of this Agreement shall apply to the Affiliate or Third Party sublicensee to the same extent as they apply to Roche for all purposes. Roche assumes full responsibility for the performance of all obligations and observance of all terms so imposed on such Affiliate or Third Party sublicensee and shall itself account to Pharmasset for all payments due under this Agreement by reason of such sublicense.

(b)

Notwithstanding Section 2.3(a), [***].

2.4

Pharmasset Co-Promotion Right . Pharmasset shall have the right to co-promote any Product in the US, as specified in this Section 2.4. For purposes of this Agreement, “co-promote” and “co-promotion” shall mean the marketing, promotion, detailing and advertisement of Product by or on behalf of Pharmasset, or any of its Affiliates, under the relevant Regulatory Approvals and the then existing trademarks. “Co-promote” and “co-promotion” shall not mean the sale or distribution of a Product. Pharmasset may exercise its co-promotion right with regard to a Product by giving written notice thereof to Roche at any time during the period commencing upon NDA Filing in the US for such Product and ending three (3) months following such date, provided that at the time of such exercise Pharmasset has an established sales force in the US directed to sales to HIV treatment providers. Upon Pharmasset’s exercise of its co-promotion right, the Parties shall negotiate in good faith and enter into a written co-promotion agreement (the “Co-Promotion Agreement”) to be executed reasonably prior to the anticipated first Launch of such Product. In addition to any other terms agreed to by the Parties, the Co-Promotion Agreement shall contain the terms set forth in Schedule 3 hereto.

3.1

Diligence .

(a)

Pharmasset shall use Reasonable Diligence in proceeding with the discovery and development of the Potential Licensed Compounds, except that Pharmasset’s obligation hereunder shall expire upon the expiration of the Option Exercise Period.

(b)

From and after (i) the Effective Date with regard to the Primary Compound, and (ii) the effective date of Roche’s exercise of its Option with regard to a given Potential Licensed Compound,[***] shall [***], or [***], as the case may be, including [***].

(c)

[***] shall [***], as applicable.

(d)

If Pharmasset fails to use Reasonable Diligence in the performance of GLP Tox Completion activities for a Potential Licensed Compound (unless the JRC determines that such activities are not necessary for development of such Potential Licensed Compound), then Roche shall have the right to exercise its Option for such Potential Licensed Compound at no cost to Roche. If Roche fails to use Reasonable Diligence in the performance of the Development Plan with respect to a Licensed Compound (including, in the case of early exercise of an Option, any remaining GLP Tox Completion activities to the extent that the JDMC determines that such activities are necessary for development of such Potential Licensed Compound), then Pharmasset shall have the right to reversion of such Licensed Compound in accordance with the provisions of Section 17.4.

(e)

With respect to [***], if [***], then [***] shall [***]. With respect to [***], if [***], then [***] shall [***]. For clarity, [***].

4.1

Research and Development Payments .

(a)

Within ten (10) business days after the Effective Date, Roche shall make a payment to Pharmasset of [***]. This upfront payment represents reimbursement of Pharmasset’s research and development expenses relating to its HCV research program, which were incurred by Pharmasset prior to the Effective Date or, except with respect to payments otherwise contemplated by this Agreement to be made to Pharmasset, are incurred by Pharmasset after the Effective Date through and including December 31, 2004.

(b)

During each year of the Collaboration Period, Roche shall make a payment of [***] dollars ($[***]), due and payable within fifteen (15) business days after the first day of each calendar year (January 1) during the Collaboration Period, with the first such payment being due and payable by January 23, 2005.

(c)

During each year of the Collaboration Period, Roche shall make aggregate payments totaling [***] dollars ($[***]), payable in four (4) equal quarterly installments of [***] dollars ($[***]). Each installment is due and payable within fifteen (15) business days after the first day of each calendar quarter, with the first such payment being due and payable by January 23, 2005.

(d)

These installment payments set forth in Sections 4.1(b) and 4.1(c) are intended to partially reimburse Pharmasset’s internal FTE costs.

4.2

Option Exercise .

(a)

Within thirty (30) days after GLP Tox Completion for a given Potential Licensed Compound, provided another Product is also under development and/or commercialization at the same time, Roche shall have the option of:

(i)

[***];

(ii)

[***]; or

(iii)

[***]

(b)

If Roche makes the election provided for under Section 4.2(a)(ii) above, then upon the completion of the first clinical study to assess the multiple ascending dose in HCV infected patients, provided that another Product is also under development and/or commercialization at the same time, Roche shall have the further option of:

(i)

[***]; or

(ii)

[***].

(c)

Roche may exercise its Option for any given Potential Licensed Compound during the Collaboration Period and prior to GLP Tox Completion for such compound. If, at such time (i) another Product is also under development and/or commercialization or (ii) there is no Product under development and/or commercialization but Roche has not met its diligence obligations under Article 3 with respect thereto, then Roche’s exercise of its Option shall be on the terms and conditions set forth in Section 4.2(a).

(d)

If, at any time during the Collaboration Period, there is no Licensed Compound or Product then under development and/or commercialization but Roche has met its diligence obligations under Article 3 with respect to such compound, then Roche may, upon written notice to Pharmasset, exercise its Option for the Potential Licensed Compound of Roche’s choice at no cost to Roche. After Roche exercises its Option, the designated Potential Licensed Compound shall be deemed a Licensed Compound, and any products containing such compound shall be deemed Products.

(e)

From and after the exercise of its Option with respect to a Potential Licensed Compound, Roche shall assume responsibility for all of the activities, costs and expenses related to the further development and commercialization of the corresponding Licensed Compound and related Products. In the event that Roche exercises its Option earlier than GLP Tox Completion, Pharmasset shall have no responsibility for any GLP Tox Completion activities that were not initiated prior to Roche’s exercise of its Option, and Roche shall assume such responsibility for the remaining GLP Tox Completion activities, to the extent that the JDMC determines that such activities are necessary for development of such Potential Licensed Compound. For clarity, in the event that Roche does not exercise its Option at GLP Tox Completion, Pharmasset shall not be required to conduct further development of such Potential Licensed Compound.

4.3

Development Event Fees .

(a)

Primary Compound . Roche shall pay to Pharmasset the following nonrefundable payments (shown in [***] of US Dollars) upon the first occurrence of the following events for the Primary Compound:

(b)

Licensed Compounds . Roche shall pay to Pharmasset the following nonrefundable payments (shown in [***] of US dollars) upon the first occurrence of the following events for Licensed Compound:

(c)

Timing of Payments . Each payment in Section 4.3(a) and (b) shall be due and payable by Roche within fifteen (15) business days after the later of (i) the occurrence of the applicable event and (ii) receipt by Roche of an invoice from Pharmasset for such amount.

(d)

Payment Occurrences .

(i)

Roche shall make each of the payments set forth in Section 4.3(a) only once for the first occurrence of each event, regardless of how many times such event may be subsequently achieved.

(ii)

Roche shall make each of the payments set forth in the second column of Section 4.3(b) captioned “Payment for First Achievement of Event” only once for the first occurrence of each event, regardless of how many times such event may be subsequently achieved for the same or another compound. Roche shall make each of the payments set forth in the third column of Section 4.3(b) captioned “Payment for Second and Each Subsequent Achievement of Event” once for each of the second or any subsequent achievement(s) of such event, provided, however, that such payments shall be made only once per compound, regardless of how many times such event may be subsequently achieved for the same compound (i.e., such payment shall be made multiple times for multiple compounds but only once per compound). Furthermore, Roche shall make the payments set forth in the third column of Section 4.3(b) only if it has previously made the payment in the second column for the corresponding event for a different compound.

(iii)

In Section 4.3(b), if event 2 is achieved prior to achievement of event 1A or 1B for the same compound, then the corresponding payment for event 1A or 1B, as the case may be, shall become due and payable upon the achievement of event 2 as if event 1A or 1B, as the case may be, had then been achieved. If any of events 3, 4 or 5 are achieved prior to achievement of event 2 for the same compound, then the corresponding payment for event 2 shall become due and payable upon the achievement of event 3, 4 or 5 as if event 2 had then been achieved. Other than as described in this Section 4.3(d)(iii), the achievement of a later event shall not trigger the payment corresponding to any earlier event.

(iv)

For clarity, Roche shall make the payment in the 3rd column of Section 4.3(b) for event 1B upon the first achievement of event 1B, which shall be triggered only in the event there are at least two Licensed Compounds in development at that time. Also for clarity, Roche shall make the payment in the 3rd column of Section 4.3(b) for event 12 upon the first achievement of event 12, which shall be triggered only in the event there is US Regulatory Approval for a Licensed Compound and a Licensed Collaboration Compound to be used in combination.

(e)

Credits . If, during the Agreement Term, the development and/or commercialization of all Licensed Compounds have been terminated (other than for breach by Roche), then Roche may, at its option and discretion, designate one Potential Licensed Compound to be a Licensed Collaboration Compound at no additional cost to Roche under the terms of Section 4.2(d). If Roche has already made the payment required under Sections 4.2(a) or 4.2(b) to exercise such Option (the “Option Exercise Fee”), then Roche may credit the Option Exercise Fee against any milestone payments for such Licensed Collaboration Compound owed to Pharmasset in the future.

4.4

Payment for Extension of Collaboration Period . Roche shall have the right, but not the obligation, to extend the Collaboration Period as follows:

(a)

If Roche provides written notice to Pharmasset, no later than [***], of Roche’s election to have the Collaboration Period extended for an additional year, until [***], then the Collaboration Period shall be so extended (“First Extension”), and Roche must then make the research funding payments specified in Sections 4.1(b) and 4.1(c) for such additional year under the terms and conditions set forth in Section 4.1.

(b)

If Roche has elected to exercise its right to First Extension, then Roche shall have the further right, but not the obligation, to extend the Collaboration Period by another year. Roche may exercise its right to such an extension by providing written notice to Pharmasset, no later than [***], of Roche’s election to have the Collaboration Period extended for an additional year, until [***] (“Second Extension”). If the Collaboration Period is extended for a second year, Roche must then make the research funding payments specified in Sections 4.1(b) and 4.1(c) for such additional year under the terms and conditions set forth in Section 4.1.

5.1

Royalties to Pharmasset . Roche shall pay to Pharmasset the following royalty payments based on the Roche Net Sales for a given Product, which payments shall be subject to adjustment as provided in this Article 5.

(a)

For any year in which annual Roche Net Sales of a Product is less than or equal to [***] dollars ($[***]), such royalty payments shall be calculated by multiplying the royalty rates specified below by the incremental annual Roche Net Sales of such Product:

For example, if in [***], the [***] shall be [***]. The [***] may be [***].

(b)

For any [***] in which [***], [***] shall pay to [***].

(c)

For any [***] in which [***], [***] shall pay to [***].

(d)

Notwithstanding the above, commencing on the date that is the [***] ([***]) anniversary of the first commercial sale of Product in the Roche Territory, for any calendar year (January through December) in which annual Roche Net Sales of a Product is less than or equal to [***] dollars ($[***]), such royalty payments shall be calculated by multiplying the percentages specified below by the incremental annual Roche Net Sales of such Product:

For example, if in [***], the [***] shall be [***]. The [***] may be [***].

(e)

Term of Royalty Payments . Roche’s obligation to make royalty payments to Pharmasset under Section 5.1 with respect to a Product shall commence on the Launch of such Product in any country of the Roche Territory. The Roche Net Sales in a given country shall be included for purposes of calculating royalties under Section 5.1 from such Launch date until the later of (a) expiration of the last to expire Valid Compound Claim of a Patent Covering such Product in such country, or (b) [***] ([***]) years from the Launch of such Product in such country.

(f)

Adjustments Related to Absence of Valid Claims . If there is no Valid Claim in a Pharmasset Patent, Roche Patent or any Patent contained in the Joint Patent Rights, Covering the sale of a given Product in a country of the Roche Territory or if in a country, the only such Valid Claim Covers only a synthesis method and/or a manufacturing process, then Roche may calculate royalties in such country for such Product for any time period in which there is no such Valid Claim (or in which the only

such Valid Claim Covers only a synthesis method and/or manufacturing process) as if Roche Net Sales were equal to [***] percent ([***]%) of the actual amount of Roche Net Sales for that time period.

5.2

Royalty Reduction .

(a)

Cost of Goods Protection . Commencing on January 1 ^st after the first full year of Net Sales after the Launch of a Primary Product in the Roche Territory, if Pharmasset is the single source of API supply of such Primary Product and if, in a given calendar year, Roche’s Cost of Goods for such Primary Product exceed [***] percent ([***]%) of Roche Net Sales for such Primary Product, Roche shall be entitled to deduct from its royalty payments to Pharmasset [***] of the amount by which Roche’s Cost of Goods exceed such [***] percent ([***]%) threshold. For clarity, there shall be no royalty reduction by reason of Roche’s Cost of Goods (i) if Roche is the single source of API supply of Primary Product, or (ii) on any Product that contains a Licensed Collaboration Compound.

(b)

Third Party Royalties . If Roche, based upon advice by independent legal counsel, determines in good faith that it is in the economic best interests of the Parties in the Collaboration to obtain a license under Patent Rights of a Third Party for a Valid Compound Claim, then Roche may deduct from its royalty payments to Pharmasset in a given calendar year [***] of the amount of any royalty payment (other than any royalty payment associated with Pre-Existing Roche Third Party Licenses) made by Roche to such Third Party in such calendar year for such license. If Roche, based upon advice by independent legal counsel, determines in good faith that it is in the economic best interests of the Parties in the Collaboration to obtain a license under Patent Rights of a Third Party for a Valid Claim (other than one Covering a synthesis method and/or manufacturing process), then Roche may deduct from its royalty payments to Pharmasset in a given calendar year [***] of the amount of any royalty payment (other than any royalty payment associated with Pre-Existing Roche Third Party Licenses) made by Roche to such Third Party in such calendar year for such license. Any permitted royalty reduction shall be applied giving effect to any stacking credit or other allowance for a reduction in royalty payments by Roche to such Third Party. Notwithstanding the above, Roche shall be solely responsible for any HCV Target Screening Patent License royalties.

(c)

Floor on Royalty Reduction . In no event shall the reduction required by this Section 5.2 cause Roche’s royalty payments to Pharmasset for a given Product in a given calendar year to be lower than [***] percent [***]% of Roche Net Sales of such Product. If any royalty reduction is not fully deducted in any calendar year because of the royalty floor, any remaining royalty reduction shall be carried forward to the succeeding calendar year. At the end of the Term of this Agreement (i.e., upon

expiration of Roche’s royalty obligations), any unused carryforward royalty reductions shall be extinguished.

5.3

Royalties to Roche . Pharmasset shall pay to Roche the following royalty payments based on the Pharmasset Net Sales for a given Product, which payments shall be subject to adjustment as provided in this Article 5.

(a)

For any year in which annual Pharmasset Net Sales of a Product is less than or equal to [***] dollars ($[***]), such royalty payments shall be calculated by multiplying the royalty rates specified below by the incremental annual Pharmasset Net Sales of such Product:

For example, if in [***], the [***] shall be [***]. The [***] may be [***].

(b)

For any [***] in which [***], [***] shall pay to [***].

(c)

For any [***] in which [***], [***] shall pay to [***].

(d)

Notwithstanding the above, commencing on the date that is the [***] ([***]) anniversary of the first commercial sale of Product in the Pharmasset Territory, for any calendar year (January through December) in which annual Pharmasset Net Sales of a Product is less than or equal to [***] dollars ($[***]), such royalty payments shall be calculated by multiplying the percentages specified below by the incremental annual Pharmasset Net Sales of such Product:

For example, if in [***], the [***] shall be [***]. The [***] may be [***].

(e)

Term of Royalty Payments . Pharmasset’s obligation to make royalty payments to Roche under this Section 5.3 with respect to a Product shall commence on the Launch of such Product in any country of the

Pharmasset Territory. The Pharmasset Net Sales in a given country shall be included for purposes of calculating royalties under this Section 5.3 from such Launch date until the later of (a) expiration of the last to expire Valid Compound Claim in a Patent Covering such Product in such country, or (b) [***] ([***]) years from the Launch of such Product in such country.

(f)

Adjustments Related to Absence of Valid Claims . If there is no Valid Claim in a Pharmasset Patent, Roche Patent or in any Patent contained in the Joint Patent Rights, Covering the sale of a given Product in a country of the Pharmasset Territory or if in a country the only such Valid Claim Covers only a synthesis method and/or a manufacturing process, then Pharmasset may calculate royalties in such country for such Product for any time period in which there is no such Valid Claim (or in which the only such Valid Claim Covers only a synthesis method and/or manufacturing process) as if Pharmasset Net Sales were equal to [***] percent ([***]%) of the actual amount of Pharmasset Net Sales for that time period.

(g)

Third Party Royalties . If Pharmasset, based on advice by independent legal counsel, determines in good faith that it is in the economic best interests of the Parties in the Collaboration to obtain a license under Patent Rights of a Third Party for a Valid Compound Claim, then Pharmasset may deduct from its royalty payments to Roche in a given calendar year [***] of the amount of any royalty payment (other than any royalty payment associated with Pre-Existing Pharmasset Third Party Licenses) made by Pharmasset to such Third Party in such calendar year for such license. If Pharmasset, based on advice by independent legal counsel, determines in good faith that it is in the economic best interests of the Parties in the Collaboration to obtain a license under Patent Rights of a Third Party for a Valid Claim (other than one Covering a synthesis method or manufacturing process) in a country in the Pharmasset Territory, then Pharmasset may deduct from its royalty payments to Roche in a given calendar year [***] of the amount of any royalty payment (other than any royalty payment associated with Pre-Existing Pharmasset Third Party Licenses) made by Pharmasset to such Third Party in such calendar year for such license. Any permitted royalty reduction shall be applied giving effect to any stacking credit or other allowance for a reduction in royalty payments by Pharmasset to such Third Party.

5.4

Bundled Products . In the event that either Party or any of its Affiliates or sublicensees intends to sell a Bundled Product, the Parties shall meet approximately one (1) year prior to the anticipated commercial launch of such Bundled Product to negotiate in good faith and agree to an appropriate adjustment to the calculation of Roche or Pharmasset Adjusted Gross Sales (whichever is appropriate) (the “Adjusted Gross Sales”) to reflect the relative significance and

value (including consideration of relative market share, sales potential and price potential) of the Product and the other pharmaceutically active product(s) bundled with the Product. If, after [***], the [***]. If [***], such [***] shall be [***]. The Parties agree that [***] shall not [***].

5.5

Combination Products .

(a)

Roche Sales . In the event Roche or any of its Affiliates or sublicensees sells a Combination Product,[***] shall equal [***].

(b)

Pharmasset Sales. In the event Pharmasset or any of its Affiliates or sublicensees sells a Combination Product, [***] shall equal [***].

6.1

Net Sales Event Payments . Roche shall pay to Pharmasset the following one-time payments for each Product, payable the first time the applicable sales threshold is met based upon the annual Roche Net Sales for such Product.

6.2

For clarity, if the [***] is made, without [***] having been made, then [***] shall make [***].

7.1

Currency and Conversion .

(a)

Method and Currency of Payment . All payments under this Agreement are stated and shall be payable in US dollars by wire transfer to a bank in the United States designated in writing by the party to which the payment is due.

(b)

Currency Conversion for Roche Net Sales . Whenever calculation of Roche Net Sales requires conversion from any foreign currency, Roche shall convert the monthly amount of Roche Net Sales in such foreign currency into US dollars as computed in the central Roche currency conversion system, using the YTD average monthly rate of exchange at the time for such currencies as retrieved from the Reuters System used by Roche (or some other source agreed upon by the Parties for any particular country) for each month of the reporting period. If convenient for Roche, such conversion may be made initially into Swiss Francs and then into U.S. Dollars for purposes of calculating royalties, provided that Pharmasset is not disadvantaged by reason of such multiple conversions (e.g., that the conversion rates used by Roche do not reflect transaction costs of conversion). The currency conversion system used by Roche shall be subject to audit by Pharmasset as described in Section 7.4 and, if it is determined that the conversion system does not reflect the fair market value of the currencies in question, the above currency conversion process shall be modified as necessary to effect currency conversion at fair market value.

(c)

Roche Sublicensees . For sublicensees in a country, when calculating the Roche Net Sales, Roche shall require the sublicensee to report to Roche the amount of such sales within thirty (30) days from the end of the reporting period.

(d)

Currency Conversion for Pharmasset Net Sales . Whenever calculation of Pharmasset Net Sales requires conversion from any foreign currency, Pharmasset shall convert the monthly amount of Pharmasset Net Sales in such foreign currency into US dollars using the average rate of exchange using the average rate of exchange published in the Wall Street Journal (or some other source agreed upon by the Parties for any particular country) for each month of the reporting period.

7.2

Payments .

(a)

After the Launch of a Product in any country of the Roche Territory:

(i)

Roche shall calculate royalty payments set forth in Article 5 and milestone payments set forth in Article 6 quarterly as of March 31, June 30, September 30 and December 31 (each being the last day of an accounting period).

(ii)

Following the quarter ended December 31 in each year in which royalties are calculated on an annualized (i.e., not incremental) basis, Roche shall determine the royalties due for the immediately preceding calendar year, and adjust the payment due to Pharmasset for the quarter ended December 31

by the amount necessary to make the aggregate payments made for the four quarters of such year equal the amount due for the entire year; provided, however, that if [***] shall determine the [***].

(iii)

Roche shall pay such payments quarterly within forty-five (45) days after the end of each reporting period in which Roche Net Sales occur during the Agreement Term.

(b)

With each such payment under Section 7.2(a), Roche shall deliver to Pharmasset the following information, and methodology for its calculation, stated separately for the US and the rest of the Roche Territory:

(i)

Roche Net Sales for each Product; and

(ii)

the royalty payments and milestone payments due to Pharmasset for such reporting period.

(c)

If [***] requests [***] thereto, [***] agrees to [***].

(d)

After the Launch of a Product in any country of the Pharmasset Territory:

(i)

Pharmasset shall calculate royalty payments set forth in Article 5 and milestone payments set forth in Article 6 quarterly as of March 31, June 30, September 30 and December 31 (each being the last day of an accounting period).

(ii)

Following the quarter ended December 31 in each year in which royalties are calculated on an annualized (i.e., not incremental) basis, Pharmasset shall determine the royalties due for the immediately preceding calendar year, and adjust the payment due to Roche for the quarter ended December 31 by the amount necessary to make the aggregate payments made for the four quarters of such year equal the amount due for the entire year; provided, however, that if [***] of a [***] shall determine [***], and [***] for such [***].

(iii)

Pharmasset shall pay such payments quarterly within forty-five (45) days after the end of each reporting period in which Pharmasset Net Sales occur during the Agreement Term.

(e)

With each such payment under Section 7.2(c), Pharmasset shall deliver to Roche the following information, and methodology for its calculation, stated for the Pharmasset Territory:

(i)

Pharmasset Net Sales for each Product; and

(ii)

the royalty payments due to Roche for such reporting period.

(f)

In the event that a Party (the “Payor”) does not pay to the other Party (the “Payee”) any amounts due under this Agreement within the applicable time period set forth herein, such payment shall bear interest, to the extent permitted by applicable law, at an annual rate of interest equal to the average [***] calculated based on the number of [***] such a [***].

7.3

Taxes .

(a)

If the laws or regulations of any country require withholding of taxes of any type, levies on Pharmasset or its Affiliates, or other charges against Pharmasset or its Affiliates with respect to any amounts payable under this Agreement to Pharmasset, Roche shall promptly pay such tax, levy or charge for and on behalf of Pharmasset or its Affiliates to the proper governmental authority, and shall promptly furnish Pharmasset with a receipt evidencing such payment. Roche shall have the right to deduct any such tax, levy or charge actually paid from payment due Pharmasset hereunder or to be promptly reimbursed by Pharmasset if no further payments are due Pharmasset hereunder.

(b)

If the laws or regulations of any country require withholding of taxes of any type, levies on Roche or its Affiliates, or other charges against Roche or its Affiliates with respect to any amounts payable under this Agreement to Roche, Pharmasset shall promptly pay such tax, levy or charge for and on behalf of Roche or its Affiliates to the proper governmental authority, and shall promptly furnish Roche with a receipt evidencing such payment. Pharmasset shall have the right to deduct any such tax, levy or charge actually paid from payment due Roche hereunder or to be promptly reimbursed by Roche if no further payments are due Roche hereunder.

(c)

Notwithstanding anything contained herein to the contrary, all amounts payable under this Collaboration Agreement are exclusive of any applicable value added tax or other sales taxes (“VAT”). If a Party determines that it must account for VAT in respect of any payments made to it hereunder (the “Responsible Party”), it shall notify the other Party as soon as practicable, and the other Party shall, in addition to the amounts payable by it hereunder, pay to the Responsible Party the amount of an such VAT within thirty (30) days of its receipt of proof of payment of such VAT by the Responsible Party.

(d)

Each Party agrees to assist the other Party in claiming exemption from such deductions or withholdings under double taxation or similar agreement or treaty from time to time in force and in minimizing the amount required to be so withheld or deducted.

7.4

Accounting .

(a)

During the Agreement Term and for a period of three years thereafter, each Party shall, and shall cause its Affiliates and sublicensees to, maintain at their respective principal places of business records and books of account containing all particulars that may be necessary for the purpose of calculating all payments due under this Agreement. During the Agreement Term and for a period of three (3) years thereafter, a Party (the “Auditing Party”) shall have the right to engage on its own behalf the other Party’s (the “Audited Party”) independent, certified public accountant, to perform, on behalf of the Auditing Party, during the Agreement Term and for a period of three years thereafter, an audit of such books and records of the Audited Party and its Affiliates and sublicensees as may be necessary to confirm any amounts payable to the Auditing Party under this Agreement for the period or periods requested by the Auditing Party or to confirm the accuracy of any report made under this Agreement.

(b)

Such audits shall be conducted during normal business hours upon reasonable prior written notice from the Auditing Party (minimum of thirty (30) days) in such a manner as to not unnecessarily interfere with the Audited Party’s normal business activities, and shall be permitted with respect to records and books covering the three (3) years immediately preceding the date of notification of the audit.

(c)

The Auditing Party shall use all information, data, documents and abstracts obtained during an audit conducted pursuant to this Section 7.4 solely for the purposes described in Section 7.4(a). The Auditing Party shall treat all such information, data, documents and abstracts as the Audited Party’s Confidential Information subject to Article 16 of this Agreement and, except in the event of a dispute between the Parties regarding amounts payable hereunder or the results of any audit, the Auditing Party shall not retain such information, data, documents and abstracts for more than