STRATEGIC ALLIANCE AGREEMENT

Strategic Alliance Agreement

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DISCOVERY LABORATORIES INC /DE/ | PHILIP MORRIS USA INC.,

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Title: STRATEGIC ALLIANCE AGREEMENT
Date: 12/12/2005
Industry: BIOTRX Law Firm: Dickstein Shapiro Morin & Oshinsky, LLP

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Exhibit 10.1

Confidential Treatment Requested

Portions of this Exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions, marked by “[***]”, have been separately filed with the Securities and Exchange Commission.

STRATEGIC ALLIANCE AGREEMENT

by and between

DISCOVERY LABORATORIES, INC.

(a Delaware corporation)

and

PHILIP MORRIS USA INC., d/b/a CHRYSALIS TECHNOLOGIES

(a Virginia corporation)

DECEMBER 9, 2005

ARTICLE 1	DEFINITIONS		1

ARTICLE 2	SCOPE OF ALLIANCE		10

ARTICLE 3	LICENSE		10
3.1	License		10
3.2	Limitations		10
3.3	Sublicensing Rights		10
3.4	Retained Rights		10
3.5	Exclusivity		11

ARTICLE 4	PRODUCT DEVELOPMENT		11
4.1	In General		11
4.2	Supported Product Development Projects		11
4.3	Project Plans		11
4.4	Development Responsibilities and Consulting Services		12
	4.4.1	Direction and Oversight	12
	4.4.2	Responsibilities of Discovery	12
	4.4.3	Responsibilities of Chrysalis	12
		(a) In General	12
		(b) Development Activities	13
		(c) Consulting Services	13
4.5	Development Effort		13
4.6	Development Milestone		13
4.7	Skilled Personnel		13
4.8	Costs		14
4.9	Additional License Product Opportunities		14
	4.9.1	Additional Product Opportunities	14
	4.9.2	Procedure	14
4.10	Design Configurations		15

ARTICLE 5	GOVERNANCE AND COMMITTEE STRUCTURE		15
5.1	General		15
5.2	Alliance Managers		15
	5.2.1	Appointment and Rules	15
	5.2.2	Changes in Alliance Managers	15
	5.2.3	Additional Responsibilities of Alliance Managers	15
5.3	Steering Committee		16
	5.3.1	Formation and Purpose	16
	5.3.2	Membership, Chairmanship and Meetings	16
5.4	Project Team		16
	5.4.1	Formation and Purpose	17
	5.4.2	Specific Responsibilities of the Project Team	17
	5.4.3	Membership, Chairmanship and Meetings	17
5.5	Working Groups		17

5.6	General Committee Membership and Procedures		18
	5.6.1	Membership and Meetings	18
	5.6.2	Ad Hoc Participants	18
	5.6.3	Decision-Making	18
	5.6.4	Meeting Agendas and Minutes	18
	5.6.5	Interactions between Committees and Internal Teams	19
5.7	Design Review Board		19

ARTICLE 6	COMMERCIALIZATION		19
6.1	Exclusive Right to Sell the Licensed Products		19
6.2	Responsibility for Commercialization Matters		19
6.3	Diligent Commercialization Efforts		19
	6.3.1	Commercialization Initiation	20
	6.3.2	Commercialization Milestones	20

ARTICLE 7	REGULATORY MATTERS		20

7.1	Responsibility and Consultation		20
7.2	Regulatory Communications		21
7.3	Meetings		21
7.4	Sharing of Information		21
7.5	Discovery’s Right to Audit Certain Third Parties		21

ARTICLE 8	FINANCIAL PROVISIONS		21
8.1	Royalties with Respect to Supported Products		21
8.2	Royalties with Respect to Independent Products		23
8.3	Prohibition on Bundling		23
8.4	Fixed Consideration		23
8.5	Treatment of Partial Product Sales		23
8.6	Royalty Reports		23
8.7	Payment of Estimated and Actual Amounts		24
	8.7.1	Payment of Estimated Amounts	24
	8.7.2	Quarterly Reconciliation and True-Up	24
8.8	Pass-Through Royalties		24
8.9	Records and Audits		24
	8.9.1	Records	24
	8.9.2	Audit	24
	8.9.3	Audit Confidentiality	25
	8.9.4	Costs of Audits	25
8.10	Foreign Exchange		25
8.11	Manner of Payments		25
8.12	Late Payments		25
8.13	Tax Withholding		26

ARTICLE 9	INTELLECTUAL PROPERTY		26
9.1	Ownership		26

	9.1.1	Chrysalis Intellectual Property	26
	9.1.2	Discovery Intellectual Property	26
	9.1.3	Joint Intellectual Property	26
9.2	Disclosure, Assignment, License and Exploitation		27
	9.2.1	Disclosure	27
	9.2.2	Assignment and License	27
	9.2.3	Exploitation of Intellectual Property	27
9.3	Agreement with Personnel		27
9.4	Prosecution of Patents		27
	9.4.1	Discovery and Chrysalis Patent Filings	27
	9.4.2	Joint Patent Filings	28
	9.4.3	Patent Prosecution Costs	28
	9.4.4	Abandonment of Prosecution	28
9.5	Patent Term Extensions		28
9.6	Third Party Infringement		29
	9.6.1	Suits for Infringement	29
	9.6.2	Step-In Right	29
	9.6.3	Allocation of Recovery	29
	9.6.4	Declaratory Actions and Counterclaims	29
9.7	Infringement of Third Party Rights		30
	9.7.1	Infringement Claims	30
	9.7.2	Step-In Right	30
	9.7.3	Notice of Certification	30

ARTICLE 10	RIGHT OF FIRST ACCESS TO CERTAIN ADDITIONAL OPPORTUNITIES		31
10.1	First Access Products		31
10.2	Provision of Right of First Access		31
10.3	First Access Product Presentation		31
10.4	Negotiation of First Access Product Arrangements		31

ARTICLE 11	CONFIDENTIAL INFORMATION		32
11.1	Use of Confidential Information		32
11.2	Permitted Disclosure and Use		32
11.3	Disclosure for SEC Filings		33
11.4	Publications		33
11.5	Public Announcements		34
11.6	Survival		34

iii

ARTICLE 12	REPRESENTATIONS, WARRANTIES AND COVENANTS		34
12.1	Mutual Representations and Warranties		34
	12.1.1	Organization; Authority	34
	12.1.2	Consents	34
	12.1.3	No Conflict	34
	12.1.4	Enforceability	35
	12.1.5	Regulatory	35
12.2	Intellectual Property		35
12.3	No Adverse Effects		37

ARTICLE 13	ADDITIONAL COVENANTS		37
13.1	Compliance with Laws		37
13.2	Cooperation		37
13.3	Sharing of Information		37

ARTICLE 14	DISCLAIMERS AND LIMITATION OF LIABILITY		37
14.1	Disclaimer of Warranties		37
14.2	Limitation of Liability		34

ARTICLE 15	INDEMNIFICATION; INSURANCE		37
15.1	Indemnification		37
	15.1.1	Obligations of the Parties	38
	15.1.2	Certain Product Liability Claims	38
	15.1.3	Complete Indemnification	38
15.2	Indemnification Procedures		38
	15.2.1	Notification	38
	15.2.2	Assumption of Defense	38
	15.2.3	Settlements	39
15.3	Insurance		39

ARTICLE 16	TERM		40

ARTICLE 17	TERMINATION		40
17.1	Termination for Material Breach		40