Document:

exv10w1

 

EXHIBIT 10.1

Execution Copy

LICENSE, DEVELOPMENT AND COMMERCIALIZATION AGREEMENT

between

Vertex Pharmaceuticals Incorporated

and

Avalon Pharmaceuticals, Inc.

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	ARTICLE I DEFINITIONS	 	 	1	 
	 
	 	 	 	 	 	 
	ARTICLE II LICENSE	 	 	9	 
	2.1	 	Grant to Avalon.
	 	 	9	 
	2.2	 	Grant to Vertex.
	 	 	9	 
	2.3	 	Information Transfer.
	 	 	10	 
	2.4	 	Vertex Stand-still.
	 	 	10	 
	2.5	 	No Implied Licenses.
	 	 	10	 
	 
	 	 	 	 	 	 
	ARTICLE III DEVELOPMENT	 	 	10	 
	3.1	 	Commencement of Development Program.
	 	 	10	 
	3.2	 	Product Development Committee.
	 	 	11	 
	3.3	 	* .
	 	 	12	 
	3.4	 	Development Responsibility and Costs.
	 	 	12	 
	3.5	 	Regulatory Approvals.
	 	 	12	 
	3.6	 	Avalon Efforts in Development.
	 	 	13	 
	3.7	 	Assistance Rights.
	 	 	15	 
	 
	 	 	 	 	 	 
	ARTICLE IV MANUFACTURING AND SUPPLY	 	 	16	 
	4.1	 	Supply of Material; Formulation and Packaging.
	 	 	16	 
	4.2	 	Supply of Bulk Drug Substance for Clinical Trials.
	 	 	16	 
	4.3	 	Supply of Laboratory Grade Compound.
	 	 	16	 
	 
	 	 	 	 	 	 
	ARTICLE V COMMERCIALIZATION	 	 	17	 
	5.1	 	Marketing and Promotion.
	 	 	17	 
	5.2	 	Co-Labeling.
	 	 	17	 
	5.3	 	Diligence.
	 	 	17	 
	5.4	 	Vertex Promotional and Co-Promotional Rights.
	 	 	18	 
	 
	 	 	 	 	 	 
	ARTICLE VI PAYMENTS	 	 	19	 
	6.1	 	Consideration for License.
	 	 	19	 
	6.2	 	Development Milestone Payments by Avalon.
	 	 	19	 
	6.3	 	Royalties.
	 	 	21	 
	6.4	 	Sales Reports; Payment of Royalties.
	 	 	21	 
	6.5	 	Withholding Tax.
	 	 	23	 
	6.6	 	Reduction in Payments.
	 	 	23	 
	6.7	 	Interest.
	 	 	23	 
	 
	 	 	 	 	 	 
	ARTICLE VII INTELLECTUAL PROPERTY	 	 	23	 
	7.1	 	Patentable Inventions and Know-How.
	 	 	23	 
	7.2	 	Infringement Claims by Third Parties.
	 	 	24	 
	7.3	 	Infringement Claims Against Third Parties.
	 	 	25	 
	7.4	 	Notice of Certification.
	 	 	25	 

License, Development and Commercialization Agreement—Confidential—Table of Contents—Page i

 

	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	7.5	 	Patent Term Extensions.
	 	 	26	 
	 
	 	 	 	 	 	 
	ARTICLE VIII REPRESENTATIONS AND WARRANTIES	 	 	26	 
	8.1	 	Representations and Warranties of Vertex.
	 	 	26	 
	8.2	 	Representations and Warranties of Avalon.
	 	 	27	 
	 
	 	 	 	 	 	 
	ARTICLE IX CONFIDENTIALITY	 	 	28	 
	9.1	 	Undertaking.
	 	 	28	 
	9.2	 	Exceptions.
	 	 	29	 
	9.3	 	Publicity.
	 	 	30	 
	9.4	 	Survival.
	 	 	30	 
	 
	 	 	 	 	 	 
	ARTICLE X PUBLICATION	 	 	31	 
	 
	 	 	 	 	 	 
	ARTICLE XI DISPUTE RESOLUTION	 	 	31	 
	11.1	 	Governing Law and Jurisdiction.
	 	 	31	 
	11.2	 	Dispute Resolution Process.
	 	 	31	 
	11.3	 	Arbitration.
	 	 	32	 
	 
	 	 	 	 	 	 
	ARTICLE XII TERM AND TERMINATION	 	 	33	 
	12.1	 	Term.
	 	 	33	 
	12.2	 	Termination for Cause.
	 	 	33	 
	12.3	 	Termination by Vertex.
	 	 	33	 
	12.4	 	Termination for Bankruptcy.
	 	 	34	 
	12.5	 	12.5 Effect of Termination.
	 	 	34	 
	 
	 	 	 	 	 	 
	ARTICLE XIII INDEMNIFICATION	 	 	35	 
	13.1	 	Indemnification by Vertex.
	 	 	35	 
	13.2	 	Indemnification by Avalon.
	 	 	35	 
	13.3	 	Claims Procedures.
	 	 	36	 
	13.4	 	Limitation of Liability.
	 	 	36	 
	13.5	 	Compliance.
	 	 	36	 
	13.6	 	Insurance.
	 	 	36	 
	 
	 	 	 	 	 	 
	ARTICLE XIV MISCELLANEOUS PROVISIONS	 	 	37	 
	14.1	 	Notice of Pharmaceutical Side-Effects.
	 	 	37	 
	14.2	 	Waiver.
	 	 	37	 
	14.3	 	Force Majeure.
	 	 	37	 
	14.4	 	Severability.
	 	 	37	 
	14.5	 	Government Acts.
	 	 	37	 
	14.6	 	Government Approvals.
	 	 	38	 
	14.7	 	Assignment.
	 	 	38	 
	14.8	 	Affiliates.
	 	 	38	 
	14.9	 	Counterparts.
	 	 	38	 
	14.10	 	No Agency.
	 	 	38	 
	14.11	 	Notice.
	 	 	38	 
	14.12	 	Headings.
	 	 	39	 

License, Development and Commercialization Agreement—Confidential—Table of Contents—Page ii

 

	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	14.13	 	Authority.
	 	 	39	 
	14.14	 	Entire Agreement.
	 	 	39	 
	14.15	 	Further Assurances.
	 	 	39	 

Schedules

	 	 	 
	Schedule 1.12

	 	VX-944
	Schedule 1.14

	 	Development Plan
	Schedule 1.77

	 	Vertex Patents
	Schedule 3.2.1

	 	Initial PDC Representatives
	Schedule 3.23

	 	Clinical Sites Acceptable to Avalon Site and Acceptance Criteria
	Schedule 4.2

	 	Stability Testing Specifications
	Schedule 8.2.4

	 	Financial Statements

License, Development and Commercialization Agreement—Confidential—Table of Contents—Page iii

 

License, Development and Commercialization Agreement

      This Agreement is made and entered into as of February 14 2005 (the “Effective Date”)
between Vertex Pharmaceuticals Incorporated (hereinafter “Vertex”), a Massachusetts corporation
with principal offices at 130 Waverly Street, Cambridge, MA 02139-4242, and Avalon Pharmaceuticals,
Inc. (hereinafter “Avalon”), a Delaware corporation with principal offices at 20358 Seneca Meadows
Parkway, Germantown, MD 20876.

INTRODUCTION

      WHEREAS, Vertex has undertaken research and development relating to small molecule inhibitors
of IMPDH, including VX-944; and

      WHEREAS, Avalon desires to obtain an exclusive worldwide license to develop and commercialize
VX-944 for the treatment of cancer;

      NOW THEREFORE, in consideration of the foregoing premises and other good and valuable
consideration, the Parties agree as follows:

ARTICLE I

DEFINITIONS

      For purposes of this Agreement, the terms defined in this Article I shall have the following
meanings, whether used in their singular or plural forms. Use of the singular shall include the
plural and vice versa, unless the context requires otherwise:

      1.1 “Accept”shall mean, with respect to an IND filed with the FDA, that the period for FDA
comment has passed without comment, or that all comments received from the FDA with respect to the
IND have been addressed to the satisfaction of the FDA, such that the FDA shall not object to the
commencement of the relevant human clinical trials.

      1.2 “Affiliate” shall mean, with respect to any Person, any other Person that directly or
indirectly, by itself or through one or more intermediaries, controls, or is controlled by, or is
under direct or indirect common control with, such Person. The term “control” means the
possession, direct or indirect, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by contract or otherwise.
Control will be presumed if one Person owns, either of record or beneficially, more than 50% of
the voting stock of any other Person.

      1.3 “Assistance Rights” shall have the meaning set forth in Section 3.7 of this Agreement.

      1.4 “Avalon Know-How” shall mean all Know-How Controlled by Avalon and developed or obtained
during the course of this Agreement.

License, Development and Commercialization Agreement—Confidential—Table of Contents—Page 1

* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

 

      1.5 “Avalon Patents” shall mean any Patents Controlled by Avalon or any of its Affiliates
(excluding any Vertex Patents licensed hereunder) claiming (i) the Compound, Bulk Drug Substance,
or a Drug Product, or a formulation or prodrug thereof, or (ii) a method of making or using the
Compound, Bulk Drug Substance, or a Drug Product, or a prodrug thereof.

      1.6 “Avalon Technology” shall mean all Avalon Patents and all Avalon Know-How.

      1.7 “Bankrupt Party” shall have the meaning set forth in Section 12.4 of this Agreement.

      1.8 “Biomarkers” shall mean those biomolecules disclosed in the patent listed on Part III of
Schedule 1.77, for the uses set forth in that Patent for uses in the Field.

      1.9 “Bulk Drug Substance” shall mean the Compound in crystal, powder or other form suitable
for incorporation in a Drug Product.

      1.10 “Clinical Trial” shall mean a Phase I Clinical Trial, a Phase II Clinical Trial, or a
Pivotal Registration Study.

      1.11 “Competing Product” shall have the meaning set forth in Section 5.3 of this Agreement.

      1.12 “Compound” shall mean VX-944, which is described on Schedule 1.12
(“VX-944”), * .

      1.13 “Controlled”
shall mean the legal authority or right of a Party hereto to grant a license or sublicense of
intellectual property rights to another Party hereto, or to otherwise disclose proprietary or trade
secret information to such other Party, without breaching the terms of any agreement with a Third
Party, infringing upon the intellectual property rights of a Third Party, or misappropriating the
proprietary or trade secret information of a Third Party.

      1.14 “Development Plan” shall mean the written plan for the overall development of the
Compound, in the form attached hereto as Schedule 1.14, as the same may be updated and
augmented pursuant to Section 3.2.2 hereof.

      1.15 “Development Program” shall mean activities associated with development of the Compound,
including but not limited to (a) manufacture and formulation of Compound for use in pre-clinical,
non-clinical and clinical studies; (b) pre-clinical and non-clinical animal studies performed in
accordance with GLP (or the applicable equivalent); (c) planning, implementation, evaluation and
administration of human clinical trials; (d) manufacturing process development, scale-up and
commercial manufacture of Drug Product; (e) preparation and submission of applications for
Regulatory Approval; and (f) post-market

License, Development and Commercialization Agreement—Confidential—Table of Contents—Page 2

* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

 

surveillance of approved drug indications, as required or
agreed as part of a marketing approval by any governmental regulatory authority.

      1.16 “Development Work” shall have the meaning set forth in Section 3.7 of this Agreement.

      1.17 “Discontinuance Election” shall have the meaning set forth in Section 7.1.2 of this
Agreement.

      1.18 “Discontinued Patent” shall have the meaning set forth in Section 7.1.2 of this
Agreement.

      1.19 “Dollars” and “$”shall mean United States dollars.

      1.20 “Drug Product” shall mean any pharmaceutical preparation in finished dosage form
containing the Compound for administration to human patients for any and all uses in the Field.

      1.21 “Diligence Milestone”
shall have the meaning set forth in Section 3.5 of this Agreement.

      1.22 “Diligence Notice” shall have the meaning set forth in Section 5.3 of this Agreement.

      1.23 “Effective Date” shall mean the effective date of this Agreement as set forth on the
first page hereof.

      1.24 “EMEA” shall mean the European Medicines Evaluation Agency or any successor agency
thereto.

      1.25 “European Union” shall mean those countries that are now or later become members of the
European Union.

      1.26 “Existing Supply” shall have the meaning set forth in Section 4.2 of this Agreement.

      1.27 “FDA” shall mean the United States Food and Drug Administration or any successor agency
thereto.

      1.28 “Field” shall mean the administration or use of the Compound for the treatment or
prevention of cancer in humans.

License, Development and Commercialization Agreement—Confidential—Table of Contents—Page 3

* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

 

      1.29 “Filing Outside the U.S.” shall mean any application or regulatory filing made hereunder
with a regulatory authority outside the United States, for approval to manufacture and/or sell Drug
Product(s) outside the United States, and any correspondence, approvals or governmental licenses
relating thereto.

      1.30 “First Commercial Sale”
shall mean the first sale of a Drug Product by Avalon, or an Affiliate or Sublicensee of
Avalon in a country in the Territory following Regulatory Approval of the Drug Product in that
country or, if no such Regulatory Approval or similar marketing approval is required, the date upon
which the Drug Product is first commercially sold in such country.

      1.31 “Force Majeure” shall have the meaning set forth in Section 14.3 of this Agreement.

      1.32 “Generic Version” shall have the meaning set forth in Section 6.3.1 of this Agreement.

      1.33 “GLP” shall mean the current Good Laboratory Practices regulations promulgated by the
FDA, published at 21 CFR Part 58, as such regulations may be amended from time to time, and such
equivalent regulations or standards of countries outside the United States as may be applicable to
activities conducted hereunder.

      1.34 “GMP” shall mean the current Good Manufacturing Practice regulations promulgated by the
FDA, published at 21 CFR Part 210 et seq., as such regulations may be amended from time to time,
and such equivalent regulations or standards of countries outside the United States as may be
applicable to activities conducted hereunder.

      1.35 “Hematology Indication” shall mean any * .

      1.36 “IMPDH” shall mean Inosine 5’-monophosphate dehydrogenase.

      1.37 “IND” shall mean the investigational new drug application relating to the Compound filed
with the FDA pursuant to 21 CFR Part 312, including any amendments thereto. References herein to
IND shall include, to the extent applicable, any comparable regulatory filing in any country
outside the U.S. (such as a CTX in the European Union).

      1.38 “Indemnified Party” shall have the meaning set forth in Section 13.3 of this Agreement.

      1.39 “Indemnifying Party” shall have the meaning set forth in Section 13.3 of this Agreement.

License, Development and Commercialization Agreement—Confidential—Table of Contents—Page 4

* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

 

      1.40 “Indication” shall mean a separate and distinct disease or medical condition in humans
that a Drug Product that is in Clinical Trials is intended to treat, prevent and/or diagnose, or
which is referenced on an approved label as a disease or condition that the Drug Product is
approved to treat, prevent or diagnose.

      1.41 “Information” shall mean any and all information and data, including scientific,
pre-clinical, clinical, regulatory, manufacturing, marketing, financial, and commercial
information.

      1.42 “Infringement Claim” shall have the meaning set forth in Section 7.2.1 of this Agreement.

      1.43 “Initial Responsible Party” shall have the meaning set forth in Section 7.1.2 of this
Agreement.

      1.44 “Initiate” shall mean, with respect to a Clinical Trial, the administration of the first
dose to a human in that Clinical Trial.

      1.45 “Know-How” shall mean all proprietary material and information including data, technical
information, know-how, experience, inventions, discoveries, trade secrets, compositions of matter
and methods, that relate to the development, utilization, manufacture or use of the Compound or any
Drug Product, including but not limited to processes, techniques, methods, products, materials and
compositions; provided however, that the term “Know-How” shall not include a Party’s general drug
design technology, whether in software or hardware, tangible or intangible, form.

      1.46 “LPO” shall mean that all human subjects enrolled in a Clinical Trial shall have either
terminated their participation in the Clinical Trial, either by reason of completion of a full
course of dosing and follow-up in accordance with the protocols under which the applicable Clinical
Trial is conducted, or because either the Clinical Trial, or the subject’s participation
therein, has terminated.

      1.47 “Loss” shall have the meaning set forth in Section 13.1 of this Agreement.

      1.48
“Major Market” shall mean any one of the following
countries: the United States, the United Kingdom, France, Germany,
Italy, Spain, and Japan.

      1.49 “Manufacturing Cost” shall mean * .

      1.50 “Milestone” shall have the meaning set forth in Section 6.2.1 of this Agreement.

      1.51 “NDA” shall mean (a) a New Drug Application filed with the FDA for marketing approval of
a Drug Product or any successor applications or procedures, and all

License, Development and Commercialization Agreement—Confidential—Table of Contents—Page 5

* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

 

supplements and amendments that
may be filed with respect to the foregoing, and (b) similar filings in ROW with applicable
Regulatory Authorities, including EMEA. The term “NDA” shall not include applications for pricing,
and reimbursement approval.

      1.52 “Net Sales” with respect to any Drug Product shall mean * all as determined in
accordance with generally accepted accounting principles (“GAAP”), consistently applied by Avalon.

      1.52.1 * .

      1.52.2 * .

      1.52.3 * .

      1.52.4 * .

      1.52.5 * .

      1.53 “Other Party” shall have the meaning set forth in Section 12.4 of this Agreement.

      1.54 “Party” shall mean Vertex or Avalon, and “Parties” shall mean Vertex and Avalon.

      1.55 “Patents”means all existing patents and patent applications and all patent applications
hereafter filed, including any continuation, continuation-in-part, division, provisional or any
substitute applications, any patent issued with respect to any such patent applications, any
reissue, reexamination, renewal or extension (including any supplementary protection certificate)
of any such patent, and any confirmation patent or registration patent or patent of addition based
on any such patent, and all foreign counterparts of any of the foregoing.

      1.56 “Person” shall mean any individual, corporation, partnership, association, joint-stock
company, trust, unincorporated organization or government or political subdivision thereof.

      1.57 “Phase I Clinical Trial” shall mean a human clinical trial in any country that would
satisfy the requirements of 21 CFR 312.21(a).

      1.58 “Phase Ib Clinical Trial” shall mean a Phase I Clinical Trial in patients.

      1.59 “Phase II Clinical Trial” shall mean a human clinical trial in any country that would
satisfy the requirements of 21 CFR 312.21(b).

License, Development and Commercialization Agreement—Confidential—Table of Contents—Page 6

* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

 

      1.60 “Phase II FDA Meeting” shall mean a meeting between Avalon and the FDA (or corresponding
Regulatory Authority, for any other territory in which Avalon is conducting such a meeting) at
which Avalon and the FDA reach agreement on a detailed plan for subsequent studies of the Drug
Product required for submission of an application for Regulatory Approval covering the Drug
Product, including but not limited to (i) the agreed-upon protocol for and design of a Pivotal
Registration Study (setting out, for example, trial endpoints), and (ii) the size of the required
safety database filing.

      1.61 “Pivotal Registration Study”
shall mean a human clinical trial the results of which are designed for inclusion in (i) that
portion of the FDA submission and approval process which provides for the continued trials of a
drug candidate on sufficient numbers of patients to generate safety and efficacy data to support
Regulatory Approval in the proposed therapeutic indication, as more fully defined in 21 CFR §
312.21(c), and (ii) equivalent submissions with similar requirements in other countries. Although
Phase III Clinical Trials, which are human clinical trials that would satisfy the requirements of
21 CFR 312.21(c), are typically designed as Pivotal Registration Studies, in specific cases a Phase
II Clinical Trial might qualify as a Pivotal Registration Study.

      1.62 “Product Development Committee” or “PDC” shall have the meaning set forth in Section
3.2.1 of this Agreement.

      1.63 “Regulatory Approval” shall mean, with respect to any country, all authorizations by the
appropriate governmental entity or entities necessary for commercial sale of a Drug Product in that
country including, without limitation and where applicable, approval of labeling and manufacturing.

      1.64 “Regulatory Authority” shall mean any applicable government regulatory authority involved
in granting approvals for the conduct of Clinical Trials or the manufacturing or marketing of a
Drug Product in the Territory, including in the United States the FDA.

      1.65 “Results” shall have the meaning set forth in Article X of this Agreement.

      1.66 “ROW” shall mean all of the countries in the Territory, and their territories and
possessions, except for the United States.

      1.67 “Solid Tumor Indication” shall mean * .

      1.68 “Stability Specifications” shall have the meaning set forth in Section 4.2 of this
Agreement.

      1.69 “Stability Testing” shall have the meaning set forth in Section 4.2 of this Agreement.

License, Development and Commercialization Agreement—Confidential—Table of Contents—Page 7

* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

 

      1.70 “Sublicensee” shall mean a Third Party that is granted a sublicense under the licenses
granted to Avalon under this Agreement, which term does not include Avalon’s Affiliates or its
distributors.

      1.71 “Technology” shall mean Vertex Technology and Avalon Technology.

      1.72 “Territory” shall mean all the countries in the world.

      1.73 “Third Party” shall mean any person or entity that is not a Party or an Affiliate of any
Party to this Agreement.

      1.74 “Third Party Product” shall have the meaning set forth in Section 6.3.1 of this
Agreement.

      1.75 “Valid Patent Claim” shall mean either (a) a claim of an issued and unexpired Patent
which has not been revoked or held permanently unenforceable or invalid by a decision of a court or
other governmental agency o£ competent jurisdiction, unappealable or unappealed within the time
allowed for appeal, and which has not been admitted to be invalid or unenforceable through reissue
or disclaimer or otherwise, or (b) a claim of a pending patent application which claim was filed in
good faith and has not been abandoned or finally disallowed without the possibility of appeal or
refiling of said application.

      1.76 “Vertex Know-How” shall mean all Know-How owned or Controlled by Vertex as of the
Effective Date.

      1.77 “Vertex Patents” shall mean any and all claims of Patents Controlled by Vertex or any of
its Affiliates, which claim or claims would be infringed by making, having made, using, selling,
offering for sale, importing, researching or developing the Compound, Bulk Drug Substance, or a
Drug Product, to the extent permitted under this Agreement, or by using Biomarkers in connection
with the administration of a Drug Product to a human subject in the Field to the extent permitted
by this Agreement. A list of Vertex Patents is appended hereto as
Schedule 1.77, which will be updated periodically to reflect additions thereto during the term
of this Agreement.

      1.78 “Vertex Technology” shall mean all Vertex Patents and all Vertex Know-How.

License, Development and Commercialization Agreement—Confidential—Table of Contents—Page 8

* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

 

ARTICLE II

LICENSE

            2.1 Grant to Avalon.

      (a) Subject to the other provisions of this Agreement, Vertex hereby grants to Avalon an
exclusive worldwide license under Vertex Technology solely in the Field, with the right to
sublicense to the extent permitted under Section 2.1(d)(i) to exercise its rights and carry out its
obligations set forth in this Agreement; (ii) to develop, use, have used, manufacture, have
manufactured, and import, the Compound, Bulk Drug Substance, and Drug Products in the Territory;
(iii) to offer for sale, sell and import for sale Compound and Bulk Drug Substance, solely for
purposes of incorporation into a Drug Product for sale, offer for sale, import and having sold
pursuant to the terms of this Agreement; and (iv) to market, sell, have sold, import, and offer for
sale, Drug Products in the Territory.

      (b) Subject to the other provisions of this Agreement, Vertex hereby grants to Avalon an
exclusive worldwide license under the Vertex Technology, with no right to sublicense, to the extent
useful to permit Avalon to use Biomarkers to monitor the effectiveness of the Compound in the Field
(including in human subjects), solely in connection with research and/or development of Drug
Products. Vertex agrees that it shall negotiate in good faith with Avalon to reach agreement on a
license to diagnostic products incorporating such Biomarkers for use solely in connection with the
administration of the Drug Product in the Field. Vertex reserves all rights to Biomarkers and the
use thereof for all purposes outside the Field.

      (c) Subject to the provisions of this Agreement, Vertex shall have the right to use Vertex
Technology to discharge its obligations and exercise its rights under this Agreement. Vertex
retains all rights to Vertex Technology except to the extent explicitly granted to Avalon
hereunder. The Parties acknowledge and agree that it is possible that VX-944 and certain other
compounds Controlled by Vertex that have been designed as inhibitors of IMPDH may share common
metabolites and degradants. Notwithstanding the exclusive license granted herein to Avalon with
respect to metabolites of VX-944, Vertex shall have a right under Vertex Technology to all such
common metabolites or degradants for any and all purposes, unrestricted by field or territory.

      (d) Avalon shall notify Vertex in writing of any sublicense it intends to grant pursuant to
Section 2.1(a) and Vertex shall have the right to approve the Sublicensee with respect to all
sublicenses of rights in any Major Market country, with such approval to be obtained by Avalon in
writing prior to entering into any such sublicense and not to be unreasonably withheld or delayed
by Vertex. Avalon shall guarantee and be responsible to Vertex for the performance
of any of its Sublicensees or subcontractors under any sublicense or other agreement with
respect to the rights granted to Avalon by Vertex and the obligations assumed by Avalon hereunder.
Avalon shall not permit any subcontractors or Sublicensees to use Vertex Technology without
provisions safeguarding confidentiality equivalent to those provided in this Agreement. Avalon
shall ensure that any such provisions allow Vertex the right to directly enforce the obligations of
confidentiality with respect to Vertex Technology in the possession of the subcontractor or
Sublicensee. Each sublicense of the rights granted to Avalon hereunder shall be on commercially
reasonable terms.

            2.2 Grant to Vertex. Subject to the other provisions of this Agreement, Avalon hereby grants
to Vertex a non-exclusive, worldwide license or (as appropriate) sublicense under Avalon
Technology, to the extent necessary to permit Vertex to carry out the

License, Development and Commercialization Agreement—Confidential—Table of Contents—Page 9

* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

 

activities that it is
permitted to undertake under this Agreement (and, as set forth in Article XII of this Agreement,
following certain terminations of this Agreement pursuant to such Article).

            2.3 Information Transfer.

      (a) Vertex shall disclose to Avalon all Vertex Know-How and material information Controlled
by it relating directly to the Compound that has not been previously disclosed to Avalon. To the
extent any such information previously disclosed to Avalon is available in human or
machine-readable form, and Avalon is not in possession of a copy of such information, Vertex shall
provide a copy to Avalon within * of receiving Avalon’s request, which shall be made with
specificity as to the information to be copied. At Avalon’s request made at any time, Vertex shall
provide copies of all Vertex Patents and applications therefor and all other manifestations of the
intellectual property embodied in the Compound whether in human or machine-readable form. Avalon
shall acknowledge to Vertex that it has received any such information within * days of any such
receipt.

      (b) Except for information about the Compound in the possession of either Party on the
Effective Date, neither Party shall be entitled to information from the other Party concerning
know-how or technology discovered or developed by that Party that is not directly related to
development and commercialization of the Compound or Drug Products under this Agreement.

            2.4 Vertex Stand-still. During the term of this Agreement, Vertex shall not develop, sell,
offer to sell, have sold, or import for sale Compound, Bulk Drug Substance, or Drug Product nor
grant any rights to a Third Party to develop, have made, make, sell, offer for sale, or import for
sale the Compound, Bulk Drug Substance or Drug Product. This Section 2.4 shall terminate and be of
no force and effect with respect to any country upon the earlier of the expiration of this
Agreement with respect to such country or the termination of Avalon’s rights hereunder with respect
to such country, and immediately shall terminate and have no further force or effect upon the
termination of this Agreement for any reason.

            2.5 No Implied Licenses. Except as specifically set forth in this Agreement, neither Party
shall acquire any license or other intellectual property interest, by implication or otherwise, to
any information disclosed to it under this Agreement or under any patents or patent applications
owned or Controlled by the other Party or its Affiliates.

ARTICLE III

DEVELOPMENT

            3.1 Commencement of Development Program. Promptly after the Effective Date, Avalon shall
commence and diligently pursue the Development Program (as more particularly set forth in Section
3.6 of this Agreement) with respect to the Compound in accordance with the Development Plan.

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* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

 

            3.2 Product Development Committee.

	 	3.2.1  	Formation and Responsibilities. As soon as practicable
following the Effective Date, Avalon will establish a Product Development
Committee (“PDC”), which shall, at Vertex’s option, include representatives
designated by Vertex (up to that number of representatives on the PDC
designated by Avalon), * the PDC will be the principal organization through
which the development of the Compound is planned, administered, evaluated and
completed. In addition to the Vertex representatives, the PDC will consist of
representatives of Avalon from the various functional groups (e.g., CMC,
preclinical safety, clinical, regulatory, marketing) that are or will be
expected to be involved in development and launch of the Compound and Drug
Product. The initial Avalon and Vertex representatives on the PDC shall be the
individuals set forth on Schedule 3.2.1 to this Agreement, and thereafter, each
Party may at any time substitute other individuals to serve on the PDC. Avalon
will appoint the PDC Chair. * .
	 
	 	3.2.2  	Development Plan. The PDC shall oversee the implementation of
the overall Development Plan. The initial Development Plan is attached hereto
as Schedule 1.14. The Development Plan shall, among other things, detail,
schedule and fully describe the proposed toxicology studies, clinical trials,
regulatory plans, clinical trial and commercial material requirements, and
process development and manufacturing plans for the Compound, along with
relevant budget information for the described items, and will outline, to the
extent then known and customary for the stage of development, the key elements
involved in obtaining Regulatory Approval in each country
where the Drug Product is to be marketed. The PDC shall update the
Development Plan beginning * , and * thereafter, to describe the
development activities for the Compound planned for * and the remainder
of the development period. Vertex shall have the right, but not the
obligation, to review and comment on the Development Plan, and Avalon shall
take such advisement under consideration in * .
	 
	 	3.2.3  	Meeting Materials. The PDC will consider all information that
is material to an assessment of the status, direction and progress of the
Development Program, including all clinical trials protocols, data and reports.
The PDC Chair will ensure that full and complete minutes are prepared and
distributed to each member of the PDC promptly after each meeting. Those
minutes shall contain a full report on the activities of the PDC during its
meeting. Avalon will ensure that Vertex’s representatives on the PDC receive
on a timely basis all documents and information distributed or communicated to
members of the PDC generally, and are provided reasonable access to copies of
all other information relative to the development of the Compound.

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* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

 

	 	3.2.4  	Avalon Report to Vertex. * Avalon shall submit to Vertex,
no less than once per calendar quarter, within * after the end of such
calendar quarter, a report setting forth in reasonable detail, with supporting
data, the results of work performed during the relevant calendar quarter under
the Development Plan, together with a copy of the most recently updated version
of the Development Plan. Avalon shall be permitted to indicate any information
set forth in the report that it deems, in its reasonable discretion, to be
competitive information with respect to the development of IMPDH inhibitory
compounds that would be helpful to Vertex in developing other IMPDH inhibitors
in the Field (“Competitive Information”). Vertex shall limit disclosure of the
Competitive Information to individuals reasonably acceptable to Avalon, who
shall be agreed upon by the Parties on the basis of such individual’s ability
to evaluate Avalon’s compliance with the terms of this Agreement and inability
to use the Competitive Information to Vertex’s advantage and Avalon’s
disadvantage (and such individuals shall not disclose the Competitive
Information to any other employees of Vertex), and any such information shall
be otherwise subject to the non-disclosure obligations set forth in Article IX.

            3.3 *  .

            3.4 Development Responsibility and Costs.
Except as provided in Section 3.7 below, Avalon will have sole responsibility for, and bear
the cost of conducting, the Development Program with respect to the Compound. Vertex shall bear
its own costs of its participation in the PDC, if any. Notwithstanding Vertex’s option to
participate on the PDC, Vertex shall not be responsible for the Development Program or its outcome,
each of which shall be the sole responsibility of Avalon during the term of this Agreement.

            3.5 Regulatory Approvals. Avalon shall be solely responsible for obtaining Regulatory
Approval of the Compound in the Territory and shall bear all costs associated therewith.

	 	3.5.1  	Avalon Ownership. All Regulatory Approvals shall be held by
and in the name of Avalon, and Avalon shall own all submissions in connection
therewith.
	 
	 	3.5.2  	Principal Interface. All formulary or marketing approvals
shall also be obtained by and in the name of Avalon, and Avalon will be the
principal interface with and will otherwise direct all interactions with
regulatory agencies concerning any Drug Product
	 
	 	3.5.3  	Right of Cross-Reference. Vertex shall have a right of
reference to all or any part of submissions made in connection with obtaining
Regulatory Approvals if the Assistance Rights become effective under Section
3.7 hereof or as otherwise required by Regulatory Authorities for any reason.

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omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

 

            3.6 Avalon Efforts in Development. Avalon shall use * , consistent with the provisions of
this Agreement, the requirements of the Development Plan, and reasonable business practices and
judgment * , to develop the Compound and obtain Regulatory Approval for Drug Products, as soon
as * , for the commercial sale of the Drug Product in the Major Market countries. * . Upon
delivery of any such notice to Vertex, all of Avalon’s rights under this Agreement with respect to
the Major Market country that is the subject of the notice immediately shall terminate, and the
definition of “Territory” in this Agreement shall be deemed amended to exclude such country.
Thereafter, Vertex shall have all rights to the Compound in such Major Market country (and the
stand-still agreement set forth in Section 2.4 shall not be applicable in such country).

            If Avalon fails to comply with the foregoing development obligations, Vertex shall have the
right to terminate this Agreement under the provisions of Section 12.2 hereof. If Avalon fails to
achieve any of the Diligence Milestones (as defined below) for any reason, Vertex shall also have
the right to terminate this Agreement and Avalon’s license hereunder
pursuant to Section 12.2. “Diligence Milestone” shall mean each of the outcomes referenced
under “Milestone” below relating to the Development Program for the Compound, along with the
deadline for achieving the particular outcome referenced under “Deadline” in the right hand column
opposite that outcome. The Parties acknowledge and agree that the Diligence Milestones set forth
below are specified herein solely for purposes of conclusively establishing that if Avalon should
fail to achieve a Diligence Milestone by the specified Deadline date, Avalon has not satisfied the
requirements of this Section 3.6. However, completion of a Diligence Milestone on or about the
corresponding deadline shall not be considered presumptive evidence that Avalon shall have
satisfied its general development obligations as set forth in the first paragraph of this Section
3.6.

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confidential portions have been submitted separately to the Securities and
Exchange Commission.

 

	 	 	 
	Milestone

	 	Deadline
	 

	 	 
	IND Filed with FDA

	 	* (subject to extension
under Section 4.2)
	 
	 	 
	Initiate Phase Ib Clinical Trial

	 	Within * after the FDA Accepts the IND
	 
	 	 
	Initiate a Phase II Clinical Trial

	 	No later than * after
the LPO of the Phase Ib
Clinical Trial
	 
	 	 
	Initiate Pivotal Registration Study

	 	No later than * after Phase II FDA Meeting
	 
	 	 
	If the first Pivotal Registration Study
trial is unsuccessful, the commencement of
a follow on Pivotal Registration Study

	 	No later than * after
the LPO of the unsuccessful
Pivotal Registration Study
	 
	 	 
	File NDA in a Major Market country

	 	No later than * after
LPO of the successful
Pivotal Registration Study
(or Studies) for the lead
Indication
	 
	 	 
	File application for Regulatory Approval in
all Major Market countries (in which Avalon
has retained rights to the Compound) except
Japan

	 	No later than * after
LPO of the Pivotal
Registration Study (or
Studies) leading to the
filing of an NDA in a Major
Market Country for the lead
Indication
	 
	 	 
	File application for Regulatory Approval in
Japan (assuming that Avalon has retained
rights to the Compound in Japan)

	 	No later than * after LPO in the Pivotal
Registration Study (or Studies) for the lead Indication

      For example, a Diligence Milestone would be achieved if an IND is filed with the FDA on or
before * (or * , if such date is extended pursuant to Section 4.2). It would not be
achieved if an IND is not filed with the FDA on or before * (or * , if such date is extended
pursuant to Section 4.2). Avalon shall have the right to ask Vertex for a reasonable extension of
the due date for any Diligence Milestone if it is unable to achieve that Diligence Milestone for
reasons related to the development of the Compound outside of Avalon’s control (excluding reasons
relating directly or indirectly to a shortage of funds for development tasks which would have been
undertaken * , and Vertex shall not unreasonably withhold approval for such

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* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
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Exchange Commission.

 

extension, provided that Avalon shall have provided to Vertex a viable plan for achieving the
Diligence Milestone in a reasonable period of time.

                  3.7 Assistance Rights. If at any time specific development activities (“Development Work”)
scheduled for commencement or completion in accordance with the Development Plan are unreasonably
delayed, Avalon, at Vertex’s request, will review and discuss the matter and a special meeting of
the Parties will be convened for that purpose within * of Vertex’s written request. If, within
* after the special meeting, Avalon is unwilling or unable to cure the delay, then Vertex may,
by written notice (the “Assistance Notice”) to Avalon, undertake that Development Work at its own
expense, and Vertex’s right to do so shall be referred to herein as its “Assistance Rights.”
Vertex shall be free to exercise its Assistance Rights commencing * after delivery of its
Assistance Notice to Avalon, unless Avalon shall notify Vertex within that * period that it
does not agree that Vertex should undertake Development Work due to circumstances, described in
detail in the Assistance Notice, that can be demonstrated to be reasonably likely to materially and
adversely affect the commercial success of the Compound. In such case, Vertex shall not pursue its
Assistance Rights.

            3.7.1 If Vertex pursues its Assistance Rights:

      (a) Regulatory Actions. Avalon will continue to make any necessary and
appropriate regulatory filings with respect to the Development Work and will, if required
for Vertex to exercise its Assistance Rights effectively, transfer sponsorship to Vertex of
any regulatory filings relevant to such Development Work.

      (b) Delivery of Information. Promptly after exercise by Vertex of its
Assistance Rights, Avalon shall deliver to Vertex all material information Controlled by it
that is necessary or useful for exercise by Vertex of its Assistance Rights.

      (c) Manufacture of Clinical Supply of Drug Product. Avalon will supply Vertex
with the necessary clinical supply of Drug Product required to perform such Development Work
in accordance with Avalon’s then current scale of manufacturing at Avalon’s Manufacturing
Cost and upon such other reasonable and customary terms as to shipment, delivery and similar
matters as may be agreed.

      (d) Milestones. If Avalon elects to resume the Development Work for the
Compound, it will provide Vertex with * prior notice thereof, and will reimburse Vertex
for the actual direct cost of the Development Work within * following the receipt of an
invoice therefore. Avalon shall not resume the Development Work hereunder except at a time
when such transition will cause minimal disruption to the progress of the Development Work,
i.e., between clinical trials rather than during a clinical trial. Avalon will pay Vertex
interest on the reimbursable costs incurred by Vertex in the conduct of the Development
Work, at a rate * equal to * as determined on the date the Development Work is first
undertaken by Vertex. Avalon will also make in a timely fashion any payments which may come
due to Vertex under this Agreement during the time that Vertex is exercising its Assistance
Rights, including but not limited
to payments on account of the achievement of a Milestone or Milestones during the time
that Vertex was exercising its Assistance Rights.

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* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

 

      (e) No Waiver. Vertex’s exercise of Assistance Rights hereunder, and Avalon’s
subsequent resumption of Development Work under Subsection (d) above, shall in no way
constitute a waiver by Vertex of any of its rights under this Agreement, including its right
to enforce Avalon’s obligations to * the Development Program and to achieve the
Diligence Milestones set forth in Section 3.6 except as set forth in the last sentence of
this paragraph (e). If, in the course of performing the Development Work, Vertex shall
achieve any Diligence Milestone, the achievement of that Milestone shall not be attributed
to Avalon for purposes of determining its compliance with the requirements of Section 3.6
hereof. Notwithstanding the foregoing, if Avalon validly elects to continue the Development
Work pursuant to Section 3.7(d) above, upon Vertex’s receipt of payment of the amounts set
forth in Section 3.7(d), Vertex shall be deemed to have waived any breaches of Section 3.6
of this Agreement by Avalon occurring prior to such time.

ARTICLE IV

MANUFACTURING AND SUPPLY

                  4.1 Supply of Material; Formulation and Packaging. Avalon will be responsible for
manufacturing and supplying all Compound, Bulk Drug Substance, and Drug Product as necessary for
the conduct of the Development Plan and for all commercial purposes in the Territory. In all
events, Avalon will be responsible for formulation and packaging of Drug Products.

                  4.2 Supply of Bulk Drug Substance for Clinical Trials. Vertex shall provide Avalon with *
(“Existing Supply”) of Bulk Drug Substance from its existing inventory, provided that the Existing
Supply satisfactorily completes stability testing (the “Stability Testing”) by Vertex, and meets
the specifications set forth on Schedule 4.2 (the “Stability Specifications”). Vertex
shall conduct the Stability Testing promptly after the Effective Date, and upon providing evidence
of satisfaction of the Stability Specifications reasonably satisfactory to Avalon, Vertex shall
promptly deliver the Existing Supply to Avalon against payment therefore in the amount of * .
Vertex shall have no obligation hereunder or otherwise to store or deliver any clinical trial
material to Avalon other than the Existing Supply, and its obligation to deliver the Existing
Supply shall be contingent upon the Existing Supply satisfying the Stability Specifications. If
Vertex shall not deliver the Existing Supply for any reason, or if the Existing Supply, if
delivered, shall not be usable for its intended purpose by reason of a failure to satisfy the
Stability Specifications, then the first Diligence Milestone IND filed with FDA — shall be extended
by * . Avalon shall provide written notice to Vertex of the failure of the Existing Supply to
satisfy the Stability Specifications, within * after delivery, thereof.

                  4.3 Supply of Laboratory Grade Compound. Promptly upon execution of this Agreement, * ,
Vertex shall transfer * of Compound to Avalon or its designee, it being acknowledged that such
Compound was not prepared or stored in accordance with GMP or GLP, and that such compound is being
provided to Avalon as is and without representations or warranties of any kind, and shall not be
administrated to humans.

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* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

 

ARTICLE V

COMMERCIALIZATION

                  5.1 Marketing and Promotion. Avalon shall be responsible for marketing, selling and
distributing Drug Products in the Territory. Avalon will book all sales of Drug Products and will
report those sales to Vertex as specified in Section 6.4 of this Agreement.

                  5.2 Co-Labeling. To the extent not prohibited by law or regulation, Drug Products (including
labels, packaging and inserts, whether in written or electronic form) and all promotional and
educational materials (in any form) for the same, sold in North America, the countries of the
European Union and Japan will bear both Avalon’s and Vertex’s company names and logos with equal
prominence (including equal sized type face), or if equal prominence is prohibited by law, with the
most comparable prominence as may otherwise be permitted by law. To the extent not prohibited by
law or regulation, Drug Products (including labels, packaging and inserts) and all promotional
materials for the same, sold in the rest of the world will include Vertex’s company name (in the
English alphabet) and logo with the designation: “under license from.” Any trademark for a Drug
Product will be selected by, and will be the property of, Avalon.

	 	5.2.1  	Review of Regulatory Filings. Avalon will permit Vertex to
review all material regulatory filings that relate to product labeling, and all
proposed labels, packaging, package inserts, and promotional materials required
under this Agreement to bear Vertex’s name, prior to the filing of any such
materials with any Regulatory Authority.
	 
	 	5.2.2  	Regulatory Communications. Avalon will immediately inform
Vertex of any material regulatory communications received by Avalon that might
operate to restrict Vertex’s rights under this Section 5.2., and will cooperate
with any reasonable request of Vertex aimed at facilitating approval by a
Regulatory Authority for colabeling consistent with this provision.

                  5.3 Diligence. Following the First Commercial Sale of a Drug Product and until the expiration
of this Agreement, Avalon shall use * to keep Drug Products * to the public in each of the
Major Markets. If, at any time during the term of this Agreement, Avalon or an Affiliate are
developing, marketing or selling a product for treatment of the same Indication as any Drug Product
(a “Competing Product”), Avalon shall * required under this Section 5.3 as if Avalon or its
Affiliate was not developing, marketing or selling that Competing Product.

If, after the First Commercial Sale of a Drug Product in any country, Avalon shall determine that
the marketing and sale of a Drug Product in any country is * or * or if for other
unforeseen reasons further commercial support of the Drug Product in that country is no longer
prudent or practical, Avalon promptly shall provide a notice of such determination to Vertex (a
“Diligence Notice”). If Avalon shall give Vertex a Diligence Notice with respect to any Major
Market country, Avalon’s license hereunder immediately shall terminate with respect to that
country,

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Exchange Commission.

 

and the Territory under this Agreement shall thereafter exclude that Major Market country.
At such time as * Major Market countries have been excluded from the Territory as a result of
notices provided to Vertex under this Section 5.3 and/or Section 3.6, or at any time that the
Territory excludes the United States as a result of notices given under either such section, Vertex
shall have the unconditional right to terminate this Agreement under Section 12.3 and shall have
all rights set forth in Section 12.5.

                  5.4 Vertex Promotional and Co-Promotional Rights.

	 	5.4.1  	Major Market Countries. Avalon shall not enter into an
agreement, sublicense or any other contractual relationship with a Third Party,
which agreement includes the right to market and/or commercialize a Drug
Product in any Major Market country unless Avalon shall have first so notified
Vertex and negotiated in good faith with Vertex to commercialize the Drug
Product in such Major Market country. Vertex similarly shall conduct any such
negotiations in good faith, or shall notify Avalon within * of any such
notice that Vertex does not wish to enter into an agreement with respect to
promotion of the Drug Product in such Major Market country or countries. If
Vertex and Avalon do not enter into a promotional (or co-promotion, as
applicable) agreement within * after Avalon’s notice to Vertex, Avalon
shall have the right to enter into an agreement with a Third Party that
includes rights to market and/or commercialize the Drug Product in the
countries in question, provided that, unless Vertex has informed Avalon of its
election not to commercialize in such Major Market country, the terms of any
such agreement, as a whole, are not materially more favorable to the Third
Party than the terms offered by Avalon to Vertex (unless Vertex is first
offered such terms). Vertex shall notify Avalon at any time that Vertex shall
submit an NDA for an IMPDH inhibitor in either a Hematology Indication or a
Solid Tumor Indication, and any agreement between the Parties with respect to
co-promotion of a Drug Product shall
provide for termination at such time, at Avalon’s option on terms reasonably
agreed upon by the Parties to provide an orderly transition.
	 
	 	5.4.2  	Other Countries. Vertex shall have a right to market and sell
Drug Product in “Other Countries” upon the terms and conditions of this Section
5.5.2, upon written notice to Avalon delivered at any time and subject to the
following provisions; provided, however, that Vertex shall not market or sell
Drug Product in any Other Country which is reasonably likely to materially and
adversely affect the sale of Drug Product in Major Market countries as a result
of re-importation or gray market sales. “Other Countries” shall mean each and
every country that is not a Major Market country and (i) that is the subject of
a Diligence Notice delivered to Vertex pursuant to Section 5.3 of this
Agreement, or (ii) in which there have been no commercial sales of Drug Product
on or before the first anniversary after the date on which there have been
commercial sales of

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Exchange Commission.

 

	 	   	Drug Products in all Major Market countries which at that
time are included in the Territory. If Vertex elects to market and sell Drug
Product in any country pursuant to this Section 5.4.2, Avalon shall (i) work
diligently with Vertex to obtain any necessary Regulatory Approvals to market
and sell Drug Product in that country; and (ii) supply Vertex’s requirements
for Drug Products for sale in that country at the Manufacturing Cost thereof.
Vertex shall report all Net Sales to Avalon on a * basis, and shall retain
from such amounts the sum of * , and shall pay to Avalon any remaining Net
Sales. If at any time Avalon wishes to market and sell Drug Product in a
country in Vertex is marketing and selling Drug Product pursuant to its rights
under this Section 5.4.2, then Vertex’s rights to market and sell Drug Product
pursuant to this Section 5.4.2 shall terminate on the * of receiving a
written notice to that effect from Avalon, provided, however,
that Avalon shall thereafter diligently market and sell Drug Product in such
country for the term of this Agreement.

ARTICLE VI

PAYMENTS

                  6.1 Consideration for License. In consideration for the licenses granted pursuant to Article
II, Avalon shall pay to Vertex an unconditional, non-refundable, noncreditable one-time payment of
five million Dollars ($5,000,000), of which $1,000,000 is payable on the Effective Date, $2,000,000
is payable on or before June 30, 2005, and $2,000,000 is payable on or before November 1, 2005.
There shall be no condition to the payment of the amounts payable under this Section 6.1 except for
the passage of time between the Effective Date and the date on which such payment is due.

                  6.2 Development Milestone Payments by Avalon.

	 	6.2.1  	Avalon will make the following payments to Vertex within *
after the achievement of any of the following milestones (each, a “Milestone”)
with respect to the Compound:

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	 	6.2.2  	First Hematology Indication.

	 	 	 
	Milestone Event

	 	Payment Amount
	 

	 	 
	 
	 	 
	1. Initiation of the first study designed as a Pivotal
Registration Study in any country in the Territory with
respect to a Drug Product for a Hematology Indication.

	 	$ *
	 
	 	 
	2. First filing of an NDA for a Drug Product for a
Hematology Indication in any country in the Territory.

	 	$ *
	 
	 	 
	3. First Regulatory Approval for a Drug Product for a
Hematology Indication

	 	$ *
	 
	 	 
	Total (for first Hematology Indication)

	 	$ *

	 	6.2.3  	First Solid Tumor Indication.

	 	 	 
	Milestone Event

	 	Payment Amount
	 

	 	 
	 
	 	 
	1. Initiation of the first study designed as a Pivotal
Registration Study in any country in the Territory with
respect to a Drug Product for a Solid Tumor Indication

	 	$ *
	 
	 	 
	2. First filing of a New Drug Application (or foreign
equivalent thereof) for a Drug Product for a Solid Tumor
Indication in any country in the Territory.

	 	$ *
	 
	 	 
	3. First Regulatory Approval for a Drug Product for a
Solid Tumor Indication

	 	$ *
	 
	 	 
	Total (for first Solid Tumor Indication)

	 	$ *

	 	6.2.4  	Once a Drug Product achieves a Milestone for a particular Indication, it will be deemed
to have achieved all earlier Milestones for such Indication, and any payment for such earlier
Milestone shall become due and payable to the extent it has not already been previously paid.
6.2.5 All payments under this Section 6.2 shall be made by wire transfer in Dollars to the credit
of such bank account as may be designated by Vertex in writing to Avalon. Each milestone payment
shall be payable within * of achievement of

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Exchange Commission.

 

	 	   	such Milestone. Any payment which falls due on a
date which is a Saturday, Sunday or a legal holiday in The Commonwealth of Massachusetts may be
made on the next succeeding day which is not a Saturday, Sunday or a legal holiday in the
Commonwealth.

                  
6.3 Royalties. Avalon shall pay to Vertex the following royalties on Net Sales of
each Drug Product in the Territory:

* of the first * of Net Sales in a calendar year;

* of all Net Sales greater than * and less than or equal to * in a
calendar year; and

* of all Net Sales greater than * in a calendar year.

            Royalties on each Drug Product at the royalty rates set forth above shall continue on a
country-by-country basis until the later of (a) ten years from the date of First Commercial Sale of
such Product in such country, or (b) the expiration of the last-to-expire Valid Claim of a Vertex
Patent in effect in such country that would be infringed by the sale of such Drug Product.

	 	6.3.1  	Unlicensed Competition. If in any country a Third Party sells
a pharmaceutical product which is a “Generic Version” of a Drug Product being
sold in that country (a “Third Party Product”)—where “Generic Version” means a
pharmaceutical product (other than a product originally sold as a Drug Product)
that includes the same active ingredient as that used in a Drug Product—then
for the period in which the unit sales of such Third Party Product in such
country are at least * , the royalties payable to Vertex by Avalon on sales
of such Product in such country for such period shall be * of the royalties
provided in Section 6.3, but in no event shall the royalties owed for such Drug
Product in such country be reduced by more than * , or result in a net
royalty rate payable on Net Sales of such Drug Product in such country of less
than * .

                  6.4 Sales Reports; Payment of Royalties.

            (a) During the term of this Agreement and after the First Commercial Sale of a Drug Product,
Avalon shall furnish or cause to be furnished to Vertex on a * basis a written report or
reports covering each * (each such * being sometimes referred to herein as a “reporting
period”) showing (i) the Net Sales of each Drug Product in each country in the Territory during the
reporting period by Avalon and each Affiliate and Sublicensee; (ii) the royalties, payable in
Dollars, which shall have accrued under Section 6.3 hereof in respect of such sales and the basis
of calculating those royalties; (iii) withholding taxes, if any, required by law to be deducted in
respect of any such sales; (iv) the exchange rates and methodology used in converting into Dollars,
from the currencies in which sales were made, any payments due which are based on Net Sales; and
(v) dispositions of Drug Products other than pursuant to sale for cash. With respect to sales of
Drug Products invoiced in Dollars, the Net Sales amounts and the amounts due to Vertex

License, Development and Commercialization Agreement—Confidential—Table of Contents—Page 21

* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

 

hereunder
shall be expressed in Dollars. With respect to sales of Drug Products invoiced in a currency other
than Dollars, the Net Sales and amounts due to Vertex hereunder shall be expressed in the domestic
currency of the party making the sale, together with the Dollar equivalent of the amount payable to
Vertex, calculated using the methodology identical to that employed by Avalon, generally, in its
external financial reporting, as reviewed and approved by its independent auditors and will be in
conformity with Avalon’s usual and customary general accounting principles consistently applied.
If any Sublicensee makes any sales invoiced in a currency other than its domestic currency, the Net
Sales shall be converted to its domestic currency in accordance with the Sublicensee’s normal
accounting principles. Avalon shall furnish to Vertex appropriate evidence of payment of any tax
or other amount required by applicable laws or regulations to be deducted from any royalty payment,
including any tax or withholding levied by a foreign taxing authority in respect of the payment or
accrual of any royalty. Reports shall be due on the * day following the close of each
reporting period. Avalon shall keep accurate records in sufficient detail to enable the amounts
due hereunder to be determined and to be verified by Vertex.

            (b) Amounts shown to have accrued by each sales report provided for under subsection 6.4(a)
shall be due and payable on the date such sales report is due.

            (c) All payments shall be made in Dollars. If at any time legal restrictions prevent the
prompt remittance of any payments with respect to any country of the Territory where Drug Products
are sold, Avalon or its Sublicensees shall have the right and option to make such payments by
depositing the amount thereof in local currency to Vertex’s account in a bank or depository in such
country.

            (d) Upon the written request of Vertex, at Vertex’s expense and not more than once in or in
respect of any calendar year, Avalon shall permit an independent accountant of national prominence
selected by Vertex to have access during normal business hours to those records of Avalon as may be
reasonably necessary to verify the accuracy of the sales reports furnished by Avalon pursuant to
this Section 6.4, in respect of any calendar year ending not more than * prior to the date of
such notice. Avalon shall include in each sublicense entered into by it pursuant to this Agreement
a provision requiring the Sublicensee to keep and maintain adequate records of sales made pursuant
to such sublicense and to grant access to such records by the aforementioned independent accountant
for the reasons specified in this Section 6.4. Upon the expiration of * following the end of
any calendar year, the calculation of amounts payable with respect to such calendar year shall be
binding and conclusive upon Vertex, and
Avalon and its Sublicensees shall be released from any liability or accountability with
respect to payments for such year. The report prepared by such independent accountant, a copy of
which shall be sent or otherwise provided to Avalon by such independent accountant at the same time
it is sent or otherwise provided to Vertex, shall contain the conclusions of such independent
accountant regarding the audit and will specify that the amounts paid to Vertex pursuant thereto
were correct or, if incorrect, the amount of any underpayment or overpayment. If such independent
accountant’s report shows any underpayment, Avalon shall remit or shall cause its Sublicensees to
remit to Vertex within * after Avalon’ receipt of such report, (i) the amount of such
underpayment and (ii) * . Any overpayments shall be fully creditable against amounts payable
in subsequent payment periods; provided, however, that if Avalon retains a credit when there is no
subsequent payment period, Vertex shall refund such credited amount to Avalon. Vertex agrees that
all information subject to review under this Section 6.5 or under any

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* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

 

sublicense agreement is
confidential and that Vertex shall retain and cause its accountant to retain all such information
in confidence.

            (e) Until such time as the license fee set forth in Section 6.1 is paid in full, Avalon shall
provide Vertex with * financial statements (which shall be prepared in accordance with GAAP,
consistently applied, * .

                  6.5 Withholding Tax. If laws, rules or regulations require withholding of income taxes or
other taxes imposed upon payments set forth in this Agreement, the Party making such payment shall
make such withholding payments as required and subtract such withholding payments from the payments
set forth in this Agreement. The Party making any such withholding payments shall submit original
receipts or other appropriate proof of payment of the withholding taxes to the other Party
promptly, and shall cooperate with reasonable requests of the other Party relating to obtaining
foreign tax credits and similar benefits.

                  6.6 Reduction in Payments. If Vertex (or any Affiliate or Sublicensee of rights to a Vertex
IMPDH inhibitor) initiates preclinical work on any IMPDH inhibitor * prior to * or
Initiates a Clinical Trial on any IMPDH inhibitor * prior to the * , then Vertex shall
provide Avalon with prompt written notice thereof and all milestone payments thereafter payable by
Avalon pursuant to Section 6.2 shall be reduced by * and all royalties payable on Net Sales
made thereafter shall be reduced to:

                  • of the first * of Net Sales in a calendar year;

                  • of all Net Sales greater than * and less than or equal to * in a
calendar year; and

                  • of all Net Sales greater than * in a calendar year.

                  6.7 Interest.
Any amounts that are not paid by the due date therefore shall bear interest at the rate of *
per month, assessed from the * after the due date of the payment.

ARTICLE VII

INTELLECTUAL PROPERTY

                  7.1 Patentable Inventions and Know-How.

	 	7.1.1  	Ownership. All Patents and Technology shall be owned by the
Party making the invention claimed or contained therein or, if such invention
is made jointly, shall be owned jointly, all as determined in accordance with
United States laws of inventorship.
	 
	 	7.1.2  	Patent Prosecution. Vertex shall be responsible for the
preparation, filing, prosecution and maintenance of all patents and patent
applications

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* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
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Exchange Commission.

 

	 	 	which include the Vertex Patents and all patents and patent
applications included in Patents claiming inventions jointly owned with Avalon.
Avalon shall be responsible for the preparation, filing, prosecution and
maintenance of all patents and patent applications included in Avalon Patents.
Vertex shall provide Avalon with periodic reports listing the jurisdictions in
which the Vertex Patents licensed hereunder have been filed. Subject to the
next succeeding sentences, Vertex will file patent applications with respect to
those Vertex Patents in such other countries as Avalon shall request in
writing, all such other countries being countries in which a pharmaceutical
company would customarily file cases dealing with similar subject matters. The
Party initially responsible for preparation, filing, prosecution and
maintenance of a particular Vertex Patent (the “Initial Responsible Party”)
shall give * notice (the “Discontinuance Election”) to the other Party of
any decision to cease preparation, filing, prosecution and maintenance of that
Vertex Patent in any jurisdiction (a “Discontinued Patent”). In such case, the
other Party may elect at its sole discretion to continue preparation, filing
and prosecution or maintenance of the Discontinued Patent at its sole expense.
The Initial Responsible Party shall execute such documents and perform such
acts as may be reasonably necessary for the other Party to file or to continue
prosecution or maintenance. Discontinuance may be on a country-by-country
basis or for a patent application or patent series in total.
	 
	 	   	Each Party will keep the other Party continuously informed of all matters
relating to the preparation, filing, prosecution and maintenance of Vertex
Patents covered by this Agreement.
	 
	 	7.1.3  	Costs. *

                  7.2 Infringement Claims by Third Parties.

            7.2.1 Notice. If the manufacture, use or sale of Compound, Bulk Drug Substance and/or Drug
Product results in a claim against a Party hereto for patent infringement or for inducing or
contributing to patent infringement (“Infringement Claim”), the Party first having notice of an
Infringement Claim shall promptly notify the other in writing. The notice shall set forth the
facts of the Infringement Claim in reasonable detail.

            7.2.2 Third Party Licenses. If practicing the Technology in connection with the manufacture,
use or sale of a Drug Product in any country would infringe a Third Party’s patent, then Avalon
will use * to obtain a license under the Third Party’s patent with a right to sublicense to
Vertex as set forth in Section 2.2 of this Agreement, under terms reasonably acceptable to Avalon.
Avalon will bear any financial obligation payable under such license.

            7.2.3 Discontinued Sales, License or Defense of Suit. If the required license is either
unavailable or its terms are unacceptable to Avalon, then Avalon may elect in its sole discretion
to discontinue sales of the Drug Product in such country or to undertake the defense of

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* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

 

a patent
infringement action or the prosecution of a declaratory judgment action with respect to the Third
Party patent at Avalon’s expense.

                  7.3 Infringement Claims Against Third Parties.

	 	7.3.1  	Vertex and Avalon each agree to * to protect their
respective Patents and Technology from infringement and from unauthorized
possession or use.
	 
	 	7.3.2  	If any Vertex Patents are infringed or Vertex Know-How is
misappropriated by a Third Party, the Party to this Agreement first having
knowledge of such infringement or misappropriation, or knowledge of a
reasonable probability of such infringement or misappropriation, shall promptly
notify the other in writing. The notice shall set forth the facts of such
infringement or misappropriation in reasonable detail. Vertex shall have the
primary right, but not the obligation, to institute, prosecute, and control
with its own counsel any action or proceeding with respect to infringement or
misappropriation of such patent or technology and Avalon shall have the right,
at its own expense, to be represented in such action by its own counsel. If
Vertex fails to do so within a period of * after receiving notice of
the infringement, Avalon shall have the right to bring
and control any such action by counsel of its own choice, and Vertex shall
have the right, at its own expense, to be represented in any such action by
counsel of its own choice. If one Party brings any such action or
proceeding, the second Party may be joined as a party plaintiff and, in case
of joining, the second Party agrees to give the first Party reasonable
assistance and authority to file and to prosecute such suit. The costs and
expenses of all suits brought by a Party under this Section 7.3.2 shall be
reimbursed to such Party and to the other Party, if it participates in such
suit, pro rata, out of any damages or other monetary awards recovered
therein in favor of Vertex or Avalon. Any remaining compensatory damages
for infringement or misappropriation of the Vertex Patents outside the Field
* and any remaining compensatory damages for infringement or
misappropriation in the Field * . Any exemplary or punitive
damages for infringement or misappropriation of the Vertex Patents outside
the Field shall be paid to Vertex and any remaining exemplary or punitive
damages for infringement or misappropriation in the Field shall * . No
settlement or consent judgment or other voluntary final disposition of a
suit under this Section 7.3 may be entered into without the joint consent of
Vertex and Avalon (which consent shall not be unreasonably withheld).

                  7.4 Notice of Certification. Vertex and Avalon each shall immediately give notice to the
other of any certification filed under the U.S. “Drug Price Competition and Patent Term Restoration
Act of 1984” claiming that a Vertex Patent is invalid or that any infringement will not arise from
the manufacture, use or sale of any product by a Third Party. If Vertex

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decides not to bring
infringement proceedings against the entity making such a certification, Vertex shall give notice
to Avalon of its decision not to bring suit within * days after receipt of notice of such
certification. Avalon may then, but is not required to, bring suit against the Party that filed
the certification. Any suit by Avalon or Vertex shall either be in the name of Avalon or in the
name of Vertex, or jointly by Avalon and Vertex, as may be required by law. For this purpose, the
Party not bringing suit shall execute such legal papers necessary for the prosecution of such suit
as may be reasonably requested by the Party bringing suit.

                  7.5 Patent Term Extensions. The Parties shall cooperate in good faith with each other in
gaining patent term extension wherever applicable to Vertex Patents covering the Compound, Bulk
Drug Substance or Drug Products. Avalon and Vertex shall mutually determine which patents shall be
extended. All filings for such extension shall be made by the Party who owns the patent, provided,
however, that if the Party that owns the patent elects not to file for an extension, such Party
shall (i) inform the other Party of its intention not to file and (ii) grant the other Party the
right to file for such extension.

ARTICLE VIII

REPRESENTATIONS AND WARRANTIES

                  8.1 Representations and Warranties of Vertex. Vertex represents and warrants to Avalon as of
the Effective Date as follows:

	 	8.1.1  	Authorization. This Agreement has been duly executed and
delivered by Vertex and constitutes the valid and binding obligation of Vertex,
enforceable against Vertex in accordance with its terms except as
enforceability may be limited by bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors’
rights generally and by general equitable principles. The execution, delivery
and performance of this Agreement have been duly authorized by all necessary
action on the part of Vertex, its officers and directors.
	 
	 	8.1.2  	No Third Party Rights. Except as previously disclosed in
writing to Avalon on or before the Effective Date, (a) Vertex owns or possesses
adequate licenses or other rights to use all Vertex Technology, and to grant
the licenses herein; and (b) the granting of the licenses to Avalon hereunder
does not violate any right known to Vertex of any Third Party; and (c) Vertex
has not previously assigned, transferred, conveyed or otherwise encumbered its
right, title and interest in the Vertex Technology in any way that would permit
a Third Party to take actions otherwise proscribed to Vertex by Section 2.4 of
this Agreement.
	 
	 	8.1.3  	No Third Party Patents. Except as disclosed in writing by
Vertex to Avalon or its agents, to Vertex’s knowledge and based on its current
understanding of the Compound and its use, the development, manufacture, use or
sale of any Compound, Bulk Drug Substance, or Drug

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Exchange Commission.

 

	 	   	Products pursuant to this
Agreement will not infringe or conflict with any Third Party right or patent,
and Vertex is not aware of any issued patent or pending patent application
that, if issued, would be infringed by the development, manufacture, use or
sale of any Compound, Bulk Drug Substance, or Drug Products pursuant to this
Agreement.
	 
	 	8.1.4  	Status of IMPDH Programs. As of the Effective Date, * .
	 
	 	8.1.5  	No Litigation.
To Vertex’s knowledge, there are no legal claims, judgments or settlements
against or owed by Vertex, or pending or threatened legal claims, in each
case relating to (a) Drug Product or (b) Vertex Patents. To Vertex’s
knowledge, there are no legal claims, judgments or settlements against or
owed by Vertex relating to Vertex Know-How, except any such claims that
would not have a material adverse effect on the rights granted to Avalon
hereunder.
	 
	 	8.1.6  	Information. To Vertex’s knowledge, the information provided
to Avalon in writing with respect to the Compound or Drug Product, and Vertex’s
activities with respect thereto, is correct and complete in all material
respects.

                  8.2 Representations and Warranties of Avalon. Avalon represents and warrants to Vertex as
follows:

	 	8.2.1  	Authorization. This Agreement has been duly executed and
delivered by Avalon and constitutes the valid and binding obligation of Avalon,
enforceable against Avalon in accordance with its terms, except as
enforceability may be limited by bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium and other laws relating to creditors’ rights
generally and by general equitable principles. The execution, delivery and
performance of this Agreement have been duly authorized by all necessary action
on the part of Avalon, its officers and directors.
	 
	 	8.2.2  	No Third Party Rights. Except as previously disclosed in
writing to Vertex on or before the date set forth on the first page hereof, (a)
Avalon owns or possesses adequate licenses or other rights to use all Avalon
Technology, and to grant the licenses herein; and (b) the granting of the
licenses to Vertex hereunder does not violate any right known to Avalon of any
Third Party.
	 
	 	8.2.3  	No Third Party Patents. Except as disclosed in writing by
Avalon to Vertex or its agents, to Avalon’s knowledge and based on its current
understanding of the Compound(s) and its use, the manufacture, use or sale of
any Bulk Drug Substance, Compound or Drug Products pursuant to this Agreement
will not infringe or conflict with any Third Party right or patent, and Avalon
is not aware of any issued patent or pending patent

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* The asterisk denotes that confidential portions of this exhibit have been
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Exchange Commission.

 

	 	   	application that, if
issued, would be infringed by the development, manufacture, use or sale of any
Bulk Drug Substance, Compound or Drug Products pursuant to this Agreement.
	 
	 	8.2.4  	Financial Representations. The financial statements of Avalon
attached hereto on Schedule 8.2.4 (“Financial Statements”):

	 	(a)  	* ;
	 
	 	(b)  	* ;
	 
	 	(c)  	* ; and
	 
	 	(d)  	* .

	 	8.2.5  	Material Relationships; No Litigation. Avalon’s material
relationships with investors, suppliers, employees and customers generally are
good, and there is no civil, criminal or administrative action, suit, hearing
or proceeding pending before any court, arbitrator or authority or, to the
knowledge of Avalon, threatened against Avalon. There are currently no
outstanding judgments, decrees or orders of any court of governmental authority
against Avalon.
	 
	 	8.2.6  	No Debarment. Avalon shall not permit any person who has been
debarred pursuant to subsections 306(a) or 306(b) of the U.S. Food, Drug and
Cosmetic Act or disqualified by the FDA to participate in the Development
Program or otherwise perform any activities related to the development and
commercialization of the Compound or any Drug Products.
	 
	 	8.2.7  	Status of IMPDH Program. As of the Effective Date, * .

ARTICLE IX

CONFIDENTIALITY

                  9.1 Undertaking. During the term of this Agreement, each Party shall keep confidential, and
other than as provided herein shall not use or disclose, directly or indirectly, any Information
owned, developed or possessed by the other Party, whether in tangible or intangible form, the
confidentiality of which such other Party takes reasonable measures to protect, including but not
limited to Vertex Technology and Avalon Technology.

	 	9.1.1  	Each Party shall take any and all lawful measures to prevent
the unauthorized use and disclosure of the Information, and to prevent
unauthorized persons or entities from obtaining or using the Information.
	 
	 	9.1.2  	Each Party further agrees to refrain from directly or
indirectly taking any action that would constitute or facilitate the
unauthorized use or disclosure

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omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
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Exchange Commission.

 

of such information. Each Party may disclose
such Information (a) in furtherance of its rights hereunder and to the extent
necessary to enable such Party to perform its obligations hereunder or under
the applicable license, sublicense or subcontract, as the case may be provided
that all recipients of Vertex Technology or Avalon Technology have entered into
appropriate confidentiality agreements for secrecy and non-use of such
information which by their terms shall be enforceable by injunctive relief at
the instance of the disclosing Party; (b) to potential investors, financiers or
merger and acquisition partners, in each case provided that such potential
investors, financiers or merger and acquisition partners have entered into
appropriate confidentiality agreements for secrecy and non-use of such
information which by their terms shall be enforceable by injunctive relief at
the instance of the disclosing Party, provided, however, that Avalon may
disclose Information to reputable venture capital investors and banks that do
not, as a matter of practice, enter into such confidentiality agreements,
provided that any such venture capital investor or bank shall offer Avalon a
written statement that, to the venture capital investor’s or bank’s (as
applicable) knowledge, it has never entered into a confidentiality agreement
under similar circumstances, and provided further that Avalon shall confirm
that, to its knowledge after reasonable inquiry, such venture capital investor
or investment bank has not, to the knowledge of Avalon, ever inappropriately
disclosed confidential information provided to it in similar circumstances.
Avalon shall keep Vertex informed of Avalon’s disclosure of Information to
institutions that have not signed confidentiality agreements.

	 	9.1.3  	Each Party shall be liable for any unauthorized use and
disclosure of Information by its officers, employees and agents and any
Sublicensees, subcontractors, or others to whom Avalon discloses Information.

                  9.2 Exceptions. Notwithstanding the foregoing, the provisions of Section 9.1 hereof shall not
apply to Information which the receiving Party can demonstrate:

	 	9.2.1  	has entered the public domain without such Party’s breach of
any obligation owed to the disclosing Party;
	 
	 	9.2.2  	is permitted to be disclosed by the prior written consent of
the disclosing Party;
	 
	 	9.2.3  	has become known to the receiving Party from a source other
than the disclosing Party, other than by breach of an obligation of
confidentiality owed to the disclosing Party;
	 
	 	9.2.4  	is disclosed by the disclosing Party to a Third Party without
restrictions on its disclosure;

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	 	9.2.5  	is independently developed by the receiving Party without
breach of this Agreement;
	 
	 	9.2.6  	is required to be disclosed by the receiving Party to comply
with applicable laws or regulations, to defend or prosecute litigation or to
comply with governmental regulations, provided that the receiving Party
provides prior written notice of such disclosure to the disclosing Party and
takes reasonable and lawful actions to avoid or minimize the degree of such
disclosure; or
	 
	 	9.2.7  	was disclosed solely to a government agency or regulatory
authority to conduct clinical trials or to obtain regulatory approval to market
Drug Product.

                  9.3 Publicity. The Parties will agree upon the timing and content of any initial press
release or other public communications relating to this Agreement and the transactions contemplated
herein.

	 	9.3.1  	Except to the extent already disclosed in that initial press
release or other public communication, no public announcement concerning the
existence or the terms of this Agreement or concerning the transactions
described herein shall be made, either directly or indirectly, by Vertex or
Avalon, except as may be legally required by applicable laws, regulations, or
judicial order, without first obtaining the approval of the other Party and
agreement upon the nature, text, and timing of such announcement, which
approval and agreement shall not be unreasonably withheld.
	 
	 	9.3.2  	The Party desiring to make any such public announcement shall
provide the other Party with a written copy of the proposed announcement in
sufficient time prior to public release to allow such other Party to comment
upon such announcement, prior to public release.
	 
	 	9.3.3  	In addition to the foregoing restrictions on public
disclosure, if either Party concludes that a copy of this Agreement must be
filed with the Securities and Exchange Commission, such Party shall provide the
other party with a copy of this Agreement showing any sections as to which the
Party proposes to request confidential treatment, will provide the other Party
with an opportunity and a reasonable time period to comment on any such
proposal and to suggest additional portions of the Agreement for
confidential treatment and will take such Party’s reasonable comments into
consideration before filing the Agreement. If the filing Party disagrees
with the other Party’s additional confidential treatment request, the
parties shall have an opportunity to discuss such matter in good faith
before the Agreement is filed.

                  9.4 Survival. The provisions of this Article IX shall survive the termination of this
Agreement and shall extend for a period of * thereafter.

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* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

 

ARTICLE X

PUBLICATION

                  Avalon reserves the sole right to publish or publicly present the results of the Development
Program and information concerning the development of the Compound in the Field (collectively, the
“Results”), subject to the following terms and conditions. Avalon will submit a draft of any
proposed manuscript, abstract or speech to Vertex for comments at least * prior to submission
for publication or oral presentation. Vertex shall notify Avalon in writing within * of
receipt of such draft whether such draft contains (i) information of Vertex which it considers to
be confidential under the provisions of Article IX hereof, or (ii) information that if published
would have an adverse effect on a patent application covering the subject matter of this Agreement
that Vertex intends to file. In any such notification, Vertex shall indicate with specificity its
suggestions regarding the manner and degree to which Avalon may disclose such information. In the
case of item (ii) above, Vertex may request a delay and Avalon shall delay such publication, for a
period not exceeding * , to permit the timely preparation and filing of a patent application or
an application for a certificate of invention on the information involved. In the case of item (i)
above, Avalon may not publish confidential information of Vertex without its consent in violation
of Article IX of this Agreement. The Parties agree that authorship of any publication will be
determined based on the customary standards then being applied in the relevant scientific journal.

                  This Article X shall terminate with the termination of this Agreement, but the provisions of
Article IX hereof shall continue to govern the disclosure by one Party, whether by publication or
otherwise, of confidential information of the other, during the period set forth in Section 9.4.

ARTICLE XI

DISPUTE RESOLUTION

                  11.1 Governing Law and Jurisdiction.
Except as otherwise provided in this Agreement, including but not limited to Section 7.1.1
hereof, this Agreement shall be governed and construed in accordance with the internal laws of the
state of Delaware.

                  11.2 Dispute Resolution Process. Except as otherwise explicitly provided herein, in the event
of any controversy or claim arising out of or relating to any provision of this Agreement, or the
collaborative effort contemplated hereby, the Parties shall, and either Party may, initially refer
such dispute to the Chief Executive Officer of Vertex and the Chief Executive Officer of Avalon who
shall, as soon as practicable, attempt in good faith to resolve the controversy or claim. If such
controversy or claim is not resolve within * days of the date of initial referral of the matter
to the Chief Executive Officers, either Party shall be free to initiate proceedings in any court
having requisite jurisdiction.

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* The asterisk denotes that confidential portions of this exhibit have been
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Exchange Commission.

 

                  11.3 Arbitration.

	 	11.3.1  	Arbitration Procedures. If the Parties are unable to reach agreement with
respect to any matter described in Section 11.3.2 below, upon the written
request of one Party delivered to the other Party, such matter will be
determined through binding arbitration in New York, New York in accordance with
the Commercial Rules of Arbitration of the American Arbitration Association,
except to the extent such rules are inconsistent with any provision of this
Section 11.3. Any dispute not expressly made subject to arbitration in this
Agreement shall be resolved pursuant to Section 11.2, unless the Parties
mutually agree otherwise at the time. In an arbitration pursuant to this
Section 11.3:

	 	(a)  	The arbitration panel shall be comprised of
three (3) arbitrators. Each Party shall be entitled to appoint one
arbitrator who is not an Affiliate of that Party, and who is
knowledgeable in the areas of pharmaceutical science, business and
commercial aspects of drug development and sale, or the clinical
development of pharmaceuticals. The Parties shall appoint their
respective arbitrators within * after submission for arbitration.
The two arbitrators so appointed shall agree on the appointment of the
third arbitrator, who similarly shall be an Affiliate of neither Party
and shall be knowledgeable in the areas of pharmaceutical science,
business and commercial aspects of drug development and sale, or the
clinical development of pharmaceuticals. If the Parties’ appointed
arbitrators shall fail to agree within * from the date both
Parties’ arbitrators have been appointed, on the identity of the third
arbitrator, then such arbitrator shall be appointed by the appropriate
administrative body of the American Arbitration
Association, which shall appoint an arbitrator with the
qualifications set forth in this Section 11.3.1(a).
	 
	 	(b)  	Within * of appointment of the arbitration
panel, each Party shall submit to the arbitrators a copy of the
proposed position that it previously delivered to the other Party,
together with a brief or other written memorandum supporting the merits
of its proposed position.
	 
	 	(c)  	The arbitrators shall be permitted to ask
either Party to provide supplemental information deemed helpful in
making a decision hereunder. The arbitrators shall make their decision
known to the Parties as quickly as possible by delivering written
notice of their decision to both Parties. The decision of the
arbitrators shall be final and binding on the Parties.
	 
	 	(d)  	*

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* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

 

            11.3.2 Matters Subject to Arbitration. Matters subject to arbitration shall be limited solely
to the question of whether or not (i) Avalon has breached its obligations under either Section 3.6
or 5.3 or (ii) Vertex has unreasonably withheld its consent to an extension of the deadline for a
Diligence Milestone under Section 3.6. Avalon shall promptly provide to Vertex or the arbitrators
upon request all information relevant or useful in making such a determination.

ARTICLE XII

TERM AND TERMINATION

                  12.1 Term. The term of this Agreement shall extend with respect to a Drug Product in a
particular country until the later of (a) the last to expire of any Vertex Patents containing a
Valid Patent Claim covering the Drug Product or its use or manufacture in that country; or (b) if
there is no such Valid Patent Claim under a Vertex Patent in a particular country, ten (10) years
from the earlier of the date Regulatory Approval is received in that country for sale of the Drug
Product, or the date of First Commercial Sale of the Drug Product in that country, provided,
however, that in the event the Agreement is so terminated in a particular country, Avalon will
thereupon be granted a fully paid up license of the Vertex Know-How for use in such country. Upon
the earlier of (i) the fiftieth anniversary of the Effective Date or (ii) expiration of the term of
this Agreement with respect to all countries in which Avalon has sold Drug Products over the course
of the Agreement, this Agreement shall terminate, provided, however, that in the event the
Agreement is so terminated in a particular country, Avalon will thereupon be granted a fully paid
up license of the Vertex Know-How for use in such country.

                  12.2 Termination for Cause.
In addition to rights of termination which may be granted to either Party under other
provisions of this Agreement, either Party may terminate this Agreement upon * prior written
notice to the other Party upon the material breach by such other Party of any of its obligations
under this Agreement, provided that such termination shall become effective only if the breaching
Party shall fail to remedy or cure the breach within such * period. If the arbitration
proceedings of Section 11.3 have been invoked with respect to an alleged breach of the provisions
of this Agreement, neither Party shall terminate this Agreement as a result of such alleged breach
until the completion of the relevant proceeding; provided, however, that nothing herein shall
prohibit a Party from terminating this Agreement with respect to breaches other than those which
are the subject of the relevant arbitration.

                  12.3 Termination by Vertex. In addition to rights of termination granted to Vertex under
other provisions of this Agreement, Vertex may terminate this Agreement immediately if it shall
receive a notice or notices from Avalon under either Section 3.6 or 5.3 that result, in the removal
from the Territory of (i) any * or more Major Market countries; or (ii) the United States. If
this Agreement is so terminated and if Avalon has received regulatory approval to market and/or
sell Drug Product anywhere in the world, no later than * following the effective date of such
termination, Avalon and Vertex agree to negotiate a supply agreement pursuant to which Avalon will
supply Vertex with Drug Product * .

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omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

 

                  12.4 Termination for Bankruptcy. If at any time during the term of this Agreement, an Event
of Bankruptcy (as defined below) relating to either Party (the “Bankrupt Party”) occurs, the other
Party (the “Other Party”) shall have, in addition to all other legal and equitable rights and
remedies available hereunder, the option to terminate this Agreement upon * written notice to
the Bankrupt Party. It is agreed and understood that if the Other Party does not elect to
terminate this Agreement upon the occurrence of an Event of Bankruptcy, except as may otherwise be
agreed with the trustee or receiver appointed to manage the affairs of the Bankrupt Party, the
Other Party shall continue to make all payments required of it under this Agreement as if the Event
of Bankruptcy had not occurred, and the Bankrupt Party shall not have the right to terminate any
license granted herein. As used above, the term “Event of Bankruptcy” shall mean (a) dissolution,
termination of existence, liquidation or business failure of either Party; (b) the appointment of a
custodian or receiver for either Party who has not been terminated or dismissed within * ; (c)
the institution by either Party of any proceeding under national, federal or state bankruptcy,
reorganization, receivership or other similar laws affecting the rights of creditors generally or
the making by either Party of a composition or any assignment or trust mortgage for the benefit of
creditors or under any national, federal or state bankruptcy, reorganization, receivership or other
similar law affecting the rights of creditors generally, which proceeding is not dismissed within
* of filing.

                  12.5 Effect of Termination.

            (a) Termination of this Agreement for any reason, or expiration of this Agreement, will not
affect: (i) obligations, including the payment of any the consideration for license set forth in
Section 6.1, milestone payments, or royalties, which have accrued as of the date of termination or
expiration, and (ii) rights and obligations which, from the context thereof, are intended to
survive termination or expiration of this Agreement. Avalon shall owe to Vertex the full amounts
set forth in Section 6.1 on the due dates for such amounts, even if this Agreement is terminated
(for any reason) prior to the due date for any such payment.

            (b) If this Agreement is terminated by Vertex pursuant to Section 12.2, 12.3, or 12.4,
Avalon’s licenses pursuant to Section 2.1 shall terminate as of such termination date, Vertex’s
standstill obligation in Section 2.4 shall terminate as of such termination date and Avalon shall,
within * after such termination, return or cause to be returned to Vertex all Vertex
Information in tangible form, as well as any other material provided by Vertex in any medium and
deliver to Vertex all Avalon Technology that is necessary or useful for exercise by Vertex of its
rights granted pursuant to this Section 12.5(b). Upon any termination by Vertex under Sections
12.2, 12.3, and 12.4, each of Avalon’s Sublicensees at such time shall continue to have the rights
and license set forth in their sublicense agreements; provided, however, that such Sublicensee
agrees in writing that Vertex is entitled to enforce all relevant terms and conditions of such
sublicense agreement directly against such sublicense. In addition, Vertex shall have a perpetual,
nonexclusive, transferable, paid-up, royalty-free license under the Avalon Technology that is in
existence upon such termination (including but not limited to Avalon Technology that is subject to
a royalty obligation to a Third Party, provided that, with respect to such Avalon Technology,
Vertex assumes such royalty obligation to the Third Party with respect to its own use of the Avalon
Technology), to use, make, have made and sell drug products incorporating the Compound and to make
or have made such drug products for use and sale, in each case in the

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Exchange Commission.

 

Territory (as defined on the
Effective Date), and Avalon shall assign to Vertex free of charge all of its or its Affiliates’
right, title and interest in and to any trademark Controlled by Avalon and used solely for a Drug
Product in any country of the Territory (other than the trademark AVALON), or cause its Affiliates
to execute, such documents of transfer or assignment and perform or cause its Affiliates to
perform, such acts as may be reasonably necessary to transfer ownership of such trademarks to
Vertex and to enable Vertex to continue to maintain such trademarks at Vertex’s expense. Upon any
such termination, Avalon shall, at the request of Vertex, assign or otherwise transfer to Vertex
all INDs, Regulatory Approvals or applications therefor with respect to the Compound or Drug
Product.

ARTICLE XIII

INDEMNIFICATION

                  13.1 Indemnification by Vertex.

            Vertex will indemnify and hold Avalon and its Affiliates, and their employees, officers and
directors harmless against any loss, damages, action, suit, claim, demand, liability, expense,
bodily injury, death or property damage (a “Loss”), that may be brought, instituted or arise
against or be incurred by such persons to the extent such Loss is based on or arises out of

	 	13.1.1  	the development, manufacture, use, storage or handling of the Compound or a
Drug Product by Vertex or its Affiliates or their representatives, agents or
subcontractors under this Agreement, or any actual or alleged violation of law
resulting therefrom (with the exception of any Losses based on infringement or
misappropriation of intellectual property rights); or
	 
	 	13.1.2  	the breach by Vertex of any of its covenants, representations or warranties
set forth in this Agreement;
	 
	 	13.1.3  	provided however, that the foregoing indemnification shall not apply to any
Loss to the extent such Loss is caused by the negligent or willful misconduct
of Avalon or its Affiliates.

                  13.2 Indemnification by Avalon. Avalon will indemnify and hold Vertex, and its Affiliates,
and their employees, officers and directors harmless against any Loss that may be brought,
instituted or arise against or be incurred by such persons to the extent such Loss is based on or
arises out of

	 	13.2.1  	the development, manufacture, use, sale, storage or handling of Bulk Drug
Substance, the Compound or a Drug Product by Avalon or its Affiliates or their
representatives, agents or subcontractors under this Agreement, or any actual
or alleged violation of law resulting therefrom (with the exception of any
Losses based on infringement or misappropriation of intellectual property
rights); or

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Exchange Commission.

 

                  13.2.2 the breach by Avalon of any of its covenants, representations or warranties
set forth in this Agreement;

provided, however, that the foregoing indemnification shall not apply to any Loss to the extent
such Loss is caused by the negligent or willful misconduct of Vertex or its Affiliates.

                  13.3 Claims Procedures. Each Party entitled to be indemnified by the other Party (an
“Indemnified Party”) pursuant to Section 13.1 or 13.2 hereof shall give notice to the other Party
(an “Indemnifying Party”) promptly after such Indemnified Party has actual knowledge of any
threatened or asserted claim as to which indemnity may be sought, and shall permit the Indemnifying
Party to assume the defense of any such claim or any litigation resulting therefrom; provided that
counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation
resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld) and the Indemnified Party may participate in such defense at such Party’s
expense (unless (i) the employment of counsel by such Indemnified Party has been authorized by the
Indemnifying Party; or (ii) the Indemnified Party shall have reasonably concluded that there may be
a conflict of interest between the Indemnifying Party and the Indemnified Party in the defense of
such action, in each of which cases the Indemnifying Party
shall pay the reasonable fees and expenses of one law firm serving as counsel for the
Indemnified Party, which law firm shall be subject to approval, not to be unreasonably withheld, by
the Indemnifying Party). The failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this Agreement to the extent that
the failure to give notice did not result in harm to the Indemnifying Party. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the approval of each
Indemnified Party which approval shall not be unreasonably withheld, consent to entry of any
judgment or enter into any settlement which (i) would result in injunctive or other relief being
imposed against the Indemnified Party; or (ii) does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation. Each Indemnified Party shall furnish such information
regarding itself or the claim in question as an Indemnifying Party may reasonably request in
writing and shall be reasonably required in connection with the defense of such claim and
litigation resulting therefrom.

                  13.4 Limitation of Liability. Except with respect to Third Party actions, suits claims or
demands subject to indemnification pursuant to Section 13.1 or 13.2 above, neither Party shall be
liable to the other for indirect, incidental, special, punitive, exemplary or consequential damages
arising out of resulting from this Agreement.

                  13.5 Compliance. The Parties shall comply fully with all applicable laws and regulations in
connection with their respective activities under this Agreement.

                  13.6 Insurance. Each Party shall use * insurance, including product liability insurance,
with respect to its activities hereunder.

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	 	13.6.1  	Such insurance shall be in such amounts and subject to such deductibles as
the Parties may agree based upon standards prevailing in the industry at the
time.
	 
	 	13.6.2  	Either Party may satisfy its obligations under this Section through
self-insurance to the same extent.
	 
	 	13.6.3  	At such time as a Drug Product is being manufactured by a Party for
administration to humans, that Party shall name the other Party as an
additional insured on any such policies.

ARTICLE XIV

MISCELLANEOUS PROVISIONS

                  14.1 Notice of Pharmaceutical Side-Effects. During the term of this Agreement, each of the
Parties will notify appropriate authorities in accordance with applicable law, and the other Party,
promptly after receipt of information with respect to any serious adverse event (as defined by the
ICH Harmonized Tripartite Guideline on Clinical Safety Data Management), directly or indirectly
attributable to the use or application of Bulk Drug Substance, the Compound or a Drug Product.

                  14.2 Waiver. No provision of the Agreement may be waived except in writing by both Parties
hereto. No failure or delay by either Party hereto in exercising any right or remedy hereunder or
under applicable law will operate as a waiver thereof, or a waiver of a particular right or waiver
of any right or remedy on any subsequent occasion.

                  14.3 Force Majeure. Neither Party shall be held liable or responsible to the other Party nor
be deemed to have defaulted under or breached this Agreement for failure or delay in fulfilling or
performing any term of this Agreement, other than an obligation to make a payment, when such
failure or delay is caused by or results from fire, floods, embargoes, government regulations,
prohibitions or interventions, war, acts of war (whether war be declared or not), insurrections,
riots, civil commotions, strikes, lockouts, acts of God, or any other cause beyond the reasonable
control of the affected Party (“Force Majeure”).

                  14.4 Severability. It is the intention of the Parties to comply with all applicable laws
domestic or foreign in connection with the performance of its obligations hereunder. In the event
that any provision of this Agreement, or any part hereof, is found invalid or unenforceable, the
remainder of this Agreement will be binding on the Parties hereto, and will be construed as if the
invalid or unenforceable provision or part thereof had been deleted, and the Agreement shall be
deemed modified to the extent necessary to render the surviving provisions enforceable to the
fullest extent permitted by law.

                  14.5 Government Acts. In the event that any act, regulation, directive, or law of a
government, including its departments, agencies or courts, should make impossible or

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                  prohibit,
restrain, modify or limit any material act or obligation of Avalon or Vertex under this Agreement,
the Party, if any, not so affected shall have the right, at its option, to suspend or terminate
this Agreement as to such country, if good faith negotiations between the Parties to make such
modifications to this
Agreement as may be necessary to fairly address the impact thereof, are not successful after a
reasonable period of time in producing mutually acceptable modifications to this Agreement.

                  14.6 Government Approvals. Avalon will * any government approval required to enable this
Agreement to become effective, or to enable any payment hereunder to be made, or any other
obligation hereunder to be observed or performed. Each Party will keep the other informed of
progress in obtaining any such approvals.

                  14.7 Assignment. This Agreement may not be assigned or otherwise transferred by either Party
without the prior written consent of the other Party; * . Any purported assignment in
contravention of this Section 14.7 shall, at the option of the non-assigning Party, be null and
void and of no effect. No assignment shall release either Party from responsibility for the
performance of any accrued obligation of such Party hereunder. This Agreement shall be binding
upon and enforceable against the successor to or any permitted assignee from either of the Parties
hereto.

                  14.8 Affiliates. Each Party may perform its obligations hereunder personally or through one
or more Affiliates, although each Party shall nonetheless be solely responsible for the performance
of its Affiliates. Neither Party shall permit any of its Affiliates to commit any act (including
any act of omission) that such Party is prohibited hereunder from committing directly. The use of
subcontractors by either Party shall not increase the financial obligations of the other Party
hereunder in any respect.

                  14.9 Counterparts. This Agreement may be executed in duplicate both of which shall be deemed
to be originals, and both of which shall constitute one and the same Agreement.

                  14.10 No Agency. Nothing herein contained shall be deemed to create an agency, joint venture,
amalgamation, partnership or similar relationship between Avalon and Vertex. Notwithstanding any
of the provisions of this Agreement, neither Party shall at any time enter into, incur, or hold
itself out to third Parties as having authority to enter into or incur, on behalf of the other
Party, any commitment, expense, or liability whatsoever, and all contracts, expenses and
liabilities undertaken or incurred by one Party in connection with or relating to the development,
manufacture or sale of Bulk Drug Substance, Compound or Drug Products shall be undertaken, incurred
or paid exclusively by that Party, and not as an agent or representative of the other Party.

                  14.11 Notice. All communications between the Parties with respect to any of the provisions of
this Agreement will be sent to the addresses set out below, or to other addresses as designated by
one Party to the other by notice pursuant hereto, by prepaid certified, air mail (which shall be
deemed received by the other Party on the seventh business day

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following deposit in the mails), or
by cable, telex, facsimile transmission, or other electronic means of communication (which shall be
deemed received when transmitted), with confirmation by letter given by the close of business on or
before the next following business day:

If to Avalon,

Avalon Pharmaceuticals, Inc.

20358 Seneca Meadows Parkway

Germantown, MD 20876

Attention: Chief Executive Officer

and

if to Vertex,

Vertex Pharmaceuticals Incorporated

130 Waverly Street

Cambridge, MA U.S.A. 02139-4211

Attention: Chairman and Chief Executive Officer

with a copy to:

Legal Department

Attention: General Counsel

                  14.12 Headings. The paragraph headings are for convenience only and will not be deemed to
affect in any way the language of the provisions to which they refer.

                  14.13 Authority. The undersigned represent that they are authorized to sign this Agreement on
behalf of the Parties hereto. The Parties each represent that no provision of this Agreement will
violate any other agreement that such Party may have with any other person or company. Each Party
has relied on that representation in entering into this Agreement.

                  14.14 Entire Agreement. This Agreement, including the Schedules appended hereto, contains the
entire understanding of the Parties relating to the matters referred to herein, and may only be
amended by a written document, duly executed on behalf of the respective Parties.

                  14.15 Further Assurances. Each party will duly execute and deliver, or cause to be duly
executed and delivered, such further instruments and do and cause to be done such further acts,
including the filing of such assignments, agreements, documents and instruments, as may be
necessary or as the other party may reasonably request in connection with this Agreement or to
carry out more effectively the provisions and purposes, or to better assure and confirm unto such
other Party its rights and remedies under this Agreement.

[Remainder of Page Intentionally Blank]

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Exchange Commission.

 

      IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their duly
authorized representatives as of the day and year first above written.

	 	 	 	 	 
	 	VERTEX PHARMACEUTICALS INCORPORATED

 	 
	 	By:  	/s/
  Joshua Roger, Ph.D.	 
	 	 	Name: Joshua Roger, Ph.D.	 	 
	 	 	Title: Chairman and Chief Executive Officer	 	 
	 
	 	AVALON PHARMACEUTICALS, INC.

 	 
	 	By:  	/s/
 Kenneth C. Carter, Ph.D.	 
	 	 	Name: Kenneth C. Carter, Ph.D.	 	 
	 	 	Title: President and CEO	 	 
	 

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EXHIBIT 10.1

Schedules and Exhibits

License, Development and Commercialization Agreement—Confidential—Page 1

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Schedule 1.12

VX-944

	 	 	 
	Compound Name:

	 	*
	 
	 	 
	Structure:

	 	*
	 
	 	 
	 
	 	 
	Comments:

	 	*

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Schedule 1.14

Development Plan

This plan assumes that the available drug substance meets specifications described in Schedule 4.2.

Activity related to hematologic malignancy indication

  *

Drug Manufacture: Upon execution of the agreement, Avalon will move to identify and engage
a contract manufacturer, * , to produce adequate supply of clinical drug product material for
Phase Ib trials. * the responsibilities of the contract manufacturer will extend to the
necessary long-term stability analysis of these production lots. As this part of the project is
potentially the rate-limiting step, the availability of access to manufacturing will take a high
priority.

Clinical trial design and logistics: Avalon will identify and select clinical
investigators and sites as quickly as possible following execution of the agreement. With their
consultation, draft clinical protocols will be generated for inclusion in the IND. Subsequently,
full protocols will be written, and approval sought at the respective institutions. Operations for
recruitment and additional logistics will be managed through each investigator as the protocol
demands and the institutional operations permit.

  * . Avalon agrees that the objective of the phase lb trial is to determine the maximum
tolerated dose (“MTD”) of the Compound, or the maximum biologically-efficacious dose, as indicated
by clinical biomarkers. In addition, the objective will be to make a comprehensive assessment of
the pharmacodynamic effects of the Compound by measuring IMPDH levels, GTP pools, as well changes
in gene expression markers that may predict efficacy or reflect a positive response to the drug.
* . Enrollment goals will be determined primarily by the clinical and regulatory representatives
on the PDC, and will consider a number of factors including trial site, anticipated rate of
enrollment, whether or not a second formulation can be introduced, and the ease with which the
pharmacology studies can be properly executed.

Regulatory filing: Availability of acceptable clinical trial material, clinical trial
protocols, as well as IND enabling pre-clinical toxicology documentation provided by Vertex, will
enable the assembly of the investigator’s brochure, and completion of the Investigational New Drug
(IND) application. The goal of the project is to have all essential groundwork completed such that
approval of the IND precedes Phase Ib initiation by as little time as possible.

Detailed project management timeline *

  *

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  *

Clinical proof of concept and activities supporting registration: * . Likewise,
additional manufacturing activities are * .

As soon as possible within the scope of phase I trials, Avalon intends to begin to design phase II
studies. Avalon intends to advance the compound through testing as quickly as possible, with the
preparation for phase II studies initiating as phase I studies conclude. * . A trial to
support registration would be planned and initiated as soon as possible within the timeframe of the
two phase II studies concluding. Projected scope in terms of size and duration for the
registration trial would depend largely on the data from initial phase II studies. Inclusion of
additional sites, and/or design of additional studies for product registration outside the US will
be planned as needed, but are not detailed at this time.

Project management timeline to pivotal trial:

  *

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  *

Preclinical work: Avalon has unique tools and technology to bring to bear on the further
development of the Compound. As part of Avalon’s drug discovery process, the Compound will be
characterized in numerous cell lines for anti-proliferative activity, and gene expression effects
in vitro. * . Furthermore, the activity of the Compound in cells will be compared to the * ,
furthering an understanding of the mechanism of action of the Compound as well as the selectivity
and specificity of the Compound for the target. * .

In the in vivo setting, the Compound will be evaluated in anti-tumor efficacy studies. Currently,
Avalon has been evaluating compounds in * using both internal resources and contract
laboratories. * .

The above general, broad-based activities are planned to commence on execution of the agreement.
Following a thorough in vitro assessment of Compound activity, Avalon will select specific animal
models in which to test for anti-tumor activity based on the genes and pathways that the Compound
affects in * . To the extent that Avalon has not already tested the Compound in models thought
to be most likely to respond to the Compound, experiments will be designed, and the Compound
tested. A goal of the project will be to see significant effects of the Compound in several animal
models in order to gain adequate enthusiasm in the clinical community * .

Clinical Activity: Upon Avalon’s attainment of proven preclinical results in xenograft
models, * in * , Avalon intends to begin testing the Compound in patients * . Likewise,
activity to establish protocols and clinical trial sites could happen * . A possible trial to
be conducted is in an adjuvant treatment setting, where patients are given the Compound prior to
surgical resection of tumor material, and the activity of the Compound assessed by gene expression
analysis of biomarkers identified with the Avalon technology. This information would then be used
to determine if the Compound is having the desired effect on the tumor, and if the patient should
continue treatment with the Compound or find alternative therapy. This type of trial could be done
quickly in numerous tumor types, and help identify the most likely responsive cancer type in which
to conduct full phase II trials.

Project timeline to initial clinical trial in * .

  *

Schedule 1.77

Vertex Patents

Part I

  *

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Schedule 3.2.1

Initial PDC Representatives

Members of the Avalon development team will include the following:

	 	¡	David Bol, Ph.D. Sr. Director, Drug Development
	 
	 	¡	Staszek Pikul, Ph.D. — Sr. Director, Medicinal Chemistry
	 
	 	¡	* — CMC/analytical
	 
	 	¡	* — Pharm/tox and regulatory
	 
	 	¡	* — Pharmacology and toxicology
	 
	 	¡	Mike Kurman, M.D. — Director/Consultant — Clinical development
	 
	 	¡	*
	 
	 	¡	*

License, Development and Commercialization Agreement—Confidential—Page 6

* The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities and Exchange Commission.

 

Schedule 3.3

Clinical Sites Acceptable to Avalon and Site Acceptance Criteria

  *

Site Acceptance Criteria

	1.  	* .
	 
	2.  	* .
	 
	3.  	The investigator is not on the FDA disbarred list (“The Blacklist”).
	 
	4.  	* .
	 
	5.  	* .
	 
	6.  	* .
	 
	7.  	* .
	 
	8.  	* .
	 
	9.  	* .

 

License, Development and Commercialization Agreement—Confidential—Page 7

* The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities and Exchange Commission.

 

Schedule 4.2

Stability Testing Specifications

*

 

License, Development and Commercialization Agreement—Confidential—Page 8

* The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities and Exchange Commission.

 

Exhibit 8.2.4

 

License, Development and Commercialization Agreement—Confidential—Page 9

* The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities and Exchange Commission.

 

Avalon Pharmaceuticals, Inc.

Balance Sheet-Unaudited

December 31, 2004

*

 

License, Development and Commercialization Agreement—Confidential—Page 10

* The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities and Exchange Commission.

 

Avalon Pharmaceuticals, Inc.

Profit & Loss Budget vs. Actual

Unaudited

*

 

License, Development and Commercialization Agreement—Confidential—Page 11

* The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities and Exchange Commission.

 

Avalon Pharmaceuticals, Inc.

Statement of Cash Flows-Unaudited

*

 

License, Development and Commercialization Agreement—Confidential—Page 12

* The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities and Exchange Commission.exv10w2

 

Exhibit 10.2

COLLABORATION AND LICENSE AGREEMENT

     This Agreement (“Agreement”) dated December 12, 2003, and effective as of January 5, 2004 (the
“Effective Date”), is by and between Avalon Pharmaceuticals, Inc., a Delaware Corporation, located
at 20358 Seneca Meadows Parkway, Germantown, Maryland 20876 (“Avalon”), and Aventis Pharmaceuticals
Inc., a Delaware corporation with a place of business at 200 Crossing Boulevard, Bridgewater, New
Jersey 08807 (“Aventis”).

     WHEREAS, Avalon has technology with respect to identifying potential pharmaceutical targets to
be used for discovering, researching and developing pharmaceutical products; and

     WHEREAS, Aventis desires to collaborate with Avalon and provide funding to Avalon with respect
to the identification, discovery and validation of druggable screening targets using Avalon’s
proprietary molecular cytogenetics platform and Avalon’s and Aventis’ genomics, oncology and target
validation capabilities, all pursuant to the terms and provisions of this Agreement.

     NOW, THEREFORE, in consideration of the mutual promises and other good and valuable
consideration, the Parties agree as follows:

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

 

 

ARTICLE 1

DEFINITIONS

     The terms used in thus Agreement have the following meanings:

     1.1 “Advanced SQT” means an SQT that Aventis has determined has satisfied the criteria set
forth on Schedule 1.1.

     1.2 “Affiliate”, with respect to any Party, means any Person whether de jure or de facto,
controlling, controlled by, or under common control with, such Party. For these purposes,
“control” shall be presumed to exist if one of the following conditions is net: (a) direct or
indirect ownership of more than fifty percent (50%) of the stock or shares having the right to vote
for the election of directors, and (b) in the case of non-corporate entities, direct or indirect
ownership of more than fifty percent (50%) of the equity interest with the power to direct the
management and policies of such non-corporate entities or status as the general partner in the case
of any partnership. The Parties acknowledge that in the case of certain entities organized under
the laws of certain countries outside of the United States, the maximum percentage ownership
permitted by law for a foreign investor may be fifty percent (50%) or less, and that in such case
such lower percentage shall be substituted in the preceding sentence, provided that such owner has
the power to direct the management and policies of such entity.

     1.3 “Amplicon” means a specific region of chromosomal DNA that is amplified in a cancer
sample, as determined by comparative genomics hybridization.

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

2

 

     1.4 “Avalon Know-How” means information, trade secrets, know-how, inventions, and data that
(a) is Controlled by Avalon and exists as of the Effective Date, or (b) is created solely by Avalon
in Avalon’s performance of Research under an Research Plan during the Research Term and that, in
each of the foregoing cases, relates to or is useful with respect to a DRG or use thereof in
Screening. For the avoidance of doubt, Avalon Know-How does not include information, trade
secrets, know-how, inventions and data that is directed to discovering or identifying Targets.

     1.5 “Avalon Patent(s)” means any and all Patent Rights in the Territory that claim a DRG or
the manufacture of a DRG or use of a DRG in Screening, or use of a DRG in the Field, which Patent
Rights are Controlled by Avalon. For the avoidance of doubt, Avalon Patents do not include Patent
Rights to the extent that they claim methods or products for discovering or identifying Targets.

     1.6 “Avalon Technology” means, individually and collectively, Avalon Patent(s) and Avalon
Know-How.

     1.7 “Avalon Validation Activities” means the activities set forth on Schedule 1.7.

     1.8 “Aventis Target Technology” has the meaning set forth in Section 3.6(e).

     1.9 “Breaching Party” has the meaning set forth in Section 10.2(a).

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

3

 

     1.10 “Change of Control” means (a) a merger or consolidation of Avalon and any Third Party
which results in the voting securities of Avalon outstanding immediately prior thereto ceasing to
represent more than fifty percent (50%) of the combined voting power of the surviving entity
immediately after such merger or consolidation, or (b) any Third Party, together with its
affiliates, becoming the beneficial owner of fifty percent (50%) or more of the combined voting
power of the outstanding securities of Avalon, or (c) the sale or other transfer to a Third Party
of all or substantially all of Avalon’s assets which relate to this Agreement.

     1.11 “Collaboration Product” means a compound(s) or molecule, (i) the pharmacological affinity
or activity of which, or the utility of which as a pharmaceutical agent, is because such compound
or molecule affects the activity, inactivity or function of an Advanced SQT.

     1.12 “Commercialization” or “Commercialize” means activities directed to obtaining pricing and
reimbursement approvals, manufacturing, marketing, promoting, detailing, distributing, importing or
selling a Collaboration Product.

     1.13 “Commercially Reasonable Efforts” means * .

     1.14 “Confidential Information” means all proprietary materials, know-how or other information
(whether or not patentable) regarding a Party’s technology, products, business information or
objectives, which is designated as confidential in writing by the disclosing Party, whether by
letter or by the use of an appropriate stamp or legend, prior to or at the time any such material,
know-how or other information is disclosed by the disclosing Party to the

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

4

 

other Party. Notwithstanding the foregoing to the contrary, materials, know-how or other
information which is orally, electronically or visually disclosed by a Party, or is disclosed in
writing without an appropriate letter, stamp or legend, shall constitute Confidential Information
of a Party (a) if the disclosing Party, within thirty (30) days after such disclosure, delivers to
the other Party a written document or documents describing the materials, know-how or other
information and referencing the place and date of such oral, visual, electronic or written
disclosure and the names of the persons to whom such disclosure was made, or (b) such information
is of the type that is customarily considered to be confidential information by persons engaged in
activities that are substantially similar to the activities being engaged in by the Parties.
Notwithstanding the foregoing, (x) any technical or financial information of a Party disclosed at a
meeting of the Research Committee (or any subcommittees or project teams of the foregoing) or
disclosed through an audit report shall constitute Confidential Information of such Party and (y)
the terms of this Agreement to the extent not disclosed in a public filing shall constitute
Confidential Information of each Party unless otherwise specified. Confidential Information shall
not include any such information that the Receiving Party can demonstrate:

     (a) was known to the Receiving Party at the time of disclosure by the Disclosing Party
(other than through receipt from the Disclosing Party or its Affiliates), as can be
established by written documentation; or

     (b) was generally available to the public or was otherwise part of the public domain at
the time of such disclosure or became generally available to the public or

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

5

 

otherwise part of the public domain after such disclosure other than through any act or
omission of the Deceiving Party in breach of this Agreement; or

     (c) became known to the Receiving Party after disclosure by the Disclosing Party
through a non-confidential disclosure from a source that, to the reasonable knowledge of the
Receiving Person, was not under an obligation of confidentiality to the Disclosing Party.

     1.15 “Control” or “Controlled” means the possession (whether by ownership or license, other
than the licenses granted herein) by a Party of the ability to grant licenses or sublicenses as
provided herein thereto without breaching an agreement with a Third Party.

     1.16 “Cytogenetics” means the study of chromosomal gene amplifications and/or rearrangement in
the field of oncology.

     1.17 “Develop” or “Development” means preclinical and clinical drug and/or biological
development activities, including (a) test method development and stability testing, toxicology,
formulation, quality assurance/quality control development, statistical analysis, clinical studies
and regulatory affairs, approval and registration, in each case, of a Collaboration Product, (b)
Screening against Advanced SQTs, and (c) optimization of Collaboration Products for the purpose of
initiating pre-clinical and clinical work with respect to Collaboration Products for Advanced SQTs.

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

6

 

     1.18 “Disclosing Party” means a Party that discloses its Confidential Information to the other
Party.

     1.19 “DRG” means a Target that has been accepted by the Research Committee for inclusion in
the Research Program. For the avoidance of doubt, each SQT and each Advanced SQT is a DRG and no
Excluded Target is a DRG.

     1.20 “Early Development Candidate” means a Collaboration Product that meets the “EDC” criteria
contained in Schedule 1.20.

     1.21 “Excluded Target” has the meaning set forth in Section 3.5(a).

     1.22 “Field” means the treatment and/or prevention of disease in humans and diagnostics where
such diagnostic is useful in the promotion of a Collaboration Product.

     1.23 “FDA” means the United States Food and Drug Administration, or the successor thereto or
an equivalent organization in Europe or Japan.

     1.24 “FTE” means a full time equivalent person year consisting of * of technical or
scientific work on or directly related to Research by persons who qualify as Avalon Researchers.

     1.25 “First Commercial Sale” means on a country-by-country and Collaboration
Product-by-Collaboration Product basis, the first sale by Aventis or its Affiliate or their
Sublicensee, distributor or co-marketer of Collaboration Product to a Third Party in a country
after Regulatory Approval has been obtained from the appropriate regulatory agency(ies).

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

7

 

Sales for test marketing, sampling and promotional uses, clinical trial purposes or
compassionate or similar use shall not be considered to constitute a First Commercial Sale.

     1.26 “Gene Set” means two or more genes, or any portion thereof (e.g., oligonucleotides) that
are used in the analysis of the effect of any treatment on the gene expression pattern in a test
cell, tissue or organism.

     1.27 “IND” means an Investigational New Drug application filed with the FDA to obtain approval
to conduct human clinical trials of the Product for an indication.

     1.28 “Indemnitee” has the meaning set forth in Section 8.3(a).

     1.29 “Indemnitor” has the meaning set forth in Section 8.3(a).

     1.30 “Infringing DRG” has the meaning set forth in Section 7.2(a).

     1.31 “Joint Rights” has the meaning ascribed thereto in Section 7.5(a)(iii).

     1.32 “NDA” means a New Drug application or equivalent thereof that is fled at the FDA.

     1.33 “Party” means Avalon or Aventis and, when used in the plural, shall mean Avalon and
Aventis.

     1.34 “Patent Rights” means all existing patents and patent applications and all patent
applications hereafter fled, including any continuations, continuations-in-part, divisions,
provisionals or any substitute applications, any patent issued with respect to any such patent

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

8

 

applications, any reissue, reexamination, renewal or extension (including any supplemental
patent certificate) of any such patent, and any confirmation patent or registration patent or
patent of addition based on any such patent, and all foreign counterparts of any of the foregoing.

     1.35 “Person” means any natural person, corporation, firm, business trust, joint venture,
association, organization, company, partnership or other business entity, or any government or any
agency or political subdivision thereof.

     1.36 “Phase I Clinical Trial” means a study or trial as defined in Federal Regulation 21
C.F.R. 312.21 or successor thereto or if conducted outside the United States corresponding laws
outside the United States.

     1.37 “Phase IIB Clinical Trial” means, as to a Collaboration Product for a particular
indication, a controlled and lawful dose ranging clinical trial conducted inside and/or outside the
United States in humans to evaluate further the efficacy and safety of a candidate drug in a
targeted patient population and to define the optimal dosing regimen.

     1.38 “Phase III Study” means, as to a Collaboration Product for a particular indication, a
controlled and lawful study conducted inside and/or outside the United States in humans of the
safety and efficacy of such product for such indication, which is prospectively designed to
demonstrate statistically whether such product is safe and effective for use in such indication in
a manner sufficient to file an NDA to obtain regulatory approval to market and sell that product
for the indication under investigation in such study.

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

9

 

     1.39 “Receiving Party” means a Party that receives Confidential Information from a Disclosing
Party, including, but not limited to, employees, directors and officers of the Receiving Party.

     1.40 “Regulatory Approval” means any and all approvals (including any applicable governmental
price and reimbursement approvals), licenses, registrations, or authorizations of any federal,
national, multinational, state, provincial or local regulatory agency, department, bureau or other
governmental entity necessary for the manufacture, use, storage, import, transport, promotion,
marketing and sale of a product in a country or group of countries.

     1.41 “Research” (a) in the case of Avalon, means * .

     1.42 “Research Committee” means the committee established in Section 3.1.

     1.43 “Research Plan” means the plan and budget attached as Schedule l .43.

     1.44 “Research Program” means the collaborative research program to be conducted by the
Parties in accordance with the Research Plan.

     1.45 “Research Term” has the meaning set forth in Section 3.2(b).

     1.46 “Reversion Product” means a compound or molecule that is identified by Avalon or its
licensee (other than Aventis) by Screening against a Reversion Target. In no event shall a
Reversion Product include any compound, molecule or antibody Controlled by Aventis.

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

10

 

     1.47 “Reversion Target” means a DRG that reverts to Avalon under Section 3.6(c). For clarity,
“Reversion Target” shall not include any Excluded Target nor any Aventis Target.

     1.48 “Screen” means use of a Target to determine the effect of one or more compounds or
molecules on the activity, inactivity or function of the Target. It is expressly understood that a
Screen does not include the use of a DRG as part of a Gene Set.

     1.49 “SQT” means a DRG that has been selected by Aventis pursuant to Section 3.5 (b).

     1.50 “Sublicensee” means a Third Party to which Aventis has granted sublicense rights under
the licenses granted to Aventis hereunder or to which Aventis has granted rights to a Collaboration
Product.

     1.51 “Target” means a protein whose function, activity or inactivity is associated with cancer
in humans and the gene that encodes such protein and that is identified by Research under the
Research Plan during the Research Term or that was identified prior to the Effective Date by the
use of Cytogenetics.

     1.52 “Term” means the period beginning on the Effective Date and ending on the earlier of the
date on which this Agreement expires under Section 10.1 or the date upon which this Agreement
otherwise terminates.

     1.53 “Territory” means all countries of the world.

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

11

 

     1.54 “Third Party” means any Person who or which is neither a Party nor, with respect to a
Party, an Affiliate of that Party.

     1.55 “Third Party Claim” has the meaning set forth in Section 8.3(a).

ARTICLE 2

GRANT OF LICENSES AND EXCLUSIVITY

     2.1 Licenses.

     (a) Except as provided in Section 2.4(c), Avalon grants to Aventis an exclusive license
(even as to Avalon and its Affiliates) in the Territory under Avalon Technology to make,
have made and use each DRG that is not a Reversion Target in a Screen for Research and for
the Development of one or more Collaboration Products in the Field.

     (b) Except as provided in Section 2.4(c), Avalon grants to Aventis an exclusive license
(even as to Avalon and its Affiliates) in the Territory under Avalon Technology to make,
have made and use each DRG that is not a Reversion Target, in each case only for
Commercialization of one or more Collaboration Products in the Field.

     (c) Aventis agrees that it will use Avalon Technology only as licensed under this
Agreement in accordance with the terns and conditions of this Agreement and, in the case of
the license granted in Section 2.1 (a) and (b), only for so long as licensed

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

12

 

under this Agreement. For the avoidance of doubt, Aventis shall not obtain any rights
or licenses under this Agreement to use any Reversion Targets,

     (d) It is expressly understood and agreed that the only licenses granted under this
Agreement are the licenses expressly granted under this Agreement and that there is no
implied license or license by estoppel.

     2.2 Sublicensing by Aventis. Aventis shall have the right to grant sublicenses to Third Parties
under the license granted pursuant to Section 2.1 provided that Aventis shall be responsible for
(i) the making of all payments due, and the making of reports under this Agreement, with respect to
milestones achieved and sales of Collaboration Product by its Sublicensees and (ii) their
compliance with all applicable licensing terms of this Agreement to the extent that they are
applicable to a Sublicensee.

     2.3 Use of Affiliates. The licenses granted pursuant to Section 2.1 include the right of Aventis to
use its Affiliates in exercising such rights and carrying out its obligations under this Agreement.

     2.4 Exclusivity.

     (a) During the Term, except as provided in Section 2.4(b), neither Avalon nor its
Affiliates may, directly or indirectly, either alone or with a Third Party, conduct any
research, development, manufacturing or commercialization activity directed at any
DRG, SQT or Advanced SQT, except (i) in the performance of Research under this

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

13

 

Agreement and (ii) in exercising Avalon’s rights to Reversion Targets and Reversion
Products.

     (b) During the Term, neither Aventis nor its Affiliates may, in the field of * ,
directly or indirectly, alone or with a Third Party, (i) * ; or (ii) * . For the
avoidance of doubt, all licenses granted to Aventis herein with respect to a Reversion
Target terminate at the time the target reverts in accordance with Section 3.6, and all
related Avalon Know-How shall be considered Confidential Information of Avalon pursuant to
Article 9.

     (c) Notwithstanding anything else to the contrary, it is expressly understood that
Avalon and its Affiliates and their collaborators and licensees shall have the right to
include a gene (or a portion thereof) that is a DRG, SQT or Advanced SQT in a Gene Set for
the purpose of (i) identifying compounds and molecules that affect expression and/or
transcription of such genes and/or (ii) identifying characteristics and/or properties of a
compound or molecule.

ARTICLE 3

RESEARCH

     3.1 Research Committee. Within * after the Effective Date, the Parties shall form a Research Committee. The
Research Committee shall consist of representatives of each Party and shall be responsible for
overall supervision of Research. Each Party shall be responsible for its own expenses incurred in
connection with attendance by its personnel at any meeting of

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

14

 

the Research Committee. The
operation and authority of the Research Committee shall be as follows:

     (a) Supervision. The Research Committee shall have general supervision over the
strategic direction and management of Research under the Research Plan. The Research
Committee shall periodically review each such plan from a strategic perspective and propose
changes as it deems necessary to accomplish the Research.

     (b) Representation. Avalon and Aventis shall each appoint at least one (1)
representative as their representative to serve on the Research Committee and each Party may
designate additional or remove existing representative from time to time. The
representative of a Party may be changed from time to time at the discretion of that Party
upon written notification by the Party making such change to the other.

     (c) Meetings. The Research Committee shall meet from time to time as determined by the
Research Committee members. It is expected that the Research Committee shall meet at least
* . The location of Research Committee meetings shall alternate between the offices of
each of the Parties, unless otherwise agreed by the Parties. Minutes of all meetings
setting forth decisions of the Research Committee will be prepared and circulated by the
Party hosting the meeting within * of such meeting. Such minutes will become official when agreed to by all members of the Research
Committee. If the Research Committee members all agree, a meeting may be held by means of
telephone conference or similar communications equipment by means of

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

15

 

which all persons
participating in the meeting can hear each other. A quorum for a meeting shall require at
least one representative of Avalon and one representative of Aventis. At each meeting,
Aventis and Avalon will provide a report on the status of Research and Development at each
Research Committee meeting.

     (d) Decisions. Decisions of the Research Committee shall be made at meetings by
unanimous vote, with the representatives of each Party having one collective vote. If the
Research Committee is unable to reach a unanimous vote on any issue within * after it has
been submitted to a vote, Aventis shall have the right to cast the deciding vote.

     3.2 Research Program.

     (a) Objectives. The intent of the Parties with respect to Research under this
Agreement is as follows:

     (i) To discover and validate a minimum of * Advanced SQTs.

     (ii) Avalon will perform Research in accordance with the Research Plan to
identify Targets which will be presented to the Research Committee and
will perform Avalon Validation Activities. Avalon and Aventis will perform
Research to determine the suitability of DRGs for drug discovery.

     (iii) Aventis will be responsible for establishing a Screen for an Advanced SQT
and for use of the Screen.

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

16

 

     (iv) Aventis will be responsible for Developing Collaboration Product.

     (b) Term. The term of the Research Program (the “Research Term”) shall commence on
execution of the Agreement and end one calendar year later, unless (a) earlier terminated
pursuant to the provisions of Article 10 or (b) extended by mutual agreement of both
Parties.

     3.3 Research Funding

     (a) Subject to Section 3.3(e), Avalon shall use Commercially Reasonable Efforts to
perform its Research obligations under the Research Program in accordance with the Research
Plan. Subject to Section 3.3(e), as part of such efforts, during the Research Term, Avalon
shall commit the personnel and facilities necessary to carry out its obligations under the
Research Plan.

     (b) AVENTIS shall pay to AVALON * as support for the Research, pursuant to the
following schedule, which amounts shall be non-refundable and non-creditable, and due and
payable within * after the following events: (i) * upon the * of the execution of
this Agreement; (ii) * upon the * of the execution of this
Agreement; (iii) * upon the * of the execution of this Agreement; and (iv) *
upon the * of the execution of this Agreement.

     (c) Each Party shall have caused or shall cause each participant in the Research
Program to execute such Party’s standard non-disclosure and invention assignment agreement.

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

17

 

     (d) Each Party shall identify one of its representatives to serve as a program
coordinator with responsibility for overseeing that Party’s day-to-day activities relating
to the Research Program and to serve as a contact person for coordinating Research Program
activities between the Parties.

     (e) Avalon shall not be required: (i) to perform any research activities other than
Research, (ii) to provide more than * , (iii) to perform Research other than under the
Research Plan and as funded by Aventis under this Agreement, or (ii) to perform any
activities which the parties mutually agree that a Third Party will perform on behalf of
Avalon, and which shall be paid for by Aventis in addition to the funding provided under
Section 3.3(b) above.

     (f) Aventis understands and agrees that Avalon shall not be liable to Aventis for
failing to discover and validate * Advanced SATs or to provide a specified number of
SATs.

     3.4 Amplicons, DRGs and Know-How. During the Research Term, Avalon shall present to the Research Committee for inclusion in the
Research Program an initial group of * in its Control which Avalon reasonably determines, based
on its scientific knowledge at such time and the criteria provided in the Research Plan, are
reasonably likely to have utility in the Research Program. Avalon and Aventis shall conduct the
Research Program according to the Research Plan. Aventis shall select Amplicons for inclusion in
the Research Program, designate DRGs for validation as SQTs and designate SQT’s for validation as
Advanced SQTs

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

18

 

according to the terms of the Research Plan. In no event shall Avalon have any
obligation to provide * for consideration by Aventis. Avalon shall also provide Aventis with
Avalon Know-How that is currently in the possession of Avalon and that comes into the possession of
Avalon during the Research Term.

     3.5 Inclusion of Targets as DRGs; Excluded Targets, SQTs and Advanced SQTs.

     (a) When Avalon presents a Target to the Research Committee for inclusion in the
Research Program as a DRG, it shall do so in writing and Avalon shall present to the
Research Committee in writing all information and material of which Avalon is aware or which
is Controlled by Avalon relating to the potential utility of the Target for Screening in the
Research Program. Within * from the date a Target is presented to the Research
Committee, Aventis shall provide written notice to the Research Committee if such Target is
then the subject of an Aventis internal program as an SQT in the field of oncology or is
subject to an agreement between Aventis and a Third Party. If such Target meets such
requirements of the preceding sentence and such notice is provided within such * period,
then such Target shall be deemed an
Excluded Target” and shall not be included in the Research Program and shall not become
a DRG.

     (b) By written notice from Aventis to Avalon, Aventis shall have the right to designate
any DRG that has not become a Reversion Target as a SQT, and to designate any SQT that has
not become a reversion Target as an Advanced SQT.

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

19

 

     3.6 Diligence.

     (a) During the Research Term, Aventis shall use * to perform its Research
obligations in accordance with the Research Plan. During the Term, Aventis agrees to use
* to Develop and Commercialize Collaboration Products.

     (b) The Parties agree that any Target presented by Avalon to the Research Committee in
accordance with Section 3.4 which is not accepted by the Research Committee as a DRG within
* shall not become a DRG or be included in the Research Program, and all rights to such
Target shall remain with Avalon.

     (c) The Parties agree that a DRG shall become a Reversion Target in the event of one or
more of the following:

     (i) if within * after a Target that is identified by Avalon during the
Research Term is accepted by the Research Committee for inclusion in the Research
Program as a DRG, such DRG is not selected as a SQT; or

     (ii) if within * after a Target is selected as a DRG, (and assuming that
Aventis subsequently selects it as an SQT), such DRG is not selected as an Advanced
SQT; or

     (iii) if Aventis determines not to Develop or to continue to Develop a
Collaboration Product for an Advanced SQT; or

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

20

 

     (iv) if Aventis does not use * to Develop and Commercialize Collaboration
Products with respect to a selected Advanced SQT; or

     (v) if, for any reason, Aventis determines not to Develop or to discontinue
Development of a DRG.

     (d) All rights to Reversion Targets shall revert to Avalon and Avalon may use any such
Reversion Targets for any purpose, and may license Reversion Targets to Third Parties or
collaborate with Third Parties with respect to Reversion Targets.

     (e) With respect to each SQT and each Advanced SQT that becomes a Reversion Target,
Aventis shall provide Avalon with the pre-clinical information and data (“Aventis Target
Technology”) in the Control of Aventis at the time such Target becomes a Reversion Target
with respect to such Reversion Target that is useful for identifying Reversion Products by
use of such Reversion Targets and the non-exclusive right and license to use and to
sublicense such Aventis Target Technology with respect to Reversion Targets, provided that
in no event shall Aventis Target Technology include any information or data relating to
compounds, molecules or antibodies.

     3.7 Aventis Responsibility. At the cost and expense of Aventis, Aventis shall be solely
responsible for Development and Commercialization of Collaboration Product.

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

21

 

ARTICLE 4

FEE AND MILESTONE PAYMENTS

     4.1 Initial Fee. In connection with the funding of research of Collaboration Product, Aventis
shall pay to Avalon * within * of signing of this Agreement by the Parties, which amount is
non-refundable and non-creditable.

     4.2 Milestone Payments by Aventis.

     (a) In partial consideration of the rights and licenses granted to Aventis by Avalon
under this Agreement, Aventis shall pay Avalon the following non-creditable, non-refundable
milestone payments for each event set forth below (each, an “Event”), that is achieved by
Aventis or one of its Affiliates or one of their Sublicensees, which amounts shall be due
and payable within * after of such Event.

     (i) * for each SQT selected by Aventis.

     (ii) * for each Collaboration Product that becomes an Early Development
Candidate.

     (iii) * for each Collaboration Product for which a Phase I Clinical Trial is
initiated.

     (iv) * for each Collaboration Product for which a Phase IIB Clinical Trial is
initiated.

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

22

 

     (v) * for each Collaboration product for which a Phase III Trial is
initiated.

     (vi) * for each Collaboration Product for which an NDA is approved by the
FDA.

     (vii) * for each Collaboration Product, upon First Commercial Sale in the
United States.

     (viii) * for each Collaboration Product, upon First Commercial Sale in
Europe.

     (ix) * for each Collaboration Product, upon First Commercial Sale in Japan.

     (b) For purposes of clarification, (i) each of the foregoing payments shall be made
only once for each Collaboration Product and upon the first occurrence of each event for
each Collaboration Product, regardless of the number of occurrences of each event (ii) two
or more Collaboration Products shall be considered the same Collaboration Product for
purposes of this Section 4.2(b) if such Collaboration Products
are directed at the same Target, (iii) new formulations, indications, dosages or
delivery systems for a Collaboration Product shall not trigger additional payments, and (iv)
“initiation” with respect to a study shall mean the date the first patient is first dosed
with a Collaboration Product in such study. In the event that a milestone is achieved for a
Collaboration Product and a previous milestone has not been paid, then such

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

23

 

unpaid milestone
shall become due and payable as of the date for payment of the applicable milestone that is
achieved.

     (c) Aventis shall be entitled to select up to * no later than the * of the
Effective Date. Within * following each such selection, Aventis shall make one-time
payments to Avalon as follows: * .

ARTICLE 5

REPRESENTATIONS, WARRANTIES AND COVENANTS

     5.1 Representations and Warranties of Both Parties.

     (a) Each Party represents and warrants to the other Party that, as of the date of this
Agreement, (i) such Party is duly organized and validly existing and has full corporate
power and authority to enter into this Agreement and to carry out the provisions hereof;
(ii) such Party has full right, power and authority to enter into this Agreement, (iii) this
Agreement has been duly executed by such Party and constitutes a legal, valid and binding
obligation of such Party, enforceable in accordance with its terms, and (iv) all necessary
consents, approvals and authorizations of all government authorities and other persons required to be obtained by such Party in connection with
the execution, delivery and performance of this Agreement have been and shall be obtained.

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

24

 

     (b) Each Party represents to the other Party that notwithstanding anything to the
contrary in this Agreement, the execution and delivery of this Agreement and the performance
of such Party’s obligations hereunder (a) do not conflict with or violate such Party’s
corporate charter and bylaws or any requirement of applicable laws or regulations and (b) do
not conflict with, violate or breach or constitute a default or require any consent under,
any contractual obligation of such Party.

     (c) Each Party represents and warrants to the other Party that as of the date of this
Agreement there is no claim, investigation, suit, action or proceeding pending or, to the
knowledge of such Party, expressly threatened, against such Party before or by any
governmental entity or arbitrator that, individually or in the aggregate, could reasonably
be expected to (i) materially impair the ability of such Party to perform any obligation
under this Agreement or (ii) prevent or materially delay or alter the consummation of any or
all of the transactions contemplated hereby.

     5.2 Additional Avalon Representations, Warranties and Covenants. Avalon represents, warrants
and covenants to Aventis that, as of the Effective Date:

     (a) Avalon has the full right, power and authority to grant the licenses granted to
Aventis under Section 2.1 hereof and it has not granted a license to any Third Party under
Avalon Technology which is in conflict with the licenses granted to Aventis under Section
2.1;

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

25

 

     (b) Avalon is the sole owner of the Patent Rights of Section 1.5 and (i); exclusive
owner or a licensee of the Avalon Know-How, and no Third Party has any right, title or
interest in or to the Avalon Know-How owned by Avalon; all inventors of any inventions
included within the Avalon Patent Rights of Section 1.5 have assigned their entire right,
title and interest in and to such inventions and the corresponding Patent Rights to Avalon
and (ii) to the best knowledge of Avalon, no Person, other than those Persons named as
inventors on any patent or patent application included within the Avalon Patent Rights of
Section 1.5, is an inventor of the invention(s) claimed in such patent car patent
application;

     (c) there are no claims, judgments or settlements against or owed by Avalon or pending
or, to its best knowledge, threatened claims or litigation seeking to invalidate the Avalon
Patent Rights;

     (d) without having made an investigation, Avalon has no actual knowledge that any
existing DRG or the use thereof in a Screen infringes a granted patent of a Third Party.

     5.3 Disclaimer of Representations. EXCEPT AS SPECIFICALLY SET FORTH HEREIN, NEITHER PARTY MAKES ANY OTHER REPRESENTATION OR
WARRANTY HEREUNDER AND DISCLAIMS ALL OTHER REPRESENTATIONS AND WARRANTIES, INCLUDING, BUT NOT
LIMITED TO, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR USE OR WITH RESPECT TO THE VALIDITY

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

26

 

OR
ENFORCEABILITY OF AVALON PATENTS OR THAT ACTIVITIES CONTEMPLATED BY THIS AGREEMENT OR COLLABORATION
PRODUCTS WILL NOT INFRINGE PATENT RIGHTS OF A THIRD PARTY.

ARTICLE 6

PAYMENTS

     6.1 Late Payments. In the event that any payment due hereunder is not made when due, the
payment shall accrue interest from the date due at a rate equal to * , calculated on the number
of days between the actual date the payment is made and the date the payment was due; provided,
however, that in no event shall such rate exceed the maximum annual interest rate permitted under
applicable law.

ARTICLE 7

PATENT PROSECUTION; ENFORCEMENT; INFRINGEMENT, OWNERSHIP OF INVENTIONS

     7.1 Patent Filing, Maintenance and Prosecution.

     (a) At the cost and expense of Avalon, Avalon shall file, prosecute and maintain Avalon
Patents, other than Joint Rights, in countries of the Territory selected by Avalon through
patent counsel selected by Avalon, and Avalon shall keep Aventis advised with respect
thereto; such countries to include, at a minimum, the United States, all countries of
Europe, Japan and Canada. Avalon shall deliver to Aventis the

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

27

 

complete texts of all Avalon
Patents fled by Avalon and licensed to Aventis, as well as all information received
concerning the institution or possible institution of any interference, opposition,
re-examination, reissue, revocation, nullification or any official proceeding involving any
patent licensed herein anywhere in the Territory, including without limitation copies of all
material correspondence with the U.S. Patent and Trademark Office and foreign counterparts.
Such delivery shall be made reasonably in advance of any relevant fling deadline or intended
filing date to permit Aventis to review such pending applications and other proceedings and
make recommendations to Avalon concerning their and their conduct. Absent a substantial
reason for not doing so, Avalon shall incorporate such comments.

     (b) If Avalon elects not to file, continue to prosecute or maintain any such patents or
patent applications, then Avalon shall notify Aventis in writing of such election at least
* prior to the last available date for action to preserve such Patent Rights.

     If Aventis elects to file or continue such patent prosecution or maintenance, it may do so at
its sole expense.

     (c) At the cost and expense of Aventis, Aventis shall file, prosecute and maintain
Patent Rights covering Joint Rights in the Territory through patent counsel selected by
Aventis, and Aventis shall keep Avalon advised with respect thereto, Aventis shall deliver
to Avalon the complete texts of all such Patent Rights filed by

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

28

 

Aventis, as well as all
information received concerning the institution or possible institution of any interference,
opposition, re-examination, reissue, revocation, nullification or any official proceeding
involving any patent licensed herein anywhere in the Territory, including without limitation
copies of all material correspondence with the U.S. Patent and Trademark Office and any
similar foreign filing office. Such delivery shall be made reasonably in advance of any
relevant filing deadline or intended filing date to permit Avalon to review such pending
applications and other proceedings and make recommendations to Aventis concerning them and
their conduct. Absent a substantial reason for not doing so, Aventis shall incorporate such
comments,

     (d) Avalon agrees to make its employees, agents, and consultants available to Aventis
or Aventis’ authorized attorneys, agents, or representatives) and to otherwise cooperate
fully with Aventis in the preparation, filing, prosecution and maintenance of the Patents
Rights refereed to in paragraph (c) above, including, but not limited to obtaining patent
term extensions or supplemental protection certificates and the like. Such cooperation may
include, without limitation: (i) turning over to Aventis all necessary files, papers and
documents relating to such patent applications or patents; (ii) executing all papers and
instruments, or requiring Avalon’s employees or agents, to execute such papers and
instruments, so as to effectuate the ownership of such Patent Rights as set forth herein;
(iii) promptly informing Aventis of any matters coming to Avalon’s attention that may affect
such Patent Rights; and (iv) any other assistance to

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

29

 

the extent deemed reasonably necessary
or desirable for the assignment, preparation, filing, prosecution or maintenance of any such
Patent Rights.

     7.2 Patent Enforcement.

     (a) Each Party shall notify the other promptly after such Party becomes aware of any
alleged infringement of any Avalon Patent in any country in the Territory with respect to a
DRG that is not a Reversion Target or use thereof in a Screen (an “Infringing DRG”). If any
of the Avalon Patents under which Aventis holds a license hereunder is infringed in the
Territory by a Third Party with respect to an Infringing Target, Aventis shall have the
first right and option, but not the obligation, to bring an action for infringement, at its
sole expense, against such Third Party in the name of Aventis and if required also in the name of Avalon. Within the sole discretion of
Avalon, Avalon may jointly institute such action with Aventis at the cost and expense of
Avalon, in which case Avalon shall have joint control over such action with Aventis. In any
such action, Aventis shall make no decision or settlement or compromise that will or
potentially will adversely affect the validity, enforceability, ownership or scope of any
Avalon Patent unless agreed to in writing by Avalon.

     (b) In the event that Aventis does not institute such an infringement proceeding
against an offending Third Panty with respect to an Infringing Target within * after
receiving written notice of any alleged infringement, then Avalon shall have the right and
option, but not the obligation, to institute infringement proceedings

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

30

 

against such Third
Party with respect to such an Infringing Target in the Territory, in the name of Avalon and
if required also in the name of Aventis. Avalon shall have sole control over such action.

     (c) In any infringement suit either Party may institute to enforce any Avalon Patents
pursuant to this Agreement, the other Party hereto shall, at the request of the Party
initiating such suit, cooperate in all respects, including agreeing to be joined as a Party
in such suit, and, to the extent possible, have its employees testify when requested and
make available relevant records, papers, information, samples, specimens, and the like. All
reasonable out-of-pocket costs incurred in connection with rendering cooperation requested
hereunder shall be paid by the Party requesting cooperation.

     (d) The costs and expenses of any action instituted pursuant to this Section 7.2
(including reasonable fees of attorneys and other professionals) shall be borne by the Party
instituting the action, or, if the Parties elect to cooperate in instituting and maintaining
such action, such costs and expenses shall be borne by the Parties in such proportions as
they may agree in writing. Each Party shall execute all necessary and proper documents and
take such actions as shall be appropriate to allow the other Party to institute and
prosecute such infringement actions (if such other Party has the right to institute and
prosecute such infringement actions pursuant to this Section 7.2).

     (e) In the event Aventis shall undertake the enforcement of any Avalon Patent, at the
sole expense of Aventis any award or compensation (including the fair

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

31

 

market value of
non-monetary compensation) paid by Third Parties as a result of such an infringement action
(whether by way of settlement or otherwise) shall be applied as follows: (i) first, to
reimbursement of each Party for all expenses incurred by each in connection with such action
on a pro rata basis, and (ii) second, any remaining balance shall be allocated to Aventis.
In the event that Avalon undertakes such infringement action at its sole expense, any award
or compensation shall be applied as follows: (i) first, to reimbursement of each Party for
all expenses incurred by each in connection with such action, on a pro rata basis, and (ii)
second, any remaining balance shall be allocated to Avalon. In the event that the Parties
share the expenses of such action, then any award or compensation shall be allocated between
the Parties in proportion to the expenses incurred by the Parties after proportionate reimbursement of the expenses
of each party.

     7.3 Infringement Actions by Third Parties. In the event of the institution of any suit by a
Third Party against Aventis, its Affiliates or its Sublicensees, distributors or co-marketers for
patent infringement involving the manufacture, use, sale, distribution or marketing of any
Collaboration Product ill the Territory, Aventis shall defend such action at its own expense, and
Avalon hereby agrees to assist and cooperate with Aventis, at Aventis’ expense, to the extent
necessary in the defense of such suit. Aventis shall have the right to settle the suit or consent
to an adverse judgment thereto, in its sole discretion, provided that such settlement or consent
does not adversely affect the validity, enforceability or ownership of any Avalon Patent unless
agreed to in writing by Avalon. Aventis shall assume full
responsibility for the

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

32

 

payment of any
award for damages, and/or for the payment of any amount due pursuant to any settlement entered into
by Aventis with such Third Party. Any and all damages and awards received by Aventis as a result
thereof (i.e., as a result of a counterclaim) shall be allocated between the Parties in the same
manner as provided in Section 7.2.

     7.4 Third Party Actions as to Avalon Patents. In the event a Third Party brings an action
with respect to the vapidity or enforceability of an Avalon Patent, Avalon shall have the sole
right to defend such action at the cost and expense of Avalon, except if such claim of invalidity
or unenforceability is part of an infringement action initiated by Aventis under an Avalon Patent pursuant to Section 7.2, in
which case, Aventis shall have the right to defend such claim at the cost and expense of Aventis
alone, or within the sole discretion of Avalon, jointly with Avalon. In any such action in which
Aventis is a party, Aventis shall make settlement or compromise that will or potentially will
adversely affect the validity or enforceability or ownership of any Avalon Patent unless agreed to
in writing by Avalon.

     7.5 Ownership of Inventions and Technology.

          (a) As between Avalon and Aventis:

          (i) Avalon shall solely own all data, information, materials, inventions and
any and all intellectual property rights in any of the foregoing of this Section
7-5(a)(i), including, but not limited to, patent applications and patents, created
and/or invented solely by employees of Avalon;

*  The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934.  The confidential portions have been submitted separately to the Securities and
Exchange Commission.

33

 

          (ii) Aventis shall solely own all data, information, materials, inventions and
any and all intellectual property rights in any of the foregoing of this Section
7.5(a)(ii), including, but not limited to, patent applications and patents, created
and/or invented solely by employees of Aventis;

          (iii) Avalon and Aventis shall jointly own all data, information, materials and
any and all inventions and intellectual property rights in any of the foregoing of
this Section 7.5(a)(iii), including, but not limited to, patent
applications and patents, created jointly by an employee(s) of Avalon and an
employee(s) of Aventis (“Joint Rights”).

          (b) Inventorship shall be determined in accordance with United States patent law.

ARTICLE 8

INDEMNIFICATION

     8.1 By Aventis. Aventis shall defend, indemnify and hold harmless Avalon and their respective
directors, officers, employees, shareholders and agents from and against any and all damages,
losses, costs and expenses (including the reasonable fees of attorneys and other professionals)
arising out of or resulting from third Party claims, suits or demands relating to: (a) * , (b)
* , or (c) injuries resulting from * by or for Aventis, its Affiliates or Sublicensees or by
any person that obtained a * , its Affiliates or Sublicensees, except in

*  The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934.  The confidential portions have been submitted separately to the Securities and
Exchange Commission.

34

 

each case to the extent
covered by Avalon’s indemnification obligations pursuant to Section 8.2.

     8.2 By Avalon. Avalon shall defend, indemnify and hold harmless Aventis and their respective
directors, officers, employees, shareholders and agents from and against any and all damages,
losses, costs and expenses (including the reasonable fees of attorneys and other professionals)
arising out of or resulting from Third Party claims, suits or demands relating to: (a) any
material breach by Avalon of its representations, warranties or obligations pursuant to this
Agreement, (b) the gross negligence or willful misconduct of Avalon or its Affiliates, or (c)
injuries resulting from the research or testing of any DRG by Avalon, its Affiliates or
Sublicensees, except in each case to the extent covered by Aventis’ indemnification obligations
pursuant to Section 8.1.

     8.3 Procedure and Conditions to Indemnification.

     (a) In the case of a third party claim or demand (“Third Party Claim”) made by any
Person who is not a Party to this Agreement (or an Affiliate thereof) as to which a Party
(the “Indemnitor”) maybe obligated to provide indemnification pursuant to this Agreement,
such Panty seeking indemnification hereunder (“Indemnitee”) will notify the Indemnitor in
writing of the Third Party Claim (and, specifying in reasonable detail the factual basis for
the Third Party Claim and to the extent known, the amount of the Third Party Claim)
reasonably promptly after becoming aware of such Third Party Claim; provided, however, that
failure to give such notification will not affect the

*  The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934.  The confidential portions have been submitted separately to the Securities and
Exchange Commission.

35

 

indemnification provided hereunder
except to the extent the Indemnitor shall have been actually prejudiced as a result of such
failure.

     (b) If a Third Party Claim is made against an Indemnitee, the Indemnitor will be
entitled, within * after receipt of written notice from the Indemnitee of the
commencement or assertion of any such Third Party Claim, to assume the defense thereof (at
the expense of the Indemnitor) with counsel selected by the Indemnitor and
reasonably satisfactory to the Indemnitee, for so long as the Indemnitor is conducting
a good faith and diligent defense. Should the Indemnitor so elect to assume the defense of
a Third Party Claim:

          (i) the Indemnitor will not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with the defense
thereof; provided, that if under applicable standards of professional conduct a
conflict of interest exists between the Indemnitor and the Indemnitee in respect of
such claim, such Indemnitee shall have the right to employ separate counsel (which
shall be reasonably satisfactory to the Indemnitor) to represent such Indemnitee
with aspect to the matters as to which a conflict of interest exists and in that
event the reasonable fees and expenses of such separate counsel shall be paid by
such Indemnitor; provided, further, that the Indemnitor shall only be responsible
for the reasonable fees and expenses of one separate counsel for such Indemnitee;

*  The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934.  The confidential portions have been submitted separately to the Securities and
Exchange Commission.

36

 

          (ii) the Indemnitee shall have the right to participate in the defense thereof
and to employ counsel, at its own expense, separate from the counsel employed by the
Indemnitor;

          (iii) the Indemnitor will promptly supply to the Indemnitee copies of all
correspondence and documents relating to or in connection with such Third Party
Claim and keep the Indemnitee informed of developments relating to or in
connection with such Third Party Claim, as may be reasonably requested by the
Indemnitee (including providing to the Indemnitee on reasonable request updates and
summaries as to the status thereof); and

          (iv) all Indemnitees shall reasonably cooperate with the Indemnitor in the
defense thereof (such cooperation to be at the expense, including reasonable legal
fees and expenses, of the Indemnitor).

     (c) If the Indemnitor does not elect to assume control of the defense of any Third
Party Claim within the * set forth above, or if such good faith and diligent defense is
not being or ceases to be conducted by the Indemnitor, or at any time prior to the
Indemnitor making such election, the Indemnitee shall have the right, at the expense of the
Indemnitor, after * to the Indemnitor of its intent to do so, to undertake the defense of
the Third Party Claim for the account of the Indemnitor (with counsel selected by the
Indemnitee), and to compromise or settle such Third Party Claim, exercising reasonable
business judgment.

*  The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934.  The confidential portions have been submitted separately to the Securities and
Exchange Commission.

37

 

     (d) If the Indemnitor acknowledges in writing its obligation to indemnify the
Indemnitee for a Third Party Claim, the Indemnitee will agree to any settlement, compromise
or discharge of such Third Party Claim that the Indemnitor may recommend that by its terms
obligates the Indemnitor to pay the full amount of Losses (whether through settlement or
otherwise) in connection with such Third Party Claim and unconditionally and irrevocably
releases the Indemnitee completely from all Liability in connection with such Third Party
Claim; provided, however, that, without
the Indemnitee’s prior written consent, the Indemnitor shall not consent to any
settlement, compromise or discharge (including the consent to entry of any judgment), and
the Indemnitee may refuse to agree to any such settlement, compromise or discharge, that
provides for injunctive or other nonmonetary relief affecting the Indemnitee. If the
Indemnitor acknowledges in writing its obligation to indemnify the Indemnitee for a Third
Party Claim, the Indemnitee shall not (unless required by law) admit any liability with
respect to, or settle, compromise or discharge, such Third Party Claim without the
Indemnitor’s prior written consent (which consent shall not be unreasonably withheld or
delayed).

     8.4 Insurance. Each Party shall use all commercially reasonable efforts to maintain insurance
with respect to its activities hereunder, provided, however, that product liability insurance will
not be required prior to sale of a product under this Agreement. Such insurance shall be in such
amounts and subject to such deductibles as the Parties may agree based upon

*  The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934.  The confidential portions have been submitted separately to the Securities and
Exchange Commission.

38

 

standards prevailing in
the industry at the time. Aventis may satisfy its obligations under this Section through
self-insurance to the same extent.

ARTICLE 9

CONFIDENTIALITY

     9.1 Non-Disclosure. The Receiving Party agrees not to disclose Confidential Information of the Disclosing Party to
a Third Party or to an Affiliate and to use Confidential Information of the Disclosing Party only
for the activities contemplated by this Agreement.

     9.2 Exclusions to Confidentiality. The non-disclosure restrictions contained in Section 9.1
shall not apply to Confidential Information that (a) is submitted by the Receiving Party to
governmental authorities to facilitate the issuance of marketing approvals for a Collaboration
Product, provided that reasonable measures shall be taken to assure confidential treatment of such
information, if practicable; (b) is provided by the Receiving Party to Third Parties and/or an
Affiliate under appropriate terms and conditions, including confidentiality provisions at least as
protective of the Disclosing Party as those in this Agreement, for consulting, manufacturing,
development, manufacturing, external testing, marketing trials and sublicensing or potential
sublicensing of Collaboration Product or DRG in accordance with this Agreement; or (c) is otherwise
required to be disclosed in compliance with applicable laws or regulations (including, without
limitation, to comply with SEC, NASDAQ or stock exchange disclosure requirements) or order by a
court or other regulatory body having competent jurisdiction; provided that if a Party is required
to make any such disclosure of the other

*  The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934.  The confidential portions have been submitted separately to the Securities and
Exchange Commission.

39

 

Party’s Confidential Information it will, except under
extraordinary circumstances, give reasonable advance notice to the other Party of such disclosure
requirement, sufficient to allow said other Party the right to object to and defend against said
disclosure and will use its reasonable best efforts to secure confidential treatment of such
Confidential (information required to be disclosed. Furthermore, each Party
shall give the other Party a reasonable opportunity to review all filings with the United
States Securities and Exchange Commission describing the terms of this Agreement prior to
submission of such filings, and shall give due consideration to any reasonable comments by the
non-filing Party relating to such filing, including without limitation, the provisions of this
Agreement for which confidential treatment should be sought.

     9.3 Additional Exceptions.

     (a) Nothing in this Article 9 shall prevent a Party: (a) in connection with efforts to
secure financing at any time during the Term, from issuing statements to bona fide
investors, on an investor-by-investor basis, as to achievements made, and the status of the
work being done by the Parties, under this Agreement, so long as such statements do not
disclose non-public technical or scientific Confidential Information of the Disclosing
Party; or (b) from issuing statements that a Party determines to be necessary, in the
opinion of its external counsel, to comply with applicable law (including the disclosure
requirements of the U.S. Securities and Exchange Commission, NASDAQ or any other stock
exchange on which securities issued by a Party are traded); provided that such Party shall
provide the other Party with a copy of the proposed text of such

*  The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934.  The confidential portions have been submitted separately to the Securities and
Exchange Commission.

40

 

statements sufficiently in
advance of the scheduled release thereof to afford the other Party a reasonable opportunity
to review and comment upon the proposed text.

     (b) Notwithstanding anything else in this Agreement to the contrary, each Party hereto
(and each employee, representative, or other agent of any Party) may
disclose to any and all persons, without limitation of any kind, the Federal income tax
treatment and Federal income tax structure of any and all transaction(s) contemplated herein
and all materials of any kind (including opinions or other tax analyses) that are or have
been provided to any Party (or to any employee, representative, or other agent of any party)
relating to such tax treatment or tax structure, provided, however, that this authorization
of disclosure shall not apply to restrictions reasonably necessary to comply with securities
laws. This authorization of disclosure is retroactively effective immediately upon
commencement of the first discussions regarding the transactions contemplated herein, and
the Parties aver and affirm that this tax disclosure authorization has been given on a date
which is no later than thirty (30) days from the first day that any Party hereto (or any
employee, representative, or other agent of any party hereto) first made or provided a
statement as to the potential tax consequences that may result from the transactions
contemplated hereby.

     9.4 Injunctive Relief. The Parties acknowledge that money damages alone would not adequately
compensate the disclosing Party in the event of a breach by the receiving Party of this Article 9,
and that, in addition to all other remedies available to the disclosing Party at law or

*  The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934.  The confidential portions have been submitted separately to the Securities and
Exchange Commission.

41

 

in equity,
it shall be entitled to seek injunctive relief for the enforcement of its rights under this Article
9.

     9.5 Liability. A Party shall be liable for a breach of the obligations of this Article 9 by an employee or
agent of such Party.

     9.6 Return of Confidential Information. Upon termination of this Agreement, upon the request
of the Disclosing Party, the Receiving Party shall promptly return to the Disclosing Party the
Disclosing Party’s Confidential Information (other than Joint Rights), including all copies
thereof, except to the extent that retention of such Confidential Information is reasonably
necessary for the Receiving Party to fulfill its obligations contemplated hereby, including its
obligations of confidentiality, nondisclosure and nonuse hereunder. At the Disclosing Party’s
written request, the Confidential Information that is otherwise required to be returned to the
Disclosing Party shall be destroyed and such destruction shall be certified in writing to the
Disclosing Party by an authorized officer of the Receiving Party. The return and/or destruction of
such Confidential Information as provided above shall not relieve the Receiving Party of its other
obligations under this Agreement.

     9.7 Disclosure of Agreement. Neither Party shall disclose the terms or conditions of this
Agreement or make any public announcement concerning this Agreement without the consent of the
other Party, which shall not be unreasonably withheld, except such consent shall not be required
and, notwithstanding anything else to the contrary, a Party shall be permitted to disclose the
terms and conditions of this Agreement (a) in connection with an equity

*  The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934.  The confidential portions have been submitted separately to the Securities and
Exchange Commission.

42

 

investment, loan or similar
financing transaction, (b) in connection with a consolidation, merger, change of control or
sale of all or substantially all of the assets of a Party, (c) in connection with the granting of a
sublicense under this Agreement, (d) in connection with a legal proceeding or an order of a court
or government agency, (e) where such disclosure is made to attorneys, accountants and other
advisors to a Party, (f) where such disclosure is required in accordance with any applicable law,
rule or regulation (including, without limitation, disclosure requirements of the U.S. Securities
and Exchange Commission, NASDAQ or any other stock exchange on which securities are traded;
provided that in the case of items (b) and (c) above, such disclosure is made under appropriate
terms and conditions, including confidentiality provisions at least as protective of the Disclosing
party as those in this Agreement. In the event of a required public announcement, except under
extraordinary circumstances, the Party making such announcement shall provide the other Party with
a copy of the proposed text prior to such announcement sufficiently in advance of the scheduled
release of such announcement to afford such other Party a reasonable opportunity to review and
comment upon the proposed text. On the Effective Date, the Parties shall issue one or more press
releases attached hereto as Schedule 9.7. Once text of any press release or announcement is
approved, the substance of that which is disclosed in such text may be disclosed to the public by a
Party without the permission of the other Party.

     9.8 Confidentiality Term. The obligations of this Article 9 shall terminate ten (10) years
after the termination or expiration of this Agreement.

*  The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934.  The confidential portions have been submitted separately to the Securities and
Exchange Commission.

43

 

ARTICLE 10

TERM; TERMINATION

     10.1 Term. This Agreement shall commence as of the Effective Date and, unless sooner
terminated as provided hereunder, shall expire when Aventis no longer has any obligation for
payments, including Milestone Payments under this Agreement. Upon the expiration of this
Agreement, the license granted under Section 2.1(b), with respect to each Collaboration Product in
all countries of the World, shall become non-exclusive, fully paid-up, royalty-free, perpetual and
irrevocable.

     10.2 Termination.

     (a) Material Breach. If either Party believes that the other Party (the “Breaching
Party”) is in material breach of this Agreement (including without limitation any material
breach of a representation or warranty made in this Agreement), then the non-breaching Party
may deliver notice to the Breaching Party specifying the material breach. For all breaches
other than a failure to make a payment, the allegedly Breaching Party shall have * to
either cure such breach or, if cure cannot be reasonably effected within such * period,
to deliver to the other Party a plan for curing such breach that is reasonably sufficient to
effect a cure within * of such notice. Such a plan shall set forth a program for
achieving cure as rapidly as practicable. Following delivery of such plan, the Breaching
Party shall use diligent
efforts to carry out the plan and cure the breach. For any breach arising from a
failure

*  The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934.  The confidential portions have been submitted separately to the Securities and
Exchange Commission.

44

 

to make a payment, the allegedly Breaching Party shall have * to cure such
breach. If any material breach is not cured as specified above, in addition to any other
remedy in law or in equity that a Party may have, the provisions of Sections 10.2(b),
10.2(c) and 10.2(d) shall apply.

     (b) Consequences of Material Breach by Aventis Relating to the Research Program. If a
material breach of Aventis relates to the Research Program and is not cured in accordance
with Section 10.2(a), then Avalon shall have the right to terminate the Research Program.
Upon such termination, this Agreement shall continue in full force and effect with respect
to Aventis’ further Development and Commercialization of any Collaboration Product for which
the associated DRG is either an SQT or Advanced SQT at the time of termination (including
the payment of Milestone Payments). For purposes of clarity, if Avalon terminates the
Research Program:

          (i) the licenses granted under Section 2.1 shall continue with respect to each
DRG that is an SQT or Advanced SQT at the time of termination;

          (ii) all DRGs which have not achieved SQT status shall become Reversion
Targets.

          (iii) Avalon will have no further obligations to perform activities under the
Research Program and Aventis will have no further funding obligations for the
Research Program; and

*  The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934.  The confidential portions have been submitted separately to the Securities and
Exchange Commission.

45

 

          (iv) The payment obligations of Aventis under Section 4.2 shall remain in
effect.

     (c) Consequences of Material Breach by Avalon Relating to the Research Program. If a
material breach of Avalon relates to the Research Program and is not cured in accordance
with Section 10.2(a), then Aventis shall have the right at its option to terminate Avalon’s
participation in the Research Program.

     (d) Upon such termination by Aventis, this Agreement shall continue in full force and
effect with respect to Aventis’ further Development and Commercialization of any
Collaboration Product for which the associated DRG is either an SQT or Advanced SQT at the
time of termination (including the payment of Event based payments). For purposes of
clarity, if Aventis terminates the Research Program:

          (i) the licenses granted under Section 2.1 shall continue with respect to each
DRG that is an SQT or Advanced SQT at the time of termination;

          (ii) All DRGs which have not achieved SQT status shall become Reversion
Targets.

          (iii) Avalon will have no further obligations to perform activities under the
Research Program and Aventis will have no further funding obligations for the
Research Program; and

*  The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934.  The confidential portions have been submitted separately to the Securities and
Exchange Commission.

46

 

          (iv) The payment obligations of Aventis under Section 4.2 shall remain in
effect.

     (e) Change of Control of Avalon. If Avalon enters into or proposes to enter into a
transaction which will result in a Change of Control during the Research Term and the Third
Party is an entity listed in Schedule 10.2(e), Avalon shall notify Aventis of such
transaction and the identity of the Third Party to such transaction and such notice may be
given at any time prior to entering into, or promptly following the consummation of, such
transaction. Within * of such notice, Aventis may, at its sole discretion, elect to
terminate Avalon’s participation in the Research Program (including Aventis’ FTE funding
obligation with respect thereto) by written notice to Avalon and such election shall be
treated as a termination under Section 10.2(b).

     10.3 Effect of Expiration or Termination.

     (a) The termination of this Agreement means that the rights and obligations of the
Parties under this Agreement are terminated, except those that survive under Section 10.3.

     (b) Termination, relinquishment or expiration of this Agreement for any reason shall be
without prejudice to any rights which shall have accrued to the benefit of either Party
prior to such termination, relinquishment or expiration.

     (c) Termination, relinquishment or expiration of this Agreement shall not terminate
Aventis’ obligation to pay all other payments that shall have accrued prior to

*  The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934.  The confidential portions have been submitted separately to the Securities and
Exchange Commission.

47

 

such termination. In addition, all of the parties’ rights and obligations under Sections 2.1(b),
3.3, 4.2, 5.2, 6.1, 7.5, 8.1, 8.2, 8.3, 9.1- 9.8, 10.1-10.3 and 12.10 shall survive
termination, relinquishment or expiration hereof.

ARTICLE 11

FORCE MAJEURE

     11.1 Events of Force Majeure. Except for payments due under this Agreement, neither Party
shall be held liable or responsible to the other Party nor be deemed to be in default under or in
breach of any provision of this Agreement for failure or delay in fulfilling or performing any
obligation of this Agreement when such failure or delay is due to force majeure, and without the
fault or negligence of the Party so failing or delaying. For purposes of this Agreement, force
majeure is defined as causes beyond the control of the Party, including, without limitation, acts
of God; acts, regulations, or laws of any government; war; civil commotion; destruction of
production facilities or materials by fire, flood, earthquake, explosion or storm; labor
disturbances; epidemic; and failure of public utilities or common carriers. In such event Aventis
or Avalon,
as the case may be, shall immediately notify the other Party of such inability and of the
period for which such inability is expected to continue. The Party giving such notice shall
thereupon be excused from such of its obligations under this Agreement as it is thereby disabled
from performing for so long as it is so disabled. To the extent possible, each Party shall use
reasonable efforts to minimize the duration of any force majeure.

*  The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934.  The confidential portions have been submitted separately to the Securities and
Exchange Commission.

48

 

ARTICLE 12

MISCELLANEOUS

     12.1 Relationship of Parties. Nothing in this Agreement is intended or shall be deemed to
constitute a partnership, agency, employer-employee or joint venture relationship between the
Parties. No Party shall incur any debts or make any commitments for the rather, except to the
extent, if at all, specifically provided herein.

     12.2 Assignment. Neither Party shall be entitled to assign its rights or duties hereunder
without the express written consent of the other Party hereto, except that both Aventis and Avalon
may otherwise assign their respective rights and transfer their respective duties hereunder to (a)
an Affiliate; provided that such assignment shall not relieve the assignor of its obligations under
this Agreement, or (b) any assignee or transferee of all or substantially all of their respective
businesses (or that portion thereof to which this Agreement relates) or in the event of their
respective merger or consolidation or similar transaction. No assignment and transfer shall
be valid or effective unless and until the assignee/transferee shall agree in writing to be bound
by the provisions of this Agreement in which case the Agreement will inure to the benefit of such
successors and assigns.

     12.3 Further Actions. Each Party agrees to execute, acknowledge and deliver such further
instruments, and to do all such other acts, as may be necessary or appropriate in order to carry
out the purposes and intent of this Agreement.

*  The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934.  The confidential portions have been submitted separately to the Securities and
Exchange Commission.

49

 

     12.4 Notice. Any notice or request required or permitted to be given under or in connection
with this Agreement shall be deemed to have been sufficiently given if in writing and personally
delivered or sent by certified mail (return receipt requested), facsimile transmission (receipt
verified), or overnight express courier service (signature required), prepaid, to the Party for
which such notice is intended, at the address set forth for such Party below:

	 	 	 
	(a)

	 	In the case of Aventis, to:
	 
	

	 	Aventis Pharmaceuticals Inc.
	

	 	200 Crossing Boulevard
	

	 	Bridgewater, New Jersey 08807-0890
	

	 	Attention: Vice President, Legal Corporate Development
	

	 	Facsimile No. : (908) 231-4480
	 
	 	 
	(b)

	 	In the case of Avalon, to:
	 
	 	 
	

	 	Avalon Pharmaceuticals, Inc.
	

	 	20358 Seneca Meadows Parkway
	

	 	Germantown, Maryland 20876
	

	 	Attention: CEO
	

	 	Facsimile No.: (301) 556-9910

or to such other address for such Party as it shall have specified by like notice to the other
Party, provided that notices of a change of address shall be effective only upon receipt thereof.

*  The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934.  The confidential portions have been submitted separately to the Securities and
Exchange Commission.

50

 

If delivered personally or by facsimile transmission, the date of delivery shall be deemed to be
the date on which such notice or request was given. If sent by overnight express courier service,
the date of delivery shall be deemed to be the next business day after such notice or request was
deposited with such service. If sent by certified mail, the date of delivery shall be deemed to be
the third business day after such notice or request was deposited with the U.S. Postal Service.

     12.5 Use Of Name. Except as otherwise provided herein, neither Party shall have any right,
express or implied, to use in any manner the name or other designation of the other party or any
other trade name or trademark of the other Party for any purpose in connection with the performance
of this Agreement.

     12.6 Waiver. A waiver by either Party of any of the terms and conditions of this Agreement in
any instance shall not be deemed or construed to be a waiver of such term or condition for the
future, or of any subsequent breach hereof. All rights, remedies, undertakings, obligations and
agreements contained in this Agreement shall be cumulative and none of them shall be in limitation
of any other remedy, right, undertaking, obligation or agreement of either Party.

     12.7 Compliance with Law. Aventis agrees to comply with all applicable laws, rules and
regulations with respect to the import, export, manufacture, use and sale of Collaboration Product.

*  The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934.  The confidential portions have been submitted separately to the Securities and
Exchange Commission.

51

 

     12.8 Severability. When possible, each provision of this Agreement will be interpreted in
such manner as to be effective and valid under applicable law, but if any provision of this
Agreement is held to be prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement and the parties shall negotiate, in good faith, a new provision which
will, as closely as possible, carry out the intentions of the parties provided for in the
invalidated provision.

     12.9 Amendment. No amendment, modification or supplement of any provisions of this Agreement shall be valid or
effective unless made in writing and signed by a duly authorized officer of each Party.

     12.10 Governing Law. This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Delaware without regard to its choice of law principles.

     12.11 Entire Agreement. This Agreement, together with the Exhibits hereto, sets forth the
entire agreement and understanding between the Parties as to the subject matter hereof and merges
all prior discussions and negotiations between them, and neither of the Parties shall be bound by
any conditions, definitions, warranties, understandings or representations with respect to such
subject matter other than as expressly provided herein or as duly set forth on or subsequent to the
date hereof in writing and signed by a proper and duly authorized officer or representative of the
Party to be bound thereby.

*  The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934.  The confidential portions have been submitted separately to the Securities and
Exchange Commission.

52

 

     12.12 Parties in Interest. All the terms and provisions of this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the Parties hereto and their respective
permitted successors and assigns.

     12.13 Descriptive Headings. The descriptive headings of this Agreement are for convenience only, and shall be of no force
or effect in construing or interpreting any of the provisions of this Agreement.

     12.14 Counterparts. This Agreement may be executed simultaneously in any number of
counterparts, any one of which need not contain the signature of more than one Party but all such
counterparts taken together shall constitute one and the same agreement.

     12.15 No Consequential Damage. NEITHER PARTY HERETO WILL BE LIABLE FOR SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT OR THE EXERCISE OF ITS RIGHTS HEREUNDER,
INCLUDING WITHOUT LIMITATION LOST PROFITS ARISING FROM OR RELATING TO ANY BREACH OF THIS AGREEMENT,
REGARDLESS OF ANY NOTICE OF SUCH DAMAGES. NOTHING IN THIS SECTION 12.15 IS INTENDED TO LIMIT OR
RESTRICT THE INDEMNIFICATION RIGHTS OR OBLIGATIONS OF EITHER PARTY WITH RESPECT TO THIRD PARTY
CLAIMS.

     12.16 Section 365(n) of the Bankruptcy Code. All rights and licenses granted under or
pursuant to any section of this Agreement are, and shall otherwise be deemed to be, for purposes of
Section 365(n) of the Bankruptcy Code, licenses of rights to “intellectual property”

*  The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934.  The confidential portions have been submitted separately to the Securities and
Exchange Commission.

53

 

as defined
under Section 101(35A) of the Bankruptcy Code. The Parties shall retain and may fully exercise all
of their respective rights
and elections under the Bankruptcy Code. Upon the bankruptcy of any Party, the non-bankrupt
Party shall further be entitled to a complete duplicate of (or complete access to, as appropriate)
any such intellectual property, and such, if not already in its possession, shall be promptly
delivered to the non-bankrupt Party, unless the bankrupt Party elects to continue, and continues,
to perform all of its obligations under this Agreement.

     12.17 Affiliates. Each Party may perform its obligations and exercise its rights under this
Agreement personally or through one or more of its Affiliates, and each Party shall nonetheless be
solely responsible for the performance of its Affiliates with respect to such obligations performed
by its Affiliate. Neither Party shall permit any of its Affiliates to commit any act (including
any act of omission) which that Party is prohibited hereunder from committing directly. Each Party
warrants and guarantees that all of its Affiliates will perform in accordance with this Agreement
as if they were signatories to this Agreement. A Party shall be liable to the other Party for any
breach of this Agreement by any of its Affiliates.

[Signature Page Follows]

*  The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934.  The confidential portions have been submitted separately to the Securities and
Exchange Commission.

54

 

     IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed by its duly
authorized officer as of the day and year first above written.

	 	 	 	 	 	 	 
	 	 	AVALON PHARMACEUTICALS, INC.
	 
	 	 	 	 	 	 
	

	 	By:
	 	 	 	/s/   Kenneth C. Carter, Ph.D.
	 	 	 	 	 
	

	 	 	 	 	 	Name: Kenneth C. Carter, Ph.D.
	

	 	 	 	 	 	Title: President and CEO
	 
	 	 	 	 	 	 
	 	 	AVENTIS PHARMACEUTICALS INC.
	 
	 	 	 	 	 	 
	

	 	By:
	 	 	 	/s/  Thomas Hofstaetter
	 	 	 	 	 
	

	 	 	 	 	 	Name: Thomas Hofstaetter
	

	 	 	 	 	 	Title: Senior Vice President, Corporate Development

*  The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934.  The confidential portions have been submitted separately to the Securities and
Exchange Commission.

55

 

Schedule 1.1

Advanced SQT (AdvSQT)

An Advanced SQT is a SQT with the additional following criteria:

	 	-  	* in samples from patient
tumors *
	 
	 	-  	Functional validation by * indicates a * with *

A patent search has been completed and Freedom to Operate established

Candidate Amplicon

A candidate amplicon is a * in cancer models that is selected according
to the following criteria:

	 	-  	*
	 
	 	-  	*
	 
	 	-  	*
	 
	 	-  	*
	 
	 	-  	*
	 
	 	-  	*

Disease Related Gene (DRG)

A DRG is a * with the additional following criteria:

	 	-  	*
	 
	 	-  	*
	 
	 	-  	*

*  The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934.  The confidential portions have been submitted separately to the Securities and
Exchange Commission.

56

 

*

Scientifically Qualified Target (SQT)

A SQT is a * following criteria:

	 	-  	*

*

*  The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934.  The confidential portions have been submitted separately to the Securities and
Exchange Commission.

57

 

Schedule 1.7

Avalon Validation Activities

      *

Additional outside services:

To date, we have pursued the following activities through outside contracts. The Parties recognize
the scientific value of these techniques. Avalon can obtain and coordinate these services,
provided that Aventis pays the cost of leaving the work done by a third party.

	 	1.  	FISH to tissue microarrays (TMA)
	 
	 	2.  	Affymetrix expression profiling
	 
	 	3.  	Antibody production

*  The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934.  The confidential portions have been submitted separately to the Securities and
Exchange Commission.

58

 

Schedule 1.20

Early Development Compound (EDC)

Avalon – Aventis Target Collaboration

December 9, 2003

	 	 	 	 	 	 	 	 	 
	 
	 	Prerequisites of Decision to	 	 	 	 	 	 	 
	 	select an Early Development	 	 	 	 	 	Functional Representative	 
	 	Compound (EDC)	 	 	Target / Expectation	 	 	Responsible	 
	 	Disease Group

	 	Activity in advanced disease

models (in vitro/in vivo)

	 	 	To be more precisely defined by

DG representatives
	 	 	DG	 
	 	Selectivity, specificity,
tolerability, etc.

	 	 	 	 	 	DG	 
	 	Evidence of intended biological
effect

	 	 	 	 	 	DG	 
	 	Specific Pharmacology

	 	In vivo dose related activity in an
appropriate/validated disease
model (if possible) by proposed
clinical route. Investigate
whether effects are related to
mechanism of action

	 	 	 	 	 	DG	 
	 	Completion of selectivity profile

	 	 	 	 	 	DG	 
	 	Chemistry / Chemical Development

	 

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

1

 

	 	 	 	 	 	 	 	 	 
	 
	 	Prerequisites of Decision to	 	 	 	 	 	 	 
	 	select an Early Development	 	 	 	 	 	Functional Representative	 
	 	Compound (EDC)	 	 	Target / Expectation	 	 	Responsible	 
	 	Description of synthesis (non-
clinical quality)

	 	 	Feasibility assessment that API

can be produced at large scale
	 	 	Chemical Development /Medicinal

Chemistry	 
	 	
*
	 	 	
*	 	 	Chemical Development /Medicinal

Chemistry	 
	 	Program for selection of API
form (salt, free base, acid)

	 	 	
*	 	 	Chemical Development /Medicinal

Chemistry / GPD	 
	 	Identification of back up
compounds and criteria for
selection

	 	 	 	 	 	Chemical Development /Medicinal

Chemistry	 
	 	Availability of reference
compounds (if necessary)

	 	 	 	 	 	Chemical Development /Medicinal

Chemistry/	 
	 	Pharmaceutical Development

	 	Stability, early estimate

	 	 	According to prerequisites from
TPP regarding formulations /routes
of administration
	 	 	GPD AnSc / GPD PhSc	 
	 	First physico-chemical data:
	 	 	 	 	 	 	 
	 	solubility, log P, enantiomers,

salts, modifications, polymorphs

	 	 	 	 	 	GPD AnSc / GPD PhSc	 
	 

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

2

 

	 	 	 	 	 	 	 	 	 
	 
	 	Prerequisites of Decision to	 	 	 	 	 	 	 
	 	select an Early Development	 	 	 	 	 	Functional Representative	 
	 	Compound (EDC)	 	 	Target / Expectation	 	 	Responsible	 
	 	Preliminary assessment of chiral
or diastereomeric purity

	 	 	 	 	 	GPD AnSc / GPD PhSc	 
	 	Identification of suitable
preclinical formulation for
identified candidate (from base
or salt form)

	 	 	 	 	 	GPD AnSc / GPD PhSc	 
	 	Active Pharmaceutical Ingredient

	 	
*
	 	 	
*	 	 	Project Leader / Project

Manager	 
	 	Drug Safety Evaluation (DSE)

	 	Gene mutation

(mutagenicity: Ames II)

	 	 	
*	 	 	DSE	 
	 	Clastogenicity (in vitro MNT)

	 	 	
*	 	 	DSE	 
	 

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

3

 

	 	 	 	 	 	 	 	 	 
	 
	 	Prerequisites of Decision to	 	 	 	 	 	 	 
	 	select an Early Development	 	 	 	 	 	Functional Representative	 
	 	Compound (EDC)	 	 	Target / Expectation	 	 	Responsible	 
	 	HERG channel assay: ratio
HERG IC50 to
pharmacologically
active concentration (ED50 or
ED90 depending on indication)

	 	 	
*	 	 	DSE	 
	 	Irwin test (CNS) and
Hemodynamic (BP, HR)
in rats: safety
margin as compared to
plasma level at efficacious dose
in animal model

	 	 	
*	 	 	DSE	 
	 	Specific toxicities: depending on
risks potentially associated with
a) the targeted (identified from
literature and/or KO/siRNA
studies), b) the chemical series
(e.g. Target Backup Blueprint,
DEREK), or c) results of first-in-
class profiling (e.g. TD50
toxicogenomics)

	 	 	As defined by LG plan on a case-

by-case basis (see above)
	 	 	DSE	 
	 	Drug Metabolism and
Pharmacokinetics (DMPK)

	 	Tests to be completed on
fully characterized drug
substance, preferably, i.e. crystal form, salt form,
particle size,
purity

	 

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

4

 

	 	 	 	 	 	 	 	 	 
	 
	 	Prerequisites of Decision to	 	 	 	 	 	 	 
	 	select an Early Development	 	 	 	 	 	Functional Representative	 
	 	Compound (EDC)	 	 	Target / Expectation	 	 	Responsible	 
	 	DMPK – in vitro

	 	Solubility – at pH7.4

	 	 	
*	 	 	DMPK / Medicinal Chemistry	 
	 	Pka characterized

	 	 	Characterize Only
	 	 	DMPK / Medicinal Chemistry	 
	 	Permeability – Caco-2 transport
(A to B)

	 	 	Medium rank or higher
	 	 	DMPK	 
	 	Permeability – Caco-2 eflux ratio

	 	 	Characterize only when BA is
too low
	 	 	DMPK	 
	 	Metabolic Stability – S9

metabolism rate

	 	 	High rank in human and one tax
species
	 	 	DMPK	 
	 	Major metabolite(s) identified

	 	 	Characterized Only (qualitatively)
	 	 	DMPK	 
	 	Involvement of polymorphic
enzyme pathways check

	 	 	Characterize Only
	 	 	DMPK	 
	 	Irreversible P450 enzyme

inhibition

	 	 	No irreversible P450 Inhibition
	 	 	DMPK	 
	 	Competitive P450 enzyme

inhibition

	 	 	IC50 > 10ìM for all isozymes

tested
	 	 	DMPK	 
	 	Plasma protein binding (human)

	 	 	Characterize Only
	 	 	DMPK	 
	 

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

5

 

	 	 	 	 	 	 	 	 	 
	 
	 	Prerequisites of Decision to	 	 	 	 	 	 	 
	 	select an Early Development	 	 	 	 	 	Functional Representative	 
	 	Compound (EDC)	 	 	Target / Expectation	 	 	Responsible	 
	 	Blood, Plasma and GI fluid
stability

	 	 	> 80% remaining at 4 hours
	 	 	DMPK	 
	 	DMPK – In vivo

	 	Absolute oral bioavailability
(ABA), (oral products only –
using aqueous solutions or
Hydroxy Ethyl Cellulose (HEC)
suspensions or clinically
accepted formulation).
Note: Compounds failing ABA test can
be progressed if > 20% ABA can
be achieved using clinically
acceptable formulations

	 	 	>20% in 2 animal species
	 	 	DMPK (with input from GPD as

appropriate)	 
	 

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

6

 

	 	 	 	 	 	 	 	 	 
	 
	 	Prerequisites of Decision to	 	 	 	 	 	 	 
	 	select an Early Development	 	 	 	 	 	Functional Representative	 
	 	Compound (EDC)	 	 	Target / Expectation	 	 	Responsible	 
	 	Half-life of parent or active
major metabolite. Note:Compounds
failing half-life test
can be progressed if oral ABA
and pharmaceutical properties
clearly demonstrate sustained
release formulation feasibility in
man and/or by a clear
demonstration of longer
biological activity. A clear
PK/PD relationship should be
established to explain the time
delay and duration of response

	 	 	>50% of target half-life in 1
animal species

Guide: (for projected BID
Human, i.e. target profile)
Mouse > 1.8h, Rat > 3h, Cyno
monkey 5.7h, dog > 7h
	 	 	DMPK	 
	 	Brain penetration if relevant
when given by the intended route
of administration

	 	 	Brain exposure > target IC50
	 	 	DMPK	 
	 	Preliminary metabolic profile

(one species)

	 	 	Characterize Only
	 	 	DMPK	 
	 	Preliminary PK/PD relationship

	 	 	Characterize Only
	 	 	DMPK	 
	 	Clinical Discovery & Human Pharmacology (CDHP)

	 

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

7

 

	 	 	 	 	 	 	 	 	 
	 
	 	Prerequisites of Decision to	 	 	 	 	 	 	 
	 	select an Early Development	 	 	 	 	 	Functional Representative	 
	 	Compound (EDC)	 	 	Target / Expectation	 	 	Responsible	 
	 	Identify/develop possible
linkages between preclinical
POM/POC with clinical plans –
identify potential biomarkers and
PGX markers for use in clinical
trials. Preliminary (3 to 6 months
prior to Ph I/IIa Decision) plans
(CDP1) for Ph I/IIa studies FIM

	 	 	Identify BMs for POM/POC
studies; Identify strategy (e.g.,
IND) / potential study sites,
Identify go/no-go criteria;
Develop plans for
Biomarkers/PGx for POM/POC
studies as well as inclusion of
WOCBP.
	 	 	CDHP / DSE / DMPK (LO)	 
	 	Determine starting doses for
FIM, safety, Clinical PK issues
once appropriate DSE studies are
completed and if available

	 	 	Review DSE/eADME data for
targeted organ toxicity, safety
margins, QTc issues, BA, etc.
	 	 	CDHP / DSE / DMPK (LO)	 
	 	Drug Regulatory (GRAMS)

	 	Preliminary regulatory strategy

assessment

	 	 	 	 	 	GRAMS	 
	 	Project Documentation (Project Team)

	 	Preliminary Product Profile

	 	 	 	 	 	Project Team	 
	 	Preliminary Development Plan

	 	 	 	 	 	Project Team	 
	 	Table listing criteria and actual
results

	 	 	 	 	 	Project Team	 
	 	Patent

	 

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

8

 

	 	 	 	 	 	 	 	 	 
	 
	 	Prerequisites of Decision to	 	 	 	 	 	 	 
	 	select an Early Development	 	 	 	 	 	Functional Representative	 
	 	Compound (EDC)	 	 	Target / Expectation	 	 	Responsible	 
	 	Patent application filed on

structure

	 	 	 	 	 	Patent	 
	 	Freedom of operation

	 	 	 	 	 	Patent	 
	 	Patent applications or invention
Disclosure Memoranda (IDMs)
filed on surrounding technology
(processes, chemical
intermediates, methods of use,
and the like)

	 	 	 	 	 	Patent	 
	 	Marketing

	 	Marketing statement of interest
(based on TPP and Alternative
TPPs within six months after
Decision EDC is taken

	 	 	 	 	 	Marketing	 
	 

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

9

 

Schedule 1.43

Research Plan

Avalon — Aventis Target Collaboration

December 9, 2003

A. Selection of * for Analysis

	1.  	Aventis has defined the initial criteria for selection of amplicons.

	 	a.  	Initial criteria are:

	 	*  	 

	2.  	Upon contract signing, Avalon will select * database which best meet the initial criteria. (Note: Each of the *
will be
associated with a specific cancer cell line that carries the * . This cell line will be
the focus for the molecular analysis that is conducted herein for
that * .)
	 
	3.  	Within 3 weeks of the Effective Date, Avalon will present the following information to
Aventis for each of the * :

	 	*  	 

Avalon will also present information to Aventis that details the process of how the *
were selected, based upon the application of the criteria. This will, for
example, include information on the starting number of surveyed and the attrition
rate of amplicons (i.e. how many * were removed from consideration at each step,
based upon the application of the criteria).

	4.  	Aventis has the option to accept or reject each * for further consideration within the
collaboration. Aventis will provide a decision with regard to each * upon the later of
7 days of data presentation or 7 days after the Effective Date.

	5.  	For each * that is rejected, Avalon will select and present a replacement * .
In total, Avalon will present information on a * at

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

1

 

	   	this stage of the Research Program – selected based upon Aventis criteria — out of which
Aventis can select a maximum of * within this initial collaboration.

B. Molecular Identification of * for Each *

     
1. Upon acceptance of each * by Aventis, Avalon will define the * by:

	 	*	 

Based upon this analysis, a * will be defined as the
* that
demonstrate strong correlation between DNA amplification and RNA overexpression.

	2.  	Once the * from an * has/have been defined, * will be used to analyze the
amplification and overexpression of the * from all cell lines within the Avalon
cytogenetics database that contain an amplification/gain that overlaps the * of
interest.

	3.  	Upon completion of the * , Avalon will present the data to Aventis for the * from each of the *
.. This data will include:

	 	* 	 
	 
	 	* 	 

	4.  	Aventis has the right to accept or reject each * for further consideration within the
collaboration. Aventis shall provide a decision with regard to each * within 7 days of data
presentation.

	5.  	Aventis can select * from * .

[Note: In most cases, Avalon anticipates that the combination of * data will define an
individual * that is the likely oncogenic * . However, it is possible that
some * may contain more than one * at the completion of * analysis (i.e.
more than * that shows correlation between DNA amplification and RNA overexpression). In
such cases, for amplicons that Aventis selects for continued analysis, all candidate DRGrs within
the * will be advanced into * and, if still viable, all candidate DRGs will be
advanced into * ;]

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

2

 

C. * 

For each * accepted by Aventis, Avalon will:

	* 	 

Based upon this data, Aventis can advance or reject each
* status.

[Note: In most cases, Avalon anticipates that * across the cell line panel will define an
individual * that is the likely oncogenic target for * . However, it could be possible
that some * may still contain more than one * at the completion of Step
C (i.e. more than * that shows correlation between DNA amplification and RNA overexpression
across the cell line panel). In such cases, for * that Aventis selects for continued analysis,
all * within a given * will be advanced into * and, for the
purpose of calculation of the contract milestone for * , all candidate * from a given
amplicon will be treated as * .]

D. * 

For each * by Aventis, Avalon will:

	* 	 

[Note 1: Steps l & 2 above are performed for the purpose of selecting and validating a good probe
that can be used for subsequent FISH analysis to tissue microarrays (TMA), if desired.]

	3.  	Perform * on DNA obtained from human tumors or human cancer xenografts provided by Aventis
to potentially evaluate amplification frequency.

[Note 2: In the event that Aventis will conduct * experiments, Avalon will share necessary
protocols to ensure comparability of * results between Avalon & Aventis. In fact, in all cases
and for all procedures that are performed at both locations (i.e. Avalon and Aventis), the
companies will share or exchange relevant protocols to again ensure reproducibility of results.
For clarification, this does not imply a commitment for technology transfer.]

	4.  	Develop * reagents and experimental conditions
	 
	5.  	Provide analysis of * (and * provided by Aventis) by

	 	a.  	* 
	 
	 	b.  	* 

[Note 3: Avalon has an established working relationship with an external research organization
that is a leading expert at FISH hybridizations to TMA (e.g. such TMA’s typically contain approx
* tumor sections). For each individual * — if desired — Aventis may choose to request
* to determine frequency of amplification across clinical samples and establish prognostic
significance of the SQT. If * experiments are requested, Avalon will supply the necessary BAC
FISH probe to the external service provider and to Aventis, and will coordinate the * experiments
through this external service provider. Aventis will pay any Third Party costs for such * experiments.

For each * accepted, Aventis will:

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

3

 

	*   	

Based upon this data, Aventis can * .

* The asterisk denotes the confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the
Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities
Exchange Commission.

4

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