Exhibit 10.7[CERTAIN INFORMATION CONTAINED HEREIN HAS BEEN OMITTED PURSUANT TO A REQUEST FORCONFIDENTIAL TREATMENT UNDER RULE 24B-2 OF THE SECURITIES AND EXCHANGE ACT OF1934. THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE COMMISSION.]STRATEGIC COLLABORATION AGREEMENTBETWEENEPIX MEDICAL, INC.ANDSCHERING AKTIENGESELLSCHAFTDATED AS OF JUNE 9, 2000
 

 
TABLE OF CONTENTS     ARTICLE 1. DEFINITIONS  2      1.1 “Additional Compound”  2 1.2 “Affiliate”  2 1.3 “Amended and Restated Agreement”  2 1.4 “Blood Pool Magnetic Resonance Contrast Agents”  2 1.5 “CMC Costs”  2 1.6 “Compound MS-325”  2 1.7 “Cost or Costs”  3 1.8 “Costs of Goods Sold”  3 1.9 “DRL”  4 1.10 “Development Costs”  4 1.11 “Development Phase”  5 1.12 “Development Program”  6 1.13 “Effective Date”  6 1.14 “EMEA”  6 1.15 “EPIX Patent Rights”  6 1.16 “EPIX Program Technology”  6 1.17 “EPIX Technology”  6 1.18 “EU”  6 1.19 “Europe”  6 1.20 “FDA”  7 1.21 “Field”  7 1.22 “First Commercial Sale”  7 1.23 “GAAP”  7 1.24 “General and Administrative Expenses”  7 1.25 “Gadomer-17 Agent”  7 1.26 “Gadomer-17 Product”  7 1.27 “Gross Profits”  7 1.28 “IND”  7 1.29 “Joint Patent Rights”  8 1.30 “Joint Program Technology”  8 1.31 “Licensed Product”  8 1.32 “MAA”  8 1.33 “Magnevist”  8 1.34 “Mallinckrodt”  8 1.35 “Manufacturing Agreement”  8 1.36 “MGH”  8 1.37 “MGH License”  8 1.38 “MGH Patent Rights”  8 1.39 “NDA”  9 1.40 “Net Sales”  9 1.41 “Operating Margin”  10 
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     1.42 “Party”  10 1.43 “Patent Rights”  10 1.44 “Program Technology”  10 1.45 “Region”  10 1.46 “Rest of World”  10 1.47 “Sales and Marketing Costs”  10 1.48 “Schering Patent Rights”  11 1.49 “Schering Program Technology”  12 1.50 “Schering Technology”  12 1.51 “Second Generation Agent”  12 1.52 “Second Generation Product”  12 1.53 “SHU 555C Agent”  12 1.54 “SHU 555C Product”  12 1.55 “Territory”  12 1.56 “Third Party”  12 1.57 “Valid Claim”  13      ARTICLE 2. SCOPE AND STRUCTURE OF THE COLLABORATION  13      2.1 “General”  13 2.2 “Acknowledgement of DRL Arrangement in Japan”  13 2.3 “Costs”  13 2.4 “Financing from Schering”  14      ARTICLE 3. LICENSE GRANTS; MARKETING RIGHTS; MANUFACTURE AND SUPPLY  14      3.1 “Grant of License Rights by EPIX to Schering”  14 3.2 “No Other Technology Rights”  16 3.3 “Schering Third Party Agreement Step-In Rights”  16      ARTICLE 4. THE DEVELOPMENT PROGRAM  16      4.1 “Conduct of the Development Program”  16 4.2 “Development Information; Adverse Reactions; Reports”  21 4.3 “Availability to Employees”  21 4.4 “Visit of Facilities”  22 4.5 “Collaboration Agreement with Third Parties”  22 4.6 “Schering Development Step-In Rights”  23      ARTICLE 5. MARKETING  24      5.1 “Sales and Marketing Plan”  24 5.2 “Exclusive Right”  25 5.3 “Diligence”  25 5.4 “Labeling and Packaging”  26 5.5 “EPIX Promotional Activities”  26 
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     ARTICLE 6. MANAGEMENT OF THE COLLABORATION  26      6.1 “Joint Steering Committee”  26 6.2 “Disagreements”  28 6.3 “Limitation on Committee Activity”  28      ARTICLE 7. PAYMENTS  29      7.1 “License Fees”  29 7.2 “Milestone Payments [ * ]”  29 7.3 “[ * ]”  29 7.4 “Financing from Schering”  29 7.5 “Funding of the Development Program”  30 7.6 “Operating Margin Payments in the United States”  31 7.7 “Royalties on the Gross Profits of Licensed Products inthe EU and [ * ]”  32 7.8 “Royalties on Gross Profits of Licensed Products inall Countries of the Territory other than theUnited States and the EU [ * ]”  33 7.9 “Term of Gross Profit Obligations”  34 7.10 “Currency Conversion”  35 7.11 “Records; Audit Rights; Disputes”  35 7.12 “Payments; Interest”  36 7.13 “Additional Deductions”  36 7.14 “Financial Procedures”  37      ARTICLE 8. OPTIONS TO ACQUIRE RIGHTS IN ADDITIONAL COMPOUNDS  37      8.1 “EPIX’s Option to SHU 555C”  37 8.2 “Schering’s Option to EPIX’s Second Generation Agent”  38 8.3 “EPIX’s Option to the Gadomer-17 Agent”  39 8.4 “Option to Certain Additional Agents”  40 8.5 “Failure to Exercise Options; No Duty to Develop”  40      ARTICLE 9. INTELLECTUAL PROPERTY  40      9.1 “Filing, Prosecution, Maintenance, Enforcement andDefense of the MGH Patent Rights”  40 9.2 “Filing, Prosecution, Maintenance, Enforcement andDefense of the EPIX Patent Rights”  42 9.3 “Filing, Prosecution, Maintenance, Enforcement andDefense of the Schering Patent Rights”  43 9.4 “Program Technology”  45 9.5 “Filing, Prosecution, Maintenance, Enforcement andDefense of Patent Rights Covering Schering ProgramTechnology and EPIX Program Technology”  45 9.6 “Filing, Prosecution, Maintenance, Enforcement andDefense of the Joint Patent Rights”  46 9.7 “Infringement Action Against Either Party”  48 9.8 “Cooperation”  49  * Confidential information omitted and filed with the Commission
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     ARTICLE 10. CONFIDENTIALITY  50      10.1 “Nondisclosure Obligations”  50 10.2 “Samples”  51 10.3 “Terms of this Agreement”  51 10.4 “Publications”  51 10.5 “Injunctive Relief”  52      ARTICLE 11. REPRESENTATIONS AND WARRANTIES  52      11.1 “Representations and Warranties of EPIX”  52 11.2 “Representations and Warranties of Schering”  54      ARTICLE 12. INDEMNITY  54      12.1 “Claim”  54 12.2 “Schering Indemnity Obligations”  55 12.3 “EPIX Indemnity Obligations”  55 12.4 “Procedure”  56 12.5 “General Liability”  56 12.6 “Insurance”  57      ARTICLE 13 EXPIRATION AND TERMINATION  57      13.1 “The Development Phase”  57 13.2 “Expiration of this Agreement”  58 13.3 “Termination of this Agreement by Either Party”  58 13.4 “Termination of this Agreement by Schering Without Cause”  58 13.5 “Termination of this Agreement by EPIX”  60 13.6 “Effect of Expiration or Termination of This Agreement”  60 13.7 “Effect of Termination by Schering”  61 13.8 “Survival”  61 13.9 “Manufacturing Agreement”  61      ARTICLE 14. MISCELLANEOUS  62      14.1 “Force Majeure”  62 14.2 “Assignment”  62 14.3 “Severability”  62 14.4 “Notices”  63 14.5 “Applicable Law”  63 14.6 “Dispute Resolution”  63 14.7 “Public Announcements”  65 14.8 “Entire Agreement; Amendment”  65 14.9 “Headings”  65 14.10 “Agreement Not to Solicit Employees”  65 14.11 “Exports”  66 14.12 “Waiver”  66 14.13 “Counterparts”  66 14.14 “Independent Contractors; Negation of Partnership”  66 
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     14.15 “Ambiguities”  66  EXHIBITS: EXHIBIT A. DEVELOPMENT PLAN EXHIBIT B. MGH PATENT RIGHTS AND LICENSE AGREEMENT EXHIBIT C. SCHERING PATENT RIGHTS EXHIBIT D. EPIX PATENT RIGHTS EXHIBIT E. INVENTORY AND ACCOUNTS RECEIVABLE CARRYING COSTS CALCULATION EXHIBIT F. MANUFACTURING AGREEMENT EXHIBIT G. AMENDED AND RESTATED AGREEMENT The Exhibits listed above have been omitted and will be furnished supplementallyto the Commission upon request.
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STRATEGIC COLLABORATION AGREEMENT     THIS STRATEGIC COLLABORATION AGREEMENT dated as of JUNE 9, 2000 (the“Agreement”) is made by and between EPIX MEDICAL, INC., a Delaware corporationhaving its principal place of business at 71 Rogers Street, Cambridge,Massachusetts 02142-1118 USA (“EPIX”), and SCHERING AKTIENGESELLSCHAFT, a Germancorporation having its principal place of business at 13342, Berlin, Germany(“Schering”).RECITALS     WHEREAS, EPIX has certain rights under certain patents and patentapplications owned by The General Hospital Corporation, doing business asMassachusetts General Hospital (“MGH”), pursuant to an Amended and RestatedLicense Agreement dated July 10, 1995, as amended, between EPIX and MGH (the“MGH License”);     WHEREAS, EPIX is developing a proprietary blood pool agent coded asMS-325 which is intended for use as an enhancer for magnetic resonance imaging,which compound is covered by said MGH patents and patent applications as well asby EPIX Patent’s and patent applications;     WHEREAS, Schering is the owner of United States and internationalpatents relating to Compound MS-325, and is interested in entering into acollaboration with EPIX for the late stage development of Compound MS-325 andcorresponding Licensed Products and desires to obtain an exclusive license todevelop and sell Compound MS-325 and corresponding Licensed Products worldwide,excluding Japan, in accordance with the terms and conditions of this Agreement;     WHEREAS, EPIX is willing to enter into such a collaboration and togrant Schering such a license upon the terms and conditions set forth below; and     WHEREAS, EPIX and Schering are developing additional blood pool agents(a second generation albumin-binding agent, in the case of EPIX, and SHU 555Cand Gadomer-17 in the case of Schering) and desire to grant one another anoption to acquire rights to these agents on the terms described herein.     NOW THEREFORE, in consideration of the premises and of the covenantscontained herein, the Parties hereto mutually agree as follows:
 

 
ARTICLE 1: DEFINITIONS     For purposes of this Agreement, the terms defined in this Article shallhave the meanings specified below:     1.1. “ADDITIONAL COMPOUND” shall mean any Blood Pool Magnetic ResonanceContrast Agent other than Compound MS-325 and corresponding Licensed Products,including such agents as the Second Generation Agent, the SHU 555c Agent, andthe Gadomer-17 Agent.     1.2. “AFFILIATE” shall mean any corporation or other entity whichdirectly or indirectly controls, is controlled by or is under common controlwith a Party to this Agreement. A corporation or other entity shall be regardedas in control of another corporation or entity if it owns or directly orindirectly controls more than fifty percent (50%) of the voting stock or otherownership interest of the other corporation or entity, or if it possesses,directly or indirectly, the power to direct or cause the direction of themanagement and policies of the corporation or other entity or the power to elector appoint fifty percent (50%) or more of the members of the governing body ofthe corporation or other entity.     1.3. “Amended and Restated Agreement” shall mean that certain Amendedand Restated Strategic Collaboration Agreement of even date herewith by andbetween EPIX and Mallinckrodt attached hereto as Exhibit G.     1.4. “BLOOD POOL MAGNETIC RESONANCE CONTRAST AGENTS” shall mean agentsinjected in the cardiovascular system which satisfy both of the following twocriteria: (i) with respect to any Region: (a) the agent has an approvedindication for magnetic resonance angiography; or (b) [ * ] . The types ofagents include, but are not limited to, albumin-binding agents, ironparticles, or polymeric/cascade molecules with attached chelates.     1.5. “CMC COSTS” shall mean external Costs and direct and indirectinternal Costs associated with meeting the chemistry manufacturing and controlrequirements of the FDA and corresponding requirements in the EU and othercountries of the world.     1.6. “COMPOUND MS-325” means EPIX’s proprietary Blood Pool MagneticContrast Agent, having the following chemical name: Trisodium — [(2-(R) — [(4,4- diphenylcyclonexyl) phosphonooxymethyl] -diethylenetriaminepentacetato)(aquo), gadolinium (III)], together with any fragments, sub-units,modifications, formulations or derivatives thereof. * Confidential information omitted and filed with the Commission
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     1.7. “COST” or “COSTS” shall mean expenses incurred by the Parties,determined in a reasonable manner in accordance with GAAP. The Parties recognizethat financial records of Schering are and shall continue to be maintained inaccordance with international accounting standards rather than GAAP. Scheringagrees to use reasonable commercial efforts to identify for EPIX materialdifferences in the recognition of expenses under GAAP and internationalaccounting standards, and in cases where there are material differences to usethe GAAP method of recognition. Schering shall not be required to producefinancial reports in accordance with GAAP if Schering does not keep such reportsin accordance with GAAP as part of its normal accounting and financial reportingpractices.     1.8. “COSTS OF GOODS SOLD” shall mean the aggregate of the following,determined in a reasonable manner in accordance with GAAP (i) Costs incurred bySchering and EPIX relating to Compound MS-325 and Licensed Products forcommercial distribution under the Manufacturing Agreement, (ii) all direct andindirect manufacturing, packaging and labeling Costs incurred by Schering andEPIX, not included in (i) above, but specifically allowable to the production ofLicensed Products including overhead Costs directly related to themanufacturing, packaging and labeling functions, and (iii) manufacturingvariances attributable to charges of Mallinckrodt only as more fully describedbelow, but not including General and Administrative Expenses or any Costsrelated to idle capacity. Costs of Goods Sold shall not include royaltiespayable to MGH and other Third Parties in connection with Licensed Products orCMC Costs.     Schering’s Costs of Goods Sold shall be based on Schering’s PlannedCosts calculated on a per unit basis, once per year. Schering’s “Planned Costs”shall mean the standard Costs established by Schering for its internalaccounting system which is intended to materially comply with GAAP, consistentlyapplied. Such Planned Costs shall be provided to EPIX at least thirty(30) daysbefore the beginning of the calendar year in sufficient detail so as to enableEPIX to reasonably review them. Except for Costs attributable to charges ofMallinckrodt under the Manufacturing Agreement, Planned Costs shall not bereconciled with and adjusted to actual Costs. Any such variances from plan shallbe considered by Schering in setting the Planned Costs for the next calendaryear.     Schering shall reconcile and adjust Planned Costs to actual Costs forCosts of Goods Sold attributable only to charges of Mallinckrodt under theManufacturing Agreement as of the end of each calendar year, with the resultingvariance being applied to the first Profit Payment and Royalty Payment due afterthe end of first quarter of the calendar year following the completion of theapplicable calendar year. For the purpose of calculating Profit Paymentspursuant to Section 7.6 and Royalty Payments under Sections 7.7 and 7.8,reconciliation of Cost variances attributable to charges of Mallinckrodt shallbe allocated to the United States, EU, Japan, and elsewhere based on the numberof units of the applicable Licensed Product sold in each respective portion ofthe Territory.
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     In the event that Schering or an Affiliate of Schering becomes themanufacturer of Compound MS-325 and Licensed Products, the Parties agree tonegotiate in good faith Costs of Goods Sold allowable under a new manufacturingagreement between EPIX and Schering. The Parties agree that: (i) Schering willnot manufacture Compound MS-325 and Licensed Products on terms less favorablethan those provided by Mallinckrodt; PROVIDED, that, if Schering becomes themanufacturer of Compound MS-325 and Licensed Products because Mallinckrodt isunwilling or unable to manufacture Compound MS-325 and Licensed Products underthe terms of the Manufacturing Agreement and Schering’s Costs of manufacturingare higher than those of Mallinckrodt, then the price to be charged by Scheringshall reflect such higher Costs; and (ii) that the terms of the new agreementwill take into consideration any CMC Costs paid or required to be paid by EPIX.     CMC Costs incurred by Schering or a Schering Affiliate shall not beincluded in Costs of Goods Sold or Development Costs, and shall be borne solelyby Schering or such Schering Affiliate, unless, to the extent permitted underthe Manufacturing Agreement, Schering or such Schering Affiliate takes overmanufacturing responsibilities due to the inability or unwillingness ofMallinckrodt to manufacture all or part of the requirements of Schering ofCompound MS-325 and related Licensed Products, in which case: (x) Schering shallpursue all available legal remedies against Mallinckrodt as a result ofMallinckrodt’s inability or unwillingness to perform under the ManufacturingAgreement; and (y) CMC Costs incurred by Schering or a Schering Affiliate shallbe included in Development Costs (net of any recovery relating to CMC Costs fromMallinckrodt pursuant to the Manufacturing Agreement).     1.9. “DRL” means the Japanese corporation known as Daiichi RadioisotopeLaboratories, Ltd., having its principal place of business at 17-10, Kyobashi1-chome Chuo-Ku, Tokyo, 104 Japan.     1.10. “DEVELOPMENT COSTS” shall mean all internal (direct and indirect)and Third Party expenses incurred by EPIX and Schering in the United States andthe EU in connection with the Development Program, determined in a reasonablemanner in accordance with GAAP. Such expenses include, but are not limited to(i) direct labor (salaries, wages, incentive program Costs, awards and employeebenefits but excluding any employee benefits associated with equity incentiveplans); (ii) materials and supplies; (iii) allocated Costs for building spacedirectly dedicated to the development of the Licensed Products (including rent,depreciation, amortization and maintenance) but excluding expenses relating tounused capacity, development of other products, and amortization of property,plant and equipment not directly related to development of Licensed Products inaccordance with the Development Plan; (iv) Third Party contracts and consultingexpenses incurred for services in connection with the Development Program; (v)allocated Costs for information technology directly dedicated to the developmentof the Licensed Products; and (vi) travel and entertainment, telephone,recruiting, training (both internal and external), clinical trial insurance,software, personal computer equipment and support Costs and freight and deliveryexpenses.
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Such Costs shall not include General and Administrative Expenses or expensesincurred from departments that are not directly engaged in the development ofthe Licensed Products including but not limited to finance and procurement,corporate administration, legal (both external and internal expenses), humanresources, business development and licensing, sales and marketing (refer toSection 1.38 for further description) except for Costs of pre-launch marketingactivities incurred prior to the Launch Preparation Date as more fully describedin Section 5.1.2, and investor relations.     Development activities for which Development Costs are incurred includebut are not limited to pre-clinical and clinical work (Phase I-IV trials (suchPhase IV trials to be intended to support approval of an NDA, MAA or asupplement or amendment thereto, required as a condition of approval of an NDA,MAA or a supplement or amendment thereto, or required to support continuedapproval of an NDA, MAA or a supplement or amendment thereto)), regulatoryfilings, Cost of compound for pre-clinical and clinical work (Phase I-IV trials,as described above in this sentence), Costs of pre-launch marketing activitiesincurred prior to the Launch Preparation Date, and all Costs of Compound MS-325related to regulatory filings in the United States and the EU. Development Costsshall not include CMC Costs unless either Party is forced to take over suchfunction from MKG at which time such Costs will be included by such Party inDevelopment Costs. In the event that Schering or a Schering Affiliate becomesthe manufacturer of Compound MS-325 and Licensed Products, CMC Costs incurred bySchering or a Schering Affiliate relating to Compound MS-325 and LicensedProducts for use in the Development Program shall not be included in DevelopmentCosts, and shall be borne by Schering or such Schering Affiliate, unlessSchering or such Schering Affiliate, in accordance with the terms of theManufacturing Agreement, takes over manufacturing responsibilities due to theinability or unwillingness of Mallinckrodt to manufacture all or part of therequirements of Schering of Compound MS-325 and Licensed Products, in which case(x) Schering shall pursue all available legal remedies against Mallinckrodt as aresult of Mallinckrodt’s inability or unwillingness to perform under theManufacturing Agreement; and (y) CMC Costs of Schering or a Schering Affiliaterelating to Compound MS-325 and Licensed Products for use in the DevelopmentProgram shall be included in Development Costs (net of any recovery fromMallinckrodt relating to CMC Costs).     1.11. “DEVELOPMENT PHASE” shall mean, with respect to CompoundMS-325, the period commencing on the Effective Date of this Agreement andcontinuing until final marketing approval and all required registration ofLicensed Products in all indications mutually agreed upon by the Parties hasbeen obtained in the United States, the EU and [*]. If, after the DevelopmentPhase ends for a particular Licensed Product, further studies are required(for instance by request of a regulatory agency or because the Parties agreeto pursue a new indication), then the Development Phase shall be reopened forsuch Licensed Product, and shall terminate when such studies are completed. * Confidential information omitted and filed with the Commission
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     1.12. “DEVELOPMENT PROGRAM” shall mean the development programdescribed generally in the Development Plan attached as EXHIBIT A, as such planmay be amended from time to time as provided in this Agreement.     1.13. “EFFECTIVE DATE” shall mean the date first written above.     1.14. “EMEA” shall mean the European Medicines Evaluation Agency, orany successor agency with responsibility for regulating the development,manufacture and sale of human diagnostic imaging products in the EU.     1.15. “EPIX PATENT RIGHTS” shall mean the United States and foreignpatent applications identified on EXHIBIT D hereto, and any division,continuation or continuation-in-part thereof, any foreign patent applicationscorresponding to any such patent applications and any United States or foreignpatents or the equivalent thereof issuing thereon or any reissue, reexaminationor extension thereof. EXHIBIT D will be updated from time to time to add anyfuture patents and patent applications, divisions, continuations orcontinuations-in-part thereof owned by or licensed to EPIX (with the right togrant sublicenses) in the Field claiming EPIX Program Technology or claimingsubject matter which is necessary for or useful in the development, manufacture,use, sale, import or export of Compound MS-325 and/or Licensed Products in theTerritory.     1.16. “EPIX PROGRAM TECHNOLOGY” shall have the meaning assigned to itin Section 9.4.2 hereof.     1.17. “EPIX TECHNOLOGY” shall mean and include all present and futureinventions, trade secrets, copyrights, know-how, data, regulatory submissionsand other intellectual property of any kind (but not including EPIX PatentRights) owned by or licensed to EPIX (with the right to sublicense in theField), which are necessary for or useful in the development, manufacture, use,import or export of Compound MS-325 and/or Licensed Products in the Territory.EPIX Technology shall include EPIX Program Technology.     1.18. “EU” shall mean the European Union, as it may be constituted fromtime to time.     1.19. “EUROPE” shall mean the EU, all countries located wholly orpartly on the continent of Europe that are not member states of the EU,Australia, New Zealand, South Africa, and Turkey.     1.20. “FDA” shall mean the United States Food and Drug Administration.     1.21. “FIELD” shall mean all indications comprehended by the term“Blood Pool Magnetic Resonance Contrast Agents” and magnetic resonance imaging.     1.22. “FIRST COMMERCIAL SALE” of any Licensed Product shall mean thefirst sale for use or consumption by the general public of such Licensed Productin a country
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when such sale has been made with the required marketing and pricing approvalgranted by the governing health authority of such country.     1.23. “GAAP” shall mean United States Generally Accepted AccountingPrinciples.     1.24. “GENERAL AND ADMINISTRATIVE EXPENSES” shall mean all direct andindirect expenses incurred by Schering and EPIX in connection with departmentalunits that are not directly engaged in the development, manufacturing, or salesand marketing of Compound MS-325 and Licensed Products. General andAdministrative Expenses shall include, but not be limited to, charges fallingwithin the following groups, to the extent such charges are not related to thedetermination of Costs of Goods Sold based on the historical accountingpractices of the Party seeking to claim the charge, consistently applied:finance, procurement, order entry, corporate administration, legal (bothexternal and internal expenses), human resources, business development andlicensing and investor relations. General and Administrative Expenses shallexclude the following groups of charges: clinical trial insurance Costs,facilities and information technology. Such expenses shall be determined inaccordance with GAAP, consistently applied.     1.25. “GADOMER-17 AGENT” means the dendrimer-based Blood Pool MagneticResonance Contrast Agent under development by Schering, together with anyfragments, sub-units, modifications, formulations or derivatives thereof.     1.26. “GADOMER-17 PRODUCT” shall mean any product comprising Gadomer-17Agent.     1.27. “GROSS PROFITS” with respect to any Licensed Product shall meanNet Sales minus Costs of Goods Sold.     1.28. “IND” shall mean an investigational new drug application filedwith the FDA and necessary for beginning clinical trials in humans, or anycomparable application filed with the regulatory authorities of a country otherthan the United States prior to beginning clinical trials in humans in suchcountry, with respect to Licensed Products.     1.29. “JOINT PATENT RIGHTS” shall have the meaning set forth in Section9.4.2 hereof.     1.30. “JOINT PROGRAM TECHNOLOGY” shall have the meaning set forth inSection 9.4.2 hereof.     1.31. “LICENSED PRODUCT” shall mean any product comprising CompoundMS-325.
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     1.32. “MAA” shall mean a marketing approval application filed with theappropriate regulatory authority in a country other that the United States,after completion of human clinical trials to obtain marketing approval for aLicensed Product in such country.     1.33. “MAGNEVIST” shall mean the extracellular magnetic resonanceproduct gadopentatate dimeglumine sold by Schering, for the United States marketpursuant to NDA # 19-596.     1.34. “MALLINCKRODT” shall mean Mallinckrodt, Inc., a Delawarecorporation having its principal place of business at 675 McDonnell Blvd., St.Louis, Missouri 63042.     1.35. “MANUFACTURING AGREEMENT” shall mean that certain Manufacturingand Supply Agreement of even date herewith by and between Schering andMallinckrodt and providing for the manufacture by Mallinckrodt of certain ofSchering’s requirements of Compound MS-325 and the Licensed Product, attachedhereto as Exhibit F.     1.36. “MGH” has the meaning set forth in the first WHEREAS clause.     1.37. “MGH LICENSE” has the meaning set forth in the first WHEREASclause.     1.38. “MGH PATENT RIGHTS” shall mean the United States patents andpatent applications and the international patent applications identified inEXHIBIT B and any division, continuation or continuation-in-part thereof, anyforeign patent applications corresponding to any such patent applications or anyUnited States or foreign patents or the equivalent thereof issuing thereon orany reissue or extension thereof.     1.39. “NDA” shall mean a new drug application filed with the FDA toobtain marketing approval for a Licensed Product in the United States.     1.40. “NET SALES” shall mean the invoiced sales price per unit for eachof the Licensed Products billed by a Party or its Affiliates or any distributorof either who is not an Affiliate, or, to the extent permitted in Section 3.1.2hereof, by permitted sublicensees of Schering to independent customers, lessactual (a) credited allowances to such independent customers for such LicensedProducts which were spoiled, damaged, out-dated or returned; (b) freight andinsurance Costs charged to such customers; (c) quantity and promotionaldiscounts actually allowed and taken; (d) sales, use, value added, and othertaxes or governmental charges (such as customs duties) incurred in connectionwith the sale, exportation or importation of the Licensed Products in finishedpackaged form; (e) charge back payments and/or rebates or other fees provided todistributors, wholesalers, or other purchasers and managed health careorganizations or federal, state and local governments, their agencies,purchasers and reimbursers, including reimbursements to social securityorganizations; and (f) volume-related customer program Costs which are requiredby the customer and which are independent of Schering marketing initiatives. Thetransfer of any Licensed Product by a Party or one of its Affiliates to anotherAffiliate of such Party shall not be considered a
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sale; in such cases, Net Sales shall be determined based on the invoiced salesprice by the Affiliate to its customer, less the deductions allowed under thisSection.     The Parties recognize that (a) Schering’s customers may include personsin the chain of commerce who enter into agreements with Schering as to priceeven though title to the Licensed Product does not pass directly from Scheringto such customers, and even though payment for such Licensed Product is not madeby such customers directly to Schering; and (b) in such cases chargebacks paidby Schering to or through a Third Party (such as a wholesaler) can be deductedby Schering from gross revenue in order to calculate Net Sales. Any deductionslisted above which involve a payment by Schering shall be taken as a deductionagainst aggregate sales for the quarter in which the payment is made.     Net Sales will be accounted for in accordance with internationalaccounting standards consistently applied. In any instance where the calculationof Net Sales according to international accounting standards differs materiallyfrom GAAP such that the result of such calculation under internationalaccounting standards would cause EPIX to improperly account for such revenueunder GAAP, Schering will provide EPIX with any and all information requested byEPIX regarding the calculation of Net Sales to enable EPIX to comply with GAAPin recognizing revenue from such Net Sales.     Schering agrees that, without obtaining the prior approval of EPIX(which approval shall not be unreasonably withheld), it will not sell acombination of products and/or services which include one or more LicensedProducts, (i) for a single price, or (ii) on other terms of purchase notseparately identifying a price per product. Schering agrees that records of thedeductions referred to above for each Licensed Product shall be maintained in amanner that allows audit of such deductions pursuant to Section 7.11.     Schering agrees that it will not offer customers discounted prices forany Licensed Product (i) for the purpose of inducing the customer to purchaseother products or services of Schering without obtaining the prior approval ofEPIX (such approval not to be unreasonably withheld) as to the fairapportionment of sales value to Licensed Product and any related Costs; or (ii)for reasons other than the good faith sale of a Licensed Product at areasonable, mutually beneficial profit margin in view of the circumstancesapplicable to the relevant market.     1.41. “OPERATING MARGIN” shall mean for a particular quarter, theaggregate Net Sales of, and any other revenues relating to, Licensed Productsfor such quarter including, without limitation, royalties and any other paymentsfrom sublicensees, less (i) Costs of Goods Sold, and (ii) Sales and MarketingCosts.     1.42. “PARTY” shall mean EPIX or Schering.
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     1.43. “PATENT RIGHTS” shall mean MGH Patent Rights and EPIX PatentRights, collectively.     1.44. “PROGRAM TECHNOLOGY” shall have the meaning set forth in Section9.4.1 hereof.     1.45. “REGION” shall mean any one of the United States, Europe (asdefined herein), Japan and the Rest of World.     1.46. “REST OF WORLD” shall mean all countries of the world other thanthe United States, Europe (as defined herein) [*].     1.47. “SALES AND MARKETING COSTS” shall mean all direct and indirectCosts incurred by Schering and EPIX in connection with the sale and marketing ofthe Licensed Products, including but not limited to Costs charged to detailingand selling, advertising, and marketing and distribution, reasonably determinedin accordance with GAAP. Such expenses include, but are not limited to: (i)direct labor (salaries, wages, commissions, incentive program Costs, awards andemployee benefits but excluding any employee benefits associated with equityincentive plans); (ii) materials and supplies; (iii) allocated Costs forbuilding space directly dedicated to the sales and marketing of the LicensedProducts (including rent, depreciation, amortization and maintenance) butexcluding expenses relating to unused capacity, sales and marketing of otherproducts, and amortization of property, plant and equipment not directly relatedto sales and marketing of Licensed Products in accordance with the AnnualMarketing Plan; (iv) allocated Costs for information technology directlydedicated to the sales and marketing of the Licensed Products; (v) Third Partyconsulting and contract service Costs, (vi) advertising, promotion, physiciantraining Costs and Cost of grants, use taxes associated with distribution ofsamples and marketing materials; (vii) Costs of Phase IV trials not included inDevelopment Costs (including product Costs), (viii) professional educationprograms and meeting Costs (POA, national sales meetings, etc.), (ix) samples ofLicensed Products, travel and entertainment, fleet vehicle Costs, telephone,recruiting, training (both internal and external Costs), rental fieldforceCosts, software, personal computer equipment and support Costs, freight anddelivery expenses, Costs of inventory management , billing (as included indistribution), drug safety, drug regulatory affairs, and inventory and accountsreceivable carrying Costs specifically related to Licensed Products net ofrelated accounts payable, PROVIDED, THAT, when the calculation of such carryingCosts (as more fully described in EXHIBIT E) results in EPIX incurring the netcarrying Costs Schering shall apply such net credit as a deduction from Salesand Marketing Costs; and (x) actual bad debts written off in connection withsales of each Licensed Product (net of any recoveries of amounts previouslywritten off as bad debts for such Licensed Product). Such Costs shall notinclude General and Administrative Expenses or expenses incurred fromdepartments that are not directly engaged in or supporting the efforts of thesales and marketing of the Licensed Products including but not limited tofinance and procurement (including order entry), corporate administration, legal(both external and internal expenses), * Confidential information omitted and filed with the Commission
10

 
human resources, business development and licensing, research and development,and investor relations.     Sales and Marketing Costs shall include the Costs of pre-launchpromotional and educational programs expended after the Launch Preparation Dateas described in Section 5.1.2, which shall be deducted from Operating Margin forthe first calendar quarter following First Commercial Sale of the relevantLicensed Product. Sales and Marketing Costs chargeable by either Schering orEPIX shall be in accordance with the Annual Marketing Plan as more fullydescribed in Section 5.1.     Notwithstanding the above, Schering agrees that with respect to chargesdirectly related to sales volume (including but not limited to freight, billing,shipping and warehousing charges), the ratio of total Sales and Marketing Costsderived from such charges allowable under this Agreement to Net Sales ofLicensed Products by Schering shall not exceed the ratio of such Sales andMarketing Costs derived from such charges to Net Sales (when calculated usingthe definitions for Net Sales and Marketing Costs herein as applied to theMagnevist product) for Schering’s Magnevist product. The relevant cost driver ofeach cost component (i.e. per unit Costs) will be used when considering thiscomparison, and may vary by Cost type. When Costs comparisons of LicensedProducts are not equivalent to or less than those for Schering’s Magnevistproduct for bona fide business reasons, the Parties shall agree on the properratio to be used.     1.48. “SCHERING PATENT RIGHTS” shall mean the United States and foreignpatents and patent applications identified on EXHIBIT C hereto, and anydivision, continuation or continuation-in-part thereof, any foreign patentapplications corresponding to any such patent applications and any United Statesor foreign patents or the equivalent thereof issuing thereon or any reissue,reexamination or extension thereof, in each case relating to MS-325 orcorresponding Licensed Products for use in the Field. EXHIBIT C will be updatedfrom time to time to add any future patents and patent applications, divisions,continuations or continuations-in-part thereof, owned by or licensed to Schering(with the right to grant sublicenses) claiming Schering Program Technology orsubject matter which is necessary for or useful in the development, manufacture,use, sale, import or export of Compound MS-325 and/or Licensed Products in theTerritory for use in the Field.     1.49. “SCHERING PROGRAM TECHNOLOGY” shall have the meaning set forth inSection 9.4.2 hereof.     1.50. “SCHERING TECHNOLOGY” shall mean and include all present andfuture inventions, trade secrets, copyrights, know-how, data, regulatorysubmissions and other intellectual property of any kind (but excluding ScheringPatent Rights) owned by or licensed to Schering (with the right to sublicense inthe Field), which are necessary for or useful in the development, manufacture,sale, import or export of Compound MS-325
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and/or Licensed Products in the Territory. Schering Technology shall includeSchering Program Technology.     1.51. “SECOND GENERATION AGENT” shall mean any albumin binding BloodPool Magnetic Resonance Contrast Agent resulting from research at EPIX, togetherwith any fragments, sub-units, modifications, formulations or derivativesthereof.     1.52. “SECOND GENERATION PRODUCT” shall mean any product comprising aSecond Generation Agent.     1.53. “SHU 555C AGENT” shall mean the iron oxide particle Blood PoolMagnetic Resonance Contrast Agent under development by Schering, together withany fragments, sub-units, modifications, formulations or derivatives thereof.     1.54. “SHU 555C PRODUCT” shall mean any product comprising SHU 555C.     1.55. “TERRITORY” shall mean the United States, Europe, and the Rest ofWorld, but shall exclude Japan [*].     1.56. “THIRD PARTY” shall mean any entity other than EPIX or Scheringand their respective Affiliates.     1.57. “VALID CLAIM” shall mean a claim of an issued patent comprisingthe Schering Patent Rights, as the case may be, that has not expired or beencancelled, revoked or held invalid by a final decision of a court or otherauthority having valid jurisdiction, from which no further appeal can be takenor from which the time for appeal has expired.ARTICLE 2. SCOPE AND STRUCTURE OF THE COLLABORATION     2.1. GENERAL. EPIX and Schering wish to establish a collaborativealliance to complete the development of Compound MS-325, and to market and sellLicensed Products in the Territory. The collaboration will include a DevelopmentProgram for Compound MS-325 and the commercialization of the correspondingLicensed Products in the Territory. During the course of this collaboration,EPIX and Schering shall communicate regularly and shall assume different rightsand responsibilities for the development and commercialization of CompoundMS-325 and the corresponding Licensed Products, all as more specificallydescribed herein. The Parties also agree to grant each other certain options toother Blood Pool Imaging Agents as described in Article 8.     2.2. ACKNOWLEDGEMENT OF DRL ARRANGEMENT IN JAPAN. Schering acknowledgesthat EPIX has granted a license to DRL under the Patent Rights and EPIXTechnology (a) to use Compound MS-325 in the DRL Field, and (b) to use,manufacture, have manufactured, distribute for sale and sell DRL Products inJapan for the use in the DRL Field, and (c) to provide Compound MS-325 topermitted sublicenses for the purpose of permitting such sublicenses tomanufacture or have manufactured DRL Products in Japan for use in the DRL * Confidential information omitted and filed with the Commission
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Field. For purposes of this Section 2.2, (i) the term “DRL Field” means themedical application of contrasting and/or enhancement agents for magneticresonance imaging in humans, and (ii) the term “DRL Product” means productscomprising Compound MS-325 as a formulated final product which fulfill all thegovernmentally approved specifications and quality control criteria for use inthe DRL Field. EPIX [ * ]. In the event that EPIX [ * ].     2.3. COSTS. The Parties agree that Schering shall not bear any portionof the Development Costs attributable to development of Compound MS-325 andcorresponding Licensed Products for Japan, and EPIX shall not bear any portionof the Development Costs attributable to the development of Compound MS-325 andcorresponding Licensed Products other than for the United States and the EU,except that if EPIX [ * ].     2.4. FINANCING FROM SCHERING. Schering’s Affiliate Schering BerlinVenture Corporation shall provide financing to EPIX through the purchase ofcommon stock of EPIX as provided in the Stock Purchase Agreement between EPIXand Schering Berlin Venture Corporation.ARTICLE 3. LICENSE GRANTS; MARKETING RIGHTS; MANUFACTURE AND SUPPLY     3.1. GRANT OF LICENSE RIGHTS BY EPIX TO SCHERING.          3.1.1. LICENSE GRANT. As of the Effective Date of thisAgreement, except with regard to the non-exclusive manufacturing license grantedby EPIX to Mallinckrodt in Section 2.1 of the Amended and Restated Agreement,EPIX hereby grants Schering the exclusive right and license under the PatentRights, EPIX Technology, Joint Patent Rights and Joint Program Technology to:(a) develop, use, offer for sale, sell, have sold, import and have importedLicensed Products in the Territory for use in the Field, and (b) to manufactureor have manufactured Compound MS-325 and Licensed Products (to the extentmanufacture of Compound MS-325 and Licensed Products is covered by theManufacturing Agreement, manufacture by or on behalf of Schering shall bepursuant to and in accordance with the Manufacturing Agreement), all subject toSections 3.1.3 and 3.1.4 below.          3.1.2. SUBLICENSES. Schering shall have the right to grantsublicenses under the licenses set forth in Section 3.1.1 hereof to Affiliatesof Schering and to Third Parties. Schering shall provide EPIX with writtennotice thereof promptly following the grant of any such sublicense by Scheringand, upon the request of EPIX, shall provide to EPIX a summary of the materialterms of each such executed sublicense agreement * Confidential information omitted and filed with the Commission
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and any amendments and modifications thereto. With respect to the United States,the grant of a sublicense by Schering to an entity that is not a ScheringAffiliate shall be subject to the approval of EPIX, such approval not to beunreasonably withheld or delayed. Schering may not assign any of its obligationshereunder to any sublicensee, and the terms of any such sublicense agreementshall be consistent with the terms and conditions of this Agreement.          3.1.3. RESERVED RIGHTS OF MGH AND THE U.S. GOVERNMENT.Schering acknowledges that the license granted herein to the Patent Rights isdependent upon the rights and licenses obtained by EPIX under the MGH Licenseand are subject to certain rights reserved to MGH and the United StatesGovernment in the MGH License, as set forth in the MGH License. In the eventthat the MGH License is terminated due to EPIX’s failure to comply with the duediligence obligations imposed on EPIX pursuant to Paragraph 3.1 of the MGHLicense or any other obligation therein, such failure shall constitute amaterial breach of this Agreement by EPIX, and Schering may terminate thisAgreement in accordance with Section 13.3 hereof.          3.1.4. RESERVED RIGHTS OF EPIX; LIMITATION ON DEVELOPMENTOUTSIDE THE FIELD. Notwithstanding the rights granted or to be granted toSchering pursuant to this Article 3, EPIX at all times reserves the right underthe Patent Rights, the EPIX Technology, the Joint Program Technology and theJoint Patent Rights to use Compound MS-325 (i) to develop Compound MS-325 andcorresponding Licensed Products in the United States as contemplated in thisAgreement, and (ii) for research purposes; PROVIDED, THAT, in cases where datagenerated pursuant to such research will be reportable to the FDA and/or theEMEA under applicable law, such research is approved in advance by the JointSteering Committee (as hereinafter defined in Section 4.1.1(a)). EPIX agreesthat it will not (i) develop Compound MS-325 or any corresponding LicensedProduct for any diagnostic indication outside the Field; or (ii) grant a licenseto any Affiliate or Third Party, or otherwise aid or assist any Affiliate orThird Party to develop Compound MS-325 or any corresponding Licensed Product forany diagnostic indication outside the Field without the prior approval ofSchering, such approval not to be unreasonably withheld or delayed. Suchapproval by Schering shall not be withheld or delayed if the formulation,strength, and/or dosage form of the product to be sold outside the Field is suchthat there is no practical way for such product to compete with (includingwithout limitation by way of non-labeled use) or otherwise have any materialnegative commercial impact on the sale of Compound MS-325 or any correspondingLicensed Product within the Field. EPIX agrees that the foregoing restrictionson development outside the Field shall apply as well to therapeutic indicationsif there is a practical way for the therapeutic product to compete with(including without limitation by way of non-labeled use) or otherwise have anymaterial negative commercial impact on the sale of Compound MS-325 or anycorresponding Licensed Product within the Field. The limitations on developmentoutside the Field set forth above shall apply to EPIX with respect to anyAdditional Compound for which Schering exercises its option under Section 8.2.The limitations on development outside the Field set forth above shall apply toSchering with respect
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to Additional Compound for which EPIX exercises its option under Sections 8.1 or8.3.          3.1.5. THIRD PARTY PATENT RIGHTS. In the event that at anytime the Parties believe that either one or both of them is required to obtainlicenses or rights to patents or intellectual property not included in thePatent Rights or the EPIX Technology during the term of this Agreement, the Costof obtaining such licenses or rights and the necessity therefor will bedetermined by the Joint Steering Committee and, if the Joint Steering Committeedetermines that obtaining such licenses or rights is appropriate, the Coststherefor shall be solely the responsibility of EPIX.          3.1.6. MANUFACTURING AND SUPPLY OF COMPOUND MS-325 ANDLICENSED PRODUCTS; EPIX CLINICAL SUPPLIES. The Parties acknowledge and agreethat, contemporaneously with the execution of this Agreement, Schering shallenter into the Manufacturing Agreement, substantially in the form attachedhereto as EXHIBIT F, providing for the manufacture by Mallinckrodt of certain ofSchering’s requirements of Compound MS-325 and Licensed Products. Supplies ofCompound MS-325 and Licensed Products required by EPIX for the conduct of theDevelopment Program in the United States shall be ordered for EPIX by Scheringfrom Mallinckrodt under the Manufacturing Agreement. EPIX agrees to provideSchering with forecasts and orders of EPIX’s requirements of Compound MS-325 andLicensed Products at least sixty (60) days before Schering is required to submitforecasts and orders to Mallinckrodt pursuant to the terms of the ManufacturingAgreement, so that Schering can include EPIX’s forecasts and orders withSchering’s forecasts and orders submitted to Mallinckrodt. Schering shall directthat Mallinckrodt ship such requirements of EPIX to EPIX, by the common carrierand method of shipment specified by EPIX in its order. Legal title and risk ofloss of EPIX’s orders of MS-325 and Licensed Products shall pass to EPIX at theMallinckrodt loading dock.     3.2. NO OTHER TECHNOLOGY RIGHTS. Except as otherwise expressly providedin this Agreement, under no circumstances shall a Party hereto, as a result ofthis Agreement, obtain any ownership interest in or other right to anytechnology, know-how, patents, pending patent applications, products orbiological materials of the other Party, including items owned controlled ordeveloped by the other Party, or transferred by the other Party to said Party,at any time pursuant to this Agreement.     3.3. SCHERING THIRD PARTY AGREEMENT STEP-IN RIGHTS. The licensesgranted under Section 3.1.1 include sublicenses of technology existing on theEffective Date and licensed to EPIX under the MGH License. Any royalties payableto MGH pertaining to technology discussed in the previous sentence shall be paidby EPIX, and, if not so paid, may be paid by Schering and offset or deductedfrom any payments due from Schering to EPIX pursuant to this Agreement. If EPIXis notified of a breach or default under the MGH License that if uncured wouldenable MGH to render non-exclusive or terminate the licenses granted to EPIXunder the MGH License, EPIX shall (i) give reasonable written notice thereof toSchering, (ii) shall immediately cure such default or breach within the cureperiod set forth in the MGH License and shall provide
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Schering with written confirmation thereof, and (iii) if EPIX is unable to curesuch breach or default within the relevant cure period shall provide Scheringwith prompt written notice thereof and an opportunity to cure such default orbreach within the relevant cure period. Any out-of-pocket sums expended bySchering in the exercise of its rights under this Section 3.3 may be deducted bySchering from any future sums due from Schering to EPIX pursuant to thisAgreement.ARTICLE 4. THE DEVELOPMENT PROGRAM     4.1. CONDUCT OF THE DEVELOPMENT PROGRAM.          4.1.1 GENERAL.                    (a) The Development Program shall be supervised bythe Joint Steering Committee to be formed pursuant to Article 6 hereof. TheJoint Steering Committee will work with designated individuals at EPIX andSchering to coordinate the conduct of the Development Program. To the extentpossible, studies included in the Development Program shall be designed toproduce a core registration package meeting the standards of the FDA, EMEA andany other relevant foreign regulatory authorities. Schering shall have the rightbut not the obligation to designate an individual to be Project Manager whoshall be responsible for coordinating operational aspects of the DevelopmentProgram, facilitating the flow of information between appropriate personnel ofEPIX and Schering, monitoring the progress of the Development Program andreporting the same to EPIX and Schering, and assisting the Joint SteeringCommittee in facilitating the integration of the United States and non-UnitedStates portions of the Development Program. In the event that Scheringdesignates a Project Manager, then the Project Manager will be provided fulltime office space and clerical and computer support at the EPIX facility fromwhich the Development Program will be run, as well as regular access to EPIXpersonnel involved in the administration of the Development Program. The Costsof the Project Manager will be a Development Cost. The Development Program shallconsist generally of the preparation and filing of regulatory submissions andthe clinical development of Compound MS-325 and Licensed Products until finalmarketing approval and all required registration of the Licensed Product in allindications mutually agreed by the Parties has been obtained in the UnitedStates, the EU and [*].                    (b) EPIX shall have primary responsibility forexecuting the Development Program in the United States, which responsibilityshall include the preparation and submission of the NDA and payment of allrelated filing and user fees. Each NDA and any supplements thereto filed withFDA by EPIX pursuant to this Agreement shall be owned by EPIX and filed in thename of EPIX, and shall name Schering as the distributor of the Licensed Productdescribed in such NDA or supplement. Recognizing that Schering will haveresponsibility for the advertising, promotion and distribution of LicensedProducts in the United States, Schering will designate internal regulatorydepartment personnel to consult regularly with EPIX * Confidential information omitted and filed with the Commission
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personnel regarding regulatory interactions with respect to Licensed Products.Issues concerning the acceptance for filing, prosecution and FDA approval ofeach NDA will be the primary responsibility of EPIX. EPIX will consult closelywith Schering about interactions with FDA both during NDA preparation andsubmission, and after the NDA is accepted for filing and is under review by FDA.The Parties shall jointly prepare the draft labeling for each Licensed Productfor inclusion in the NDA, and shall jointly participate in discussions andnegotiations with FDA concerning approval of labeling, including withoutlimitation launch advertising and promotional materials. EPIX agrees that itwill not make proposals or accede to FDA proposals concerning the proposedpackage insert or other labeling, including without limitation launchadvertising and promotional materials for any Licensed Product, which have notbeen previously approved by Schering. EPIX will provide Schering with reasonableprior notice of all meetings between its representatives and FDA regardingmarketing approval of Licensed Products. Schering shall have the right to have arepresentative present at all such meetings. Schering will furnish, at EPIX’srequest, a representative to attend meetings with FDA regarding marketingapproval of the Licensed Products. EPIX agrees that it will not make proposalsto or accede to FDA proposals regarding the regulatory methods and controlssection of any NDA for a Licensed Product without first consulting withSchering. Following FDA approval of an NDA for a Licensed Product the followingprovisions shall be applicable:     (i) As promptly as possible following the first approval of anNDA for a Licensed Product by FDA, EPIX shall, to the fullest extentpossible, authorize Schering in writing to represent EPIX for purposesof dealing with FDA’s Division of Drug Marketing, Advertising andCommunication (“DDMAC”) and other divisions of FDA in regard toSchering’s activities with respect to the advertising, promotion, anddistribution of the Licensed Product in the United States (whichappointment Schering shall acknowledge in writing). Schering’smarketing and promotion of Licensed Products will continue to beconducted as an independent contractor and not as a promotional agentof EPIX. To the extent permitted by FDA, Schering shall have authorityto deal with DDMAC and other divisions of FDA concerning all mattersregulated by DDMAC and such other divisions of FDA in connection withSchering’s activities as distributor of the Licensed Product,including, without limitation, submission of advertising andpromotional materials and responding (orally and in written form) toFDA questions, observations and complaints concerning Schering’sadvertising and promotional materials and promotional activities forLicensed Products. In the event that FDA contacts EPIX concerningmatters that have been delegated to Schering pursuant to this Section,EPIX shall attempt to refer FDA to Schering (and if such attempt isunsuccessful, shall immediately notify and, to the extent possible inthe circumstances, permit Schering to intervene with FDA and manage thematter).     (ii) While acting under Sub-section (i) above, Schering shallcopy EPIX on all correspondence to FDA contemporaneously with thesubmission of such
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correspondence to FDA (including full copies of all advertising andpromotional materials), shall promptly copy EPIX on all correspondencereceived from FDA; shall contact EPIX the day of receipt of anycommunication from FDA that relates to or threatens imposition of anypenalty; and shall promptly copy EPIX on all contact reports preparedby Schering concerning any phone calls or meetings with FDA. If, uponreview of any materials received from Schering, EPIX believes thatSchering has taken any action that may constitute a violation of anyrules or regulations of the FDA, then EPIX may request that Scheringtake reasonable steps to cease such activity and take such reasonableaction as may be necessary to cure the violation. Any dispute betweenthe Parties either with respect to any alleged violation or correctiveaction shall be submitted to the Joint Steering Committee forresolution.     (iii) If at any point Schering ceases to be the distributor ofone or more Licensed Products in the United States, then Schering shallpromptly resign the authority to represent EPIX regarding such LicensedProduct upon written notice from EPIX, and EPIX shall promptly sonotify FDA in writing. Following such resignation, Schering shallpromptly provide EPIX with copies of all regulatory files in thepossession of or under the control of Schering relating to theapplicable Licensed Product or Licensed Products.     (iv) If the Parties are not successful in having Scheringauthorized to represent EPIX in matters before DDMAC and otherdivisions of FDA as set forth in Section 4.1.1(b)(i), then this Section4.1.1(b)(iv) shall be applicable. EPIX shall promptly inform Scheringof communications with FDA concerning Schering’s advertising andpromotional materials and promotional activities and promptly provideSchering with copies of FDA correspondence. Prior to communicating withFDA about Schering’s advertising and promotional materials andpromotional activities, EPIX shall consult with Schering, and shalltransmit the Schering position on the applicable matter to FDA. To theextent permitted by FDA, EPIX shall include Schering in all meetingsand conference calls with FDA relating to Schering’s advertising andpromotional materials and promotional activities, and during suchmeetings and conference calls EPIX shall not make proposals or accedeto FDA proposals which have not been previously approved by Schering.EPIX shall promptly provide to Schering copies of all EPIX contactreports and meeting minutes relating to interaction with FDA relatingto Schering’s advertising and promotional materials and promotionalactivities. Written submissions to FDA concerning Schering’sadvertising and promotional materials and promotional activities shallbe prepared by Schering and submitted by EPIX. EPIX shall keep Scheringpromptly informed of the status of matters at FDA involving Schering’sadvertising and promotional materials and promotional activities.     (v) EPIX and Schering agree to comply with all obligationsimposed by applicable law with respect to the maintenance of each NDAfor a Licensed
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Product. EPIX agrees to promptly inform Schering of material actions ofFDA relating to any NDA for a Licensed Product. EPIX will provideSchering with reasonable prior notice of all meetings between itsrepresentatives and FDA regarding issues relating to the maintenance ofthe NDA for any Licensed Product, and changes to the package insert forany Licensed Product. Schering shall have the right to have arepresentative present at all such meetings. Schering will furnish, atEPIX’s request, a representative to attend meetings with FDA regardingmaintenance of the NDA for any Licensed Product. EPIX agrees not topropose changes to the FDA approved package insert of any LicensedProduct, or to accede to FDA proposals for changes to the FDA approvedpackage insert of any Licensed Product, without prior consultation withand the reasonable approval of, Schering. EPIX agrees not to makeproposals or accede to FDA proposals regarding the regulatory methodsand controls section of any NDA for a Licensed Product without firstconsulting with Schering.     (vi) The rights and obligations of Schering under this Section4.1.1(b) shall be exercised or assumed, respectively, by Schering’sUnited States Affiliate Berlex Laboratories, Inc., or, to the extentthat Schering is permitted to do so pursuant to the terms of thisAgreement, such Third Party sublicensee as Schering may select to carryout distribution and marketing of one or more Licensed Products in theUnited States in the event that Berlex Laboratories, Inc. does notdistribute such Licensed Product in the United States.                    (c) Schering shall have primary responsibility forexecuting the Development Program outside the United States, which shall includethe submission of MAA’s for countries other than the United States, includingpayment of all related filing fees. The Parties recognize that there may beclinical sites outside the United States at which EPIX is having LicensedProduct studied under an Investigational New Drug Application regulated by FDA.Monitoring of such sites shall be the responsibility of EPIX. Each MAA filed bySchering pursuant to this Agreement shall be owned by Schering and be filed inthe name of Schering, and shall name Schering, or an Affiliate of Schering, orSchering sublicensee as distributor in the relevant country of the LicensedProduct described in the MAA. Schering agrees to comply with all obligationsimposed by applicable law with respect to the maintenance of each MAA, and topromptly inform EPIX of material actions of any regulatory authority relating toany MAA. With respect to the EU and, [*], Schering will provideEPIX with reasonable prior notice of all meetings between its representativesand regulatory authorities regarding any MAA for a Licensed Product. EPIX shallhave the right to have a representative present at all such meetings. EPIX willfurnish, at Schering’s request, a representative to attend meetings withregulatory authorities regarding marketing approval of the Licensed Products.                    (d) The Joint Steering Committee will overseeclinical testing of Compound MS-325 and the corresponding Licensed Products andoversee the * Confidential information omitted and filed with the Commission
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preparation of regulatory filings for Compound MS-325 and the correspondingLicensed Products.                    (e) When seeking regulatory approval for LicensedProducts, the Parties will observe the performance standards set forth inSection 5.3.          4.1.2. DEVELOPMENT PLAN. The Development Program shall beconducted under a development plan (the “Development Plan”) which shallreasonably describe the work to be pursued by the Joint Steering Committee andto be conducted by EPIX and Schering with respect to the development of CompoundMS-325. The Development Plan shall contain a budget prepared by EPIX andSchering, including estimates of the aggregate Development Costs of both Partiesto be incurred during the applicable period. The first Development Plandescribing the expenses and activities incurred and anticipated for the periodbetween January 1, 2000 and December 31, 2001 relating to development in theUnited States is attached hereto as EXHIBIT A. The Development Plan for the EUis to be prepared by Schering in accordance with Section 5.3 below. TheDevelopment Plan and budget will be updated as of September 1, 2000 and eachJanuary 1st and July 1st thereafter, one month in advance of the date of theupdate, by the Joint Steering Committee, and shall cover the twenty-four (24)month time period following the date of the update. Any changes to anyDevelopment Plan shall be subject to approval by the Joint Steering Committee.     4.2. DEVELOPMENT INFORMATION; ADVERSE REACTIONS; REPORTS.          4.2.1. During the Development Phase and thereafter, each Partyshall keep the other informed as to its progress related to Compound MS-325 andLicensed Products developed by either Party or its Affiliates, licensees orsublicensees, including but not limited to any information on adverse reactionsand copies of all preclinical or clinical studies or tests performed by suchParty. In a timely manner during the Development Phase and thereafter, eachParty shall provide the other Party with a reasonably detailed report whichshall describe the reporting Party’s progress with respect to its developmentefforts under this Agreement. Each Party will provide the other with a copy of amaster dossier as the basis for all submissions to be made by such Party toregulatory authorities on or prior to the date of such submissions as well aspromptly provide the results and final reports of all studies and trialsconducted by or under the supervision of such Party with respect to CompoundMS-325 and Licensed Products. Each Party will have the right to use all suchinformation received from the other Party, subject to the confidentialityprovisions of Article 10. Within thirty (30) days after the end of each calendarquarter during the Development Phase with respect to Compound MS-325 andcorresponding Licensed Products, each Party shall provide the other Party with areasonably detailed report which shall describe the reporting Party’s progresswith respect to its objectives and responsibilities under the Development Plan.          4.2.2. Promptly following the execution of this Agreement, theParties will draft and adopt standard operating procedures to govern theinvestigation of and action
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to be taken with regard to Licensed Product-related adverse drug experiencereports (from both clinical studies and marketing experience), quality reportsand complaints, such that each of the Parties can comply with its legalobligations worldwide. The standard operating procedures will be promptlyamended as changes in legal obligations require or as otherwise agreed to by theParties.     4.3. AVAILABILITY TO EMPLOYEES. Each Party agrees to make its employeesand non-employee consultants reasonably available at their respective places ofemployment to consult with the other Party on matters relating to thedevelopment and regulatory approval of Compound MS-325 and the correspondingLicensed Products, including regulatory, scientific, technical and clinicaltesting issues arising during the Development Phase (including during Phase IVclinical studies), including requests from any regulatory agency.     4.4. VISIT OF FACILITIES. Subject to any necessary approvals ofrelevant Third Parties, representatives of EPIX and Schering may, with the otherParty’s prior approval, which approval shall not be unreasonably withheld ordelayed, visit the sites of any clinical trials or other clinical studies beingconducted by such other Party in connection with the Development Program, andmanufacturing sites used for Compound MS-325 and the corresponding LicensedProducts. During such visits the reasonable requests of the visitor to inspectdocuments or observe the manufacturing process will be accommodated, subject toany required consent of Third Parties and the requirements of law. EPIX andSchering shall cause their respective personnel involved in the DevelopmentProgram to be available for meetings with the other Party at their usual placeof employment at times reasonably convenient to the Party responding to suchrequest.     4.5. COLLABORATION AGREEMENTS WITH THIRD PARTIES.          4.5.1. GENERAL. In the event that either Party, during theterm of the Development Phase or thereafter, determines that a research,development or collaboration agreement with a Third Party would further theobjectives of this Agreement (a “Third Party Collaboration”), such Party (the“Collaborating Party”) shall so notify the Joint Steering Committee, whichnotice shall include reasonable details concerning the terms of the proposedThird Party Collaboration, including its objective, term, proposed budget, andthe manner in which intellectual property rights arising therefrom are to bemade available to the Collaborating Party. The Joint Steering Committee shallmake a determination as soon as practicable after such notice, but in no eventlater than ninety (90) days thereafter, as to whether to approve the proposedThird Party Collaboration, and to treat the Costs of the Third Party Agreement(as defined below) as Development Costs to be borne equally by the Partieshereunder.          4.5.2. AMENDMENT TO DEVELOPMENT PLAN AND BUDGET. Upon approvalby the Joint Steering Committee of a Third Party Collaboration, the currentDevelopment Plan and Budget will be amended to reflect the additionalanticipated Costs of the Third
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Party Agreement, and the Parties will share the Costs thereof as provided inSection 7.5.2.          4.5.3. APPROVAL OF AGREEMENT AND ANY AMENDMENTS. Followingapproval by the Joint Steering Committee of a Third Party Collaboration, theCollaborating Party will proceed to negotiate the definitive terms thereof,keeping the other Party reasonably informed, will consider in good faith anycomments or suggestions of the other Party relating thereto, and shall in anyevent obtain the written approval of the other Party prior to executing thedefinitive agreement (the “Third Party Agreement”) or any material amendmentsthereto.          4.5.4. SHARING OF DEVELOPMENTS AND INFORMATION. Followingexecution of a Third Party Agreement as provided in Section 4.5.3, theCollaborating Party agrees, subject to the confidentiality provisions hereof, tokeep the other Party regularly informed of all material developments under theThird Party Agreement, including all reports, technical information and data,and intellectual property rights arising therefrom. Upon request of the otherParty, to the extent reasonably feasible, and subject in appropriatecircumstances to the other Party entering into agreements to be bound byapplicable terms of the Third Party Agreement, the Collaborating Party willpermit representatives of the other Party to attend and participate in meetingswith representatives of the Third Party conducting the collaboration.          4.5.5. SHARING OF INTELLECTUAL PROPERTY RIGHTS. TheCollaborating Party under any Third Party Agreement agrees that the other Partywill have a joint individual interest in any patent rights or other intellectualproperty rights obtained by the Collaborating Party as a result of any ThirdParty Agreement, and, upon request of the other Party, the Collaborating Partyagrees to execute and deliver to the other Party any documents of assignmentnecessary to effect the foregoing. Except as otherwise agreed, the CollaboratingParty will be responsible, in consultation with the other Party, for thepreparation, filing, prosecution and maintenance of any patent applications orpatents, the Costs of which shall be Development Costs to be shared by theParties under Section 7.5.2.          4.5.6. EXISTING AND PROPOSED THIRD PARTY COLLABORATIONS. TheParties acknowledge that EPIX’s agreement with the General Electric Company(“GEC”) dated as of January 9, 1998, as amended by letter agreement dated as ofJanuary 12, 1998, [ * ], Siemens Medical Systems, Inc. dated August 4, 1999,EPIX’s agreement with Philips Medical Systems Nederland B.V. dated November 6,1998, and EPIX’s agreement with Pfizer, Inc. dated September 1, 1998 areapproved and active Third Party Agreements hereunder. * Confidential information omitted and filed with the Commission
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          4.5.7. FAILURE TO ACCEPT A THIRD PARTY COLLABORATION. If theJoint Steering Committee declines to approve a proposed Third PartyCollaboration under Section 4.5.1, the Collaborating Party shall have the rightto enter into the Third Party Agreement at its own expense, and the other Partyshall have no right to any intellectual property or other rights arising fromsuch Third Party Agreement, except as otherwise provided in this Agreement.     4.6. SCHERING DEVELOPMENT STEP-IN RIGHTS. Without prejudice to anyother remedies available to Schering under this Agreement or at law, if EPIXmaterially fails to carry out the tasks assigned to EPIX in the Development Planin accordance with the time lines and other conditions applicable to it underthe Development Plan and this Agreement, Schering may, after forty-five (45)days prior written notice to EPIX, undertake that particular task (“Work”) andcomplete it at its own expense if EPIX has not at such time begun to carry outsuch Work in a manner reasonably likely to cure its default. Schering shall beentitled to commercially reasonable cooperation and assistance from EPIX toaccommodate its efforts, including assignment to Schering of sponsorship ofpending United States regulatory filings if necessary to permit the exercise bySchering of its rights under this Section 4.6. [ * ] of the Costs reasonablyincurred by Schering in carrying out such Work will be reimbursed by EPIX on aquarterly basis pursuant to the terms of Section 7.5.3, [ * ].ARTICLE 5. MARKETING     5.1. SALES AND MARKETING PLAN.          5.1.1. This Section 5.1 shall be applicable only with respectto the United States. Schering, in consultation with EPIX, shall develop anannual sales and marketing plan (an “Annual Marketing Plan”) which shallreasonably describe the sales and marketing activities (including withoutlimitation pre-launch marketing activities as described in Section 5.1.2 below,sales force commitment, promotional and educational programs, conventionpresence and other customary activities) to be conducted by Schering and EPIXwith regard to Licensed Products and which shall include an annual budget withrespect to the activities of both EPIX and Schering. For calendar years duringor after the date NDA approval is expected, the annual budget shall be preparedon the basis of a targeted spending level, expressed as the percentage of NetSales for the applicable period, such percentage to be determined by dividingthe budgeted Sales and Marketing Costs for the applicable period by the budgetedNet Sales for the applicable period. For calendar years prior to the date NDAapproval is expected, the annual budget will be prepared based on the pre-launchactivities planned by both Parties. Schering shall develop (in consultation withEPIX) the first Annual Marketing Plan at least thirty (30) days prior to thedate upon which any pre-launch marketing activities will be performed, whichplan will cover the remainder of the calendar year in * Confidential information omitted and filed with the Commission
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which such pre-launch marketing activities occur. Thereafter, the AnnualMarketing Plan shall be prepared no later than thirty (30) days prior to thebeginning of each calendar year in which sales and marketing activities willoccur or are expected to occur. Any changes to the Annual Marketing Plan duringthe year shall be subject to the reasonable approval of the Joint SteeringCommittee; PROVIDED, THAT, the following changes shall not require the approvalof the Joint Steering Committee: decreases to the annual budget of less thanfifteen percent (15%) of the budget; increases in the budget PROVIDED, THAT thetotal spent for the applicable period as Sales and Marketing Costs does notexceed the established ratio of Sales and Marketing Costs to total budgetedsales for the particular period; changes related to the approval of a newindication for a Licensed Product; and changes related to the timing ofcommercial launch of a Licensed Product due to a delay in obtaining marketingapproval, PROVIDED, FURTHER, that EPIX shall be promptly notified of any suchchanges.          5.1.2. The Parties recognize that Schering and EPIX willconduct pre-launch marketing activities regarding Licensed Products, includingbut not limited to market research, advertising and promotional activity, andeducational activity, commencing on the Effective Date and thereafter. The JointSteering Committee shall agree on a date approximately one year prior to theanticipated First Commercial Sale in the United States (the “Launch PreparationDate”). The Costs of pre-launch activities incurred prior to the LaunchPreparation Date shall be included as Development Costs. The Costs of pre-launchactivities incurred after the Launch Preparation Date shall be included as Salesand Marketing Costs following the First Commercial Sale of the applicableLicensed Product in the United States, and included in the calculation ofOperating Margin as provided in Section 7.6.1. For the period commencing withthe Launch Preparation Date and ending with the First Commercial Sale of theapplicable Licensed Product in the United States, EPIX shall have no obligationto pay Schering any of the Costs of such pre-launch marketing activities.Schering shall bear the Costs of such activities (including such pre-launchCosts incurred by EPIX and paid by Schering to EPIX in accordance with Section5.5) prior to the First Commercial Sale of the applicable Licensed Product inthe United States; PROVIDED, THAT, fifty percent (50%) of the Costs of suchactivities borne by Schering shall be regarded as a loan from Schering to EPIX,which loan shall bear no interest, and which loan shall not be repayable untilthere is a First Commercial Sale of the applicable Licensed Product in theUnited States, at which point the loan by Schering to EPIX shall be consideredfully discharged and paid in full when the Costs of the pre-launch marketingactivities of Schering are deducted as provided in the definition of Sales andMarketing Costs and pursuant to Section 7.6.1. After the Effective Date,Schering shall provide EPIX with quarterly reports within thirty (30) days afterthe end of each calendar quarter, detailing the pre-launch expenses incurredduring the previous calendar quarter and any other related financial informationreasonably required by the Parties.     5.2. EXCLUSIVE RIGHT. Schering shall have the exclusive right to marketand distribute (by itself or through others) Licensed Products in the Territory.
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     5.3. DILIGENCE. Schering agrees to use reasonable commercial efforts todevelop and obtain approval to commence commercial sale of the Licensed Productsin each Region outside of the United States, and, following such approval,Schering agrees to use reasonable commercial efforts to market the LicensedProducts in each such Region in each case using efforts at least as great as theefforts used for other Schering products with similar market potential. Scheringalso agrees to use reasonable commercial efforts to develop and obtain approvalto market the Licensed Products in all countries in the Territory where Scheringsells its Magnevist(R) product, and where a commercially viable market forLicensed Products exists, and to market the Licensed Products in such countriesin each case using efforts at least as great as the efforts used for otherSchering diagnostic imaging products with similar commercial potential. On July31, 2000 and September 30, 2000, Schering shall provide EPIX with a statusreport on Schering’s efforts to prepare a Development Plan for the EU. Withinsix (6) months of the Effective Date, Schering shall provide a Development Planfor the EU to the reasonable satisfaction of EPIX. EPIX agrees to use reasonablecommercial efforts to obtain approval to permit Schering to commence commercialsale of the Licensed Products in the United States.     5.4. LABELING AND PACKAGING. Subject to applicable laws andregulations, the labeling and packaging for the Licensed Products shall bearEPIX’s name, in a form to be mutually agreed upon by the Parties, in addition toSchering’s name, trademark (to be selected by Schering in its sole discretion),and trade dress.     5.5. EPIX PROMOTIONAL ACTIVITIES. EPIX shall conduct promotionalactivities relating to Licensed Products as set forth in the applicable AnnualMarketing Plan for the United States and as agreed in advance by the Parties forother Regions of the Territory. EPIX agrees to assist in promotional activitiesof Schering relating to Licensed Products as reasonably requested by Schering,such as by providing speakers for medical education initiatives, and as setforth in the applicable Annual Marketing Plan for the United States and asagreed in advance by the Parties for other Regions of the Territory. NeitherParty shall conduct promotional activities relating to Licensed Products thatconflict with the promotional activities of the other Party; PROVIDED, HOWEVER,that nothing therein shall be construed to prevent either Party from conductingroutine corporate development and investor relations activities. EPIX’s Costsassociated with any promotional activities, as set forth in the Annual MarketingPlan for the United States and as agreed in advance by the Parties for otherRegions of the Territory, will be calculated in accordance with Section 1.47(“Sales and Marketing Costs”) and will be invoiced to Schering by EPIX on amonthly basis. Invoices shall be payable within thirty (30) days of receipt bySchering (subject to reasonable verification by Schering), and shall bedeductible by Schering in the calculation of Operating Margin as Sales andMarketing Expenses.ARTICLE 6. MANAGEMENT OF THE COLLABORATION     6.1. JOINT STEERING COMMITTEE.
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          6.1.1. GENERAL. (a) A steering committee comprised of one (1)named representative of Schering and one (1) named representative of EPIX (the“Joint Steering Committee”) shall be appointed and shall meet as needed but notless than once each calendar quarter. Such meetings shall be at times and placesor in such form as the members of the Joint Steering Committee shall agree, andmay take place by conference call or video conference. Each member of the JointSteering Committee shall have the right to have other employees of the sameParty (or consultants to such Party, with the advance permission of the otherParty) present at and participating in any Joint Steering Committee meetingPROVIDED, THAT the names, titles, and subject matter to be addressed by suchadditional attendees are submitted in writing to the other Party at least three(3) business days in advance of the meeting, and that neither Party has morethan five (5) attendees at a meeting without the advance permission of the otherParty. At such meetings, the Joint Steering Committee will discuss and overseethe Development Program (including but not limited to, the clinical testing ofCompound MS-325 and the Licensed Products and the preparation of a coreregistration package for the Licensed Products) and the marketing of theLicensed Products in the Territory. The Joint Steering Committee will allocateresponsibilities between the Parties in such a manner as to minimize the time tomarket for the Licensed Products taking into consideration the objectives setforth in Section 4.1 hereof.                    (b) A Party may change its representative to theJoint Steering Committee at any time. Members of the Joint Steering Committeemay be represented at any meeting by an authorized designee. In making anyapproval, determination or taking any other action delegated to the JointSteering Committee, Schering and EPIX shall each have one vote on the JointSteering Committee, regardless of how many representatives each Party may havein attendance at any Joint Steering Committee meeting.          6.1.2. CHAIR. The Joint Steering Committee shall initially bechaired by the EPIX representative. The EPIX representative shall serve as theChair of the Joint Steering Committee through and including December 31, 2000.On January 1, 2001, the Schering representative shall become the Chair of theJoint Steering Committee. Thereafter, the Chair of the Joint Steering Committeeshall alternate between representatives of Schering and EPIX, with each Chairserving for one calendar year.          6.1.3. MINUTES. The Joint Steering Committee shall keepaccurate minutes of its deliberations which record all proposed decisions andall actions recommended or taken. The Chair shall be responsible for thepreparation of draft minutes. Draft minutes shall be sent to the other member ofthe Joint Steering Committee within ten (10) working days after each meeting.The draft minutes shall be edited by the Chair based on comments from the othermember of the Joint Steering Committee and shall be distributed to the othermember at least one week prior to the next meeting of the Joint SteeringCommittee for review and final approval at such
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meeting. All records of the Joint Steering Committee shall at all times beavailable to both Parties.          6.1.4. SUBCOMMITTEES. The Joint Steering Committee shallappoint the following subcommittees to facilitate development andcommercialization of Licensed Products. The subcommittees shall carry out thedirectives of the Joint Steering Committee, and shall have no independentdecision-making authority. The subcommittees shall report their activities tothe Joint Steering Committee as directed by the Joint Steering Committee. Thesubcommittees are as follows: United States Development Team; InternationalDevelopment Team (excluding Japan); [*], and a CMC/ Supply/Manufacturing Team.     6.2. DISAGREEMENTS. All disagreements between members of the JointSteering Committee shall be subject to the following:          (a) The representatives to the committee will negotiate ingood faith for a period of not more than sixty (60) days to attempt to resolvethe dispute,          (b) If the representatives to the Committee are unable toresolve the dispute, then the representatives of the committee shall promptlypresent the disagreement to the Chief Executive Officer of EPIX and the Head ofSchering’s diagnostic imaging business, or their respective designees (neitherof whom shall be a member of the Joint Steering Committee),          (c) Such executives shall meet or discuss in a telephone orvideo conference each Party’s view and explain the basis for such disagreement,          (d) If such executives cannot promptly resolve suchdisagreement within sixty (60) days after such issue has been referred to them,then the matter shall be referred to arbitration as described in Section 14.6.2hereof.Notwithstanding the foregoing, (i) any disputes between the Parties relating tosales and marketing activities for the Licensed Products shall be resolved bythe Schering Head or designee identified in Section 6.2(b), (ii) any disputesbetween the Parties relating to executing the Development Program for CompoundMS-325 and corresponding Licensed Products in the United States shall beresolved by the EPIX CEO or designee identified in Section 6.2(b), and (iii) anydisputes between the Parties relating to executing the Development Program forCompound MS-325 and corresponding Licensed Products outside the United Statesshall be resolved by the Schering Head or designee identified in Section 6.2(b).          6.3. LIMITATION ON COMMITTEE ACTIVITY. Notwithstanding the creation ofthe Joint Steering Committee or the subcommittees described above, each Party tothis Agreement shall retain the rights, powers and discretion granted to ithereunder, and neither the Joint Steering Committee nor any subcommitteesdescribed above shall be * Confidential information omitted and filed with the Commission
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delegated or vested with any such rights, powers or discretion unless suchdelegation or vesting is expressly provided for herein or the Parties expresslyso agree in writing. Neither the Joint Steering Committee nor any of thesubcommittees described above shall have the power to amend or modify thisAgreement, which may be amended or modified only as provided in Section 14.8.ARTICLE 7. PAYMENTS     7.1. LICENSE FEES. Within five (5) business days following theexecution of this Agreement, Schering will pay EPIX ten million and 00/100United States dollars ($10,000,000) by wire transfer to an account designated byEPIX at least two (2) business days in advance, as the license fee for thelicense rights granted to Schering pursuant to Section 3.1.1 above. If [ * ].     7.2. MILESTONE PAYMENTS [ * ]. Schering shall make the followingone-time, non-refundable milestone payments in United States dollars to EPIX.With respect to milestone payments tied to events to be achieved by EPIX,payment will be due within ten (10) business days following written notice fromEPIX to Schering that the milestone has been achieved: PROVIDED, THAT, [ * ].With respect to each milestone to be achieved by EPIX, the notice from EPIX willinclude documents substantiating achievement of the milestone, and suchachievement shall be subject to reasonable verification by Schering.   MILESTONE PAYMENT[ * ] US $ [ * ][ * ] US $ [ * ][ * ] US $ [ * ]The milestone payment [ * ].     7.3. [ * ].          [ * ]     7.4. FINANCING FROM SCHERING. Financing shall be as provided inSection 2.4.     7.5. FUNDING OF THE DEVELOPMENT PROGRAM. * Confidential information omitted and filed with the Commission
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          7.5.1. ADMINISTRATION. EPIX shall be responsible for thefinancial administration of the Development Program in the United States,including but not limited to the preparation of an annual development budget tobe included in the Development Plan, accounting and reporting of DevelopmentCosts to both Parties. Schering shall be responsible for the financialadministration of the Development Program in the EU, including but not limitedto the preparation of an annual development budget to be included in theDevelopment Plan, accounting and reporting of Development Costs to both Parties.          7.5.2. SHARING OF DEVELOPMENT COSTS. Each of the Parties shallbear [ * ] of the Development Costs incurred by either Party on or after January1, 2000 relating to the execution of the Development Plan in furtherance ofobtaining marketing approval of a Licensed Product in the United States, the EU,or, [ * ], regardless of the actual country in which the work is performed.Schering shall bear [ * ] of the Development Costs it incurs relating to theexecution of the Development Plan in furtherance of obtaining marketing approvalof a Licensed Product in countries other than the United States, the EU and [ *]; PROVIDED, THAT, Schering shall have the right to use, without the payment ofany additional sum, any data, reports or other material developed pursuant tothe Development Plan for use in the United States or the EU by or on behalf ofeither Party. Development Costs shall specifically not include any such costs tothe extent attributable to development of Compound MS-325 and its correspondingLicensed Products for use, sale or distribution exclusively in Japan [ * ], itbeing understood that such costs shall be entirely the responsibility andliability of EPIX and/or DRL. If data developed and/or paid for by Schering isused in Japan by EPIX and/or DRL, EPIX shall reimburse Schering for [ * ] ofSchering’s share of the Development Costs relating to such data.          7.5.3. FUNDING. The Parties desire to set up an efficientmethod of funding the Development Program, such that there is adequate cashavailable when needed by the Party responsible for the execution of theparticular portion of the Development Program. The departments of the Partiesresponsible for financial administration (such as finance, controlling, andaccounting, etc.) will establish one or more standard operating procedures forthe efficient funding of the Development Program, with a goal of minimizingadministrative burden to the Parties. Schering shall pay [ * ] of DevelopmentCosts attributable to the United States to EPIX, and EPIX shall pay [ * ] of theDevelopment Costs attributable to the EU to Schering (net of Development Coststhat are to spent by EPIX in the EU, and Development Costs that are to be spentby Schering in the United States). Such payments shall be made in advance asprovided below on the basis of Development Costs set forth in the developmentbudget component of the last Development Plan approved by the Joint SteeringCommittee. Each Party shall pay its share of budgeted Development Costs to * Confidential information omitted and filed with the Commission
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the Party responsible for executing the Development Plan in the United States orEU, as applicable, in advance on a calendar quarter basis at least thirty (30)days before commencement of the applicable calendar quarter, subject to thefollowing: (i) payment by Schering to EPIX of Schering’s portion of the UnitedStates Development Costs paid or to be incurred by EPIX during the first threequarters of 2000 shall be made within ten (10) business days of the EffectiveDate; (ii) commencing with the budget for calendar year 2001, payments for thefirst two quarters of each year by each of the Parties shall be in an amountequal to [ * ] of the development budget for the applicable quarter for theUnited States or EU, as applicable, plus [ * ] of the average monthlydevelopment budget for the applicable year for the United States or EU (withreduction for the netting described above), as applicable, to provide fundingfor possible Cost overruns; (iii) within forty-five (45) days of the end of eachquarter, the Parties will reconcile actual expenses for the previous quarterwith advance payments made pursuant to this Section based on the developmentbudget; overpayments will be credited or returned, at the discretion of each ofthe Parties [ * ] of the average monthly development budget for the year for theUnited States or EU, as applicable, payable with the budget payment for thefirst and second quarters shall be credited or returned if unused only as partof the reconciliation for the fourth quarter of each year); underpaymentsrelating to budget overruns approved by the Joint Steering Committee shall bemade up equally by the Parties; underpayments relating to budget overruns notapproved by the Joint Steering Committee shall be made up by the Party withdevelopment responsibility for the budget experiencing the overrun (UnitedStates or EU, as applicable); (iv) if there are budgeted Development Costs for acalendar quarter for both the United States and the EU, such that the Partieswill make payments to each other, the amounts of such payments may be nettedagainst each other with only the net amount payable by the Party with the largeramount owing for the relevant calendar quarter, PROVIDED, THAT the departmentsof the Parties responsible for financial administration have established awritten standard operating procedure covering the mechanics of such netting; and(v) in the event that all or part of the work of the Development Program isstopped for any reason in either the United States or the EU, then neither Partyshall have any obligation to prepay Development Costs to the other Party for anycalendar quarter for work that was stopped.          7.5.4. ACCOUNTING AND REPORTING. EPIX and Schering willmaintain accurate books and records for the conduct of the Development Program.EPIX and Schering will provide each other with quarterly reports detailing theCosts of the Development Program and any other related financial informationreasonably required by the Parties. The departments of the Parties responsiblefor financial administration shall establish a mutually acceptable format forsuch reports.     7.6. OPERATING MARGIN PAYMENTS IN THE UNITED STATES.          7.6.1. SHARE OF OPERATING MARGIN IN THE UNITED STATES.Commencing upon the First Commercial Sale of a Licensed Product in the UnitedStates, Schering
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agrees to pay [ * ] of its Operating Margin derived from sales of LicensedProduct in the United States to EPIX for payment to Mallinckrodt. Of theOperating Margin derived from sales of Licensed Products in the United Statesremaining after the payment to Mallinckrodt by EPIX, Schering agrees to pay [ *] of such Operating Margin to EPIX. The payments to EPIX shall be payablequarterly in United States dollars within fifteen (15) days of the close of eachcalendar quarter (each such payment hereinafter referred to as a “ProfitPayment”), on the basis of actual results for the first two months of suchcalendar quarter and forecasted results for the third month of such calendarquarter, subject to adjustment in accordance with the reconciliation and auditprovisions set forth below. It is also the Parties intent that, should there beno distributable Operating Margin derived from sales of Licensed Products in theUnited States in any given quarter but instead losses for that quarter, thenEPIX and Schering shall [ * ]. EPIX [ * ]. At the time of the Profit Payment (orinvoice for loss), Schering shall provide EPIX with a report containing thefollowing information, in sufficient detail to allow EPIX to review theunderlying data, on a monthly basis, for the applicable quarter for the UnitedStates: (i) Net Sales and units of Licensed Products sold; (ii) any otherrevenues relating to the Licensed Products in the United States, including butnot limited to royalties and any other payments from sublicensees; (iii) theCosts of Goods Sold for the reporting period for sales of Licensed Productsrelating to the United States; (iv) the Sales and Marketing Costs for the UnitedStates for the reporting period; and (v) the Profit Payment payable for suchperiod. Schering shall make adjustments in Profit Payments previously maderesulting from variations between forecasted results and actual results for thethird month of the such quarter as part of the determination of the ProfitPayment due to EPIX for the subsequent quarter. Schering shall keep complete andaccurate records in sufficient detail to properly reflect all Net Sales, Costsof Goods Sold and Sales and Marketing Costs, as set forth in this Section 7.6.1,and to enable the Profit Payments payable hereunder to be determined. At thediscretion of Schering, the payments and reports described in this Section maybe made directly to EPIX by Schering’s United States Affiliate BerlexLaboratories. Inc.          7.6.2. FORECASTS. Upon the reasonable request of EPIX, duringthe term of this Agreement, Schering will provide EPIX with forecasts of salesof Licensed Products for the United States in accordance with the routine budgetand forecasting cycle of Schering’s United States Affiliate.     7.7. ROYALTIES ON THE GROSS PROFITS OF LICENSED PRODUCTS IN THE EUAND [ * ].          7.7.1. EU. In the EU, Schering shall pay to EPIX a royalty onannual Gross Profits of Licensed Products as set forth in the table below. * Confidential information omitted and filed with the Commission
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   ROYALTY RATE (%) ANNUAL GROSS PROFITS[ * ] below US $[ * ][ * ] Between US $[ * ] and US $[ * ][ * ] between US $[ * ] and US $[ * ][ * ] greater than US $[ * ]     The foregoing notwithstanding, [ * ] following the launch of a LicensedProduct in the EU, the royalty rate for Licensed Products on all annual GrossProfits below US $[ * ] shall be [ * ].          7.7.2. [ * ]. If [ * ], and [ * ]. Gross Profits and theapplicable Royalty Rate for [ * ].          7.7.3. ROYALTY PAYMENTS AND REPORTS; FORECASTS. Within sixty(60) days of the close of each calendar quarter Schering shall pay to EPIX theroyalties due on Gross Profits of Licensed Products sold during such calendarquarter in the EU [ * ] (each such payment hereinafter referred to as a “RoyaltyPayment”). At the time of the Royalty Payment, Schering shall provide EPIX witha report containing the following information, on a monthly basis, for theapplicable quarter for the EU and [ * ]: (i) Net Sales and units of LicensedProducts sold; (ii) the Costs of Goods Sold for the reporting period for salesof Licensed Products relating to the EU or [ * ] as applicable; (iii) theapplicable royalty rate; and (iv) the Royalty Payment payable for such period.Schering shall keep complete and accurate records in sufficient detail to enablethe Royalty Payments payable hereunder to be determined. Upon the reasonablerequest of EPIX, during the term of this Agreement, Schering shall provide EPIXwith forecasts of sales of Licensed Product for the EU and, [ * ], in accordancewith Schering’s routine budget forecasting schedule.     7.8. ROYALTIES ON GROSS PROFITS OF LICENSED PRODUCTS IN ALL COUNTRIESOF THE TERRITORY OTHER THAN THE UNITED STATES AND THE EU [ * ].     In all countries of the Territory other than the United States and theEU [ * ], Schering shall pay to EPIX a royalty on annual Gross Profits ofLicensed Products as set forth in the table below.   ROYALTY RATE (%) ANNUAL GROSS PROFITS[ * ] below US $[ * ][ * ] between US $[ * ] and US $[ * ][ * ] between US $[ * ] and US $[ * ][ * ] greater than US $[ * ] * Confidential information omitted and filed with the Commission
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     The foregoing notwithstanding, [ * ] following the launch of a LicensedProduct in any country of the Territory other than the United States and the EU[ * ], the royalty rate for Licensed Products on all annual Gross Profits belowUS $[ * ] shall be [ * ].          7.8.1. ROYALTY PAYMENTS AND REPORTS; FORECASTS. Within sixty(60) days of the close of each calendar quarter Schering shall pay to EPIX theroyalties due on Gross Profits of Licensed Products sold during such calendarquarter in the countries of the Territory other than the United States and theEU [ * ] (each such payment hereinafter referred to as a “Royalty Payment”). Atthe time of the Royalty Payment, Schering shall provide EPIX with a reportcontaining the following information, on a monthly basis, for the applicablequarter for the applicable countries: (i) Net Sales and units of LicensedProducts sold; (ii) the Costs of Goods Sold for the reporting period for salesof Licensed Products relating to the applicable countries; (iii) the applicableroyalty rate; and (iv) the Royalty Payment payable for such period. Scheringshall keep complete and accurate records in sufficient detail to enable theRoyalty Payments payable hereunder to be determined. Upon the reasonable requestof EPIX, during the term of this Agreement, Schering will provide EPIX withforecasts of sales of Licensed Products in the countries described in thissection 7.8 in accordance with Schering’s routine budget forecasting schedule.     7.9. TERM OF GROSS PROFIT OBLIGATIONS. Schering shall pay royaltiespursuant to Sections 7.7 and 7.8 above with respect to each Licensed Product forso long as Licensed Products are sold in the relevant country; PROVIDED, THAT,following the expiration or revocation or complete rejection of the last toexpire or to be revoked or to be completely rejected of any EPIX Patent Right orof any other patent or patent application licensed to Schering by EPIX hereundercovering such Licensed Product in such country, if more than [ * ] of units ofany pharmaceutical chemical entity sold in the relevant country which wouldotherwise have been covered by the Patent Rights are sold by a party that is notSchering or a Schering Affiliate, sublicensee or distributor, Schering shallnotify EPIX of such fact (which shall be subject to reasonable verification byEPIX), and thereafter the royalty rates to be paid by Schering hereunder shallbe adjusted downward, with the objective of more closely approximating theeconomic returns to the Parties reflected in the profit sharing arrangementbetween the Parties in the United States. If the Parties are unable to agree onlower royalty rates, the matter shall be resolved through arbitration pursuantto Section 14.6.     7.10. CURRENCY CONVERSION. Payments by Schering to EPIX under thisAgreement shall be made in United States dollars. The calculation of paymentswhich refer to Net Sales in countries other than United States shall be basedupon EURO and converted into United States dollars. Therefore, where paymentsare based upon Net
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Sales in countries other than the United States and the member states of theEuropean Currency Union, the amount of such Net Sales expressed in the currencyof such country shall be converted into EURO at the exchange rate of the lastbusiness day of the applicable calendar quarter. The applicable exchange rateshall be the EURO Foreign Exchange Reference Rate published by the EuropeanCentral Bank, Frankfurt / Main. If no EURO Foreign Exchange Reference Rate isdetermined for the relevant currency, the Parties shall agree upon anotherreference rate. Finally, the payable EURO amount shall be converted into USdollars at the EURO Foreign Exchange Reference Rate published by the EuropeanCentral Bank, Frankfurt / Main, on the last business day of the applicablecalendar quarter.     7.11. RECORDS; AUDIT RIGHTS; DISPUTES.          7.11.1. RECORDS OF REVENUES AND EXPENSES; AUDIT RIGHTS. EachParty will maintain complete and accurate records which are relevant to thedetermination of Development Costs, Gross Profits, Sales and Marketing Costs,Operating Margin, Profit Payments, and Royalty Payments under this Agreement andsuch records shall be open during reasonable business hours for a period of two(2) years from creation of individual records for examination at the otherParty’s expense and not more often than once each calendar year by a certifiedpublic accountant selected by the other Party (subject to the consent of theParty to be audited, such consent not to be unreasonably withheld or delayed),or the other Party’s internal accountants (unless the Party to be auditedobjects to the use of such internal accountants) for the sole purpose ofverifying for the inspecting Party the correctness of calculations andclassifications of such Development Costs, Gross Profits, Sales and MarketingCosts, Operating Margin, Profit Payments, and Royalty Payments under thisAgreement. Each Party shall bear its own Costs related to such audit; PROVIDED,THAT, for any underpayments greater than five percent (5%) of annual DevelopmentCosts, Gross Profits, Operating Margin, Profit Payments and/or Royalty Payments(as the case may be) by the audited Party, the audited Party shall pay the otherParty the amount of underpayment, together with interest as provided in Section7.12, from the time the amount was due and the inspecting Party’s out-of-pocketexpenses related to the audit. For any underpayments less than five percent (5%)of annual Development Costs, Gross Profits, Sales and Marketing Costs, OperatingMargin, Profit Payments and/or Royalty Payments (as the case may be), foundunder this Section, the audited Party shall pay the inspecting Party the amountof the underpayment. Any overpayments by the audited Party will be refunded tothe audited Party or credited to future payments by the audited Party to theinspecting Party, at the audited Party’s election. Any records or accountinginformation received from the audited Party shall be Information of the auditedParty for purposes of Article 10. Results of any such audit shall be provided toboth Parties, and shall be Information of the audited Party for purposes ofArticle 10.          7.11.2. RESOLUTIONS OF PAYMENT DISPUTES. Except as set forthin this Section 7.11.2, the provisions of Section 14.6 shall not be applicableto disputes described in this Section 7.11.2. If there is a dispute between theParties following any
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audit performed pursuant to Section 7.11.1 (an “Audit Disagreement”) (i) withinthirty (30) business days of the identification of the Audit Dispute and noticethereof to the other Party, the Parties shall jointly select a recognizedinternational accounting firm to act as an independent expert to resolve suchAudit Disagreement; (ii) the Audit Disagreement submitted for resolution shallbe described by the Parties to the independent expert, which description may bein written or oral form, within ten (10) business days of the selection of suchindependent expert; (iii) the independent expert shall render a decision on thematter as soon as practicable; (iv) the decision of the independent expert shallbe final and binding unless such Audit Disagreement involves alleged fraud,breach of this Agreement or construction or interpretation of any of the termsand conditions thereof, which Audit Disagreements shall be resolved as set forthin Section 14.6.; and (v) all fees and expenses of the independent expert,including any Third Party support staff or other costs incurred with respect tocarrying out the procedures specified at the direction of the independent expertin connection with such Audit Disagreement, shall be borne by each Party ininverse proportion to the disputed amounts awarded to such Party by theindependent expert through such decision (e.g., EPIX disputes $100; theindependent expert awards EPIX $60; EPIX pays for forty percent (40%) of theindependent expert’s costs, and Schering pays for sixty percent (60%) of theindependent expert’s costs.)     7.12. PAYMENTS; INTEREST. Any payments due under this Agreement shallbe due on such date as specified in the Agreement and, in the event such date isnot a business day, then the next succeeding business day. Any failure by aParty to make a payment within ten (10) days after the date when due shallobligate such Party to pay computed interest, the interest period commencing onthe due date and ending on the payment day, to the receiving Party at a rate perannum equal to the prime rate of the Bank of America as quoted on Reuters page[USPRIME1]. The interest rate shall be adjusted whenever the Bank of Americaannounces a change in such prime rate. The interest shall be computed on thebasis of a 365/360 year; interest shall be compounded annually in arrears. Suchinterest shall be due and payable on the tender of the underlying principlepayment.     7.13. ADDITIONAL DEDUCTIONS. In the event that either Party in goodfaith incurs a Cost related to the development, manufacture, testing, promotion,marketing, sale, or distribution of MS-325 or any corresponding LicensedProduct, other than General and Administrative Expenses, and such Cost is either(i) not subject to the sharing of Development Costs pursuant to Section 7.5.3;or (ii) not deductible under the definitions of either Costs of Goods Sold orSales and Marketing Costs, then (a) if the Cost relates to development it shallbe treated as a Development Cost; (b) if the Cost relates to manufacturing ortesting it shall be treated as a Cost of Goods Sold; and (c) if the Cost relatesto an activity other than development, manufacturing or testing, it shall betreated as a Sales and Marketing Cost if it relates to the United States. Anydisputes between the Parties concerning the deductibility of expenses pursuantto this Section 7.13 shall be resolved by the Joint Steering Committee.
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     7.14. FINANCIAL PROCEDURES. The departments of the Parties responsiblefor financial administration shall establish one or more standard operatingprocedures to harmonize their accounting systems as they relate to thecalculation of Costs of Goods Sold, Sales and Marketing Costs, Operating Margin,and Gross Profits, and to establish efficient methods for the exchange ofinformation concerning such calculations.ARTICLE 8. OPTIONS TO ACQUIRE RIGHTS IN ADDITIONAL COMPOUNDS     8.1. EPIX’S OPTION TO SHU 555C. On each June 1st and December 1stoccurring during the term of this Agreement Schering shall provide EPIX with awritten summary report describing the status of its development, regulatory andmarketing activities with respect to SHU 555C and the corresponding SHU 555CProducts. Schering hereby grants to EPIX an exclusive option to acquire certaineconomic participation rights in the Field, as further described below, to SHU555C and the SHU 555C Products (the “SHU-555c Option”). The SHU-555c Optionshall be exercisable on a Region-by-Region basis. The SHU-555c Option shallexpire for any Region for which it is not exercised in the written noticedescribed below. The SHU-555c Option shall become exercisable upon the later of:(i) [ * ] and (ii) [ * ]. EPIX shall be entitled to exercise the SHU 555C Optionfor a period of twelve (12) months after the date the SHU 555C Option becomesexercisable by delivering written notice thereof to Schering, accompanied by apayment in the amount of (a) US $[ * ] for the United States (payable $[ * ] onoption exercise and $[ * ] on the first anniversary of option exercise), (b) US$[ * ] for Europe (payable $[ * ] on option exercise and $[ * ] on the firstanniversary of option exercise), (c) US $[ * (if applicable)], and (d) US $[ *]for the Rest of World. Upon exercise of the SHU 555C Option, the Parties shallenter into good faith negotiations to arrive at a definitive agreementcontaining only the following principal economic terms: (x) EPIX will receive aroyalty of [ * ] on the “Incremental Sales” of SHU 555C in the relevant region,(y) Schering shall be responsible for the conduct of all development activities,with input from EPIX, and (z) Schering shall be responsible for all sales andmarketing activities. For purposes of this Section 8.1, the term “IncrementalSales” means the sales of the SHU 555C Product per calendar quarter which areabove the average sales of the SHU 555C Product for the two calendar quarterspreceding the calendar quarter in which EPIX exercises the SHU 555C Optionpursuant to this Section 8.1, or, if less than two full calendar quarters, suchperiod of time as Schering has been commercializing the SHU 555C Product. Exceptas otherwise provided herein or agreed to by the Parties, the agreement enteredinto by the Parties upon any exercise of the SHU 555C Option pursuant to thisSection 8.1 shall have terms and conditions substantially the same as the termsand conditions of this Agreement, including without limitation the limitationson development outside the Field set forth in Section 3.1.4. * Confidential information omitted and filed with the Commission
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     8.2. SCHERING’S OPTION TO EPIX’S SECOND GENERATION AGENT. EPIX herebygrants to Schering an exclusive option (the “Schering Option”) to acquirecertain economic participation rights in the Field, as further described below,to EPIX’s Second Generation Agent. The Schering Option shall become exercisable[ * ] (the “Option Notice”). Schering shall be entitled to exercise the ScheringOption for a period of one hundred twenty (120) days following its receipt ofthe Option Notice from EPIX and a data package containing all data, studyreports and other information under the control of EPIX relating to the SecondGeneration Agent (such data package to be reasonably satisfactory to Schering),by delivering a written notice of exercise to EPIX accompanied by a payment inthe amount of US $[ * ]; PROVIDED, THAT, Schering may exercise the ScheringOption on a Region-by-Region basis, in which case the fee to be paid by Scheringat the time of delivery of the written notice of exercise to EPIX shall be (i)US $[ * ] for the United States, (ii) US $[ * ] for Europe, and (iii) US $[ * ]for Japan (no advance payment shall be due for the ROW Region). The ScheringOption shall expire in any Region for which it is not exercised in the writtennotice. During the one hundred twenty (120) day period following delivery byEPIX of the Option Notice and data package, EPIX agrees to answer questions ofSchering relating to the data package and Second Generation Agent, and toprovide such other information about the Second Generation Agent as Schering mayreasonably request. The one hundred twenty (120) day period shall not commenceuntil such time as all data, study reports, and other information under thecontrol of EPIX relating to the Second Generation Product is delivered toSchering. Upon exercise of the Schering Option the Parties shall enter into goodfaith negotiations to arrive at a definitive agreement containing only thefollowing principal economic terms: (a) each of the Parties shall bear [ * ] ofall Development Costs (including CMC Costs) incurred by the Parties with respectto the Second Generation Agent, commencing on the date of exercise of theSchering Option and going forward; (b) Schering shall pay EPIX one-timemilestone payments with respect to the Second Generation Product as follows (asapplicable on a Region-by-Region basis): (x) US $[ * ], (y) US $[ * ], and (z)US $[ * ]; and (c) commencing upon the First Commercial Sale of a SecondGeneration Product, Schering shall pay EPIX [ * ] of its Operating Margin forthe United States, and an equivalent portion of Gross Profit for othercountries, similar to the agreement of the Parties regarding Compound MS-325,with respect to the Second Generation Product. EPIX shall be primarilyresponsible in the United States for the conduct of development activities withrespect to the Second Generation Product and Schering shall be primarilyresponsible for such activities outside the United States. Schering shall beresponsible for the conduct of sales and marketing activities with respect tothe Second-Generation Product, such activities to be more specifically definedin the definitive agreement. Except as otherwise provided in this Section 8.2 oras agreed to by the Parties, such definitive agreement shall have terms andconditions substantially the same as the terms and conditions of this Agreement,including without limitation the limitations on development outside the Fieldset forth in Section 3.1.4. * Confidential information omitted and filed with the Commission
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     8.3. EPIX’S OPTION TO THE GADOMER-17 AGENT. Schering hereby grantsto EPIX an exclusive option (the “Gadomer-17 Option”) to acquire certaineconomic participation rights in the Field, as further described below, tothe Gadomer-17 Agent. The Gadomer-17 Option shall become exercisable on aRegion-by-Region basis, and at such time as (i) [ * ], (ii) [ * ], and (iii)[ * ] and has provided evidence thereof to EPIX. EPIX shall be entitled toexercise the Gadomer-17 Option for a period of one hundred twenty (120) daysfollowing its receipt of all of the materials set forth in clauses (i)through (iii) above by delivering a notice of exercise to Scheringaccompanied by payment in the amount of US $[ * ], PROVIDED, THAT, if EPIXexercises the Gadomer-17 Option only for specific Regions, then the optionfee shall be (a) US $[ * ] for the United States, (b) US $[ * ] for Europe,(c) US $[ * ], and (d) US $[ * ] for the Rest of World. The Gadomer-17 Optionshall expire for any Region in which it is not exercised in the first noticeof exercise. Upon exercise of the Gadomer-17 Option, the Parties shall enterinto good faith negotiations to arrive at a definitive agreement containingonly the following principal economic terms: (x) each of the Parties shallbear [ * ] of the Development Costs (including CMC Costs) incurred by eitherParty incurred from the date of option exercise forward, and (y) commencingupon the First Commercial Sale of a Gadomer-17 Product, Schering shall payEPIX [ * ] of its Operating Margin with respect to the United States and anequivalent portion of Gross Profit for other countries, similar to theagreement of the Parties regarding Compound MS-325. In addition, EPIX shallpay Schering one-time milestone payments as follows: (A) US $[ * ], (B) US$[ * ], and (C) US $[ * ]. Schering shall be responsible for all developmentactivities (with input from EPIX) of the Gadomer-17 Product and for all salesand marketing activities. Except as set forth in this Section 8.3 or asotherwise agreed to by the Parties, the definitive agreement entered into bythe Parties upon any exercise of the Gadomer-17 Option shall have terms andconditions substantially the same as the same terms and conditions of thisAgreement, including without limitation the limitations on developmentoutside the Field set forth in Section 3.1.4.     8.4. OPTION TO CERTAIN ADDITIONAL AGENTS. The Parties contemplate thatduring the term of this Agreement either Party may acquire or in-license BloodPool Magnetic Resonance Contrast Agents in addition to the Second GenerationAgent, the SHU 555C Agent and the Gadomer-17 Agent (hereinafter an “Other BloodPool Agent”). In such case, if the Party acquiring the Other Blood Pool Agentdesires to develop and market such Other Blood Pool Agent, such Party shallprovide prompt notice thereof to the other. The Parties will then negotiate ingood faith an arrangement for the sharing of expenses and income related to theother Blood Pool Agent, unless the Party receiving the notice does not desire toenter into such arrangement, in which case the Party acquiring the Other BloodPool Agent shall be free to proceed on its own.     8.5. FAILURE TO EXERCISE OPTIONS; NO DUTY TO DEVELOP. In the event thatthe Party holding the right to exercise an option pursuant to either Section8.1, 8.2, 8.3, or * Confidential information omitted and filed with the Commission
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8.4 above fails to exercise the option in accordance with the terms thereof,then the other Party shall thereafter have the right, alone or in collaborationwith a Third Party, to pursue further development and commercialization of thecompound which was the subject of the option and its corresponding products,without any further duty or obligations to the Party which did not exercise itsoption. In addition to the option termination provisions in Article 8, theoption rights of the Parties also may terminate pursuant to Section 13.6.1. AParty granting an option pursuant to either Section 8.1, 8.2, 8.3, or 8.4 shallhave no duty to continue development of the product or technology that is thesubject of the option.ARTICLE 9. INTELLECTUAL PROPERTY     9.1. FILING, PROSECUTION, MAINTENANCE, ENFORCEMENT AND DEFENSE OF THEMGH PATENT RIGHTS.          9.1.1. RESPONSIBILITY AND COSTS. EPIX shall, in coordinationwith MGH, be responsible for the preparation, filing, prosecution andmaintenance of all patent applications and patents included in MGH Patent Rightsin the Territory, keeping Schering informed. All costs incurred by EPIX for thepreparation, filing, prosecution and maintenance of all patents and patentapplications included in MGH Patent Rights in the Territory shall be theresponsibility of EPIX. EPIX shall keep Schering reasonably apprised of actionstaken by EPIX and MGH pursuant to this Section, and related decisions ofgovernment agencies.          9.1.2. ABANDONMENT. If MGH notifies EPIX of its intention toabandon the prosecution of any patent applications under the MGH Patent Rightsor of its intention to refrain from making any payment or taking any otheraction necessary to obtain or maintain a patent under the MGH Patent Rights,EPIX will thereafter, at its expense, take all action necessary or appropriateto prosecute and/or maintain such MGH Patent Rights in the Territory.          9.1.3. NOTICE OF INFRINGEMENT. Schering shall inform EPIXpromptly in writing of any alleged infringement in the Field of MGH PatentRights licensed hereunder to Schering in the Territory by a Third Party of whichit shall have knowledge and provide any available evidence of such infringementto EPIX, and EPIX, in turn, shall promptly inform MGH of such allegedinfringement of the MGH Patent Rights.          9.1.4. ENFORCEMENT BY MGH OR EPIX OF MGH PATENT RIGHTS. Underthe MGH License, MGH has the first right to prosecute at its own expense anyinfringements in the Territory of MGH Patent Rights in the Field. In the eventthat MGH chooses not to prosecute an infringement in the Field of the MGH PatentRights in the Territory or, within six (6) months of receiving notice of suchinfringement in the Field, is unsuccessful in causing the alleged infringer todesist and shall not have brought or is not diligently enforcing an infringementaction, EPIX will so inform the Joint Steering
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Committee and it shall be the responsibility of the Joint Steering Committee todetermine which Party shall bring such suit.          9.1.5. PROSECUTION UNDER THE DIRECTION OF THE JOINT STEERINGCOMMITTEE. In the event that the Joint Steering Committee makes a determinationas to the appropriate Party to prosecute any infringement in the Field of whichit is informed pursuant to Section 9.1.4 above, the prosecution will beconducted using counsel approved by the Joint Steering Committee, and nosettlement, consent judgment or other voluntary final disposition of the suitmay be entered into by either of the Parties without the consent of the JointSteering Committee, which consent shall not unreasonably be withheld or delayed.In such event, the Costs of any settlement activities, prosecution or settlementwill be considered Development Costs if incurred during the Development Phase ofany Licensed Product, and Costs of Goods Sold if incurred thereafter. Anyrecoveries, damages or other revenues derived from such settlement or actionwill, after sharing with MGH as provided in the MGH License, be treated as NetSales. Subject to the provisions of the MGH License, the Joint SteeringCommittee will determine which Party will prosecute said infringement in theField unless both Parties agree it is in their best interest hereunder not toprosecute such action. If the Joint Committee cannot agree as to whether toprosecute an alleged infringement in the Field, the issue shall not be subjectto dispute resolution pursuant to Section 14.6, but shall be resolved by notprosecuting the alleged infringement unless EPIX desires to prosecute thealleged infringement, in which case EPIX shall have the right to prosecute thealleged infringement in the Field in its sole discretion and at its soleexpense. In the event that EPIX is successful in prosecuting any suchinfringement in the Field in its sole discretion, any recovery will belong toEPIX.          9.1.6. DECLARATORY ACTIONS. In the event that a declaratoryjudgment action alleging invalidity or non-infringement in the Field of any ofthe MGH Patent Rights in the Territory shall be brought against either Party,the Party against which such action is brought shall notify the other Party andMGH in writing, and the Parties shall consult concerning the action to be taken.MGH, at its option, shall have the right within thirty (30) days aftercommencement of such action to intervene and take over the sole defense of theaction at its expense. If MGH does not exercise the said option, the Partiesshall have the right, within sixty (60) days after commencement of such action,to intervene, take over and duly prosecute the sole defense of the action. Nosettlement, consent judgment or other voluntary final disposition of the actionmay be entered into by the Parties without the consent of the Joint SteeringCommittee. The Costs of such defense will be considered Development Costs ifincurred during the Development Phase of any Licensed Product and Costs of GoodsSold if incurred thereafter. If the Parties are unable to agree as to whether tointervene, the issue shall not be subject to dispute resolution pursuant toSection 14.6, but instead the Party seeking to intervene shall have the right todo so at its sole expense, and recoveries (if any) shall belong to such Party.
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     9.2. FILING, PROSECUTION, MAINTENANCE, ENFORCEMENT AND DEFENSE OFTHE EPIX PATENT RIGHTS.          9.2.1. PROSECUTION AND MAINTENANCE. EPIX shall be responsiblefor the filing, prosecution and maintenance of the EPIX Patent Rightsin the Territory in its own name and at its own expense, keeping Schering informed.          9.2.2. ABANDONMENT; FAILURE TO PAY. EPIX agrees that it willnot abandon the prosecution of any commercially viable patent applicationincluded within the EPIX Patent Rights, except in favor of another patent filingof EPIX, nor shall it fail to make any payment or fail to take any other actionnecessary to maintain any commercially viable patent under the EPIX PatentRights.          9.2.3. INFRINGEMENT BY OTHERS; PROSECUTION UNDER THE DIRECTIONOF THE JOINT STEERING Committee. EPIX and Schering shall each promptly notifythe other in writing of any alleged or threatened infringement in the Field ofpatents or patent applications included in the EPIX Patent Rights licensedhereunder to Schering of which they become aware, and the Joint SteeringCommittee shall consider the action to be taken. In the event that the JointSteering Committee elects to prosecute said infringement in the Field, it willdetermine which Party shall do so using counsel selected by such Party andapproved by the Joint Steering Committee, such approval not to be unreasonablywithheld or delayed. No settlement, consent judgment or other voluntary finaldisposition of the infringement or suit may be entered into by either of theParties without the consent of the Joint Steering Committee, such consent not tobe unreasonably withheld or delayed. The Costs of any settlement activities,prosecution or settlement will be considered Development Costs if incurredduring the Development Phase of any Licensed Product and Costs of Goods Sold ifincurred thereafter. Any recoveries, damages or other revenues derived from suchsettlement or action will be treated as Net Sales. If the Joint Committee cannotagree as to whether to prosecute an alleged infringement in the Field, the issueshall not be subject to dispute resolution pursuant to Section 14.6, but shallbe resolved by not prosecuting the alleged infringement unless EPIX desires toprosecute the alleged infringement, in which case EPIX shall have the right toprosecute the alleged infringement in its sole discretion and at its soleexpense, and if EPIX is successful in prosecuting any such infringement in itssole discretion, any recovery will belong to EPIX.          9.2.4. DECLARATORY ACTIONS. In the event that a declaratoryjudgment action alleging invalidity or non-infringement in the Field of any ofthe EPIX Patent Rights in the Territory shall be brought against either Party,the Party against which such action is brought shall notify the other Party inwriting. The Party against which such action is brought will defend said actionusing counsel selected by it and approved by the Joint Steering Committee, suchapproval not to be unreasonably withheld or delayed. No settlement, consentjudgment or other voluntary final disposition of the action may be entered intoby the Parties without the consent of the Joint Steering Committee, such consent