STRATEGIC ALLIANCE AGREEMENT

Exhibit 10.1

Confidential Materials omitted and filed separately with the

Securities and Exchange Commission. Asterisks denote omissions.

EXECUTION VERSION

STRATEGIC ALLIANCE AGREEMENT

BY AND BETWEEN

INFINITY PHARMACEUTICALS, INC.

AND

PURDUE PHARMACEUTICAL PRODUCTS L.P.

STRATEGIC ALLIANCE AGREEMENT

This Strategic Alliance Agreement (the “ Agreement ”) is entered into as of the 19 ^th day of November 2008 (the “ Effective Date ”) by and between Infinity Pharmaceuticals, Inc., a Delaware corporation having its principal office at 780 Memorial Drive, Cambridge, Massachusetts 02139 (“ Infinity ”), and Purdue Pharmaceutical Products L.P., a Delaware limited partnership having its principal office at One Stamford Forum, 201 Tresser Boulevard, Stamford, Connecticut 06901-3431 (“ Purdue ”).

INTRODUCTION

1. Infinity and Purdue are each engaged in the business of discovering, developing and commercializing pharmaceutical products.

2. Infinity and Purdue are interested in forming an alliance whose goal is to develop and commercialize FAAH Products (as defined herein) in the United States.

NOW, THEREFORE, in consideration of the respective representations, warranties, covenants and agreements contained herein, and for other valuable consideration, the receipt and adequacy of which are hereby acknowledged, Infinity and Purdue agree as follows:

ARTICLE I

DEFINITIONS

When used in this Agreement, each of the following terms shall have the meanings set forth in this Article I:

Section 1.1 “ Affiliate ”. Affiliate shall mean any person, firm, trust, partnership, corporation, company or other entity or combination thereof, which directly or indirectly (i) controls a Person, (ii) is controlled by a Person, or (iii) is under common control with a Person. The terms “control” and “controlled” mean (x) ownership of fifty percent (50%) or more, including ownership by trusts with substantially the same beneficial interests, of the voting and equity rights of such person, firm, trust, partnership, corporation, company or other entity or combination thereof or (y) the power to direct the management of such person, firm, trust, partnership, corporation, company or other entity or combination thereof. “ Affiliate ” shall not include, in the case of Purdue, The Purdue Frederick Company Inc., a New York corporation, with respect to the performance of Development activities under this Agreement or in support of the Regulatory Approvals.

Section 1.2 “ Business Day ”. Business Day shall mean any day, other than a Saturday or a Sunday, on which the banks in New York, New York, USA are open for business.

Section 1.3 “ Change in Control ”. Change in Control shall mean (a) the occurrence of an event or series of events by which any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended), exclusive of the Lenders and their Affiliates, shall have acquired beneficial ownership (within the meaning of Rule 13d-3

promulgated by the United States Securities and Exchange Commission (the “ SEC ”) under said Securities Exchange Act of 1934, as amended), directly or indirectly, of more than fifty percent (50%) of the outstanding shares of capital stock of Infinity; (b) occupation of more than fifty percent (50%) of the seats (other than vacant seats) on the board of directors of Infinity by persons who were not at least one of the following: (i) directors of Infinity on the Effective Date, (ii) nominated by the board of directors of Infinity or (iii) appointed by directors referred to in the preceding clauses (i) and (ii); or (c) if during the Funded Discovery Period (as defined in the FAAH Ex-U.S. Strategic Alliance Agreement), either (i) Julian Adams, Ph.D. is no longer a full-time executive of Infinity, or (ii) both Steven H. Holtzman and Adelene Q. Perkins are no longer full-time executives of Infinity.

Section 1.4 “ Commercialization” or “Commercialize ”. Commercialization or Commercialize shall mean any activities directed to obtaining pricing and/or reimbursement approvals, marketing, promoting, distributing, importing, offering to sell, and/or selling a product (including establishing the price for such product), after Regulatory Approval for such product has been obtained.

Section 1.5 “ Commercially Reasonable Efforts ”. Commercially Reasonable Efforts shall mean the efforts that a prudent Person desirous of achieving a result would use in similar circumstances to achieve that result as expeditiously as possible; provided , however , that a Person required to use “Commercially Reasonable Efforts” under this Agreement will not be thereby required to take actions that would result in a material adverse change in the benefits to such Person under this Agreement. Without limiting the generality of the foregoing, in determining Commercially Reasonable Efforts with respect to the Development and Commercialization of a product or compound, the Parties shall take into account the following: the market potential of such product or compound, safety and efficacy, product profile, competitiveness of the marketplace for the product, the proprietary position of the product, the regulatory structure involved, the availability and level of reimbursement for such treatment by third party payors or health insurance plans, the potential total profitability of the applicable product marketed or to be marketed and other relevant factors affecting the cost, risk and timing of Development and the total potential reward to be obtained if a product is Commercialized.

Section 1.6 “ Control ” or “ Controlled ”. Control or Controlled, with respect to any Know-How or Patent Right of a Party, shall mean the possession (whether by ownership, license (other than pursuant to a license granted under this Agreement) or otherwise) by such Party or its Affiliates of the ability to grant to the other Party access to and/or a license under such Know-How or Patent Right without violating the terms of any agreement with any Third Party existing as of the Effective Date or thereafter during the Term.

Section 1.7 “ Cover”, “Covering” or “Covered ”. Cover, Covering or Covered, with respect to a product, shall mean that, but for a license granted to a Person under a Valid Claim included in the Patent Rights under which such license is granted, the Development, Manufacture, Commercialization and/or other use of such product by such Person as provided hereunder would infringe such Valid Claim.

Section 1.8 “ Develop ” or “ Development ”. Develop or Development shall mean non-clinical (including pre-clinical) and clinical drug development activities and related research,

 

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including: (i) chemical lead series generation, (ii) medicinal chemistry, (iii) assay development, (iv) pharmacology studies, (v) absorption, distribution, metabolism, elimination (ADME) studies, (vi) toxicology studies, (vii) statistical analysis and report writing, (viii) test method development and stability testing, (ix) process development, (x) formulation development, (xi) delivery system development, (xii) molecular pathology and biomarker development, (xiii) quality assurance and quality control development, (xiv) compliance related monitoring and activities (including biometry, data management, drug safety, integrated analysis, and health and economic research), (xv) manufacture of drug supply (in both active pharmaceutical ingredient and finished product form) for use in both pre-clinical activities and clinical trials, (xvi) clinical trials for the purpose of obtaining or maintaining Regulatory Approval (including post-marketing and market expansion studies, (xvii) safety related studies and risk management programs, (xviii) support of investigator-initiated clinical trials, (xix) new product planning activities, and (xx) regulatory affairs activities related to all of the foregoing.

Section 1.9 “ Executive Officers ”. Executive Officers shall mean either Purdue’s Chief Executive Officer or President (or the officer or employee of Purdue then serving in a substantially equivalent capacity) and Infinity’s Chief Executive Officer (or the officer or employee of Infinity then serving in a substantially equivalent capacity).

Section 1.10 “ FAAH ”. FAAH shall mean Fatty Acid Amide Hydrolase (also known as FAAH-1) or FAAH-2.

Section 1.11 “ FAAH Ex-U.S. Strategic Alliance Agreement ”. FAAH Ex-U.S. Strategic Alliance Agreement shall mean the Strategic Alliance Agreement between Infinity and MICL dated as of the Effective Date.

Section 1.12 “ FAAH Product ”. FAAH Product shall mean a product or product candidate arising out of the FAAH Project. For the avoidance of doubt, FAAH Products shall exclude Opt-Out Products and Related Products associated therewith.

Section 1.13 “ FAAH Project ”. FAAH Project shall mean a project directed to the research and Development of molecules that Interact with FAAH.

Section 1.14 “ FDA ”. FDA shall mean the United States Food and Drug Administration, or a successor agency thereto.

Section 1.15 “ FTE ”. FTE shall mean one or more qualified individuals (e.g., having the requisite education and/or skills in the appropriate scientific or technical discipline to fulfill Infinity’s obligations under this Agreement) at Infinity or its Affiliates who spend time and effort performing scientific, technical or scientific management work on a specific project or task pursuant to the Research Plan whose time and effort, in the aggregate, is equivalent to the time and effort of one (1) employee devoted exclusively to the project or task based on [**] person hours per year.

Section 1.16 “ FTE Cost ”. FTE Cost shall mean the amount obtained by multiplying (a) the number of FTEs by (b) [**] United States dollars (US$[**]), increased or decreased annually by the percentage increase or decrease in the Consumer Price Index – Urban Wage Earners and Clerical Workers, U.S. City Average, All Items, 1982-84 = 100, published by the United States

 

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Department of Labor, Bureau of Labor Statistics (or its successor equivalent index) in the United States (“ CPI ”) as of December 31 of the then most recently ended calendar year over the level of the CPI on December 31, 2008 ( i.e. , the first such increase or decrease would occur on January 1, 2010).

Section 1.17 “ Governmental Authority ”. Governmental Authority shall mean any multinational, federal, state, county, local, municipal or other entity, office, commission, bureau, agency, political subdivision, instrumentality, branch, department, authority, board, court, arbitral or other tribunal, official or officer, exercising executive, judicial, legislative, police, regulatory, administrative or taxing authority or functions of any nature pertaining to government.

Section 1.18 “ IND ”. IND shall mean (a) an Investigational New Drug Application, as defined in the U.S. Federal Food, Drug, and Cosmetic Act, as amended, and the regulations promulgated thereunder, that is required to be filed with the FDA before beginning clinical testing of a product in human subjects, or any successor application or procedure, and (b) all supplements and amendments that may be filed with respect to the foregoing.

Section 1.19 “ Infinity Know-How ”. Infinity Know-How shall mean any Know-How Controlled by Infinity (including Infinity’s rights in Joint Know-How) that is useful to Develop and Commercialize Products.

Section 1.20 “ Infinity Patent Rights ”. Infinity Patent Rights shall mean Patent Rights Controlled by Infinity Covering Infinity Know-How (including Infinity’s rights in Joint Know-How).

Section 1.21 “ Interact ”. Interact shall mean to interact directly with a specified Target. In the event a product or product candidate directly interacts with more than one Target, it shall be deemed to Interact with whichever such Target it interacts with most potently. Furthermore, in the case of Bcl-2 or Bcl-xL, such product or product candidate shall be deemed to Interact with Bcl-2 or Bcl-xL if it demonstrates less than one (1) micromolar activity against Bcl-2 or Bcl-xL in a biochemical displacement assay.

Section 1.22 “ Joint Know-How ”. Joint Know-How shall mean any Know-How that is conceived, reduced to practice or otherwise created jointly by employees or consultants of Infinity or its Affiliates, on the one hand, and employees or consultants of Purdue or its Affiliates, on the other hand.

Section 1.23 “ Key Executive ”. Key Executive shall mean each of Julian Adams, Ph.D., Steven H. Holtzman and Adelene Q. Perkins.

Section 1.24 “ Know-How ”. Know-How shall mean any tangible or intangible know-how, expertise, discoveries, inventions, information, data (including preclinical and clinical data generated with respect to FAAH Products in the course of the Research Program) or materials, including ideas, concepts, formulas, methods, procedures, designs, technologies, compositions, plans, applications, preclinical and clinical data, technical data, samples, chemical compounds and biological materials and all derivatives, modifications and improvements thereof and Regulatory Approvals and filings therefor.

 

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Section 1.25 “ Laws ”. Laws shall mean each provision of any then-current multinational, federal, national, state, county, local, municipal or foreign law, statute, ordinance, order, writ, code, rule or regulation, promulgated or issued by any Governmental Authority, as well as with respect to either Party any binding judgments, decrees, stipulations, injunctions, determinations, awards or agreements issued by or entered into by such Party with any Governmental Authority.

Section 1.26 “ Line of Credit Agreement ”. Line of Credit Agreement shall mean the Line of Credit Agreement dated as of the Effective Date by and among Purdue Pharma L.P., a Delaware limited partnership, and Purdue (together, the “ Lenders ”), and Infinity.

Section 1.27 “ Manufacture ”. Manufacture shall mean all activities related to the manufacturing of any product, including test method development and stability testing, formulation, process development, manufacturing scale-up, manufacturing for use in non-clinical and clinical studies, manufacturing for commercial sale, packaging, release of product, quality assurance/quality control development, quality control testing (including in-process release and stability testing) and release of product or any component or ingredient thereof, and regulatory activities related to all of the foregoing.

Section 1.28 “ MICL ”. MICL shall mean Mundipharma International Corporation Limited, a Bermuda corporation, or any successor thereof.

Section 1.29 “ NDA ”. NDA shall mean an application submitted to a Regulatory Authority for marketing approval of a product (other than an ANDA), including (a) a New Drug Application, Product License Application or Biologics License Application filed with the FDA or any successor applications or procedures, and (b) all supplements and amendments that may be filed with respect to the foregoing.

Section 1.30 “ Net Sales ”. Net Sales, with respect to a particular Royalty Bearing Product in a particular period, shall mean the gross amount invoiced by the Royalty Paying Party, its Affiliates and/or its Sublicensees on sales or other dispositions (excluding sales or dispositions for use in clinical trials or other scientific testing, in either case for which the Royalty Paying Party, its Affiliates and/or Sublicensees receive no revenue) of the Royalty Bearing Product to unrelated Third Parties during such period, less the following deductions (to the extent included in the gross amount invoiced or otherwise directly paid or incurred by the Royalty Paying Party, its Affiliates and/or its Sublicensees):

(a) trade, cash and quantity discounts actually allowed and taken directly with respect to such sales or other dispositions;

(b) tariffs, duties, excises, sales taxes or other taxes imposed upon and paid directly with respect to the delivery, sale or use of the Royalty Bearing Product and included and separately stated in the applicable invoice (excluding national, state or local taxes based on income);

(c) allowances for amounts repaid or credited by reason of rejections, defects, recalls or returns or because of reasonable and customary chargebacks, refunds, coupons, patient co-pay savings cards, rebates (including related administration fees), wholesaler fee for service,

 

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reasonable amounts of physician samples, reasonable amounts of free products given to indigent patients, retroactive price reductions or any other items substantially similar in character and substance to the foregoing, with equitable adjustments to be made from time to time for any differences between these allowances and actual amounts;

(d) amounts previously included in Net Sales of Royalty Bearing Products that are written-off by the Royalty Paying Party as uncollectible in accordance with the Royalty Paying Party’s standard practices for writing off uncollectible amounts consistently applied; and

(e) freight, insurance and other transportation charges incurred in shipping a Royalty Bearing Product to Third Parties, included and separately stated in the applicable invoice.

There shall be no double-counting in determining the foregoing deductions.

Such amounts shall be determined from the books and records of the Royalty Paying Party, its Affiliates and/or its Sublicensees, maintained in accordance with applicable accounting principles (such as U.S. generally accepted accounting principles (“ U.S. GAAP ”)), consistently applied.

Section 1.31 “ Opt-Out Product ”. Opt-Out Product shall mean each FAAH Product for which Purdue elects to terminate its Program Rights pursuant to Section 2.5, 2.6 or 2.8.

Section 1.32 “ Party ”. Party shall mean Infinity or Purdue; “ Parties ” shall mean Infinity and Purdue.

Section 1.33 “ Patent Rights ”. Patent Rights shall mean United States and non-U.S. patents, patent applications and/or provisional patent applications, utility models and utility model applications, design patents or registered industrial designs and design applications or applications for registration of industrial designs, and all substitutions, divisionals, continuations, continuation-in-part applications, continued prosecution applications, reissues, reexaminations and extensions thereof.

Section 1.34 “ Person ”. Person shall mean any individual, corporation, partnership, joint venture, limited liability company, trust, business association, organization, Governmental Authority, a division or operating group of any of the foregoing or other entity or organization, including any successors or assigns (by merger or otherwise) of any such entity.

Section 1.35 “ Phase I Study ”. Phase I Study shall mean a study of a product in human patients or normal volunteers the purposes of which are to (i) determine the metabolism, pharmacokinetic and pharmacologic actions of said product in humans and (ii) the preliminary determination of safety and tolerability of a dosing regime, and for which there are no primary endpoints (as recognized by the FDA or other Regulatory Authorities) in the protocol relating to efficacy, as described in U.S. 21 C.F.R. § 312.21(a).

Section 1.36 “ Prior Confidentiality Agreement ”. Prior Confidentiality Agreement shall mean the Mutual Confidential Disclosure Agreement, dated August 13, 2008, between Infinity and an Affiliate of Purdue.

 

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Section 1.37 “ Program Right ”. Program Right shall mean Purdue’s right to Commercialize FAAH Products in the Territory pursuant to this Agreement.

Section 1.38 “ Purdue Know-How ”. Purdue Know-How shall mean (a) any Know-How that: (i) is conceived, reduced to practice or otherwise created by employees or consultants of Purdue or its Affiliates based on and arising from exposure to Infinity Know-How, (ii) is an analog or a new use of a product or product candidate developed under the Research Program and (iii) is created during the portion of the Term during which Purdue has Program Rights with respect to such product or product candidate, and (b) Purdue’s rights in Joint Know-How.

Section 1.39 “ Purdue Patent Rights ”. Purdue Patent Rights shall mean Patent Rights Controlled by Purdue Covering Purdue Know-How (including Purdue’s rights in Joint Know-How).

Section 1.40 “ Regulatory Approval ”. Regulatory Approval shall mean, with respect to a product, the approval of the applicable Regulatory Authority necessary for the marketing and sale of such product for a particular indication in the Territory, excluding separate pricing and/or reimbursement approvals that may be required and ANDAs. Regulatory Approval shall also include any “orphan drug” or similar designation.

Section 1.41 “ Regulatory Authority ”. Regulatory Authority shall mean a federal, national, multinational, state, provincial or local regulatory agency, department, bureau or other governmental entity with authority over the testing, manufacture, use, storage, import, promotion, marketing or sale of a pharmaceutical product in a country or territory, including the FDA.

Section 1.42 “ Regulatory Exclusivity ”. Regulatory Exclusivity shall mean the ability to exclude Third Parties from Manufacturing or Commercializing a product that could compete with a Royalty Bearing Product in the Territory, either through data exclusivity rights, orphan drug designation, or such other rights conferred by a Regulatory Authority in the Territory other than through Patent Rights.

Section 1.43 “ Related Product ”. Related Product shall mean any product or product candidate that Interacts with FAAH.

Section 1.44 “ Relationship Manager ”. Relationship Manager shall mean the individual appointed by each Party in Section 2.3(b) to whom all of the non-appointing Party’s communications to the appointing Party regarding the conduct of the Research Program may be addressed.

Section 1.45 “ Research and Development Expenses ”. Research and Development Expenses shall mean the internal and external costs incurred by Infinity and/or its Affiliates in the conduct of the Research Program; such costs shall include: (a) the FTE Costs of Infinity and its Affiliates, (b) all costs accrued by Infinity or its Affiliates in connection with work performed by Third Parties (except to the extent that such costs have been included in FTE Costs), (c) license fees, milestone payments and other amounts due to Third Parties related to the Research Program, allocated pro rata among FAAH Products, on the one hand, and products and product candidates outside the Research Program, on the other hand, and (d) costs related to the Infinity Patent Rights and Joint Patent Rights licensed to Purdue hereunder.

 

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Section 1.46 “ Research and Development Funding ”. Research and Development Funding shall mean the funding to be provided by Purdue to Infinity in accordance with Section 5.1 prior to the FAAH Transition Date.

Section 1.47 “ Research Plan ”. Research Plan shall mean a rolling three (3) year plan and associated budget for activities to be conducted by Infinity under the Research Program and projected Research and Development Expenses.

Section 1.48 “ Research Program ”. Research Program shall mean a program to Develop FAAH Products during the Research Program Term.

Section 1.49 “ Research Program Term ”. Research Program Term shall mean the period beginning on the Effective Date and ending on the FAAH Transition Date.

Section 1.50 “ Royalty Bearing Product ”. Royalty Bearing Product shall mean FAAH Products and Opt-Out Products, as applicable.

Section 1.51 “ Royalty Paying Party ”. Royalty Paying Party shall mean the Party required to pay royalties to the other Party with respect to a Royalty Bearing Product pursuant to Section 5.2 or 5.3.

Section 1.52 “ Royalty Receiving Party ”. Royalty Receiving Party shall mean the Party that is entitled to receive royalties from the other Party with respect to a Royalty Bearing Product pursuant to Section 5.2 or 5.3.

Section 1.53 “ Royalty Term ”. Royalty Term, with respect to each Royalty Bearing Product in the Territory, shall mean the period of time commencing on the first commercial sale of such Royalty Bearing Product in the Territory and ending on the last to occur of (a) the date on which all Infinity Patent Rights and Purdue Patent Rights containing a Valid Claim Covering the Manufacture, Commercialization or other use of such Royalty Bearing Product in the Territory have expired, (b) the date on which all Infinity Patent Rights and Purdue Patent Rights containing a Valid Claim Covering the Manufacture in the country of actual Manufacture of such Royalty Bearing Product have expired, and (c) the expiration of any Regulatory Exclusivity with respect to such Royalty Bearing Product in the Territory.

Section 1.54 “ Securities Purchase Agreement ”. Securities Purchase Agreement shall mean the Securities Purchase Agreement entered into as of the Effective Date by and between Infinity and each of the purchasers named therein.

Section 1.55 “ Service Providers ”. Service Providers shall mean (a) with respect to either Party, contract sales organizations, contract employees, consultants and similar Persons who conduct activities on behalf of such Party, and (b) with respect to Infinity, the Persons in clause (a), plus academic or non-profit research institutions, hospitals, contract research organizations, contract manufacturing organizations and similar Persons who conduct activities on behalf of Infinity.

 

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Section 1.56 “ Sublicensee ”. Sublicensee shall mean, with respect to a Party, a Third Party to whom such Party grants a license or sublicense under the Infinity Know-How, Infinity Patent Rights, Purdue Know-How or Purdue Patent Rights in accordance with the terms of this Agreement.

Section 1.57 “ Target ”. Target shall mean a protein or its corresponding DNA or RNA sequence.

Section 1.58 “ Territory ”. Territory shall mean the United States of America, its territories and possessions.

Section 1.59 “ Third Party ”. Third Party shall mean any Person other than Infinity or Purdue and their respective Affiliates.

Section 1.60 “ Valid Claim ”. Valid Claim shall mean a claim of any issued, unexpired patent that has not been revoked or held unenforceable or invalid by a decision of a court or governmental agency of competent jurisdiction from which no appeal can be taken, or with respect to which an appeal is not taken within the time allowed for appeal, and that has not been disclaimed or admitted to be invalid or unenforceable through reissue, disclaimer or otherwise.

Section 1.61 Additional Definitions . Each of the following definitions is set forth in the section of this Agreement indicated below:

 

 

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ARTICLE II

RESEARCH PROGRAM

Section 2.1 Research Plan .

(a) Generally . The initial Research Plan is attached hereto as Schedule A . The Research Plan shall be updated by Infinity on at least an annual basis no later than October 1 ^st of each year preceding the year for which the update is being made. With respect to the FAAH Project, the Research Plan under the FAAH Ex-U.S. Strategic Alliance Agreement shall be the same as the Research Plan under this Agreement and shall be provided to MICL and Purdue concurrently.

(b) Research Plan Budget . The Research Plan shall include a budget for Research and Development Expenses for each of the first three (3) calendar years of the Research Plan; provided , however , that the first calendar year in the first Research Plan shall be deemed to start on the Effective Date and continue through December 31, 2009. As of the Effective Date, the budgets for calendar years 2009, 2010 and 2011 shall be Four Million Five Hundred Thousand United States Dollars (US$4,500,000), forty percent (40%) of the amount set forth in the overall budget for the FAAH Product in the Research Plan submitted to Purdue pursuant to Section 2.1(a) on or before October 1, 2009, and forty percent (40%) of the amount set forth in the overall budget for the FAAH Product in the Research Plan submitted to Purdue pursuant to Section 2.1(a) on or before October 1, 2010. The Research Plan shall be updated annually as set forth in Section 2.1(a); provided, that , without the prior written consent of Purdue and subject to the last two (2) sentences of this Section 2.1(b), the budget set forth for each calendar year of each Research Plan shall be fixed. Unless approved in writing by Purdue, Infinity shall not incur or enter into contracts to incur Research and Development Expenses that exceed the amount of the budget set forth in the Research Plan for such calendar year, except to the extent that Infinity funds any such additional amount itself or such amount is funded by a party other than Infinity pursuant to the FAAH Ex-U.S. Strategic Alliance Agreement. Notwithstanding the foregoing, Infinity may reallocate Research and Development Expenses between and among FAAH Products under the Research Program, in its sole discretion; provided , that the aggregate amount of Research and Development Expenses in any calendar year shall not exceed the budget amount set forth in the Research Plan for such year, except to the extent that Infinity funds any such additional amount itself or such amount is funded by a

 

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party other than Infinity pursuant to the FAAH Ex-U.S. Strategic Alliance Agreement, and provided further that Infinity shall not be permitted to reallocate Research and Development Expenses between, among or to any Opt-Out Product or Related Product associated therewith (except that Purdue shall pay, and Infinity may use, Research and Development Funding with respect to any Opt-Out Product as expressly provided in Sections 2.5(c) and 2.6(c), as applicable); provided , however , that Infinity may decrease the funding allocated to such Opt-Out Product or Related Product associated therewith.

(c) [Reserved] .

(d) Termination of Research . Prior to terminating the Development of a FAAH Product under the Research Program, Infinity shall notify Purdue of its intent to do so. At Purdue’s request, the Parties shall promptly meet to discuss the termination of Development of such FAAH Product and Infinity shall consider in good faith any proposal submitted by Purdue to assume the conduct of Development of such FAAH Product in the Territory.

Section 2.2 Conduct of Research Program . Infinity shall be responsible for the Development of FAAH Products, except to the extent that Purdue exercises its right to assume responsibility for the Development of FAAH Products in the Territory pursuant to Section 2.8(a), at which point Purdue shall be responsible for the Development, Manufacture and Commercialization of FAAH Products in the Territory. Infinity shall use Commercially Reasonable Efforts to undertake the Research Program in accordance with the Research Plan.

Section 2.3 Quarterly Reports .

(a) Quarterly Reports . Infinity shall provide Purdue with quarterly written reports, within thirty (30) days after the end of each calendar quarter during the Research Program Term, summarizing in reasonable detail (i) Infinity’s and its Affiliates’ activities and progress related to the Research Program during such three (3) month period, including reasonably detailed information concerning the conduct of non-clinical and clinical activities, and (ii) Research and Development Expenses actually incurred by Infinity during such three (3) month period, including reasonably detailed information concerning FTEs utilized during such period and payments to Service Providers. Purdue shall have the opportunity to seek reasonable further explanation or clarification of matters covered in such reports and to provide observations and suggestions to Infinity regarding the subject matter thereof and Infinity shall provide such explanation or clarification and shall consider such observations and suggestions in good faith. Furthermore, if after receiving such a report Purdue wishes to meet with Infinity to discuss such report, Infinity shall meet with Purdue at Infinity’s offices as soon as practicable but no later than thirty (30) days after such meeting is requested by Purdue. In selecting Service Providers to conduct Development activities hereunder, Infinity shall (A) utilize a competitive bidding process consistent with Infinity’s corporate code of conduct, as amended from time to time by Infinity, taking into account factors such as cost, capabilities, quality and efficiency, and (B) negotiate with each potential Service Provider selected through such competitive bidding process, on an arm’s length basis, the terms and conditions pursuant to which such potential Service Provider will provide services to Infinity with respect to the conduct of Development activities under this Agreement.

 

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(b) Relationship Managers . Purdue and Infinity shall each designate an initial Relationship Manager who shall be responsible for the interactions between the Parties related to this Agreement. Infinity’s initial Relationship Manager with respect to this Agreement will be Vito Palombella. Purdue’s initial Relationship Manager with respect to this Agreement will be Evan Vosburgh. Either Party may change its Relationship Manager upon written notice to the other Party at any time. The Relationship Managers shall meet periodically to discuss the progress of the Development and/or Commercialization of FAAH Products under this Agreement.

Section 2.4 [Reserved.]

Section 2.5 Early Program Opt-Out Rights . On or before June 1, 2009, Infinity shall provide Purdue a summary report of relevant data generated under the FAAH Project during the period beginning on the Effective Date and ending on the date of such report, together with a good faith estimate of Research and Development Expenses Infinity expects to incur with respect to the FAAH Project in the fourteen (14) month period following June 1, 2009 (which estimate shall be the same as the estimate provided by Infinity to MICL with respect to the FAAH Project pursuant to the comparable provision of the FAAH Ex-U.S. Strategic Alliance Agreement). On or before July 31, 2009, Purdue may, upon written notice to Infinity, elect to terminate its Program Rights for the FAAH Products. If Purdue elects to terminate its Program Rights for the FAAH Products, then:

(a) Purdue shall have no further Program Rights for such FAAH Products and any Related Products;

(b) Any such FAAH Products shall be considered Opt-Out Products effective as of July 31, 2009 (the “ Early Program Opt-Out Date ”);

(c) Purdue shall fund forty percent (40%) of all Research and Development Expenses incurred by Infinity for each such Opt-Out Product through July 31, 2010, in material accordance with the fourteen (14) month estimate described above in this Section 2.5;

(d) Infinity shall pay to Purdue a royalty on Net Sales of each such Opt-Out Product at the rates set forth in Sections 5.3(a) and 5.3(b), as applicable; provided , that Infinity may, in its sole discretion, discontinue such Development and/or Commercialization of such Opt-Out Product;

(e) After the Early Program Opt-Out Date, Infinity shall have no obligation to provide a quarterly update on the Development of the relevant Opt-Out Product; and

(f) Except as permitted under the FAAH Ex-U.S. Strategic Alliance Agreement, Purdue shall not, directly or indirectly, by itself or jointly with or through any of its Affiliates or any Third Parties, engage in the Development, Manufacture or Commercialization of any product or product candidate that Interacts with FAAH for two (2) years following the Early Program Opt-Out Date.

Section 2.6 Annual Product Opt-Out Rights . On or before October 1 of each year during the Research Program Term, Infinity shall provide Purdue an updated Research Plan as

 

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provided in Section 2.1(a), together with a summary report of relevant data generated under the Research Program since the last such report for the FAAH Product if it has not reached the FAAH Transition Date as of the date of such report. On or before November 30 of such year, Purdue may elect to terminate its Program Rights for the FAAH Products. If Purdue elects to terminate its Program Rights for the FAAH Products, then:

(a) Purdue shall have no further Program Rights for the FAAH Products and any Related Product;

(b) Any such FAAH Product shall be considered an Opt-Out Product, effective as of December 31 of such year (the applicable “ Annual Product Opt-Out Date ”);

(c) Purdue shall fund forty percent (40%) of all Research and Development Expenses budgeted for such FAAH Product during the calendar year following the applicable Annual Product Opt-Out Date in accordance with the relevant Research Plan presented by Infinity to Purdue pursuant to Section 2.1(a) for such calendar year;

(d) Infinity shall pay to Purdue a royalty on Net Sales of such Opt-Out Product at the rates set forth in Sections 5.3(a) and 5.3(b), as applicable;

(e) After the applicable Annual Product Opt-Out Date, Infinity shall have no obligation to provide a quarterly update on the Development of the Opt-Out Product; and

(f) Except as permitted under the FAAH Ex-U.S. Strategic Alliance Agreement, Purdue shall not, directly or indirectly, by itself or jointly with or through any of its Affiliates or any Third Parties, engage in the Development, Manufacture or Commercialization of any product or product candidate that Interacts with FAAH for two (2) years following the applicable Annual Product Opt-Out Date.

Section 2.7 [Reserved] .

Section 2.8 FAAH Project .

(a) Upon completion of the first Phase I Study to be conducted on a FAAH Product and the analysis of the relevant data with respect thereto, Infinity shall provide Purdue a package of all preclinical and clinical data related to such FAAH Product since the date of the last report submitted to Purdue pursuant to Section 2.5 or 2.6 above. Within sixty (60) days after Purdue’s receipt of such package Purdue shall provide Infinity written notice of whether it wishes to assume responsibility for the future Development, Manufacturing and Commercialization of such FAAH Product in the Territory (the earlier of such sixtieth (60 ^th ) day or the date on which Purdue provides such notice, the “ FAAH Transition Date ”).

(b) Should Purdue elect not to assume such responsibility:

(i) such FAAH Product will be considered an Opt-Out Product;

(ii) Purdue shall have no further Program Rights;

 

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(iii) Infinity may Develop, Manufacture and Commercialize any Opt-Out Product or Related Product in the Territory associated therewith without any further obligation to Purdue other than the payment to Purdue of a royalty on Net Sales of such FAAH Product in the Territory at the rate set forth in Sections 5.3(a) and 5.3(b); and

(iv) Except as permitted under the FAAH Ex-U.S. Strategic Alliance Agreement, Purdue shall not, directly or indirectly, by itself or jointly with or through any of its Affiliates or any Third Parties, engage in the Development, Manufacture or Commercialization of any product or product candidate that Interacts with FAAH for two (2) years following the date of Purdue’s notice that it elected not to assume responsibility for the FAAH Project.

(c) If Purdue elects to assume such Development, Manufacturing and Commercialization responsibility with respect to such FAAH Product in the Territory in accordance with Section 2.8(a), then, within a reasonable period of time after the FAAH Transition Date, (i) Infinity shall make available to Purdue or its designee, in a mutually-agreed upon format, material information (including Know-How) regarding the FAAH Product, (ii) Infinity shall make its relevant scientific and technical personnel reasonably available to Purdue to answer any questions or provide instruction as reasonably requested by Purdue concerning such information, (iii) Infinity shall transfer or assign any INDs related to the FAAH Project in the Territory to Purdue or its designee, (iv) Purdue, itself or through its Affiliates, shall be solely responsible for pharmacovigilance with respect to the FAAH Product, and (v) Purdue, itself or through its Affiliates, shall be solely responsible for Manufacturing the FAAH Product in the Territory; provided , however , that Infinity shall use Commercially Reasonable Efforts to ensure the continuity of supply of any FAAH Product to Purdue for a twelve (12) month period at Purdue’s expense. In the event Purdue assumes responsibility for the Development, Manufacture and Commercialization of FAAH Products in the Territory pursuant to Section 2.8, Purdue shall use Commercially Reasonable Efforts to Develop, Manufacture and Commercialize the FAAH Products, by itself or through an Affiliate or Service Provider.

Section 2.9 FAAH Product Coordination . Upon MICL’s election to terminate its Program Rights for the FAAH Products (as defined in the FAAH Ex-U.S. Strategic Alliance Agreement) pursuant to Sections 2.5, 2.6 or 2.8 of the FAAH Ex-U.S. Strategic Alliance Agreement, Infinity shall have the right, in its sole discretion, by providing written notice to Purdue within thirty (30) days after such election, to terminate Purdue’s Program Rights for the FAAH Product, whereupon Purdue shall be deemed to have elected to terminate its Program Rights for the FAAH Product arising out of the Research Program pursuant to Sections 2.5, 2.6 or 2.8 of this Agreement, with the corresponding effects herein.

 

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ARTICLE III

DEVELOPMENT AND COMMERCIALIZATION OF FAAH PRODUCTS

Section 3.1 Regulatory Matters Related to Products .

(a) Overview . Infinity shall use Commercially Reasonable Efforts to Develop the FAAH Product through the FAAH Transition Date. Thereafter, Purdue shall use Commercially Reasonable Efforts to Develop the FAAH Product.

(b) Regulatory Submissions . Infinity shall oversee, monitor and coordinate all regulatory actions, communications and filings with, and submissions to, the FDA with respect to FAAH Products in the Territory up to the FAAH Transition Date. Thereafter, Purdue shall oversee, monitor and coordinate all regulatory actions, communications and filings with, and submissions to, the FDA with respect to FAAH Products in the Territory.

(c) Regulatory Meetings and Correspondence . Up to the FAAH Transition Date the following shall apply: (i) Infinity shall be responsible for interfacing, corresponding and meeting with the FDA with respect to FAAH Products in the Territory; (ii) Purdue shall have the right to have a senior, experienced employee, reasonably acceptable to Infinity, participate as an observer in meetings with the FDA with respect to FAAH Products and shall be provided with advance access to Infinity’s materials prepared for such meetings; (iii) Infinity shall provide Purdue with copies of any material submissions and correspondence with the FDA relating to Development of the FAAH Products, and shall use reasonable efforts to provide Purdue with copies of any other submissions and correspondence with the FDA relating to Development of the FAAH Products; (iv) Purdue shall have the right to review and comment upon any material submissions and correspondence with the FDA related to the FAAH Products and meetings with the FDA; (v) Infinity shall respond within a reasonable time frame to all reasonable inquiries by Purdue with respect to such submissions and correspondence; and (vi) Infinity shall provide Purdue, as soon as practicable, with meeting minutes from any meetings with the FDA concerning the FAAH Products.

(d) Data Ownership . All preclinical and clinical data generated with respect to the FAAH Products in the course of the Research Program shall be owned by Infinity.

Section 3.2 Commercialization .

(a) During the Term, Infinity, itself or through its Affiliates and Sublicensees, shall be solely responsible for Commercializing all Opt-Out Products in the Territory. Infinity shall be responsible for one hundred percent (100%) of the expenses incurred in connection with the Commercialization of such Opt-Out Products in the Territory. Infinity, by itself or through an Affiliate or Service Provider, shall use Commercially Reasonable Efforts to Commercialize Opt-Out Products in the Territory.

(b) During the Term, Purdue, itself or through its Affiliates and Sublicensees, shall be solely responsible for Commercializing all FAAH Products in the applicable Territory. Purdue shall be responsible for one hundred percent (100%) of the expenses incurred in connection with the Commercialization of such FAAH Products in the Territory. Purdue, by itself or through an Affiliate or Service Provider, shall use Commercially Reasonable Efforts to Commercialize FAAH Products in the Territory.

 

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Section 3.3 Product Trademarks; Domain Names .

(a) Subject to obtaining necessary Regulatory Approvals, Purdue shall Commercialize each FAAH Product in the Territory under the product name and related trademarks selected by Purdue or its Affiliates (“ Product Trademarks ”). All uses of the Product Trademarks to identify and/or in connection with the Commercialization of FAAH Products in the Territory shall be in accordance with Regulatory Approvals and all applicable Laws. The Product Trademarks under which FAAH Products are marketed or sold (other than Purdue’s corporate trademarks or trade names) shall be used by Purdue only pursuant to the terms of this Agreement to identify and in connection with the Commercialization of FAAH Products, and shall not be used by Purdue to identify or in connection with the marketing of any other products. Purdue shall own and retain all rights to, and have the sole right to prepare, file, prosecute and maintain, such Product Trademarks (together with all goodwill associated therewith) in the Territory at its own expense.

(b) Purdue shall own any rights to any Internet domain names incorporating any Product Trademark or any variation or part of any such Product Trademark as its URL address or any part of such address and shall be responsible for one hundred percent (100%) of the costs with respect thereto.

Section 3.4 Information Sharing . On an annual basis no later than October 1 of each year, Purdue shall provide a report to Infinity detailing Purdue’s plans for the Development and Commercialization of FAAH Products in the Territory during the following year.

ARTICLE IV

GRANT OF LICENSES

Section 4.1 License Grant to Purdue .

(a) Subject to the terms and conditions of this Agreement, Infinity, on behalf of itself and its Affiliates, hereby grants to Purdue during the Term an exclusive, sublicenseable (in accordance with and subject to the provisions of Section 4.2) license or sublicense, as applicable, under the Infinity Know-How and Infinity Patent Rights to Commercialize FAAH Products in the Territory.

(b) Subject to the terms and conditions of this Agreement, in the event Purdue assumes responsibility for the Development, Manufacturing and Commercialization of FAAH Products in accordance with Section 2.8, Infinity, on behalf of itself and its Affiliates, hereby grants to Purdue during the Term an exclusive, sublicenseable (in accordance with and subject to the provisions of Section 4.2) license or sublicense, as applicable, under the Infinity Know-How and Infinity Patent Rights to Develop and Manufacture FAAH Products in the Territory.

 

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Section 4.2 Purdue Sublicense Rights .

(a) Purdue shall have the right, on a product-by-product basis, to grant sublicenses under the licenses to Infinity Know-How and Infinity Patent Rights granted to Purdue under Section 4.1 to any of its Affiliates and, subject to Sections 4.2(b) and 4.2(c), to Third Parties.

(b) In the event that Purdue desires to commence negotiations with any Third Party (other than Service Providers) to license and/or sublicense all or a portion of Purdue’s Program Rights with respect to a FAAH Product, Purdue shall promptly notify Infinity of its intent to enter into such a transaction, identifying the specific Program Rights that will be the subject of such transaction. Within thirty (30) days after receipt of such notification, Infinity shall notify Purdue in writing either that (i) Infinity is interested in negotiating an agreement with respect to such Program Rights or (ii) Infinity has no interest and therefore waives its right of first negotiation with respect to such Program Rights. If Infinity notifies Purdue in writing within such thirty (30) day period that Infinity desires to negotiate an agreement with respect to such Program Rights, the Parties shall negotiate in good faith for up to sixty (60) days from the date of such notification, or such longer period as agreed between the Parties, regarding the then-current and planned capabilities of Infinity with respect to such Program Rights and the terms pursuant to which the Parties would enter into a transaction with respect to such Program Rights. Failure by Infinity to give written notice of its interest or lack of interest in negotiating for such agreement within thirty (30) days after receipt of written notice from Purdue as described in the first sentence of this Section 4.2(b) shall be deemed to constitute a waiver by Infinity of its right of first negotiation with respect to such Program Rights. In addition, failure of the Parties to execute a written agreement with respect to such Program Rights within such sixty (60) day negotiation period (or such longer period as agreed between the Parties) shall result in the termination of such right of first negotiation with respect to such Program Rights. If Infinity waives its right of first negotiation with respect to such Program Rights or, following Infinity’s exercise of its right of first negotiation with respect to such Program Rights, the Parties fail to enter into a written agreement with respect thereto during the negotiation period set forth in this Section 4.2(b), then Purdue shall, subject to Section 4.2(c), be free to enter into a transaction for such Program Rights with a Third Party.

(c) Any permitted license or sublicense of Purdue’s Program Rights granted by Purdue to a Third Party (including further sublicenses of such rights) shall be subject to Infinity’s prior written consent, which shall not be unreasonably withheld or delayed. Purdue shall provide Infinity with a copy of any license or sublicense agreement within five (5) Business Days after execution thereof. Each license or sublicense of Purdue’s Program Rights granted by Purdue shall be consistent with the terms and conditions of this Agreement, and Purdue shall guarantee the performance of its Affiliates and Sublicensees with respect to any license or sublicense granted pursuant to this Section 4.2.

Section 4.3 Freedom to Operate . Should Infinity desire, at any time after the Effective Date, to obtain a covenant from Purdue and its Affiliates not to assert against Infinity and its Affiliates, or any of their Service Providers or customers (but not Sublicensees), any Know-How or intellectual property right owned or controlled by Purdue or its Affiliates in connection with the (a) Development or Manufacture of Opt-Out Products anywhere in the world, or (b)

 

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Commercialization in the Territory of Opt-Out Products, Infinity shall notify Purdue thereof and Purdue shall, and shall cause its Affiliates to, consider such request in good faith at Purdue’s commercially reasonable discretion.

Section 4.4 License Grant to Infinity . Subject to the terms and conditions of this Agreement, Purdue, on behalf of itself and its Affiliates, hereby grants to Infinity during the Term an exclusive, sublicenseable (in accordance with and subject to the provisions of Section 4.5) license or sublicense, as applicable, under the Purdue Know-How and Purdue Patent Rights to (a) Develop and Manufacture FAAH Products and Opt-Out Products, anywhere in the world, and (b) to Commercialize Opt-Out Products anywhere in the world.

Section 4.5 License and Sublicense Grants to Third Parties by Infinity . Any permitted license or sublicense of Infinity’s licensed rights under Section 4.4 granted by Infinity to a Third Party (including further sublicenses of such sublicenses) shall be subject to Purdue’s prior written consent, which shall not be unreasonably withheld or delayed. Infinity shall provide Purdue with a copy of any license or sublicense agreement within five (5) Business Days after execution thereof. Each license or sublicense of Infinity’s licensed rights under Section 4.4 granted by Infinity shall be consistent with all the terms and conditions of this Agreement, and Infinity shall guarantee the performance of its Affiliates and Sublicensees with respect to any license or sublicense granted pursuant to this Section 4.5.

Section 4.6 No Other Rights . Any rights of Infinity or its Affiliates in any Know-How or intellectual property rights not expressly granted to Purdue or its Affiliates under the provisions of this Agreement or the FAAH Ex-U.S. Strategic Alliance Agreement shall be retained by Infinity or its Affiliates, and any rights of Purdue or its Affiliates in any Know-How or intellectual property rights not expressly granted to Infinity under the provisions of this Agreement or the FAAH Ex-U.S. Strategic Alliance Agreement shall be retained by Purdue or its Affiliates. All licenses and other rights are or shall be granted only as expressly provided in this Agreement, and no other licenses or other rights are or shall be created or granted hereunder by implication, estoppel or otherwise.

Section 4.7 Licensor Rights . The rights, licenses and sublicenses granted by Infinity to Purdue in this Agreement are subject to the terms and conditions of Infinity’s agreements with its licensors. The rights, licenses and sublicenses granted by Purdue to Infinity in this Agreement are subject to the terms and conditions of Purdue’s agreements with its licensors.

Section 4.8 [Reserved] .

Section 4.9 Section 365(n) . All rights and licenses granted under or pursuant to any section of this Agreement (including the Infinity Know-How which is preclinical and clinical data generated with respect to FAAH Products in the course of the Research Program) are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code, as now or hereafter in effect (the “ U.S. Bankruptcy Code ”), licenses of rights to “intellectual property” as defined under Section 101(35A) of the U.S. Bankruptcy Code. The Parties shall retain and may fully exercise all of their respective rights and elections under the U.S. Bankruptcy Code. Each Party agrees that the other Party, to the extent that it is a licensee of such rights under this Agreement, shall retain and may fully exercise all of its rights and

 

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elections under the U.S. Bankruptcy Code, and that upon commencement of a bankruptcy proceeding by or against one Party under the U.S. Bankruptcy Code, the other Party shall be entitled to a complete duplicate of or complete access to (as such other Party deems appropriate), any such intellectual property and all embodiments of such intellectual property, provided that such other Party continues to fulfill its obligations as specified herein in full. Such intellectual property and all embodiments thereof shall be promptly delivered to the other Party (a) upon any such commencement of a bankruptcy proceeding upon written request therefor by the other Party, unless the Party subject to such bankruptcy proceeding elects to continue to perform all of its obligations under this Agreement or (b) if not delivered under subsection (a) above, upon the rejection of this Agreement by or on behalf of the Party subject to such bankruptcy proceeding, upon written request therefor by the other Party. The foregoing is without prejudice to any rights that either Party may have arising under the U.S. Bankruptcy Code or other applicable Law.

Section 4.10 Rights of Reference . Any license granted pursuant to Section 4.1 or 4.4 shall include a right of reference under the applicable INDs to the extent necessary for the licensed Party to exercise such license rights.

Section 4.11 Exclusivity . During the Term, neither Party nor any of its Affiliates shall Develop, Manufacture or Commercialize FAAH Products or Related Products except as set forth in this Agreement or the FAAH Ex-U.S. Strategic Alliance Agreement.

ARTICLE V

FINANCIAL PROVISIONS

Section 5.1 Research Funding . Purdue shall fund one hundred percent (100%) of the Research and Development Expenses incurred by Infinity under the Research Plan. On or prior to the fifth (5 ^th ) Business Day after January 1, 2009, Purdue shall pay Infinity a Quarterly Research Fee for the first calendar quarter of the Research Program. Thereafter, on the first day of each calendar quarter during the Research Program Term, Purdue shall pay Infinity a Quarterly Research Fee for the current calendar quarter of the Research Program Term. As used in this Agreement, “ Quarterly Research Fee ” means one-fourth (  ¹ / 4 ) of the budget set forth for the relevant calendar year in the applicable Research Plan. To the extent any Research and Development Funding provided by Purdue in any calendar year pursuant to this Section 5.1 exceeds actual Research and Development Expenses incurred by Infinity in such year, such excess amount shall be applied toward any funding obligation that Purdue may have to Infinity with respect to Research and Development Expenses in the following calendar year. At the end of the Research Program Term, Infinity shall deliver a report to Purdue detailing the total Research and Development Expenses incurred by Infinity under the Research Program.

Section 5.2 Purdue Royalty Payments . Purdue shall pay to Infinity royalties on Net Sales of FAAH Products in the Territory as follows:

 

 

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Once Net Sales of FAAH Products in the Territory during a calendar year reach the second or third threshold specified above, then the royalty rate set forth for such threshold shall apply to all Net Sales of FAAH Products in the Territory in such calendar year.

For example, if, during the first calendar quarter of a year, the Net Sales of a FAAH Product in the Territory is US$100,000,000, then Purdue shall pay a royalty rate of 10% on such Net Sales, resulting in a payment of US$10,000,000. If, during the second calendar quarter of such year, the Net Sales of such FAAH Product in the Territory is US$100,000,000, so that the cumulative Net Sales for such FAAH Product during such year-to-date is US$200,000,000, then the 15% royalty rate shall apply retroactively to all Net Sales during such calendar year, resulting in a payment of US$20,000,000 for such calendar quarter (i.e., US$30,000,000 minus the US$10,000,000 paid for the first calendar quarter).

Section 5.3 Infinity Royalties to Purdue .

(a) Research and Development Funding Recovery . Infinity shall pay to Purdue a royalty of five percent (5%) of Net Sales of Opt-Out Products in the Territory until such time as Purdue has recovered one hundred percent (100%) of all Research and Development Funding paid to Infinity by Purdue for such Opt-Out Products in the Territory.

(b) Post Research and Development Funding Recovery . After Purdue has recovered one hundred percent (100%) of the amounts described in Section 5.3(a), Infinity shall pay to Purdue a one percent (1%) royalty on annual Net Sales of Opt-Out Products.

Section 5.4 Duration of Royalty Payments; Royalty Reduction .

(a) Duration of Royalty Payments . The royalties payable under Sections 5.2 and 5.3 shall be paid on each Royalty Bearing Product until the expiration of the applicable Royalty Term in the Territory. Upon the expiration of the Royalty Term applicable to any Royalty Bearing Product in the Territory, the Royalty-Paying Party’s licenses under Section 4.1 or 4.4, as applicable, with respect to such Royalty Bearing Product in the Territory shall convert to non-exclusive, fully paid-up, non-royalty-bearing licenses.

(b) Regulatory Exclusivity . On a Royalty Bearing Product-by-Royalty Bearing Product basis, if the sole basis for the continuance of a Royalty Term is the existence of Regulatory Exclusivity, the applicable royalty under Section 5.2 and/or Section 5.3 shall be reduced by fifty percent (50%).

 

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(c) Third Party Royalty Obligations . If the Royalty Paying Party (i) reasonably determines in good faith that, in order to avoid infringement of any patent not licensed hereunder, it is reasonably necessary to obtain a license from a Third Party in order to Manufacture (if the Royalty Paying Party has the right to do so) or Commercialize (in the case of either Party) a Royalty Bearing Product in the Territory, and to pay a royalty or other consideration under such license (including in connection with the settlement of a patent infringement claim), or (ii) shall be subject to a final court or other binding order or ruling requiring any payments, including the payment of a royalty to a Third Party patent holder in respect of future sales of any Royalty Bearing Product in the Territory, then the amount of the Royalty Paying Party’s royalty payments under Section 5.2 or 5.3 with respect to Net Sales for such Royalty Bearing Product in the Territory shall be reduced by seventy-five percent (75%) of the amount paid by the Royalty Paying Party to such Third Party that is reasonably and appropriately allocable to such Royalty Bearing Product; provided , however , that in no event will a deduction, or deductions, under this Section 5.4(c) reduce any royalty payment made by the Royalty Paying Party in respect of Net Sales of such Royalty Bearing Product pursuant to Section 5.2 or 5.3 by more than fifty percent (50%).

Section 5.5 Royalties Payable Only Once . The Royalty Paying Party’s obligation to pay royalties under Sections 5.2 or 5.3, as applicable, are imposed only once with respect to the same unit of Royalty Bearing Product, including by reason of such Royalty Bearing Product being Covered by more than one Valid Claim of Infinity Patent Rights or Purdue Patent Rights.

Section 5.6 Royalty Reports and Accounting .

(a) Royalty Reports; Royalty Payments . The Royalty Paying Party shall deliver to the Royalty Receiving Party, within thirty (30) days after the end of each calendar quarter, reasonably detailed written accountings of Net Sales of Royalty Bearing Products that are subject to royalty payments due to the Royalty Receiving Party for such calendar quarter. Such accountings shall be Confidential Information of the Royalty Paying Party unless otherwise excluded by Section 6.1(b). Such quarterly reports shall indicate (i) gross sales and Net Sales (including reasonable detail for deductions from gross sales to Net Sales) Royalty Bearing Product-by-Royalty Bearing Product basis in the Territory, and (ii) the calculation of royalties from such gross sales and Net Sales. When the Royalty Paying Party delivers such accounting to the Royalty Receiving Party, the Royalty Paying Party shall also deliver all royalty payments due under Section 5.2 or 5.3, as applicable, to the Royalty Receiving Party for the calendar quarter.

(b) Audits .

(i) The Royalty Paying Party shall keep, and shall require its Affiliates and Sublicensees to keep, complete and accurate records of the latest three (3) years relating to gross sales, Net Sales and all underlying revenue and expense data relating to the calculations of Net Sales and payments required by Sections 5.2 and 5.3. For the sole purpose of verifying amounts payable to the Royalty Receiving Party, the Royalty Receiving Party shall have the right annually, at the Royalty Receiving Party’s expense, to retain an independent certified public accountant selected by the Royalty Receiving Party and reasonably acceptable to the Royalty Paying Party, to review such records in the location(s) where such records are maintained by the Royalty Paying Party,

 

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its Affiliates and Sublicensees upon reasonable notice and during regular business hours. Such representatives shall execute a suitable confidentiality agreement reasonably acceptable to the Royalty Paying Party prior to conducting such audit. Such representatives shall disclose to each of Purdue and Infinity only their conclusions regarding the accuracy of royalty payments and of records related thereto. The right to audit any royalty report shall extend for three (3) years from the end of the calendar year in which the royalty report was delivered. Each royalty report shall be subject only to one such audit. The Royalty Paying Party shall, within thirty (30) days after the Parties’ receipt of the audit report, pay the Royalty Receiving Party the amount of any underpayment revealed by such audit together with interest calculated in the manner provided in Section 5.8. If the underpayment is equal to or greater than five percent (5%) of the amount that was otherwise due, the Royalty Receiving Party shall be entitled to have the Royalty Paying Party reimburse the Royalty Receiving Party’s reasonable out-of-pocket costs of such review. The Royalty Receiving Party shall, within thirty (30) days after the Parties’ receipt of the audit report, return to the Royalty Paying Party any overpayment revealed by such audit.

(ii) Infinity shall keep complete and accurate records of its Research and Development Expenses reimbursable by Purdue in accordance with Section 5.1. For the sole purpose of verifying the Research and Development Funding paid to Infinity pursuant to Section 5.1, Purdue shall have the right annually (after the completion of any annual comparison of Research and Development Funding to actual Research and Development Expenses), at Purdue’s expense, to retain an independent certified public accountant selected by Purdue and reasonably acceptable to Infinity, to review the quarterly report and backup records in the location(s) where such records are maintained by Infinity or its Affiliates upon reasonable notice and during regular business hours. Such representatives shall execute a suitable confidentiality agreement reasonably acceptable to Infinity prior to conducting such audit. Such representatives shall disclose to each of Purdue and Infinity only their conclusions regarding the accuracy of actual Research and Development Expenses and of records related thereto. The right to audit any Research and Development Expenses shall extend for three (3) years from the end of the calendar year in which the quarterly report relating to such expenses was delivered to Purdue in accordance with Section 2.3(a). Each quarterly report shall be subject only to one such audit. Infinity shall, within thirty (30) days after the Parties’ receipt of the audit report, pay Purdue the amount of any overpayment revealed by such audit together with interest calculated in the manner provided in Section