Document:

exv4w1

 

EXHIBIT 4.1

 

Avalon Pharmaceuticals, Inc.

     The following abbreviations, when used in the inscription on the face of this certificate, shall be
construed as though they were written out in full according to
applicable laws or regulations:

	 	 	 	 	 
	TEN COM

	 	—
	 	as tenants in common
	TEN ENT

	 	—
	 	as tenants by the entireties
	JT TEN

	 	—
	 	as joint tenants with right of survivorship and not as tenants in common

	 	 	 	 	 	 	 
	UNIF GIFT MIN ACT —

	 	 	 	Custodian	 	 
	 

	 	 
	 	 	 	 
	 

	 	(Cust.)
	 	 	 	(Minor)
	 
	 	 	 	 	 	 
	 	 	under Uniform Gifts to Minors Act.
	 
	 	 	 	 	 	 
	 	 	 
	 	 	(State)

Additional abbreviations may also be used though not in the above list.

	 	 	 	 	 
	For value received,

	 	 	 	hereby sell, assign and transfer unto
	 

	 	 	 	 

	 	 	 
	 	PLEASE INSERT SOCIAL SECURITY OR OTHER

IDENTIFYING NUMBER OF ASSIGNEE
	 
	 	 
	 
	 	 
	 
	 	 
	 
	 

 

(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)

 

	 	 	 
	 

	 	Shares
	 
	 	 

of the Capital Stock represented by the within Certificate, and do hereby irrevocably constitute
and appoint

	 	 	 
	 

	 	Attorney
	 
	 	 

to transfer the said stock on the books of the within named Corporation with full power of
substitution in the premises.

	 	 	 
	Dated
	 	 
	 

	 	 

	 	 	 
	 

	  	 
	NOTICE:

	  	THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF
THE CERTIFICATION IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.

	 	 	 
	SIGNATURE(S) GUARANTEED:
	 	 
	 

	 	 
	 

	  	THE SIGNATURE(S) SHOULD BE
GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS,
SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.exv10w1

 

Execution Copy

LICENSE, DEVELOPMENT AND COMMERCIALIZATION AGREEMENT

between

Vertex Pharmaceuticals Incorporated

and

Avalon Pharmaceuticals, Inc.

 

* The asterisk denotes the confidential portions of this document that have been omitted and filed separately with the
Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

 

TABLE OF
CONTENTS

	 	 	 	 	 
	 	 	Page	 
	ARTICLE I DEFINITIONS
	 	 	1	 
	 
	 	 	 	 
	ARTICLE II LICENSE
	 	 	9	 
	2.1 Grant to Avalon
	 	 	9	 
	2.2 Grant to Vertex
	 	 	10	 
	2.3 Information Transfer
	 	 	10	 
	2.4 Vertex Stand-still
	 	 	10	 
	2.5 No Implied Licenses
	 	 	11	 
	 
	 	 	 	 
	ARTICLE III DEVELOPMENT
	 	 	11	 
	3.1 Commencement of Development Program
	 	 	11	 
	3.2 Product Development Committee
	 	 	11	 
	3.3 *
	 	 	13	 
	3.4 Development Responsibility and Costs
	 	 	13	 
	3.5 Regulatory Approvals
	 	 	13	 
	3.6 Avalon Efforts in Development
	 	 	13	 
	3.7 Assistance Rights
	 	 	16	 
	 
	 	 	 	 
	ARTICLE IV MANUFACTURING AND SUPPLY
	 	 	17	 
	4.1 Supply of Material; Formulation and Packaging
	 	 	17	 
	4.2 Supply of Bulk Drug Substance for Clinical Trials
	 	 	17	 
	4.3 Supply of Laboratory Grade Compound
	 	 	18	 
	 
	 	 	 	 
	ARTICLE V COMMERCIALIZATION
	 	 	18	 
	5.1 Marketing and Promotion
	 	 	18	 
	5.2 Co-Labeling
	 	 	18	 
	5.3 Diligence
	 	 	18	 
	5.4 Vertex Promotional and Co-Promotional Rights
	 	 	19	 
	 
	 	 	 	 
	ARTICLE VI PAYMENTS
	 	 	20	 
	6.1 Consideration for License
	 	 	20	 
	6.2 Development Milestone Payments by Avalon
	 	 	20	 
	6.3 Royalties
	 	 	22	 
	6.4 Sales Reports; Payment of Royalties
	 	 	22	 
	6.5 Withholding Tax
	 	 	24	 
	6.6 Reduction in Payments
	 	 	24	 
	6.7 Interest
	 	 	24	 
	 
	 	 	 	 
	ARTICLE VII INTELLECTUAL PROPERTY
	 	 	25	 
	7.1 Patentable Inventions and Know-How
	 	 	25	 
	7.2 Infringement Claims by Third Parties
	 	 	26	 
	7.3 Infringement Claims Against Third Parties
	 	 	26	 

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

 

* The asterisk denotes the confidential portions of this document that have been omitted and filed separately with the
Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

 

	 	 	 	 	 
	 	 	Page	 
	7.4 Notice of Certification
	 	 	27	 
	7.5 Patent Term Extensions
	 	 	27	 
	 
	 	 	 	 
	ARTICLE VIII REPRESENTATIONS AND WARRANTIES
	 	 	27	 
	8.1 Representations and Warranties of Vertex
	 	 	27	 
	8.2 Representations and Warranties of Avalon
	 	 	29	 
	 
	 	 	 	 
	ARTICLE IX CONFIDENTIALITY
	 	 	30	 
	9.1 Undertaking
	 	 	30	 
	9.2 Exceptions
	 	 	31	 
	9.3 Publicity
	 	 	32	 
	9.4 Survival
	 	 	32	 
	 
	 	 	 	 
	ARTICLE X PUBLICATION
	 	 	32	 
	 
	 	 	 	 
	ARTICLE XI DISPUTE RESOLUTION
	 	 	33	 
	11.1 Governing Law and Jurisdiction
	 	 	33	 
	11.2 Dispute Resolution Process
	 	 	33	 
	11.3 Arbitration
	 	 	33	 
	 
	 	 	 	 
	ARTICLE XII TERM AND TERMINATION
	 	 	35	 
	12.1 Term
	 	 	35	 
	12.2 Termination for Cause
	 	 	35	 
	12.3 Termination by Vertex
	 	 	35	 
	12.4 Termination for Bankruptcy
	 	 	35	 
	12.5 Effect of Termination
	 	 	36	 
	 
	 	 	 	 
	ARTICLE XIII INDEMNIFICATION
	 	 	37	 
	13.1 Indemnification by Vertex
	 	 	37	 
	13.2 Indemnification by Avalon
	 	 	37	 
	13.3 Claims Procedures
	 	 	38	 
	13.4 Limitation of Liability
	 	 	38	 
	13.5 Compliance
	 	 	38	 
	13.6 Insurance
	 	 	38	 
	 
	 	 	 	 
	ARTICLE XIV MISCELLANEOUS PROVISIONS
	 	 	39	 
	14.1 Notice of Pharmaceutical Side-Effects
	 	 	39	 
	14.2 Waiver
	 	 	39	 
	14.3 Force Majeure
	 	 	39	 
	14.4 Severability
	 	 	39	 
	14.5 Government Acts
	 	 	39	 
	14.6 Government Approvals
	 	 	40	 
	14.7 Assignment
	 	 	40	 
	14.8 Affiliates
	 	 	40	 
	14.9 Counterparts
	 	 	40	 
	14.10 No Agency
	 	 	40	 

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

 

* The asterisk denotes the confidential portions of this document that have been omitted and filed separately with the
Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

 

	 	 	 	 	 
	 	 	Page	 
	14.11 Notice
	 	 	40	 
	14.12 Headings
	 	 	41	 
	14.13 Authority
	 	 	41	 
	14.14 Entire Agreement
	 	 	41	 
	14.15 Further Assurances
	 	 	41	 

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

 

* The asterisk denotes the confidential portions of this document that have been omitted and filed separately with the
Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

 

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-Page 1

 

* The asterisk denotes the confidential portions of this document that have been omitted and filed separately with the
Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

 

               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-Page 2

 

* The asterisk denotes the confidential portions of this document that have been omitted and filed separately with the
Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

 

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.

               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.

License, Development and Commercialization Agreement-Confidential-Page 3

 

* The asterisk denotes the confidential portions of this document that have been omitted and filed separately with the
Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

 

               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 Indication that is a cancer derived from
myelodysplastic syndrome or associated with the hematopioetic system, including but not
limited to all forms of leukemia, lymphoma and plasma cell dyscrasias (such as myeloma).

               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.

               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.

License, Development and Commercialization Agreement-Confidential-Page 4

 

* The asterisk denotes the confidential portions of this document that have been omitted and filed separately with the
Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

 

               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 the total of all costs incurred by a Party related
to manufacture of Compound, Bulk Drug Substance or Drug Product, *. Where appropriate,
allocation of costs will be based on the share of manufacturing capacity actually dedicated to
the manufacture of Compound, Bulk Drug Substance or Drug Product, as a percentage of the total
capacity that is practically available for all purposes, such that allocated costs will not
include * to other projects and to excess capacity.

               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 supplements
and amendments that may be filed with respect to the foregoing, and (b)

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* The asterisk denotes the confidential portions of this document that have been omitted and filed separately with the
Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

 

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 the gross amount invoiced by
Avalon and any Avalon Affiliate, or Sublicensee, as the case may be, for that Drug Product in
connection with sales to Third Parties in bona fide, arms-length transactions, less (i) trade, quantity and/or cash discounts from the gross invoice price
which are actually allowed or taken; (ii) freight, postage and insurance included in the
invoice price and that are customary for the industry; (iii) amounts repaid or credited by
reasons of rejections or return of goods or because of retroactive price reductions
specifically identifiable to the Drug Product; (iv) amounts payable resulting from government
(or agency thereof) mandated rebate programs with respect to the Drug Product being invoiced;
(v) Third Party rebates and charge-backs to the extent actually lawfully allowed; * all as
determined in accordance with generally accepted accounting principles (“GAAP”), consistently
applied by Avalon.

	 	1.52.1	 	In the case of any sale or other disposal of a Drug Product between
or among Avalon and its Affiliates, or their Sublicensees, for resale,
Net Sales shall be calculated only on the value charged or invoiced on
the first arm’s-length sale thereafter to any Third Party.
	 
	 	1.52.2	 	In the case of any sale which is not invoiced or is delivered before
invoice, Net Sales shall be calculated at the time of shipment or when
the Drug Product is paid for, if paid for before shipment or invoice.
	 
	 	1.52.3	 	In the case of any sale or other disposal for value, such as barter
or counter-trade, of any Drug Product, or part thereof, other than in
an arm’s length transaction exclusively for money, Net Sales shall be
calculated on the value of the consideration received or the fair
market price (if higher) of the Drug Product in the country of sale or
disposal.
	 
	 	1.52.4	 	In the event the Drug Product is sold in a finished dosage form
containing the Drug Product in combination or admixture with one or
more other active ingredients (a “Combination Product”), the
Net Sales of the Drug Product, for the purposes of determining royalty
payments, shall be determined by multiplying the Net Sales (as defined
above in this Section) of the Combination Product by the fraction,
A/(A+B) where A is the weighted (by sales volume) average sale price of
the Drug Product when sold separately in finished form and B is the
weighted average sale price of the other product(s) sold separately in
finished form. In the event that such average sale price cannot be
determined for both the Drug Product and the other product(s) in
combination, Net Sales for purposes of determining royalty payments
shall be mutually agreed by the

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* The asterisk denotes the confidential portions of this document that have been omitted and filed separately with the
Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

 

 

Parties prior to the First Commercial
Sale of any such Combination Product based on relative value
contributed by each component, and such agreement shall not be
unreasonably withheld.

	 	1.52.5	 	Net Sales with respect to Bulk Drug Substance shall mean Net Sales
(as defined herein) with respect sales of Drug Product into which such
Bulk Drug Substance is incorporated.

               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).

               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

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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.

               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.

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               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 of 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.

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

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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 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 * of any such receipt.

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          (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.

          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

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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.
	 
	 	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

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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.

          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

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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.

	 	 	 
	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

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          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 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

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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.

               (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

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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.

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

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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, 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

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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 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:
	 
	 	6.2.2	 	First Hematology Indication.

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	 	 	Payment	 
	Milestone Event	 	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.

	 	 	 	 
	 	 	Payment	 
	Milestone Event	 	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.

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	 	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 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)

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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 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

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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 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.

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	 	7.1.2	 	Patent Prosecution. Vertex shall be responsible for the
preparation, filing, prosecution and maintenance of all patents and patent
applications 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. * for preparation, filing, prosecution and maintenance of all Vertex Patents and
joint patents, *.

          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.

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          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 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

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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 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.

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	 	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 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, Vertex
has * directed to the *. As of the Effective Date, Vertex has *, and Vertex’s
current * does not include *. Vertex has not *.
	 
	 	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.

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Commission pursuant to Rule 406 of the Securities
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	 	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 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)	 	Have been derived from the books of account of
Avalon by Avalon in the ordinary course of business;
	 
	 	(b)	 	Are true and correct in all material respect;
	 
	 	(c)	 	Have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis, provided
that such financial statements do not include footnotes and lack year
end adjustments (which in the aggregate are not material) required by
GAAP; and
	 
	 	(d)	 	Fairly represent in reasonable detail all
assets and liabilities and the financial position of Avalon as of the
date thereof.

	 	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, to
Avalon’s knowledge, the Avalon Technology does not cover compounds whose
primary mechanism of action is IMPDH inhibition. As of the Effective Date,
Avalon is not currently conducting any research or development directed to the
discovery or development of small molecule inhibitors of IMPDH.

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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 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.

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          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;
	 
	 	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.

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	 	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.

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.

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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.

	 	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

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	 	 	 	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)	 	*

          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

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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 *.

          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.

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          (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 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;

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	 	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
	 
	 	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

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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.

	 	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,

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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 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.

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          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 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

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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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          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 Boger, Ph.D.
	 	 	 	 	 
	 

	 	 	 	Name:
	 	Joshua Boger, 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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Schedules and Exhibits

 

* The asterisk denotes the confidential portions of this document that have been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities
Act of 1933, as amended.

 

 

Schedule 1.12

VX-944

 

	 	 	 
	Compound Name:

	 	*
	 
	 	 
	Structure:
	 	 
	 
	 	 
	Comments:

	 	*
	 
	 	 
	TDS2004009.00

	 	CONFIDENTIAL

 

* The asterisk denotes the confidential portions of this document that have been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities
Act of 1933, as amended.

 

 

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.

 

* The asterisk denotes the confidential portions of this document that have been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities
Act of 1933, as amended.

 

 

Detailed project management timeline *:

*

 

* The asterisk denotes the confidential portions of this document that have been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities
Act of 1933, as amended.

 

 

*

 

* The asterisk denotes the confidential portions of this document that have been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities
Act of 1933, as amended.

 

 

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:

*

 

* The asterisk denotes the confidential portions of this document that have been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities
Act of 1933, as amended.

 

 

*:

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 twelve different xenografts 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 by *. 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 *:

*

 

* The asterisk denotes the confidential portions of this document that have been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities
Act of 1933, as amended.

 

 

Schedule 1.77

Vertex Patents

 

Part I

* Note: Those patents listed above that are underlined and italicized will be proposed for
abandonment by Q2’2005.

Part II

*

*

Part III

*

*

 

* The asterisk denotes the confidential portions of this document that have been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities
Act of 1933, as amended.

 

 

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
	 
	 	°	 	*
	 
	 	°	 	*

 

* The asterisk denotes the confidential portions of this document that have been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities
Act of 1933, as amended.

 

 

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.	 	*

 

* The asterisk denotes the confidential portions of this document that have been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities
Act of 1933, as amended.

 

 

Schedule 4.2

Stability Testing Specifications

*

 

* The asterisk denotes the confidential portions of this document that have been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities
Act of 1933, as amended.

 

 

*

 

* The asterisk denotes the confidential portions of this document that have been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities
Act of 1933, as amended.

 

 

Exhibit 8.2.4

 

* The asterisk denotes the confidential portions of this document that have been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities
Act of 1933, as amended.

 

 

Avalon Pharmaceuticals, Inc.

Balance Sheet-Unaudited

December 31, 2004

*

 

* The asterisk denotes the confidential portions of this document that have been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities
Act of 1933, as amended.

 

 

Avalon Pharmaceuticals, Inc.

Profit & Loss Budget vs. Actual

Unaudited

*

 

* The asterisk denotes the confidential portions of this document that have been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities
Act of 1933, as amended.

 

 

Avalon Pharmaceuticals, Inc.

Statement of Cash Flows-Unaudited

*

 

* The asterisk denotes the confidential portions of this document that have been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities
Act of 1933, as amended.

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