Amended and Restated Development and License Agreement

Exhibit 10.19

Execution Copy

***Text Omitted and Filed Separately

with the Securities and Exchange Commission.

Confidential Treatment Requested

Under 17 C.F.R. Sections 200.80(b)(4)

and 240.24b-2.

Amended and Restated Development and License Agreement

between

Metabasis Therapeutics, Inc.

and

Schering Corporation

Dated as of December 13, 2006

TABLE OF CONTENTS

2

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AMENDED AND RESTATED DEVELOPMENT AND LICENSE AGREEMENT

This Amended and Restated Development and License Agreement (this Agreement) is made as of December 12, 2006 and is effective as of the Amended Closing Date by and between Metabasis Therapeutics, Inc., a corporation organized and existing under the laws of Delaware (Metabasis) and Schering Corporation, a corporation organized and existing under the laws of New Jersey (Schering) (each a "Party" and collectively the "Parties").

Recitals

A.               Metabasis is engaged in the research and development of therapeutic products and technologies.

B.                Metabasis has acquired or possesses the right to license worldwide proprietary rights to certain HepDirect Compounds for the treatment of Hepatitis B.

C.                Metabasis and Valeant Pharmaceuticals International (Valeant), then known as ICN Pharmaceuticals, Inc., previously entered into a Development and License Agreement of October 1, 2001 relating to the Licensed Compound (the Original Agreement).

D.               Metabasis, Valeant and Schering have executed an Assignment Agreement effective as of the Amended Closing Date pursuant to which Metabasis and Valeant have consented to the assignment by Valeant to Schering of Valeant’s rights and obligations under the Original Agreement.

E.                Schering has expertise in researching, developing, manufacturing and marketing pharmaceutical products for the treatment of human diseases and wishes to develop, manufacture, and market Products based on the Licensed Compound in accordance with this Agreement.

F.                Metabasis wishes to grant an exclusive license to Schering and Schering wishes to acquire an exclusive license with respect to, and to develop, manufacture, and market Products, in accordance with this Agreement.

G.                Metabasis and Schering now wish to amend and restate the Original Agreement on the terms of this Agreement.

Agreement

In consideration of the above and the mutual covenants set forth in this Agreement and other valuable consideration received by the Parties, the Parties agree as follows.

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ARTICLE I

DEFINITIONS AND INTERPRETATION

1.1              Definitions

In this Agreement, capitalized terms have the respective meanings set forth below.

Act means the Federal Food, Drug and Cosmetic Act (21 U.S.C. §301, et seq.), including any amendments or supplements.

Accounting Period means a calendar quarter commencing on the first day of an Accounting Period (and for the first Accounting Period, commencing on the Amended Closing Date), respectively January 1, April 1, July 1, and October 1, each being the first day, and finishing the last day of an Accounting Period respectively on March 31, June 30, September 30 and December 31, each being the last day.

Accounting Standards means with respect to both Metabasis and Schering, GAAP (United States Generally Accepted Accounting Principles), in each case as generally and consistently applied throughout the Party’s organization.

Affiliate of a Party means any corporation or other business entity that controls, is controlled by, or is under common control with a Party, where control means direct or indirect ownership of more than fifty percent (50%) of the voting interest in a corporation or entity, or such other relationship as, in fact, constitutes actual control of management or the ability to cause the direction of the management or policies of a corporation or other entity.  In the case of entities organized under the laws of certain countries, the maximum percentage ownership permitted by law for a foreign investor may be less than fifty percent (50%), and in such case such lower percentage shall be substituted in the preceding sentence, provided that such foreign investor has the power to direct the management and policies of such entity.

Agreement has the meaning set forth in the preamble.

Amended Closing Date has the meaning set forth in Section 15.17.

Approval Authority means a governmental authority or agency whose approval is required in a country for any Regulatory Approval, including the FDA, EMEA and any national or regional regulatory authorities.

Assignment Agreement means the assignment agreement entered into among Metabasis, Schering and Valeant relating to the assignment by Valeant to Schering of Valeant’s rights and obligations under the Original Agreement.

Bankruptcy Code means Title 11, U.S. Code.

Breaching Party has the meaning set forth in Section 12.3.

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Business Day means a day when banks are open for business in Los Angeles, California, and New York, New York.

Claims has the meaning set forth in Section 10.1.

Combined Product means any pharmaceutical product with two or more active pharmaceutical ingredients (in any formulation and including a combination of separate dosage forms in a single package), one of which is a Licensed Compound and one or more of which is not, sold as a single item for one price.

Commercially Reasonable Efforts means with respect to the development, manufacture, Regulatory Approval, and commercialization of Licensed Compound and Product, application of efforts and resources at all times that are consistent with what Schering applies for similar pharmaceutical products of similar market potential at similar stages of development.

Competitive Product means any pharmaceutical product in final form which [***] and such product is not a Product being commercialized by Schering or a Sublicensee of Schering pursuant to this Agreement.

Compassionate Sales means, with respect to a Product in any country in the Territory, any sale of the Product by Schering or any of its Affiliates or Sublicensees that is required by a governmental authority to be made to certain persons or classes of persons in such country, before or after the Product has been approved for use in such country by the Approval Authority, but before the price of the Product (or reimbursement for the Product) has been determined by the applicable governmental authority in such country.

Confidential Information means all know-how and other proprietary information and data of a financial, commercial or technical nature which the disclosing Party or any of its Affiliates has supplied or otherwise made available to the other Party, whether made available orally, in writing or in electronic form, including information comprising or relating to concepts, discoveries, inventions, data, designs or formulae in relation to this Agreement.

Control or Controlled means, with respect to any compound, material, information or intellectual property right, that the party owns or has a license and has the ability to grant to the other party a license or a sublicense (as applicable) as provided for herein without violating (i) the terms of any agreement with any Third Party or (ii) any law or governmental regulation applicable to such license or sublicense.

Cover, Covering or Covered means that, with respect to a Patent Right, a compound, product, practice or the like which would infringe a Valid Claim of such Patent Right in the absence of a license.

Development Steering Committee has the meaning set forth in Section 5.1.

Dollars or $ means the lawful currency of the United States.

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EMEA means the European Medicines Agency, or any successor entity thereto.

Encumbrance means any claim, charge, equitable interest, hypothecation, lien, mortgage, pledge, option, license, assignment, power of sale, retention of title, right of pre-emption, right of first refusal or security interest of any kind.

EU Major Market means any [***] of the following countries:  [***]

EU Regulatory Approval means (a) marketing authorization approval from the EMEA and pricing approval and reimbursement in the EU Major Market or (b) marketing authorization approval and pricing approval and reimbursement in the EU Major Market.

European Union means the amalgamation of European member states created by the Treaty on European Union (commonly called the Maastricht Treaty) effective January 1, 1993 as expanded since such date.

FDA means the United States Food and Drug Administration, or any successor entity thereto.

Field means all human and animal pharmaceutical and diagnostic applications in all indications, including for prevention or treatment of all diseases.

First Commercial Sale means, with respect to a Product in any country in the Territory, the first arms-length sale to a Third Party purchaser in such country of a Product by Schering or any of its Affiliates or Sublicensees, after Regulatory Approval in such country, which transfers physical possession and title to the Product, provided, however, that any Compassionate Sales or sales for pre-marketing, testing, or sampling will not be a First Commercial Sale.

Fully Burdened Manufacturing Cost shall have the meaning set forth in Exhibit C.

Generic Affiliate means any Affiliate of a Party whose principal business activity is the development, manufacture, commercialization or distribution of generic pharmaceutical products.

Generic Equivalent means, as to any specific Product at issue which has received Regulatory Approval in the country at issue, a pharmaceutical product with the same active ingredient and administrative route as the Product and which has (i) in the United States, received Regulatory Approval from the FDA (x) under an abbreviated NDA in accordance with 21 C.F.R. 314.94(a) which refers to the specific Product at issue as the Reference Listed Drug (as defined in 21 C.F.R. 314.3(b)), (y) under an NDA described in Section 505(b)(2) of the Act as to which information necessary for approval is contained in the NDA filed for the specific Product at issue but as to which the applicant in the NDA for such potential Generic Equivalent does not have a right of reference or (z) by any means by which the potential Generic Equivalent can obtain Regulatory Approval based, in part, on information contained in the NDA filed for the specific Product at issue but as to which the applicant in the application for Regulatory Approval for such potential Generic Equivalent does not have a right of reference; and (ii) in any other

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country in the Territory, from the Regulatory Authority having jurisdiction in such country (x) under an application similar to an abbreviated NDA which references the specific Product at issue in a manner similar to a Reference Listed Drug, (y) under an application similar to an NDA described in Section 505(b)(2) of the Act as to which information necessary for approval is contained in the NDA filed for the specific Product at issue (or the comparable application filed in the country at issue) but as to which the applicant in the application for such potential Generic Equivalent does not have a right of reference or (z) by any means by which the potential Generic Equivalent can obtain Regulatory Approval based, in part, on information contained in the NDA filed for the specific Product at issue (or the comparable application filed in the country at issue) but as to which the applicant in the application for Regulatory Approval for such potential Generic Equivalent does not have a right of reference.

Handle has the meaning set forth in Section 8.1.

HepDirect Compounds means all compounds that fall within the scope of the HepDirect Technology which are Controlled by Metabasis.

HepDirect Technology means compositions and methods of making and using the same, of any and all [***], including all proprietary and technical information related thereto, and all patentable and non-patentable inventions, discoveries, experience, disclosure claims, formulas, processes, procedures, compositions of matter, specifications, methods, techniques, trade secrets, technologies, data, know-how, instructions, processes, formulae, materials and results related thereto which are Controlled by Metabasis and include those Patent Rights set forth in Schedule A.

IND means an Investigational New Drug application in the US filed with the FDA or the corresponding application for the investigation of the Product in any other country or group of countries, as defined in the applicable laws and regulations and filed with the Approval Authority of a given country or group of countries.

Indemnified Party has the meaning set forth in Section 10.3.

Indemnifying Party has the meaning set forth in Section 10.3.

Know-How means any and all inventions, developments, results, and other information, including clinical, technical, scientific and medical information, know-how, methods, practices and trade secrets, quality control information and procedures, pharmacological, toxicological and clinical test data and results and regulatory information.

Licensed Compound means all forms of MB6866 as identified at Exhibit A (at times known as remofovir and now known as pradefovir) including any complexes, chelates, clathrates, acids, bases, esters, salts, isomers, stereoisomers, enantiomers, pro-drug form, metabolite, hydrate, solvate, polymorph, and crystalline forms thereof, or any Substitute Compound substituted in accordance with Article III, and its various forms including salts and prodrugs.

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Licensed Patents means any and all Patent Rights which Metabasis Controls in any country of the Territory, having one or more Valid Claims Covering the Licensed Compound or Product in the Field and which are reasonably necessary or useful to research, develop, prepare, make, have made, market, export, have exported, import, use, offer for sale, sell, have sold, distribute, promote, detail or otherwise commercialize a Licensed Compound or Product in the Field in the Territory.  Licensed Patents includes the Patent Rights set forth on Schedule A.

Licensed Technology means all HepDirect Technology on the Closing Date or during the Term, which are necessary or useful to research, develop, prepare, make, have made, market, export, have exported, import, use, offer for sale, sell, have sold, distribute, promote, detail or otherwise commercialize a Licensed Compound or Product in the Field in the Territory.  By way of clarification, Licensed Technology includes all such HepDirect Technology conceived or acquired in whole or in part by Metabasis on or after the Closing Date including the items set forth in Section 8.4 (a) below.

MAA means an application for authorization to market the Product in any country or group of countries outside the United States, as defined in the applicable laws and regulations and filed with the Approval Authority of a given country or group of countries.

Major Health Care Company shall mean a Third Party pharmaceutical or biotechnology company (including a "group" within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934) [***].

Major Market Country means each of the following countries and its territories and possessions: [***]

Metabasis has the meaning set forth in the preamble.

Metabasis Change of Control means any transaction or series of related transactions in which a Major Health Care Company acquires or becomes the beneficial owner of (i) more than fifty percent (50%) of the outstanding voting securities of Metabasis or the surviving entity, whether by merger, consolidation, reorganization, tender offer or similar means, or (ii) all or substantially all of the assets of Metabasis, howsoever caused, including by sale or lease.

Metabasis Insolvency Event means, in relation to Metabasis, any one of the following: (a) that Metabasis is the subject of voluntary or involuntary bankruptcy proceedings instituted on behalf of or against Metabasis (except for involuntary bankruptcy proceedings which are dismissed within sixty (60) days); (b) an administrative receiver, receiver and manager, interim receiver, custodian, sequestrator or similar officer is appointed in respect of Metabasis; (c) a notice shall have been issued to convene a meeting for the purpose of passing a resolution to wind up Metabasis, or such a resolution shall have been passed other than a resolution for the solvent reconstruction or reorganization of Metabasis; (d) a resolution shall have been passed by Metabasis or Metabasis’ directors to make an application for an administration order or to appoint an administrator; or (e) that Metabasis makes any general assignment, composition or

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arrangement with or for the benefit of Metabasis’ creditors or suspends making payments to all or substantially all of Metabasis’ creditors.

Milestone means any event relating to the development and commercialization of Products set forth in Section 4.2.

Milestone Payment means any of the payments required under Section 4.2.

NDA means a New Drug Application filed with the FDA for marketing approval for a drug pursuant to the Act and the Regulations.

Net Sales means gross amounts invoiced by or on behalf of Schering and any of its Affiliates or Sublicensees for the Product sold to Third Parties who are not Affiliates or Sublicensees of Schering, unless such Affiliate or Sublicensee is the end user of such Product, in which case the amount billed therefor shall be deemed to be the amount that would be billed to a Third Party end user in bona fide, arms-length transactions, less the following deductions, as determined in accordance with Schering’s usual and customary accounting methods, which are in accordance with its Accounting Standards as consistently applied at Schering, to the extent included in the gross invoiced sales price of any Product or otherwise directly paid or incurred by Schering, its Affiliates or sublicensees with respect to the sale of such Product:  normal and customary trade and quantity discounts actually allowed and properly taken directly with respect to sales of the Product; amounts repaid or credited by reasons of defects, rejection, recalls, returns, field destroys, rebates and allowances of goods specifically identifiable to the Product; chargebacks and other amounts paid on sale or dispensing of such Product; amounts payable resulting from governmental, regulatory or agency mandated rebate programs; tariffs, duties, excise, sales, value-added and other taxes (other than taxes based on income); retroactive price reductions that are actually allowed or granted; cash discounts actually granted for timely payment; discounts actually granted pursuant to indigent patient programs and patient discount programs, including, without limitation, coupon discounts; a deduction of [***] for distribution and warehouse expenses; amounts repaid or credited for uncollectible amounts on previously sold products; and any other specifically identifiable amounts included in gross amounts invoiced for Products to the extent such amounts are customary exclusions from net sales calculations in the pharmaceutical industry for reasons substantially equivalent to those listed above and are reasonable in amount relative to similar deductions taken by Schering in calculating net sales of its other products .   Each of the deductions set forth above shall be determined on an accrual basis in accordance with GAAP.

In the event the Product is sold as a Combined Product, the Net Sales of the Product, for the purposes of determining royalty payments, shall be determined by multiplying the Net Sales of the Combined Product by the fraction, A/(A+B) where A is the weighted (by sales volume) average sale price in a particular country of the Product when sold separately in finished form and B is the weighted (by sales volume) average sale price in that country of the other product(s) sold separately in finished form.  In the event that such average sale price cannot be determined for both the Product and the other product(s) in combination, Net Sales for purposes of

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determining royalty payments shall be agreed by the Parties based on the relative value contributed by each component, such agreement not to be unreasonably withheld.

Original Agreement has the meaning set forth in the Preamble.

Original Closing Date means October 1, 2001.

Patent Rights means all patents, including all divisionals, continuations, substitutions, continuations-in-part, re-examinations, reissues, additions, renewals, extensions, registrations, and supplemental protection certificates and the like of any of the foregoing as well as applications of any of the foregoing.  Patent Rights shall include regulatory-based extensions to patent terms, including pediatric exclusivity periods in the United States.

Phase I Clinical Trial means the initial introduction of an investigational new drug into humans primarily designed to determine the metabolism and pharmacologic actions of the drug in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness, and also may include studies of drug metabolism, structure-activity relationships, and mechanism of action in humans, as well as studies in which investigational drugs are used as research tools to explore biological phenomena or disease processes.

Phase II Clinical Trial means a controlled clinical study conducted primarily to evaluate the effectiveness of a drug for a particular indication or indications in patients with the disease or condition under study and to determine the common short-term side effects and risks associated with the drug.

Phase III Clinical Trial means a pivotal clinical study of a Product in patients the protocol of which is designed to establish efficacy and safety of such Product for the purpose of preparing and submitting a filing for NDA approval in the US or EU Regulatory Approval.

PMEA means 9-2-(phosphonomethoxy)ethyl adenine.

Prodrug of PMEA means any compound which, as a result of in vivo metabolism after administration, releases PMEA as the active ingredient.

Product means any human pharmaceutical product in finished pharmaceutical form containing, in whole or as a component, the Licensed Compound.

Program Improvement means Know-How and all Patent Rights related to such Know-How that is developed by or on behalf of Schering (or its Affiliates) or jointly by Schering and Metabasis or any of their Affiliates, in connection with the development, manufacture, marketing, importing, use, or sale of Licensed Compound or Products.

Program Patent means any Patent Right claiming a Program Improvement, granted or filed in the Territory on or after the Amended Closing Date, and Controlled by Schering or its Affiliates but excluding any Generic Affiliates.

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Program Transfer Provisions has the meaning set forth in Section 12.5.4.

Recipient has the meaning set forth in Section 11.2(a).

Regulations means the regulations made under the Act, as amended or supplemented.

Regulatory Approval means with respect to a particular country all government approvals required by any government or regulatory authority to permit the sale of Products in such country, including any necessary pricing or pricing reimbursement approvals.

Royalty Obligation Period has the meaning set forth in Section 4.4.

Royalty Payments means the royalty due by Schering to MV on Net Sales as set out in Clause 4.3(a)(i).

Sales & Royalty Report means a written report or reports showing each of: (a) the Net Sales of each Product in each country in the world during the reporting period by Schering and each Affiliate and Sublicensee; and (b) the Royalty Payments, in United States Dollars, which shall have accrued in respect of such sales and the basis of calculating the Royalty Payments, including for each country where applicable, any royalty reductions made under Sections 4.3 (a)(ii), (c), (d) and (e).

Schering has the meaning set forth in the preamble.

Sublicensee means each person to whom Schering has granted a sublicense under Section 2.2.

Substitute Compound means a HepDirect Compound provided to Schering pursuant to Article III.

Term means the term of this Agreement, as set forth in Section 12.1.5.

Territory means all the countries of the world and their territories and possessions.

Third Party means any person other than: Metabasis, Schering, or any of their Affiliates.

United States means the United States of America and its territories and possessions.

Valeant License Agreement means the license agreement entered into between Schering and Valeant effective as of the Amended Closing Date relating to the license of certain Valeant intellectual property relating to the Licensed Compounds and Product.

Valid means with respect to an NDA or an MAA or other filing for Regulatory Approval with the relevant Approval Authority that the relevant Approval Authority has determined that such NDA or MAA or other filing for Regulatory Approval has successfully completed its validation procedure.

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Valid Claim means any claim of an issued and unexpired Patent Right which has neither been revoked, held unenforceable, unpatentable nor invalid by a final decision of a court or a governmental agency of competent jurisdiction (including any competent patent office), and any patent application within the Licensed Patents which is being Handled by Metabasis which has been pending for less than (i) [***] for patent applications in the United States, or (ii) [***] for non-U.S. patent applications from the date of filing, unless on the date of expiration of the applicable foregoing (i) or (ii), one or more rejections of the pending claims of such patent application are under appeal to a board of appeals, court, or other authority with jurisdiction over appeals of such rejections.

1.2             Interpretation

In this Agreement, unless the context requires otherwise

(a)              the singular includes the plural and vice versa;

(b)              words denoting persons include corporations, partnerships and other legal persons;

(c)              a reference to a specified section, paragraph or schedule is a reference to that specified section, paragraph or schedule of this Agreement;

(d)              the article and section headings and the Table of Contents are for convenience only and do not affect the interpretation of this Agreement;

(e)              "includes" and "including" means including without limitation; and

(f)               a reference to a Party includes its successors and permitted assigns.

1.3             Conditions Precedent; Agreement Supersedes and Replaces the Original Agreement

This Agreement will become effective only upon the execution by all parties thereto of both (i) the Assignment Agreement; (ii) the Valeant License Agreement; and (iii) the expiration or termination of the applicable waiting period under the HSR Act as specified in Section 15.17.  Metabasis and Schering acknowledge that the complete execution of the agreements identified in the foregoing (i) and (ii) (the Other Agreements) is a condition precedent to the effectiveness of this Agreement and that failure of either or both of those separate agreements to be fully executed will render this Agreement null and void.  The Original Agreement shall remain in full force and effect until the Amended Closing Date.

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ARTICLE II

LICENSE

2.1             License

Subject to the terms and conditions of this Agreement, Metabasis grants to Schering, and Schering accepts, the exclusive right and exclusive license under the Licensed Patents and the Licensed Technology within the Field throughout the Territory (with the right to grant sublicenses in accordance with Section 2.2), to research, develop, manufacture, have manufactured, market, export, have exported, import, use, offer for sale, sell, have sold, distribute, promote, detail, and otherwise commercialize the Licensed Compound or Products.  The license is exclusive (even as to Metabasis) with respect to the Licensed Patents and with respect to the Licensed Technology.  This Section 2.1 does not prevent Metabasis from granting licenses to Third Parties with respect to compounds or products that do not fall within the definition herein of Licensed Compounds or Products.

2.2             Sublicense

(a)              Subject to Sections 2.2(b) and 6.1, Schering has the sole and exclusive right to sublicense the rights granted to it by Metabasis under the Licensed Patents and the Licensed Technology, in each case within the Field throughout the Territory, to any Affiliate or Third Party at any time at its sole discretion (as such, a Sublicensee).  In addition, subject to Section 2.2(b), Schering may subcontract to Third Parties the performance of particular tasks and obligations with respect to the development and commercialization of the Product as Schering deems appropriate.

(b)              In the case where Schering wishes to sub-license all or substantially all of its rights under this Agreement in any Major Market Country or Major Market Countries to a Third Party (Effective Out-License), [***].  For the avoidance of doubt, any co-promotion or co-marketing arrangement in such Major Market Country with a Third Party shall not constitute an Effective Out-License.  [***], Schering will [***] by written notice to Metabasis disclosing the identity of the proposed Third Party Sublicensee and the proposed scope and other material commercial (but not financial) terms of the sublicense.  Metabasis will not [***] within [***] of receipt of such written notice.  The Parties hereby agree [***]

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[***] in accordance with this Agreement.  In addition, Metabasis will not [***].  Any failure to respond within such [***] time period [***] by Metabasis.  In the case of sublicenses outside of Major Market Countries Schering shall use reasonable commercial efforts to give notice promptly to Metabasis of any sublicense to a Third Party where such Third Party assumes a substantial portion of the responsibilities of Schering under this Agreement, provided that Schering shall have no liability for any inadvertent failure to do so.

(c)              Schering shall remain responsible for ensuring compliance with the terms of this Agreement by Sublicensees.  Schering shall also pay to Metabasis royalties on Net Sales by Third Party Sublicensees pursuant to Section 4.3 of this Agreement and Schering will pay such royalties irrespective of whether Schering receives payments or other consideration due from such Third Party Sublicensees.

(d)              Any sublicense granted by Schering other than in conformity with the provisions of this Section 2.2 shall be null and void.

2.3             Exclusivity

(a)              Except as provided in Section 2.1 and as permitted by Sections 6.1, 12.3, and 12.4, during the Term, Metabasis will not license or otherwise grant to any Third Party any rights under the Licensed Patents or the Licensed Technology to research, develop, manufacture, have manufactured, market, export, have exported, import, use, offer to sell, or sell, have sold, distribute, promote, detail or otherwise commercialize Licensed Compounds or Products in the Territory within the Field.

2.4             Provision of Information

(a)              Within [***] following the Amended Closing Date, Metabasis will disclose and provide all information in its possession or control relating to the Licensed Patents and the Licensed Technology to Schering or its designated Affiliate to the extent necessary or useful to enable Schering to perform its obligations under this Agreement to develop, manufacture, register, use or market the Licensed Compound and/or Product and practice the licenses granted hereunder efficiently including, to the extent reasonably available to Metabasis, any clinical data, study reports, any information relating to manufacturing, any agreements in respect of the Licensed Compound, and any related correspondence and filings with any Approval Authority (including notes or minutes of any meeting with any Approval Authority).  As part of such disclosure, as soon as reasonably practicable, Metabasis will disclose to Schering all Licensed Technology, including to the extent reasonably available to Metabasis pre-formulation reports, clinical manufacturing batch records, development reports, IND documentation, analytical results, analytical method validation report, raw material and excipient sourcing information, quality audit findings, stability reports and any other relevant technical information.  Such information is subject to the confidentiality provisions of Article XI hereof.

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(b)              Metabasis shall have a continuing obligation to disclose and provide to Schering such additional Licensed Technology as is developed or obtained by Metabasis or its Affiliates during the term of this Agreement which Metabasis has the legal right to disclose to Schering.  In addition, Metabasis will, [***], provide reasonable assistance to Schering in connection with understanding and using the Licensed Technology, including by providing information to assist Schering in developing the Licensed Compounds or Products and its related activities.

2.5             Limits on the Use of Licensed Compound by Metabasis

From the Amended Closing Date, Metabasis and its Affiliates will not research, develop, manufacture, have manufactured, market, export, have exported, import, use, offer for sale, or sell, have sold, distribute, promote, detail or otherwise commercialize the Licensed Compound.  The rights granted under this Agreement are to the exclusion of Metabasis, except as otherwise set forth in this Agreement.

2.6             Optimization of Licensed Compound

[Intentionally omitted]

2.7             Non Competition

(a)              Metabasis agrees that for a period of [***], Metabasis and its Affiliates will not, directly or indirectly, promote the sale of, sell, or otherwise commercialize, any Competitive Product, or license, assign, permit or otherwise assist, Third Parties to engage in any of such activities, in such country, provided , however , that Metabasis and its Affiliates shall be permitted to commercialize a Competitive Product in a country with respect to which Schering’s rights have terminated pursuant to a termination by Metabasis under Section 6.1 or 12.3 or a termination by Schering under Section 12.5 of this Agreement.

(b)              Schering and its Affiliates (other than any Generic Affiliates) may not for [***], directly or indirectly, promote the sale of, sell, or otherwise commercialize a Competitive Product in such country.  For the avoidance of doubt, if Schering acquires or becomes the beneficial owner of a Third Party and as a result of such acquisition acquires full commercialization rights to any Competitive Product, Schering shall [***]

(c)              Notwithstanding anything in the Agreement to the contrary, in the event that Metabasis breaches the non competition provisions contained herein, Schering shall have the

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right to offset the full amount of damages it has suffered as a result of Metabasis’ breach against any payments to Metabasis pursuant to Article 4 hereof.

ARTICLE III

SUBSTITUTE COMPOUND

If Schering, after consultation with the Development Steering Committee, reasonably determines that the further development of the Licensed Compound is not desirable because it will not be successful, will violate any Third Party patent, or for a comparable reason decides not to pursue such development, Schering will provide written notice of such determination to Metabasis.  Metabasis will then promptly and in good faith provide to Schering a complete list of all [***] which Metabasis has the right to license and all other [***] which, based on the information available to Metabasis at the time such list is prepared, a reasonable person would expect to have potential for use in the treatment of Hepatitis B in humans, on which list Metabasis will identify those compounds determined by Metabasis to have the greatest likelihood of success for use in the treatment of Hepatitis B in humans.  Schering will have a period of [***] from the date it receives the list from Metabasis to evaluate the [***], and to select one of them for development by written notice to Metabasis (the Substitute Compound) and Metabasis will provide access to all information and data in its possession or control that Schering reasonably requests in order to perform such evaluation.  Any additional research and development costs required to provide the Substitute Compound will be paid by Schering.  From the date when the selection of the Substitute Compound is made by Schering, the Substitute Compound will be deemed to be the Licensed Compound for the purposes of this Agreement, the compound it replaces will cease to be the Licensed Compound and Metabasis will recover the rights to the compound it replaces, provided, however, that Schering will own all rights in and to any Schering Inventions.  The substitution rights of Schering under this Article III shall continue during the time in which a Product is in the development stage and may be exercised more than once until the First Commercial Sale of a Product.  It is understood and agreed that the milestone payments provided for in Section 4.2 will not be paid more than once under this Agreement regardless of the substitution of a compound or compounds for the original Licensed Compound hereunder.

ARTICLE IV

COMPENSATION

4.1             Upfront Fee

Within five (5) business days following the Amended Closing Date, Schering will make a one-time, non-refundable, non-creditable payment to Metabasis in the amount of one million

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eight hundred thousand Dollars ($1,800,000) (the "Metabasis Upfront Fee"), which together with the Valeant License Fee set forth in Section 4.1 of the Valeant License Agreement comprise a total upfront payment in the amount of twenty one million Dollars ($21,000,000) (the "Total Upfront Fee").

4.2             Milestone Payments

(a)              In consideration of the licenses and rights granted by Metabasis to Schering hereunder Schering will pay to Metabasis the following non-refundable, non-creditable Milestone Payments provided that the amounts below, together with the milestone payments due Valeant under Section 4.2 of the Valeant License Agreement, constitute the full amount of the milestones due Metabasis and Valeant pursuant to the terms of both this Agreement and the Valeant License Agreement:

(i)         [Intentionally omitted]

(ii)        [***]

(iii)       [***]

(iv)      [***]

(v)       [***]

(vi)      [***]

(vii)     [***]

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(b)              Each Milestone Payment due under Section 4.2(a) will be due only once for the first Product in respect of which the indicated Milestone occurs, regardless of the substitution for the Licensed Compound of a Substitute Compound pursuant to Article III.  Schering will notify Metabasis in writing within [***] of the occurrence of each Milestone and will make all Milestone Payments within [***] after receipt of an invoice from Metabasis for payment of the Milestone substantially in the form of Exhibit B.  For the avoidance of doubt the subsequent occurrence of any similar event in respect of any Product, including in respect of any additional indication(s), will not give rise to any additional obligation of Schering to make a Milestone Payment with respect to such subsequent event.

4.3             Royalties

(a)              In addition to the amounts payable under Section 4.2, Schering will collectively pay Metabasis and Valeant (collectively referred to as "MV"), in any calendar year during the Royalty Obligation Period, royalties in the aggregate amounts as follows on a Product-by-Product and country-by-country basis and provided that the amounts below constitute the full amount of the royalties due MV pursuant to the terms of both this Agreement and the Valeant License Agreement:

(i)         (i) in any country in which there is a Valid Claim of a Licensed Patent, a royalty on Net Sales in such country as provided below:

(A)          on Net Sales of Products [***];

(B)           on Net Sales of Products [***].

(ii)        on Net Sales of each Product in any country in which there is no Valid Claim of a Licensed Patent, [***].

(b)              Royalties on Net Sales will be calculated every Accounting Period. Within [***] after the last day of each such Accounting Period during the term of this Agreement following the First Commercial Sale of a Product, Schering will provide to MV the Sales & Royalty Report. If MV has no comments on such report, Metabasis and Valeant shall each submit an invoice to Schering substantially in the form of Exhibit B with respect to the Royalty Payment, each of which shall be signed by both Metabasis and Valeant and shall indicate the proportion of the Royalty Payments that shall be made to each of (i) Metabasis and (ii) Valeant, provided , however , that the sum of the payments to be made to each of Metabasis and Valeant may not exceed 100% of the actual Royalty Payments calculated as due based on the

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Royalty Report (the "Total Royalties Due").  In the event that there are invoicing discrepancies (such that, for example, the total of the Royalty Payments based on the invoices received from each of Metabasis and Valeant exceeds the Total Royalties Due) , Schering may, in it sole discretion, make payment to each of Metabasis and Valeant as it determines is appropriate and shall have no liability to Metabasis or Valeant with regard to any disagreement with respect to such allocation so long as the total of such payments is equal to the Total Royalties Due. Schering shall pay the Royalty Payment within [***] after receipt of the invoices.  All such Royalty Payments constitute the full amount of the Royalty Payments due MV pursuant to the terms of both this Agreement and the Valeant License Agreement.

(c)              Schering may obtain a license under any issued patent from one or more Third Parties which patent, but for such license, would be infringed by the exercise of the rights granted to Schering hereunder. For any such Third-Party licenses, Schering may reduce the royalties otherwise due to MV hereunder by an amount [***] paid by Schering to such Third Party or Third Parties to the extent attributable to such license, including any [***]; provided, however, that the total such reduction for all such Sublicenses shall not cause the royalties due to MV in any calendar year to fall below [***] of the royalties which would otherwise be due (i.e. without reference to the reduction due to Sublicense royalties) to MV in such year. Any portion of such reduction which is unused in any year because of the foregoing proviso [***]; and further provided that no reduction in royalties will result from a license to a Third Party patent that claims [***] that are not necessary in order to develop, manufacture or commercialize the Licensed Compound, [***]; and further provided that no reduction in royalties will result from a license to a Third Party patent where such license covers a Combined Product and where no actual or alleged infringement by the claims of such patent would result from activities relating to a Product whose only active pharmaceutical ingredient is a Licensed Compound, [***]. Metabasis shall remain responsible for the payment of royalty obligations, if any, due to Third Parties under any Licensed Patents or Licensed Technology which has been licensed to Metabasis and is sublicensed to Schering under this Agreement. All such payments shall be made promptly by Metabasis in accordance with the terms of its license agreement.

(d)              If a Third Party sells a product which is a Generic Equivalent to a Product in any country in which Schering, an Affiliate or Sublicensee is selling such Product, the royalty payable by Schering to MV under this Agreement with respect to such Product in each such country will be [***] for the time period during which such Generic Equivalent is sold by or on behalf of such Third Party in such country.

(e)              If any Approval Authority imposes a price limitation for specific indications or patients, and [***] claims that such limitation [***]

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[***] for a Product in such country, and [***] will apply for so long as such price limitation continues to have such effect. If the Parties fail to promptly agree to [***], the matter will be referred to arbitration pursuant to Article XIV and the [***]. Schering will, to the extent permitted by law, use reasonable commercial efforts to resist the imposition or continuation of any such price limitation.

4.4             Duration of Royalty Obligations

The period during which Schering is required to pay the royalty under Section 4.3 with respect to each Product (the Royalty Obligation Period) will terminate in each country in the Territory upon the occurrence of the later of:

(a)              the expiration or invalidation in such country of the last to expire or be invalidated Licensed Patent which but for this Agreement would be infringed by the manufacture, use or sale of such Product in such country; and

(b)              [***] after the First Commercial Sale in such country of such Product.

4.5             Payment Terms

(a)              Schering will make all payments required to be made to Metabasis under this Agreement in Dollars to Metabasis by wire transfer of immediately available funds to a bank account of Metabasis designated by Metabasis from time to time in accordance with this Agreement.  Schering shall have no obligation to pay any proportion of a Royalty Payment to Metabasis or Valeant, as the case may be, until and unless a valid invoice indicating the appropriate proportion of the Royalty Payment to make to such party has been properly submitted.

(b)              In the event that any payment due to Metabasis hereunder, including any upfront payment, royalty payment and milestone payment, is not made when due, the payment shall accrue interest from the date due at the [***], provided, however, that in no event shall such rate exceed the maximum legal annual interest rate.  The payment of such interest shall not limit a party from exercising any other rights it may have as a consequence of the lateness of any payment.

4.6             Taxes

All amounts owed under this Agreement will be reduced and paid after deduction as required by law for all applicable taxes, fees, and other charges on such amounts except taxes imposed with respect to or based on a Party’s net income.  In particular, any tax required to be withheld by Schering under the laws of any country for the account of Metabasis (withholding

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taxes) will be promptly paid by Schering for and on behalf of Metabasis to the appropriate governmental authority, and Schering will furnish Metabasis with reasonable proof of payment of such tax.  All such tax actually paid on Metabasis’ behalf will be deducted from royalty payments due Metabasis or promptly reimbursed to Schering if no further payments are due Metabasis.  Schering will reasonably assist Metabasis in minimizing the withholding taxes applicable to any payment made by Schering and in claiming tax refund at Metabasis’ request.  Each Party agrees to reasonably assist the other Party in claiming exemption from such withholding of taxes of any type under double taxation or similar agreement or treaty from time to time in force and in minimizing the amount required to be so withheld or deducted.

4.7             Allocation of Royalty Payment

Provided that Schering shall make the Royalty Payments in the aggregate amount specified in Section 4.3 and as specified in the Invoices submitted by Metabasis and Valeant in accordance with Section 4.3(b), Schering shall have no liability to Metabasis or Valeant with regard to any disagreement with respect to the allocation of the Royalty Payment between Metabasis and Valeant.

4.8             Records

Schering and its Affiliates will keep, and will require its Sublicensees to keep, full, true and accurate books of account containing all particulars that may be necessary for the purpose of calculating all royalties and Milestone Payments payable to Metabasis with accounting principles consistently applied from period to period, in accordance with the applicable Accounting Standards.  Such books of account will be kept, as the case may be, at Schering’s or its Affiliate’s or Sublicensee’s principal place of business for [***] following the Accounting Period to which they pertain.  From time to time in accordance with this Agreement, an  internationally recognized independent public accounting firm retained by Metabasis may perform an audit of such books and records of Schering, its Affiliates and Sublicensees for the period or periods reasonably requested by Metabasis solely for the purpose of ensuring compliance with the terms of this Agreement by Schering, its Affiliates and Sublicensees with respect to all Milestone Payments, royalties and other amounts payable to Metabasis under this Agreement, including the correctness of any report or payments made under this Agreement.  Upon timely request of at least [***] prior written notice from Metabasis, such audit will be conducted during regular business hours in such a manner as to not unnecessarily interfere with Schering’s normal business activities or those of its Affiliates or Sublicensees, and will be limited to [***] prior to delivery of such written notice.  Such audit will not be performed more frequently than once per calendar year nor more frequently than once with respect to any Accounting Period.  All information, data documents and abstracts examined in the audit will be used only for the purpose of verifying royalty statements or compliance with this Agreement, will be treated by Metabasis as Schering Confidential Information subject to the obligations of Article 11 of this Agreement and may not be retained more than [***]  Audit work papers

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and results will be shared by Metabasis to Schering.  If the audit reveals an underpayment, Schering will promptly make up such underpayment.  The failure of Metabasis to request verification of any royalty calculation within the period during which corresponding records must be maintained will be deemed to be acceptance of the royalty reporting.  The fees charged by such accountant will be paid by Metabasis unless the audit discloses that any Milestone Payment payable to Metabasis was not paid in accordance with this Agreement or the royalties payable to Metabasis by Schering or its Affiliates or Sublicensees for the audited period are [***] of the royalties actually paid to Metabasis for such period, in which case Schering will pay the fees and expenses charged by the accountant.  Schering will require each of its Affiliates and Sublicensees to make reports to Schering to the same extent as is required of Schering to Metabasis pursuant to this Agreement and to keep and maintain records of Net Sales made pursuant to such sublicense and to grant access to such records to Metabasis’ independent accountant to the same extent required of Schering under this Agreement.  Any disagreement between Metabasis and Schering concerning alleged overpayments or underpayments or other disputes arising from such audits will be resolved by the dispute resolution procedure set forth in Article XIV.

4.9             Sales in Foreign Currencies

Whenever for the purpose of calculating royalties, conversion from any foreign currency is required, such conversion will be made as follows:

(a)              for Schering and its Affiliates, when calculating the Net Sales, the amount of such sales in foreign currencies will be converted from any foreign currency into Dollars using Schering’s then-current standard exchange rate methodology as applied in its external reporting (which is ultimately based on official rates such as Reuters and European Central Bank) for conversion of foreign currency sales into Dollars.

ARTICLE V

DEVELOPMENT STEERING COMMITTEE

5.1             Appointment and Administration of the Development Steering Committee

(a)              As soon as practicable after the execution of this Agreement and in no event later than thirty (30) days after the Amended Closing Date, the Parties will establish a [***] steering committee to review the development of Products, which will include [***] of Metabasis and Schering (the Development Steering Committee) and will be chaired by one of the representatives of Schering.  One such representative from each Party shall be the Alliance Manager as defined below.  Each Party shall appoint (and notify the other Party of the identity of) a representative having a general understanding of pharmaceutical development and commercialization issues to act as its alliance manager under this Agreement (Alliance Manager).  The Alliance Managers will serve as the contact point between the Parties for the purpose of providing Metabasis with information on the progress of Schering’s

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