LICENSE, DEVELOPMENT AND COMMERCIALIZATION AGREEMENT

EXHIBIT 10.1
Execution Copy

LICENSE, DEVELOPMENT AND COMMERCIALIZATION AGREEMENT

between

Vertex Pharmaceuticals Incorporated

and

Avalon Pharmaceuticals, Inc.

TABLE OF CONTENTS

License, Development and Commercialization Agreement—Confidential—Table of Contents—Page i

License, Development and Commercialization Agreement—Confidential—Table of Contents—Page ii

Schedules

License, Development and Commercialization Agreement—Confidential—Table of Contents—Page iii

License, Development and Commercialization Agreement

      This Agreement is made and entered into as of February 14 2005 (the “ Effective Date ”) between Vertex Pharmaceuticals Incorporated (hereinafter “Vertex” ), a Massachusetts corporation with principal offices at 130 Waverly Street, Cambridge, MA 02139-4242, and Avalon Pharmaceuticals, Inc. (hereinafter “Avalon” ), a Delaware corporation with principal offices at 20358 Seneca Meadows Parkway, Germantown, MD 20876.

INTRODUCTION

       WHEREAS , Vertex has undertaken research and development relating to small molecule inhibitors of IMPDH, including VX-944; and

       WHEREAS , Avalon desires to obtain an exclusive worldwide license to develop and commercialize VX-944 for the treatment of cancer;

       NOW THEREFORE , in consideration of the foregoing premises and other good and valuable consideration, the Parties agree as follows:

ARTICLE I
DEFINITIONS

      For purposes of this Agreement, the terms defined in this Article I shall have the following meanings, whether used in their singular or plural forms. Use of the singular shall include the plural and vice versa, unless the context requires otherwise:

       1.1 “Accept” shall mean, with respect to an IND filed with the FDA, that the period for FDA comment has passed without comment, or that all comments received from the FDA with respect to the IND have been addressed to the satisfaction of the FDA, such that the FDA shall not object to the commencement of the relevant human clinical trials.

       1.2 “Affiliate” shall mean, with respect to any Person, any other Person that directly or indirectly, by itself or through one or more intermediaries, controls, or is controlled by, or is under direct or indirect common control with, such Person. The term “control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Control will be presumed if one Person owns, either of record or beneficially, more than 50% of the voting stock of any other Person.

       1.3 “Assistance Rights” shall have the meaning set forth in Section 3.7 of this Agreement.

       1.4 “Avalon Know-How” shall mean all Know-How Controlled by Avalon and developed or obtained during the course of this Agreement.

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       1.5 “Avalon Patents” shall mean any Patents Controlled by Avalon or any of its Affiliates (excluding any Vertex Patents licensed hereunder) claiming (i) the Compound, Bulk Drug Substance, or a Drug Product, or a formulation or prodrug thereof, or (ii) a method of making or using the Compound, Bulk Drug Substance, or a Drug Product, or a prodrug thereof.

       1.6 “Avalon Technology” shall mean all Avalon Patents and all Avalon Know-How.

       1.7 “Bankrupt Party” shall have the meaning set forth in Section 12.4 of this Agreement.

       1.8 “Biomarkers” shall mean those biomolecules disclosed in the patent listed on Part III of Schedule 1.77, for the uses set forth in that Patent for uses in the Field.

       1.9 “Bulk Drug Substance” shall mean the Compound in crystal, powder or other form suitable for incorporation in a Drug Product.

       1.10 “Clinical Trial” shall mean a Phase I Clinical Trial, a Phase II Clinical Trial, or a Pivotal Registration Study.

       1.11 “Competing Product” shall have the meaning set forth in Section 5.3 of this Agreement.

       1.12 “Compound” shall mean VX-944, which is described on Schedule 1.12 ( “ VX-944 ” ), * .

       1.13 “Controlled” shall mean the legal authority or right of a Party hereto to grant a license or sublicense of intellectual property rights to another Party hereto, or to otherwise disclose proprietary or trade secret information to such other Party, without breaching the terms of any agreement with a Third Party, infringing upon the intellectual property rights of a Third Party, or misappropriating the proprietary or trade secret information of a Third Party.

       1.14 “Development Plan” shall mean the written plan for the overall development of the Compound, in the form attached hereto as Schedule 1.14 , as the same may be updated and augmented pursuant to Section 3.2.2 hereof.

       1.15 “Development Program” shall mean activities associated with development of the Compound, including but not limited to (a) manufacture and formulation of Compound for use in pre-clinical, non-clinical and clinical studies; (b) pre-clinical and non-clinical animal studies performed in accordance with GLP (or the applicable equivalent); (c) planning, implementation, evaluation and administration of human clinical trials; (d) manufacturing process development, scale-up and commercial manufacture of Drug Product; (e) preparation and submission of applications for Regulatory Approval; and (f) post-market

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surveillance of approved drug indications, as required or agreed as part of a marketing approval by any governmental regulatory authority.

       1.16 “Development Work” shall have the meaning set forth in Section 3.7 of this Agreement.

       1.17 “Discontinuance Election” shall have the meaning set forth in Section 7.1.2 of this Agreement.

       1.18 “Discontinued Patent” shall have the meaning set forth in Section 7.1.2 of this Agreement.

       1.19 “Dollars” and “$”shall mean United States dollars.

       1.20 “Drug Product” shall mean any pharmaceutical preparation in finished dosage form containing the Compound for administration to human patients for any and all uses in the Field.

       1.21 “Diligence Milestone” shall have the meaning set forth in Section 3.5 of this Agreement.

       1.22 “Diligence Notice” shall have the meaning set forth in Section 5.3 of this Agreement.

       1.23 “Effective Date” shall mean the effective date of this Agreement as set forth on the first page hereof.

       1.24 “EMEA” shall mean the European Medicines Evaluation Agency or any successor agency thereto.

       1.25 “European Union” shall mean those countries that are now or later become members of the European Union.

       1.26 “Existing Supply” shall have the meaning set forth in Section 4.2 of this Agreement.

       1.27 “FDA” shall mean the United States Food and Drug Administration or any successor agency thereto.

       1.28 “Field” shall mean the administration or use of the Compound for the treatment or prevention of cancer in humans.

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       1.29 “Filing Outside the U.S.” shall mean any application or regulatory filing made hereunder with a regulatory authority outside the United States, for approval to manufacture and/or sell Drug Product(s) outside the United States, and any correspondence, approvals or governmental licenses relating thereto.

       1.30 “First Commercial Sale” shall mean the first sale of a Drug Product by Avalon, or an Affiliate or Sublicensee of Avalon in a country in the Territory following Regulatory Approval of the Drug Product in that country or, if no such Regulatory Approval or similar marketing approval is required, the date upon which the Drug Product is first commercially sold in such country.

       1.31 “Force Majeure” shall have the meaning set forth in Section 14.3 of this Agreement.

       1.32 “Generic Version” shall have the meaning set forth in Section 6.3.1 of this Agreement.

       1.33 “GLP” shall mean the current Good Laboratory Practices regulations promulgated by the FDA, published at 21 CFR Part 58, as such regulations may be amended from time to time, and such equivalent regulations or standards of countries outside the United States as may be applicable to activities conducted hereunder.

       1.34 “GMP” shall mean the current Good Manufacturing Practice regulations promulgated by the FDA, published at 21 CFR Part 210 et seq., as such regulations may be amended from time to time, and such equivalent regulations or standards of countries outside the United States as may be applicable to activities conducted hereunder.

       1.35 “Hematology Indication” shall mean any * .

       1.36 “IMPDH” shall mean Inosine 5’-monophosphate dehydrogenase.

       1.37 “IND” shall mean the investigational new drug application relating to the Compound filed with the FDA pursuant to 21 CFR Part 312, including any amendments thereto. References herein to IND shall include, to the extent applicable, any comparable regulatory filing in any country outside the U.S. (such as a CTX in the European Union).

       1.38 “Indemnified Party” shall have the meaning set forth in Section 13.3 of this Agreement.

       1.39 “Indemnifying Party” shall have the meaning set forth in Section 13.3 of this Agreement.

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       1.40 “Indication” shall mean a separate and distinct disease or medical condition in humans that a Drug Product that is in Clinical Trials is intended to treat, prevent and/or diagnose, or which is referenced on an approved label as a disease or condition that the Drug Product is approved to treat, prevent or diagnose.

       1.41 “Information” shall mean any and all information and data, including scientific, pre-clinical, clinical, regulatory, manufacturing, marketing, financial, and commercial information.

       1.42 “Infringement Claim” shall have the meaning set forth in Section 7.2.1 of this Agreement.

       1.43 “Initial Responsible Party” shall have the meaning set forth in Section 7.1.2 of this Agreement.

       1.44 “Initiate” shall mean, with respect to a Clinical Trial, the administration of the first dose to a human in that Clinical Trial.

       1.45 “Know-How” shall mean all proprietary material and information including data, technical information, know-how, experience, inventions, discoveries, trade secrets, compositions of matter and methods, that relate to the development, utilization, manufacture or use of the Compound or any Drug Product, including but not limited to processes, techniques, methods, products, materials and compositions; provided however, that the term “Know-How” shall not include a Party’s general drug design technology, whether in software or hardware, tangible or intangible, form.

       1.46 “LPO” shall mean that all human subjects enrolled in a Clinical Trial shall have either terminated their participation in the Clinical Trial, either by reason of completion of a full course of dosing and follow-up in accordance with the protocols under which the applicable Clinical Trial is conducted, or because either the Clinical Trial, or the subject’s participation therein, has terminated.

       1.47 “Loss” shall have the meaning set forth in Section 13.1 of this Agreement.

       1.48 “Major Market” shall mean any one of the following countries: the United States, the United Kingdom, France, Germany, Italy, Spain, and Japan.

       1.49 “Manufacturing Cost” shall mean * .

       1.50 “Milestone” shall have the meaning set forth in Section 6.2.1 of this Agreement.

       1.51 “NDA” shall mean (a) a New Drug Application filed with the FDA for marketing approval of a Drug Product or any successor applications or procedures, and all

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supplements and amendments that may be filed with respect to the foregoing, and (b) similar filings in ROW with applicable Regulatory Authorities, including EMEA. The term “NDA” shall not include applications for pricing, and reimbursement approval.

       1.52 “Net Sales” with respect to any Drug Product shall mean * all as determined in accordance with generally accepted accounting principles (“GAAP”), consistently applied by Avalon.

       1.52.1 * .

       1.52.2 * .

       1.52.3 * .

       1.52.4 * .

       1.52.5 * .

       1.53 “Other Party” shall have the meaning set forth in Section 12.4 of this Agreement.

       1.54 “Party” shall mean Vertex or Avalon, and “Parties” shall mean Vertex and Avalon.

       1.55 “Patents” means all existing patents and patent applications and all patent applications hereafter filed, including any continuation, continuation-in-part, division, provisional or any substitute applications, any patent issued with respect to any such patent applications, any reissue, reexamination, renewal or extension (including any supplementary protection certificate) of any such patent, and any confirmation patent or registration patent or patent of addition based on any such patent, and all foreign counterparts of any of the foregoing.

       1.56 “Person” shall mean any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization or government or political subdivision thereof.

       1.57 “Phase I Clinical Trial” shall mean a human clinical trial in any country that would satisfy the requirements of 21 CFR 312.21(a).

       1.58 “Phase Ib Clinical Trial” shall mean a Phase I Clinical Trial in patients.

       1.59 “Phase II Clinical Trial” shall mean a human clinical trial in any country that would satisfy the requirements of 21 CFR 312.21(b).

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       1.60 “Phase II FDA Meeting” shall mean a meeting between Avalon and the FDA (or corresponding Regulatory Authority, for any other territory in which Avalon is conducting such a meeting) at which Avalon and the FDA reach agreement on a detailed plan for subsequent studies of the Drug Product required for submission of an application for Regulatory Approval covering the Drug Product, including but not limited to (i) the agreed-upon protocol for and design of a Pivotal Registration Study (setting out, for example, trial endpoints), and (ii) the size of the required safety database filing.

       1.61 “Pivotal Registration Study” shall mean a human clinical trial the results of which are designed for inclusion in (i) that portion of the FDA submission and approval process which provides for the continued trials of a drug candidate on sufficient numbers of patients to generate safety and efficacy data to support Regulatory Approval in the proposed therapeutic indication, as more fully defined in 21 CFR § 312.21(c), and (ii) equivalent submissions with similar requirements in other countries. Although Phase III Clinical Trials, which are human clinical trials that would satisfy the requirements of 21 CFR 312.21(c), are typically designed as Pivotal Registration Studies, in specific cases a Phase II Clinical Trial might qualify as a Pivotal Registration Study.

       1.62 “Product Development Committee” or “PDC” shall have the meaning set forth in Section 3.2.1 of this Agreement.

       1.63 “Regulatory Approval” shall mean, with respect to any country, all authorizations by the appropriate governmental entity or entities necessary for commercial sale of a Drug Product in that country including, without limitation and where applicable, approval of labeling and manufacturing.

       1.64 “Regulatory Authority” shall mean any applicable government regulatory authority involved in granting approvals for the conduct of Clinical Trials or the manufacturing or marketing of a Drug Product in the Territory, including in the United States the FDA.

       1.65 “Results” shall have the meaning set forth in Article X of this Agreement.

       1.66 “ROW” shall mean all of the countries in the Territory, and their territories and possessions, except for the United States.

       1.67 “Solid Tumor Indication” shall mean * .

       1.68 “Stability Specifications” shall have the meaning set forth in Section 4.2 of this Agreement.

       1.69 “Stability Testing” shall have the meaning set forth in Section 4.2 of this Agreement.

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       1.70 “Sublicensee” shall mean a Third Party that is granted a sublicense under the licenses granted to Avalon under this Agreement, which term does not include Avalon’s Affiliates or its distributors.

       1.71 “Technology” shall mean Vertex Technology and Avalon Technology.

       1.72 “Territory” shall mean all the countries in the world.

       1.73 “ Third Party” shall mean any person or entity that is not a Party or an Affiliate of any Party to this Agreement.

       1.74 “Third Party Product” shall have the meaning set forth in Section 6.3.1 of this Agreement.

       1.75 “Valid Patent Claim” shall mean either (a) a claim of an issued and unexpired Patent which has not been revoked or held permanently unenforceable or invalid by a decision of a court or other governmental agency o£ competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and which has not been admitted to be invalid or unenforceable through reissue or disclaimer or otherwise, or (b) a claim of a pending patent application which claim was filed in good faith and has not been abandoned or finally disallowed without the possibility of appeal or refiling of said application.

       1.76 “Vertex Know-How” shall mean all Know-How owned or Controlled by Vertex as of the Effective Date.

       1.77 “Vertex Patents” shall mean any and all claims of Patents Controlled by Vertex or any of its Affiliates, which claim or claims would be infringed by making, having made, using, selling, offering for sale, importing, researching or developing the Compound, Bulk Drug Substance, or a Drug Product, to the extent permitted under this Agreement, or by using Biomarkers in connection with the administration of a Drug Product to a human subject in the Field to the extent permitted by this Agreement. A list of Vertex Patents is appended hereto as Schedule 1.77, which will be updated periodically to reflect additions thereto during the term of this Agreement.

       1.78 “ Vertex Technology” shall mean all Vertex Patents and all Vertex Know-How.

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ARTICLE II
LICENSE

             2.1 Grant to Avalon.

      (a) Subject to the other provisions of this Agreement, Vertex hereby grants to Avalon an exclusive worldwide license under Vertex Technology solely in the Field, with the right to sublicense to the extent permitted under Section 2.1(d)(i) to exercise its rights and carry out its obligations set forth in this Agreement; (ii) to develop, use, have used, manufacture, have manufactured, and import, the Compound, Bulk Drug Substance, and Drug Products in the Territory; (iii) to offer for sale, sell and import for sale Compound and Bulk Drug Substance, solely for purposes of incorporation into a Drug Product for sale, offer for sale, import and having sold pursuant to the terms of this Agreement; and (iv) to market, sell, have sold, import, and offer for sale, Drug Products in the Territory.

      (b) Subject to the other provisions of this Agreement, Vertex hereby grants to Avalon an exclusive worldwide license under the Vertex Technology, with no right to sublicense, to the extent useful to permit Avalon to use Biomarkers to monitor the effectiveness of the Compound in the Field (including in human subjects), solely in connection with research and/or development of Drug Products. Vertex agrees that it shall negotiate in good faith with Avalon to reach agreement on a license to diagnostic products incorporating such Biomarkers for use solely in connection with the administration of the Drug Product in the Field. Vertex reserves all rights to Biomarkers and the use thereof for all purposes outside the Field.

      (c) Subject to the provisions of this Agreement, Vertex shall have the right to use Vertex Technology to discharge its obligations and exercise its rights under this Agreement. Vertex retains all rights to Vertex Technology except to the extent explicitly granted to Avalon hereunder. The Parties acknowledge and agree that it is possible that VX-944 and certain other compounds Controlled by Vertex that have been designed as inhibitors of IMPDH may share common metabolites and degradants. Notwithstanding the exclusive license granted herein to Avalon with respect to metabolites of VX-944, Vertex shall have a right under Vertex Technology to all such common metabolites or degradants for any and all purposes, unrestricted by field or territory.

      (d) Avalon shall notify Vertex in writing of any sublicense it intends to grant pursuant to Section 2.1(a) and Vertex shall have the right to approve the Sublicensee with respect to all sublicenses of rights in any Major Market country, with such approval to be obtained by Avalon in writing prior to entering into any such sublicense and not to be unreasonably withheld or delayed by Vertex. Avalon shall guarantee and be responsible to Vertex for the performance of any of its Sublicensees or subcontractors under any sublicense or other agreement with respect to the rights granted to Avalon by Vertex and the obligations assumed by Avalon hereunder. Avalon shall not permit any subcontractors or Sublicensees to use Vertex Technology without provisions safeguarding confidentiality equivalent to those provided in this Agreement. Avalon shall ensure that any such provisions allow Vertex the right to directly enforce the obligations of confidentiality with respect to Vertex Technology in the possession of the subcontractor or Sublicensee. Each sublicense of the rights granted to Avalon hereunder shall be on commercially reasonable terms.

             2.2 Grant to Vertex. Subject to the other provisions of this Agreement, Avalon hereby grants to Vertex a non-exclusive, worldwide license or (as appropriate) sublicense under Avalon Technology, to the extent necessary to permit Vertex to carry out the

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activities that it is permitted to undertake under this Agreement (and, as set forth in Article XII of this Agreement, following certain terminations of this Agreement pursuant to such Article).

             2.3 Information Transfer.

      (a) Vertex shall disclose to Avalon all Vertex Know-How and material information Controlled by it relating directly to the Compound that has not been previously disclosed to Avalon. To the extent any such information previously disclosed to Avalon is available in human or machine-readable form, and Avalon is not in possession of a copy of such information, Vertex shall provide a copy to Avalon within * of receiving Avalon’s request, which shall be made with specificity as to the information to be copied. At Avalon’s request made at any time, Vertex shall provide copies of all Vertex Patents and applications therefor and all other manifestations of the intellectual property embodied in the Compound whether in human or machine-readable form. Avalon shall acknowledge to Vertex that it has received any such information within * days of any such receipt.

      (b) Except for information about the Compound in the possession of either Party on the Effective Date, neither Party shall be entitled to information from the other Party concerning know-how or technology discovered or developed by that Party that is not directly related to development and commercialization of the Compound or Drug Products under this Agreement.

             2.4 Vertex Stand-still. During the term of this Agreement, Vertex shall not develop, sell, offer to sell, have sold, or import for sale Compound, Bulk Drug Substance, or Drug Product nor grant any rights to a Third Party to develop, have made, make, sell, offer for sale, or import for sale the Compound, Bulk Drug Substance or Drug Product. This Section 2.4 shall terminate and be of no force and effect with respect to any country upon the earlier of the expiration of this Agreement with respect to such country or the termination of Avalon’s rights hereunder with respect to such country, and immediately shall terminate and have no further force or effect upon the termination of this Agreement for any reason.

             2.5 No Implied Licenses. Except as specifically set forth in this Agreement, neither Party shall acquire any license or other intellectual property interest, by implication or otherwise, to any information disclosed to it under this Agreement or under any patents or patent applications owned or Controlled by the other Party or its Affiliates.

ARTICLE III
DEVELOPMENT

             3.1 Commencement of Development Program. Promptly after the Effective Date, Avalon shall commence and diligently pursue the Development Program (as more particularly set forth in Section 3.6 of this Agreement) with respect to the Compound in accordance with the Development Plan.

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             3.2 Product Development Committee.

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             3.3 * .

             3.4 Development Responsibility and Costs. Except as provided in Section 3.7 below, Avalon will have sole responsibility for, and bear the cost of conducting, the Development Program with respect to the Compound. Vertex shall bear its own costs of its participation in the PDC, if any. Notwithstanding Vertex’s option to participate on the PDC, Vertex shall not be responsible for the Development Program or its outcome, each of which shall be the sole responsibility of Avalon during the term of this Agreement.

             3.5 Regulatory Approvals. Avalon shall be solely responsible for obtaining Regulatory Approval of the Compound in the Territory and shall bear all costs associated therewith.

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             3.6 Avalon Efforts in Development. Avalon shall use * , consistent with the provisions of this Agreement, the requirements of the Development Plan, and reasonable business practices and judgment * , to develop the Compound and obtain Regulatory Approval for Drug Products, as soon as * , for the commercial sale of the Drug Product in the Major Market countries. * . Upon delivery of any such notice to Vertex, all of Avalon’s rights under this Agreement with respect to the Major Market country that is the subject of the notice immediately shall terminate, and the definition of “Territory” in this Agreement shall be deemed amended to exclude such country. Thereafter, Vertex shall have all rights to the Compound in such Major Market country (and the stand-still agreement set forth in Section 2.4 shall not be applicable in such country).

            If Avalon fails to comply with the foregoing development obligations, Vertex shall have the right to terminate this Agreement under the provisions of Section 12.2 hereof. If Avalon fails to achieve any of the Diligence Milestones (as defined below) for any reason, Vertex shall also have the right to terminate this Agreement and Avalon’s license hereunder pursuant to Section 12.2. “ Diligence Milestone ” shall mean each of the outcomes referenced under “Milestone” below relating to the Development Program for the Compound, along with the deadline for achieving the particular outcome referenced under “Deadline” in the right hand column opposite that outcome. The Parties acknowledge and agree that the Diligence Milestones set forth below are specified herein solely for purposes of conclusively establishing that if Avalon should fail to achieve a Diligence Milestone by the specified Deadline date, Avalon has not satisfied the requirements of this Section 3.6. However, completion of a Diligence Milestone on or about the corresponding deadline shall not be considered presumptive evidence that Avalon shall have satisfied its general development obligations as set forth in the first paragraph of this Section 3.6.

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      For example, a Diligence Milestone would be achieved if an IND is filed with the FDA on or before * (or * , if such date is extended pursuant to Section 4.2). It would not be achieved if an IND is not filed with the FDA on or before * (or * , if such date is extended pursuant to Section 4.2). Avalon shall have the right to ask Vertex for a reasonable extension of the due date for any Diligence Milestone if it is unable to achieve that Diligence Milestone for reasons related to the development of the Compound outside of Avalon’s control (excluding reasons relating directly or indirectly to a shortage of funds for development tasks which would have been undertaken * , and Vertex shall not unreasonably withhold approval for such

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extension, provided that Avalon shall have provided to Vertex a viable plan for achieving the Diligence Milestone in a reasonable period of time.

                   3.7 Assistance Rights. If at any time specific development activities (“ Development Work ”) scheduled for commencement or completion in accordance with the Development Plan are unreasonably delayed, Avalon, at Vertex’s request, will review and discuss the matter and a special meeting of the Parties will be convened for that purpose within * of Vertex’s written request. If, within * after the special meeting, Avalon is unwilling or unable to cure the delay, then Vertex may, by written notice (the “Assistance Notice”) to Avalon, undertake that Development Work at its own expense, and Vertex’s right to do so shall be referred to herein as its “ Assistance Rights .” Vertex shall be free to exercise its Assistance Rights commencing * after delivery of its Assistance Notice to Avalon, unless Avalon shall notify Vertex within that * period that it does not agree that Vertex should undertake Development Work due to circumstances, described in detail in the Assistance Notice, that can be demonstrated to be reasonably likely to materially and adversely affect the commercial success of the Compound. In such case, Vertex shall not pursue its Assistance Rights.

             3.7.1 If Vertex pursues its Assistance Rights:

      (a) Regulatory Actions . Avalon will continue to make any necessary and appropriate regulatory filings with respect to the Development Work and will, if required for Vertex to exercise its Assistance Rights effectively, transfer sponsorship to Vertex of any regulatory filings relevant to such Development Work.

      (b) Delivery of Information . Promptly after exercise by Vertex of its Assistance Rights, Avalon shall deliver to Vertex all material information Controlled by it that is necessary or useful for exercise by Vertex of its Assistance Rights.

      (c) Manufacture of Clinical Supply of Drug Product . Avalon will supply Vertex with the necessary clinical supply of Drug Product required to perform such Development Work in accordance with Avalon’s then current scale of manufacturing at Avalon’s Manufacturing Cost and upon such other reasonable and customary terms as to shipment, delivery and similar matters as may be agreed.

      (d) Milestones . If Avalon elects to resume the Development Work for the Compound, it will provide Vertex with * prior notice thereof, and will reimburse Vertex for the actual direct cost of the Development Work within * following the receipt of an invoice therefore. Avalon shall not resume the Development Work hereunder except at a time when such transition will cause minimal disruption to the progress of the Development Work, i.e., between clinical trials rather than during a clinical trial. Avalon will pay Vertex interest on the reimbursable costs incurred by Vertex in the conduct of the Development Work, at a rate * equal to * as determined on the date the Development Work is first undertaken by Vertex. Avalon will also make in a timely fashion any payments which may come due to Vertex under this Agreement during the time that Vertex is exercising its Assistance Rights, including but not limited to payments on account of the achievement of a Milestone or Milestones during the time that Vertex was exercising its Assistance Rights.

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      (e) No Waiver . Vertex’s exercise of Assistance Rights hereunder, and Avalon’s subsequent resumption of Development Work under Subsection (d) above, shall in no way constitute a waiver by Vertex of any of its rights under this Agreement, including its right to enforce Avalon’s obligations to * the Development Program and to achieve the Diligence Milestones set forth in Section 3.6 except as set forth in the last sentence of this paragraph (e). If, in the course of performing the Development Work, Vertex shall achieve any Diligence Milestone, the achievement of that Milestone shall not be attributed to Avalon for purposes of determining its compliance with the requirements of Section 3.6 hereof. Notwithstanding the foregoing, if Avalon validly elects to continue the Development Work pursuant to Section 3.7(d) above, upon Vertex’s receipt of payment of the amounts set forth in Section 3.7(d), Vertex shall be deemed to have waived any breaches of Section 3.6 of this Agreement by Avalon occurring prior to such time.

ARTICLE IV
MANUFACTURING AND SUPPLY

                   4.1 Supply of Material; Formulation and Packaging. Avalon will be responsible for manufacturing and supplying all Compound, Bulk Drug Substance, and Drug Product as necessary for the conduct of the Development Plan and for all commercial purposes in the Territory. In all events, Avalon will be responsible for formulation and packaging of Drug Products.

                   4.2 Supply of Bulk Drug Substance for Clinical Trials. Vertex shall provide Avalon with * ( “Existing Supply” ) of Bulk Drug Substance from its existing inventory, provided that the Existing Supply satisfactorily completes stability testing (the “Stability Testing” ) by Vertex, and meets the specifications set forth on Schedule 4.2 (the “Stability Specifications” ). Vertex shall conduct the Stability Testing promptly after the Effective Date, and upon providing evidence of satisfaction of the Stability Specifications reasonably satisfactory to Avalon, Vertex shall promptly deliver the Existing Supply to Avalon against payment therefore in the amount of * . Vertex shall have no obligation hereunder or otherwise to store or deliver any clinical trial material to Avalon other than the Existing Supply, and its obligation to deliver the Existing Supply shall be contingent upon the Existing Supply satisfying the Stability Specifications. If Vertex shall not deliver the Existing Supply for any reason, or if the Existing Supply, if delivered, shall not be usable for its intended purpose by reason of a failure to satisfy the Stability Specifications, then the first Diligence Milestone IND filed with FDA — shall be extended by * . Avalon shall provide written notice to Vertex of the failure of the Existing Supply to satisfy the Stability Specifications, within * after delivery, thereof.

                   4.3 Supply of Laboratory Grade Compound. Promptly upon execution of this Agreement, * , Vertex shall transfer * of Compound to Avalon or its designee, it being acknowledged that such Compound was not prepared or stored in accordance with GMP or GLP, and that such compound is being provided to Avalon as is and without representations or warranties of any kind, and shall not be administrated to humans.

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ARTICLE V
COMMERCIALIZATION

                   5.1 Marketing and Promotion. Avalon shall be responsible for marketing, selling and distributing Drug Products in the Territory. Avalon will book all sales of Drug Products and will report those sales to Vertex as specified in Section 6.4 of this Agreement.

                   5.2 Co-Labeling. To the extent not prohibited by law or regulation, Drug Products (including labels, packaging and inserts, whether in written or electronic form) and all promotional and educational materials (in any form) for the same, sold in North America, the countries of the European Union and Japan will bear both Avalon’s and Vertex’s company names and logos with equal prominence (including equal sized type face), or if equal prominence is prohibited by law, with the most comparable prominence as may otherwise be permitted by law. To the extent not prohibited by law or regulation, Drug Products (including labels, packaging and inserts) and all promotional materials for the same, sold in the rest of the world will include Vertex’s company name (in the English alphabet) and logo with the designation: “under license from.” Any trademark for a Drug Product will be selected by, and will be the property of, Avalon.

                   5.3 Diligence. Following the First Commercial Sale of a Drug Product and until the expiration of this Agreement, Avalon shall use * to keep Drug Products * to the public in each of the Major Markets. If, at any time during the term of this Agreement, Avalon or an Affiliate are developing, marketing or selling a product for treatment of the same Indication as any Drug Product (a “Competing Product” ), Avalon shall * required under this Section 5.3 as if Avalon or its Affiliate was not developing, marketing or selling that Competing Product.

If, after the First Commercial Sale of a Drug Product in any country, Avalon shall determine that the marketing and sale of a Drug Product in any country is * or * or if for other unforeseen reasons further commercial support of the Drug Product in that country is no longer prudent or practical, Avalon promptly shall provide a notice of such determination to Vertex (a “Diligence Notice” ). If Avalon shall give Vertex a Diligence Notice with respect to any Major Market country, Avalon’s license hereunder immediately shall terminate with respect to that country,

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and the Territory under this Agreement shall thereafter exclude that Major Market country. At such time as * Major Market countries have been excluded from the Territory as a result of notices provided to Vertex under this Section 5.3 and/or Section 3.6, or at any time that the Territory excludes the United States as a result of notices given under either such section, Vertex shall have the unconditional right to terminate this Agreement under Section 12.3 and shall have all rights set forth in Section 12.5.

                   5.4 Vertex Promotional and Co-Promotional