**EXHIBIT10.2**

 

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**Commission.  Confidential Treatment Requested Under**

**17 C.F.R. Sections 200.80(b)(4) and 240.24b-2**

 

**COST ALLOCATION AGREEMENT**

 

This **COST ALLOCATION AGREEMENT**(this ***“Agreement”***) is entered intoand effective as of May 4, 2009 by and between **ELI LILLYAND COMPANY**, a corporation organized and existing under the laws ofthe State of Indiana, whose principal place of business is Lilly CorporateCenter, Indianapolis, Indiana, 46285, United States of America (***“Lilly”***) and **AMYLINPHARMACEUTICALS, INC.**, a corporation organized and existing underthe laws of Delaware, whose principal place of business is 9360 TowneCentre Drive, San Diego, California 92121, United States of America (***“Amylin”***).  Unless otherwise designated, capitalizedterms used but not otherwise defined herein shall have the meanings provided inthe Collaboration Agreement (defined below).

 

**WHEREAS,** Lilly and Amylin are parties to severalagreements, including:  (i) thatcertain Collaboration Agreement, dated September 19, 2002, as amended todate (the ***“Collaboration Agreement”***)(including by the Amendment to Collaboration Agreement, dated October 31,2006 (the ***“Amendment”***)) and (ii) thatcertain Exenatide Once Weekly Supply Agreement, dated October 16, 2008(the ***“EQW Agreement”*** and together withthe Collaboration Agreement, the ***“Impacted Agreements”***);

 

**WHEREAS,** each of the Impacted Agreements provide that theParties will share certain costs related to the collaboration;

 

**WHEREAS,** the Parties have had on-going discussions regardingthe proper allocation of global Development and Commercialization Costs underthe Collaboration Agreement; and

 

**WHEREAS,** the Parties now wish to enter into this Agreement to (i) setforth the terms upon which all Development Costs, Commercialization Costs, andEQW Manufacturing Development Costs, incurred from and after January 1,2009 in connection with the Impacted Agreements, will be shared by the parties,and (ii) adjust the royalties paid to Amylin in connection with sales ofProducts outside the United States from and after January 1, 2009.

 

**NOW, THEREFORE**, in consideration of the mutual covenants andagreements set forth herein, and other good and valuable consideration, thereceipt and sufficiency of which are hereby acknowledged, Lilly and Amylinagree as follows:

 

**1.****                                     ****Cost Sharing.** Except as otherwise set forth below, effectiveas of and after January 1, 2009, all Development Costs, CommercializationCosts, and EQW Manufacturing Development Costs (as defined in the EQWAgreement) which are subject to cost-sharing provisions in the ImpactedAgreements shall be shared by the Parties as follows:

 

**(a)****                               ****US Costs.** Notwithstanding anything to the contrary in the Impacted Agreements,Lilly shall pay 50% and Amylin shall pay 50% of the Development Costs and/orCommercialization Costs associated with activities undertaken with theexpectation of generating utility predominantly in the United States (***“US Costs”***), regardless of thedegree of utility actually realized in the Territory outside the United States(“***OUS***”), including by way of exampleand without limitation,  Study GWCOcosts, Amylin-Lilly Grant Office (“ALGO”) costs, US sales force costs, and USmarketing and commercialization expenses.

 

*****Confidential Treatment Requested**

 

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*****TextOmitted and Filed Separately with the Securities and Exchange**

**Commission.  Confidential Treatment Requested Under**

**17 C.F.R. Sections 200.80(b)(4) and 240.24b-2**

 

**(b)****                               ****OUS Costs.** Notwithstanding anything to the contrary in the Impacted Agreements,Lilly shall pay 100% of the Development Costs and/or Commercialization Costsassociated with activities undertaken with the expectation of generatingutility predominantly OUS (***“OUS Costs”***),including by way of example and without limitation, , Study GWCL costs, StudyGWCK costs, the UK Detemir study costs, OUS BID Development Trial Costs, OUSBID Commercialization Trial Costs, OUS Non-BID Development Trial Costs, OUS Non-BIDCommercialization Trial Costs and OUS BID Product Development Costs (each asdefined in the Amendment).

 

**(c)****                               ****GlobalCosts.**  Notwithstanding anything to thecontrary in the Impacted Agreements, Lilly shall pay 53% of Global Costs andAmylin shall pay 47% of Global Costs.  ***“Global Costs”*** are Development Costsand Commercialization Costs associated with activities undertaken with theexpectation of generating utility in both the U.S. and OUS, including by way ofexample and without limitation, the CV Outcomes Trial costs, costs associatedwith the 2009 development program for transdermal, Study 108 costs, Study GWCHcosts, and costs associated with developing the RTU formulation.  The parties specifically agree that EQWManufacturing Development Costs, including EQW pen manufacturing developmentcosts, shall be Global Costs.  Theparties specifically agree that the costs of Dual Use Studies (as defined inthe Amendment) shall be Global Costs; *provided, however,*that the costs of Dual Use Studies shall not be Global Costs before April 1,2009, and the costs of such Dual Use Studies shall continue to be shared by theparties pursuant to the Dual Use Cost Allocation set forth in paragraph3(c)(ii)b of the Amendment until and including March 31, 2009.

 

Forthe avoidance of doubt, Commercialization Costs, as such term is used in thisAgreement, includes Reimbursable Marketing Expenses.

 

**(d)****                               ****Designation of Costs.**

 

**(i)**                                    Development Costs and CommercializationCosts shall be designated “Global”, “US”, or “OUS,” in good faith, by therelevant Alliance committee, which shall include, if appropriate, the ExenatideLeadership Team (the “***ELT***”), andapproved by the Alliance Steering Committee (***“ASC”***)at the time plans applicable thereto are made. If the Parties cannot agree in good faith on the designation of aparticular cost, the Parties reserve their respective rights under the disputeresolution provisions of the Collaboration Agreement.  For costs associated with activities that areunderway as of the date of this Agreement, the ASC shall, in good faith,designate such costs as “Global”, “US”, or “OUS” at the next ASC Meeting afterthe date of this Agreement and, if the Parties cannot agree in good faith onthe designation of a particular cost, the Parties reserve their respectiverights under the dispute resolution provisions of the Collaboration Agreement.

 

**(ii)****                               **Once a cost or expense has beendesignated as any of “Global”, “US”, or “OUS”, then such designation shall notbe subject to revision unless agreed to by the ASC; provided, however, thatwhile this provision shall in no way eliminate the recharacterization proceduredescribed in Section 3(c) of the Amendment, such recharacterizationprocedure shall require the approval of any successor committee to the GDCC (asdefined in the Amendment).

 

*****Confidential Treatment Requested**

 

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**Commission.  Confidential Treatment Requested Under**

**17 C.F.R. Sections 200.80(b)(4) and 240.24b-2**

 

**(iii)**                            This Section 1(d) shallsupersede any grant of authority to designate costs as US Costs or OUS Costspursuant to either Section 3.1 of the EQW Agreement or Section 4.3(a) (iii) ofthe Collaboration Agreement.

 

**(e)****                               ****Other Costs.** The responsibility for the following costs and expenses shall not bealtered, changed or otherwise affected by this Agreement:

 

**(i)****                                   **“Actual Manufacturing Costs” As definedin Section 1.2 of the EQW Agreement;

 

**(ii)****                               **The costs of the studies referenced inparagraph 2 of that certain letter agreement, dated May 23, 2007, betweenLilly and Amylin;

 

**(iii)****                           **“costs of recall” referenced in Section 7.1of the EQW Agreement;

 

**(iv)****                              **“wind down costs” referenced in Section 11.4(b) ofthe EQW Agreement;

 

**(v)****                                  **costs incurred in connection with aTechnology Transfer (as defined in Section 11.4(e)(2) of the EQWAgreement);

 

**(vi)****                              **“costs or expenses associated with orrelated to NovaQuest” referenced in Section 3.4 of the Addendum to September 19,2002 U.S. Co-Promotion Agreement, between the Parties, and effective May 8,2008;

 

**(vii)****                          **costs of “equipment and other capitalexpenditures” incurred in the conduct of Commercialization activities asdescribed in the last sentence of Section 4.4(b) of the CollaborationAgreement and in the conduct of research and Development activities asdescribed in the last sentence of Section 4.3(b) of the CollaborationAgreement; and

 

**(viii)****                      **costs of Audits pursuant to Section 4.9(e) ofthe Collaboration Agreement.

 

Foravoidance of doubt, that certain Device Development and Manufacturing Agreementbetween the Parties, dated July 1, 2003, and the cost sharing provisionstherein, is not amended or otherwise impacted by this Agreement.

 

**2.****                                     ****Allocation of Global Costs toU.S. Operating Profit/Loss.**  Section 4.5(a) ofthe Collaboration Agreement is hereby amended and restated in its entirety asfollows:

 

**“(a)****                          ****Profit/Loss Share in the US.** [***], Amylin will prepare an Operating Profit/(Loss) report related tothe U.S. Operating Profit/(Loss) which will equal Net Sales less Cost ofProduct Sold less Development Costs less Commercialization Costs.  Development Costs and Commercialization Costswhich the Parties are sharing as Global Costs and US Costs (as defined in thatcertain Cost Allocation Agreement dated May 4, 2009 between the Parties)shall be added back to the Operating Profit or Loss to arrive at the AdjustedUS Operating Profit/Loss (“Adjusted US Operating Profit”).  The Adjusted U.S. Operating Profit reportshall be completed within [***].

 

The Adjusted U.S. Operating Profits or Losses in the U.S. shall beallocated 50% to Lilly and 50% to Amylin.”

 

*****Confidential Treatment Requested**

 

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*****TextOmitted and Filed Separately with the Securities and Exchange**

**Commission.  Confidential Treatment Requested Under**

**17 C.F.R. Sections 200.80(b)(4) and 240.24b-2**

 

**3.****                                     ****OUS Royalties.** Effective for royalties payable to Amylin based on the aggregate annualGross Margin (OUS) for calendar year 2009 and all future calendar years, theroyalty rates provided for in Section 2 of the Amendment (the ***“Royalty Rates”***), are hereby amendedsuch that references to [***]% shall be replaced with [***]% and references to[***]% shall be replaced with [***]%.

 

**4.****                                     ****Cost Settlement Procedure for Q12009.**  Costs incurred by the parties from January 1,2009 through the execution of this Agreement shall be compiled by Amylin andsettled in accordance with the Status Quo Agreement for Q1 2009.  These expenses will then be adjusted inaccordance with this Agreement and included as a true-up in the Q2 2009settlement.

 

**5.****                                     ****Conforming Changes.**

 

**(a)****                               **Section 8.1(c) of theCollaboration Agreement is hereby amended to read in its entirety as follows:

 

“In the event of any productliability or other Third Party claim in which both Parties are asserted to beliable and neither is entitled to indemnification hereunder, the Parties shalltreat such Damages as (i) US Costs (as defined in that certain CostAllocation Agreement dated May 4, 2009 between the Parties) if such claimrelates predominantly to the U.S.; (ii) OUS Costs (as defined in thatcertain Cost Allocation Agreement dated May 4, 2009 between the Parties)if such claim relates predominantly to the Territory outside the U.S.; or (iii) GlobalCosts (as defined in that certain Cost Allocation Agreement dated May 4,2009 between the Parties) if such claim relates both to the US and to theTerritory outside the U.S.  In the caseof any such claim relating to the Territory outside the U.S.,(i) anyamounts owed to Lilly pursuant to this Section 8.1(c) shall be paidas part of the periodic settlement process contemplated under Section 4.9(a) ofthe Agreement and (ii) in the event such amount is due to Lilly at anytimeprior to the  expiration of one year fromthe date of the first Product Launch in the first country outside the U.S., theamount due to Lilly shall initially be treated as a credit against royaltiesdue from Lilly hereunder for such first year, and thereafter any remainingamount due shall be paid through the periodic settlement process for the firstCalendar Quarters immediately following such first year.”

 

*****Confidential Treatment Requested**

 

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*****TextOmitted and Filed Separately with the Securities and Exchange**

**Commission.  Confidential Treatment Requested Under**

**17 C.F.R. Sections 200.80(b)(4) and 240.24b-2**

 

**(b)****                               **The last sentence of the introductoryparagraph in Section 4.4 of the EQW Agreement shall be amended andrestated in its entirety to read as follows: “Prior to any approved change inthe Manufacturing process or Specifications, the Parties shall identify, and,if needed, allocate between Global, U.S. and O.U.S., all costs and risks,including development costs, resulting from the changes, and a timeline forimplementing the changes.”

 

**(c)****                               **The composite reports called for inSections 4.3(b) and 4.4(b) of the Collaboration Agreement willseparately itemize costs incurred related to the Product that are US Costs, OUSCosts and Global Costs and will compute the net amount of costs due to Lilly orto Amylin using the cost-sharing percentages provided for in this Agreement.

 

**6.****                                     ****Settlement of ExistingCross-Charging Corrections and Procedure for Future Settlement ofCross-Charging Corrections.**In the event either Amylin or Lilly discover the needfor a correction in calculating, either for purposes of Section 4.5 of theCollaboration Agreement or for any agreement between the Parties which utilizesSection 4.5 of the Collaboration Agreement as the process to settlepayments between the Parties, the amount of Development Costs,Commercialization Costs, or EQW Manufacturing Development Costs incurred bysuch Party during any previous [***], it will promptly notify the other Partyof such discovery.  The Parties will thenmeet to discuss the validity and appropriateness of the correction.  If the Parties agree that such correctionshould be settled and collectively verify the amounts to be corrected, thensuch corrected amounts shall be included in the following [***] settlementbetween the Parties pursuant to Section 4.5 of the Collaboration Agreementfor the [***] in which the Parties agree the correction should be included;provided, however, that only corrections for expenses that have occurred withinthe previous [***] prior to the date of the notice described in the firstsentence of this paragraph shall be eligible for correction.  Section 4.9(e) of the CollaborationAgreement shall continue to apply for a Party to audit the books and records ofthe other Party.  If the parties do notagree on the validity and appropriateness of the requested correction, thedispute resolution process as set forth in the Collaboration Agreement shallapply.

 

**7.****                                     ****Disputed Charges. **In the event of a dispute concerning chargesassociated with the ongoing [***] settlement process, neither Party has theright to withhold payment of submitted expenses unless the withheld chargeshave been the subject of a discussion between the Parties’ most senior representativesto the ASC.

 

**8.****                                     ****Entire Agreement.** This Agreement and the Impacted Agreements (as amended hereby) togetherconstitute the full and entire understanding and agreement between the Partieswith regard to the subject matter hereof. The undersigned parties who are parties to the Impacted Agreementshereby agree, as evidenced by their signatures hereto, that any provisions withrespect to (i) the Royalty Rates and (ii) the parties’ respectiveresponsibilities for Development Costs and Commercialization Costs under theImpacted Agreements which are contrary to the provisions of this Agreement arehereby superseded in their entirety by this Agreement and shall have no furtherforce or effect whatsoever.  In the caseof a conflict between this Agreement and any of the Impacted Agreements, thisAgreement shall control.  Except asamended by this Agreement, the terms and conditions of the Impacted Agreementsshall remain in full force and effect.

 

*****Confidential Treatment Requested**

 

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*****TextOmitted and Filed Separately with the Securities and Exchange**

**Commission.  Confidential Treatment Requested Under**

**17 C.F.R. Sections 200.80(b)(4) and 240.24b-2**

 

**9.****                                     ****Amendment and Waiver.** Any provision of this Agreement may be amended only with the writtenconsent of each of the Parties.  Thewaiver by either Party hereto of any right hereunder, or the failure toperform, or a breach, by the other Party, will not be deemed a waiver of anyother right hereunder, or of any other breach or failure by said other Party,whether of a similar nature or otherwise.

 

**10.****                              ****Term.** This Agreement shall terminate upon the termination of the CollaborationAgreement.

 

**11.****                              ****Governing Law.**  This Agreement shall be governedby, and construed and enforced in accordance with, the laws of the State of NewYork, excluding its conflicts of laws principles.

 

**12.****                              ****Counterparts.**  This Agreement may be executed incounterparts, each of which shall be deemed an original document, and all ofwhich, together with this writing, shall be deemed one instrument.

 

[SIGNATURE PAGE FOLLOWS]

 

*****Confidential Treatment Requested**

 

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*****TextOmitted and Filed Separately with the Securities and Exchange**

**Commission.  Confidential Treatment Requested Under**

**17 C.F.R. Sections 200.80(b)(4) and 240.24b-2**

 

**IN WITNESS WHEREOF**, the Parties hereto haveduly executed this Cost Allocation Agreement as of the date first set forthabove.

 

 
| ELI  LILLY AND COMPANY |                         | AMYLIN  PHARMACEUTICALS, INC. |
|------------------------|------------------------------|-------------------------------|
|                   |                         |                          |
| By:                    | /s/  John C. Lechleiter      |                          | By: | /s/  Mark J. Gergen |
|                   |                         |                          |
| Name:                  | John  C. Lechleiter          |                          | Name: | Mark  J. Gergen |
|                   |                         |                          |
| Title:                 | Chairman,  President and CEO |                          | Title: | SVP  Corp. Development |

 

*****Confidential Treatment Requested**

 

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