CONFIDENTIAL PORTIONS HAVE BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGEACT OF 1934 AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.

EXHIBIT 10.1

CONFIDENTIAL PORTIONS HAVE BEEN OMITTED BASED UPON A REQUEST

FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 OF THE

SECURITIES EXCHANGE ACT OF 1934 AND HAVE BEEN SEPARATELY FILED

WITH THE COMMISSION.

VITRASE^® AGREEMENT

THIS VITRASE^® AGREEMENT (the “Agreement”) is effective as of September 27, 2004 (the “Effective Date”), by and among Allergan Sales, LLC., a Delaware Limited Liability Company (“ASLLC”) (formerly Allergan Sales, Inc., a California Corporation), Allergan Pharmaceuticals Ireland, a Cayman Islands Company, (“API”) (successor in interest to Allergan Sales Ltd., an Irish corporation) (ASLLC and API shall collectively be referred to as “Allergan”), and ISTA Pharmaceuticals, Inc., a Delaware corporation (“ISTA”).

1. RECITALS

A. WHEREAS, ISTA has developed and holds patents and patent applications on a pharmaceutical formulation containing the enzyme hyaluronidase;

B. WHEREAS, ISTA and Allergan entered into the Original License Agreement (as defined below) regarding the development and distribution of a product tradenamed Vitrase^® as well as the Original Supply Agreement (as defined below) regarding the supply of Vitrase^®;

C. WHEREAS, ISTA has conducted clinical trials for the use of Vitrase^® to treat vitreous hemorrhages and ISTA received an “approvable’ letter from the FDA dated April 3, 2003, regarding its application for the approval of Vitrase^® to treat vitreous hemorrhage;

D. WHEREAS, ISTA has sought and obtained from the FDA an approval to market Vitrase^® as a spreading agent to facilitate the dispersion and absorption of other drugs;

E. WHEREAS, Allergan and ISTA desire to amend and restate their commercial arrangement as it relates to Vitrase^® pursuant to this Agreement.

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THEREFORE, in consideration of the premises and the mutual promises and covenants set forth below, Allergan and ISTA mutually agree as follows:

2. DEFINITIONS

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European Net Sales shall be calculated in accordance with ISTA’s standard internal U.S. GAAP reporting policies and procedures. Any discount, allowance, rebate, management fee or wholesaler chargeback for the Product which is given to a customer due to the purchase of a product other than the Product or due to the purchase of any service, shall not be taken into consideration for the calculation of

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European Net Sales. European Net Sales shall not include sales by ISTA to its Affiliates for resale, provided that if ISTA sells the Product to an Affiliate for resale, European Net Sales shall include the amounts invoiced by such Affiliate to Third Parties on the resale of such Product. A “sale” shall also include a transfer or other disposition for consideration other than cash, in which case such consideration shall be valued at the fair market value thereof.

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and results thereof, technology, know-how, discoveries, developments, improvements, techniques, data, methods, processes, instructions, formulae, drawings and specifications relating to the research, development, manufacture, registration, marketing or sale of the Products in the Field in the Allergan Territory, including without limitation, and with respect to the Products in the Field in the Allergan Territory.

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Net sales shall be calculated in accordance with ISTA’s standard internal U.S. GAAP reporting policies and procedures. Any discount, allowance, rebate, management fee or wholesaler chargeback for the Product which is given to a customer due to the purchase of a product other than the Product or due to the purchase of any service, shall not be taken into consideration for the calculation of Net Sales. Net Sales shall not include sales by ISTA to its Affiliates or sublicensees for resale, provided that if ISTA sells the Product to an Affiliate or sublicensee for resale, Net Sales shall include the amounts invoiced by such Affiliate or sublicensee to Third Parties on the resale of such Product. A “sale” shall also include a transfer or other disposition for consideration other than cash, in which case such consideration shall be valued at the fair market value thereof.

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3. TERMINATION OF ORIGINAL AGREEMENTS

3.1 Termination:

Effective as of the Effective Date, Allergan and ISTA hereby terminate the following agreements, which shall no longer have any force and effect except as set forth in this Section 3.1: (i) the Original License Agreement; (ii) the Original Supply Agreement; (iii) that certain ISTA Pharmaceuticals, Inc. Series D Preferred Stock Purchase Agreement dated March 29, 2000, between ISTA and an Affiliate of Allergan, except Section 8.1 of the ISTA Pharmaceuticals, Inc. Series D Preferred Stock Purchase Agreement, which shall survive this termination; (iv) that certain Amended and Restated

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Investors Rights Agreement dated March 29, 2000, among ISTA, an Affiliate of Allergan and certain other ISTA investors, as the same may have been amended through the date hereof, except Section 2(j) of the Amended and Restated Investors Rights Agreement, which shall survive this termination ; (v) that certain Amended and Restated First Refusal and Co-Sale Agreement dated March 29, 2000, among ISTA, an Affiliate of Allergan and certain other ISTA investors, as the same may have been amended through the date hereof; and (vi) that certain Credit Agreement between ISTA and Allergan Sales, Inc. attached as a schedule to the Original License Agreement, as the same may have been amended through the date hereof (collectively, with the Original License Agreement and the Original Supply Agreement, the “Original Agreements”). Pursuant to the terms of the Original License Agreement, Section 14 shall survive the termination of the Original License Agreement hereunder; pursuant to the terms of the Original Supply Agreement, Article 7 shall survive the termination of the Original Supply Agreement hereunder. For the avoidance of any doubt, except as provided in this Agreement, Allergan shall have no rights of any kind to Vitrase^® or otherwise arising under the Original Agreements and Allergan shall be released of any and all obligations, milestone payments or royalty obligations otherwise due under the Original Agreements.

3.2 Termination Fee:

In consideration for Allergan’s agreement to terminate the Original Agreements, ISTA shall pay to Allergan a termination fee (the “Termination Fee”) of ten million dollars ($10,000,000), due on the following schedule:

3.2.1 ISTA shall pay to ASLLC $6.5 million within fifteen (15) calendar days of the Effective Date;

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3.2.2 ISTA shall pay to API $3.5 million within the later of fifteen (15) calendar days after that date on which a Capital Infusion Event has occurred or five (5) calendar days after the Effective Date;

3.2.3 ISTA shall use its commercially reasonable efforts to expeditiously consummate a Capital Infusion Event as soon as commercially possible;

3.2.4 The $3.5 million due API pursuant to Section 3.2.2 shall earn interest, calculated from the Effective Date until payment is made, at the rate of the higher of (i) [             *             ] per annum or (ii) 30-day LIBOR plus [                 *                 ] per annum (the “Allergan Rate”). For purposes of this agreement, the Wall Street Journal (Western Edition) 30-day LIBOR rate shall be used as the reference benchmark. Interest will continue to be earned in perpetuity until the $3.5 million outstanding obligation is paid to API.

3.3 Allergan Royalty:

In additional consideration for Allergan’s agreement to terminate the Original License Agreement and Original Supply Agreement, ISTA shall, for a period of [             *             ] from the Effective Date, pay to ASLLC the Allergan Royalty due on Net Sales. Each Allergan Royalty payment shall be made on a quarterly basis and is due within thirty (30) days after the close of each calendar quarter to which the Allergan Royalty applies.

3.4 Audit:

Upon the written request of Allergan, but not more than once each calendar year, ISTA shall permit an independent public accountant selected by Allergan and acceptable to ISTA, which acceptance shall not be unreasonably withheld or delayed, to have access

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during normal business hours to such of the records of ISTA as may be reasonably necessary to verify the accuracy of calculations of the Allergan Royalty hereunder in respect of any quarter or quarters ending not more than [                 *                ] prior to the date of such request. In the event such accountant concludes that higher Allergan Royalties were owed to Allergan during such period than reported by ISTA, the difference between the Allergan Royalty owed to Allergan and the Allergan Royalties actually paid to Allergan shall be paid by ISTA to Allergan within thirty (30) days of the date Allergan delivers to ISTA such accountants’ written report so concluding, along with interest on such sum at the Allergan Rate. The fees charged by such accountant shall be paid by Allergan unless the audit discloses that the Allergan Royalties are understated by more than [                 *            ] of the actual Allergan Royalties due for such period, in which case ISTA shall pay the reasonable fees and expenses charged by the accountant. Allergan agrees that all information subject to review under this Section 3.4 is confidential and that it shall cause its accountant to retain all such information in confidence.

4. EUROPEAN DEVELOPMENT; ALLERGAN’S EUROPEAN COMMERCIALIZATION OPTION

4.1 ISTA shall, at its expense, apply for regulatory approval of the Product for vitreous hemorrhage in the Allergan Territory (through a centralized filing with the European Medicines Evaluation Agency (or any successor entity thereto) “EMEA”) using the preclinical and clinical trial data existing as of the Effective Date, such approval not to include any approvals that may be required for pricing in the Allergan Territory (the “EU Regulatory Filing”). In making and prosecuting the EU Regulatory Filing, ISTA shall be responsible for making all decisions following any input received from Allergan.

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ISTA shall make the EU Regulatory Filing within [        *        ] of the Effective Date and shall use its commercially reasonable efforts to obtain regulatory approval of the EU Regulatory Filing. ISTA shall promptly provide to Allergan copies of all material correspondence received from, and written summaries of material telephone conversations with, EMEA and other agencies and parties such as the rapporteur and co-rapporteur relating to the prosecution of the EU Regulatory Filing.

4.2 Subject to the terms and conditions of this Agreement, ISTA hereby grants to API an option to commercialize the Product in the Field pursuant to the EU Regulatory Filing in any and all countries in the Allergan Territory of Allergan’s choosing (the “European Option”). The European Option may be exercised at any time following the Effective Date up to and including [        *        ] after the approval of the EU Regulatory Filing (the “European Option Period”). API shall provide ISTA written notice of its exercise of the European Option and may do so at any time during the European Option Period.

4.3 In the event API exercises the European Option, API and ISTA shall enter into a European license agreement and related supply agreement on substantially the same terms as those that relate to European commercialization rights in the Original License Agreement and Original Supply Agreement, including without limitation, the royalty rates and milestone payments applicable to the Allergan Territory in the Original License Agreement. API shall thereafter, consistent with the requirements of the executed license and supply agreements, launch the Product in the Field in the Allergan Territory within [        *        ] from receipt of approval of the EU Regulatory Filing. The executed license agreement shall provide for the reversion of the rights granted to Allergan thereunder in the Allergan Territory, as ISTA’s sole and exclusive remedy, if the Product is not

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launched in the Field in the Allergan Territory within such [            *            ] period. Notwithstanding the foregoing, upon the exercise of the European Option, the parties shall mutually agree on a supply price in the Allergan Territory, taking into account current cost structure associated with the Product.

4.4 In connection with the execution of the license and supply agreements described in Section 4.3 above, and solely following the exercise of the European Option hereunder, ISTA shall grant to API and its Affiliates, an exclusive license under the Licensed Technology, to use, market, distribute, offer to sell and sell the Product in the Field in the Allergan Territory under the EU Regulatory Filing. The license granted may only be sublicensed to an Affiliate of API and then only if such Affiliate agrees to be bound by all the terms and conditions of the applicable license and supply agreements as if it were API.

4.5 In the event that API declines to exercise the European Option, API shall provide written notice to ISTA of such decision no later than the end of the European Option Period (the “Decline Notice”). Failure to provide the Decline Notice within such time period shall result in reversion of all rights to the Product in the Allergan Territory to ISTA with no financial consideration being paid to API, Allergan or any of its Affiliates under this Section 4.

4.6 Upon receipt of the Decline Notice within the European Option Period, and in consideration of Allergan’s decision pursuant to the Decline Notice, all rights to the Product in the Allergan Territory shall revert to ISTA and ISTA shall thereafter pay to API or its affiliated designee a royalty of [        *        ] on European Net Sales.

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4.7 If the EU Regulatory Filing is not approved by EMEA within [            *            ] following submission of the filing by ISTA hereunder, notwithstanding ISTA using commercially reasonable efforts to obtain such approval, all rights to the Product in the Allergan Territory shall revert to ISTA. If the EU Regulatory Filing is thereafter approved by EMEA, ISTA shall make the royalty payments set forth in Section 4.6 above.

4.8 Each payment under this Section 4 shall be made on a quarterly basis and is due within (a) [            *            ] after the close of each calendar quarter in which the sales were made, to the extent such sales are made by ISTA or its Affiliates directly to health care providers; or (b) [                    *                    ] after the close of each calendar quarter in which the sales were made, to the extent such sales are made by a licensee, sublicensee, distributor, agent or the like, as set forth in Section 2.9. Allergan shall have audit rights as set forth in Section 3.4 of this Agreement with respect to the European Net Sales substituting such term for “Allergan Royalty” throughout.

5. REPRESENTATIONS AND WARRANTIES

5.1 ISTA hereby represents and warrants that:

5.1.1 Authority. ISTA has the full right, power and corporate authority to enter into this Agreement, and to make the promises and grant the licenses set forth in this Agreement and that there are no outstanding agreements, assignments or encumbrances in existence inconsistent with the provisions of this Agreement.

5.1.2 Ownership, Title. ISTA is the sole and exclusive owner or exclusive licensee of the entire right, title and interest in and to each of the Licensed Patents, and all of the Licensed Know-How and has the right to grant rights

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therein to Allergan in the Allergan Territory. All employees, consultants, advisors or contractors who have developed or assisted, in the development, or will develop or assist in the development of the Licensed Technology, have executed valid assignments of their rights to ISTA.

5.1.3 Litigation. To the best of ISTA’s knowledge as of the Effective Date, there are no litigation, actions, claims or suits by a Third Party threatened or pending before any court or governmental agency or other tribunal relating to the Licensed Patents or Licensed Know-How.

5.1.4 No Third Party Rights. ISTA has not authorized and shall not during the European Option Period authorize Third Parties to practice or otherwise grant rights or licenses to market and sell the Product in the Field in the Allergan Territory.

5.1.5 Validity and Infringement. As of the Effective Date, ISTA is not aware of any prior act or any fact which would cause it to conclude that any Licensed Patent is invalid or unenforceable, provided however, that ISTA expressly does not warrant that any ISTA patent is valid or enforceable.

5.1.6 Product Formulation. To the best of ISTA’s knowledge as of the Effective Date (other than as disclosed in writing to Allergan by way of a disclosure letter on the Effective Date) there are no defects in design or formulation of the Product which would adversely and unduly affect its performance or create an unusual and undue risk of injury to person or property.

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forth in this Agreement and that there are no outstanding agreements, assignments or encumbrances in existence inconsistent with the provisions of this Agreement; and (ii) the execution, delivery and performance of this Agreement does not conflict with any agreement, instrument or understanding, oral or written, to which Allergan is a party or by which it is bound, nor to Allergan’s knowledge, violate any law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it.

6. INDEMNIFICATION

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product liability; or (ii) prior to API’s exercise of the European Option hereunder, arise from ISTA’s use of the Product in the Allergan Territory; or (iii) arise from claims that the Product or its manufacture, use or sale infringes a patent, trademark or other proprietary right of a Third Party; or (iv) arise from a breach of a representation or warranty in Section 5.

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7. RELEASE

7.1 Allergan’s Release. Allergan and its Affiliates, for themselves and their agents, successors and assigns, do hereby forever release and discharge ISTA, its Affiliates, and any of their past or present agents, employees, officers, directors, attorneys and suppliers from any causes of action, losses, damages, costs, expenses, liabilities and/or demands of whatsoever character, nature and kind, known or unknown, suspected or unsuspected, fixed or contingent, arising out of or in any way related to the Original Agreements and/or the Product.

7.2 ISTA’S Release. ISTA and its Affiliates, for themselves and their agents, successors and assigns, do hereby forever release and discharge Allergan, its Affiliates, and any of their past or present agents, employees, officers, directors, attorneys and suppliers, from any causes of action, losses, damages, costs, expenses, liabilities and/or demands of whatsoever character, nature and kind, known or unknown, suspected or unsuspected, fixed or contingent, arising out of or in any way related to the Original Agreements and/or the Product.

7.3 Waiver of Section 1542 of the California Civil Code and Similar Statutes. The parties specifically understand, acknowledge and agree that this is a full and final release, which shall be effective as a bar to all actions, claims, counterclaims, obligations, causes of action, losses, damages, costs, expenses, liabilities and demands of whatsoever character, nature and kind, known or unknown, suspected and unsuspected, fixed and contingent, hereinabove specified to be so barred. The parties having been fully advised

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by their respective counsel, hereby expressly and voluntarily waive all rights or benefits that they and each of them might otherwise have under the provisions of § 1542 of the Civil Code of the State of California, and under all federal, state and/or common law statutes or principles of similar effect. The parties recognize that § 1542 of the Civil Code of the State of California reads as follows:

A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.

8. MISCELLANEOUS

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ophthalmic pharmaceutical business. Any purported assignment in violation of the preceding sentences shall be void. Any permitted assignee shall assume all obligations of its assignor under this Agreement in writing.

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delivery or courier) or international courier, postage prepaid (where applicable), addressed to such other party at its address indicated below, or to such other address as the addressee shall have last furnished in writing to the addressor and shall be effective upon the earlier of receipt by the addressee or the second business day after dispatch by recognized international courier.

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a compromise and a desire by both parties to restore their relationship to one of respect and collegiality. Allergan and ISTA shall, within two (2) business days after the Effective Date, issue a joint press release in the form attached hereto as Exhibit A.

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IN WITNESS WHEREOF, the parties have by their duly authorized representatives hereunto set their hands the day and year first above written.

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Appendix 2.16

Pending Patent Applications of ISTA Pharmaceuticals, Inc.

as of the Effective Date

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EXHIBIT A

PRESS RELEASE

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