COLLABORATIVE DEVELOPMENT AND LICENSE AGREEMENT

E XHIBIT 10.52

 

[ * ] = C ERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT , MARKED BY BRACKETS , HAS BEEN OMITTED AND FILED SEPARATELY WITH THE S ECURITIES AND E XCHANGE C OMMISSION PURSUANT TO R ULE 24 B -2 OF THE S ECURITIES E XCHANGE A CT OF 1934, AS AMENDED .

 

COLLABORATIVE DEVELOPMENT

 

AND

 

LICENSE AGREEMENT

 

BETWEEN

 

INHALE THERAPEUTIC SYSTEMS

 

AND

 

PFIZER INC.

 

January 18, 1995

[ * ] = C ERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT , MARKED BY BRACKETS , HAS BEEN OMITTED AND FILED SEPARATELY WITH THE S ECURITIES AND E XCHANGE C OMMISSION PURSUANT TO R ULE 24 B -2 OF THE S ECURITIES E XCHANGE A CT OF 1934, AS AMENDED .

 

TABLE OF CONTENTS

 

 

Exhibits

 

Exhibit 1.13 List of Patent and Patent Applications owned or Controlled by INHALE

Exhibit 3.1 Allocation of Development Responsibilities

Exhibit 7.1 Outline of Manufacturing and Supply Agreement

Exhibit 10.1 Clinical and Non-clinical Studies

 

[ * ] = C ERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT , MARKED BY BRACKETS , HAS BEEN OMITTED AND FILED SEPARATELY WITH THE S ECURITIES AND E XCHANGE C OMMISSION PURSUANT TO R ULE 24 B -2 OF THE S ECURITIES E XCHANGE A CT OF 1934, AS AMENDED .

[ * ] = C ERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT , MARKED BY BRACKETS , HAS BEEN OMITTED AND FILED SEPARATELY WITH THE S ECURITIES AND E XCHANGE C OMMISSION PURSUANT TO R ULE 24 B -2 OF THE S ECURITIES E XCHANGE A CT OF 1934, AS AMENDED .

 

COLLABORATIVE DEVELOPMENT AND LICENSE AGREEMENT

 

This Agreement is made and entered into 18 January 1995 and is effective as of the Effective Date (as defined in Section 17.1) by and between INHALE THERAPEUTIC SYSTEMS, a California corporation (“INHALE”), and PFIZER INC., a Delaware corporation (“PFIZER”). INHALE and PFIZER are sometimes referred to herein individually as a “Party” and collectively as the “Parties”, and references to “INHALE” and “PFIZER” shall include their respective Affiliates.

 

RECITALS

 

WHEREAS, INHALE is engaged in the research and development of proprietary devices, dry powder formulations and dry powder processing and filling technology for pulmonary drug delivery;

 

WHEREAS, PFIZER and INHALE entered into non-disclosure agreements dated 6 July 1993, 29 April 1994, and 29 July 1994 (collectively “Non-disclosure Agreements”) relating to the exchange of confidential and proprietary information regarding the pulmonary delivery of Regular Insulin;

 

WHEREAS, PFIZER desires to have INHALE develop dry powder formulations of Regular Insulin and Devices for pulmonary delivery of such formulations and manufacture such dry powder formulations and Devices;

 

WHEREAS, PFIZER desires to obtain an exclusive license to market and sell in the Territory, such dry powder formulations of Regular Insulin with a suitable Device developed by INHALE and INHALE desires to grant such a license on the terms and conditions of this Agreement; and

 

WHEREAS, PFIZER and INHALE have entered into that certain Stock Purchase Agreement executed on the same date(s) as this Agreement (the “Stock Purchase Agreement!’).

 

AGREEMENT

 

Now, THEREFORE, in consideration of the foregoing and the covenants and promises contained in this Agreement, the Parties agree as follows:

 

1. Definitions . As used herein, the following terms shall have the following in meanings:

 

1.1 “ Affiliate ” means a corporation, partnership, trust or other entity that directly, or indirectly through one or more intermediates, controls, is controlled by or is under

 

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common control with a Party to this Agreement. For such purposes, “control,” “controlled by” and “under common control with” shall mean the possession of the power to direct or cause the direction of the management and policies of an entity, whether through the ownership of voting stock or partnership interest, by contract or otherwise. In the case of a corporation, the direct or indirect ownership of more than fifty percent (50%) of its outstanding voting shares shall in any event be deemed to confer control, it being understood that the direct or indirect ownership of a lesser percentage of such shares shall not necessarily preclude the existence of control.

 

1.2 “ Baseline Cost ” means [ * ] cost that [ * ] in order to [ * ] . The Baseline Cost of [ * ] shall be [ * ] .

 

1.3 “ Compulsory License ” means a compulsory license under the INHALE Patents or INHALE Know-How obtained by a third party through the order, decree, or grant of a competent governmental authority, authorizing such third party to manufacture, use or sell Products in the Territory or in any portion thereof.

 

1.4 “ Control ” means the ability to grant a license or sublicense as provided for herein without violating the terms of any agreement or other arrangement with any third party.

 

1.5 “ Corporate Overhead ” means [ * ] expenses [ * ] .

 

1.6 “ Cut of Goods Sold ” shall be the sum of the following costs to the extent allocable to Products sold by PFIZER: [ * ] . The Cost of Goods Sold shall [ * ] . The Cost of Goods Sold shall be calculated in a manner consistent with Generally Accepted Accounting Principles (“GAAP”) consistently applied. The methodology to be used in making the allocations referred to above shall be proposed by PFIZER and subject to the approval of INHALE, shall be consistent with PFIZER’s methodology for other products, and shall be consistent from year-to-year.

 

1.7 “ Device ” means any device for the pulmonary delivery of macromolecules designed and/or manufactured by or for INHALE, including P2, P3, Commercial and Standard devices. “P2 Device” means a Device suitable for use in a take-home Phase II clinical trial of Regular Insulin which substantially meets the performance specifications set forth in a separate written agreement between the Parties. “P3 Device” means a Device suitable for use in a take-home Phase III clinical trial or equivalent pivotal study which substantially meets the performance specifications set forth in a separate written agreement between the Parties. “Commercial Device” means any Device that PFIZER sells commercially under this Agreement which substantially meets the performance specifications set forth in a separate written agreement between the Parties. “Standard Device” means any Device that has not been significantly modified at the request and expense of PFIZER. The foregoing performance specifications are subject to modifications recommended by the JDC and approved by the Parties. Unless otherwise noted, the use of the term “device” in this Agreement is not intended to indicate thereby the definition of “device” in the Federal Food, Drug and Cosmetic Act, as amended.

 

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1.8 “ Field ” means the development, manufacture, use and sale of the Products that are or could be developed and sold under this Agreement.

 

1.9 “FTE” means 1880 labor hours per year. The FM rate shall be calculated annually by INHALE based on total budgeted research and development expenses divided by the total number of staff years (FTE) chargeable to projects plus a pro ram (based on research and development headcount) allocation of general, administrative and facilities expenses. This rate shall be [ * ] per staff year (FTE) for 1995 and shall not increase at a rate in excess of the Consumer Price Index when recalculated on an annual basis. The methodology to be used in making the allocations referred to above shall be consistent with INHALE’s methodology for other products, and shall be consistent from year-to-year.

 

1.10 “ Fully Burdened Cost ” shall be the sum of the following costs to the extent allocable to Products sold to PFIZER [ * ] PFIZER: [ * ] . Fully Burdened Cost [ * ] . Fully Burdened Cost shall be calculated in a manner consistent with Generally Accepted Accounting Principles (“GAAP”) consistently applied. The methodology to be used in making the allocations referred to above shall be proposed by INHALE and subject to the approval of PFIZER, shall be consistent with INHALE’s methodology for other products and shall be consistent from year-to-year.

 

1.11 “ Information ” means (i) techniques and data relating to the Field, including, but not limited to, ideas (including patentable inventions), inventions, practices, methods, knowledge, know-how, trade secrets, skill, experience, documents, apparatus, clinical and regulatory strategies, test data, including pharmacological, toxicological and clinical test data, analytical and quality control data, manufacturing, patent and legal data or descriptions and (ii) Devices, chemical formulations, compositions of matter, product samples and assays relating to the Field.

 

1.12 “ INHALE Know-how ” means all Information that is (a) owned or Controlled by INHALE, at any time during the Term of this Agreement and (b) useful or necessary in the Field. INHALE Know-how does not include INHALE Patent Rights.

 

1.13 “ INHALE Patent Rights ” means the rights granted by any governmental authority under (a) the Patents listed in Exhibit 1.13 , (b) any Patents that issue from the Patent Applications listed in Exhibit 1.13 and (c) any other Patent that covers a method, apparatus, material or manufacture necessary or useful in the Field, which Patent is owned or Controlled by INHALE and covers an invention made before or during the Term of this Agreement. INHALE Patent Rights do not include PFIZER Patent Rights.

 

1.14 “ Major European Country ” means each of [ * ] .

 

1.15 “ Major Other Country ” means each of [ * ] .

 

1.16 “ Major Western Country ” means each of [ * ] .

 

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1.17 “ Net Sales ” means the dollar amount invoiced by PFIZER or its licensee for the sales to unaffiliated third parties of any Product upon which a royalty is owed INHALE pursuant to this Agreement less: (a) customary trade, cash and quantity discounts actually allowed and taken; (b) allowances actually given for returned or rejected Products; (c) actual charges for bad debts; (d) freight and insurance if included in the price; (e) government mandated and other rebates; and (f) value added tax, sales, use or turnover taxes, excise taxes and customs duties included in the invoiced price.

 

1.18 “ NDA ” means (a) the single application or set of applications for approval and/or pre-market approval to make and sell commercially both a formulation of Regular Insulin and a compatible Commercial Device, filed by PFIZER, with the United States Food and Drug Administration (“FDA”) or any successor agency having the administrative authority to regulate the approval for marketing of new human pharmaceutical or biological therapeutic products, delivery systems and devices in the United States and (b) any related registrations with or notifications to the FDA.

 

1.19 “ Non-clinical ” means any non-human studies or data generated in anticipation of submission for Regulatory Approval.

 

1.20 “ Other [ * ] Products ” means [ * ] .

 

1.21 “ Patent ” means (i) valid and enforceable letters patent and utility models including any extension, registration, confirmation, reissue, re-examination or renewal thereof and (ii) to the extent valid and enforceable rights are granted by a governmental authority thereunder, a Patent Application.

 

1.22 “ Patent Application ” means an application for letters patent.

 

1.23 “ PFIZER Know-how ” means all Information that is (a) owned or Controlled by PFIZER at any time during the Term of this Agreement and (b) useful or necessary in the Field.

 

1.24 “ PFIZER Patent Rights ” means the rights granted by any governmental authority under a Patent that covers a method, apparatus, material or manufacture necessary or useful in the Field, which Patent is owned or Controlled by PFIZER and covers an invention made before or during the Term of this Agreement. PFIZER Patent Rights do not include INHALE Patent Rights.

 

1.25 “ Product(s) ” means any and all formulations of Regular Insulin and any and all Devices, the manufacture, use or sale of which would constitute a misappropriation of INHALE Know-how and/or infringement of INHALE Patent Rights but for the licenses granted in this Agreement

 

1.26 “ Project ” means the research and development program to be conducted by INHALE, and PFIZER under this Agreement pursuant to Section 3 with respect to Regular Insulin formulations and Devices for their delivery, and if the Parties mutually agree in writing, other research and development programs agreed to pursuant to Section 18.2.

 

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1.27 “ Regular Insulin ” means [ * ] .

 

1.28 “ Regulatory Approval ” means (a) in the United States, approval by the FDA of an NDA and satisfaction of any related applicable FDA registration and notification requirements (if any) and (b) in any country other the United States, approval by regulatory authorities having jurisdiction over such country of a single application or set of applications filed by PFIZER comparable to an NDA and satisfaction of any related applicable regulatory and notification requirements, if any, together with my other approval necessary to make and sell commercially in such country both a formulation of Regular Insulin and a compatible Commercial Device including, where applicable, satisfactory labeling and pricing approval, and, if necessary for commercialization of Products, governmental or third party reimbursement approval and/or inclusion of such formulation and Commercial Device on any governmental formularies effective in such country.

 

1.29 “ Term of this Agreement ” means the period of time during which this Agreement is in effect under Section 17.2.

 

1.30 “ Territory ” means all the countries of the world.

 

2. Equity Investment by PFIZER in INHALE Common Stock . PFIZER shall make equity investments in INHALE in the form of the purchase of INHALE Common Stock according to the terms and conditions of the Stock Purchase Agreement executed on the same date(s) as this Agreement.

 

3. Development Program: Funding

 

3.1 Project . PFIZER and INHALE will engage in a Project for the joint development of Products. Both parties will use diligent efforts to develop Products in accordance with the Responsibility Chart attached as Exhibit 3.1 .

 

3.2 Project Management, Joint Development Committee, Work Plan and Cost Estimate .

 

(a) Organization . On the Effective Date, the Parties shall organize a Joint Development Committee (“JDC”) consisting of the members from each Party. Each Party will elect one of its three members to serve as a co-chairperson.

 

(b) Function . The function of the JDC shall be to plan, coordinate and manage the overall Project and to serve as a forum for communication between the Parties. Each co-chairperson of the JDC will be responsible for keeping the Party he or she represents informed of the status of the Project. The JDC is not intended to replace any internal management procedures of either Party but rather to be a vehicle to insure the overall Project proceeds in a timely and coordinated fashion.

 

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(c) Decision Making The JDC [ * ] as having the [ * ] for such activity.

 

(d) Work Plan and Cost Estimate The JDC will develop and modify from time to time a Work Plan (“Work Plan”) that covers the entire Project including but not limited to Device development, powder processing, powder filling, clinical supplies, pre-clinical development, clinical development, manufacturing and regulatory matters. The Work Plan will outline in detail the objectives, activities, responsibility, funding and timing of the Project work to be done for the next calendar year. The JDC will also develop in detail a cost estimate (“Cost Estimate”) for the Project work to be done by INHALE and funded by PFIZER for the next calendar year. An outline of the 1995 Work Plan and Cost Estimate is the subject of a separate written agreement between the Parties. [ * ] , the JDC will develop and propose to the Parties for approval a detailed 1995 Work Plan and Cost Estimate, which the Parties shall either approve, modify or reject [ * ] , the JDC will develop and propose to the Parties for approval a detailed Work Plan and Cost Estimate for the next calendar year and an outline of the Work Plan and Cost Estimate for the [ * ] calendar years, which the Parties will either approve, modify or reject by [ * ] .

 

(e) Rules & Logistics The rules governing and logistics of the JDC shall include, but are not limited to, the following, which can be modified by the JDC from time to time:

 

(i) The timing, agenda, and minutes of each JDC meeting will be the responsibility of the co-chairperson hosting the meeting.

 

(ii) The location of the JDC meeting will alternate between INHALE’s facility in Palo Alto and one of PFIZER’s facilities.

 

(iii) The JDC will meet no fewer than four times annually

 

(iv) Non-members of the JDC are welcome to participate provided prior notice is given.

 

(v) Minutes of each JDC meeting will be summarized within two weeks after the meeting and will not be official until the non-drafting co-chairperson has agreed to them.

 

(vi) Each Party will bear its own travel and lodging expenses associated with the JDC and its meetings.

 

(vii) JDC members reporting to a Party may be changed from time to time at the sole discretion of the Party with notice to the other Party.

 

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(viii) Each Party will have reasonable access on an informal basis to the other’s personnel assigned to the Project. [ * ] by INHALE and [ * ] may [ * ] and subsequently the [ * ] , or such other [ * ] . However, there may be [ * ] .

 

(f) Dispute Resolution If the JDC fails to reach a consensus on any material matter within its jurisdiction, including the Work Plan and Cost Estimate, the Parties shall refer the matter to the Chief Executive Officer of INHALE and the Vice President-Central Research of PFIZER. If such executives cannot agree on such matter within thirty (30) days after the matter is referred to them, the following provisions shall apply:

 

(i) If the disputed matter [ * ] shall decide how the matter shall be resolved [ * ] decision [ * ] after the matter was referred to [ * ] for resolution.

 

(ii) If the disputed matter [ * ] shall either 1) decide how the matter shall be resolved in which event [ * ] shall be responsible for [ * ] or 2) terminate this Agreement according to the provisions of Section 17.4, below. [ * ] after the matter was referred to [ * ] for resolution. [ * ] of which of the above options it has selected. During such period, all work [ * ] shall cease, except [ * ] for legal or medical reasons.

 

(iii) If neither Section 3.2(f)(i) nor (ii) apply to a disputed matter, the Parties shall decide mutually how the matter shall be resolved.

 

(g) Changes in Cost Estimate . PFIZER agrees to notify INHALE as soon as reasonably practicable of any planned revision of more than [ * ] to the Annual Cost Estimate which will become effective [ * ] following such notice unless the JDC reaches an agreement on earlier implementation.

 

3.3 Product Development Program: Resources and Costs

 

(a) PFIZER agrees to pay INHALE in advance, according, to the Cost Estimate, for certain of the work to be performed under this Agreement, including research, development, process scale-up and manufacture of clinical supplies, at INHALE’s annually adjusted FTE rate which is [ * ] per FTE for 1995. Within [ * ] following the end of each calendar quarter, INHALE shall provide PFIZER with a report detailing the actual time spent by INHALE personnel on the Project during such quarter. PFIZER shall have the right to audit INHALE records with respect to such reports and the calculation of and adjustment to the FTE rates, in accordance with Section 8.2. Budgets for INHALE’s research work shall be set forth in the respective Cost Estimate and shall reflect any changes in the FTE rate.

 

(b) PFIZER shall make the payments due under this Section 3.3 to INHALE quarterly in advance, with reconciling payments to be made based on an actual accounting after each quarter based on the actual number of FTE labor hours and expenditures expended in the Project and actual fully-allocated research and development costs to the extent PFIZER is responsible for such costs and expenses under this Agreement. In the event that actual costs are less than the amounts budgeted, PFIZER shall be entitled to apply any such variance toward future costs. [ * ] . In the event that [ * ] , such [ * ] . Any such [ * ] shall require the [ * ] .

 

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3.4 Milestone Payments . In, addition to the payments provided for in Section 3.3 above, PFIZER shall make the following non-refundable milestone payments to INHALE upon occurrence of the following events:

 

 

All or a portion of such payments may be used by INHALE to fund its research activities under this Agreement.

 

(h) Except for the Device referred to in Section 3.4(c), INHALE shall not deliver to PFIZER clinical materials and Devices unless requested to do so by PFIZER via written request from PFIZER’s JDC Co-Chairperson to INHALE’s JDC Co-Chairperson.

 

(i) Pfizer’s Co-Chairperson must provide INHALE’s Co-Chairperson with written notice [ * ] Devices or clinical [ * ] , or such other time as the JDC may determine to be reasonable, of receipt by PFIZER of such Devices and clinical materials. If PFIZER fails to provide such notice within the allotted time period, such Devices and clinical materials shall be deemed accepted by PFIZER, unless, prior to making the associated milestone payments, [ * ] that was not discovered during such time period despite [ * ] of the Devices or clinical materials.

 

(j) In partial consideration of the grant of the license under INHALE Patent Rights and INHALE Know-How in [ * ] , PFIZER shall also make non-refundable payments to INHALE in the amount of [ * ] , [ * ] , and [ * ] . In addition, if the milestone payment provided for in Section 3.4(d) becomes due and PFIZER elects to initiate a development program for the Products in [ * ] , PFIZER shall make an additional non-refundable payment of [ * ] . Thereafter, for so long as PFIZER retains the license under INHALE Patent Rights and INHALE Know-How in [ * ] , PFIZER shall make the following non-refundable payments upon occurrence of the following events:

 

(i)

[ * ] ;

 

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(ii)

[ * ] ;

 

(iii)

[ * ] .

 

(k) The payments by PFIZER to INHALE due under Sections 3.4(b), (c), (d) & (e) shall be made [ * ] . The payments due under Sections 3.4(f) and (g) shall be made [ * ] . With respect to the payment by PFIZER to INHALE due under Section 3.4(b), the [ * ] referred to therein shall be deemed successful and PFIZER shall be deemed to have elected to proceed unless [ * ] PFIZER notifies INHALE in writing that it has elected not to proceed with the Project or requires more time to determine [ * ] . The payments due under Section 3.40(j) shall be made at the times specified in Section 3.40(j). [ * ] .

 

3.5 Subcontracting Permitted .. The Parties acknowledge and agree that portions of the work involved in the Project may be performed on behalf of either Party by third parties, at such Party’s sole discretion, provided that, for any material subcontract, (a) such Party shall first have entered into written confidentiality agreements with the subcontractors and obtained written assignments granting such Party sole ownership of all patent rights and know-how that may be developed by the subcontractors, (b) such Party and the subcontractor shall be jointly and severally liable for the complete and timely performance by the subcontractor of the work, and (c) if work which INHALE desires to subcontract is required to be performed according to current Good Laboratory Practices or Good Manufacturing Practices, as established and revised from time to time by the FDA, then either [ * ] .

 

4. Record-keeping .

 

Each Party shall record, to the extent practical, all, Information relating to the Project in standard laboratory notebooks, which shall be signed, dated and witnessed. To the extent practical, such notebooks shall be kept separately from notebooks documenting other research and development of such Party. Each Party shall, require its employees and consultants to disclose any inventions relating to the Project in writing promptly after conception

 

5. Product Development .

 

5.1 Selection of [ * ] . PFIZER shall [ * ] evaluating and selecting [ * ] resulting from the Project for potential development into Products. PFIZER shall consult with INHALE in advance of making such selections.

 

5.2 Clinical Trials; Expenses . PFIZER shall be responsible for all future Non-clinical and clinical testing of formulations, [ * ] , although INHALE shall continue to provide such support for such testing as PFIZER reasonably requests as part of the Work Plan and Cost Estimate

 

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5.3 [ * ] the Data, Database and IND’s . PFIZER will [ * ] (a) all the data generated by the Non-clinical and clinical testing of the Products, (b) the database for such data, and (c) all IND’s filed for clinical studies of the Products and any comparable regulatory filings outside the United States. INHALE shall [ * ] . Upon PFIZER’s request, INHALE shall promptly assist PFIZER, and shall contractually obligate its vendors and subcontractors to assist PFIZER, in preparing and obtaining favorable review of IND’s relating to the Products and the foreign equivalents of such IND’s. If PFIZER so desires, INHALE shall transfer to PFIZER [ * ] .

 

5.4 Regulatory Filings . PFIZER or its licensees shall be responsible for the preparation of suitable applications for Regulatory Approval in the Territory and shall be the owner and party of record of all such applications. Subject to Section 6.6, PFIZER shall determine those initial countries of the Territory in which to file such applications. At PFIZER’s request, INHALE shall promptly assist PFIZER, and shall contractually obligate its vendors and subcontractors to assist PFIZER in the preparation of such applications and the obtaining of Regulatory Approvals by, among other things, (a) [ * ] , (b) making INHALE’s facilities available for inspections by the FDA and other governmental authorities, and making INHALE’s personnel available to the FDA and other governmental authorities and (c) contractually obligating its vendors and subcontractors to make their facilities available for inspections by the FDA and other governmental authorities and to make their personnel available to the FDA and other governmental authorities.

 

5.5 Development Diligence . Both Parties acknowledge that the successful development of Products (including improvements thereto) under this Agreement will require a collaborative effort throughout the Term of this Agreement. Both Parties also acknowledge that because of the unprecedented nature of many of the components of the Project such as [ * ] , prediction of a development time line is likely to be a very dynamic process and difficult to fix with any certainty at this time. Therefore, both Parties agree to use diligent efforts to [ * ] . Each Party agrees to [ * ] . Neither Party will be responsible for delays due to factors beyond its control.

 

5.6 Packaging . If INHALE so requests, and to the extent allowable by law, PFIZER will identify, [ * ] , INHALE as the licensor and/or manufacturer of such Products. If INHALE so requests, and to the extent allowable by law, [ * ] will carry the INHALE mark. Notwithstanding the foregoing, if PFIZER reasonably believes, based on objective information, that identifying INHALE or using the INHALE mark will have an adverse impact on the image or commercialization of the Products, [ * ] , PFIZER will discuss the situation with INHALE and may, after such discussion, discontinue identifying INHALE or using the INHALE mark.

 

6. License Grant: Commercial Rights .

 

6.1 License to PFIZER . INHALE hereby grants PFIZER the sole and exclusive license in the Territory, with a right to sublicense, under INHALE Patent Rights and INHALE Know-how, to develop, use, make (subject to the terms and conditions of this Agreement and any supply agreement), and sell the Products.

 

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6.2 License to INHALE . Except as otherwise provided in this Agreement, PFIZER hereby grants INHALE a non-exclusive, royalty-free license under PFIZER Patent Rights and PFIZER Know-how to the extent necessary to fulfill INHALE’s obligations under this Agreement.

 

6.3 Royalties .

 

(a) INHALE Patents Royalty . In consideration of the grant of the license under INHALE Patent Rights to PFIZER under Section 6.1, PFIZER shall pay INHALE a royalty on Net Sales of each Product sold by PFIZER or its licensees in each country in which and for so long as the manufacture, use or sale of such Product would infringe INHALE Patent Rights in the absence of a license thereunder. The royalty percentage rate at which such royalty shall [ * ] be [ * ] :

 

[ * ]

 

However, in no event shall such royalty percentage rate [ * ] .

 

(b) INHALE Know-How Royalty . In consideration of the grant of the license under the INHALE Know-how to PFIZER under Section 6.1, PFIZER shall pay INHALE a royalty on Net Sales of each Product sold by PFIZER or its licensees in a country, for the longer of (i) the duration of PFIZER’s royalty obligation under Section 6.3(a) with respect to Net Sales of the Product in such country, if any, and (ii) [ * ] after the first commercial sale of such Product in that country. Subject to the provisions of Section 6.3(c), the royalty percentage rate at which such royalty shall be [ * ] :

 

[ * ]

 

However, in no event shall such rate [ * ] .

 

(c) Royalty Basis . The royalties payable [ * ] shall be based upon [ * ] .

 

(d) Compulsory License. If in any country a third party obtains a Compulsory License, then INHALE shall promptly notify PFIZER. If the royalty rate payable by the grantee of the Compulsory License is [ * ] , the above royalty rates [ * ] .

 

6.4 Payments . Royalties payable under Section 6.3 will be paid to INHALE not later than [ * ] and each such payment shall be accompanied by a report in writing showing the period to which such payment applies, the amount billed to unaffiliated third parties for Products during such calendar quarter, the deductions from the amount billed to arrive at Net Sales, the total Net Sales for the period and the royalties due on such Net Sales. No later than [ * ] , the [ * ] for each Product shall be calculated by PFIZER for such calendar year and the actual royalty percentage rate shall be determined for such calendar year. Any variance from the royalties paid during such calendar year and the actual royalty due shall be reconciled [ * ] . The actual [ * ] for each Product for any calendar year shall be used to calculate the [ * ] royalty

 

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payments due according to this Section 6.4 for the then current calendar year. For purposes of calculating the royalty percentage rate for the first fall calendar year of Product sales and any partial prior year, the [ * ] for each Product shall be [ * ] . Royalties payable under this Section 6.4 will be deposited by PFIZER, by the date due in a bank chosen by INHALE. Starting [ * ] , the payment shall bear interest at a rate of [ * ] .

 

6.5 Currency of Payment . All payments to be made by PFIZER to INHALE hereunder shall be made in U.S. Dollars. Net Sales outside the U.S. shall be first determined in the currency of the country in which they are earned and shall be converted quarterly into an amount in U.S. Dollars based on PFIZER’s internal exchange rates used in preparing PFIZER’s consolidated earnings statements for such quarter. All such converted Net Sales and Cost of Goods Sold (if applicable) shall be consolidated with U.S. Net Sales for the corresponding period and the applicable royalty payable determined therefrom.

 

6.6 Regulatory and Marketing Diligence .

 

(a) [ * ] . The license granted to PFIZER under Section 6.1 shall remain in effect in [ * ] provided PFIZER satisfies the following conditions:

 

(i) PFIZER directly or through third parties undertakes activities reasonably calculated to [ * ] in [ * ] ; and

 

(ii) [ * ] , PFIZER directly or through a licensee [ * ] .

 

(b) [ * ] . The license granted to PFIZER under Section 6.1 shall in effect in [ * ] provided PFIZER satisfies the following conditions:

 

(i) For [ * ] , PFIZER directly or through third parties, (A) [ * ] and (B) undertakes activities reasonably calculated to [ * ] ; and

 

(ii) If applications for Regulatory Approval are filed [ * ] , PFIZER will directly or through third parties undertake activities reasonably calculated to [ * ] , and will continue to undertake such activities until either Regulatory Approval is received in [ * ] ; and

 

(iii) Within [ * ] , PFIZER directly or though a licensee [ * ] .

 

(c) [ * ] . Within [ * ] , PFIZER will either elect to initiate a development program for the Products [ * ] . If PFIZER elects to initiate the development program in [ * ] , the license granted to PFIZER under Section 6.1 shall remain thereafter in effect in [ * ] provided PFIZER satisfies the following conditions:

 

(i) PFIZER directly or through third parties (A) [ * ] and (B) following the date of PFIZER’s election to initiate the development program in [ * ] , undertakes activities reasonably calculated to [ * ] in [ * ] .

 

(ii) Within [ * ] , PFIZER directly or through a licensee [ * ] .

 

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(d) Other Countries. The license granted to PFIZER under Section 6.1 shall remain in effect outside the [ * ] provided PFIZER satisfies the following conditions:

 

(i) For [ * ] , directly or through third parties, (A) [ * ] and (B) undertakes activities reasonably calculated to [ * ] for such countries; and

 

(ii) If applications for Regulatory Approval are filed for [ * ] and any of such applications are denied definitively, PFIZER will directly or through third parties undertake activities reasonably calculated to [ * ] , and will continue to undertake such activities until either Regulatory Approval is received in [ * ] of the Major Other Countries or PFIZER concludes that continuing such activities cannot be justified; and

 

(iii) Within [ * ] , PFIZER directly or through a licensee launches the approved Products in each such country.

 

(e) PFIZER will be deemed to have satisfied the conditions set forth in clause (i) of Sections 6.6(a) through (d) if PFIZER directly or indirectly through third parties [ * ] . In addition, [ * ] .

 

(f) If PFIZER concludes that continuing to [ * ] cannot be justified due to [ * ] , PFIZER may satisfy its due diligence obligations under this Section 6.6 with respect to such country by [ * ] .

 

(g) Failure to satisfy the above conditions shall [ * ] in those countries of the specified geographic region in which PFIZER or its licensees [ * ] . Neither INHALE nor any third party will [ * ] in connection with [ * ] , absent agreement with PFIZER, [ * ] for such use.

 

6.7 Single Royalty . Royalties payable under Section 6.3 will be payable [ * ] .

 

6.8 Sublicensing . In the event PFIZER grants sublicenses under Section 6.1 to others to use or sell Products, such sublicenses shall require the sublicensee to account for and report its Net Sales of Products on the same basis as if such sales were Net Sales of Products by PFIZER, and PFIZER shall pay royalties to INHALE as if the Net Sales of the sublicensees were Net Sales of PFIZER.

 

6.9 Maintenance of Licenses from Third Parties. So as not to adversely affect PFIZER’s rights to INHALE Patent Rights and INHALE Know-how under this Agreement, INHALE agrees during the Term of this Agreement: (a) not to take any actions to terminate or restrict its rights under any third party license agreements or other agreements which give rise to such rights and know-how, (b) to discharge all of INHALE’s material obligations and responsibilities under any such third party license agreements or other agreements, including without limitation, making all required payments thereunder and (c) to notify PFIZER promptly of INHALE’s receipt of any notices of breach under any such third party license agreements or other agreement.

 

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7. Supply of Formulation and Devices .

 

7.1 General . Sections 7.2 thro