DEVELOPMENT AGREEMENT

Exhibit 10.1

DEVELOPMENT AGREEMENT

This Development Agreement (this “Agreement” ) is entered into as of December 19, 2005 (the “Effective Date” ) by and between MEMORY Pharmaceuticals Corp. , a Delaware corporation ( “MEMORY” ), with offices at 100 Philips Parkway, Montvale, New Jersey 07645, and The Stanley Medical Research Institute , a nonprofit organization ( “SMRI” ), having offices at 5430 Grosvenor Lane, Suite 200, Bethesda, Maryland 20814.

Recitals

Whereas , MEMORY is focused on developing innovative drugs for the treatment of debilitating central nervous system (CNS) disorders such as schizophrenia and bipolar disorder;

Whereas, SMRI is the world’s leading nonprofit organization that supports research on the causes and treatment of schizophrenia and bipolar disorder, both through its own laboratories and support of researchers worldwide; and

Whereas, SMRI desires to support the further development and commercialization of the Compound (as defined below) in order to accelerate the introduction of a novel therapy for the benefit of bipolar patients worldwide by providing a maximum of $3.2 million for development of the Compound.

Now, Therefore, in consideration of the foregoing and the covenants and premises contained in this Agreement, the parties agree as follows:

1.1. “Affiliate” shall mean any company or entity controlled by, controlling, or under common control with a party hereto and shall include any company or entity of which greater than fifty percent (50%) of the voting stock or participating profit interest of which is owned or controlled, directly or indirectly, by a party, and any company or entity which owns or controls, directly or indirectly, greater than fifty percent (50%) of the voting stock of a party.

1.2. “Applicable Rate” shall mean the greater of prime plus [*] percent ( [*] %) or [*] percent ( [*] %) per annum, compounded quarterly.

1.3. “Common Stock” shall have the meaning set forth in Section 4.1(a).

1.4. “Compound” shall mean MEM1003 as used in schizophrenia or bipolar disorder, a CNS-optimized dihydropyridine that is a neuronal L-type calcium channel modulator .

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1.5. “Confidential Information” shall mean all information disclosed by a party to the other pursuant to this Agreement including, without limitation, manufacturing, marketing, financial, personnel, scientific and other business information and plans, and the material terms of this Agreement, whether in oral, written, graphic or electronic form.

1.6. “Development Advisory Committee” or “DAC” shall mean the committee formed pursuant to Section 3.1.

1.7. “Development Plan” shall mean the plan for conducting the Development Program, including a budget, prepared by MEMORY on an annual basis during the Development Term, as may be amended from time to time by MEMORY pursuant to Section 2.2.

1.8. “Development Program” shall mean the research and development program with respect to the Compound conducted during the Development Term.

1.9. “Development Program Inventions” shall mean, collectively, (i) all inventions, improvements and discoveries, whether or not patentable, made, conceived or first reduced to practice in the course of work conducted in the Development Program that is actually funded by SMRI hereunder, if any, whether solely by employees or contractors of SMRI, solely by employees or contractors of MEMORY, or jointly by employees or contractors of SMRI and MEMORY, and (ii) all patents, patent applications and copyrights that claim or cover such inventions, improvements or discoveries.

1.10. “ Development Program Results” shall mean all data and results generated in the course of work conducted in the Development Program that is actually funded by SMRI hereunder.

1.11. “Development Term” shall mean the period ending upon the earlier of (i) completion of the Development Program, or (ii) three (3) years following the Effective Date, as may be extended for additional, consecutive one (1) year periods by written agreement of the parties.

1.12. “Disclosing Party” shall have the meaning provided in Section 8.1.

1.13. [*]

1.14. “First Commercial Sale” of a MEMORY Product shall mean the first sale for use or consumption of such MEMORY Product in a country after Regulatory Approval has been granted by the governing health regulatory authority of such country. Sale to an Affiliate or Licensee shall not constitute a First Commercial Sale unless the Affiliate or Licensee is the end user of the MEMORY Product.

1.15. “First Maximum” shall have the meaning provided in Section 4.2(c)(1).

1.16. “Fourth Maximum” shall have the meaning provided in Section 4.2(c)(4).

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1.17. “Indemnitee” shall have the meaning provided in Section 9.1.

1.18. “Licensee” shall mean any Third Party who has obtained a license to sell MEMORY Products from MEMORY.

1.19. “License Grant” shall have the meaning provided in Section 6.2(a).

1.20. “MEMORY Product” shall mean any product containing the Compound that receives Regulatory Approval and is commercialized by MEMORY or its Affiliates or Licensees, including all formulations and modes of administration thereof for schizophrenia or bipolar disorder.

1.21. “MEMORY Proprietary Information” means all Development Program Inventions and all patents, patent applications, copyrights, trademarks, trade secrets, know-how and other intellectual property rights related thereto, owned or licensable by MEMORY.

1.22. “Net Sales” shall mean, with respect to any MEMORY Product, the amount invoiced for the sale of such MEMORY Product by MEMORY and its Affiliates or its Licensees, as applicable, to Third Parties which are not Affiliates or sublicensees of the selling party, unless such Affiliates or sublicensees are the end users of such MEMORY Product in which case the amount billed therefor shall be deemed to be the amount that would be invoiced to a Third Party in an arm’s length transaction, less:

(a) cash discounts and/or quantity discounts allowed;

(b) credits and allowances for returns, rejections and recalls;

(c) charges for freight, insurance and transportation specifically included in the amount invoiced;

(d) sales and use taxes, duties or other governmental tariffs and other similar taxes incurred and government mandated rebates; and

(e) accruals for estimated wholesaler chargebacks, contract rebates and bid rebates and Medicaid and other similar government mandated rebates as MEMORY may be required to pay from time to time, all of which shall be determined in accordance with MEMORY’s standard accounting methods.

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1.23. “Receiving Party” shall have the meaning provided in Section 8.1.

1.24. “Regulatory Approval” shall mean any and all approvals (including price and reimbursement approvals), licenses, registrations, or authorizations of the United States or European Union or any country, federal, state or local regulatory agency, department, bureau or other government entity that is necessary for the manufacture, use, storage, import, transport and/or sale of a product in a given jurisdiction.

1.25. “Royalty Term” shall mean the period of time commencing on the First Commercial Sale of any MEMORY Product and ending upon the termination of MEMORY’s payment obligations under Section 4.2 or [*] , whichever is earlier.

1.26. “Second Maximum” shall have the meaning set forth in Section 4.2(c)(2).

1.27. “Securities Purchase Agreement” means the Securities Purchase Agreement in the form attached hereto as Exhibit A to be entered into between SMRI and MEMORY.

1.28. “Strategic Alliance” shall mean an agreement entered into by MEMORY with a Third Party with respect to the development of the Compound, but excluding an agreement with a Third Party with respect to only the manufacturing, sale and/or promotion of the Compound and/or MEMORY Products or for the transfer or sale of all or substantially all of the business of MEMORY to which this Agreement relates to an Affiliate or Third Party, whether by merger, sale of stock, sale of assets or otherwise.

1.29. “Term” shall have the meaning set forth in Section 10.1.

1.30. “Third Maximum” shall have the meaning set forth in Section 4.2(c)(3).

1.31. “Third Party” shall mean any entity other than SMRI or MEMORY or an Affiliate of SMRI or MEMORY.

2.1. Development Program. During the Development Term, MEMORY shall use commercially reasonable efforts to conduct the Development Program in accordance with the Development Plan and the terms of this Agreement. The initial Development Plan will be completed by MEMORY and presented to the DAC within thirty (30) days of the Effective Date.

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2.2. Amendments to the Development Plan. MEMORY may amend the Development Plan from time to time in its sole discretion. Prior to finalizing any such amendment to the Development Plan which materially reduces funding for development of the Compound or materially extends the timeline for development of the Compound, MEMORY shall provide the proposed amendment to the members of the DAC and SMRI, and the DAC and SMRI shall have fifteen (15) days from the date the DAC and SMRI receive such proposed amendment to review and provide MEMORY comments on such proposed amendment. MEMORY shall consider any such input in good faith when finalizing such amendment and shall distribute the finalized amendment to the DAC and SMRI. In the event that SMRI reasonably believes that the finalized amendment will have a material adverse effect on the development of the Compound, SMRI may notify the DAC and MEMORY in writing of such belief, which notice shall include in reasonable detail the basis for such belief, provided that such notice is given within fifteen (15) days of receipt of the final amendment. If SMRI provides such notice within such fifteen (15) day period, SMRI may delay or withhold payment of any funding due under this Agreement pending resolution of the issue in accordance with this Section 2.2. Within fifteen (15) days after receipt of such notice from SMRI (or such longer period as agreed by MEMORY and SMRI), each member of the DAC shall provide notice in writing to MEMORY of whether it approves the final amendment as proposed, or not. If a majority of the members of the DAC approve the amendment as proposed, MEMORY may proceed with the amendment and this Agreement shall continue in effect. If a majority of the members of the DAC do not approve the amendment as proposed, MEMORY may, in its sole discretion, proceed with the amendment; provided, however, that if MEMORY proceeds with the amendment, SMRI shall have the right to terminate this Agreement pursuant to Section 10.4.

2.3. Clinical Trial Registration . MEMORY shall register each clinical trial to be conducted pursuant to the Development Program with (i) SMRI’s quarterly trial reporting system and (ii) if and to the extent required by law, the US FDA’s www.ClinicalTrial.gov website.

2.4. Clinical Trials Addendum . The “Addendum For Clinical Trials Involving Human Subjects,” a copy of which is annexed hereto as Exhibit B , is hereby incorporated with and into this Agreement.

3.1. Development Advisory Committee. Promptly after the Effective Date, the parties will form a Development Advisory Committee comprised of [*] of MEMORY, who shall initially be [*] , [*] of SMRI, who shall initially be [*] , and two (2) third party advisors mutually agreed upon by MEMORY and SMRI. One (1) member of the DAC shall be selected to act as the chairperson of the DAC, with each chairperson acting for a term of twelve (12) months. The chairperson shall be selected by MEMORY. The DAC shall review the data and activities of the Development Program and monitor the progress of development in relation to the Development Plan. The DAC shall meet on a semi-annual basis or at such other frequency as the DAC agrees. The parties shall agree upon the time and place of meetings. A reasonable number of additional representatives of a party may attend meetings of the DAC. [*] .

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3.2. Information and Reports. Except as otherwise provided in this Agreement, MEMORY will make available and disclose to SMRI and each member of the DAC all results of the work conducted pursuant to the Development Plan prior to and in preparation for DAC meetings and/or SMRI payments hereunder.

4.1. Funding.

(a) On the Effective Date, SMRI shall purchase from MEMORY, and MEMORY shall issue and sell to SMRI, 440,367 shares of MEMORY’s common stock, par value of $.001 per share (the “Common Stock” ), and warrants to purchase an additional 154,128 shares of Common Stock, for an aggregate purchase price of $960,000, on and subject to the terms and conditions set forth in the Securities Purchase Agreement.

(b) Subject to the terms and conditions set forth herein, in consideration for the rights granted to SMRI hereunder, SMRI shall pay by check to MEMORY the following amounts in cash within thirty (30) days of receipt of reports, including the final study report, on the following events in support of the Development Program:

(c) MEMORY shall spend all amounts paid to MEMORY by SMRI under this Section 4.1 on the Development Program. MEMORY shall refund to SMRI any amounts that are advanced by SMRI under Section 4.1(b) that are not expended in support of the Development Program prior to December 31, 2007, together with interest thereon at the Applicable Rate from the date such funds were advanced by SMRI.

(d) If MEMORY fails to [*] on or prior to December 31, 2007, then not later than January 31, 2008 MEMORY shall refund to SMRI all amounts that are advanced by SMRI under Section 4.1(b), together with interest thereon at the Applicable Rate from the date such funds were advanced by SMRI.

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4.2. Royalty Payments.

(a) Royalty Payments by MEMORY. Subject to MEMORY having received the initial $960,000 payment when due under Section 4.1(b), MEMORY shall pay to SMRI during the Royalty Term, a royalty of (A) [*] percent ( [*] ) of annual Net Sales of MEMORY Products by MEMORY and its Affiliates, and (B) [*] percent ( [*] ) of royalty payments received by MEMORY from Licensees on sales of MEMORY Products by such Licensees. Royalties on Net Sales shall be calculated based on the year-to-date sales and shall be paid quarterly.

(b) Sublicensee Payments. If, prior to the end of the Term, MEMORY licenses to a Third party rights to any Development Program Invention, MEMORY shall pay to SMRI [*] percent ( [*] ) of any cash fees or other payments actually received by MEMORY from such Third party for such license, excluding (i) royalties on the sale of the MEMORY Product, (ii) amounts specifically allocated to research and development for, or to the manufacture or supply of the Compound or the MEMORY Product, (iii) amounts that MEMORY is required to repay ( e.g., a loan), and (iv) amounts received in exchange for securities of MEMORY.

(c) Maximum Payment Amount.

(1) In the event that MEMORY makes total payments to SMRI under this Section 4.2 of at least [*] percent ( [*] ) of the total amount SMRI has paid to MEMORY under Section 4.1(b) (the “First Maximum” ) prior to the [*] anniversary of the Effective Date, MEMORY’s obligation to make payments to SMRI pursuant to this Section 4.2 shall terminate. At any time prior to the [*] anniversary of the Effective Date, MEMORY may make a lump sum cash payment to SMRI equaling the amount by which the First Maximum exceeds the total amount already paid to SMRI under this Section 4.2, and upon receipt of such payment by SMRI, MEMORY’s obligation to make payments to SMRI pursuant to this Section 4.2 shall terminate.

(2) In the event that MEMORY makes total payments to SMRI under this Section 4.2 of at least [*] percent ( [*] ) of the total amount SMRI has paid to MEMORY under Section 4.1(b) (the “Second Maximum” ) prior to the [*] anniversary of the Effective Date, MEMORY’s obligation to make payments to SMRI pursuant to this Section 4.2 shall terminate. At any time after the [*] anniversary of the Effective Date and prior to the [*] anniversary of the Effective Date, MEMORY may make a lump sum cash payment to SMRI equaling the amount by which the Second Maximum exceeds the total amount already paid to SMRI under this Section 4.2, and upon receipt of such payment by SMRI, MEMORY’s obligation to make payments to SMRI pursuant to this Section 4.2 shall terminate.

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(3) In the event that MEMORY makes total payments to SMRI under this Section 4.2 of at least [*] percent ( [*] ) of the total amount SMRI has paid to MEMORY under Section 4.1(b) (the “Third Maximum” ) prior to the [*] anniversary of the Effective Date, MEMORY’s obligation to make payments to SMRI pursuant to this Section 4.2 shall terminate. At any time after the [*] anniversary of the Effective Date and prior to the [*] anniversary of the Effective Date, MEMORY may make a lump sum cash payment to SMRI equaling the amount by which the Third Maximum exceeds the total amount already paid to SMRI under this Section 4.2, and upon receipt of such payment by SMRI, MEMORY’s obligation to make payments to SMRI pursuant to this Section 4.2 shall terminate.

(4) In the event that MEMORY makes total payments to SMRI under this Section 4.2 of at least [*] percent ( [*] ) of the total amount SMRI has paid to MEMORY under Section 4.1(b) (the “Fourth Maximum” ) prior to the [*] anniversary of the Effective Date, MEMORY’s obligation to make payments to SMRI pursuant to this Section 4.2 shall terminate. At any time after the [*] anniversary of the Effective Date and prior to the [*] anniversary of the Effective Date, MEMORY may make a lump sum cash payment to SMRI equaling the amount by which the Fourth Maximum exceeds the total amount already paid to SMRI under this Section 4.2, and upon receipt of such payment by SMRI, MEMORY’s obligation to make payments to SMRI pursuant to this Section 4.2 shall terminate.

5.1. Payment; Reports. Royalty payments due under Section 4.2 and reports for the sale of MEMORY Products by MEMORY and its Affiliates and royalty payments received by MEMORY from Licensees on sales of MEMORY Products shall be calculated and reported for each calendar quarter. All royalty payments due to SMRI under Section 4.2 shall be paid within sixty (60) days of the end of each calendar quarter. Each payment of royalties shall be accompanied by a report of Net Sales of MEMORY Products in sufficient detail to permit confirmation of the accuracy of the royalty payment made, including, without limitation, the number of each MEMORY Product sold by MEMORY and its Affiliates, the gross sales and Net Sales of such MEMORY Products sold by MEMORY and its Affiliates in U.S. dollars, the

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exchange rates used, the royalty payments received by MEMORY from Licensees on the sale of MEMORY Products, and any other information necessary to determine the appropriate amount of royalties due under Section 4.2. MEMORY will keep complete and accurate records pertaining to such calculation to permit SMRI to confirm the accuracy of royalty payments due hereunder. MEMORY shall pay SMRI interest at the Applicable Rate on any payments pursuant to Section 4.2(a) that are not timely paid by MEMORY to SMRI.

5.2. Exchange Rate; Manner and Place of Payment. All payments hereunder shall be payable in U.S. dollars. With respect to each quarter, for countries other than the United States, whenever conversion of payments from any foreign currency shall be required, such conversion shall be made at an exchange rate equal to the weighted average of the rates of exchange for the currency of the country from which payments are payable as published by The Wall Street Journal, Western U.S. Edition, during the calendar quarter for which a payment is due. All payments owed under this Agreement shall be made by check payable to the order of the payee, unless otherwise specified by such payee.

5.3. Records and Audits. On thirty (30) days’ prior written notice, SMRI shall have the right to have an independent certified public accountant inspect the books and records of MEMORY and/or its Affiliates and/or its Licensees, no more than once per fiscal year during usual business hours for the sole purpose of and only to the extent necessary to verify the completeness and accuracy of the records and payments made under this Agreement. Such examination with respect to any fiscal year shall not take place later than two (2) years following the end of such fiscal year. The accountant shall inform SMRI only if there has been an underpayment or an overpayment or misappropriation of payments, and if so, the amount thereof. The expense of any such inspection shall be borne by SMRI; provided, however, that, if the inspection discloses an underpayment in excess of ten percent (10%), then MEMORY shall pay the out of pocket costs of such audit.

5.4. Withholding of Taxes. Any withholding of taxes levied by tax authorities outside the United States on the payments hereunder shall be borne by the party receiving such payment and deducted by the party making such payment from the sums otherwise payable by it hereunder for payment to the proper tax authorities. The parties agree to cooperate with each other in the event a party claims exemption from such withholding or seeks deductions under any double taxation or other similar treaty or agreement from time to time in force, such cooperation to consist of providing receipts of payment of such withheld tax or other documents reasonably available.

5.5. Exchange and Royalty Rate Controls. If at any time legal restrictions prevent the prompt remittance of part or all royalties with respect to any country where any MEMORY Product is sold, payment shall be made through such lawful means or methods as MEMORY may determine. When in any country the law or regulations prohibit both the transmittal and deposit of royalties on sales in such a country, royalty payments shall be suspended for as long as such prohibition is in effect, and as soon as such prohibition ceases to be in effect, all royalties

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that would have been obligated to be transmitted or deposited, but for the prohibition, shall forthwith be deposited or transmitted promptly to the extent allowable, as the case may be. If any royalty rate specified in this Agreement should exceed the permissible rate established in any country, the royalty rate for sales in such country shall be adjusted to the highest legally permissible or government-approved rate.

6.1. Intellectual Property.

(a) SMRI hereby acknowledges that, as between the parties, other than as provided for herein, MEMORY owns all right, title and interest in and to all MEMORY Proprietary Information and that, except to the extent expressly provided herein, no right or license in any of the MEMORY Proprietary Information is granted to SMRI hereunder.

(b) MEMORY agrees to use commercially reasonable efforts to cause any principal investigator or institution with which it contracts to conduct work in the Development Program to assign to MEMORY all ownership rights in Development Program Inventions and Development Program Results. MEMORY shall notify SMRI promptly in writing of each Development Program Invention that it owns, if any, and any other information reasonably request