Development Agreement

Exhibit 10.13

Development Agreement

     THIS DEVELOPMENT AGREEMENT dated as Oct 3, 2005, (the “Effective Date”) by and between Alexza Pharmaceuticals, Inc., of 1020 East Meadow Circle, Palo Alto, CA 94303 (“Alexza”), and Autoliv ASP, Inc. of 3350 Airport Road, Ogden, UT 84405 (“Autoliv”).

Recitals

     A. Alexza is in the business of development, manufacture and commercialization of a proprietary thermal delivery technology to deliver drugs locally and systemically through the lung; and

     B. Autoliv is in the business of development and commercialization of, among other things, incendiary initiators; and

     C. Alexza desires to have Autoliv develop and supply to Alexza a Heat Packages that can be incorporated in Alexza’s proprietary drug delivery device for sale by Alexza worldwide.

     IN CONSIDERATION of the respective covenants, representations, warranties and agreements set forth herein, and intending to be legally bound hereby, the parties hereby agree as follows:

ARTICLE 1

Definitions

In this Agreement the following words will have the following meanings:

     1.1 “Affiliate” means with respect to an entity, a person, corporation or other entity that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with that entity.

     1.2 “Agreement” means this Development Agreement and all of the terms and conditions herein.

     1.3 “Alexza Know-How” means all information and data (including but not limited to results), technical information, trade secrets, specifications, instructions, processes, formulae, expertise and information (i) owned by or licensed (with right to grant sublicenses) to Alexza; and (ii) necessary or useful to the manufacture, use or sale of the Product or Heat Packages, including, without limitation, biological, chemical, biochemical, physical and analytical, safety, quality control, manufacturing, preclinical and clinical data, instructions, processes, formulae, expertise and information, which may be useful in studying, testing, the development, production, formulation or use of the Product or Heat Packages.

     1.4 “Alexza Patents” means all patents and patent applications owned by or licensed (with the right to grant sublicenses) to Alexza which have issued as of the Effective Date or which issue from applications pending as of the Effective Date or which cover any New Discoveries, and which (i) claim inventions necessary or useful to the manufacture, use or sale of

the Product or Heat Packages, and (ii) have not expired or been held invalid or unenforceable by a court of competent jurisdiction in a final, unappealable decision, including without limitation all substitutions, re-examinations, reissues, extensions, registrations and supplementary or complementary certificates.

     1.5 “Autoliv Know-How” means all information and data (including but not limited to results), technical information, trade secrets, specifications, instructions, processes, formulae, expertise and information: (i) owned by or licensed (with right to grant sublicenses) to Autoliv; and (ii) necessary or useful to the manufacture, use or sale of the Heat Packages, including, without limitation, biological, chemical, biochemical, physical and analytical, safety, quality control, manufacturing, preclinical and clinical data, instructions, processes, formulae, expertise and information, which may be useful in studying, testing, the development, production, formulation or use of the Heat Packages.

     1.6 “Autoliv Patents” means all patents and patent applications owned by or licensed (with the right to grant sublicenses) to Autoliv which have issued as of the Effective Date or which issue from applications pending as of the Effective Date or which cover any New Discoveries, and which (i) claim inventions necessary or useful to the manufacture, use or sale of the Heat Packages, and (ii) have not expired or been held invalid or unenforceable by a court of competent jurisdiction in a final, unappealable decision, including without limitation all substitutions, re-examinations, reissues, extensions, registrations and supplementary or complementary certificates.

     1.7 “Background Technology” shall have the meaning set forth in Article 6.1.

     1.8 “Confidential Information” means, subject to the limitations set forth in Article 8.2 hereof, all information disclosed by a party hereto to the other party pursuant to this Agreement, the Consultant Services Agreement or pursuant to the Mutual Confidential Disclosure Agreement between the parties dated as of November 3, 2004. In particular, Confidential Information shall be deemed to include, but is not limited to, information relating to research and development programs and results, prototypes and products, clinical and preclinical data, trade secrets, business strategy, patent applications, licenses, suppliers’ and manufacturers’ identities, product and marketing strategy, customers, market data, personnel and consultants.

     1.9 “Consultant Services Agreement” means the Consultant Services Agreement between the parties dates as of December 17, 2004.

     1.10 “Development Plan” means the plan for the development of the Heat Packages, including procedures, cost estimates and budget, time schedule and other information delivered and agreed to following the Effective Date by the parties as more fully set forth in Article 2 below.

     1.11 “Development Plan Budget” means the budget set forth in the Development Plan.

     1.12 “Development Program” means the program for developing and optimizing the Heat Packages for incorporation into the Product pursuant to the Development Plan.

     1.13 “FDA” means the United States Food and Drug Administration, or its functional equivalent in jurisdictions outside the United States.

     1.14 “Heat Package” means a heating substrate for the vaporization of a drug, consisting of a chemical heat source sealed within an inert, stainless steel substrate.

     1.15 “Healthcare Field” means the areas of prevention, treatment, management, monitoring or diagnosis of illness or disease.

     1.16 “Initiator Technology” means a method of initiating a chemical reaction, consisting of a chemical reactant mixture deposited on a metal wire that is connected to an electric current source.

     1.17 “Intellectual Property Rights” means all present and future worldwide trade secrets, patent, patent applications, copyright, mask work or other proprietary or property right.

     1.18 “New Discoveries” means inventions, developments, improvements, enhancements or modifications, whether or not patentable, that are conceived or developed or reduced to practice by Alexza or Autoliv arising out of or in connection with Alexza or Autoliv’s performance under this Agreement.

     1.19 “Product” means a system which includes pulsatile delivery technology and a drug or drugs for Pulmonary Drug Delivery incorporating Alexza’s proprietary technology and Confidential Information and the Heat Packages, and including anything used in or with the system for Pulmonary Drug Delivery, or sold with or for use in or with the system for Pulmonary Drug Delivery.

     1.20 “Program Coordinator” shall have the meaning set forth in Article 2.2 (b)

     1.21 “Pulmonary Drug Delivery” shall mean delivery of drugs to the lungs.

     1.22 “Regulatory Approval” means any approval, licenses, registrations, or authorizations of any federal, state or local regulatory agency, department, bureau or other government entity, required for the manufacture, use, storage, import, transport or sale of Products in any country of the Territory, including but not limited to investigational new drug applications (“IND”), Investigational Device Exemptions (“IDE”), Pre-Market Notifications (“510(k)”) and/or Pre-Market Approvals (“PMA”), European Commission (EC) Annex II CE Mark certifications, Doctor and Dentist Exemption Certificates (“DDX”), Clinical Trials in Marketed Products (“CTMP”), Drug Master Files (“DMF”), Biologic License Applications (“BLA”), New Drug Applications (“NDA”), Amended NDAs (“ANDA”), national filings, Manufacturing Authorization Applications (“MAA”), MAA dossiers, MAA renewals, MAA variations and Clinical Trials Exemptions (“CTX”).

     1.23 “Specifications” means the minimum specification for the manufacture and performance of the Heat Packages, which shall be established by Alexza and agreed upon by the parties and documented in the Development Plan.

     1.24 “Territory” means the world.

     1.25 “Validation Heat Packages” means the production series of the Heat Packages appropriate for design validation (type-testing) and human clinical trials, manufactured in conformance with the Specifications by Autoliv and delivered to Alexza under this Agreement.

ARTICLE 2

Development Program

     2.1 Purpose and Scope. The parties wish to collaborate in the development of the Heat Packages, to be incorporated in the Product for commercialization by Alexza worldwide. To that end, the parties will embark on a Development Program with each party bearing specified responsibilities, all as further described herein.

     2.2 Development Program.

          (a) Scope. Immediately after the execution hereof, the parties will commence the Development Program, which shall encompass all activities necessary to develop the Heat Packages and incorporate it into the Product for further clinical trials and commercial distribution.

          (b) Coordination of Development Program. To facilitate and coordinate the relationship of Alexza and Autoliv with regard to the development of the Heat Packages, each party shall appoint one (1) representative (“Program Coordinator”) who together shall jointly determine the mechanisms required for the exchange of information (including Background Technology and Confidential Information) with respect to all aspects of the Development Program.

          (c) Specifications.

               (i) The parties, through the Program Coordinators, shall develop mutually agreeable Specifications for the Heat Packages based on the parameters set forth in the Development Plan and the results of activities undertaken in the Development Program. If the parties are unable to agree upon the Specifications, Alexza shall have the right to terminate the Agreement pursuant to Article 5.3 or both parties may agree to terminate the Agreement pursuant to Article 5.2(b).

               (ii) Alexza shall have the right to propose modifications of the Specifications from time to time. If Alexza recommends any modifications to the Specifications, Autoliv shall promptly notify Alexza in writing of any additional costs and expenses associated with such modifications (the “Additional Costs and Expenses”), including a reasonably detailed explanation of the reasons for such additional costs and expenses, and any necessary revisions to the time schedule set forth in the Development Plan. Alexza shall have four (4) weeks to notify Autoliv in writing either that: (i) Alexza accepts such Additional Costs and Expenses and Autoliv is to proceed with such modified Specifications, or (ii) withdraw such modified Specifications. If Alexza does not notify Autoliv of its decision within the four (4) week period specified above, the modifications shall be deemed withdrawn, and Autoliv shall proceed with the Development Program and the Specifications as then in effect. If Alexza accepts such Additional Costs and Expenses, Autoliv shall incorporate such modifications into the

Specifications and proceed with the Development Program, subject to any modified time schedule described above. Alexza shall bear the Additional Costs and Expenses. If the modifications to the Specifications are necessitated by requirements of FDA or other regulatory authority, the parties shall amend the Development Plan to reflect such modifications, and Alexza will bear the Additional Costs and Expenses. If the parties are unable to agree upon any modifications to the Specifications, Alexza shall have the right to terminate the Agreement pursuant to Article 5.3 or both parties may agree to terminate the Agreement pursuant to Article 5.2(b).

          (d) Development Plan. The parties hereby agree to conduct and cooperate in the development and optimization of the Heat Packages for incorporation in the Product, in accordance with the Development Plan, and any and all amendments, revisions or elaboration to such plan to which the parties agree in writing. Prior to each phase of the Development Plan, a proposed plan of activities to be conducted during such phase shall be submitted to the Program Coordinators for review and approval.

          (e) Conduct of Development Program.

               (i) Autoliv’s Obligations. Autoliv shall use its good faith business and scientific judgment as applied to commercial development projects, to allocate sufficient time, effort, equipment and facilities to carry out the Development Plan in accordance with the timelines set forth therein. Autoliv shall work diligently, consistent with accepted business practices and legal requirements, to develop the Heat Packages and cooperate with Alexza’s efforts to incorporate it into the Product, devoting the same degree of attention and diligence to such development efforts that it devotes to development activities for its own products, but in no event less than reasonable attention and diligence. Autoliv shall conduct its efforts hereunder in strict accordance with all applicable laws, regulations and guidelines, including without limitation, the requirements for Regulatory Approval.

               (ii) Alexza’s Obligations. Alexza shall use its good faith business and scientific judgment as applied to commercial development projects, to allocate sufficient time, effort, equipment and facilities to carry out its obligations under the Development Plan, and to promptly evaluate each iteration of the Heat Packages prototype to enable Autoliv to meet its performance deadlines. Alexza shall conduct its efforts hereunder in strict accordance with all applicable laws, regulations and guidelines, including without limitation, the requirements for Regulatory Approval.

               (iii) Quality Agreement. The parties shall negotiate in good faith a Quality Agreement to be entered into not later than August 1, 2006 covering the Heat Packages to be manufactured pursuant to the Development Plan.

          (f) Site Visits. Autoliv shall allow Alexza, during Autoliv’s normal business hours, to visit its place of business where the Heat Packages development work is being performed (the “Development Work Site”) to inspect the status of such work. Alexza’s representative shall be subject to Autoliv’s customary restrictions with respect to non-employee visitors to Autoliv’s place of business and the Development Work Site.

          (g) cGMP and QSR Compliance Audits. In addition to the site visits described above, Alexza shall have the right to have its representatives visit the Development Work Site to review Autoliv’s operations and assess its compliance with cGMP, ISO, QSR, and other applicable regulatory requirements and quality assurance standards, and to discuss any related issues with Autoliv’s development, manufacturing and management personnel. Autoliv shall supply to Alexza any relevant documents necessary to permit Alexza to complete such review and assessment.

          (h) Regulatory Inspections. Autoliv shall cooperate with any inspection of its facilities by a regulatory agency or authority in the Territory, including but not limited to any inspection by such regulatory agency or authority prior to the granting of Regulatory Approval to market the Products in the Territory (by mutual recognition of another jurisdiction’s Regulatory Approval or otherwise). Autoliv shall notify Alexza as soon as possible of any notification received by Autoliv from any regulatory authority in the Territory to conduct an inspection of its manufacturing or other facilities used in the manufacturing, packaging, storage or handling of Products, or relating to any claim of non-compliance with regulatory requirements. Copies of all correspondence and notices relevant to the Heat Packages to and from the regulatory authority in the Territory will be provided by Autoliv to Alexza.

          (i) Records. Autoliv will maintain for a period of ten (10) years all records generated in the course of its performance under this Agreement and necessary to evidence compliance with (i) such laws and regulations as are applicable to the design and manufacture of medical devices and (ii) Heat Packages Specifications.

          (j) Deliverables.

               (i) Prototypes. The parties agree and understand that the development of the Heat Packages is expected to be an iterative process, with prototypes created by Autoliv pursuant to the then-effective Specifications, and that Alexza shall evaluate and test all prototypes in an effort to further refine and define the final Specifications for the Validation Heat Packages. Accordingly, Autoliv shall deliver all prototypes of the Heat Packages to Alexza in the quantities and in accordance with the schedule and Specifications set forth in the Development Plan.

               (ii) Disclosure and Reports. Autoliv shall fully and promptly disclose to Alexza, in writing and on an on-going basis, all results, including but not limited to any New Discoveries, made in the course of the Development Program. Autoliv shall provide to Alexza on a monthly basis during the term of this Agreement a report setting forth, in such reasonable detail as Alexza may request, (i) the work performed by Autoliv during such month, (ii) the status of the work to be performed under the Development Plan as of the end of the month, (iii) a description of any problems, if any, in completing the remaining work to be done in accordance with the schedule set forth in the Development Plan and the proposed resolution of such problems, (iv) any other information reasonably deemed relevant by Autoliv and (v) any other information related to the Development Work reasonably requested by Alexza. Upon request of Alexza, Autoliv will make its Program Coordinator available to discuss with Alexza’s Program Coordinator the status of the work to be performed under the Development Plan and the work remaining to be done thereunder or such other issues as arise with respect to the

Development Program.

     2.3 Acceptance and Rejection of Prototypes.

          (a) Inspection. Alexza shall inspect all Heat Packages prototypes and other items delivered pursuant to the Development Plan promptly upon receipt. Alexza may reject any Heat Packages prototypes that do not conform to the Specifications at the time of delivery by Autoliv. Any such rejection shall be made in writing and shall indicate the reasons for such rejection and, where appropriate, shall be accompanied by test results or other documentation or data supporting Alexza’s reason for rejection. Any rejection delivered within the time period specified in the Development Plan for review of Heat Packages prototypes and other deliverables shall be deemed timely. If Alexza does not deliver the notice of rejection within the time permitted under the Development Plan, Alexza shall be deemed to have accepted that Heat Packages prototype. Acceptance of an iteration of the Heat Packages prototype or other deliverable shall not prejudice Alexza’s right to determine that a subsequent Heat Packages prototype or deliverable is not reasonably acceptable.

          (b) Remediation of Rejection. After notice of rejection is received by Autoliv, the parties shall discuss in good faith the reasons for such rejection, and Autoliv shall use reasonable and timely efforts to promptly correct the deficiencies. The parties shall discuss in good faith any adjustments to the schedule contained in the Development Plan necessitated by such correction work, and Autoliv shall use reasonable efforts to assign such additional personnel to the Development Program to minimize such delays. If Alexza determines that the Heat Packages prototype does not meet the Specifications, or other deliverables do not meet the applicable requirements, Alexza may elect, in its sole discretion, to (i) have Autoliv rework such Heat Packages prototype or other deliverable, or (ii) terminate the Agreement pursuant to Article 5.3 or both parties may agree to terminate the Agreement pursuant to Article 5.2(b).

          (c) Validation Heat Packages. In accordance with the time schedule set forth in the Development Plan, Autoliv will deliver to Alexza the number of Validation Heat Packages set forth in the Development Plan in accordance with the final Specifications. Promptly upon receipt of the Validation Heat Packages, Alexza will inspect and test such Validation Heat Packages for compliance with the Specifications. If the Validation Heat Packages do not comply with the Specifications, Alexza may elect, in its sole discretion, to (i) have Autoliv rework such Validation Heat Packages, or (ii) terminate the Agreement pursuant to Article 5.3 or both parties may agree to terminate the Agreement pursuant to Article 5.2(b). Autoliv shall use diligent efforts to make up any time lost due to replacement of Validation Heat Packages pursuant to this Article. If the Validation Heat Packages comply with the Specifications and, as determined at Alexza’s sole discretion, can be effectively used for their intended use, then Alexza will determine within six (6) weeks after receipt of such Validation Heat Packages whether: (i) to accept such Validation Heat Packages; or (ii) recommend modifications thereto, and will notify Autoliv of its decision in writing. If Alexza does not so notify Autoliv within the time provided, Alexza will be deemed to have accepted such Validation Heat Packages.

     2.4 Regulatory Filings.

          (a) Clinical Trials. Alexza shall be responsible for conducting such clinical trials of the Product as are necessary to obtain Regulatory Approval in the Territory.

          (b) Regulatory Filings. Alexza shall be responsible for obtaining all required Regulatory Approval, in its own name. Autoliv shall provide regulatory and technical information pertaining to the development and manufacture of the Heat Packages and cooperate with Alexza and the responsible regulatory bodies to assist Alexza in obtaining the required Regulatory Approval.

     2.5 Development Costs. Alexza and Autoliv shall fund the development of the Heat Packages under this Article 2 in accordance with the Development Plan Budget attached to the Development Plan. The overall costs of completing the Development Program