Sample Business Contracts

Supply and License Agreement - R. W. Johnson Pharmaceutical Research Institute, Janssen Pharmaceutica International and Alkermes Inc.

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                                TABLE OF CONTENTS

1.   Definitions.............................................................  1
     1.1  "Standard Manufacturing Cost"......................................  1
     1.2  "Supply Territory"  means the world................................  2
     1.3  "Supply Price" or "SP".............................................  2
     1.4  "Idle Capacity Allowance"..........................................  3
2.   Purchase and Sale of Products...........................................  3
3.   Licenses................................................................  5
4.   Forecasts and Orders....................................................  5
5.   Acceptance of Products; Corrective Actions..............................  6
6.   Representations and Warranties..........................................  7
7.   Inspection of Premises..................................................  8
8.   Labeling; Artwork; Proprietary Rights...................................  8
9.   Indemnification.........................................................  8
10.  Term....................................................................  9
11.  Termination.............................................................  9
12.  Confidentiality......................................................... 10
13.  Manufacturing Facilities................................................ 10
14.  Taxes................................................................... 10
15.  Relationship of the Parties............................................. 10
16.  Publicity............................................................... 10
17.  Construction............................................................ 10
18.  Entire Agreement........................................................ 11
19.  Headings................................................................ 11
20.  Notices................................................................. 11
21.  Failure to Exercise..................................................... 11
22.  Assignment.............................................................. 11
23.  Force Majeure........................................................... 11
24.  Severability............................................................ 11
25.  Electronic Copies....................................................... 12
26.  Dispute Resolution...................................................... 12


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                          SUPPLY AND LICENSE AGREEMENT

         This Agreement (the "Agreement") is made as of the 19th day of January,
1998, ("Effective Date") 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
"PRI") and Janssen Pharmaceutica International, a division of Cilag AG
International, having its registered office at Kollerstrasse 38, CH- 6300, Zug,
Switzerland (hereinafter "JPI"), 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" or
"Seller"). ACT and PRI along with JPI may each be referred to herein as a
"Party" or, collectively, as "Parties". PRI and JPI are Affiliates and are
collectively referred to herein as "Buyer".

         The Parties refer to the Development and License Agreement of even date
herewith by and between the ACT and PRI (hereinafter the "Development and
License Agreement"). The capitalized terms defined therein, particularly in
Article I thereof, have the same meanings herein. Certain definitions are
repeated as a matter of convenience only.

         In consideration of the mutual promises, covenants and agreements
hereinafter set forth, the parties hereto agree as follows:

         1.    DEFINITIONS.

         When used herein, the following capitalized terms shall have the
meanings specified below:

         1.1   "STANDARD MANUFACTURING COST" shall include the following:

               1)   Material Cost shall mean the prices paid for raw material
components and purchased finished components which are purchased from outside
vendors a well as any freight and duty where applicable.

                    Standard Material Cost includes the quantity of the 
components included in the bill of material times the purchase price and the 
waste factor (i.e., scrap percentage) included in the bill of materials. It also
includes the normal quality assurance sample quantity which is included in the 
bill of materials. Raw material prices shall be adjusted on an annual basis by
the purchasing department.

               2)   Direct Labor Costs shall mean the standard labor hours
required for an operation according to standard operating procedures multiplied
by the direct labor rate for work centers within the relevant manufacturing
operating unit.

               3)   Overhead Costs shall mean other costs associated with the
one or more operating unit(s) of at least standard production capacity
manufacturing a Collaboration Product, where the capacity of such operating
units is necessary for such manufacture to meet Seller's obligations to supply
Buyer hereunder (otherwise stated as "Dedicated Units"), provided, however, that
such Overhead Costs shall exclude costs associated with unused manufacturing
capacity, except as provided for in the Idle Capacity Allowance, and any
administrative costs other than indirect labor of the manufacturing department
specifically attributable to the Collaboration Product in question. Overhead
Costs shall include the Idle Capacity Allowance and expenses associated with
quality assurance, manufacturing and engineering associated with the operating
unit(s) manufacturing a Collaboration Product and shall include depreciation and
property taxes associated with the plant(s)


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manufacturing a Collaboration Product. These costs shall be allocated to each
product line in such operating unit(s) or plant(s), whichever is applicable,
based on specific criteria consistent with the standard operating procedures for
each Product and work center overhead rates of the Party performing the work
determined and allocated in a manner consistently applied within and across its
operating units.

               4)   Manufacturing Variances shall include:

                    (a)   Purchase Price Variance shall mean the difference
between the actual price paid to the vendor versus the standard cost of such
material, times the quantity received.

                    (b)   Spending Variance shall mean the difference between
actual department spending and the budgeted spending included in Standard
Manufacturing Cost for the relevant manufacturing operating unit.

                    (c)   Absorption volume variances shall mean the difference
between actual product hours earned (or units produced) and the hours budgeted
for the period (or projected production units used) in the development of
Standard Manufacturing Costs times the standard labor and overhead content of
those units.

                    (d)   Material usage variance shall mean the difference
between the actual quantity of component raw materials or work-in-process used
in the production of work-in-process or finished goods versus the standard
quantity included in the bill of materials times the standard cost of the
component or work-in-process item.

                    (e)   Rework shall mean the additional standard cost of
components or work-in-process items used to turn rejected inventory into usable
inventory. No labor or overhead rate is assigned to rework orders, only the
additional value of the inventory which is issued to the order. Additionally, no
production/absorption credit is generated for rework orders since the credit was
already generated the first time the production occurred.

         The purchase of any capital item reasonably required by ACT to
manufacture shall be ACT's obligation and responsibility.

         ACT's costs associated with failed batches or batches that fail to meet
Product Specifications, except where such failure is attributable to PRI or its
Affiliates, shall not be included in the definition of Standard Manufacturing

         In the event that ACT, at its option, does not implement a standard
costing system, then the Parties will agree to a definition for Standard
Manufacturing Cost which makes reasonable allowances for the above factors and
meets generally accepted accounting procedures.

         1.2   "SUPPLY TERRITORY" means the world.

         1.3   "SUPPLY PRICE" OR "SP" will be calculated on a unit basis for any
year following the Date of First Sale anywhere on a Product-by-Product basis as

               SPyear x = [(BMPyear x - CSPyear x )* [  ]] + CSPyear x


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         BMP = Bench Mark Price, which is the lower of %[ ] of Net Sales
adjusted to a unit basis in the first year of sale or the Calculated Supply
Price averaged over the first two years of sale and adjusted annually thereafter
according to %[ ] of the Producer's Price Index as published in the Federal

               CSP = Calculated Supply Price, which is Standard Manufacturing
Cost + %[ ], adjusted to a unit basis.

In any year, where that BR * [  ] < AR, then the Parties agree to renegotiate in
good faith the terms of this supply agreement, and from that time forward,
regardless of Section 2(a), Buyer is free to manufacture Collaboration Product
or have a Third Party manufacture Collaboration Product and thereby supply up to
100% of Buyer's needs for Collaboration Product.

               BR = the Base Exchange Rate, which is the exchange rate, Swiss
Franc/US Dollar, as quoted in the Wall Street Journal (New York Edition) seven
calendar days following the Effective Date of this Agreement.

               AR = the Average Exchange Rate, which is the average of the
exchange rates, Swiss Franc/US Dollar, quoted in the Wall Street Journal (New
York Edition) for the last business day of each month (as published on the
following business day) of the twelve month period corresponding to the year of

         1.4   "IDLE CAPACITY ALLOWANCE" will be the (average annual variable
operating cost, limited to Direct Labor Costs and variable overhead costs, per
operating unit based on all ACT operating units of at least standard production
capacity capable of producing Collaboration Product) x (Dedicated Units as
defined in Section 1.1) x [  ] x (1 - average utilization to produce any product
of Dedicated Units based on time). Where a facility or a partial facility exists
in accordance with a detailed plan of Section 13(b), then any idle capacity of
such facility will be addressed only under that detailed plan until the time
that such facility is actually utilized by Seller as an operating unit to
manufacture product in the ordinary course of its business.


               (a)  Beginning no more than 3 months after regulatory approval to
market Collaboration Product anywhere, Seller shall supply Buyer (or Affiliates
or sublicensees or distributors designated by Buyer) with those quantities of
Collaboration Products as ordered by Buyer (or Affiliates or sublicensees or
distributors designated by Buyer) pursuant to this Agreement and Buyer shall
order from Seller no less than 100% of Buyer's needs (or the needs of Buyer's
Affiliates or sublicensees or distributors) from Seller in the Supply Territory
for time[ ] from the Date of First Sale anywhere. The Products will conform to
the specifications (which specifications may include standard operating
procedures for product production and quality acceptance procedures) set forth
by the Seller (and approved by Buyer) for its own goods (the "Product
Specifications"). Once Product Specifications are established, any changes,
modifications or revisions, including such to process facilities, raw materials
and suppliers, must be approved by Buyer and


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Seller, which approval will not be unreasonably withheld. Buyer may elect, upon
90 days written notice to Seller, to perform itself or have performed certain
processes relating to the Collaboration Product, such as filling, packaging or
sterilization. Sellers requirements of active Peptidal rHuEPO to supply Buyer
will be supplied to Seller at no cost to Seller, except that risk of loss of
active Peptidal rHuEPO shall be borne by Buyer and Seller according to the terms
of Paragraph 5(a) below. Such active will conform to specifications set forth in
the current PLA/ELA for active as produced by Buyer, or the specifications set
forth in the PLA/ELA for active as produced by Buyer's licensor for active, and
necessary to permit its formulation into Collaboration Product and Buyer will
provide a certificate of analysis confirming conformity to specifications.
During the above period of two years from the Date of First Sale anywhere, if
Seller is unable to supply 100% of the requirements of Collaboration Product
hereunder for a period exceeding 2 months from the date on which Buyer is
otherwise entitled to such supply, then Buyer is free, regardless of Section
2(a) otherwise, to manufacture Collaboration Product or have a Third Party
manufacture Collaboration Product from that point forward and thereby supply up
to 100% of Buyer's needs for Collaboration Product regardless of whether such
failure to supply is a breach of this Agreement by Seller, but provided that
Buyer is meeting its obligations to supply active Peptidal rHuEPO.

               (b)   On a unit basis, the purchase price for the Collaboration
Product shall be the Supply Price, SP year x, according to Section 1.3.
Regardless of the stated formula of Section 1.3, SP year x cannot be less than
CSP year x. In no event, regardless of the foregoing including the formula of
Section 1.3, will the Supply Price, SP year x, on a unit basis for a given
accounting year of the Buyer, exceed %[ ] percent of Net Sales on a unit basis,
for that accounting year. For any year, Collaboration Product will be
provisionally paid for by Buyer (or a designated Affiliate or sublicensee or
distributor) at the prior year's Standard Manufacturing Cost + %[ ]. At each
year end, the Supply Price will be calculated and the Parties will reconcile any
differences between the Supply Price and the provisional payment. For the first
year's sales, provisional payment will be based on Seller's good faith estimate
of Standard Manufacturing Cost + %[ ]. Seller shall use reasonable efforts to
keep its Standard Manufacturing Costs down without sacrificing product quality.
If Buyer assumes responsibility for any of the processes related to the
Collaboration Product pursuant to Section 2(a) or if the deliverable
Collaboration Product is otherwise modified from that which was used as a basis
to calculate BMPyear 1 then BMPyear x shall be modified accordingly to reflect
the increased or decreased cost.

               (c)  The prices charged by Seller to Buyer shall include all
delivery costs for F.O.B. the site of the last process performed by Seller.
Seller will pack all Collaboration Products ordered hereunder in a manner
according to any specifications for shipment and to enable such to withstand the
effects of shipping, including handling during loading and unloading. Payment
terms shall be net 30 days, payable in U.S. Dollars for each respective shipment
of Collaboration Products from Buyer's receipt of such Collaboration Products
(and applicable invoices therefor), provided that such Collaboration Products
comply with the terms of this Agreement. Buyer's obligation to pay within 30
days hereunder will not be delayed by Buyer's time period to determine
conformity to Product Specifications below.

               (d)   Buyer shall have the right with reasonable notice to 
Seller, at its own expense, to nominate an independent certified public
accountant acceptable to and approved by the Seller, said approval not to be
unreasonably withheld, who shall have access to the Seller's records during


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business hours for the purpose of verifying the Supply Price (including the
Standard Manufacturing Cost and the Idle Capacity allowance used in the
calculation thereof) payable for any period within the preceding two (2) years
as provided for in this Agreement. This right may not be exercised more than
once in any calendar year, and said accountant shall disclose to the Buyer
requesting the audit, only information relating solely to the accuracy of the
Supply Price. If any audit or examination shall reveal a deficiency or excess of
any payment due, the Party owing the deficiency or excess shall make payment to
the other Party of such deficiency or excess 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. Payment of such sums shall be made within fifteen
(15) days following the report of the auditor of the monies owed. In the event
that such an audit or examination shall reveal an excess of any payment due in
an amount equaling or exceeding five percent (5%) of accounting of the
undisputed payments or expenditures, the Seller shall reimburse the Buyer for
the reasonable costs of such audit.

         3.    LICENSES.

               (a)   PRI hereby grants to ACT a non-exclusive, license fee free
and royalty free license with no right to grant sublicenses, under ACT Patents
(under which PRI is an exclusive licensee) and under PRI Patents to make, or
have made Collaboration Products in the United States or European Union as
ordered by Buyer under this Agreement.

               (b)  PRI hereby grants to ACT a non-exclusive, license fee free
and royalty free license with no right to grant sublicenses, under ACT Know- How
and PRI Know-How to make or have made Collaboration Products in the United
States or European Union as ordered by Buyer under this Agreement.

         4.    FORECASTS AND ORDERS.

               (a)  Buyer shall provide Seller with a consolidated, non-binding,
36-month rolling forecast of the expected requirements for Collaboration
Products in the Supply Territory of Buyer (and Affiliates and sublicensees and
distributors). Months 13 - 36 of such forecast will be a quarterly estimate of
the expected requirements. Months 4 - 9 will be a monthly estimate of the
expected requirements. The first three months of any forecast shall be a binding
purchase order for Collaboration Products, which shall be placed in writing at
least 90 days prior to the desired date of delivery. The Parties acknowledge
that Buyer is not obligated to buy any specific amount of Products under this
Agreement, except for the quantities which Buyer shall actually order through
binding purchase orders. Seller will use reasonable efforts to supply any
quantities of Collaboration Product ordered in excess of the amounts stated in
the binding purchase orders derived through the rolling forecast.
Notwithstanding the foregoing, if Buyer places a binding purchase order for
quantities of Collaboration Product greater than 150% of the amount previously
estimated in months 4 - 6 of the rolling forecast estimates (the "estimated
amount"), then Seller shall supply that amount equal to 150% of the estimated
amount and shall use commercially reasonable efforts to supply that amount
exceeding 150% of the estimated amount and any failure to supply such excess
amount shall not be a default under this Agreement.

               (b)  Buyer shall place binding purchase orders for Collaboration
Products with accompanying schedules of delivery from time to time pursuant to
this Agreement. ACT shall deliver such binding purchase orders +/- 10 business
days from the specified delivery date and +/- 4% of the ordered quantity
specified in the binding purchase order.


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               (c)  To the extent of any conflict or inconsistency between this
Agreement and any purchase order, purchase order release, confirmation,
acceptance or any similar document, the terms of this Agreement shall govern.


               (a)  Delivery of any Collaboration Product by Seller to Buyer
shall constitute a certification by Seller that the Collaboration Product has
been tested and has been found to conform fully to the Product Specifications.
Consistent with such certification, Seller shall provide Buyer with a
Certificate of Compliance and a Certificate of Analysis, not more than one year
old and signed by the head of quality control for Seller, for each batch which
shows the tests, limits, and testing results for all Product Specifications and
verifying compliance with Product Specifications. After delivery of a shipment
of any Collaboration Products to Buyer, Buyer shall have 90 days to examine the
Collaboration Products to determine if they conform to the Product
Specifications, and, on the basis of such examination, to accept or reject such
shipment. Following a period of two years from the Date of First Sale anywhere,
either Buyer or Seller may request that the Parties renegotiate, in good faith,
the 90 day term to provide Buyer a reasonable time, under the circumstances, to
examine the Collaboration Products. Any claims for failure to so conform to
Product Specifications ("Claims") shall be made by Buyer in writing to Seller,
indicating the nonconforming characteristics of the Collaboration Products and
establishing that Buyer appropriately handled and stored the Collaboration
Product before and during testing. Buyer shall have no obligation to pay for
Collaboration Products that are subject to Claims. However, if payment has
already been made by Buyer, then within 30 days after the submission of a Claim
by Buyer, Seller shall, at Buyer's option, provide Buyer with (i) a refund of
the full amount paid by Buyer for such Products, (ii) a credit against future
billings equal to the full amount paid by Buyer for such Collaboration Products
or (iii) replacement Collaboration Products. Seller shall pay for all shipping
costs of returning Collaboration Products that are the subject of Claims and for
the destruction and disposal thereof. Seller shall bear the risk of loss for
such Collaboration Products, beginning at such time as they are taken at Buyer's
premises for return delivery.

         Buyer shall bear 100% of the risk of loss of active Peptidal rHuEPO for
commercial supplies, whether in bulk form or formulated into Collaboration
Product, during the period that such is in the possession or control of Seller,
except in the case where the loss is due to an intentional act of an employee or
agent of ACT or where the loss is due to an error or omission in processing.
Where the loss of active rHuEPO is due an intentional act of an employee or
agent of ACT, then Seller shall bear 100% of the loss. Where the loss is due to
an error or omission in processing, the parties will share the risk of loss
according to the following schedule:

Cumulative Commercial         ACT Risk of Loss per     PRI Risk of Loss per
   Batches Produced                  Batch                     Batch
         0 - 5                        10%                       90%
         6 - 10                       10%                       90%
         11 - 20                      20%                       80%
         21 - 50                      30%                       70%
         51 - 100                     50%                       50%
         101 - 200                    75%                       25%
         > 200                        90%                       10%

where a failed batch will be included in Cumulative Batches Produced. In regard
to risk of loss of Peptidal rHuEPO in processing or formulating Collaboration
Product, Buyer must consent to the initial batch size employed


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to make Collaboration Product and to subsequent changes to such batch size,
which consent will not be unreasonably withheld considering Seller's cost of
manufacture and the expense of regulatory review. For the purpose of
clarification, title to the active Peptidal rHuEPO for commercial supplies and
title to the Collaboration Product containing active Peptidal rHuEPO shall rest
with Buyer at all times.

               (b)  Any shipment of Collaboration Products for which Buyer shall
not submit a Claim within the allowed time periods for examination as laid out
above shall be deemed accepted. Upon acceptance, Buyer shall release Seller from
all Claims for non-conformity to Product Specifications. The acceptance by Buyer
of such Collaboration Products shall not constitute a waiver of any rights of
Buyer or a release of any obligations of Seller including, without limitation,
the obligations set forth in Section 9(a). For a period of one year from the
Date of First Sale anywhere of any Collaboration Product, if there is found to
be a defect in any such Collaboration Product following acceptance thereof by
Buyer, which could not have been found during inspection by Buyer of the
Collaboration Product relying on the specifications and pursuant to its
obligations to inspect under Section 5(a) (a "hidden defect"), then the parties
shall share the expenses associated with the handling of, disposal of and
liability for such shipment of product, with ACT responsible for 10% of such
expenses and PRI responsible for 90% of such expenses. In the event that Buyer
makes a Claim that Collaboration Product has not met the Product Specifications
and Seller does not agree, then an independent expert skilled in the art of
analysis (the "Expert) appointed by Seller and acceptable to Buyer shall visit
the Buyer. The Expert will repeat the analysis of the samples of the relevant
shipment in the presence of the appropriate Seller and Buyer personnel. After
the Expert shall have executed an appropriate Confidentiality Agreement approved
in form and substance by Seller and Buyer, Buyer and Seller shall supply the
Expert with copies of all tests, data, documentation, standards, etc., that the
Expert may reasonably require in connection with such analysis. The Expert's
decision as to whether such lot has met the Product Specifications shall be
final and binding on the Parties. All analytical tests and techniques performed
hereunder shall conform to the Product Specifications where applicable. All
expenses and costs of such expert shall be borne by the Party whose contention
is finally rejected by the Expert.

               (c)  Buyer shall be responsible for all costs and expenses of any
Collaboration Product recall, customer notice, restriction, change, corrective
action or market action or any Product change except as provided herein. In the
event any governmental agency having jurisdiction shall request or order, or if
Buyer shall reasonably determine to undertake, any corrective action with
respect to Collaboration Products supplied hereunder, including any
Collaboration Product recall, customer notice, restriction, change, corrective
action or market action or any product change, and the cause or basis of such
corrective action is primarily attributable to a breach by Seller of any of its
warranties, representations, obligations or covenants contained herein, then
Seller shall be liable, and shall reimburse Buyer for the reasonable costs of
such action including the cost of any Collaboration Product affected thereby
whether or not such particular Collaboration Product shall be established to be
in breach of any warranty by Seller hereunder.


         Seller represents and warrants to Buyer that, at the time of
manufacture, all Collaboration Products supplied in connection with this
Agreement shall be manufactured and provided by Seller (i) in accordance and
conformity with the Product Specifications and in compliance with this Agreement
and (ii) in compliance with all applicable federal, state or


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municipal statutes, laws, rules or regulations, including those relating to the
environment, food or drugs and occupational health and safety, including,
without limitation, those enforced or promulgated by the United States Food and
Drug Administration (including, without limitation, compliance with then current
Good Manufacturing Practices). Seller further represents and warrants to Buyer
that the performance of its obligations under this Agreement will not result in
a violation or breach of, and will not conflict with or constitute a default
under its Articles of Incorporation or corporate bylaws or any agreement,
contract, commitment or obligation to which Seller or any of its Affiliates is a
party or by which it is bound. The foregoing warranties are exclusive and in
lieu of all other warranties written, oral or implied. THERE ARE NO WARRANTIES


         Buyer shall have the right, upon reasonable notice to Seller and during
regular business hours, to inspect and audit the facilities being used by Seller
for production of the Collaboration Products, both during the time of such use
of the facilities and during the time of construction and approval of the
facilities, to assure compliance by Seller with applicable rules and regulations
and with other provisions of this Agreement. Seller shall, within fifteen
business days of any written notice of any deficiencies discovered during such
inspection, respond to Buyer with a plan to remedy any deficiencies within a
reasonable time which may be noted in any such audit, and the failure by Seller
to respond with such plan within such fifteen day period, or as agreed between
Buyer and Seller, shall be deemed a material breach of this Agreement unless
waived in writing. Seller acknowledges that the provisions of this Article
granting Buyer certain audit rights shall in no way relieve Seller of any of its
obligations under this Agreement, nor shall such provisions require Buyer to
conduct any such audits.


               (a)  Buyer shall have the right to determine the appearance and
text of all labeling used in connection with the Collaboration Products;
provided that Seller shall have the opportunity to review and comment on any
reference to or use of Seller's name or trademarks, if Buyer elects to use and
Seller agrees to the use of such name or trademarks.

               (b)  Seller acknowledges that Buyer is the exclusive owner of and
has all rights to its patents, trademarks, copyrights, plans, ideas, names,
slogans, artwork and all other intellectual property that appear on or are
otherwise used in connection with the packaging, marketing and sale of
Collaboration Products.

         9.    INDEMNIFICATION.

               (a)  Seller shall indemnify and hold harmless Buyer and its
Affiliates and their officers, directors and employees from and against any and
all claims, losses, damages, judgements, costs, awards, expenses (including
reasonable attorneys' fees) and liabilities of every kind (collectively,
"Losses") arising out of or resulting from any breach by Seller of any of its
warranties, representations, obligations or covenants contained herein.

               (b)  Buyer shall indemnify and hold harmless Seller and its
Affiliates and their officers, directors and employees from and against any and
all Losses arising out of or resulting from any breach by Buyer of any of its
obligations or covenants contained herein.


<PAGE>   11

               (c)  Each indemnified Party agrees to give the indemnifying Party
prompt written notice of any matter upon which such indemnified Party intends to
base a claim for indemnification (an "Indemnity Claim") under Article 9. The
indemnifying Party shall have the right to participate jointly with the
indemnified Party in the indemnified Party's defense, settlement or other
disposition of any Indemnity Claim. With respect to any Indemnity Claim relating
solely to the payment of money damages and which could not result in the
indemnified Party's becoming subject to injunctive or other equitable relief or
otherwise adversely affect the business of the indemnified Party in any manner,
and as to which the indemnifying Party shall have acknowledged in writing the
obligation to indemnify the indemnified Party hereunder, the indemnifying Party
shall have the sole right to defend, settle or otherwise dispose of such
Indemnity Claim, on such terms as the indemnifying Party, in its sole
discretion, shall deem appropriate, provided that the indemnifying Party shall
provide reasonable evidence of its ability to pay any damages claimed and with
respect to any such settlement shall have obtained the written release of the
indemnified Party from the Indemnity Claim. The indemnifying Party shall obtain
the written consent of the indemnified Party, which shall not be unreasonably
withheld, prior to ceasing to defend, settling or otherwise disposing of any
Indemnity Claim if as a result thereof the indemnified Party would become
subject to injunctive or other equitable relief or the business of the
indemnified Party would be adversely affected in any manner.

               (d)  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 Collaboration
Products under this Agreement and in regard to which, ACT is not in breach of
this Agreement.

               (e)  This Article 9 shall survive any termination of this

         10.   TERM. This Agreement shall commence on the Effective Date and,
unless sooner terminated as provided herein, shall continue in effect to
termination of the License and Development Agreement between ACT and PRI of
even date herewith.

         11.   TERMINATION.

               (a)  This Agreement may be terminated earlier than as provided by
Article 10, by either Party, if the other Party shall materially breach or
materially fail in the observance or performance of any representation,
warranty, covenant or obligation under this Agreement or the License and
Development Agreement of even date herewith, and if such material breach or
material failure remains uncured for sixty (60) days after notice thereof is
given to such other Party by the Party seeking to terminate.

               (b)  Notwithstanding the termination of this Agreement for any
reason, each Party hereto shall be entitled to recover any and all damages which
such Party shall have sustained by reason of the breach by the other Party
hereto of any of the terms of this Agreement. Termination of this Agreement for
any reason shall not release either Party hereto from any liability which at
such time has already accrued or which thereafter accrues from a breach or
default prior to such expiration or termination, nor affect in any way the
survival of any other right, duty or obligation of either Party hereto which is
expressly stated elsewhere in this Agreement to survive such termination. In the
case of a termination under Section 11(a) above, the non-defaulting Party may
pursue any remedy available in law or in equity with respect to such breach.


<PAGE>   12

         12.   CONFIDENTIALITY. The Parties refer to the confidentiality
provisions of Article IX of the Development and License Agreement between ACT
and PRI of even date herewith.  Any Information exchanged hereunder shall be
held in confidence in accordance with those provisions.


               (a)  Seller will establish a first manufacturing facility in the
United States. All costs associated with the construction and operation of ACT
manufacturing facilities shall be the responsibility of ACT. Seller shall
register its manufacturing facility or facilities for Collaboration Products
with the Federal Food and Drug Administration (the "FDA") or, the equivalent
appropriate regulatory authority in a country of the European Union or, other
regulatory authorities as requested by Buyer, and permit representatives of the
FDA or such regulatory authority to inspect any such facility upon request.
Seller will regularly inform Buyer in writing of substantial issues surrounding
and Seller's progress in regard to the construction and registration of the
manufacturing facilities. Buyer is responsible for obtaining FDA approval and
approval of other regulatory authorities for the Collaboration Products in the
Supply Territory as needed.

               (b)  To minimize the likelihood of a supply deficiency with
respect to a Collaboration Product, by the filing of the BLA or its equivalent
in a Major European Country for a Collaboration Product, Seller will demonstrate
an ability, in a detailed plan, to supply Collaboration Product within 3 months
of supply disruption, whether such supply disruption is due to destruction of
ACT's manufacturing facility, a force majeure under Article 23, or otherwise. In
the event that either Party can show both feasibility and economic savings, the
3 month requirement for supply, in the event of supply disruption, may be
extended based on maintaining adequate stocks of Collaboration Product. Where
the plan calls for transferring manufacture from one manufacturing facility to
another manufacturing facility of a Third Party, then such Third Party will be
an industry recognized reputable manufacturer having experience in making
injectable delivery systems and PRI will provide the necessary contingent

         14.   TAXES. Buyer shall assume liability for all taxes, excises or
other charges which relate to the Collaboration Products and are imposed by any
local, state or federal authority after title to the Collaboration Products
passes to Buyer. Buyer further agrees to indemnify Seller against any and all
such liability for taxes as well as any reasonable legal fees or costs incurred
by Seller in connection therewith. To the best of Seller's knowledge, there are
no such taxes, excises or other charges now in effect.

         15.   RELATIONSHIP OF THE PARTIES. The relationship of Buyer and Seller
established by this Agreement is that of independent contractors, and nothing
contained herein shall be construed to (i) give either Party any right or
authority to create or assume any obligation of any kind on behalf of the other
or (ii) constitute the Parties as partners, joint venturers, co-owners or
otherwise as participants in a joint or common undertaking.

         16.   PUBLICITY. The Parties refer to the publicity provisions of
Article XVII of the Development and License Agreement between the Parties of
even date herewith. Any publicity hereunder shall be handled in accordance with
those provisions.

         17.   CONSTRUCTION. This Agreement shall be governed by, and shall be
construed in accordance with, the laws of the State of New York.


<PAGE>   13
         18.   ENTIRE AGREEMENT. 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) constitutes 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
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,
but only by an instrument duly executed by all Parties hereto.

         19.   HEADINGS. The headings used herein have been inserted for
convenience only and shall not affect the interpretation of this Agreement.

         20.   NOTICES. Notices are to be given under this Agreement as directed
in Paragraph 15.1 of the Development and License Agreement between the Parties
of even date herewith.

         21.   FAILURE TO EXERCISE. The failure of either Party to enforce at
any time for any period any provision hereof shall not be construed to be a
waiver of such provision or of the right of such Party thereafter to enforce
each such provision, nor shall any single or partial exercise of any right or
remedy hereunder preclude any other or further exercise thereof or the exercise
of any other right or remedy. Remedies provided herein are cumulative and not
exclusive of any remedies provided at law.

         22.   ASSIGNMENT. This Agreement may not be assigned by either Party
without the prior written consent of the other, except that either Party may
assign its rights and/or obligations hereunder to any of its Affiliates or that
PRI or ACT may make such assignment without prior consent to any 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. Subject to the
foregoing sentence, this Agreement shall bind and inure to the benefit of the
Parties hereto and their respective successors and assigns.

         23.   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. In the event of a force majeure hereunder, Seller will allocate available
capacity among its customers based on allocation of capacity in the year
preceding the force majeure.

         24.   SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, to the extent the economic
benefits conferred by this Agreement to both Parties remain substantially
unimpaired, be ineffective to the extent of such invalidity or


<PAGE>   14

unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction.

         25.   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.

         26.   DISPUTE RESOLUTION. Any controversy or claim arising out of or
relating to this Agreement, or the Parties' decision to enter into this
Agreement, or the breach thereof, shall be settled by arbitration per Article
XIII of the Development and License Agreement. This Article will survive
termination of this Agreement.

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

                                             ORTHO PHARMACEUTICAL CORPORATION

By /s/ Richard F. Pops                     By /s/ William A.M. Duncan
   ----------------------------------         ----------------------------------

Title  President                           Title  Chairman
      -------------------------------            -------------------------------

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


                                           A DIVISION OF CILAG AG INTERNATIONAL

By /s/ Michael Landine                     By /s/ H. Schmid
   ----------------------------------         ----------------------------------

Title  Chief Financial Officer             Title  General Manager
      -------------------------------            -------------------------------

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