STRATEGIC ALLIANCE AGREEMENT

THIS STRATEGIC ALLIANCE AGREEMENT is made as of December   9, 2005 (the “ Effective Date ”), by and between DISCOVERY LABORATORIES, INC., a Delaware corporation (“ Discovery ”), and   PHILIP MORRIS USA INC., d/b/a CHRYSALIS TECHNOLOGIES, a Virginia corporation (“ Chrysalis ”). Discovery and Chrysalis shall be referred to herein individually as a “ Party ” and collectively as the “ Parties ”.

WHEREAS, Discovery is currently developing a portfolio of aerosolized surfactant replacement therapies ( a SRT) based upon its proprietary precision-engineered surfactant technology for the prevention and treatment of respiratory disorders;

WHEREAS, Chrysalis is currently developing and has expertise in the development and design of proprietary technology for the aerosolization of pharmaceutical products; and

WHEREAS, the Parties desire to enter into a strategic alliance pursuant to which they will develop certain combination drug-device surfactant products, Chrysalis will license its proprietary aerosolization technology to Discovery, and Chrysalis will provide certain additional consultative services to Discovery in connection with combination drug-device surfactant products, all on the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the foregoing premises and the representations, warranties, covenants, and agreements contained herein, the Parties, intending to be legally bound, hereby agree as follows:

In addition to terms defined elsewhere in this Agreement, the following terms used in this Agreement are defined below:

1.1   “ AAA ” means the American Arbitration Association.

1.2   “ Actual Amount ” has the meaning set forth in Section 8.7.2.

1.3   [***]

1.4   “ Additional Product Opportunities ” has the meaning set forth in Section 4.9.1.

1.5   “ Aerosol Device ” means a device for the aerosolization of a pharmaceutical compound for administration to humans. It is contemplated that the Aerosol Device shall consist of (i) permanent ( e.g ., nondisposable) components that control power and electronics ( e.g ., control unit) and (ii) a physical mechanism ( e.g. , pump) to provide a means for dispensing the Drug Product from the container closure system.

1.6   “ Aerosol Technology ” means any technology related to the aerosolization of a liquid form of a pharmaceutical compound. Aerosol Technology does not include technology that is related to the delivery of aerosols as dry powders.

1.7   “ Affiliates ” means with respect to any Party, any Person, directly or indirectly, controlling, controlled by or under common control with such Party. For purposes of this Section 1.7, “control” means (i) in the case of a Person that is a corporate entity, direct or indirect ownership of more than fifty percent (50%) of the stock or shares having the right to vote (or such lesser percentage which is the maximum allowed to be owned by a foreign corporation in a particular jurisdiction) for the election of directors of such Person or (ii) in the case of a Person that is an entity, but is not a corporate entity, the possession, directly or indirectly, of (A) more than fifty percent (50%) of the economic or partnership interest in the income or capital of such Person or (B) the power to direct, or cause the direction of, the management or policies of such Person, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling,”  “controlled by” or “under common control” shall have the meanings correlative to the foregoing.

1.8   “ Agreement ” means this Strategic Alliance Agreement, including the Schedules attached hereto.

1.9   “ Alliance ” has the meaning set forth in Article 2.

1.10   “ Alliance Manager ” has the meaning set forth in Section 5.2.1.

1.11   “ Base Hospital General Product ” has the meaning set forth in Section 4.2.

1.12   “ Base NICU Product ” has the meaning set forth in Section 4.2.

1.13   “ Base Supported Product Development Projects ” means a Supported Product Development Project with respect to a Base NICU Product or a Base Hospital General Product.

1.14   “ Breaching Party ” has the meaning set forth in Section 17.1.1 and 17.1.2, as applicable.

1.15   “ Business Day ” means a day other than a Saturday, Sunday, or other day on which commercial banks in New York, New York are authorized or required by Law to close.

1.16   “ Chrysalis ” has the meaning set forth in the Preamble hereto.

1.17   “ Chrysalis Intellectual Property ” has the meaning set forth in Section 9.1.1.

1.18   “ Chrysalis Patents ” means all Patents owned by Chrysalis or to which Chrysalis otherwise has rights that claim or are directed to the Chrysalis Technology.

1.19   “ Chrysalis Technology ” means (a) Chrysalis’ proprietary Aerosol Technology (including without limitation the technologies, devices, processes, equipment, materials and know-how relating to the aerosolization of liquid forms of drug products and the Aerosol Devices and Disposable Dose Packs therefor) and (b) all Intellectual Property owned by or licensed to Chrysalis relating to such Aerosol Technology, including, without limitation, the Chrysalis Patents.

1.20   “ Chrysalis Technology Improvements ” means any Inventions created or reduced to practice [***] in the performance of the Alliance or exercise of the license granted pursuant to this Agreement, which Inventions relate primarily to the Chrysalis Technology.

1.21   “ Clinical Trials ” means Phase I, II, III and, if required, Phase IV clinical trials and such other tests and studies in human subjects or patients that are required to obtain, maintain, or sustain Regulatory Approval in a country in the Territory.

1.22   “ Combined Net Sales ” means with respect to any Contract Year, the total Net Sales of all of the Supported Products during such Contract Year.

1.23   “ Committees ” has the meaning set forth in Section 5.1.

1.24   “ Confidential Information ” means all information received by either Party or its Affiliates from or on behalf of the other Party or its Affiliates relating to this Alliance that the disclosing Party treats as confidential, including, without limitation: (i) copies of any nonpublic information regarding a Party’s Patents; (ii) techniques, technology, practices, trade secrets, inventions (whether or not patentable), designs, methods, manufacturing processes, formulae, formulations, specifications, documents, knowledge, know-how, skill, experience, test data, and results, (including that related to pharmacology, toxicology, preclinical testing, clinical testing, expression data, Chemistry, Manufacturing and Control (CMC) data, batch records, trials, and studies, safety and efficacy, analytical, and quality control); (iii) devices and related components, compounds, polypeptides, proteins, formulations, compositions of matter, cells, cell lines, markers, assays, and physical, biological, or chemical material; (iv) marketing information, market research data, medical/physicians advisory boards, and consultant input, including clinical studies designed to support promotional efforts; (v) the terms of this Agreement, and (vi) other proprietary business information such as business plans, financial or personnel matters, present or future products, research, process and technology development programs, sales, suppliers, customers, employees, investors, or other business information, whether in oral, written, graphic, or electronic form.

1.25   “ Contract Month ” means each month during any Contract Year. The initial Contract Month will be deemed to begin on the Effective Date and end on the expiration of that Contract Month in which the Effective Date falls.

1.28   “ Design Review Board ” has the meaning set forth in Section 5.7.

1.29   “ Diligent Commercialization Efforts ” means efforts and resources reasonably comparable to those commonly used in the research-based pharmaceutical industry for a medical device, pharmaceutical product or pharmaceutical compound at a similar stage in its commercialization or product life of similar market potential, taking into account safety and efficacy, the competitiveness of alternative products in the marketplace, the patent and other proprietary position of the product, the likelihood of regulatory approval given the regulatory structure involved, the potential profitability of the product and alternative products and other relevant factors relating to the commercialization of a Licensed Product, including, without limitation, the potential cost, risk, timing and reward, provided , however , that the fact that the Parties are required to share revenues with respect to the Licensed Products shall not be a factor taken into account in determining whether Diligent Commercialization Efforts were satisfied. Diligent Commercialization Efforts shall be determined on a market by market basis for a particular Licensed Product, and it is anticipated that the level of effort will change over time reflecting changes in the status of the Licensed Product and the market involved.

1.30   “ Diligent Development Efforts ” means efforts and resources reasonably comparable to those commonly used in the research-based pharmaceutical industry for a medical device, pharmaceutical product or pharmaceutical compound at a similar stage in its development of similar market potential, taking into account safety and efficacy, product profile, difficulty in developing the product, competitiveness of alternative products in the marketplace, the patent and other proprietary position of the product, the likelihood of regulatory approval given the regulatory structure involved, the potential profitability of the product and alternative products and other relevant factors affecting the cost, risk and timing of development and total potential reward to be obtained if a Licensed Product is commercialized, provided , however , that the fact that the Parties are required to share revenues with respect to the Licensed Products shall not be a factor taken into account in determining whether Diligent Development Efforts were satisfied.

1.31   “ Discovery ” has the meaning set forth in the Preamble hereto.

1.32   “ Discovery Intellectual Property ” has the meaning set forth in Section 9.1.2.

1.33   “ Discovery Patents ” means all Patents owned by Discovery or to which Discovery otherwise has rights that claim or are directed to any Discovery Intellectual Property.

1.34   “ Discovery Technology ” means (a) Discovery’s proprietary Pulmonary Surfactant technology (including without limitation the technologies, formulations, processes, equipment, materials and know-how relating to the manufacture and use of Pulmonary Surfactants for treatment of respiratory conditions), and (b) all Intellectual Property owned by or licensed to Discovery relating to such Pulmonary Surfactant technology, including, without limitation, the Discovery Patents.

1.35   “ Discovery Technology Improvements ” means any Inventions created or reduced to practice [***] in the performance of the Alliance or exercise of the license granted pursuant to this Agreement, which Inventions relate primarily to Pulmonary Surfactants (alone or in combination with other pharmaceutical compounds).

1.36   “ Disposable Dose Packet ” consists of: (i) Drug Product within a container (comprising the drug formulation containing the drug substance and the container closure system in which it is packaged), (ii) aerosolization capillary (heatable capillary through which the formulation is pumped to produce an aerosol), (iii) patient interface (components through which the aerosol produced by the capillary travels in order to reach the patient), and (iv) all ancillary tubing, connectors and fittings related thereto.

1.37   “ Dispute ” has the meaning set forth in Section 20.1.

1.38   “ Dollars ” and “ $ ” means, unless otherwise specified, United States Dollars.

1.39   “ Drug Product ” means Pulmonary Surfactant(s) or other pharmacological agent(s), together with any excipients or inactive ingredients, formulated for use in a Licensed Product.

1.40   “ Effective Date ” has the meaning set forth in the Preamble hereto.

1.41   “ Estimated Amount ” has the meaning set forth in Section 8.7.1.

1.42   [***]

1.43   “ Exchange Act ” has the meaning set forth in Section 19.1.

1.44   “ Exclusive Field ” means the therapeutic or preventative use in humans of Aerosol Technology to deliver Pulmonary Surfactants (alone or in combination with any other pharmaceutical compound(s)) as an active ingredient for the prevention or treatment of Respiratory Indications.

1.45   “ FDA ” shall mean the United States Food and Drug Administration, and any successor agency.

1.46   “ First Access Product ” has the meaning set forth in Section 10.1.

1.47   “ First Access Product Presentation ” has the meaning set forth in Section 10.3.

1.48   “ First Commercial Sale ” means the first arms-length commercial sale of a Licensed Product to a Third Party by Discovery or its Affiliates or sublicensees, as the case may be, in any country in the Territory after receipt of Marketing Authorization in such country which results in an exchange for cash or some equivalent to which value can be assigned for the purpose of determining Net Sales.

1.49   “ Force Majeure Event ” means an event or occurrence that materially interferes with the ability of a Party to perform its obligations or duties hereunder which is not within the reasonable control of the Party affected or any of its Affiliates, not due to malfeasance by such Party or its Affiliates, and which could not with the exercise of due diligence have been avoided, including without limitation fire, earthquake, acts of God, acts of war, labor strikes or lockouts, riots, civil disturbances, actions or inactions of governmental authorities (except actions in response to a breach of applicable Law by such Party).

1.50   “ GAAP ”means generally accepted accounting principles in the United States of America.

1.51   “ Hospital General Products ” has the meaning set forth in Section 4.2.

1.52   “ Hospital Setting ” means a hospital-setting in the delivery room, NICU, PICU, CCU, emergency department, surgical care unit and/or intermediate care unit.

1.53   “ Indemnitee ” has the meaning set forth in Section 15.2.1.

1.54   “ Indemnitor ” has the meaning set forth in Section 15.2.1.

1.55   “ Independent Product ” means any Licensed Product other than a Supported Product.

1.56   “ Infringement Notice ” has the meaning set forth in Section 9.6.1.

1.57   “ Intellectual Property ” means all know how, Inventions, Patents, copyrights, trademarks, trade secrets and any other intellectual property rights in the Territory that may be secured in any place under laws now or hereafter in effect.

1.58   “ Invention ” means any new or improved apparatus, process, information, product, invention, discovery, idea, suggestion, material, data, equipment, design, circuit component, drawing, tooling, prototype, report, computer software, documentation or other intellectual property or know-how (whether or not patentable) discovered, produced, conceived, created or reduced to practice by either or both Parties (or their Affiliates, sublicensees, subcontractors, successors or assigns).

1.59   “ Joint Inventions ” has the meaning set forth in Section 9.1.3.

1.60   “ Joint Patents ” means all Patents that claim or are directed to any Joint Inventions.

1.61   “ Law ” means any applicable statute, law, ordinance, regulation, order, or rule of any federal, state, local, foreign, or other governmental agency or body or of any other type of regulatory body (including common law) or securities exchange or automated quotation system.

1.62   “ Licensed Product ”means a combination drug-device product using or otherwise practicing the Chrysalis Technology and delivering Pulmonary Surfactants (alone or in combination with other pharmaceutical compounds).

1.63   “ Losses ” has the meaning set forth in Section 15.1.1.

1.64   “ Major Markets ” means [***] .

1.65   “ Marketing Authorization ” means, with respect to each country in the Territory, the principal Regulatory Approval required to market the Product in such country (e.g., the NDA), including satisfactory pricing and reimbursement approval, when applicable.

1.66   “ NDA ” shall mean (a) a new drug application, biologics license application, pre-market approval application, or a pre-market clearance under FDCA Section 510k that may be filed with the FDA in the United States or any comparable application that may be filed with any equivalent Regulatory Authority in the Territory.

1.67   “ Net Sales ” means, with respect to Licensed Products, as applicable, sold by Discovery, its Affiliates and sublicensees, the [***] amount [***] for Licensed Products by Discovery, its Affiliates, and any sublicensees of Discovery in arms-length, commercial transactions with customers that are Third Parties, less the following deductions to the extent included in such [***] amount: [***]

Any discretionary rebates, discounts or other adjustments to the [***] amount shall be commercially reasonable and consistent with standard industry practices. Net Sales (including each applicable deduction from the [***] amount) shall be determined from the books and records of Discovery maintained in accordance with GAAP consistently applied.

1.68   “ NICU ” means neonatal intensive care unit.

1.69   “ NICU Products ” has the meaning set forth in Section 4.2.

1.70   “ Non-Breaching Party ” has the meaning set forth in Section 17.1.1 and 17.1.2, as applicable.

1.71   “ Party ” and “ Parties ” have the meanings set forth in the Preamble hereto.

1.72   “ Party Vote ” has the meaning set forth in Section 5.6.3.

1.73   “ Patents ” means all patents and patent applications, and all patents issuing thereon (including utility, model and design patents and certificates of invention), together with all reissue patents, patents of addition, divisions, renewals, continuations, continuations-in-part, substitutions, additions, extensions (including supplemental protection certificates), registrations, confirmations, re-examinations, and foreign counterparts of any of the foregoing in the Territory.

1.74   “ Person ” means any natural person, corporation, company, partnership, limited liability company, proprietorship, trust or estate, joint venture, association, or other legal entity.

1.75   “ Phase 2 Completion Point ” has the meaning set forth in Section 10.2.

1.76   “ Project Plan ”means a plan for the overall development and commercialization of Licensed Products pursuant to a Supported Product Development Project.

1.77   “ Project Team ” has the meaning set forth in Section 5.4.1.

1.78   “ Pulmonary Surfactant ” means surface active agents designed for deposition in the lungs in order to exert a physiological or pharmacological affect to prevent or treat Respiratory Indications.  

1.79   “ Regulatory Approval ” means any approvals (including, where necessary for the marketing, use, or other distribution of a drug, medical device, or combination drug and medical device in a regulatory jurisdiction, pricing, and reimbursement approvals), licenses, registrations, or authorizations or equivalents necessary for the manufacture, use, storage, import, export, clinical testing, transport, marketing, sale, and distribution of the Drug Product or Aerosol Device and any Licensed Product in a regulatory jurisdiction anywhere in the Territory, including Marketing Authorizations.

1.80   “ Regulatory Authority ” means any federal, national, multinational, state, provincial, or local regulatory agency, department, bureau, or other governmental entity with authority to regulate the marketing and sale of a pharmaceutical product, delivery system or device in a country in the Territory, including the FDA in the United States.

1.81   “ Regulatory Data ” means any and all research data, pharmacology data, chemistry, manufacturing, and control data, preclinical data, clinical data and/or all other documentation submitted, or required to be submitted, to Regulatory Authorities in association with an Investigational New Drug Application or NDA for Licensed Products (including any Drug Master Files, Device Master Files, Chemistry, Manufacturing and Control (CMC) data, or similar documentation). “ Respiratory Indications ” means all respiratory dysfunctions, failures, syndromes, diseases, disorders, or conditions.

1.82   “Right of First Access ” has the meaning set forth in Section 10.1.

1.83   “ Royalty Credit ” has the meaning set forth in Section 8.7(b).

1.84   “ Royalty Report ” means the reports to be delivered by Discovery to Chrysalis pursuant to Section 8.6 with respect to each Contract Month and pursuant to Section 8.7 with respect to each Contract Quarter, which reports shall give such particulars of each of the Licensed Products sold by Discovery and its Affiliates and sublicensees during the preceding Contract Month in the case of Section 8.6 and during the preceding Contract Quarter in the case of Section 8.7 on a country-by-country basis as are reasonably pertinent to perform an accounting of royalties under this Agreement.

1.85   “ SEC ” has the meaning set forth in Section 11.3.

1.86   “ Steering Committee ” has the meaning set forth in Section 5.3.1.

1.87   “ Supported Product ” means: (i) the NICU Product, (ii) the Hospital General Product, and (iii) any other Licensed Products deemed to be Supported Products pursuant to Section 4.9.

1.88   “ Supported Product Development Projects ” has the meaning set forth in Section 4.1.

1.89   “ Target Indications ” means the following Respiratory Indications: Respiratory Distress Syndrome (RDS); Chronic Lung Disease (BPD); Transient Tachypnea; Hypoxemia; Pulmonary Hypertension; Pneumonia; Bronchiolitis; Diaphragmatic Hernia; Acute Lung Injury (ALI); Acute Respiratory Distress Syndrome (ARDS); Lung Transplantation; Respiratory Syncitial Virus (RSV); and, Cystic Fibrosis.

1.90   “ Target Populations ” means human patients in a Hospital Setting receiving forms of treatment for the applicable Respiratory Indication that are typically and principally provided within a Hospital Setting. For the sake of clarity, Target Populations shall not include patients or forms of treatment which are typically rendered outside a Hospital Setting or in ambulatory or chronic care modalities, even if such forms of treatment are also administered in a Hospital Setting.

1.91   “ Taxes ” has the meaning set forth in Section 8.13.

1.92   “ Term ” has the meaning set forth in Article 16.

1.93   “ Territory ” means all countries in all continents of the world.

1.94   “ Third Party ” means any Person other than Chrysalis or Discovery or their respective Affiliates.

1.95   “ Third Party Claim ” has the meaning set forth in Section 15.1.1.

1.96   “ Valid Claim ” means a claim of an issued and unexpired patent, which claim has not been held unpatentable, invalid, or unenforceable by a court or other government agency of competent jurisdiction from which no appeal can be or has been taken and has not been held or admitted to be invalid or unenforceable through re-examination or disclaimer, opposition procedure, nullity suit or otherwise, which claim, but for the licenses granted herein, would be infringed by the sale of a Licensed Product.

1.97   “ Working Group ” has the meaning set forth in Section 5.5.

The Parties agree to enter into this Agreement for the general purpose of developing and licensing for manufacturing and commercialization by Discovery certain combination drug-device products to promote and enhance human health on the terms and conditions set forth herein (the “ Alliance ”). To facilitate the development of such products, pursuant to this Agreement, Chrysalis is granting Discovery a license under the Chrysalis Technology, Chrysalis and Discovery have agreed to work together to develop certain combination drug-device products and Chrysalis has agreed to provide certain additional consultative services to Discovery, all on the terms and conditions set forth herein. Except as set forth in this Agreement or otherwise agreed to in writing, the Parties shall have no rights and obligations with respect to the Alliance. The Parties agree at all times to act in good faith and in a cooperative manner and, subject to any contractual or legal restrictions, to share such information as reasonably necessary to facilitate each Party’s performance of its obligations hereunder under this Agreement.

3.1   License . Subject to the terms, conditions, and limitations of this Agreement, Chrysalis hereby grants to Discovery an exclusive right and royalty-bearing license or sublicense, as applicable, with the right to grant sublicenses solely as set forth in Section 3.3 under the Chrysalis Technology and Joint Patents to make and have made, to use and have used, to sell and have sold, to offer for sale and have offered for sale, to import and export and have imported and exported Licensed Products in the Exclusive Field in the Territory during the Term.

3.2   Limitations . The license granted pursuant to Section 3.1 shall be exclusive only to the extent that Chrysalis has the right to grant an exclusive license with respect to the Licensed Product in question. No right or license outside of the Exclusive Field is granted and all such rights are expressly reserved by Chrysalis. No right or license is or shall be granted under this Agreement by implication. All such rights or licenses are or shall be granted only as expressly provided in this Agreement. Discovery shall not practice the Chrysalis Technology except as expressly licensed herein. Nothing herein shall limit the ability of Chrysalis to perform any research or development work on or using the Chrysalis Technology. Notwithstanding any other provision of this Agreement, no rights with respect to any trademarks, trade names, service marks or logos of Chrysalis are granted pursuant to this Agreement.

3.3   Sublicensing Rights . The license granted to Discovery pursuant to Section 3.1 by Chrysalis shall include the right of Discovery to grant sublicenses, subject to terms and conditions set forth in Section 21.6. Discovery shall provide Chrysalis with prompt written notice of any sublicenses granted hereunder.

3.4   Retained Rights . Any rights of each Party not expressly granted to the other Party under the provisions of this Agreement shall be retained by each Party, and, subject to any applicable terms, conditions, and limitations of this Agreement, each Party shall retain the right to: (a) exploit such Party’s own Intellectual Property relating to Licensed Products to develop, manufacture, and commercialize products outside the Exclusive Field; (b) exploit such Party’s own Intellectual Property relating to Licensed Products for other purposes outside the Exclusive Field unrelated to the Licensed Products; and (c) perform its obligations and exercise its rights under this Agreement.

3.5   Exclusivity . In light of the substantial investments and undertakings to be made by each Party in connection with the Alliance in order to successfully develop and bring to market products to enhance human health, each Party agrees that the Alliance shall be exclusive in the Exclusive Field. Accordingly, during the Term, neither Party shall without the other Party’s prior written consent directly or indirectly offer for sale or sell, or grant any third party the right to offer for sale or sell any Aerosol Device, Disposable Dose Packet or Drug Product for use in the Exclusive Field other than a Licensed Product.

4.1   In General . In light of Chrysalis’ substantial expertise regarding the Chrysalis Technology and Discovery’s substantial expertise regarding Pulmonary Surfactants, Discovery desires to have Chrysalis work with Discovery on the development of certain of the Licensed Products. The Parties have agreed to work together on Supported Product projects (the “ Supported Product Development Projects ”) with the objective of developing Licensed Products on the terms and conditions set forth in this Article 4.

4.2   Supported Product Development Projects . As of the Effective Date, the Parties have agreed to work together on the following Supported Product Development Projects to develop aerosolized Pulmonary Surfactant products for use in the Hospital Setting: (i) a project to develop an initial aerosolized Pulmonary Surfactant product for the prevention and treatment of Respiratory Indications in neonates in the NICU (the initial Licensed Product resulting therefrom, the “ Base NICU Product ” and, together with any other NICU-related Licensed Products, the “ NICU Products ”); and (ii) a project to develop an initial aerosolized Pulmonary Surfactant product for the prevention and treatment of Respiratory Indications in patients outside of the NICU (the initial Licensed Product resulting therefrom, the “ Base Hospital General Product ” and, together with any other non-NICU-related Licensed Products, the “ Hospital General Products ”). As soon as practicable after the Effective Date, the Project Team shall mutually agree upon and submit to the Steering Committee for approval a Project Plan for each of the Base Supported Product Development Projects. Licensed Products that may be developed other than the Base NICU Product and the Base Hospital General Product shall be treated as Additional Product Opportunities as provided for in Section 4.9.

4.3   Project Plans . The Project Plans for each Supported Product Development Project shall, subject to the Steering Committee’s right to modify or add to the following requirements in its discretion, include: (i) a list of development activities (including preclinical studies, toxicology work, Clinical Trials, Clinical Trial material requirements, specifications and other key activities required for obtaining Marketing Authorizations and timelines for the performance of the development activities; (ii) a reasonably detailed and specific budget for such development activities; and (iii) Discovery’s plan for commercialization (including timing and plans for Discovery obtaining Marketing Authorizations in the Major Markets). The Parties acknowledge that the Project Plan budgets are intended to provide an estimation of expenditures and resource deployment and are not required to disclose sensitive data on either Party’s cost structure (for the sake of clarity, Parties are expected to provide reasonable detail on such items as aggregate costs for relevant cost categories (e.g., personnel and overhead expenses) but are not expected to provide data regarding individual personnel costs or line-by-line overhead cost classifications). The Project Team shall be responsible for the preparation of the budget for each Project Plan. The Project Plans for each Supported Product Development Project shall be updated, amended and modified as deemed necessary by the Project Team, but no less frequently than each Contract Year. Updated Project Plans shall be submitted by the Project Team to the Steering Committee for approval in a timely fashion by a date that is determined from time-to-time by the Steering Committee that shall conform to the greatest practicable extent the Parties’ respective internal budgeting cycles. Neither Party will pursue development tasks or product studies relating to Supported Product Development Projects not provided for in the Project Plans prior to presenting such proposals to the Steering Committee and obtaining authorization therefor from the Steering Committee.

4.4   Development Responsibilities and Consulting Services .

4.4.1   Direction and Oversight . All development activities in connection with Supported Product Development Projects shall be conducted under the direction and oversight of the Steering Committee and the Project Team. In order to facilitate effective management of the projects each Party shall have lead responsibility for particular aspects of the development as set forth below in Sections 4.4.2 and 4.4.3(b), as appropriate. Each Party shall also reasonably support the other Party as provided for in the relevant Project Plan to facilitate such other Party’s ability to perform its development responsibilities. Chrysalis shall also provide consulting to Discovery with respect to certain of Discovery’s responsibilities as set forth below in Section 4.4.3(c).

4.4.2   Responsibilities of Discovery . The specific activities to be undertaken by Discovery in connection with each project and the Supported Products developed pursuant thereto shall be as set forth in the applicable Project Plan. Discovery shall act as the lead Party for, and shall be principally responsible for performing, the following activities with respect to each project: (i) drug product formulation development; (ii) development and implementation of analytical methods for quality assurance/control of Drug Product, Aerosol Device and Disposable Dose Packet; (iii) manufacturing of Supported Products, including manufacturing of the Drug Product, Aerosol Device and Disposable Dose Packet: (iv) filling of Disposable Dose Packets; (v) development of procedures for final release testing and testing of Supported Products; (vi) pre-clinical and clinical development and trials; (vii) regulatory activities relating to the Supported Products, including without limitation submissions to regulatory authorities; (viii) medical affairs, such as adverse event reporting and pharmacovigilance. Discovery shall also be solely responsible for manufacturing and commercializing the Supported Products.

4.4.3   Responsibilities of Chrysalis . 

(a)   In General . The specific activities to be undertaken by Chrysalis in connection with each Supported Product Development Project and the Supported Products developed pursuant thereto shall be as set forth in the applicable Project Plan.

(b)   Development Activities . Chrysalis shall act as the lead Party for, and shall be principally responsible for performing, the following development activities with respect to each Supported Product Development Project: (i) unfilled Disposable Dose Packet development, including the container closure system, aerosolization capillary and patient interface; (ii) Aerosol Device development, including the control unit and pump; and (iii) design and development of filling equipment.

(c)   Consulting Services . In addition to the development activities to be performed by Chrysalis, Chrysalis shall also provide certain consulting services to Discovery as set forth in the Project Plan with respect to each Supported Product. In particular, Chrysalis shall provide consulting services to Discovery regarding: (i) manufacturing development for the Aerosol Device and Disposable Dose Packet; (ii) the development and implementation of quality control specifications and processes for the Aerosol Device and Disposable Dose Packet; (iii) training and set-up of the Aerosol Device and Disposable Dose Packet for preclinical and clinical studies; (iv) the development of Discovery’s organizational infrastructure to manage manufacturing of the Supported Products; and (v) troubleshooting and corrective measures regarding the Aerosol Device and Disposable Dose Packet.

4.5   Development Effort . Each Party shall use Diligent Development Efforts to develop the Supported Products in accordance with the Project Plans therefor and to otherwise carry out its responsibilities under this Agreement relating to such Supported Products promptly and expeditiously in accordance with all Laws. Notwithstanding the foregoing, the Parties acknowledge that the development of pharmaceutical products is inherently speculative and there is no guarantee that the Alliance will be successful in developing any commercially viable Supported Products, or that the development of any Supported Products will proceed as anticipated or in accordance with the Project Plans. 

4.6   Development Milestone . As soon as practicable after the Effective Date, Discovery and Chrysalis shall mutually agree in writing with respect to each of the Base Supported Product Development Projects on a particular development milestone related to the development activities to be performed by Chrysalis in connection therewith (e.g., the delivery of an initial Aerosol Device and related Disposable Dose Packet design validated by a prototype) (such event, the “ Development Milestone ”) and the date by which such Development Milestone should reasonably be achieved (the “ Milestone Date ”). Chrysalis shall use Diligent Development Efforts to achieve the Development Milestone by the Milestone Date. To the extent any delay in achieving such Development Milestone is caused by Discovery or other factors beyond Chrysalis’ reasonable control, the Milestone Date shall be equitably extended by the Steering Committee to take into account such delays. If, after taking into account any such equitable adjustments to the Milestone Date, Chrysalis fails to achieve the Development Milestone by such adjusted Milestone Date with respect to a Base Supported Product Development Project for a particular Base NICU Product or Base Hospital General Product, then the royalty payments to Chrysalis hereunder in connection with all NICU Products or Hospital General Products, as the case may be, shall be modified as provided in Section 8.1(c).  

4.7   Skilled Personnel . Each Party shall promptly assign responsibilities for the various operational aspects of the Alliance, including without limitation, pursuant to Supported Product Development Projects, to portions of their respective organizations which have expertise reasonably appropriate to perform such functions. Each Party shall be solely responsible for making all decisions regarding its staffing and personnel.

4.8   Costs . Except as otherwise expressly provided in this Agreement, each Party shall be solely responsible for all costs incurred by such Party in the performance of its obligations in connection with a Supported Product Development Project. Each Party shall internally budget for its development costs and shall provide resources (financial, personnel and otherwise) in accordance with the budgets set forth in the applicable Project Plans to satisfy their respective responsibilities under such Project Plan.

4.9   Additional Licensed Product Opportunities .

4.9.1   Additional Product Opportunities. In the event that Discovery desires to (a) exercise the rights granted pursuant to Section 3.1 or (b) develop or commercialize any Licensed Product other than the Base NICU Product and the Base Hospital General Product (each, an “ Additional Product Opportunity ”), then the following shall apply: (i) should Discovery, in its sole discretion, develop any such Additional Product Opportunity independently of Chrysalis (either on its own or with Third Parties), such Additional Product Opportunity shall be deemed to be a Supported Product for the purposes of determining the application of royalties provided for in Section 8.1; (ii) should Discovery, in its sole discretion, offer Chrysalis the opportunity to assist with the development of any such Additional Product Opportunity and (X) should Chrysalis agree to so assist on the terms and conditions provided for in this Agreement, then such Additional Product Opportunity shall be deemed to be a Supported Product for the purposes of determining the application of royalties provided for in Section 8.1; or (Y) should Chrysalis choose not to assist, then such Additional Product Opportunity shall be deemed to be a Independent Product and any royalties thereon shall be as provided for in Section 8.2.

4.9.2   Procedure. Additional Product Opportunities presented by Discovery to the Steering Committee shall be in a reasonably detailed manner to enable Chrysalis to conduct an evaluation of the potential market and collaborative opportunity with respect thereto. Reasonably promptly following the presentation of any such Additional Product Opportunity, Chrysalis shall make the determination (a) to participate in the development of the Licensed Product that is the subject of the Additional Product Opportunity (in which case such Licensed Product will become a Supported Product Development Project), or (b) not to participate in the development of the Licensed Product that is the subject of the Additional Product Opportunity (in which case such Licensed Product shall constitute an Independent Product). In the event Chrysalis fails to notify Discovery of its decision to participate in such Additional Product Opportunity within sixty (60) days after such presentation, Chrysalis shall be deemed to have elected not to participate. In the event Chrysalis elects to participate in the development of such Licensed Product, the Parties shall commence a Supported Product Development Project with respect to such Supported Product as soon as practicable thereafter. The specific responsibilities of each Party in connection with the development of such Supported Product shall be as mutually agreed and set forth in a Project Plan as soon as practicable after each such election. The Parties intend that Chrysalis’ and Discovery’s responsibilities with respect to such Supported Product shall be reasonably comparable to those set forth in Sections 4.4.2 and 4.4.3 except as otherwise mutually agreed taking into account the particular needs with respect to the development of such Supported Product.

4.10   Design Configurations . Throughout the Term, unless otherwise mutually agreed to by the Parties, it shall be a design objective of the Alliance to minimize the number of different configurations of the Disposable Dose Packets and Aerosol Devices in the Exclusive Field. Furthermore, the Parties agree that any Aerosol Device and Disposable Dose Packet configuration developed for use outside the Exclusive Field shall be distinct in appearance from those for use with the Licensed Products and shall not be interchangeable with the Aerosol Device or Disposable Dose Packet of the Licensed Products. Without limiting the generality of the foregoing, neither Party shall offer for sale or sell, or authorize any Third Party to offer for sale or sell, any pharmaceutical product (other than a Licensed Product) (i) in the Disposable Dose Packet for a Licensed Product, (ii) in packaging similar in appearance to the Disposable Dose Packet for a Licensed Product, or (iii) in packaging that is interchangeable with the Disposable Dose Packet of a Licensed Product for purposes of use in an Aerosol Device.

5.1   General . The Alliance shall be governed by the Steering Committee, Alliance Managers, a Project Team and such Working Groups as mutually agreed to by the Parties and as provided in this Article 5. The Steering Committee and the Project Team are collectively referred to herein as the “Committees.”

5.2   Alliance Managers .

5.2.1   Appointment and Roles . Promptly after the Effective Date, and in any event within thirty (30) days thereafter, each of the Parties shall appoint a single individual to act as that Party’s alliance manager (the “ Alliance Manager ”). The role of the Alliance Managers is to act as a single point of contact for its respective Party. The Alliance Managers shall have the right to attend all Committee meetings and shall support the Committee chairpersons in the discharge of their responsibilities. Alliance Managers shall be nonvoting participants in such Committee meetings, unless they are also appointed members of such Committee; provided, however, that an Alliance Manager may bring any matter to the attention of any Committee if such Alliance Manager reasonably believes that such matter warrants such attention.

5.2.2   Changes in Alliance Managers . Each Party may change its designated Alliance Manager from time to time upon written notice to the other Party. Any Alliance Manager may designate a substitute to temporarily perform the functions of that Alliance Manager by written notice to the other Party. Each Alliance Manager shall be charged with creating and maintaining a collaborative work environment within and among the Committees.

5.2.3   Additional Responsibilities of Alliance Mangers . Each Alliance Manager, with respect to its Party, shall also: (i) coordinate the relevant functional representatives of the Parties in developing and executing strategies and plans for the Supported Products in an effort to ensure consistency and efficiency throughout the Territory; (ii) provide a single point of communication for seeking consensus both internally within the respective Parties’ organizations and between the Parties regarding key strategy and plan issues with respect to the development of the Supported Products; (iii) plan and coordinate cooperative efforts and internal and external communications; and (iv) take responsibility for ensuring that governance activities, such as the conduct of required Committee meetings and production of meeting minutes occur as set forth in this Agreement, and that relevant action items resulting from such meetings are appropriately carried out or otherwise addressed.

5.3   Steering Committee .

5.3.1   Formation and Purpose . Discovery and Chrysalis hereby establish a Steering Committee (“ Steering Committee ”) that shall generally operate by the procedures set forth in Section 5.6. The Steering Committee shall have overall responsibility for the Alliance, including for:

(i)   managing the overall relationship and development activities for the Supported Products;

(ii)   overseeing the Project Team;

(iii)   reviewing, commenting on, and approving or rejecting Project Plans and updates or amendments thereto;

(iv)   facilitating the flow of information between the Parties and coordinating the activities of the Parties;

(v)   attempting to resolve disputes, if any, with respect to general Alliance matters and any disputes referred to the Steering Committee by the Project Team;

(vi)   discussing and making recommendations with respect to Intellectual Property developed under the Alliance; and

(vii)   performing such other functions as appropriate to further the purposes of this Agreement and the Alliance as determined by the Parties.

5.3.2   Membership, Chairmanship and Meetings . The Steering Committee shall be comprised of representatives of each Party and initially shall consist of senior representatives from each Party having the technical knowledge and decision making authority appropriate for supervising such Party’s responsibilities under this Agreement. Each Party shall designate its respective Steering Committee members within thirty (30) days of the Effective Date. Discovery shall designate the Chairperson of the Steering Committee. The Steering Committee shall meet at least every six (6) months.

5.4   Project Team .

5.4.1   Formation and Purpose . Reasonably promptly after the Effective Date, Discovery and Chrysalis shall establish a project team (“ Project Team ”) consisting of representatives designated by each Party. The Project Team shall generally operate by the procedures set forth in Section 5.6.

5.4.2   Specific Responsibilities of the Project Team . In furtherance of its responsibility for overseeing, coordinating and expediting the development of the Supported Products in the Territory, the Project Team shall have responsibility for:

(i)   developing Project Plans (including preparation of the applicable budget and related operational plans) for the development of Licensed Products for manufacture by Discovery and technology transfer regarding Licensed Products in coordination with the Design Review Board;

(ii)   managing the day-to-day activities related to the operational plans in order to fulfill Project Plans;

(iii)   reviewing, amending and updating individual Project Plans on an annual basis as well as more frequently as shall be necessary or advisable to take into account completion, commencement or cessation of development not then contemplated by the Project Plan and submitting such amended or updated Project Plan to the Steering Committee for approval;

(iv)   monitoring the progress of development of any Supported Product;

(v)   facilitating the exchange of all development information;

(vi)   working together to assure a smooth transition from development to Discovery’s manufacturing and commercialization;

(vii)   reporting on a regular basis to the senior management of each Party as well as to the Steering Committee; and

(viii)   overseeing any Working Groups established by the Project Team.

5.4.3   Membership, Chairmanship and Meetings . The Project Team shall be comprised of representatives from each Party possessing the appropriate experience and expertise and responsible for: Aerosol Device, Disposable Dose Packet and Drug Product development; quality control/assurance; regulatory affairs; project management; clinical affairs. The initial members of the Project Team for each Party shall be designated promptly following the Effective Date. The Project Team shall be jointly chaired by the Parties. The Project Team shall meet no less than monthly.

5.5   Working Groups . From time to time, the Committees may establish sub-committees or directed teams (each, a “ Working Group ”) on an “as-needed” basis to oversee particular projects or activities. Each such Working Group shall be constituted and shall operate as the applicable parent Committee determines. Each Working Group and its activities shall be subject to the oversight, review and approval of, and shall report to, the applicable parent Committee that established such Working Group. In no event shall the authority of the Working Group exceed that specified for the relevant Committee in this Article 5. The Parties agree and acknowledge that Alliance Managers shall have access to all members of the Working Groups, at reasonable times and places, so as to be able to have appropriate oversight and direct interaction with such Working Group members.

5.6   General Committee Membership and Procedures .

5.6.1   Membership and Meetings . With respect to the Parties’ Committee representatives, each representative may serve on more than one Committee as appropriate in view of such representative’s expertise. Each Party may replace its Committee representatives at any time upon written notice to the other Party. Meetings of any Committee may be held by audio or video teleconference with the consent of each Party. All Committee representatives shall be given prior notice of any Committee meetings. Each meeting shall require that representatives from each Party be in attendance before business may be conducted.

5.6.2   Ad Hoc Participants . Other employees of each Party (including the Alliance Managers) may attend meetings of any Committee as nonvoting participants with the reasonable consent of the other Party. In addition, with the consent of both Parties, consultants or advisors to a Party may attend Committee meetings as nonvoting observers; provided that such Third Party representatives are under obligations of confidentiality and non-use applicable to the Confidential Information of each Party and that are at least as stringent as those set forth in Article 11. Each Party shall be responsible for all of its own expenses of participating in any Committee.

5.6.3   Decision-Making . Each Party’s representatives on a Committee shall, collectively, have one vote (the “ Party Vote ”) on all matters brought before such Committee, which Party Vote shall be determined by majority vote of such representatives present at any meeting. Except as expressly provided in this Section 5.6.3, each Committee shall operate as to matters within its jurisdiction by unanimous vote (although the vote of the representatives present at a meeting underlying the Party Vote need not be unanimous); provided that only the Steering Committee in accordance with Section 21.15, shall have the authority to amend or modify, or waive compliance with, this Agreement. If a Committee fails to achieve a unanimous vote with respect to any matter, such dispute shall be resolved in accordance with Article 20.

5.6.4   Meeting Agendas and Minutes . The chairperson(s) of each Committee shall be responsible for calling meetings and preparing, and circulating an agenda in advance of each meeting of such Committee. Each Party shall disclose to the chairperson(s) of each Committee proposed agenda items for a meeting, along with appropriate information for such proposed agenda item, at least three (3) Business Days in advance of each meeting of the applicable Committee; provided that under exigent circumstances requiring Committee input, a Party may provide its agenda items to the chairperson(s) of each Committee within a lesser period of time in advance of the meeting, or may propose that there not be a specific agenda for a particular meeting, so long as such other Party consents to such later addition of such agenda items or the absence of a specific agenda for such Committee meeting. The Alliance Managers, or the particular Committee representatives of each Party designated by such Alliance Managers, shall be responsible for, on an alternate basis, preparing and issuing minutes of each meeting within ten (10) days of each Committee meeting; provided, however, that the minutes will not be finalized until both Parties review and confirm the accuracy of such minutes in writing.

5.6.5   Interactions between Committees and Internal Teams . The Parties recognize that while they will establish Committees and Working Groups for the purpose of the Alliance, each Party possesses an internal structure (including various committees, teams and review boards) that will be involved in administering such Party’s activities under this Agreement. Each Committee and Working Group shall establish procedures to facilitate communications between such Committee or Working Group and the relevant internal committee, team, or board of each Party in order to maximize the efficiency of the Alliance, including by requiring appropriate members of such Committees to be available at reasonable times and places and upon reasonable prior notice for making appropriate oral reports to, and responding to reasonable inquiries from, the relevant internal committee, team, or board of each Party.

5.7   Design Review Board . Discovery shall have the right to designate one or more (as agreed by the Parties) representatives to participate in the design review board established by Chrysalis to oversee the design of Aerosol Devices for use in the Alliance (the “ Design Review Board ”). The role and voting power of such representative shall be mutually determined by the Parties.

6.1   Exclusive Right to Sell the Licensed Products . The Parties agree that during the Term, subject to Discovery’s achievement of the commercialization milestones and minimums in this Article 6, Discovery shall have the exclusive right to market and have marketed, sell and have sold, and offer for sale or have offered for sale any Licensed Products.

6.2   Responsibility For Commercialization Matters . Discovery shall have the sole responsibility for all activities associated with the commercialization of the Licensed Products, including, without limitation, (a) preparing, submitting and seeking Marketing Authorizations for the Licensed Products, (b) sales, advertising and marketing of the Licensed Product, (c) scientific and medical affairs, (d) customer service and distribution related services, such as order taking, shipping, billing, accounts receivable, returns, allowance activities and product support; (e) Phase IV Clinical Trials, (f) commercial manufacture of the Licensed Product; and (g) branding of the Licensed Products.

6.3   Diligent Commercialization Efforts . Discovery shall use Diligent Commercialization Efforts to bring the Licensed Products to market and to market and sell the Licensed Products with a particular focus on obtaining Marketing Authorizations for and commercializing Supported Products in the Major Markets. Discovery shall promptly notify Chrysalis of the receipt of any Marketing Authorization for a Licensed Product.

6.3.1   Commercialization Initiation . With respect to each Licensed Product, the First Commercial Sale in each country constituting the Major Markets shall occur within [***] of receipt of the relevant Marketing Authorization for such country for such Licensed Product. Should Discovery materially fail to achieve any such commercialization initiation within [***] of having received written notice of such failure from Chrysalis [***] .

6.3.2   Commercialization Milestones . Discovery shall meet certain mutually agreed upon commercialization milestones (determined in the best faith of the Parties) with respect to minimum sales levels to be achieved for each Licensed Product in each of the Major Markets. Such commercialization milestones shall be established no later than [***] prior to the First Commercial Sale of such Licensed Product in each of the Major Markets and shall equal Discovery's good faith estimate of total Net Sales for [***] after the First Commercial Sale of such Licensed Product, which estimate shall be the same as the estimate used by Discovery for its financial projections and other business purposes (the " Estimated Sales "). The Estimated Sales forecast for [***] shall be reviewed for compliance [***] prior to the end of [***] , and may be reduced for purposes of this calculation of Estimated Sales by up to [***] percent ( [***] %) for [***] in the event that Discovery's good faith estimate of such sales has gone down [***] percent ( [***] %) or more. Should Discovery fail to satisfy [***] percent ( [***] %) of the Estimated Sales levels (taking into account any adjustment in the [***] forecast as provided above) with respect to the subject Licensed Product on a country-by-country basis in the Major Markets for [***].

7.1   Responsibility and Consultation . Discovery shall be responsible for preparing, submitting, seeking and maintaining Marketing Authorization for the Licensed Products in the United States and other jurisdictions in the Territory. Discovery shall consult with Chrysalis regarding, and keep Chrysalis