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17 C.F.R. Sections 200.80(b)(4) and 240.24b-2

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants contained in this Agreement, the Parties hereby agree as follows:

 

ARTICLE 1
DEFINITIONS

 

When used and capitalized in this Agreement (other than the headings of the Articles and Sections), including the foregoing Recitals, the following terms will have the meanings assigned to them in this Article 1 and include the plural as well as the singular.  Capitalized terms not otherwise defined herein will have the meaning assigned to them in the Collaboration Agreement.

 

1.1                                “Actual Component Manufacturing Cost” means those costs actually incurred by Amylin for the acquisition and release of Components from Third Party Suppliers, including an appropriate allocation of any overhead costs.  Such costs include, but are not limited to:  (i) the landed cost of purchased materials, including, without limitation, invoice price, outside processing costs, freight, duties, storage fees and brokers fees (volume or trade discounts will be reflected in the calculation); (ii) conversion costs (including, without limitation, direct labor and direct overhead) directly associated with the releasing and shipping of Components;  (iii) replacement costs for Components that are determined to be defective or recalled during the quality control process or for Components that are returned to Amylin from Lilly or to Third Party Suppliers from Amylin; (iv) Component breakage, damage and manufacturing losses; (v) obsolete Components; and (vi) to the extent attributable to the acquisition of Components, any other costs considered inventory costs or Costs of Products Sold under Generally Accepted Accounting Principles.  Amylin shall share details relating to the Actual Component Manufacturing Cost in detail and frequency as Lilly may reasonably request.

 

1.2                                “Actual Manufacturing Cost” means those costs actually incurred by Amylin or Lilly for the acquisition of materials from Third Party Suppliers or Lilly, and Manufacture and conversion into Pen Product.  Such costs include, but are not limited to:

 

(a)                                   the landed cost of purchased materials, including, without limitation, invoice price, outside processing costs, freight, duties, and brokers fees (volume or trade discounts will be reflected in the calculation);

 

(b)                                  conversion costs directly associated with the Manufacture of Pen Product at the Facility including direct labor and direct overhead costs;

 

(c)                                   an appropriate allocation of the actual indirect overhead costs directly associated with the Manufacture of Pen Product incurred by Amylin at the Facility;

 

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(d)                                  an appropriate allocation of costs based on actual headcount and actual FTE rate incurred by Amylin  outside of the Facility but directly associated with  the Manufacture of Pen Product, including but not limited to those items as set forth on Exhibit A ;

 

(e)                                   depreciation of any Pen Product specific capital investments at the Facility not included in the Pen Product Initial Capital Investment and solely funded by Amylin as part of Capital Investments called out in section 3.8(f) of this Agreement;

 

(f)                                     Pen Product breakage, damage and Manufacturing losses;

 

(g)                                  an allocation of the depreciation of those capital investments net of capitalized interest in and for Amylin’s San Diego Quality Control Laboratory to the extent such capital investments directly support Manufacture of the Pen Product;

 

(h)                                  an allocation of depreciation of those capital investments located at Third Party Suppliers but owned by Amylin to the extent such capital investments directly support Manufacture of the Pen Product and have not been previously funded by Lilly;

 

(i)                                      replacement costs for Pen Product that is determined to be defective or recalled during the quality control process or for Pen Product that is returned to Amylin from Lilly or any customer or to Third Party Suppliers from Amylin;

 

(j)                                      amortization of any pre-paid assets of Amylin at a Third Party Supplier in accordance with the terms of the agreement with any such Third Party Supplier, as well as an appropriate carrying cost of such prepaid assets calculated in accordance with Section 1.2(l) below;

 

(k)                                   to the extent attributable to the Manufacture of Pen Product, any other costs considered inventory costs or Costs of Products Sold under Generally Accepted Accounting Principles;

 

(l)                                      an appropriate carrying cost applied to the ending monthly inventory utilizing the interest rate agreed to in the letter agreement between the Parties dated June 12, 2006 (the “Letter Agreement”); and

 

(m)                                an allocation of Lilly resources directly associated with  Manufacture of Pen Product charged at the actual FTE rate and any other expenses incurred by Lilly directly associated with the Manufacture of Pen Product as agreed to in advance by the Parties.

 

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All of these costs and the methodology to be used in allocating indirect or overhead costs among Manufacturing operations hereunder and other Amylin manufacturing operations, and among Pen Product Manufactured pursuant to this Agreement shall be determined in a manner consistent with U.S. GAAP, except as expressly set forth herein or as otherwise agreed by the Parties.    Amylin shall share reasonable details relating to the Actual Manufacturing Cost.  The Parties agree to annually review the interest rate set forth in the Letter Agreement and Section 1.2(l) above.

 

For the avoidance of any doubt, the Actual Manufacturing Costs for Pen Product sold either in the U.S. or in the Territory outside the U.S. shall be calculated using the same methodology through the nude pen stage of production, with the exception that any OUS-specific costs (e.g., OUS-specific analytical testing) would be charged [***] to Pen Product for sale OUS.  Following the nude pen stage of production, product destined for the U.S. market would incur additional costs related to subsequent steps in the manufacturing process including, but not limited to, labeling, packaging, storage and distribution and would be charged [***] to US Product.  Revisions to allocations and methodology will not be made during the year without the approval of the MSC.

 

Any incremental costs for the Manufacture of Pen Product for which the primary benefit of such cost will be in a Territory outside the U.S. shall be attributed [***] to the Actual Manufacturing Cost for the Pen Product to be sold in the Territory outside the U.S. and paid by Lilly hereunder if agreed to in advance by the Parties.  Likewise, any incremental costs for the Manufacture of Pen Product for which the primary benefit of such cost will be the U.S. Territory, such as packaging, shall be attributed [***] to the Actual Manufacturing Cost  for the Pen Product to be sold in the U.S. if agreed to in advance by the Parties.

 

The foregoing definition of Actual Manufacturing Cost assumes all of the manufacturing capacity of the Facility will be used to Manufacture Pen Product under this Agreement and EQW Product under the Vial Supply Agreement; if at any time during the term of this Agreement this is not the case, then this definition shall be modified as set forth in Section 4.9(b) below.

 

1.3                                “API” will have the meaning set forth in Section 4.7 of this Agreement.

 

1.4                                “Applicable Laws” means all applicable U.S. statutes, ordinances, regulations, rules or orders, including, without limitation, the FD&C Act, the Regulatory Law, Prescription Drug Marketing Act, Generic Drug Enforcement Act of 1992 (21 U.S.C. §3359, et. seq. ), Anti-Kickback Statute (42 U.S.C. §1320 a-7b, et. seq. ), Resource Conservation and Recovery Act, Clean Water Act, Clean Air Act, the Drug Enforcement Act, Occupational Safety and Health Act and cGMP, as well as comparable laws of the European Union, all as amended from time to time .

 

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17 C.F.R. Sections 200.80(b)(4) and 240.24b-2

 

1.5                                “ASC” will have the meaning set forth in Section 2.1 of this Agreement.

 

1.6                                “Annual Average Unit Cost” will have the meaning set forth in Section 3.5(a) of this Agreement.

 

1.7                                “Budget Summary” means the budget summary for the applicable period prepared pursuant to Section 3.13(c) of this Agreement.

 

1.8                                “Cartridge Supply Agreement” means the Cartridge Supply Agreement, by and between Amylin and Lilly, dated as of April 20, 2007, as such agreement may be amended from time to time.

 

1.9                                “cGMP” will mean current Good Manufacturing Practices as detailed in “The Rules Governing Medicinal Products in the European Community (EC) — Volume IV: Guide to Good Manufacturing Practice for Medicinal Products” and the “US Current Good Manufacturing Practices (cGMPs) for Finished Pharmaceuticals: 21 Code of Federal Regulations (CFR) Parts 11, 210 and 211, and 820, all as amended from time to time, and any additional cGMPs promulgated by any regulatory authority not described above and provided to Amylin by Lilly and mutually agreed to between the Parties.

 

1.10                         “Collaboration Agreement” means the Collaboration Agreement set forth in the Recitals of this Agreement, as such agreement may be amended from time to time.

 

1.11                         “Components” mean the pen molded parts including a plunger rod, threaded sleeve, adapter, cartridge holder and grip.  In addition, the final assembly will also include a dual chamber cartridge and will include needles, packaging materials and labeling as may be agreed to by the MSC.

 

1.12                         “Effective Date” will have the meaning set forth in the introductory paragraph of this Agreement.

 

1.13                         “EQW Product” will have the meaning set forth in the Vial Supply Agreement (previously refered to as the Exenatide Once Weekly Supply Agreement).

 

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1.14                         “Facility” means the manufacturing facility commissioned by Amylin and located at 8814, 8848 and 8874 Trade Port Drive, West Chester, Ohio, as such facility may be from time to time approved, expanded or altered in accordance with this Agreement.

 

1.15                         “Five-Year Forecast” will have the meaning set forth in Section 5.1(a) of this Agreement.

 

1.16                         “Force Majeure” will have the meaning set forth in Section 16.14 of this Agreement.

 

1.17                         “Forecast” will have the meaning set forth in Section 5.1 (b) of this Agreement.

 

1.18                         “Inspection Period” will have the meaning set forth in Section 5.8(a) of this Agreement.

 

1.19                         “Latent Defect” means defects that cause the Pen Product to fail to conform to the Specifications or otherwise fail to conform to the warranties provided pursuant to Section 10.8 (hereof, which defects are not discoverable upon reasonable physical inspection as provided in Section 5.8(a).

 

1.20                         “Manufacture”, “Manufacturing” or “Manufactured” means all operations involved in the manufacturing, quality control testing (including in-process, disposition and stability testing), disposition (releasing or rejecting), packaging and shipping of the Pen Product as more fully described in the MRD.

 

1.21                         “MRD” means the Manufacturing Responsibilities Document, which sets forth written instructions regarding the Manufacture and other technical matters including, without limitation, testing procedures and supply of the Pen Product under this Agreement.

 

1.22                         “MSC” will have the meaning set forth in Section 2.1 of this Agreement.

 

1.23                         “OUS” means the Territory outside the U.S.

 

1.24                         “Party” or “Parties” will have the meaning set forth in the first paragraph of this Agreement.

 

1.25                         “Pen Product” means the Product (whether to be used as trade, sample or clinical trial material) or placebo developed as a fixed-dose injection of exenatide administered once per week for diabetes and any other Indications for which such Product may be approved for use and Manufactured by Amylin configured for delivery in a dual chamber cartridge pen formulation, in finished form or in nude pens, including any components thereof and associated packaging components.

 

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1.26                         “Pen Product Initial Capital Investment” shall mean the initial capital investment made by Amylin and Lilly in and for the Facility for the Manufacture of the Pen Product up to a capacity of [***] units, including, but not limited to, the filling of the dual chamber cartridge and installing the cartridge in the pen to support both U.S. and OUS markets.  For Pen Product for sale in the U.S., the scope of the investments also includes facilities and equipment to package the current presentation of  pens and needles into blister packs.  For clarification, Pen Product Capital Investment shall not include the capital investment made by Amylin in and for the Facility for EQW Product and compensated in accordance with the Vial Supply Agreement.

 

1.27                         “Pen Product Manufacturing Development Costs” shall mean those Development Costs specifically related to developing the ability to Manufacture Pen Product, including, without limitation, Manufacturing process development and Manufacturing and quality assurance technical support, until such time as Manufacturing of Pen Product intended for commercial sale commences.  For purposes of clarification, Pen Product Manufacturing Development Costs shall not include any Development Costs which are solely attributable to clinical studies of Pen Product, but may include costs relating to manufacturing development irrespective of where those costs were incurred.  All Amylin and Lilly personnel costs, including without limitation direct and indirect personnel costs, will be charged at actual FTE cost, unless otherwise agreed to by the Parties.

 

1.28                         “Purchase Order” will have the meaning set forth in Section 5.4 of this Agreement.

 

1.29                         “QLT” will have the meaning set forth in Section 2.3 of this Agreement.

 

1.30                         “Quality Agreement” means the quality agreement, as revised and amended from time to time between the Parties, that describes certain quality expectations and responsibilities relating to the Manufacture, release testing and supply of the Pen Product to Lilly.  The Parties acknowledge that, if they so elect, there will be one Quality Agreement applicable for Pen Product intended to be Commercialized in the U.S. and another Quality Agreement applicable for Pen Product intended to be Commercialized in the Territory outside the U.S.

 

1.31                         “Quality Audit” will have the meaning set forth in Section 4.5(b) of this Agreement.

 

1.32                         “QWT” will have the meaning set forth in Section 2.3 of this Agreement.

 

1.33                         “Regulatory Authority” will have the meaning set forth in the Collaboration Agreement.

 

1.34                         “Regulatory Lead” will have the meaning set forth in the Collaboration Agreement.

 

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17 C.F.R. Sections 200.80(b)(4) and 240.24b-2

 

1.35                         “SCWT” will have the meaning set forth in Section 2.2 of this Agreement.

 

1.36                      “Specifications” for Pen Product means the specifications and quality control testing procedures for the development, Manufacturing, final release and testing of Pen Product and labeling and packaging requirements, which may cover one or more versions of the Pen Product, including, without limitation, Pen Product having different physical features as set forth in the applicable Marketing Approvals, as the same may be modified from time to time by the Parties in accordance with the terms of the Agreement.  The Specifications will be agreed to in accordance with the terms of the Quality Agreement.

 

1.37                         “Standard Cost” means the planned Pen Product Manufacturing costs for each SKU (which shall not include depreciation of the Pen Product Initial Capital Investments shared by the Parties) divided by the production volume for such SKU as agreed to by the Parties as part of the annual plan.

 

1.38                         “Start-up Quality Audit” will have the meaning set forth in Section 4.5(b) of this Agreement.

 

1.39                         “Successor Manufacturer” will have the meaning set forth in Section 11.4(d) of this Agreement.

 

1.40                         “Third Party Supplier” shall have the meaning set forth in Section 4.7 of this Agreement.

 

ARTICLE 2
GOVERNANCE

 

2.1                                Governance of Activities.   Lilly acknowledges that Amylin shall be responsible for day-to-day operational management of the Facility within the agreed-upon annual plan. Governance of activities contemplated by this Agreement will be effected through the governance structure established by the Parties, including the SCWT, the QLT, the Manufacturing Strategy Committee (the “MSC”) and the Alliance Steering Committee (the “ASC”).  The Parties intend that MSC shall be responsible for oversight of the Facility and the complete Pen Product supply chain, including, but not limited to the following items:

 

(a)                                   output requirements of the Facility;

 

(b)                                  operational performance to plan or revised forecast;

 

(c)                                   establishing and overseeing sub-committees, as it deems necessary;

 

(d)                                  major capital projects;

 

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(e)                                   annual and long range plans for Pen Product supply; and

 

(f)                                     sourcing and supply agreements.

 

The MSC shall also be responsible for reviewing and recommending for approval annual budgets and capital investments to the ASC under the timing described for Binding Budgets in the Collaboration Agreement.  The MSC shall meet no less than [***] with agendas and pre-reads due at least five days in advance of the meeting or as directed by the MSC.

 

The MSC will establish governance processes which define how information (financials, operational performance, inventories, capital spend, etc.) will be reported and reviewed on a periodic basis (initially proposed to be monthly).  MSC will also define the types and magnitude of decisions that it will delegate to SCWT or other sub-committees and which are required to be agreed upon by the Parties through the MSC structure.

 

In the event that the Parties, through the SCWT or other sub-committees as established by the MSC, are unable to resolve any dispute in connection with this Agreement, the SCWT or sub-committee shall refer such dispute to the MSC.  In the event that the Parties, through the MSC, are unable to resolve any dispute in connection with this Agreement, the MSC shall refer such dispute to the ASC which has been established by mutual understanding between the Parties in performance of their obligations under other agreements between the Parties.  If the issue can not be resolved by the ASC, then it shall be escalated to the Chief Executive Officer of Amylin and an Executive Committee Member from Lilly.

 

2.2                                Supply Chain Working Team.   The Parties will establish a supply chain working team for the Pen Product (the “SCWT”), or include the Pen Product in the SCWT established for the EQW Product.  The function of the SCWT shall be to plan, coordinate and manage supply chain activities for Pen Product, develop a risk management plan related to ensuring supply of Pen Product, review operational performance of supply chain activities, engage in appropriate activities to reduce supply chain costs, establish customer service levels, serve as a forum for communication for any supply chain issues, and resolve disputes related to supply chain issues between the Parties.

 

The SCWT will meet at such other times as are agreed to by the Parties, but no less than once each [***] .  Such meetings may be in-person, via video conference, or via telephone conference.  At least five (5) business days prior to each SCWT meeting, each Party will provide written notice to the other Party of agenda items proposed by such Party for discussion or decision at such meeting, together with appropriate information related thereto.  Written minutes will be kept of all SCWT meetings and will reflect, without limitation, material decisions made at such meetings.  Responsibility for keeping minutes will alternate between the Parties.

 

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17 C.F.R. Sections 200.80(b)(4) and 240.24b-2

 

2.3                                Quality Governance.   The Parties have established an Alliance Quality Working Team (the “QWT”) that meets on a regular basis to discuss and resolve quality-related issues and to review data and/or perform the activities outlined in the Quality Agreement.  Pursuant to the Quality Agreement, the Parties have also established an Alliance Quality Lead Team (the “QLT”) responsible for strategic quality issues that arise with respect to the Pen Product.  In the event that the QWT is unable to resolve any quality-related disputes, the QWT shall refer such dispute to the QLT.  Further, if the QLT is unable to resolve such dispute, the QLT shall refer such dispute to the head of each Party’s Quality Department for resolution.  If despite their best efforts, the head of each Party’s Quality Department are unable to resolve such dispute, they shall refer such dispute to the MSC for resolution.

 

ARTICLE 3
PAYMENT OF DEVELOPMENT EXPENSES, PURCHASE AND SUPPLY OF PEN PRODUCT AND COMPONENTS AND LIMITATION OF AGREEMENT

 

3.1                                Pen Product Manufacturing Development Costs.   Notwithstanding anything to the contrary in the Collaboration Agreement or any previous formal or informal agreements between the Parties, the Parties agree that Lilly shall be responsible for 53% of Pen Product Manufacturing Development Costs incurred up until commercial Manufacture of Pen Product commences and Amylin shall be responsible for 47% of Pen Product Manufacturing Development Costs incurred up until commercial Manufacture of Pen Product commences.

 

3.2                                Purchase of Pen Product Requirements.  Subject to the terms and conditions of this Agreement, Amylin will Manufacture Pen Product for worldwide distribution; provided, however, that Amylin will not have any responsibility to package Pen Product for the Territory outside of the U.S.  Lilly shall purchase from Amylin, and Amylin shall supply and deliver to Lilly, Lilly’s requirements for the Pen Product for sale by Lilly in the Territory outside the U.S. in accordance with Article 5 of this Agreement.  If at any time Amylin is not able to provide Lilly with the quantity of Pen Product Lilly desires to purchase in accordance herewith because of the capacity limitations of the Facility, the Parties agree to discuss in good faith how best to provide such additional quantities of Pen Product including, without limitation, increasing the capacity of the Facility and/or securing another manufacturer (including, without limitation, Lilly) for Pen Product.

 

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3.3                                U.S. Pen Product Cost.   The Cost of Product Sold to be allocated to Adjusted U.S. Operating Profit/(Loss) for any Calendar Quarter as contemplated by Section 4.5(a) of the Collaboration Agreement for Pen Product shipped to non-Amylin, U.S. distribution sites shall be based on the Standard Cost plus any U.S. specific costs and the U.S. pro-rata portion of any variances for such Calendar Quarter.

 

3.4                                OUS Pen Product Purchase Price.  Lilly shall purchase Pen Product for sale OUS from Amylin at a price per unit equal to the Standard Cost plus any OUS specific costs and the OUS pro-rata portion of any variances for such Calendar Quarter. The purchase price for Pen Product purchased by Lilly in each Calendar Quarter will be included as part of the periodic reconciliation of Operating Profits or Loss for such Calendar Quarter as contemplated in Section 4.9 of the Collaboration Agreement.

 

3.5                                [***] True-Up.

 

(a)                                 Within[***] after the end of each [***], Amylin shall calculate an “[***] Average Unit Cost”. The [***] Average Unit Cost for any [***] shall be the quotient of (i) the Actual Manufacturing Cost up through the nude pen stage of production minus any U.S. or OUS-specific costs divided by (ii) the total number of Pen Product units Manufactured in such year.  To the extent the average purchase price per unit for any [***] paid by Lilly pursuant to Section 3.4 differs from the [***] Average Unit Cost plus OUS-specific costs for such [***], such difference will be included in the periodic reconciliation of Operating Profits or Loss for the [***] as contemplated in Section 4.9 of the Collaboration Agreement.

 

(b)                                In addition, within [***] after the end of each [***], the Parties agree to true-up the inventory carrying costs for the previous[***] by re-calculating each [***] ending Pen Product inventory balance for the previous [***] utilizing the Actual Manufacturing Cost in lieu of the Standard Cost.

 

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3.6                                Purchase of Components.  Lilly will define those Components it chooses to purchase through Amylin for the OUS market.  Upon agreement at the SCWT and subject to the terms and conditions of this Agreement, Lilly shall purchase from Amylin, and Amylin shall cause to be delivered by the applicable Third- Party Supplier to Lilly, Lilly’s requirements for any applicable Components needed for final packaging that are not included in the Pen Product delivered to Lilly by Amylin, all for sale by Lilly in the territory outside the U.S. and in accordance with Article 5 of this Agreement.  If at any time a Third- Party Supplier is not able to provide Lilly with the quantity of Components Lilly desires to purchase in accordance herewith, the Parties will allocate supply following the procedures set forth in Section 5.3, below.

 

3.7                                Component Purchase Price.  Lilly shall purchase any Components from Amylin at a price per unit of such Component equal to the Actual Component Manufacturing Cost for such Component.

 

Purchase Orders, as defined below, for Components will be submitted by Lilly within [***] after the beginning of each [***] using a price provided by Amylin based upon Amylin’s good faith estimate of the Actual Component Manufacturing Cost for such Components for such [***]. Actual Component Manufacturing Costs for Components purchased by Lilly in each [***] will be included as part of the periodic reconciliation of Operating Profits or Loss for such [***] as contemplated in Section 4.9 of the Collaboration Agreement.

 

3.8                                Pen Product Capital Investments.

 

(a)                                 The Parties agree that the costs of the Pen Product Initial Capital Investment will be allocated 40% to Amylin and 60% to Lilly.

 

(b)                                Amylin agrees that if it intends to refinance any outstanding indebtedness, or incur additional indebtedness, the aggregate outcome of which would result in an additional Lien (whether an increase of an existing Lien or a new Lien) being placed on the Facility, then before entering into any binding commitment in connection therewith Amylin will:  (1) provide Lilly with no less than thirty (30) days’ written notice of such intent (which notice shall include a reasonably detailed description of the proposed financing and potential encumbrances), (2) consider in good faith any comments Lilly provides to Amylin on the proposed financing (which comments Lilly must provide within ten (10) days of Lilly’s receipt of Amylin’s notice), and (3)  upon Lilly’s request, engage in a discussion between the Alliance Steering Committee Chairs regarding the proposed financing.  Amylin also agrees that before entering into any binding commitment to refinance

 

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outstanding indebtedness or incur additional indebtedness, Amylin will: (1) ensure that such refinancing or incurrence of additional indebtedness will not have any adverse impact on the Actual Manufacturing Cost or the Product (as applicable in both the Vial Supply Agreement and this Agreement); (2) ensure that the aggregate amount of all liens placed on the Facility (as such facility is currently configured and excluding inventory) do not exceed [***] without Lilly’s consent, which consent shall not be unreasonably withheld; and (3) use Commercially Reasonable Efforts to obtain the financing party’s consent to exclude the Pen Equipment (Pen Equipment meaning the hard assets identified as equipment in lines 2 through 5 on Exhibit B totaling an estimated $[***]) from being subject to any such Lien.  For the purposes of this Section, “Lien” means any mortgage, pledge, security interest, hypothecation, assignment, encumbrance, lease, lien, option, right of use, or other encumbrance of any kind.

 

(c)                                   If Amylin believes that it may breach an obligation under any loan or other financing agreement on the Facility, where such breach could result in an adverse impact on Amylin’s continued ability to perform its obligations under the Vial Supply Agreement and this Agreement, then Amylin will promptly notify Lilly thereof and agree to meet with Lilly to discuss.

 

(d)                                  Amylin agrees that it will not, directly or indirectly, without Lilly’s prior written consent, which shall not be unreasonably withheld, enter into any agreement, transaction or other type of arrangement with a third party involving the Facility which would result in Lilly, either directly indirectly, being obligated to purchase any minimum amount of Product from such third party.  Amylin shall proceed with implementing the Pen Product Initial Capital Investment project including payment of contractors and suppliers and shall own the equipment and other assets acquired.  The Amylin and Lilly Pen team and/ or the SCWT Pen team are responsible for initiating the review and approval from the MSC, and the ASC of any capital commitments beyond the project budget of $216 million.  An estimate of the Pen Product Initial Capital Investment is set forth in Exhibit B.

 

(e)                                   Lilly will provide to Amylin its cost incurred for such Pen Product Capital Investment, [***], within [***] of the [***].  Amylin will prepare a report, in a format mutually agreed to by the Parties, aggregating the expenses incurred by each party, for such [***], and will invoice Lilly for their allocation of the costs incurred for such Pen Product Capital Investment on a [***] basis.  Lilly shall reimburse Amylin for such billed amounts within [***] of the date of the invoice.  All past due amounts owed by Lilly to Amylin under this agreement shall bear interest at the rate set forth in Section 4.9 of the Collaboration Agreement.

 

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17 C.F.R. Sections 200.80(b)(4) and 240.24b-2

 

(f)                                     Any capital investments beyond the Pen Product Initial Capital Investment required to establish or maintain production capability for the Pen Product will be based upon recommendations of the SCWT and the MSC and the approval of such project by the ASC.  Projects will be grouped into two categories:  projects with a scope less than [***] dollars ($[***]) each (collectively, “Minor Projects”), and projects with a scope greater than or equal to [***] dollars ($[***]) each (collectively, “Major Projects”).   Projects classified as Minor but with an anticipated spend greater than [***] dollars ($[***]) must be listed individually.  Amylin may spend money on Minor Projects included in the first year Budget Summary without prior approval by MSC.  Amylin at their sole discretion may make trade-off decisions for Minor Projects not included in the Budget Summary provided (i) the spend for Minor Projects does not exceed the total approved Minor Project Budget amount for that year and (ii) the trade-off does not replace a capital asset required to meet Regulatory requirements.  Spend for Major Projects must be approved by the MSC prior to initiation of the project regardless of whether the Project was included in the Budget Summary or not.  MSC will take action on such requests for approvals on a timely basis.

 

3.9                                Reimbursement for Costs Incurred.   Lilly will reimburse Amylin for Lilly’s share, based upon the allocation set forth in Section 3.8(a), of costs incurred by Amylin prior to the Effective Date for the Pen Product Initial Capital Investment, as set forth on Exhibit C , together with interest at the interest rate agreed to in the Letter Agreement between Amylin and Lilly dated June 12, 2006, by making a cash payment of such amount to Amylin within 10 working days of the Effective Date.

 

3.10                         True-Up .  [***] following a launch of the Pen Product in one of the major OUS  markets (United Kingdom, France, Germany, Italy, Spain, or Japan), or the year in which annual sales volumes of the Pen Product exceed [***] units (whichever is first), the Parties agree to true-up the capital split according to the process outlined in Exhibit E.

 

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3.11                         Impairment.   To the extent any or all of the Pen Product assets added as part of this Agreement cannot be used for the Manufacture of Pen Product, the Parties shall meet to discuss the potential impairment of such assets.  As the assets covered in the Pen Product Initial Capital Investment are funded on a pay-as-you-go basis by both Parties, there would be no financial settlement associated with any such impairment.  If the Parties agree to take an impairment charge relating to capital investments for Pen Product other than the Pen Product Initial Capital Investment, as covered in Section 3.8(f) of this Agreement, and not funded on a pay-as-you-go basis, Lilly will pay to Amylin an amount equal to [***]% of any impairment charge determined in accordance with GAAP for all  non-depreciated capital investments in and for the Pen Product assets and the Manufacture of Pen Product (excluding any impairment charge with respect to which Lilly makes a payment to Amylin as provided in Section 3.10 of the Vial Supply Agreement), less :  (a) any other amounts due and payable to Lilly from Amylin at the time of the impairment charge and not deducted in calculating the payment made by Lilly under Section 3.10 of the Vial Supply Agreement; and (b) any amounts for any assets that can otherwise be utilized for other uses by Amylin and are not deducted in calculating the payment made by Lilly under Section 3.10 of the Vial Supply Agreement; plus any other amounts due and payable to Amylin from Lilly at the time of impairment charge that are not added in calculating the payment made by Lilly under Section 3.10 of the Vial Supply Agreement.  In the event any amounts are recovered by Amylin after the impairment charge, such amounts shall be allocated between Lilly and Amylin in the same proportions as the impairment charge.

 

3.12                         Audits.  Each Party will have the right to audit the other Party’s financial books and records relating to this Agreement and the calculation of Actual Manufacturing Cost under the same terms and in the same manner as set forth in Section 4.9(e) of the Collaboration Agreement.  Notwithstanding the foregoing, any non-financial audit conducted by Lilly under this Agreement shall not count towards the annual limitation of one (1) audit per year set forth in Section 4.9(e) of the Collaboration Agreement.

 

3.13                         Reporting.

 

(a)                                   Estimate of Actual Manufacturing Costs.  Amylin will provide to Lilly a report containing a good faith estimate of the Actual Manufacturing Cost, in a format similar to and with the similar detail as set forth in Exhibit D, within [***] prior to the end of each [***].

 

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17 C.F.R. Sections 200.80(b)(4) and 240.24b-2

 

(b)                                 Actual Manufacturing Costs.   Amylin will provide to Lilly a report containing the Actual Manufacturing Cost, in a format similar to and with the similar detail set forth in Exhibit D, within [***] after the end of each [***].

 

(c)                                  Budget and Long Range Plan.   MSC will establish and maintain business processes to develop and monitor budgets, plans and long-range plans.

 

1.               Budget Summary.   On an[***], a budget summary shall be developed covering the following [***].  Such budget shall reflect Amylin’s plan at the time such budget is created, but shall not be binding on Amylin. MSC shall  review on no less than a [***] the actual performance relative to the plan and shall agree upon any actions needed.

 

2.              Long-Range Plan.   On an [***], a long-range plan for anticipated Pen Product demand, capital and manufacturing costs will be developed, reviewed and approved by MSC.

 

ARTICLE 4
MANUFACTURING AND QUALITY

 

4.1                                Quality Agreement.  No later than[***] after the Effective Date, the Parties shall prepare and adopt the Quality Agreement or include the Pen Product under the Quality Agreement for the EQW Product, as determined by the QLT.  The Parties shall review the Quality Agreement at least once each [***] and shall modify it from time to time as necessary through issuance of a revised version of the Quality Agreement signed on behalf of each of the Parties by an authorized representative incorporating the modification and stating the effective date and revision number of the modification.  The Quality Agreement will be subject to and not inconsistent with the terms of this Agreement, the Collaboration Agreement and the Specifications.  In the event the information in the Quality Agreement on the one hand, and this Agreement, the Collaboration Agreement or the Specifications, as applicable, on the other hand, conflict, this Agreement, the Collaboration Agreement or the Specifications, as applicable, will control; provided, however that the Quality Agreement shall control for any cGMP compliance related issues.

 

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17 C.F.R. Sections 200.80(b)(4) and 240.24b-2

 

4.2                                Development of MRD.   No later than [***] after the Effective Date, the Parties shall prepare and adopt the MRD or include the Pen Product under the MRD for the EQW Product, as determined by the SCWT.  The Parties shall review the MRD at least once each [***] and shall modify it from time to time as necessary through issuance of a revised version of the MRD signed on behalf of each of the Parties by an authorized representative incorporating the modification and stating the effective date and revision number of the modification.  The MRD will be subject to and not inconsistent with the terms of this Agreement, the Collaboration Agreement, and the Quality Agreement.  In the event the information in the MRD, on the one hand, and this Agreement, the Collaboration Agreement or the Quality Agreement, on the other hand, conflict, the terms of the Collaboration Agreement, this Agreement or the Quality Agreement, as applicable, will control.

 

4.3                                Manufacturing.   Subject to the terms and conditions of this Agreement, Amylin will use its Commercially Reasonable Efforts to Manufacture and supply Pen Product to Lilly, at the times and in the quantities set forth by Lilly in a Purchase Order and subject, however, to the quantity restrictions set forth in this Agreement.  Amylin will ensure that each shipment of the Pen Product delivered to Lilly:  (i) will have been manufactured in accordance with the Specifications and cGMP in effect at the time of Manufacture, (ii) will not be adulterated or misbranded within the meaning of the FD&C Act, (iii) will not have been Manufactured or sold in violation of any Applicable Laws  in any material respect, and (iv) will have been Manufactured in accordance with applicable Marketing Approvals and all regulatory requirements as defined in the applicable Pen Product registration (e.g. European dossier) as provided by Lilly to Amylin.

 

4.4                                Modifications.   The Parties anticipate that the Specifications will be modified from time to time to reflect improvements or modifications to the Pen Product.  Each Party will provide the other with reasonable advance notice of any proposed material modification and will consult with, and consider in good faith, the reasonable comments of such other Party regarding such proposed material modification.  Any proposed modification to the Manufacturing process or Specifications shall be approved by the MSC or such subcommittee appointed by the MSC (subject to Section 5.2 of the Collaboration Agreement) prior to implementation or filing with any Regulatory Authority. Any modifications to the Manufacturing process or Specifications required by a Regulatory Authority other than the FDA or The European Medicines Agency (the “EMEA”) shall be solely paid for by Lilly.  Prior to any approved change in the Manufacturing process or Specifications, the Parties shall identify, and, if needed, allocate between U.S. and OUS, all costs and risks, including development costs, resulting from the changes, and a timeline for implementing the changes.

 

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17 C.F.R. Sections 200.80(b)(4) and 240.24b-2

 

(a)                                   Either Party will notify the other as soon as practical of any changes to any Specifications or procedures that are required by the FDA, a Regulatory Authority or Applicable Laws that could have an impact on Amylin’s performance of this Agreement.  Amylin shall utilize its Commercially Reasonable Efforts to implement such changes.

 

(b)                                  In no event will Amylin be required to make a modification to the Pen Product that is prohibited by Applicable Laws or Regulatory Authorities.  In no event will Amylin be prohibited from making a modification to the Pen Product that is required by Applicable Laws or Regulatory Authorities; provided, however, that Amylin shall consult with Lilly prior to making any such modification, and provided further that Amylin shall use its Commercia