Manufacturing Services Agreement June 1, 2011

Exhibit 10.5

***Text Omitted and Filed Separately with the Securities and Exchange Commission.

Confidential Treatment Requested Under

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

Standard Form

Manufacturing Services Agreement

June 1, 2011

Table of Contents

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MANUFACTURING SERVICES AGREEMENT

THIS MANUFACTURING SERVICES AGREEMENT (the “Agreement”) is made as of June 1, 2011 (the “Effective Date”)

B E T W E E N:

PATHEON INC.,
a corporation existing under the laws of Canada,

(“Patheon”),

- and -

OPTIMER PHARMACEUTICALS, INC.,
a corporation existing under the laws of the State of Delaware,

(“Client”).

THIS AGREEMENT WITNESSES THAT in consideration of the rights conferred and the obligations assumed herein, and for other good and valuable consideration (the receipt and sufficiency of which are acknowledged by each party), and intending to be legally bound the parties agree as follows:

ARTICLE 1

INTERPRETATION

1.1                          Definitions.

The following terms will have the respective meanings set out below and grammatical variations of these terms will have corresponding meanings:

“Active Materials”, “Active Pharmaceutical Ingredients” or “API” means the materials listed on Schedule D;

“Active Materials Credit Value” means the value of the Active Materials for certain purposes of this Agreement, as set forth on Schedule D;

“Affiliate” means:

(a)           a business entity which owns, directly or indirectly, a controlling interest in a party to this Agreement, by stock ownership or otherwise; or

(b)           a business entity which is controlled by a party to this Agreement, either directly or indirectly, by stock ownership or otherwise; or

(c)           a business entity, the controlling interest of which is directly or indirectly common to the controlling interest of a party to this Agreement;

For this definition, “control” (with correlative meanings for the terms “controlling interest” and “controlled by”) means the ownership of shares carrying at least a majority of the outstanding voting or equity interests or the ability to elect a majority of the board of directors or other managing authority of the entity or the other ability to manage and direct the business of the applicable entity.

“Annual Report” means the annual report to the FDA prepared by Client regarding the Product as described in Title 21 of the United States Code of Federal Regulations, Section 314.81(b)(2);

“Annual Product Review Report” means the annual product review report prepared by Patheon as described in Title 21 of the United States Code of Federal Regulations, Section 211.180(e);

“Applicable Laws” means the applicable provisions of any and all national, supranational, regional, state, provincial, county and local laws, treaties, statutes, rules, regulations, administrative codes, guidance, ordinances, judgments, decrees, directives, injunctions, orders, permits (including marketing approvals) of or from any court, arbitrator, Regulatory Authority or governmental agency or authority having jurisdiction over or related to the subject item;

“Authority” means any governmental or regulatory authority, department, body or agency or any court, tribunal, bureau, commission or other similar body, whether national, supranational, regional, state, provincial, county or local;

“Bill Back Items” means the reasonable expenses for all third party supplier fees for the purchase of columns, standards, tooling, PAPR or PPE suits (where applicable), RFID tags if requested by Client and supporting equipment, and other Product-specific items, in each case necessary for Patheon to perform the Manufacturing Services, and which are not included as Components;

“Business Day” means a day other than a Saturday, Sunday or a day that is a statutory holiday in the Province of Ontario, Canada or the United States of America;

“cGMPs” means current good manufacturing practices as described in:

(a)           Division 2 of Part C of the Food and Drug Regulations (Canada);

(b)           Parts 210 and 211 of Title 21 of the United States’ Code of Federal Regulations; and

(c)           EC Directive 2003/94/EC,

together with the latest Health Canada, FDA, and EMA guidance documents pertaining to manufacturing and quality control practice, all as updated, amended and revised from time to time, and any foreign equivalents to any such regulations which may apply to the Manufacturing Site or be applicable to Products sold outside of the United States, Canada or the European Union;

“Client Intellectual Property” means Intellectual Property generated or derived by Client before entering into this Agreement or independent of this Agreement, or by Patheon while performing any Manufacturing Services or otherwise generated or derived by Patheon in its business which Intellectual Property is directly related to, specific to, or dependent upon, Client’s Active Materials or Product;

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“Components” means, collectively, all packaging components, raw materials, and ingredients (including labels, product inserts and other labelling for the Products), required to manufacture the Products in accordance with the Specifications, other than the Active Materials;

“Confidentiality Agreement” means the agreement about the non-disclosure of confidential information between Patheon and Client dated June 25, 2004;

“Deficiency Notice” has the meaning specified in Section 6.1(a);

“Delivery Date” means the date scheduled for shipment of Product under a Firm Order as set forth in Section 5.1(e);

“EMA” means the European Medicines Agency or any successor agency thereto which may regulate pharmaceutical products;

“FDA” means the United States Food and Drug Administration or any successor agency thereto which may regulate pharmaceutical products;

“Firm Orders” has the meaning specified in Section 5.1;

“First Firm Order” has the meaning specified in Section 5.1;

“Force Majeure Event” has the meaning specified in Section 13.7;

“Health Canada” means the section of the Canadian Government known as Health Canada and includes, among other departments, the Therapeutic Products Directorate and the Health Products and Food Branch Inspectorate or any successor agency thereto which may regulate pharmaceutical products;

“Initial Manufacturing Month” has the meaning specified in Section 5.1;

“Initial Manufacturing Period” has the meaning specified in Section 5.1;

“Initial Set Exchange Rate” means 1.0:1.0 as of the Effective Date of the Agreement, being the initial exchange rate to convert one unit of the local currency where the Manufacturing Site is located to one unit of the billing currency, calculated as the average interbank exchange rate for conversion of one unit of the local currency where the Manufacturing Site is located to one unit of the billing currency during the 90-day period immediately preceding the Effective Date as published by OANDA.com “The Currency Site” under the heading “FxHistory: historical currency exchange rates” at http://www.oanda.com/convert/fxhistory, or such successor or other website or other heading as the parties may mutually agree;

“Intellectual Property” includes, without limitation, rights in patents, patent applications, formulae, trade-marks, trade-mark applications, trade-names, Inventions, copyrights, industrial designs, trade secrets, and know how;

“Information” means any information, results, data, innovation, improvement, development, discovery, computer program, device, trade secret, method, know-how, process, technique and the like, whether or not written or otherwise fixed in any form or medium, regardless of the media on which it is contained and whether or not patentable or copyrightable;

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“Inventory” means all inventories of Components and work-in-process produced or held by Patheon for the manufacture of the Products but, for greater certainty, does not include the Active Materials;

“Late Delivery” has the meaning specified in Section 5.5;

“Manufacturing Services” means the process validation, manufacturing, quality control, quality assurance, stability testing, packaging, labelling and related services provided by Patheon  with regard to Product pursuant to this Agreement;

“Manufacturing Site” means the facility or facilities owned and operated by Patheon and at which Patheon will be performing the Manufacturing Services under this Agreement, and that is/are located at 2100 Syntex Court, Mississauga, Ontario, Canada L5N 7K9 and at 977 Century Drive, Burlington, Ontario, Canada L7L 5J8.

“Maximum Credit Value” means the maximum value of Active Materials that may be credited by Patheon under this Agreement, as set forth on Schedule D;

“Minimum Run Quantity” means the minimum number of units of a Product to be produced during the same cycle of manufacturing as set forth in Schedule B;

“Patheon Intellectual Property” means Intellectual Property generated or derived by Patheon before performing any Manufacturing Services, Intellectual Property developed by Patheon while performing the Manufacturing Services, or otherwise generated or derived by Patheon in its business, which Intellectual Property is not Client Intellectual Property;

“Price” means the price measured in US Dollars to be charged by Patheon for performing the Manufacturing Services, and includes, without limitation, the cost of Components, certain cost items as set forth in Schedule B, and annual stability testing costs as set forth in Schedule C;

“Product” means the product listed on Schedule A;

“Product Forecast” and “Extended Product Forecast” have the meanings specified in Section 5.1;

“Quality Agreement” means that certain [Quality Agreement] between the parties dated as of April 27, 2011 as amended in writing from time to time, setting out the quality assurance standards for the Manufacturing Services to be performed by Patheon for Client;

“Regulatory Authority” means the FDA, EMA, and Health Canada and any other regulatory agencies competent to grant marketing approvals for pharmaceutical products including the Products in the Territory;

“Reset Date” means, with reference to any particular full calendar Year, the date on which Patheon is to provide Client with updated pricing for the Product for the next Year; which date will be not less than three months prior to the beginning of that Year;

“RFID” means Radio Frequency Identification Devices which (at present or in the future) may be affixed to Products or Active Materials to assist in inventory control, tracking, and identification;

“Second Source Facility” has the meaning specified in Section 2.1(j).

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“Set Exchange Rate” means the exchange rate to convert one unit of Patheon facility local currency to one unit of the billing currency for each Year, calculated as the average interbank exchange rate for conversion of one unit of Patheon facility local currency to one unit of the billing currency during the three month period immediately preceding the Reset Date by one month as published by OANDA.com “The Currency Site” under the heading “FxHistory: historical currency exchange rates” at , or such successor or other website or other heading as the parties may mutually agree;

“Specifications” means the file, for the Product, which is given by Client to Patheon in accordance with the procedures listed in Schedule A and which contains documents relating to each Product, including, without limitation:

(d)           specifications for Active Materials and Components;

(e)           manufacturing specifications, directions, and processes;

(f)            storage requirements;

(d)           all environmental, health and safety information for the Product including material safety data sheets; and

(e)           the finished Product specifications, packaging specifications and shipping requirements for each Product;

all as updated, amended and revised from time to time by Client in accordance with the terms of this Agreement;

“Technical Dispute” has the meaning specified in Section 12.2;

“Territory” means the geographic area of North America and Europe;

“Third Party Rights” means the Intellectual Property of any party, other than Client or Patheon or an Affiliate of Client or Patheon;

“Year” means, in the first year of this Agreement, the period from the Effective Date up to and including December 31 of the same calendar year, and in the last year of this Agreement, the period from January 1 of such calendar year until the date of termination or expiration of this Agreement, and will otherwise mean a calendar year.

1.2                          Currency.

Unless otherwise indicated, all monetary amounts are expressed in this Agreement in the lawful currency of the United States of America.

1.3                          Sections and Headings.

The division of this Agreement into Articles, Sections, Subsections, and Schedules and the insertion of headings are for convenience of reference only and will not affect the interpretation of this Agreement.  Unless otherwise indicated, any reference in this Agreement to a Section or Schedule refers to the specified Section or Schedule to this Agreement.  In this Agreement, the terms “this Agreement”,

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“hereof”, “herein”, “hereunder” and similar expressions refer to this Agreement as a whole and not to any particular part, Section or Schedule of this Agreement.

1.4                          Singular Terms; Including.

Except as otherwise expressly stated or unless the context otherwise requires, all references to the singular will include the plural and vice versa, and all references to “includes” or “including” will mean “includes without limitation” or “including without limitation.”

1.5                          Schedules.

The following Schedules are attached to, incorporated in, and form part of this Agreement:

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ARTICLE 2

PATHEON’S MANUFACTURING SERVICES

2.1                          Manufacturing Services.

Patheon will perform the Manufacturing Services for the Territory for the fees specified in Schedules B and C and any additional countries outside the Territory subject to Section 4.5 for the fees specified in applicable amendments entered into by the parties.  Schedule B sets forth a list of cost items that are included in the Price for Products.  Patheon shall not perform any Manufacturing Services at any location other than at the Manufacturing Site located at 2100 Syntex Court, Mississauga, Ontario, Canada L5N 7K9 without the express written consent of Client, except that Patheon may perform certain analytical release and stability testing activities as agreed by the Parties at the Manufacturing Site located at 977 Century Drive, Burlington, Ontario, Canada L7L 5J8. Patheon shall perform the Manufacturing Services in strict compliance with this Agreement, the Specifications, the Quality Agreement, cGMP and Applicable Laws, Patheon may not change the Specifications, Manufacturing Site (including facility modification), site of stability testing or any other aspect of the manufacturing process used to perform the Manufacturing Services with respect to the Products without the prior written consent of Client, this consent not to be unreasonably withheld.  If Manufacturing Services have not started within 12 months of the date of execution of this Agreement (other than as a result of Patheon’s acts or omissions or a Force Majeure Event), Patheon may propose an amendment of the fees set out in Schedules B and C, which shall be subject to Client’s approval.  Patheon’s right to manufacture Products offered for sale by Client in the Territory shall be non-exclusive.  However, Client shall procure at least […***…] percent ([…***…] %) of its annual Product requirements for the Territory from Patheon or its Affiliates.  In performing the Manufacturing Services, Patheon and Client agree that:

(a)           Conversion of Active Materials and Components.  Patheon will use the Active Materials and Components to manufacture Products in accordance with this Agreement.  Patheon shall not use Active Materials, or any Components or Bill Back Items supplied by or paid for or reimbursed by Client, for any other use or purpose.

(b)           Quality Control and Quality Assurance.  Patheon will perform the quality control and quality assurance testing specified in the Quality Agreement.  Batch review and release to Client will be the responsibility of Patheon’s quality assurance group.  Patheon will perform its batch review and release responsibilities in accordance with Patheon’s standard operating procedures, which Patheon will make available to Client for its review as reasonably requested by Client, and the Quality Agreement.  Each time Patheon ships Products to Client or a designee of Client, it will give Client a certificate of analysis and certificate of compliance including a statement that the batch has been manufactured and tested in accordance with Specifications, the Quality Agreement, cGMPs and Applicable Laws.  Client will have sole responsibility for the release of Products to the market.  The batch documents, including, but not limited to, batch production records, lot packaging and labelling records, equipment set up control, operating parameters, and data printouts, raw material data, and analytical data and results regarding the Manufacture of Products (including any such information contained in laboratory notebooks) shall be the exclusive property of Client, provided, that any intellectual property comprised of the form and style of such batch documents are the exclusive property of Patheon, and provided further, that Patheon will not be obligated to disclose to Client confidential or proprietary information of third parties contained in any such lab notebooks that is unrelated to the Manufacturing Services performed pursuant to this Agreement.  Specific Product-related information contained in those batch documents is Client property.

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(c)           Components.  Patheon will purchase and test all Components (with the exception of those that are supplied by Client, if any) at Patheon’s expense and as required by the Specifications and the Quality Agreement.

(d)           Stability Testing.  Patheon will conduct stability testing on the Products as part of the Manufacturing Services provided hereunder.  Patheon will perform such testing in accordance with the protocols set out in the Specifications for the separate fees and during the time periods set out in Schedule C, if applicable.  Patheon will not make any changes to these testing protocols without prior written approval from Client.  If a confirmed stability test failure occurs, Patheon will notify Client within one Business Day, after which Patheon and Client will jointly determine the proceedings and methods to be undertaken to investigate the cause of the failure, including which party will bear the cost of the investigation.  Patheon will not be liable for these costs unless it has failed to perform the Manufacturing Services in accordance with the Specifications, cGMPs, or Applicable Laws.  Patheon will give Client all stability test data and results (including a final approved report) at Client’s request and promptly upon completion of such testing.

(e)           Packaging.  Patheon will package the Products as set out in the Specifications and the Quality Agreement.  Client will be responsible for the cost of artwork development, as applicable.  Patheon will determine and imprint the batch numbers and expiration dates for each Product shipped.  Such expiration dates must be determined in accordance with the Specifications.  The batch numbers and expiration dates will be affixed on the Products and on the shipping carton of each Product as outlined in the Specifications and as required by cGMPs and Applicable Laws.  Client may, in its sole discretion, make changes to labels, product inserts, and other packaging for the Products.  Those changes will be submitted by Client to all applicable Regulatory Authorities and other third parties responsible for issuing marketing approval of the Products.  Client will be responsible for the cost of related Components which are no longer usable to package Products hereunder due to changes requested by Client, as contemplated in Section 4.3.  Patheon’s name will not appear on the label or anywhere else on the Products unless: (i) required by any Applicable Laws; or (ii) Client requests, and Patheon consents in writing to, the use of its name in such manner.

(f)            Active Materials and Client-Supplied Components Importing.  At least […***…] days before the scheduled production date, Client will deliver the Active Materials to the Manufacturing Site where the Manufacturing Services are to be performed, […***…] (Incoterms 2010), in quantity sufficient for Patheon to manufacture the desired quantities of Product and to ship Product on the Delivery Date.  If the Active Materials are not received at least […***…] days before the scheduled production date, Patheon will use all reasonable efforts to meet the scheduled production date nonetheless; provided, however, that if Patheon is unable to meet the scheduled production date despite using all reasonable efforts to do so, it may delay the shipment of Product by up to the same number of days as the delay in receipt of the Active Materials.  But if Patheon is unable to manufacture Product to meet this new shipment date due to prior third party production commitments, Patheon may delay the shipment until a later date if agreed to by the parties.  All shipments of Active Materials will be accompanied by certificate(s) of analysis from the Active Materials manufacturer or the Client, confirming the identity and purity of the Active Materials and their compliance with the Active Materials specifications.  Patheon will inspect and test the Active Materials at the Manufacturing Site prior to manufacturing Product using such Active Materials, and will notify Client in the event any

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Active Materials do not comply with the Active Materials specifications, each in accordance with the Quality Agreement.

(g)           Bill Back Items.  Bill Back Items acquired by Patheon will be charged to Client at Patheon’s actual and reasonable cost plus a […***…] % handling fee; provided, however, that the prior written approval of Client shall be required for all Bill Back Items valued above $[…***…]. All Bill Back Items shall be the sole and exclusive property of Client.

(h)           Validation Activities.  At Client’s written request, Patheon may assist in the development and approval of the validation protocols for analytical methods and manufacturing procedures (including packaging procedures) for the Products.  The fees associated with Patheon’s assistance in providing validation development assistance are set out in Schedule C.

(i)            Internal process specifications.  Internal process specifications will be defined and mutually agreed upon by the parties.

(j)            Second Source Facility.  Within […***…] months after Client provides notice to Patheon requesting that Patheon commence qualification and validation of an additional manufacturing facility, Patheon shall, at Client’s expense, qualify and validate, and thereafter keep qualified and validated, an additional manufacturing facility at Patheon’s manufacturing site located at 111 Consumers Drive, Whitby, Ontario, Canada L1N 5Z5 (a “Second Source Facility”), in addition to the existing Manufacturing Site, for the manufacture of Product to ensure a second source of supply of Product to Client.   The Second Source Facility must be a second facility operated by Patheon with quality and reliability in manufacturing comparable to the Manufacturing Site and shall comply with all obligations and limitations of this Agreement to the same extent as Manufacturing Site.  Without limiting the generality of the foregoing, such Second Source Facility must be approved by the FDA, EMA and other relevant Regulatory Authorities such that the Product manufactured by the Second Source Facility may be commercialized by Client under the applicable Regulatory Approvals for Product.

2.2                          Active Materials Yield.

(a)           Reporting.  Patheon will give Client a monthly inventory report of the Active Materials held by Patheon using the inventory report form set out in Schedule G, which will contain the following information for the month:

Quantity Received:  The total quantity of Active Materials that complies with the Specifications and is received at the Manufacturing Site during the applicable period.

Quantity Dispensed:  The total quantity of Active Materials dispensed at the Manufacturing Site during the applicable period.  The Quantity Dispensed is calculated by […***…].  The Quantity Dispensed will not include any (i) Active Materials that must be retained by Patheon as samples in accordance with this Agreement, (ii) Active Materials contained in Product that must be retained as samples in accordance with this Agreement, (iii) Active Materials used in testing (if applicable) in accordance with this Agreement, and (iv) Active

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Materials received or dispensed in technical transfer activities or development activities during the applicable period, including without limitation, any regulatory, stability, validation or test batches manufactured during the applicable period.

Quantity Converted:  The total amount of Active Materials contained in the Products manufactured with the Quantity Dispensed (including any additional Products produced in accordance with Section 6.1 or 6.2) delivered by Patheon,  and not  rejected, recalled or returned in accordance with Section 6.1 or 6.2 because of Patheon’s failure to perform the Manufacturing Services in accordance with Specifications, cGMPs, and Applicable Laws, but excluding Mishandled Active Materials, as defined below.

Within […***…] days after the end of each Year, Patheon will prepare an annual reconciliation of Active Materials on the reconciliation report form set forth in Schedule H including the calculation of the “Actual Annual Yield” or “AAY” for the Product at the Manufacturing Site during the Year.  AAY is the percentage of the Quantity Dispensed that was converted to Products and is calculated as follows:

[…***…]

After Patheon has produced a minimum of  […***…] commercial production batches of Product (which shall include any validation production batches) and has produced commercial production batches (including validation production batches) for at least […***…] months at the Manufacturing Site (collectively, the “Target Yield Determination Batches”), the parties will mutually agree in good faith on the target yield for the Product at the Manufacturing Site which, (i) for the first […***…]  batches following the first […***…] commercial production batches of Product referenced above shall be equal to the average yield of the first […***…] commercial production batches of Product referenced above; and (ii) for all remaining batches, shall be equal to the average yield of the […***…] commercial production batches following the first […***…] commercial batches of Product referenced above; provided, in each case, that such determination shall exclude any batch(es) which have  yield(s) that the parties mutually agree are abnormally low or high  (such average, in each case, as applicable, the “Target Yield”); provided, further, that within 30 days following January 1st of each Year the Parties shall calculate the average yield of the […***…] commercial production batches immediately preceding such date and if such average yield is greater than the  then-current Target Yield, the Target Yield shall be increased to equal such average yield effective as of such January 1st; and provided, further, that for all batches of Product produced prior to calculation of the first Target Yield pursuant to this paragraph, the Target Yield shall be […***…]%.

(b)           Shortfall Calculation.  If the Actual Annual Yield falls more than […***…] percent below the applicable Target Yield in a Year, then the shortfall for the Year (the “Shortfall”) will be calculated as follows:

[…***…]

(c)           Credit for Shortfall.  If there is a Shortfall for a Product in a Year, then Patheon will credit Client’s account for the amount of the Shortfall not later than 60 days after the end of the Year.

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Each credit under this Section 2.2(c) will be detailed on the reconciliation report form set forth in Schedule H.  Upon expiration or termination of this Agreement, any remaining credit owing under this Section 2.2 will be paid to Client.  The Shortfall, if any, will be disclosed by Patheon on the reconciliation report form.

(d)           Maximum Credit.  Patheon’s liability for Active Materials calculated in accordance with this Section 2.2 for any Product, including Mishandled Active Material, in a Year will not exceed, in the aggregate, the Maximum Credit Value set forth in Schedule D.

(e)           Material Breach.  Without limiting any of Client’s other rights or remedies under this Agreement, it will be considered a material breach of this Agreement by Patheon under Section 8.2(a) if, for any Year, Actual Annual Yield is less than […***…]% of the applicable Target Yield.

(f)            Mishandled Active Material.  In each report provided by Patheon pursuant to Section 2.2(a), Patheon will include, if applicable, the amount of Active Material that were lost, destroyed or damaged by Patheon after receipt at the Manufacturing Site including, without limitation, as a result of Patheon’s failure to comply with the storage and handling obligations set forth in the Quality Agreement (“Mishandled Active Material”).  No later than 60 days after the end of the Year, Patheon will reimburse Client for all costs incurred by Client in purchasing and shipping the Active Material that became Mishandled Active Material that Year subject to the aggregate Maximum Credit Value.

ARTICLE 3

CLIENT’S OBLIGATIONS

3.1                          Payment.

Client will pay Patheon for Product manufactured as a result of performing the Manufacturing Services in accordance with this Agreement, cGMP, the Specifications and Applicable Laws and delivered in accordance with this Agreement, according to the Prices specified in Schedules B and C.  These Prices may be subject to adjustment under Section 4.2 and Section 4.3 of this Agreement.  Client will also pay Patheon for any Bill Back Items purchased and provided by Patheon in accordance with this Agreement.

3.2                          Active Materials, Components and Bill Back Items.

The Active Materials, Components and Bill Back Items will be held by Patheon on behalf of Client as set forth in this Agreement.  All Active Materials, Components and Bill Back Items will at all times remain the property of Client and will at all times be free and clear of any and all encumbrances, liens, or other third party claims.  Any Active Materials, Components and Bill Back Items received by Patheon will only be used by Patheon to perform the Manufacturing Services.

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ARTICLE 4

CONVERSION FEES AND COMPONENT COSTS

4.1                          First Year Pricing.

The Price and annual stability Price for the Products are listed in Schedules B and C.  The Prices for Products are subject to the adjustments set forth in Sections 4.2, 4.3, 4.4 and 4.5.

4.2                          Price Adjustments — Subsequent Years’ Pricing.

After December 31, 2011, Patheon or Client may adjust the Price for the Products effective January 1st of each subsequent Year as follows:

(a)           Manufacturing Costs. Patheon or Client may adjust the Price for inflation, based upon the preliminary number for any increase or decrease in the Producer Price Index pcu325412325412 for Pharmaceutical Preparation Manufacturing published by the United States Department of Labor, Bureau of Labor Statistics (“PPI”) in August of the preceding Year compared to the final number for the same month of the Year prior to that, unless the parties otherwise agree in writing.  If the PPI for a given Year reflects a change from the PPI on the Effective Date, then the adjustment to be made pursuant to this Section 4.2(a) will proportionately reflect the increase or decrease, if any, compared to the PPI on the Effective Date, as the case may be.  On or about November 1st of each Year starting with 2012, Patheon will give Client a statement setting forth the calculation for the inflation adjustment to be applied in calculating the Price for the next Year; provided, that Client shall have the right to dispute any such calculation in good faith, and for the duration of such dispute the existing Prices shall continue to apply.

(b)           Component Costs.  If Patheon incurs an increase (as adjusted for inflation) in costs for Components during the Year due to Client’s direction or other factors outside of Patheon’s reasonable control, it may increase the Price for the next Year to pass through the additional Component costs; provided, however, that the Price increase shall be no greater than the actual additional Component costs incurred, as adjusted for inflation.  On or before November 1st of each Year starting with 2011, Patheon will give Client detailed information about and support for the increase in Component costs which will be applied to the calculation of the Price for the next Year to reasonably demonstrate that the Price increase is justified, but Patheon will not be required to give information to Client that is subject to obligations of confidentiality between Patheon and its suppliers.  However, at the Client’s request, Patheon shall allow an independent third party auditor to review the information supporting the increase in Component costs and confirm that such information reasonably demonstrates that the Price increase is justified.

(c)           Pricing Basis.  Client acknowledges that the Price in any Year is quoted based upon the Minimum Run Quantity specified in Schedule B.  The Price is subject to change if the specified Minimum Run Quantity changes.  For greater certainty, if Patheon and Client agree that the Minimum Run Quantity will be reduced, whether as a result of a decrease in estimated annual volume or otherwise and, as a result of the reduction, Patheon demonstrates to Client’s reasonable satisfaction that its costs to perform the Manufacturing Services for the Product will increase on a per unit basis (including the amount of the increase), then Patheon may increase the Price for the following Year by an amount sufficient to absorb the demonstrated increased costs.  On or about

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November 1st of each Year Patheon will give Client a statement setting forth the information to be applied in calculating those cost increases for the next Year, but Patheon will not be required to give information to Client that is subject to obligations of confidentiality between Patheon and its suppliers.  However, at the Client’s request, Patheon shall allow an independent third party auditor to review the information supporting the increase in Component costs and confirm that such information reasonably demonstrates that the Price increase is justified.  If Client places orders for quantities permitting Patheon to manufacture in larger production runs, then the parties shall review the then-current fees for Manufacturing Services for such Product in accordance with Section 4.2(d) below, and Patheon shall reduce such fees on a per-unit basis by a reasonable amount to reflect savings in Patheon’s costs relating to such Product as a result of such increase, if any.

(d)           Adjustments Due to Currency Fluctuations.  The Price for Product that is manufactured outside the United States or Puerto Rico shall be adjusted once per year to reflect currency fluctuations in accordance with this Section 4.2(d).  The adjustment will be calculated after all other annual Price adjustments under this Section 4.2 have been made.  In the event the Set Exchange Rate for a given Year has changed the adjustment will proportionately reflect the increase or decrease, if any, in the Set Exchange Rate compared to the Set Exchange Rate established for the prior Year or the Initial Set Exchange Rate, as the case may be.  An example of the calculation of the price adjustment is set forth in Schedule I.

(e)           Audit Costs.  If Client requests that an auditor review information supporting an increase in Price pursuant to Section 4.2(b) or (c) or pursuant to Section 4.3 below, such review shall be at the expense of Client unless the auditor determines that Patheon’s reported cost increase is greater than the actual cost increase by an amount equal to five percent (5%) or more of the prior cost of such Component or Manufacturing Services, as applicable, in which case (i) all costs related to the auditor’s review shall be paid by Patheon, (ii) the Prices shall automatically revert to the price determined by Client in accordance with the auditor’s findings with respect to such cost increases (or, if based on the auditor’s findings, Client determines that no Price increase should have occurred, the Price shall revert to the prior level), and (iii) Patheon shall promptly refund to Client any excess amounts paid by Client based on such incorrect cost increase.

For all Price adjustments under this Section 4.2, Patheon will deliver to Client on or about November 1st of each Year suggested revisions to Schedule B based upon this Section 4.2 to be effective for the next Year, which revised Schedule B must be approved in writing by Client before it becomes binding on either party.

4.3                          Adjustments — Current Year Pricing.

During any Year of this Agreement, the Prices set out in Schedule B will be adjusted as follows:

Extraordinary Increases in Component Costs.  If, at any time, market conditions result in Patheon’s cost of Components being materially greater than the cost on which the current fee is based, then Patheon will be entitled to an adjustment to the Price for any affected Product to compensate it for these increased Component costs; provided, however, that in no event shall

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Patheon be permitted to increase the Price by an amount equal to […***…] percent ([…***…]%) or more of the current Price pursuant to this Section 4.3.  Changes materially greater than the cost on which the current fee is based will have occurred if: (i) the cost of a Component increases by […***…]% of the cost for that Component upon which the most recent fee quote was based; or (ii) the aggregate cost for all Components required to manufacture a Product increases by […***…]% of the total Component costs for the Product upon which the most recent fee quote was based.  If Component costs have been previously adjusted to reflect an increase in the cost of one or more Components, the adjustments set out in (i) and (ii) above will operate based on the last cost adjustment for the Components.

For a Price adjustment under this Section 4.3, Patheon will deliver to Client a revised Schedule B and budgetary pricing information, adjusted Component costs or other documents reasonably sufficient to demonstrate that a Price adjustment is justified, but Patheon will have no obligation to deliver any supporting documents that are subject to obligations of confidentiality between Patheon and its suppliers.  However, at the Client’s request, Patheon shall allow an independent third party auditor to review the information supporting the increase in Component costs and confirm that such information reasonably demonstrates that the Price increase is justified.  The revised Price will be effective for any Product delivered on or after the first day of the month following Client’s receipt of the revised Schedule B.

4.4                          Adjustments Due to Technical Changes.

Material amendments to the Specifications or the Quality Agreement requested by Client will only be implemented following a technical and cost review by Patheon and are subject to Client and Patheon reaching agreement on Price changes (if any) required because of the amendment.  Amendments to the Specifications, the Quality Agreement or the Manufacturing Site requested by Patheon will only be implemented following the written approval of Client.  Upon receiving notice of a  request by Client for any such amendments, Patheon shall promptly advise Client in writing of any scheduling adjustments, any cost increases or decreases or other changes that may result from such change, and (a) will use its best efforts to make any change identified in such Client request that is in response to a regulatory or safety issue pertaining to the Product, and (b) will use commercially reasonable efforts to implement any other change identified in a Client request by the date requested by Client, or as soon thereafter as it is commercially reasonable.  If Client accepts a proposed Price change (if any) in response to such Client-proposed material amendment, the proposed change in the Specifications or the Quality Agreement will be implemented, and the Price change (if any) will become effective, only for those orders of Products that are manufactured under the revised Specifications or revised Quality Agreement.  In addition, Client agrees to purchase, at Patheon’s actual cost (including all reasonable costs incurred by Patheon for the purchase and handling of the Inventory), all Inventory used under the “old” Specifications and purchased or maintained by Patheon and necessary in order to fill Firm Orders or under Section 5.2, solely to the extent the Inventory can no longer be used under the revised Specifications or be returned to the vendor for a refund or credit.  Open purchase orders for Components no longer required under any revised Specifications that were placed by Patheon with suppliers and necessary in order to fill Firm Orders or under Section 5.2 will be cancelled where possible, and if the orders may not be cancelled without penalty, will be, at Client’s sole discretion, either (i) assigned to and satisfied by Client, or (ii) cancelled by Patheon, and Client will reimburse Patheon for the penalty it incurs as a result of such cancellation.

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4.5                          Multi-Country Packaging Requirements.

If Client decides to have Patheon perform Manufacturing Services for the Product for countries outside North America (other than Manufacturing Services for bulk tablet Product which is unpackaged and unlabeled), then Client will inform Patheon of the packaging requirements for each such country and Patheon will prepare a quotation for consideration by Client of any additional Component costs and the change over fees for the Product destined for each new country.  The agreed additional packaging requirements and related packaging costs and change over fees will be set out in a written amendment to this Agreement.

ARTICLE 5

ORDERS, SHIPMENT, INVOICING, PAYMENT

5.1                          Orders and Forecasts.

(a)           Rolling […***…] Month Forecast.  When this Agreement is executed, Client will give Patheon a non-binding […***…] month forecast of the volume of Product that Client expects to order in the first […***…] months of commercial manufacture of the Product.  This forecast will then be routinely updated by Client on or before the 10th day of each month on a rolling forward basis and will be known as the Product Forecast.  Client will update the Product Forecast forthwith if it determines that the volumes estimated in the most recent Product Forecast have changed by more than […***…]%.  The most recent […***…] month Product Forecast will prevail.

(b)           Firm Orders for Initial Manufacturing Month.  Client will update the Product Forecast for the first […***…] months of manufacture of the Product (the “Initial Manufacturing Period”).  The first month of this updated Product Forecast (“Initial Manufacturing Month”) will constitute a firm written order in the form of a purchase order or otherwise (“First Firm Order”) by Client to purchase and, when accepted by Patheon, for Patheon to manufacture the quantity of the Product.  If manufacturing has not started, Client may cancel any Batches from the First Firm Order at no cost if notice of cancellation is received by Patheon sixty (60) days or more before the scheduled Delivery Date under the First Firm Order.  If manufacturing has not started, Client may cancel any Batches from the First Firm Order if notice of cancellation is received by Patheon more than thirty (30) days but fewer than sixty (60) days before the scheduled Delivery Date under the First Firm Order, but Client will pay Patheon $[…***…] for each cancelled batch.  The parties agree that this payment will be considered liquidated damages for Patheon’s loss of manufacturing capacity due to the Client’s cancellation of manufacturing and will be Patheon’s sole and exclusive remedy for such cancellation, and will not be considered a penalty.  If the First Firm Order is changed or adjusted as described above, then the initial Product Forecast will also be adjusted as necessary. The cancellation rights in this section are subject to Client retaining responsibility for any reasonable, documented costs or expenses actually incurred or irrevocably committed by Patheon in accordance with this Agreement and related to such cancelled Batches before it received notice of the cancellation.

(c)           Firm Orders Thereafter.  After the Initial Manufacturing Month, on a rolling basis during the term of this Agreement, and on or before the 10th day of each month, Client will issue an updated Product Forecast and the first […***…] months of that updated forecast will constitute a firm written order in the form of a purchase order or otherwise (“Firm Order”)

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by Client to purchase and, when accepted by Patheon, for Patheon to manufacture and deliver the agreed quantity of the Products on a date not less than […***…] months from the first day of the month immediately following the date that the Firm Order is submitted.   Firm Orders submitted to Patheon will specify Client’s Manufacturing Services purchase order number, quantities by Product type, monthly delivery schedule, and any other elements necessary to ensure the timely manufacture and shipment of the Products.  Upon Patheon’s acceptance of a Firm Order, the quantities of Products ordered will be firm and binding on Client and Patheon and may not be reduced by Client or Patheon (unless the parties mutually agree otherwise in writing).

(d)           […***…] Year Forecast.  On or before the […***…] of each Year, Client will give Patheon a written non-binding […***…]-year forecast, broken down by quarters for the […***…] and […***…] years of the forecast, of the volume of each Product Client then anticipates will be required to be manufactured and delivered to Client during the […***…]-year period (the “Extended Product Forecast”).  For clarification, the Extended Product Forecast shall in no event be binding on Client.

(e)           Acceptance of Firm Order.  Patheon shall accept all Firm Orders that are placed by Client in accordance with Client’s obligations under this Section 5.1.  Patheon will accept Firm Orders by sending an acknowledgement to Client within five Business Days of its receipt of the Firm Order.  The acknowledgement will include, subject to confirmation from the Client, the Delivery Date for the Product ordered. The Delivery Date may be amended by written agreement of the parties or as set forth in Sections 2.1(f) or 5.1(b).

5.2                           Reliance by Patheon.

(a)           Client understands and acknowledges that Patheon will use the Firm Orders and Product Forecasts submitted under Sections 5.1(a), (b), and (c) in reasonably ordering the Components required to meet the Firm Orders (recognizing that Product Forecasts other than Firm Orders are non-binding).  In addition, Client understands that to ensure an orderly supply of the Components, Patheon may want to purchase the Components in reasonable volumes to meet the production requirements for Products during part or all of the forecasted periods referred to in Section 5.1(a) or to meet the production requirements of any longer period agreed to by Patheon and Client.  Accordingly, Client authorizes Patheon to purchase Components in quantities needed to satisfy the Manufacturing Services requirements for Products for the first […***…] months contemplated in the most recent Product Forecast.  Patheon may make other purchases of Components to meet Manufacturing Services requirements for longer periods only if agreed to in advance in writing by the parties.  Client will give Patheon written authorization to order Components for any launch quantities of Product requested by Client which will be considered a Firm Order when accepted by Patheon.  Patheon will use a […***…] method with regard to the Components it uses to manufacture Products.  If Components ordered by Patheon under Firm Orders or this Section 5.2 are not included in finished Products manufactured for Client within twelve (12) months after the forecasted month for which the purchases have been made (or for a longer period as the parties may agree) or if the Components have expired during the period, then Client will pay to Patheon its costs therefor (including all costs incurred by Patheon for the purchase and handling of the Components).   If these Components are used in Products subsequently manufactured for Client or in third party products manufactured by Patheon, Client will promptly, in Client’s discretion, either (i) receive credit for any costs of those Components previously paid to Patheon by Client, or (ii) receive a full refund from Patheon in an amount equal to costs of those Components previously paid to Patheon by Client.

(b)           If Client fails to take possession or arrange for the destruction of Components reasonably purchased by Patheon pursuant to Section 5.2(a) above or fails to take possession or arrange for the

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destruction of Active Materials within 12 months of purchase or, in the case of finished Product, within three months of manufacture, Client will pay Patheon $[…***…] per pallet, per month thereafter for storing the Components, Active Materials or finished Product.  Storage fees for Components, Active Materials or Product which contain controlled substances or require refrigeration will be charged at $[…***…] per pallet per month.  Storage fees are subject to a one pallet minimum charge per month.  Patheon may ship finished Product held by it longer than 3 months to the Client at Client’s expense on 14 days advance written notice to the Client.  Additional storage requirements for Components, Active Materials and Products shall be specified in the Quality Agreement or otherwise specified in writing by Client.

5.3                           Minimum Orders; Annual Volume.

Client may only order Manufacturing Services for batches of Products in multiples of the Minimum Run Quantities as set out in Schedule B.  For clarification, Client will in no event be obligated to order any minimum annual volume of Products unless and until the FDA grants marketing approval of the Product.

5.4                           Shipments.

Shipments of Products will be made […***…] (INCOTERMS 2010) Patheon’s shipping point unless otherwise mutually agreed by the parties in writing.  Risk of loss or of damage to Products will remain with Patheon until Patheon loads the Products onto the carrier’s vehicle for shipment at the shipping point at which time risk of loss or damage will transfer to Client.  Patheon will, in accordance with Client’s instructions and as agent for Client, (i) arrange for shipping to be paid by Client and (ii) at Client’s risk and expense, obtain any export licence or other official authorization necessary to export the Products.  Client will arrange for insurance and will select the freight carrier used by Patheon to ship Products and may monitor Patheon’s shipping and freight practices as they pertain to this Agreement.  Products will be transported in accordance with the Specifications.

5.5                           On Time Delivery.

(a)           Patheon shall deliver Product ordered under a Firm Order on the applicable Delivery Date.    The parties agree that they will work together closely to expedite deliveries of Product, including, without limitation, any samples of Product and Product for initial launch, and manage the scheduling of the initial Product launch.

(b)           If, after the Initial Manufacturing Period,  Patheon is unable to deliver the quantity of Product ordered under a Firm Order on the Delivery Date due to an act or omission by Patheon (a “Late Delivery”), Client will receive a credit from Patheon for the Late Delivery that will be applied against the purchase price under the next Firm Order.  The credit will be […***…] percent ([…***…]%) of the Price of the quantities of Product not delivered by Patheon under the Firm Order on the Delivery Date ([…***…]%).   This credit shall not limit any other rights or remedies that Client may have under this Agreement or otherwise for such Late Delivery.

(c)           Without limiting Client’s other rights or remedies in this Agreement, (i) a late delivery by more than[…***…], and (ii) […***…] or more Late Deliveries within a […***…] period, regardless of the number of days by which any such Late Delivery is late, will, in each case, be a material breach of this Agreement by Patheon for the purposes of Section 8.2, provided that Client shall deliver a Breach Notice to Patheon as soon as practicable but in any case within 14 days of the occurrence of the breach, and provided further that a breach under (i) above shall be subject to remediation within a thirty (30) day Remediation Period for the purposes of Section 8.2,

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whereas a breach under (ii) above shall be deemed to be not remediable and therefore the Remediation Period shall not apply.   For clarity, a Late Delivery will not include any delay in shipment of Product caused by a Force Majeure Event, which may include a delay in delivery of Active Materials, a delay in Product release approval from Client, receipt of non-conforming API or Components supplied by Client or any market driven delays in deliveries from Client-approved vendors, in each case not within Patheon’s reasonable control, in which case the provisions of Section 13.7 shall apply.  Notwithstanding anything to the contrary in this Agreement, a delay in shipment of Product due to a Product quality investigation in accordance with the Quality Agreement and due to product non-conformance shall not be deemed to be a Late Delivery, unless the investigation determines that the quality problem was as a result of Patheon’s breach of this Agreement.

5.6                           Invoices and Payment.

Invoices will be sent by fax or email to the fax number or email address given by Client to Patheon in writing.  Invoices will be sent when the Product is manufactured and released by Patheon for shipment.  Patheon will also submit to Client, with each shipment of Products, a duplicate copy of the invoice covering the shipment.  Patheon will also give Client an invoice covering any Inventory or Components which are to be purchased by Client under Section 5.2 of this Agreement.  Each invoice will, to the extent applicable, identify Client’s Manufacturing Services purchase order number, Product numbers, names and quantities, unit price, freight charges, and the total amount to be paid by Client.  Client will pay all invoices within 30 days of the date thereof.  Interest on accounts that are past due for longer than thirty (30) days will accrue at 1.0% per month which is equal to an annual rate of 18% (or at the highest percentage allowed by Applicable Laws, whichever is less).  The Late Delivery credits set forth in this Section 5 are only available to Client if all outstanding undisputed invoices have been paid in full or are within 45 days outstanding from the invoice date when the Late Delivery arose.