COLLABORATION AGREEMENT

Exhibit 10.5

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

COLLABORATION AGREEMENT

      This Collaboration Agreement (the “ Agreement ”) is entered into and made effective as of August 31, 2007 (the “ Effective Date ”) by and between Aradigm Corporation , a California corporation having its principal place of business at 3929 Point Eden Way, Hayward, CA 94545 ( “Aradigm” ), and CyDex, Inc. , a Delaware corporation having its principal place of business at 10513 W. 84th Terrace, Lenexa, KS 66214 ( “CyDex” ). Aradigm and CyDex are sometimes referred to herein individually as a “Party” and collectively as the “Parties.”

Recitals

      Whereas, Aradigm possesses proprietary rights related to the pulmonary delivery technology known as AERx ^® technology, as well as expertise and know-how relating to the use and manufacture of such technology; and

      Whereas, CyDex possesses proprietary rights related to certain solubilization and formulation enabling technology known as Captisol, as well as expertise and know-how relating to the use of and manufacture with such technology; and

      Whereas, CyDex and Aradigm desire to collaborate on the development and commercialization of certain pharmaceutical preparations for pulmonary delivery and to share in the revenue from sales, and from licensing of such pharmaceutical preparations to a third party for further development and commercialization.

      Now, Therefore , the Parties agree as follows:

     The following terms shall have the following meanings as used in this Agreement:

      1.1 “AERx Technology” means the AERx ^® Pulmonary Drug Delivery System for pulmonary delivery of therapeutic compounds.

      1.2 “Affiliate” means, with respect to a particular Party, a person, corporation, partnership, or other entity that controls, is controlled by or is under common control with such Party. For the purposes of the definition in this Section 1.2, the word “control” (including, with correlative meaning, the terms “controlled by” or “under the common control with”) means the actual power, either directly or indirectly through one or more intermediaries, to direct the management and policies of such entity, whether by the ownership of at least fifty percent (50%) of the voting stock of such entity, or by contract or otherwise.

      1.3 “Allocation Ratio” means the ratio at which Aradigm and CyDex will share Research Costs, Partnering Costs, and Licensing Revenue (all as defined below), together with

patent-related costs to the extent applicable pursuant to Section 8.3(c), which ratio is agreed to be as set forth in Section 1.3 on the attached Schedule of commercial terms.

      1.4 “Aqueous Formulation” means a formulation containing Compounds in a vehicle consisting of [*]. For clarity, “Aqueous Formulations” do not include [*].

      1.5 “Aradigm Core IP” means any and all inventions, developments, results, know-how and other Information (including physical, chemical or biological materials), and all Patents relating thereto, made, conceived or reduced to practice by a Party, both Parties jointly, or the Third Party Partner in the performance of the Research Program (as defined below) that represent improvements or modifications to the Aradigm Technology (as defined below) existing as of the Effective Date.

      1.6 “Aradigm Generic Third Party Agreement” means an agreement between Aradigm and a Third Party that relates to a particular Collaboration Product and to other products as well.

      1.7 “Aradigm Information” means all raw data produced solely by Aradigm in the course of performing its obligations under the Research Program.

      1.8 “Aradigm Specific Third Party Agreement” means an agreement between Aradigm and a Third Party that relates solely to a particular Collaboration Product.

      1.9 “Aradigm Technology” means all Information and Patents under Aradigm Control (as defined below) as of the Effective Date or during the Term that relate directly to or claim a Collaboration Product, or the manufacture or use of a Collaboration Product, including AERx Technology, but excluding Program IP.

      1.10 “Collaboration” means all activities performed by or on behalf of Aradigm or CyDex or the Third Party Partner in the course of performing the activities described in, or fulfilling of their obligations pursuant to, this Agreement or the Partnering Agreement.

      1.11 “Collaboration Product” means a pharmaceutical preparation, excluding agents whose principle therapeutic effect is to control blood glucose levels in humans, delivered via a portable, hand held device, comprising one or more compounds selected by the JSC (or otherwise described in the then-current Research Plan) that has been formulated for use in AERx Technology using, or otherwise incorporates, Formulation Technology.

      1.12 “Compound” means a compound that has been selected by the JSC (or is otherwise described in the then-current Research Plan) as a potential active ingredient in a Collaboration Product. Compounds are expected to include, without limitation, inhalation corticosteroids, beta adrenergic agonists, and cholinergic antagonists.

      1.13 “Confidential Information” has the meaning assigned to it in Section 9.1.

      1.14 “Control” means, with respect to an item of Information or an intellectual property right, that a Party owns or has a license to such item or right and has the ability to

disclose and grant a license or sublicense as provided for in this Agreement under such item or right without violating the terms of any agreement or other arrangement with any Third Party.

      1.15 “CyDex Core IP” means any and all inventions, developments, results, know-how and other information (including physical, chemical or biological materials), and all Patents relating thereto, made, conceived or reduced to practice by a Party, both Parties jointly, or the Third Party Partner in the performance of the Research Program (as defined below) that represent improvements or modifications to CyDex Technology (as defined below) existing as of the Effective Date.

      1.16 “CyDex Generic Third Party Agreement” means an agreement between CyDex and a Third Party that relates to a particular Collaboration Product and to other products as well.

      1.17 “CyDex Information” means all raw data produced solely by CyDex in the course of performing its obligations under the Research Program.

      1.18 “CyDex Specific Third Party Agreement” means an agreement between CyDex and a Third Party that relates solely to a particular Collaboration Product.

      1.19 “CyDex Technology” means all Information and Patents under CyDex Control as of the Effective Date or during the Term that relate directly to or claim the Collaboration Product, or the manufacture or use of the Collaboration Product, including Formulation Technology, but excluding Program IP.

      1.20 “Diligent Efforts” means the carrying out of obligations or tasks in a sustained manner consistent with the efforts a Party devotes to a research project for a pharmaceutical product or products of similar market potential, profit potential or strategic value resulting from its own research efforts, based on conditions then prevailing. Diligent Efforts requires that the Party: (a) promptly assign responsibility for such obligations to specific employee(s) who are held accountable for progress and monitor such progress on an on-going basis, (b) set and consistently seek to achieve specific and meaningful objectives for carrying out such obligations, and (c) consistently make and implement decisions and allocate resources designed to advance progress with respect to such objectives.

      1.21 “Directly Competitive Product” means a pharmaceutical preparation that is not a Collaboration Product but comprises as an active ingredient (a) the same Compound as a Collaboration Product (in the case of a Collaboration Product that contains a single Compound); or (b) one or more of the same Compounds as in a Collaboration Product (in the case of a Collaboration Product that contains multiple Compounds).

      1.22 “Field” means pulmonary delivery via a portable, hand held device of pharmaceutical agents, other than agents whose principle therapeutic effect is to control blood glucose levels in humans, using [*] delivery of liquid formulations containing Formulation Technology whereby [*] delivery here means pulmonary delivery of the medication in which a dose is administered in [*].

      1.23 “Formulation Technology” means CyDex’s solubilization and stabilization technology, including its Captisol ^® (sulfobutylether-7-beta-cyclodextrin) technology.

      1.24 “Information” means information, results and data of any type whatsoever, in any tangible or intangible form whatsoever, including without limitation, databases, inventions, practices, methods, techniques, specifications, formulations, formulae, knowledge, know-how, skill, experience, test data including pharmacological, biological, chemical, biochemical, toxicological and clinical test data, analytical and quality control data, stability data, studies and procedures, and patent and other legal information or descriptions.

      1.25 “JSC,” or “Joint Steering Committee,” has the meaning set forth in Section 2.1.

      1.26 “Liaison Party” means the Party identified by the JSC for partnering purposes as provided for in Article 4.

      1.27 “Licensing Revenues” means any and all forms of consideration that either Party receives from a Third Party Partner in connection with a Partnering Agreement, which may include upfront license fees, annual license or maintenance payments, milestone payments, royalties, imputed income on interest-free loans received from such Third Party and other similar payments. Subject to the provisions of Section 4.3(b) Licensing Revenues do not include payments made by any third party licensee to either Party for manufacture and supply agreements for Aradigm Technology and/or Cydex Technology, licenses for the right to manufacture Aradigm Technology or CyDex Technology or costs associated with the transfer of manufacturing technology.

      1.28 “Partnering Agreement” means an executed and in-force written agreement between, on the one hand, one or both of the Parties, and, on the other hand, a Third Party, wherein such Third Party obtains a license granting a Third Party the right to develop and/or commercialize a Collaboration Product for its own account or in collaboration with one or both of the Parties.

      1.29 “Partnering Costs” means the out-of-pocket legal and consultant fees and travel costs incurred by the Parties in connection with identifying and negotiating with potential Third Party Partners and preparing, negotiating, and executing a Partnering Agreement for a Collaboration Product.

      1.30 “Patent” means (a) unexpired letters patent (including inventor’s certificates) which have not been held invalid or unenforceable by a court of competent jurisdiction from which no appeal can be taken or has been taken within the required time period, including without limitation any substitution, extension, registration, confirmation, reissue, re- examination, renewal or any like filing thereof and (b) pending applications for letters patent, including without limitation any continuation, division or continuation-in-part thereof and any provisional applications.

      1.31 “Program IP” means any and all inventions, developments, results, know-how and other Information (including physical, chemical or biological materials), and all intellectual

property relating thereto, that is (a) made, conceived or reduced to practice by employee(s) or agent(s) of one or both Parties in the performance of the Research Program and that is (b) neither (i) Aradigm Core IP nor (ii) CyDex Core IP.

      1.32 “Program Patents” has the meaning set forth in Section 8.3(c).

      1.33 “Research Budget” has the meaning set forth in Section 3.2.

      1.34 “Research Costs” means the unreimbursed expenses incurred by a Party or for its account in connection with the Research Program that are specified in the Research Plan and Research Budget. Notwithstanding the foregoing, Research Costs shall exclude any overhead expenses of a Party, except to the extent such overhead expenses are included in the FTE rate set forth in Section 3.2(a).

      1.35 “Research Plan” has the meaning set forth in Section 3.2.

      1.36 “Research Program” has the meaning set forth in Section 2.1.

      1.37 “Term” has the meaning assigned to it in Section 10.1.

      1.38 “Territory” means the world.

      1.39 “Third Party Partner” means a Third Party that has entered into a Partnering Agreement.

      1.40 “Third Party” means any entity other than (i) Aradigm, (ii) CyDex or (iii) an Affiliate of either of them.

      2.1 Overall Management Structure . The overall management of the Collaboration shall be vested in a Joint Steering Committee (the “ JSC ”), with responsibility, as further discussed in Section 2.2, for establishing the strategic direction of the Collaboration and for managing and directing the overall research program to be jointly established by the Parties (the “ Research Program ”) and the Parties’ efforts to commercialize and to out-license the technology developed thereunder. The JSC may further establish one or more subcommittees as it deems appropriate and delegate one or more of its responsibilities to such subcommittee, provided that the subcommittee’s actions will be subject to review and approval by the JSC.

      2.2 Joint Steering Committee .

           (a) Membership. The JSC shall be composed of two (2) representatives from each Party. Promptly following the Effective Date, the Parties shall appoint their initial representatives to the JSC. Each Party may replace its JSC representatives at any time upon written notice to the other Party. Each Party will designate one of its representatives as a co- chairperson of the JSC. The co-chairpersons shall be responsible for scheduling meetings,

preparing and circulating an agenda in advance of each meeting, and preparing and issuing minutes of each meeting within thirty (30) days thereafter.

           (b) Responsibilities. During the term of this Agreement, the JSC shall meet a minimum of four (4) times per year at a location mutually agreeable to the Parties or by telephonic or other electronic means. The JSC will make its decisions by unanimous vote, with each Party’s representatives collectively having one vote. The JSC shall determine the overall strategy for the Collaboration, including the Research Program. Without limiting the generality of the foregoing, the JSC shall be responsible for (i) selecting the Collaboration Products, (ii) creating the Research Plan and Research Budget for each Collaboration Product, (iii) evaluating the Parties’ performance under the Research Plan, and (iv) upon completion of a Research Program for a Collaboration Product, making a recommendation to the senior management of each Party regarding the potential for further development and commercialization of such Collaboration Product.

      2.3 Obligations of Parties. Aradigm and CyDex shall provide the JSC and all subcommittees thereof that are formed, and their authorized representatives, with reasonable access during regular business hours to all records, documents, and Information relating to the Research Program that any such committee may reasonably require in order to perform its obligations hereunder, provided that if such records, documents or Information are under a bona fide obligation of confidentiality to a Third Party, then Aradigm or CyDex, as the case may be, may withhold access thereto to the extent necessary to satisfy such obligation.

      2.4 Collaboration Guidelines.

           (a) General. In all matters related to the Collaboration, the Parties shall be guided by standards of reasonableness in economic terms and fairness to each of the Parties, striving to balance the legitimate interests and concerns of the Parties, to further the Research Program, and to realize the economic potential of the Collaboration Products.

           (b) Independence. Subject to the terms of this Agreement, the activities and resources of each Party shall be managed by such Party, acting independently and in its individual capacity. The relationship between Aradigm and CyDex is that of independent contractors and neither Party shall have the power to bind or obligate the other Party in any manner, other than as is expressly set forth in this Agreement.

      3.1 Scope. The goal of the Research Program will be to identify and select, via the JSC, potential Collaboration Products that are of interest to the Parties and to obtain in vitro proof-of-concept data regarding such Collaboration Products. It is anticipated that the Collaboration Products will either comprise two or more off-patent compounds. Notwithstanding the foregoing, the JSC may agree, on a case-by-case basis, to include Collaboration Products that do not fall within these categories. The JSC shall determine from time to time whether clinical testing of Collaboration Products will be conducted under this Agreement; provided, however, such clinical testing shall not be conducted unless and until the

Parties have amended this Agreement to provide for the terms and conditions relating to such clinical testing.

      3.2 Selection of Compounds; Research Plan.

           (a) The work performed by the Parties under the Research Program with respect to a particular Collaboration Product will be governed by a written research plan (each, a “ Research Plan” ). Each Research Plan shall specifically identify the Collaboration Product (and the relevant Compounds) to which it pertains and shall include a budget (each, a “ Research Budget ”) describing each Party’s funding obligations with respect to the work specified in the Research Plan. Such funding obligations may consist of cash payments or in-kind contributions of materials, equipment, or labor, and the Research Budget shall indicate the dollar value associated with any in-kind contributions. For the purpose of establishing a Research Budget, the dollar value of any in-kind contribution of labor by the employees of a Party shall be calculated on an average fully burdened FTE basis that includes estimated overheads using a rate of $[*]/hour per FTE. The JSC will review such reimbursement rate on an annual basis and, if necessary, may elect to change such reimbursement rate to reflect changes in costs. Each Research Plan shall allocate between the Parties responsibility for each of the Research Program activities described therein in a manner consistent with this Agreement. In each Research Plan, it is anticipated that Aradigm shall be primarily responsible for the supply of the AERx Technology, optimizing the formulation for use in the AERx Technology, including adjusting the [*] parameters, in vitro and in vivo preclinical studies, and that CyDex shall be primarily responsible for developing the formulations and analytical methods, and for supplying Captisol or other substituted cyclodextrins, for the bulk formulations.

           (b) A specimen Research Plan (and Research Budget) covering expected in vitro activities for the initial Collaboration Product is attached to this Agreement and incorporated by this reference and is intended to be used by the JSC in developing specific Research Plans (and Research Budgets). The JSC shall be responsible for drafting additional Research Plans for additional Collaboration Products, as required. During the Research Term, the JSC shall review each then-existing Research Plan at least semiannually and may generate and approve revised versions of each Research Plan (including revisions to the list of Collaboration Products, as required) that are consistent with the terms of this Agreement and the goals of the Research Program. Once approved by the JSC, such revised Research Plan shall replace the prior Research Plan. Significant changes in the scope or direction of the work and, any increase or decrease in either Party’s funding requirements in excess of fifteen percent (15%), or any changes to the funding requirements that would cause the allocation of budgeted Research Costs to deviate from the Allocation Ratio must be approved in writing by a member of the senior management of each Party. In the absence of approval of a Research Plan by the JSC or the senior management of each Party (as the case may be), the most recently approved Research Plan shall remain in effect.

           (c) The Parties acknowledge that such Research Plan and Research Budget allocate the budgeted Research Costs between the Parties in accordance with the Allocation Ratio. For the avoidance of doubt, it is the intent of the Parties (a) to ensure that additional or revised Research Plans and/or Research Budgets also allocate the budgeted Research Costs

between the Parties in accordance with the Allocation Ratio and (b) to make adjustments over time as may be necessary and appropriate to align actual Research Costs with budgeted Research Costs in accordance with the Allocation Ratio. To the extent that the JSC decides that it is not possible or in the best interests of the Collaboration Product to allocate budgeted Research Costs between the Parties according to the Allocation Ratio, then the Party contributing less than its portion under the Allocation Ratio will make cash payments on a quarterly basis to the party contributing more than its portion under the Allocation Ration to bring the sum contribution of resources plus cash in line with the Allocation Ratio.

      3.3 Research Term. The Research Term shall commence on the Effective Date and shall continue for a period of two (2) years unless both parties agree in writing to extend the Research Term. Each Party’s obligations under the Research Plan and each Party’s research funding commitments set forth in Section 3.8 shall remain in force during the Research Term and shall terminate at the end of the Research Term.

      3.4 Conduct of Research Program. The Parties shall use Diligent Efforts to conduct their respective tasks assigned pursuant to the Research Plan and to attempt to achieve the objectives of the Research Program efficiently and expeditiously. Each Party shall conduct its portion of the Research Program in good scientific manner, and in compliance in all material respects with the requirements of applicable laws, rules and regulations and all applicable good laboratory practices.

      3.5 Reports to JSC. At each meeting of the JSC during the Research Term and the six-month period following the end of the Research Term, each Party shall submit to the JSC a written progress report summarizing the work performed under the Research Plan since the last meeting.

      3.6 Use of Subcontractors. Either Party may subcontract portions of the activities allocated to it under the Research Plan to any of its Affiliates, or to a Third Party, provided that such Third Party is approved by the JSC prior to commencing any work. Notwithstanding the foregoing, the JSC may expressly waive this requirement with respect to the subcontracting of certain Research Program activities that the Parties mutually agree should be within the sole discretion of a Party.

      3.7 Records . Each Party shall maintain complete and accurate records of all work conducted under the Research Program and all results, data and developments made pursuant to its efforts under the Research Program. Such records shall be complete and accurate and shall fully and properly reflect all work done and results achieved in the performance of the Research Program in sufficient detail and in good scientific manner appropriate for patent and regulatory purposes. Each Party shall have the right to review and copy such records of the other Party at reasonable times to the extent necessary for such Party to conduct its obligations under the Agreement.

      3.8 Research Costs. Each Party shall bear all costs and expenses incurred by such Party in the course of performing Research Program activities. For clarity, Partnering Costs, even if incurred during the Research Term, will be shared in accordance with Section 4.3.

      3.9 Materials Transfer. In order to facilitate the Research Program, either Party may provide to the other Party, at no charge, certain biological materials, chemical compounds, devices, equipment, or other research materials owned or controlled by the supplying Party (collectively, the “ Materials ”) for use by the other Party in furtherance of the Research Program. Each Party shall use the other Party’s Materials solely for the purposes of performing under the Research Program and in compliance with all applicable legal requirements. Neither Party shall use the other Party’s Materials for any other purposes. Neither Party shall sell, transfer, disclose or otherwise provide access to the other Party’s Materials, without the prior express written consent of the other Party. However, each Party may allow access, on a need-to-know basis, to the other Party’s Materials to such first Party’s employees and agents for purposes of performance of the Research Program in accordance with the Research Plan, provided that such employees and agents are made aware of the restrictions on the use of such Materials that are set forth in this Agreement. Upon expiration or early termination of the Research Term, each Party will return any remaining quantities of the other Party’s Materials to such other Party, or otherwise dispose of such Materials as directed by such other Party. Each Party acknowledges and agrees that the Materials of the other Party may have biological and/or chemical properties that are unpredictable and unknown as the time of transfer, that they are to be used with caution and prudence, and that they are not to be used for testing in or treatment of humans. Except as expressly set forth herein, THE MATERIALS ARE PROVIDED “AS IS” AND WITHOUT ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR ANY PARTICULAR PURPOSE OR EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT ANY WARRANTY THAT THE USE OF THE MATERIALS WILL NOT INFRINGE OR VIOLATE ANY PATENT OR OTHER PROPRIETARY RIGHTS OF ANY THIRD PARTY.

      4.1 General. The Parties shall cooperate, via the JSC, to identify potential Third Party Partners for further development and commercialization of Collaboration Products in the Field in the Territory.

      4.2 Partnering Agreement . The Liaison Party shall have direct responsibility for identifying and negotiating with potential Third Party Partners for development and commercialization of Collaboration Products in the Field in the Territory. The Liaison Party shall keep the other Party informed regarding such negotiations and shall provide the other Party with an opportunity to comment thereon. The ultimate form of the Partnering Agreement shall be presented to both Parties for review and approval. It is anticipated that, under the Partnering Agreement, (a) each Party will grant the relevant Third Party Partner an exclusive license to research, develop, use, register, make, have made, sell, have sold, and distribute Collaboration Products in the Field in the Territory; (b) CyDex would be responsible for manufacturing (or having manufactured) Formulation Technology and (c) Aradigm would be responsible for manufacturing (or having manufactured) AERx Strips ^® dosage packets and AERX Essence ^® devices.

      4.3 Sharing of Licensing Revenue .

           (a) Except as provided in Section 4.3(b), the Parties will share all Licensing Revenues realized and Partnering Costs incurred in respect to the Collaboration Product in accordance with Allocation Ratio.

           (b) Any payments or other compensation provided by a Third Party Partner to either Aradigm or CyDex in consideration for such Party undertaking contract services relating to the development, manufacture, or commercialization of a Collaboration Product (whether or not made pursuant to a Partnering Agreement) shall not be considered Licensing Revenues hereunder, provided that the other Party is given the opportunity to review the financial and non-financial terms under which such services will be provided and (ii) such compensation does not exceed the normal rates charged by the contracting Party in other, unrelated arms-length transactions.

      4.4 Reporting and Reconciliation. Within fifteen (15) days after the end of each calendar quarter during negotiation of, or following the execution of, a Partnering Agreement, each Party shall provide a written report to the JSC (with a copy to the other Party) specifying and documenting, both in reasonable detail, the Licensing Revenues it received, and Partnering Costs that it incurred, during such quarter with respect to such Partnering Agreement. Within thirty (30) days after the end of each such calendar quarter, the JSC shall provide each Party with an accounting in reasonable detail of the Parties’ Partnering Costs and Licensing Revenues for such quarter, and the JSC shall promptly direct by written notice the remittance between the Parties of a payment that will result in the sharing of Licensing Revenues and Partnering Costs as set forth in Section 4.3. All payments required by this Section 4.4 shall be made within thirty (30) days after receipt of a written notice. Each Party shall keep detailed records of the Partnering Costs it incurs, and all Licensing Revenues it receives, including all supporting documentation for such costs and revenues. Each Party shall keep such records for at least three (3) years after the date that such expense was incurred or revenue received. Either Party may audit, in accordance with the procedures set forth in Section 7.4, such records for the sole purpose of verifying the accuracy of the other Party’s reports pursuant to this Section 4.4.

      5.1 In General. Subject to Section 5.2 and subject to Section 10.3 (as appropriate), all development of Collaboration Products beyond the activities that are part of the Research Program and all commercialization of Collaboration Products shall be governed by a separate development and commercialization agreement between the Parties, which will be negotiated in good faith by the Parties at a mutually agreeable time and shall include commercially reasonable terms.

      5.2 Partnering Agreement . To the extent that a Partnering Agreement covers a Collaboration Product, the development and commercialization of such Collaboration Product in the Field in the Territory shall be governed by the terms and conditions of such Partnering Agreement.