LETTER AGREEMENT

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Exhibit 10.28

***Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. §§ 200.80(b)(4)
and 240.24B-2

LETTER AGREEMENT

         THIS LETTER AGREEMENT (this " Agreement ") is entered into as of January 9, 2004 (the "Effective Date" ) by and among FOREST LABORATORIES IRELAND LIMITED , an Irish corporation (" Forest "), having offices at Clonshaugh Industrial Estate, Clonshaugh, Dublin 17, Republic of Ireland, CYPRESS BIOSCIENCE, INC. , a Delaware corporation (" Cypress "), having offices at 4350 Executive Drive, Suite 325, San Diego, CA 92121 and PIERRE FABRE MÉDICAMENT , organized under the laws of France (" Pierre Fabre "), having offices at 45, place Abel-Gance, 92654 Boulogne Cedex, France.

RECITALS

         WHEREAS, Cypress and Pierre Fabre have entered into the Third Restated License Agreement as of the date hereof, as may be amended (the "License Agreement "), the First Restated Trademark License Agreement dated as of the date hereof, as may be amended (the "Trademark Agreement" ), and the Purchase and Supply Agreement as of the date hereof, as may be amended (the "Supply Agreement "), a copy of each of which has been provided to Forest, pursuant to which Pierre Fabre has granted to Cypress an exclusive license to develop and commercialize Licensed Product (as defined in the License Agreement, except as otherwise noted herein) and Pierre Fabre will supply to Cypress and its sub-licensees, and Cypress and its sub-licensees will purchase from Pierre Fabre, Bulk API (as defined in the Supply Agreement);

         WHEREAS, Forest and Cypress are entering into a License and Collaboration Agreement as of the date hereof, as may be amended, modified or restated from time to time (the "Collaboration Agreement" ), pursuant to which, among other things, Cypress is granting to Forest an exclusive sub-license under the rights granted to Cypress by Pierre Fabre under the License Agreement and the Trademark Agreement in the Licensed Territory (as defined in the Collaboration Agreement), all on the terms and conditions set forth in the Collaboration Agreement; and

         WHEREAS, Forest, Cypress and Pierre Fabre are entering into this Agreement in order to govern the relationship among Forest, Cypress and Pierre Fabre under certain provisions of the Supply Agreement, the License Agreement and the Trademark Agreement.

AGREEMENT

         NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.     SUPPLY; FORECASTS

        1.1    Supply of Bulk API.     The parties agree that, until Pierre Fabre is otherwise notified in writing by Cypress in connection with a termination of Forest's rights under the Collaboration Agreement, Pierre Fabre will manufacture and supply directly to Forest, and Forest will purchase directly from Pierre Fabre, Bulk API for the Licensed Territory on the terms set forth in the Supply Agreement, including, without limitation, Sections 2.1, 2.2, 6 and 7.4.

        1.2    Forecasts.     Forest will provide directly to Pierre Fabre, with a copy to Cypress, (a) Sales Forecasts (as defined in the License Agreement) for the Licensed Territory on the terms set forth in the License Agreement, and (b) Delivery Forecasts and Purchase Orders (both as defined in the Supply Agreement) for the Licensed Territory on the terms set forth in the Supply Agreement, including,

without limitation, Section 4.1; provided that such Sales Forecasts, Delivery Forecasts and Purchase Orders have first been reviewed and agreed to between Cypress and Forest to the extent such Sales Forecasts, Delivery Forecasts and Purchaser Orders impose obligations on Cypress.

        1.3    Independence of Supply Commitment.     Pierre Fabre agrees that the terms and conditions of the Supply Agreement with respect to Delivery Forecasts, Purchase Orders, Pierre Fabre's supply commitment and otherwise shall be determined and applied separately with respect to each of Forest and Cypress (including any other sub-licensee of Cypress under the License Agreement) if and to the extent Cypress (including any other sub-licensee of Cypress under the License Agreement) purchases Bulk API for use in Canada.

2.     SUB-LICENSE RIGHTS

        2.1    Licensed Technology and Trademarks.     Forest may further sub-license the rights in the Licensed Technology (as defined in the License Agreement) and the Trademarks (as defined in the Trademark Agreement) and the rights under the Supply Agreement granted to it by Cypress under the Collaboration Agreement as follows.

         (a)    Forest may grant such a sub-license in the Licensed Territory to Forest Laboratories, Inc., a Delaware corporation ( "Forest Parent" ), or any of Forest Parent's wholly owned subsidiaries with prior written notice to Pierre Fabre.

         (b)    Should Forest decide to grant such a sub-license in a given country within the Licensed Territory to any person or entity other than to Forest Parent or any of Forest Parent's wholly-owned subsidiaries, then Forest shall provide Pierre Fabre written notice thereof (the " Sub-license Notice ") before offering such sub-license to any other person or entity, and hereby grants Pierre Fabre a right of first discussion to take such sub-license, and upon Pierre Fabre's request, shall enter into good faith negotiations with Pierre Fabre to grant such sub-license to Pierre Fabre or any Affiliate (as defined in the License Agreement) of Pierre Fabre in such country. If Pierre Fabre does not notify Forest of its interest in obtaining such a sub-license in the applicable country within 30 days from receipt of the Sub-license Notice, then Forest shall be free to grant such sub-license to any other person or entity in the applicable country, subject to the prior written consent of Pierre Fabre, which shall not be unreasonably withheld or delayed. In the event that Pierre Fabre is interested in obtaining such a sub-license, it shall notify Forest in writing within 30 days after receipt of the Sub-license Notice and the parties shall negotiate in good faith for up to 60 days from the date of the Sub-license Notice (the " Negotiation Period "). If Forest and Pierre Fabre fail to enter into a definitive agreement granting Pierre Fabre such sub-license rights within such 60 day negotiation period despite mutual efforts by Forest and Pierre Fabre to reach agreement, it shall be deemed to constitute rejection by Pierre Fabre of such right and, in such event or if the Negotiation Period expires without Forest and Pierre Fabre entering into a definitive agreement, then Forest shall be free to grant such sub-license rights to any other person or entity in the applicable country, subject to the prior written consent of Pierre Fabre, which shall not be unreasonably withheld or delayed.

3.     PAYMENTS

        3.1    Transfer Price.     Forest will pay directly to Pierre Fabre the Transfer Price (as defined in the Supply Agreement) for all Bulk API purchased under the Supply Agreement with respect to the Licensed Territory in accordance with the terms of Section 5 of the Supply Agreement, except that the obligation of Cypress to make payment to Pierre Fabre under Section 5.1(a)(ii)(2) will apply only to Cypress and not to Forest. Forest will notify Cypress of such payments made by Forest to Pierre Fabre.

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        3.2    Royalties.     Forest will pay directly to Pierre Fabre the royalty payments required under Sections 6.4(a), (b) and (c) of the License Agreement and Section 1.10 of the Trademark Agreement with respect to the Licensed Territory in accordance with the respective terms of the License Agreement and the Trademark Agreement ; provided that no royalty shall be due from Forest to Pierre Fabre under Section 6.4(a) of the License Agreement by Forest with respect to the SR Formulation Patent, Ref: 09/254 014 included in the Pierre Fabre Patents (as defined in the License Agreement). Forest agrees that it shall notify Cypress of such payments to Pierre Fabre.

        3.3    Payment for Canada.     Pursuant to Sections 3.1 and 5.2 of the License Agreement, and Section 2.5 of the Collaboration Agreement, Pierre Fabre acknowledges that the decision whether or not to develop, register and launch Licensed Product in Canada, and the timing of any such decision, shall be subject to the good faith business judgment of Forest ; provided however, if Forest does not exercise its right to extend the Licensed Territory under Section 2.5 of the Collaboration Agreement to include Canada prior to the expiration of [...***...] (i) Forest shall have no further rights with respect to Canada under this Letter Agreement, the Collaboration Agreement or the License Agreement and (ii) Cypress' obligations under Section 5.2 of the License Agreement shall remain in full force and effect. In the event Forest does exercise its right to extend the Licensed Territory under Section 2.5 of the Collaboration Agreement to include Canada and subsequently determines not to launch Licensed Product in Canada, promptly following such determination, (a) Forest shall pay to Pierre Fabre [...***...] (the "Canadian Payment" ) and (b) Cypress shall pay to Pierre Fabre the [...***...] Promptly following such determination by Forest, Forest will make a good faith calculation of the Canadian Payment and will provide such calculation to Pierre Fabre, with a copy to Cypress. Pierre Fabre will review such calculation and will notify Forest in writing, with a copy to Cypress, within 30 days of the date Forest provided such calculation if Pierre Fabre has any questions regarding, or objects to, the Forest calculation. If Pierre Fabre does not provide such written notice within such 30-day period, Forest shall [...***...] If Pierre Fabre provides such written notice to Forest within such 30-day period, then Forest and Pierre shall negotiate in good faith regarding [...***...] If such negotiation requires that Pierre Fabre [...***...] then Forest and Pierre Fabre shall select one expert with relevant industry experience to review such information in connection with [...***...] provided that, if the parties cannot agree on one expert, then a panel of three experts with relevant industry experience shall be formed for such purpose, with one expert being chosen by Forest, one expert being chosen by Pierre Fabre and one expert being chosen by the two experts chosen by Forest and Pierre Fabre. The expert or the panel of experts, as applicable, must be chosen within 30 days from notice by either Forest or Pierre Fabre regarding the need to appoint such expert or panel of experts. Any such expert or panel of experts shall enter into a confidential disclosure agreement with Forest and Pierre Fabre containing commercially reasonable terms for protection of proprietary information provided by Forest and Pierre Fabre. Pierre Fabre shall provide such expert or panel of experts information regarding Pierre Fabre's [...***...] Forest shall provide such expert or panel of experts such additional information used by Forest in [...***...] as is necessary to use the information regarding [...***...] The expert or panel of experts shall review such information provided by Forest and Pierre Fabre, use such information in [...***...] and provide the parties with the result of such calculation for use in the Canadian Payment within 30 days from the selection of the expert or the last expert on the panel, as applicable. The parties acknowledge that in no event shall the panel share any information regarding Pierre Fabre's [...***...] with Forest and Cypress. Forest and Pierre Fabre shall each pay 50% of the costs of engaging the expert or panel of experts under this Section 3.3. Forest may, at its option upon written notice to Pierre Fabre, pay the Canadian Payment either in a lump sum payment based on the net present value of the Canadian Payment as of the date of such payment (calculated at the applicable LIBOR rate of interest as reported in The Wall Street Journal (absent any error) on the date of the determination of the Canadian Payment pursuant to this Section 3.3) or in payments made on a quarterly basis over no more than five years, as designated by Forest. Forest will notify Cypress of such payments made by Forest to Pierre Fabre.

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        3.4    Royalty from Forest to Pierre Fabre; Sharing of Royalty with Cypress.     

         (a)    If, during the Exclusive Period (as defined in the Collaboration Agreement), Forest or any of its Affiliates (as defined in the Collaboration Agreement), licensees, or sub-licensees markets or sells any product (other than (i) Licensed Product, as defined in the Collaboration Agreement, (ii) SNRI product, as defined in the License Agreement, which shall be subject to Section 3.5 or 3.7 of this Agreement, as applicable, or (iii) Forest Product, as defined in the License Agreement, which shall be subject to Section 5.4(c) of the Collaboration Agreement) for FMS (as defined in the Collaboration Agreement) in the Licensed Territory using any Information developed or generated, or disclosed by Cypress to Forest, in the course of performance of the Collaboration Agreement, Forest will pay Pierre Fabre a royalty of [...***...] on net sales of such product ; provided that such amount may be reduced by written agreement of Pierre Fabre and Forest to account for any royalty payments that Forest or its licensees must make to any third parties with respect to such product. Such royalty shall be payable for the Exclusive Period, but in any event, the payment term shall not be less than [...***...] , and the payment terms of Section 10 of the Collaboration Agreement shall apply with respect to such royalty. This Section 3.4(a) shall not restrict Forest from conducting clinical trials in FMS of any product being developed by Forest for neuropathic pain indications as of the Effective Date, including, without limitation, the compounds [...***...] if such clinical trials in FMS are required by the FDA for the NDA submission for such product, and no royalty shall be payable pursuant to this Section with respect to such product.

         (b)    Cypress shall pay to Pierre Fabre [...***...] of any royalty payment received by Cypress from Forest under Section 5.4(b) of the Collaboration Agreement within 15 days following the receipt of such payment from Forest (or will direct Forest to deduct such amount from the royalty payment otherwise due to Cypress under Section 5.4(b) of the Collaboration Agreement and pay such amount directly to Pierre Fabre).

        3.5    Royalty to Pierre Fabre on New Product; Right of First Negotiation to Supply Bulk API for New Product.     

         (a)    Notwithstanding Section 3.7 of this Agreement, Forest or any of its Affiliates or sub-licensees may market and sell any product containing an analog of Milnacipran that is subject to the Collaboration Agreement, which product is an SNRI product (as defined in the License Agreement) (a "New Product" ), in the Licensed Territory (as defined in the Collaboration Agreement) before the requirement under Section 3.7 expires in accordance with its terms (the "End Date" ), subject to compliance with this Section 3.5.

         (b)    If, at any time before the End Date, Forest or any of its Affiliates or sub-licensees markets or sells any New Product in the Licensed Territory, then, from the time such New Product is first commercialized until the End Date, Forest will pay Pierre Fabre [...***...] (such royalty payment, the "New Product Royalty" ).

         (c)    If, at any time before the End Date, Forest or any of its Affiliates or sub-licensees plans to market or sell any New Product in the Licensed Territory, then Forest shall provide Pierre Fabre written notice [...***...] prior to the production of the first clinical batch of active pharmaceutical ingredient of such New Product (the " New Product Notice ") and hereby grants Pierre Fabre a first right to negotiate an agreement with Forest and Cypress (the "New Supply Agreement" ) to supply the active pharmaceutical ingredient contained in such New Product ( "New Product API" ). Such right of first negotiation shall also apply to industrial development and scale-up of the manufacturing process with respect to New Product API if Forest decides to contract with a third party with respect to such activities rather than to conduct such activities itself or through one of its Affiliates. Upon Pierre Fabre's request, provided in writing to Forest and Cypress within 30 days after the date of the New Product Notice, Forest and Cypress shall enter into good faith

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negotiations with Pierre Fabre regarding the New Supply Agreement. If Pierre Fabre does not provide such notice of its interest in obtaining such right within 30 days from the date of the New Product Notice, then Forest and Cypress shall be free to negotiate and enter into an agreement to purchase New Product API from any other person or entity. In the event that Pierre Fabre provides such notice of its interest in entering into the New Supply Agreement within 30 days after receipt of the New Product Notice, Pierre Fabre, Cypress and Forest shall negotiate the New Supply Agreement in good faith for up to 60 days from the date of the written notice from Pierre Fabre (the "Negotiation Period "). Cypress, Forest and Pierre Fabre agree that the general commercial terms and conditions of the Supply Agreement shall be used as a model of commercially reasonable terms when negotiating the New Supply Agreement. If Cypress, Forest and Pierre Fabre fail to enter into the New Supply Agreement within the Negotiation Period despite good faith efforts to reach agreement, then Cypress and Forest shall be free to negotiate and enter into an agreement to purchase New Product API from any other person or entity; provided, however, that if the proposed supply agreement with such other person or entity provides for principal economic terms (including, without limitation, transfer price and supply term, assuming comparable quality and quantity) that are more favorable to such other person or entity than those principal economic terms last proposed by Cypress and Forest to Pierre Fabre, Forest will first give Pierre Fabre written notice of such more favorable terms and Pierre Fabre shall have the first right to enter into a New Supply Agreement with Cypress and Forest on those terms set forth in such notice, which right Pierre Fabre may exercise upon written notice to Cypress and Forest provided within 15 days after the date of such notice from Forest. If Pierre Fabre does not exercise such right by providing such written notice within such 15-day period, then Cypress and Forest shall be free to enter into the proposed supply agreement with such other person or entity.

         (d)    In the event Pierre Fabre and Forest do not enter into the New Supply Agreement after negotiating in good faith to enter into the New Supply Agreement as contemplated under Section 3.5(c), then from the time such New Product is first commercialized until the End Date, Forest will pay Pierre Fabre [...***...] ( "Additional New Product Payment" ).

         (e)    Cypress and Forest will share the amount of any New Product Royalty and any Additional New Product Payment paid by Forest to Pierre Fabre under Section 3.5(b) or Section 3.5(d), [...***...] and Forest may deduct an amount equal to Cypress' share of any such New Product Royalty or Additional New Product Payment paid by Forest to Pierre Fabre from royalty payments otherwise due from Forest to Cypress under Section 6.4(a) of the Collaboration Agreement; provided that such royalties will not be reduced by more than [...***...] in any quarter as a result of any such deduction.

         (f)     If a payment is made to Pierre Fabre with respect to any New Product, then no payment shall be due or payable to Pierre Fabre under Section 5.4(b) of the License Agreement on net sales of such New Product, notwithstanding anything to the contrary set forth in Section 5.4(b) of the License Agreement.

        3.6    Sharing with Forest of Payments Made by Pierre Fabre to Cypress.     Cypress will pay to Forest a share of the amount of any royalty paid to Cypress by Pierre Fabre on certain products for FMS in the Licensed Territory (as defined in the Collaboration Agreement) pursuant to Section 5.4(b) of the License Agreement, based on [...***...] In addition, Cypress will pay to Forest [...***... ]

        3.7    SNRI Products.     During the period from the Effective Date until the earlier of (i) the Date of First Commercial Sale of the fi