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Development and License Agreement - R. W. Johnson Pharmaceutical Research Institute and Alkermes Controlled Therapeutics Inc.

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                                   DEVELOPMENT

                                       AND

                                     LICENSE

                                    AGREEMENT


<PAGE>   2
                                TABLE OF CONTENTS



                                                                            PAGE
                                                                            ----
                                                                        

ARTICLE I - DEFINITION.......................................................  1
      1.1   "ACT Know-How"...................................................  1
      1.2   "ACT Patent".....................................................  1
      1.3   "Affiliate"......................................................  2
      1.4   "BLA"............................................................  2
      1.5   "Collaboration Product"..........................................  2
      1.6   "Collaboration Tangible Research Product"........................  2
      1.7   "Control"........................................................  2
      1.8   "Date of First Sale".............................................  2
      1.9   "Development Supply Cost"........................................  2
      1.10  "Drug Approval Application"......................................  2
      1.11  "Effective Date".................................................  2
      1.12  "FDA"............................................................  2
      1.13  "Field"..........................................................  2
      1.14  "FTE"............................................................  2
      1.15  "Information"....................................................  3
      1.16  "Major European Country".........................................  3
      1.17  "Negotiated Labor Rate"..........................................  3
      1.18  "Net Sales"......................................................  3
      1.19  "Non-Product Program Patent".....................................  4
      1.20  "Patent".........................................................  4
      1.21  "Patent Costs" ..................................................  4
      1.22  "Peptidal rHuEPO"................................................  4
      1.23  "Phase I"........................................................  4
      1.24  "Phase II".......................................................  4
      1.25  "Phase III"......................................................  4
      1.26  "Pre-Phase I"....................................................  4
      1.27  "PRI Know-how"...................................................  5
      1.28  "PRI Patent".....................................................  5
      1.29  "Program Patent".................................................  5
      1.30  "Regulatory Approval"............................................  5
      1.31  "Research".......................................................  5
      1.32  "Research Plan"..................................................  5
      1.33  "Research Services Cost".........................................  5
      1.34  "Research Term"..................................................  5
      1.35  "Third Party"....................................................  5
      1.36  "Valid Patent Claim".............................................  5

ARTICLE II - DEFINITION......................................................  6
      2.1   Collaborative Research Program...................................  6
      2.2   The JRC..........................................................  6
      2.3   Information and Reports..........................................  6
      2.4   ACT Research Efforts.............................................  7
      2.5   PRI's Research Efforts...........................................  7
      2.6   Research Capital Expenditures....................................  7
      2.7   PRI's Option to Extend Research Term.............................  7
      2.8   Additional Extension by Mutual Consent...........................  7
      2.9   Research Products................................................  7
      2.10  Research Audit...................................................  7

ARTICLE III - PRODUCT DEVELOPMENT............................................  8
      3.1   PRI's Responsibilities...........................................  8
      3.2   ACT's Responsibilities...........................................  8
      3.3   Adverse Event Reporting Requirement..............................  8
      3.4   Filing Reports...................................................  9





                                      (ii)
<PAGE>   3

                                                                        

ARTICLE IV - COMMERCIALIZATION...............................................  9
      4.1   Marketing Obligations............................................  9
      4.2   Trademarks.......................................................  9

ARTICLE V - OWNERSHIP OF INTELLECTUAL PROPERTY AND PATENT RIGHTS.............  9
      5.1   Ownership Of Program Patents.....................................  9
      5.2   Ownership Of Non-Product Program Patents......................... 10
      5.3   Disclosure Of Patentable Inventions.............................. 10
      5.4   Non-Product Program Patent Filings............................... 10
      5.5   Program Patent Filings........................................... 10
      5.6   Enforcement Rights - Non-Product Program Patents................. 11
      5.7   Enforcement Rights - Program Patents............................. 11
      5.8   Defense and Settlement of Third Party Claims to
            Collaboration Products........................................... 12

ARTICLE VI - LICENSE GRANTS.................................................. 12
      6.1   Patents for Collaboration Product................................ 12
      6.2   Know-How for Collaboration Product............................... 12
      6.3   Patent Licenses for Research..................................... 12
      6.4   Other Exclusive Licenses......................................... 12

ARTICLE VII - PAYMENTS....................................................... 12
      7.1   Research Payments................................................ 12
      7.2   Development Payments............................................. 13
      7.3   Milestone Payments............................................... 13
      7.4   Milestone Payment Timing......................................... 14
      7.5   Earned Royalties for Collaboration Products...................... 14
      7.6   Generic Competition.............................................. 15
      7.7   Collaboration Product Earned Royalty Term........................ 15
      7.8   Special European Union Provisions................................ 15
      7.9   Foreign Exchange................................................. 16
      7.10  Blocked Currency................................................. 16
      7.11  Taxes............................................................ 16
      7.12  Records and Reports.............................................. 16
      7.13  Accounting....................................................... 16
      7.14  Third Party Patents.............................................. 17
      7.15  Compulsory License............................................... 17

ARTICLE VIII - MANUFACTURE................................................... 17
      8.1   PRI's Responsibility............................................. 17
      8.2   ACT's Duties..................................................... 17

ARTICLE IX - CONFIDENTIALITY................................................. 17
      9.1   Disclosed Confidential Information............................... 17
      9.2   Shared Confidential Information.................................. 18
      9.3   Permitted Disclosure............................................. 18
      9.4   Integration...................................................... 19

ARTICLE X - REPRESENTATIONS AND WARRANTIES; EXCLUSIVITY...................... 19
      10.1  Representations and Warranties................................... 19
      10.2  Performance By Affiliates........................................ 19

ARTICLE XI - TERM AND TERMINATION............................................ 19
      11.1  Term............................................................. 19
      11.2  Termination For Breach........................................... 20
      11.3  Termination For Bankruptcy....................................... 20
      11.4  Termination By PRI For Cause..................................... 20
      11.5  Termination By PRI Without Cause................................. 20
      11.6  Surviving Rights................................................. 20




                                      (iii)
<PAGE>   4

                                                                        

      11.7  Accrued Rights, Surviving Obligations............................ 20
      11.8  Termination Not Sole Remedy...................................... 20

ARTICLE XII - INDEMNIFICATION................................................ 21
      12.1  Research and Development Indemnification......................... 21
      12.2  PRI Indemnification.............................................. 21
      12.3  Notification..................................................... 21

ARTICLE XIII - DISPUTE RESOLUTION............................................ 21
      13.1  Disputes......................................................... 21
      13.2  Alternative Dispute Resolution................................... 21
      13.3  Arbitration Procedure............................................ 22
      13.4  Survivability.................................................... 22
      13.5  Jurisdiction..................................................... 23

ARTICLE XIV - LICENSOR BANKRUPTCY............................................ 23
      14.1   Licensor Bankruptcy............................................. 23

ARTICLE XV- NOTICES.......................................................... 23
      15.1   Notice.......................................................... 23

ARTICLE XVI - ASSIGNMENT..................................................... 24
      16.1   Assignment...................................................... 24

ARTICLE XVII - PUBLICITY..................................................... 24
      17.1   Publicity....................................................... 24

ARTICLE XVIII - FORCE MAJEURE................................................ 25
      18.1   Force Majeure................................................... 25

ARTICLE XIX - INTEGRATION.................................................... 25
      19.1   Integration..................................................... 25

ARTICLE XX - MISCELLANEOUS................................................... 25
      20.1   Amendments...................................................... 25
      20.2   Laws............................................................ 25
      20.3   Severability.................................................... 25
      20.4   Headings........................................................ 25
      20.5   Waiver.......................................................... 26
      20.6   Representations................................................. 26
      20.7   Compliance with Laws............................................ 26
      20.8   Relationship of Parties......................................... 26
      20.9   Counterparts.................................................... 26
      20.10  Limited Liability............................................... 26
      20.11  Electronic Copies............................................... 26





                                      (iv)

<PAGE>   5

                        DEVELOPMENT AND LICENSE AGREEMENT

         THIS AGREEMENT is made effective as of the 19th day of January, 1998 by
and between, The R. W. Johnson Pharmaceutical Research Institute, a division of
Ortho Pharmaceutical Corporation, having a business address at U. S. Route 202,
Raritan, New Jersey 08869-0602 (hereinafter referred to as "PRI"), and Alkermes,
Inc. and Alkermes Controlled Therapeutics, Inc., both having a business address
at 64 Sidney Street, Cambridge, MA 02139-4136 (hereinafter collectively referred
to as "ACT"). ACT and PRI are each referred to herein by name or as a "Party"
or, collectively, as "Parties".

                                    RECITALS

         1.   ACT has an on-going research program in the field of injectable
biodegradeable polymers for the sustained delivery of peptides and has
developed certain technology in this field.

         2.   PRI and its Affiliates possess pharmaceutical research,
development and commercialization capabilities, as well as proprietary
technology in the field of peptidal rHuEPO (recombinant human Erythropoietin).

         3.   The Parties desire to engage in collaborative research to conduct
a discovery program to identify and develop a delivery system for a Peptidal
rHuEPO as initially described in the Research Plan attached hereto as Exhibit A.

         4.   If the collaborative research is successful, the resulting rHuEPO
and delivery system may be employed in the therapeutic treatment, prevention
and/or diagnosis of diseases.

         5.   PRI and ACT are interested in a collaborative research arrangement
with PRI and its Affiliates developing and commercializing any rHuEPO and
delivery system combination resulting from such research.

         Now, therefore, in consideration of the premises and mutual covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

                             ARTICLE I - DEFINITION

The following terms shall have the following meanings as used in this Agreement:

         1.1  "ACT KNOW-HOW" means Information which (a) ACT discloses to PRI or
its Affiliates under or in connection with this Agreement and (b) is within the
Control of ACT. Notwithstanding anything herein to the contrary, ACT Know-How
excludes ACT Patents.

         1.2  "ACT PATENT" means the rights granted by any governmental
authority under a Patent which covers a method, apparatus, material or
manufacture relating to formulations containing bioabsorbable polymers leading
to sustained release upon injection, which Patent is owned or Controlled by ACT,
including its interest in Program Patents and Non-Product Program Patents.



                                        1

<PAGE>   6
         1.3  "AFFILIATE" means an individual, trust, business trust, joint
venture, partnership, corporation, association or any other entity which
(directly or indirectly) is controlled by, controls or is under common control
with a Party. For the purposes of this definition, the term "control"
(including, with correlative meanings, the term "controlled by" and "under
common control with") as used with respect to any Party, shall mean the
possession (directly or indirectly) of power to direct or cause the direction of
the management or policies of such Party.

         1.4  "BLA" means a complete Biologics License Application and all
supplements thereto filed with the FDA including all documents, data, and other
information concerning a product which are necessary for, or included in, FDA
approval to market such product as more fully defined in 21 C.F.R.
ss.600 et seq.

         1.5  "COLLABORATION PRODUCT" means any and all formulations in any form
or dosage for pharmaceutical use in humans or animals of a Peptidal rHuEPO (A)
based on bioabsorbable polymers leading to sustained release of such rHuEPO upon
injection and (B) is discovered, identified or formulated by or on behalf of ACT
during the Research Term.

         1.6  "COLLABORATION TANGIBLE RESEARCH PRODUCT" means any product of
Research, including, but not limited to, compounds, compositions of matter,
research tools, screening methods, techniques and components thereof, including
Collaboration Products.

         1.7  "CONTROL" means possession of the ability to grant a license or
sublicense as provided for herein without violating the terms of any agreement
or other arrangements with any Third Party.

         1.8  "DATE OF FIRST SALE" means the day on which PRI, its Affiliate or
its sublicensee first sells a Collaboration Product to a Third Party in an arms
length transaction.

         1.9  "DEVELOPMENT SUPPLY COST" means the unit cost calculated as
follows:

unit cost = Negotiated Labor Rate x actual FTE required/unit.

         It is acknowledged by both Parties that this unit cost is inclusive of
all expenses, including supplies (not including active), laboratories,
equipment, labor, etc., and that no other costs for supply of product for
development will be owed.

         1.10 "DRUG APPROVAL APPLICATION" means an application for Regulatory
Approval required before commercial sale or use of a Collaboration Product as a
drug in a regulatory jurisdiction.

         1.11 "EFFECTIVE DATE" means the date first written above.

         1.12 "FDA" means the United States Food and Drug Administration.

         1.13 "FIELD" means the discovery, identification, synthesis and
manufacturing scale-up of Collaboration Products and the development, use,
manufacture, marketing, distribution, packaging and sale of Collaboration
Products.

         1.14 "FTE" means a full-time person dedicated to work directly related
to Research or other work funded by PRI hereunder, or in the case of less than




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<PAGE>   7

CONFIDENTIAL INFORMATION IS CONTAINED IN BRACKETS AND HAS BEEN SUPPLIED
SEPARATELY TO THE COMMISSION

a full-time dedicated person, a full-time, equivalent person year, based upon a
total of forty-six (46) weeks or eighteen hundred forty (1,840) hours per year
of work, on or directly related to Research or other work funded by PRI
hereunder, carried out by an employee. In the case of Research and when
calculating the FTEs required, work on or directly related to Research to be
performed by employees can include, but is not limited to, experimental
laboratory work, recording and writing up results, reviewing literature and
references, holding scientific discussions, attending appropriate seminars and
symposia, managing and leading scientific staff, and carrying out management
duties related to the Research. Generally when calculating the FTEs required,
work specifically excludes work associated with business development and
marketing and with non-work specific administration, finance, accounting, legal
and human resources.

         1.15 "INFORMATION" means information generally not known to the public
directly relating to the Field including, but not limited to, (a) techniques and
data relating to the Field, including, but not limited to, inventions,
practices, methods, knowledge, know-how, skill, experience, test data including
pharmacological, toxicological and clinical test data, analytical and quality
control data, marketing, pricing, distribution, costs, sales, manufacturing,
patent and legal data or descriptions; and (b) compositions of matter, assays
and biological materials relating to the Field.

         1.16 "MAJOR EUROPEAN COUNTRY" means Germany, France, United Kingdom or
Italy.

         1.17 "NEGOTIATED LABOR RATE" is calculated at the start of ACT's fiscal
year by dividing the total expenses of ACT by the number of direct personnel.
These personnel exclude G&A, finance, legal and human resources. The 1998 fiscal
year Negotiated Labor Rate is $[ ]. This Negotiated Labor Rate will be adjusted
at the start of each ACT fiscal year following 1998 according to the Producer's
Price Index as published in the Federal Register for the preceding calendar
year.

         1.18 "NET SALES" means the gross sales price billed by PRI or an
Affiliate or a sublicensee for sales of Collaboration Products to an unrelated
Third Party less: (a) standard trade discounts, including cash discounts, or
rebates, retroactive price reductions or allowances actually allowed or granted
from the billed amount, (b) credits or allowances actually granted upon claims,
rejections or returns of Collaboration Products, including recalls, regardless
of the Party requesting such, (c) freight, postage, shipping and insurance
charges, to the extent billed, and (d) taxes, duties or other governmental
charges levied on or measured by the billing amount when included in billing, as
adjusted for rebates and refunds and (e) provisions for actual uncollectible
accounts determined in accordance with reasonable accounting methods,
consistently applied. In the event ACT is receiving royalties under this
Agreement from any Collaboration Product sold in a form containing in addition
to simple Collaboration Product, a further component or components related to
the Collaboration Product, Net Sales for such combination Collaboration Product
will be calculated by multiplying actual Net Sales of such combination
Collaboration Product by the fraction A/(A+B) where A is the invoice price of
the Collaboration Product if sold separately, and B is the total invoice price
of any other component or components, including devices, in the combination, if
sold separately. For purposes of clarification, further component or components
will not include standard packaging, which includes, optionally, diluents and
standard hardware for administration. If, on a country-by-country basis, the
other component or



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<PAGE>   8

components in the combination are not sold separately in said country, Net Sales
for the purpose of determining royalties of the combination Collaboration
Product shall be calculated by multiplying actual Net Sales of such combination
Collaboration Product by the fraction A/C where A is the invoice price of the
Collaboration Product, if sold separately, and C is the invoice price of the
combination Collaboration Product. If, on a country-by- country basis, neither
the Collaboration Product nor the other component or components of the
combination Collaboration Product is sold separately in said country, Net Sales
for the purposes of determining royalties of the combination Collaboration
Product shall be determined by the Parties in good faith.

         In general, the Parties agree to negotiate in good faith for an
equitable determination of Net Sales of Collaboration Product, on a country-
by-country basis, in the event that PRI sells Collaboration Product in such a
manner that gross sales of the same are not readily identifiable.

         1.19 "NON-PRODUCT PROGRAM PATENT" means any Patent, the subject of
which is an invention directed to a Collaboration Tangible Research Product
which is other than a Collaboration Product and which is conceived or reduced to
practice by ACT, or by PRI and ACT jointly, or by a Third Party under a contract
with ACT or in each case an Affiliate of PRI or ACT, in the course of the
Research, or prior to the first anniversary of the end of the Research Term.

         1.20 "PATENT" means (a) valid and enforceable Letters Patent in any
country, including any extension, registration, confirmation, reissue,
continuation, divisionals, continuation-in-part or re-examination or renewal
thereof and (b) pending applications for Letters Patents.

         1.21 "PATENT COSTS" means the fees and expenses paid to outside legal
counsel and other Third Parties, and filing and maintenance expenses, incurred
in connection with the establishment and maintenance of rights under Patents.

         1.22 "PEPTIDAL RHUEPO" means recombinantly produced erythropoietin
which is substantially genetically encoded.

         1.23 "PHASE I" shall mean that portion of the FDA submission and
approval process which provides for the first introduction into humans of a
product with the purpose of determining human toxicity, metabolism, absorption,
elimination and other pharmacological action as more fully defined in 21 C.F.R.
ss.312.21(a).

         1.24 "PHASE II" means that portion of the FDA submission and approval
process which provides for the initial trials of product on a limited number of
patients for the purposes of determining dose and evaluating safety and efficacy
in the proposed therapeutic indication as more fully defined in 21 C.F.R.
ss.312.21(b)

         1.25 "PHASE III" means that portion of the clinical development program
which provides for continued trials of a product on sufficient numbers of
patients to establish the safety and efficacy of a product and generate, if
required, pharmacoeconomics data to support regulatory approval in the proposed
therapeutic indication as more fully defined in 21 C.F.R. ss.312.21(c).

         1.26 "PRE-PHASE I" means that portion of the development program which
starts with the selection of a Collaboration Product for development and the
beginning of at least toxicological studies relating to such compound. Pre-
Phase I includes, but is not limited to, toxicological and pharmacological



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<PAGE>   9

studies and manufacturing development, including scale up for clinical supplies,
necessary to obtain the permission of regulatory authorities to begin and
continue subsequent human clinical testing.

         1.27 "PRI KNOW-HOW" means Information which (a) PRI discloses to ACT
under or in connection with this Agreement and (b) is within the Control of PRI
or an Affiliate. Notwithstanding anything herein to the contrary, PRI Know-how
shall exclude PRI Patents.

         1.28 "PRI PATENT" means the rights granted by any governmental
authority under a Patent which covers a method, apparatus, material or
manufacture relating to the Field, which Patent is owned or Controlled by PRI,
including its interest in Program Patents and Non-Product Program Patents.

         1.29 "PROGRAM PATENT" means any Patent, the subject of which is an
invention directed to a Collaboration Product conceived or reduced to practice
by ACT or by PRI and ACT, jointly, by a Third Party under a contract with ACT or
in each case an Affiliate of PRI or ACT, in the course of the Research, or ACT's
work in the Field during the one year period following the end of the Research
Term.

         1.30 "REGULATORY APPROVAL" means any and all approvals (including
pricing and reimbursement approvals), licenses, registrations or authorizations
of any federal, state or local regulatory agency, department, bureau or other
governmental entity, necessary for the manufacture, use, storage, import,
transport or sale of products in a regulatory jurisdiction.

         1.31 "RESEARCH" means all work performed by the Parties or on their
behalf directly related to the discovery, identification, synthesis and the
manufacturing scale-up of Collaboration Products during the Research Term.

         1.32 "RESEARCH PLAN" has the meaning described in Paragraph 2.1 hereof
and shall be attached as Exhibit A.

         1.33 "RESEARCH SERVICES COST" means the sum payable for Research and
calculated as follows:

sum = Negotiated Labor Rate x actual FTE required for Research.

         It is acknowledged by both Parties that this sum is inclusive of all
expenses, including supplies (not including active), laboratories, equipment,
labor, etc., and that no other costs for Research will be owed.

         1.34 "RESEARCH TERM" means the period commencing on the Effective Date
and ending on the first to occur of (i) termination of this Agreement by either
Party under Paragraphs 11.2 or 11.3 hereof or (ii) termination of the Agreement
at the convenience of PRI according to Paragraph 11.5; or (iii) three years from
the Effective Date, which may be extended under Paragraph 2.7.

         1.35 "THIRD PARTY" means any entity other than ACT or PRI, and their
respective Affiliates.

         1.36 "VALID PATENT CLAIM" means a claim in any unexpired ACT Patent,
including its interest in Program Patents and Non-Product Program Patents, which
has matured into an issued patent or in any pending application for a Patent for
which not more than five (5) years have elapsed since the filing date of such
application for priority purposes, in each case which has not been held invalid
by a non-appealed or unappealable decision by a court or



                                        5

<PAGE>   10

other appropriate body of competent jurisdiction. The scope of a Valid Patent
Claim shall be limited to its terms as set forth in the Patent itself or as
defined by any court or appropriate body of competent jurisdiction.

                             ARTICLE II - DEFINITION

         2.1  COLLABORATIVE RESEARCH PROGRAM. ACT and PRI agree that they will
conduct the Research on a collaborative basis with a goal of discovering,
identifying, synthesizing and scaling-up for manufacture Collaboration Products
that are suitable for development into product for commercialization. The
Parties have agreed to an initial Research Plan, as described in Exhibit A
attached hereto.

         2.2  THE JRC. The Parties shall establish a Joint Research Committee
("JRC") promptly after the Effective Date. The JRC shall be comprised of
representatives of each Party with the size of the JRC to be agreed upon by the
Parties from time-to-time. The purpose of the JRC is to coordinate the Research
effort of the Parties and to expedite the progress of work being done under the
Research Plan and other work directed to developing a Collaboration Product
under this Agreement. The JRC will set specific Research goals, will evaluate
the results of the Research, discuss information relating to the Research and;
will ensure that there is appropriate scientific direction for the
collaboration. The JRC shall develop and periodically modify the Research Plan,
commencing with the current Research Plan attached hereto as Exhibit A. The
Research Plan, among other things, shall specify scientific direction and
Research milestones and allocate Research responsibilities and resources
(including the estimated Research Services Cost, on an activity by activity
basis, for such Research) in a manner consistent with this Agreement. Regardless
of the number of representatives from each Party, each Party shall present one
consolidated view on any issue in dispute. If the JRC fails to reach unanimous
agreement on any matter before it for consideration, the matter shall be
resolved consistent with PRI's position (except where the disagreement concerns
the amount of the estimated Research Services Cost for Research payable under
Paragraph 7.1 or a substantial increase in the total manpower committed by ACT
to Research or the scheduling of ACT critical facilities where the scheduling is
less than one year in advance). For clarification, the Research Plan might be
modified according to the following procedure: the JRC meets to discuss a
modified plan; a draft plan is formed as finally decided by PRI and the costs
are estimated by ACT; the draft plan is revised based on the estimated costs to
appropriately allocate resources; and a modified Research Plan is formed as
finally decided by PRI based on the Research Services Costs as estimated by ACT.
Disputes involving the estimated Research Services Cost and other issues on
which PRI does not have final say will be referred to the President of ACT and
the Chairman of PRI. The JRC shall meet from time-to-time as agreed to by the
Parties.

         2.3  INFORMATION AND REPORTS. ACT will make available and disclose to
PRI all Information known by ACT as of the Effective Date and at any time on or
before the end of the Research Term or prior to the first anniversary of the end
of the Research Term. All discoveries or inventions made by ACT in the Field,
including, but not limited to information regarding initial lead compositions,
activities of lead compositions, modifications of lead compositions, results of
in vitro and in vivo studies, assay techniques, new assays, manufacture and
sources of starting materials, processes for manufacture and diagrams of
machinery for manufacture, including commercial manufacture, will be promptly
disclosed, with significant discoveries or advances being communicated as soon
as practical after such Information is obtained or its significance is
appreciated. Compositions shall be



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<PAGE>   11
transferred by ACT to PRI as reasonably required by PRI. The Parties will
exchange, at a minimum, monthly verbal or written reports, and quarterly, a
written report presenting a meaningful summary of Research done under this
Agreement. The quarterly written reports shall be issued within 30 days of the
end of the quarter. PRI and ACT shall continue to provide such quarterly written
reports in the one (1) year period after the end of the Research Term. Each
Party will make periodic presentations to the other of its Research under this
Agreement to inform the other Party of the work done under this Agreement
including any work done prior to the Effective Date thereof. Each Party will use
reasonable efforts consistent with its normal business practices not to
communicate information to the other which has no application to the Field. Each
Party will provide the other with copies of raw data for work carried out in the
course of the Research under this Agreement if requested.

         2.4  ACT RESEARCH EFFORTS. ACT agrees to commit the resources set forth
in this Paragraph 2.4, to exert the efforts necessary and reasonable and
consistent with its normal business practices to execute and substantially
perform the Research Plan (including extensions for the balance of the Research
Term), to maintain and utilize the scientific staff, laboratories, offices and
other facilities consistent with such undertaking, and to reasonably cooperate
with PRI in the conduct of the Research. The Parties hereby agree that ACT's
current laboratories, offices and other facilities are satisfactory for purposes
of this Paragraph 2.4.

         2.5  PRI'S RESEARCH EFFORTS. PRI agrees to commit to its own Research
efforts the resources which it believes are reasonable and necessary based upon
the outcome of the Research conducted by ACT. At a minimum, PRI agrees to commit
reasonable efforts to Research through its own resources or by funding the
efforts of ACT commensurate in scope to efforts which it commits to similar
projects of similar potential.

         2.6  RESEARCH CAPITAL EXPENDITURES. The purchase of any capital item
reasonably required by ACT to conduct Research shall be ACT's obligation and
responsibility and all costs associated therewith are to the account of ACT.

         2.7  PRI'S OPTION TO EXTEND RESEARCH TERM. PRI shall have an option to
extend the Research Term under this Agreement on an annual basis for up to three
(3) additional one-year terms beyond the initial term of three years by giving
notice to ACT that it intends to exercise its option to extend for an additional
year at least ninety (90) days prior to the end of the Research Term then in
effect.

         2.8  ADDITIONAL EXTENSION BY MUTUAL CONSENT. The Parties may, by mutual
written consent, extend the Research Term beyond the period set forth above, on
such terms and conditions as the Parties may then agree in writing.

         2.9  RESEARCH PRODUCTS. Collaboration Tangible Research Products,
excepting compositions embodying Collaboration Products, shall be jointly owned
by ACT and PRI. After the first anniversary of the end of the Research Term,
neither Party shall be required to provide the other with data or other
information relating to Collaboration Tangible Research Products. The physical
Collaboration Product shall be the property of PRI.

         2.10 RESEARCH AUDIT. ACT will maintain complete and accurate records
which are relevant to its expenditure of Research manpower provided to it under
this Agreement pursuant to the Research Plan. With reasonable notice, such
records shall be open during reasonable business hours for a period of three
years from the creation of individual records for examination at PRI's expense
and not more often than once each year by an independent certified



                                        7

<PAGE>   12

public accountant appointed by PRI and reasonably acceptable to ACT. Such
examination will be for the sole purpose of verifying for PRI the cost of the
Research conducted and whether or not funds received by ACT from PRI were used
for conducting Research.

                        ARTICLE III - PRODUCT DEVELOPMENT

         3.1  PRI'S RESPONSIBILITIES. PRI shall be solely responsible for and
have the sole right to select a Collaboration Product to enter Pre-Phase I. Once
a Collaboration Product is selected to enter Pre-Phase I, PRI shall be solely
responsible for and shall have the sole right to develop the Collaboration
Product through Pre-Phases I and Phases I, II and III including making all Drug
Approval Applications and obtaining all Regulatory Approvals on a worldwide
basis. In this regard, PRI agrees to commit reasonable efforts to carry out
development of such Collaboration Product to file for approval to market in at
least one country selected from Germany, France, United Kingdom, Italy or the
United States. Moreover, PRI shall be responsible for all cost and expenses in
connection with such development efforts. At the time that PRI chooses not to
commit reasonable efforts to carry out development of such Collaboration Product
to file for approval in the United States, then the license grant of Paragraph
6.4 by ACT to PRI will be limited, for the United States only, to a
recombinantly produced erythropoietin receptor agonist which is substantially
genetically encoded in a bioabsorbable polymeric delivery system.

         3.2  ACT'S RESPONSIBILITIES. As reasonably requested by PRI, ACT will
provide PRI all Information in ACT's Control relating to Collaboration Products
selected for development and/or being developed by PRI, including formulations,
manufacture and sources of starting materials, processes for manufacture,
diagrams of machinery for manufacture, including commercial manufacture, etc.
According to a plan developed and approved by the JRC, ACT agrees to maintain a
validated facility and process and supply any Collaboration Product reasonably
required for development and clinical trials. The specifications for such
clinical trial Collaboration Product will be established by the JRC. ACT's
requirements of active rHuEPO to supply PRI clinical trial Collaboration Product
will be supplied to ACT at no cost to ACT. In addition to supplying any
Collaboration Product reasonably required for development or clinical trials,
ACT will supply PRI with all required CM&C documentation and data. ACT agrees to
carry out any further developmental work reasonably within its capabilities as
requested by the JRC. Any Information disclosed by PRI to ACT about development
hereunder may be used by ACT solely in connection with the Research.

         3.3  ADVERSE EVENT REPORTING REQUIREMENT. The Parties recognize that
PRI as the holder of all Drug Approval Applications and Regulatory Approval may
be required to submit information and file reports to various governmental
agencies on Collaboration Products under clinical investigation, Collaboration
Products proposed for marketing, or marketed Collaboration Products. The
information must be submitted at the time of initial filing for investigational
use in humans and at the time of a request for market approval of a new
Collaboration Product. In addition, supplemental information must be provided on
Collaboration Products at periodic intervals and adverse drug experiences must
be reported at more frequent intervals depending on the severity of the
experience. Consequently, to the extent ACT obtains the following and
appropriate persons within ACT are aware thereof, ACT agrees to:

              (a)   provide to PRI for initial and/or periodic submission to
government agencies significant information on the Collaboration Product and



                                        8

<PAGE>   13

components thereof from preclinical laboratory, animal toxicology and
pharmacology studies, as well as adverse drug experience reports from clinical
trials and commercial experiences with the Collaboration Product or components
thereof;

               (b)  in connection with investigational drugs, report to PRI
within three (3) business days of the initial receipt of a report of any serious
adverse experiences with the Collaboration Product or components thereof, or
sooner if required, for PRI to comply with regulatory requirements; and

               (c)  in connection with marketed Collaboration Products, report
to PRI including, but not limited to, by telephone and telefax within three (3)
business days of the initial receipt of a report of any adverse experience with
the Collaboration Product that is serious or sooner if required for PRI to
comply with regulatory requirements. For the purposes of this Agreement, serious
adverse experiences mean any experience that suggests a significant hazard,
contraindication, side effect or precaution, or any experience that is fatal or
life threatening, is permanently disabling, requires or prolongs inpatient
hospitalization, or is a congenital anomaly, cancer, or overdose or as defined
in the most current US regulations and/or regulations of a Major European
Country.

         PRI recognizes that ACT has a reporting requirement to Regulatory
Authorities on delivery systems that may be similar to delivery systems employed
in Collaboration Products. Accordingly, PRI agrees to a reciprocal obligation to
ACT under this Paragraph.

         The Parties will agree to reasonable procedures for data exchange
hereunder.

         3.4   FILING REPORTS. Reports made to regulatory agencies in connection
with any Collaboration Product hereunder including adverse reaction reports
shall be made exclusively by PRI.

                         ARTICLE IV - COMMERCIALIZATION

         4.1   MARKETING OBLIGATIONS. All business decisions, including, but not
limited to, the design, sale, price and promotion of Collaboration Products
under this Agreement and the decision whether to market any particular
Collaboration Product shall be within the sole discretion of PRI and its
Affiliates. Any marketing of a Collaboration Product in one market or country
shall not obligate PRI to market said Collaboration Product in any other market
or country. Furthermore, PRI makes no representation or warranty that the
marketing of a Collaboration Product shall be the exclusive means by which PRI
or an Affiliate will participate in any therapeutic field.

         4.2   TRADEMARKS. PRI or its Affiliates shall select their own
trademarks under which they will market Collaboration Products and shall own all
such trademarks.

        ARTICLE V - OWNERSHIP OF INTELLECTUAL PROPERTY AND PATENT RIGHTS

         5.1   OWNERSHIP OF PROGRAM PATENTS. All inventions and discoveries
which may be filed as Program Patents shall be owned jointly by PRI and ACT.
Except as exclusively licensed in Article VI herein, the Parties may freely
make, use and sell Program Patents.



                                        9

<PAGE>   14

         5.2   OWNERSHIP OF NON-PRODUCT PROGRAM PATENTS. Non-Product Program
Patents shall be owned by the Party inventing the same, and if invented by joint
inventors where there is one or more inventor from each Party, the Non- Product
Program Patents shall be jointly owned. Except as exclusively licensed in
Article VI herein, the Parties may freely make, use and sell jointly owned
Non-Product Program Patents.

         5.3   DISCLOSURE OF PATENTABLE INVENTIONS. In addition to the
disclosures required under Article II hereof, each Party shall provide to the
other any invention disclosure related to the Field which has been submitted in
the normal course of disclosing an invention and which has arisen in the course
of the Research hereunder. Such invention disclosures shall be provided to the
other Party promptly after submission and in no event later than ten (10) days
after the end of the calendar quarter in which the disclosure was submitted.

         5.4   NON-PRODUCT PROGRAM PATENT FILINGS. If the invention is solely
owned, the Non-Product Program Patents will be filed by the Party who is the
sole owner of the same according to Paragraph 5.2. The sole owner of Non-
Product Program Patents will bear all Patent Costs related thereto and make all
decisions regarding the same without obligation to the other Party.

         If the invention is jointly owned, the Non-Product Program Patent will
be filed by the Party on whose site the invention was identified. The Party
which is responsible for filing the jointly owned Non-Product Program Patent
will be termed the "filing Party". The filing Party shall keep the other Party
apprised of the status of each jointly owned Non-Product Program Patent and
shall seek the advice of the other Party with respect to Non-Product Program
Patent strategy and draft applications and shall give reasonable consideration
to any suggestions or recommendations of the other Party concerning the
preparation, filing, prosecution, maintenance and defense thereof. The Parties
shall cooperate reasonably in the prosecution of all jointly owned Non-Product
Program Patents hereunder and will share all Patent costs associated therewith
and all material information relating thereto promptly after receipt of such
information. The determination of the countries in which to file shall be made
by mutual agreement of the Parties. If, however, there is dispute as to where to
file, the filing Party shall decide, provided that, in the case where the
non-filing Party requests worldwide filing, the filing Party shall at least file
in the U.S., EPO designating all EPO countries, Canada, Australia, and Japan
either directly or through the PCT route. In the event either Party, for
whatever reason, does not wish to obtain such patent or other intellectual
property protection, the other Party shall be entitled to apply in its sole
name, at its own expense, for such protection and the first Party shall
cooperate in any reasonable manner therein. Further, if, during the term of this
Agreement, either Party desires to allow any jointly owned Non-Product Program
Patent to lapse or become abandoned without having first filed a substitute,
that Party shall, whenever practicable, notify the other Party of such intention
at least sixty (60) days prior to the date upon which such jointly owned
Non-Product Program Patent shall lapse or become abandoned without further
action, and the other Party shall thereupon have the right, but not the
obligation, to assume responsibility for the prosecution, maintenance and
defense thereof in its sole name and at its own expense. Neither Party makes any
warranty with respect to the validity, perfection or dominance of any jointly
owned Non- Product Program Patent or other proprietary right.

         5.5   PROGRAM PATENT FILINGS. PRI and ACT shall prosecute Program
Patents to cover effectively and broadly discoveries and inventions relating to
the Field and shall use reasonable efforts to file initially all applications as
follows. The Parties will engage the services of outside



                                       10

<PAGE>   15

counsel, mutually agreeable to both Parties, to file and prosecute the Program
Patents. The outside counsel will keep both Parties fully informed of all
actions in the course of its work and provide adequate opportunity for both
Parties to comment on any decisions or actions undertaken. The Parties will
cooperate reasonably in filing and prosecuting the Program Patents with such
outside counsel and with each other and will share all material information
relating thereto promptly after receipt. In the event the Parties, working with
the outside counsel are unable to agree as to any action or decision in regard
to the filing and prosecution of Program Patents, then the Chief Patent Counsel
of Johnson and Johnson will have the final say on the matter with the basis for
the decision being effective and broad coverage of discoveries and inventions by
Program Patents.

         If there is a dispute as to where to file, Program Patents will be
filed in at least the U.S., EPO designating all EPO countries, Canada, Australia
and Japan either directly or through the PCT route.

         Neither Party makes any warranty with respect to the validity,
perfection or dominance of any jointly owned Program Patent or other proprietary
right.

         The Parties' Patent Costs relating to the Program Patents shall be the
sole responsibility of PRI. ACT may choose to file at its own expense Program
Patents in disputed countries.

         5.6   ENFORCEMENT RIGHTS - NON-PRODUCT PROGRAM PATENTS. With respect to
infringement of any Non-Product Program Patent, in the absence of agreement with
respect to infringement, each Party may proceed in such manner as the law
permits.

         5.7   ENFORCEMENT RIGHTS - PROGRAM PATENTS. If any Program Patent is
infringed by a Third Party in any country in connection with the manufacture,
use and sale of a product, the Party to this Agreement first having knowledge of
such infringement shall promptly notify the other in writing, setting forth the
known facts of that infringement in reasonable detail. The Party marketing the
Collaboration Product shall have the primary right, but not the obligation, to
institute, prosecute, and control any action or proceeding with respect to such
infringement of the Program Patent, by counsel of its own choice, and the Party
due royalties shall have the right, at its own expense, to be represented in
that action by counsel of its own choice. If the Party marketing the
Collaboration Product fails to bring an action or proceeding within a period of
one hundred eighty (180) days after a request by the other Party to do so, the
Party due royalties shall have the right to bring and control any such action by
counsel of its own choice, and the Party marketing the Collaboration Product
shall have the right to be represented in any such action by counsel of its own
choice at its own expense. If one Party brings any such action or proceeding,
the second Party agrees to be joined as a Party plaintiff and to give the first
Party reasonable assistance and authority to file and prosecute the suit. The
costs and expenses of the Party bringing suit under this Paragraph and any
damages or other monetary awards recovered shall be retained by the Party
bringing suit. A settlement or consent judgment or other voluntary final
disposition of a suit under this Paragraph 5.7 may be entered into without the
consent of the Party not bringing the suit; provided that such settlement,
consent judgment or other disposition does not admit the invalidity or
unenforceability of any Program Patent; and provided further, that any right of
a Third Party to continue the infringing activity in such settlement, consent
judgment or other disposition shall be limited to the product or activity that
was the subject of the suit.



                                       11

<PAGE>   16

         5.8   DEFENSE AND SETTLEMENT OF THIRD PARTY CLAIMS TO COLLABORATION
PRODUCTS. If a Third Party asserts that a Patent or other right owned by it is
infringed by the manufacture, use or sale of any Collaboration Product, PRI
shall be solely responsible for defending against any such assertions at its
cost and expense.

                           ARTICLE VI - LICENSE GRANTS

         6.1   PATENTS FOR COLLABORATION PRODUCT. ACT hereby grants to PRI an
exclusive, worldwide, royalty bearing license with the right to grant
sublicenses to Affiliates and to ACT only, under ACT Patents, including its
interest in Program Patents and Non-Product Program Patents, to make and have
made Collaboration Products. ACT hereby grants to PRI an exclusive, worldwide,
royalty bearing license with the right to grant sublicenses, under ACT Patents,
including its interest in Program Patents and Non-Product Program Patents, to
use, sell and have sold Collaboration Products.

         6.2   KNOW-HOW FOR COLLABORATION PRODUCT. ACT hereby grants to PRI an
exclusive, worldwide, royalty bearing license with the right to grant
sublicenses to Affiliates and ACT only, under ACT Know-How to make and have made
Collaboration Products. ACT hereby grants to PRI an exclusive, worldwide,
royalty bearing license with the right to grant sublicenses, under ACT Know-How
to use, sell and have sold Collaboration Products.

         6.3   PATENT LICENSES FOR RESEARCH. Notwithstanding anything herein to
the contrary ACT grants PRI an exclusive (except as to ACT) paid-up, worldwide
license, with the right to grant sublicenses to Affiliates only, under ACT
Patents, including its interest in Non-Product Program Patents and Program
Patents, to make and use methods and materials solely to carry out the Research.
PRI grants ACT a non-exclusive, paid-up, worldwide license, with the right to
grant sublicenses to Affiliates only, under PRI Patents, including its interest
in Non-Product Program Patents and Program Patents, to make and use methods and
materials solely to carry out the Research.

         6.4   OTHER EXCLUSIVE LICENSES. In addition to and overlapping with any
of the above licenses and without effecting other licenses granted herein, ACT
hereby grants to PRI an exclusive, worldwide, royalty free license with the
right to grant sublicenses, under ACT Patents and ACT Know-How, including its
interest in Program Patents and Non-Product Program Patents, to make, have made
or use, but not to sell and have sold injectable pharmaceutical products for use
in humans or animals containing a compound or the precursor to a compound the
primary purpose or effect of which is to promote red blood cell production in a
bioabsorbable polymeric delivery system. Except as to ACT Patents filed or ACT
Know-How developed prior to the date of first sale anywhere, this exclusive
license will terminate in the European Union beginning four years after the Date
of First Sale anywhere.

                             ARTICLE VII - PAYMENTS

         In consideration of the assignments, rights and licenses granted under
this Agreement, PRI agrees to pay ACT as follows:

         7.1   RESEARCH PAYMENTS. PRI shall pay to ACT its Research Services
Costs as based on the number of FTEs ordinarily and necessarily required for




                                       12

<PAGE>   17

CONFIDENTIAL INFORMATION IS CONTAINED IN BRACKETS AND HAS BEEN SUPPLIED
SEPARATELY TO THE COMMISSION

execution of Research as approved in the Research Plan. Payments by PRI to ACT
for Research shall be made quarterly in arrears beginning after the Effective
Date, within 30 days of receiving an invoice therefor. Such invoice will itemize
all Research Services Costs to a level of detail commensurate to the level of
detail contained in the Research Plan, so that all Research Services Costs can
be allocated to the various projects of the Research Plan. Cost overruns where
the actual Research Services Cost exceeds the estimated Research Services Costs
as approved in the Research Plan of up to %[ ] are expected by the Parties. Cost
overruns exceeding %[ ] are to the account of ACT except that PRI, in its sole
discretion, may choose to pay such overruns where circumstances warrant. ACT
will notify PRI of cost overruns of which it becomes aware within five business
days.

         7.2   DEVELOPMENT PAYMENTS. PRI shall pay to ACT its Development Supply
Costs as based on the number of FTEs ordinarily and necessarily required for the
supply of Collaboration Product for development or clinical trials. PRI will pay
ACT for all other developmental work required or requested by PRI based on the
number of FTEs ordinarily and necessarily required for execution of such work as
approved by PRI. Payments by PRI to ACT hereunder shall be made after the
Effective Date, within 30 days of receiving an invoice for expenses owed from
previous work or clinical supply Collaboration Product delivered. Such invoice
will itemize all expenses to a level of detail commensurate to the level of
detail contained in PRI's request, so that all expenses can be allocated to the
various projects of such request. Cost overruns where the actual Development
Supply Costs exceeds the estimated Development Supply Costs as approved in the
Research Plan of up to %[ ] are expected by the Parties. Cost overruns exceeding
%[ ] are to the account of ACT except that PRI, in its sole discretion, may
choose to pay such overruns where circumstances warrant. ACT will notify PRI of
cost overruns of which it becomes aware within five business days.

         The purchase of any item reasonably required by ACT to supply
Collaboration Product for development or clinical trials, including the
investment for materials and supplies required to plan, construct and validate a
facility, shall be ACT's obligation and responsibility.

         7.3   MILESTONE PAYMENTS. PRI agrees to make the following payments
recited hereinafter in this Paragraph to ACT upon the first occurrence of each
milestone event for a Collaboration Product during the term of this Agreement.
The total milestone payments that may be due and payable hereunder cannot exceed
$[ ]. It is understood that milestones will be paid only once, even though
multiple formulations may be made and developed for multiple indications. For
example, if a first Collaboration Product achieves the first two (2) milestones,
the payments are made by PRI, and development of the Collaboration Product is
discontinued, PRI shall not be obligated to again pay the same two (2) payments
in connection with subsequent Collaboration Products.



                                       13

<PAGE>   18
CONFIDENTIAL INFORMATION IS CONTAINED IN BRACKETS AND HAS BEEN SUPPLIED
SEPARATELY TO THE COMMISSION


                MILESTONE                                           CASH PAYMENT
$[              ---------                                           ------------





























                                                                             ]

         An BLA or equivalent filing will not be considered filed hereunder
until the U.S. FDA or other regulatory authority accepts such filing for review
at which point the milestone of BLA or equivalent filing shall be considered to
have occurred.

         7.4   MILESTONE PAYMENT TIMING. The payments set forth in Paragraph 7.3
hereof shall each be due and payable by PRI to ACT within thirty (30) days of
the demonstration of the milestone event set forth therein.

         7.5   EARNED ROYALTIES FOR COLLABORATION PRODUCTS. PRI shall pay ACT,
from the date of First Sale, a royalty based on Net Sales in connection with the
annual Net Sales of Collaboration Products sold for the therapeutic treatment of
humans or animals by PRI or its Affiliates or sublicensees. Total royalties paid
will be calculated according to the following formula:

Total Royalties = [sum]Royalty Bands Adjusted Net Sales x Royalty Rate.

The Royalty Rate and Royalty Bands are given according to the following table:

Royalty Bands, annual Adjusted Net Sales                            Royalty Rate
$/%[








                                                                             ]

Adjusted Net Sales are calculated from Net Sales on a county-by-country basis
according to the following formula:

Adjusted Net Sales = [sum]country Net Sales x Adjustment Factor

The Adjustment Factor to be used for a particular country is given as follows:

         (a) in countries and for the period in which a Valid Patent Claim
exists that would be infringed by the sale or use of the Collaboration Product,



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CONFIDENTIAL INFORMATION IS CONTAINED IN BRACKETS AND HAS BEEN SUPPLIED
SEPARATELY TO THE COMMISSION

              (i)   for Collaboration Product that is not manufactured by ACT
and where such non-manufacture by ACT is not due to breach by ACT of any supply
agreement between the Parties, the Adjustment Factor is #[ ], and

              (ii)  for Collaboration Product not meeting the criteria of
(a)(i), the Adjustment Factor is #[ ]; and

         (b) in all other countries,

              (i)   for Collaboration Product that is not manufactured by ACT
and where such non-manufacture by ACT is not due to breach by ACT of any supply
agreement between the Parties, the Adjustment Factor is #[ ], and

              (ii)  for Collaboration Product not meeting the criteria of
(b)(i), the Adjustment Factor is #[ ].

         7.6   GENERIC COMPETITION. The Adjustment Factors recited in Paragraph
7.5 hereof shall be reduced by %[ ], on a product-by-product and country-by-
country basis, should competition from the same product having substantially the
same formulation and substantially the same duration of release as the
Collaboration Product in question reach %[ ] market share on a unit basis by
such competition in that country. Notwithstanding anything herein to the
contrary, such Adjustment Factor reduction shall not be available if a Valid
Patent Claim in a PRI Patent covering the competing product exists and PRI does
not attempt to enforce it against the infringer or if a Valid Patent Claim in an
ACT Patent covering the competing product exists and ACT is attempting in good
faith to enforce it against the infringer.

         7.7   COLLABORATION PRODUCT EARNED ROYALTY TERM. Royalties payable
under Paragraph 7.5 shall be paid on a country-by-country and product-by-
product basis from the Date of First Sale of each Collaboration Product with
respect to which a royalty is due for a period which is the longer of:

         (a)   the last to expire of any ACT Patent containing a Valid Patent
Claim in such country covering the composition of matter or use of the
Collaboration Product on which royalties are payable; or

         (b)   10 years following the Date of First Sale of such Collaboration
Product in such country provided such 10 year period does not extend beyond the
last to expire of any ACT Patent containing a Valid Patent Claim covering a
composition of matter or use of a Collaboration Product anywhere.

         Upon termination of the royalty payment obligation, PRI shall
thereafter have, in perpetuity, a fully paid up license under ACT patents or ACT
Know-How to make, have made, use, sell, have sold and import Collaboration
Products, without further accounting to ACT.

         7.8   SPECIAL EUROPEAN UNION PROVISIONS. For all member countries of
the European Union only, the exclusive, worldwide, royalty bearing license with
the right to grant sublicenses, under ACT Know-How granted to PRI by ACT
hereunder, to the extent that such ACT Know-How is related to a Collaboration
Product, shall be converted to a non-exclusive license following the period of
ten (10) years from the Date of First Sale of such Collaboration Product in the
European Union. On a country-by-country basis in the European Union, where
royalties are being paid with the Adjustment Factor as determined by Paragraph
7.5(b) and upon the license being converted to a non-exclusive license by
operation of this Paragraph, then the Adjustment Factor of Paragraph 7.5(b)
shall be reduced by %[ ].



                                       15

<PAGE>   20
         7.9   FOREIGN EXCHANGE. The remittance of royalties payable on Net
Sales will be payable in U.S. dollars to ACT at a bank and to an account
designated by ACT. The method by which Net Sales outside the United States is
converted into US dollars shall be according to standard PRI procedures. All
references to dollars hereunder are references to US dollars.

         7.10  BLOCKED CURRENCY. Where royalties are due for Net Sales in a
country where by reason of currency regulations of any kind or taxes of any kind
imposed after the Date of First Sale in such country it is impossible to make
royalty payments for that country's Net Sales in accordance with Paragraphs 7.5,
said royalties shall be deposited in whatever currency is allowable for the
benefit or credit of ACT in any accredited bank in that country as shall be
acceptable to ACT. Moreover, in order to facilitate payments from countries
other than the United States, when requested by PRI, ACT shall enter into direct
license agreements with PRI Affiliates or sublicensees designated by PRI,
whereby such Affiliate or sublicensee will be obligated to remit royalty
payments due for Net Sales in such country directly to ACT. Each such license
agreement shall recite generally the same terms as this Agreement insofar as
such terms are lawful under applicable laws and regulations of the particular
country.

         7.11  TAXES. Any income tax required to be withheld by PRI or any
Affiliate or sublicensee under the laws of any foreign country for the account
of ACT under this Article VII shall be promptly paid by PRI or said Affiliate or
sublicensee for and on behalf of ACT to the appropriate governmental authority,
and PRI or the Affiliate shall furnish ACT with proof of payment of such income
tax together with official or other appropriate evidence issued by the
appropriate governmental authority sufficient to enable ACT to support a claim
for income tax credit in respect of any sum so withheld. Any such tax required
to be withheld shall be an expense of, and borne solely by ACT.

         7.12  RECORDS AND REPORTS. PRI or its Affiliates shall keep complete
and accurate records of the sale of Collaboration Products with respect to which
a royalty is payable according to this Agreement. Within sixty (60) days
following each quarterly period of PRI's accounting year after the date on which
royalties are due under this Agreement, PRI or its Affiliates shall render to
ACT a written report setting forth the Net Sales of such Collaboration Products
sold and the royalty due and payable, and PRI shall, upon rendering such report,
remit to ACT the amount of royalty shown thereby to be due.

         7.13  ACCOUNTING. A Party shall have the right, at its own expense and
with reasonable notice to the other Party, to nominate an independent certified
public accountant acceptable to and approved by the other Party, said approval
not to be unreasonably withheld, who shall have access to the other Party's
records during reasonable business hours for the purpose of verifying the
royalties payable for any period within the preceding three (3) years as
provided for in this Agreement or, in the case of PRI, for verifying the
expenditures by ACT of research funding paid hereunder to ACT. This right may
not be exercised more than once in any calendar year, and said accountant shall
disclose to the Party requesting the audit, only information relating solely to
the accuracy of the royalty report, the royalty payments, or research
expenditures according to this Agreement. If any audit or examination shall
reveal a deficiency of any royalty payment due, the Party owing the royalty
shall make payment to the other Party of such deficiency plus interest at the
prime rate + 2% (as published in the Wall Street Journal, New York Edition) for
the period of such deficiency or excess. If any audit or examination shall
reveal that ACT has not properly spent the research funding pursuant to the
terms of this Agreement and therefore misused such



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CONFIDENTIAL INFORMATION IS CONTAINED IN BRACKETS AND HAS BEEN SUPPLIED
SEPARATELY TO THE COMMISSION

funding, ACT shall refund any moneys not so properly spent to PRI plus interest
at the prime rate + 2% (as published in the Wall Street Journal, New York
Edition) for the period of such misuse. Payment of such deficiencies or misused
research funding shall be made within five (5) days following notification of
the auditing Party to the Party being audited of the moneys owed. In the event
that such an audit or examination shall reveal a deficiency of any royalty
payment due in an amount equaling or exceeding five percent (5%) of accounting
of the undisputed royalties or expenditures, the Party shall reimburse the other
Party for the reasonable costs of such audit. All overpayments of any royalty
payment or research funding will be refunded within five (5) days following
notification of the auditing Party to the Party being audited of the moneys
owed.

         7.14  THIRD PARTY PATENTS. If a Patent or Patents of a Third Party
should exist in any country during the term of this Agreement covering the
manufacture, use or sale of any Collaboration Product, and if it should prove in
PRI's reasonable judgment impractical or impossible for PRI or any Affiliate or
sublicensee to continue the activity or activities licensed hereunder without
obtaining a royalty bearing license from such third party under such Patent or
Patents in said country, then PRI shall be entitled to a credit against the
royalty payments due hereunder of an amount equal to the royalty paid to such
Third Party, not to exceed %[ ] of the royalty rate due under this Agreement,
arising from the manufacture, use or sale of the Collaboration Product in said
country.

         7.15  COMPULSORY LICENSE. If at any time and from time to time a Third
Party in any country shall, under the right of a compulsory license granted or
ordered to be granted by a competent governmental authority, manufacture, use or
sell any Collaboration Product with respect to which royalties would be payable
pursuant to Paragraph 7.5 hereof, then PRI may reduce the royalty on sales in
such country of such Collaboration Product to an amount no greater than the
amount payable by said Third Party as consideration for the compulsory license.

                           ARTICLE VIII - MANUFACTURE

         8.1   PRI'S RESPONSIBILITY. PRI shall be responsible for making or
having made Collaboration Products.

         8.2   ACT'S DUTIES. The Parties refer to the License and Supply
Agreement between PRI and ACT of even date herewith. Regardless of the
foregoing, at any time during the term of this Agreement and coincidentally with
the planning and first execution by PRI, its Affiliates or Sublicensees or third
party manufacturer of their first manufacture of Collaboration Product, ACT will
reasonably assist PRI, its Affiliates or Sublicensees at their expense with such
planning and first execution of manufacture. This assistance would include and
not be limited to providing experts for on-site consultation, providing ACT
Know-How as required, making available ACT equipment for inspection, etc.

                          ARTICLE IX - CONFIDENTIALITY

         9.1   DISCLOSED CONFIDENTIAL INFORMATION. In the course of performance
of this Agreement, one Party may disclose to the other or receive from the other
written Information and other confidential and proprietary written



                                       17

<PAGE>   22

information disclosed or received pursuant to this Agreement which information,
if so identified in writing either pursuant to this Paragraph 9.1 or otherwise
upon disclosure, shall be considered to be the disclosing Party's "Disclosed
Confidential Information." Each Party agrees that it will take the same steps to
protect the confidentiality of the other Party's Disclosed Confidential
Information as it takes to protect its own proprietary and confidential
information. Each Party shall protect and keep confidential and shall not use
for any purpose, publish or otherwise disclose to any third party, except as
contemplated by this Agreement or with the other Party's written consent, the
other Party's Disclosed Confidential Information for a period of seven (7) years
from the date of termination of this Agreement.

         9.2   SHARED CONFIDENTIAL INFORMATION. In the course of performance of
this Agreement, ACT or PRI and ACT, jointly, or a Third Party under a contract
with ACT or in each case an Affiliate of PRI or ACT, in the course of the
Research may develop, invent or discover Information, including such on
substances or processes, which shall be considered to be the "Shared
Confidential Information" of both Parties. Each Party agrees that it will take
the same steps to protect the confidentiality of the Shared Confidential
Information as it takes to protect its other proprietary and confidential
information. Each Party shall protect and keep confidential and shall not
publish or otherwise disclose to any third party, except as contemplated by this
Agreement or with the other Party's written consent, the Shared Confidential
Information for a period of seven (7) years from the date of termination of this
Agreement. Subject to the obligations of confidentiality hereunder, each Party
may, however, use any Shared Confidential Information for any purpose, with the
following exceptions: ACT may not use Shared Confidential Information that is
clinical data generated with Collaboration Product for any purpose. Permitted
uses of Shared Confidential Information shall not be deemed a license or a grant
of any additional right or license other than or in addition to the right and
license granted in this Agreement.

         9.3   PERMITTED DISCLOSURE. Each Party shall be entitled to disclose,
under a binder of confidentiality containing provisions as protective as this
Article IX, "Confidential Information", which shall include Disclosed
Confidential Information and Shared Confidential Information to consultants and
other third parties, including potential or actual distributors or sublicensees,
for purposes under this Agreement related to the identification, development,
manufacture or marketing of a Collaboration Product. The scope of such
disclosure of Confidential Information to third parties is to be no broader than
that scope required by the third party to perform its intended purpose under
this Agreement and the permitted use of Confidential Information so disclosed to
such third party should be no broader than those uses required by the third
party to perform its intended purpose under this Agreement. The Parties shall
consult prior to the submission of any manuscript for publication if the
publication will contain any Confidential Information of the other Party,
including Shared Confidential Information. Such consultation shall include
providing a copy of the proposed manuscript to the other Party at least sixty
(60) days prior to the proposed date of submission to a publisher, incorporating
appropriate changes proposed by the other Party into the manuscript submission
and deletion of all Confidential Information of which such Party does not agree
to the publication. The refusal of one Party to permit the publication of
Confidential Information may be arbitrary and without basis. The foregoing
notwithstanding, Confidential Information may be disclosed, without restriction,
as a part of a patent application filed on inventions made under this Agreement
related to the identification and development of a Collaboration Product and
during any official proceeding before a court or governmental agency if
reasonably related and necessary to that proceeding. For the purposes of this
Agreement, Confidential Information shall not include such information that:



                                       18

<PAGE>   23

               (i)   was known to the receiving Party at the time of disclosure
as evidenced by written records; or

               (ii)  was generally available to the public or was otherwise part
of the public domain at the time of disclosure or became generally available to
the public or otherwise part of the public domain after disclosure other than
through any act or omission of the receiving Party in breach of this Agreement;
or

               (iii) became known to the receiving Party after disclosure from a
source that had a lawful right to disclose such information to others; or

               (iv)  was independently developed by the receiving Party where
such independent development can be established by written documentation.

         9.4   INTEGRATION. This Article IX supersedes any confidential
disclosure agreement between the Parties as to the subject matter hereof. Any
confidential information under such agreement shall be treated as Confidential
Information hereunder.

             ARTICLE X - REPRESENTATIONS AND WARRANTIES; EXCLUSIVITY

         10.1  REPRESENTATIONS AND WARRANTIES. Each Party hereby represents and
warrants and covenants as follows:

         (a)   This Agreement is a legal and valid obligation binding upon such
Party and enforceable in accordance with its terms. The execution, delivery and
performance of the Agreement by such Party does not conflict with any agreement,
instrument or understanding, oral or written, to which it is a Party or by which
it is bound, nor violate any law or regulation of any court, governmental body
or administrative or other agency having jurisdiction over it.

         (b)   Neither Party has granted, nor during the term of the Agreement
will grant any right to any Third Party relating to its respective technology in
the Field which would conflict with the rights granted to the other Party
hereunder.

         (c)   Each Party owns all of the rights, title and interest in and to
its Know-How.

         10.2  PERFORMANCE BY AFFILIATES. The Parties recognize that each may
perform some or all of its obligations under this Agreement through Affiliates,
provided, however, that each Party shall remain responsible and be guarantor of
the performance by its Affiliates and shall cause its Affiliates to comply with
the provisions of this Agreement in connection with such performance.

                        ARTICLE XI - TERM AND TERMINATION

         11.1  TERM. This Agreement shall commence as of the Effective Date and,
unless sooner terminated as provided herein, shall continue in effect until the
latest of (a) the end of the Research Term or (b) the date on which ACT is no
longer entitled to receive a royalty on any Collaboration Product under this
Agreement.



                                       19

<PAGE>   24
CONFIDENTIAL INFORMATION IS CONTAINED IN BRACKETS AND HAS BEEN SUPPLIED
SEPARATELY TO THE COMMISSION

         11.2  TERMINATION FOR BREACH. In the event that (a) either Party shall
default or breach at any time in connection with any material obligation under
this Agreement and (b) such defaulting Party shall fail to remedy such default
or breach within sixty (60) days after the receipt of notice thereof by the
non-defaulting Party to the defaulting Party, then the non-defaulting Party may
at any time thereafter terminate this Agreement.

         11.3  TERMINATION FOR BANKRUPTCY. Either Party hereto shall have the
right to terminate this Agreement forthwith by written notice to the other Party
(a) if the other Party is declared insolvent or bankrupt by a court of competent
jurisdiction, (b) if a voluntary or involuntary petition in bankruptcy filed in
any court of competent jurisdiction and any such involuntary petition is not
dismissed with 60 days of filing against the other Party, or (c) if the other
Party shall make or execute an assignment for the benefit of creditors.

         11.4  TERMINATION BY PRI FOR CAUSE. In the event of termination of this
Agreement by PRI pursuant to Paragraph 11.2, the licenses granted in Article VI
hereof shall survive termination under this Paragraph. However, the royalty rate
recited in Paragraph 7.5 hereof shall be reduced to %[ ] of Net Sales.

         11.5  TERMINATION BY PRI WITHOUT CAUSE. PRI may terminate this
Agreement for any reason (a) prior to filing an BLA on a Collaboration Product,
upon ninety (90) days prior written notice, (b) subsequent to filing an BLA on a
Collaboration Product, upon six (6) months prior written notice. In the case
where PRI terminates before the end of the scheduled Research Term, then PRI
shall pay Alkermes %[ ] of Research Services Costs estimated under the Research
Plan for a ninety (90) day period following such termination. No other payments
will be due to ACT. The above ninety (90) day periods of this Paragraph in both
cases will be reduced to thirty (30) days where if termination by PRI is based
on (i) material issues regarding the safety of the Collaboration Product or (ii)
clinical data reveal a materially and adversely different profile for the
Collaboration Product than the desired profile established in advance by the
Parties. The license grant of Paragraph 6.4 shall survive termination under this
Paragraph for TIME[ ] from the date of such termination.

         11.6  SURVIVING RIGHTS. Except as modified above in Paragraphs 11.4 and
11.5 hereof, the obligations and rights of the Parties under Paragraphs 3.3,
3.4, 5.1, 5.2, 7.5 to 7.15, 10.1, 11.6, 11.7 and 11.8 and Articles I, IX, XII,
XIII, XV shall survive termination or expiration of this Agreement.

         11.7  ACCRUED RIGHTS, SURVIVING OBLIGATIONS. Termination,
relinquishment or expiration of the Agreement for any reason shall be without
prejudice to any rights which shall have accrued to the benefit of either Party
prior to such termination, relinquishment or expiration, including damages, the
payment obligations hereof and any and all obligations arising from any breach
hereunder.

         11.8  TERMINATION NOT SOLE REMEDY. Termination is not the sole remedy
under this Agreement and, whether or not termination is effected, all other
remedies will remain available except as agreed to otherwise herein.



                                       20

<PAGE>   25

                          ARTICLE XII - INDEMNIFICATION

         12.1  RESEARCH AND DEVELOPMENT INDEMNIFICATION. Each Party (the
"Indemnifying Party") shall indemnify, defend and hold the other Party (the
"Indemnified Party") harmless from and against any and all liabilities, claims,
damages, costs, expenses or money judgments incurred by or rendered against the
Indemnified Party and its Affiliates and sublicensees arising out of any
injuries to person and/or damage to property resulting from (a) negligent acts
of the Indemnifying Party performed in carrying out its obligations hereunder,
including failure by the Indemnifying Party to provide the Indemnified Party
with any Information of the Indemnifying Party's which, if timely received would
have avoided injury, death or damage, provided such failure to provide such
Know-How is due to negligence on the part of the Indemnifying Party, and (b)
personal injury to the Indemnified Party's employees or agents or damage to the
Indemnified Party's property resulting from acts performed by, under the
direction of, or at the request of the Indemnifying Party in carrying out
activities contemplated by this Agreement.

         12.2  PRI INDEMNIFICATION. In addition to its obligations in Paragraph
12.1 hereof PRI shall indemnify and hold ACT harmless from and against any and
all liabilities, claims, damages, costs, expenses or money judgments which
result from the manufacture, use, promotion and sale of products under this
Agreement.

         12.3  NOTIFICATION. The Indemnifying Party's obligations hereunder as
to any claim are subject to (i) its being given prompt notice thereof; (ii) the
sole right to control the defense and settlement; and (iii) the lack of
negligence or willful misconduct leading to the claim by the Indemnified Party.


                        ARTICLE XIII - DISPUTE RESOLUTION

         13.1  DISPUTES. The Parties recognize that disputes as to certain
matters may from time to time arise during the term of this Agreement which
relate to either Party's rights and/or obligations hereunder or thereunder. It
is the objective of the Parties to establish procedures to facilitate the
resolution of disputes arising under this Agreement in an expedient manner by
mutual cooperation and without resort to litigation. To accomplish this
objective, the Parties agree to follow the procedures set forth in this Article
XIII if and when a dispute arises under this Agreement.

         13.2  ALTERNATIVE DISPUTE RESOLUTION. Any dispute controversy or claim
arising out of or relating to the validity, construction, enforceability or
performance of this Agreement, including disputes relating to alleged breach or
to termination of this Agreement or the scope of this arbitration provision or
the parties decision to enter into this contract, shall be settled by binding
Alternative Dispute Resolution ("ADR") in the manner described below:

         (a) If a Party intends to begin an ADR to resolve, after an initial 30
day waiting period after any such dispute arises in which the Parties shall work
reasonably and in good faith to amicably resolve the dispute without resorting
to this article, a dispute, such Party shall provide written notice (the "ADR
Request") to counsel for the other Party informing such other Party of such
intention and the issues to be resolved. From the date of the ADR Request and
until such time as any matter has been finally settled by ADR, the running of
the time periods contained in Paragraph 11.2 as to which Party must cure a
breach of this Agreement shall be suspended as to the subject matter of the
dispute.



                                       21

<PAGE>   26

         (b) Within thirty (30) business days after the receipt of the ADR
Request, the other Party may, by written notice to the counsel for the Party
initiating ADR, add additional issues to be resolved.

         13.3  ARBITRATION PROCEDURE. The ADR and all pre-hearing, hearing and
post-hearing arbitration procedures, shall be conducted in English pursuant to
the Commercial Arbitration Rules of the American Arbitration Association for
Large, Complex Cases then in effect, as amended by the following provisions.

         (a)   Arbitrator. To the extent that the Parties cannot agree on a
single arbitrator, the arbitration shall be conducted by a panel of three
arbitrators ("the Panel"). Each Party shall have the right to appoint one (1)
member of the Panel, with the third member to be mutually agreed by the two
Panel members appointed by the Parties or appointed in accordance with the rules
of the American Arbitration Association.

         (b)   Law. The Panel shall, in rendering its decision, apply the
substantive law of the State of New York, without regard to its conflict of laws
provisions, except that the interpretation of and enforcement of this Article
shall be governed by the Federal Arbitration Act and the arbitrators shall base
their decision on the express terms, covenants and conditions of this Agreement.
The proceeding shall take place in New York, New York. The fees of the Panel
shall be paid by the losing Party which shall be designated by the Panel. If the
Panel is unable to designate a losing party, it shall so state and the fees
shall be split equally between the Parties.

         (c)   Discovery. The parties shall be entitled to discover all
documents and information reasonably necessary for a full understanding of any
legitimate issue raised in the arbitration. They may use all methods of
discovery, including but not limited to depositions, requests for admissions and
requests for production of documents. The time periods for compliance shall be
set by the arbitrator who may also set reasonable limits on the scope of such
discovery and shall not permit either party to take in excess of five
depositions except in exceptional circumstances and for good cause shown

         (d)   Award. The Panel is empowered to award any remedy allowed by law,
including money damages, multiple damages, prejudgment interest and attorneys'
fees, and to grant final, complete, interim, or interlocutory relief, including
injunctive relief. Notwithstanding the foregoing, punitive damages may not be
awarded and express terms of this Agreement may not be altered.

         (e)   Costs. Except as set forth in Paragraph 13.3(b), above, each
Party shall bear its own legal fees.

         (f)   Confidentiality. The ADR proceeding shall be confidential and the
Panel shall issue appropriate protective orders to safeguard each Party's
Confidential Information. Except as required by law, including applicable
securities law, no Party shall make (or instruct the panel to make) any public
announcement with respect to the proceedings or decision of the Panel without
prior written consent of each other Party. The existence of any dispute
submitted to ADR, and the award, shall be kept in confidence by the Parties and
the Panel, except as required in connection with the enforcement of such award
or as otherwise required by applicable law.

         13.4  SURVIVABILITY. Any duty to arbitrate under this Agreement shall
remain in effect and enforceable after termination of this Agreement for any
reason.



                                       22

<PAGE>   27

         13.5  JURISDICTION. For the purposes of this Article XIII, the Parties
acknowledge their diversity (ACT having its principal place of business in
Cambridge, Massachusetts and PRI having its principal place of business in
Raritan, New Jersey) and agree to accept the non-exclusive jurisdiction of the
Federal District Court in Newark, New Jersey for the purposes of enforcing
awards entered pursuant to this Article XIII and for enforcing the agreements
reflected in this Article XIII.

                        ARTICLE XIV - LICENSOR BANKRUPTCY

         14.1  LICENSOR BANKRUPTCY. All rights and licenses granted under or
pursuant to this Agreement by ACT to PRI are, and shall otherwise be deemed to
be, for purposes of Section 365(n) of Title 11, U.S. code (the "Bankruptcy
Code"), licenses of rights to "intellectual property" as defined under section
101(60) of the Bankruptcy Code. The Parties agree that PRI, as a licensee of
such rights under this Agreement, shall retain and may fully exercise all of its
rights and elections under the Bankruptcy Code. ACT agrees during the term of
this Agreement to create and maintain current copies or, if not amenable to
copying, detailed descriptions or other appropriate embodiments, of all such
intellectual property. The Parties further agree that, in the event of the
commencement of a bankruptcy proceeding by or against ACT under the Bankruptcy
Code, PRI shall be entitled to a complete duplicate of (or complete access to,
as appropriate) any such intellectual property and all embodiments of such
intellectual property, and same, if not already in its possession shall be
promptly delivered to PRI (a) upon any such commencement of a bankruptcy
proceeding upon written request therefor by PRI, unless ACT elects to continue
to perform all of its obligations under this Agreement or (b) if not delivered
under (a) above, upon the rejection of this Agreement by or on behalf of ACT
upon written request therefor by PRI.

                              ARTICLE XV - NOTICES

         15.1  NOTICE. Any payment, notice or other communication required or
permitted to be made or given to either Party hereto pursuant to this Agreement
shall be in writing in case of a notice or communication and shall be deemed
given if delivered personally or by facsimile transmission (receipt verified),
telexed, mailed by registered or certified mail (return receipt requested),
postage prepaid, or sent by express courier service, to the Parties and be
deemed received upon actual receipt at the following addresses (or at such other
address for a Party as shall be specified by like notice; provided, that notices
of a change of address shall be effective only upon receipt thereof:

         In the case of ACT:

             Alkermes Controlled Therapeutics, Inc.
             64 Sidney Street
             Cambridge, MA 02139-4136

             Attention: President
             Telephone: (617) 494-0171
             Telefax:   (617) 494-9255

         With a copy to:

             Ballard, Spahr, Andrews & Ingersoll
             1735 Market Street, 51st Floor




                                       23

<PAGE>   28



             Philadelphia, PA 19103

             Attention: Morris Cheston, Jr. & Martha J. Hays
             Telephone: (215) 665-8500
             Telefax:   (215) 864-8999

         In case of PRI:

             The R. W. Johnson Pharmaceutical Research Institute
             700 U.S. Route 202 South
             P.O. Box 300
             Raritan, New Jersey 08869-0602

             Attention: Chairman
             Telephone: (908) 704-4210
             Telefax:   (908) 707-1895

         With a copy to:

             Office of General Counsel
             Johnson and Johnson
             One Johnson and Johnson Plaza
             New Brunswick, New Jersey  08933

             Telephone: (732) 524-2485
             Telefax:   (732) 524-2788

                            ARTICLE XVI - ASSIGNMENT

         16.1  ASSIGNMENT. Neither Party shall have the right to assign,
transfer or encumber its rights or obligations under this Agreement without the
prior written consent of the other, except that PRI or ACT may make such
assignment without prior consent to any Affiliate or a purchaser or transferee
of all or substantially all of the assets of its business to which this
Agreement relates upon written notice to the other Party.

                            ARTICLE XVII - PUBLICITY

         17.1  PUBLICITY. In the absence of specific agreement between the
Parties, neither Party shall originate any publicity, news release or public
announcement, written or oral, whether to the public or press, relating to this
Agreement, including its existence, the subject matter to which it relates,
performance under it or any of its terms, to any amendment hereto or save only
such announcements as in the opinion of counsel for the Party making such
announcement is required by law to be made. Any such announcements shall be
factual and as brief as possible. If a Party decides to make an announcement
required by law , it will give the other Party twenty (20) days' advance written
notice, where possible, of the text of the announcement so that the other Party
will have an opportunity to comment upon the announcement. Routine references to
this Agreement and the arrangements hereunder without undue frequency and
without emphasis shall be allowed in the usual course of business provided that
notice of such use is given to the other Party.



                                       24

<PAGE>   29

                          ARTICLE XVIII - FORCE MAJEURE

         18.1  FORCE MAJEURE. Neither Party hereto shall be liable to the other
Party for any losses or damages attributable to a default in or breach of this
Agreement which is the result of war (whether declared or undeclared), acts of
God, revolution, strike, fire, earthquake, flood, pestilence, riot, enactment or
change of laws and regulations, accident(s), labor trouble, or shortage of or
inability to obtain material, equipment or transport or any other cause beyond
the reasonable control of the Parties, and the performance of obligations
hereunder shall be suspended during, but no longer than, the existence of such
cause.

                            ARTICLE XIX - INTEGRATION

         19.1  INTEGRATION. It is the mutual desire and intent of the Parties to
provide certainty as to their future rights and remedies against each other by
defining the extent of their mutual undertakings as provided herein. The Parties
have in this Agreement incorporated all representations, warranties, covenants,
commitments, and understandings on which they have relied in entering into this
Agreement and, except as provided for herein, neither Party has made any
covenant or other commitment to them concerning its future action. Accordingly,
this Agreement and all Exhibits attached hereto (a) constitute the entire
agreement and understanding between the Parties with respect to the matters
contained herein, and there are no promises, representations, conditions,
provisions, or terms related thereto other than those set forth in this
Agreement, and (b) supersedes all previous understandings, agreements and all
exhibits attached hereto, and representations between the Parties, written or
oral relating to the subject matter hereof. The parties hereto may from time to
time during the continuance of this Agreement modify, vary or alter any of the
provisions of this Agreement and all exhibits attached hereto, but only by an
instrument duly executed by all Parties hereto.

                            ARTICLE XX- MISCELLANEOUS

         20.1  AMENDMENTS. This Agreement will not be binding upon the Parties
until it has been signed hereinbelow by or on behalf of each Party, in which
event it shall be effective as of the Effective Date. No amendment or
modification hereof shall be valid or binding upon the Parties unless made in
writing and signed as aforesaid.

         20.2  LAWS. All matters affecting the interpretation, validity, and
performance of this Agreement shall be governed by the internal laws of the
State of New York, U.S.A. without regard to its conflict of law principles,
except as otherwise expressly provided herein.

         20.3  SEVERABILITY. Any provision hereof which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
the remaining provisions hereof or affecting the validity or enforceability of
such provision in any other jurisdiction.

         20.4  HEADINGS. The headings of the several sections are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.



                                       25

<PAGE>   30

         20.5  WAIVER. No failure or delay by any Party to insist upon the
strict performance of any term, condition, covenant or agreement of this
Agreement, or to exercise any right, power or remedy hereunder or consequent
upon a breach hereof shall constitute a waiver of any such term, condition,
covenant, agreement, right, power or remedy of any such breach or preclude such
Party from exercising any such right, power or remedy at any later time or
times.

         20.6  REPRESENTATIONS. Each of the Parties hereto acknowledges and
agrees (a) that no representation or promise not expressly contained in this
Agreement has been made by the other Party hereto or by any of its agents,
employees, representatives or attorneys with respect to the subject matter of
this Agreement; (b) that this Agreement is not being entered into on the basis
of, of in reliance on, any promise or representation, expressed or implied,
covering the subject matter hereof, other than those which are set forth
expressly in this Agreement; and (c) that each Party has had the opportunity to
be represented by counsel of its own choice in this matter, including the
negotiations which preceded the execution of this Agreement.

         20.7  COMPLIANCE WITH LAWS. The Parties shall comply with all
applicable laws, rules, regulations and orders of the United States and all
jurisdictions and any agency or court thereof in connection with this Agreement
and the transactions contemplated thereby.

         20.8  RELATIONSHIP OF PARTIES. Nothing herein shall be construed to
create any relationship of employer and employee, agent and principal,
partnership or joint venture between the Parties. Each Party is an independent
contractor. Neither Party shall assume, either directly or indirectly, any
liability of or for the other Party. Neither Party shall have the authority to
bind or obligate the other Party and neither Party shall represent that it has
such authority.

         20.9  COUNTERPARTS. This Agreement may be executed in counterparts, any
one of which need not contain the signatures of more than one Party, but both of
which, taken together, shall constitute one and the same agreement.

         20.10 LIMITED LIABILITY. NOTWITHSTANDING ANYTHING ELSE IN THIS
AGREEMENT OR OTHERWISE, NEITHER PARTY WILL BE LIABLE TO THE OTHER WITH RESPECT
TO ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT
LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR ANY INCIDENTAL OR CONSEQUENTIAL
DAMAGES.

         20.11 ELECTRONIC COPIES. Promptly upon ACT's request, PRI shall deliver
or cause to be delivered to ACT or its counsel a formatted diskette containing a
conformed copy of this Agreement that was prepared using PRI's or its counsel's
word processing system.

         IN WITNESS WHEREOF, the Parties have executed this Agreement in
duplicate originals by their proper officers as of the date and year first above
written.

                                          THE R. W. JOHNSON PHARMACEUTICAL
                                                 RESEARCH INSTITUTE

                                          By /s/ William A.M. Duncan
                                             ----------------------------------
 
                                          Title  Chairman
                                                -------------------------------

                                          Date   1-20-98
                                               --------------------------------




                                       26

<PAGE>   31

ALKERMES CONTROLLED THERAPEUTICS, INC.

By /s/ Richard F. Pops                               
   ----------------------------------
                                     
Title  President
      -------------------------------

Date   1-20-98
     --------------------------------




ALKERMES, INC.

By /s/ Michael Landine
   ----------------------------------

Title  Chief Financial Officer
      -------------------------------

Date   1-20-98
     --------------------------------


                                       27