CONFIDENTIAL TREATMENT MANUFACTURING AND SUPPLY AGREEMENT

 

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                                                                   Exhibit 10.70

 

                             CONFIDENTIAL TREATMENT

 

                       MANUFACTURING AND SUPPLY AGREEMENT

 

     This Manufacturing and Supply Agreement (the "SUPPLY AGREEMENT") is entered

into effective as of October 2, 2003 (the "EFFECTIVE DATE") by and between

CHIRON HEALTHCARE IRELAND LTD, a company organized under the laws of Ireland

with offices at United Drug House, Belgard Road, Tallaght, Dublin, Ireland

("CHIRON") and CUBIST PHARMACEUTICALS, INC., a Delaware corporation with its

principal offices at 65 Hayden Avenue, Lexington, MA 02421 ("CUBIST"). Chiron

and Cubist are each sometimes referred to herein individually as a "PARTY" and,

collectively, as the "PARTIES." CHIRON CORPORATION, a Delaware corporation

having its principal place of business at 4560 Horton Street, Emeryville,

California 94608 (the "CHIRON PARENT COMPANY"), is a party to this Supply

Agreement only with respect to certain selected provisions of this Supply

Agreement as specified herein.

 

                                   WITNESSETH

 

     WHEREAS, Cubist is developing a proprietary compound known under the

generic name of daptomycin, and in particular a form of daptomycin which is

administered by intravenous injection;

 

     WHEREAS, Chiron and Cubist, contemporaneously with the execution of this

Supply Agreement, have entered into the License Agreement (as defined below)

pursuant to which Cubist has granted to Chiron (i) exclusive rights in Europe

and certain other countries to all injectable forms of daptomycin, and (ii) a

right of first negotiation for rights to all other forms of daptomycin;

 

     WHEREAS, Cubist wishes to manufacture, or have manufactured, and supply all

of Chiron's requirements for Licensed Products (as defined in the License

Agreement), and Chiron wishes to be supplied its requirements for Licensed

Products by Cubist; and

 

     WHEREAS, Chiron and Cubist wish to enter into a manufacturing and supply

agreement that will govern the manufacture and supply of daptomycin products to

Chiron, as contemplated in the License Agreement.

 

     NOW THEREFORE, in consideration of the foregoing and the mutual promises

contained herein and in the License Agreement, the Parties agree as follows:

 

                                    ARTICLE 1

                               CERTAIN DEFINITIONS

 

     Any capitalized terms not defined in this Supply Agreement shall have the

meaning given to them in the License Agreement. Any references in this Supply

Agreement to Sections and Articles shall refer to Sections and Articles of this

Supply Agreement, unless stated otherwise. As used herein, the following terms

shall have the meanings specified below and terms defined herein in the plural

shall include the singular and vice-versa.

 

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     1.1 "API" shall mean the active pharmaceutical ingredient, daptomycin, to

be used in the manufacture of Filled Product.

 

     1.2 "API SPECIFICATIONS" shall mean those specifications for API as agreed

upon in writing by the Parties pursuant to Section 3.1 (and as such

specifications may be changed in accordance with Section 3.2).

 

     1.3 "APPLICABLE LAWS" shall mean all laws, statutes, ordinances, codes,

rules, regulations, guidelines, and procedures which have been enacted by

Regulatory Authorities and are in effect during the term hereof in each case to

the extent applicable to the performance by the Parties of their respective

obligations under this Supply Agreement or otherwise to the subject matter of

this Supply Agreement.

 

     1.4 [*]* shall have the meaning assigned to such term in [*].

 

     1.5 "CARRIER" shall mean the common carrier selected by Chiron to deliver

Filled Product ordered by Chiron.

 

     1.6 "CERTIFICATES OF ANALYSIS AND COMPLIANCE" shall mean the certificate of

analysis confirming the identity, strength, quality and purity of the Lot of

Filled Product to which it pertains together with the certificate of compliance

confirming that the same Lot of Filled Products were manufactured, tested,

stored and supplied in compliance with cGMPs and Applicable Laws, each such

certificate signed by an authorized signatory of Cubist.

 

     1.7 "CGMPS" shall mean the current good manufacturing practices required by

the Regulatory Authorities of each regulatory jurisdiction within the Territory

with respect to the manufacture, testing, storage and supply of Filled Products

for sale in such jurisdiction.

 

      1.8 "COMMERCIALLY REASONABLE EFFORTS" shall mean, solely for the purpose of

interpreting this Supply Agreement, with respect to an obligation to manufacture

or have manufactured Filled Product, the level of efforts required to carry out

such obligation in a sustained manner consistent with the efforts that a

similarly situated pharmaceutical company devotes to a product of similar market

potential, profit potential or strategic value and similar scientific,

technical, development and regulatory risks, based on conditions then

prevailing.

 

     1.9 "CONFIDENTIALITY AGREEMENT" shall mean that certain Confidentiality

Agreement, dated as of October 31, 2002, by and between Chiron and Cubist.

 

     1.10 "CONFORMING PRODUCT," shall mean Filled Product that (a) was made from

API that conforms to applicable API Specifications, (b) was prepared and handled

in compliance with applicable cGMPs, Applicable Laws, master batch record and

any other procedures or documents agreed upon by the Parties, in writing, (c)

conforms with applicable Filled Product Specifications, (d) is not adulterated

within the meaning of the U.S. Food, Drug and Cosmetic Act or similar provisions

of any Applicable Laws, and (e) is packaged and shipped in accordance with the

applicable Packaging Specifications.

 

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     1.11 "CONTRACT MANUFACTURING AGREEMENTS" shall mean any and all agreements

pursuant to which API, Filled Product or any key ingredients thereof are

processed or manufactured on behalf of Cubist (including any such agreements for

any step in the manufacturing process), including without limitation, the Abbott

Laboratories, ACS Dobfar S.p.A. and DSM Capua S.p.A. contracts, together with

all amendments and extensions of such agreements.

 

     1.12 "CUBIST SUPPLIERS" shall have the meaning assigned to such term in

Section 2.3.

 

     1.13 "DEFECTIVE MANUFACTURED PRODUCT" shall mean any Filled Product

supplied by Cubist to Chiron pursuant to this Supply Agreement as to which

Cubist has materially breached any of its product warranties under Section 9.1

of this Supply Agreement.

 

     1.14 "DELIVERY DATE" shall have the meaning assigned to such term in

Section 4.3(a).

 

     1.15 "DISCREPANCY REPORTS" shall mean deviation reports pertaining to API

or Filled Products generated by Cubist or Cubist Suppliers that contain

information relating to deviations that may require reporting to Regulatory

Authorities.

 

     1.16 "DOLLAR" shall mean a United States dollar, and "$" shall be

interpreted accordingly.

 

     1.17 "DRUG MASTER FILE," or "DMF" shall mean a voluntary submission that

may be used to provide confidential, detailed information about the API and

facilities, processes, or articles used in the manufacturing, processing,

packaging, and storing of API or one or more other drug products.

 

     1.18 "EXCESS QUANTITIES" shall have the meaning assigned to such term in

Section 4.3(b)(ii).

 

     1.19 "EXISTING SUPPLIERS" shall have the meaning assigned to such term in

Section 2.3.

 

     1.20 "FACILITIES" shall mean those facilities agreed upon by the Parties,

in writing, at which API and/or Filled Product is to be manufactured hereunder.

 

     1.21 "FILLED PRODUCTS" shall mean the Licensed Products to be supplied

hereunder, lyophilized and in their primary containers (e.g., filled vials),

bulk-packaged and ready for final packaging and labeling for use in humans in

the Territory.

 

     1.22 "FILLED PRODUCT SPECIFICATIONS" shall mean those specifications for

Filled Product as agreed upon in writing by the Parties pursuant to Section 3.1

(and as such specifications may be changed in accordance with Section 3.2).

 

     1.23 "FINISHED PRODUCTS" shall mean the Filled Products supplied hereunder,

labeled and packaged in final form and ready for use in humans in the Territory.

 

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      1.24 "INCLUDING" shall mean "including without limitation."

 

     1.25 "INITIAL FORECAST" shall have the meaning assigned to such term in

Section 4.1.

 

     1.26 "INITIAL FORECAST MAXIMUM QUANTITIES" shall have the meaning assigned

to such term in Section 4.1.

 

     1.27 "JOINT COORDINATION TEAM" OR "JCT" shall mean the Cubist-Chiron

committee formed as described in Section 3.2(a) of the License Agreement.

 

     1.28 "LICENSE AGREEMENT" shall mean that certain License Agreement between

the Parties of even date herewith.

 

     1.29 "LOT" shall mean a single production run of Filled Product.

 

     1.30 "LOT DOCUMENTATION PACKAGE" shall mean all of the following related to

a given Lot: (a) with respect to API, Certificates of Analysis and Compliance, a

summary list of Discrepancy Reports, and the actual Discrepancy Reports upon

request by Chiron where required to release Filled Product in the Territory and

(b) with respect to Filled Product, Certificates of Analysis and Compliance,

batch production records, Discrepancy Reports, lot disposition form(s) signed by

Cubist and customs related documentation required to export from the country of

manufacture. In any event, Cubist shall provide Chiron all documentation

required by the Regulatory Authorities. If actual Discrepancy Reports are

necessary for Chiron to comply with the requirements of the Regulatory

Authorities in the Territory and Chiron has submitted such request to Cubist,

thereafter, Cubist shall provide with each Lot the actual Discrepancy Reports

(not merely the summaries thereof).

 

     1.31 "MANUFACTURING COST" shall have the meaning assigned to such term in

Section 7.1(b).

 

     1.32 "MANUFACTURING INFORMATION" shall have the meaning assigned to such

term in Section 5.3(d) of the License Agreement.

 

     1.33 "MAXIMUM QUANTITIES" shall have the meaning assigned to such term in

Section 4.2.

 

     1.34 "NON-BREACHING PARTY" shall have the meaning assigned to such term in

Section 11.4(a).

 

     1.35 "NON-CONFORMING PRODUCT," or "NON-CONFORMING," with respect to Filled

Product, shall mean any Filled Product that is not Conforming Product.

 

     1.36 "NOTIFIED PARTY" shall have the meaning assigned to such term in

Section 11.4(a).

 

     1.37 "PACKAGING SPECIFICATIONS" shall mean those specifications for the

packaging and shipment of Filled Product agreed upon in writing by the Parties

pursuant to Section 3.1.

 

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      1.38 "PRODUCT SHORTAGE" shall have the meaning assigned to such term in

Section 8.2.

 

     1.39 "PURCHASE ORDER" shall have the meaning assigned to such term in

Section 4.3.

 

     1.40 "QC" shall mean quality control.

 

     1.41 "QUALITY AGREEMENT" shall have the meaning assigned to such term in

Section 3.10.

 

     1.42 "REGULATORY APPROVAL" shall mean (i) in the United States, approval by

the FDA of an NDA or equivalent and satisfaction of any related applicable FDA

registration and notification requirements, and (ii) any equivalent approval in

any country other than the United States.

 

     1.43 "REGULATORY AUTHORITIES" shall mean foreign counterparts of the FDA in

the Territory, and other government agencies in the Territory charged with

enforcing laws, rules or regulations governing the manufacture, sale and/or

marketing of pharmaceuticals.

 

     1.44 "REMAINING SHELF-LIFE" shall have the meaning assigned to such term in

Section 3.4.

 

     1.45 "REQUIRED CHANGE" shall mean any proposed changes to the

Specifications or the manufacturing procedures for either API or Filled Product

made by either Party that is required by any regulatory agency or law or

regulation of any jurisdiction inside or outside the Territory.

 

     1.46 "REQUIRED CHANGE COSTS" shall have the meaning assigned to such term

in Section 3.2(c).

 

     1.47 "ROLLING FORECAST" shall have the meaning assigned to such term in

Section 4.2.

 

     1.48 "SPECIFICATIONS" shall mean API Specifications, Filled Product

Specifications and Packaging Specifications.

 

     1.49 "TERM" shall mean the term of this Supply Agreement as specified in

Section 11.1.

 

     1.50 "TRANSFER PRICE" shall have the meaning assigned to such term in

Section 7.1(a).

 

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                                    ARTICLE 2

                                SUPPLY; PLANNING

 

     2.1. SUPPLY OF FILLED PRODUCTS. During the Term, and subject to and upon

the terms and conditions of this Supply Agreement: (a) Cubist shall manufacture

(or have manufactured) API and Filled Products, and (b) Cubist shall supply

Chiron with all of its requirements for Filled Products, and Chiron shall

purchase all of its requirements for Filled Products from Cubist.

 

     2.2. COSTS OF PRODUCT MANUFACTURE. Except as otherwise provided in Section

3.2, Cubist shall bear all costs of API and Filled Product manufacture,

including costs of raw materials, equipment and facility acquisition and

modifications thereof, overhead, labor costs and manufacturing service fees paid

to Cubist Suppliers.

 

     2.3. SUB-CONTRACTING. The Parties acknowledge that, as of the Effective

Date, Cubist has entered into Contract Manufacturing Agreements with Abbott

Laboratories, ACS Dobfar S.p.A. and DSM Capua S.p.A (such Third Parties referred

to herein as the "EXISTING SUPPLIERS" and together with any other Third Party

suppliers of API or Filled Product referred to collectively as the "CUBIST

SUPPLIERS," PROVIDED, HOWEVER, such supplier shall not be a Cubist Supplier from

and after the date that its contractual arrangement with Cubist has terminated

or expired). Subject to the change control procedures in Section 3.2, prior to

entering into a Contract Manufacturing Agreement with a Third Party that is not

an Existing Supplier, and provided that Cubist expects that such Third Party

will manufacture API or Filled Products for use by Chiron in accordance with the

terms of this Supply Agreement, [*]. Notwithstanding any Contract Manufacturing

Agreements or anything provided herein, express or implied, to the contrary,

Cubist shall be responsible for meeting all of its obligations hereunder, and

where a provision hereof calls for Cubist to perform an obligation that Cubist

has sub-contracted to a Cubist Supplier, Cubist shall be liable for the

performance of such obligation.

 

     2.4. SECOND MANUFACTURING SOURCE(s)

 

          (a) FILLED PRODUCT. Within [*] after the first Commercial Launch in

the Territory, Cubist shall use Commercially Reasonable Efforts to establish and

thereafter during the Term maintain, or cause to be so established and

maintained, one or more facilities such that there are at least [*] facilities

located at least [*] apart licensed and qualified to manufacture Filled

Products. Each such facility shall have the capacity to supply commercial

quantities of Filled Product.

 

          (b) API. As of the Effective Date, Cubist is party to Contract

Manufacturing Agreements pursuant to which Cubist Suppliers have agreed to

process and manufacture API on behalf of Cubist at two (2) facilities that are,

or will be, licensed and qualified. After the expiration or termination of the

first to expire or terminate of the Contract Manufacturing Agreements relating

to API supply, Cubist may elect not to maintain a qualified second source of API

by considering, among other factors, (i) product quality, (ii) delivery

reliability, (iii) excess capacity, and (iv) price of suppliers, provided

however, prior to making any

 

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decision to reduce the number of qualified API suppliers to a single Facility

[*] In the event Cubist determines in its sole business judgment to maintain a

single facility to manufacture API, Cubist shall store a combination of API and

Filled Products at one or more locations that are each at least [*] from

Cubist's then current API supplier in quantities sufficient to meet global

demand for Licensed Products for a period of at least [*]. Cubist hereby agrees

that not less than [*] of such inventory quantities of API and Filled Products

shall consist of API. For as long as Cubist maintains a single facility for API,

[*] Any facility maintained by Cubist for the manufacture of API pursuant to

this Section 2.4(b) shall have the capacity to supply commercial quantities of

API.

 

          (c) KEY RAW MATERIALS. Cubist shall use Commercially Reasonable

Efforts to establish and maintain second sources for those other materials that

Cubist reasonably believes are key raw materials to be used for the processes of

manufacturing the API and the Filled Product.

 

          (d) ALTERNATE SUPPLIER QUALIFICATION. If Chiron reasonably believes

that Cubist's efforts to avoid interruption of supply are not sufficient at any

time while only a single Facility is licensed and qualified to manufacture API,

Chiron may [*] at such time, but Chiron shall not be entitled to source any

supply of API or Filled Products from such [*] except in accordance with the

provisions of Section 11.6. Upon election by Chiron to [*], Cubist agrees to

cooperate and assist Chiron in doing same, including [*] to the same extent as

if Chiron were [*]. Chiron shall be responsible for all costs and expenses

incurred by Cubist in connection with the rendering of such cooperation and

assistance. The Parties hereby acknowledge that nothing in this Section 2.4(d)

is intended to limit Chiron's rights under Section 11.6 hereof.

 

     2.5 GLOBAL MANUFACTURING PLAN. Cubist shall prepare and provide to Chiron,

not later than three (3) months after the acceptance by a Regulatory Authority

of any application for Regulatory Approval in any Major Market Country, a

detailed manufacturing plan for meeting near term and long range global demand

for the Licensed Product (the "MANUFACTURING PLAN"). The Manufacturing Plan

shall set forth the activities necessary or useful for the manufacture and

supply of Licensed Products (including Filled Product) for ensuring a reliable

source of same to meet world wide requirements of Chiron, Cubist and Other

Licensees for Licensed Products in their respective territories, and will

address, at minimum, the following:

 

     (i)     process development activities,

 

     (ii)    plan for capacity expansion as required to support global supply

requirements and Commercial Launch,

 

     (iii)   plans for bulk manufacture, formulation and filling of unlabeled

            vials,

 

     (iv)    production plans and inventory plans,

 

     (v)     stability testing and shelf-life extension plans,

 

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     (vi)    securing second source and/or backup for key manufacturing steps and

for key raw materials,

 

     (vii)   procedures followed by Cubist to obtain and maintain licenses,

registrations or authorizations for Licensed Product manufactured by Contract

Manufacturers to be sold in the Territory,

 

     (viii) each of the foregoing in respect of each indication and/or

formulation of each Licensed Product,

 

     (ix)    the identification of all Facilities licensed or expected to be

licensed by Regulatory Authorities to manufacture API and Filled Product for

supply hereunder, and

 

     (x)     expected Facility capacity, plans for validation of new Facilities

and processes, and regulatory inspection plans.

 

Cubist shall update the Manufacturing Plan annually and Cubist shall provide

such updated Manufacturing Plan to Chiron prior to the JCT's last scheduled

meeting during the then current year. Chiron shall have the right to review and

comment, via the JCT, on the Manufacturing Plan and any and all revisions and

updates thereto, and Cubist shall, in good faith, consider all comments made by

Chiron. Except as otherwise provided herein, Cubist shall bear all costs and

expenses in connection with any and all manufacturing activities engaged in by

Cubist and its Affiliates in connection with the Manufacturing Plan, regardless

of whether such activities occur within the Territory or outside the Territory.

 

                                   ARTICLE 3.

                  MANUFACTURE, PACKAGING AND QUALITY ASSURANCE

 

     3.1. ESTABLISHMENT OF SPECIFICATIONS AND MANUFACTURING PROCEDURES. The

Parties shall mutually agree in writing (such agreement not to be unreasonably

delayed or withheld), on a timely basis, on applicable API Specifications,

Filled Product Specifications and Packaging Specifications that meet the

requirements of the Regulatory Authorities and the Applicable Laws of each

country in which Finished Products are to be sold. The Parties shall work

expeditiously to agree upon such Specifications so as to permit Chiron to have

adequate stocks of Conforming Product on hand in advance of the anticipated

Commercial Launch in the Territory. The Parties acknowledge and agree that the

API Specifications, the Filled Product Specifications, the Packaging

Specifications and the manufacturing procedures for API and Filled Product shall

be based substantially on Cubist's US FDA approved specifications and

manufacturing procedures, but with all such modifications and additional

procedures as may be required for the API and Filled Product to comply with

cGMPs and the requirements under Applicable Laws. Any and all such modifications

and additional procedures shall be adopted in accordance with the provisions of

Section 3.2 hereof.

 

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     3.2. CHANGES IN SPECIFICATIONS OR MANUFACTURING PROCEDURES.

 

          (a) CUBIST CHANGES. Cubist shall notify Chiron in writing of any

changes that it proposes to make to the Specifications, or the manufacturing

procedures, for API or Filled Product.

 

               (i)    In the event that a change to the Specifications, or the

established manufacturing procedures, for API or Filled Product is being

proposed by Cubist at any time prior to obtaining Regulatory Approval in (A) the

European Union if Chiron is pursuing a centralized filing strategy for

Regulatory Approval in the European Union, or (B) the reference member state if

Chiron is pursuing a mutual recognition filing strategy for obtaining Regulatory

Approval in the European Union (such Regulatory Approval pursuant to either

clause (A) or clause (B) being hereinafter referred to as the [*], then Cubist

will [*].

 

               (ii)   Cubist shall deliver with the notice required pursuant to

Section 3.2(a) adequate documentation to enable Chiron to determine whether such

change requires Regulatory Approval. As soon as reasonably practicable but in no

event later than [*] after delivery of such notice, Chiron shall notify Cubist

if such proposed change would require Regulatory Approval in any country in the

Territory.

 

               (iii) If such proposed change is being proposed by Cubist at any

time after [*] has been obtained, then Cubist may proceed to implement such

change [*] with respect to API or Filled Product for all countries in the

Territory, PROVIDED that Cubist complies with all of the provisions set forth in

this Section 3.2(a) with respect to those countries as to which Chiron has

previously notified Cubist that such changes would require Regulatory Approval.

In the event that any such proposed change would require Regulatory Approval

within any country in the Territory, Chiron agrees that it will take the

necessary steps to obtain such Regulatory Approval as soon as reasonably

practicable (it being understood that time may be of the essence). Unless and

until Chiron has obtained Regulatory Approval for such proposed changes, Cubist

shall continue to supply Filled Product to Chiron in accordance with the

provisions of this Supply Agreement, and such Filled Product shall conform with

the Specifications and manufacturing processes previously approved and then in

effect for such Filled Product in each country of the Territory that requires

Regulatory Approval for such proposed changes.

 

               (iv)   Other than with respect to Required Changes in the

Territory (which is addressed in paragraph (c) below), Cubist shall pay for any

additional capital costs or other expenses of manufacturing API or Filled

Product over those which Cubist is then incurring to manufacture or have

manufactured API or Filled Product to implement each change made pursuant to

this Section 3.2(a), including each Required Change made in response to a

regulatory agency or law or regulation of any jurisdiction outside the

Territory. All of such additional capital costs or such other expenses of

manufacturing that are allocated to Cubist's Manufacturing Cost consistent with

United States generally accepted accounting principles shall result in an

adjustment of the Transfer Price paid by Chiron to Cubist pursuant to this

Supply Agreement for Filled Product.

 

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               (v)    Notwithstanding any provision herein to the contrary, if

Cubist requests a change to the Specifications or the manufacturing procedures

that is not required by a Regulatory Authority in the Territory but the

implementation of which would require Chiron to obtain Regulatory Approval of

such change, then [*] associated with obtaining and maintaining Regulatory

Approval in the Territory for such modification to the Specifications and

manufacturing procedures. At the request of Cubist, Chiron hereby agrees to

provide Cubist [*] as soon as reasonably practicable.

 

          (b) CHIRON CHANGES. Chiron will notify Cubist of any change that it

proposes to make to the Specifications, or the manufacturing procedures, for API

or Filled Product. Subject to paragraph (c) below, Cubist will use Commercially

Reasonable Efforts to determine whether it is capable of making such change.

Cubist shall notify Chiron as soon as reasonably practicable whether it is able

to implement such change, and shall indicate whether the implementation of such

change will result in any additional capital costs or other expenses of

manufacturing such Filled Product over those which Cubist is then incurring to

manufacture or have manufactured such Filled Product (whether any such

additional capital costs or other expenses of manufacturing consist of

non-recurring expenses or development or manufacturing costs). Subject to

paragraph (c) below, if Chiron agrees to pay for any such additional capital

costs or other expenses of manufacturing, then Cubist will use Commercially

Reasonable Efforts to implement such change, and, if Chiron does not agree to

pay for such additional capital costs or other expenses of manufacturing, then

Cubist will not be obligated to implement such change. None of such additional

capital costs or such other expenses of manufacturing that Chiron shall be

required to pay pursuant to this Section 3.2(b) [*] pursuant to this Supply

Agreement for Filled Product.

 

          (c) COST OF REQUIRED CHANGES IN THE TERRITORY. If a regulatory agency

or law or regulation of any jurisdiction inside the Territory requires any

changes in the Specifications, or the manufacturing procedures, for API or

Filled Product, then [*] in connection with such changes (in each case, whether

any such costs consist of capital costs or other expenses of manufacturing, the

"REQUIRED CHANGE COSTS") [*:] (i) [*] Required Change Costs [*], (ii) [*]

Required Change Costs [*] and (iii) [*] Required Change Costs shall be [*]. None

of the Required Change Costs [*] pursuant to this Section 3.2(c) shall be [*]

pursuant to this Supply Agreement for Filled Product. Capital costs that are

Required Change Costs shall be allocated to Required Change Costs consistent

with United States generally accepted accounting principles. Cubist shall bear

all costs and expenses of development activities in support of implementing

Specification or manufacturing procedure changes as they relate to this Section

3.2(c).

 

     3.3. STABILITY STUDIES. Cubist shall conduct or have conducted stability

studies on API and Filled Products as required by Regulatory Authorities and, in

any case, on at least one Lot of each Filled Product from each site where such

Filled Product is manufactured, in each case at least once per year following

the first Commercial Launch of such Filled Product in the Territory. Cubist

shall provide Chiron with an annual report of all data Cubist has obtained from

such stability studies during the year preceding the report. Cubist and Chiron

shall notify each other within 48 hours after becoming aware of any identified

stability failure for API or Filled Product.

 

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     3.4. SHELF-LIFE. The shelf-life of Filled Products, initially, shall be

such that Cubist can deliver Filled Products to the Carrier with a remaining

shelf-life of at least [*] (the "REMAINING SHELF-LIFE"), provided that the

shelf-life of Filled Product as approved by the applicable Regulatory

Authorities is at least [*]. Chiron shall promptly notify Cubist in writing if

any Regulatory Authority approves a shelf-life of Filled Product that is [*].

Upon receipt of such notice by Cubist, the Remaining Shelf-life shall be

increased by one half of the increase in the shelf-life of Filled Product

approved by such Regulatory Authority (i.e. if the Regulatory Authority

increased the shelf-life by [*], then the Remaining Shelf-life shall be

increased by [*]. Cubist shall use Commercially Reasonable Efforts to extend the

shelf-life of Filled Products each time it becomes reasonably practicable to do

so, and upon receipt of Regulatory Approval of such extension, the Remaining

Shelf-life shall be deemed to be extended to the same extent as provided in the

foregoing sentence.

 

     The Parties acknowledge and agree that the definition of Remaining

Shelf-life, and the ordering, forecasting and supply chain management

procedures, agreed upon and specified in this Supply Agreement, including

without limitation, the provisions in Articles 2, 3, 4 and 5, are based on the

assumption that the shelf-life of Filled Product approved by Regulatory

Authorities shall in no event be less than [*]. In the event that the approved

shelf-life of Filled Product is less than [*], Cubist and Chiron each agree to

promptly and in good faith agree upon reasonable adjustments to all affected

provisions, including without limitation, the provisions in Articles 2, 3, 4 and

5, with a view to achieving a commercially reasonable arrangement for the

manufacture and supply of Filled Product that has the maximum Remaining

Shelf-life under the circumstances.

 

     3.5. FILLED PRODUCT TESTING, DOCUMENTATION AND RELEASE. Cubist shall

maintain, and/or request that the Cubist Suppliers maintain, reasonably detailed

records pertaining to each stage of the manufacture, fill and finish of API and

Filled Products and the methods and facilities used therefor, including Lot

Documentation Packages. Cubist shall be responsible for releasing each lot of

API and Filled Product and shall certify that each such released lot was

manufactured and tested in accordance with applicable cGMPs, manufacturing

procedures, Specifications and Applicable Laws and providing Lot Documentation

Package confirming same. Cubist shall perform, or cause to be performed, all

reasonable testing in connection with the release of Filled Product as may be

required for satisfying the Regulatory Authorities or Applicable Laws or

monitoring QC.

 

     3.6. SHIPPING VALIDATION PROTOCOLS. Cubist and Chiron shall develop and

mutually agree upon protocols for the shipment of Filled Products into the

Territory. Thereafter, Cubist shall follow such protocols. Cubist shall bear the

costs and expenses associated with shipping validation.

 

     3.7. QC SAMPLES; DOCUMENTATION; ANALYTICAL METHODS. Cubist shall retain

samples from each Lot for a period of at least one (1) year after the expiration

date of such Lot. Cubist shall provide Chiron, at no additional cost, with all

reasonable assistance to transfer the ability to perform and validate analytical

methods useful in analyzing Filled

 

* CONFIDENTIAL TREATMENT REQUESTED: MATERIAL HAS BEEN OMITTED AND FILED WITH THE

  COMMISSION

 

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Products and shall promptly transfer to Chiron any updates to such methods

approved and implemented during the Term.

 

     3.8. TERRITORY QC. Chiron shall be responsible for QC testing of Filled

Products required by Regulatory Authorities to be performed in the Territory.

Chiron will use test methods and processes agreed upon, in writing, by the

Parties, such agreement not to be unreasonably delayed or withheld. Chiron will

not alter such test methods or processes or adopt new tests without Cubist's

written approval, such approval not to be unreasonably withheld or delayed.

 

     3.9. FINISHED PRODUCT PACKAGING AND TESTING. Chiron shall be responsible

for the final packaging, labeling, QC testing, and release of Finished Products,

and the retention of Finished Product samples, as required by this Supply

Agreement and Regulatory Authorities in the Territory. Chiron also shall be

responsible for obtaining any necessary import permits for Finished Products,

and using test methods mutually agreed upon by the Parties, such agreement not

to be unreasonably delayed or withheld. Chiron shall afford Cubist reasonable

audit rights with respect to such retention samples and documentation pertaining

to such QC testing.

 

     3.10. QUALITY ASSURANCE AGREEMENT. As soon as reasonably practicable,

Chiron and Cubist shall enter into a separate quality assurance agreement on

terms to be mutually agreed upon by the parties acting reasonably and in good

faith (the "QUALITY Agreement"). Cubist shall enter into Quality Agreements with

each of the Cubist Suppliers and provide copies to Chiron. Such Quality

Agreements shall ensure that no Cubist Supplier shall make any changes to the

Specifications or the established manufacturing procedures for API or Filled

Product (including any changes to a registered DMF) without Cubist's prior

written consent.

 

* CONFIDENTIAL TREATMENT REQUESTED: MATERIAL HAS BEEN OMITTED AND FILED WITH THE

  COMMISSION

 

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                                     ARTICLE 4

                                FORECASTS; ORDERS

 

     4.1. INITIAL FORECAST. Not more than [*] prior to the first anticipated

delivery date of Licensed Product, Chiron shall submit to Cubist the first

written forecast ("INITIAL FORECAST") of the quantities of Filled Products it

expects to purchase from Cubist during the succeeding [*]. Subject to Section

4.6, (a) the first [*] of the Initial Forecast shall not be binding upon Cubist,

(b) the [*] of the Initial Forecast shall be binding upon Chiron and Cubist, (c)

the [*] shall be binding to the extent that Chiron shall be obligated to

purchase and Cubist shall be obligated to supply not less than [*] of the

forecasted quantities of Filled Products, but Chiron may, at its option,

purchase, and Cubist shall be obligated to supply, up to [*] of the quantities

forecasted for those [*] (the latter quantities being referred to hereinafter as

the "INITIAL FORECAST MAXIMUM QUANTITIES") and (d) the [*] of the Initial

Forecast shall be non-binding.

 

     4.2 ROLLING FORECAST. Each month after the month in which Chiron's Initial

Forecast specified in Section 4.1 is submitted, Chiron shall submit to Cubist a

written forecast of the quantities of Filled Products it expects to purchase

from Cubist during the succeeding [*], and each month thereafter, Chiron will

provide Cubist with an update of such forecast (the "ROLLING FORECAST"). Subject

to Section 4.6, (a) the first [*] of the Rolling Forecast shall be binding upon

Chiron and Cubist, (b) the following [*] shall be binding to the extent that

Chiron shall be obligated to purchase and Cubist shall be obligated to supply

not less than [*] of the forecasted quantities of Filled Products, but Chiron

may, at its option, purchase, and Cubist shall be obligated to supply, up to [*]

of the quantities forecasted for those [*] (the latter quantities being referred

to hereinafter as the "ROLLING FORECAST MAXIMUM QUANTITIES", and the term

"MAXIMUM QUANTITIES" shall mean, either the Initial Forecast Maximum Quantities

(with respect to an Initial Forecast) or the Rolling Forecast Maximum Quantities

(with respect to the Rolling Forecasts), as the case may be), and (c) the [*] of

the Rolling Forecast shall be non-binding.

 

     4.3. PURCHASE ORDERS.

 

           (a) CONTENT. No later than the [*] of each calendar month in which a

forecast is submitted pursuant to Section 4.1 or 4.2 hereof, Chiron shall submit

to Cubist a written purchase order (a "PURCHASE ORDER") for (a) those quantities

of Finished Products that Chiron is bound to purchase pursuant to the Rolling

Forecast (the "MINIMUM QUANTITIES") and (b) any additional quantities of Filled

Products that Chiron desires Cubist to supply. Each Purchase Order shall be in a

form upon which the Parties have mutually agreed and shall specify for the

Filled Products ordered, among other things, (i) the quantities, types and

countries of final sale, (ii) the aggregate Transfer Price, and (iii) the date

on which the Carrier will take possession of such Filled Products (the date

requested, or within ten (10) days thereof being the "DELIVERY DATE").

 

     (b)   DELIVERY DATE. The Delivery Date for the first Purchase Order

delivered to Cubist shall be at least [*] following the date of receipt of such

Purchase Order by Cubist, and the Delivery Date for all other Purchase Orders

shall be at least [*] following the date of receipt of the applicable Purchase

Order by Cubist. Each such Purchase Order shall be

 

* CONFIDENTIAL TREATMENT REQUESTED: MATERIAL HAS BEEN OMITTED AND FILED WITH THE

  COMMISSION

 

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automatically binding upon Cubist and Chiron to the extent of the quantities of

Filled Product for which such Purchase Order requests delivery; PROVIDED,

HOWEVER, that:

 

                (i)    if Chiron has failed to comply with its obligations under

Section 4.1 or 4.2 hereof, then, if such obligations are relevant to or pertain

in any way to such Purchase Order or to forecasts of the quantities of Filled

Product covered by such Purchase Order, such Purchase Order shall not be

automatically binding on Cubist, and

 

               (ii)   if the quantity of such Filled Product specified in such

Purchase Order is greater than the Maximum Quantities for such Purchase Order

("EXCESS QUANTITIES"), then such Purchase Order shall nonetheless be binding

upon Cubist and Chiron with respect to only the Maximum Quantities for such

Purchase Order, subject to Section 4.4.

 

     4.4. CONFIRMATION AND ACCEPTANCE OF PURCHASE ORDERS.

 

           (a) ACKNOWLEDGMENT. Cubist shall acknowledge, in writing, its receipt

of each Purchase Order upon receipt, and in cases in which Excess Quantities

have been ordered, shall notify Chiron in writing within [*] of receipt, of

whether it agrees to provide such Excess Quantities (in whole or in part).

 

           (b) EXCESS QUANTITIES. Any Excess Quantities that Cubist agrees to

supply, within such [*] period, shall be binding upon Cubist (together with the

ordered quantities up to the Maximum Quantities). In any event, Excess

Quantities that Cubist does not agree to supply within such [*] period (either

by refusing, in writing, or by failing to accept, in writing) shall not be

binding upon Cubist, provided, however, Cubist shall use Commercially Reasonable

Efforts to supply such quantities if and to the extent that such quantities are

available to Cubist without incurring any additional costs.

 

           (c) THIRD PARTY COMMITMENTS. In no event shall Cubist be required to

reduce its commitment allocated to Third Parties to supply such quantities to

Chiron. Before agreeing to supply Chiron with Excess Quantities, Cubist may

notify Chiron that it will do so only on the condition that Chiron pay its

documented excess costs specified in such notice as being in excess of the

applicable Transfer Price that Cubist will incur in order to provide the Excess

Quantities. If Chiron agrees to pay such excess costs to the extent such excess

costs are actually incurred or irrevocably committed, then the Excess Quantities

shall be binding on Cubist; otherwise, they shall not be, and in any event, such

excess costs shall in no way reduce the royalties payable to Cubist pursuant to

the License Agreement.

 

     4.5. FULFILLMENT OF PURCHASE ORDERS; GOVERNING TERMS. Cubist shall fill

each Purchase Order in accordance with the terms thereof and as further

specified in this Supply Agreement. In any case in which the terms of a Purchase

Order, acknowledgement thereof or other communication in connection therewith

are inconsistent with those in this Supply Agreement, the provisions of this

Supply Agreement shall control.

 

     4.6   EXCEPTIONS TO BINDING PURCHASE OBLIGATIONS.

 

* CONFIDENTIAL TREATMENT REQUESTED: MATERIAL HAS BEEN OMITTED AND FILED WITH THE

  COMMISSION

 

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          (a) DOCUMENTATION DEFICIENCIES. Notwithstanding anything to the

contrary provided in this Article 4, to the extent that Chiron otherwise would

be bound to purchase Filled Products pursuant to a Rolling Forecast or Purchase

Order that became binding (in whole or in part) on Chiron at a time when Chiron

had reason to believe that Regulatory Authorities in the country or countries in

which such Filled Products would be sold would have granted Regulatory

Approval(s) of such products within ninety (90) days of the Delivery Date (or,

in cases where no Delivery Date has been established, within 90 days of the

earliest reasonably anticipated date of sale), but such Regulatory Approval(s)

were not then granted [*] documentation or other supporting information [*]

possession or control, [*] for such Filled Products set forth in the applicable

Rolling Forecast or Purchase Order, and [*]. If any such Filled Product has been

delivered to the Carrier pursuant to Section 5.2, upon [*] such Filled Product

to [*]. Notwithstanding anything to the contrary set forth in this Section

4.6(a), [*] and (i) such Filled Product [*] by Chiron, or (ii) the [*] for such

Filled Product at the time this [*] is less than [*] (subject to adjustment as

set forth in the last paragraph of Section 3.4).

 

          (b) THIRD PARTY PURCHASERS. In any case in which prior to the Delivery

Date, Chiron informs Cubist in writing that it wishes to cancel (in whole or in

part) a binding order for Filled Products, Cubist shall use Commercially

Reasonable Efforts to sell such Filled Products to other customers of Cubist at

a commercially reasonable price and to the extent that it does so, Chiron shall

not be bound to order or pay for such Filled Products, provided, however, if

Cubist sells such Filled Products for less than the Transfer Price, then Chiron

shall be obligated to pay to Cubist an amount equal to the aggregate Transfer

Price corresponding to the Purchase Order for which Chiron canceled its binding

order less the purchase price received by Cubist from other customers for such

Filled Product that would have otherwise been sold to Chiron pursuant to such

Purchase Order.

 

     4.7. SAFETY STOCKS. To help ensure the timely supply of Filled Products,

Cubist shall use Commercially Reasonable Efforts to keep a safety stock of at

least [*] inventory of Filled Products, based on the monthly average of

quantities forecasted in the Rolling Forecast.

 

                                    ARTICLE 5

                       DELIVERY; ACCEPTANCE AND REJECTION

 

     5.1. DELIVERY OF PRE-SHIPMENT SAMPLES. Upon written request by Chiron made

upon or after placement of any Purchase Order, Cubist shall (a) provide to the

Carrier, on a mutually agreed date in advance of the Delivery Date specified in

such Purchase Order, pre-shipment samples from Lots manufactured for an order of

Filled Product, and (b) as soon thereafter as reasonably practicable, provide

Chiron with the associated Lot Documentation Package. Chiron shall be

responsible for arranging for the pick-up of such pre-shipment samples on such

mutually agreed upon date at such facility by the Carrier. Cubist will direct

each Cubist Supplier to permit the Carrier to pick-up such pre-shipment samples

at the facility. The Carrier shall transport such pre-shipment samples on behalf

of, and at the direction of, Chiron to the destination designated by Chiron.

Chiron shall be responsible for the full cost of transportation, exportation and

importation of such pre-shipment samples, including, without limitation, the

cost of freight, postage, shipping, insurance and export or

 

* CONFIDENTIAL TREATMENT REQUESTED: MATERIAL HAS BEEN OMITTED AND FILED WITH THE

  COMMISSION

 

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import duties, and costs invoiced by Cubist Suppliers in order to fulfill such

requests for pre-shipment samples.

 

     5.2. DELIVERY OF ORDERED FILLED PRODUCT.

 

          (a) DELIVERY. On the Delivery Date and following (a) Chiron's

acceptance of Filled Product, in cases in which Chiron has requested and

received pre-shipment samples pursuant to Section 5.1, or (b) release by Cubist

of ordered Filled Product, in cases where Chiron has not requested and received

pre-shipment samples, Cubist shall deliver Filled Products to Chiron by making

available, or causing the Cubist Suppliers to make available, such Filled

Product, along with the completed and appropriately signed Certificates of

Analysis and Compliance and shipping and customs documentation required for the

Carrier to export from the country of manufacture, for pick-up at Cubist's or a

Cubist Supplier's facility specified in the applicable Purchase Order with

respect