Flexion Therapeutics, Inc.
Flexion Therapeutics Inc (Form: 10-Q, Received: 11/09/2015 12:13:16)
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2015

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                      TO                     

Commission file number: 001-36287

 

 

Flexion Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   26-1388364

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

10 Mall Road, Suite 301

Burlington, Massachusetts

  01803
(Address of Principal Executive Offices)   (Zip Code)

(781) 305-7777

(Registrant’s Telephone Number, Including Area Code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨

Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x   (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     ¨   Yes     x   No

As of November 2, 2015, the registrant had 21,539,396 shares of Common Stock ($0.001 par value) outstanding.

 

 

 


Table of Contents

FLEXION THERAPEUTICS, INC.

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

  

Item 1. Financial Statements

     3   

Condensed Consolidated Balance Sheets as of September 30, 2015 (Unaudited) and December 31, 2014

     3   

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2015 and 2014 (Unaudited)

     4   

Condensed Consolidated Statements of Cash Flows for the nine months ended September  30, 2015 and 2014 (Unaudited)

     5   

Notes to Condensed Consolidated Financial Statements (Unaudited)

     6   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     13   

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     23   

Item 4. Controls and Procedures

     24   

PART II. OTHER INFORMATION

  

Item 1. Legal Proceedings

     24   

Item 1A. Risk Factors

     24   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     29   

Item 3. Defaults Upon Senior Securities

     29   

Item 4. Mine Safety Disclosures

     29   

Item 5. Other Information

     29   

Item 6. Exhibits

     29   

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Flexion Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

 

     September 30,
2015
    December 31,
2014
 

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 73,507,121      $ 103,097,522   

Marketable securities

     58,658,480        48,527,156   

Accounts receivable

     46,443        —    

Prepaid expenses and other current assets

     802,635        485,814   
  

 

 

   

 

 

 

Total current assets

     133,014,679        152,110,492   

Property and equipment, net

     4,153,389        1,109,391   

Restricted cash

     80,000        128,000   
  

 

 

   

 

 

 

Total assets

   $ 137,248,068      $ 153,347,883   
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Current liabilities:

    

Accounts payable

   $ 1,917,540      $ 1,584,822   

Accrued expenses and other current liabilities

     4,668,377        3,213,704   

Current portion of long-term debt

     —         1,983,500   
  

 

 

   

 

 

 

Total current liabilities

     6,585,917        6,782,026   

Long-term debt

     14,942,401        1,580,958   

Other long-term liabilities

     13,459        43,008   
  

 

 

   

 

 

 

Total liabilities

     21,541,777        8,405,992   
  

 

 

   

 

 

 

Commitments and contingencies

    

Preferred Stock, $0.001 par value; 10,000,000 shares authorized at September 30, 2015 and December 31, 2014 and 0 shares issued and outstanding at September 30, 2015 and December 31, 2014

     —         —    

Stockholders’ equity:

    

Common stock, $0.001 par value; 100,000,000 shares authorized; 21,539,396 and 21,440,058 shares issued and outstanding, at September 30, 2015 and December 31, 2014, respectively

     21,539        21,440   

Additional paid-in capital

     241,905,674        238,402,514   

Accumulated other comprehensive income

     2,430        (5,240

Accumulated deficit

     (126,223,352     (93,476,823
  

 

 

   

 

 

 

Total stockholders’ equity

     115,706,291        144,941,891   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 137,248,068      $ 153,347,883   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Flexion Therapeutics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2015     2014     2015     2014  

Revenue

   $ —       $ —        $ —        $ —     

Operating expenses:

      

Research and development

     7,828,927        4,658,293        23,724,055        12,423,733   

General and administrative

     3,196,698        2,304,026        8,860,332        6,822,171   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     11,025,625        6,962,319        32,584,387        19,245,904   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (11,025,625     (6,962,319     (32,584,387     (19,245,904
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

      

Interest income

     273,679        153,122        882,001        318,524   

Interest expense

     (202,399     (96,926     (405,867     (314,630

Other income (expense), net

     (182,067     (129,484     (638,276     (266,443
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     (110,787     (73,288     (162,142     (262,549
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (11,136,412   $ (7,035,607   $ (32,746,529   $ (19,508,453
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share basic and diluted

   $ (0.52   $ (0.45   $ (1.52   $ (1.50
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding, basic and diluted

     21,506,721        15,624,963        21,477,830        13,007,892   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive (loss) income:

      

Unrealized gains from available-for-sale securities, net of tax of $0

     8,879        (2,468     7,670        782   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive (loss) income

     8,879        (2,468     7,670        782   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

   $ (11,127,533   $ (7,038,075   $ (32,738,859   $ (19,507,671
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Flexion Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

     Nine Months Ended September 30,  
     2015     2014  

Cash flows from operating activities

    

Net loss

   $ (32,746,529   $ (19,508,453

Adjustments to reconcile net loss to cash used in operating activities:

    

Depreciation

     130,369        84,943   

Stock-based compensation expense

     3,099,092        1,752,234   

Amortization of premium (discount) on marketable securities

     637,208        226,834   

Other non-cash charges

     31,177        12,374   

Changes in operating assets and liabilities:

    

Accounts receivable

     (46,443     —    

Prepaid expenses, other current and long-term assets

     (242,642     (350,534

Accounts payable

     388,905        296,331   

Accrued expenses and other current and long-term liabilities

     830,030        671,891   

Other

     (44,458     —    
  

 

 

   

 

 

 

Net cash used in operating activities

     (27,963,291     (16,814,380
  

 

 

   

 

 

 

Cash flows from investing activities

    

Purchases of property and equipment

     (2,415,380     (326,571

Change in restricted cash

     24,000        —    

Purchases of marketable securities

     (106,465,361     (72,359,552

Sale and redemption of marketable securities

     95,704,499        20,160,000   
  

 

 

   

 

 

 

Net cash used in investing activities

     (13,152,242     (52,526,123
  

 

 

   

 

 

 

Cash flows from financing activities

    

Payment of public offering costs

     (224,648     (1,282,785

Payments on debt

     (3,500,000     (1,000,001

Payment of debt issuance costs

     (107,741     —    

Proceeds from the issuance of common stock

     —         69,517,500   

Proceeds from the issuance of notes payable

     15,003,533        —    

Proceeds from the exercise of stock options

     216,454        282,545   

Proceeds from Employee Stock Purchase Plan

     137,534        —    
  

 

 

   

 

 

 

Net cash provided by financing activities

     11,525,132        67,517,259   
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (29,590,401     (1,823,244

Cash and cash equivalents at beginning of period

     103,097,522        16,188,254   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 73,507,121      $ 14,365,010   
  

 

 

   

 

 

 

Supplemental disclosures of cash flow information:

    

Cash paid for interest

   $ 369,719      $ 287,370   

Supplemental disclosures of non-cash financing activities:

    

Conversion of convertible preferred stock into common stock

   $ —       $ 74,806,213   

Purchases of property and equipment in accounts payable and accrued expenses

   $ 810,998      $ 52,011  

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Flexion Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

1.   Overview and Nature of the Business

Flexion Therapeutics, Inc. (“Flexion” or the “Company”) was incorporated under the laws of the state of Delaware on November 5, 2007. Flexion is a specialty pharmaceutical company focused on the development and commercialization of novel, injectable pain therapies. The Company is targeting anti-inflammatory and analgesic therapies for the treatment of patients with musculoskeletal conditions, beginning with osteoarthritis, a type of degenerative arthritis (“OA”) and post-operative pain. Flexion’s broad and diversified portfolio of product candidates addresses the OA pain treatment spectrum, from moderate to severe pain, and provides the Company with multiple opportunities to achieve its goal of commercializing novel, patient-focused pain therapies.

The Company is subject to risks and uncertainties common to companies in the biopharmaceutical industry, including, but not limited to, new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, and ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance reporting capabilities. The Company’s product candidates are all in the development stage. There can be no assurance that development efforts, including clinical trials, will be successful. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

 

2.   Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements as of September 30, 2015, and for the three and nine months ended September 30, 2015 and 2014, have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and Generally Accepted Accounting Principles (‘GAAP”) for consolidated financial information including the accounts of the Company and its wholly-owned subsidiary after elimination of all significant intercompany accounts and transactions. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, these condensed consolidated financial statements reflect all adjustments which are necessary for a fair statement of the Company’s financial position and results of its operations, as of and for the periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the SEC on March 24, 2015.

The information presented in the condensed consolidated financial statements and related notes as of September 30, 2015, and for the three and nine months ended September 30, 2015 and 2014, is unaudited. The December 31, 2014 consolidated balance sheet included herein was derived from the audited financial statements as of that date, but does not include all disclosures, including notes, required by GAAP for complete financial statements.

Interim results for the three and nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2015, or any future period.

The accompanying condensed consolidated financial statements have been prepared on a basis which assumes that the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. The Company has incurred recurring losses and negative cash flows from operations. As of September 30, 2015 and December 31, 2014, the Company had cash and cash equivalents and marketable securities of $132,165,601 and $151,624,678, respectively. Management believes that current cash, cash equivalents and marketable securities on hand at September 30, 2015 should be sufficient to fund operations for at least the next twelve months. The future viability of the Company is dependent on its ability to raise additional capital to finance its operations and to fund increased research and development costs in order to seek approval for commercialization of its product candidates. The Company’s failure to raise capital as and when needed would have a negative impact on its financial condition and its ability to pursue its business strategies as this capital is necessary for the Company to perform the research and development activities required to develop the Company’s product candidates in order to generate future revenue streams.

 

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In April 2015, the FASB issued ASU 2015-03,  Interest—Imputation of Interest , which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. Debt disclosures will include the face amount of the debt liability and the effective interest rate. The update requires retrospective application and represents a change in accounting principle. The update is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted for financial statements that have not been previously issued. The Company elected to early adopt this standard in the period ending September 30, 2015, accordingly debt issuance costs of $112,309 were deducted from the carrying amount of the debt liabilities at September 30, 2015. In accordance with ASU 2015-03, during the three months ended September 30, 2015, we reclassified $28,875 of our debt issuance costs related to our 2013 term loan from an asset to a reduction of the carrying amount of the 2013 term loan as of December 31, 2014.

Consolidation

The accompanying condensed consolidated financial statements include the Company and its wholly-owned subsidiary, Flexion Securities Corporation, Inc. The Company has eliminated all intercompany transactions for the three and nine months ended September 30, 2015 and the year ended December 31, 2014, the year Flexion Securities Corporation, Inc. was established.

U.S. Government Grant

The Company performs research and development for a U.S. Government agency under a cost reimbursable grant for clinical development of FX006. The related costs incurred under the grant are included in research and development expense in the statements of operations. The Company is reimbursed and offsets research and development expenses in the statement of operations when invoices for allowable costs are prepared and submitted to the U.S. Government agency. Payments under cost reimbursable grants with agencies of the U.S. Government are provisional payments subject to adjustment upon audit by the U.S. government. When the final determination of the allowable costs for any year has been made, research and development expenses may be adjusted accordingly. The grant also provides the U.S. government agency the ability to terminate the grant for various reasons, including if the Company fails to meet its obligations as set forth in the grant.

Accounts Receivable

Accounts receivable represents allowable costs under the Company’s U.S. Government agency grant for which the Company has not yet received reimbursement. The Company invoices the government on a quarterly basis for reimbursable costs under the grant. Reimbursable costs that have not been invoiced on the last day of the quarter are recorded as unbilled accounts receivable. As of September 30, 2015 there were no unbilled accounts receivable.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that may affect the reported amounts of assets and liabilities, expenses and related disclosures. The Company bases estimates and judgments on historical experience and on various other factors that it believes to be reasonable under the circumstances. The most significant estimates in these condensed consolidated financial statements include useful lives with respect to long-lived assets, such as property and equipment and leasehold improvements, accounting for stock-based compensation, and accrued expenses, including clinical research costs. The Company’s actual results may differ from these estimates under different assumptions or conditions. The Company evaluates its estimates on an ongoing basis. Changes in estimates are reflected in reported results in the period in which they become known by the Company’s management.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation and amortization expense is recognized using the straight-line method over the following estimated useful lives:

 

     Estimated
Useful Life
(Years)

Computers, software and office equipment

   3

Manufacturing equipment

   7

Furniture and fixtures

   5

 

 

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Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the related asset. Costs of major additions and improvements are capitalized and depreciated on a straight-line basis over their useful lives. Repairs and maintenance costs are expensed as incurred. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to income. Construction-in-progress, which represents direct costs related to the construction of manufacturing equipment, is not depreciated until the asset is ready for its intended use.

 

3.   Fair Value of Financial Assets and Liabilities

The following tables present information about the Company’s assets that are measured at fair value on a recurring basis as of September 30, 2015 and December 31, 2014 and indicate the level of the fair value hierarchy utilized to determine such fair value:

 

     Fair Value Measurements as of September 30, 2015 Using:  
     Level 1      Level 2      Level 3      Total  

Assets:

           

Cash equivalents

   $ —        $ 58,760,286       $ —        $ 58,760,286   

Marketable securities

         —          58,658,480             —          58,658,480   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ —        $ 117,418,766       $ —        $ 117,418,766   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Fair Value Measurements as of December 31, 2014 Using:  
     Level 1      Level 2      Level 3      Total  

Assets:

           

Cash equivalents

   $ —        $ 101,687,995       $ —        $ 101,687,995   

Marketable securities

         —          48,527,156             —          48,527,156   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ —         $ 150,215,151       $ —        $ 150,215,151   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of September 30, 2015 and December 31, 2014, the Company’s cash equivalents and marketable securities that were invested primarily in U.S. treasury bills, corporate bonds, money market funds, commercial paper and U.S. Government agency holdings were valued based primarily on Level 2 inputs. The Company measures the fair value of marketable securities using Level 2 inputs and primarily relies on quoted prices in active markets for similar marketable securities. During the nine months ended September 30, 2015 and year ended December 31, 2014, there were no transfers between Level 1, Level 2 and Level 3.

The carrying values of accounts receivable, accounts payable and accrued expenses approximate their fair value due to the short-term nature of these balances.

The 2013 term loan with MidCap Financial SBIC, LP (“2013 term loan”) and 2015 term loan with MidCap Financial Trust (“2015 term loan”), outstanding under the Company’s credit and security agreements are reported at their carrying value in the accompanying balance sheet. The Company determined the fair value of the term loans using an income approach, that utilizes a discounted cash flow analysis based on current market interest rates for debt issuances with similar remaining years to maturity, adjusted for credit risk. The term loans were valued using Level 2 inputs as of September 30, 2015 and December 31, 2014. The result of the calculations yielded fair values that approximate carrying value.

 

4.   Marketable Securities

As of September 30, 2015 and December 31, 2014, the fair value of available-for-sale marketable securities by type of security was as follows:

 

     September 30, 2015  
     Amortized Cost      Gross Unrealized
Gains
     Gross Unrealized
Losses
     Fair Value  

Corporate bonds

   $ 44,916,443       $ 8,301       $ (11,341    $ 44,913,403   

Commercial paper

     13,744,467         610         —           13,745,077   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 58,660,910       $ 8,911       $ (11,341    $ 58,658,480   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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     December 31, 2014  
     Amortized Cost      Gross Unrealized
Gains
     Gross Unrealized
Losses
     Fair Value  

Commercial paper

   $ 8,991,820       $ 7,570       $ —        $ 8,999,390   

U.S. Government obligations

     28,300,921         181         (5,101      28,296,001   

Corporate bonds

     11,239,655         2         (7,892      11,231,765   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 48,532,396       $ 7,753       $ (12,993    $ 48,527,156   
  

 

 

    

 

 

    

 

 

    

 

 

 

At September 30, 2015 and December 31, 2014, marketable securities consisted of investments that mature within twelve months.

 

5.   Property and Equipment, Net

Property and equipment as of September 30, 2015 and December 31, 2014 consisted of the following:

 

     September 30,
2015
     December 31,
2014
 

Computer and office equipment

   $ 350,345       $ 229,980   

Manufacturing equipment

     153,140         153,140   

Furniture and fixtures

     236,810         181,366   

Software

     274,142         77,454   

Leasehold improvements

     239,456         134,573   

Construction—in progress

     3,298,304         601,317   
  

 

 

    

 

 

 
     4,552,197         1,377,830   

Less: Accumulated depreciation

     (398,808      (268,439
  

 

 

    

 

 

 

Total property and equipment, net

   $ 4,153,389       $ 1,109,391   
  

 

 

    

 

 

 

Depreciation expense for the three months ended September 30, 2015 and 2014 was $47,945 and $31,897, respectively. Depreciation expense for the nine months ended September 30, 2015 and 2014 was $130,369 and $84,943, respectively. During the nine months ended September 30, 2015 and 2014, there were no disposals of property and equipment. Construction-in progress is primarily comprised of amounts related to the construction of new manufacturing equipment for use by our contract manufacturers.

 

6.   Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

 

     September 30,
2015
     December 31,
2014
 

Clinical research

   $ 1,145,600       $ 1,035,510   

Contract manufacturing services

     1,349,875         294,900   

Payroll and other employee-related expenses

     1,392,377         1,172,978   

Preclinical services

     103,000         119,500   

Consultant fees and expenses

     203,750         26,900   

Professional services fees

     329,568         439,874   

Interest expense

     78,125        24,111   

Other

     66,082         99,931   
  

 

 

    

 

 

 

Total accrued expenses and other current liabilities

   $ 4,668,377       $ 3,213,704   
  

 

 

    

 

 

 

 

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7.   Stock-Based Compensation

Stock Option Valuation

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. Prior to the IPO, the Company was a private company and therefore lacked company-specific historical and implied volatility information. Therefore, the Company estimates its expected stock volatility based on the historical volatility of its publicly-traded peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain vanilla” options. The expected term of stock options granted to non-employees is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. The relevant data used to determine the value of the stock option grants for the nine months ended September 30, 2015 and 2014 are as follows:

 

    

Nine months ended

September 30,

 
     2015     2014  

Risk-free interest rates

     1.49-1.92     1.54-2.04

Expected dividend yield

     0.00     0.00

Expected term (in years)

     6.0        6.0   

Expected volatility

     76.4-81.4     61.9-67.9

The following table summarizes stock option activity for the nine months ended September 30, 2015:

 

     Shares Issuable
Under Options
    Weighted Average
Exercise Price
 

Outstanding as of December 31, 2014

     1,289,082      $ 10.26   

Granted

     556,550        22.81   

Exercised

     (88,371     3.03   

Canceled

     (179,636     18.42   
  

 

 

   

Outstanding as of September 30, 2015

     1,577,625      $ 14.15   
  

 

 

   

Options vested and expected to vest at September 30, 2015

     1,363,360     
  

 

 

   

Options exercisable at September 30, 2015

     666,984     
  

 

 

   

The aggregate intrinsic value of options is calculated as the difference between the exercise price of the options and the fair value of the Company’s common stock for those options that had exercise prices lower than the fair value of the Company’s common stock. A total of 88,371 options were exercised during the nine months ended September 30, 2015. The aggregate intrinsic value of stock options exercised during the nine months ended September 30, 2015 was $1,530,551.

At September 30, 2015 and 2014, the Company had options for the purchase of 1,577,625 and 1,238,973 shares of common stock outstanding, respectively, with a weighted average remaining contractual term of 8.1, and 8.3 years, respectively, and with a weighted average exercise price of $10.32 and $9.78 per share, respectively.

The weighted average grant date fair value of options granted during the nine months ended September 30, 2015 and 2014 was $15.67 and $10.15, respectively.

 

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Stock-based Compensation

The Company recorded stock-based compensation expense related to stock options for the three and nine months ended September 30, 2015 and 2014 as follows:

 

    

Three months ended

September 30,

     Nine months ended
September 30,
 
     2015      2014      2015      2014  

Research and development

   $ 331,551       $ 170,668       $ 940,698       $ 466,465   

General and administrative

     789,432         504,141         2,158,394         1,285,769   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,120,983       $ 674,809       $ 3,099,092       $ 1,752,234   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of September 30, 2015, unrecognized stock-based compensation expense for stock options outstanding was $11,499,534, which is expected to be recognized over a weighted average period of 2.7 years. As of September 30, 2014, unrecognized stock-based compensation expense for stock options outstanding was $7,822,984, which was expected to be recognized over a weighted average period of 3.0 years.

 

8.   Net Loss Per Share

Basic and diluted net loss per share was calculated as follows for the three and nine months ended September 30, 2015 and 2014:

 

     For the three months ended
September 30,
     For the nine months ended
September 30,
 
     2015      2014      2015      2014  

Numerator:

     

Net loss

   $ (11,136,412    $ (7,035,607    $ (32,746,529    $ (19,508,453
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss:

   $ (11,136,412    $ (7,035,607    $ (32,746,529    $ (19,508,453
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator:

     

Weighted average common shares outstanding, basic and diluted

     21,506,721         15,624,963         21,477,830         13,007,892   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss per share, basic and diluted

   $ (0.52    $ (0.45    $ (1.52    $ (1.50
  

 

 

    

 

 

    

 

 

    

 

 

 

Stock options for the purchase of 1,715,837 and 1,234,199 weighted average shares of common stock were excluded from the computation of diluted net loss per share for the three months ended September 30, 2015 and 2014, respectively, and 1,658,292 and 1,130,000 weighted average shares of common stock were excluded from the computation of diluted net loss per share for the nine months ended September 30, 2015 and 2014, respectively. These options were excluded from the computations because the options had an anti-dilutive impact due to the net loss incurred for those periods.

 

9.   Long-term Debt

On January 3, 2013, the Company entered into a credit and security agreement with MidCap Financial SBIC, LP (“MidCap”) under which it immediately borrowed $5,000,000 as a term loan (“2013 term loan”). The term loan accrued interest monthly at an interest rate of 8.0% per annum and had a term of 45 months. As the term loan had a 15-month interest-only period, the term loan principal balance, along with any accrued interest, was to be paid in 30 equal monthly installments beginning April 1, 2014 and ending September 1, 2016. In addition to these principal payments, the Company was required to make a payment of $175,000 to the lender on September 1, 2016, which amount was accreted to the carrying value of the debt using the effective interest rate method. On March 31, 2015, the Company paid MidCap $3,236,019, representing the outstanding principal of the debt along with accrued interest as of that date, the $175,000 final payment, a prepayment fee of $30,000 and associated legal expenses to satisfy the Company’s obligation under the credit and security agreement.

Prior to the debt repayment, the term loan outstanding under the Company’s credit and security agreement with MidCap was reported at its carrying value in the accompanying balance sheet. The Company determined the fair value of the term loan using an income approach, utilizing a discounted cash flow analysis based on current market interest rates for debt issuances with similar remaining years to maturity, adjusted for credit risk. The term loan was valued using Level 2 inputs as of December 31, 2014. The result of the calculation yielded a fair value that approximated carrying value.

 

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On August 4, 2015, the Company entered into a credit and security agreement with MidCap Financial Trust, as agent, MidCap Financial Funding XIII Trust and Silicon Valley Bank, as lenders, (the “Lenders”), to borrow up to $30,000,000 in term loans, (“2015 term loan”). The Company concurrently borrowed $15,000,000 under an initial term loan. The remaining $15,000,000 under the facility may be drawn down in the form of a second term loan at the Company’s option through September 2016, subject to the Company’s receipt of positive Phase 3 FX006 clinical trial data meeting the trial’s primary endpoint which is sufficient to file a New Drug Application (NDA) for FX006, as well as other customary conditions for funding. The Company granted the Lenders a security interest in substantially all of its personal property, rights and assets, other than intellectual property, to secure the payment of all amounts owed under the credit facility. The Company also agreed not to encumber any of its intellectual property without the Lenders’ prior written consent. The Company must maintain a balance in cash or cash equivalents at Silicon Valley Bank equal to the principal balance of the loan plus 5 percent. The credit and security agreement also contains certain representations, warranties, and covenants of the Company as well as a material adverse event clause. As of September 30, 2015, the Company was compliant with all covenants and there were no material adverse events.

Borrowings under the credit facility accrue interest monthly at a fixed interest rate of 6.25 % per annum. Following an interest-only period of 19 months, principal will be due in 36 equal monthly installments commencing March 1, 2017 and ending February 1, 2020 (the “maturity date”). Upon the maturity date, the Company will be obligated to pay a final payment equal to 9% of the total principal amounts borrowed under the facility. The final payment amount is being accreted to the carrying value of the debt using the effective interest rate method. As of September 30, 2015, the carrying value of the term loan was $14,942,401 the entire balance of which is classified as long-term debt on the balance sheet as of September 30, 2015. In connection with the credit and security agreement, the Company incurred debt issuance costs totaling $112,309. These costs will be amortized over the estimated term of the debt using the straight-line method which approximates the effective interest method.

As of September 30, 2015, annual payments due under the Company’s 2015 term loan are as follows (in thousands):

 

Year

   Aggregate
Minimum
Payments
 

2015 (remaining three months)

   $ 236,979   

2016

     953,125   

2017

     5,017,868   

2018

     5,541,088   

2019

     5,224,248   

2020

     840,061   
  

 

 

 

Total

   $ 17,813,369   
  

 

 

 

 

10.   Commitments and Contingencies

Leases

On July 13, 2015 the Company entered into a first amendment to its existing lease for approximately 4,700 square feet of additional office space (the “Additional Space”) in Burlington Massachusetts as well as approximately 6,700 square feet of temporary space to be leased prior to the delivery of the Additional Space (which is anticipated to be delivered on May 1, 2016). The amendment extends the term of the original lease through October 31, 2019, contemporaneous with the Additional Space, and also provides the Company with an option to lease an additional 5,400 square feet of office space (the “Option Space”). On September 30, 2015, the Company exercised its option for the Option Space. In addition, the Company has the option to extend the term of a portion or the entire lease space for one additional three-year period. The Company may terminate the amendment for convenience with nine months’ notice upon the occurrence of certain events connected to its clinical stage programs. The total cash obligation for the base rent from inception through the lease termination date for the office space committed to under the original lease, and the amendment, including the Option Space is approximately $2,900,000. In addition to the base rent, the Company is also responsible for its share of operating expenses and real estate taxes.

 

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As of September 30, 2015, annual aggregate minimum payments due under the Company’s lease obligations are as follows (in thousands):

 

Year

   Aggregate
Minimum
Payments
 

2015 (remaining three months)

   $ 127,999   

2016

     521,364   

2017

     736,425   

2018

     758,299   

2019

     647,106   
  

 

 

 

Total

   $ 2,791,193   
  

 

 

 

Manufacturing and Supply Agreement with Patheon U.K. Limited

On July 31, 2015, the Company and Patheon U.K. Limited (“Patheon”) entered into a Manufacturing and Supply Agreement (the “Manufacturing Agreement”) and Technical Transfer and Service Agreement (the “Technical Transfer Agreement”) for the manufacture of FX006, the Company’s lead program, which is an intra-articular (IA), sustained-release steroid for the treatment of osteoarthritis.

Patheon has agreed in the Technical Transfer Agreement to undertake certain technical transfer activities and construction services needed to prepare Patheon’s Swindon, United Kingdom facility for the commercial manufacture of FX006 in dedicated manufacturing suites. The Company will provide Patheon with certain equipment and materials necessary to manufacture FX006 and it will pay Patheon a monthly fee for such activities and reimburse Patheon for certain material, equipment and miscellaneous expenses and additional services.

The initial term of the Manufacturing Agreement is 10 years from approval by the U.S. Food and Drug Administration, or FDA, of the Patheon manufacturing suites for FX006. The Company will pay a monthly base fee to Patheon for the operation of the manufacturing suites and a per product fee for each vial based upon a forecast of commercial demand. The Company will also reimburse Patheon for purchases of materials and equipment made on its behalf, certain nominal expenses and additional services. The Company estimates that the aggregate monthly base fees and reimbursement costs for equipment will be approximately 100 million British Pounds (GBP) over the entire term of the Manufacturing Agreement. The Manufacturing Agreement will remain in full effect unless and until it expires or is terminated. Upon termination of the Manufacturing Agreement (other than termination by Flexion in the event that Patheon does not meet the construction and manufacturing milestones or for a breach by Patheon), Flexion will be obligated to pay for the costs incurred by Patheon associated with the removal of our manufacturing equipment and for Patheon’s termination costs up to a capped amount.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our financial statements and accompanying notes included in this Quarterly Report on Form 10-Q and the financial statements and accompanying notes thereto for the fiscal year ended December 31, 2014 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K filed by us with the Securities and Exchange Commission, or SEC, on March 24, 2015.

Forward-Looking Statements

This discussion contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Such forward looking statements, which represent our intent, belief, or current expectations, involve risks and uncertainties. We use words such as “may,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “predict,” “potential,” “believe,” “should” and similar expressions to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Although we believe the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risk and we can give no assurances that our expectations will prove to be correct. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q. As a result of many factors, including without limitation those set forth under “Risk Factors” in our Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q, and elsewhere in this Quarterly Report on Form 10-Q, our actual results may differ materially from those anticipated in these forward-looking statements. We undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes.

 

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Overview

We are a specialty pharmaceutical company focused on the development and commercialization of novel, injectable pain therapies. We are developing anti-inflammatory and analgesic therapies for the treatment of patients with musculoskeletal conditions, beginning with osteoarthritis, a type of degenerative arthritis, referred to as OA. Our broad and diversified portfolio of product candidates addresses the OA pain treatment spectrum, from moderate to severe pain, and provides us with multiple opportunities to achieve our goal of commercializing novel, patient-focused pain therapies. Our pipeline consists of three proprietary product candidates: FX006, a sustained-release, intra-articular, or IA, steroid; FX007, a TrkA receptor antagonist for the post-operative pain setting; and FX005, a sustained-release IA p38 MAP kinase inhibitor. We retain the exclusive worldwide rights to our product candidates.

We were incorporated in Delaware in November 2007, and to date we have devoted substantially all of our resources to our development efforts relating to our product candidates, including conducting clinical trials with our product candidates, providing general and administrative support for these operations and protecting our intellectual property. We do not have any products approved for sale and have not generated any revenue from product sales. From our inception through September 30, 2015, we have funded our operations primarily through the sale of our common stock and convertible preferred stock and, to a lesser extent, debt financing. From our inception through September 30, 2015, we have raised $244.4 million from such transactions, including from our initial and follow-on public offerings. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, government or third-party funding, and licensing or collaboration arrangements.

Product Candidates and Recent Developments

A current summary of our significant research and development programs and recent developments with respect to our related product candidates follows:

 

Product Candidate

   Development Phase    Indication

FX006 Intra-articular injectable steroid

   Phase 3    OA of the knee

FX007 TrkA receptor antagonist

   Preclinical    Post-operative pain

FX005 Intra-articular p38 MAP kinase inhibitor

   Phase 2a    End-Stage OA pain

FX006—Front Line IA Therapy for Patients with Moderate to Severe OA Pain

FX006 is a steroid, triamcinolone acetonide, or TCA, formulated for sustained-release, delivered via IA injection and designed to treat moderate to severe OA pain. FX006 combines commonly administered TCA with our poly lactic-co-glycolic acid, referred to as PLGA, formulation technology, which is the cornerstone of our injectable IA sustained-release technology.

OA is a type of degenerative arthritis that is caused by the progressive breakdown and eventual loss of cartilage in one or more joints. Arthritis is the most common cause of disability in the United States and OA is the most common joint disease, affecting 27 million Americans, with numbers expected to grow as a result of aging, obesity and sports injuries. Recent data suggest that OA accounts for over $185 billion of annual healthcare expenditures in the United States, which does not include loss of productivity costs. We estimate that by 2030, 45 million people will have OA, and that approximately 24 million of those people will have knee OA. OA commonly affects large weight-bearing joints like the knees and hips, but also occurs in the shoulders, hands, feet and spine. Patients with OA suffer from joint pain, tenderness, stiffness and limited movement. As the disease progresses, it becomes increasingly painful and debilitating, culminating, in many cases, in the need for total joint arthroplasty, or TJA. According to IMS Health, each year approximately ten million patients in the United States receive IA steroid injection treatments in the knee, hip, shoulder, hand and foot. Our clinical trials to date have treated patients with knee OA, which represents the most common joint treated with IA therapies for OA. In 2014, the number of patients that received steroid injections in the knee, the most commonly injected OA joint, increased approximately 7.0% to 3.5 million patients. We estimate that approximately 1.4 million patients received knee injections of hyaluronic, or HA, in 2014. Sales of HA in the United States in 2014 were approximately $750 million, with a cost per treatment ranging from $500 to $1000. Worldwide, HA sales were approximately $1.6 billion as of 2014, however, we believe recent negative guidance from specialty societies questioning the overall effectiveness of HA therapy (e.g. the American Academy of Orthopedic Surgeons (AAOS), and the Osteoarthritis Research Society International (OARSI)) has

 

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put downward pressure on HA sales. We believe that FX006 has the potential to be a superior front line injectable treatment for OA pain management compared to existing therapies by providing safe, more effective and sustained pain relief to patients. We believe the following attributes make FX006 an attractive development candidate:

 

    A potential first-in-class injectable, IA, sustained-release treatment for patients with moderate to severe OA pain that to date has demonstrated in clinical trials:

 

    clinically meaningful and significantly better pain relief;

 

    persistent therapeutic concentrations of drug in the joint and durable efficacy;

 

    an attractive safety profile with limited systemic exposures and the potential for fewer side effects;

 

    Amongst the largest analgesic effects seen in OA clinical trials;

 

    Strong proprietary position through a combination of patents, trade secrets and proprietary know-how, as well as eligibility for marketing exclusivity;

 

    Well-defined Section 505(b)(2) of the Federal Food Drug and Cosmetic Act, or FDCA, regulatory pathway seeking approval for a novel formulation of the same dose of the already approved immediate-release steroid used by orthopedists and rheumatologists;

 

    Potential for pharmacoeconomic benefits due to superior efficacy and durability and the potential to delay costly and invasive total joint replacement, also referred to as total joint arthroplasty, or TJA.

To date, four clinical trials have been completed to test FX006 against either immediate-release TCA injection or placebo (saline). A total of 608 patients were treated in these four clinical trials, of which 442 patients received FX006, 66 patients received immediate-release TCA and 100 patients received placebo. In the initial Phase 2b dose-ranging clinical trial of patients with knee OA, FX006 demonstrated clinically meaningful and significant improvements in pain relief and functional status relative to a commercially available 40 mg immediate-release TCA. Data from this completed 12-week Phase 2b dose-ranging clinical trial showed that FX006 has a well-tolerated systemic safety profile that is indistinguishable from the standard of care immediate-release steroid. Further, the local safety profile for FX006 in the completed 12-week Phase 2b dose-ranging clinical trial was attractive and comparable to that seen with the same dose of immediate-release TCA.

Our pharmacokinetic data suggest that IA administration of FX006 produces a more controlled-release of TCA from the site of injection than immediate-release TCA, prolonging local exposure to TCA while reducing systemic exposure. A pharmacodynamic clinical trial has also demonstrated that FX006 avoids the marked suppression of the hypothalamic-pituitary-adrenal, or HPA, axis (which determines the body’s ability to make its own naturally occurring steroids) seen with commercially available steroid suspensions. Preclinical data demonstrate that single doses are well tolerated and, in an inflammatory arthritis rat model, have the potential to prevent joint damage more effectively than the immediate-release comparator. We have conducted two pharmacokinetic clinical trials that compared the duration of FX006 to immediate-release TCA in the joint by measuring synovial fluid concentrations in patients with OA following a single IA administration. TCA concentrations in the joint were determined at 6, 12, 16 and 20 weeks following injection depending on the trial design. The data from these clinical trials show that at 6 and 12 weeks, both the FX006 10 mg and 40 mg dose groups had measurable concentrations of drug in synovial fluid. In contrast, the 40 mg immediate-release TCA dose group at 6 and 12 weeks had concentrations of drug that were below the lower limit of quantitation. The FX006 40 mg dose group also demonstrated readily measurable concentrations of drug at 16 weeks, which fell to below the lower limit of quantitation at 20 weeks. These data, in part, will be used to define the dosing interval for repeat injection.

In September 2015, we reported top-line results from the first of two pivotal clinical trials of FX006 in patients with moderate to severe OA knee pain. In this pivotal Phase 2b trial which enrolled 310 patients, 40 mg of FX006, compared to placebo (saline), demonstrated statistical significance in average pain relief over weeks 1 through 12 (p = 0.0012; 2-sided) and over weeks 1 through 24 (p = 0.0209; 2-sided). At weekly time points, 40 mg of FX006 also demonstrated superiority to placebo in pain relief beginning at week 1, continuing to week 11 and also at week 13 (p < 0.05 at each time point; 2-sided). The primary endpoint of the trial, pain relief at week 12, did not reach statistical significance (p = 0.0821; 2-sided). A pre-specified, commonly applied sensitivity analysis (Baseline Observation Carried Forward/Last Observation Carried Forward (BOCF/LOCF)) that addresses missing data due to patient dropouts, however, demonstrated statistical significance for the primary endpoint at week 12 (p = 0.042); and at all time points between weeks 1 and 11 and at week 13 significance (p<0.05 at each time point; 2-sided). Overall, the 40 mg dose of FX006 performed better than the 20 mg FX006 dose. In particular, the 40 mg dose conferred more durable pain relief. The frequency of treatment-related adverse events across the three groups (FX006 40 mg, FX006 20 mg and placebo) was comparable, and no drug-related serious adverse events were observed in the trial.

 

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Also in September 2015, we announced that the FDA had granted Fast Track designation for FX006. The FDA’s Fast Track program was designed to facilitate the development and expedite the review of new drugs that are intended to treat serious or life-threatening conditions and that demonstrate the potential to address unmet medical needs. Drugs with the Fast Track designation generally qualify for priority review if supported by clinical data at the time of NDA filing, thereby expediting the FDA review process. Additionally, Fast Track designation allows a company to submit completed sections of a related NDA on a rolling basis.

In August 2015, we secured a notice of allowance for the trademark Zilretta from the United States Patent and Trademark Office.

In July 2015, we completed enrollment for the Phase 3 trial of FX006 which is a randomized, double-blind trial being conducted at over 40 centers worldwide. A total of 486 enrolled patients have been randomized to one of three treatment groups (1:1:1) and treated with a single IA injection of normal saline (placebo), 40 mg of FX006 or 40 mg of TCA (the current standard of care). Each patient is being evaluated for efficacy and safety at seven outpatient visits over 24 weeks after receiving an injection. The primary objective of this study is to assess the magnitude and duration of pain relief of FX006 at 12 weeks against placebo. The secondary objectives of this study are to assess the effect of FX006 on the magnitude and duration of pain relief relative to immediate-release TCA and the effect of FX006 on function, responder status, global impressions of change, stiffness and consumption of analgesic medications relative to both controls. We expect to release topline data from this trial in February 2016.

In April 2015, we announced that the U.S. Department of Defense awarded us a grant worth approximately $2 million to conduct a Phase 2 clinical trial investigating FX006 as a treatment for OA pain in active military and medically retired veterans with post-traumatic OA of the knee. The trial is a double-blind, randomized, parallel group, proof-of-concept study, in which, we, as the sponsor of the clinical trial, plan to enroll a total of 124 male and female patients between the ages of 20 and 50 and with moderately symptomatic post-traumatic OA of the knee. The primary objective of this study will be to assess the analgesic effect of a single IA injection of 40 mg of FX006 relative to commercially available immediate-release TCA in this population. The primary endpoint is the average change from baseline in the weekly mean of the average daily (24-hour) pain intensity scores over weeks 5 to 10. The study is also designed to assess the effect of FX006 on function, responder status, global impressions of change, stiffness and consumption of analgesic medications and to assess the safety and tolerability of a single IA injection of 40 mg FX006 relative to commercially available immediate-release TCA.

FX007—For Post-Operative Pain

FX007 is a small molecule TrkA receptor antagonist that is in development for the persistent relief of post-operative pain. TrkA is the receptor for nerve growth factor, commonly known as NGF, a small peptide that is released following tissue injury. NGF binds to TrkA on the surface of pain sensing neurons and renders these cells more responsive to external stimuli. In clinical trials of Pfizer’s monoclonal antibody, tanezumab, systemic blockade of NGF demonstrated marked analgesia in a variety of painful conditions. Additionally, human genetic studies demonstrated that patients with a mutation in the TrkA gene have congenital insensitivity to pain. These data indicate that interruption of the NGF-TrkA pathway produces a profound analgesic effect, and in preclinical pharmacology experiments, FX007 has demonstrated both high affinity for the TrkA receptor and analgesic effects in OA and post-operative pain. However, systemic and persistent blockade of NGF with monoclonal antibodies has been associated with rapidly progressive OA requiring TJA. FX007 is being developed for acute, local administration, which has the potential to avoid side effects associated with chronic systemic use.

Post-operative pain is usually most severe in the first few days following the completion of a surgical procedure and is a response to tissue damage during surgery which stimulates peripheral nerves that signal the brain to produce a sensory and physiological response. Numerous studies reveal that the incidence and severity of post-operative pain is primarily determined by the type of surgery, duration of surgery and the pain treatment choice following surgery.

There are approximately 51 million surgeries performed in the United States each year, and the global post-operative pain market was estimated to be $5.9 billion in 2010. Despite the size of this market, however, post-operative pain management remains a challenge for healthcare providers, with studies reporting that up to 80% of patients experience inadequate pain relief after surgery. Given the limitations of current post-operative therapies, we are developing FX007 as a superior alternative to manage post-operative pain. The blockade of the NGF-TrkA pathway results in highly effective analgesia. Additionally, acute local administration has the potential to avoid the side-effects associated with systemic and persistent blockade of NGF.

FX007 is being developed to treat post-operative pain with target analgesia of at least 36 to 72 hours and is being formulated to remain in the tissues for a sufficient period of time to provide this duration of pain relief. We are performing preclinical local pharmacology and toxicology experiments and plan to conduct a PoC clinical trial for FX007 following the generation of these data.

 

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FX005—For End-Stage OA Pain

FX005 is intended as therapy for patients with end-stage OA pain, particularly those patients awaiting TJA, as an alternative to opioids. FX005 is a p38 MAP kinase inhibitor formulated for sustained-release delivered via IA injection, which is designed to have both analgesic and anti-inflammatory benefits without the systemic side effects of oral p38 MAP kinase inhibitors. p38 MAP kinase is an enzyme in an inflammatory cascade that up regulates in response to stress and culminates in the elaboration of multiple proinflammatory cytokines, including interleukin 1 and tumor necrosis factor, as well as enzymes like matrix metalloproteinases that have the potential to destroy cartilage. In other studies, multiple oral p38 MAP kinase inhibitors have been evaluated in inflammatory diseases and pain and, while efficacy has been demonstrated, serious toxicity affecting multiple organ systems has been frequently observed. For example, a clinical study of an orally administered p38 MAP kinase inhibitor in OA demonstrated pain relief comparable to oxycodone but was associated with concerning side effects, including QTc prolongation which could increase the risk of arrhythmias. Because FX005 leverages the same PLGA technology used in FX006 in order to achieve persistent therapeutic concentrations of drug in the joint while maintaining very low plasma concentrations, it may have the potential to provide durable pain relief while avoiding p38 MAP kinase inhibitor systemic side effects. We believe the preclinical and clinical data we have generated to date support this potential.

In May 2012, FX005 completed a Phase 2a clinical trial in which 70 patients were randomized to FX005 and 70 patients were randomized to placebo. The Phase 2a clinical trial demonstrated positive effects of FX005 on both pain and function. These effects were substantially enhanced in a pre-specified exploratory subset analysis of patients with high baseline pain. FX005 also demonstrated efficacy in responder analysis. Overall, FX005 was well-tolerated systemically and local tolerability was similar to that documented for marketed HA preparations. Repeat-dose toxicology studies demonstrated that FX005 can be associated with synovial inflammation, articular cartilage damage and alterations to joint structure. These findings were not present in animals treated with blank PLGA microspheres, so toxicity appears to be specific to the p38 MAP kinase inhibitor itself. To guide the appropriate future development path for FX005, additional toxicology studies using lower doses of FX005 were conducted to determine the appropriate dose level. These additional toxicology studies showed that at the human equivalent dose of 3 and 1 mg, there was no evidence of the damage to cartilage that had been associated with doses greater than or equal to 10 mg. Based on this, we expect that further development of FX005, if any, would involve a dose substantially lower than the doses studied in the previously-conducted Phase 2a clinical trial. We will continue to evaluate further development of FX005 taking into consideration, among other factors, our available capital resources.

Financial Overview

Revenue

We have not generated any revenue since our inception. We do not have any products approved for sale, and we do not expect to generate any revenue from the sale of products in the near future. In the future, if our research and development efforts result in clinical success and regulatory approval, we may generate revenue from the sales of our product candidates, or we may generate revenue from licensing rights to our product candidates to third parties. If we fail to complete the development of FX006 or our other product candidates, our ability to generate future revenue, and our results of operations and financial position will be adversely affected.

Operating Expenses

The majority of our operating expenses to date have been related to the development of our product candidates FX006, FX007 and FX005.

Research and Development Expenses

Since our inception, we have focused our resources on our development activities, including: preclinical studies and clinical trials and chemistry manufacturing and controls, or CMC. Our development expenses consist primarily of:

 

    expenses incurred under agreements with consultants, contract research organizations, or CROs, and investigative sites that conduct our preclinical studies and clinical trials;

 

    costs of acquiring, developing and manufacturing clinical trial materials, as well as scale-up for potential commercial supply;

 

    personnel costs, including salaries, benefits, stock-based compensation and travel expenses for employees engaged in scientific research and development functions;

 

    costs related to compliance with regulatory requirements;

 

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    expenses related to the in-license of certain technologies from pharmaceutical companies; and

 

    allocated expenses for rent and maintenance of facilities, insurance and other general overhead.

We expense research and development costs as incurred. Our direct research and development expenses consist primarily of external-based costs, such as fees paid to investigators, consultants, investigative sites, CROs and companies that manufacture our clinical trial materials and anticipated future commercial supplies, and are tracked on a program-by-program basis. We do not allocate personnel costs, facilities or other indirect expenses to specific research and development programs. These indirect expenses are included within the amounts designated as “Personnel and other costs” in the table below.

The following table summarizes our research and development expenses for the periods presented:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2015      2014      2015      2014  

Direct research and development expenses by program:

     

FX006

   $ 5,455,292       $ 3,264,497       $ 15,717,870       $ 8,217,735   

FX007

     103,199         93,780         383,299         517,580   

FX005

     78,454         22,535         241,610         99,038   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total direct research and development expenses

     5,636,945         3,380,812         16,342,779         8,834,353   

Personnel and other costs

     2,191,982         1,277,481         7,381,276         3,589,380   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total research and development expenses

   $ 7,828,927       $ 4,658,293       $ 23,724,055       $ 12,423,733   
  

 

 

    

 

 

    

 

 

    

 

 

 

Related costs incurred under the grant from the U.S. Department of Defense are included in research and development expenses. We are reimbursed and offset research and development expenses when invoices for allowable costs are prepared and submitted to the U.S. Department of Defense. Payments under cost reimbursable grants with agencies of the U.S. government are provisional payments subject to adjustment upon audit by the U.S. government. When the final determination of the allowable costs for any year has been made, research and development expenses may be adjusted accordingly. The grant also provides the U.S. government agency the ability to terminate the grant for various reasons, including if we fail to meet our obligations as set forth in the grant.

Our research and development expenses are expected to increase in the foreseeable future. Specifically, our costs associated with FX006 will increase as we conduct our on-going Phase 3 clinical trial, further the manufacturing process in anticipation of validation and commercialization, including the costs for the build-out of the portion of the dedicated manufacturing facility with our contract manufacturer, Patheon UK Limited, make initial investments for commercial product supply, and otherwise advance our FX006 development program. We cannot determine with certainty the duration of and completion costs associated with future clinical trials of FX006. The duration, costs and timing associated with the development and commercialization of FX006 and our other product candidates will depend on a variety of factors, including uncertainties associated with the results of our clinical trials and our ability to obtain regulatory approval. As it relates to FX005 and FX007, we will decide which development programs to pursue and how much funding to direct to each program on an ongoing basis in response to preclinical and clinical success of each product candidate, as well as ongoing assessments of the commercial potential of each product candidate. As a result of these uncertainties, we are currently unable to estimate with any precision our future research and development expenses for any product candidate, when or if we will achieve regulatory approval, generate revenue from sales of any product candidate or achieve a positive cash flow position.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel costs, including salaries, related benefits, travel expenses and stock-based compensation of our executive, finance, business development, commercial, information technology, legal and human resources functions. Other general and administrative expenses include an allocation of facility-related costs, patent filing expenses, and professional fees for legal, consulting, auditing and tax services.

We anticipate that our general and administrative expenses will increase in the future as we continue to build our corporate and commercial infrastructure to support the continued development of our product candidates. Additionally, we anticipate increased expenses related to the audit, legal, regulatory, investor relations and tax-related services associated with maintaining compliance with the Securities and Exchange Commission and Nasdaq requirements, director and officer insurance premiums and other costs associated with operating as a publicly-traded company.

 

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Other Income (Expense)

Interest income.  Interest income consists of interest earned on our cash and cash equivalents balances and our marketable securities. The primary objective of our investment policy is capital preservation.

Interest expense.  In January 2013, we borrowed $5.0 million under a credit facility with MidCap Financial SBIC, LP, or MidCap, and began to incur interest related to this borrowing at a fixed rate of 8.0% per annum. On March 31, 2015 we paid MidCap $3,236,019 to satisfy our obligation related to the credit facility.

On August 4, 2015, we borrowed $15.0 million under a credit facility with MidCap Financial Funding XIII Trust and Silicon Valley Bank, and began to incur interest related to this borrowing at a fixed rate of 6.25% per annum. We expect to incur future interest expense related to this borrowing until February 1, 2020.

Other expense.  Other expense consists of the net amortization of premiums and discounts related to our marketable securities, and our realized gains (losses) on redemptions of our marketable securities. We will continue to incur expenses related to net amortization of premiums on marketable securities for as long as we hold these investments.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements, and the reported revenue and expenses during the reported periods. We evaluate these estimates and judgments, including those described below, on an ongoing basis. We base our estimates on historical experience, known trends and events, contractual milestones and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe that the estimates, assumptions and judgments involved in the accounting policies described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2014 have the greatest potential impact on our financial statements, so we consider them to be our critical accounting policies and estimates. There were no material changes to our critical accounting policies and estimates during the nine months ended September 30, 2015 except for the introduction of accounting for the U.S. Government agency grant.

 

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RESULTS OF OPERATIONS

Comparison of the three and nine months ended September 30, 2015 and 2014

The following tables summarize our results of operations for the three and nine months ended September 30, 2015 and 2014 (certain items may not sum correctly due to rounding):

 

     Three Months Ended September 30,  
     2015     2014     Change     % Increase/
(Decrease)
 

Revenue

   $ —       $ —       $ —         —    

Operating expenses:

    

Research and development

     7,828,927        4,658,293        3,170,634        68.1

General and administrative

     3,196,698        2,304,026        892,672        38.7
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     11,025,625        6,962,319        4,063,306        58.4
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (11,025,625     (6,962,319     (4,063,306     58.4
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

    

Interest income

     273,679        153,122        120,557        78.7

Interest expense

     (202,399 )     (96,926     (105,473     108.8

Other expense

     (182,067     (129,484     (52,583     40.6
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     (110,787     (73,288     (37,499     51.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (11,136,412   $ (7,035,607   $ (4,100,805     58.3
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     Nine Months Ended September 30,  
     2015     2014     Change     % Increase/
(Decrease)
 

Revenue

   $ —       $ —       $ —         —    

Operating expenses:

    

Research and development

     23,724,055        12,423,733        11,300,322        91.0

General and administrative

     8,860,332        6,822,171        2,038,161        29.9
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     32,584,387        19,245,904        13,338,483        69.3
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (32,584,387     (19,245,904     (13,338,483     69.3
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

        

Interest income

     882,001        318,524        563,477        176.9

Interest expense

     (405,867     (314,630     (91,237     29.0

Other expense

     (638,276     (266,443     (371,833     139.6
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     (162,142     (262,549     100,407        (38.2 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (32,746,529   $ (19,508,453   $ (13,238,076     67.9
  

 

 

   

 

 

   

 

 

   

 

 

 

Research and Development Expenses

 

     Three Months Ended September 30,  
     2015      2014      Change      % Increase/
(Decrease)
 

Direct research and development expenses by program:

        

FX006

   $ 5,455,292       $ 3,264,497       $ 2,190,795         67.1

FX007

     103,199         93,780         9,419         10.0

FX005

     78,454         22,535         55,919         248.1
  

 

 

    

 

 

    

 

 

    

 

 

 

Total direct research and development expenses

     5,636,945         3,380,812         2,256,133         66.7

Personnel and other costs

     2,191,982         1,277,481         914,501         71.6
  

 

 

    

 

 

    

 

 

    

 

 

 

Total research and development expenses

   $ 7,828,927       $ 4,658,293       $ 3,170,634         68.1
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Nine Months Ended September 30,  
     2015      2014      Change     % Increase/
(Decrease)
 

Direct research and development expenses by program:

        

FX006

   $ 15,717,870       $ 8,217,735       $ 7,500,135        91.3

FX007

     383,299         517,580         (134,281     (25.9 %) 

FX005

     241,610         99,038         145,572        144.0
  

 

 

    

 

 

    

 

 

   

 

 

 

Total direct research and development expenses

     16,342,779         8,834,353         7,508,426        85.0

Personnel and other costs

     7,381,276         3,589,380         3,791,896        105.6
  

 

 

    

 

 

    

 

 

   

 

 

 

Total research and development expenses

   $ 23,724,055       $ 12,423,733       $ 11,300,322        91.0

 

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Research and development expenses were $7.8 million and $4.7 million for the three months ended September 30, 2015 and 2014, respectively. The increase in research and development expenses year over year of $3.2 million was primarily due to $2.2 million in FX006 program expenses related to the recently completed Phase 2b clinical trial and on-going Phase 3 clinical trial and manufacturing expenses related to clinical trial supplies. Additionally, there was an increase of $0.9 million in personnel and other costs primarily related to employee related costs for additional headcount and stock compensation expense.

Research and development expenses were $23.7 million and $12.4 million for the nine months ended September 30, 2015 and 2014, respectively. The increase in research and development expenses year over year of $11.3 million was primarily due to $7.5 million in FX006 program expenses related to the recently completed Phase 2b clinical trial, the preparation and initiation of the Phase 3 clinical trial, and manufacturing expenses related to clinical trial supplies, as well as, an increase of $3.8 million in personnel and other costs primarily related to employee related costs for additional headcount, stock compensation expense and consulting costs.

General and Administrative Expenses

General and administrative expenses were $3.2 million and $2.3 million for the three months ended September 30, 2015 and 2014, respectively. The increase in general and administrative expenses of $0.9 million was primarily due to salary and related costs associated with additional headcount and stock compensation expense.

General and administrative expenses were $8.9 million and $6.8 million for the nine months ended September 30, 2015 and 2014, respectively. The increase in general and administrative expenses of $2.1 million was primarily due to salary and related costs associated with additional headcount and stock compensation expense.

Other Income (Expense)

Interest income was $0.3 million and $0.2 million for the three months ended September 30, 2015 and 2014, respectively, and $0.9 million and $0.3 million for the nine months ended September 30, 2015 and 2014, respectively. The increase in interest income was primarily due to a larger average investment balance during 2015.

Interest expense was $0.2 million and $0.1 million for the three months ended September 30, 2015 and 2014, respectively, and $0.4 million and $0.3 million for the nine months ended September 30, 2015 and 2014, respectively. The increase in interest expense for the three months ended September 30, 2015 was primarily due to interest incurred on the $15.0 million borrowed under our credit facility with MidCap Financial Funding XIII Trust and Silicon Valley Bank which we entered into on August 4, 2015.

Liquidity and Capital Resources

To date, we have not generated any revenue and have incurred losses since our inception in 2007. As of September 30, 2015, we had an accumulated deficit of $126.2 million. We anticipate that we will continue to incur losses for the foreseeable future. We expect that our research and development and general and administrative expenses will continue to increase and, as a result, we will need additional capital to fund our operations, which we may seek to obtain through one or more equity offerings, debt financings, government or other third-party funding, and licensing or collaboration arrangements.

Since our inception through September 30, 2015, we have funded our operations primarily through the sale of our common stock and convertible preferred stock and, to a lesser extent, debt financing. From our inception through September 30, 2015, we have raised $244.4 million from such transactions, including amounts from our initial and follow-on public offerings during 2014. As of September 30, 2015, we had cash and cash equivalents of $73.5 million and marketable securities of $58.7 million.

 

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Based on our current operating plan we anticipate that our existing cash, cash equivalents and marketable securities will fund our operations for at least the next twelve months. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to capital preservation.

The following table shows a summary of our cash flows for each of the nine months ended September 30, 2015 and 2014:

 

     Nine Months Ended September 30,  
     2015      2014  

Cash flows used in operating activities

   $ (27,963,291    $ (16,814,380

Cash flows used in investing activities

     (13,152,242      (52,526,123

Cash flows (used in) provided by financing activities

     11,525,132         67,517,259   
  

 

 

    

 

 

 

Net decrease in cash and cash equivalents

   $ (29,590,401    $ (1,823,244
  

 

 

    

 

 

 

Net Cash Used in Operating Activities

Operating activities used $28.0 million of cash in the nine months ended September 30, 2015. The cash flow used in operating activities resulted primarily from our net loss of $32.7 million for the period partially offset by cash provided by changes in our operating assets and liabilities of $0.9 million, and non-cash charges of $3.9 million. Net cash provided by changes in our operating assets and liabilities consisted primarily of a $0.4 million increase in our accounts payable, and an increase of $0.8 million in accrued expenses. The increase in accounts payable, accrued expenses and other current liabilities was primarily attributable to increased expenses related to clinical research and contract manufacturing services. These changes were partially offset by an increase in accounts receivable and other current assets of $0.3 million. Our non-cash charges consisted primarily of $3.1 million of stock-based compensation expense and $0.8 million in depreciation expense and amortization and accretion related to our investments.

Operating activities used $16.8 million of cash in the nine-months ended September 30, 2014. The cash flow used in operating activities resulted primarily from our net loss of $19.5 million, partially offset by net cash provided by changes in our operating assets and liabilities of $0.6 million, and non-cash charges of $2.1 million. The increase in accounts payable, accrued expenses and other current liabilities was primarily attributable to increased expenses related to clinical research and contract manufacturing services. Net cash used for changes in our operating assets and liabilities consisted primarily of a $0.4 million increase in prepaid expenses and other current assets. The increase in our prepaid expenses and other current assets was primarily due to prepayments we made for insurance. Our non-cash charges consisted of depreciation expense and amortization of premiums on marketable securities, as well as stock based compensation expense.

Net Cash Used in Investing Activities

Net cash used in investing activities was $13.2 million in the nine months ended September 30, 2015. Net cash used in investing activities consisted primarily of cash used for the purchase of marketable securities of $106.5 million, partially offset by cash received from the redemption and sale of marketable securities of $95.7 million. In addition, $2.4 million of cash was used to purchase property and equipment.

Net cash used in investing activities was $52.5 million in the nine months ended September 30, 2014. Net cash used in investing activities consisted primarily of cash used for the purchase of marketable securities of $72.4 million, partially offset by cash received from the redemption of marketable securities of $20.2 million.

Net Cash Provided by Financing Activities

Net cash provided by financing activities was $11.5 million for the nine months ended September 30, 2015 compared to $67.5 million for the nine months ended September 30, 2014. Net cash provided by financing activities in the nine months ended September 30, 2015 consisted of $15.0 borrowed under our credit facility with MidCap Financial Funding XIII Trust and Silicon Valley Bank in August 2015, offset by $3.5 million paid to satisfy our 2013 term loan obligation. In addition, we received $0.4 million in proceeds from the exercise of stock options and the issuance of common stock related to our employee stock purchase plan that was partially offset by $0.2 million in financing costs associated with our follow-on financing in late 2014 and $0.1 million in issuance costs associated with our long-term loan obligation.

 

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Net cash provided by financing activities in the nine months ended September 30, 2014 consisted of $69.5 million in proceeds from our initial public offering, and $0.3 million in proceeds received from the exercise of stock options, partially offset by the payment of fees incurred in connection with our initial public offering of $1.3 million and the repayment of principal on our term loan of $1.0 million.

Contractual Obligations

In July 2015, we amended the lease for our primary office space which increased the size of our leased premises and extended the lease term through October 31, 2019. On September 30, 2015, we exercised an option to lease an additional 5,400 square feet under this amended lease. The total cash obligation for the base rent from inception through the lease termination date for the office space committed to under the original lease, and the amendment, including the Option Space is approximately $2,900,000.

Also in July, 2015, we and Patheon U.K. Limited, or Patheon, entered into a Manufacturing and Supply Agreement (the “Manufacturing Agreement”) and Technical Transfer and Service Agreement, or the Technical Transfer Agreement, for the manufacture of FX006.

Under the terms of the Technical Transfer Agreement, Patheon has agreed to undertake certain technical transfer activities and construction services needed to prepare its Swindon, United Kingdom facility for the manufacture of FX006 in dedicated manufacturing suites. This agreement will remain in full effect unless and until it expires or is terminated. Upon termination of this agreement (other than termination by us in the event that Patheon does not meet the construction and manufacturing milestones or for a breach by Patheon), we will pay for the wind down costs related to the removal of our manufacturing equipment and for Patheon’s termination costs up to a capped amount.

Under the terms of the Manufacturing and Supply Agreement, following the FDA approval date of the suites, we have agreed to purchase finished, packaged or unpackaged product from Patheon. In addition, The Company will pay a monthly base fee to Patheon for the operation of the manufacturing suites, and will reimburse Patheon for purchases of raw materials and equipment made on its behalf, certain nominal expenses and additional services. The Company estimates that the aggregate monthly base fees and reimbursement costs for equipment will be approximately 100 million GBP over the entire term of the Manufacturing Agreement. Unless earlier terminated, this agreement will expire on the 10th anniversary of the FDA approval date for the initial manufacturing suite.

Future expenditures associated with the purchase of finished product from Patheon are primarily driven by the potential commercial requirements and demand for our products which cannot be fully determined at this time.

Off-Balance Sheet Arrangements

During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. Due to the short-term duration of a majority of our investment portfolio and the low risk profile of our investments, an immediate 10.0% change in interest rates would not have a material effect on the fair market value of our portfolio. Accordingly, we would not expect our operating results or cash flows to be affected to any significant degree by a sudden change in market interest rates on our investment portfolio.

Our term loan carries a fixed interest rate and, thus, we are not subject to interest rate risk.

We do not believe that our cash, cash equivalents and marketable securities have significant risk of default or illiquidity. While we believe our cash and cash equivalents and marketable securities do not contain excessive risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value. In addition, we maintain significant amounts of cash and cash equivalents at one or more financial institutions that are in excess of federally insured limits.

Most of our transactions are conducted in the U.S. dollar. We do have certain material agreements with vendors located outside the United States, which have transactions conducted primarily in British Pounds and Euros. As of September 30, 2015 we had approximately $1.1 million in payables to vendors denominated in currencies other than the U.S. dollar. A hypothetical 10% change in foreign exchange rates would not have a material effect on the value of our liability.

 

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ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We are responsible for maintaining disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Disclosure controls and procedures are controls and other procedures designed to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Based on our management’s evaluation (with the participation of our principal executive officer and our principal financial officer) of our disclosure controls and procedures as required by Rule 13a-15 under the Exchange Act, our principal executive officer and our principal financial officer have concluded that our disclosure controls and procedures were effective to achieve their stated purpose as of September 30, 2015, the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are not currently a party to any material legal proceedings.

ITEM 1A. RISK FACTORS

You should carefully consider the following risk factors, and the risk factors included in Item 1A of our Annual Report on Form 10-K, as well as the other information in this report, before deciding whether to purchase, hold or sell shares of our common stock. The occurrence of any of these risks could harm our business, financial condition, results of operations and/or growth prospects or cause our actual results to differ materially from those contained in forward-looking statements we have made in this report and those we may make from time to time. In these circumstances, the market price of our common stock would likely decline. You should consider all of the factors described below and in Item 1A of our Annual Report on Form 10-K when evaluating our business. The risk factors set forth below represent new risk factors or those containing changes, including material changes, to the similarly titled risk factors included in Item 1A of our Annual Report on Form 10-K.

Risks Related to Our Financial Condition and Need for Additional Capital

We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future.

We have limited operating history. To date, we have focused primarily on developing our lead product candidate, FX006. We have two additional product candidates, FX007 and FX005. All of our product candidates will require substantial additional development time and resources before we would be able to apply for or receive regulatory approvals and begin generating revenue from product sales. We have incurred significant net losses in each year since our inception, including net losses of $32.7 million for the nine months ended September 30, 2015 and $27.3 million, $18.2 million and $15.0 million for fiscal years 2014, 2013 and 2012, respectively. As of September 30, 2015, we had an accumulated deficit of $126.2 million.

We have devoted most of our financial resources to product development, including our non-clinical development activities and clinical trials. To date, we have financed our operations exclusively through the sale of equity securities and debt. The size of our future net losses will depend, in part, on the rate of future expenditures and our ability to generate revenue. To date, none of our product candidates have been commercialized, and if our product candidates are not successfully developed or commercialized, or if revenue is insufficient following marketing approval, we will not achieve profitability and our business may fail. Even if we successfully obtain regulatory approval to market our product candidates in the United States, our revenue is also dependent upon the size of the markets outside of the United States, as well as our ability to obtain market approval and achieve commercial success.

 

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We expect to continue to incur substantial and increased expenses as we expand our development activities, advance our clinical programs and scale-up manufacturing, particularly with respect to FX006. We also expect a continued increase in our expenses associated with our operations as a publicly-traded company. As a result of the foregoing, we expect to continue to incur significant and increasing losses and negative cash flows for the foreseeable future.

If we fail to obtain additional financing, we would be forced to delay, reduce or eliminate our product development programs.

Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is expensive. We expect our development expenses to substantially increase in connection with our ongoing activities, particularly as we advance our clinical programs, including our on-going and planned clinical trials for FX006.

As of September 30, 2015, we had cash, cash equivalents and marketable securities of $132.2 million and working capital of $126.4 million. Based upon our current operating plan, we believe that our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital requirements at least into 2017, including through completion of our Phase 3 clinical trial for FX006 and assuming no additional pivotal studies are required, the submission of an NDA for FX006 in the second half of 2016. Regardless of our expectations as to how long our cash, cash equivalents and marketable securities will fund our operations, changing circumstances beyond our control may cause us to consume capital more rapidly than we currently anticipate. For example, our clinical trials may encounter technical, enrollment or other difficulties that could increase our development costs more than we expect, the FDA could impose additional or different clinical development requirements on us prior to our submission of an NDA for FX006 or we could decide to conduct additional clinical trials or accelerate the timing of planned clinical trials. In any event, we may require additional capital prior to commercializing FX006 or any of our other product candidates.

Attempting to secure additional financing may divert our management from our day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. For example, while we have the ability to borrow an additional $15.0 million under our credit facility, we may not be able to satisfy the conditions to borrow the additional amounts at the time we desire to do so, including if our on-going Phase 3 clinical trial for FX006 fails to meet its primary endpoint. If we are unable to raise additional capital when required or on acceptable terms, we may be required to:

 

    significantly delay, scale back or discontinue the development or commercialization of our product candidates;

 

    seek corporate partners for our product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available;

 

    relinquish or license on unfavorable terms, our rights to technologies or product candidates that we otherwise would seek to develop or commercialize ourselves; or

 

    significantly curtail, or cease, operations.

If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we will be prevented from pursuing development and commercialization efforts, which will have a material adverse effect on our business, operating results and prospects.

Our credit and security agreement contains restrictions that limit our flexibility in operating our business. We may also be required to repay the outstanding indebtedness earlier than we expect, if a prepayment event or an event of default occurs, including a material adverse change with respect to us, which could have a materially adverse effect on our business.

On August 4, 2015, we entered into a credit and security agreement with MidCap Financial Trust, as agent, MidCap Financial Funding XIII Trust and Silicon Valley Bank, as agent, to borrow up to an amount of $30.0 million and contemporaneously drew down $15.0 million under the facility. The agreement contains various covenants that limit our ability to engage in specified types of transactions. These covenants limit our ability to, among other things:

 

    incur or assume certain debt;

 

    merge or consolidate or acquire all or substantially all of the capital stock or property of another entity;

 

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    enter into any transaction or series of related transactions that would be deemed to result in a change in control of us under the terms of the agreement;

 

    change the nature of our business;

 

    change our organizational structure or type;

 

    amend, modify or waive any of our organizational documents;

 

    license, transfer or dispose of certain assets;

 

    grant certain types of liens on our assets;

 

    make certain investments;

 

    pay cash dividends;

 

    enter into material transactions with affiliates; and

 

    amend or waive provisions of material agreements in certain manners.

The restrictive covenants of the agreement could cause us to be unable to pursue business opportunities that we or our stockholders may consider beneficial.

A breach of any of these covenants could result in an event of default under the agreement. An event of default will also occur if, among other things, a material adverse change in our business, operations or condition occurs, which could potentially include negative results in our on-going or planned clinical trials, or a material impairment of the prospect of our repayment of any portion of the amounts we owe under the agreement occurs. In the case of a continuing event of default under the agreement, the lenders could elect to declare all amounts outstanding to be immediately due and payable, proceed against the collateral in which we granted the lenders a security interest under the agreement, or otherwise exercise the rights of a secured creditor. Amounts outstanding under the agreement are secured by all of our existing and future assets, excluding intellectual property, which is subject to a negative pledge arrangement.

We may not have enough available cash or be able to raise additional funds on satisfactory terms, if at all, through equity or debt financings to repay our indebtedness at the time any such repayment is required. In such an event, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts or grant to others rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Our business, financial condition and results of operations could be materially adversely affected as a result.

Risks Related to Our Reliance on Third Parties

Our agreements with Patheon may involve unanticipated expenses and delays, including the need for the Patheon facilities to receive regulatory approvals required for manufacturing to commence at the Patheon suites.

We and Patheon have entered into a Manufacturing Agreement and Technical Transfer Agreement for the manufacture of FX006. Under the terms of the Technical Transfer Agreement, Patheon has agreed to undertake certain technical transfer activities and construction services needed to prepare its Swindon, United Kingdom facility for the manufacture of FX006 in dedicated manufacturing suites. We have agreed with Patheon, among other things, to provide them with the equipment necessary to manufacture FX006 in these suites, to pay for construction of the suites, and to make payments related to their establishment and validation of manufacturing processes in the suites.

The Patheon facilities must be approved by the FDA prior to the commercial production and manufacturing of FX006. If the construction of the Patheon suites is delayed, if Patheon experiences unanticipated cost overruns, or if the Patheon suites do not receive regulatory approvals in the timeframe anticipated, if at all, this could have a material adverse effect on our business, financial position and results of operation. In particular, if we are unable to obtain commercial supply of FX006 from Patheon using the new manufacturing suites or if Patheon experiences a delay in obtaining FDA approval for the commercial manufacturing of FX006, we may not realize an appropriate return, or any return, on our significant investment in establishing and validating the Patheon manufacturing suites.

Further, if and when the Patheon facilities are constructed and have received the required FDA approvals, the production under these agreements involves additional risks, many of which would be outside of our control, such as disruptions or delays in production, manufactured products that do not meet our required specifications, the failure of Patheon to comply with cGMP regulations or other regulatory requirements, protection of our intellectual property and manufacturing process, loss of control of our complex manufacturing process and inabilities to fulfill our commercial needs.

 

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Risks Related to Clinical Development and Regulatory Approval

Clinical development is a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results. Clinical failure can occur at any stage of clinical development. We have never completed a pivotal clinical program or submitted an NDA.

Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of subsequent clinical trials. In particular, the results generated in the completed FX006 Phase 2b clinical trials do not ensure that our on-going Phase 3 clinical trial will be successful.

In our earlier Phase 2b dose-ranging clinical trial, the 60 mg dose of FX006 unexpectedly showed inferior efficacy compared to the 40 mg dose. While we have investigated potential causes of this clinical outcome and believe we understand the basis for the performance of the 60 mg dose, we may not be correct. Therefore, we cannot guarantee that the underlying cause is unique to the 60 mg dose and will not impact the 40 mg dose we are studying in our on-going Phase 3 pivotal trial, or will not otherwise result in regulatory delays or the need for additional studies prior to seeking or obtaining regulatory approval.

We have conducted preclinical toxicology studies in healthy dogs with single and repeat doses of FX006, blank microspheres and immediate-release TCA. The findings from the studies related to the administration of TCA were similar between the immediate-release TCA and FX006 groups and known effects of immediate-release TCA. In the single-dose study, local cartilage findings of reduced extracellular matrix had completely reversed by the end of the nine-month recovery period in both the FX006 and TCA study arms. In the repeat-dose toxicity study, three doses were administered either one month or three months apart. A larger reduction in extracellular matrix in cartilage was noted which partially recovered by six months following the last dose, however, structural changes in cartilage were observed with repeat administrations of both FX006 and immediate-release TCA. All of our clinical trials to date have been or are being conducted with single doses of FX006. However, we intend to study FX006 in a separate repeat dose safety clinical trial and to submit repeat dose data in a supplemental NDA after an approval and launch of FX006 for single-dose administration. Immediate-release TCA has a long history of safe clinical use in patients and in a randomized, double-blind clinical trial conducted in 2003 by Raynauld et al administering immediate-release TCA or saline every three months for up to two years in 68 OA patients, it was well-tolerated and demonstrated no deleterious effects in the knee joint when assessed by clinical exam and X-ray evaluation. Nonetheless, it is possible that we could observe similar outcomes to those observed in our preclinical studies with repeated doses of FX006 that would harm our ability to maintain regulatory approval or would limit the commercial potential of FX006.

Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. In addition to the safety and efficacy traits of any product candidate, clinical trial failures may result from a multitude of factors including flaws in trial design, dose selection, placebo effect and patient enrollment criteria. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. Based upon negative or inconclusive results, we or our collaborators may decide, or regulators may require us, to conduct additional clinical trials or preclinical studies. For example, although our completed FX006 pivotal Phase 2b clinical trial showed statistical significant pain relief with the 40 mg dose compared to placebo at weeks 1-11 and week 13, the result was not statistically significant at week 12 and therefore the primary efficacy endpoint of the trial was not achieved. We believe after consultations with external regulatory advisors that, assuming positive Phase 3 efficacy data, our recently completed Phase 2b clinical trial could be considered a pivotal trial by the FDA. However, we cannot guarantee that the FDA will accept the Phase 2b trial as pivotal or that we won’t be required to conduct an additional pivotal trial which would delay our NDA submission timeline and result in additional development costs. In addition, data obtained from trials and studies are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may delay, limit or prevent regulatory approval. Our future clinical trials may not be successful.

If FX006 or any other product candidate is found to be unsafe or lack efficacy, we will not be able to obtain regulatory approval for it and our business would be materially harmed. If the results of our on-going Phase 3 or other clinical trials for FX006 demonstrate unexpected safety findings or do not achieve the primary efficacy endpoint, the prospects for approval of FX006 as well our stock price and our ability to create stockholder value would be materially and adversely affected.

 

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The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.

The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. For example, we cannot guarantee that the FDA will not require additional or different clinical trials in support of our submission of an NDA for FX006 despite the most recent guidance we have received from the FDA. We have not obtained regulatory approval for any product candidate, and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval.

Our product candidates could fail to receive regulatory approval for many reasons, including the following:

•    the FDA or comparable foreign regulatory authorities may disagree with the design, scope or implementation of our clinical trials;

•    we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication;

•    the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;

•    we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

•    the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;

•    the data collected from clinical trials of our product candidates may not be sufficient to support the submission of an NDA or other submission or to obtain regulatory approval in the United States or elsewhere;

•    the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third party manufacturers with which we contract for clinical and commercial supplies; and

•    the approval policies or regulations of the FDA or comparable foreign regulatory authorities may change significantly in a manner rendering our clinical data insufficient for approval.

In addition, despite our receipt of Fast Track designation for FX006, we may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may also withdraw Fast Track designation if it believes that the designation is no longer supported by data from our clinical development program or otherwise. The lengthy approval process, as well as the unpredictability of future clinical trial results, may result in our failing to obtain regulatory approval to market FX006 or our other product candidates, which would harm our business, results of operations and prospects significantly.

In addition, even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, may not approve the price we intend to charge for our products, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could harm the commercial prospects for our product candidates. For example, we believe that, to the extent our clinical development of FX006 continues to focus on knee OA, any initial indication of FX006 would be limited to the treatment of knee OA, as opposed to the treatment of OA generally. If an initial indication is limited to knee OA, we would likely need to conduct additional clinical trials in order to market FX006 for other indications and expand its market potential. In addition, we are choosing to pursue an initial approval of FX006 for single-dose administration. While we intend to develop and submit clinical data for repeated dosing of FX006 in a supplemental NDA, if we were unable to expand the label for FX006 to include repeat dosing, our ability to fully market FX006 would be limited.

 

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We have not previously submitted an NDA or any similar drug approval filing to the FDA or any comparable foreign authority for any product candidate, and we cannot be certain that any of our product candidates will be successful in clinical trials or receive regulatory approval. Further, our product candidates may not receive regulatory approval even if they are successful in clinical trials. If we do not receive regulatory approval for our product candidates, we may not be able to continue our operations. Even if we successfully obtain regulatory approval to market one or more of our product candidates, our revenue will be dependent, to a significant extent, upon the size of the markets in the territories for which we gain regulatory approval. If the markets for patients or indications that we are targeting are not as significant as we estimate, we may not generate significant revenue from sales of such products, if approved.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent Sales of Unregistered Securities

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

 

Exhibit

number

  

Description of document

    3.1 (1)    Amended and Restated Certificate of Incorporation of the Registrant.
    3.2 (1)    Amended and Restated Bylaws of the Registrant.
    4.1 (2)    Form of Common Stock Certificate of the Registrant.
    4.2 (2)    Amended and Restated Investor Rights Agreement, dated December 3, 2012, by and among the Registrant and certain of its stockholders.
    4.3 (2)    Conversion, Amendment and Waiver Agreement, dated January 27, 2014, by and among the Registrant and certain of its stockholders.
  10.1    Manufacturing and Supply Agreement, dated July 31, 2015, by and between the Registrant and Patheon UK Limited.
  10.2    Technical Transfer and Service Agreement, dated July 31, 2015, by and between the Registrant and Patheon UK Limited.
  10.3    First Amendment of Lease, dated July 13, 2015, by and between the Registrant and CIP II/RJK 10-20 BMR Owner, LLC.
  10.4    Credit and Security Agreement, dated August 4, 2015, by and between the Registrant and MidCap Financial Trust.
  31.1    Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.

 

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Exhibit

number

  

Description of document

  31.2    Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.
  32.1    Certification of the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  32.2    Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document

 

(1) Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the SEC on February 19, 2014.
(2) Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-193233), as amended.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    Flexion Therapeutics, Inc.
Date: November 9, 2015                 By:   /s/ Frederick W. Driscoll
      Frederick W. Driscoll
      Chief Financial Officer
      (Principal Financial Officer)

 

31

Exhibit 10.1

MANUFACTURING AND SUPPLY AGREEMENT


***Text Omitted and Filed Separately

with the Securities and Exchange Commission.

Confidential Treatment Requested

Under 17 C.F.R. Sections 200.80(b)(4)

and 240.24b-2.

MANUFACTURING AND SUPPLY AGREEMENT

This MANUFACTURING AND SUPPLY AGREEMENT (this “ Agreement ”) dated as of July 31, 2015 (the “ Effective Date ”) is made by and between Flexion Therapeutics, Inc., a Delaware corporation having its principal place of business at 10 Mall Road, Suite 301, Burlington, Massachusetts, United States (“ Flexion ”) and Patheon UK Limited, a company incorporated in England and Wales having its principal place of business at Kingfisher Drive, Covingham, Swindon, SN35BZ, United Kingdom (“ Patheon ”). Flexion, and Patheon are sometimes referred to herein individually as a “ Party ” and collectively as the “ Parties .”

RECITALS

WHEREAS, Flexion has a commercial interest in the Manufacture (as defined herein) and commercialization of FX006 drug product, an extended-release formulation of triamcinolone acetonide (TCA) which is manufactured using the Flexion Manufacturing Process (the “ Product ”);

WHEREAS, Patheon has expertise and experience in manufacturing and packaging pharmaceutical products and is interested in providing Manufacturing services to Flexion in connection with the Product;

WHEREAS, in anticipation of this Agreement and the goods and services that Patheon will supply hereunder, the Parties are executing an agreement pursuant to which Patheon would undertake certain technical transfer and construction services in order to validate and scale up Flexion’s technology package and prepare Patheon’s facilities for the Manufacture of the Product (the “ Technical Transfer Agreement ”); and

NOW, THEREFORE , in consideration of the foregoing, the mutual promises and covenants of the Parties contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto, intending to be legally bound, do hereby agree as follows:

ARTICLE I. DEFINITIONS

The following terms shall have the meanings set forth below. Unless the context indicates otherwise, the singular shall include the plural and the plural shall include the singular. Any term not defined hereunder shall have the meaning ascribed to such term in the Technical Transfer Agreement.

1.1 “ Additional Services ” means any services requested and approved by Flexion that supplement Patheon’s regular performance of the Services, as described in Schedule 2.1(a) .

1.2 “ Affiliate(s) ” means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. For the purposes of this Section 1.2 only, a Person will be regarded as in control of another Person if such Person owns, or directly or indirectly controls, more than 50% of the voting securities (or comparable equity interests) or other


ownership interests of the other Person, or if such Person directly or indirectly possesses the power to direct or cause the direction of the management or policies of the other Person, whether through the ownership of voting securities, by contract, or any other means whatsoever.

1.3 “ Agreed Delivery Date ” has the meaning set forth in Section 2.3(d).

1.4 “ Agreement ” has the meaning set forth in the Preamble hereto.

1.5 “ API ” means the active pharmaceutical ingredient Triamcinolone Acetonide, Micronised.

1.6 “ Applicable Law ” means applicable United States, Canadian, English and other foreign federal, state, and local laws, orders, rules, regulations, guidelines, standards, customs and ordinances, including, without limitation, those (to the extent they are applicable) of the FDA, Health Canada, the Medicines and Healthcare Products Regulatory Agency in the United Kingdom and other comparable foreign Regulatory Authorities, including the FDA Act.

1.7 “ Base Fee ” means the monthly fee paid by Flexion in consideration for the Services, as more specifically set forth in Schedule 2.1(a) of this Agreement. For the avoidance of doubt, Base Fees do not include Capital Expenditures (as defined in the Technical Transfer Agreement), Product Fees, Material Costs, or charges for Bill Back Items or Additional Services.

1.8 “ Bill Back Items ” means the items and services set forth in Schedule 2.1(a) that are used or necessary in connection with the Manufacture of the Products and which result in a nominal cost to Flexion.

1.8a “ Certificate of Analysis ” means a certificate evidencing the analytical tests conducted on a specific batch of Product or Material and setting forth, inter alia , the items tested, specifications, and test results.

1.9 “ Certificate of Compliance ” means a certificate stating that a specific batch of Product complies with the warranty set forth in Section 6.3.

1.11 “ Change of Control ” has the meaning set forth in Section 10.5A.

1.12 “ Claim ” has the meaning set forth in Section 9.3(a).

1.13 “ Control ” or “ Controlled ” means ownership or the right by a Party to assign or grant a license or sublicense under intellectual property rights to the other Party of the scope set forth herein, without breaching the terms of any agreement with a Third Party.

1.14 “ Diligent and Reasonable Steps ” has the meaning set forth in Section 6.4(a).

1.15 “ Deficiency Notice ” has the meaning set forth in Section 2.8(a).

 

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1.16 “ Disclosing Party ” has the meaning set forth in Section 1.90.

1.17 “ Discretionary Manufacturing Changes ” has the meaning set forth in Section 2.9(c).

1.18 “ Effective Date ” has the meaning set forth in the Preamble hereto

1.19 “ EMA ” means the European Medicines Agency.

1.20 “ Equipment ” means any equipment used in the Manufacture of the Product as more fully set forth in Section 2.9 herein.

1.21 “ Existing Flexion Intellectual Property ” has the meaning set forth in Section 5.1(a).

1.22 “ Existing Patheon Intellectual Property ” has the meaning set forth in Section 5.1(b).

1.23 “ Expected Yield Rate ” has the meaning set forth in Section 2.8(f).

1.24 “ Expert ” has the meaning set forth in Section 2.8(e).

1.25 “ Exploit ” means to make, have made, import, use, sell, offer for sale, receive or otherwise dispose of a product or process, including the research, development (including the conduct of clinical trials), registration, modification, enhancement, improvement, Manufacture, storage, formulation, optimization, export, transport, distribution, promotion, or marketing of a product or process.

1.26 “ Facility ” means the facility of Patheon located at Kingfisher Drive, Swindon, Wiltshire SN3 5BZ, United Kingdom, or such other facility approved in accordance with Section 3.3(a).

1.27 “ FDA ” means the United States Food and Drug Administration and any successor organization thereto and all agencies under its direct control.

1.28 “ FDA Act ” means the Federal Food, Drug, and Cosmetic Act, as amended.

1.29 “ FDA Approval Date ” means the date of receipt of FDA approval allowing for Patheon’s manufacturing, testing, and packaging for the Product from the Phase I Filling Space and Phase II Manufacturing Space.

1.30 “ Filing Party ” has the meaning set forth in Section 3.15(a).

1.31 “ Flexion ” has the meaning set forth in the Preamble hereto.

1.32 “ Flexion Assignors ” has the meaning set forth in Section 5.1(m).

 

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1.33 “ Flexion Improvements ” has the meaning set forth in Section 5.1(e)(ii).

1.34 “ Flexion Indemnified Parties ” has the meaning set forth in Section 9.2.

1.35 “ Flexion Manufacturing Equipment ” has the meaning set forth in Section 2.9(a).

1.36 “ Flexion Manufacturing Equipment Improvements ” has the meaning set forth in Section 5.1(e)(i).

1.37 “ Flexion’s Manufacturing Process ” means the proprietary process owned or Controlled by Flexion for Manufacturing the Product, as disclosed by Flexion to Patheon, and each intermediate of the Product, as established as of the Effective Date, including without limitation, as set forth in the investigational new drug application filed with the FDA, and, when applicable, as set forth in the NDA as may be filed with, and approved by, the FDA.

1.38 “ Flexion’s Manufacturing Process Improvements ” has the meaning set forth in Section 5.1(e)(i).

1.39 “ Flexion On Site Representative ” has the meaning set forth in Section 3.4.

1.40 “ Flexion Product Improvements ” has the meaning set forth in Section 5.1(e)(i).

1.41 “ Flexion Specification Improvements ” has the meaning set forth in Section 5.1(e)(i).

1.41a “ Flexion Specific Improvements ” has the meaning set forth in Section 5.1(e)(i)

1.42 “ Flexion-Supplied Materials ” has the meaning set forth in Section 2.2(a).

1.43 “ Forecast ” has the meaning set forth in Section 2.3(a).

1.44 “ GMP ” means the current good manufacturing practices applicable from time to time to the Manufacturing of the Product, or any intermediate of the Product, pursuant to Applicable Law, including those promulgated under the FDA Act at 21 C.F.R. (chapters 210 and 211), and those promulgated under EC Directive 2003/94/EC, together with the latest FDA and EMA guidance documents pertaining to manufacturing and quality control practice, all as updated, amended and revised from time to time.

1.45 “ Indemnification Claim Notice ” has the meaning set forth in Section 9.3(a).

1.46 “ Indemnified Party ” has the meaning set forth in Section 9.3(a).

 

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1.47 “ Indemnifying Party ” has the meaning set forth in Section 9.3(a).

1.48 “ Initial Draft ” has the meaning set forth in Section 3.15(b).

1.49 “ Initial Term ” has the meaning set forth in Section 8.1.

1.50 “ Key Personnel ” has the meaning set forth in Section 2.1(f).

1.51 “ Late Product ” has the meaning set forth in Section 2.7(b).

1.52 “ Letter Agreement ” means the Letter Agreement between the Parties dated 1 May 2015.

1.53 “ Long Term Forecast ” has the meaning set forth in Section 2.3(b).

1.54 “ Loss ” means any claims, lawsuits, losses, damages, liabilities, penalties, costs, and expenses (including reasonable attorneys’ fees and disbursements).

1.55 “ Maintenance ” means the maintenance of Equipment and Facilities in satisfactory operating condition, including the performance of systematic inspection and service of Equipment pursuant to the applicable Standard Operating Procedures of Patheon, as reviewed and agreed to by Flexion (the “Equipment Standard Operating Procedures”), or the manufacturer’s terms of operation and recommended procedures.

1.56 “ Make Good Costs ” has the meaning set forth in Section 8.3(e).

1.57 “ Manufacture ” and “ Manufacturing Services ” means the manufacturing, processing, formulating, filling, sterilization, packaging, labelling, storage, handling, and quality control testing of Materials or of the Product.

1.58 “ Manufacturing Suite IOQ ” means the completion of the Phase I Filling Space and Phase II Manufacturing Space, including without limitation, the installation, qualification and operational qualification of the Equipment in each of the Phase I Filling Space and the Phase II Manufacturing Space, including the computer systems, utilities and manufacturing area enabling the initiations of technical transfer activities, as agreed to by the Parties and indicated by the delivery by Patheon to Flexion of the interim IOQ report for the Phase I Filling Space and Phase II Manufacturing Space.

1.59 “ Manufacturing Services Termination Costs ” has the meaning set forth in Section 8.3(g).

1.60 “ Manufacturing Suite ” means the manufacturing suite at the Facility capable of Manufacturing the Product pursuant to Flexion’s Manufacturing Process, whose footprint is set forth in Schedule 1.60 , together with the areas identified in the plan attached as Schedule 1.60 as the areas for the bulk powder Manufacture and bulk vial filling, and, pursuant to the terms of Section 2.10, the Phase I Filling Space. The footprint of the Manufacturing Suite is diagrammatic in nature and is intended to generally depict the location

 

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and approximate size of current and future spaces allocated to Flexion. Such footprint may be amended during the Term of and pursuant to the Technical Transfer Agreement to be specifically adapted to the Manufacture of the Product, and the Parties shall agree upon the definitive footprint, taking into account parameters such as the exact design of the space, space classifications, code requirements, equipment, material, personnel, waste stream process flows, equipment sizing and utility requirements. For purposes of clarity, prior to the Phase III Manufacturing Suite Clearance Date (as defined in Section 2.10 herein), the definition of Manufacturing Suite shall include the Phase I Filling Space.

1.61 “ Marketing Authorization ” means an approved New Drug Application as defined in the FDA Act and the regulations promulgated thereunder, or any corresponding foreign application, registration, or certification, necessary or reasonably useful to market any Product in a country or regulatory jurisdiction other than the United States, including applicable pricing and reimbursement approvals, and all supplements and amendments thereto.

1.62 “ Materials ” means all API, excipients and processing aids, and processing, filling and packaging components, used in connection with the Manufacture of the Product and listed in Schedule 1.62 , as amended prior to Product launch, based on the Parties’ most recent usage experience rate, and to reflect changes to the Specifications.

1.64 “ Material Costs ” has the meaning set forth in Section 2.2(a).

1.65 “ Maximum Manufacturing Services Termination Costs ” has the meaning set forth in Section 8.3(g).

1.66 Not used.

1.67 “ NDA ” means the new drug application for a product, including the Product, requesting permission to place a drug on the market in accordance with 21 C.F.R. Part 314, and all supplements filed pursuant to the requirements of the FDA, including all documents, data, and other information filed concerning such product that are necessary for FDA approval to market such product in the Territory.

1.68 “ Non-Conforming Product ” means (a) a batch of Product that fails, or is aborted during processing; or (b) a Product Manufactured by Patheon that fails to […***…].

1.69 “ Non-Filing Party ” has the meaning set forth in Section 3.15(a).

1.69a “ Non-Specific Improvement ” has the meaning set forth in Section 5.1(e)(ii)

1.70 “ PAI ” has the meaning set forth in Section 3.8.

 

 

***Confidential Treatment Requested

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1.71 “ Party ” and “ Parties ” have the meanings set forth in the Preamble hereto.

1.72 “ Patheon ” has the meaning set forth in the Preamble hereto.

1.73 “ Patheon Assignors ” has the meaning set forth in Section 5.1(l).

1.74 “ Patheon Improvements ” has the meaning set forth in Section 5.1(f)(ii).

1.75 “ Patheon Indemnified Parties ” has the meaning set forth in Section 9.1.

1.76 “ Patheon Independent Manufacturing Equipment Improvements ” has the meaning set forth in Section 5.1(f)(i).

1.77 “ Patheon Manufacturing Equipment ” has the meaning set forth in Section 2.9(a)(ii).

1.78 “ Patheon Non-Applicable Inventions ” has the meaning set forth in Section 5.1(f)(ii).

1.79 “ Patheon Nonconformance ” has the meaning set forth in Section 2.8(c).

1.80 “ Patheon-Supplied Materials ” has the meaning set forth in Section 2.2(a).

1.81 Not used.

1.82 “ Person ” means an individual, sole proprietorship, partnership, limited partnership, limited liability partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, or other similar entity or organization, including a government or political subdivision, department, or agency of a government.

1.83 “ Phase I Filling Space ”, “ Phase II Manufacturing Space ” and “ Phase III Manufacturing Suite ” shall each be as represented in Schedule 1.60. After the Phase III Manufacturing Suite Clearance Date, the Phase II Manufacturing Space shall be incorporate into the Phase III Manufacturing Suite.

1.84 “ Phase I Filling Space Fee ” has the meaning set forth in Schedule 2.1(a) at section II.

1.85 “ Phase III Manufacturing Suite Clearance Date ” has the meaning set forth in section 2.10(d).

1.86 “ Phase III Option ” has the meaning set forth in section 2.10 (b).

 

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1.87 “ Product ” has the meaning set forth in the Recitals hereto in finished, unpackaged form, according to the Specifications, as the same may be amended from time to time.

1.88 “ Product Fee ” has the meaning set forth in Section 2.4.

1.89 “ Project Manager ” and “ Project Managers ” have the meaning set forth in Section 3.4.

1.90 “ Proprietary Information ” means any information disclosed hereunder by one Party (the “ Disclosing Party ”) to another Party (the “ Receiving Party ”) (whether disclosed in oral, written, electronic or visual form) that is non-public, confidential or proprietary including, without limitation, information relating to the Disclosing Party’s patent and trademark applications, process designs, process models, drawings, plans, designs, data, databases and extracts therefrom, formulae, methods, know-how and other intellectual property, its clients or client confidential information, finances, marketing, products and processes and all price quotations, manufacturing or professional service proposals and information relating to composition and proprietary technology. In addition, all analyses, compilations, studies, reports or other documents prepared by any Party’s directors, officers, employees, advisers, agents, consultants, subcontractors, service partners, professional advisors, or representatives (collectively, “ Representatives ”) containing the Proprietary Information will be deemed to be Proprietary Information.

1.91 “ Purchase Order ” means a written purchase order that sets forth (a) the quantities of each presentation of Product to be delivered by Patheon to Flexion, (b) the requested delivery dates therefor, and (c) the size of the vials and bulk packaging to be used for such Product.

1.92 “ Quality Agreement ” has the meaning set forth in Section 3.1.

1.94 “ Receiving Party ” has the meaning set forth in Section 1.90.

1.95 “ Regulatory Approval ” means any and all approvals (including pricing and reimbursement approvals), licenses, registrations, or authorizations of any Regulatory Authority necessary to Exploit the Product in any country in the Territory, including any (a) approval of a Product, Marketing Authorization and supplements and amendments thereto; (b) pre- and post-approval marketing authorizations (including any prerequisite Manufacturing approval or authorization related thereto); (c) labelling approval; and (d) technical, medical, and scientific licenses.

1.96 “ Regulatory Authority ” means any applicable supra-national, federal, national, regional, state, provincial, or local regulatory agencies, departments, bureaus, commissions, councils, or other government entities regulating or otherwise exercising authority with respect to the Exploitation of a Product in the Territory.

1.97 “ Regulatory Filings ” has the meaning set forth in Section 3.15.

 

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1.98 “ Regulatory Obligations ” has the meaning set forth in Section 3.15.

1.99 “ Remediation Period ” has the meaning set forth in Section 8.2(a)(iii).

1.100 “ Replacement Entity ” has the meaning set forth in Section 8.3(f).

1.101 “ Reports ” has the meaning set forth in Section 3.11.

1.102 “ Required Manufacturing Changes ” has the meaning set forth in Section 2.9(b).

1.103 “ Scheduled Production Date ” has the meaning set forth in Section 2.3(d).

1.104 “ Services ” means the (a) Manufacturing Services performed by Patheon under this Agreement and (b) the Transfer Services performed by Patheon pursuant to the Technical Transfer Agreement.

1.105 “ Shipment Costs ” has the meaning set forth in Section 2.8(c).

1.106 “ Specifications ” means the specifications for each presentation of Product ( i.e. , the dosage forms in Schedule 1.82 ) given by Flexion to Patheon relating to the specifications of the Materials; the manufacturing specifications, directions and processes; the storage requirements; all environmental, health and safety information for the Product including material safety data sheets and the finished Product specifications, specifications for bulk and primary packaging and shipping requirements for the Product, as amended, modified, or supplemented from time to time.

1.107 “ Steering Committee ” has the meaning set forth in the Technical Transfer Agreement.

1.108 “ Supplies ” means various consumables / disposables used in small quantities for gowning, cleaning of Equipment and Manufacturing Suite, and in quality control testing of Materials and Product.

1.109 “ Taxes ” means all forms of taxation and statutory, governmental, state, federal, provincial, local, government or municipal charges, duties, imposts, contributions, levies, withholding or liabilities wherever chargeable and whether of the United Kingdom or any other jurisdiction (including for the avoidance of doubt, national insurance contributions in the United Kingdom) and any penalty, fine, surcharge, interest, charge, charges or costs thereto.

1.110 “ Technical Transfer Agreement ” has the meaning set forth in the Recitals.

1.111 “ Term ” has the meaning set forth in Section 8.1.

 

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1.112 “ Territory ” means […***…] and other territories agreed by the Parties pursuant to Section 2.2(h) from time to time.

1.113 “ Third Party ” means a Person who is neither a Party nor an Affiliate of a Party.

1.114 “ Third Party Losses ” means Losses incurred as a result of claims brought by Third Parties.

1.115 “ Transfer Services ” has the meaning set forth in Section 1.64 of the Technical Transfer Agreement.

1.116 “ TUPE ” has the meaning set forth in Section 8.3(f).

1.117 “ VAT ” has the meaning set forth in Section 4.4(c).

1.118 “ Yield ” has the meaning set forth in Section 2.8(f).

1.119 “ Yield Reimbursement Payment ” has the meaning set forth in Section 2.8(f).

ARTICLE II. MANUFACTURING SERVICES

2.1 Supply Obligations .

(a) Subject to the terms and conditions hereof and in consideration for the payments set forth in Schedule 2.1(a) , Patheon shall provide the Manufacturing Services and shall supply the Product […***…] to Flexion. Flexion agrees to purchase from Patheon such quantities of Product as Flexion may order, in its discretion, in accordance with the terms herein during the Term.

(b) Pursuant to the Technical Transfer Agreement, Flexion will develop and Patheon will confirm Flexion’s Manufacturing Process. Flexion’s Manufacturing Process is the Proprietary Information of Flexion, as further clarified in Article V.

(c) Patheon shall Manufacture all Products delivered hereunder (i) in accordance with the Specifications, this Agreement, the Quality Agreement, and (ii) in compliance with GMP and all other Applicable Law.

(d) Patheon shall ensure that sufficient numbers of adequately educated and experienced staff are retained at the Facility in order to Manufacture evenly throughout the year the volumes of Product set out in the Forecast. Patheon shall perform all activities necessary to maintain a GMP compliant status of the

 

 

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manufacturing lines and areas of the Facility applicable to the Manufacture of the Product.

(e) Flexion reserves the right to request replacement of any personnel assigned by Patheon to perform the Services hereunder. If Patheon disagrees with such request and the Parties cannot reach resolution on Flexion’s request for replacement, such request will be discussed by the Steering Committee pursuant to the procedures set forth in Exhibit 2.7 of the Technology Transfer and Services Agreement.

(f) Patheon shall perform the Services under the direction of key personnel of Patheon to a project for the duration of the project (“ Key Personnel ”). Key Personnel include the Project Manager, Operational Manager, Quality Manager or other personnel reasonably agreed-to by the Parties. Patheon shall provide information on the qualifications and background of all proposed Key Personnel prior to such Key Personnel’s commencement of activities under this Agreement on Patheon’s behalf. Patheon will not remove Key Personnel without Flexion’s prior written consent (not to be unreasonably withheld, conditioned or delayed) except in the event of such Key Personnel’s promotion, resignation, incapacity or death, or termination for cause. Patheon will use commercially reasonable efforts to minimize turnover in Key Personnel, and will provide […***…] business days’ notice to Flexion, whenever practical, of any changes to the Key Personnel, at which point, both Parties shall discuss and reasonable agree on a suitable replacement.

2.2 Materials, Bill Back Items and Additional Services .

(a) All Materials necessary for the Manufacture of the Product are set forth in Schedule 1.62 . Patheon shall source all of the Materials set forth on Schedule 1.62 under the heading “Patheon Supplied Materials (“ Patheon-Supplied Materials ”), and such Materials will be invoiced to Flexion monthly at the time of purchase by Patheon, at cost plus an […***…]% handling fee, in accordance with the invoicing procedure set forth in ARTICLE IV (“ Material Costs ”). Flexion will purchase, and ship to Patheon in accordance with Schedule 1.62 under the heading “Flexion Supplied Materials” (the “ Flexion-Supplied Materials” ) unless otherwise agreed to by the Parties. Patheon shall store, handle, and protect the Materials with a reasonable level of care, which shall include taking all reasonable precautions to ensure that the Materials are not subject to contamination, deterioration, destruction, or theft. Patheon shall keep adequate records of its usage of the Materials during the Term.

(b) Flexion acknowledges that Patheon is required under GMP to follow certain verification and approval processes for all vendors used by

 

 

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Patheon in the procurement of Materials. In the event that Flexion requests Patheon to procure Materials from a vendor that is not currently verified by Patheon, Flexion will be liable for Patheon’s fees for the performance of the initial audit and verification activities by Patheon under this Section 2.2(b) as an Additional Service.

(c) Flexion will, at its sole cost and expense, deliver to Patheon the Flexion-Supplied Materials to the Facility DDP (Incoterms 2010) at no cost to Patheon at least […***…] days before the Scheduled Production Date, in sufficient quantities for Patheon to Manufacture the desired quantities of Product and to ship Product by the Agreed Delivery Date. If the Flexion-Supplied Materials are not received […***…] days before the Scheduled Production Date, Patheon may delay the shipment of Product for a period of time proportionate to such delay. All shipments of Flexion-Supplied Materials, if required, will be accompanied by Certificate(s) of Analysis from the Material manufacturer or Flexion, confirming its compliance with the Material’s specifications. Flexion will obtain the proper release of the Flexion-Supplied Materials from the applicable customs agency and/or Regulatory Authority. Flexion or Flexion’s designated broker will be the “Importer of Record” for Flexion-Supplied Materials imported to the Facility. Flexion-Supplied Materials will be held by Patheon on behalf of Flexion as set forth in this Agreement. Title to Flexion-Supplied Materials will at all times remain the property of Flexion. Any Flexion-Supplied Materials received by Patheon will only be used by Patheon to perform the Manufacturing Services or associated activities necessary to perform the Manufacturing Services (e.g. media fills or validation runs).

(d) Flexion and Patheon will agree upon a minimum inventory level of Patheon-Supplied Materials required to support the Manufacture of the Product based on the last Forecast received by Patheon from Flexion. Patheon will keep on hand all Materials necessary to support the Manufacture of the Product based on such agreed-upon minimum inventory levels.

(e) Patheon will provide sufficient storage capacity to support storage of the required quantity of Materials pursuant to Section 2.2 of this Agreement for up to the longer of […***…] or the amount of time set forth next to the applicable Material on Schedule 1.62 herein. Patheon will also provide sufficient storage capacity to support storage of Product for up to […***…] post Manufacture […***…]. Any additional storage, or storage of Materials (either Flexion-Supplied Materials or Patheon-Supplied Materials) or Product beyond the applicable period stated herein, will be subject to the mutual agreement of the Parties. For any such additional storage, Flexion will pay Patheon £[…***…] per pallet, per month for storing any Materials or Product. Storage of Materials or Product that contain controlled substances or require refrigeration will be charged at £[…***…] per pallet per month. Storage fees are subject to a one pallet minimum

 

 

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charge per month. […***…] will be liable for all risk or loss of damage to stored Materials or Product to the extent such damage was caused by […***…]’s, or its subcontractor’s or vendors’, […***…]. Patheon shall store the Product according to GMP, any applicable storage guidelines stipulated by Flexion and agreed by Patheon and the provisions under the Quality Agreement.

(f) Bill Back Items will be charged to Flexion at Patheon’s cost plus a […***…]% handling fee. Patheon shall invoice Flexion monthly for any Bill Back Items used in connection with the Manufacture of the Products during the preceding month in accordance with ARTICLE IV. Patheon may only invoice Bill Back Items that have been quoted to and approved in writing by Flexion’s Project Manager, or otherwise mutually agreed to by the Parties in advance.

(g) If Flexion is interested in having Patheon perform Additional Services, Flexion will provide Patheon with a written request containing sufficient detail to enable Patheon to provide Flexion with a quote and proposal to provide such Additional Services. Patheon may only invoice for Additional Services that have been quoted to and approved in writing by an authorized person of Flexion and that have been agreed in writing by the Parties in a Change of Scope Agreement. Where a rate for Additional Services has been specified in Schedule 2.1 (a), such rates are calculated as at 1 st  January, 2015. These fees will be adjusted on 1 st  January of each year (first review […***…]) to reflect any increase in the UK Consumer Price Index: All Items Index published by the Office for National Statistics (as published at www.ons.gov.uk, specific details are located at http://www.ons.gov.uk/ons/rel/cpi/consumer-price-indices during the previous 12 months (based on the average of the monthly changes over the 12-month period). Patheon shall invoice Flexion monthly for any Additional Services performed by Patheon during the preceding month in accordance with ARTICLE IV.

(h) If Flexion decides to have Patheon perform Manufacturing Services for the Product for a Territory outside the […***…], then Flexion will inform Patheon of the additional requirements for each new country and Patheon will prepare a quotation for consideration by Flexion of any additional costs for the Product destined for each new country. The agreed additional requirements and change over fees will be set out in a written amendment to this Agreement.

(i) Patheon-Supplied Materials .

(i) Patheon will purchase all Patheon-Supplied Materials. Flexion understands and acknowledges that Patheon will rely on Flexion’s Purchase Orders and Forecasts in ordering the Patheon-Supplied Materials required to meet the Purchase Orders. In addition, Flexion understands that to ensure an orderly

 

 

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supply of Patheon-Supplied Materials, Patheon may want to purchase Patheon-Supplied Materials in sufficient volumes to meet the production requirements for Products during part or all of the Forecast or to meet the production requirements of any longer period agreed to by Patheon and Flexion. Accordingly, Flexion authorizes Patheon to purchase Patheon-Supplied Materials to satisfy the Manufacturing Services requirements for Products for the first […***…] contemplated in the most recent Forecast. Patheon may make other purchases of Patheon-Supplied Materials to meet Manufacturing Services requirements for longer periods if agreed to in writing by the Parties. Flexion will give Patheon written authorization to order Patheon Supplied Materials for any launch quantities of Product request by Flexion which will be considered a Purchase Order when accepted by Patheon. Flexion will reimburse Patheon for any destruction costs, as mutually agreed to in good faith, of any Patheon-Supplied Material ordered by Patheon under Purchase Orders or under Section 2.2(i) that are not included in finished Products Manufactured for Flexion within […***…] after the forecasted month for which the purchases have been made (or for a longer period as the Parties may agree). If any non-expired Patheon-Supplied Materials are used in Products subsequently manufactured for Flexion, Flexion will receive credit for any costs of those Patheon-Supplied Materials previously paid to Patheon by Flexion.

2.3 Forecasting, Order, and Delivery of Products .

(a) No later than […***…] prior to the anticipated FDA Approval Date and thereafter at least […***…] prior to the […***…] of each […***…] during the Term, Flexion shall deliver to Patheon a written good faith […***…] month forecast, calculated by month, estimating the quantities of each presentation of Product that Flexion expects to purchase from Patheon during such period (each, a “ Forecast ”). If Patheon is unable to accommodate any portion of the Forecast, it will notify Flexion and the Parties will agree on any revisions to the Forecast. Flexion shall update the Forecast on or before the […***…] of each […***…] on a rolling forward basis. Flexion shall use commercially reasonable efforts to also update the Forecast prior to the next […***…] deadline if it determines that the volumes estimated in the most recent Forecast have changed by more than […***…] percent […***…]%). The most recent Forecast will prevail. Except as set forth in Section 2.3(c) below, each Forecast shall be non-binding and shall be used by Patheon for planning purposes only.

(b) Commencing on […***…], Flexion will give Patheon a written non-binding […***…]-year forecast for strategic purposes, of the volume of Product Flexion then anticipates to purchase from Patheon for each year during such period (the “ Long Term Forecast ”). The Long Term Forecast will thereafter be updated every six months (as of June 1 and December 1) during the

 

 

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Term. If Patheon is unable to accommodate any portion of the Long Term Forecast, it will notify Flexion and the Parties will agree on any revisions to the Long Term Forecast.

(c) […***…]. Flexion will issue Purchase Order(s) to purchase and, when accepted by Patheon, for Patheon to Manufacture and deliver the forecasted quantity or a quantity greater than the forecasted quantity of the Product for each such […***…] period, provided that the delivery lead time must be at least […***…] days from the date of Patheon’s acceptance of the Purchase Order pursuant to clause (d) below. The quantities of Products ordered in Purchase Orders will be firm and binding on Flexion and may not be reduced by Flexion. Unless otherwise stated herein, expedited Purchase Orders will be subject to additional fees.

(d) Patheon shall accept all Purchase Orders for Product that are issued consistent with the terms of this Agreement. Patheon shall accept in writing any Purchase Order by sending an acknowledgement to Flexion within […***…] business days of its receipt of the Purchase Order. The acknowledgement will include, subject to confirmation from Flexion, the delivery date for the Product ordered which shall be approximately […***…] days from the date of Patheon’s acceptance of the Purchase Order (“ Agreed Delivery Date ”) and the scheduled date of production for such Products (“ Scheduled Production Date ”) for the purposes of Section 2.2(c). The Agreed Delivery Date may be amended by agreement of the Parties or as set forth in Section 2.2(c). If Patheon fails to acknowledge receipt of a Purchase Order within the […***…] business day period, the Purchase Order will be deemed to have been accepted by Patheon.

(e) Patheon shall deliver Product to Flexion […***…] the Facility (as defined in Incoterms 2010) by the Agreed Delivery Date. All Product shall be packed for shipping in accordance with the Specifications. Title and risk of loss to Product shall pass to Flexion (or a designated Flexion Affiliate) […***…]. Each delivery of Product shall be accompanied by a Certificate of Analysis and a Certificate of Compliance and such other documents as may be required pursuant to the Quality Agreement. The costs of all freight, insurance, handling fees, taxes, and other costs associated with the shipment of Product, as well as export licenses, import license, and customs formalities for the import and export of goods will be borne by […***…]. Patheon shall endeavour to make all deliveries of Product hereunder utilizing stock rotation based on expiration dating, with Product expiring earliest delivered first, save that a failure to comply with this requirement shall not be grounds for Flexion to reject any Product. Flexion shall collect shipments reasonably promptly from the Facility following notification of availability for

 

 

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delivery from Patheon. Storage of Product will be as described in Section 2.2(e). Patheon will, in accordance with Flexion’s instructions and as agent for Flexion, at Flexion’s risk, arrange for shipping to be paid by Flexion. Flexion will arrange for insurance and will select the freight carrier used by Patheon to ship Products and may monitor Patheon’s shipping and freight practices as they pertain to this Agreement.

(f) If Flexion cancels any Purchase Order after receipt thereof by Patheon, Flexion will pay Patheon […***…]% of the Product Fee for the Purchase Order.

2.4 Product Fees . The purchase price for all Products Manufactured hereunder (the “ Product Fee ”) shall be as set forth on Schedule 2.1(a) . Patheon shall invoice Flexion for all quantities of Product Manufactured and ready for collection by Flexion not previously invoiced in accordance with Purchase Orders. All Product Fees will be due and payable in accordance with the invoicing procedures set forth in ARTICLE IV.

2.5 Base Fees . Patheon will invoice Flexion monthly in advance for the Base Fee and any Phase I Filling Space Fee set forth Schedule 2.1(a) . All Base Fees and Phase I Filling Space Fees will be due and payable in accordance with the invoicing procedures set forth in ARTICLE IV.

2.6 Product Fee Adjustment . The Parties shall use commercially reasonable efforts to reduce, through operating efficiencies, the cost of Manufacture of the Products during the Term and the benefits of such reduction in costs shall be shared equally by the Parties. The Product Fee stated herein is calculated as at the 1 st  January 2015. Starting on the […***…], the Product Fee shall be adjusted annually to reflect any increase in the UK Consumer Price Index: All Items Index published by the Office for National Statistics (as published at www.ons.gov.uk, specific details are located at http://www.ons.gov.uk/ons/rel/cpi/consumer-price-indices/) during the preceding twelve (12) months (based on the average of the monthly changes over the 12-month period). Schedule 2.1(a) shall be deemed amended pursuant to the terms hereof. The Product Fee is subject to adjustment if, after […***…] from the FDA Approval Date, (i) Flexion does not submit Purchase Orders for at least […***…] vials of Product per calendar year, in which case the Product Fee may increase by an amount reasonably sufficient for Patheon to absorb its increased costs, and (ii) Flexion submits Purchase Orders for more than […***…] vials of Product per calendar year, in which case the Product Fee may decrease for the volumes of Product exceeding […***…] vials per calendar year as reasonably agreed-on by the Parties in order to adjust for additional volume discounts and economies of scale.

 

 

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2.7 Failure or Inability to Supply Product .

(a) Patheon shall ensure that Product is Manufactured and delivered to Flexion on a timely basis consistent with the terms of this Agreement (including the Forecast and Purchase Order procedures set forth in Section 2.3). In the event that Patheon, at any time during the Term, shall have reason to believe that it will be unable to supply Flexion with the full quantity of Product forecasted to be ordered or actually ordered by Flexion in a timely manner and in conformity with the warranty set forth in Section 6.3 (whether by reason of force majeure or otherwise), Patheon shall notify Flexion thereof within […***…] business days. Promptly thereafter, the Parties shall meet to discuss how Flexion shall obtain such full quantity of conforming Product. Compliance by Patheon with this Section 2.7(a) shall not relieve Patheon of any other obligation or liability under this Agreement, including any obligation or liability under clause (b) below. If Patheon’s inability is partial, Patheon shall fulfill Purchase Orders with such quantities of Product as are available. In the event Patheon’s inability to meet Purchase Orders or forecasts is due to a shortage of production capacity in the Manufacturing Suite, Patheon shall in addition to the foregoing requirements, promptly notify Flexion of such shortage of production capacity and the estimated date such shortage of production capacity is to end.

(b) If Patheon fails to Manufacture the full quantity of Product specified in a Purchase Order by the Agreed Delivery Date and in conformity with the warranty set forth in Section 6.3 (and such failure is directly due to the acts or omissions of Patheon where such acts or omission does not constitute a force majeure event pursuant to the terms of Section 10.2) (“ Late Product ”), and Patheon is unable to cure such failure within […***…] days, in full and final settlement of such failure, Flexion, at its option, may (i) cancel the unfulfilled portion of such Purchase Order, in which event Flexion shall have no liability with respect to the portion of such Purchase Order so cancelled, or (ii) accept late delivery of all or any portion of the Product specified in such Purchase Order, in which event (A) Patheon shall pay all reasonable documented shipping costs for the expedited shipment of Product that are required in addition to the shipping costs for a non-expedited shipment (which shall be the responsibility of Flexion), and (B) the Product Fee otherwise payable by Flexion with respect to all Product delivered late but accepted by Flexion under such Purchase Order shall be reduced by […***…]% per day for each day of delay after such Agreed Delivery Date, but not to exceed in aggregate an amount equal to […***…]% of the Product Fees of the Product delivered late (i.e., […***…] days) per Purchase Order; provided that, sub-Section (ii) shall only apply after the Manufacture and delivery of the first […***…] batches of commercial Product (including validation batches) pursuant to this Agreement, following which, if the Parties agree that the Manufacturing process is sufficiently robust to allow the Product to be delivered in a timely manner, this sub-Section (ii)

 

 

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shall be implemented. Any Product which is delivered to Flexion with less than […***…] of expiry, assuming a product shelf life of […***…], shall be considered Non-Conforming Product subject the provisions of Section 2.8(c); provided that, if the Product shelf life is not […***…] (as set forth in the FDA approved label for the Product), the Parties shall mutually agree in good faith on the reasonably appropriate minimum amount of expiry a Product should have when delivered.

2.7 A. Batch Numbering and Expiration Dates : Each batch of the Product manufactured by Patheon will bear a unique lot number using Patheon batch numbering system. This number will be printed on the aluminium cap of the vial and will appear on all documents relating to the particular batch of Product and shall identify the date of manufacture for the batch of Product. Patheon will calculate the expiration date for the Product for each batch by adding the expiration period of the Product supplied by Flexion to the date of manufacture of each batch.

2.8 Non-Conforming Product .

(a) In the event Patheon discovers a potential Non-Conforming Product prior to delivery of such Product to Flexion, Patheon shall provide written notice to Flexion as soon as practicable describing in detail the Non-Conforming Product and the potential cause of such Non-Conforming Product. Flexion (or its shipping carrier) will perform a customary inspection of the Products Manufactured by Patheon on receipt. For the avoidance of doubt, such inspection will be limited to a visual inspection of the shipment-ready packaged Products (and associated shipping documentation) and Flexion will not be obliged to perform any testing of the Product. Flexion shall within (i) […***…] days after delivery thereof by Patheon or (ii) within […***…] days after Flexion discovers or is informed of a discovery of nonconformity that could not reasonably have been detected by the customary inspection on delivery (but not after the expiration date of the Product), give Patheon notice of any Non-Conforming Product (including a sample of such Non-Conforming Product, if applicable) (a “ Deficiency Notice ”). Subject to Flexion’s rights under 3.10 and 3.12, should Flexion fail to give Patheon the Deficiency Notice within the applicable […***…] day period, then the delivery will be deemed to have been accepted by Flexion on the […***…] day after delivery or discovery, as applicable. Patheon shall have no liability under this Section 2.8 for Nonconforming Product for which it has not received a Deficiency Notice within such applicable […***…] day period.

(b) Patheon shall conduct a root-cause analysis to verify whether a Product constitutes a Non-Conforming Product and, if found, to determine the cause of such Non-Conforming Product (including by undertaking an appropriate evaluation of a Non-Conforming Product sample, as applicable).

 

 

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Flexion shall provide reasonable cooperation to Patheon in connection with any such root-cause analysis. Patheon shall notify Flexion in writing of its determination regarding whether the Product constitutes a Non-Conforming Product within […***…] days after either discovery of the Non-Conforming Product or receipt of such Deficiency Notice from Flexion, as applicable. Such notification shall include Patheon’s good faith determination of the cause of the Non-Conforming Product.

(c) “ Patheon Nonconformance ” shall mean (i) Patheon’s failure to perform […***…] pursuant to Section […***…], and (ii) Patheon’s failure to provide the […***…] in accordance with the […***…]. In the event of a Non-Conforming Product caused by a Patheon Nonconformance, Patheon, at Flexion’s option, promptly shall (x) supply Flexion with a conforming quantity of Product at Patheon’s expense (subject to Flexion supplying Patheon with Flexion-Supplied Materials and Patheon reimbursing Flexion for the actual costs of […***…]) and reimburse Flexion for any incurred shipment costs in the event that the Non-Conforming Product was shipped from the Facility at the time of the discovery of the Patheon Nonconformance (“ Shipment Costs ”)); or (y) reimburse Flexion for the applicable Product Fee (including the cost of any Patheon-Supplied Materials), the actual costs of the […***…] and Shipment Costs with respect to such Non-Conforming Product (in each case, to the extent already paid by Flexion). For each of (x) and (y) above, Patheon’s obligation to reimburse […***…] shall be subject to the limitation of liability in Section 9.5(a) herein but Section 9.5(a) (1) shall not apply in relation to the internal expenses incurred by Patheon to supply conforming Product to Flexion pursuant to (x), including the cost of any Patheon-Supplied Materials or any Shipment Costs, and (2) shall not apply to the reimbursement of the Product Fee pursuant to (y). For the avoidance of doubt, Flexion will not be liable for Product Fees for Non-Conforming Product caused by a Patheon Nonconformance.

(d) If the Non-Conforming Product was caused by any reason other than a Patheon Nonconformance or the cause of such non-conformance is not due to Patheon Nonconformance (where applicable, as may be determined by an Expert in accordance with 2.8(e), Flexion shall be liable for all expected Product Fees for such Non-Conforming Product, to the extent not already paid.

(e) If, following the root-cause analysis described in Section 2.8(b), Patheon notifies Flexion that it does not believe the Product is a Non-Conforming Product, or if the Parties disagree as to the cause of a Non-Conforming Product, the Parties shall first submit such dispute to the Project Managers for prompt resolution. If the Project Managers cannot resolve the dispute, the Parties

 

 

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shall submit the dispute to an independent expert or (if mutually agreed to by the Parties ) a testing lab, each as agreed by the Parties (a “ Expert ”) for evaluation, provided that both Parties shall be entitled to observe and obtain copies of all results of such evaluation. The Expert shall determine (i) whether the Product is a Non-Conforming Product and (ii) the cause of the Non-Conforming Product; provided that, if the cause of the Non-Conforming Product is undeterminable the Expert shall give an opinion as to the likely cause. Both Parties shall cooperate with the Expert’s reasonable requests for assistance in connection with its evaluation hereunder. The findings of the Expert shall be binding on the Parties, absent fraud or manifest error. The expenses of the Expert shall be borne (x) by Patheon if the testing confirms the Non-Conforming Product and the cause or likely cause is found to be a Patheon Nonconformance; (y) by Flexion if the testing confirms the Non-Conforming Product and the cause or likely cause is found not to be a Patheon Nonconformance or the cause or likely cause of such non-conformance is not identifiable; and (z) by the Party stating the Product was Non-Conforming in the event the testing concludes that the Product meets the warranty set forth in Section 6.3. Costs of dealing with Product Complaints and Inquiries will be dealt with in accordance with Section 3.10. Costs of recalls will be dealt with in accordance with Section 3.12. Patheon shall have no liability for any Non-conforming Product unless such Non-conforming Product is identified as being due to a Patheon Nonconformance (where applicable, as may be determined by an Expert in accordance with 2.8(e).

(f) During its performance of the Manufacturing Services, Patheon is expected to produce a certain percentage of saleable batches of Product (the “ Yield ”). For the avoidance of doubt, Nonconforming Product arising from anything other than a Patheon Nonconformance is treated as good and saleable Product for the purposes of this Section 2.8(f). The Parties shall calculate and mutually agree on the expected Yield after each anniversary of the initial batch of commercial Manufacture of Product and based on at least […***…] batches of Product (the “ Expected Yield Rate ”). In the event the actual Yield in any calendar year is more than […***…]% lower than the then-current Expected Yield Rate for such calendar year, (i) Patheon and Flexion will engage in good faith discussions to agree to a remediation plan describing the steps to be taken to achieve the then-current Expected Yield Rate and (ii) Patheon will reimburse Flexion for […***…] used by Patheon as a result of Patheon’s failure to meet the Expected Yield Rate in such batches (i.e., a pro-rated refund of […***…] paid by Flexion and/or reimbursement to Flexion for the costs of any […***…]) subject to the limitation of liability in Section 9.5(a) (the “ Yield Reimbursement Payment ”). In the event the actual Yield in any calendar year is more than […***…]% greater than the then-current Expected Yield Rate for such calendar year, Patheon shall be entitled to reduce any Yield Reimbursement Payment to be made in the next calendar year by an amount equal to the excess Materials that would have been

 

 

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used by Patheon if the Yield for such calendar year was equal to the then-current Expected Yield Rate in such batches.

2.9 Equipment and Amendment of Product Specifications, Manufacturing Process, Equipment and Formulation .

(a) Equipment.

(i) “ Flexion Manufacturing Equipment ” shall mean process equipment necessary to Manufacture the bulk Product and shall consist of equipment for the bulk Manufacturing, vial preparation, fill/finish, and in-process control testing of the Product and its intermediates as more fully set forth on Schedule 2.9 attached hereto which must comply with all EU mandatory requirements including without limitation, Supply of Machinery (Safety) Regulations 2008 (UK Regulations, Secondary UK Legislation), Electrical equipment of machines (General requirements BS EN 60204-1:2006+A1:2009) (British Product Standards), Machinery Directive 2006/42/EC (European Union Directive), Low Voltage Directive (LVD) 2006/95/EC (European Union Directive), and Electromagnetic Compatibility (EMC) Directive 2004/108/EC (European Union Directive).

(ii) “ Patheon Manufacturing Equipment ” shall mean any equipment, other than the Flexion Manufacturing Equipment, necessary to Manufacture the Product including as more fully set forth in Schedule 2.9 attached hereto, waste handling systems and all building infrastructure and any and all improvements or additions made thereto, as approved in writing by Flexion.

(iii) Patheon, acting as Flexion’s agent, shall purchase the Flexion Manufacturing Equipment on Flexion’s behalf and pursuant to Flexion’s written instruction. The inclusion of items of Flexion Manufacturing Equipment in Schedule 2.9, as may be amended by agreement from time to time, shall constitute written instruction to purchase. Title to all Flexion Manufacturing Equipment will be held by Flexion unless otherwise set forth in Schedule 2.9 . Title to all Patheon Manufacturing Equipment will be held by Patheon.

(iv) Patheon is authorized to use the Flexion Manufacturing Equipment solely for the purposes of performing the Manufacturing Services for Flexion.

(v) During the Term, Flexion shall be responsible for additions and replacement cost of any Flexion Manufacturing Equipment and Patheon Manufacturing Equipment.

(vi) During the Term, Patheon shall, at its sole cost and expense, subject to this subsection (vi), provide all Maintenance for the Equipment and Facilities. Notwithstanding the foregoing, with respect to the Flexion Manufacturing Equipment and Patheon Manufacturing Equipment, Maintenance does not include (A) the cost of spare parts, (B) Equipment breakdowns caused by any reason outside of Patheon’s reasonable control (other than breakdowns caused

 

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by Patheon’s negligence or failure to maintain the Equipment in accordance with the applicable Equipment Standard Operating Procedures of Patheon or the manufacturer’s terms of operation and recommended procedures), or (C) specialized maintenance services not within Patheon’s technical expertise or that requires specialist equipment, in each case where Patheon is required to utilize a Third Party contractor. Patheon’s costs associated with such spare parts and Third Party contractors will be reimbursed by Flexion as a Bill Back Item. Patheon shall not be liable for ordinary wear and tear of the Flexion Manufacturing Equipment or Patheon Manufacturing Equipment; Patheon shall only be liable for the repair or replacement of any damage caused to such Equipment where such damage arises due to its negligence or willful misconduct or its failure to maintain Equipment pursuant the applicable Equipment Standard Operating Procedures of Patheon or the manufacturer’s terms of operation and recommended procedures. Throughout the Term of this Agreement, Patheon shall maintain property insurance on Flexion Manufacturing Equipment in the amount equal to the replacement value of such Equipment.

(b) For changes to the Specifications, Quality Agreement, Flexion’s Manufacturing Process, the Equipment, the Services to be provided pursuant hereto or the formulation of the Product that are required by Applicable Law (collectively, “Required Manufacturing Changes ”), Patheon and Flexion shall cooperate to promptly make such changes within the required timeline.

(c) For changes to the Specifications, Quality Agreement, Flexion’s Manufacturing Process, the Equipment, the Services to be provided hereto or the formulation of the Product that are not Required Manufacturing Changes (collectively, “ Discretionary Manufacturing Changes ”), Patheon and Flexion must each agree to any Discretionary Manufacturing Changes and shall cooperate in making such changes, and each agrees that it shall not unreasonably withhold, condition or delay its consent to such Discretionary Manufacturing Changes.

(d) Notwithstanding the foregoing, all internal and external costs, including, without limitation, costs of obsolete Materials, work-in-process and Product (i) associated with Required Manufacturing Changes shall be borne by Flexion, and (ii) all such costs associated with Discretionary Manufacturing Changes shall be agreed between the Parties; provided that, in each case, all such costs shall be commensurate with costs common in the industry for the types of changes being made.

(e) In the event that Flexion changes the Specifications, Quality Agreement, Flexion’s Manufacturing Process, the Equipment, the Services to be provided hereto or the formulation of the Product, or consents to any change by Patheon, Patheon shall provide to Flexion at Flexion’s cost as an Additional Service any such documentation or other information with respect thereto as they relate to the Manufacturing Services as Flexion may reasonably request in order to obtain or maintain any Regulatory Approval or comply with GMP or other Applicable Law.

 

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2.10 Phase I Filling Space Option .

(a) Prior to the Phase III Manufacturing Suite Clearance Date, Patheon shall provide the Manufacturing Services utilizing the Phase I Filling Space and Phase II Manufacturing Space. During this period, the Phase I Filling Space Fee set forth in Schedule 2.1(a ) shall be payable if a period of […***…] has elapsed after the date on which Flexion submitted for approval to the FDA or other applicable Regulatory Authority for the Manufacture of Product in the Phase III Manufacturing Suite for commercial sale in the Territory. The Phase I Filling Space Fee shall cease to be payable on the Phase III Manufacturing Suite Clearance Date unless Flexion exercises the Phase I Option.

(b) After the Phase III Manufacturing Suite Clearance Date, (1) Patheon will provide the Manufacturing Services set forth herein utilizing the Phase II Manufacturing Space and Phase III Manufacturing Suite and (2) Flexion shall have the option to elect to have Patheon continue to provide the Manufacturing Services utilizing the Phase I Filling Space for all or any portion of the remaining Term (the “ Phase I Option ”), provided that, (i) Flexion pays the Phase I Filling Space Fee set forth in Schedule 2.1(a ) commencing after election of the Phase I Option, and (ii) the Phase I Option shall cease to be applicable if Flexion does not exercise the Phase I Option within […***…] from Patheon’s notice to Flexion that […***…]. After the Phase III Manufacturing Suite Clearance Date, Patheon shall have no obligation to provide the Manufacturing Services utilizing the Phase I Filling Space unless Flexion has exercised the Phase I Option in accordance with this Section 2.10(b).

(c) The extent of the use of the Phase I Filling Space for the Manufacturing Services shall be at Flexion’s sole discretion both prior to and after the Phase III Manufacturing Suite Clearance Date except that the Parties acknowledge that the Phase I Filling Space will […***…] after the Phase III Manufacturing Suite Clearance Date. The Parties shall discuss and agree […***…] in good faith but any associated costs or fees would be payable by […***…].

(d) For purposes of this Section 2.10, the “ Phase III Manufacturing Suite Clearance Date ” shall mean the date upon which, in Flexion’s sole discretion, the FDA or other applicable Regulatory Authority, has approved or will allow the Product to be Manufactured in the Phase III Manufacturing Suite for commercial sale in the applicable Territory.

 

 

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ARTICLE III. REGULATORY, ACCESS, AND OTHER MATTERS

3.1 Quality Agreement . Within […***…] of the Effective Date, the Parties shall enter into a mutually agreed upon quality agreement (“ Quality Agreement ”). If the is any inconsistency between this Agreement and the Quality Agreement, the terms of the Quality Agreement shall control solely with respect to quality issues, and this Agreement shall control with respect to all other issues.

3.2 Release . All Product shall be released in accordance with the terms of the Quality Agreement.

3.3 Maintenance of Facility .

(a) Patheon shall Manufacture the Product […***…] at the Facility, unless Flexion has granted prior written consent to Manufacture the Product at any other facility, such consent to be granted by Flexion in its sole discretion.

(b) Subject to Section 2.9(b)-(d), Patheon shall ensure that any and all necessary licenses, registrations, and Regulatory Authority approvals have been obtained in connection with the Facility and Equipment used in connection with the Manufacture of the Product by Patheon.

(c) Subject to Section 2.9, Patheon shall maintain the Facility and Equipment in a state of repair and operating efficiency consistent with the requirements of the Specifications, the Regulatory Approvals, Flexion’s Manufacturing Process, GMP, and all other Applicable Law. Prior to each use of Equipment in Manufacturing the Product, Patheon shall ensure that such Equipment is cleaned and consistent with any procedures reasonably established by Flexion and notified to Patheon, the Specifications, the Regulatory Approvals, Flexion’s Manufacturing Process, GMP, and all other Applicable Law. Without limitation of the foregoing, Patheon agrees to implement, in connection with the Manufacture of the Product, quality assurance and quality control procedures, including validation protocols and process change procedures that are reasonably satisfactory to Flexion.

(d) Patheon shall maintain in the Facility an adequate GMP and temperature controlled area for the Product, all intermediates thereof, and Materials used in Manufacturing the Product in accordance with the Specifications, the Regulatory Approvals, Flexion’s Manufacturing Process, any risk mitigation plan, the Quality Agreement, GMP, and all Applicable Law. All Product, intermediates and Materials (as applicable) shall be held by Patheon in a GMP and temperature controlled area (on a separate pallet and SAP reference from other products) until delivery to Flexion.

 

 

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(e) Patheon shall only use qualified disposal services or sites that have appropriate environmental and operating permits and are in compliance with the Quality Agreement and Applicable Law.

3.4 Flexion On Site Representatives; Project Managers . For so long as Patheon is obliged to Manufacture and supply the Products for Flexion, Flexion shall have the right at all times throughout the Term to have […***…] representatives present (or other number as reasonably requested by Flexion after discussion by the members of the Steering Committee) (each, a “ Flexion On Site Representative ”) in that portion of Patheon’s Manufacturing facilities that is being used to Manufacture the Product or store Materials to observe the procedures and processes used to Manufacture the Product. Subject to the following sentence, such representatives shall have full access to the Manufacturing Suite and to all non-financial records that relate to the Product, the Materials and Bill Back Items. Patheon shall provide reasonable (semi-permanent) on-site accommodations at the Facility for the Flexion On Site Representatives ( e.g. , office space). For the avoidance of doubt, the term “non-financial records” as used in this Agreement does not include the Reports (defined in Section 3.11 below). Flexion On Site Representatives shall be appropriately trained by Flexion (e.g. GMP training) and shall observe at all times Patheon’s policies and procedures (as amended from time-to-time) as they pertain to the Facility, including policies relating to health and safety and compliance with GMP, and comply with all reasonable directions of Patheon in relation to the same; provided that Flexion is given notice of such policies and given a reasonable period of time to review and implement such policies. Patheon may refuse or limit in its sole discretion at any time admission to the Facility by any Flexion On Site Representative who fails to observe such policies or comply with such reasonable directions. For the avoidance of doubt, Flexion On Site Representatives shall have (i) no management authority over any Patheon employee and (ii) no authority to conclude contracts on behalf of Flexion. Patheon and Flexion will each appoint a project manager (each, a “ Project Manager ” and, together, the “ Project Managers ”), who will meet as needed to resolve any issues or problems arising in the performance of this Agreement. Flexion’s Project Manager may be one of the Flexion On Site Representatives.

3.5 Notification of Regulatory Inspections . Patheon shall notify Flexion by telephone within […***…], and in writing within […***…], after learning of any proposed or unannounced visit or inspection of any part of the Facility by any Regulatory Authority, including the Occupational Safety and Health Administration or any equivalent governmental agencies of the country of Manufacture, and shall permit Flexion or its agents to be present at the Facility to support Patheon during such visit or inspection if it, directly or indirectly relates to the Product or Manufacturing Suite or may reasonably be expected to adversely affect the Product or the Manufacturing Suite. For the avoidance of doubt the responsibility for conducting the inspection rests with Patheon. Flexion personnel will be permitted to take part in the inspection where this participation is directly requested either by the authorized agent of the Regulatory Authority or by Patheon. Patheon shall provide to Flexion in so far as it, directly or indirectly, affects the Product or the Manufacturing Suite or may reasonably be expected to adversely affect the Product or the

 

 

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Manufacturing Suite, either a copy of any report and other written communications received from such Regulatory Authority in connection with any visit or inspection, including the Form 483 observations and responses or any equivalent form under Applicable Law. Such copy or summary shall be provided to Flexion within […***…] business days of Patheon’s receipt thereof (and may be redacted as Patheon acting reasonably deems necessary to protect the confidentiality of matters not affecting, or not reasonably likely to affect, the Product or the Manufacturing Suite which are confidential to Patheon or to other clients of Patheon). Flexion shall have the right to review and comment on any communications with such Regulatory Authority pertaining to such inspection as set forth in Section 3.15.

3.6 Manufacturing Records . Patheon shall maintain, or cause to be maintained, (a) all records necessary to comply with GMP and all other Applicable Law relating to the Manufacture of Product, (b) all Manufacturing records, standard operating procedures, equipment log books, batch records, laboratory notebooks, and all raw data relating to the Manufacturing of the Product, and (c) such other records as Flexion may reasonably require in order to ensure compliance by Patheon with the terms of this Agreement. The template, form and style of all records referred to herein are the exclusive property of Patheon; Flexion Proprietary Information and all Product-specific related information contained in these records shall be deemed Proprietary Information of Flexion and be retained for such period as may be required by GMP and all other Applicable Law or for such longer period as Flexion may reasonably require.

3.7 Compliance with Applicable Laws . Patheon shall comply and shall cause each of subcontractors and its Materials and Bill Back Items suppliers to comply with the Quality Agreement, GMP and Applicable Law in carrying out the Manufacturing of the Product and its other duties and obligations under this Agreement. Should during the Term of this Agreement a change or changes in Applicable Law lead to Patheon (a) providing services not originally contemplated by Patheon, or (b) incurring increased costs in order to comply with said change or changes, any such services or costs (to the extent pertaining to the Product or related to Flexion’s Manufacturing Process or Flexion Manufacturing Equipment) shall constitute an Additional Service subject to mutual written agreement of the Parties.

3.8 Compliance Audits . Flexion and its designated representatives shall have the right to audit all applicable non-financial records of Patheon for the purpose of determining Patheon’s compliance with the obligations set forth in this Agreement and the Technical Transfer Agreement, including Sections 2.2(a) and 6.2 of this Agreement, and the terms of any Purchase Order. Such audit right shall include the right to inspect: (a) the Materials used in the Manufacture of the Product, (b) the holding facilities for such Materials and Product, (c) the Equipment used in the Manufacture of the Product, (d) all non-financial records relating to the Manufacturing Suite and the Manufacturing of the Product (subject to any other restrictions set forth in this Agreement) and (e) all other documentation set forth in the Quality Agreement. Flexion shall provide Patheon with reasonable prior advance notice of its intention to conduct such audit and the Parties will determine a mutually agreeable date for such audit.

 

 

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Flexion shall include no more than […***…] of Flexion’s representatives in each such audit, with each such audit lasting no more than […***…] days without Patheon’s prior written consent. Flexion may exercise its audit rights under this Section 3.8 no more than […***…] per calendar year; provided that, in the event any of the following circumstances arise, Flexion may elect and Patheon shall permit Flexion to conduct additional audits in a timely manner: (i) where there is the occurrence of a condition or event relating to the Materials or any Product which constitutes a serious health risk; (ii) where either Party has received correspondence or a report from a Regulatory Authority pointing out a deficiency in the Product by or on behalf of Patheon; (iii) where the Specifications have not been complied with or there is otherwise evidence that compliance with the Specifications is at risk; or (iv) in the event of a recall related to the Product. The Steering Committee will discuss the findings of any audit conducted by Flexion under this Section 3.8 and shall mutually agree upon a plan to remedy any issues identified by Flexion in such audit and Patheon shall use commercially reasonable efforts to implement such plan in a timely manner. Patheon will support the first Product approval, including its inspection if required, of the FDA or equivalent regulatory launch for other jurisdictions (where applicable) (a “ PAI ”) (including one mock-readiness review and efforts conducted with Flexion representatives in advance of such inspection). Patheon will be prepared for the successful completion of the PAI with respect to the Manufacturing of the Product at the Facility a minimum of […***…] in advance of the anticipated date of the PAI and Patheon will cooperate with Flexion to prepare for and to complete the PAI in accordance with guidelines and requirements set forth by the applicable Regulatory Authority. Additional support (including, without limitation, subsequent regulatory launches or Product approval inspections/resulting reports for other jurisdictions) will be subject to additional fees.

3.9 Inventory Reviews . Without limiting the foregoing, Flexion shall have the right, with Patheon’s assistance, to conduct an annual inventory count of the Materials and of the Products. Following an audit or inventory, Flexion may discuss its observations and conclusions with Patheon, and Patheon shall promptly implement such corrective actions after notification thereof by Flexion. In the event the Parties are unable to agree upon whether or not corrective actions are necessary, such dispute shall be resolved pursuant to the terms of Section 10.9.

3.10 Product Inquiries and Complaints .

(a) With respect to Products Manufactured by Patheon, each Party will promptly (as may be further defined in the Quality Agreement) submit to the other Party any Product safety and efficacy inquiries, Product quality complaints, and adverse drug event reports received by such Party, together with all available evidence and other information relating thereto, in accordance with procedures to be agreed upon by the Parties. Except as otherwise required by, or to comply with, Applicable Law or the terms of this Agreement, Flexion, as the Party holding the applicable Regulatory Approval, will be responsible for investigating

 

 

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and responding to all such inquiries, complaints, and adverse events regarding the Product, and reporting to the FDA or any other Regulatory Authority.

(b) Pursuant to a reported complaint or adverse drug event pertaining to the Products Manufactured by Patheon, if the nature of the reported complaint or adverse drug event requires testing, Patheon will, upon Flexion’s request and approval, perform analytical testing of corresponding Product complaint or retention samples and provide the results thereto to Flexion as soon as reasonably practicable, but no later than […***…] days after Flexion’s request. Such testing shall be performed using approved testing procedures as set forth in the applicable Regulatory Approval or the Quality Agreement. If such analytical testing concludes that the reported complaint or adverse drug event was the result of a Patheon Nonconformance, Patheon shall reimburse Flexion for […***…] associated with such complaint or adverse drug event and incurred by Flexion with respect to such nonconforming Product, including […***…]. Costs of recalls will be dealt with in accordance with Section 3.12. If such analytical testing concludes that the reported complaint or adverse drug event was not the result of a Patheon Nonconformance, Flexion shall compensate Patheon for all costs associated with such complaint or adverse drug event and incurred by Patheon with respect to such nonconforming Product, including costs of recalls, market withdrawals, returns, and destruction.

(c) If the Parties disagree as to which Party is responsible, Patheon and Flexion representatives shall attempt to resolve such dispute. If the representatives cannot resolve such dispute within […***…] days, the retention samples shall be submitted by Patheon and Flexion to an Expert and Section 2.8 shall apply.

3.11 Reports . Prior to the start of Patheon’s commercial Manufacture of the Product (or as reasonably requested by Flexion prior to such date), Patheon and Flexion will work together in good faith to develop and agree upon Patheon’s ordinary course reporting obligations. Such reports (“ Reports ”) will include those reports as necessary for Flexion to (a) manage Product inventory; (b) manage its financial close and reporting; (c) monitor on-going Product and process performance for its internal analysis and reporting; and (d) comply with Applicable Law. Patheon will deliver such reports via electronic delivery methods, including by utilizing Patheon’s existing IT systems as practicable.

3.12 Product Recalls .

(a) In the event (i) any Regulatory Authority issues a request, directive, or order that Product be recalled, (ii) a court of competent jurisdiction orders such a recall, or (iii) Flexion as holder of the applicable Regulatory Approval shall reasonably determine that Product should be recalled, withdrawn, or a field

 

 

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correction issued, the Parties shall take all appropriate corrective actions, and shall cooperate in the investigations surrounding the recall. In the event that Flexion determines that Product should be recalled, to the extent reasonably possible, Flexion shall consult with Patheon prior to taking any corrective actions. In the event of any Product recall, withdrawal, or field correction resulting from a Patheon Nonconformance, Patheon shall bear […***…] associated with such recall, withdrawal, or field correction, which shall include […***…] of the recalled Product and all other […***…] incurred in connection with such recall, plus […***…] incurred by Flexion with respect to such Product. In all other circumstances, all costs associated with any Product recall, withdrawal, or field correction shall be borne by Flexion.

(b) If there is any dispute concerning which Party’s acts or omissions gave rise to such recall of Product, Patheon and Flexion representatives shall attempt to resolve such dispute. If the representatives cannot resolve such dispute within […***…] days, the matter shall be submitted by Patheon and Flexion to an Expert and Section 2.8 shall apply.

3.13 Payment Audits .

(a) Upon […***…] days’ prior written notice, Flexion may audit any Third Party invoices subsequently invoiced to Flexion pertaining to Patheon’s provision of Equipment, Materials, Bill Back Items and Additional Services hereunder; provided, however, that Flexion will not be entitled to more than one audit during any […***…] period. Such audits will be conducted during normal business hours, without undue disruption to Patheon’s business, and may be conducted by Flexion, or by an independent public accounting firm designated by Flexion who is bound by confidentiality obligations at least as stringent as those set forth in the Confidentiality Agreement. Except as hereinafter set forth, Flexion will bear the full cost of the performance of any such audit.

(b) If, as a result of any audit described in Section 3.13(a), it is shown that the payments or credits from one Party to the other under this Agreement with respect to the period of time audited were less than or more than the amount that should have been paid or credited, then the Parties will reconcile the amounts owed by each Party to the other. In addition, if such audit demonstrates that Patheon has overcharged Flexion hereunder by more than […***…]% for the period audited, then Patheon will also reimburse Flexion for its documented reasonable out-of-pocket costs and expenses incurred in connection with the audit.

 

 

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3.14 Subcontractors . Prior to subcontracting any of Patheon’s obligations hereunder, Patheon will notify Flexion (1) in advance of engaging a proposed subcontractor that directly relates to the Manufacture of the Product and will obtain Flexion’s prior written approval of each such subcontractor, and (2) within six (6) months, of all other subcontractors so engaged. The terms of any subcontract directly relating to the Manufacture of the Product will be in writing and will be consistent with this Agreement, including (i) the confidentiality obligations set forth in Article VII, (ii) the representations and warranties of Patheon in Section 6.3, and (iii) compliance with Applicable Law as required hereunder. No subcontracting will release Patheon from its responsibility for its obligations under this Agreement and Patheon will be responsible for the work and activities of each such subcontractor as they relate to performance of Patheon’s obligations under this Agreement, including compliance with the terms of this Agreement.

3.15 Regulatory Filing Obligations . Except as otherwise set forth in this Agreement or the Technical Transfer Agreement, each Party will be responsible for all routine filings and communications with Regulatory Authorities (“ Regulatory Filings ”) required with respect to such Party’s Regulatory Obligations hereunder. “ Regulatory Obligations ” shall mean: (i) with respect to Flexion, any Regulatory Filings pertaining to the Product, Flexion’s Manufacturing Process, and filling and packaging processes and procedures; and (ii) with respect to Patheon, any Regulatory Filings pertaining to the Facility, including in connection with a Facility inspection by a Regulatory Authority ( e.g. , those described in Section 3.5). For the avoidance of doubt, Flexion shall have the sole responsibility and Regulatory Obligation for the filing of all documents with all applicable Regulatory Authorities, and to take any other actions that may be required, for the receipt of Regulatory Approval for the development or commercial manufacture of the Product. Flexion shall provide Patheon with a copy of any Regulatory Approval directly relevant to this Agreement on request including any Regulatory Approval required for the storage, receipt or distribution of the Product by Flexion or its designee.

(a) Cooperation . Each Party (“ Non-Filing Party ”) will provide reasonable assistance and cooperation to the other Party (“ Filing Party ”) in the connection with the Filing Party’s Regulatory Obligations consistent with the terms of this Section 3.15 and the Non-Filing Party’s obligations under this Agreement. The Filing Party shall notify the Non-Filing Party in writing of any written communications received by the Filing Party from a Regulatory Authority related to the other Party’s Regulatory Obligations within […***…] business days after receipt thereof. The Filing Party shall consult with the Non-Filing Party concerning the response of the Filing Party to each such communication, unless such filing is not relevant to the Non-Filing Party’s Regulatory Obligations.

(b) Verification of Data . Prior to filing any documents or communications with a Regulatory Authority that incorporate or uses data generated by the Non-Filing Party or otherwise relate to the Non-Filing Party’s Regulatory Obligations, the Filing Party will give the Non-Filing Party a draft of

 

 

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such document or communication (“ Initial Draft ”) to give the Non-Filing Party the opportunity to verify the accuracy and regulatory validity of such Initial Draft. The Non-Filing Party shall be given a minimum of […***…] calendar days to review the Initial Draft, but the Parties may mutually agree to a different time for the review as needed under the circumstances. The Initial Draft may be redacted by the Filing Party as reasonably deems necessary to protect the confidentiality of matters not affecting the Non-Filing Party or which are confidential to the Filing Party or to other clients or customers of the Non-Filing Party. The Parties agree that in reviewing the Initial Draft, the Non-Filing Party’s role will be limited to verifying the accuracy of the description of its Regulatory Filing Obligations or accuracy of its data or information in the Initial Draft. Notwithstanding the forgoing, nothing in this Section 3.15(b) shall be deemed to limit a Party’s ability to make any filing with, or otherwise communicate with, any Regulatory Authority if such Party reasonably determines that such filing or communication is legally required and must be made in an expedited manner and consultation with the other Party as provided herein is not reasonably possible.

(c) Inaccuracies . If the Non-Filing Party determines that any of its data or information in the Initial Draft is inaccurate or any other errors relating to the Non-Filing Party’s Regulatory Obligations, the Non-Filing Party will notify Filing Party in writing of such inaccuracy and provide a recommendation to remediate the Initial Draft. Such notice shall also include documentation and data sufficient to substantiate the Non-Filing Party’s claim that the Initial Draft is inaccurate to the Filing Party’s reasonable satisfaction. The Non-Filing Party shall provide comments to the Initial Draft no later than […***…] days prior to the required filing date with the applicable Regulatory Authority. If the Non-Filing Party does not provide comments or notify the Filing Party of inaccuracies within such […***…] day period, the Non-Filing Party will be deemed to have approved any data or language related to its Regulatory Obligations in the Initial Draft. The Filing Party shall be required to incorporate the Non-Filing Party’s recommendations to the extent they directly relate to an error in the Non-Filing Party’s data or information or the Non-Filing Party’s Regulatory Filing Obligations. The Parties will work together in good faith to resolve any inaccuracies contained in the Initial Draft as soon as practicable under the circumstances to prevent a delay or postponement of such filing (or any related inspections by such Regulatory Authority to which the filing relates). Any on-going disagreement regarding the Deficiencies shall be escalated to the Steering Committee for resolution on an expedited basis.

(d) Responsibilities . Patheon shall deliver a copy of the final version of the filing to Flexion at least […***…] days prior to the required filing date. Flexion shall deliver a copy of the final version of the filing to Patheon promptly after the required filing date. Subject to the foregoing, the Non-Filing

 

 

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Party will not assume any responsibility for the accuracy of any other materials submitted by the Filing Party to a Regulatory Authority in connection with this Agreement. Except as otherwise set forth in this Agreement or the Technical Transfer Agreement, the Filing Party is solely responsible for the preparation and filing of any materials required by a Regulatory Authority with respect to such Party’s Regulatory Filing Obligations hereunder and any relevant costs will be borne by the Filing Party.

ARTICLE IV. FEES AND INVOICING

4.1 General . (a) Patheon shall invoice Flexion for all applicable fees and charges incurred by Patheon as set out in this Agreement or the Technical Transfer Agreement. (b) All invoices shall be sent electronically to […***…]. Payment shall be due thirty (30) days after receipt by Flexion of an undisputed invoice. All payments from Flexion to Patheon hereunder shall be in British Pounds (GBP).

4.2 Late Fees . In relation to all invoices issued by Patheon pursuant to this Agreement, if Flexion fails to make any payment due to Patheon by the due date for payment, then, without limiting Patheon’s remedies under ARTICLE VIII or at law, Patheon may charge interest on past due accounts at […***…]% per month which is equal to an annual rate of […***…]%.

4.3 Disputed Invoices . If Flexion disputes any portion of an invoice, (a) Flexion shall provide Patheon with written notice of the disputed portion within […***…] business days of receipt by Flexion of Patheon’s invoice and its reasons therefor and shall not be obliged to pay such disputed portion unless and until such disputed portion is determined to be due and owing, and (b) Patheon shall cancel such invoice and issue a new invoice reflecting the undisputed invoiced amount, which shall be paid by Flexion within […***…] days. The Parties shall use good faith efforts to resolve the dispute regarding the disputed amount promptly, and if the Parties agree that a balance is due, Patheon shall issue an invoice for such balance, and payment shall be due […***…] days after receipt of such invoice. In the event of any inconsistency between an invoice and this Agreement, the terms of this Agreement shall control.

4.4 Taxes .

(a) Subject to (b) and (c) below, Patheon will bear all Taxes however designated as a result of the provision of the Services under this Agreement.

(b) Flexion acknowledges that it will be responsible for all Taxes that arise in respect of the following:

(i) The acquisition of the Flexion-Supplied Materials.

 

 

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(ii) The acquisition of the Flexion Manufacturing Equipment.

(c) Any payment due under this Agreement for the provision of Services to Flexion by Patheon is exclusive of value added or equivalent tax in any other jurisdiction, including any related interest and penalties (hereinafter all referred to as “ VAT ”). If any VAT is payable on a Service supplied by Patheon to Flexion under this Agreement, this VAT will be added to the invoice amount and will be for the account of (and reimbursable to Patheon by) Flexion. Where applicable, Patheon will use its reasonable commercial efforts to ensure that its invoices to Flexion are issued in such a way that these invoices meet the requirements for deduction of input VAT by Flexion, to the extent permitted by law to do so.

(d) Flexion acknowledges that all amounts due in respect of any fees payable by Flexion under this Agreement shall be paid in full without any set-off, counterclaim, deduction or withholding in respect of any Tax liabilities.

ARTICLE V. INTELLECTUAL PROPERTY

5.1 Ownership .

(a) Flexion shall maintain ownership and Control of all of its technology and intellectual property rights existing prior to the Effective Date (“ Existing Flexion Intellectual Property ”).

(b) Patheon shall maintain ownership and Control of all of its technology and intellectual property rights existing prior to the Effective Date (“ Existing Patheon Intellectual Property ”).

(c) Existing Flexion Intellectual Property shall include and Flexion shall own all right, title, and interest in and to (i) the Product, (ii) the Specifications, and (iii) Flexion’s Manufacturing Process.

(d) Existing Patheon Intellectual Property shall include and Patheon shall own all right, title, and interest in and to the Patheon Manufacturing Equipment as of the Effective Date.

(e) Flexion shall own all right, title, and interest in and to, all intellectual property (specifically including inventions and patents and patent applications therefor) with respect to, and any data with respect to:

(i) (A) any improvement of, modification of, change of, enhancement of, new indication for, new formula for, new formulation for, new ingredients for, new dosage for, new dosage strength for, new means of delivery for, or new labelling or packaging for, the Product (“ Flexion Product Improvements ”); (B) any improvement of, modification of, change of, or enhancement of the Specifications (“ Flexion Specification Improvements ”); (C) any improvement of, modification of, change of, enhancement of, new process for, new procedure for, or new step related to Flexion’s Manufacturing Process (“ Flexion Manufacturing Process Improvements ”); and (D) any improvements of, modification of, change

 

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of or enhancement of Flexion Manufacturing Equipment (the “ Flexion Manufacturing Equipment Improvements”) in each of case (A), (B), (C) and (D) , (1) that is developed, conceived, or created after the Effective Date specifically as a result of or in connection with this Agreement, including Patheon’s Manufacturing of the Product hereunder, (2) whether or not patentable, (3) whether developed, conceived, or created by employees of, or consultants to, Flexion or Patheon, alone or jointly with each other or with permitted Third Parties (including permitted sublicensees and subcontractors), and (4) that has specific applicability, meaning it does not have applicability to products other than the Product, to the Product, Specifications, Flexion’s Manufacturing Process or the Flexion Manufacturing Equipment as applicable (together the Flexion Specification Improvements, Flexion Product Improvements, Flexion’s Manufacturing Process Improvements and the Flexion Manufacturing Equipment Improvements shall be referred to as the “ Flexion Specific Improvements ”);

(ii) any improvement of, modification of, change of, enhancement of manufacturing, processing, formulating, filling, labelling or packaging technology or equipment which is (x) developed, conceived, created, generated or derived after the Effective Date by Patheon, alone or jointly with Flexion or other permitted Third Parties (including permitted sublicensees) specifically as a result of or in connection with this Agreement, and (y) of generic application to the Product, meaning it has application to or utility in relation to a range of products which includes the Product (“ Non-Specific Improvement ”)(the Flexion Specific Improvements and the Non-Specific Improvements are together “ Flexion Improvements ”); and

(iii) any inventions, know how or other intellectual property developed, conceived, or created by Flexion, alone or jointly with Third Parties (other than Patheon or its Affiliates, or their respective employees and consultants), in the course of conducting activities outside the scope of this Agreement and without any use of any Existing Patheon Intellectual Property, Patheon Independent Manufacturing Equipment Improvements and/or Patheon Non-Applicable Inventions (as defined hereunder).

(f) Patheon shall own all right, title, and interest in and to, all intellectual property (specifically including inventions and patents and patent applications therefor) with respect to, and any data with respect to:

(i) any improvement of, modification of, change of, enhancement of Patheon’s Manufacturing Equipment, (1) that is developed, conceived, or created as a result of or in connection with this Agreement, including Patheon’s Manufacturing of the Product hereunder, (2) whether or not patentable, (3) whether developed, conceived, or created by employees of, or consultants to, Flexion or Patheon, alone or jointly with each other or with permitted Third Parties (including permitted sublicensees), and (4) that is of generic application rather than a specific solution that only has applicability to the Product, (“ Patheon Independent Manufacturing Equipment Improvements ”);

 

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(ii) any inventions, know how or other intellectual property developed, conceived, or created by Patheon, alone or jointly with Flexion or other permitted Third Parties (including permitted sub-licensees), in the course of conducting activities under the scope of this Agreement where such inventions know how or other intellectual property have no applicability to the Product, the Specifications, Flexion’s Manufacturing Process or the Flexion Manufacturing Equipment (“ Patheon Non-Applicable Inventions ”) (together the Patheon Independent Manufacturing Equipment Improvements and the Patheon Non-Applicable Inventions are together “ Patheon Improvements ”); and

(iii) any inventions, know how or other intellectual property developed, conceived, or created by Patheon, alone or jointly with Third Parties, in the course of conducting activities outside the scope of this Agreement and without any use of any Existing Flexion Intellectual Property or Flexion Specific Improvements.

(g) Patheon shall, and shall cause its Affiliates to, promptly disclose in writing and in reasonable detail to Flexion any Flexion Improvements developed, conceived, or created by employees, consultants, or subcontractors of Patheon or its Affiliates, alone or jointly with employees, consultants or subcontractors of Flexion or its Affiliates. Such written notice will be treated as the Proprietary Information of Flexion hereunder.

(h) Flexion shall, and shall cause its Affiliates to promptly disclose in writing and in reasonable detail to Patheon any potential Patheon Improvement and any Flexion Non-Specific Improvements developed, conceived, or created by employees, consultants, or subcontractors of Flexion or its Affiliates, alone or jointly with employees, consultants, or subcontractors of Patheon or its Affiliates. Such written notice in relation to Patheon Improvements will be treated as the Proprietary Information of Patheon hereunder.

(i) The Specifications, Flexion’s Manufacturing Process, and any and all information or material related to the Existing Flexion Intellectual Property, and Flexion Improvements shall constitute Proprietary Information of Flexion, which shall be deemed the disclosing Party with respect to such Proprietary Information and shall be subject to the provisions of Article VII of this Agreement.

(j) Patheon’s Manufacturing Equipment and any and all information or material related to the Existing Patheon Intellectual Property and Patheon Improvements shall constitute Proprietary Information of Patheon, which shall be deemed the disclosing Party with respect to such Proprietary Information.

(k) Patheon shall, and shall cause its Affiliates, to disclose in writing and in reasonable detail to Flexion prior to the implementation of any such Patheon Improvement or Non-Specific Improvement into the Manufacturing Services or any potential Patheon Improvements or Non-Specific Improvements and Flexion shall, in its sole discretion, decide whether such improvement shall be

 

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used in the Manufacture of the Product. Such written notice will be treated as the Proprietary Information of Patheon hereunder.

(l) Patheon agrees to, and hereby does, and shall cause each of its employees, consultants, and Affiliates (collectively with Patheon, the “ Patheon Assignors ”) to assign to Flexion all right, title and interest in and to the Flexion Improvements developed, conceived or created by such Patheon Assignors, alone or jointly with others including all intellectual property rights associated therewith. Upon Flexion’s request and at Flexion’s sole expense, Patheon shall, and shall use commercially reasonable efforts to cause each Patheon Assignor to, assist Flexion or anyone Flexion reasonably designates in preparing, filing, prosecuting, obtaining, enforcing or defending patent, copyright or other intellectual property application or grant of right issuing therefrom in any and all countries in the world.

(m) Flexion agrees to, and hereby does, and shall cause each of its employees, consultants, and Affiliates (collectively with Flexion, the “ Flexion Assignors ”) to assign to Patheon all right, title and interest in and to the Patheon Improvements developed, conceived or created by such Flexion Assignors, alone or jointly with others including all intellectual property rights associated therewith. Upon Patheon’s request and at Patheon’s sole expense, Flexion shall, and shall use commercially reasonable efforts to cause each Flexion Assignor to, assist Patheon or anyone Patheon reason ably designates in preparing, filing, prosecuting, obtaining, enforcing or defending patent, copyright or other intellectual property application or grant of right issuing therefrom in any and all countries in the world.

5.2 Licenses .

(a) Flexion hereby grants to Patheon a fully paid-up worldwide, non-exclusive license, under Flexion’s entire right, title, and interest in and to the Existing Flexion Intellectual Property for Patheon to Manufacture the Products solely pursuant to the terms of this Agreement.

(b) Flexion hereby grants to Patheon a fully paid-up worldwide, non-exclusive license, under Flexion’s entire right, title, and interest in and to the Flexion Improvements, in each case to make Products solely pursuant to the terms of this Agreement.

(c) Flexion hereby grants to Patheon a perpetual, irrevocable, fully paid-up worldwide, exclusive license, with the right to grant sub-licences, under Flexion’s entire right, title, and interest in and to the Non-Specific Improvements for the manufacture, use, sale or supply of any and all products, except Excluded Products or any and all products which, at any time, are owned by or exclusively licensed to Flexion.

In addition, Flexion grants to Patheon a perpetual, irrevocable, fully paid-up worldwide, co-exclusive license, with the right to grant sub-licences, under Flexion’s entire right, title, and interest in and to the Non-Specific Improvements

 

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for the manufacture, use, sale or supply of any and all products which, at any time, are owned by or exclusively licensed (in terms of the right of Flexion to sell such products) to Flexion except Excluded Products.

Accordingly, notwithstanding anything to the contrary herein, Flexion retains:

(i) co-exclusively with Patheon, rights to the Non-Specific Improvements for the manufacture, use, sale or supply of any and all products which, at any time, are owned by or exclusively licensed (in terms of the right of Flexion to sell such products) to Flexion, and

(ii) exclusively, any and all rights to the Non-Specific Improvements for the manufacture, use, sale or supply of Excluded Products;

provided that, in either case (i) or (ii),

 

  (1) Flexion may only sublicense its rights to Non-Specific Improvements to a Third Party in conjunction with the license or assignment by Flexion of rights to manufacture, use, sell or supply a therapeutic product that is, or were prior to the assignment, owned by or exclusively license (in terms of the right of Flexion to sell such products) to Flexion; and

 

  (2) other than with respect to permitted assignments of this Agreement under Section 10.5A herein Flexion shall not assign or otherwise transfer its right to Non-Specific Improvements without the prior written consent of Patheon. In the event that Flexion wishes to assign any Non-Specific Improvement(s) to an Affiliate, Patheon and Flexion shall enter into a novation agreement with that Flexion Affiliate, to novate the rights and obligations hereunder in respect of such Non-Specific Improvement(s) only.

For the purposes of this Section 5.2(c), “ Excluded Products ” means any product which comprises as its active agent […***…]. For the avoidance of doubt, co-exclusive means that only Patheon (and its authorised sub-licensees) and Flexion (and its authorised sub-licensees) has rights in relation to the Non-Specific Improvements, such rights and the scope and nature of authorised sub-licensees being as expressly set out in this clause 5.2(c) and no wider.

 

 

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5.3 Technology Transfer . Upon the request of Flexion at any time during the […***…] period prior to expiry of this Agreement, Patheon shall, at Flexion’s cost (i) promptly disclose to Flexion or its designee any Patheon Improvement, (ii) have its representatives meet with representatives of Flexion or its designee to enable Flexion or such designee to Manufacture the Product, and (iii) provide such other assistance as Flexion may reasonably request to enable Flexion or such designee to Manufacture the Product. Flexion shall reimburse Patheon for its fees and all documented out-of-pocket expenses reasonably incurred by Patheon in connection with such technology transfer. Patheon will provide a quotation for the services which Flexion requires pursuant to this Section 5.3 as Additional Services and on acceptance by Flexion of the same, Patheon will provide the services stated therein.

5.4 Third Party Litigation . In the event that, during the Term, any Third Party institutes against Patheon any action that alleges that the Manufacture of the Product hereunder in accordance with the terms hereof infringes the intellectual property rights held by such Third Party, then, as between Patheon and Flexion, and subject to Flexion indemnifying and defending and holding harmless Patheon in relation to such action pursuant Section 9.1(a)(iv) herein, Flexion, at its sole expense, shall have the sole obligation to contest and assume discretion and control of the defense of such action, including the right to settle such action on terms determined by Flexion; provided, however, that in no event may Flexion agree to the entry of any equitable or injunctive relief that is binding on Patheon and its Affiliates without Patheon’s prior written consent, not to be unreasonably withheld or delayed. Patheon, at Flexion’s expense, shall use all commercially reasonable efforts to assist and cooperate with Flexion as reasonably request by Flexion in such action.

5.5 Licenses of Rights to Intellectual Property . The licenses granted by the Parties hereunder shall be deemed to be licenses of rights to “intellectual property” as defined Section 101 of the United States Bankruptcy Code and, in connection therewith, each Party shall have the rights set forth in Section 365(n) of the United States Bankruptcy Code in the event of any rejection or proposed rejection of this Agreement in any bankruptcy proceeding.

ARTICLE VI. REPRESENTATIONS AND WARRANTIES

6.1 Representations and Warranties of Each Party . Each Party hereby represents and warrants to the other Party as follows:

(a) Such Party (i) is duly formed and in good standing under the laws of the jurisdiction of its formation, (ii) has the power and authority and the legal right to enter into this Agreement and perform its obligations hereunder, and (iii) has taken all necessary action on its part required to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder. This Agreement has been duly executed and delivered on behalf of such Party and constitutes a legal, valid, and binding obligation of such Party and is enforceable against it in accordance with its terms, subject to the effects of bankruptcy,

 

 

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insolvency, or other similar laws of general application affecting the enforcement of creditor rights and judicial principles affecting the availability of specific performance and general principles of equity, whether enforceability is considered a proceeding at law or equity.

(b) Except for the FDA’s approval of Patheon’s manufacturing, testing, and packaging for the Product from the Manufacturing Suite, all necessary consents, approvals, and authorizations of all Regulatory Authorities, other governmental authorities, and other Persons required to be obtained by such Party in connection with the execution and delivery of this Agreement and the performance of its obligations hereunder have been obtained.

(c) The execution and delivery of this Agreement and the performance of such Party’s obligations hereunder (i) do not and will not conflict with or violate any requirement of Applicable Law or any provision of the articles of incorporation, bylaws limited partnership agreement, or other constituent document of such Party and (ii) do not and will not conflict with, violate, or breach, or constitute a default or require any consent under, any contractual obligation or court or administrative order by which such Party is bound.

6.2 Additional Representations, Warranties and Covenants, of Patheon . Patheon warrants, represents and covenants, that:

(a) (i) it has facilities, personnel, experience, and expertise sufficient in quality and quantity to perform the obligations hereunder, (ii) it shall perform its obligations in conformity with GMPs where applicable, (iii) it will comply with the Quality Agreement and comply with all agreed upon quality assurance, quality controls, and review procedures in the performance of its obligations hereunder and (iv) during the Term, the Facility will remain operational and qualified for the purpose of the Manufacture of Product under the terms of this Agreement;

(b) it has, as of the Effective Date observed and complied, and shall, during the Term and at its cost (subject to Sections 2.9(b)-(d) and Section 3.7), observe and comply, with all then-current Applicable Laws, including federal, state, and local laws, orders, regulations, rules, customs, and ordinances now in force or that may hereafter be in force, pertaining to the Facility and the performance of the Manufacturing Services and including, without limitation, (i) labor laws, orders, regulations, rules, customs, and ordinances of the country of Manufacture and (ii) those issued by the FDA pertaining to the Manufacturing Services and the Facility (but not those pertaining solely to non-Manufacturing matters relating to the Product, compliance with which shall be the responsibility of Flexion), and any laws, orders, regulations, rules, or ordinances issued in addition to, as a supplement to or as a replacement of Applicable Laws;

(c) none of it, its Affiliates, nor any Person under its direction or control, has ever been, nor will it engage suppliers which have to its actual

 

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knowledge, after due inquiry, been, (i) debarred or convicted of a crime for which a person can be debarred, under Section 335(a) or 335(b) of the FDA Act, or any equivalent Applicable Law of the country of Manufacture, (ii) threatened to be debarred under the FDA Act or any equivalent Applicable Law of the country of Manufacture or (iii) indicted for a crime or otherwise (to its actual knowledge after due inquiry) engaged in conduct for which a person can be debarred under the FDA or any equivalent Applicable Law of the country of Manufacture, and Patheon agrees that it will, within […***…], notify Flexion in the event it receives notification of any such debarment, conviction, threat or indictment. Should Patheon become aware of any actual or suspected noncompliance with the foregoing, Patheon will notify Flexion in writing of such issue within […***…]. For the purpose of this Section 6.2, suppliers and subcontractors engaged by Patheon to undertake the Manufacture of the Product shall be deemed to be under Patheon’s direction or control;

(d) none of it, its Affiliates, nor any Person under its direction or control is currently excluded from a federal or state health care program under Sections 1128 or 1156 of the Social Security Act, 42 U.S.C. §§ 1320a-7, 1320c-5 or any equivalent Applicable Law of the country of Manufacture, as may be amended or supplemented;

(e) none of it, its Affiliates, nor any Person under its direction or control is otherwise currently excluded from contracting with the U.S. federal government or the government of the country of Manufacture;

(f) none of it, its Affiliates, nor any Person under its direction or control is otherwise currently excluded, suspended, or debarred from any U.S. or foreign governmental program;

(g) it shall immediately notify Flexion if, at any time during the Term, Patheon, its Affiliates, or any Person under its direction or control is convicted of an offense that would subject it or Flexion to exclusion, suspension, or debarment from any U.S. or foreign governmental program; and

(h) agrees to keep the Equipment free form all liens and encumbrances.

(i) it will not enter into any agreement or arrangement with any other Person that would prevent its ability to perform its obligations hereunder.

6.3 Warranty . Patheon warrants that, at the time of delivery of Product to Flexion: (a) such Product will have been Manufactured in accordance with the […***…]; (b) such Product will be in conformity with the

 

 

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[…***…] in accordance with the […***…] set out therein and will conform with the […***…] therefor provided pursuant to Section […***…]; (c) title to such Product will pass to Flexion as provided herein free and clear of any security interest, lien, or other encumbrance; (d) such Product will not be adulterated or misbranded within the meaning of the FDA Act as a result of a Patheon Nonconformance; and (e) such Product will not be articles that, under the provisions of the FDA Act, may not be introduced into interstate commerce as a result of a Patheon Nonconformance.

6.4 Additional Representations and Warranties of Flexion. Flexion warrants and represents that:

(a) Non-Infringement .

(i) (1) as of the Effective Date, it or its Affiliates Control all issued patents and pending patent applications set forth on Schedule 6.4(a) , which patents and applications are necessary for performance of the Manufacturing Services; and (2) it has the right to authorize Patheon to use and exploit such issued patents and pending patent applications to perform the Manufacturing Services in accordance with the terms and conditions hereof;

(ii) as of the Effective Date, to the actual knowledge of Flexion’s management team, having taken all Diligent and Reasonable Steps to ascertain the same, that there are no facts or circumstances that would cause Flexion to conclude that the performance of the Manufacturing Services, in accordance with the terms and conditions hereof and using Flexion’s Manufacturing Process, or the manufacture, use, supply or other disposition of the Product by Patheon as may be required to perform its obligations under this Agreement, will result, in the infringement or misappropriation of any Third Party’s intellectual property rights;

(iii) as of the Effective Date, Flexion or its Affiliates Control and have the right to lawfully disclose the Specifications to Patheon and to authorize Patheon to use the Specification to perform the Manufacturing Services;

(iv) as of the Effective Date, there are no actions or other legal proceedings pending against Flexion and/or its Affiliates concerning the infringement of Third Party intellectual property rights related to any of the Specifications, Flexion’s Manufacturing Process, any of the Materials, or the sale, use, or other disposition by Flexion of any Product made in accordance with the Specifications.

For the purposes of part (ii) above, “Diligent and Reasonable Steps” means such steps as would normally be taken by a company of the same size and nature as Flexion for a product of

 

 

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similar market potential at a similar stage of its product life, when utilizing sound and reasonable business practice.

(b) Quality and Compliance .

(i) during the Term, the Specifications for all Products conform to all applicable GMPs and Applicable Laws;

(ii) during the Term, the Products, if labelled and manufactured in accordance with the Specifications and in compliance with the Quality Agreement, applicable GMPs and Applicable Laws may be lawfully sold and distributed in every jurisdiction in which Flexion markets the Products; and

(iii) during the Term, on the date of shipment to Patheon, any Flexion-Supplied Materials will conform to the specifications for the Flexion-Supplied Materials that Flexion has given to Patheon and the Flexion-Supplied Materials will be adequately contained, packaged, and labelled and will conform to the affirmations of fact on the container.

(c) Flexion agrees that, as a pre-condition to the adding of any country to the Territory pursuant to section 2.2(h), Flexion shall repeat the warranties above as at the date on which the country is added to the Territory.

6.5 DISCLAIMER. THE FOREGOING EXPRESS WARRANTIES SET FORTH IN THIS ARTICLE VI ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE, OR NONINFRINGEMENT, AND ALL OTHER WARRANTIES ARE HEREBY DISCLAIMED AND EXCLUDED BY EACH PARTY.

6.6 Legal Compliance .

(a) Patheon confirms that all licences, registrations and Regulatory Authority approvals to be obtained by Patheon pursuant to this Agreement and the Technical Transfer Agreement shall be obtained in a lawful and ethical manner.

(b) Patheon has not and shall not cause Flexion or its subsidiaries or affiliates to be in violation of any applicable U.S. export or import control or customs law or regulation, U.S. sanctions or embargoes, the U.S. Foreign Corrupt Practices Act of 1977 (as amended) (“FCPA”), the U.S. Travel Act, the UK Bribery Act of 2010 (the “UK Bribery Act”), anti-corruption and anti-kickback laws and regulations, any applicable anti-corruption laws or regulations of another country, or any other applicable law or regulation. In relation to Flexion’s business, Patheon has not and shall not directly or indirectly offer, pay, solicit, or accept any bribes, kickbacks, or other improper payments/benefits to or from any party, including, but not limited to, any employee, representative, or official of the Flexion, any government, or any state-affiliated entity. Patheon has not and shall not offer, pay, solicit, or accept any rebates or refunds in connection with the Product

 

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or Flexion’s business without informing and obtaining the written approval of Flexion in advance and ensuring that such rebate/refund is compliant with all applicable laws and regulations. Patheon has in good faith provided to Flexion accurate and complete due diligence information and materials regarding Patheon and its employees and Affiliates in response to requests by Flexion. In relation to the performance of this Agreement, Patheon shall fully cooperate with Flexion in ensuring compliance with the FCPA, the UK Bribery Act and all other applicable laws and regulations.

(c) Flexion may suspend its performance under this Agreement if Flexion reasonably suspects that Patheon has or will violate the FCPA, the UK Bribery Act or any other applicable law or regulation. Patheon shall reasonably cooperate with Flexion with any audit or questioning related thereto.

(d) Patheon understands and acknowledges that a violation of the FCPA, the UK Bribery Act or any of the terms of this Section 6.6 by Patheon or its employees, agents, or contractors shall constitute a […***…] for the purpose of Section […***…] of this Agreement.

ARTICLE VII. CONFIDENTIALITY

7.1 Confidentiality Obligations .

(a) Subject to the provisions of clauses (b), (c) and (d) below, at all times during the Term and for seven (7) years following the expiration or termination thereof, the Receiving Party (i) shall keep completely confidential and shall not publish or otherwise disclose any Proprietary Information furnished to it by the Disclosing Party, except to those of the Receiving Party’s Representatives or Affiliates to perform such Party’s obligations hereunder (and who shall be advised of the Receiving Party’s obligations hereunder and who are bound by confidentiality obligations with respect to such Proprietary Information no less onerous than those set forth in this Agreement) and (ii) shall not use Proprietary Information of the Disclosing Party directly or indirectly for any purpose other than performing its obligations or exercising its rights hereunder. The Receiving Party shall be jointly and severally liable for any breach by any of its Representatives of the restrictions set forth in this Agreement.

(b) The Receiving Party’s obligations set forth in this Agreement shall not extend to any Proprietary Information of the Disclosing Party:

 

 

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(i) that is or hereafter becomes part of the public domain by public use, publication, general knowledge or the like through no wrongful act, fault or negligence on the part of a Receiving Party or its Representatives or Affiliates;

(ii) that is received from a Third Party without restriction and without breach of any agreement between such Third Party and the Disclosing Party;

(iii) that the Receiving Party can demonstrate by competent evidence was already in its possession without any limitation on use or disclosure prior to its receipt from the Disclosing Party;

(iv) that is generally made available to Third Parties by the Disclosing Party without restriction on disclosure; or

(v) that the Receiving Party can demonstrate by competent evidence was independently developed by the Receiving Party without reference to the Proprietary Information of the Disclosing Party.

(c) Each Party may disclose Proprietary Information to the extent that such disclosure is:

(i) made in response to a valid order of a court of competent jurisdiction or other governmental body of a country or any political subdivision thereof of competent jurisdiction; provided, however, that the Receiving Party shall first have given notice to the Disclosing Party and given the Disclosing Party a reasonable opportunity to quash such order and to obtain a protective order requiring that the Proprietary Information and/or documents that are the subject of such order be held in confidence by such court or governmental body or, if disclosed, be used only for the purposes for which the order was issued; and provided further that if a disclosure order is not quashed or a protective order is not obtained, the Proprietary Information disclosed in response to such court or governmental order shall be limited to that information which is legally required to be disclosed in such response to such court or governmental order;

(ii) otherwise required by law or regulation, including the rules and regulations of any securities authority or stock exchange on which such Party’s or its Affiliate’s securities are traded, as determined in good faith by counsel for the Receiving Party and acting in accordance with Section 10.10;

(iii) made in connection with the filing or prosecution of patent rights as permitted by this Agreement;

(iv) made in connection with the enforcement of such Party’s rights under this Agreement and in performing its obligations under this Agreement;

(v) made in connection with the prosecution or defense of litigation as permitted by this Agreement;

 

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(vi) made to Affiliates, actual and potential licensees and sublicensees, employees, consultants or agents of the Receiving Party who have a need to know such information in order for the Receiving Party to exercise its rights or fulfill its obligations under this Agreement, provided, in each case, that any such Affiliate, actual or potential licensee or sublicensee, employee, consultant or agent agrees to be bound by terms of confidentiality and non-use comparable in scope to those set forth herein; and

(vii) made to Third Parties in connection with due diligence or similar investigations by such Third Parties, and disclosure to potential Third Party investors in confidential financing documents, provided, in each case, that any such Third Party agrees to be bound by reasonable obligations of confidentiality and non-use; and

(viii) with respect to disclosure by Flexion, made to Regulatory Authorities in connection with obtaining and maintaining any Marketing Authorization.

(d) The Parties rights and obligations regarding the filing of this Agreement with any securities authority or with any stock exchange on which securities issued by a Party or its Affiliate are traded are set forth in Section 10.10.

(e) Subject to Patheon’s obligations with any Regulatory Authority, upon expiration or termination of this Agreement, each Party, at the request of the other, shall return all data, files, records and other materials in its possession or control containing or comprising the other Party’s Proprietary Information; provided that each Party may retain a copy of any Proprietary Information of the other Party required in order to permit a Party to exercise its rights pursuant to clause (c) above.

7.2 Injunctive Relief . Each Party acknowledges that a breach by either Party of the this ARTICLE VII may not reasonably or adequately be compensated in damages in an action at law and that such a breach may cause the other Party irreparable injury and damage. By reason thereof, each Party agrees that the other Party may be entitled, in addition to any other remedies it may have under this Agreement or otherwise, to apply for preliminary and permanent injunctive and other equitable relief to prevent or curtail any breach of this ARTICLE VII; provided, however, that no specification in this Agreement of a specific legal or equitable remedy will be construed as a waiver or prohibition against the pursuing of other legal or equitable remedies in the event of such a breach. Each Party agrees that the existence of any claim, demand, or cause of action of it against the other Party, whether predicated upon this Agreement, or otherwise, will not constitute a defense to the enforcement by the other Party, or its successors or assigns, of the covenants contained in this ARTICLE VII.

 

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ARTICLE VIII. TERM AND TERMINATION

8.1 Term . This Agreement shall commence as of the Effective Date and, unless earlier terminated in accordance with the terms hereof, shall expire on the tenth (10 th ) anniversary of the FDA Approval Date (the “ Initial Term ”). Notwithstanding, by mutual agreement the Parties may commence discussions three (3) years prior to the end of the Initial Term with a view to extending the Initial Term for such period or periods as may be agreed (collectively, the Initial Term and any extensions thereof, the “ Term ”).

8.2 Termination . In addition to any other provision of this Agreement expressly providing for termination of this Agreement, this Agreement may be terminated as follows:

(a) Flexion may terminate this Agreement:

(i) at any time by giving Patheon one (1) month prior written notice in the event that for efficacy or safety reasons the Product is withdrawn permanently or, if not yet approved, the Product is barred from further development (in either case for reasons outside of the reasonable control of Flexion) in the United States or any other market in a country or countries of the Territory that represent eighty percent (80%) or more of Flexion’s overall Product sales including without limitation: (A) if any Regulatory Authority causes the clinical hold or permanent withdrawal of the Product, (B) failure to receive Marketing Authorization in the United States, (C) failure of the Product to achieve its primary endpoint or key secondary endpoints with respect to either of the ongoing (as of the Effective Date) Phase 2(b) and Phase 3 clinical trials, or (D) safety data which Flexion determines may have a materially adverse impact on use of the Product.

(ii) for convenience, at any time (x) prior to the FDA Approval Date, with three (3) months written notice to Patheon, and (y) after the FDA Approval Date, by giving twenty four (24) months prior written notice to Patheon; or

(iii) at any time upon written notice in the event of any material default by Patheon in the performance of any of its obligations hereunder, which material default has not been cured by Patheon within ninety (90) days after receiving written notice thereof (“ Remediation Period ”), provided that Patheon shall continue performing hereunder pursuant to the terms of Section 8.4 below. Flexion’s right to terminate this Agreement for a particular breach under this Section 8.2(a)(iii) may only be exercised for a period of one hundred twenty (120) days following the expiry of the Remediation Period (where the breach has not been remedied) and, if the termination right is not exercised during this period, then Flexion will be deemed to have waived its right to terminate this Agreement for such breach. For purposes of clarity, the Parties agree that a “material default” of Patheon shall have occurred if (A) Patheon shall have delivered Non-Conforming Product caused by Patheon Nonconformance with respect to three (3) batches in any one calendar year, or (B) the Facility and/or the Manufacturing

 

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Suite violates GMP or other Applicable Law preventing the ability to continue the Manufacturing of Product for at least six (6) months.

(b) Patheon may terminate this Agreement at any time upon written notice in the event of (i) any material default by Flexion in the performance of any of its obligations hereunder, which default has not been cured by Flexion within ninety (90) days after receiving written notice thereof; or (ii) Flexion’s default of its payment obligations in accordance with ARTICLE IV which default has not been cured by Flexion within fifteen (15) days after receiving written notice thereof; provided, however, that, if Flexion fails to cure such payment default, Patheon may not terminate without first providing a second notice to the attention of Flexion’s Chief Executive Officer and an additional fifteen (15) day cure period.

(c) This Agreement may be terminated at any time by either Party immediately upon written notice to the other Party (A) pursuant to Section 10.2 in the event of a force majeure that remains uncured for the period provided in Section 10.2, or (B) if the other Party shall file in any court or agency, pursuant to any statute or regulation of any state or country, a petition in bankruptcy or insolvency or for reorganization or for arrangement or for the appointment of a receiver or trustee of the other Party or of its assets, or if the other Party proposes a written agreement of composition of its debts, or if the other Party shall be served with an involuntary petition against it, filed in any insolvency proceeding, and such petition is consented to by such Party or is not dismissed within sixty (60) days after the filing thereof, or if the other Party shall propose or be a Party to any dissolution or liquidation, or if the other Party shall make an assignment for the benefit of its creditors.

(d) Either Party may terminate this Agreement by giving three (3) months’ notice to the other Party if a permanent injunction is granted pursuant to a Third Party claim for intellectual property infringement in either the United Kingdom and/or the United States preventing the further sale, promotion or marketing of the Product in such country as applicable.

(e) This Agreement will automatically terminate should either Flexion or Patheon exercise its right to terminate the Technical Transfer Agreement (but not in the event of an expiration of such agreement as set forth in Section 8.2 thereof) prior to the FDA Approval Date, in which case, any payment to Patheon will be made in accordance with the Technical Transfer Agreement.

8.3 Effect of Termination .

(a) The expiration or termination of this Agreement shall be without prejudice to any rights or obligations of the Parties that may have accrued prior to such termination, and the provisions of Sections 2.8 (in respect of Product on the market at the date of termination of this Agreement), 3.5, 3.6, 3.8, 3.10, 3.12, 3.13, 5.1, 5.2(c), 5.5, 6.3, 6.5, 8.3 and 8.4 and ARTICLE I (to the extent definitions are used in other surviving sections pursuant to this Section 8.3(a)), ARTICLE IV,

 

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ARTICLE VII, ARTICLE IX, and ARTICLE X; provided that, Section 3.8 shall only survive for a period of […***…] days after expiration or termination of this Agreement in respect of deviations that occurred before termination or expiration and continue to be relevant shall survive the expiration or termination of this Agreement. Except as otherwise expressly provided herein, termination of this Agreement in accordance with the provisions hereof shall not limit remedies that may otherwise be available in law or equity.

(b) Upon expiration or termination of this Agreement, subject to the Parties’ obligations under Section 8.4 below, each Party, at the request of the other, shall return all data, files, records, and other materials in its possession or control containing or comprising the other Party’s Proprietary Information.

(c) Upon expiration or termination of this Agreement for any reason, subject to the Parties’ obligations under Section 8.4 below, (i) all submitted but unfilled Purchase Orders with respect to which Patheon has (1) not begun Manufacture of Product shall be cancelled, or (2) begun Manufacture of the Product shall be completed, unless otherwise agreed (ii) Flexion shall remove all Flexion Manufacturing Equipment and Materials from the Facility within […***…] days of such termination under all sections other than Section 8.2(a)(iii) and within […***…] days […***…] of a termination by Flexion pursuant to Section 8.2(a)(iii) that is not reasonably disputed by Patheon, failing which Flexion will pay a fee equivalent to the aggregate monthly Base Fee for the Manufacturing Suite for each month or part month the Flexion Manufacturing Equipment or Materials remain at the Facility after […***…] days or […***…] days, as applicable, from such termination.

(d) Upon expiration or termination of this Agreement, subject to the Parties’ obligations under Section 8.4 below, (i) Flexion shall purchase from Patheon at Patheon’s cost, all unpaid Material Costs and Bill Back Items which were ordered, purchased, produced or maintained by Patheon in contemplation of the Manufacture of the Product in accordance with Section 2.2; (ii) Flexion shall pay Patheon any earned but unpaid Product Fees, including those under any outstanding Purchase Order as described in Section 8.3(c); (iii) Flexion shall pay for any earned (through the month of such expiration or termination) but undisputed and unpaid Base Fees, Phase I Filling Space Fees or Additional Services; and (iv) Flexion shall pay all due and outstanding invoices under ARTICLE IV.

(e) Upon expiration or termination of this Agreement for any reason other than by […***…] pursuant to Section […***…] that is not reasonably disputed by […***…], subject to the Parties’ obligations under Section 8.4 below, Flexion shall pay to Patheon all and any removal and Make Good Costs associated with the removal of the Flexion Manufacturing Equipment

 

 

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from the Facility as agreed to in good faith by the Parties. “ Make Good Costs ” means the reasonable costs required to repair the Facility and return it to a clean, safe and useable area based on the repair of damage caused by the installation or removal of Flexion Manufacturing Equipment. In relation to termination of this Agreement by […***…] pursuant to Section […***…], Flexion shall pay any Make Good Costs that are required in relation to and to the extent that any damage that is caused to the Facility as a result of the negligence of Flexion or its agent or a failure to materially comply with the reasonable written instructions of Patheon in the removal of Flexion Manufacturing Equipment.

(f) The Parties understand and believe that the expiration or termination of this Agreement for any reason shall not constitute a “relevant transfer” as defined by and pursuant to Regulation 3(1)(b) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“ TUPE ”). If, contrary to the Parties’ understanding and belief, TUPE does apply on the expiration or termination of this Agreement to the transfer of any employee or subcontractor of Patheon to Flexion or to any person who, after expiration or termination of this Agreement, provides to Flexion services similar to the Manufacturing Services and/or the Additional Services (“ Replacement Entity ”) then:

 

  (i) without prejudice to Flexion’s obligations under Section 8.3(g) below, following termination or expiry of this Agreement other than by […***…] pursuant to Section […***…], Flexion shall indemnify Patheon for and against all claims, costs, expenses or liabilities arising, incurred or suffered by Patheon in relation to any claim made by or in respect of any person employed or formerly employed by Patheon for which it is alleged Flexion and/or any Replacement Entity may be liable by virtue of TUPE, provided that this indemnity shall not apply if and to the extent that, (A) the aggregate amount payable by Flexion pursuant to this Section 8.3(f)(i) and Section 8.3(g) exceeds the Maximum Manufacturing Services Termination Costs; or (B) any such claim, cost, expense or liability arises as a result of a failure by Patheon to comply with its applicable obligations under TUPE.

 

  (ii)

if (A) this Agreement has been terminated by […***…] pursuant to Section […***…], or (B) this Agreement terminates or expires under any other circumstances and the aggregate amount payable by Flexion pursuant to Section 8.3(f)(i) and Section 8.3(g) exceeds the Maximum Manufacturing Services Termination Costs, Patheon shall indemnify Flexion for and against all claims, costs, expenses or liabilities arising, incurred or suffered by Flexion and/or any Replacement Entity in relation to any claim

 

 

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  made by or in respect of any person employed or formerly employed by Patheon for which it is alleged Flexion and/or any Replacement Entity may be liable by virtue of TUPE provided that this indemnity shall not apply if and to the extent that any such claim, cost, expense or liability arises as a result of a failure by Flexion or the Replacement Entity to comply with its applicable obligations under TUPE.

(g) Subject to the Parties’ obligations under Section 8.4 below, Flexion shall pay to Patheon the following costs (“ Manufacturing Services Termination Costs ”): (i) upon expiration or termination of this Agreement, all reasonable actual costs incurred by Patheon to complete activities associated with such completion, expiry or termination including, without limitation, disposal fees that may be payable for any Materials and supplies owned by Flexion to be disposed of by Patheon; and (ii) upon expiration or termination of this Agreement other than by […***…] pursuant to Section […***…], all and any direct costs and expenses or termination or cancellation fees payable by Patheon as a consequence of or arising from the termination of this Agreement, to include but not limited to, all and any reasonable redundancy costs of employees employed by Patheon to work solely or mainly in providing the Services and/or Manufacturing the Product, all and any termination costs in relation to subcontractors and agency staff working solely or mainly in providing the Services and/or Manufacturing the Product and any termination or cancellation fees payable to Third Party suppliers. Patheon will use commercially reasonable efforts to mitigate the Manufacturing Services Termination Costs and reallocate available resources. Patheon will further provide Flexion with documentation in order to substantiate the Manufacturing Services Termination Costs. Notwithstanding anything in this Section 8.3(g), Flexion’s aggregate liability for the Manufacturing Services Termination Costs (under both this Agreement and the Technical Transfer Agreement combined) shall be limited to the payment to Patheon of the first £[…***…] (the “ Maximum Manufacturing Services Termination Costs ”).

(h) Flexion acknowledges that no Patheon Competitor (being a Person that derives greater than […***…]% of its revenues from performing contract pharmaceutical or biopharmaceutical development or commercial manufacturing services) will be permitted access to the Facility.

(i) In relation to any representatives of Flexion that are permitted access to the Facility pursuant to Section 8.3 or 8.4, Flexion shall ensure that such representatives are appropriately trained by Flexion (e.g. GMP training) and shall

 

 

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observe at all times Patheon’s policies and procedures (as amended from time-to-time) as they pertain to the Facility, including policies relating to health and safety and compliance with GMP, and comply with all reasonable directions of Patheon in relation to the same; provided that Flexion is given notice of such policies and given a reasonable period of time to review and implement such policies. Patheon may refuse or limit in its sole discretion at any time admission to the Facility by any of Flexion’s representatives who fail to observe such policies or comply with such reasonable directions.

(j) The Parties agree that if any fees or charges are duplicated under Section 8.11 of the Technical Transfer Agreement, Flexion shall only be obligated to make such payment once.

8.4 Transition Assistance .

(a) Upon the delivery by either Party of a notice of termination of this Agreement for any reason, upon the request of Flexion, and subject to terms set forth in this Agreement including this Section 8.4(a), (i) Patheon shall provide Flexion with the reasonable assistance of its staff and reasonable access to its other internal resources to provide Flexion with a reasonable level of technical assistance and consultation to transfer the Manufacture and the regulatory qualification of the Product to a supplier of Flexion’s election, provided that Flexion will reimburse Patheon for its fees and all documented costs and out-of-pocket expenses incurred in connection with such assistance (Patheon would provide a quotation for the services which Flexion requires pursuant to this Section 8.4 as Additional Services and on acceptance by Flexion of the same, Patheon will provide the services stated therein) and (ii) Patheon will provide the deliverables set forth on Schedule 8.4(a) hereto subject to payment of the fees and costs to be paid by Flexion as described above.

(b) Upon the delivery by […***…] of a notice of termination of this Agreement pursuant to Section […***…] (but not including the giving of notice of termination following an extension to this Agreement pursuant to this Section 8.4(b)), if requested by Flexion in writing given at the same time as the giving of such notice of termination including the term of such additional supply, Patheon shall supply the Products pursuant to the terms of this Agreement for a period not to exceed a maximum of […***…] from the delivery of a notice of termination. For the avoidance of doubt, the termination date of this Agreement shall be deemed the date upon which the Parties have completed their obligations under this Section 8.4. Flexion acknowledges that, during such transition assistance period, no Patheon Competitor (being a Person that derives greater than […***…]% of its revenues from performing contract pharmaceutical or biopharmaceutical development or commercial manufacturing services) will be

 

 

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permitted access to portions of the Facility other than those dedicated to the Manufacture of the Product.

ARTICLE IX. INDEMNIFICATION

9.1 Flexion Indemnification Obligations . Flexion shall indemnify Patheon, its Affiliates, and their respective directors, officers, employees, and agents (the “ Patheon Indemnified Parties ”), and defend and save each of them harmless, from and against any and all (a) Third Party Losses incurred by any of them in connection with, arising from, or occurring as a result of (i) the breach by Flexion of any of its obligations under this Agreement; (ii) the breach or inaccuracy of any representation or warranty made by Flexion in this Agreement, (iii) any negligence or willful misconduct by Flexion or any of its Affiliates, (iv) any claim made by any Person that the Manufacture and supply of the Product in accordance with the terms hereof infringes or misappropriates the patent, trademark, or other intellectual property rights of such Person, and (v) any product liability claim made by any Person with respect to any Product Manufactured in accordance with the terms hereof, except to the extent liability is based on a Patheon Nonconformance or (b) any Loss incurred by any of them as a direct result of and to the extent of the negligence or willful misconduct of the Flexion On Site Representatives at the Facility except, in each case, for those Losses for which Patheon has an obligation to indemnify the Flexion Indemnified Parties pursuant to Section 9.2, as to which Losses each Party shall indemnify the other to the extent of their respective liability for such Losses and provided, however, that Flexion will not be required to indemnify the Patheon Indemnified Parties with respect to any such Loss hereunder to the extent the same is caused by any breach of contract, negligent act or omission, or intentional misconduct by any Patheon Indemnified Parties. For the avoidance of doubt, the parties acknowledge that Patheon has not and will not conduct any freedom to operate searches in relation to the Product and/or Flexion’s Manufacturing Process nor reviewed any third party patents in relation thereto and that Patheon’s failure or omission to do so will not be considered negligence for the purposes of excluding or limiting a claim under this indemnity.

9.2 Patheon Indemnification Obligations . Patheon shall indemnify Flexion, its Affiliates, and their respective directors, officers, employees, and agents (the “ Flexion Indemnified Parties ”), and defend and save each of them harmless, from and against any and all (a) Third Party Losses incurred by any of them resulting from, or relating to, any claim of personal injury or property damage to the extent that the injury or damage is in connection with, arising from, or occurring as a result of (i) the breach or inaccuracy of any representation or warranty made by Patheon in this Agreement, (ii) any negligence or willful misconduct by Patheon or any of its Affiliates; and (iii) any product liability claim made by any Person with respect to any Product Manufactured by Patheon to the extent any such liability is based on or caused by a Patheon Nonconformance; (b) Third Party Losses incurred by any of them in connection with, arising from, or occurring as a result of a claim that any Existing Patheon Intellectual Property or Patheon Improvement used by Patheon in its Manufacture of the Product infringes or misappropriates the patent, trademark, or other intellectual property rights of such Person; except, in each case, for which Flexion has an obligation to indemnify the Patheon Indemnified Parties pursuant to Section 9.1, as to which Losses each Party shall indemnify the other to the extent of their respective liability for such Losses and provided, however, that Patheon will not be required to indemnify the Flexion Indemnified Parties with respect to any

 

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such Loss hereunder to the extent the same is caused by any breach of contract, negligent act or omission, or intentional misconduct by Flexion Indemnified Parties.

9.3 Indemnification Procedure .

(a) Notice of Claim . The indemnified Party (the “ Indemnified Party ”) shall give the indemnifying Party (the “ Indemnifying Party ”) prompt written notice (an “ Indemnification Claim Notice ”) of any Loss, action, or discovery of facts upon which such Indemnified Party intends to base a request for indemnification under Section 9.1 or 9.2 (a “ Claim ”), but in no event shall the Indemnifying Party be liable for any Losses that result from any delay in providing such notice. Each Indemnification Claim Notice must contain a description of the claim and the nature and amount of such Loss (to the extent that the nature and amount of such Loss are known at such time). The Indemnified Party shall furnish promptly to the Indemnifying Party copies of all papers and official documents received in respect of any Losses upon which it intends to seek indemnification.

(b) Control of Defense . At its option, the Indemnifying Party may assume the defense of any Claims by giving written notice to the Indemnified Party within […***…] days after the Indemnifying Party’s receipt of an Indemnification Claim Notice; provided that the assumption of the defense of a Claim by the Indemnifying Party shall not be construed as an acknowledgment that the Indemnifying Party is liable to indemnify any Indemnified Party in respect of the Claim, nor shall it constitute a waiver by the Indemnifying Party of any defenses it may assert against any Indemnified Party’s Claim. Upon assuming the defense of a Claim, the Indemnifying Party may appoint as lead counsel in the defense of such Claim any legal counsel selected by the Indemnifying Party. In the event the Indemnifying Party assumes the defense of a Claim, the Indemnified Party shall immediately deliver to the Indemnifying Party all original notices and documents (including court papers) received by any Indemnified Party in connection with the Claim. Subject to clause (c) below, if the Indemnifying Party assumes the defense of a Claim, the Indemnifying Party shall not be liable to the Indemnified Party for any legal expenses subsequently incurred by such Indemnified Party in connection with the analysis, defense, or settlement of such Claim. In the event that it is ultimately determined that the Indemnifying Party is not obliged to indemnify, defend, or hold harmless an Indemnified Party from and against any Claim, the Indemnified Party shall reimburse the Indemnifying Party for any and all costs and expenses (including attorneys’ fees and costs of suit) and any Losses incurred by the Indemnifying Party in its defense of such Claim.

(c) Right to Participate in Defense . Without limiting Section 9.3(b), any Indemnified Party shall be entitled to participate in, but not control, the defense of a Claim and to employ counsel of its choice for such purpose; provided,

 

 

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however, that such employment shall be at the Indemnified Party’s own expense unless (i) the employment thereof has been specifically authorized by the Indemnifying Party in writing, (ii) the Indemnifying Party has failed to assume the defense and employ counsel in accordance with Section 9.3(b) (in which case the Indemnified Party shall control the defense), or (iii) the interests of the Indemnified Party and the Indemnifying Party with respect to such Claim are sufficiently adverse to prohibit the representation by the same counsel of both Parties under Applicable Law, ethical rules, or equitable principles.

(d) Settlement . With respect to any Losses (i) relating solely to the payment of money damages in connection with a Claim, (ii) that will not result in the Indemnified Party becoming subject to injunctive or other relief or otherwise adversely affect the business or reputation of the Indemnified Party in any manner, and (iii) as to which the Indemnifying Party has acknowledged in writing the obligation to indemnify the Indemnified Party hereunder, the Indemnifying Party shall have the sole right to consent to the entry of any judgment, enter into any settlement, or otherwise dispose of such Loss, on such terms as the Indemnifying Party, in its sole discretion, shall deem appropriate. With respect to all other Losses in connection with Claims, where the Indemnifying Party has assumed the defense of the Claim in accordance with Section 9.3(b), the Indemnifying Party shall have authority to consent to the entry of any judgment, enter into any settlement, or otherwise dispose of such Loss; provided that it obtains the prior written consent of the Indemnified Party, which consent shall not be unreasonably withheld or delayed. The Indemnifying Party shall not, without the prior written consent of the Indemnified Party, agree to any settlement or acquiesce to any judgment with respect to a Claim that obligates the Indemnified Party to pay any amount subject to indemnification by the Indemnifying Party or causes the Indemnified Party to admit to any civil or criminal liability.

(e) Cooperation . If the Indemnifying Party chooses to defend or prosecute any Claim, the Indemnified Party shall cooperate in the defense or prosecution thereof and shall, at the Indemnifying Party’s expense, furnish such records, information, and testimony, provide such witnesses, and attend such conferences, discovery proceedings, hearings, trials, and appeals as may be reasonably requested in connection therewith. Such cooperation shall include access during normal business hours afforded to the Indemnifying Party to, and reasonable retention by the Indemnified Party of, records and information that are reasonably relevant to such Claim, and making employees and agents available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder, and the Indemnifying Party shall reimburse the Indemnified Party for all its time and reasonable out-of-pocket expenses in connection therewith.

(f) Expenses . Except as provided above, the reasonable and verifiable costs and expenses, including fees and disbursements of counsel, incurred by the Indemnified Party in connection with any Claim shall be reimbursed on a monthly basis in arrears by the Indemnifying Party, without prejudice to the

 

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Indemnifying Party’s right to contest the Indemnified Party’s right to indemnification and subject to refund in the event the Indemnifying Party is ultimately held not to be obliged to indemnify the Indemnified Party.

9.4 Insurance . During the Term and for […***…] thereafter, each Party shall procure and maintain at its own expense from a qualified and licensed insurer liability insurance or indemnity policies, in an amount not less than $[…***…] in the aggregate with respect to public and products liability, subject to such deductible or self-retention limits as either Party in its business discretion may elect. Such policies shall insure against liability on the part of each Party and any of its Affiliates, as their interests may appear, due to injury, disability, or death of any person or persons, or injury to property, arising from the distribution of the Products. Each Party will either (a) include the other Party and its officers and employees and consultants as additional insureds on such policies, or (b) ensure that such policy contains an indemnity to principal clause. Promptly following the execution of this Agreement, each Party shall provide to the other a certificate of insurance (i) summarizing the insurance coverage and (ii) identifying any exclusions. Each Party shall promptly notify the other of any material adverse alterations to the terms of this policy or decreases in the amounts for which insurance is provided.

9.5 Limitation on Damages

(a) Maximum Liability . Except with respect to (i) […***…] of Patheon or (ii) for damages incurred by Flexion arising from, or occurring as a result of a claim by a Third Party that any […***…] used by Patheon in its Manufacture of the Product […***…] or (iii) breaches of […***…], Patheon’s maximum liability to Flexion under this Agreement for any reason whatsoever, including, without limitation, any liability arising under Sections 2.7, 2.8, 3.10, 3.12 or 9.2 hereof or resulting from any and all breaches of its representations, warranties, or any other obligations under this Agreement in each calendar year (liability cap pro-rated for part calendar years) will not exceed […***…]% of the revenues received by Patheon pursuant to this Agreement in the […***…] period prior to the month in which the underlying event occurred that gave rise to the liability (e.g. the date of the incident or manufacture).

(b) NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR (I) ANY (DIRECT OR INDIRECT) LOSS OF PROFITS, OF PRODUCTION, OF ANTICIPATED SAVINGS, OF BUSINESS, OF GOODWILL OR OF USE OF THE PRODUCT OR COSTS OF ANY SUBSTITUTE SERVICES OR (II) ANY OTHER LIABILITY, DAMAGE, COST OR EXPENSE OF ANY KIND INCURRED BY THE OTHER PARTY OF AN INDIRECT OR CONSEQUENTIAL NATURE, REGARDLESS OF ANY

 

 

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NOTICE OF THE POSSIBILITY OF THE DAMAGES. NOTWITHSTANDING THE FOREGOING, NOTHING IN THIS PARAGRAPH IS INTENDED TO LIMIT OR RESTRICT DAMAGES AVAILABLE FOR […***…].

(c) The limitations set forth in Sections 9.5(a) and 9.5(b) shall not act to exclude or limit either Party’s liability for (i) personal injury or death caused by the negligence of that Party, or for (ii) fraudulent misrepresentation.

(d) Sole & Exclusive Remedies . Notwithstanding anything in this Article IX to the contrary:

(i) Except as described in Section 9.5(c) above and except for Patheon’s indemnification obligations set forth in Section 9.2, Patheon’s sole liability and Flexion’s sole and exclusive remedy whether in contract, tort, equity or otherwise for Non-Conforming Product based on or caused by a Patheon Nonconformance shall be the rights and remedies set forth in Section 2.8, 3.10 and 3.12 of this Agreement and in Section 8.2(a)(iii) of this Agreement.

(ii) Patheon’s sole liability and Flexion’s sole and exclusive remedy whether in contract, tort, equity or otherwise for Patheon’s failure to Manufacture the full quantity of Product specified in a Purchase Order by the Agreed Delivery Date shall be the rights and remedies set forth in Section 2.7 and Section 8.2(a)(iii) of this Agreement.

9.6 Product Liability Claims . As soon as it becomes aware, each Party will give the other prompt written notice of any defect or alleged defect in a Product, any injury alleged to have occurred as a result of the use or application of the Product, and any circumstances that may give rise to litigation or recall of a Product or regulatory action that may affect the sale or Manufacture of a Product, specifying, to the extent the Party has such information, the time, place, and circumstances thereof and the names and addresses of the persons involved. Each Party will also furnish promptly to the other copies of all papers received in respect of any claim, action, or suit arising out of such alleged defect, injury, or regulatory action.

9.7 Allocation of Risk . This Agreement (including, without limitation, this ARTICLE IX) is reasonable and creates a reasonable allocation of risk for the relative profits the Parties each expect to derive from the Products.

ARTICLE X. MISCELLANEOUS

10.1 Notices . Notwithstanding that advance notification of any notices or other communications may be given by electronic mail transmission, all notices or other communications that shall or may be given pursuant to this Agreement shall be in writing

 

 

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(including by confirmed receipt electronic mail) and shall be deemed to be effective (a) when delivered if sent by registered or certified mail, return receipt requested, or (b) on the next business day, if sent by overnight courier, (c) when sent if sent by electronic mail provided that receipt is confirmed, in each case to the Parties at the following addresses (or at such other addresses as shall be specified by like notice) with postage or delivery charges prepaid:

If to Flexion:

Flexion Therapeutics, Inc.

Attn: Michael Clayman, MD

Telephone: […***…]

Email: […***…]

With a copy to: Legal

If to Patheon:

Attention:

Patheon UK Limited

Executive Director & General Manager

Kingfisher Drive, Covingham

Swindon, Wiltshire SN3 5BZ

England

Email: […***…]

with copy to

Legal Director.

10.2 Force Majeure . Neither Party shall be liable for delay in delivery, performance or nonperformance, in whole or in part, nor shall the other Party have the right to terminate this Agreement except as otherwise specifically provided in this Section 10.2 where such delay in delivery, performance or nonperformance results from acts beyond the reasonable control and without the fault or negligence of such Party including, but not limited to, the following conditions: fires, floods, storms, embargoes, shortages, epidemics, quarantines, war, acts of war (whether war be declared or not), terrorism, insurrections, riots, civil commotion, or acts, omissions, or delays in acting by any governmental authority; provided that the Party affected by such a condition shall, within five (5) days of its occurrence, give notice to the other Party stating the nature of the condition, its anticipated duration, and any action being taken to avoid or minimize its effect. The suspension of performance shall be of no greater scope and no longer duration than is reasonably required, and the nonperforming Party shall use its commercially reasonable efforts to remedy its inability to perform; provided, however, that in the event the suspension of performance continues for […***…] days after the date of the occurrence, and such failure to perform would constitute a material breach of this Agreement in the absence of such force majeure event, the non-affected Party may terminate this Agreement immediately by written notice to the affected Party.

 

 

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10.3 Independent Contractor . The Parties to this Agreement are independent contractors. Nothing contained in this Agreement shall be construed to place the Parties in the relationship of employer and employee, partners, principal, and agent or a joint venture. Neither Party shall have the power to bind or obligate the other Party nor shall either Party hold itself out as having such authority.

10.4 Waiver . Save where expressly stated in Sections 2.8 and 8.2(a)(iii), no waiver by either Party of any provision or breach of this Agreement shall constitute a waiver by such Party of any other provision or breach, and no such waiver shall be effective unless made in writing and signed by an authorized representative of the Party against whom waiver is sought. No course of conduct or dealing between the Parties will act as a modification or waiver of any provision of this Agreement. Either Party’s consent to or approval of any act of the other Party shall not be deemed to render unnecessary the obtaining of that Party’s consent to or approval of any subsequent act by the other Party.

10.5 Entire Agreement . This Agreement (together with all Exhibits and Schedules hereto, which are hereby incorporated by reference), the Quality Agreement, and the Technical Transfer Agreement constitute the final, complete, and exclusive agreement between the Parties relating to the subject matter hereof and supersede all prior conversations, understandings, promises, and agreements relating to the subject matter hereof, including without limitation that (i) certain Confidentiality Agreement dated September 22, 2014 between Flexion and Patheon and the Letter Agreement, and (ii) that certain Patheon Partner External User Account/Access Form, Client Agreement and Authorization signed by Flexion on June 5, 2015.

Neither Party has relied upon any communications, representations, terms or promises, verbal or written, not set forth herein. No terms, provisions or conditions of any purchase order or other business form or written authorization used by Flexion or Patheon will have any effect on the rights, duties, or obligations of the Parties under or otherwise modify this Agreement, regardless of any failure of Flexion or Patheon to object to the terms, provisions, or conditions unless the document specifically refers to this Agreement and is signed by both Parties.

10.5A Assignment; Change of Control . This Agreement may not be assigned by Patheon without the prior written consent of Flexion. Notwithstanding the foregoing, either Party may assign this Agreement to an Affiliate or to an acquirer or successor in interest in connection with a Change of Control of such Party without the prior written consent of the other Party, provided that such Party provides the other Party with written notice of any such assignment. This Agreement shall be binding upon and inure to the benefit of Flexion and Patheon and their respective successors, heirs, executors, administrators, and permitted assigns. “ Change of Control ” means the closing of (a) a merger, consolidation or similar transaction providing for the acquisition of the direct or indirect ownership of more than fifty percent (50%) of a Party’s shares or similar equity interests or voting power of the outstanding voting securities or that represents the power to direct the management and policies of such Party (including any acquisition arising through the offering of any shares of Patheon or any of its Affiliates on any securities or stock exchange), or (b) the sale of all or substantially all of a Party’s assets related to the subject matter of the Agreement.

 

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10.6 Amendment; Modification . This Agreement may not be amended, modified, altered, or supplemented except by a writing signed by both Parties. No modification of any nature to this Agreement and no representation, agreement, arrangement, or other communication shall be binding on the Parties unless such is expressly contained in writing and executed by the Parties as an amendment to this Agreement. This Agreement may not be amended in any respect by any purchase order, invoice, acknowledgment, or other similar printed document issued by either Party.

10.7 Governing Law

(a) The laws of […***…], whether procedural or substantive (but excluding application of any choice of law provisions contained therein) shall apply to all matters pertaining only to (a) title to and ownership of Materials, Equipment or the Facility, and its appurtenances including, without limitation, all rights therein and the creation, exercise and extinction of such rights, obligations and liabilities or (b) employment law matters. In relation to such matters, both Parties shall submit to the exclusive jurisdiction of the […***…] Courts. For the avoidance of doubt, the Parties agree that nothing in this Agreement shall (i) grant Flexion any property ownership rights in the Facility or (ii) shall constitute a lease to the Facility.

(b) In all other respects, this Agreement shall be construed under and governed by the laws of […***…] without regard to the application of principles of conflicts of law. In relation to such matters, both Parties shall submit to the exclusive jurisdiction of […***…].

(c) Any preliminary issue over which of sub-section 10.7(a) or (b) applies to a particular claim or dispute shall be determined in accordance with provisions of 10.7(a).

(d) The Parties expressly exclude the application of the United Nations Convention on Contracts for the International Sale of Goods, if applicable.

10.8 Compliance with Applicable Laws . Each Party and its Affiliates, and their respective representatives, shall comply with all applicable laws, rules and regulations in the performance of their obligations under this Agreement. Without limiting the foregoing, each Party and its Affiliates, and their respective representatives, shall comply with export control laws and regulations of the country of Manufacture and of the United States. Neither Party nor its Affiliates (or representatives) shall, directly or indirectly, without prior U.S. government authorization, export, re-export, or transfer the Product to any country subject to a U.S. trade embargo, to any resident or national of any country subject to a U.S. trade embargo, or to any person or entity listed on the “Entity List” or “Denied Persons List” maintained by the

 

 

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U.S. Department of Commerce or the list of “Specifically Designated Nationals and Blocked Persons” maintained by the U.S. Department of Treasury. In so far as the same applies to a Party or its Affiliates, each Party and its Affiliates and respective representatives shall comply with the requirements of the Foreign Corrupt Practices Act of 1977 (15 U.S.C. § 78dd-1, et seq.).

10.9 Dispute Resolution .

(a) The Parties recognize that disputes may arise from time to time during the Term of this Agreement. It is the objective of the Parties to establish procedures to facilitate the resolution of such disputes arising under this Agreement in an expedient manner by mutual cooperation. To accomplish this objective, the Parties agree to follow the procedures set forth in this Section 10.9 if and when a dispute arises under this Agreement.

(b) Unless otherwise specifically recited in the Agreement, disputes between the Parties under this Agreement will be first referred to the Project Manager of each Party as soon as reasonably possible after such dispute has arisen. If the Project Managers are unable to resolve such a dispute within fifteen (15) days of being requested by a Party to resolve such dispute, either Party may, by written notice to the other, have such dispute referred to the Steering Committee. If the Steering Committee is unable to resolve such dispute within thirty (30) days of being requested by a Party to resolve such dispute, each Party shall have the right, pursuant to written notice, to refer such dispute to the […***…] of each Party for attempted resolution by negotiations within thirty (30) days after such written notice is received. If the […***…] are unable to resolve such dispute within thirty (30) days of being requested by a Party to resolve such dispute, each Party shall have the right to pursue any remedies available to it at law or in equity.

10.10 Securities Authorities and Stock Exchange Filings; Press Releases; Use of Trademarks .

(a) The Parties shall coordinate in advance with each other in connection with (i) a Party’s decision to file this Agreement with any securities authority or with any stock exchange on which securities issued by a Party or its Affiliate are traded, or (ii) any other disclosure of information pertaining to this Agreement as otherwise required by the rules and regulations of the Securities and Exchange Commission or any other securities authority or stock exchange on which securities issued by a Party or its Affiliates are traded, and, in each such instance, (a) the filing Party will provide the other Party at least ten (10) business days to review a draft redacted version of this Agreement, and (b) both Parties shall work together in good faith to agree on the disclosure to be made, having due and proper regard to their legal obligations; provided that the filing Party subject to such rules and regulations shall ultimately retain control over what information to disclose to any securities authority or stock exchange. Each filing Party shall use reasonable efforts to seek confidential treatment for terms proposed to be redacted; provided that the Parties shall use their reasonable efforts to file redacted versions with any governing bodies which are consistent with redacted versions previously filed with any other governing bodies.

 

 

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Other than such obligations, neither Party (nor any of its Affiliates) shall be obligated to consult with or obtain approval from the other Party with respect to any filings to any securities authority or stock exchange.

(b) Except for the filings described in Section 10.10(a) above, the Parties agree not to disclose in any press release or other public statement any terms or conditions of this Agreement to any Third Party without the prior consent of the other Party. Neither Party shall (a) issue a press release or make any other public statement that references this Agreement or (b) use the other Party’s or the other Party’s Affiliates’ names or trademarks for publicity or advertising purposes, except with the prior written consent of the other Party. Each Party agrees that it shall cooperate fully and in a timely manner with the other with respect to all disclosures to the Securities and Exchange Commission or any other governmental or regulatory agencies, including requests for confidential treatment of Proprietary Information of either Party included in any such disclosure.

10.11 Severability . If any provision of this Agreement is found by a proper authority to be unenforceable, that provision to the extent it is found to be unenforceable or invalid shall be severed and the remainder of the provision and this Agreement will continue in full force and effect. The Parties shall use their best efforts to agree upon a valid and enforceable provision as a substitute for any invalid or unenforceable provision, taking in to account the Parties’ original intent of this Agreement.

10.12 Construction . Unless the context of this Agreement otherwise requires: (a) words of any gender include each other gender; (b) words using the singular or plural number also include the plural or singular number, respectively; (c) the terms “hereof,” “herein,” “hereby,” and derivative or similar words refer to this entire Agreement; (d) the terms “Article,” “Section,” “Exhibit,” “Schedule,” or “clause” refer to the specified Article, Section, Exhibit, Schedule, or clause of this Agreement; (e) “or” is disjunctive but not necessarily exclusive; and (f) the term “including” or “includes” means “including without limitation” or “includes without limitation.” Whenever this Agreement refers to a number of days, such number shall refer to calendar days unless business days are specified. The captions and headings of this Agreement are for convenience of reference only and in no way define, describe, extend, or limit the scope or intent of this Agreement or the intent of any provision contained in this Agreement. The language of this Agreement shall be deemed to be the language mutually chosen by the Parties, and no rule of strict construction shall be applied against either Party hereto.

10.13 Third Party Beneficiaries . This Agreement is not intended to confer upon any non-party rights or remedies hereunder, except as may be received or created as part of a valid assignment.

10.14 Further Assurances . Each of the Parties agrees to duly execute and deliver, or cause to be duly executed and delivered, such further instruments and do and cause to be done such further acts and things, including the filing of such additional assignments, agreements, documents, and instruments, that may be necessary or as the other Party hereto may at any time and from time to time reasonably request in connection with this Agreement or to

 

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carry out more effectively the provisions and purposes of, or to better assure and confirm unto such other Party its rights and remedies under, this Agreement.

10.15 Counterparts . This Agreement may be signed in counterparts, each and every one of which shall be deemed an original. Electronic or Facsimile signatures shall be treated as original signatures.

10.16 […***…]

[The remainder of this page is left blank intentionally.]

 

 

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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first written above.

 

PATHEON UK LIMITED :     FLEXION THERAPEUTICS, INC. :
By:  

/s/ A.M. Botterill

    By:  

/s/ Michael D. Clayman, M.D.

Name:  

A.M. Botterill

    Name:  

Michael D. Clayman, M.D.

Title:  

Exec. Dir. & Gen. Manager

    Title:  

CEO

 

[…***…]

 

 

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Schedule 2.9

[…***…]

 

 

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Omitted pages have been filed separately with the Commission.

64-65


Schedule 1.60

[…***…]

 

 

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Omitted pages have been filed separately with the Commission.

66-71


Schedule 1.62

[…***…]

 

 

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72


Schedule 1.82

[…***…]

 

 

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73


Schedule 2.1(a)

 

I. […***…]

 

 

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Omitted pages have been filed separately with the Commission.

74-80


Schedule 6.4(a)

[…***…]

 

 

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Omitted pages have been filed separately with the Commission.

81-83


Schedule 8.4(a)

[…***…]

 

 

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84-85

Exhibit 10.2

TECHNICAL TRANSFER AND SERVICE AGREEMENT


***Text Omitted and Filed Separately

with the Securities and Exchange Commission.

Confidential Treatment Requested

Under 17 C.F.R. Sections 200.80(b)(4)

and 240.24b-2.

TECHNICAL TRANSFER AND SERVICE AGREEMENT

This TECHNICAL TRANSFER AND SERVICE AGREEMENT (this “ Agreement ”), dated as of July 31, 2015 (the “ Effective Date ”), is made by and between Flexion Therapeutics, Inc., a Delaware corporation having its principal place of business at 10 Mall Road, Suite 301, Burlington, Massachusetts, United States (“ Flexion ”), and Patheon UK Limited, a company incorporated in England and Wales having its principal place of business at Kingfisher Drive, Covingham, Swindon, SN35BZ, United Kingdom (“ Patheon ”). Flexion and Patheon are sometimes referred to herein individually as a “ Party ” and collectively as the “ Parties .”

RECITALS

WHEREAS, Flexion has a commercial interest in the Manufacture (as defined herein) and commercialization of FX006 drug product, an extended-release formulation of triamcinolone acetonide (TCA) which is manufactured using Flexion’s Manufacturing Process (the “ Product ”);

WHEREAS, concurrently herewith, the Parties are executing a manufacturing and supply agreement (the “ Manufacturing and Supply Agreement ”) pursuant to which Patheon would be a manufacturer and supplier of the Product; and

WHEREAS, in anticipation of the Manufacturing and Supply Agreement and the goods and services that Patheon will supply thereunder, the Parties desire to enter into a binding agreement pursuant to which Patheon would undertake certain technical transfer and construction services in order to validate and scale up portions of Flexion’s technology package and prepare Patheon’s facilities for the Manufacture of the Product;

NOW, THEREFORE, in consideration of the foregoing, the mutual promises and covenants of the Parties contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto, intending to be legally bound, do hereby agree as follows:

ARTICLE 1

DEFINITIONS

The following terms will have the meanings set forth below. Unless the context indicates otherwise, the singular will include the plural and the plural will include the singular. Any term not defined hereunder shall have the meaning ascribed to such term in the Manufacturing and Supply Agreement.

1.1 “ Act ” means the United States Federal Food, Drug and Cosmetic Act, as amended.

1.2 “ Additional Services ” means any services requested and approved by Flexion that supplement Patheon’s regular performance of the Services as described in Schedule 2.1(a) of the Manufacturing and Supply Agreement.

1.3 “ Affiliate(s) ” means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common

 

1


control with, such Person. For the purposes of this Section 1.3 only, a Person will be regarded as in control of another Person if such Person owns, or directly or indirectly controls, more than 50% of the voting securities (or comparable equity interests) or other ownership interests of the other Person, or if such Person directly or indirectly possesses the power to direct or cause the direction of the management or policies of the other Person, whether through the ownership of voting securities, by contract, or any other means whatsoever.

1.4 “ Agreement ” has the meaning set forth in the preamble hereto.

1.5 “ API ” means the active pharmaceutical ingredient triamcinolone acetonide, micronized.

1.6 “ Applicable Law ” means applicable United States, Canadian, English and other foreign federal, state, and local laws, orders, rules, regulations, guidelines, standards, customs and ordinances, including, without limitation, those (to the extent they are applicable) of the FDA, Health Canada, the Medicines and Healthcare Products Regulatory Agency in the United Kingdom and other comparable foreign Regulatory Authorities, including the Food Drug and Cosmetic Act.

1.7 “ Base Fee ” means the monthly fee paid by Flexion in consideration for the Services, as more specifically set forth in Schedule 2.1(a) of the Manufacturing and Supply Agreement. For the avoidance of doubt, Base Fees do not include Capital Expenditures, Product Fees (as defined in the Manufacturing and Supply Agreement), Material Costs (as defined in the Manufacturing and Supply Agreement), or charges for Bill Back Items or Additional Services.

1.8 “ Bill Back Items ” means items and services set forth in Schedule 2.1(a) of the Manufacturing and Supply Agreement that are used or necessary in connection with the Manufacture of the Products and which result in a nominal cost to Flexion.

1.9 “ Capital Expenditures ” has the meaning set forth in Section 2.2.

1.10 “ Certificate of Analysis ” has the meaning set forth in Section 1.8a of the Manufacturing and Supply Agreement.

1.11 “ Change of Control ” has the meaning set forth in Section 9.6.

1.12 “ Claim ” has the meaning set forth in Section 7.3(a).

1.13 “ Completion of the Tech Transfer ” has the meaning set forth in Section 8.2.

1.14 “ Control ” or “ Controlled ” means ownership or the right by a Party to assign or grant a license or sublicense under intellectual property rights to the other Party of the scope set forth herein, without breaching the terms of any agreement with a Third Party.

1.15 “ Discretionary Manufacturing Changes ” has the meaning set forth in Exhibit 2.1-F.

1.16 “ Effective Date ” has the meaning set forth in the Preamble.

 

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1.17 “ EMA ” means the European Medicines Agency.

1.18 “ Equipment ” means any equipment used in the Manufacture of the Product as more fully set forth in Section 2.9 of the Manufacturing and Supply Agreement.

1.19 “ Exploit ” means to make, have made, import, use, sell, offer for sale, receive or otherwise dispose of the Product or process, including the research, development (including the conduct of clinical trials), registration, modification, enhancement, improvement, Manufacture, storage, formulation, optimization, export, transport, distribution, promotion, or marketing of the Product or process.

1.20 “ Facility ” means the facility of Patheon located at Kingfisher Drive, Swindon, Wiltshire SN3 5BZ, United Kingdom.

1.21 “ FDA ” means the United States Food and Drug Administration and any successor organization thereto and all agencies under its direct control.

1.22 “ Flexion ” has the meaning set forth in the Preamble.

1.23 “ Flexion Indemnified Parties ” has the meaning set forth in Section 7.2.

1.24 “ Flexion Manufacturing Equipment ” has the meaning set forth in Exhibit 2.1-F .

1.25 “ Flexion’s Manufacturing Process ” means the proprietary process owned or Controlled by Flexion for Manufacturing the Product as disclosed by Flexion to Patheon, and each intermediate of the Product, as established as of the Effective Date, including, without limitation, as set forth in the investigational new drug application filed with the FDA (“ IND ”) and, when applicable, as set forth in the NDA as may be filed with, and approved by, the FDA.

1.26 “ Flexion On Site Representative ” has the meaning set forth in Section 0(a).

1.27 “ GMP ” means the current good manufacturing practices applicable from time to time to the Manufacturing of the Product, or any intermediate of the Product, pursuant to Applicable Law, including those promulgated under the Act at 21 C.F.R. (chapters 210 and 211), and those promulgated under EC Directive 2003/94/EC, together with the latest FDA and EMA guidance documents pertaining to manufacturing and quality control practices, all as updated, amended and revised from time to time.

1.28 “ Indemnification Claim Notice ” has the meaning set forth in Section 7.3(a).

1.29 “ Indemnified Party ” has the meaning set forth in Section 7.3(a).

1.30 “ Indemnifying Party ” has the meaning set forth in Section 7.3(a).

1.31 “ Key Technical Assumptions ” has the meaning set forth in Exhibit 2.1-D .

1.32 “ Loss ” means any claims, lawsuits, losses, damages, liabilities, penalties, costs, and expenses (including reasonable attorneys’ fees and disbursements).

 

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1.33 “ Maintenance ” means the maintenance of Equipment and Facilities in satisfactory operating condition, including the performance of systematic inspection and service of Equipment pursuant to the applicable Standard Operating Procedures of Patheon, as reviewed and agreed to by Flexion (the “ Equipment Standard Operating Procedures ”), or the manufacturer’s terms of operation and recommended procedures.

1.34 “ Make Good Costs ” has the meaning set forth in Section 8.11(c).

1.35 “ Manufacture ” and “ Manufacturing Services ” means the manufacturing, processing, formulating, sterilization, filling, packaging, labelling, storage, handling, and quality control testing of Materials or the Product as more particularly set out in Schedule 2.1(a) of the Manufacturing and Supply Agreement.

1.36 “ Manufacturing and Supply Agreement ” has the meaning set forth in the Recitals.

1.37 “ Manufacturing Suite ” means the manufacturing suite at the Facility capable of Manufacturing the Product pursuant to Flexion’s Manufacturing Process, whose footprint is attached as Exhibit 2.1-A, together with the areas identified in the plan attached as Exhibit 2.1-A as the areas for the bulk powder Manufacture and bulk vial filling and, pursuant to the terms of Section 2.10 of the Manufacturing and Supply Agreement, the Phase I Filling Space. The footprint of the Manufacturing Suite and the engineering approach shall be revised by the Parties in order to adapt the Manufacturing Suite to Flexion’s Manufacturing Process, as set forth in Section 2.1 hereto. Such footprint is diagrammatic in nature and is intended to generally depict the location and approximate size of current and future spaces allocated to Flexion. Such footprint may be amended to be specifically adapted to the Manufacture of the Product, and the Parties shall agree upon the definitive footprint, taking into account parameters such as the exact design of the space, space classifications, code requirements, equipment, materials, personnel, waste stream process flows, equipment sizing and utility requirements. For purposes of clarity, prior to the Phase III Manufacturing Suite Clearance Date (as defined in Section 2.10 of the Manufacturing and Supply Agreement), the definition of Manufacturing Suite shall include the Phase I Filling Space.

1.38 “ Materials ” means all API, excipients and processing aids, and processing, filling and packaging components, used in connection with the Manufacture of the Product and listed in Schedule 1.62 of the Manufacturing and Supply Agreement, as amended prior to Product launch, based on the Parties’ most recent usage experience rate, and to reflect changes to the Specifications.

1.39 “ NDA ” means the new drug application for a product, including the Product, requesting permission to place a drug on the market in accordance with 21 C.F.R. Part 314, and all supplements filed pursuant to the requirements of the FDA, including all documents, data, and other information filed concerning such product that are necessary for FDA approval to market such product in the Territory.

1.40 “ NDC ” means “national drug code,” a unique three-segment number, which is a universal product identifier for human drugs.

1.41 “ Party ” or “ Parties ” has the meaning set forth in the Preamble.

 

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1.42 “ Patheon ” has the meaning set forth in the Preamble.

1.43 “ Patheon Indemnified Parties ” has the meaning set forth in Section 7.1.

1.44 “ Patheon Manufacturing Equipment ” has the meaning set forth in Exhibit 2.1-F .

1.45 “ Person ” means an individual, sole proprietorship, partnership, limited partnership, limited liability partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, or other similar entity or organization, including a government or political subdivision, department, or agency of a government.

1.46 Not used.

1.47 “ Product ” has the meaning set forth in the Recitals hereto, in finished, unpackaged form, according to the Specifications.

1.48 “ Project Manager ” has the meaning set forth in Section 2.7(c).

1.49 “ Proprietary Information ” has the meaning given in the Manufacturing and Supply Agreement.

1.50 “ Quality Agreement ” has the meaning set forth in Section 3.1 of the Manufacturing and Supply Agreement.

1.51 “ Regulatory Approval ” means any and all approvals (including pricing and reimbursement approvals), licenses, registrations, or authorizations of any Regulatory Authority necessary to Exploit the Product in any country in the Territory, including any (a) approval of a Product, Marketing Authorization and supplements and amendments thereto; (b) pre- and post-approval marketing authorizations (including any prerequisite Manufacturing approval or authorization related thereto); (c) labelling approval; and (d) technical, medical, and scientific licenses.

1.52 “ Regulatory Authority ” means any applicable supra-national, federal, national, regional, state, provincial, or local regulatory agencies, departments, bureaus, commissions, councils, or other government entities regulating or otherwise exercising authority with respect to the Exploitation of the Product in the Territory.

1.53 “ Remediation Period ” has the meaning set forth in Section 8.5.

1.54 “ Required Manufacturing Changes ” has the meaning set forth in Exhibit 2.1-F.

1.55 “ Services ” means the (a) Manufacturing Services performed by Patheon pursuant to the Manufacturing and Supply Agreement; and (b) the Transfer Services performed by Patheon under this Agreement.

1.56 “ Specifications ” means the specifications for each presentation of Product ( i.e. , the dosage forms in Schedule 1.82 of the Manufacturing and Supply Agreement) given by

 

5


Flexion to Patheon relating to the specifications of the Materials; the manufacturing specifications, directions and processes; the storage requirements; all environmental, health and safety information for the Product including material safety data sheets and the finished Product specifications, specifications for bulk and primary packaging and shipping requirements for the Product, as amended, modified, or supplemented from time to time.

1.57 “ Steering Committee ” has the meaning set forth in Section 2.7(e).

1.58 “ Taxes ” means all forms of taxation and statutory, governmental, state, federal, provincial, local, government or municipal charges, duties, imposts, contributions, levies, withholding or liabilities wherever chargeable and whether of the United Kingdom or any other jurisdiction (including for the avoidance of doubt, national insurance contributions in the United Kingdom) and any penalty, fine, surcharge, interest, charge, charges or costs thereto.

1.59 “ Term ” has the meaning set forth in Section 8.1.

1.60 “ Territory ” means […***…] and other territories agreed by the Parties pursuant to Section 2.2(h) of the Manufacturing and Supply Agreement from time to time.

1.61 “ Third Party ” means a Person who is neither a Party nor an Affiliate of a Party.

1.62 “ Third Party Losses ” means Losses incurred as a result of claims brought by Third Parties.

1.63 “ Timeline ” has the meaning set forth in Section 2.1.

1.64 “ Transfer Services ” means the services rendered under this Agreement, as described in Section 2.1 and in the Exhibits attached to this Agreement, based on the Key Technical Assumptions stated therein.

1.65 “ VAT ” has the meaning set forth in Section 9.15(c).

 

 

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ARTICLE 2

TRANSFER SERVICES

2.1 Description of Transfer Services . Patheon will (a) provide engineering and construction services, directly or using third parties (pursuant to Section 9.8 hereto), to construct the Manufacturing Suite in accordance with the engineering approach and the footprints set forth in Exhibit 2.1-A of this Agreement, as it may be amended by mutual written agreement of the Parties, and the projected capital requirements set forth in Exhibit 2.1-B , (b) procure and/or validate the Equipment necessary to Manufacture the Product in accordance with Exhibit 2.1-F and perform the Transfer Services set forth in Exhibit 2.1-C , and (c) provide other services set forth in Exhibit 2.1-D in order to validate and implement Flexion’s Manufacturing Process for the Product in compliance with the Quality Agreement, GMP, all other Applicable Law and the Specifications and register the Facility to Manufacture the Product (collectively, the “ Transfer Services ”). Patheon will perform the Transfer Services, (i) to facilitate the Regulatory Approval of the Manufacturing Suite as the manufacturing, testing, and packaging sites for the Product, (ii) so that the Product is Manufactured and tested using Flexion’s Manufacturing Process including testing and releasing (pursuant to the terms of the Quality Agreement) all Materials according to the Specifications and test methods, including the Specifications set forth in the NDA when approved. Patheon will use its commercially reasonable efforts to complete the Transfer Services in a timely fashion in accordance with the schedule set forth in Exhibit 2.1-E (the “ Timeline ”). The Parties will cooperate with one another in the performance of this Agreement in good faith.

2.2 Payments for Transfer Services . The Parties acknowledge and agree that Patheon’s consideration for the Transfer Services performed hereunder is (a) the payment of the Base Fees, as set forth in Schedule 2.1(a) of the Manufacturing and Supply Agreement, (b) the payments associated with the Equipment, Manufacturing Suite construction and related process and support and validation services, each in accordance with the capital requirements set forth in Exhibit 2.1-B (together, the “ Capital Expenditures ”); (c) charges for Bill Back Items; and (d) charges for Additional Services. All payments from Flexion to Patheon hereunder shall be in British Pounds (GBP) and will be due and payable in accordance with the invoicing procedures set forth in ARTICLE IV of the Manufacturing and Supply Agreement. All invoices from Patheon to Flexion for Capital Expenditures shall include all (if any) applicable invoices from vendors for the supply, transportation, installation, and commissioning of the Equipment that pertain to the Transfer Services invoiced by Patheon. Flexion acknowledges that the amounts of Capital Expenditures are estimates and are subject to review once manufacturing details and process specification requirements have been confirmed, any necessary machine trials performed and upon receipt of formal quotations from the equipment suppliers; provided however that, in no event shall the Capital Expenditures exceed the amount set forth in Exhibit 2.1-B by more than […***…] percent ([…***…]%) unless otherwise mutually agreed by the Parties in writing.

2.3 Modifications . The Parties may modify and agree upon the definitive engineering approach, footprint of the Manufacturing Suite, or the Timeline, taking into account parameters such as the exact design of the space, space classifications, code requirements, Equipment,

 

 

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materials, personnel, waste stream process flows, equipment sizing and utility requirements. Any such modifications shall be discussed by the Parties and agreed to in writing including as to any consequential fees and costs or savings relating thereto, duly executed by the Parties.

2.4 Flexion’s Responsibilities .

(a) To assist Patheon in its performance of the Transfer Services under this Agreement, Flexion shall (i) at its expense provide Patheon in a timely fashion with relevant information, documentation, and data relating to (1) Flexion’s Manufacturing Process, (2) the Equipment necessary to Manufacture the Product in accordance with Flexion’s Manufacturing Process, and (3) Product safety and information, documentation, and data, including any applicable NDA numbers, NDC codes, “CMC” sections of NDAs, validation protocols, validation reports, method validation protocols, method validation reports, and other documents necessary or reasonably requested by Patheon for Patheon to Manufacture the Product, provide the Transfer Services or otherwise necessary for Patheon’s performance hereunder, and (ii) provide Flexion-Supplied Materials pursuant to Section 2.10. If requested by Patheon to provide support or information, Flexion shall use commercially reasonable efforts to provide such reasonable and necessary support or information in order to enable Patheon to perform the Transfer Services under this Agreement as soon as reasonably possible and in any event within […***…] business days of Patheon’s request (or will provide an explanation of the legitimate reason for any delay and a projected date by which such support or information will be provided). In the event Flexion is to review or approve any information, documentation, data, or samples prepared or supplied by or on behalf of Patheon, it will complete such review and approval process as soon as reasonably possible and in any event within […***…] business days of Patheon’s request.

(b) It is understood and acknowledged by the Parties that Flexion will retain ownership of the IND and NDA to the Product, and any supplements thereto, and is responsible for the NDA submission documents and all correspondence with the FDA and other competent Regulatory Authority concerning the Product, other than submission documents and correspondence associated with GMP inspections of the Facility; provided, however, that Section 2.9 of this Agreement and Sections 3.6 and 5.1 of the Manufacturing and Supply Agreement will govern the ownership of the intellectual property rights described or disclosed in such NDA and supplements.

(c) Flexion shall have the sole responsibility for the filing of all documents with all applicable Regulatory Authorities, and to take any other actions that may be required for the receipt of Regulatory Approval for the development or commercial manufacture of the Product (other than the licences, registrations and Regulatory Authority approvals to be obtained by Patheon pursuant to Section 3.3(b) of the Manufacturing and Supply Agreement). Flexion will, at its expense and in cooperation with Patheon, use commercially reasonable efforts to diligently and proactively pursue Regulatory Approval for Patheon’s Manufacture of the Product at the Facility in a timely fashion in accordance with the Timeline. Without limiting such obligation, Flexion shall be responsible for filing the NDA submission documents, drug listing the Product,

 

 

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and completing correspondence with the FDA concerning the Product. All documentation and data provided by Patheon in support of the NDA filing shall be accurate and true and will reflect the current processes and procedures in place at Patheon. Flexion shall provide Patheon with a copy of any Regulatory Approval relevant to this Agreement on request including any Regulatory Approval required for the storage, receipt or distribution of the Product by Flexion or its designee.

(d) Where documents or data generated by Patheon in relation to the Transfer Services are to be filed by Flexion with any Regulatory Authority and such filing includes data or information pertaining to a Patheon Regulatory Obligation within the meaning of Section 3.15 of the Manufacturing and Supply Agreement, prior to filing any such documents and data with the Regulatory Authority, Flexion shall provide Patheon with a copy of the documents incorporating such data so as to give Patheon the opportunity to review the accuracy of such documents as it relates to the Patheon Regulatory Obligation in accordance with the review and comment procedures set forth in Section 3.15 of the Manufacturing and Supply Agreement (including the process for resolution of inaccuracies set forth in Section 3.15(c) thereto). Notwithstanding anything in Section 3.15 of the Manufacturing and Supply Agreement to the contrary: (i) at least […***…] calendar days prior to filing with the Regulatory Authority any documentation which is or is equivalent to the Quality document portion (Drug Product section) of the U.S. Investigational New Drug application, the EU Clinical Trial application and Investigational Medicinal Product Dossier, the Common Technical Document module 3 (Drug Product section) of the US New Drug Application, U.S. Biological License Application, or the EU Marketing Authorization Application, as the case may be, Flexion shall provide Patheon with a copy of the Initial Draft (as defined in the Manufacturing and Supply Agreement) of such portion so as to permit Patheon to verify that the Initial Draft accurately describes the development and validation work Patheon has performed and the manufacturing and control processes that Patheon will perform pursuant to this Agreement; (ii) Patheon shall provide comments regarding such Initial Draft no later than […***…] days prior to the required filing date with the applicable Regulatory Authority (including notifying Flexion of any identified inaccuracies); and (iii) Flexion shall deliver a copy of the final version of the filing promptly after the required filing date.

2.5 Patheon’s Responsibilities . Patheon will, at its expense, in consideration for the payments and reimbursements set forth in Section 2.2, provide the Transfer Services and use its commercially reasonable efforts to complete the Transfer Services in a timely fashion in accordance with the Timeline. Patheon will provide to Flexion all data and documentation necessary or reasonably useful to support Flexion’s submissions to the FDA, or any responses to questions raised by the FDA with respect to those Transfer Services, that are necessary or reasonably useful for Regulatory Approval of the Facility as the manufacturing, testing, and packaging site for the Product.

2.6 Equipment . Patheon, acting as Flexion’s agent, shall purchase the Flexion Manufacturing Equipment on Flexion’s behalf. Title to all Flexion Manufacturing Equipment will be held by Flexion. The Parties shall procure, supply, install, commission and validate the

 

 

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Equipment in compliance with (a)  Exhibit 2.1-F ; (b) the capital requirements set forth in Exhibit 2.1-B and (c) the “Qualification and Validation” process set forth in Exhibit 2.1-C . Patheon is authorized to use the Flexion Manufacturing Equipment pursuant to Exhibit 2.1-F solely for the purposes of performing the Transfer Services and for the Manufacturing Services as set forth in the Manufacturing and Supply Agreement.

2.7 Flexion On Site Representatives; Reporting of Results; Project Managers; Steering Committee .

(a) Flexion shall have the right at all times throughout the Term to have […***…] representatives (or other number as reasonably requested by Flexion after discussion by the members of the Steering Committee) (each, a “ Flexion On Site Representative ”) present in that portion of the Facility that is being constructed or used to Manufacture the Product or store Materials, to observe the procedures and processes used to Manufacture the Product or to perform the activities associated with the transfer of Flexion’s Technology hereunder. The Flexion On Site Representatives shall have full access to the Manufacturing Suite and to the non-financial records that relate to the Product, and all records pertaining to any Materials and to Third Party invoices specifically invoiced by Patheon to Flexion as a Capital Expenditure or Bill Back Item. For the avoidance of doubt, the term “non-financial records” as used in this Agreement does not include the Reports (defined in Section 3.11 of the Manufacturing and Supply Agreement). Patheon shall provide reasonable (semi-permanent) on-site accommodations at the Facility for the Flexion On Site Representatives ( e.g. , office space). Flexion On Site Representatives shall be appropriately trained by Flexion (e.g. GMP training) and shall observe at all times Patheon’s policies and procedures (as amended from time to time) as they pertain to the Facility, including policies relating to health and safety and compliance with GMP; provided that Flexion is given notice of such policies and given a reasonable period of time to review and implement such policies. Flexion will comply with all reasonable directions of Patheon in relation to the same. Patheon may refuse or limit in its sole discretion at any time admission to the Facility by any Flexion On Site Representative who fails to observe such policies or comply with such reasonable directions. For the avoidance of doubt, Flexion On Site Representatives shall have (i) no management authority over any Patheon employee and (ii) no authority to conclude contracts on behalf of Flexion.

(b) Patheon will respond to Flexion’s inquiries regarding the status of the Transfer Services on an ongoing basis, and Patheon will endeavor to keep Flexion informed of interim results of the Transfer Services. Patheon will provide copies of all analytical, cleaning, and process validation protocols, data summaries, reports and all batch records, test methods, and specifications for Flexion’s review, comment, and approval prior to implementation and execution. Once such protocols, data summaries, reports, records, methods, and specifications have been approved and executed, Patheon will provide copies to Flexion. Patheon will provide Flexion with information relating to the Equipment to be used in connection with the Manufacture of the Product, which Equipment will be subject to Flexion’s review and approval (not to be unreasonably withheld or delayed). Within five (5) business days after Flexion’s

 

 

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request, Patheon will provide to Flexion documentation that summarizes the implementation efforts of the Transfer Services at the Facility.

(c) Patheon and Flexion will each appoint a project manager (each, a “ Project Manager ” and, together, the “ Project Managers ”), who will meet as needed to resolve any issues or problems associated with the Transfer Services. Flexion’s Project Manager may be one of the Flexion On Site Representatives. Flexion reserves the right to request replacement of any personnel assigned by Patheon to perform the Transfer Services hereunder. If Patheon disagrees with such request and the Parties cannot reach resolution on Flexion’s request for replacement, such request will be discussed by the Steering Committee pursuant to the procedures set forth in Exhibit 2.7 hereto.

(d) Patheon shall ensure that sufficient numbers of adequately educated and experienced staff are retained at the Facility in order to provide the Transfer Services. Patheon shall perform the Transfer Services under the direction of key personnel of Patheon to a project for the duration of the project (“ Key Personnel ”). Key Personnel include the Project Manager, Operational Manager, Quality Manager or other personnel reasonably agreed-to by the Parties. Patheon shall provide information on the qualifications and background of all proposed Key Personnel prior to such Key Personnel’s commencement of activities under this Agreement on Patheon’s behalf. Patheon will not remove Key Personnel without Flexion’s prior written consent (not to be unreasonably withheld, conditioned or delayed) except in the event of such Key Personnel’s promotion, resignation, incapacity or death, or termination for cause. Patheon will use commercially reasonable efforts to minimize turnover in Key Personnel, and will provide […***…] business days’ notice to Flexion, whenever practical, of any changes to the Key Personnel, at which point, both Parties shall discuss and reasonable agree on a suitable replacement.

(e) The Parties desire to establish a steering committee (the “ Steering Committee ”) as described in Exhibit 2.7 .

2.8 Dispute Resolution .

(a) The Parties recognize that disputes may arise from time to time during the term of this Agreement that relate to whether either Party has fulfilled its obligations hereunder. It is the objective of the Parties to establish procedures to facilitate the resolution of such disputes arising under this Agreement in an expedient manner by mutual cooperation. To accomplish this objective, the Parties agree to follow the procedures set forth in this Section 2.8 if and when a dispute arises under this Agreement.

(b) Unless otherwise specifically recited in the Agreement, disputes between the Parties under this Agreement will be first referred to the Project Manager of each Party as soon as reasonably possible after such dispute has arisen. If the Project Managers are unable to resolve such a dispute within […***…] days of being requested by a Party to resolve such dispute, either Party may, by written notice to the other, have such dispute referred to the

 

 

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Steering Committee. If the Steering Committee is unable to resolve such a dispute within […***…] day of being requested by a Party to resolve such dispute, either Party may, by written notice to the other, have such dispute referred to the […***…] of each Party for attempted resolution by negotiations within […***…] days after such notice received.

2.9 Ownership . The Parties’ intellectual property ownership rights relating to the subject matter of this Agreement shall be governed by ARTICLE V of the Manufacturing and Supply Agreement.

2.10 Materials . Patheon will purchase all Patheon-Supplied Materials (as defined in the Manufacturing and Supply Agreement) for the Transfer Services as set forth in Schedule 1.62 of the Manufacturing and Supply Agreement. Flexion shall purchase all Flexion-Supplied Materials (as defined in the Manufacturing and Supply Agreement) for the Transfer Services and ship such Flexion-Supplied Materials to Patheon in accordance with this Section 2.10 (except as otherwise mutually agreed to by the Parties in writing, in which case such Materials shall be considered Bill Back Items hereunder). All shipments from Flexion to Patheon will be made DDP (Incoterms 2010) the Facility unless otherwise agreed. All shipments of Flexion-Supplied Materials, if required, will be accompanied by Certificate(s) of Analysis from the Material manufacturer or Flexion, confirming its compliance with the Material’s specifications. Flexion will obtain the proper release of the Flexion-Supplied Materials from the applicable customs agency and Regulatory Authority. Flexion or Flexion’s designated broker will be the “Importer of Record” for Flexion-Supplied Materials imported to the Facility. Flexion-Supplied Materials will be held by Patheon on behalf of Flexion as set forth in this Agreement. Title to Flexion-supplied Materials will at all times remain the property of Flexion or a Flexion Affiliate. Any Flexion-Supplied Materials received by Patheon will only be used by Patheon to perform the Transfer Services or associated activities necessary to perform the Transfer Services (e.g., media fills or validation runs).

2.11 Bill Back Items . Bill Back Items will be charged to Flexion at Patheon’s cost plus a […***…]% handling fee. Patheon shall invoice Flexion monthly for any Bill Back Items used in connection with the Transfer Services during the preceding month in accordance with ARTICLE IV of the Manufacturing and Supply Agreement. Patheon may only invoice Bill Back Items that have been quoted to and approved in writing by Flexion’s Project Manager, or otherwise mutually agreed to by the parties in advance.

2.11A Additional Services . If Flexion is interested in having Patheon perform Additional Services, Flexion will provide Patheon with a written request containing sufficient detail to enable Patheon to provide Flexion with a quote and proposal to provide such Additional Services. Patheon may only invoice for Additional Services that have been quoted to and approved in writing by Flexion’s Project Manager and that have been agreed in writing by the Parties in a Change of Scope Agreement. Patheon shall invoice Flexion monthly for any Additional Services performed by Patheon during the preceding month in accordance with ARTICLE IV of the Manufacturing and Supply Agreement.

 

 

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2.12 Storage . Patheon will provide storage capacity to support storage of the required quantity of Materials necessary for Transfer Services which will be governed by Section 2.2(e) of the Manufacturing and Supply Agreement.

2.13 Shipping . Except to the extent set forth otherwise in this Agreement, any shipment from Patheon to Flexion, whether of Product, Materials or otherwise, shall be made pursuant to Section 2.3(e) of the Manufacturing and Supply Agreement.

2.14 Changes in Applicable Law . Should during the Term of this Agreement, a change or changes in Applicable Law lead to Patheon (a) providing services not originally contemplated by Patheon, or (b) incurring increased costs in order to comply with said change or changes, any such services or costs (to the extent pertaining to the Product or related to Flexion’s Manufacturing Process or the Flexion Manufacturing Equipment) shall constitute an Additional Service subject to mutual written agreement of the Parties; provided that, if such services or costs relate generically to the entire Facility then such costs to Flexion shall be prorated as applicable.

2.15 Base Fees . Patheon will invoice Flexion monthly in advance for the Base Fees, and such Base Fees will be due and payable, in accordance with the provisions and invoicing procedures set forth in ARTICLE IV of the Manufacturing and Supply Agreement.

ARTICLE 3

CONFIDENTIALITY

3.1 Confidentiality Obligations . The Parties agree that the terms of ARTICLE VII of the Manufacturing and Supply Agreement shall govern the confidentiality obligations of the Parties and are incorporated herein by this reference.

ARTICLE 4

FLEXION’S REPRESENTATIONS,

WARRANTIES, AND COVENANTS

4.1 Commercially Reasonable Efforts . Except where specifically stated to the contrary in this Agreement otherwise, Flexion will use its commercially reasonable efforts to perform Flexion’s obligations hereunder.

4.2 Additional Representations, Warranties, and Covenants of Flexion . Flexion warrants, represents, and covenants that as of the Effective Date the warranties, representations and covenants set out in Sections 6.4(a) of the Manufacturing and Supply Agreement shall apply to the performance of the Transfer Services.

 

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ARTICLE 5

PATHEON’S REPRESENTATIONS,

WARRANTIES, AND COVENANTS

Patheon represents, warrants, and covenants to Flexion as follows:

5.1 Commercially Reasonable Efforts . Except where specifically stated to the contrary in this Agreement otherwise, Patheon will use its commercially reasonable efforts to perform the Transfer Services in accordance with the agreed upon Timeline. In the event Patheon is not able to meet the Timeline, Patheon will provide written notice to Flexion of such inability as soon as practical, but in any event within […***…] of discovering such inability.

5.2 Qualified Personnel and Transfer Services . Patheon will engage and employ professionally qualified personnel to perform the Transfer Services contemplated hereunder. Patheon represents and warrants that there is no claim, suit, proceeding, or other investigation issued on Patheon, or to the knowledge of Patheon (after due inquiry), pending or threatened against Patheon, which is likely to prevent or materially adversely affect the rights and interests of Flexion hereunder or keep Patheon from performing its obligations hereunder.

5.3 Additional Representations, Warranties, and Covenants of Patheon . Patheon warrants, represents, and covenants that:

(a) (i) it has facilities, personnel, experience, and expertise sufficient in quality and quantity to perform the obligations hereunder, (ii) it shall so perform in conformity with GMPs where applicable, and (iii) its management shall establish, and Patheon shall observe and comply with, appropriate quality assurance, quality controls, and review procedures for implementation of the Transfer Services;

(b) it has at the Effective Date and shall during the Term observe and comply with, at (subject to Section 2.14) its sole cost and expense, all Applicable Laws now in force or that may hereafter be in force, including federal, state, and local laws, orders, regulations, rules, customs, and ordinances now in force or that may hereafter be in force pertaining to Patheon’s performance of the Transfer Services and the Facility and including, without limitation, (i) labor laws, orders, regulations, rules, customs, and ordinances and (ii) those of the FDA pertaining to Patheon’s performance of the Transfer Services and the Facility, and any laws, orders, regulations, rules, or ordinances issued in addition to, as a supplement to or as a replacement of Applicable Laws.

(c) none of it, its Affiliates, nor any Person under its direction or control has ever been, nor will it engage suppliers which have to its actual knowledge, after due inquiry, been, (i) debarred or convicted of a crime for which a person can be debarred, under Section 335(a) or 335(b) of the Act, or any equivalent Applicable Law of the country of Manufacture, (ii) threatened to be debarred under the Act or any equivalent Applicable Law of the country of Manufacture or (iii) indicted for a crime or otherwise (to its actual knowledge after due inquiry)

 

 

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engaged in conduct for which a person can be debarred under the FDA or any equivalent Applicable Law of the country of Manufacture, and Patheon agrees that it will, within […***…], notify Flexion in the event it receives notification of any such debarment, conviction, threat or indictment. Should Patheon become aware of any actual or suspected noncompliance with the foregoing, Patheon will notify Flexion in writing of such issue within […***…]. For the purpose of this Section 5.3, suppliers and subcontractors engaged by Patheon to undertake the Manufacture of the Product shall be deemed to be under Patheon’s direction or control;

(d) none of it, its Affiliates, nor any Person under its direction or control is currently excluded from a federal or state health care program under Sections 1128 or 1156 of the Social Security Act, 42 U.S.C. §§ 1320a-7, 1320c-5 or any equivalent Applicable Law of the country of Manufacture, as may be amended or supplemented;

(e) none of it, its Affiliates, nor any Person under its direction or control is otherwise currently excluded from contracting with the U.S. federal government or the government of the country of Manufacture;

(f) none of it, its Affiliates, nor any Person under its direction or control is otherwise currently excluded, suspended, or debarred from any U.S. or foreign governmental program;

(g) it shall immediately notify Flexion if, at any time during the Term, Patheon, its Affiliates, or any Person under its direction or control is convicted of an offense that would subject it or Flexion to exclusion, suspension, or debarment from any U.S. or foreign governmental program; and

(h) it will not enter into any agreement or arrangement with any other Person that would prevent its ability to perform its obligations hereunder.

5.4 Legal Compliance . Section 6.6 of the Manufacturing and Supply Agreement shall apply to this Agreement and any violation thereof by Patheon or its employees, agents, or contractors in the performance of this Agreement shall constitute a material default for the purpose of Section 8.5 of this Agreement.

5.5 Disclaimer . THE FOREGOING EXPRESS WARRANTIES AND THOSE IN ARTICLE 4 and ARTICLE 6 ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE, OR NONINFRINGEMENT, AND ALL OTHER WARRANTIES ARE HEREBY DISCLAIMED AND EXCLUDED BY EACH PARTY.

 

 

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ARTICLE 6

GENERAL REPRESENTATION AND WARRANTIES

Each Party represents, warrants, and covenants to the other as follows:

6.1 Power and Authorization . Such Party (a) is duly formed and in good standing under the laws of the jurisdiction of its formation, (b) has the power and authority and the legal right to enter into this Agreement and to perform its obligations hereunder, and (c) has taken all necessary action on its part required to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder.

6.2 Enforceability . This Agreement has been duly executed and delivered on behalf of such Party and constitutes a legal, valid, and binding obligation of such Party and is enforceable against it in accordance with its terms, subject to the effects of bankruptcy, insolvency, or other similar laws of general application affecting the enforcement of creditor rights and judicial principles affecting the availability of specific performance and general principles of equity, whether enforceability is considered a proceeding at law or equity. Except for the FDA’s approval of Patheon’s manufacturing, testing, and packaging for the Product from the Manufacturing Suite, all necessary consents, approvals, and authorizations of all Regulatory Authorities, other governmental authorities, and other Persons required to be obtained by such Party in connection with the execution and delivery of this Agreement and the performance of its obligations hereunder have been obtained.

6.3 No Conflict . The execution and delivery of this Agreement and the performance of such Party’s obligations hereunder (a) do not and will not conflict with or violate any requirement of Applicable Law or any provision of the articles of incorporation, bylaws, limited partnership agreement, or other constituent document of such Party and (b) do not and will not conflict with, violate, or breach, or constitute a default or require any consent under, any contractual obligation or court or administrative order by which such Party is bound.

6.4 Compliance with Applicable Law . Each Party and its Affiliates, and their respective representatives, shall comply with all Applicable Laws in the performance of their obligations under this Agreement. Without limiting the foregoing, each Party and its Affiliates, and their respective representatives, shall comply with export control laws and regulations of the country of Manufacture and of the United States. Neither Party nor its Affiliates (or representatives) shall, directly or indirectly, without prior U.S. government authorization, export, re-export, or transfer the Product to any country subject to a U.S. trade embargo, to any resident or national of any country subject to a U.S. trade embargo, or to any person or entity listed on the “Entity List” or “Denied Persons List” maintained by the U.S. Department of Commerce or the list of “Specifically Designated Nationals and Blocked Persons” maintained by the U.S. Department of Treasury. In so far as the same applies to a Party or its Affiliates, each Party and its Affiliates and respective representatives shall comply with the requirements of the Foreign Corrupt Practices Act of 1977 (15 U.S.C. § 78dd-1, et seq.).

 

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ARTICLE 7

INDEMNIFICATION

7.1 Indemnification by Flexion . Flexion will indemnify Patheon, its Affiliates, and their respective directors, officers, employees, and agents (the “ Patheon Indemnified Parties ”), and defend and save each of them harmless from and against any and all (i) Third Party Loss incurred by any of them in connection with, arising from, or occurring as a result of (a) any claim of personal injury or property damage to the extent that the injury or damage is the result of or arises other than from a breach of this Agreement by Patheon, (b) a claim that the Transfer Services performed by Patheon hereunder, in accordance with the terms and conditions of this Agreement, infringes or misappropriates a patent or any other intellectual property rights, if it is a claim related to the use of Flexion Manufacturing Equipment, Existing Flexion Intellectual Property (as defined in the Manufacturing and Supply Agreement), Flexion Improvements (as defined in the Manufacturing and Supply Agreement) or the Manufacturing Process or the Product, (c) any negligence or willful misconduct by Flexion or any of its Affiliates, or (d) any breach by Flexion of any of its obligations or any inaccuracy of any of Flexion’s warranties under this Agreement, or (ii) any Loss incurred by any of them as a direct result of and to the extent of the negligence or willful misconduct of the Flexion On Site Representatives at the Facility, except, in each case, for those Losses for which Patheon has an obligation to indemnify the Flexion Indemnified Parties pursuant to Section 7.2 below, as to which Losses each Party shall indemnify the other to the extent of their respective liability for such Losses; and provided, however, that Flexion will not be required to indemnify the Patheon Indemnified Parties with respect to any such Loss hereunder to the extent the same is caused by any breach of contract, negligent act or omission, or intentional misconduct by Patheon or any or its Affiliates. For the avoidance of doubt, the parties acknowledge that Patheon has not and will not conduct any freedom to operate searches in relation to the Product and/or Flexion’s Manufacturing Process nor reviewed any third party patents in relation thereto and that Patheon’s failure or omission to do so will not be considered negligence for the purposes of excluding or limiting a claim under this indemnity.

7.2 Indemnification by Patheon . Patheon will indemnify Flexion, its Affiliates, and their respective directors, officers, employees, and agents (the “ Flexion Indemnified Parties ”), and defend and save each of them harmless from and against any and all Third Party Loss incurred by any of them in connection with, arising from, or occurring as a result of (a) any claim of personal injury or property damage to the extent that the injury or damage is the result of a failure by Patheon to perform the Transfer Services in accordance with the terms of this Agreement; (b) a claim that any Existing Patheon Intellectual Property (as defined in the Manufacturing and Supply Agreement) or other intellectual property of Patheon employed by Patheon in providing the Transfer Services infringes or misappropriates a United States patent or any other intellectual property rights except to the extent such claim is based on the use of Existing Flexion Intellectual Property, Flexion Improvements, the Manufacturing Process or the Product in accordance with the terms and conditions of this Agreement, (c) any claim of personal injury or property damage to the extent that the injury or damage is the result of any negligence or willful misconduct by Patheon or any of its Affiliates, or (d) any claim of personal injury or property damage to the extent that the injury or damage is the result of any breach by Patheon of any of its obligations or any inaccuracy of any of Patheon’s warranties under this Agreement; except, in each case, for those Losses for which Flexion has an obligation to indemnify the

 

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Patheon Indemnified Parties pursuant to Section 7.1 above, as to which Losses each Party shall indemnify the other to the extent of their respective liability for such Losses; and provided, however, that Patheon will not be required to indemnify the Flexion Indemnified Parties with respect to any such Loss hereunder to the extent the same is caused by any breach of contract, negligent act or omission, or intentional misconduct by Flexion or any or its Affiliates.

7.3 Indemnification Procedures .

(a) Notice of Claim . The indemnified Party (the “ Indemnified Party ”) shall give the indemnifying Party (the “ Indemnifying Party ”) prompt written notice (an “ Indemnification Claim Notice ”) of any Loss, action, or discovery of facts upon which such Indemnified Party intends to base a request for indemnification under Section 7.1 or 7.2 (a “ Claim ”), but in no event shall the Indemnifying Party be liable for any Loss that results from any delay in providing such notice. Each Indemnification Claim Notice must contain a description of the Claim and the nature and amount of such Loss (to the extent that the nature and amount of such Loss are known at such time). The Indemnified Party shall furnish promptly to the Indemnifying Party copies of all papers and official documents received in respect of any Loss upon which it intends to seek indemnification.

(b) Control of Defense . At its option, the Indemnifying Party may assume the defense of any Claims by giving written notice to the Indemnified Party within […***…] days after the Indemnifying Party’s receipt of an Indemnification Claim Notice; provided that the assumption of the defense of a Claim by the Indemnifying Party shall not be construed as an acknowledgment that the Indemnifying Party is liable to indemnify any Indemnified Party in respect of the Claim, nor shall it constitute a waiver by the Indemnifying Party of any defenses it may assert against any Indemnified Party’s Claim. Upon assuming the defense of a Claim, the Indemnifying Party may appoint as lead counsel in the defense of such Claim any legal counsel selected by the Indemnifying Party. In the event the Indemnifying Party assumes the defense of a Claim, the Indemnified Party shall immediately deliver to the Indemnifying Party all original notices and documents (including court papers) received by any Indemnified Party in connection with the Claim. Subject to clause (c) below, if the Indemnifying Party assumes the defense of a Claim, the Indemnifying Party shall not be liable to the Indemnified Party for any legal expenses subsequently incurred by such Indemnified Party in connection with the analysis, defense, or settlement of such Claim. In the event that it is ultimately determined that the Indemnifying Party is not obliged to indemnify, defend, or hold harmless an Indemnified Party from and against any Claim, the Indemnified Party shall reimburse the Indemnifying Party for any and all costs and expenses (including reasonable attorneys’ fees and costs of suit) and any Loss incurred by the Indemnifying Party in its defense of such Claim.

(c) Right to Participate in Defense . Without limiting Section 7.3(b), any Indemnified Party shall be entitled to participate in, but not control, the defense of a Claim and to employ counsel of its choice for such purpose; provided, however, that such employment shall be at the Indemnified Party’s own expense unless (i) the employment thereof has been specifically authorized by the Indemnifying Party in writing, (ii) the Indemnifying Party has failed to assume

 

 

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the defense and employ counsel in accordance with Section 7.3(b) (in which case the Indemnified Party shall control the defense), or (iii) the interests of the Indemnified Party and the Indemnifying Party with respect to such Claim are sufficiently adverse to prohibit the representation by the same counsel of both Parties under Applicable Law, ethical rules, or equitable principles.

(d) Settlement . With respect to any Loss relating solely to the payment of money damages in connection with a Claim and that will not result in the Indemnified Party’s becoming subject to injunctive or other relief or otherwise adversely affect the business or reputation 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 consent to the entry of any judgment, enter into any settlement, or otherwise dispose of such Loss, on such terms as the Indemnifying Party, in its sole discretion, shall deem appropriate. With respect to all other Losses in connection with Claims, where the Indemnifying Party has assumed the defense of the Claim in accordance with Section 7.3(b), the Indemnifying Party shall have authority to consent to the entry of any judgment, enter into any settlement, or otherwise dispose of such Loss; provided that it obtains the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld or delayed). The Indemnifying Party shall not, without the prior written consent of the Indemnified Party, agree to any settlement or acquiesce to any judgment with respect to a Claim that obligates the Indemnified Party to pay any amount subject to indemnification by the Indemnifying Party or causes the Indemnified Party to admit to any civil or criminal liability.

(e) Cooperation . If the Indemnifying Party chooses to defend or prosecute any Claim, the Indemnified Party shall cooperate in the defense or prosecution thereof and shall, at the Indemnifying Party’s expense, furnish such records, information, and testimony, provide such witnesses, and attend such conferences, discovery proceedings, hearings, trials, and appeals as may be reasonably requested in connection therewith. Such cooperation shall include access during normal business hours afforded to the Indemnifying Party to, and reasonable retention by the Indemnified Party of records and information that are reasonably relevant to such Claim, and making employees and agents available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder, and the Indemnifying Party shall reimburse the Indemnified Party for all its reasonable time and out-of-pocket expenses in connection therewith.

(f) Expenses . Except as provided above, the reasonable and verifiable costs and expenses, including fees and disbursements of counsel, incurred by the Indemnified Party in connection with any Claim shall be reimbursed on a monthly basis in arrears by the Indemnifying Party, without prejudice to the Indemnifying Party’s right to, contest the Indemnified Party’s right to indemnification and subject to refund in the event the Indemnifying Party is ultimately held not to be obliged to indemnify the Indemnified Party.

7.4 Limitation of Liability .

(a) SUBJECT TO SECTION 7.4(b) BELOW, NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR (I) ANY (DIRECT OR INDIRECT) LOSS OF PROFITS, OF PRODUCTION, OF ANTICIPATED SAVINGS, OF BUSINESS, OF GOODWILL OR OF

 

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USE OF THE PRODUCT OR COSTS OF ANY SUBSTITUTE SERVICES OR (II) FOR ANY OTHER LIABILITY, DAMAGE, COST OR EXPENSE OF ANY KIND INCURRED BY THE OTHER PARTY OF AN INDIRECT OR CONSEQUENTIAL NATURE, REGARDLESS OF ANY NOTICE OF THE POSSIBILITY OF THE DAMAGES. NOTWITHSTANDING THE FOREGOING, NOTHING IN THIS PARAGRAPH IS INTENDED TO LIMIT OR RESTRICT THE DAMAGES AVAILABLE FOR BREACHES OF CONFIDENTIALITY OBLIGATIONS IN ARTICLE 3.

(b) Nothing in this Agreement is intended to limit either Party’s liability for: (i) death or personal injury caused by its negligence; or (ii) fraud or fraudulent misrepresentation.

(c) If any part of the Transfer Services provided or procured by Patheon is not materially performed in accordance with the terms of this Agreement, then Flexion’s sole remedy whether in contract, tort, equity or otherwise (in addition to those expressly set forth in ARTICLE 8) will be for Patheon to repeat that part of the Transfer Service at Patheon’s cost (provided that where the Transfer Services to be repeated requires Flexion-Supplied Materials, Flexion will provide such Flexion-Supplied Materials and Patheon shall reimburse Flexion for the actual costs for such Flexion-Supplied Materials, including associated shipment costs); provided that, (i) Patheon shall only be liable to reimburse the costs of any Flexion-Supplied Materials and associated shipment costs […***…], and (ii) Patheon’s aggregate liability in each calendar year (liability cap to be pro-rated for partial calendar years) to reimburse the costs of any Flexion-Supplied Materials shall not exceed […***…]% of the […***…] received by Patheon in the […***…] period prior to the month in which the underlying event occurred that gave rise to the liability (e.g. the date of the incident or manufacture) up to a maximum of £[…***…]. Patheon shall not be liable to reimburse the cost of any Flexion-Supplied Materials under any other circumstances.

7.5 Insurance . During the Term and for […***…] thereafter, each Party shall procure and maintain at its own expense from a qualified and licensed insurer liability insurance or indemnity policies, in an amount not less than $[…***…] in the aggregate with respect to public and products liability, subject to such deductible or self-retention limits as either Party in its business discretion may elect. Such policies shall insure against liability on the part of each Party and any of its Affiliates, as their interests may appear, due to injury, disability, or death of any person or persons, or injury to property, arising from the distribution of the Products. Each Party will either (a) include the other Party and its officers, employees and consultants as additional insureds on such policies, or (b) ensure that such policy contains an indemnity to principal clause. Promptly following the execution of this Agreement, each Party shall provide to the other a certificate of insurance (i) summarizing the insurance coverage and (ii) identifying any exclusions. Each Party shall promptly notify the other of any material adverse alterations to the terms of this policy or decreases in the amounts for which insurance is provided.

 

 

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ARTICLE 8

TERM AND TERMINATION

8.1 Term . This Agreement will remain in full force and effect unless and until it expires or is terminated in accordance with the provisions of this ARTICLE 8 (the “ Term ”).

8.2 Expiration . This Agreement will expire upon completion of the Transfer Services as described herein or until the Parties agree that the Transfer Services have been completed (the “ Completion of the Tech Transfer ”).

8.3 Termination by Flexion . Flexion may terminate this Agreement in its entirety (a) prior to the FDA Approval Date by giving Patheon ninety (90) days’ written notice for convenience, in which case, Section 8.11(f) shall apply, or (b) by giving Patheon thirty (30) days written notice if Patheon (due primarily to its acts or omissions) fails to complete Manufacturing Suite construction by the date stated in the Timeline and due solely to such failure, Patheon has not Manufactured registration batches in the Manufacturing Suite by […***…].

8.4 Termination by Mutual Agreement . This Agreement may be terminated at any time upon mutual written agreement between the Parties.

8.5 Termination for Default . Each Party will have the right to terminate this Agreement at any time upon written notice to the other Party, if such other Party (a) breaches any of the representations, warranties, covenants, or agreements set forth in this Agreement or (b) otherwise defaults in the performance of any of its duties or obligations under this Agreement, which in either case has a material effect on the other Party, and which breach or default is not cured within ninety (90) days after written notice is given to the breaching Party specifying the breach or default (“ Remediation Period ”). The aggrieved Party’s right to terminate this Agreement for a particular breach under this Section 8.5 may only be exercised for a period of one hundred and twenty (120) days following the expiry of the Remediation Period (where the breach has not been remedied) and, if the termination right is not exercised during this period, then the aggrieved Party will be deemed to have waived its right to terminate this Agreement for such breach.

8.6 Bankruptcy; Insolvency . To the extent permitted by law, each Party will have the right to terminate this Agreement immediately upon notice to the other Party, if the other Party shall file in any court or agency, pursuant to any statute or regulation of any state or country, a petition in bankruptcy or insolvency or for reorganization or for arrangement or for the appointment of a receiver or trustee of the other Party or of its assets, or if the other Party proposes a written agreement of composition or extension of its debts, or if the other Party shall be served with an involuntary petition against it, filed in any insolvency proceeding, and such petition shall not be dismissed within sixty (60) days after the filing thereof, or if the other Party shall propose or be a party to any dissolution or liquidation, or if the other Party shall make an assignment for the benefit of its creditors.

 

 

***Confidential Treatment Requested

 

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8.7 Cross Termination . Should either Flexion or Patheon exercise its right to terminate this Agreement or the Manufacturing and Supply Agreement in its entirety (but not in the event of an expiration of this Agreement as set forth in Section 8.2) prior to the FDA Approval Date, then the Manufacturing and Supply Agreement, this Agreement and the Quality Agreement will concurrently and automatically terminate.

8.8 No Release . Neither the termination nor expiration of this Agreement will release or operate to discharge either Party from any liability or obligation that may have accrued prior to such termination or expiration, including any obligation to pay to the other Party any amounts accrued under this Agreement with respect to the period prior to the effective date of such expiration or termination. Except as otherwise expressly provided herein, termination of this Agreement in accordance with the provisions hereof will not limit remedies that may otherwise be available in law or equity.

8.9 Obligations . Notwithstanding the giving of any notice of termination pursuant to this ARTICLE 8, each Party will continue to fulfill its obligations under this Agreement at all times until the effective date of any such termination or expiration.

8.10 Survival . The expiration or termination of this Agreement shall be without prejudice to any rights or obligations of the Parties that may have accrued prior to such termination, and the provisions of Sections 2.2 (as it may relate to any unpaid amounts due and owing), 2.6 (as it may relate to the use to which Patheon may put the Flexion Manufacturing Equipment), 2.8, 2.9 and ARTICLE 1, ARTICLE 3, ARTICLE 7, ARTICLE 8, and ARTICLE 9 shall survive the expiration or termination of this Agreement.

8.11 Rights and Duties Upon Termination.

(a) Upon termination of this Agreement, Patheon will, as promptly as practicable, (i) cease work on the Transfer Services, and (ii) make available for collection by Flexion, […***…] (Incoterms 2010) the Facility, all Materials and results and information resulting from the Transfer Services (whether in written or electronic form) that are then in Patheon’s or its subcontractors’ possession and that are the property of Flexion in accordance with Section 2.9 of this Agreement, including all Flexion Proprietary Information. Flexion shall return to Patheon all Patheon Proprietary Information.

(b) Upon termination of this Agreement, Flexion will (i) pay all earned but unpaid fees and charges for the Transfer Services, including Material Costs, Capital Expenditures, Bill Back Items, Additional Services, Base Fees (through the month of such termination) to reflect Transfer Services performed as of the date of such termination by Patheon; and (ii) pay all due and outstanding invoices in accordance with ARTICLE IV of the Manufacturing and Supply Agreement, including those for Bill Back Items or Additional Services performed as of the date of such expiration and termination; provided that, the Parties agree that if any fees or charges are duplicated under Section 8.3 of the Manufacturing and Supply Agreement, Flexion shall only be obligated to make such payment once.

 

 

***Confidential Treatment Requested

 

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(c) Upon termination of this Agreement, Flexion will pay to Patheon all and any removal and Make Good Costs associated with the removal of the Flexion Manufacturing Equipment from the Facility as agreed to in good faith by the Parties in writing. “ Make Good Costs ” means the reasonable costs required to repair the Facility and return it to a clean, safe and useable area based on the repair of damage caused by the installation or removal of Flexion Manufacturing Equipment.

(d) Upon termination of this Agreement prior to termination of the Manufacturing and Supply Agreement, Flexion will, as promptly as practicable, pay to Patheon the Manufacturing Services Termination Costs pursuant to the provisions of Sections 8.3(f) and 8.3(g) of the Manufacturing and Supply Agreement to the extent applicable to this Agreement or the Transfer Services.

(e) Upon termination of this Agreement, in the event that Patheon will not be Manufacturing the Product for Flexion pursuant to the Manufacturing and Supply Agreement, Flexion shall remove all Flexion Manufacturing Equipment and Materials from the Facility within […***…] days of said termination under all sections other than Section 8.5 and within […***…] days […***…] of a termination by Flexion pursuant to Section 8.5 that is not reasonably disputed by Patheon, failing which Flexion will pay a fee equivalent to the aggregate monthly Base Fee for each month or part month the Flexion Manufacturing Equipment or Materials remain at the Facility post-termination.

(f) Upon termination of this Agreement by Flexion pursuant to Section 8.3(a), in addition to any other obligation of Flexion under Section 8.11, Flexion shall also pay Patheon compensation of £[…***…] British Pounds). The Parties confirm that this sum represents a genuine pre-estimate of Patheon’s loss in such circumstances.

ARTICLE 9

MISCELLANEOUS

9.1 Notices . Notwithstanding that advance notification of any notices or other communications may be given by electronic mail transmission, all notices or other communications that shall or may be given pursuant to this Agreement shall be in writing (including by confirmed receipt electronic mail) and shall be deemed to be effective (a) when delivered if sent by registered or certified mail, return receipt requested, or (b) on the next business day, if sent by overnight courier, (c) when sent if sent by electronic mail provided that receipt is confirmed, in each case to the Parties at the following addresses (or at such other addresses as shall be specified by like notice) with postage or delivery charges prepaid.

If to Flexion:

Flexion Therapeutics, Inc.

Attn: Michael Clayman, MD

Telephone: […***…]

 

 

***Confidential Treatment Requested

 

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Email: […***…]

With a copy to: Legal

If to Patheon:

  Attention:

Executive Director & General Manager

Patheon UK Limited

Kingfisher Drive, Covingham

Swindon, Wiltshire SN3 5BZ

England

Email: […***…]

  with copy to

Legal Director.

9.2 Force Majeure . Neither Party shall be liable for delay in delivery, performance or nonperformance, in whole or in part, nor shall the other Party have the right to terminate this Agreement except as otherwise specifically provided in this Section 9.2 where such delay in delivery, performance or nonperformance results from acts beyond the reasonable control and without the fault or negligence of such Party including, but not limited to, the following conditions: fires, floods, storms, embargoes, shortages, epidemics, quarantines, war, acts of war (whether war be declared or not), terrorism, insurrections, riots, civil commotion, or acts, omissions, or delays in acting by any governmental authority; provided that the Party affected by such a condition shall, within five (5) days of its occurrence, give notice to the other Party stating the nature of the condition, its anticipated duration, and any action being taken to avoid or minimize its effect. The suspension of performance shall be of no greater scope and no longer duration than is reasonably required, and the nonperforming Party shall use its commercially reasonable efforts to remedy its inability to perform; provided, however, that in the event the suspension of performance continues for […***…] days after the date of the occurrence, and such failure to perform would constitute a material breach of this Agreement in the absence of such force majeure event, the non-affected Party may terminate this Agreement immediately by written notice to the affected Party.

9.3 Independent Contractor . The Parties to this Agreement are independent contractors. Nothing contained in this Agreement will be construed to place the Parties in the relationship of employer and employee, partners, principal, and agent or a joint venture. Neither Party will have the power to bind or obligate the other Party nor will either Party hold itself out as having such authority.

9.4 Waiver . Save where expressly stated to the contrary in this Agreement, no waiver by either Party of any provision or breach of this Agreement will constitute a waiver by such

 

 

***Confidential Treatment Requested

 

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Party of any other provision or breach, and no such waiver will be effective unless made in writing and signed by an authorized representative of the Party against whom waiver is sought. No course of conduct or dealing between the Parties will act as a modification or waiver of any provision of this Agreement. Either Party’s consent to or approval of any act of the other Party will not be deemed to render unnecessary the obtaining of that Party’s consent to or approval of any subsequent act by the other Party.

9.5 Entire Agreement . This Agreement (together with all Exhibits hereto, which are hereby incorporated by reference), the Manufacturing and Supply Agreement and the Quality Agreement, constitute the final, complete, and exclusive agreement between the Parties relating to the subject matter hereof and supersede all prior conversations, understandings, promises, and agreements relating to the subject matter hereof, including without limitation that (i) certain Confidentiality Agreement dated September 22, 2014 between Flexion and Patheon and the Letter Agreement between the Parties dated 1 May 2015, and (ii) that certain Patheon Partner External User Account/Access Form, Client Agreement and Authorization signed by Flexion on June 5, 2015. Neither Party has relied upon any communication, representation, term, or promise, verbal or written, not set forth herein.

9.6 Assignment; Change of Control .

This Agreement may not be assigned by Patheon without the prior written consent of Flexion. Notwithstanding the foregoing, either Party may assign this Agreement to an Affiliate or to an acquirer or successor in interest in connection with a Change of Control of such Party without the prior written consent of the other Party, provided that such Party provides the other Party with written notice of any such assignment. This Agreement shall be binding upon and inure to the benefit of Flexion and Patheon and their respective successors, heirs, executors, administrators, and permitted assigns. “ Change of Control ” means the closing of (a) a merger, consolidation or similar transaction providing for the acquisition of the direct or indirect ownership of more than fifty percent (50%) of a Party’s shares or similar equity interests or voting power of the outstanding voting securities or that represents the power to direct the management and policies of such Party (including any acquisition arising through the offering of any shares of Patheon or any of its Affiliates on any securities or stock exchange), or (b) the sale of all or substantially all of a Party’s assets related to the subject matter of the Agreement.

9.7 Amendment; Modification . This Agreement may not be amended, modified, altered, or supplemented except by a writing signed by both Parties. No modification of any nature to this Agreement and no representation, agreement, arrangement, or other communication will be binding on the Parties unless such is expressly contained in writing and executed by the Parties as an amendment to this Agreement. This Agreement may not be amended in any respect by any purchase order, invoice, acknowledgment, or other similar printed document issued by either Party.

9.8 Subcontractors . Prior to subcontracting any of Patheon’s obligations hereunder, Patheon will notify Flexion (1) in advance of engaging a proposed subcontractor that directly relates to the Manufacture of the Product and will obtain Flexion’s prior written approval of each such subcontractor, and (2) within six (6) months of all other subcontractors so engaged. The terms of any subcontract will be in writing and will not be materially inconsistent with this

 

25


Agreement or the Manufacturing and Supply Agreement, including Section 3.14 of the Manufacturing and Supply Agreement. No subcontracting will release Patheon from its responsibility for its obligations under this Agreement. Patheon will be responsible for the work and activities of each subcontractor as they relate to performance of Patheon’s obligations under this Agreement, including compliance with the terms of this Agreement.

9.9 Governing Law .

(a) The laws of […***…], whether procedural or substantive (but excluding application of any choice of law provisions contained therein) shall apply to all matters pertaining only to (a) title to and ownership of Materials, Equipment or the Facility, and its appurtenances including, without limitation, all rights therein and the creation, exercise and extinction of such rights, obligations and liabilities or (b) employment law matters. In relation to such matters, both Parties shall submit to the exclusive jurisdiction of the […***…] Courts. For the avoidance of doubt, the Parties agree that nothing in this Agreement shall (i) grant Flexion any property ownership rights in the Facility or (ii) shall constitute a lease to the Facility.

(b) In all other respects, this Agreement shall be construed under and governed by the laws of […***…] without regard to the application of principles of conflicts of law. In relation to such matters, both Parties shall submit to the exclusive jurisdiction of the […***…].

(c) Any preliminary issue over which of sub-section 9.9(a) or (b) applies to a particular claim or dispute shall be determined in accordance with provisions of 9.9(a).

(d) The Parties expressly exclude the application of the United Nations Convention on Contracts for the International Sale of Goods, if applicable.

9.10 Severability . If any provision of this Agreement is found by a proper authority to be unenforceable, that provision to the extent it is found to be unenforceable or invalid will be severed and the remainder of the provision and this Agreement will continue in full force and effect. The Parties shall use their best efforts to agree upon a valid and enforceable provision as a substitute for any invalid or unenforceable provision, taking in to account the Parties’ original intent of this Agreement.

9.11 Construction . Unless the context of this Agreement otherwise requires: (a) words of any gender include each other gender; (b) words using the singular or plural number also include the plural or singular number, respectively; (c) the terms “hereof,” “herein,” “hereby,” and derivative or similar words refer to this entire Agreement; (d) the terms “Article,” “Section,”

 

 

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“Exhibit,” or “clause” refer to the specified Article, Section, Exhibit, or clause of this Agreement; (e) “or” is disjunctive but not necessarily exclusive; and (f) the term “including” or “includes” means “including without limitation” or “includes without limitation.” Whenever this Agreement refers to a number of days, such number will refer to calendar days unless business days are specified. The captions and headings of this Agreement are for convenience of reference only and in no way define, describe, extend, or limit the scope or intent of this Agreement or the intent of any provision contained in this Agreement. The language of this Agreement will be deemed to be the language mutually chosen by the Parties, and no rule of strict construction will be applied against either Party hereto.

9.12 Third Party Beneficiaries . This Agreement is not intended to confer upon any non-party any right or remedy hereunder, except as may be received or created as part of a valid assignment.

9.13 Further Assurances . Each of the Parties agrees to duly execute and deliver, or cause to be duly executed and delivered, such further instruments and do and cause to be done such further acts and things, including the filing of such additional assignments, agreements, documents, and instruments, that may be necessary or as the other Party hereto may at any time and from time to time reasonably request in connection with this Agreement or to carry out more effectively the provisions and purposes of, or to better assure and confirm unto such other Party its rights and remedies under, this Agreement.

9.14 Counterparts . This Agreement may be signed in counterparts, each and every one of which will be deemed an original. Facsimile or PDF signatures will be treated as original signatures.

9.15 Taxes .

(a) Subject to (b) and (c) below, Patheon will bear all Taxes however designated as a result of the provision of the Transfer Services under this Agreement.

(b) Flexion acknowledges that it will be responsible for all Taxes that arise in respect of the following:

(i) The acquisition of the Flexion-Supplied Materials.

(ii) The acquisition of the Flexion Manufacturing Equipment.

(c) Any payment due under this Agreement for the provision of Transfer Services to Flexion by Patheon is exclusive of value added or equivalent tax in any other jurisdiction, including any related interest and penalties (hereinafter all referred to as “ VAT ”). If any VAT is payable on a Transfer Service supplied by Patheon to Flexion under this Agreement, this VAT will be added to the invoice amount and will be for the account of (and reimbursable to Patheon by) Flexion. Where applicable, Patheon will use its reasonable commercial efforts to ensure that its invoices to Flexion are issued in such a way that these invoices meet the requirements for deduction of input VAT by Flexion, to the extent permitted by law to do so.

 

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(d) Flexion acknowledges that all amounts due in respect of any fees payable by Flexion under this Agreement shall be paid in full without any set-off, counterclaim, deduction or withholding in respect of any Tax liabilities.

The remainder of this page is left blank intentionally.

 

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IN WITNESS WHEREOF, this Technical Transfer and Service Agreement has been executed by the Parties hereto as of the day and year first written above.

 

PATHEON UK LIMITED :     FLEXION THERAPEUTICS, INC. :
By:  

/s/ A.M. Botterill

    By:  

/s/ Michael D. Clayman, M.D.

Name:  

A.M. Botterill

    Name:  

Michael D. Clayman, M.D.

Title:  

Exec. Dir. & Gen. Manager

    Title:  

CEO

Signature Page of Technical Transfer and Service Agreement

 

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Exhibit 2.1-A

[…***…]

 

 

***Confidential Treatment Requested for pages 30-36.

Omitted pages have been filed separately with the Commission.

30-36


Exhibit 2.1-B

[…***…]

 

 

***Confidential Treatment Requested for pages 37-43.

Omitted pages have been filed separately with the Commission.

37-43


Exhibit 2.1-C

[…***…]

 

 

***Confidential Treatment Requested

44


Exhibit 2.1-D

[…***…]

 

 

***Confidential Treatment Requested for pages 45-50.

Omitted pages have been filed separately with the Commission.

45-50


Exhibit 2.1-E

[…***…]

 

 

***Confidential Treatment Requested for pages 51-52.

Omitted pages have been filed separately with the Commission.

51-52


Exhibit 2.1-F

[…***…]

 

 

***Confidential Treatment Requested for pages 53-55.

Omitted pages have been filed separately with the Commission.

53-55


Exhibit 2.7

Steering Committee

1. Generally . The purpose of the Steering Committee shall be to oversee the Technical Transfer and Service Agreement, the Manufacturing and Supply Agreement and the Quality Agreement (the “ Agreements ”) and to facilitate communications between the Parties with respect thereto. The Steering Committee shall have the responsibilities and authority allocated to it in this Exhibit 2.7. The Steering Committee shall have the obligation to exercise its authority consistent with the respective purpose for the Steering Committee as stated herein and any such decisions shall be made in good faith.

2 Formation and Purpose . Promptly following the Effective Date, the Parties shall confer and then create a Steering Committee. The Steering Committee shall have authority, subject to Paragraph 5, to oversee the priorities and budgets (not less than on a quarterly basis), to oversee manufacturing and controls for the Products, to review and approve all associated regulatory filings and correspondence under the Agreements (including reviewing and approving itemized budgets with respect to the foregoing), to approve the projects and plans of any subcommittee it establishes consistent with this authority and to review any concerns either Party may have concerning key employees employed by the Parties to provide the Transfer Services under the Technical Transfer Agreement and the Services under the Manufacturing and Supply Agreement.

3 General Steering Committee Membership and Procedure .

 

  (a) Membership . Each Party shall designate an equal number of representatives (not to exceed three (3) for each Party) to the Steering Committee with appropriate expertise to serve as members of the Steering Committee. The Steering Committee representatives must all be employees of such Party or an Affiliate of such Party, with the caveat that each Party may designate for the Steering Committee up to one (1) representative who is not an employee if: (i) such non-employee representative agrees in writing to be bound to the terms of this Agreement for the treatment and ownership of confidential information of the Parties, and (ii) the other Party consents to the designation of such non-employee representative, which consent shall not be unreasonably withheld. Each Party may replace its Steering Committee representatives at any time upon written notice to the other Party. The Steering Committee shall have a chairperson which shall be appointed by Flexion. The chairperson of the Steering Committee shall be responsible for calling meetings, preparing and circulating an agenda in advance of each meeting of the Steering Committee, and preparing and issuing minutes of each meeting within fifteen (15) days thereafter.

 

  (b)

Meetings . The Steering Committee shall be constituted and the first meeting of the Steering Committee shall be held within sixty (60) days following the Effective Date, with the Steering Committee considering finalization and approval of workplans prepared by the Parties for inclusion and commencement under the Agreements. Otherwise, the Steering Committee shall hold meetings at such times as it elects to do so, but in no event shall such meetings be held less

 

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  frequently than once every six (6) months. Meetings of the Steering Committee may be held in person or by means of telecommunication (telephone, video, or web conferences). To the extent that the Steering Committee holds any meetings in person, the Parties will alternate in designating the location for such in-person meetings, with Flexion selecting the first meeting location for the Steering Committee. A reasonable number of additional representatives of a Party may attend meetings of the Steering Committee in a non-voting capacity. Each Party shall be responsible for all of its own expenses of participating in the Steering Committee.

 

  (c) Meeting Agendas . Each Party will disclose to the other proposed agenda items along with appropriate information at least three (3) business days in advance of each meeting of the Steering Committee; provided, that a Party may provide its agenda items to the other Party within a lesser period of time in advance of the meeting, or may propose that there not be a specific agenda for a particular meeting, so long as such other Party consents to such later addition of such agenda items or the absence of a specific agenda for the Steering Committee meeting.

 

  (d) Limitations of Steering Committee Powers . The Steering Committee shall have only such powers as are specifically delegated to it hereunder or from time to time as agreed to in writing by the mutual consent of the Parties and shall not be a substitute for the rights of the Parties. Without limiting the generality of the foregoing, the Steering Committee shall not have any power to amend the Agreements. Any amendment to the terms and conditions of this Agreement shall be implemented pursuant to Section 9.7 above. Additionally, no member of the Steering Committee shall be able to vote in the Steering Committee and thereby bind its respective Party on any material matter except as otherwise properly authorized, approved, or delegated by such Party in accord with Paragraph 5.

4 Restrictions . Neither Party shall exercise its right to finally resolve a dispute at the Steering Committee in accordance with this Paragraph 4 in a manner that (i) excuses such Party from any of its obligations specifically enumerated under this Agreement; (ii) expands the obligations of the other Party under this Agreement; (iii) negates any consent rights or other rights specifically allocated to the other Party under this Agreement; (iv) purports to resolve any dispute involving the breach or alleged breach of this Agreement; (v) resolves a matter if the provisions of this Agreement specify that mutual agreement is required for such matter; or (vi) would require the other Party to perform any act that is inconsistent with applicable law.

5 Authorization of Steering Committee Representatives . Each representative serving on the Steering Committee shall be responsible for ensuring that he or she acts only as duly authorized by its respective Party and obtains any advance approvals, delegations, or other authorizations from his or her respective Party in advance of making any Steering Committee votes.

 

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Exhibit 10.3

FIRST AMENDMENT OF LEASE

AGREEMENT (“First Amendment”) made this 13 day of July, 2015 by and between CIP II/RJK 10-20 BMR Owner, LLC, 55 Cambridge Street, Burlington, Massachusetts 01803 (hereinafter referred to as “Landlord”) and Flexion Therapeutics, Inc. (hereinafter referred to as “Tenant”).

RECITALS

1. Pursuant to that certain Lease dated February 22, 2013 by and between Landlord’s predecessor in interest, Mall Road Trust (“Original Landlord”) and Tenant (the “Existing Lease”), Landlord is leasing to Tenant those certain premises known as 10 Burlington Mall Road, situated in Burlington, Massachusetts 01803, together with all improvements located thereon, consisting of 11,754 rentable square feet of area, all as more particularly described in said Existing Lease (hereinafter referred to as the “Original Premises”). In addition, Landlord and Tenant entered into a letter agreement, dated June 28, 2015, regarding reimbursement responsibilities of Tenant for certain tenant improvement work to the Suite 210 Space in the event that this First Amendment was not executed and delivered by the parties (the “June 28 Side Letter”).

2. Landlord has succeeded to the Original Landlord’s interest as Landlord under the Lease, and all references to “Landlord” in the Lease shall mean the Landlord as defined in this First Amendment at Landlord’s address above.

3. The parties desire to enter into this First Amendment modifying and/or supplementing the provisions of the Existing Lease (and terminating the June 28 Side Letter), the effect of which will be (i) for Tenant to lease additional space consisting of approximately 4,715 square feet on the third floor of the Building contiguous to the Original Premises as shown on Exhibit A attached hereto (the “Phase I Expansion Space”), on the same terms and conditions as set forth in the Existing Lease, except as may be modified herein; (ii) for Tenant to have the option to lease additional space consisting of approximately 5,405 square feet on the third floor of the Building contiguous to the Phase I Expansion Space as shown on Exhibit A attached hereto (the “Phase II Expansion Space”), on the same terms and conditions as set forth in the Existing Lease, except as may be modified herein; (iii) for Tenant to lease on a temporary basis approximately 6,748 square feet on the second floor of the Building known as Suite 210 (the “Suite 210 Temporary Space”), on the same terms and conditions as set forth in the Existing Lease, except as may be modified herein; (iv) to extend the term of the Existing Lease for the Original Premises through October 31, 2019; and (v) to further amend the Existing Lease in certain respects, all upon the terms and conditions set forth below. The Original Premises, the Phase I Expansion Space and the Phase II Expansion Space (if applicable) collectively are hereinafter referred to as the “2016 Combined Space.”

4. All of the terms, covenants and conditions of the Existing Lease which are not inconsistent with the terms hereinafter set forth shall apply, as applicable, to the 2016 Combined Space and the Suite 210 Temporary Space.

5. Capitalized terms used herein and not defined shall have the meanings ascribed to such terms in the Existing Lease and the Existing Lease as amended by this First Amendment is hereby known as the “Lease”.

6. The term “Premises” used in the Existing Lease shall include where appropriate the Original Premises, and, as and when leased pursuant to this Amendment, the Phase I Expansion Space, the Phase II Expansion Space, and the Suite 210 Temporary Space.

IN CONSIDERATION of the mutual covenants contained herein, the parties agree as follows:

A. Term of Lease .

The term for the Phase I Expansion Space shall commence upon substantial completion of Landlord’s Work, as hereinafter defined (the “Phase I Expansion Space Commencement Date”), which is anticipated to occur on May 1, 2016 (the “Target Delivery Date”), and expire on October 31, 2019. In addition, upon execution of this First Amendment, notwithstanding any provision of the Existing Lease to the contrary, the term of the Existing Lease shall not expire on October 31, 2016, but shall instead be extended for three (3) years and shall expire on October 31, 2019 (the “Termination Date”), unless sooner terminated or otherwise extended in accordance with the terms and provisions of the Lease.


B. Suite 210 Temporary Space .

(i) Landlord hereby leases to Tenant, and Tenant hereby agrees to lease, the Suite 210 Temporary Space, commencing upon substantial completion by Landlord of the tenant improvements shown on the space plan and specifications attached hereto as Exhibit B, on a turnkey basis, using finishes similar to the finishes in the Original Premises, except that Tenant shall be responsible at Tenant’s sole cost and expense for furnishing and installing all wiring whips, wiring within furniture and all telephone and data wiring required by Tenant. If Landlord does not deliver the Suite 210 Temporary Space to Tenant, with such turnkey improvements substantially complete, by September 1, 2015, then, in addition to any other abatements of rent applicable hereunder, for each day of such delay in delivery after September 1, 2015, Tenant shall receive a credit of one day of Fixed Rent for the Suite 210 Temporary Space to be applied against the next rent due under the Lease. In the event that the Suite 210 Temporary Space is not tendered to Tenant by October 15, 2015, then Tenant shall also have the right, in lieu of such abatement, to terminate the Lease with respect to the Phase I Expansion Space, the Phase II Expansion Space (if applicable) and/or the Suite 210 Temporary Space, without the payment of any termination fee or other such payment.

(ii) Landlord shall contribute Twenty Dollars ($20.00) per square foot, equal to One Hundred Thirty-Four Thousand Nine Hundred Sixty Dollars ($134,960.00), and Tenant shall contribute up to Ten Dollars ($10.00) per square foot, equal to Sixty-Seven Thousand Four Hundred Eighty Dollars ($67,480.00), toward the costs of the tenant improvements for the Suite 210 Temporary Space, with Tenant’s payment to Landlord for such costs due and payable within ten (10) days after delivery of the Suite 210 Temporary Space to Tenant. Any costs in excess of Thirty Dollars ($30.00) per square foot, equal to Two Hundred Two Thousand Four Hundred Forty Dollars ($202,440.00), for the tenant improvements for the Suite 210 Temporary Space shall be borne by Landlord unless such costs are incurred as a direct result of change orders or deviations requested by Tenant from the plan and specifications set forth on Exhibit B attached hereto or as a direct result of Tenant Delays.

(iii) Commencing upon delivery of the Suite 210 Temporary Space by Landlord to Tenant, Tenant shall pay Fixed Annual Rent for the Suite 210 Temporary Space in the amount of Two Hundred Nineteen Thousand Three Hundred Ten Dollars ($219,310.00) per annum, payable in equal monthly installments of Eighteen Thousand Two Hundred Seventy-Five and 83/100 Dollars ($18,275.83), prorated for any partial month.

(iv) Tenant shall pay to Landlord, together with the monthly installment of Annual Fixed Rent, (x) Nine Hundred Eighty Four and 08/100 Dollars ($984.08) per month, prorated for any partial month, for electricity for the Suite 210 Temporary Space, based on a rate of $1.75 per square foot per year (y) if Tenant exercises its right under Section, B(vi)(x) below, the amount by which Landlord’s Tax Expenses allocable to the Suite 210 Temporary Space exceed Base Taxes allocable to the Suite 210 Temporary Space (Base Taxes for purposes of this clause (y) meaning Landlord’s Tax Expense budget for fiscal year 2016), and (z) if Tenant exercises its right under Section, B(vi)(x) below, the amount by which Operating Expenses allocable to the Suite 210 Temporary Space exceed Base Operating Expenses allocable to the Suite 210 Temporary Space (Base Operating Expenses for purposes of this clause (z) meaning Landlord’s Operating Expense budget for calendar year 2016).

(v) Tenant shall vacate and surrender the Suite 210 Temporary Space within thirty (30) days after delivery of the Phase I Expansion Space by Landlord to Tenant, unless Tenant has the right to exercise and does exercise the Suite 210 Right of First Refusal, as hereinafter defined. If Tenant does not exercise such right, Tenant shall remove all of Tenant’s fixtures, furniture and equipment from the Suite 210 Temporary Space and otherwise yield up the Suite 210 Temporary Space to Landlord in accordance with the provisions of the Lease (it being understood, however, that Tenant shall have no obligation to remove any wiring or improvements made to the Suite 210 Temporary Space). In the event that Tenant fails to vacate and surrender the Suite 210 Temporary Space as set forth above on or before thirty (30) days after delivery of the Phase I Expansion Space by Landlord to Tenant, Landlord hereby reserves all of its rights and remedies under the Lease for such holdover.


(vi) Notwithstanding the foregoing provisions of subsection (v), if Tenant exercises its Termination Option with respect to the Phase I Expansion Space in accordance with the provisions of Section K of this First Amendment, at the time of giving notice to Landlord of such termination Tenant shall also deliver written notice to Landlord either (x) extending the term of the Suite 210 Temporary Space to October 31, 2019, coterminous with the term for the Original Premises, upon all of the terms and conditions contained in this First Amendment, including payment of Annual Fixed Rent in accordance with the schedule set forth in Section C below (prorated, however, based upon the size of the Suite 210 Temporary Space), or (y) terminating its lease of the Suite 210 Temporary Space, which termination shall be effective nine (9) months after the date of such notice, and Tenant shall vacate and surrender the Suite 210 Temporary Space within such nine (9) month period. In the event that Tenant fails to vacate and surrender the Suite 210 Temporary Space within such period, Landlord hereby reserves all of its rights and remedies under the Lease for such holdover.

(vii) The June 28 Side Letter is hereby terminated by Landlord and Tenant and is, accordingly, void and of no force or effect.

C. Annual Fixed Rent .

Tenant and Landlord acknowledge and agree that Annual Fixed Rent for the Original Premises shall be payable in the amount set forth in Section 1.1 of the Existing Lease until October 31, 2016. Thereafter, Annual Fixed Rent for the Original Premises shall be included in the following Annual Fixed Rent schedule for the Phase I Expansion Space, which shall be effective as of the Phase I Expansion Space Commencement Date:

(i) For the period from May 1, 2016 through July 31, 2016 the sum of $0, payable in monthly installments of $0; *

(ii) For the period from August 1, 2016 through October 31, 2016, the sum of $38,309.37 based on $32.50 per square foot, payable in monthly installments of $12,769.79;

(iii) For the period from November 1, 2016 through October 31, 2017, the sum of $551,711.50 based on $33.50 per square foot, payable in monthly installments of $45,975.96; **

(iv) For the period from November 1, 2017 through October 31, 2018, the sum of $568,180.50 based on $34.50 per square foot, payable in monthly installments of $47,348.38; and **

(v) For the period from November 1, 2018 through October 31, 2019, the sum of $584,649.50 based on $35.50 per square foot, payable in monthly installments of $48,720.79. **

 

* This schedule assumes the Phase I Expansion Space Commencement Date will occur on the Target Delivery Date. If for any reason the Phase I Expansion Space Commencement Date does not occur on the Target Delivery Date, this schedule will be adjusted so that Annual Fixed Rent for the first three months after the Phase I Expansion Space Commencement Date occurs is abated, provided, however, that the dates of the Annual Fixed Rent increases set forth in the schedule above will remain unchanged.
** Includes the Original Premises

Monthly installments of Base Rent shall be payable in advance on the first day of each month during the term of this Lease without deduction, set-off, prior notice or demand in lawful money of the United States of America. The rent payment for any fractional month at the commencement, termination or expiration of the Lease term will be prorated.

D. Tenant Electricity .

Landlord and Tenant acknowledge and agree that the Phase I Expansion Space and the Phase II Expansion Space, if applicable, will be check metered for electric usage. Tenant shall be separately billed by Landlord, as Additional Rent, for all electricity usage related to and/or used respecting the Phase I Expansion Space and the Phase II Expansion Space, if applicable, and all related facilities and equipment (the “Premises Electric”) based on readings of such check meter (at Landlord’s actual cost of electricity for such amount of electricity shown to be consumed at the Phase I Expansion Space and the Phase II Expansion Space, if applicable, on such check meter). Landlord shall have the right to bill Tenant for the Premises Electric on a monthly basis based on such check meter and Tenant shall pay such Premises Electric charges to Landlord within thirty (30) days after receipt of Landlord’s billing therefor. Landlord’s failure to bill Tenant on a monthly


basis shall in no way waive Tenant’s payment obligations with respect to the Premises Electric charges. If the Phase I Expansion Space and the Phase II Expansion Space, if applicable, cannot be check metered (in Landlord’s sole reasonable judgment based upon the costs of such check metering), Tenant shall be billed its proportionate share for Tenant’s electricity.

E. Real Estate Taxes.

For the Original Premises, until October 31, 2016 Tenant shall continue to pay the amount by which Landlord’s Tax Expenses allocable to the Premises exceed Base Taxes allocable to the Premises in accordance with the Existing Lease. For the Phase I Expansion Space and the Phase II Expansion Space, if applicable, until October 31, 2016 Tenant shall pay the amount by which Landlord’s Tax Expenses allocable to the Phase I Expansion Space and the Phase II Expansion Space, if applicable, exceed Base Taxes allocable to the Phase I Expansion Space and the Phase II Expansion Space, if applicable (Base Taxes for purpose of this sentence meaning Landlord’s Tax Expense budget for fiscal year 2016). Commencing on November 1, 2016, Tenant shall pay the amount by which Landlord’s Tax Expenses allocable to the 2016 Combined Space exceed Base Taxes allocable to the 2016 Combined Space (Base Taxes for purpose of this sentence meaning Landlord’s Tax Expense budget for fiscal year 2017).

F. Operating Expenses.

For the Original Premises, until October 31, 2016 Tenant shall continue to pay as Additional Rent the amount by which Operating Expenses Allocable to the Premises exceed Base Operating Expenses Allocable to the Premises in accordance with the Existing Lease. For the Phase I Expansion Space and the Phase II Expansion Space, if applicable, until October 31, 2016 Tenant shall pay the amount by which Landlord’s Operating Expenses allocable to the Phase I Expansion Space and the Phase II Expansion Space, if applicable, exceed Base Operating Expenses allocable to the Phase I Expansion Space and the Phase II Expansion Space, if applicable (Base Operating Expenses for purpose of this sentence meaning Landlord’s Operating Expense budget for calendar year 2016). Commencing on November 1, 2016, Tenant shall pay the amount by which Landlord’s Operating Expenses allocable to the 2016 Combined Space exceed Base Operating Expenses allocable to the 2016 Combined Space (Base Operating Expenses for purpose of this sentence meaning Landlord’s Operating Expense budget for calendar year 2016).

G. Landlord’s Work.

Landlord shall provide a turnkey build-out of the Phase I Expansion Space, and the Phase II Expansion Space, if applicable, using the same finishes and materials (if available) as used in the Original Premises (including, but not limited to, lighting, carpet, paint, doors and sidelights), in accordance with the plan and specifications attached hereto as Exhibit A.

H. Target Delivery Date; Delay in Commencement

 

  (i) Tenant acknowledges and agrees that the Target Delivery Date is based on the existing tenant (as of the date of this First Amendment) in the Phase I Expansion Space (the “Existing Tenant”), vacating its premises on February 1, 2016. If the Existing Tenant does not vacate the Phase I Expansion Space by February 1, 2016, the Target Delivery Date shall be extended on a day for day basis until the Existing Tenant vacates the Phase I Expansion Space. Notwithstanding the Target Delivery Date, if for any reason Landlord cannot deliver possession of the Phase I Expansion Space to Tenant on or before the Target Delivery Date, Landlord shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease or Tenant’s obligations hereunder, except as set forth herein, and, in any event, Landlord shall use commercially reasonable efforts to cause the Existing Tenant to vacate as quickly as possible, and Landlord shall not grant the Existing Tenant any right to stay in such space beyond February 1, 2016. In such event, however, Tenant shall not be obligated to pay Annual Fixed Rent or additional rent for the Phase I Expansion Space, and (except to the extent that such delay in delivery of the Phase I Expansion Space was caused by Tenant Delay or events outside of Landlord’s control, but subject to Section H(iii) below) Annual Fixed Rent for the Suite 210 Temporary Space shall also be abated, until possession of the Phase I Expansion Space is tendered to Tenant and without requirement of further act of the parties the Termination Date of the Lease shall be extended by a period equal to the period between the Target Delivery Date and the occurrence of the Phase I Expansion Space Commencement Date.

 

  (ii) In the case of an event of Tenant Delay, Landlord’s Work shall be deemed substantially completed as of the date when Landlord’s Work would have been completed but for any Tenant Delays, as determined by Landlord in the exercise of its good faith business judgement.


  (iii) In the case of events outside of Landlord’s Control (other than events of Tenant Delay) Tenant shall not be obligated to pay Annual Fixed Rent or additional rent for the Phase I Expansion Space, and Annual Fixed Rent for the Suite 210 Temporary Space shall also be abated from the date that is thirty (30) days after the Target Delivery Date, until possession of the Phase I Expansion Space is tendered to Tenant and, without requirement of further act of the parties the Termination Date of the Lease shall be extended by a period equal to the period between the Target Delivery Date and the occurrence of the Phase I Expansion Space Commencement Date; provided that the Termination Date shall not be extended to a date that is later than January 31, 2020.

 

  (iv) In the event that the Phase I Expansion Space is not tendered to Tenant by August 1, 2016, then Tenant shall also have the right, in lieu of such abatement, to terminate the Lease with respect to the Phase I Expansion Space, Phase II Expansion Space (if applicable) and/or the Suite 210 Temporary Space, without the payment of any termination fee or other such payment. Landlord may, but shall not be required to, confirm the Phase I Expansion Space Commencement Date by written notice to Tenant; any such notice by Landlord shall be conclusive with respect to the Phase I Expansion Space Commencement Date.

I. Renewal Option .

Tenant shall have the right to extend the term of the Lease for a portion of, or the entire, 2016 Combined Space for one (1) period of three (3) years upon and subject to all of the terms and conditions set forth in Section 9.18 of the Original Lease.

J. Phase II Expansion Space Option .

Tenant shall have the option to expand into the Phase II Expansion Space by delivering written notice to Landlord exercising such option prior to October 1, 2015, in which case Tenant will lease the Phase II Expansion Space upon all of the applicable terms set forth in this First Amendment (including, without limitation, the per square foot Fixed Rent amounts (including the provision of three (3) months of free rent) and the applicable abatement and termination rights hereof) and Section I of Exhibit C. Notwithstanding the foregoing. Tenant acknowledges that Landlord is currently marketing the Phase II Expansion Space to third parties, however Landlord agrees that Landlord will not enter into a lease with a third party for the Phase II Expansion Space prior to October 1, 2015 unless Tenant waives its right to expand into the Phase II Expansion Space. On and after October 1, 2015, Tenant have a right of first refusal to lease the Phase II Expansion Space in accordance with the terms and conditions set forth on Exhibit C attached hereto. If Tenant exercises its option to expand into the Phase II Expansion Space prior to October 1, 2015, Tenant shall also have a right of first refusal to lease the Suite 210 Temporary Space in accordance with the terms and conditions set forth on Exhibit E attached hereto.

K. Termination Option .

 

  (a) Tenant shall have the right to terminate the Lease with respect to all or a portion of the Temporary Space, the Phase I Expansion Space and/or the Phase II Expansion Space, but not with respect to the Original Premises, prior to the expiration of the term, upon nine (9) months advance written notice (or such lesser period as may be remaining in the term) (the “Termination Notice”) delivered within sixty (60) days of the occurrence of a Triggering Event (the “Termination Option”); provided however, that the Parties agree that if such Termination Notice is delivered prior to the Phase I Expansion Space Commencement Date, Tenant shall not occupy the Phase I Expansion Space or the Phase II Expansion Space (if applicable) but shall continue to occupy the Suite 210 Temporary Space through the date that is nine (9) months from the Termination Notice. “Triggering Event” means the date upon which (i) Tenant determines, in good faith, that its lead product candidate, FX006 (the Tenant’s sustained-release intra-articular steroid for the treatment of osteoarthritis), fails to meet the pre-defined endpoints (as defined in the applicable protocol and further defined in Exhibit D of this First Amendment) with respect to the ongoing phase 2(b) clinical trial comparing FX006 against placebo, which Tenant reasonably determines, in good faith, will result in an adverse effect on Tenant’s business, or (ii) Tenant’s receipt of a complete response letter or non-approvable letter from the FDA (as defined in Exhibit D of this First Amendment) with respect to the filing of a New Drug Application relating to FX006, which reasonably will result in an adverse effect on Tenant’s business (which may include, by way of example, but without limitation, restructuring of the business or a reduction in force).


  (b) In the event Tenant exercises its Termination Option prior to May 1, 2016, Tenant shall pay the following, in addition to the monthly rent for the 210 Temporary Space (as set forth in B(iii) above) for the nine month notice period set forth in Section K(a) above:

 

  (i) All unamortized brokerage fees (to extent actually paid by Landlord) as of the date which is nine (9) months after the date of the Termination Notice;

 

  (ii) An amount equal to $73,103.32 (representing four months of rent due on the 210 Temporary Space);

 

  (iii) An amount equal to $33,740 (representing payment for an additional $5.00 per square foot on the Suite 210 Temporary Space above the $10.00 per square foot which may have been paid pursuant to Section B above);

 

  (iv) The unamortized amount of Landlord’s documented costs through the date of the Termination Notice, including all non-canceable costs and materials purchased, incurred prior ot the date of the Termination Notice, for tenant improvements for the Phase I Expansion Space and the Phase II Expansion Space (if applicable); provided that, Landlord agrees (1) that such costs (or commitment for such costs) for tenant improvements will not commence prior to February 1, 2016 (other than expenditures related to architectural and engineering fees), and (2) to use commercially reasonable efforts to mitigate the amount of such costs.

 

  (c) In the event Tenant exercises its Termination Option after May 1, 2016 and prior to December 31, 2017, Tenant shall pay the following, in addition to the monthly rent for the Phase I Expansion Space and Phase II Expansion Space (if occupied by Tenant) (as set forth in (C) above) for the nine month notice period set forth in Section K(a) above:

 

  (i) All unamortized brokerage fees and legal fees as of the date which is nine (9) months after the date of the Termination Notice taking into account, for purposes of amortization, the four (4) monthly installments paid pursuant to K(c)(ii) below;

 

  (ii) An amount equal to four (4) monthly installments of Annual Fixed Rent being paid by Tenant at such time for the applicable space being terminated; and

 

  (iii) The unamortized amount of Landlord’s documented costs through the date of the Termination Notice, including all non-canceable costs and materials purchased, incurred prior ot the date of the Termination Notice, for tenant improvements for the Phase I Expansion Space and the Phase II Expansion Space (if applicable).

 

  (d) In the event Tenant exercises its Termination Option after December 31, 2017, Tenant shall pay the following, in addition to the monthly rent for the Phase I Expansion Space and Phase II Expansion Space (if occupied by Tenant) (as set forth in (C) above) for the nine month notice period set forth in Section K(a) above:

 

  (i) All unamortized brokerage fees and legal fees as of the date which is nine (9) months after the date of the Termination Notice taking into account, for purposes of amortization, the three (3) monthly installments paid pursuant to K(d)(ii) below;

 

  (ii) An amount equal three (3) monthly installments of Annual Fixed Rent being paid by Tenant at such time for the applicable space being terminated; and

 

  (iii) The unamortized amount of Landlord’s documented costs through the date of the Termination Notice, including all non-canceable costs and materials purchased, incurred prior ot the date of the Termination Notice, for tenant improvements for the Phase I Expansion Space and the Phase II Expansion Space (if applicable).

L. Brokerage . The Tenant has not dealt with any broker or agent other than The Shaffer Company in connection with the negotiation or execution of this First Amendment. Tenant agrees to indemnify Landlord against any costs incurred by Landlord (including reasonable attorneys’ fees) if the foregoing representation is untrue. The foregoing indemnification obligation shall survive the expiration or any termination of the Lease, as amended by this First Amendment.

M. Ratification of Lease . Except as amended and modified by this First Amendment, all the terms, provisions, agreements, covenants and conditions of the Lease are hereby affirmed and ratified. From and after the date hereof, all references to the Lease or Lease shall mean the Lease or Lease as amended hereby and to the extent that there any inconsistencies between this


First Amendment and the Lease, this First Amendment shall control. Landlord and Tenant each hereby ratifies and confirms its obligations under the Lease, and represents and warrants to the other that, to its knowledge, it has no defenses thereto. Additionally, Landlord and Tenant further confirm and ratify that, as of the date hereof, (a) the Landlord and Tenant are and remain in good standing and the Lease is in full force and effect, and (b) neither Landlord nor Tenant has any claims, counterclaims, set-offs or defenses against the other arising out of the Lease or in any way relating thereto or arising out of any other transaction between Landlord and Tenant.

N. Execution/Entire Agreement . This First Amendment, together with the Lease as affected hereby, constitutes the entire agreement of the parties, and may not be amended except by written instrument signed by all parties. This First Amendment shall have the effect of an agreement under seal and shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. This First Amendment may be executed in counterparts all of which taken together shall constitute an original executed document.

[Signatures on following page]


The parties hereto have hereunto set their hands and seals the day and year first above written.

 

LANDLORD: CIP II/RJK 10-20 BMR Owner, LLC

/s/ Brandon Kelly

BY:   Brandon Kelly
ITS:  
TENANT: FLEXION THERAPEUTICS, INC.

/s/ Michael Clayman

BY:   Michael Clayman
ITS:   CEO


EXHIBIT A

Plan of Phase I Expansion Space and Phase II Expansion Space

 

 

LOGO

 

* Please note Landlord shall provide a new egress door through the coset area pointed out by the red arrow.


Exhibit A-1

Scope of work for Phase I Expansion Space

 

  1. Carpentry

 

  a. All new walls built to drop ceiling as shown on mutually agreed upon plan.

 

  b. Installation of kitchen cabinets (uppers and lowers) in kitchen area.

 

  2. Millwork

 

  a. Kitchen—cabinets (uppers and lowers) as shown on Exhibit A. Cabinets to have plastic laminate finish, specific layout to be mutually agreed upon by Landlord and Tenant. Cabinet and countertop laminate to be mutually agreed upon by Landlord and Tenant based on Landlord’s building standards.

 

  3. Doors and hardware

 

  a. Provide 3’0” x 8’4” solid wood doors paint grade and building standard bright chrome latch sets.

 

  b. Provide painted hollow metal door frames to match door size, as shown in Exhibit A.

 

  c. All doors and frames shall be painted to match existing space.

 

  d. All electronic access control components and labor to be provided and installed by the Tenant.

 

  4. Glazing

 

  a. Provide Landlords upgraded sidelights to have 1/4” tempered glass, framed to match door frame from floor to door height, 48” wide in all new offices and the conference room.

 

  b. Tenant shall, at Tenant’s expense, provide any necessary connections to Premises main glass entry doors required to incorporate Tenant’s security access system into the Building fire protection systems.

 

  c. All glazing film shall be purchased and installed by Landlord’s contractor at Landlord’s expense. Landlord to provide glazing film to match existing space.

 

  5. Ceilings

 

  a. Provide 2x2 Armstrong Dune Tegular ceiling tiles, style number 1774 (or similar Landlord standard), on Armstrong 15/16” grid for all areas of drop ceiling.

 

  6. Flooring

 

  a. Provide Armstrong Commercial VCT in Kitchen with 4” Vinyl cove base, colors and pattern to be mutually agreed upon by Landlord and Tenant based on Landlord’s building standards.

 

  b. Provide Carpet tile to be mutually agreed upon by Landlord and Tenant based on Landlord’s building standards in all offices and open areas as shown in Exhibit A. Landlord will provide a matching/coordinating carpet to Tenant’s existing carpet.

 

  c. Transitions to be black vinyl as appropriate for materials.

 

  7. Paint shall be Benjamin Moore or mutually agreed upon equivalent to match Tenant’s existing paint colors.

 

  8. Plumbing & Appliances

 

  a. Landlord shall provide a standard stainless steel sink and faucet for Kitchen.

 

  9. Fire Protection

 

  a. Landlord to provide complete sprinkler coverage as required by local codes.

 

  b. Landlord shall provide fire extinguishers as required by local regulations and codes.

 

  c. Tenant, at its sole cost and expense, shall be responsible for all equipment and installation of any dedicated supplemental fire protection systems (preaction systems) in Server Room, if applicable.

 

  10. HVAC

 

  a. Landlord shall rework existing HVAC as needed to provide adequate base heating and cooling within the space.

 

  b. Tenant shall be responsible for any additional HVAC in server room or IT rooms.


  c. Landlord shall provide operable thermostats spaced according to existing and reasonable zoning, and controls shall be tied into the existing building’s energy management system.

 

  d. Landlord shall provide air balancing at completion of project.

 

  11. Electrical

 

  a. Power

 

  i. Landlord shall equip each office with a minimum of 2 duplex outlets.

 

  ii. Tenant to provide furniture that is prewired for power and is coordinated with the electrician’s power plan.

 

  b. Lighting

 

  i. Landlord shall provide 2”x4” direct indirect LED light fixtures.

 

  ii. Landlord shall provide building standard emergency and night lighting as required by local regulations and code.

 

  12. All Furnishings are not included in the scope of work and shall be the responsibility of the Tenant.

 

  13. ALL WIRING WHIPS, WIRING WITHIN FURNITURE, AND ALL TELEPHONE AND DATA WIRING ARE NOT INCLUDED IN THIS SCOPE OF WORK AND SHALL BE THE RESPONSIBILITY OF THE TENANT.

Notes:

 

    All work to be completed in accordance with approved plans and construction schedule.

 

    Legal removal and disposal of work related debris is included.

 

    We have assumed all work to be done between the hours of 7:00am to 5:00pm unless otherwise specified. No Premium Time included.

 

    Mutually agreed upon substitutions for any products mentioned herein may be used contingent upon product availability, supplier pricing increases and timing.

 

    Any products and/or labor not stated to be performed in the above description is not included in this scope of work. Any deviations from this scope of work may result in a change order, the cost of which shall be paid for by Tenant.


EXHIBIT B

Plan of Suite 210 Temporary Space

 

LOGO


Exhibit B-1

Scope of work for Suite 210 (Temporary Space)

 

  14. Carpentry

 

  a. All new walls built to drop ceiling as shown on mutually agreed upon plan.

 

  b. Installation of kitchen cabinets (uppers and lowers) in kitchen area.

 

  c. Provide plywood backing for electrical and Tel/Data use in server room and electric room as needed.

 

  15. Millwork

 

  a. Kitchen–cabinets (uppers and lowers) as shown on Exhibit B. Cabinets to have plastic laminate finish, specific layout to be mutually agreed upon by Landlord and Tenant. Cabinet and countertop laminate to be mutually agreed upon by Landlord and Tenant based on Landlord’s building standards.

 

  16. Doors and hardware

 

  a. Provide 3’0” x 8’4” solid wood doors paint grade and building standard bright chrome latch sets.

 

  b. Provide painted hollow metal door frames to match door size, as shown in Exhibit B.

 

  c. All doors and frames shall be painted to match existing space.

 

  d. All electronic access control components and labor to be provided and installed by the Tenant.

 

  17. Glazing

 

  a. Provide Landlords upgraded sidelights to have 1/4” tempered glass, framed to match door frame from floor to door height, 48” wide.

 

  b. Tenant shall, at Tenant’s expense, provide any necessary connections to Premises main glass entry doors required to incorporate Tenant’s security access system into the Building fire protection systems.

 

  c. All glazing film shall be purchased and installed by Landlord’s contractor at Landlord’s expense. Landlord to provide glazing film to match existing space.

 

  18. Ceilings

 

  a. Provide 2x2 Armstrong Dune Tegular ceiling tiles, style number 1774 (or similar Landlord standard), on Armstrong 15/16” grid for all areas of drop ceiling.

 

  19. Flooring

 

  a. Provide Armstrong Commercial VCT in Kitchen with 4” Vinyl cove base, colors and pattern to be mutually agreed upon by Landlord and Tenant based on Landlord’s building standards.

 

  b. Provide Armstrong Commercial VCT in Server room and IT space as shown in Exhibit B.

 

  c. Provide Carpet tile to be mutually agreed upon by Landlord and Tenant based on Landlord’s building standards in all offices and open areas as shown in Exhibit B. Landlord will provide a matching/coordinating carpet to Tenant’s existing carpet.

 

  d. Transitions to be black vinyl as appropriate for materials.

 

  20. Paint shall be Benjamin Moore or mutually agreed upon equivalent to match Tenant’s existing paint colors.

 

  21. Plumbing & Appliances

 

  a. Landlord shall provide a standard stainless steel sink and faucet for Kitchen.

 

  22. Fire Protection

 

  a. Landlord to provide complete sprinkler coverage as required by local codes.

 

  b. Landlord shall provide fire extinguishers as required by local regulations and codes.

 

  c. Tenant, at its sole cost and expense, shall be responsible for all equipment and installation of any dedicated supplemental fire protection systems (preaction systems) in Server Room, if applicable.


  23. HVAC

 

  a. Landlord shall rework existing HVAC as needed to provide adequate base heating and cooling within the space.

 

  b. Tenant shall be responsible for any additional HVAC in server room or IT rooms.

 

  c. Landlord shall provide operable thermostats spaced according to existing and reasonable zoning, and controls shall be tied into the existing building’s energy management system.

 

  d. Landlord shall provide air balancing at completion of project.

 

  24. Electrical

 

  a. Power

 

  i. Landlord shall equip each office with a minimum of 2 duplex outlets.

 

  ii. Tenant to provide furniture that is prewired for power and is coordinated with the electrician’s power plan.

 

  b. Lighting

 

  i. Landlord shall provide approximately 60, 2“x4” direct indirect LED light fixtures.

 

  ii. Landlord shall provide building standard emergency and night lighting as required by local regulations and code.

 

  25. All Furnishings are not included in the scope of work and shall be the responsibility of the Tenant.

 

  26. ALL WIRING WHIPS, WIRING WITHIN FURNITURE, AND ALL TELEPHONE AND DATA WIRING ARE NOT INCLUDED IN THIS SCOPE OF WORK AND SHALL BE THE RESPONSIBILITY OF THE TENANT.

Notes:

 

    All work to be completed in accordance with approved plans and construction schedule.

 

    Legal removal and disposal of work related debris is included.

 

    We have assumed all work to be done between the hours of 7:00am to 5:00pm unless otherwise specified. No Premium Time included.

 

    Mutually agreed upon substitutions for any products mentioned herein may be used contingent upon product availability, supplier pricing increases and timing.

 

    Any products and/or labor not stated to be performed in the above description is not included in this scope of work. Any deviations from this scope of work may result in a change order, the cost of which shall be paid for by Tenant.


EXHIBIT C

Right of First Refusal - Phase II Expansion Space

1. Tenant shall have the exclusive right of first refusal to expand into the Phase II Expansion Space on the conditions hereinafter set forth and to be exercised as hereinafter provided:

(a) No default by Tenant shall be existing or continuing in the performance of any of the terms, covenants and conditions of this Lease in respect of a matter as to which notice of default has been given hereunder; provided, however, that in the event of any default that cannot with due diligence be cured prior to the last date on which Tenant is entitled to exercise such right Tenant may nevertheless exercise such right of first refusal if Tenant shall have proceeded promptly after the service of any notice of default to commence to cure the default, and thereafter completes the curing of the default with due diligence.

(b) Tenant shall accept the Phase II Expansion Space on the following terms, and otherwise upon all of the applicable terms set forth in this First Amendment:

(i) The commencement date of the term for the Phase II Expansion Space shall occur upon substantial completion of tenant improvements by Landlord (the “Phase II Expansion Space Commencement Date”), the cost of which tenant improvements shall be equivalent on a per square foot basis to the cost for the Phase I Expansion Space tenant improvements (which shall be determined within sixty (60) days after the Phase I Expansion Space Commencement Date) but prorated based on the length of the Phase II Expansion Space term;

(ii) Payment of Annual Fixed Rent by Tenant for the Phase II Expansion Space shall commence ninety (90) days after the Phase II Expansion Space Commencement Date and shall be calculated by multiplying the square footage of the Phase II Expansion Space by the then applicable rent per square foot set forth in Section C of this First Amendment at the time that Landlord delivers the Phase II Expansion Space to Tenant, with increases corresponding to the increases set forth in Section C;

(iii) The Phase II Expansion Space term shall expire on the Termination Date for the Original Premises and the Phase I Expansion Space.

2. Tenant shall exercise its right of first refusal in the following manner: Landlord shall notify Tenant at the Premises that Landlord has entered into a letter of intent with a bona fide third party (the “Letter of Intent”) for the Phase II Expansion Space setting forth the proposed terms, covenants and conditions upon which the space will be leased by the bona fide third party (the “Initial Notice”) and shall include with said notification a copy of the mutually authorized Letter of Intent. Tenant may exercise its right under this Exhibit C by providing Landlord with written notice of its intention to lease the Phase II Expansion Space and entering into an amendment to this Lease to include the Phase II Expansion Space within the Premises within ten (10) days after receipt of the Initial Notice. In the event that Tenant fails to provide such notice. Tenant shall be deemed to have waived its option under this Exhibit C and Landlord shall thereafter be free to lease the Phase II Expansion Space to a third party; provided, however, if Landlord does not consummate a transaction with such bona fide third party within six (6) months of the delivery of the Initial Notice, then the provisions of this Exhibit C and Section J shall continue to apply.

 

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LANDLORD       TENANT


EXHIBIT D

Definitions for Termination Option

1. The failure of the product to meet its endpoints can be defined as follows:

• The change from Baseline to Week 12 in the weekly mean of the average daily (24-hr) pain intensity scores on a 0 to 10 NRS scale with 0 indicating ‘no pain’ and 10 indicating ‘pain as bad as you can imagine’.

• Western Ontario and McMaster Universities (WOMAC ® ) Osteoarthritis Index C (function): Change from Baseline to Week 12

• Change from Baseline to Week 16 and then Week 20 and then Week 24 in the weekly mean of the average daily (24-hr) pain intensity scores on a 0 to 10 NRS scale

• Patient Global Impression of Change (PGIC): 7-point scale at Week 12

2. Refuse To File (RTF) Letter — the FDA has identified a material, significant scientific gap in Flexion’s NDA for the Product that deems the application as incomplete. An RTF is a regulatory action taken at the beginning of an NDA review.

3. Complete Response Letter (CRL) — indicates that there are deficiencies and that the application cannot be approved in its current form. Deficiencies that are not easily addressable with available data and/or commitments to provide required data after approval, could result in significant delay in the eventual approval of the NDA.

4. Non-Approvable Letter — Letter simply stating that the FDA has elected not to approve Flexion’s product for sale.


EXHIBIT E

Right of First Refusal – Suite 210 Temporary Space

1. If Tenant exercises its option to expand into the Phase II Expansion Space prior to October 1, 2015, Tenant shall have the exclusive right of first refusal until September 30, 2016 to expand into the Suite 210 Temporary Space on the conditions hereinafter set forth and to be exercised as hereinafter provided:

(a) No default by Tenant shall be existing or continuing in the performance of any of the terms, covenants and conditions of this Lease in respect of a matter as to which notice of default has been given hereunder; provided, however, that in the event of any default that cannot with due diligence be cured prior to the last date on which Tenant is entitled to exercise such right Tenant may nevertheless exercise such right of first refusal if Tenant shall have proceeded promptly after the service of any notice of default to commence to cure the default, and thereafter completes the curing of the default with due diligence.

(b) Tenant shall lease the Suite 210 Temporary Space on then existing market rental rates and terms.

2. Tenant shall exercise its right of first refusal in the following manner: Landlord shall notify Tenant at the Premises that Landlord has entered into a letter of intent with a bona fide third party (the “Letter of Intent”) for the Suite 210 Temporary Space setting forth the proposed terms, covenants and conditions upon which the space will be leased by the bona fide third party (the “Initial Notice”) and shall include with said notification a copy of the mutually authorized Letter of Intent. Tenant may exercise its right under this Exhibit E by providing Landlord with written notice of its intention to lease the Suite 210 Temporary Space upon all of the terms and conditions set forth in the Letter of Intent and entering into an amendment to this Lease to include the Suite 210 Temporary Space within the Premises upon such terms and conditions, and otherwise upon the terms and conditions set forth in this Lease, within five (5) business days after receipt of the Initial Notice. In the event that Tenant fails to provide such notice, Tenant shall be deemed to have waived its option under this Exhibit E and Landlord shall thereafter be free to lease the Suite 210 Temporary Space to a third party. Notwithstanding anything to the contrary contained herein, if Tenant shall not have previously exercised its rights under this Exhibit E, Tenant’s rights under this Exhibit E shall cease and be of no further force and effect after September 30, 2016.

 

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LANDLORD       TENANT

Exhibit 10.4

EXECUTION COPY

CREDIT AND SECURITY AGREEMENT

THIS CREDIT AND SECURITY AGREEMENT (this “ Agreement ”), dated as of August 4, 2015 (the “ Closing Date ”) by and among MIDCAP FINANCIAL TRUST, a Delaware statutory trust (“ MidCap ”), as administrative agent (“ Agent ”), the Lenders listed on the Credit Facility Schedule attached hereto and otherwise party hereto from time to time (each a “ Lender ”, and collectively the “ Lenders ”), and FLEXION THERAPEUTICS, INC. , a Delaware corporation (“ Borrower ”), provides the terms on which Lenders agree to lend to Borrower and Borrower shall repay Lenders. The parties agree as follows:

1 ACCOUNTING AND OTHER TERMS

Accounting terms not defined in this Agreement shall be construed in accordance with GAAP. Calculations and determinations must be made in accordance with GAAP. Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in Section 15. All other terms contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the Code to the extent such terms are defined therein. All headings numbered without a decimal point are herein referred to as “Articles,” and all paragraphs numbered with a decimal point (and all subparagraphs or subsections thereof) are herein referred to as “Sections.”

2 CREDIT FACILITIES AND TERMS

2.1 Promise to Pay . Borrower hereby unconditionally promises to pay to each Lender in accordance with each Lender’s respective Pro Rata Share of each Credit Facility, the outstanding principal amount of all Credit Extensions made by the Lenders under such Credit Facility and accrued and unpaid interest thereon and any other amounts due hereunder as and when due in accordance with this Agreement.

2.2 Credit Facilities . Subject to the terms and conditions hereof, each Lender, severally, but not jointly, agrees to make available to Borrower Credit Extensions in respect of each Credit Facility set forth opposite such Lender’s name on the Credit Facility Schedule, in each case not to exceed such Lender’s commitment as identified on the Credit Facility Schedule (such commitment of each Lender, as it may be amended to reflect assignments made in accordance with this Agreement or terminated or reduced in accordance with this Agreement, its “ Applicable Commitment ”, and the aggregate of all such commitments, the “ Applicable Commitments ”).

2.3 Term Credit Facilities .

(a) Nature of Credit Facility; Credit Extension Requests . For any Credit Facility identified on the Credit Facility Schedule as a term facility (a “ Term Credit Facility ”), Credit Extensions in respect of a Term Credit Facility may be requested by Borrower during the Draw Period for such Term Credit Facility. For any Credit Extension requested under (i) Credit Facility #1, Agent must receive the completed Credit Extension Form by 12:00 noon (New York time) one (1) Business Day prior to the date of the Credit Extension is to be funded, and (ii) Credit Facility #2, Agent must receive the completed Credit Extension Form by 12:00 noon (New York time) five (5) Business Day prior to the date of the Credit Extension is to be funded To the extent any Term Credit Facility proceeds are repaid for any reason, whether voluntarily or involuntarily (including repayments from insurance or condemnation proceeds), Agent and Lenders shall have no obligation to re-advance such sums to Borrower.

(b) Principal Payments . Principal payable on account of a Term Credit Facility shall be payable by Borrower to Agent immediately upon the earliest of (a) the date(s) set forth in the Amortization Schedule for such Term Credit Facility (or if no such Amortization Schedule is attached, then upon Agent’s demand for payment), or (b) the Maturity Date. Except as this Agreement may specifically provide otherwise, all prepayments of Credit Extensions under Term Credit Facilities shall be applied by Agent to the applicable Term Credit Facility in inverse order of maturity. The monthly payments required under the Amortization Schedule shall continue in the same amount (for so long as the applicable Term Credit Facility shall remain outstanding) notwithstanding any partial prepayment, whether mandatory or optional, of the applicable Term Credit Facility.

 

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(c) Mandatory Prepayment . If a Term Credit Facility is accelerated following the occurrence of an Event of Default, Borrower shall immediately pay to Agent, for payment to each Lender in accordance with its respective Pro Rata Share, an amount equal to the sum of: (i) all outstanding principal of the Term Credit Facility and all other Obligations, plus accrued and unpaid interest thereon, (ii) any fees payable under the Fee Letters by reason of such prepayment, (iii) the Applicable Prepayment Fee as specified in the Credit Facility Schedule for the Credit Facility being prepaid, and (iv) all other sums that shall have become due and payable, including Protective Advances. Additionally, at the election of Agent, Borrower shall prepay the Term Credit Facilities (to be allocated pro rata among the outstanding Credit Extensions under all Term Credit Facilities) in the following amounts: (i) on the date on which any Credit Party (or Agent as loss payee or assignee) receives any casualty proceeds in excess of Twenty Five Thousand Dollars ($25,000) for personal property, or in excess of Fifty Thousand Dollars ($50,000) for real property, in respect of assets upon which Agent maintained a Lien, an amount equal to one hundred percent (100%) of such proceeds (net of out-of-pocket expenses and, in the case of personal property, repayment of any permitted purchase money debt encumbering the personal property that suffered such casualty), or such lesser portion of such proceeds as Agent shall elect to apply to the Obligations (unless such Credit Party applies such proceeds towards the replacement or repair of such personal property or real property); and (ii) upon receipt by any Credit Party of the proceeds of any asset disposition of personal property not made in the Ordinary Course of Business (other than transfers permitted by Section 7.1), an amount equal to one hundred percent (100%) of the net cash proceeds of such asset disposition (net of out-of-pocket expenses and repayment of any permitted purchase money debt encumbering such asset), or such lesser portion as Agent shall elect to apply to the Obligations.

(d) Permitted Prepayment . After the Closed Period, if any, for the applicable Term Credit Facility as specified in the Credit Facility Schedule, Borrower shall have the option to prepay the Prepayable Amount (as defined below) of a Term Credit Facility advanced by the Lenders under this Agreement, provided Borrower (i) provides written notice to Agent of its election to prepay the Prepayable Amount at least fifteen (15) Business Days prior to such prepayment, and (ii) pays to Agent, for payment to each Lender in accordance with its respective Pro Rata Share, on the date of such prepayment, an amount equal to the sum of (A) the Prepayable Amount, plus accrued interest thereon, (B) any fees payable under the Fee Letters by reason of such prepayment, (C) the Applicable Prepayment Fee as specified in the Credit Facility Schedule for the Credit Facility being prepaid, and (D) all Protective Advances. The term “Prepayable Amount” means all or any portion of the Credit Extensions under the applicable Term Credit Facility.

2.4 Reserved .

2.5 Reserved .

2.6 Interest and Payments; Administration .

(a) Interest; Computation of Interest . Each Credit Extension shall bear interest on the outstanding principal amount thereof from the date when made until paid in full at a rate per annum equal to the Applicable Interest Rate. Each Lender may, upon the failure of Borrower to pay any fees or interest as required herein, capitalize such interest and fees and begin to accrue interest thereon until paid in full, which such interest shall be at a rate per annum equal to the Applicable Interest Rate unless and until the Default Rate shall otherwise apply. All other Obligations shall bear interest on the outstanding amount thereof from the date they first become payable by Borrower under the Financing Documents until paid in full at a rate per annum equal to the Applicable Interest Rate unless and until the Default Rate shall otherwise apply. Interest on the Credit Extensions and all fees payable under the Financing Documents shall be computed on the basis of a 360-day year and the actual number of days elapsed in the period during which such interest accrues. In computing interest on any Credit Extension or other advance, the date of the making of such Credit Extension or advance shall be included and the date of payment shall be excluded; provided, however, that if any Credit Extension or advance is repaid on the same day on which it is made, such day shall be included in computing interest on such Credit Extension or advance.

(b) Default Rate . Upon the election of Agent following the occurrence and during the continuance of an Event of Default, Obligations shall bear interest at a rate per annum which is five hundred basis points (5.00%) above the rate that is otherwise applicable thereto (the “ Default Rate ”). Payment or acceptance of the increased interest rate provided in this subsection is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Agent or Lenders.

 

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(c) Payments Generally . Except as otherwise provided in this Section 2.6(c), all payments in respect of the Obligations shall be made to Agent for the account of the applicable Lenders. All fees payable under the Financing Documents shall be deemed non-refundable as of the date paid. Any payment required to be made to Agent or a Lender under this Agreement may be made by debit or automated clearing house payment initiated by Agent or such Lender from any of Borrower’s deposit accounts, including the Designated Funding Account, and Borrower shall tender to Agent and Lenders such authorization forms as Agent or such Lender may require to implement such debit or automated clearing house payment. These debits or automated clearing house payments shall not constitute a set-off. Payments of principal and/or interest received after 12:00 noon New York time are considered received at the opening of business on the next Business Day. When a payment is due on a day that is not a Business Day, the payment is due the next Business Day and additional fees or interest, as applicable, shall continue to accrue until paid. All payments to be made by Borrower under any Financing Document shall be made without set-off, recoupment or counterclaim, in lawful money of the United States and in immediately available funds. The balance of the Obligations, as recorded in Agent’s books and records at any time, shall be conclusive and binding evidence of the amounts due and owing to Agent and Lenders by each Borrower absent manifest error; provided, however, that any failure to so record or any error in so recording shall not limit or otherwise affect any Borrower’s duty to pay all amounts owing hereunder or under any Financing Document. Agent shall endeavor to provide Borrower with a monthly statement regarding the Credit Extensions (but neither Agent nor any Lender shall have any liability if Agent shall fail to provide any such statement). Unless Borrower notifies Agent of any objection to any such statement (specifically describing the basis for such objection) within ninety (90) days after the date of receipt thereof, it shall be deemed final, binding and conclusive upon Borrower in all respects as to all matters reflected therein.

(d) Interest Payments; Maturity Date . Commencing on the first (1 st ) Payment Date following the funding of a Credit Extension, and continuing on the Payment Date of each successive month thereafter through and including the Maturity Date, Borrower shall make monthly payments of interest, in arrears, calculated as set forth in this Section 2.6. All unpaid principal and accrued interest is due and payable in full on the Maturity Date or any earlier date specified herein. If the Obligations are not paid in full on or before the Maturity Date, all interest thereafter accruing shall be payable immediately upon accrual.

(e) Fees . Borrower shall pay, as and when due and payable under the terms of the Fee Letters, to Agent and each Lender, for their own accounts and not for the benefit of any other Lenders, the fees set forth in the Fee Letters.

(f) Protective Advances . Borrower shall pay to Agent for the account of Lenders all Protective Advances (including reasonable attorneys’ fees and expenses for documentation and negotiation of this Agreement) when due under any Financing Document (and in the absence of any other due date specified herein, such Protective Advances shall be due upon demand). Borrower has paid to Lenders a deposit of Fifty Thousand Dollars ($50,000) (the “ Good Faith Deposit ”) to initiate the Agent’s due diligence review process and Agent shall apply such Good Faith Deposit towards any Protective Advances to the extent such Good Faith Deposit has not already been utilized.

(g) Maximum Lawful Rate . In no event shall the interest charged hereunder with respect to the Obligations exceed the maximum amount permitted under the Laws of the State of Maryland. Notwithstanding anything to the contrary in any Financing Document, if at any time the rate of interest payable hereunder (the “ Stated Rate ”) would exceed the highest rate of interest permitted under any applicable Law to be charged (the “ Maximum Lawful Rate ”), then for so long as the Maximum Lawful Rate would be so exceeded, the rate of interest payable shall be equal to the Maximum Lawful Rate; provided, however , that if at any time thereafter the Stated Rate is less than the Maximum Lawful Rate, Borrower shall, to the extent permitted by Law, continue to pay interest at the Maximum Lawful Rate until such time as the total interest received is equal to the total interest which would have been received had the Stated Rate been (but for the operation of this provision) the interest rate payable. Thereafter, the interest rate payable shall be the Stated Rate unless and until the Stated Rate again would exceed the Maximum Lawful Rate, in which event this provision shall again apply. In no event shall the total interest received by any Lender exceed the amount which it could lawfully have received, had the interest

 

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been calculated for the full term hereof at the Maximum Lawful Rate. If, notwithstanding the prior sentence, any Lender has received interest hereunder in excess of the Maximum Lawful Rate, such excess amount shall be applied to the reduction of the principal balance of such Lender’s Credit Extensions or to other amounts (other than interest) payable hereunder, and if no such Credit Extensions or other amounts are then outstanding, such excess or part thereof remaining shall be paid to Borrower. In computing interest payable with reference to the Maximum Lawful Rate applicable to any Lender, such interest shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by the number of days in the year in which such calculation is made.

(h) Taxes; Additional Costs .

(i) All payments of principal and interest on the Obligations and all other amounts payable hereunder shall be made free and clear of and without deduction for any present or future income, excise, stamp, documentary, payroll, employment, property or franchise taxes and other taxes, fees, duties, levies, assessments, withholdings or other charges of any nature whatsoever (including interest and penalties thereon) imposed by any taxing authority, excluding (i) taxes imposed on or measured by Agent’s or any Lender’s net income (or franchise taxes imposed in lieu of net income tax) by the jurisdictions under which Agent or such Lender is organized or conducts business (other than solely as the result of entering into any of the Financing Documents or taking any action thereunder) (ii) branch profits Taxes under Section 884(a) of the IRC or any similar Taxes (iii) any U.S. federal withholding Taxes imposed on or with respect to amounts payable to a Lender by a law in effect on the date on which such Lender becomes a party hereto (or designates a new lending office), (iv) any U.S. federal withholding Taxes attributable to such recipient’s failure to comply with Section 2.6(h)(iii), (v) any taxes imposed under FATCA and (vi) any United States backup withholding pursuant to Section 3406 of the IRC (all non-excluded items being called “ Taxes ”). If any withholding or deduction from any payment to be made by any Borrower hereunder is required in respect of any Taxes pursuant to any applicable Law, then Borrower will: (i) pay directly to the relevant authority the full amount required to be so withheld or deducted; (ii) promptly forward to Agent an official receipt or other documentation satisfactory to Agent evidencing such payment to such authority; and (iii) pay to Agent for the account of Agent and Lenders such additional amount or amounts as is necessary to ensure that the net amount actually received by Agent and each Lender will equal the full amount Agent and such Lender would have received had no such withholding or deduction been required. If any Taxes are directly asserted against Agent or any Lender with respect to any payment received by Agent or such Lender hereunder, Agent or such Lender may pay such Taxes and Borrower will promptly pay such additional amounts (including any penalty, interest or expense) as is necessary in order that the net amount received by such Person after the payment of such Taxes (including any Taxes on such additional amount) shall equal the amount such Person would have received had such Taxes not been asserted so long as such amounts have accrued on or after the day which is two hundred seventy (270) days prior to the date on which Agent or such Lender first made written demand therefor.

(ii) If any Borrower fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to Agent, for the account of Agent and the respective Lenders, the required receipts or other required documentary evidence, Borrower shall indemnify Agent and Lenders for any incremental Taxes, interest or penalties that may become payable by Agent or any Lender as a result of any such failure.

(iii) Each Lender that (i) is organized under the laws of a jurisdiction other than the United States, and (ii)(A) is a party hereto on the Closing Date or (B) purports to become an assignee of an interest as a Lender under this Agreement after the Closing Date (unless such Lender was already a Lender hereunder immediately prior to such assignment) (each such Lender a “ Foreign Lender ”) shall execute and deliver to each of Borrowers and Agent one or more (as Borrower or Agent may reasonably request) United States Internal Revenue Service Forms W-8ECI, W-8BEN, W-8BEN-E, W-8IMY (as applicable) and other applicable forms, certificates or documents prescribed by the United States Internal Revenue Service or reasonably requested by Borrower or Agent certifying as to such Lender’s entitlement to a complete exemption from withholding or deduction of Taxes. Each Lender that (1) is organized under the laws of the United States, and (2)(I) is a party hereto on the Closing Date or (II) purports to become an assignee of an interest as a Lender under this Agreement after the Closing Date (unless such Lender was already a Lender hereunder immediately prior to such assignment) shall execute and deliver to each of Borrower and Agent one or more (as Borrower or Agent may reasonably request) United States Internal Revenue Service Forms W-9, and other applicable forms, certificates or documents prescribed by the United States Internal Revenue Service or reasonably requested by Borrower or Agent certifying that such Lender is not subject to

 

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United States backup withholding. Borrower shall not be required to pay additional amounts to any Lender pursuant to this subsection (h) with respect to United States withholding and income Taxes to the extent that the obligation to pay such additional amounts would not have arisen but for the failure of such Lender to comply with this paragraph other than as a result of a change in law.

(iv) If a payment made to a Lender would be subject to U.S. federal withholding Tax imposed under FATCA, such Lender shall deliver to the Agent and the Borrower at the time or times prescribed by law, and at such other time or times reasonably requested by the Agent or the Borrower, the documentation prescribed by applicable law, including the FATCA, and such additional documentation reasonably requested by the Agent or the Borrower as may be necessary for the Agent or the Borrower to comply with its obligations under FATCA and to determine whether the Lender has complied with the Lender obligations under FATCA, or to determine the amount to deduct and withhold from the payment.

(v) Each Lender shall, whenever a lapse in time or change in circumstances renders any documentation provided by a Lender pursuant to this Section 2.6(h), expired or inaccurate in any material respect, deliver promptly to the Borrower and the Agent updated or other appropriate documentation (including any new documentation reasonably requested by the Borrower or the Agent) or promptly notify the Borrower and the Agent in writing of its inability to do so.

(vi) [reserved]

(vii) If any Lender shall determine in its commercially reasonable judgment that the adoption or taking effect of, or any change in, any applicable Law regarding capital adequacy, in each instance, after the Closing Date, or any change after the Closing Date in the interpretation, administration or application thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation, administration or application thereof, or the compliance by any Lender or any Person controlling such Lender with any request, guideline or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency adopted or otherwise taking effect after the Closing Date, has or would have the effect of reducing the rate of return on such Lender’s or such controlling Person’s capital as a consequence of such Lender’s obligations hereunder to a level below that which such Lender or such controlling Person could have achieved but for such adoption, taking effect, change, interpretation, administration, application or compliance (taking into consideration such Lender’s or such controlling Person’s policies with respect to capital adequacy) then from time to time, upon written demand by such Lender (which demand shall be accompanied by a statement setting forth the basis for such demand and a calculation of the amount thereof in reasonable detail, a copy of which shall be furnished to Agent), Borrowers shall promptly pay to such Lender such additional amount as will compensate such Lender or such controlling Person for such reduction, so long as such amounts have accrued on or after the day which is two hundred seventy (270) days prior to the date on which such Lender first made demand therefor; provided, however, that notwithstanding anything in this Agreement to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (ii) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “change in applicable Law”, regardless of the date enacted, adopted or issued.

(viii) If any Lender requires compensation under this subsection (h), or requires any Borrower to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to this subsection (h), then, upon the written request of Borrower, such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Credit Extensions hereunder or to assign its rights and obligations hereunder (subject to the terms of this Agreement) to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or materially reduce amounts payable pursuant to any such subsection, as the case may be, in the future, and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be materially disadvantageous to such Lender (as determined in its sole discretion). Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.

 

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(i) Administrative Fees and Charges .

(i) Borrower shall pay to Agent, for its own account and not for the benefit of any other Lenders, all reasonable fees and expenses in connection with audits and inspections of the books and records of the Credit Parties, audits, valuations or appraisals of the Collateral, audits of Borrower’s compliance with applicable Laws and such other matters as Agent shall deem appropriate, which shall be due and payable on the first Business Day of the month following the date of issuance by Agent of a written request for payment thereof to any Borrower; provided, that, as long as no Event of Default has occurred and is then continuing, Agent shall be entitled to such reimbursement for no more than two audits and inspections per calendar year.

(ii) If payments of principal or interest due on the Obligations, or any other amounts due hereunder or under the other Financing Documents, are not timely made and remain overdue for a period of five (5) days, Borrower, without notice or demand by Agent, promptly shall pay to Agent, for its own account and not for the benefit of any other Lenders, as additional compensation to Agent in administering the Obligations, an amount equal to five percent (5.0%) of each delinquent payment.

2.7 Secured Promissory Notes . At the election of any Lender made as to each Credit Facility for which it has made Credit Extensions, each Credit Facility shall be evidenced by one or more secured promissory notes in form and substance satisfactory to Agent and Lenders (each a “ Secured Promissory Note ”). Upon receipt of an affidavit of an officer of a Lender as to the loss, theft, destruction, or mutilation of its Secured Promissory Note, Borrower shall issue, in lieu thereof, a replacement Secured Promissory Note in the same principal amount thereof and of like tenor.

3 CONDITIONS OF CREDIT EXTENSIONS

3.1 Conditions Precedent to Initial Credit Extension . Each Lender’s obligation to make an advance in respect of a Credit Facility is subject to the condition precedent that Agent shall consent to or shall have received, in form and substance satisfactory to Agent, such documents, and completion of such other matters, as Agent may reasonably deem necessary or appropriate, including, without limitation, all items listed on the Closing Deliveries Schedule attached hereto.

3.2 Conditions Precedent to all Credit Extensions . The obligation of each Lender to make each Credit Extension, including the initial Credit Extension, is subject to the following conditions precedent:

(a) timely receipt by the Agent of an executed Credit Extension Form in the form attached hereto;

(b) the representations and warranties in Article 5 shall be true, correct and complete in all material respects on the date of the Credit Extension Form and on the Funding Date of each Credit Extension; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date. Each Credit Extension is Borrower’s representation and warranty on that date that the representations and warranties in Article 5 remain true, accurate and complete in all material respects; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date;

(c) no Default or Event of Default shall have occurred and be continuing or result from the Credit Extension;

(d) Agent shall be satisfied with the results of any searches conducted under Section 3.5; and

(e) in such Lender’s sole discretion, there has not been any Material Adverse Change or any material adverse deviation by Borrower from the most recent business plan of Borrower presented to and accepted by Agent.

 

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3.3 Method of Borrowing . Each Credit Extension in respect of each Credit Facility shall be in an amount at least equal to the applicable Minimum Credit Extension Amount for such Credit Facility as set forth in the Credit Facility Schedule or such lesser amount as shall remain undisbursed under the Applicable Commitments for such Credit Facility. The date of funding for any requested Credit Extension shall be a Business Day. To obtain a Credit Extension, Borrower shall deliver to Agent a completed Credit Extension Form executed by a Responsible Officer. Agent may rely on any notice given by a person whom Agent reasonably believes is a Responsible Officer or designee. Agent and Lenders shall have no duty to verify the authenticity of any such notice.

3.4 Funding of Credit Facilities . Upon the terms and subject to the conditions set forth herein, each Lender, severally and not jointly, shall make available to Agent its Pro Rata Share of the requested Credit Extension, in lawful money of the United States of America in immediately available funds, prior to 11:00 a.m. (New York time) on the specified date for the Credit Extension. Agent shall, unless it shall have determined that one of the conditions set forth in Section 3.1 or 3.2, as applicable, has not been satisfied, by 2:00 p.m. (New York time) on such day, credit the amounts received by it in like funds to Borrower by wire transfer to the Designated Funding Account (or to the account of Borrower in respect of the Obligations, if the Credit Extension is being made to pay an Obligation of Borrower). A Credit Extension made prior to the satisfaction of any conditions set forth in Section 3.1 or 3.2 shall not constitute a waiver by Agent or Lenders of Borrower’s obligation to satisfy such conditions, and any such Credit Extension made in the absence of such satisfaction shall be made in Agent’s discretion.

3.5 Searches . Before the Closing Date, and thereafter (as and when determined by Agent in its discretion), Agent shall have the right to perform, all at Borrower’s expense, the searches described in clauses (a), (b), and (c) below against Borrower and any other Credit Party, the results of which are to be consistent with Borrower’s representations and warranties under this Agreement and the reasonably satisfactory results of which shall be a condition precedent to all Credit Extension requested by Borrower: (a) UCC searches with the Secretary of State of the jurisdiction in which the applicable Person is organized; (b) judgment, pending litigation, federal tax lien, personal property tax lien, and corporate and partnership tax lien searches, in each jurisdiction searched under clause (a) above; and (c) searches of applicable corporate, limited liability company, partnership and related records to confirm the continued existence, organization and good standing of the applicable Person and the exact legal name under which such Person is organized.

4 CREATION OF SECURITY INTEREST

4.1 Grant of Security Interest . Borrower hereby grants Agent, for the ratable benefit of the Lenders, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Agent, for the ratable benefit of the Lenders, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof. Borrower represents, warrants, and covenants that the security interest granted herein is and shall at all times continue to be a first priority perfected security interest in the Collateral, subject only to Permitted Liens that may have priority by operation of applicable Law or by the terms of a written intercreditor or subordination agreement entered into by Agent. Subject to Section 13.16, if this Agreement is terminated, Agent’s Lien in the Collateral shall continue until the Obligations (other than inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement) are repaid in full in cash and all obligations of the Lenders to make Credit Extensions have been terminated. Subject to Section 13.16, upon payment in full in cash of the Obligations (other than inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement) and termination of all obligations of the Lenders to make Credit Extensions, Agent shall, at Borrower’s sole cost and expense, release its Liens in the Collateral and all rights therein shall revert to Borrower.

4.2 Representations and Covenants .

(a) As of the Closing Date, Borrower has no ownership interest in any Chattel Paper, letter of credit rights, commercial tort claims, Instruments, documents or investment property (other than equity interests in any Subsidiaries of such Borrower disclosed on the Disclosure Schedule attached hereto).

 

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(b) Borrower shall deliver to Agent all tangible Chattel Paper and all Instruments and Documents owned by any Borrower and constituting part of the Collateral duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to Agent. Borrower shall provide Agent with “control” (as in the Code) of all electronic Chattel Paper owned by any Borrower and constituting part of the Collateral by having Agent identified as the assignee on the records pertaining to the single authoritative copy thereof and otherwise complying with the applicable elements of control set forth in the UCC. Borrower also shall deliver to Agent all security agreements securing any such Chattel Paper and securing any such Instruments. Borrower will mark conspicuously all such Chattel Paper and all such Instruments and Documents with a legend, in form and substance satisfactory to Agent, indicating that such Chattel Paper and such Instruments and Documents are subject to the security interests and Liens in favor of Agent created pursuant to this Agreement and the Financing Documents.

(c) Borrower shall deliver to Agent all letters of credit on which any Borrower is the beneficiary and which give rise to letter of credit rights owned by such Borrower which constitute part of the Collateral in each case duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to Agent. Borrower shall take any and all actions as may be necessary or desirable, or that Agent may request, from time to time, to cause Agent to obtain exclusive “control” (as defined in the Code) of any such letter of credit rights in a manner acceptable to Agent.

(d) Borrower shall promptly advise Agent upon any Borrower becoming aware that it has any interests in any commercial tort claim that constitutes part of the Collateral, which such notice shall include descriptions of the events and circumstances giving rise to such commercial tort claim and the dates such events and circumstances occurred, the potential defendants with respect such commercial tort claim and any court proceedings that have been instituted with respect to such commercial tort claims, and Borrower shall, with respect to any such commercial tort claim, execute and deliver to Agent such documents as Agent shall request to perfect, preserve or protect the Liens, rights and remedies of Agent with respect to any such commercial tort claim.

(e) Except for Accounts and Inventory in an aggregate amount of Fifty Thousand Dollars ($50,000), and excluding any drug Products or drug substances, no Accounts or Inventory or other Collateral shall at any time be in the possession or control of any warehouse, consignee, bailee or any of Borrower’s agents or processors without prior written notice to Agent and the receipt by Agent, if Agent has so requested, of warehouse receipts, consignment agreements or bailee lien waivers (as applicable) satisfactory to Agent prior to the commencement of such possession or control. Borrower shall, upon the request of Agent, notify any such warehouse, consignee, bailee, agent or processor of the security interests and Liens in favor of Agent created pursuant to this Agreement and the Financing Documents, instruct such Person to hold all such Collateral for Agent’s account subject to Agent’s instructions and shall obtain an acknowledgement from such Person that such Person holds the Collateral for Agent’s benefit.

(f) Upon request of Agent, Borrower shall promptly deliver to Agent any and all certificates of title, applications for title or similar evidence of ownership of all such tangible personal property and shall cause Agent to be named as lienholder on any such certificate of title or other evidence of ownership. Borrower shall not permit any such tangible personal property to become fixtures to real estate unless such real estate is subject to a Lien in favor of Agent.

(g) Each Borrower hereby authorizes Agent to file without the signature of such Borrower one or more UCC financing statements relating to liens on personal property relating to all or any part of the Collateral, which financing statements may list Agent as the “secured party” and such Borrower as the “debtor” and which describe and indicate the collateral covered thereby as all or any part of the Collateral under the Financing Documents in such jurisdictions as Agent from time to time determines are appropriate, and to file without the signature of such Borrower any continuations of or corrective amendments to any such financing statements, in any such case in order for Agent to perfect, preserve or protect the Liens, rights and remedies of Agent with respect to the Collateral. Each Borrower also ratifies its authorization for Agent to have filed in any jurisdiction any initial financing statements or amendments thereto if filed prior to the date hereof. Any financing statement may include a notice that any disposition of the Collateral, by either Borrower or any other Person, shall be deemed to violate the rights of Agent and the Lenders under the UCC.

(h) As of the Closing Date, no Borrower holds, and after the Closing Date Borrower shall promptly notify Agent in writing upon creation or acquisition by any Borrower of, any Collateral which constitutes a claim against any Governmental Authority, including, without limitation, the federal government of the United States or any instrumentality or

 

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agency thereof, the assignment of which claim is restricted by any applicable Law, including, without limitation, the federal Assignment of Claims Act and any other comparable Law. Upon the request of Agent, Borrower shall take such steps as may be necessary or desirable, or that Agent may request, to comply with any such applicable Law.

(i) Borrower shall furnish to Agent from time to time any statements and schedules further identifying or describing the Collateral and any other information, reports or evidence concerning the Collateral as Agent may reasonably request from time to time.

5 REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants as follows at all times unless expressly provided below:

5.1 Due Organization, Authorization: Power and Authority .

(a) Each Credit Party is duly existing and in good standing, as a Registered Organization in its respective jurisdiction of formation. Each Credit Party is qualified and licensed to do business and is in good standing in any jurisdiction in which the conduct of its business or its ownership of property requires that it be qualified except where the failure to do so could not reasonably be expected to have a Material Adverse Change. The Financing Documents have been duly authorized, executed and delivered by each Credit Party and constitute legal, valid and binding agreements enforceable in accordance with their terms. The execution, delivery and performance by each Credit Party of each Financing Document executed or to be executed by it is in each case within such Credit Party’s powers.

(b) The execution, delivery and performance by each Credit Party of the Financing Documents to which it is a party do not (i) conflict with any of such Credit Party’s organizational documents; (ii) contravene, conflict with, constitute a default under or violate any Law; (iii) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which such Credit Party or any of its property or assets may be bound or affected; (iv) require any action by, filing, registration, or qualification with, or Required Permit from, any Governmental Authority (except such Required Permits which have already been obtained and are in full force and effect); or (v) constitute a default under any Material Agreement. No Credit Party is in default under any agreement to which it is a party or by which it is bound in which the default could reasonably be expected to have a Material Adverse Change.

5.2 Litigation . Except as disclosed on the Disclosure Schedule or in the Disclosure Letter or, after the Closing Date, pursuant to Section 6.7, there are no actions, suits, proceedings or investigations pending or, to the knowledge of the Responsible Officers, threatened in writing by or against any Credit Party which involves the possibility of any judgment or liability of more than Fifty Thousand Dollars ($50,000.00) or that could result in a Material Adverse Change, or which questions the validity of the Financing Documents, or the other documents required thereby or any action to be taken pursuant to any of the foregoing, nor does any Credit Party have reason to believe that any such actions, suits, proceedings or investigations are threatened.

5.3 No Material Deterioration in Financial Condition; Financial Statements . All financial statements for the Credit Parties delivered to Agent fairly present, in conformity with GAAP, in all material respects the consolidated financial condition and consolidated results of operations of such Credit Party as of the dates and for the periods presented. There has been no material deterioration in the consolidated financial condition of any Credit Party from the most recent financial statements and projections submitted to Agent. There has been no material adverse deviation from the most recent annual operating plan of Borrower delivered to Agent and Lenders.

5.4 Solvency . The fair salable value of each Credit Party’s assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities. After giving effect to the transactions described in this Agreement, (a) no Credit Party is left with unreasonably small capital in relation to its business as presently conducted, and (b) each Credit Party is able to pay its debts (including trade debts) as they mature.

5.5 Subsidiaries; Investments . Borrower and its Subsidiaries do not own any stock, partnership interest or other equity securities, except for Permitted Investments.

 

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5.6 Tax Returns and Payments; Pension Contributions . Each Credit Party has timely filed or has obtained extensions for filing all required foreign, federal and state, and all material local, tax returns and reports, and each Credit Party has timely paid all foreign, federal, state and material local taxes, assessments, deposits and contributions owed by such Credit Party, subject to such Credit Party’s right to defer payment of any contested taxes in accordance with Section 6.4 of this Agreement. Borrower is unaware of any claims or adjustments proposed for any of prior tax years of any Credit Party which could result in additional taxes becoming due and payable by such Credit Party. Each Credit Party has paid all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and no Credit Party has withdrawn from participation in, or has permitted partial or complete termination of, or permitted the occurrence of any other event with respect to, any such plan which could reasonably be expected to result in any liability of such Credit Party, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

5.7 Disclosure Schedule . All information set forth in the Disclosure Schedule is true, accurate and complete as of the date hereof. All information set forth in the Perfection Certificate is true, accurate and complete as of the date hereof.

6 AFFIRMATIVE COVENANTS

Borrower covenants and agrees as follows:

6.1 Organization and Existence; Government Compliance .

(a) Each Credit Party shall maintain its legal existence and good standing in its respective jurisdiction of formation and maintain qualification in each jurisdiction in which the failure to so qualify could reasonably be expected to have a Material Adverse Change. If a Credit Party is not now a Registered Organization but later becomes one, Borrower shall promptly notify Agent of such occurrence and provide Agent with such Credit Party’s organizational identification number.

(b) Each Credit Party shall comply with all Laws, ordinances and regulations to which it or its business locations is subject, the noncompliance with which could reasonably be expected to result in a Material Adverse Change. Each Credit Party shall obtain and keep in full force and effect and comply with all of the Required Permits, except where failure to have or maintain compliance with or effectiveness of such Required Permit could not reasonably be expected to result in a Material Adverse Change. Each Credit Party shall promptly provide copies of any such obtained Required Permits to Agent. Borrower shall notify Agent within three (3) Business Days (but in any event prior to Borrower submitting any requests for Credit Extensions or release of any reserves) of the occurrence of any facts, events or circumstances known to a Borrower, whether threatened, existing or pending, that could cause any Required Permit to become limited, suspended or revoked or that makes Borrower subject to or requires Borrower to file a plan of correction with respect to any accreditation survey.

6.2 Financial Statements, Reports, Certificates .

(a) Each Credit Party shall deliver to Agent: (i) as soon as available, but no later than forty-five (45) days after the last day of each quarter, a company prepared consolidated and consolidating balance sheet, income statement and cash flow statement covering such Credit Party’s consolidated operations for such quarter certified by a Responsible Officer and in a form acceptable to Agent; (ii) as soon as available, but no later than one hundred eighty (180) days after the last day of a Credit Party’s fiscal year, audited consolidated and consolidating financial statements prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm acceptable to Agent in its reasonable discretion; (iii) as soon as available after approval thereof by such Credit Party’s governing board, but no later than March 31 of each calendar year, and as amended and/or updated, such Credit Party’s financial projections for current fiscal year (and updated notice of any material changes within ten (10) days of approval by such Credit Party’s governing board); (iv) within five (5) days of delivery, copies of all statements, reports and notices made generally available to all of such Credit Party’s security holders or to any holders of Subordinated Debt; (v) within five (5) days of filing, all reports on Form 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission or a link thereto on such Credit Party’s or another website on the Internet; (vi) budgets, sales projections, operating plans and

 

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other financial information reasonably requested by Agent; (vii) as soon as available, but no later than forty-five (45) days after the last day of each month, copies of the month-end account statements for each Collateral Account maintained by a Credit Party (including without limitation and for the avoidance of doubt, the Securities Subsidiary), which statements may be provided to Agent and each Lender by Borrower or directly from the applicable institution(s); and (viii) such additional information, reports or statements regarding the Credit Parties or their respective businesses, contractors and subcontractors as Agent may from time to time reasonably request.

(b) Within forty-five (45) days after the last day of each month, Borrower shall deliver to Agent a duly completed Compliance Certificate signed by a Responsible Officer.

(c) Borrower shall cause each Credit Party to keep proper books of record and account in accordance with GAAP in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities. Borrower shall allow, and cause each Credit Party to allow, during normal business hours and given reasonable notice provided no Default then exists or has occurred during the preceding 30 days, Agent and Lenders to visit and inspect any properties of a Credit Party, to examine and make abstracts or copies from any Credit P