Amended and Restated Manufacturing Services Agreement

Exhibit 10.40

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

Amended and Restated Manufacturing Services Agreement

Among

Patheon Inc., Patheon Pharmaceuticals Inc. & MOVA
Pharmaceutical Corporation

and

Sepracor Inc.

November 6, 2007

Table of Contents

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ii

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AMENDED AND RESTATED MANUFACTURING SERVICES AGREEMENT

         THIS AGREEMENT made as of the 6 ^th  day of November, 2007

AMONG:

• • PATHEON INC., a corporation existing under the laws of Canada (" Patheon Inc. "), PATHEON PHARMACEUTICALS INC., a corporation existing under the laws of Delaware (" PPI "), and MOVA PHARMACEUTICAL CORPORATION, a corporation existing under the laws of the Commonwealth of Puerto Rico (" MOVA "),

    ( "Patheon" ),

    -and-

    SEPRACOR INC.,
    a corporation existing under the laws of the State of Delaware, USA,

    ( "Sepracor" ).

        WHEREAS Patheon Inc. and Sepracor entered into a manufacturing services agreement dated March 1, 2004, as amended by amendment no. 1 dated July 18, 2005, and as further amended by amendment no. 2 dated November 1, 2005, and amendment no. 3 dated May 31, 2006 (collectively, the "Original Agreement");

        AND WHEREAS the parties have decided to further amend the Original Agreement by executing this amendment and restatement of the Original Agreement to, inter alia , add MOVA and PPI as parties, revise the terms to reflect the current intent of the Parties, and supercede and replace the Original Agreement.

        THIS AGREEMENT WITNESSES THAT in consideration of the rights conferred and the obligations assumed herein, and for other good and valuable consideration (the receipt and sufficiency of which are acknowledged by each party), and intending to be legally bound the parties agree as follows:

ARTICLE 1

INTERPRETATION

1.1    Definitions.

        The following terms shall, have the respective meanings set out below and grammatical variations of such terms shall have corresponding meanings:

• " API Reimbursement Value " means the value to be attributed to the API for purposes of Section 2.3 of this Agreement, as set out in Schedule D hereto;

  " Active Pharmaceutical Ingredient " or " API " means the materials listed on Schedule C hereto;

  " Affiliate " means:

  (a)

  a business entity which owns, directly or indirectly, a controlling interest in a party to this Agreement, by stock ownership or otherwise; or
  
  

  (b)

  a business entity which is owned by a party to this Agreement, either directly or indirectly, by stock ownership or otherwise; or
  
  

  (c)

  a business entity, the majority ownership of which is directly or indirectly common to the majority ownership of a part to this Agreement;

• "Business Day" means a day other than a Saturday, Sunday or a day that is a statutory holiday in the Province of Ontario, Canada, the State of Massachusetts, United States, the State of Ohio, United States or the Commonwealth of Puerto Rico;

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• " cGMPs " means current good manufacturing practices as described in:

        (a)   Division 2 of Part C of the Food and Drug Regulations (Canada); and,

        (b)   Parts 210 and 211 of Title 21 of the United States' Code of Federal Regulations;

• together with the latest Health Canada and FDA guidance documents pertaining to manufacturing and quality control practice, all as updated, amended and revised from time to time;

  " Components " means, collectively, all packaging components, raw materials and ingredients (including labels, product inserts and other labelling for the Products), required to be used in order to produce the Products in accordance with Sepracor's Technical Information, other than the API;

  " Confidential Information " means a party's technology, data, know-how or information whether written or oral, technical or non-technical, including financial statements, reports, pricing, trade secrets, secret processes, formulas, customer data (including customer lists), and the like, that is disclosed to the other party;

  " Deficiency Notice " shall have the meaning ascribed thereto in Section 5.7(a);

  " Effective Date " means November 6, 2007;

  "EXW" means ex-works, as that term is defined in INCOTERMS 2000;

  " FDA " means the United States government department known as the Food and Drug Administration;

  " Firm Orders " has the meaning specified in Section 5.2(b);

  " Health Canada " means the section of the Canadian government known as Health Canada and includes, among other departments, the Therapeutic Products Directorate and the Health Products and Food Branch Inspectorate;

  " Intellectual Property " includes, without limitation, rights in patents, patent applications, formulae, trade-marks, trade-mark applications, trade-names, trade secrets, Inventions, copyright, industrial designs, know-how and, with respect to Sepracor, Sepracor's Technical Information;

  " Inventions " means information relating to any innovation, improvement, development, discovery, computer program, device, trade secret, method, know-how, process, technique or the like, whether or not written or otherwise fixed in any form or medium, regardless of the media on which it is contained and whether or not patentable or copyrightable;

  " Inventory " means all inventories of Components and work-in-process produced or held by Patheon in connection with the manufacture of the Products but, for greater certainty, does not include the API;

  " Manufacturing Responsibilities " has the meaning specified in Section 2.2;

  " Manufacturing Site " means (i) in respect of Patheon Inc., Patheon's facilities located at 2100 Syntex Court, Mississauga, Ontario, Canada, (ii) in respect of PPI, PPI's facilities located at 2110 East Galbraith Road, Cincinnati, Ohio 45237-1625, USA, (iii) in respect of MOVA, MOVA's facilities located at State Road # 670, Km. 2.7, Bo. Coto Norte, Manatí, Puerto Rico 00674, and (iv) any additional facility owned by Patheon Inc. or its Affiliates where Manufacturing Services are to be performed as agreed to by the parties in writing.

  "Manufacturing Services" means the manufacturing, quality control, quality assurance, packaging and related services, as contemplated in this Agreement, required to produce Products from API and Components;

  " Minimum Run Quantity " means the minimum number of batches of a Product to be produced during the same cycle of manufacturing as set forth in Schedule B hereto;

  " Patheon " collectively means Patheon Inc., PPI and MOVA;

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• " Patheon Administrator " means the individual or entity designated by Patheon to act for or on behalf of Patheon for the purpose of interacting with Sepracor regarding the performance if this Agreement, including but not limited to communicating with Sepracor, accepting orders from Sepracor and resolving issues as needed

  " Products " means the products listed on Schedule A hereto;

  " Sepracor's Technical Information " means the file, for each Product, which is provided by Sepracor to the Patheon Administrator, on behalf of Patheon, and which contains documents relating to such Product, including, without limitation:

  (a)

  the specifications, procedures, requirements, standards and other data set forth in Schedule A;
  
  

  (b)

  a detailed description of each Product; including its physical and chemical characteristics and stability;
  
  

  (c)

  manufacturing and packaging directions;
  
  

  (d)

  shipping and storage requirements;
  
  

  (e)

  protocols for validating processes or equipment to produce Products;
  
  

  (f)

  quality control and quality assurance procedures for sampling, testing, documenting and releasing API, Components and in-process and finished Products; and
  
  

  (g)

  all environmental, health and safety information relating to the Product including material safety data sheets, incident reports, risk analyses, health concerns, and preventative measures,

• all as updated, amended and revised from time to time by Sepracor in accordance with the terms of this Agreement;

  " Quality Agreement " means (i) in respect of Patheon, the agreement dated March 12, 2007 between Patheon and Sepracor setting out the quality assurance standards to be applicable to the Manufacturing Services provided by Patheon, which agreement is attached hereto as Schedule G, (ii) in respect of PPI, the agreement setting out the quality assurance standards to be applicable to the Manufacturing Services provided by PPI, which agreement will be attached hereto as Schedule H, and (iii) in respect of MOVA, the agreement setting out the quality assurance standards to be applicable to the Manufacturing Services provided by MOVA, which agreement will be attached hereto as Schedule I (each a " Quality Agreement " and collectively the " Quality Agreements ");

  " Technical Dispute " has the meaning specified in Section 11.2;

  " Territory " means in the geographic area of the United States of America, its territories and possessions;

  " Third Party Rights " means the Intellectual Property of any third party; and

  " Year " means a calendar year.

1.2    Currency.

        Unless otherwise indicated, all monetary amounts are expressed in this Agreement in the lawful currency of the United States of America.

1.3    Sections and Headings.

        The division of this Agreement into Articles, sections, subsections and Schedules and the insertion of headings are for convenience of reference only and shall not affect the interpretation of this Agreement. Unless otherwise indicated, any reference in this Agreement to a Section or Schedule refers to the specified Section or Schedule to this Agreement. In this Agreement, the terms " this Agreement ", " hereof ", " herein ", " hereunder " and similar expressions refer to this Agreement and not to any particular part, Section, Schedule or the provision hereof.

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1.4    Singular Terms.

        Except as otherwise expressly provided herein or unless the context otherwise requires, all references to the singular shall include the plural and vice versa.

1.5    Schedules.

        The following Schedules are attached to, incorporated in and form part of this Agreement:

ARTICLE 2

MANUFACTURING RESPONSIBILITIES AND CONTRACT ADMINISTRATION

2.1    Manufacturing Services.

        Patheon shall provide the Manufacturing Services for the fees specified in Schedule B in order to produce Products for Sepracor pursuant to Firm Orders submitted by Sepracor hereunder. Patheon agrees to manufacture the Products in accordance with the Technical Information, the Specifications, the applicable laws, rules and regulations, and the terms and conditions of this Agreement and the Quality Agreements, and to sell the Products to Sepracor pursuant to the terms and conditions stated herein

        In the event Sepracor wishes to have Patheon manufacture Product for distribution and sale in a jurisdiction outside of the Territory ("New Jurisdiction"), Sepracor shall inform Patheon of any additional requirements relating to the distribution and sale of the Product in such New Jurisdiction and any increases in costs to provide the Manufacturing Services shall be borne by Sepracor. Any changes to this Agreement that may be required as a result of the addition of a New Jurisdiction shall be agreed to by the parties in a written amendment to this Agreement.

        In providing the Manufacturing Services, Patheon shall perform each of the following services:

• (a)

  Conversion of API and Components.     Patheon shall convert API and Components into Products.
  
  

  (b)

  Quality Control and Quality Assurance.     Patheon shall perform the quality control and quality assurance testing specified in the Quality Agreements. Each time Patheon ships Products to Sepracor, it shall provide Sepracor with a certificate of analysis that sets out the test results for each batch of Products, and that certifies that such batch has been evaluated by its Quality Control/Quality Assurance department and that the Products comply with Sepracor's Technical Information.

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• (c)

  Components.     Patheon shall handle, store, purchase and test all Components (with the exception of those that are supplied by Sepracor) at Patheon's expense and in accordance with this Agreement and Sepracor's Technical Information.
  
  

  (d)

  Packaging.     Patheon shall package the Products with labels, product inserts and other packaging as set out in Sepracor's Technical Information. In addition, Patheon shall make arrangements for and implement the imprinting of batch numbers and expiration dates for each Product shipped. Such batch numbers and expiration dates shall be affixed on the Products and on the shipping carton of each Product as outlined in Sepracor's Technical Information and as required by cGMPs. The system used by Patheon for batch numbering and expiration dates is detailed in Schedule E hereto. Sepracor may, in its sole discretion, make changes to labels, product inserts and other packaging for the Products, which changes shall be submitted by Sepracor to all applicable governmental agencies and other third parties responsible for the approval of the Products. Patheon names shall not appear on the label or anywhere else on the Products unless: (i) required by a governmental authority or applicable laws or regulations; or (ii) Patheon expressly consents to such use in writing.
  
  

  (e)

  API Importing.     Patheon and Sepracor will cooperate and provide such assistance to each other as may be reasonably necessary to permit the import of the API into Canada and the Commonwealth of Puerto Rico.
  
  

  (f)

  Bulk Product Export.     Patheon shall be responsible for preparation of all documentation required for the movement of Product between Patheon Manufacturing Sites.
  
  

  (g)

  Additional Services.     Any additional services, including, but not limited to validation activities and stability services, may be performed by Patheon, at Sepracor's request, subject to such terms and fees as may be mutually agreed by the parties in writing.

2.2    Standard of Performance.

        Patheon shall provide the Manufacturing Services in accordance with Sepracor's Technical Information and all applicable laws and regulations including but not limited to, cGMPs and the Manufacturing and Controls (CMC) section of the Product's New Drug Application (and all amendments and supplements thereto). Patheon's responsibilities and obligations with respect to the provision of the Manufacturing Services as set forth in this Article 2 are hereinafter referred to as the " Manufacturing Responsibilities ".

2.3    API Yield Incentive.

• (a)

  After the Effective Date, the Patheon Administrator shall provide Sepracor with an annual inventory report and reconciliation of the API held by Patheon, which shall contain the following information for such Year:

• Quantity Received:     The total quantity of API that complies with the Sepracor Technical Information and is received at a Manufacturing Site during the applicable period.

  Quantity Dispensed:     The total quantity of API dispensed at each Manufacturing Site during the applicable period. The Quantity Dispensed is calculated by adding the quantity received to the inventory of API that complies with the Sepracor Technical Information and is held at the beginning of the applicable period, less the inventory of API held at the end of such period. The Quantity Dispensed shall not include any API lost or damaged in the course of technology transfer, or as part of failed regulatory, stability, validation or test batches manufactured during the applicable period, unless and to the extent that Patheon did not provide the Manufacturing Services in accordance with cGMPs or otherwise failed to perform in accordance with the requirements of this Agreement.

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• Quantity Converted:     The total amount of API contained in the Products produced with the Quantity Dispensed (including samples and any additional Products produced in accordance with Section 6.2 or 9.2(b)) delivered by Patheon, and not rejected as deficient Product pursuant to Section 5.8 or 6.2.

  Within 60 days of the end of each Year, the Patheon Administrator shall calculate the " Actual Annual Yield " or " AAY " for each Product at all Manufacturing Sites during the Year, which AAY is the percentage of the Quantity Dispensed that was converted to Products and is calculated as follows:

Quantity Converted during the Year
Quantity Dispensed during the Year

• "Target Yield " shall mean the average yield, expressed as a percentage, of all batches of the same Product manufactured by Patheon in the previous Year, provided that in no event shall the Target Yield be below [**]%. For the 12 months ended December 31, 2007, the Target Yield shall be [**]%.

  "Yield Allowance" shall mean yield allowance factor to be applied in the Yield Allowance Scheme set forth in Schedule L, as mutually agreed to by the parties each Year during the term of the Agreement with a maximum Yield Allowance of [**]%.

  (b)

  API Yield Incentive Scheme.     The parties agree to calculate the value of the credit amount which may be owed to either party under the API Yield Incentive Scheme within 60 days of the end of the Year to which such credit amount (if any) applies. The value of any credit amount determined under the API Yield Incentive Scheme for any particular Year shall be summarized on the annual reconciliation report prepared in the form annexed hereto as Schedule K, and such credit amount shall be paid by the owing party to the receiving party within 90 days of the end of the applicable Year.
  
  

  (c)

  Maximum Credit     Notwithstanding the foregoing provisions of this Section 2.3, Patheon's liability for API calculated in accordance with the API Yield Incentive Scheme for any Product in a Year shall not exceed, in the aggregate, the Maximum Reimbursement Value set forth in Schedule D hereto.
  
  

  (d)

  No Material Breach.     For greater certainty, it shall not constitute a material breach of this Agreement by Patheon, for the purposes of Section 7.2(a), if the Actual Annual Yield is less than the Target Yield.

2.4    Agreement Administration.

        The Patheon Administrator shall act as administrator of this Agreement on behalf of Patheon in order to simplify the management of the relationship between Sepracor and Patheon. Such administration includes, without limitation, API yield matters pursuant to Section 2.3, price adjustments pursuant to Article 4, orders and forecasts pursuant to Section 5.2 and invoicing pursuant to Section 5.6.

2.5    Other Responsibilities.

• (a)

  Approvals and Permits.     Patheon shall obtain and maintain all necessary regulatory approvals and permits related to its manufacturing facilities and manufacturing of products at its facilities in order to perform its Manufacturing Responsibilities pursuant to this Agreement.
  
  

  (b)

  Records and Reports.     Patheon shall maintain copies of all records and report to Sepracor and applicable government agencies as may be required by law and this Agreement.
  
  

  (c)

  Samples.     Patheon shall retain samples of each lot of Products tested for at least [**] beyond the expiration date. For each lot shipped, Patheon shall prepare a Certificate of Analysis

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• • setting forth the items tested, the Technical Information and test results and forward the Certificates of Analysis to Sepracor, or its designee, at the time the Products are shipped.

  (d)

  Manufacture of Eszopiclone.     During the term of this Agreement, and for a period of [**] thereafter, Patheon shall not perform commercial manufacturing activities or package, for itself or any third party, any product containing eszopiclone in any form as an active ingredient.
  
  

  (e)

  Patheon agrees to obtain and maintain all necessary accreditations, certifications and licenses necessary to perform the Manufacturing Services in a New Jurisdiction, (including, but not limited to, Japan, countries comprising the European Union and/or such other countries as may be agreed by the parties) upon Sepracor's reasonable request and all such costs or changes shall be paid by Sepracor.

ARTICLE 3

SEPRACOR'S OBLIGATION

3.1    Payment.

        Pursuant to the terms of this Agreement, Sepracor shall pay the Patheon Administrator for the provision of the Manufacturing Services according to the fees specified in Schedule B hereto (such fees being subject to adjustment in accordance with the terms hereof).

3.2    API.

        Sepracor shall, at its sole cost and expense, deliver the API to Patheon in sufficient quantities and at such times to facilitate the provision of the Manufacturing Services by Patheon, which API shall be held by Patheon on behalf of Sepracor on the terms and subject to the conditions herein contained. Patheon shall keep all API segregated from other materials within its control so as to maintain the integrity of the API, and shall not permit any API to be used or tested by any party not under its direct supervision and control, except as directed by Sepracor. Within [**] days of receipt of API shipment, Patheon shall verify the quantity and identity of all API received by Patheon, and shall notify Sepracor of any discrepancies in the quantity or identity of the API and/or the documents accompanying each shipment. If Patheon fails to notify Sepracor of a discrepancy within such [**] day period, or if there is damage to the API that Patheon is unable to demonstrate (within the [**] day period) occurred prior to the delivery, or if the damage to the API is a result of Patheon's negligence or wilful misconduct as demonstrated by Patheon's actions, inaction or failure to handle the API in accordance with the terms of this Agreement, then Patheon shall: (i) return the API to Sepracor or dispose of the API at Sepracor's direction and (ii) in the case of Patheon's negligence or wilful misconduct, credit Sepracor in an amount equal to Sepracor's then current API cost for the API that was lost, damaged or destroyed. Subject to the limitations set forth in Section 9.2(c) (Maximum Liability), and notwithstanding anything else in this Agreement to the contrary, Patheon shall assume responsibility and liability for and shall indemnify Sepracor against any loss or damage related to the API and/or the Components caused by Patheon's negligence or wilful misconduct while under Patheon's custody and control. The parties acknowledge and agree that title to the API shall at all times belong to and remain the property of Sepracor.

        Patheon agrees that any API received by it shall only be used by it to provide the Manufacturing Services.

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ARTICLE 4

CONVERSION FEES AND COMPONENT COSTS

4.1    Fees and Component Costs.

        The fees for the Manufacturing Services (which fees include Component costs) listed in Schedule B are intended by the parties to be fixed for the first Year of this Agreement, subject to the amendments to such fees provided for this Article 4.

4.2    Adjustments to Current Year's Pricing.

• (a)

  During any Year of this Agreement, if at any time market conditions result in Patheon's cost of Components being materially different than normal forecasted prices, then the Patheon Administrator or Sepracor may initiate a request for an adjustment to the fee for Manufacturing Services in respect of any affected Product as compensation for such increased or decreased Component costs. For the purposes of this Section 4.2(a), changes materially different than normal forecasted increases shall be considered to have occurred if (i) the cost of a Component is more than [**]% higher or lower than the cost for that Component upon which the fee quote was based or (ii) the aggregate cost for all Components required to manufacture a Product increases or decreases more than [**]% of the total Component costs for such Product upon which the fee quote was based. To the extent that Manufacturing Services fees have been previously adjusted pursuant to this Section 4.2(a) to reflect an increase or decrease in the cost of one or more Components, the adjustments provided for in (i) and (ii) above shall operate based on the costs attributed to such Component (or Components) at the time the last of such adjustments were made.
  
  

  (b)

  In connection with a fee adjustment request pursuant to this Section 4.2, the Patheon Administrator shall deliver to Sepracor a revised Schedule B and such budgetary pricing information, adjusted Component costs or other documentation sufficient to demonstrate that a fee adjustment is justified, provided that the Patheon Administrator shall have no obligation to provide the specific pricing of any supplier to the extent such pricing is subject to obligations of confidentiality between Patheon and such supplier. Upon delivery of such a request, each of Sepracor and the Patheon Administrator shall forthwith use all reasonable efforts to agree on a revised fee for the Manufacturing Services in respect of each affected Product.

4.3    Adjustment to Subsequent Year's Pricing.

        The fees for the Manufacturing Services provided pursuant to the terms of this Agreement during any Year are outlined in Schedule B, which shall be updated year to year to reflect the then current year's pricing, and shall also be determined in accordance with the following:

(a)

Manufacturing Costs.     On or before November 1, 2007 and October 15 of each Year thereafter beginning in 2008, Patheon (or Sepracor in the case of a decrease in Component costs) shall be entitled to request an adjustment to the fees: (i) for Manufacturing Services in respect of the Products to reflect inflation, which adjustment shall be based on the increase in the U.S. Producer Price Index for Pharmaceutical preparation manufacturing published in August of the then current Year by the US Department of Labor, Bureau of Labor statistics as Service ID PCU325412325412 compared to the same month of the preceding Year, unless the parties otherwise agree in writing; and (ii) for Component costs in order to pass on the actual amount of any increase or decrease in such costs. In addition, in the event the Cost Improvement Program outlined in Section 4.6 below is successful, the parties agree to meet in good faith to effectuate a fee adjustment based on the cost reductions achieved.

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(b)

Pricing Basis.     Sepracor acknowledges that the fee for Manufacturing Services in respect of a Product in any Year is quoted based upon the Minimum Run Quantity per Product specified in Schedule B and subject to the terms of this Agreement, may be subject to change if the specified Minimum Run Quantity is not met.

(c)

Sepracor shall place purchase orders with Patheon for product to be manufactured beginning in January 2008. Those purchase orders shall conform to the terms of this Agreement and shall be for quantities of product (trade bottles and sample count blisters) based on a minimum percentage ("%") of net annual sales (for trade) and a minimum percentage (%) of samples distributed to physicians. The minimum % and the price associated with that % will be as follows:

Trade—Bottles

*

This estimate is provided as of the Effective Date and reflects market conditions and sales history as of such date.

**

This estimate is provided as of the Effective Date and reflects market conditions and marketing strategy as of such date.

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        In connection with a fee adjustment pursuant to clause (a) of this Section 4.3, the Patheon Administrator shall deliver to Sepracor a revised Schedule B and a statement outlining the percentage increase in the U.S. Producer Price Index for Drugs and Pharmaceuticals upon which such fee adjustment is based. In connection with a fee adjustment request pursuant to clause (b) of this Section 4.3, the Patheon Administrator shall deliver to Sepracor a revised Schedule B and such budgetary pricing information, adjusted Component costs or other documentation sufficient to demonstrate that a fee adjustment is justified, provided that the Patheon Administrator shall have no obligation to provide the specific pricing of any supplier to the extent such pricing is subject to obligations of confidentiality between Patheon and such supplier. Upon delivery of such a request, each of Sepracor and the Patheon Administrator shall forthwith use all reasonable efforts to agree on a revised fee for the Manufacturing Services in respect of each affected Product. The parties agree that a request for a fee adjustment, as well as the supporting documentation described above, shall be delivered by Patheon to Sepracor no later than [**] in the current Year for review and that any price adjustments agreed to by the parties under this Section 4.3 shall become effective as of January 1 ^st  in the following Year for all Product manufactured after such effective date. The parties agree that any Firm Order which is impacted by price adjustments under this Section 4.3 shall be revised accordingly. For greater certainty, any adjustments agreed to by the parties under this Section 4.3 shall remain unchanged for a period of 12 months, unless additional adjustments are permitted under this Agreement.

        Notwithstanding anything herein to the contrary, the Minimum Run Quantity or the Minimum Commitment outlined above (the "Annual Minimum Requirements") shall not apply in the event that: (i) Patheon fails to supply and/or deliver conforming Products as required by this Agreement at any time for any reason; or (ii) there is a material change in the current market conditions resulting from a change in law, a recall, an FDA ruling, generic entry or other event that would significantly impact Sepracor's ability to meet the Minimum Requirement.

4.4    Adjustments Due to Technical Changes.

        Amendments to Sepracor's Technical Information or any Quality Agreement requested by Sepracor will only be implemented following a technical and cost review by Patheon and are subject to Sepracor and the Patheon reaching agreement as to revisions, if any, to the fees specified in Schedule B necessitated by any such amendment. If Sepracor accepts a proposed fee change, the proposed change in Sepracor's Technical Information shall be implemented, and the fee change shall become effective only with respect to those orders of Products that are manufactured in accordance with the revised Sepracor's Technical Information. In addition, Sepracor agrees to purchase, at Patheon's actual out-of-pocket cost, all Inventory utilized under the "old" Sepracor Technical Information and purchased or maintained by Patheon in order to fill Firm Orders or in accordance with Section 5.3, to the extent that such Inventory can no longer be utilized under the revised Sepracor Technical Information. Open purchase orders for Components no longer required under any revised Sepracor Technical Information that were placed by Patheon with suppliers in order to fill Firm Orders or in accordance with Section 5.3 shall be cancelled where possible, and where such orders are not subject to cancellation without penalty, shall be assigned to and satisfied by Sepracor.

4.5    Multi-Country Packaging Requirements.

        If and when Sepracor decides that it wishes to have Patheon manufacture the Product for a New Jurisdiction, then Sepracor shall inform the Patheon Administrator of the packaging needs for each New Jurisdiction and the Patheon Administrator shall prepare a quotation for consideration by Sepracor of the additional Component costs, if any, and the change over fees for the Product destined for such New Jurisdiction. The agreed additional packaging requirements and related packaging costs and change over fees shall be set out in a written amendment to this Agreement.

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4.6    Cost Improvement Program.

        Patheon and Sepracor agree to work together to develop cost reduction initiatives as part of an overall cost improvement program, provided such program does not involve additional capital or extraordinary costs unless otherwise agreed to by parties in writing. All net cost savings (net of implementation costs) realized from the cost improvement program shall be shared equally among the parties, unless otherwise agreed to by the parties in writing. A "cost reduction initiative" for the purpose of this Agreement shall be an initiative that reduces the internal or out-of-pocket costs incurred by a party in connection with the performance of its obligations under this Agreement. It is further agreed by the parties that on-going method improvements developed or adopted by either Sepracor or Patheon independently of the other party(ies), shall not be a cost reduction initiative under this Section 4.6, and there shall be no obligation on such party to share the net cost savings realized from such improvement with the other party(ies) to this Agreement.

ARTICLE 5

ORDERS, DELIVERY, INVOICING, PAYMENT, PRODUCT DEFICIENCIES

5.1    Market Outlook.

        Sepracor acknowledges that for optimal production planning, Patheon requires an understanding of Sepracor's ordering and forecasting needs for the Products in the market and agrees, to the extent that such information (including, if any, Sepracor's five-year market outlook studies) exists, to share such information with Patheon, provided that such information may not be relied upon by Patheon for any purpose and further provided that any information so provided shall be subject to the confidentiality provisions of Article 10.

5.2    Orders and Forecasts.

        Sepracor shall provide Patheon with the following:

(a)

concurrent with the execution of this Agreement, a written non-binding twelve (12) month forecast of the volume of each Product that Sepracor then anticipates will be required to be produced and delivered to Sepracor during that twelve (12) month period. Such forecast will be updated by Sepracor monthly on a rolling twelve (12) month basis and updated forthwith upon Sepracor determining that the volumes contemplated in the most recent of such forecasts has changed by more than [**] per cent ([**]%).

(b)

on or before the 20 ^th  day of each month, firm written orders (" Firm Orders ") for the Products to be produced and delivered to Sepracor on a date not less than 12 weeks from the date that the Firm Order is submitted. Such Firm Orders submitted to the Patheon Administrator shall specify Sepracor's purchase order number, quantities by Product type, monthly delivery schedule and any other elements necessary to ensure the timely production and delivery of the Products. The quantities of Products ordered in such written orders shall be firm and binding on Sepracor and Patheon and shall not be subject to reduction except as provided in section 5.3 below. Within [**] business days, Patheon will provide formal confirmation of each Firm Order, acknowledging price, quantity and delivery date.

(c)

on or before September 1 in each Year, a written non-binding three-year forecast (broken down by quarters for the second and third years of the forecast) of the volume of each Product Sepracor then anticipates will be required to be produced and delivered to Sepracor during the three-year period.

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5.3    Modification or Cancellation of Orders.

        In the event that: (i) Patheon is unable to supply and/or deliver conforming Products equal to [**] percent ("[**]%") of Firm Order quantities of Product in a given calendar quarter; or (ii) there is a material change in the current market conditions resulting from a change in law, a recall, an FDA ruling, generic entry or other event that would significantly impact Sepracor's ability to purchase the Firm Order quantities of Products in a given calendar quarter; then any then existing Firm Orders and the Annual Minimum Commitment may be modified by Sepracor as may be reasonably necessary to adequately address the changed circumstances contemplated by this paragraph. The parties shall work together diligently to reestablish the predictability of the forecasting and ordering process as soon as possible thereafter.

        In addition, Sepracor may request a modification of the delivery date or quantity of Product in a Firm Order by submitting a written request to Patheon ("Change Order") at least thirty (30) business days in advance of the scheduled start of manufacturing. Such Change Order shall be effective and binding against Patheon upon Patheon's receipt and approval, which approval shall not be unreasonably withheld. Sepracor has the option of canceling any open balance of Product due on any Firm Order that is overdue by more than [**] days from the acknowledgment date; provided, that such period shall be extended by a period equal to (i) any delays caused directly by Sepracor and (ii) any delays resulting from good-faith quality investigations (provided, Patheon is diligently pursuing any such quality investigation).

5.4    Advance Purchase of Components.

        Sepracor understands that to ensure an orderly supply of such Components and to achieve economies of scale in the costs therefore, it may be desirable for Patheon to purchase such Components in sufficient volumes to meet the production requirements for Products during part or all of the forecasted periods referred to in Section 5.2(a) or to meet the production requirements of any longer period agreed to by the Patheon Administrator and Sepracor. Accordingly, Sepracor authorizes Patheon to purchase Components in order to satisfy the production requirements for Products for the first six (6) months projected in the most recent forecast provided by Sepracor pursuant to Section 5.2(a), and agrees that Patheon may make such other purchases of Components to meet production requirements during such longer periods as may be agreed to in writing from time to time by Sepracor at the request of the Patheon Administrator. If Components ordered by Patheon pursuant to Firm Orders or this Section 5.3 are not included in finished Products purchased by Sepracor within six (6) months after the forecasted month in respect of which such purchases have been made (or such longer period as the parties may agree), Sepracor shall pay Patheon the costs thereof and, in the event such Components are incorporated into Products subsequently purchased by Sepracor, Sepracor will receive credit for any costs of such Components previously paid to the Patheon Administrator by Sepracor.

5.5    Minimum Run Quantities.

        Sepracor may only order Products in multiples of the Minimum Run Quantities set out in Schedule B.

5.6    Shipments.

        Shipments of Products to Sepracor shall be made EXW Patheon's shipping point. Such title as Patheon has in Products and risk of loss or of damage to Products shall remain with Patheon until Products are delivered to the carrier by Patheon for shipment to Sepracor at the EXW point, at which time title and risk of loss or damage shall transfer to Sepracor. Patheon shall, in accordance with Sepracor's instructions and as agent for Sepracor, (i) arrange for shipping and insurance, to be paid by

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Sepracor, and (ii) at Sepracor's risk and expense, obtain any export licence or other official authorization and carry out all customs formalities necessary to export the Products. Sepracor may select the freight carrier used by Patheon to ship Products and may monitor Patheon's shipping and freight practices as they pertain to this Agreement. Products shall be transported in accordance with Sepracor's Technical Information. For greater certainty, Patheon shall assume the risk of loss and damage for any bulk Product while in transit between Patheon's Manufacturing Sites. In addition, any additional shipping costs relative to shipping from Patheon's Toronto, Canada facility that are incurred as a result of Patheon subcontracting the services to any Patheon Affiliates will be borne by Patheon.

5.7    Invoices and Payment.

        Except as otherwise provided in this Agreement, Patheon shall charge Sepracor for the Manufacturing Services only in respect of those Products that are shipped to Sepracor and shall submit to Sepracor, with each shipment of Products, an invoice covering such shipment. The Patheon Administrator shall also provide Sepracor with an invoice covering any Inventory or Components that are to be purchased by Sepracor pursuant to the terms of this Agreement. Each such invoice shall, to the extent applicable, identify Sepracor's purchase order number, Product numbers, names and quantities, unit price and the total amount to be remitted by Sepracor. Except as agreed under section 5.8(a) below, Sepracor shall pay all such invoices within thirty (30) days of the date thereof.

5.8    Product Deficiencies.

        (a)    Inspection.     Sepracor shall inspect the Products manufactured by Patheon upon receipt thereof and, within [**] days, shall give the Patheon Administrator written notice of all claims for Products that deviate from Sepracor's Technical Information or cGMPs (a " Deficiency Notice "). In the case of any defects not reasonably susceptible to discovery upon receipt of the Product, Sepracor shall give the Patheon Administrator a Deficiency Notice within [**] days after discovery thereof by Sepracor, but in no event after the expiration date of the Product. Should Sepracor fail to provide the Patheon Administrator with written notice of its acceptance or rejection of the delivery within [**] days of receipt of a delivery of Products, then delivery shall be deemed to have been accepted by Sepracor on the [**] day after delivery. Except as set out in Section 6.2, Patheon shall have no liability for any deviations for which the Patheon Administrator has not received notice within the applicable [**] day period. Sepracor shall not be obligated to pay for any Product which is the subject of a Deficiency Notice until the issue has been resolved under Section 5.8(b).

        (b)    Determination of Deficiency.     Upon receipt of a Deficiency Notice, Patheon shall undertake appropriate testing of the Products and shall have [**] days to advise Sepracor by notice in writing that it disagrees with the contents of such Deficiency Notice. If Sepracor and the Patheon Administrator fail to agree within [**] days after the Patheon Administrator's notice to Sepracor as to whether any Products identified in the Deficiency Notice deviate from Sepracor's Technical Information or cGMPs, then the parties shall mutually select an independent laboratory to evaluate if the Products deviate from Sepracor's Technical Information or cGMPs (the "Evaluation"). Such Evaluation shall be binding on the parties, and if the Evaluation certifies that any Products deviate from Sepracor's Technical Information or cGMPs, Sepracor may reject those Products in the manner contemplated by Section 5.8(c) and Patheon shall pay the costs of the Evaluation. If the Evaluation does not so certify in respect of any such Products, then Sepracor shall be deemed to have accepted delivery of such Products on the [**] day after delivery and Sepracor shall pay the costs of the Evaluation.

        (c)    Product Rejection.     Subject to the provisions of Sections 5.8(a) and (b), and 9.2(b), Sepracor has the right to reject and return, at Patheon's expense, any portion of any shipment of Products that deviates from Sepracor's Technical Information or cGMPs without invalidating any remainder of such shipment.

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ARTICLE 6

CO-OPERATION

6.1    Quarterly Review.

        Each of Sepracor and the Patheon Administrator shall forthwith upon execution of this Agreement appoint one of its employees to be a relationship manager responsible for liaison between the parties. The relationship managers shall meet not less than quarterly to review the current status of the business relationship and manage any issues that have arisen.

6.2    Product Recalls and Returns.

        (a)    Product Recalls.     Patheon and Sepracor shall each maintain records as may be necessary to permit a recall or a field correction of any Products delivered to Sepracor or customers of Sepracor, effected voluntarily or under a threat of, or a directive by, any governmental agency. Each party shall give notice within one Business Day by telephone (to be confirmed in writing) to the Director of Quality Control/Quality Assurance of the other party upon discovery that any Products should be recalled or corrected, or may be required to be recalled or corrected, and each party upon receiving any such notice or upon any such discovery, shall cease and desist from further shipments of such Products in its possession or control until a decision has been made whether a recall or some other corrective action is necessary. The decision to initiate a recall or to take some other corrective action, if any, shall be made and implemented by Sepracor. Patheon will co-operate as reasonably required by Sepracor, having regard to all applicable laws and regulations.

        (b)    Product Returns.     Sepracor shall have the responsibility for handling customer returns of the Products. The Patheon Administrator and Patheon shall provide Sepracor with such assistance as Sepracor may reasonably need to handle such returns.

        (c)    Patheon Responsibility.     To the extent that a recall or return results from, or arises out of, a failure by Patheon to perform in accordance with this Agreement or to provide the Manufacturing Services in accordance with the Manufacturing Responsibilities, such recall or return shall be made at Patheon's cost and expense, and Patheon shall use commercially reasonable efforts to replace the recalled or returned Products with new Products within [**] days from the date that Sepracor definitively notifies Patheon about the recalled or returned Products, contingent upon the receipt or availability from Sepracor of all API. In the event that Patheon is unable to replace the recalled Products within this [**]-day period (except where such inability results from a failure to receive the required API), then Patheon shall reimburse Sepracor for the price that Sepracor paid to Patheon for manufacturing the affected Products. In all other circumstances, recalls, returns or other corrective actions shall be made at Sepracor's cost and expense.

6.3    Customer Questions and Complaints.

        Sepracor shall have the sole responsibility for responding to questions and complaints from Sepracor's customers. Questions or complaints received by Patheon from Sepracor's customers shall be promptly referred to Sepracor. The Patheon Administrator and Patheon shall co-operate as reasonably required to allow Sepracor to determine the cause of and resolve any customer questions and complaints. Such co-operation shall include follow-up investigations, including testing. In addition, within [**] days from the date of request, the Patheon Administrator shall provide Sepracor with all necessary information that will enable Sepracor to respond properly to questions or complaints relating to the Products. Unless it is determined that the cause of any customer complaint resulted from a failure by Patheon to provide the Manufacturing Services in accordance with the Manufacturing Responsibilities, all costs incurred in respect of this Section 6.3 shall be borne by Sepracor.

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6.4    Governmental Agencies.

        Each party may communicate with any governmental agency, including but not limited to governmental agencies responsible for granting regulatory approval for the Products, regarding such Products if in the opinion of that party's counsel, such communication is necessary to comply with the terms of this Agreement or the requirements of any law, governmental order or regulation; provided, however, that unless in th