Exhibit 10.4

 

MANUFACTURING AND SUPPLY AGREEMENT

 

Entered into this 6th day of August 1997 (hereinafter "Effective Date") by
and between

 

JPI PHARMACEUTICA INTERNATIONAL, a division of Cilag AG International Zug, a
company duly organized and existing under the laws of Switzerland, having its
principal office in CH-6300 Zug, Kollerstrasse 38, Switzerland (hereinafter
referred to as "JPI")

 

and

 

JANSSEN PHARMACEUTICA Inc., 1125 Trenton-Harbourton Road, Titusville, NJ 08560,
USA (hereinafter referred to as "JANSSEN US") (JPI and JANSSEN US collectively
referred to herein as "JANSSEN")

 

and

 

Alkermes Controlled Therapeutics Inc. II, a company organized and existing under
the laws of the Commonwealth of Pennsylvania, having its principal office at 64
Sidney Street, Cambridge, MA 02139-4136, U.S.A. ( hereinafter referred to as
"ACT II").

 

WITNESSETH

 

WHEREAS, JPI and ACT II (as assignee of Medisorb Technologies International
LP ("MTI")) have entered into an agreement dated December 23, 1993 for
the development of a Risperidone depot formulation incorporating ACT
II's proprietary technology concerning bioabsorbable polymer technologies as
duly amended by the Second Amendment of March 8, 1997 (hereinafter
"Development Agreement"); and

 

WHEREAS, JANSSEN and ACT II (an assignee of MTI) have entered into two
License agreements dated February 21, 1996 granting JANSSEN certain exclusive
rights with respect to the use of ACT II's proprietary technology in the
development, manufacturing, promotion and sale of Risperidone depot formulations
(hereinafter "License Agreements"); and

 

 

 

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WHEREAS, further to the provisions of Article 4 (b) of the License
Agreements, ACT II has a right of first refusal with respect to the manufacture
of such Risperidone depot formulations and JANSSEN has further to such provision
agreed to entrust the manufacturing of Products (as hereinafter defined) to ACT
II under the terms and conditions set forth hereinafter.

 

ARTICLE 1 : DEFINITIONS

 

The following terms shall, for the purpose of this Agreement, have the
following meaning unless the context clearly requires otherwise and the singular
shall include the plural and vice versa:

 

1.1"Affiliate" shall mean any company controlling, controlled by, or
under common control with a party by ownership, directly or indirectly, of fifty
percent (50%) or more of the total ownership or by the power to control the
policies and actions of such company.

 

1.2"Compound" shall mean the active ingredient risperidone.

 

1.3"Final Product" shall mean the final presentation form of the
Product approved and marketed by Janssen, their Affiliates and licensees,
ready for sale to the final customer.

 

1.4"Janssen GMP Manual" shall mean the Janssen Pharmaceutica GMP
Policies Manual, a numbered copy of which has been provided to ACT II and
which Manual, together with any possible amendment and/or addition is deemed
to constitute an integral part of this Agreement.

 

1.5"Licensed Net Selling Price" shall mean the weighted average price offered by
JANSSEN, their Affiliates or licensees in a given calendar year to independent
third parties for the Final Product for sale in the Territory, less
deductions for (i) transportation charges, including insurance; (ii) sales
and excise taxes paid by JANSSEN, their Affiliates or licensees and any
other governmental charges imposed upon the production, importation, use or sale
of the Final Product; (iii) trade, cash and ordinary business discounts allowed
and (iv) allowances or credits

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to customers on account of rejection or return of Final Product (v) and managed
care rebates or allowances and mandatory price allowances imposed by
governments.

 

If JANSSEN, its Affiliates or licensees sell Final Product in a country in such
a manner that the net sales value of the same is not readily identifiable then
the net sales determination for that country shall be whichever is the higher of
(i) the fair market value of such Final Product or (ii) the proportion of the
bundled price attributed to the Final Product by JANSSEN, its Affiliates or
licensees whenever the Final Product is sold as part of a package of products or
services.

 

For the purpose hereof "fair market value" shall mean, without limitation, the
value of Final Products sold to similar third parties in similar quantities. If
the fair market value can not be determined in any given country, the fair
market value will be determined by the value of the Final Product sold to
similar customers in countries with similar pricing and reimbursement structures
and for similar quantities.

 

1.6"Manufacture, Manufacturing" shall mean all steps and operations involved in
the production of Product, starting from Compound, including supply of the
polymers or other critical excipients, pharmaceutical formation, packaging, in
process and quality control and storage of Compound and Product, until delivery
for shipment of the Product to JANSSEN US, JPI or their designee.

 

1.7"Manufacturing Fee" shall mean the fee to be paid by JPI and JANSSEN US to
ACT II in consideration for the Manufacture of Products supplied to each of them
in accordance with the terms hereof and which fee will be calculated as a
percentage of the Licensed Net Selling Price per unit of Product in accordance
with the mechanism set forth in Article 6.

 

1.8"Manufacturing Process" shall mean the process and environment required to
Manufacture Product as described in regulatory filings.

 

1.9"Materials" shall mean all or any of the materials, except for
Compound, required for the Manufacture of Product (including but not limited
to inactive ingredients, diluents, excipients, vials, containers).

 

1.10"Product" shall mean a depot formulation of Risperidone, based on ACT
II technologies utilizing polymers of lactic and glycolic acids which
are designed to

 

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deliver Compound over an extended period, in appropriately labelled siliconized
vials or any other immediate container agreed by both parties and as set forth
in the Specifications.

 

1.11"Specifications" shall mean the agreed specifications of the Product, to be
attached hereto as Exhibit A, including quality control tests to be performed by
JANSSEN and a list of the methodologies to be used in performing those tests.

 

1.12"Territory" shall mean worldwide.

 

ARTICLE 2: PROGRAM OF COMMERCIAL MANUFACTURE AND SUPPLY OF PRODUCTS

 

2.1Subject to the terms and conditions of this Agreement, JANSSEN
hereby appoints ACT II as their exclusive supplier of Product for their
entire requirements in the Territory and ACT II agrees to Manufacture Product in
its own premises for the exclusive purpose to supply Product to JANSSEN or their
designee.

 

2.2ACT II will provide at its own cost and expense, all equipment and machinery
for the Manufacture of the Product, except for those capital items owned
by JANSSEN US and identified in Exhibit B attached hereto. ACT II will only use
such equipment and machinery which complies with the Manufacturing Process and
any other requirements, such as the DMF, agreed with JANSSEN. ACT II shall
maintain such equipment and machinery in good condition and properly validated.

 

2.3In order to assist ACT II in its production planning, both parties
will discuss and agree at the latest upon finalisation of the Phase III Clinical
Trials in accordance with the Development Agreement on a rolling ordering and
forecast mechanism (12-24 months) duly considering amongst others the required
leadtimes to Manufacture the Product and to acquire the primary container or any
other Material. In principle the first period of such rolling forecast will be
considered a firm commitment, the other periods being indicative and non
binding. Such forecast will be periodically updated at the moment of sending the
orders for the next period.

 

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To the extent required such a forecast mechanism may include a buffer
mechanism providing for an upper and lower variation limit of the eventual
orders against the latest forecast and a reasonable buffer mechanism
in connection with required delivery dates and ordered quantities of Product.

 

The eventually agreed forecast mechanism ("hereinafter Forecast Mechanism") will
be attached hereto as Exhibit E and will be used both by JPI and by JANSSEN US,
it being understood that JANSSEN US and JPI may use a slightly different
Forecast Mechanism format reflecting potential differences in the flow of goods.

 

2.4JPI and JANSSEN US will each, in accordance with the Forecast Mechanism, send
firm orders to ACT II indicating the requirements for Products, together with
the required delivery dates and destination, and shall at the same time advise
ACT II of the estimated requirements for the following periods in accordance
with the Forecast Mechanism. JPI and/or JANSSEN US will ship Compound to ACT II
in quantities sufficient and with sufficient lead time to enable ACT II to
Manufacture the ordered Products. Together with the batch(es) of Compound, JPI
and/or JANSSEN US will send all required documents and certificates. The
Compound shipped to ACT II will comply with agreed specifications to be attached
hereto as Exhibit F. In order to insure an adequate supply of Compound, ACT II
will provide inventory data for each batch of Product shipped to JANSSEN as well
as quarterly summaries of inventory transactions.

 

2.5Upon receipt of the Compound, ACT II will inspect the batch(es) in accordance
with to be agreed test procedures. Within thirty (30) business days following
receipt of a shipment of Compound, ACT II shall inform JPI or JANSSEN US,
depending on who was responsible for the shipment, in writing of any qualitative
and/or quantitative shortcomings of the supplied Compound. In the event of a
justifiable claim, JPI or JANSSEN US as the case may be shall replace or cause
to have replaced such quantities of Compound in the shortest possible time and
dispose of any defective batch(es) at its own expense.

 

Upon receipt (with sufficient lead time) and control of the Compound, ACT II
will proceed with the Manufacture of the Products in accordance with the time
schedule required to meet the requested delivery dates.

 

2.6All Product Manufactured by ACT II under this Agreement shall be manufactured
and packed strictly in accordance with the Specifications and Manufacturing

 

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Process and in accordance with the provisions of any applicable Drug Master File
to which JANSSEN is granted access in accordance with the provisions of Article
5.3.

 

ACT II shall be responsible for obtaining Materials in such quantities as are
necessary for the Manufacturing of the amounts of Product ordered by JANSSEN.

 

ACT II shall be responsible for the quality, purity, identity and potency of the
Materials used and shall only buy and use such Materials in the Manufacturing of
the Product, which strictly comply with the applicable quality requirements and
Specifications.

 

ACT II shall not change the validated Manufacturing Process of the Product or
use any different material in the processing thereof that may have an impact on
any regulatory approval in connection with the Product without JANSSEN US' (in
connection with the United States) and/or JPI's (in connection with the rest of
the Territory) explicit prior written approval and shall give the
assistance reasonably required by JANSSEN US or JPI in preparing the supplement
to any regulatory approval in connection with any change previously approved by
JANSSEN US or JPI.

 

2.7ACT II shall Manufacture Product in batches as specified in
the Specifications and Manufacturing Process and within an agreed upon yield. To
this end the initial percentage of average loss of Compound in the Manufacture
of Product will be agreed upon separately by both parties upon finalization of
the validation of the full scale Manufacturing Process of Product and will be
attached as Exhibit G to this Agreement. JANSSEN and ACT II shall on a yearly
basis review the average production-loss percentages with a view to making
whatever adjustment which may, from time to time, be required. For any loss of
Compound that ACT II may incur in the Manufacturing of Product exceeding the
then applicable yield variance calculated on a yearly basis, ACT II shall pay
JANSSEN a compensation of $10,000 USD per kilogram of Compound. For the purpose
of such loss computations materials used in the Manufacture of control and
retain samples, which are to be retained by ACT II, shall be excluded.

 

2.8To minimize the likelihood of a supply deficiency with respect to Products,
by the end of Phase III clinical trials in the development of the Product in
accordance with the Development Agreement, both parties shall discuss and agree
on a Disaster Recovery and Back-Up plan to be prepared by ACT II. Such plan
shall consider the possibility of (re)building (including validation and
approval) a plant

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within an acceptable period of time (such period to be determined in
common agreement) in case ACT II's current premises would be destroyed as
well as transferring the Manufacture to a manufacturing facility of JANSSEN
or any of their Affiliates or the facilities of a third party. Such third party
will be an industry recognized reputable manufacturer having experience in
making injectable pharmaceutical products.

 

2.9The parties hereto will at regular instances review the long term capacity of
ACT II's plant taking into account the most current forecast of the Final
Product with a view to determine the need to have additional manufacturing
capacity, either at the existing facility of ACT II or in any other
manufacturing facility and either with ACT II or any of its Affiliates or with
JANSSEN or any of their Affiliates.

 

2.10The parties hereto acknowledge that after ACT II has supplied the
Product for Phase III clinical trial and prior to the start of the commercial
Manufacturing of the Product, ACT II's manufacturing facility for the Product
should be kept in a manufacturing ready condition so as to minimize the risk of
supply deficiencies at the moment of start up of the commercial Manufacturing.
In order to do so ACT II will commit such resources and undertake such
maintenance activities and training programs as agreed by both parties in a
Manufacturing Readiness Plan. Such Manufacturing Readiness Plan will be attached
to this Agreement as Exhibit H. In consideration of such manufacturing readiness
activities, JANSSEN will pay a monthly fee to ACT II of $80,000 USD. ACT II will
send monthly invoices to JPI or JANSSEN US in connection with such fees in
accordance with timely provided instructions and JPI and/or JANSSEN US will pay
such invoices within thirty days of invoice.

 

The parties hereto will use good faith efforts to investigate the possibility to
utilize ACT II's manufacturing facility for other manufacturing requirements of
JANSSEN or any of their Affiliates during such interim period. To the extent any
such project would be identified and agreed by the parties, the parties will in
good faith negotiate an appropriate reduction of the monthly $80,000 USD fee
payable by JANSSEN.

 

2.11The parties hereto agree that during the term of this Agreement,
JANSSEN will order and purchase a minimum number of Product during any
given calendar year starting on the first commercial launch of the Final Product
(the year of first commercial launch to be calculated on a pro rata basis). Such
minimum numbers

 

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are expressed in kilograms of bulk Product (excluding for this purpose the
vials) and are set forth in Exhibit C attached hereto. In the event that JANSSEN
does not achieve the applicable minimum quantity of the Product to be
Manufactured during a given calendar year, the parties hereto will in good faith
renegotiate an adjusted Manufacturing Fee, duly considering the effect of the
shortfall. In the event the parties can not agree an adjusted Manufacturing Fee,
ACT II will be entitled to terminate this Agreement upon giving a one year prior
notice. ACT II shall provide such commercially reasonable assistance and other
information in order for JANSSEN to manufacture or have manufactured the Product
after such one year notice period.

 

ARTICLE 3: QUALITY ASSURANCE - GMP COMPLIANCE

 

3.1ACT II will Manufacture the Product in accordance with them current
Good Manufacturing Practices ("GMP") standards, including, but not limited
to the requirements set forth in Janssen's GMP Manual, the requirements imposed
by the Food and Drug Administration of the United States ("FDA"), the Japanese
health authorities and EU GMP guidelines.

 

3.2ACT II shall perform in process and final quality control on Product.
For each batch of Product, ACT II shall take a sample or samples as specified in
the JANSSEN GMP Manual. Such sample(s) and records shall be retained in
accordance with the provisions of the Janssen GMP Manual.

In addition ACT II will on an annual basis submit revalidation data to JANSSEN
or their designee in compliance with the provisions of the Sterilization Policy
in the Janssen GMP Manual.

 

3.3JANSSEN shall have the right, upon reasonable advance notice and
during regular business hours, to send its quality control inspectors to
inspect and audit the processes, facilities and equipment being used by ACT II
in the Manufacturing of the Product and the polymers used in Product to assure
compliance with Articles 2 and 3 of this Agreement as well as any applicable
laws, rules and regulations, provided that such quality control inspectors shall
be subject to the confidentiality provisions provided for in Article 7. Such
inspection and audit shall be conducted at JPI's or JANSSEN US' (as the case may
be) sole cost and expense and in a

 

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manner so as to minimize disruption of ACT II’s business operations. The above
audit right shall also extend to ACT II’s supplier of the siliconized vials.

 

ACT II shall or shall cause its suppliers of the siliconized vials or any other
primary container to remedy, within the timelimits provided for in the GMP audit
report or determined in accordance with the Janssen GMP Manual any deficiencies
reported by such auditor in the audit report issued following any such audit and
which deficiencies relate to GMP, Specifications, Manufacturing Process,
applicable laws, rules and regulations including JANSSEN’s current quality
control procedures, provided that, with respect to the latter, ACT II received
an updated version prior to any such audit. ACT II and JANSSEN will
reasonably collaborate with each other in order to insure that the manufacturer
of the siliconized vials or any other primary container complies with applicable
GMP rules (including the JANSSEN GMP Manual) and Specifications and
Manufacturing Process. Such collaboration includes the possibility to organise
joint audits or to have such GMP audit performed by JANSSEN. During such period,
ACT II shall continuously use commercially reasonable efforts to remedy such
deficiencies as promptly as possible. In the event that ACT II does not remedy
any of such deficiencies within the above-referred timelimits, then JANSSEN
shall be entitled to cover by Manufacturing themselves or to have a third
party manufacture the Products. ACT II shall provide such
commercially reasonable assistance and other information as shall be necessary
in order for JANSSEN to manufacture itself or have a third party manufacture the
related Products. In the event that JANSSEN uses a third party manufacturer for
the Product pursuant to this Article, JANSSEN shall require such third party to
be bound by the same confidentiality provisions as are contained in this
Agreement.

 

3.4In the event ACT II receives a deficiency notice from the FDA or any other
regulatory agency regarding its compliance with any applicable laws, rules and
regulations regarding its Manufacture of the Product, ACT II shall promptly
notify JPI and JANSSEN US.

 

ACT II shall use commercially reasonable effects to remedy such deficiencies as
promptly as possible and in any event within the time period requested by
the agency. In the event that ACT II does not remedy any of such
deficiencies within the period provided for in the notice of the regulatory
agency, then JANSSEN shall be entitled to manufacture or have manufactured
the Products in accordance with the provisions of Article 3.3.

 

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3.5Upon reasonable request of JANSSEN US, JPI or any of their Affiliates, ACT II
will enter into a separate Quality Assurance Agreement with JANSSEN US, JPI or
any such Affiliate, which Quality Assurance Agreement will confirm the quality
assurance provisions set forth in this Agreement and will clearly identify the
respective responsibilities of the parties in the Manufacturing of the Product.

 

ARTICLE 4: SHIPMENT - RISK AND TITLE

 

4.1By the required delivery date, ACT II will ship the Products to JANSSEN or
their designee in accordance with the ordering instructions as set forth in
Article 2 hereof. Together with such shipment ACT II will send shipping
documents and Certificates of Analysis of the batches shipped.

Products shall be shipped using a carrier appointed by JANSSEN on the basis of
FOB, port of shipment. The term “FOB” shall be interpreted in accordance with
the latest INCOTERMS.

 

4.2Upon receipt of a batch of Product JPI, JANSSEN US or their designee shall
perform or have performed an inspection of the batch documents and perform such
test on the Product in accordance with procedures to be agreed upon. Should a
batch of Product or the Manufacturing Process thereof fail to meet the
established standards of quality as set forth in Article 3 or should the Product
or the Manufacturing thereof not comply with the Specifications or Manufacturing
Process, JPI or JANSSEN US, as the case may be, shall inform ACT II in writing
of the alleged shortcomings within fifteen (15) business days after receiving
such defect, specifying the nature of the defect and the batch number.

 

ACT II shall, at JPI’s or JANSSEN US’ option, depending who ordered the batch
(i) re-process or replace in accordance with the Specifications and the
Manufacture Process, at its own cost (which cost excludes the cost of the
Compound), the whole or part of the deficient batch of Product so rejected, or,
if the related Manufacturing Fee due by JPI or JANSSEN US in accordance with
Article 6 was already paid, provide either (ii) a refund of the Manufacturing
Fee paid in relation to the rejected batch(es) or (iii) issue a credit note for
future orders for the full amount of the Manufacturing Fee paid in relation to
the rejected batch(es) and shall destroy upon JPI’s or JANSSEN US’ instructions
the rejected batch of Product which can not be corrected or
improved. Furthermore, ACT II compensate or credit JPI or JANSSEN US $10,000 USD
per kilogram of

 

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Compound for JPI’s or JANSSEN US’ cost for the Compound used in such deficient
batch of Product. If JANSSEN US or JPI request the receipt of such $10,000 USD
payment, such payment will be made within forty five (45) days date of invoice.

 

Both parties will make good faith efforts to resolve disagreements in connection
with any such alleged shortcomings. In the event the in-house experts of the
parties are unable to agree on any alleged shortcoming of the Product or the
Manufacturing process thereof, then the parties will appoint an independent
expert skilled in the art who will analyse samples of the alleged deficient
batch and all process deviations. Both parties will supply such expert with
copies of specifications, documents, test results etc., that the expert may
reasonably require in connection with such analysis. The expert’s decision as to
whether such batch has met the specifications shall be final and binding to the
parties. The expenses of such expert shall be borne by the party whose
contention is rejected by the expert.

 

4.3Title in the Compound and Product shall at any time remain with JPI
or JANSSEN US, depending on which company ordered the Product, whereas title to
the Material shall remain with ACT II until incorporation in the Product. Risk
of loss and damage in relation to the Compound and the Product shall pass to ACT
II upon delivery of the Compound at the ACT II premises and shall again pass to
JPI and/or JANSSEN US upon delivery of the Product to the common carrier. ACT II
shall provide adequate and safe storage for the Compound and Products while at
its premises and shall have sufficient insurance coverage in connection with the
above risk.

 

4.4ACT II represents and warrants that at the time of Manufacture all Product
supplied hereunder shall be manufactured and supplied by ACT II in accordance
with the Specifications and Manufacturing Process and in compliance with (i)
this Agreement and (ii) any applicable law, rule or regulations.

 

EXCEPT FOR THE ABOVE WARRANTY, THERE ARE NO WARRANTIES OF MERCHANTIBILITY OR
FITNESS FOR A PARTICULAR PURPOSE.

 

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ARTICLE 5: REGULATORY PROVISIONS

 

5.1JANSSEN and its Affiliates will be responsible for filing any
regulatory approval application in connection with the Product and the
Final Product, in their own name and at their own cost, all in accordance
with the provisions of the Development Agreement and the License Agreement.

 

5.2ACT II will give reasonable regulatory support in connection with regulatory
approvals filed by JANSSEN in relation to the Product and/or the Final Product
and will do so free of charge. Amongst others, ACT II will prepare and maintain
all the necessary supporting documentation requested by JANSSEN such as
certificates or other administrative documents required for reference in any
regulatory filing, in a format requested by JANSSEN. Notwithstanding the above,
it is agreed that if any such request from JANSSEN or the health authorities in
a given country entails extraordinary costs beyond the normal and ordinary
regulatory support efforts in connection with the filing and maintenance of
the regulatory approvals directed to the Product or Final Product, the parties
will in good faith discuss and agree on a sharing mechanism with respect to such
extraordinary costs related to such support activities in such country or
countries.

 

5.3ACT II shall be responsible for obtaining and maintaining all
necessary permits and approvals to Manufacture the Products and in general
to perform its responsibilities as set forth in this Agreement.

 

Amongst others ACT II shall submit a Drug Master File (“DMF”) with the health
authorities identifying ACT II’s method of manufacture, release specifications
and testing methods used in the manufacture of the polymers and shall cause the
supplier of the siliconized vials or any other primary container to do the same
in relation to such vials or such other primary container. Similarly ACT II
shall prepare and file an appropriate facility DMF with respect to the
facilities where ACT II Manufactures the Product and the polymers. ACT II shall
cause the supplier of the siliconized vials (or any other primary container) or
any other Material used in the Manufacture of Product to do the same.

 

Upon request by JPI or JANSSEN US, ACT II agrees to provide JPI, JANSSEN US or
their Affiliates or licensees with a Letter of Authorisation permitting the
Health Authorities to refer to ACT II’s DMF in its review of JANSSEN’s or their
Affiliates’ applications for Product manufactured by ACT II. ACT II shall cause

 

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the supplier of the siliconized vials (or any other primary container) or any
other Material used in the Manufacture of Product to do the same.

 

A representative of JANSSEN will be entitled to review at ACT II’s facilities
those parts of the polymer DMF and the appropriate facility DMF pertaining to
the Manufacture of Product.

 

ACT II shall maintain its Manufacturing facilities, Manufacturing records and
its DMF’s in such a manner as required to live up to the above obligation during
the entire term of this Agreement.

 

JANSSEN shall not file with FDA or any other regulatory agency any changes with
respect to the Manufacturing Process or Specifications without ACT II’s prior
consent.

 

ACT II shall keep JANSSEN updated of any changes in the DMF related to the
polymers and/or the appropriate facility DMF requested by the FDA or any other
regulatory agency and Parties will discuss the same before any changes are
implemented.

 

 

5.4JANSSEN shall inform ACT II promptly (and whenever possible within 24 hours
of receipt by JPI and/or JANSSEN US) of any information or request for
information received from the FDA or any other regulatory agency relating to the
NDA and/or registration of Product whenever such information or communication is
related to ACT II technology. Parties shall promptly discuss such information
and in the event that a reply is required to such formal question from the FDA
or any other regulatory agency or any communication has to be made with respect
to Product and related to ACT II technology, Parties will agree on the content
of any communication before it is made.

 

5.5ACT II shall inform JANSSEN promptly (and whenever possible within 24 hours
of receipt by ACT II) of any information or request for information received
from the FDA or any other regulatory agency relating to ACT II technology
whenever such information or communication is relevant to Product. It being
understood that ACT II shall not disclose to JANSSEN any third party
confidential information or trade secrets. Parties shall promptly discuss such
information and in the event that a reply is required to such formal question
from the FDA or any other regulatory agency or any communication has to be made
that involves Product, Parties will agree on the content of such communication
before it is made.

 

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ARTICLE 6: MANUFACTURING FEE

 

6.1In consideration of the manufacturing activities to be performed by ACT II
hereunder, JPI and JANSSEN US will pay the Manufacturing Fee for the Products
supplied to each of them. The Manufacturing Fee will be calculated as a certain
percentage of the Licensed Net Selling Price. The actual percentage that shall
apply with respect to a given calendar year will be determined in a function of
the total volume of Products Manufactured by ACT II and invoiced to JANSSEN
during such calendar year and will be calculated in accordance with the brackets
set forth in Exhibit D attached hereto.

 

The actual Manufacturing Fee due during any given calendar year will
be calculated as follows;

 

6.1.1The Manufacturing Fee for the initial batches of Product Manufactured and
invoiced by ACT II prior to the expiration of the first calendar year following
the first commercial launch of the Final Product shall be calculated as a
percentage of the estimated weighted average price offered by JANSSEN, its
Affiliates or licensees to independent unrelated third parties for the
Final Product. Such weighted average price will be calculated by multiplying the
forecasted net selling price of the Final Product (expressed in USD at the
exchange rates then applied by JANSSEN in accordance with its normal accounting
procedures) in each country of Territory where JANSSEN intends to launch the
Final Product in the calendar year following the calendar year of the
first commercial launch of the Final Product times the total number of units of
the Final Product JANSSEN forecasts to sell in those countries during such
period. The actual percentage to be paid as Manufacturing Fee in such period
will be calculated on the basis of the total number of units of the Product ACT
II is required to Manufacture and ship to JANSSEN during such period based on
the forecast provided by JANSSEN in accordance with Article 2.3.

 

Within ten (10) business days following the end of every calendar quarter
either party may request a recalculation of the then applicable Manufacturing
Fee whenever there is a deviation of more than twenty five

 

-  14  -

--------------------------------------------------------------------------------

 

Percent (25%) in the total number of Products actually Manufactured and
shipped by ACT II to JANSSEN during such quarter and the number of
units forecasted by JANSSEN. The parties will at such moment recalculate and
adjust the Manufacturing Fee based on (i) the revised supply forecast and (ii)
the then current Licensed Net Selling Price.

 

In the month of January following such first full calendar year adjustment shall
be made if there is deviation between (i) the estimated weighted average price
and the actual Licensed Net Selling Price of the Final Product (expressed in USD
at the exchange rates then applied by JANSSEN in accordance with its normal
accounting procedures) and /or (ii) the total volume of units of Product
actually Manufactured and invoiced by ACT II during such period.

 

Any corrective payment to be made resulting from such reconciliation will be
paid by the party owing such a payment within forty five (45) days after such
reconciliation and in accordance with the provisions of Article 6.4.

 

6.1.2The Manufacturing Fee for any calendar year following the initial period as
specified under Article 6.1.1 above will be calculated on the basis of the
forecasted (i) Licensed Net Selling Price (expressed in USD at the exchange
rates then applied by JANSSEN in accordance with its normal accounting
procedures) and (ii) the amount of Product expressed in units to be Manufactured
and shipped by ACT II for such calendar year.

 

Within ten (10) business days following the end of every calendar quarter
either party may request a recalculation of the then applicable Manufacturing
Fee whenever there is a deviation of more than twenty five percent (25%) in the
total number of Products actually Manufactured and shipped by ACT II during such
quarter and the number of units forecasted by JANSSEN. The parties will at such
moment recalculate and adjust the Manufacturing Fee for the remainder of the
calendar year based on (i) the revised supply forecast and (ii) the then
current Licensed Net Selling Price.

 

In the month of January following any calendar year adjustment shall be made if
there is deviation between (i) the estimated weighted average price and the
actual Licensed Net Selling Price of the Final Product (expressed in USD at the
exchange rates then applied by JANSSEN in accordance with

 

-  15  -

--------------------------------------------------------------------------------

 

 

its normal accounting procedures) and/or (ii) the total volume of units of
Product actually Manufactured and invoiced by ACT II during such calendar year.
Any corrective payment to be made resulting from such reconciliation will be
paid by the party owing such a payment within forty five (45) days after such
reconciliation and in accordance with the provisions of Article 6.4.

 

6.2JANSSEN will keep accurate records of the Licensed Net Selling Price with a
view to determine the accuracy of the Manufacturing Fee calculation for a period
of at least two (2) years after expiry of the year they concern. ACT II shall
have the right to nominate an independent certified public accountant acceptable
to and approved by JANSSEN US or JPI as the case may be who shall have access,
on reasonable notice, to JPI's or JANSSEN US' records during reasonable business
hours for the purpose of verifying the calculation of the Licensed Net Selling
Price. This right may not be exercised more than once in any calendar year, and
once a calendar year is audited it may not be reaudited, and said accountant
shall disclose to ACT II information relating solely to the accuracy of the
Licensed Net Selling Price calculation.

 

6.3ACT II shall invoice JPI or JANSSEN US for the Manufacturing Fee due
with respect to each batch of Product supplied to each of them or
their respective designee when shipped pursuant to Article 4. JPI and JANSSEN US
shall be pay such invoice within forty-five (45) days after the date of the
invoice.

 

6.4All payments required to be paid hereunder shall be made in United
States Dollars by wire transfer of immediately available funds to the
financial institution, account number, account party's name and wire
transfer information designated in writing by ACT II to JPI and JANSSEN US as
the place of payment.

 

6.5No party shall have the right to reduce, by set off, counterclaim, adjustment
or otherwise, any amount owed by it to the other party pursuant to this
Agreement, unless explicitly provided for otherwise.

 

ARTICLE 7: CONFIDENTIALITY

 

The parties refer to Article to the confidentiality provisions of Article 9
of the License Agreements which provisions are incorporated by reference herein.

 

-  16  -

--------------------------------------------------------------------------------

 

ARTICLE 8: RECALL

 

In the event of a Product recall ("Recall"), JPI or JANSSEN US, as the case
may be, shall be responsible for the coordination of Recall activities. Where
the Recall is caused by ACT II's negligence or willful misconduct or breach of
this Agreement and without prejudice to the provisions of Article 10, ACT II
agrees to pay the following costs and expenses of any Recall: (i) costs of
retrieving the Product previously delivered to JPI's or JANSSEN US' agents or
customers, (ii) costs and expenses that JPI and/or JANSSEN US is required to pay
for reasonable notification, shipping and handling charges, provided JPI and/or
JANSSEN US provides ACT II with supporting documentation of all such
reimbursable costs and expenses, and (iii) cost of replacing Products that are
unsalable as a result of the Recall. If the Recall is not primarily caused by
ACT II's negligence, willful misconduct or breach, JPI and/or JANSSEN US shall
pay all of the costs and expenses described above for such Recall.

 

ARTICLE 9: INDEMNIFICATIONS

 

9.1JANSSEN shall indemnify, defend and hold ACT II and its Affiliates, and each
of their officers, directors, employees, agents and consultants (each an "ACT II
Indemnitee") harmless from, against and in respect of any damages, claims made
by third parties, losses, liabilities, charges, actions, suits, proceedings,
penalties and reasonable costs and expenses (including without limitation
reasonable attorneys' fees) (collectively, the "Losses"), arising out of or
resulting from the use by or administration to any person of Product or Final
Product of JPI, its Affiliates or licensees, except to the extent such Losses
arose or resulted primarily from the failure of ACT II or its Affiliates to
Manufacture Products in accordance with GMP, the Specifications and
Manufacturing Process for such Product(s) or from ACT II's failure to comply
with its obligations or covenants contained herein, so long as (i) the ACT
II Indemnitee allows JANSSEN to participate in or, at JANSSEN's sole option but
without any obligation, to conduct at JPI's expense the defense of a claim or
action for which indemnification is sought under this Article 9.1. (provided
that the ACT II Indemnitee may participate in such defense at its own expense),
and (ii)

 

-  17  -

--------------------------------------------------------------------------------

 

neither party may compromise or settle such claim or action without the other
party's prior written consent, which shall not be unreasonably withheld ;
provided, however, that a ACT II Indemnitee shall not be indemnified under this
Article 9.1 to the extent that actions taken or failed to have been taken by
JANSSEN under the direction of, or at request of, the ACT II Indemnitee were the
primary cause of the events giving rise to the ACT II Indemnitee's claim
for indemnification.

 

9.2ACT II shall indemnify, defend and hold JANSSEN, their Affiliates
and Licensees and each of their officers, directors, employees, agents
and consultants (each a "JANSSEN Indemnitee") harmless from and against
all Losses to the extent such losses arise out of or result from the failure of
ACT II or its Affiliates to Manufacture the Product(s) in accordance with the
Specifications and Manufacturing Process, or, its failure to comply with its
obligations or covenants contained herein, unless such failure was the result of
actions taken or failed to have been taken by the ACT II under the direction of,
or at the request of JANSSEN. The JANSSEN Indemnitee shall allow ACT II to
participate in, or, at ACT II's sole option, to conduct at ACT II's expense the
defense of a claim or action for which indemnification is sought under this
Article 9.2. (provided that the JANSSEN Indemnitee may participate in
such defense at its own expense), and neither party shall compromise or
settle such claim or action without the other party's prior written
consent, which shall not be unreasonably withheld.

 

9.3In no event shall either party be liable for any consequential or indirect
damages of the other party, including but not limited to lost profits.

 

9.4Both parties shall obtain, and shall maintain at all times during the term of
this Agreement, an insurance policy or policies providing coverage against
product liability claims related to the above indemnification.

 

ARTICLE 10: TERM AND TERMINATION

 

10.1The term of this Agreement shall be commensurate with the term of
the License Agreements, unless sooner terminated as provided hereinafter.

 

-  18  -

--------------------------------------------------------------------------------

 

10.2This Agreement may be terminated:

 

10.2.1by mutual agreement of JANSSEN and ACT II in a writing signed by the
parties;

 

10.2.2by written notice of JANSSEN or ACT II in the event of a material
breach by the other party in the performance of any of its
obligations hereunder, if the party not in default shall have given
the defaulting party written notice specifying such default within 45 days after
the occurrence of such breach and the defaulting party has not made substantial
and diligent progress in remedying or correcting the default within 60 days
after such notice is given, with such termination becoming effective at the end
of such 60 days;

 

10.2.3by written notice of JANSSEN or ACT II in the event that the other party
makes an assignment for the benefit of its creditors, files a petition under
bankruptcy or insolvency laws, a receiver or custodian is appointed for such
party's business, proceedings are instituted against such party under bankruptcy
or insolvency laws that have not been stayed within 90 days, all or
substantially all or such party's business or assets become subject to
attachment, garnishment or other process, or such a party becomes unable to pay
its obligations as they become due;

 

10.2.4by JANSSEN prior to any commercial Manufacturing upon giving thirty days
prior written notice and following the commencement of the commercial
manufacturing upon giving a six month prior written notice, provided that with
respect to the latter the Agreement shall not be terminated by JANSSEN without
cause during the first two calendar years following the commencement of the
commercial Manufacturing, unless JANSSEN decides also to terminate the License
Agreements;

 

-  19  -

--------------------------------------------------------------------------------

 

102.5by ACT II in accordance with the provisions of Articles 2.11

 

10.3Upon termination of this Agreement for any reason whatsoever ACT II
will cease the Manufacturing of the Products. Termination of this
Agreement shall not affect the rights and obligations of the parties accrued
prior to the termination hereof. Notwithstanding the termination of
this Agreement, the confidentiality provisions of Article 3.3, the
obligations set forth in Articles 7, 8, 9, and 12.9 shall continue and survive
the termination hereof.

 

ARTICLE: 11 FORCE MAJEURE

 

Each party shall be relieved of its obligations to the extent that
fulfillment of such obligations shall be prevented by acts beyond the reasonable
control of such party affected, including, without limitation, acts of God,
fire, explosion, flood, drought, war, riot, sabotage, embargo, strikes or other
labor trouble, prohibitions against imports or exports of Products,
impossibility of obtaining or shortages in supply of raw materials, or
compliance with any order or regulation of any government entity acting under
color of right. If such cause continues unabated for a period of thirty (30)
days, both parties will promptly meet to discuss the possibilities to overcome
such case of Force Majeure and the potential implications on the further
performance under this Agreement.

 

ARTICLE: 12 MISCELLANEOUS

 

12.1Status. Neither JANSSEN or ACT II shall make any representation or incur any
obligation in the name of or in behalf of the other party, except as explicitly
authorized hereunder. Nothing in this Agreement shall be deemed to establish a
relationship of principal and agent between ACT II and JPI or JANSSEN US, nor
any of their agents or employees for any purpose whatsoever. Nothing in this
Agreement shall be deemed to constitute the parties as a partnership,
association or other relationship.

 

-  20  -

--------------------------------------------------------------------------------

 

12.2Public Announcements. No public announcement with respect to the Product or
the existence of this Agreement may be made by JANSSEN or ACT II without the
prior written approval of the other party.

 

12.3Modifications. Any amendment or supplement to this Agreement shall
be effective only if contained in a writing signed by each of the
parties hereto.

 

12.4Assignments. Except as otherwise provided herein, this Agreement shall not
be assignable by any party, without the other party's written consent, such
consent not to be unreasonably withheld, except that such consent is not
required in connection with the assignment of any parties’ obligations to an
affiliate of such party;  provided,  however, that any such assignment shall not
relieve the parties hereto from any obligations under this Agreement.

 

12.5Prior Agreements. The parties hereto acknowledge that this
Agreement contains the entire agreement between the parties pertaining to
the Manufacturing and supply of Product in Territory and terminates
and supersedes all prior agreements, understandings, letters or
other instruments whatsoever, whether written or oral, between the parties
or any of their affiliates with respect to such matters.

 

12.6Waiver. No waiver by JANSSEN or ACT II of any breach of this Agreement will
constitute a waiver of any subsequent breach, and no exercise by either JANSSEN
or ACT II of any right of termination will constitute a waiver of any right for
recovery of any monies then due it hereunder or any other right or remedy such a
party may have at law, in equity or otherwise.

 

12.7Representations. Each party represents and warrants that it has the right to
enter into this Agreement and that it is under no obligation to any third party,
express or implied, conflicting with the terms and conditions of this Agreement.

 

-  21  -

--------------------------------------------------------------------------------

 

12.8Separability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such invalidity or unenforceability
without rendering invalid or unenforceable the remaining terms and provisions
of this agreement where affecting the validity or enforceability of any of the
terms or provisions of this Agreement in any other jurisdiction.

 

12.9Governing Law; Dispute Resolution.

 

12.9.1In the event a dispute ("Dispute") arises between the parties arising out
of or relating to this Agreement, the parties shall use all reasonable efforts
to resolve the Dispute through direct discussions for a period of sixty (60)
days, unless and to the extent this Agreement provides for other and shorter
periods. The senior management of each party commits itself to respond to
any such Dispute. Subsequent to such sixty (60) day period either party may, but
shall not be required to resort to the binding arbitration procedures set out
hereinafter in this Article 12.9.

 

12.9.2If the parties are unable after exerting all reasonable efforts to resolve
a Dispute between the parties, the Dispute shall be resolved through binding
arbitration pursuant to the Commercial Arbitration Rules of the American
Arbitration Association in accordance with the following provisions:

 

(a)

If a Dispute arises between the parties, the place of arbitration shall be New
York, New York.

 

(b)

To the extent the parties can not immediately agree on a single arbitrator, the
arbitration shall be conducted by a panel of three neutral arbitrators
("Arbitrators"). One member shall be appointed by each party and the
third member shall be appointed by the two arbitrators appointed by the parties.
The parties will select an

 

-  22  -

--------------------------------------------------------------------------------

 

arbitrator within fifteen (15) business days following the demand
for arbitration. The two arbitrators selected by the parties will appoint the
third member within ten (10) days following their appointment.

 

(c)

The language to be used in the arbitration shall be English.

 

(d)

Any arbitrator selected by the parties may be of any nationality, and need not
be a lawyer or hold any other professional status or membership but will be
selected on the basis of his or her qualifications and expertise with respect to
the matter under dispute.

 

(e)

The Arbitrators shall resolve the Dispute on the basis of a written record
consisting of an initial and rebuttal submission by each party (together with
documentary evidence (including affidavits) supporting the positions taken in
such submissions); provided that the Arbitrators shall have the right to require
the parties to make or participate in such other written or oral
submissions, presentations, or examinations as the Arbitrators shall deem
necessary for the proper resolution of such Dispute, all of which shall be made
or submitted directly to the Arbitrators and shall become part of the record in
the proceeding.

 

(f)

The specific pleading schedule for each proceeding shall be determined by the
parties in consultation with the Arbitrators within fifteen business days after
the date on which the Arbitration panel is constituted, but it shall in each
case provide that the parties' respective initial submissions shall be filed
simultaneously with the Arbitrators, as shall the parties' respective
reply submissions.

 

(g)

Unless the parties otherwise agree at the time a particular Dispute is submitted
for arbitration, the Arbitrators shall be required as a

 

-  23  -

--------------------------------------------------------------------------------

 

condition to their engagement to agree to render a decision within 30 days of
the date on which the record in the proceeding is completed, but in no case
more than 90 days after the date of the last hearing on the substantive issues.

 

(h)

The parties shall use reasonable efforts to schedule and make their submissions,
and to take all other necessary actions in connection with the proceeding, at a
time and in a manner which will permit the Arbitrators to render its decision in
accordance with the schedule set forth herein.

 

(i)

All communications with the Arbitrators during the pendency of the proceeding
shall be made in writing, with a copy thereof delivered simultaneously to the
other party to the proceeding, or if made orally, made only in the presence
of the other party to the proceeding or its representative. The existence of the
Dispute and the related proceedings shall be kept confidential in accordance
with the provisions of Article 7.

 

(j)

All decisions by the Arbitrators shall be done by majority vote. The arbitration
award shall be rendered in writing and shall state the reasons for the award,
and shall be final and binding upon the parties. In rendering their decision,
the Arbitrators shall apply the substantive law of the state of New York,
without regard to its conflict of law provisions, provided that the Arbitrators
shall base their decision on the express terms and conditions of this Agreement.

 

(k)

The Arbitrators are empowered to award any remedy allowed by law, including
money damages and to grant final or interlocutory relief. Notwithstanding the
foregoing punitive or multiple damages may not

 

-  24  -

--------------------------------------------------------------------------------

 

be awarded and the express terms of this Agreement may not be altered.

 

(l)

Each party shall bear its own expenses and attorneys' fees in connection with
the arbitration.

 

12.10Notices. Any notice required or permitted to be given under this Agreement
shall be mailed by registered or certified air mail, postage prepaid, addressed
to the party to be notified at its address stated below, or at such other
address as may hereafter be furnished in writing to the notifying party or by
telefax to the numbers set forth below or to such changed telefax numbers as
may thereafter be furnished.

If to ACT II:

 

Alkermes Controlled Therapeutics Inc. II

64 Sidney Street

Cambridge

MA 02139-4136

U.S.A.

Telefax: +1-617-494-9263

attention:  Chief Financial Officer

 

If to JANSSEN:

 

Janssen Pharmaceutica International, a division of Cilag AG

International,

CH-6300 Zug, Chollerstrasse 38,

Switzerland

Telefax: 041 748 3667

 

and

 

Janssen Pharmaceutica Inc.

1125 Trenton-Harbourton Road

Titusville

NJ 08560

U.S.A.

Telefax:  +1-609-730-2323

 

Any such notice shall be deemed to have been received when it has been delivered
in the ordinary course of post or received by telefax.

 

-  25  -

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IN WITNESS WHEREOF, JPI, JANSSEN US AND ACT II have caused this instrument to
be executed by their respective duly authorized officers, the date of execution
to relate back to the day and year last below written.

 

 

 

 

 

 

 

    

Alkermes Controlled Therapeutics, Inc. II

 

 

 

 

 

This 8th day of August 1997

 

 

 

 

 

 

/s/ J. Duncan Higgons

 

By

/s/ Michael Landine

(title)

Vice President

 

(title)

Vice President

 

 

 

 

 

 

 

 

JANSSEN PHARMACEUTICA

 

 

INTERNATIONAL represented by

 

 

CILAG AG INTERNATIONAL.

 

 

 

 

 

This 27th day of August 1997

 

 

 

 

 

 

/s/ illegible signature

 

By

/s/ illegible signature

(title)

 

 

(title)

 

 

 

 

 

 

 

 

 

Janssen Pharmaceutica Inc.

 

 

 

 

 

This 3rd day of September 1997

 

 

 

 

 

 

 

 

By

/s/ illegible signature

(title)

 

 

(title)

President

 

-  26  -

--------------------------------------------------------------------------------

 

Exhibit A

 

Specifications

-  27  -

--------------------------------------------------------------------------------

 

Exhibit B

 

Equipment : capital items

-  28  -

--------------------------------------------------------------------------------

 

Exhibit C

 

Minimum Quantities

 

 

 

1st Calendar year

60 kg of bulk Product (microspheres - excluding vials)

(on a pro rata basis taking into account actual date of the first commercial
launch of the Final Product)

2nd Calendar year

100 kg of bulk Product

3rd Calendar year and any subsequent calendar year

160 kg of bulk Product

 

-  29  -

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Exhibit D

 

Manufacturing Fee

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount purchased
(vials)

 

% of Licensed

 

Amount purchased
(vials)

 

% of Licensed

 

From

    

To

    

Net Selling Price

    

From

    

To

    

Net Selling Price

 

263,000

 

399,999

 

24.5 

%  

2,100,000

 

2,199,999

 

8.8 

%

400,000

 

499,999

 

19.5 

%  

2,200,000

 

2,299,999

 

8.6 

%

500,000

 

599,999

 

16.5 

%  

2,300,000

 

2,399,999

 

8.5 

%

600,000

 

699,999

 

14.0 

%  

2,400,000

 

2,499,999

 

8.3 

%

700,000

 

799,999

 

12.3 

%  

2,500,000

 

2,599,999

 

8.2 

%

800,000

 

899,999

 

12.0 

%  

2,600,000

 

2,699,999

 

8.1 

%

900,000

 

999,999

 

11.7 

%  

2,700,000

 

2,799,999

 

8.0 

%

1,000,000

 

1,099,999

 

11.4 

%  

2,800,000

 

2,899,999

 

7.9 

%

1,100,000

 

1,199,999

 

11.0 

%  

2,900,000

 

2,999,999

 

7.8 

%

1,200,000

 

1,299,999

 

10.7 

%  

3,000,000

 

3,099,999

 

7.8 

%

1,300,000

 

1,399,999

 

10.4 

%  

3,100,000

 

3,199,999

 

7.7 

%

1,400,000

 

1,499,999

 

10.1 

%  

3,200,000

 

3,299,999

 

7.7 

%

1,500,000

 

1,599,999

 

9.8 

%  

3,300,000

 

3,399,999

 

7.6 

%

1,600,000

 

1,699,999

 

9.7 

%  

3,400,000

 

3,499,999

 

7.6 

%

1,700,000

 

1,799,999

 

9.5 

%  

3,500,000

 

3,599,999

 

7.5 

%

1,800,000

 

1,899,999

 

9.3 

%  

3,600,000

 

3,699,999

 

7.5 

%

1,900,000

 

1,999,999

 

9.2 

%  

3,700,000

 

3,799,999

 

7.5 

%

2,000,000

 

2,099,999

 

9.0 

%  

3,800,000

 

3,899,999

 

7.5 

%

 

 

 

 

 

 

3,900,000

 

4,000,000

 

7.5 

%

 

-  30  -

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Exhibit E

 

The Forecast Mechanism

-  31  -

--------------------------------------------------------------------------------

 

Exhibit F

 

Specification of Compound

-  32  -

--------------------------------------------------------------------------------

 

Exhibit G

 

Average Loss of Compounds further to Article 2.7

-  33  -

--------------------------------------------------------------------------------

 

Exhibit H

 

Manufacturing Readiness Plan

 

-  34  -

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