10Q Q2 2001 DOC

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L3oqcJa3iIDqB2NyQKRObPpmdkvWeYtKG8B7QuYxvHuYHtA6jBHHPQp7IECsxGpp 07KBgBLJHn2MJDT9YEU//Q== 0000949699-01-500007.txt : 20010214 0000949699-01-500007.hdr.sgml : 20010214 ACCESSION NUMBER: 0000949699-01-500007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010213 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHARMACYCLICS INC CENTRAL INDEX KEY: 0000949699 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 943148201 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26658 FILM NUMBER: 1535391 BUSINESS ADDRESS: STREET 1: 995 EAST ARQUES AVE CITY: SUNNYVALE STATE: CA ZIP: 94086 BUSINESS PHONE: 4087740330 MAIL ADDRESS: STREET 1: 995 EAST ARQUES AVENUE CITY: SUNNYVALE STATE: CA ZIP: 94086 10-Q 1 form10q.htm 10-Q 10Q Q2 2001 DOC

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 December 31, 2000 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: 0-27066

PHARMACYCLICS, INC.
(Exact name of registrant as specified in its charter)

Delaware 94-3148201

(State or other jurisdiction of incorporation or organization) (IRS Employer Identification Number)

995 E. Arques Avenue
Sunnyvale, California 94085
(Address of principal executive offices including zip code)

(408) 774-0330
(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 reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ],

As of January 31, 2001, there were 16,084,804 shares of the Registrant's Common Stock outstanding, par value $0.0001 per share.

PHARMACYCLICS, INC.
TABLE OF CONTENTS

PART I. Financial Information Page No.



Item 1. Financial Statements (unaudited):



       Condensed Balance Sheets as of
         December 31, 2000 and June 30, 2000 3



       Condensed Statements of Operations for the
         three and six months ended December 31, 2000 and 1999. 4



       Condensed Statements of Cash Flows for the
         six months ended December 31, 2000 and 1999. 5



           Notes to Condensed Financial Statements 6



Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8



PART II. Other Information



Item 1. legal Proceedings 20



Item 2: Changes in Securities and Use of Proceeds 20



Item 3: Defaults Upon Senior Securities 20



Item 4: Submission of Matters to a Vote of Security Holders 20



Item 5: Other Information 21



Item 6. Exhibits and Reports on Form 8-K 21



Signatures 22

PHARMACYCLICS® , the "pentadentate" logo, XCYTRIN® , ANTRIN® , and LUTRIN® , are registered U.S. trademarks; OPTRIN™ is a trademark of Pharmacyclics, Inc. Other trademarks, trade names or service marks used herein are the property of their respective owners.

PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

PHARMACYCLICS, INC.
(a development stage company)
CONDENSED BALANCE SHEETS
(unaudited; in thousands)

                                                      December 31,   June 30,
                                                          2000         2000
                                                      -----------  -----------
ASSETS
   Current assets:
     Cash and cash equivalents ..................... $    53,587  $    43,536
     Short-term marketable investments .............      75,552       65,174
     Accounts and other receivables ................         189           15
     Prepaid expenses and other current assets .....       2,902        2,925
                                                      -----------  -----------
          Total current assets .....................     132,230      111,650
   Long-term marketable investments ................      37,193       69,537
   Property and equipment, net .....................       4,330        3,796
   Other assets ....................................         290          140
                                                      -----------  -----------
                                                     $   174,043  $   185,123
                                                      ===========  ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
   Current liabilities:
     Accounts payable .............................. $     5,518  $     2,851
     Accrued liabilities ...........................         869          764
     Current portion of capital lease obligations ..          14           59
                                                      -----------  -----------
          Total current liabilities ................       6,401        3,674
   Deferred rent ...................................          26           35
                                                      -----------  -----------
          Total liabilities ........................       6,427        3,709
                                                      -----------  -----------
   Stockholders' equity:
     Preferred stock ...............................          --           --
     Common stock ..................................           2            2
     Additional paid-in capital ....................     274,584      272,685
     Deferred stock compensation ...................        (658)          --
     Accumulated other comprehensive income (loss) .         547         (506)
     Deficit accumulated during development stage ..    (106,859)     (90,767)
                                                      -----------  -----------
         Total stockholders' equity ................     167,616      181,414
                                                      -----------  -----------
                                                     $   174,043  $   185,123
                                                      ===========  ===========

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

PHARMACYCLICS, INC.
(a development stage company)
CONDENSED STATEMENTS OF OPERATIONS
(unaudited; in thousands, except per share data)


                                            Three Months Ended   Six Months Ended
                                                December 31,        December 31,
                                           ------------------  ------------------
                                             2000      1999      2000      1999
                                           --------  --------  --------  --------
Revenues:
     License and grant revenues ......... $     --  $  1,000  $     --  $  1,000
     Contract revenue ...................      229       168       339       303
                                           --------  --------  --------  --------
       Total revenues ...................      229     1,168       339     1,303
                                           --------  --------  --------  --------
Operating expenses:
     Research and development ...........    9,159     7,458    19,198    10,967
     Marketing, general and
        administrative ..................    1,626       996     2,860     1,934
                                           --------  --------  --------  --------
       Total operating expenses .........   10,785     8,454    22,058    12,901
                                           --------  --------  --------  --------
Loss from operations ....................  (10,556)   (7,286)  (21,719)  (11,598)
Interest and other income (expense), net     2,679     1,879     5,627     2,549
                                           --------  --------  --------  --------
Net loss ................................ $ (7,877) $ (5,407) $(16,092) $ (9,049)
                                           ========  ========  ========  ========
Basic and diluted net loss per
    share (Note 2) ...................... $  (0.49) $  (0.36) $  (1.00) $  (0.65)
                                           ========  ========  ========  ========
Shares used to compute basic and
    diluted net loss per share ..........   16,062    15,072    16,047    13,831
                                           ========  ========  ========  ========

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

PHARMACYCLICS, INC.
(a development stage company)
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited; in thousands)


                                                                     Six Months Ended
                                                                       December 31,
                                                                   --------------------
                                                                      2000       1999
                                                                   ---------  ---------
Cash flows from operating activities:
Net loss ........................................................ $ (16,092) $  (9,049)
Adjustments to reconcile net loss to net cash used in
operating activities:
   Depreciation and amortization ................................       667        563
   Stock compensation expense ...................................        86         44
   Loss on sale of investments ..................................       135        --
   Changes in assets and liabilities:
      Accounts and other receivables ............................      (174)       239
      Prepaid expenses and other assets .........................      (127)      (662)
      Accounts payable ..........................................     2,667     (1,825)
      Accrued liabilities .......................................       105       (260)
      Deferred rent .............................................        (9)        27
                                                                   ---------  ---------
Net cash used in operating activities ...........................   (12,742)   (10,923)
                                                                   ---------  ---------
Cash flows from investing activities:
   Purchases of property and equipment ..........................    (1,201)      (164)
   Purchases of marketable investments ..........................   (16,623)   (56,064)
   Proceeds from maturities and sales of marketable investments .    39,507     27,704
                                                                   ---------  ---------
Net cash provided by (used in) investing activities .............    21,683    (28,524)
                                                                   ---------  ---------
Cash flows from financing activities:
   Payments under capital lease obligations .....................       (45)      (111)
   Proceeds from sale of stock ..................................     1,155     96,792
                                                                   ---------  ---------
Net cash provided by financing activities .......................     1,110     96,681
                                                                   ---------  ---------
Net increase in cash and cash equivalents .......................    10,051     57,234
Cash and cash equivalents at the beginning of the period ........    43,536      3,930
                                                                   ---------  ---------
Cash and cash equivalents at the end of the period .............. $  53,587  $  61,164
                                                                   =========  =========

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

PHARMACYCLICS, INC.
(a development stage company)
NOTES TO CONDENSED FINANCIAL STATEMENTS

Note 1 - Summary of Significant Accounting Principles

Basis of Presentation

The accompanying unaudited condensed financial statements of Pharmacyclics, Inc. (the "company" or "Pharmacyclics") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not contain all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying unaudited, condensed financial statements reflect all adjustments (consisting of normal, recurring adjustments) considered necessary for a fair presentation of the company's interim financial information. These financial statements and notes should be read in conjunction with the audited financial statements of the company included in the company's Annual Report on Form 10-K for the year ended June 30, 2000 filed with the Securities and Exchange Commission on September 27, 2000.

The results of operations for the three and six months ended December 31, 2000 are not necessarily indicative of the operating results that may be reported for the fiscal year ending June 30, 2001 or for any other future period.

Revenue Recognition

License fees are recognized as revenue when earned over the period of the arrangement, as evidenced by achievement of the specified milestones and the absence of any ongoing performance obligation. Contract revenue is recognized as earned, primarily based on costs incurred to total estimated costs at completion, pursuant to the terms of each agreement. License and contract revenues are not subject to repayment. Any amounts received in advance of performance are recorded as deferred revenue.

Research and Development Costs

Research and development costs are expensed as incurred and include costs associated with contract research performed pursuant to collaborative agreements. Research and development costs consist of direct and indirect internal costs related to specific projects as well as fees paid to other entities which conduct certain research activities on behalf of the company.

Cash Equivalents and Investments

All highly liquid investments purchased with an original maturity date of three months or less are considered to be cash equivalents. The company has classified all its investments as "available-for- sale." Unrealized gains and losses on available-for-sale securities are included in other comprehensive income (loss). Gains and losses on securities sold are recorded based on the specific identification method and are included in interest and other income (expense), net in the statements of operations.

Note 2 - Basic and Diluted Net Loss Per Share

Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common and potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options and warrants (using the treasury stock method). Options and warrants to purchase 2,603,239 and 1,939,646 shares of common stock were outstanding at December 31, 2000 and 1999, respectively. However, such amounts have been excluded from the computation of dilutive earnings per share because their effect is anti- dilutive.

Note 3 - Equity

In March 2000, the company sold 820,000 shares of its common stock at $73.25 per share resulting in net cash proceeds of approximately $57,600,000. In September and October 1999, the company sold a total of 2,645,000 shares of its common stock at $38.75 per share which resulted in net proceeds to the company of approximately $96,200,000.

Note 4 - Comprehensive Income (Loss)

Comprehensive income (loss) includes unrealized gains (losses) on available-for-sale securities which are excluded from the results of operations.

The company's total comprehensive losses were as follows (in thousands):


                                       Three Months Ended     Six Months Ended
                                           December 31,          December 31,
                                      --------------------  --------------------
                                        2000       1999       2000       1999
                                      ---------  ---------  ---------  ---------
Net loss ........................... $  (7,877) $  (5,407) $ (16,092) $  (9,049)
Change in net unrealized gains on
  available-for-sale securities ....       520       (231)     1,053       (213)
                                      ---------  ---------  ---------  ---------
Comprehensive net loss ............. $  (7,357) $  (5,638) $ (15,039) $  (9,262)
                                      =========  =========  =========  =========

Note 5 - Recent Accounting Pronouncement

In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 requires that license and other upfront fees received from research collaborators be recognized over the term of the agreement unless the fee is in exchange for products delivered or services performed that represent the culmination of a separate earning process. SAB 101, as amended, is effective in the fourth quarter of fiscal 2001. The company does not expect the adoption of SAB 101 to have a material effect on its financial statements.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations and Factors that May Affect Future Operating Results

In addition to historical information, this report contains predictions, estimates and other forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results could differ materially from any future performance suggested in this report as a result of the factors, including those discussed in "Factors That May Affect Future Operating Results," elsewhere in this report and in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2000.

Overview

Pharmacyclics is a pharmaceutical company focused on the development of products that improve existing therapeutic approaches to cancer, atherosclerosis and retinal disease. We are conducting a multicenter international Phase III clinical trial of XCYTRIN^® (motexafin gadolinium) Injection to improve the efficacy of radiation therapy of tumors that have spread to the brain resulting from a variety of cancers, including those of the lung and breast. We plan to enroll approximately 425 adult patients in this study. As of January 31, 2001, the study had enrolled over 400 patients. We are conducting a Phase IIb clinical trial for LUTRIN^® (motexafin lutetium) Injection as a photosensitizer for use in the photodynamic therapy of patients with recurrent breast cancers to the chest wall that have failed standard therapies. Through our Cooperative Research and Development Agreement, the National Cancer Institute is conducting Phase I trials of XCYTRIN for treatment of both primary adult and pediatric brain tumors, pancreatic cancer and lung cancer and of LUTRIN for prostate cancer. The National Cancer Institute also intends to conduct several additional Phase I clinical trials of XCYTRIN and LUTRIN, each for a variety of additional cancer indications. We are now conducting a multicenter randomized Phase II clinical trial with ANTRIN^® (motexafin lutetium) Injection photoangioplasty for treatment of patients with peripheral arterial disease and a Phase I trial for treatment of coronary artery disease. In addition, Alcon is conducting a Phase II clinical trial with OPTRIN™ (motexafin lutetium) Injection for the photodynamic therapy of patients with a degenerative disease of the retina caused by growths of small blood vessels in the retina known as age-related macular degeneration. Alcon is conducting this trial under a 1997 evaluation and license agreement that gave Alcon the right to conduct worldwide development, marketing and sales of OPTRIN for ophthalmology indications. Also in 1997, we entered into a collaborative agreement with Nycomed to sell and market LUTRIN for cancer therapy outside the United States, Canada and Japan.

To date, we have devoted substantially all of our resources to research and development. We have not derived any commercial revenues from product sales, and we do not expect to receive product revenues for at least the next several years. We have incurred significant operating losses since our inception in 1991 and, as of December 31, 2000, had an accumulated deficit of approximately $106.9 million. We expect to continue to incur significant operating losses over the next several years as we continue to incur increasing research and development costs, in addition to costs related to clinical trials and manufacturing activities. We expect that losses will fluctuate from quarter to quarter and that such fluctuations may be substantial. Our achieving profitability depends upon our ability, alone or with others, to successfully complete the development of our products under development, and obtain required regulatory clearances and successfully manufacture and market our products.

Results of Operations

Revenues

Revenues were $229,000 for the three months ended December 31, 2000, compared to $1,168,000 for the three months ended December 31, 1999. The revenue decrease in fiscal 2001 was primarily related to the recognition, in the prior fiscal year, of a non-refundable milestone payment from Alcon in connection with their continuing clinical development of OPTRIN. Revenues for the six month period ended December 31, 2000 were $339,000, compared to $1,303,000 in the comparable fiscal 2000 period.

Research and Development

Research and development expenses for the three months ended December 31, 2000, were $9,159,000, compared to $7,458,000 for the three months ended December 31, 1999, which represents a 22.8% increase. The increase was due primarily to increased clinical trial and personnel costs associated with supporting the company's clinical trials. These cost increases were partially offset by reduced drug purchase costs. Drug purchase costs have declined with the completion of large scale manufacturing capability. Our contract manufacturers have produced enough XCYTRIN to treat more than 20,000 patients, once XCYTRIN has been approved by the FDA. Until the commercial viability of XCYTRIN has been demonstrated and the necessary regulatory approvals received, all XCYTRIN purchases are charged to research and development expense.

For the six months ended December 31, 2000 and 1999, research and development expenses were $19,198,000 and $10,967,000, respectively. Expenses in the six months ended December 31, 1999 were reduced by a credit of $3,540,000 associated with the termination of our manufacturing development and supply agreement with Celanese, Ltd. Pursuant to the termination agreement, Celanese assigned to us all rights, title and interest in the manufacturing technology and intellectual property for the Company's texaphyrin-based products and agreed to make a cash payment to the Company of $750,000. The termination agreement also relieved us of all obligations to pay Celanese for shared development costs incurred prior to termination of the Agreement. As of June 30, 1999, we had accrued $2,790,000 associated with such costs. Excluding the impact of the Celanese termination agreement, research and development expenses increased $4,691,000, (32.3%), to $19,198,000 for the six months ended December 31, 2000 compared to $14,507,000 for the six months ended December 31, 1999. The increase was due primarily to increased clinical trial and personnel costs associated with supporting the company's clinical trials. We expect research and development spending to increase further over the next several years as product development, clinical trials and core research efforts continue to expand.

Marketing, General and Administrative

Marketing, general and administrative expenses for the three months ended December 31, 2000 were $1,626,000, compared to $996,000 for the three months ended December 31, 1999, which represents a 63.3% increase. For the six months ended December 31, 2000 and 1999, marketing, general and administrative expenses were $2,860,000 and $1,934,000, respectively, an increase of 47.9%. The increase in both periods was primarily related to greater spending associated with building awareness of our XCYTRIN product among physicians and higher personnel costs needed to support our growth.

Interest and Other Income (Expense), Net

Interest and other income (expense), net was $2,679,000 and $1,879,000 for the three months ended December 31, 2000 and 1999, respectively, an increase of 42.6%. For the six months ended December 31, 2000 and 1999, interest and other income, net was $5,627,000 and $2,549,000, respectively, an increase of 20.8%. The increases were primarily attributable to increased earnings from higher investment balances resulting from the proceeds of a public equity offering of our common stock completed in September and October 1999, and a private placement of common stock completed in March 2000.

Liquidity and Capital Resources

Our principal sources of working capital have been private and public equity financings and proceeds from collaborative research and development agreements, as well as grant and contract revenues and interest income.

As of December 31, 2000, we had approximately $166,332,000 in cash, cash equivalents and investments. Net cash used in operating activities of $12,742,000 during the six months ended December 31, 2000 resulted primarily from the net loss for the period, partially offset by an increase in accounts payable. Net cash used in operating activities of $10,923,000 during the six months ended December 31, 1999 resulted primarily from the net loss for the period and an increase in accounts payable.

Cash provided by investing activities of $21,683,000 for the six months ended December 31, 2000, consisted primarily of proceeds of maturities and sales of investments, net of purchases of investments. Cash used in investing activities of $28,524,000 for the six months ended December 31, 1999 consisted primarily of purchases of investments, net of proceeds of maturities of investments.

Net cash provided by financing activities of $1,110,000 and $96,681,000 for the six months ended December 31, 2000 and 1999, respectively, primarily consisted of proceeds from the sale of common stock.

Based on the current status of our product development and commercialization plans, we believe cash, cash equivalents and short and long- term investments will be adequate to satisfy our capital needs through at least the calendar year 2002. However, our actual capital requirements will depend on many factors, including: the status of product development; the time and cost involved in conducting clinical trials and obtaining regulatory approvals; filing, prosecuting and enforcing patent claims; competing technological and market developments; and our ability to market and distribute our products and establish new collaborative and licensing arrangements.

Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward- looking statement that involves risks and uncertainties, and actual results could vary materially. The factors described above will impact our future capital requirements and the adequacy of our available funds. We may be required to raise additional funds through public or private financings, collaborative relationships or other arrangements. There can be no assurance that such additional funding, if needed, will be available on terms attractive to us, or at all. Furthermore, any additional equity financing may be dilutive to existing stockholders and debt financing, if available, may involve restrictive covenants. Collaborative arrangements, if necessary to raise additional funds, may require us to relinquish rights to certain of our technologies, products or marketing territories. Our failure to raise capital when needed could have a material adverse effect on our business, financial condition and results of operations.

Recent Accounting Pronouncement

Market Risk

Our exposure to interest rate risk relates primarily to our investment portfolio. Fixed rate securities may have their fair market value adversely impacted due to fluctuations in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if forced to sell securities which have declined in market value due to changes in interest rates. The primary objective of our investment activities is to preserve principal while at the same time maximize yields without significantly increasing risk. To achieve this objective, we invest our excess cash in debt instruments of the U.S. Government and its agencies and high-quality corporate issuers, and, by policy, restrict our exposure to any single corporate issuer by imposing concentration limits. To minimize the exposure due to adverse shifts in interest rates, we maintain investments at an average maturity of generally less than two years.

One of our cancelable drug supply agreements is denominated in a foreign currency. We have not entered into any agreements or transactions to hedge the risk associated with potential fluctuations in currencies; accordingly, we are subject to foreign currency exchange risk related to this contract. While we may enter into hedge or other agreements in the future to actively manage this risk, we do not believe this risk is material to our financial statements.

FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

Risks Related to Pharmacyclics

All of our product candidates are in development, and we cannot be certain that any of our products under development will be commercialized

To be profitable, we must successfully research, develop, obtain regulatory approval for, manufacture, introduce, market and distribute our products under development. The time frame necessary to achieve these goals for any individual product is long and uncertain. Before we can sell any of our products under development, we must demonstrate through preclinical (animal) studies and clinical (human) trials that each product is safe and effective for human use for each targeted disease. We have conducted and plan to continue extensive and costly clinical trials to assess the safety and effectiveness of our potential products. We cannot be certain that we will be permitted to begin or continue our planned clinical trials for our potential products, or if permitted, that our potential products will prove to be safe and to produce their intended effects.

The completion rate of our clinical trials depends upon, among other factors, the rate of patient enrollment. We may fail to obtain adequate levels of patient enrollment in our clinical trials. Delays in planned patient enrollment may result in increased costs, delays or termination of clinical trials, which could have a material adverse effect on us.

Additionally, demands on our clinical staff have been increasing and we expect they will continue to increase as a result of later- stage clinical trials of our products in development and our monitoring of additional clinical trials. We may fail to effectively oversee and monitor these many simultaneous clinical trials, which would result in increased costs or delays of our clinical trials. Even if these clinical trials are completed, we may fail to complete and submit a new drug application as scheduled. Even if we are able to submit a new drug application as scheduled, the Food and Drug Administration may not clear our application in a timely manner or may deny the application entirely.

Data already obtained from preclinical studies and clinical trials of our products under development do not necessarily predict the results that will be obtained from later preclinical studies and clinical trials. Moreover, data such as ours is susceptible to varying interpretations which could delay, limit or prevent regulatory approval. A number of companies in the pharmaceutical industry, including biotechnology companies like us, have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. The failure to adequately demonstrate the safety and effectiveness of a product under development could delay or prevent regulatory clearance of the potential product and would materially harm our business. Our clinical trials may not demonstrate the sufficient levels of safety and efficacy necessary to obtain the requisite regulatory approval or may not result in marketable products.

We have a history of operating losses and we expect to continue to have losses in the future

We have incurred significant operating losses since our inception in 1991 and, as of December 31, 2000, had an accumulated deficit of approximately $106.9 million. We expect to continue to incur significant operating losses over the next several years as we continue to incur increasing costs for research and development, clinical trials and manufacturing. Our ability to achieve profitability depends upon our ability, alone or with others, to successfully complete the development of our proposed products, obtain the required regulatory clearances and manufacture and market our proposed products. To date, we have not generated revenue from the commercial sale of our products and do not expect to receive any such revenue in the near future. All revenues to date are primarily from license and milestone payments and, to a lesser extent, funding from one government research grant.

Failure to obtain product approvals or comply with ongoing governmental regulations could adversely affect our business

The manufacture and marketing of our products and our research and development activities are subject to extensive regulation for safety, efficacy and quality by numerous government authorities in the United States and abroad. Before receiving FDA clearance to market a product, we will have to demonstrate that the product is safe and effective on the patient population and for the diseases that will be treated. Clinical trials, manufacturing and marketing of products are subject to the rigorous testing and approval process of the FDA and equivalent foreign regulatory authorities. The Federal Food, Drug and Cosmetic Act and other federal, state and foreign statutes and regulations govern and influence the testing, manufacture, labeling, advertising, distribution and promotion of drugs and medical devices. As a result, clinical trials and regulatory approval can take a number of years to accomplish and require the expenditure of substantial resources. Data obtained from clinical trials are susceptible to varying interpretations which could delay, limit or prevent regulatory clearances. We compared the results of our Phase Ib/II clinical trial of XCYTRIN to historical data using a 528-patient database containing information on clinical features and outcomes in comparable patients receiving treatment with identical doses of radiation alone. Historical analyses have many limitations and, while supportive, are not considered proof that XCYTRIN improved the outcome of patients enrolled in the study.

In addition, we may encounter delays or rejections based upon additional government regulation from future legislation or administrative action or changes in FDA policy during the period of product development, clinical trials and FDA regulatory review. We may encounter similar delays in foreign countries. We may be unable to obtain requisite approvals from the FDA and foreign regulatory authorities, and even if obtained, such approvals may not be on a timely basis, or they may not cover the clinical uses that we specify.

Marketing or promoting a drug for an unapproved use is subject to very strict controls. Furthermore, clearance may entail ongoing requirements for post-marketing studies. The manufacture and marketing of drugs are subject to continuing FDA and foreign regulatory review and later discovery of previously unknown problems with a product, manufacturer or facility may result in restrictions, including withdrawal of the product from the market. Any of the following events, if they were to occur, could delay or preclude us from further developing, marketing or realizing full commercial use of our products, which in turn would have a material adverse effect on our business, financial condition and results of operations:

failure to obtain or maintain requisite governmental approvals;
failure to obtain approvals of clinically intended uses of our products under development; or
identification of serious and unanticipated adverse side effects in our products under development.

Manufacturers of drugs also must comply with the applicable FDA good manufacturing practice regulations, which include quality control and quality assurance requirements as well as the corresponding maintenance of records and documentation. Manufacturing facilities are subject to ongoing periodic inspection by the FDA and corresponding state agencies, including unannounced inspections, and must be licensed before they can be used in commercial manufacturing of our products. We or our present or future suppliers may be unable to comply with the applicable good manufacturing practice regulations and other FDA regulatory requirements. We have not been subject to a GMP inspection by the FDA. We may be subject to delays in commercializing our products for photodynamic therapies due to delays in approvals of the third- party light sources required for these products.

Acceptance of our products in the marketplace is uncertain, and failure to achieve market acceptance will harm our business

Even if approved for marketing, our products may not achieve market acceptance. The degree of market acceptance will depend upon a number of factors, including:

the receipt of regulatory approvals for the uses that we are studying;
the establishment and demonstration in the medical community of the safety and clinical efficacy of our products and their potential advantages over existing therapeutic products and diagnostic and/or imaging techniques; and
pricing and reimbursement policies of government and third-party payors such as insurance companies, health maintenance organizations and other plan administrators.

Physicians, patients, payors or the medical community in general may be unwilling to accept, utilize or recommend any of our products.

We may fail to adequately protect or enforce our intellectual property rights or secure rights to third-party patents

A number of third-party patent applications have been published, and some have issued, relating to biometallic and expanded porphyrin chemistries. It is likely that competitors and other third parties have and will continue to file applications for and receive patents relating to similar or even the same compositions, methods or designs as those of our products. If any third-party patent claims are asserted against the company's products and are upheld as valid and infringed, we could be prevented from practicing the subject matter claimed in such patents, require license(s) or have to redesign our products or processes to avoid infringement. Such licenses may not be available or, if available, may not be on terms acceptable to us. Alternatively, we may be unsuccessful in any attempt to redesign our products or processes to avoid infringement. Litigation or other legal proceedings may be necessary to defend against claims of infringement, to enforce our patents, or to protect our trade secrets, and could result in substantial cost to the company, and diversion of our efforts.

We are aware of several U.S. patents owned or licensed to Schering AG that relate to pharmaceutical formulations and methods for enhancing magnetic resonance imaging. We have obtained the opinion of special patent counsel that the technologies we employ for our imaging product under development and magnetic resonance imaging detectable compounds do not infringe the claims of such patents. Nevertheless, Schering AG may still choose to assert one or more of those patents. If any of our products were legally determined to be infringing a valid and enforceable claim of any such patents, our business could be materially adversely affected. Further, any allegation by Schering AG that we infringed their patents would likely result in significant legal costs and require the diversion of substantial management resources. Schering AG sent communications to us suggesting that our oral magnetic resonance imaging contrast agent, CITRA VU, may infringe certain of their patents. We are aware that Schering AG has asserted patent rights against at least one other company in the contrast agent imaging market and that a number of companies have entered into licensing arrangements with Schering AG with respect to one or more of such patents. We cannot be certain that we would be successful in defending a lawsuit or able to obtain a license on commercially reasonable terms from Schering AG, if required.

We also rely upon trade secrets, technical know-how and continuing technological innovation to develop and maintain our competitive position. We require our employees, consultants, advisors and collaborators to execute appropriate confidentiality and assignment-of-inventions agreements with us. These agreements typically provide that all materials and confidential information developed or made known to the individual during the course of the individual's relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances, and that all inventions arising out of the relationship with Pharmacyclics shall be our exclusive property. These agreements may be breached, and in some instances, we may not have an appropriate remedy available for breach of the agreements. Furthermore, our competitors may independently develop substantially equivalent proprietary information and techniques, reverse engineer our information and techniques, or otherwise gain access to our proprietary technology. We may be unable to meaningfully protect our rights in unpatented proprietary technology.

We rely heavily on third parties

We currently depend heavily and will depend heavily in the future on third parties for support in product development, manufacturing, marketing and distribution. We have a collaboration agreement with Nycomed. We rely on Nycomed for a portion of our LUTRIN development costs in the form of milestone payments, and for the commercialization, when and if LUTRIN is approved, of this product outside the United States, Canada and Japan. In the field of retinal degeneration, we depend on Alcon for preclinical and clinical studies, regulatory filings and sales and marketing of OPTRIN for ophthalmology uses worldwide. Alcon may terminate their agreement with us at their election. We cannot be certain that any of these parties will fulfill their obligations in a manner that maximizes our revenues. Our failure to receive milestone payments or any reduction or discontinuance of efforts by our partners or the termination of these alliances could have a material adverse effect on our business, financial condition and results of operations.

We also depend upon the National Cancer Institute for the sponsoring and funding of certain of the clinical trials of our XCYTRIN radiation enhancer and LUTRIN photosensitizer products in development. We cannot be certain that the National Cancer Institute will enlist support for all such trials or that it will continue the funding of these trials. If the National Cancer Institute did not support such trials, we may have to fund the continuation of such trials ourselves or reduce the number of disease indications in our clinical trials.

We may be unsuccessful in entering into additional strategic alliances for the development or commercialization of other product candidates. Even if we did enter into any such alliances, they may not be on terms favorable to us or they may ultimately be unsuccessful.

We have no expertise in the development of light sources and associated light delivery devices required for our photoangioplasty and photodynamic therapy products under development. Successful development, manufacturing, approval and distribution of our photosensitization products will require third party participation for the required light sources, associated light delivery devices and other equipment. We currently obtain lasers from Diomed, Inc. and cylindrically diffusing light fibers from CardioFocus, Inc. on a purchase order basis, and such entities are under no obligation to continue to deliver light devices on an ongoing basis. Failure to maintain such relationships may require us to develop additional supply sources which may require additional clinical trials and regulatory approvals and could materially delay commercialization of our LUTRIN and ANTRIN products under development. We may be unable to establish or maintain relationships with other supply sources on a commercially reasonable basis, if at all, or alternatively, the enabling devices may not receive regulatory approval for use in photoangioplasty or photodynamic therapy.

We have limited manufacturing experience and thus rely heavily upon contract manufacturers

We must manufacture our products in commercial quantities, either directly or through third parties, in compliance with regulatory requirements and at an acceptable cost. We do not own manufacturing facilities necessary to provide clinical and commercial quantities of our products.

In September 1996, we entered into an agreement with Hoechst Celanese Corporation, a manufacturer of chemicals and pharmaceutical components, to optimize and scale up a manufacturing process for and supply of our texaphyrin-based products. In October 1997, Hoechst Celanese assigned the agreement to Celanese, Ltd., in connection with Hoechst Celanese's corporate restructuring. This agreement granted Celanese exclusive worldwide manufacturing rights and required Celanese to supply all of our texaphyrin-based products for late-stage clinical and commercial use. As a result of the change in its business focus, Celanese requested that we pursue alternative supply sources. On August 27, 1999, we entered into an agreement to terminate the manufacturing and supply agreement with Celanese. Pursuant to that agreement, Celanese assigned to us all right, title and interest in and to the manufacturing technology and intellectual property for our texaphyrin-based products.

During discussions with Celanese that resulted in termination of the manufacturing and supply agreement, we entered into agreements with three new manufacturers to evaluate their ability to supply us with the components of the texaphyrin-based products. These three manufacturers have completed delivery of commercial quantities of XCYTRIN drug substance to us in accordance with the agreements. Due to the addition of alternative manufacturers, we must demonstrate to the FDA the substantial equivalence of the materials produced by these manufacturers to the materials used in our clinical trials to date. Failure to demonstrate equivalence of the material produced by these manufacturers could involve performing additional clinical trials and could have a material adverse effect on our business, financial condition and results of operations. We have entered into commercial supply agreements with two of the three manufacturers and are negotiating a supply agreement with the third manufacturer. We cannot be certain that we will be able to successfully negotiate this third supply agreement at all or on commercially acceptable terms.

We have entered into an agreement with Cook Pharmaceutical Solutions to formulate, fill, package and label clinical and commercial quantities of XCYTRIN. Cook also supplies us with clinical quantities of ANTRIN and LUTRIN. Any interruption of supply of our products from Cook could have a material adverse affect on our business, financial condition and results of operations.

Any failure by these third parties to supply our requirements or the National Cancer Institute's requirements for clinical trial materials would jeopardize the completion of such trials and could therefore have a material adverse effect on us.

We lack marketing and sales experience

We currently do not have marketing, sales or distribution experience. Therefore, to service markets in which we have retained sales and marketing rights and in the event that either of our agreements with Alcon or Nycomed is terminated, we must develop a sales force with technical expertise. We have no experience in developing, training or managing a sales force. We will incur substantial additional expenses in developing, training and managing such an organization. We may be unable to build such a sales force, the cost of establishing such a sales force may exceed any product revenues, or our direct marketing and sales efforts may be unsuccessful. In addition, we compete with many other companies that currently have extensive and well-funded marketing and sales operations. Our marketing and sales efforts may be unable to compete successfully against such other companies.

Our capital requirements are uncertain and we may have difficulty raising needed capital in the future

We have expended and will continue to expend substantial funds to complete the research, development and clinical testing of our products. We will require additional funds for these purposes, to establish additional clinical-and commercial-scale manufacturing arrangements and to provide for the marketing and distribution of our products. Additional funds may not be available on acceptable terms, if at all. If adequate funds are unavailable from operations or additional sources of financing, we may have to delay, reduce the scope of or eliminate one or more of our research or development programs which would materially and adversely affect our business, financial condition and operations.

We believe that our cash, cash equivalents and investments, will be adequate to satisfy our capital needs through at least calendar year 2002. However, our actual capital requirements will depend on many factors, including:

continued progress of our research and development programs;
our ability to establish additional collaborative arrangements;
changes in our existing collaborative relationships;
progress with preclinical studies and clinical trials;
the time and costs involved in obtaining regulatory clearance;
the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims;
competing technological and market developments; and
our ability to market and distribute our products and establish new collaborative and licensing arrangements.

We may seek to raise any necessary additional funds through equity or debt financings, collaborative arrangements with corporate partners or other sources which may be dilutive to existing stockholders. In addition, in the event that additional funds are obtained through arrangements with collaborative partners or other sources, such arrangements may require us to relinquish rights to some of our technologies, product candidates or products under development that we would otherwise seek to develop or commercialize ourselves.

Risks Related to Our Industry

We face rapid technological change and intense competition

The pharmaceutical industry is subject to rapid and substantial technological change. Developments by others may render our products under development or technologies noncompetitive or obsolete, or we may be unable to keep pace with technological developments or other market factors. Technological competition in the industry from pharmaceutical and biotechnology companies, universities, governmental entities and others diversifying into the field is intense and is expected to increase. Many of these entities have significantly greater research and development capabilities than we do, as well as substantially more marketing, manufacturing, financial and managerial resources. These entities represent significant competition for us. Acquisitions of, or investments in, competing pharmaceutical or biotechnology companies by large corporations could increase such competitors' financial, marketing, manufacturing and other resources.

We are a relatively new enterprise and are engaged in the development of novel therapeutic technologies. As a result, our resources are limited and we may experience technical challenges inherent in such novel technologies.

Competitors have developed or are in the process of developing technologies that are, or in the future may be, the basis for competitive products. Some of these products may have an entirely different approach or means of accomplishing similar therapeutic, diagnostic and imaging effects than our products. We are aware that one of our competitors in the market for photodynamic therapy drugs has received marketing approval of a product for certain uses in the United States and other countries. Our competitors may develop products that are safer, more effective or less costly than our products and, therefore, present a serious competitive threat to our product offerings.

The widespread acceptance of therapies that are alternatives to ours may limit market acceptance of our products even if commercialized. The diseases for which we are developing our therapeutic products can also be treated, in the case of cancer, by surgery, radiation and chemotherapy, and in the case of atherosclerosis, by surgery, angioplasty, drug therapy and the use of devices to maintain and open blood vessels. These treatments are widely accepted in the medical community and have a long history of use. The established use of these competitive products may limit the potential for our products to receive widespread acceptance if commercialized.

The price of our common stock may be volatile

The market prices for securities of small capitalization biotechnology companies, including ours, have historically been highly volatile. The market has from time to time experienced significant price and volume fluctuations unrelated to the operating performance of particular companies. The market price of our common stock may fluctuate significantly due to a variety of factors, including:

the results of preclinical testing and clinical trials by us or our competitors;
technological innovations or new therapeutic products;
governmental regulation;
developments in patent or other proprietary rights;
litigation;
public concern as to the safety of products developed by us or others;
comments by securities analysts; and
general market conditions in our industry.

In addition, if any of the risks described in these "Risk Factors" actually occurred, it could have a dramatic and material adverse impact on the market price of our common stock.

We are subject to uncertainties regarding health care reimbursement and reform

The continuing efforts of government and insurance companies, health maintenance organizations and other payors of healthcare costs to contain or reduce costs of health care may affect our future revenues and profitability, and the future revenues and profitability of our potential customers, suppliers and collaborative partners and the availability of capital. For example, in certain foreign markets, pricing or profitability of prescription pharmaceuticals is subject to government control. In the United States, given recent federal and state government initiatives directed at lowering the total cost of health care, the U.S. Congress and state legislatures will likely continue to focus on health care reform, the cost of prescription pharmaceuticals and on the reform of the Medicare and Medicaid systems. While we cannot predict whether any such legislative or regulatory proposals will be adopted, the announcement or adoption of such proposals could have a material adverse effect on our business, financial condition and results of operations.

Our ability to commercialize our products successfully will depend in part on the extent to which appropriate reimbursement levels for the cost of our products and related treatment are obtained from governmental authorities, private health insurers and other organizations, such as HMOs. Third-party payors are increasingly challenging the prices charged for medical products and services. Also, the trend toward managed health care in the United States and the concurrent growth of organizations such as HMOs, which could control or significantly influence the purchase of health care services and products, as well as legislative proposals to reform health care or reduce government insurance programs, may all result in lower prices for or rejection of our products. The cost containment measures that health care payors and providers are instituting and the effect of any health care reform could materially adversely affect our ability to operate profitably.

Our business exposes us to product liability claims

The testing, manufacture, marketing and sale of our products involve an inherent risk that product liability claims will be asserted against us. Although we are insured against such risks up to a $10,000,000 annual aggregate limit in connection with clinical trials and commercial sales of our products, our present product liability insurance may be inadequate. A successful product liability claim in excess of our insurance coverage could have a material adverse effect on our business, financial condition and results of operations. Any successful product liability claim may prevent us from obtaining adequate product liability insurance in the future on commercially desirable or reasonable terms. In addition, product liability coverage may cease to be available in sufficient amounts or at an acceptable cost. An inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or inhibit the commercialization of our pharmaceutical products. A product liability claim or recall would have a material adverse effect on our reputation, business, financial condition and results of operations.

Our business involves environmental risks

In connection with our research and development activities and our manufacture of materials and products, we are subject to federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials, biological specimens and wastes. Although we believe that we have complied with the applicable laws, regulations and policies in all material respects and have not been required to correct any material noncompliance, we may be required to incur significant costs to comply with environmental and health and safety regulations in the future. Our research and development involves the controlled use of hazardous materials, including but not limited to certain hazardous chemicals and radioactive materials. Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by state and federal regulations, we cannot completely eliminate the risk of accidental contamination or injury from these materials. In the event of such an occurrence, we could be held liable for any damages that result and any such liability could exceed our resources.

Part II. Other Information

Item 1. Legal Proceedings

None

Item 2. Changes in Securities

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

On December 7, 2000, at the Company's 2000 Annual Meeting of Stockholders, the following matters were submitted and voted on by stockholders and were adopted:

The election of Phyllis I. Gardner, M.D., Miles R. Gilburne, Richard M. Levy, Ph.D., Richard A. Miller, M.D., William R. Rohn and Craig C. Taylor by the stockholders to serve on the Board of Directors.

The results of the vote are as follows:

	Total Vote for Each Director	Total Vote Withheld from Each Director
Phyllis I. Gardner, M.D.	12,939,582	64,313
Miles R. Gilburne	12,940,118	63,777
Richard M. Levy, Ph.D.	12,935,763	68,132
Richard A. Miller, M.D.	12,940,282	63,613
William R. Rohn	12,935,699	68,196
Craig C. Taylor	12,939,682	64,213

The amendment of the Company's 1995 Stock Option Plan in order to increase the total number of shares of common stock authorized for issuance over the term of the Plan by an additional 600,000 shares.

The results of the vote are as follows:

For	Against	Abstain
8,543,520	4,449,623	10,752

The amendment of the Company's Non-Employee Directors Stock Option Plan (the "Directors Option Plan") in order to increase the total number of shares of common stock authorized for issuance over the term of the Directors Option Plan by an additional 50,000 shares.

The results of the vote are as follows:

For	Against	Abstain
10,728,385	2,263,516	11,994

The ratification of the appointment of PricewaterhouseCoopers LLP as the Company's independent accountants for the fiscal year ending June 30, 2001.

The results of the vote are as follows:

For	Against	Abstain
12,996,907	33,273	3,715

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8-K

Exhibits

Exhibit No.	Exhibit Description
10.1+	Supply Agreement dated December 11, 2000, by and between Dixie Chemical Company and the Registrant
10.2+	Supply Agreement dated December 18, 2000, by and between Lonza, AG and the Registrant

+ Confidential treatment has been requested for certain portions of this agreement. Such omitted confidential information has been designated by an asterisk and has been filed separately with the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended, pursuant to an application for confidential treatment.

Reports on Form 8-K

None

SIGNATURES

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

PHARMACYCLICS, INC.

(Registrant)

Dated: February 12, 2001

By: /s/ RICHARD A. MILLER, M.D.

Richard A. Miller, M.D.

President and Chief Executive Officer

Dated: February 12, 2001

By: /s/ LEIV LEA

Leiv Lea

Vice President, Finance and Administration and Chief Financial Officer

INDEX TO EXHIBITS

Exhibit No.	Exhibit Description
10.1+	Supply Agreement dated December 11, 2000, by and between Dixie Chemical Company and the Registrant
10.2+	Supply Agreement dated December 18, 2000, by and between Lonza, AG and the Registrant

EX-10.1 2 dixie.htm EXH 1 Dixie Agreement

[***] Indicates that material has been omitted and confidential treatment has been requested therefor. All such omitted material has been filed separately with the Commission pursuant to Rule 24b-2.

CONFIDENTIAL TREATMENT REQUESTED - EDITED COPY

Exhibit 10.1

SUPPLY AGREEMENT

This Supply Agreement (the "Agreement") is entered into as of December 11, 2000 (the "Effective Date"), between Dixie Chemical Company, having an address at 300 Jackson Hill, Houston, Texas 77007 ("DIXIE"), and Pharmacyclics, Inc., a Delaware corporation, having its principal executive offices at 995 E. Arques Avenue, Sunnyvale, California 94086-4521 ("PCYC"). DIXIE and PCYC are sometimes referred to herein individually as a "Party" and collectively as the "Parties."

Recitals

Whereas, PCYC is engaged in the development of and owns or has a license to certain rights relating to its proprietary compounds motexafin lutetium and motexafin gadolinium, each of which is a human pharmaceutical agent for the treatment of certain diseases, and wishes to develop, market and commercially distribute such agents;

Whereas, DIXIE has expertise in conducting the cGMP manufacturing of bulk pharmaceutical intermediates;

Whereas, DIXIE and PCYC are parties to that certain Feasibility Evaluation Agreement effective March 4, 1999, as amended, regarding DIXIE's conduct of certain process scale-up and cGMP fine chemicals manufacturing services for PCYC (the "Prior Agreement");

Whereas, PCYC now desires to have DIXIE manufacture, label, package, test and ship bulk forms of its proprietary pharmaceutical intermediates, and DIXIE desires to undertake such activities, on the terms hereinafter set forth;

Now, Therefore, in consideration of the foregoing premises and the mutual promises hereinafter set forth, the Parties hereby agree as follows:

Definitions.

As used herein, the following capitalized terms shall have the following meanings:

"Acceptable Product" means a Batch of Product Manufactured by DIXIE and delivered to PCYC hereunder that meets the Release Criteria for such Product, as determined pursuant to Section 4.2.

"Affiliate" means, as to a Party hereto, any person, corporation, company, partnership, joint venture, firm and/or other entity which controls, is controlled by or is under common control with such Party. For these purposes, "control" means direct or indirect ownership or control of at least fifty percent (50%) of the outstanding voting securities of a corporation or a comparable equitable interest in any other type of entity.

"Batch" means a specific quantity of a Product that (a) is intended to have uniform character and quality within specified limits, and (b) is produced according to a single manufacturing order during the same cycle of manufacture.

"Capacity" means, with respect to each Product to be Manufactured by DIXIE hereunder, DIXIE's Manufacturing capacity for such Product, as set forth in the applicable Product Appendix.

"Confidential Information" shall have the meaning ascribed in Section 12.1.

"Controlled" means, with respect to any material, information or intellectual property right, possession of the ability by a Party to grant access, a license, or a sublicense to such material, Information or intellectual property right as provided for herein without violating an agreement with a Third Party as of the time such Party would be first required hereunder to grant the other Party such access, license or sublicense.

"Current Good Manufacturing Practices" or "cGMP" means: (a) the good manufacturing practices required by the FDA and set forth in the FD&C Act or FDA regulations (including without limitation 21 CFR 210 and 211), policies, or guidelines, in effect at any time during the term of this Agreement, for the manufacture and testing of pharmaceutical materials as applied to bulk pharmaceuticals or their intermediates, as applicable; and (b) the corresponding requirements of each applicable Regulatory Authority, in each case as may be further specified in the applicable Product Appendix.

"DIXIE Technology" means (a) all inventions that are necessary or useful for the Manufacture, use or sale of a Product, and all patents (including without limitation reissues, re-examinations and inventor's certificates) covering such inventions; and (b) all information, trade secrets and know-how that are necessary or useful for the Manufacture, use or sale of a Product, in each case that are Controlled by DIXIE during the term of this Agreement.

"Drug Master File" or "DMF" means, with respect to each Product Manufactured by DIXIE hereunder, a drug master file covering DIXIE's Manufacture of such Product in accordance with 21 CFR 314.420, as may be amended from time to time, and any foreign equivalents.

"Drug Product" means a filled and finished pharmaceutical product for clinical use, or for commercial use and/or sale, that employs or incorporates one or more Products.

"Drug Substance" means a bulk form of the pharmaceutically active compound motexafin lutetium or motexafin gadolinium, as applicable.

"Facility" means DIXIE's Manufacturing facility [ *** ], or such other Manufacturing facility as may be set forth in the applicable Product Appendix.

"FDA" means the United States Food and Drug Administration or any successor entity thereto.

"FD&C Act" means the United States Federal Food, Drug and Cosmetic Act, as may be amended from time to time.

"Force Majeure Event" shall have the meaning ascribed in Article 14.

"Identification Testing Standards" means the identification standards for each PCYC Material to be supplied hereunder as set forth in the applicable Product Appendix.

"IND" means an Investigational New Drug Application filed with the FDA, or a corresponding application filed with any other Regulatory Authority.

"Intermediate" means an intermediate compound required for the synthesis of a Drug Substance.

"IP" means any and all inventions, improvements, information and know-how, including without limitation those related to processes, compositions of matter and methods of use, made by or on behalf of either Party individually or jointly, arising out of the performance of this Agreement or of the Prior Agreement, whether protectable by patent or as a trade secret, and all intellectual property rights therein and thereto.

"Manufacture," "Manufactured" or "Manufacturing" means the synthesis, processing, preparation, handling, packaging and labeling of Products, the storage and testing of Materials and Products, and the cleaning of the equipment used in the foregoing activities.

"Master Batch Record" means, with respect to each Product to be Manufactured hereunder, the formal set of instructions for the Manufacture of such Product, as further described in Section 6.1.

"Materials" means, with respect to each Product to be Manufactured hereunder, the raw material, primary packaging, secondary packaging and labeling to be used in the Manufacture of such Product hereunder.

"Materials Specifications" means, with respect to each of the Materials for a particular Product, the written specifications for each of such Materials as set forth in the applicable Product Appendix.

"Material Supply Breach" means:

DIXIE's falling more than [ *** ] behind its schedule for its Manufacturing campaign with respect to any Purchase Order submitted by PCYC and accepted by DIXIE pursuant to Section 3.4, as such schedule is provided to PCYC pursuant to Section 3.4.3; or

DIXIE's failure to supply to PCYC at least [ *** ] of the quantity of Acceptable Product set forth in any Purchase Order submitted to and accepted by DIXIE pursuant to Section 3.4 by the delivery date set forth in such Purchase Order.

[ *** ]

"NDA" means a New Drug Application filed with the FDA or any other regulatory filing necessary to obtain marketing approval from a Regulatory Authority.

"Packaging Specifications" means, with respect to each Product to be Manufactured hereunder, the written specifications for the packaging of such Product as set forth in the applicable Product Appendix, as such specifications may be amended from time-to-time by written agreement of the Parties.

"PCYC Materials" means, with respect to each Product to be Manufactured hereunder, those Materials for such Product that PCYC is obligated to supply as set forth in the applicable Product Appendix.

"PCYC Technology" means all patents (including without limitation, reissues, re-examinations and inventor's certificates) covering the Manufacture of Products hereunder, and all information, trade secrets and know-how related thereto, that is Controlled by PCYC during the term of this Agreement.

"Product" means an Intermediate to be Manufactured by DIXIE hereunder.

"Product Appendix" means, for each Product to be Manufactured hereunder, the Product Specifications, the price per kilogram and the validation and Manufacturing activities to be performed by DIXIE for such Product, including without limitation the testing programs and development schedules, and any other information that the Parties deem appropriate. Each Product Appendix shall be agreed upon by the Parties as further described in Section 2.1. The documentation comprising the Product Appendices shall be attached and incorporated herein as Schedule 1.30 hereto, and may be amended only by the Parties' written agreement.

"Product Specifications" means, with respect to each Product to be Manufactured hereunder, the written specifications for the testing of such Product, as detailed in the applicable Product Appendix, as such specifications may be amended from time-to-time by written agreement of the Parties.

"Purchase Orders" means written purchase orders provided by PCYC to DIXIE, which shall specify: (a) the quantity of Product to be Manufactured by DIXIE, (b) the Purchase Price of such Product as set forth in the applicable Product Appendix, (c) the dates on which such Product shall be shipped, and (d) the shipping address(es) designated by PCYC.

"Purchase Price" means, with respect to each Product to be Manufactured hereunder, the price per kilogram of such Product as set forth in the applicable Product Appendix.

"QC Sample" shall have the meaning ascribed in Section 4.1.

"Regulatory Approval" means all authorizations by the appropriate Regulatory Authority necessary for use, development, Manufacture, distribution, promotion or sale of a Product, Drug Substance or Drug Product in a particular regulatory jurisdiction.

"Regulatory Authority" means any national, supranational, regional, state or local regulatory agency, department or other government entity with the authority to approve and regulate the use, development, Manufacture, distribution or sale of a Product or Drug Product in a regulatory jurisdiction. "Regulatory Authority" shall also include any non-governmental group licensed by an entity described in the preceding sentence to perform inspections, audits and/or reviews.

"Release Criteria" shall have the meaning ascribed in Section 4.2.1.

"Released Executed Batch Record" means the completed Batch record and associated deviation reports, investigation reports and certificates of analysis created by DIXIE for each Batch Manufactured hereunder, including written confirmation that such Batch record has been reviewed and approved by DIXIE's quality assurance unit.

"Test Methods" means, with respect to each Product Manufactured hereunder, the written procedures for evaluating compliance with the applicable Product Specifications, as set forth in the applicable Product Appendix.

Product Appendices

Product Appendices.

For each Product to be Manufactured by DIXIE hereunder, the Parties shall agree in writing upon a Product Appendix, as follows: For all Products that PCYC desires DIXIE to Manufacture hereunder, PCYC shall prepare and deliver to DIXIE two (2) copies of the corresponding Product Appendix. DIXIE shall either sign such Product Appendix and return one (1) copy to PCYC, or shall return to PCYC an amended Product Appendix acceptable to DIXIE, in each case within [ *** ] of receipt of such Product Appendix from PCYC. In the latter case, if such amended Product Appendix is not acceptable to PCYC, then PCYC shall so notify DIXIE within [ *** ] of PCYC's receipt of such amended Product Appendix, and the Parties shall promptly meet in order to resolve in good faith any outstanding disagreements with respect to such amended Product Appendix.

Notwithstanding any other provision of this Section 2.1, this Agreement shall not be deemed to be amended or modified in any manner by any provision of any Product Appendix; provided, however, that a particular Product Appendix may supersede a particular term of this Agreement, solely with respect to the work that is the subject of such Product Appendix, only if such Product Appendix specifically and expressly sets forth the intent that such term shall be so superseded.

Amendments to Product Appendix. Each Product Appendix may be amended from time to time, as the Parties' experience with the development, Manufacture, testing and use of the applicable Product warrants, upon mutual written agreement of PCYC and DIXIE.

Feasibility Studies. The Parties may, from time to time during the term of this Agreement, enter into separate written agreements pursuant to which they will evaluate the feasibility of DIXIE's Manufacturing new Intermediates pursuant to this Agreement. Neither Party shall be required to enter into any such agreement, nor to enter into a Product Appendix for such an Intermediate, except on terms that are acceptable to such Party in its sole discretion.

Manufacturing

Agreement to Purchase and Supply. During the term of this Agreement, PCYC agrees to purchase from DIXIE and DIXIE agrees to Manufacture, sell and deliver to PCYC, such quantities of each Product as may be set forth [ *** ] placed by PCYC and accepted by DIXIE, pursuant to the terms and conditions of this Agreement (including without limitation the applicable Product Appendix).

Supply of Materials.

DIXIE shall supply, at its expense, all Materials necessary to Manufacture each Product other than the PCYC Materials.

PCYC shall supply, at its expense, all PCYC Materials necessary to Manufacture each Product hereunder. PCYC shall deliver or cause to be delivered a reasonably sufficient amount of the applicable PCYC Materials for each Product to be Manufactured hereunder to the applicable Facility sufficiently in advance of the date of delivery set forth in the applicable Purchase Order such that DIXIE can fill such Purchase Orders, which required advance time, as well as any storage requirements for such PCYC Materials, shall be set forth in the applicable Product Appendix.

Upon receipt of the PCYC Materials as set forth above, DIXIE shall review the accompanying certificate(s) of analysis and test the PCYC Materials for conformance with the Identification Testing Standards, in accordance with the analytical test methods set forth in the applicable Product Appendix. Both the Identification Testing Standards and related analytical test methods may be amended from time to time upon mutual written agreement of PCYC and DIXIE.

Within [ *** ] of receipt of the PCYC Materials described in Section 3.3.1, or such other period as may be specified in the applicable Product Appendix, DIXIE shall determine if such PCYC Materials meet the applicable Identification Testing Standards. If DIXIE determines that such PCYC Materials meet the Identification Testing Standards, then such PCYC Materials shall be used by DIXIE in performing its Manufacturing obligations under this Agreement. If DIXIE determines that any such PCYC Materials do not meet the Identification Testing Standards, then DIXIE shall make no use of such non-conforming PCYC Materials and shall promptly confer with PCYC to determine how to proceed. DIXIE shall return, rework or destroy any non-conforming PCYC Materials as directed by PCYC in writing and at PCYC's expense.

From the time of delivery of the PCYC Materials to DIXIE until the earlier of (a) delivery by DIXIE of Product, or (b) return or destruction of the PCYC Materials by DIXIE that do not meet the Identification Testing Standards, each in the manner provided in this Agreement, DIXIE shall bear all risk of loss of such PCYC Materials. DIXIE shall comply with all applicable laws, rules, regulations and guidelines in the use, storage, handling and transportation of the PCYC Materials. PCYC shall retain all right, title and interest in and to all PCYC Materials at all times.

Forecasts. [ *** ]

Purchase Orders.

All purchases of Products shall be made [ *** ] as agreed to in writing by the Parties, at least [ *** ] in advance of the date of shipment specified in said Purchase Order, or to such other location and/or within such other time period as may be specified in the applicable Product Appendix.

DIXIE shall ship all Products as set forth in Section 4.5 by the date and in the quantities specified in the applicable Purchase Order. PCYC shall be obligated to buy and DIXIE shall be obligated to sell only the quantities of Product which are subject to a Purchase Order accepted by DIXIE. DIXIE shall be obligated to accept all Purchase Orders to the extent that such Purchase Orders do not exceed DIXIE's Capacity for the applicable Product. DIXIE shall be deemed to have rejected any portion of a Purchase Order to the extent that such Purchase Order exceeds DIXIE's Capacity for the applicable Product, unless DIXIE accepts such excess portion in writing within [ *** ] of its receipt of such Purchase Order.

Within [ *** ] following its acceptance of a Purchase Order, DIXIE shall provide to PCYC a written schedule of its intended Manufacturing campaign for fulfilling such Purchase Order.

To the extent that the terms of a Purchase Order are inconsistent with the terms of this Agreement, this Agreement shall control. No Purchase Order shall be deemed to amend, modify or supplement this Agreement or any Product Appendix.

(a) Testing of Batches by DIXIE. DIXIE will test each Batch of Product in accordance with the applicable Test Methods and Product Specifications, and shall supply PCYC with a certificate of analysis confirming that such Batch meets the applicable Product Specifications and Packaging Specifications at the time of batch release if practicable, but in any event no later than with shipment of the QC Sample. DIXIE shall hold and store samples from each Batch in accordance with Section 6.3.1. If DIXIE notices any testing or material manufacturing discrepancies during the Manufacturing of a Product, DIXIE shall promptly notify PCYC. PCYC may retest a Product as more fully set forth in Section 4.2 to confirm that it meets the applicable Product Specifications and Packaging Specifications.

DIXIE Covenant. DIXIE shall not (a) sell, provide or transfer any Product to any third party, nor (b) use, allow any third party to use nor otherwise dispose of any Product, except in each case as specifically set forth in this Agreement or as expressly authorized by PCYC in writing. PCYC shall retain all right, title and interest in and to the Products Manufactured hereunder at all times.

Material Supply Breach.

If a Material Supply Breach occurs and either (a) DIXIE has failed to deliver to PCYC a plan detailing how DIXIE will cure such Material Supply Breach to PCYC's satisfaction within [ *** ] following receipt of written notice from PCYC that a Material Supply Breach has occurred, or (b) PCYC has accepted such plan to cure such Material Supply Breach and DIXIE fails to adhere to such plan to PCYC's reasonable satisfaction, then in addition to any other rights that PCYC may have at law or equity: [ *** ]

If DIXIE reasonably anticipates that there is a substantial likelihood that a Material Supply Breach will occur, then DIXIE shall promptly notify PCYC in writing thereof. Upon receipt of such notice, the Parties shall promptly confer to discuss the circumstances and magnitude of such potential Material Supply Breach, and to determine in good faith whether there are any reasonable steps that DIXIE could take to avoid such Material Supply Breach.
[ *** ]

If PCYC cancels any Purchase Orders as described in this Section 3.6, then upon PCYC's request DIXIE shall promptly, but no later than [ *** ] after receipt of PCYC's request, (a) ship to PCYC or its designee, [ *** ], any PCYC Materials delivered to DIXIE under Section 3.2.2 for use in Manufacturing such Product which have not been consumed in the Manufacture of such Product, and [ *** ].

Subcontractors. DIXIE may not subcontract its obligations under this Agreement to any third party or Affiliate without PCYC's prior written consent or as specifically set forth in the applicable Product Appendix. All such subcontractors shall agree in writing to be bound by the terms of this Agreement prior to conducting any work hereunder.

DIXIE's Facility. All Manufacture of Products hereunder shall be conducted at the Facility. In the event that DIXIE sells or otherwise transfers ownership or control of the Facility to any third party or Affiliate, such third party or Affiliate shall expressly assume DIXIE's obligations hereunder in writing; provided, however, that any such assumption shall not relieve DIXIE of any liability for such third party's or Affiliate's failure to perform under this Agreement. DIXIE hereby expressly waives any requirement that PCYC exhaust any right, power or remedy, or proceed directly against such third party or Affiliate, for any obligation or performance hereunder prior to proceeding directly against DIXIE.

[ *** ]

Delivery and Acceptance

Quality Control Sample of Product. Prior to the shipment of any Batch of Product, DIXIE shall provide PCYC with (a) a quality control sample of such Batch as specified in the applicable Product Appendix (the "QC Sample") for the purpose of confirming that such Batch meets the Product Specifications and Packaging Specifications; (b) one copy of the corresponding Released Executed Batch Record, together with written confirmation that such Batch record has been reviewed and approved by DIXIE's quality assurance unit; and (c) a certificate of analysis for such Batch.

Acceptance and Rejection of Product.

PCYC may reject any Batch delivered hereunder that does not conform with the applicable Master Batch Record, DIXIE's standard operating procedures, certificate of analysis, Product Specifications or Packaging Specifications, or applicable documentation or process requirements (collectively, the "Release Criteria") based upon PCYC's testing of the QC Sample in accordance with the Test Methods and review of the Released Executed Batch Record. Any such notice of rejection shall be in writing and shall indicate the reasons for such rejection. Such notice is to be delivered to DIXIE within [ *** ] from PCYC's receipt of the QC Sample, Released Executed Batch Record and certificate of analysis from the designated carrier or such other period as may be specified in the applicable Product Appendix (the "Testing Period"). If DIXIE does not receive such notice of rejection by the end of the Testing Period, then PCYC shall be deemed to have accepted such Batch.

1. After notice of rejection is given, PCYC shall cooperate with DIXIE in establishing the root cause of the rejection and shall deliver to DIXIE a sample of the allegedly non-conforming QC Sample for DIXIE's evaluation. DIXIE will evaluate process issues and other reasons for such non- compliance. DIXIE shall notify PCYC in writing as promptly as reasonably possible whether it disputes PCYC's basis for any rejection, but in any event no later than [ *** ] after its receipt of PCYC's notice of rejection or such other period as may be specified in the applicable Product Appendix (the "Response Period"). If PCYC does not receive such notice of dispute by the end of the Response Period, then DIXIE shall be deemed to agree with PCYC's rejection of such Batch.
2. If DIXIE provides PCYC notice, in accordance with subsection (a) above, that it disputes PCYC's determination that a QC Sample does not meet the Release Criteria, then such QC Sample shall be submitted to a mutually acceptable, independent third party laboratory to determine whether such QC Sample conforms to the Release Criteria. The Parties agree that such third party laboratory's determination shall be final and binding.
3. [ *** ]
Any Batch accepted by PCYC under this Section 4.2 shall remain subject to DIXIE's warranties in Sections 8.2 and 8.3.

Replacement Batches. Whether or not DIXIE accepts PCYC's basis for rejection of a Batch under Section 4.2, promptly following receipt of a notice of such rejection and receipt of the applicable PCYC Materials from PCYC, DIXIE shall use its reasonable commercial efforts at PCYC's written request to replace such rejected Batch. PCYC shall purchase such replacement Batch at the applicable Purchase Price, subject to its acceptance of such Batch pursuant to Section 4.2.

Destruction of Product . Neither Party may destroy any Product rejected by PCYC under Section 4.2.1 until the independent third party laboratory determines whether such Product meets such Release Criteria and provides written notification to the Parties with respect to such determination, unless DIXIE accepts PCYC's basis for such rejection. Thereafter, DIXIE shall have the obligation to destroy, or have destroyed, at its cost, all such rejected Product. Upon DIXIE's written request and at DIXIE's cost, PCYC shall return to DIXIE any rejected Product. The method of such destruction shall be in compliance with all national, federal, state and local laws, rules and regulations.

Delivery of Product . All deliveries of Product and QC Samples shall be shipped FCA (INCOTERMS 2000) the Facility to a location designated by PCYC, using a carrier acceptable to PCYC. All Batches shall be so shipped within [ *** ] of acceptance of each Batch pursuant to Section 4.2 unless otherwise agreed in writing by the Parties. PCYC shall be responsible for all freight and delivery charges, including without limitation insurance charges, and shall assume all risk of loss of the Product and QC Samples after transfer of possession to the designated carrier. All Product and QC Samples shall be delivered to PCYC free and clear of all liens, claims and encumbrances.

Purchase Price and Payment.

Purchase Price. Subject to the terms of this Section 5.1, PCYC shall pay DIXIE the applicable Purchase Price for each shipment of Product delivered by DIXIE and accepted by PCYC pursuant to Section 4.2. The Purchase Price shall be deemed to be full compensation for all work performed by DIXIE relating to the Manufacture and supply of such Product hereunder, including without limitation all Materials provided by DIXIE for use in such Manufacture, all inspection and testing activities performed by DIXIE and delivery of such Product as set forth in Section 4.5, unless expressly provided otherwise herein or in the applicable Product Appendix.

Payment. Each Product Manufactured and supplied hereunder shall be invoiced at the applicable Purchase Price following PCYC's acceptance thereof pursuant to Section 4.2. Payments by PCYC shall be made in U.S. dollars by check mailed to DIXIE by regular first class mail within [ *** ] from the later of [ *** ].

Records. DIXIE shall keep accurate records in sufficient detail to permit the determination of all invoices and fees payable, credits due and quantities of Product Manufactured hereunder. Within [ *** ] following a request by PCYC, DIXIE shall permit PCYC or its designee to examine such records during ordinary business hours for the purpose of verifying the correctness of any such invoices, fees, credits and quantities. DIXIE shall retain such records for at least [ *** ] from the date of each invoice to which such records pertain or for such longer period as may be required by any Regulatory Authority.

Quality Assurance; Regulatory.

Master Batch Record. Each Master Batch Record for each Product shall be prepared and maintained in DIXIE's standard format by DIXIE, using PCYC's master formula and technical support. Each Master Batch Record shall be subject to approval by Pharmacyclics' Chemical Operations and Quality Assurance groups. PCYC will use reasonable efforts to ensure that its review and approval of such documents are completed in a timely manner

Audits.

PCYC shall have the right to conduct a general audit of the Facility and of the equipment, system, processes and related documentation used in the Manufacture of Products to evaluate compliance with cGMP every [ *** ], or more frequently for cause. PCYC may make recommendations to DIXIE based on such audit, and DIXIE agrees to give such recommendations good faith consideration. DIXIE shall be responsible for compliance with cGMP and shall promptly take such action, at its expense, as may be necessary to bring said equipment, system, processes, documentation and Facility into conformance therewith.

In the event that PCYC notifies DIXIE following an audit under Section 6.2.1 that DIXIE is not in compliance with cGMP, and DIXIE disagrees with such finding, then the Parties shall promptly meet to resolve in good faith the issues relating to such alleged non-compliance.

Reasonable notice will be provided by PCYC to DIXIE to schedule the date of such audit. If DIXIE needs to cancel such audit due to events outside of DIXIE's reasonable control (e.g., FDA inspection unrelated to the Product, act of God, such audit would lead to an unavoidable breach of DIXIE's confidentiality obligations to a third party, etc.), DIXIE will immediately contact PCYC to reschedule the audit to occur as soon as possible.

PCYC's failure to exercise its right to audit the Facility will not represent a waiver of any future exercise of this right or of any other rights under this Agreement, nor does it represent acceptance of any conditions past or present that might exist or result from such conditions at the Facility.

Regulatory Matters; Records.

DIXIE shall keep documentation and records in accordance with the requirements of cGMP. DIXIE will provide to PCYC copies of all documentation and information relating to the Manufacture, processing, packaging and shipping of Product and/or required to support PCYC's NDAs (or INDs, if appropriate) or other regulatory submissions, including but not limited to information relating to Batch records, specifications, methods, method validations, equipment and the Facility, for review and inclusion as necessary in PCYC's regulatory submissions. DIXIE shall maintain all records and documentation under this Section 6.3 and any inspection samples and data for at least [ *** ] past the expiration dates of each Batch or for such longer period as may be required by cGMP or other regulations promulgated by the Regulatory Authorities applicable to the relevant Product.

Prior to DIXIE's destruction of any of the records or documentation described in Section 6.3.1, DIXIE shall notify PCYC in writing specifically identifying the records or documentation that it wishes to destroy. PCYC shall have [ *** ] from its receipt of such notice to notify DIXIE that it desires to receive such records or documentation. In such event, such records or documentation shall be delivered to PCYC or its designee at PCYC's expense. If PCYC does not notify DIXIE that it desires to receive such records or documentation within such thirty-day period, then DIXIE shall be free to destroy such records or documentation.

DIXIE shall be solely responsible, at its expense, for obtaining and maintaining all Regulatory Approvals required for it to carry out its development, regulatory and Manufacturing obligations hereunder. DIXIE agrees to cooperate fully with PCYC in PCYC's efforts to obtain and maintain any Regulatory Approval which may be required for the use of the Products, or the Manufacture and/or marketing of Drug Products, in any country. Such efforts shall include, without limitation, (a) providing information in DIXIE's possession that is useful or required by PCYC to submit regulatory filings or obtain or maintain Regulatory Approvals with respect to Products and/or Drug Products, including all information necessary for PCYC to complete the CMC portions of its regulatory filings; (b) allowing the use of DIXIE's name in any such filings; and (c) taking any and all other actions reasonably required to assist PCYC or its designee in obtaining Regulatory Approval of Drug Products.

Upon the requirement of any Regulatory Authority, such entity shall have access to observe and inspect the Facility and DIXIE's quality and manufacturing documents and procedures used for the Manufacture of any Product, including process development and Manufacturing operations, and to audit such Facility, documents and procedures for compliance with cGMP and/or other applicable regulatory standards. DIXIE shall give PCYC immediate notice of any upcoming inspections or audits by a Regulatory Authority of the Facility, documents and/or procedures relating to any Product Manufactured hereunder, and shall provide PCYC the opportunity to conduct a pre-inspection of the Facility and such documents and procedures, and to observe and participate in such inspection or audit.

DIXIE also agrees to notify PCYC within [ *** ] of any written or oral inquiries, notifications, or inspection activity by any Regulatory Authority in connection with any Product. DIXIE shall provide a reasonable written description to PCYC of any such inquiries, notifications or inspections promptly (but in no event later than [ *** ]) after such visit or inquiry. DIXIE shall furnish to PCYC (a) within [ *** ] after receipt, any report or correspondence issued by the Regulatory Authority in connection with such visit or inquiry, including but not limited to any FDA Form 483 (List of Inspectional Observations) or warning letter, and (b) not later than [ *** ] prior to the time it provides to a Regulatory Authority, copies of any and all proposed written responses or explanations relating to items set forth above (each, a "Proposed Response"), in each case purged only of trade secrets or other confidential or proprietary information of DIXIE that are unrelated to the obligations under this Agreement or are unrelated to Products. DIXIE shall discuss with PCYC any comments provided by PCYC on the Proposed Response and the Parties shall mutually agree on the final written response or explanation to be provided to the Regulatory Authority. After the filing of a response with the appropriate Regulatory Authority, DIXIE will notify PCYC of any further contacts with a Regulatory Authority relating to DIXIE's Manufacture of Products.

DIXIE shall promptly notify PCYC of any other production issues or other information of which DIXIE becomes aware that may affect the regulatory status of a Product or the ability of DIXIE to supply a Product in accordance with PCYC's forecasted requirements.

DIXIE agrees to promptly rectify or resolve any deficiencies noted by a Regulatory Authority in a report or correspondence issued to DIXIE, and that are based on DIXIE's performance under this Agreement, at DIXIE's expense except as otherwise set forth in Section 6.6.3.

Each Party shall promptly notify the other of new regulatory requirements of which it becomes aware which are relevant to the Manufacture of a Product under this Agreement and which are required by the FDA, other applicable Regulatory Authority or other applicable laws or governmental regulations, and shall confer with each other with respect to the best means to comply with such requirements.

Drug Master File. DIXIE shall file and maintain the appropriate DMF for its Manufacture of each Product hereunder, at DIXIE's expense. DIXIE shall provide PCYC and its Affiliates, partners, licensees and designees with letters of authorization to reference such DMF in their respective filings with the FDA and other Regulatory Authorities.

Stability Testing. DIXIE shall be responsible for performing stability testing of each commercial Product, in accordance its own internal policies and procedures, except as otherwise set forth in the applicable Product Appendix.

Changes in Manufacture.

DIXIE shall not alter any processing steps with respect to the Manufacture of each Product, as such steps are set forth in the NDA, DMF (or IND, if appropriate), applicable Manufacturing protocols, Master Batch Records or any other document governing such steps. DIXIE may, from time to time, suggest to PCYC changes DIXIE may wish to make in the Manufacture of a Product, the location of Manufacture within the Facility, the equipment used to Manufacture such Intermediate or Product or the process used to Manufacture such Intermediate or Product. DIXIE shall notify PCYC of any such suggested changes via DIXIE's change notice procedure, but shall not implement any such changes until signature approval has been received from PCYC's authorized Quality Assurance and Chemical Operations representatives designated in the applicable Product Appendix. PCYC shall have no obligation to accept any such suggestions. Any such changes shall be made in accordance with both DIXIE's and PCYC's change control policies and procedures.

In the event that [ *** ], unless otherwise agreed by the Parties in writing:

[ *** ]; and

[ *** ].

For clarity, neither [ *** ].

[ *** ].

Emergency Access. The Parties agree that in case of an emergency with the potential to affect the quality of any Product, a PCYC representative shall have [ *** ] access to DIXIE's plant management, who shall [ *** ] access to the Facility and all applicable personnel, records and documents for the purpose of dealing with such emergency, and PCYC shall have the right to audit the Facility for cause as set forth in Section 6.2.1.

Compliance with Laws. In its performance under this Agreement, DIXIE shall comply with all applicable present and future orders, regulations, requirements and laws of the United States federal, state and local authorities and agencies, and all other Regulatory Authorities including without limitation all laws and regulations applicable to the transportation, storage, use, handling and disposal of hazardous materials. DIXIE represents and warrants to PCYC that it has and will maintain during the term of this Agreement all Regulatory Approvals, including without limitation health, safety and environmental permits, necessary for the conduct of the actions and procedures that it undertakes pursuant to this Agreement.

Complaints; Recalls.

Complaints and Adverse Reactions.

DIXIE shall advise PCYC of any complaints, adverse reaction reports, safety issues or toxicity issues relating to any Product of which it becomes aware, regardless of the origin of such information, within the time frame required by cGMP and 21 CFR 312 and 314, and the corresponding regulations of the applicable Regulatory Authorities (collectively, the "Regulations"), but in no event later than [ *** ] from the initial complaint or report. PCYC's shall notify DIXIE promptly of complaints that are relevant to the Manufacturing activities conducted by DIXIE hereunder, except where such complaints or adverse reactions are due to inherent Product characteristics or arise from the activities of third parties unrelated to DIXIE.

PCYC shall retain and manage complaints in accordance with the Regulations. The Parties hereby agree to cooperate with one another and with any Regulatory Authority in the evaluation and investigation of any complaint, claim or adverse reaction report related to the Manufacture of a Product with the intention of promptly complying with the Regulations.

If any such event occurs, DIXIE shall retain any unused supplies of such Product and its associated Materials (including without limitation PCYC Materials), and all associated Batch and other production records in such manner as PCYC may reasonably direct. Such retention shall be at PCYC's expense, except to the extent that such event is caused by DIXIE's wrongful act or omission. DIXIE agrees to respond to PCYC in respect to such complaint investigations involving DIXIE's Manufacturing of a Product or services rendered hereunder as soon as reasonably possible but in any case within [ *** ] from receipt by DIXIE of the report of such complaint and sample (if available), or in the case of a serious adverse event, within [ *** ] from receipt of the report of such complaint and sample (if available). PCYC and/or its designee shall serve as the sole point of contact with the FDA or other applicable governmental entity concerning any complaints, adverse reaction reports, safety issues or toxicity issues with respect to the Product.

Product Defects. If either Party becomes aware at any time of any defect or the possibility of any defect associated with any Product Manufactured by DIXIE hereunder, such Party will notify the other Party immediately and confirm the notification as soon as possible in writing.

Recalls.

PCYC shall notify DIXIE promptly if any Drug Product employing or incorporating a Product Manufactured by DIXIE hereunder is the subject of a recall, market withdrawal or correction, to the extent that such recall, market withdrawal or correction is due to such Product being employed or incorporated into such Drug Product. PCYC and/or its designee shall have the sole responsibility for the handling and disposition of any such recall, market withdrawal or correction.

If a recall is required as a result of DIXIE's breach of any of its warranties set forth in Section 8.2 hereof, then DIXIE shall reimburse PCYC for the Purchase Price of such Product and all other reasonable costs and expenses associated with such Drug Product recall, market withdrawal or correction, but only to the extent that the foregoing costs and expenses are attributable to DIXIE's breach of its warranties hereunder. [ *** ] In all other events of a recall, market withdrawal or correction, all costs and expenses incurred in connection with such Drug Product recall, market withdrawal or correction shall be borne by PCYC.

PCYC and/or its designee shall serve as the sole point of contact with the FDA or other applicable Regulatory Authority concerning any recall, market withdrawal or correction with respect to such Drug Product.

Representations and Warranties.

Mutual Representations and Warranties. Each Party hereby represents and warrants to the other Party that: (a) the person executing this Agreement is authorized to execute this Agreement; (b) this Agreement is legal and valid and the obligations binding upon such Party are enforceable by their terms; and (c) the execution, delivery and performance of this Agreement does not conflict with any agreement, instrument or understanding, oral or written, to which such Party may be bound, nor violate any law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it.

DIXIE Product Warranties. DIXIE warrants that all Products Manufactured by DIXIE hereunder shall, at the time of delivery to PCYC's designated carrier: (a) conform to the applicable Product Specifications and Packaging Specifications; (b) have been Manufactured, handled, stored, labeled, packaged and transported in accordance with the Master Batch Records, and with cGMP and all other applicable laws, regulations and other requirements of all applicable Regulatory Authorities; and (c) not be (i) adulterated or misbranded by DIXIE within the meaning of the FD&C Act, or (ii) an article that may not be introduced into interstate commerce under the provisions of Sections 404 or 505 of the FD&C Act.

No Debarment or Convictions. DIXIE represents and warrants that: (a) it has not and will not use in any capacity the services of any persons debarred under 21 U.S.C. Section 335a(a) or 335a(b) in connection with its Manufacture of any Product hereunder; (b) neither DIXIE nor any DIXIE official or employee has been convicted of a felony under Federal law for conduct relating to the development or approval, including the process for development or approval, of any drug, product, NDA, abbreviated NDA or IND; and (c) no DIXIE official or employee has been convicted of a felony under United States law for conduct otherwise relating to the regulation of any drug substance or drug product under the FD&C Act.

Intellectual Property.

DIXIE represents and warrants that: (a) PCYC's practice of the IP and/or the DIXIE Technology as contemplated herein will not infringe upon the intellectual property rights of any third party; and (b) none of the IP or the DIXIE Technology has been misappropriated from any third party nor is the result of any misuse of any third party's intellectual property; and (c) there is no action, suit or proceeding pending or that has been threatened, orally or in writing, against DIXIE, with respect to the infringement or misappropriation of any third party's intellectual property rights through the use of the IP or the DIXIE Technology.

PCYC represents and warrants that: (a) DIXIE'S practice of the PCYC Technology (exclusive of the IP) as contemplated herein will not infringe upon the intellectual property rights of any third party; and (b) none of the PCYC Technology (exclusive of the IP) has been misappropriated from any third party nor is the result of any misuse of any third party's intellectual property; and (c) there is no action, suit or proceeding pending or that has been threatened, orally or in writing, against PCYC, with respect to the infringement or misappropriation of any third party's intellectual property rights through the use of the PCYC Technology (exclusive of the IP).

No Other Representations or Warranties. Except as specifically set forth above in the Article 8, NEITHER PARTY MAKES ANY REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTY AS TO THE MERCHANTABILITY, FITNESS FOR PARTICULAR PURPOSE, OR ANY OTHER MATTER WITH RESPECT TO THE PRODUCTS, whether used alone or in combination with any other material.

Limitation of Liability. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, AS TO ANY CLAIM OF ANY NATURE ARISING IN CONNECTION WITH THIS AGREEMENT, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, PATENT INFRINGEMENT OR OTHERWISE, IN NO EVENT SHALL A PARTY BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, CONSEQUENTIAL, SPECIAL, INCIDENTAL, OR CONTINGENT DAMAGES, COSTS OF LITIGATION, OR OTHER LOSS. The foregoing limitation of liability shall not apply with respect to third party claims.

Indemnification.

Indemnification by DIXIE. Subject to PCYC's compliance with Section 9.3, DIXIE shall indemnify, defend and hold harmless PCYC and its directors, officers, employees and agents from all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including without limitation reasonable attorneys' fees) or disbursements of any kind and nature whatsoever arising out of property damage or personal injury (including without limitation death) of third parties (collectively, "Claims"), to the extent that such Claims arise from any: (a) breach by DIXIE of any of its obligations under this Agreement including without limitation any of its warranties and representations hereunder, (b) negligent acts or omissions or willful misconduct of DIXIE or its employees or agents, and/or (c) infringement of any third party patents or other proprietary rights by DIXIE's manufacturing processes.

Indemnification by PCYC. Subject to DIXIE's compliance with Section 9.3, PCYC shall indemnify, defend and hold harmless DIXIE and its directors, officers, employees and agents from all Claims to the extent that such Claims arise from any: (a) breach by PCYC of any of its obligations under this Agreement including without limitation any of its warranties and representations hereunder, (b) personal injury caused by adverse reaction to the formula of a Drug Product employing or incorporating a Product Manufactured by DIXIE hereunder, and/or (c) the promotion, labeling, marketing, distribution, use or sale of any Drug Product employing or incorporating a Product Manufactured by DIXIE hereunder, but in each case only to the extent that such liability is not covered by DIXIE's indemnification obligations under Section 9.1.

Indemnification Procedures. A Party (the "Indemnitee") which intends to claim indemnification under this Article 9 shall promptly notify the other Party (the "Indemnitor") in writing of any action, claim or other matter in respect of which the Indemnitee or any of its Affiliates, or any of their respective directors, officers, employees or agents, intend to claim such indemnification; provided, however, the failure to provide such notice within a reasonable period of time shall not relieve the Indemnitor of any of its obligations hereunder except to the extent the Indemnitor is prejudiced by such failure. The Indemnitee shall permit, and shall cause its directors, officers, employees and agents to permit, the Indemnitor at its discretion to settle any such action, claim or other matter, and the Indemnitee agrees to the complete control of such defense or settlement by the Indemnitor. Notwithstanding the foregoing, the Indemnitor shall not enter into any settlement that would adversely affect the Indemnitee's rights hereunder, or impose any obligations on the Indemnitee in addition to those set forth herein in order for it to exercise such rights, without Indemnitee's prior written consent, which shall not be unreasonably withheld or delayed. No such action, claim or other matter shall be settled without the prior written consent of the Indemnitor, which shall not be unreasonably withheld or delayed. The Indemnitor shall not be responsible for any attorneys' fees or other costs incurred other than as provided herein. The Indemnitee and its directors, officers, employees and agents shall cooperate fully with the Indemnitor and its legal representatives in the investigation and defense of any action, claim or other matter covered by the indemnification obligations of this Article 9. The Indemnitee shall have the right, but not the obligation, to be represented in such defense by counsel of its own selection and at its own expense.

Insurance.

DIXIE shall at all times maintain general liability (including product liability) insurance coverage, at its own expense in full force and effect, [ *** ] with a responsible insurance carrier. Such insurance shall not be terminated or reduced without providing PCYC with at least [ *** ] advance written notice. PCYC may request certification of the existence and maintenance of this insurance coverage at any time.

Intellectual Property; License Grants.

License Grant by PCYC.

During the term of this Agreement, and subject to the terms and conditions of this Agreement, PCYC hereby grants to DIXIE a nonexclusive, royalty-free license, without the right to sublicense, under the PCYC Technology, solely to Manufacture Products for PCYC as provided herein.

Notwithstanding Section 11.1.1, PCYC hereby grants to DIXIE non-cancelable, royalty-free right to use IP created or discovered by DIXIE pursuant to the Prior Agreement for DIXIE's own benefit and to provide manufacturing services for third parties, except to the extent that such use would jeopardize the trade secret status of such IP or otherwise deprive PCYC of exclusivity in the use of such IP for the Products.

[ *** ]

[ *** ] with respect to each Product only if:

PCYC is ordering[ *** ] or

DIXIE has committed a Material Supply Breach with respect to such Product, and either does not submit a plan for curing such breach as described Section 3.8.1(a), or does not adhere to such plan as described in Section 3.8.1(b).

As used in subsection (a) above, "Qualification Amount" means the quantity of a Product that a second supplier would have to Manufacture per calendar year in order to obtain and maintain its qualification by the FDA, and shall be deemed to be equal to three (3) full- scale Batches of such Product during the first full calendar year that such second supplier Manufactures such Product, and two (2) full-scale Batches of such Product per calendar year thereafter.

Except in the cases described in Section 11.2.1 above, the Parties shall negotiate a commercially reasonable royalty for such license.

Upon PCYC's request, DIXIE shall promptly transfer the DIXIE Technology and any updates thereto to PCYC or its designee, at DIXIE's expense.

Ownership of IP.

PCYC shall be the sole and exclusive owner of all IP. [ *** ] Upon request by PCYC, and without additional consideration, DIXIE agrees to promptly execute documents, testify and take such other acts at PCYC's expense as PCYC may deem necessary or desirable to procure, maintain, perfect, and enforce the full benefits, enjoyment, rights, title and interest of the IP on a worldwide basis, and to render all necessary or reasonably requested assistance in making application for and obtaining original, divisional, renewal, or reissued utility and design patents, copyrights, mask works, trademarks, trade secrets, and all other technology and intellectual property rights throughout the world related to any of the IP, in PCYC's name and for its benefit.

DIXIE shall promptly provide PCYC with a copy of any formal invention disclosure document that relates to the IP.

IP shall be deemed to be the confidential information of PCYC.

[ *** ]

Confidentiality.

Confidentiality. Except as otherwise provided in this Agreement, all confidential or proprietary information of a Party disclosed or developed pursuant to this Agreement shall be controlled by the Confidential Disclosure Agreement entered into by the Parties effective July 22, 1998, a copy of which is attached as Schedule 12.1 hereto (the "CDA"). All such confidential or proprietary information shall be deemed "INFORMATION" as defined in the CDA, and treated confidentially in accordance with the terms of the CDA.

Publicity. The Parties agree that, except as may otherwise be required by applicable laws, regulations, rules, or orders, including without limitation the rules and regulations promulgated by the United States Securities and Exchange Commission, and except as may be authorized in Section 12.2, no information concerning this Agreement and the transactions contemplated herein shall be made public by either Party without the prior written consent of the other. The Parties agree that the public announcement of the execution of this Agreement shall be by one or more press releases mutually agreed to by the Parties. A failure of a Party to return a draft of a press release with its proposed amendments or modifications to such press release to the other Party within [ *** ] of such Party's receipt of such press release shall be deemed as such Party's approval of such press release as received by such 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 and any other governmental and regulatory agencies, including requests for confidential treatment of Confidential Information of either Party included in any such disclosure.

Term and Termination of Agreement.

Term. This Agreement shall commence upon the Effective Date and, unless terminated sooner in accordance with the terms and conditions provided for herein, shall remain in full force and effect with respect to each Product to be Manufactured hereunder until the date which is five (5) years from the date of Regulatory Approval by the FDA of both of the Drug Substances motexafin gadolinium and motexafin lutetium. Thereafter, this Agreement will automatically renew with respect to such Product for successive two (2) year terms, subject to Section 13.2 and Article 14, unless either Party provides one (1) year written notice to the other Party prior to the expiration of the then-current term that the Agreement shall not be renewed with respect to such Product.

Termination for Breach.

Either Party may terminate this Agreement upon thirty (30) days prior written notice in the event of a material breach of this Agreement by the other Party which is not cured by the breaching Party within such thirty (30) day period. At the option of the non-breaching Party, such termination may be with respect to the entire Agreement, or only with respect to the Product which is the subject of such material breach.

A Material Supply Breach shall be deemed to be a material breach of this Agreement; provided that a Material Supply Breach that is the direct result of a Force Majeure Event shall not be deemed a material breach of this Agreement, [ *** ]. PCYC shall have the right to terminate this Agreement for an uncured Material Supply Breach as described in Section 13.2.1, provided that PCYC first follows the procedures set forth in Section 3.6.1.

Consequences of Expiration/Termination.

Upon expiration or termination of this Agreement:

PCYC agrees to purchase, and DIXIE agrees to sell, any quantity of Products Manufactured by DIXIE and held by DIXIE against the requirements of a Purchase Order on the effective date of termination at the applicable Purchase Price, and subject to PCYC's acceptance of such Product pursuant to Section 4.2.

At the request of PCYC, DIXIE shall fulfill any outstanding Purchase Orders for Product using, at DIXIE's option, Materials on hand or on order by DIXIE for such Purchase Order, in accordance with the terms of this Agreement. In such event, such Product shall be purchased by PCYC at the applicable Purchase Price, and subject to PCYC's acceptance of such Product pursuant to Section 4.2

All licenses granted pursuant to Sections 11.1 and 11.2 shall terminate;

DIXIE shall return to PCYC all PCYC Materials currently in inventory that are not being used as set forth in subsections (a) or (b) above. PCYC shall pay the shipping costs associated therewith, except that if PCYC terminates this Agreement for DIXIE's material breach, then DIXIE shall pay such shipping costs.

Each Party shall, within sixty (60) days of such termination, return all tangible forms of the other Party's confidential information in its possession; provided, however, that each Party may retain an archival copy of such confidential information solely for determining the scope of its confidentiality obligations hereunder.

If this Agreement is terminated only with respect to one or more Product(s) and not in its entirety, then this Section 13.3 shall apply only with respect to such Product(s).

Bankruptcy Rights. In the event that this Agreement is terminated or rejected by a Party or its receiver or trustee under applicable bankruptcy laws due to such Party's bankruptcy, then all rights and licenses granted under or pursuant to this Agreement by such Party to the other Party are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the United States Bankruptcy Code (the "Bankruptcy Code") and any similar law or regulation in any other country, licenses of rights to "intellectual property" as defined under Section 101(35A) of the Bankruptcy Code. The Parties agree that all intellectual property rights licensed hereunder, including without limitation any trade secrets, patents or patent applications of a Party in any country covered by the license grants under this Agreement, are part of the "intellectual property" as defined under Section 101(35A) of the Bankruptcy Code subject to the protections afforded the non-terminating Party under Section 365(n) of the Bankruptcy Code, and any similar law or regulation in any other country.

Survival. The following provisions shall survive termination of this Agreement: Sections 3.2.5, 3.5, 4.4, 5.3, 6.3.1, 6.3.2, 6.3.5, 11.1.2, 11.3, 11.4, 13.3, 13.4 and 13.5, and Articles 7, 9, 12 and 15. Termination of this Agreement shall not relieve either Party of any liability which accrued hereunder prior to the effective date of such termination, nor preclude either Party from pursuing all rights and remedies it may have hereunder or at law or in equity with respect to any breach of this Agreement, nor prejudice either Party's right to obtain performance of any obligation.

Force Majeure Events.

If, by any reason of impediment such as Acts of God, war, rebellion, tumult, riot, civil commotion, insurrection, political disturbance, strike, lock-out, fire, flood, interruption of transportation, embargo, shortages of raw materials, or any other cause or event of a similar nature affecting either Party over which such Party has had no control (a "Force Majeure Event"), such Party cannot perform its obligations hereunder, it shall have the right to postpone the performance of such obligation for the duration of such Force Majeure Event. The Parties shall use all reasonable efforts to avoid or overcome the causes affecting performance, and the Party whose performance is affected by such Force Majeure Event shall fulfill all outstanding obligations as soon as possible. The affected Party shall give facsimile notice to the other Party of the occurrence of such impediment and its anticipated duration and shall subsequently notify the other Party as quickly as possible of the cessation of said cause or event. [ *** ]

Miscellaneous.

Notices. All notices, requests and other communications provided for herein shall be given or made in writing and shall be deemed to have been duly given if (a) delivered by hand, (b) mailed by certified mail, return receipt requested, or (c) delivered by a recognized courier service, or (d) transmitted by facsimile and confirmed by overnight delivery of a hard copy, with appropriate documentation of delivery, to the intended recipient and, in the case of mail or courier service, at the following address:

PCYC:

Pharmacyclics, Inc.
995 E. Arques Avenue
Sunnyvale, California 94086-4521
Fax: (408) 774-0340
Attention: Vice President, Chemical Operations
With a copy to: General Counsel

DIXIE:

Dixie Chemical Company, Inc.
P.O Box 130410
Houston, TX 77219-0410
Fax: (713) 863 8316
Attention: President

or, as to any Party, at such other address as shall be designated by such Party in a written notice to the other Party. All such communications shall be deemed to have been duly given when hand delivered, or mailed, in each case given or addressed as aforesaid.

Independent Contractor. Nothing herein shall create any association, partnership, joint venture or the relation of principal and agent between the Parties hereto, it being understood that DIXIE is Manufacturing Products as an independent Contractor, and neither Party shall have the authority to bind the other or the others' representatives in any way. Nothing in this Agreement shall constitute DIXIE as an employee, agent, or general representative of PCYC.

Amendments. No provision of this Agreement or of the Product Appendices attached hereto may be modified or supplemented except by an instrument in writing signed by a duly authorized of officer of each Party.

Waiver. No failure on the part of either Party to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

Headings. The article and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement.

Assignment. Neither Party may assign or transfer this Agreement or any rights or obligations hereunder without the prior written consent of the other, except that a Party may make such an assignment without the other Party's consent to a successor-in-interest to substantially all of the business assets of such Party to which this Agreement relates, whether in a merger, sale of stock, sale of assets or other transaction. Any permitted successor or assignee of rights and/or obligations hereunder shall, in a writing to the other Party, expressly assume performance of such rights and/or obligations. Any permitted assignment shall be binding on the successors of the assigning Party. Any assignment or attempted assignment by either Party in violation of the terms of this Section 15.6 shall be null and void and of no legal effect. This Agreement shall be binding upon and shall inure to the benefit of each Party's successors-in-interest and permitted assigns.

Remedies Cumulative. Unless specifically and expressly provided otherwise, the remedies provided under this Agreement are cumulative, and are not exclusive of other remedies available to a Party in law or equity.

Complete Agreement. This Agreement, together with the Product Appendices hereto, which are hereby incorporated into and shall form part of this Agreement, represents the complete agreement between the Parties hereto as to all matters covered hereby or thereby, and supersedes any prior agreements or understanding (oral or written) between the Parties regarding the subject matter hereof.

Severability. If, for any reason, any provision of this Agreement shall be deemed by a court of competent jurisdiction to be illegal, invalid or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired, and such provision shall be modified to the minimum extent necessary to make such provision consistent with applicable law, and in its modified form such provision shall be enforceable and enforced.

Governing Law and Language. This Agreement shall be governed exclusively by laws of the State of [ *** ], U.S.A., as such laws apply to contracts made between, and performed entirely in that State, by [ *** ] residents, and DIXIE hereby consents to the jurisdiction of the courts of located in the State of [ *** ]. The official text of this Agreement and any appendices, exhibits and schedules hereto, or any notice given or accounts, reports or statements required by this Agreement shall be in English. In the event of any dispute concerning the construction or meaning of this Agreement, reference shall be made only to this Agreement as written in English and not to any other translation into any other language.

Dispute Resolution. In the event of any controversy or claim arising out of, relating to or in connection with any provision of this Agreement, or the rights or obligations of the Parties hereunder, the Parties shall try to settle their differences amicably between themselves by referring the disputed matter to the President of PCYC and the President of DIXIE or their designates for discussion and resolution. Either Party may initiate such informal dispute resolution by sending written notice of the dispute to the other Party, and within [ *** ] of such notice the President of PCYC and the President of DIXIE or their designates shall meet for attempted resolution by good faith negotiations. If such personnel are unable to resolve such dispute within [ *** ] of initiating such negotiations, each Party may thereafter pursue any and all rights and remedies it may have at law or equity. If mutually agreeable, the Parties may explore alternative forms of dispute resolution, such as mediation and/or arbitration. Notwithstanding any other provision of this Section 15.11, either Party may seek a temporary restraining order or injunction against the other Party in the event of a breach of any confidentiality obligation hereunder, or to prevent a Party's wrongful use of any intellectual property hereunder.

United States Dollars. References in this Agreement to "Dollars" or "$" shall mean the legal tender of the United States of America.

Counterparts. This Agreement may be executed in counterparts with the same force and effect as if each of the signatories had executed the same instrument.

Ambiguities. Ambiguities, if any, in this Agreement shall not be construed against either Party, regardless of which Party is deemed to have drafted the provision at issue.

In Witness Whereof, the Parties hereto have caused this Agreement to be duly executed and delivered as of the Effective Date.

DIXIE CHEMICAL COMPANY PHARMACYCLICS, INC.

By: /s/ Gary L. Mossman By: /s/ Richard Miller

Name: Gary L. Mossman Name: Richard A. Miller, M.D.

Title: President Title: President and Chief Executive Officer

Schedule 1.30

Product Appendices

SCHEDULE 12.1

Confidential Disclosure Agreement of July 22, 1998

CONFIDENTIAL DISCLOSURE AGREEMENT

THIS AGREEMENT, effective July 22, 1998, by and between Pharmacyclics, Inc. ("PHARMACYCLICS"), a corporation of the State of Delaware, having an address at 995 East Arques Avenue, Sunnyvale, California 94086-4521, and Dixie Chemical Co. Inc. ("RECEIVER"), having an address at P.O. Box 130410 Houston, Texas 77219-0410, shall govern the conditions of disclosure by PHARMACYCLICS to RECEIVER of certain confidential information relating to texaphyrin synthetic manufacturing processes, plans and requirements (hereinafter referred to as "INFORMATION").

In consideration of PHARMACYCLICS' disclosure of said INFORMATION, RECEIVER hereby agrees:

RECEIVER shall not use such INFORMATION except for the purpose of preliminary discussions regarding RECEIVER's ability and willingness to provide texaphyrin and texaphyrin intermediate cGMP manufacturing services for PHARMACYCLICS, pursuant to which RECEIVER will provide PHARMACYCLICS with a price quotation for such services (any such services to be performed at the request of PHARMACYCLICS and pursuant to a separate written agreement).

RECEIVER shall not disclose or transfer INFORMATION to others (except to RECEIVER's employees who reasonably require same for the purpose hereof and who are bound to protect PHARMACYCLICS' INFORMATION by like obligations as to confidentiality) without the express written permission of PHARMACYCLICS, except that RECEIVER shall not be prevented from using or disclosing INFORMATION:

that RECEIVER can demonstrate by written records was known to RECEIVER from a source other than PHARMACYCLICS before the date of disclosure hereunder.

that is now, or becomes in the future, publicly available other than by breach of this Agreement by RECEIVER,

that is lawfully disclosed to RECEIVER on a non- confidential basis by a third party unless RECEIVER is aware that such third party is obligated to PHARMACYCLICS or any other party to retain such INFORMATION in confidence, or

that is properly required by law, regulation, rule, act, or order of any governmental authority or agency to be disclosed by RECEIVER, provided that RECEIVER shall provide PHARMACYCLICS with reasonable advance notice of any such required disclosure and cooperate with PHARMACYCLICS in minimizing the extent of any such disclosure and in seeking such protective order(s) or the like as may be available to protect the confidentiality of the INFORMATION.

The furnishing of INFORMATION under this Agreement shall not constitute any grant, option or license to RECEIVER under any patent or other rights now or hereafter held by PHARMACYCLICS with respect to said INFORMATION. This Agreement shall not be construed to create any obligation on the part of PHARMACYCLICS to retain RECEIVER's services or to compensate RECEIVER in any manner.

All or a portion of the INFORMATION can constitute "inside information" for securities purposes, for which RECEIVER acknowledges the responsibility to refrain from any unauthorized disclosure, trading or other such use. (A copy of PHARMACYCLICS' Insider Trading Policy will be provided on request; any questions should be addressed to Mr. Leiv Lea.)

RECEIVER's confidentiality and non-use obligations under this Agreement shall remain in effect for [ *** ] from the effective date hereof.

Upon completion of the preliminary discussions, RECEIVER will return to PHARMACYCLICS all copies of INFORMATION disclosed by PHARMACYCLICS, except that the RECEIVER shall have the right to retain one (1) record copy of such tangible INFORMATION in its legal files, from which to ascertain RECEIVER's continuing obligations to PHARMACYCLICS hereunder.

The terms of this Agreement can be modified only by the mutual written agreement of the parties. This Agreement will be interpreted and enforced in accordance with the laws of California, notwithstanding the choice of law principles of California or those of any other jurisdiction. This Agreement sets forth the entire agreement of the parties with respect to the subject matter hereof.

PHARMACYCLICS shall to mark tangible proprietary INFORMATION as "CONFIDENTIAL" and to confirm verbally disclosed proprietary INFORMATION as "CONFIDENTIAL" in writing, given the understanding that failure to do so does not constitute a designation of non- confidentiality when the confidential nature is apparent from context and subject matter.

PHARMACYCLICS, INC. DIXIE CHEMICAL COMPANY, INC.

By /s/ David A. Lowin
David A. Lowin
Vice President
Intellectual Property Counsel
Date 8/6/98 By /s/ R. G. Brown
Print NameRobert G. Brown
Title Vice President
Date 8-14-98

EX-10.2 3 lonza.htm EXH 2 Lonza Agreement

[***] Indicates that material has been omitted and confidential treatment has been requested therefor. All such omitted material has been filed separately with the Commission pursuant to Rule 24b-2.

CONFIDENTIAL TREATMENT REQUESTED - EDITED COPY

Exhibit 10.2

SUPPLY AGREEMENT

This Supply Agreement (the "Agreement") is entered into as of December 18, 2000 (the "Effective Date"), between Lonza AG, having an address at Muenchensteinerstrasse 38, CH-4002, Basel, Switzerland, and Lonza Inc., having an address at 17-17 Route 208, Fair Lawn, New Jersey 07410 (Lonza AG and Lonza Inc. are jointly referred to herein as "LONZA"), and Pharmacyclics, Inc., a Delaware corporation, having its principal executive offices at 995 E. Arques Avenue, Sunnyvale, California 94086-4521 ("PCYC"). LONZA and PCYC are sometimes referred to herein individually as a "Party" and collectively as the "Parties."

Recitals

Whereas, LONZA has expertise in conducting the cGMP manufacturing of bulk pharmaceuticals and intermediates therefor;

Whereas, LONZA and PCYC are parties to that certain Feasibility Evaluation Agreement effective April 15, 1999, as amended March 29, 2000, regarding LONZA's conduct of certain process scale-up and cGMP fine chemicals manufacturing services for PCYC;

Whereas, PCYC now desires to have LONZA manufacture, label, package, test and ship bulk forms of its proprietary pharmaceutical compounds and intermediates therefor, and LONZA desires to undertake such activities, on the terms hereinafter set forth;

Now, Therefore, in consideration of the foregoing premises and the mutual promises hereinafter set forth, the Parties hereby agree as follows:

Definitions.

As used herein, the following capitalized terms shall have the following meanings:

"Acceptable Product" means a Batch of Product Manufactured by LONZA and delivered to PCYC hereunder that meets the Release Criteria for such Product, as determined pursuant to Section 4.2.

"Affiliate" means, as to a Party hereto, any person, corporation, company, partnership, joint venture, firm and/or other entity which controls, is controlled by or is under common control with such Party. For these purposes, "control" means direct or indirect ownership or control of at least fifty percent (50%) of the outstanding voting securities of a corporation or a comparable equitable interest in any other type of entity.

"Batch" means a specific quantity of a Product that (a) is intended to have uniform character and quality within specified limits, and (b) is produced according to a single Manufacturing order during the same cycle of Manufacture.

"Capacity" means, with respect to each Product to be Manufactured by LONZA hereunder, LONZA's Manufacturing capacity for such Product, as set forth in the applicable Product Appendix.

"Confidential Information" shall have the meaning ascribed in Section 12.

"Controlled" means, with respect to any material, information or intellectual property right, possession of the ability by a Party to grant access, a license, or a sublicense to such material, Information or intellectual property right as provided for herein without violating an agreement with a third party as of the time such Party would be first required hereunder to grant the other Party such access, license or sublicense.

"Current Good Manufacturing Practices" or "cGMP" means: (a) the good manufacturing practices required by the FDA and set forth in the FD&C Act or FDA regulations (including without limitation 21 CFR 210 and 211), policies, or guidelines, in effect at any time during the term of this Agreement, for the manufacture and testing of pharmaceutical materials as applied to bulk pharmaceuticals or their intermediates, as applicable; and (b) the corresponding requirements of each applicable Regulatory Authority, in each case as may be further specified in the applicable Product Appendix.

"Development Technology" means all IP and all "Improvements" (as defined in Section 1.4 of the Prior Agreement).

"Drug Master File" or "DMF" means, with respect to each Product Manufactured by LONZA hereunder, a drug master file covering LONZA's Manufacture of such Product in accordance with 21 CFR 314.420, as may be amended from time to time, and any foreign equivalents.

"Drug Product" means a filled and finished pharmaceutical product for clinical use, or for commercial use and/or sale, that employs or incorporates one or more Products.

"Drug Substance" means a bulk form of the pharmaceutically active compound motexafin lutetium or motexafin gadolinium, as applicable.

"Facility" means LONZA's Manufacturing facility located in Visp, Switzerland, or such other Manufacturing facility as may be set forth in the applicable Product Appendix.

"FDA" means the United States Food and Drug Administration or any successor entity thereto.

"FD&C Act" means the United States Federal Food, Drug and Cosmetic Act, as may be amended from time to time.

"Field" means [ *** ]

"Force Majeure Event" shall have the meaning ascribed in Article 14.

"Identification Testing Standards" means the identification standards for each PCYC Material to be supplied hereunder as set forth in the applicable Product Appendix.

"IND" means an Investigational New Drug Application filed with the FDA, or a corresponding application filed with any other Regulatory Authority.

"Intermediate" means a key intermediate compound required for the synthesis of a Drug Substance.

"IP" means any and all inventions, improvements, information and know-how, including without limitation those related to processes, compositions of matter and methods of use, made by or on behalf of either Party individually or jointly, that arise out of the performance of this Agreement, whether protectable by patent or as a trade secret, and all intellectual property rights therein and thereto. "IP" specifically excludes all LONZA Technology.

"LONZA Technology" means (a) all inventions that are necessary or useful for the Manufacture, use or sale of a Product, and all patents (including without limitation reissues, re-examinations and inventor's certificates) covering such inventions; and (b) all information, trade secrets and know-how that are necessary or useful for the Manufacture, use or sale of a Product, in each case that are Controlled by LONZA during the term of this Agreement.

"Manufacture," "Manufactured" or "Manufacturing" means the synthesis, processing, preparation, handling, packaging and labeling of Products and the storage and testing of Materials and Products.

"Master Batch Record" means, with respect to each Product to be Manufactured hereunder, the approved formal set of instructions for the Manufacture of such Product, as further described in Section 6.1.

"Materials" means, with respect to each Product to be Manufactured hereunder, the raw material, primary packaging, secondary packaging and labeling to be used in the Manufacture of such Product hereunder.

"Materials Specifications" means, with respect to each of the Materials for a particular Product, the written specifications for each of such Materials as set forth in the applicable Product Appendix.

"Material Supply Breach" means:

LONZA's falling more than [ *** ] behind its schedule for its Manufacturing campaign with respect to any Purchase Order submitted by PCYC and accepted by LONZA pursuant to Section 3.4, as such schedule is provided to PCYC pursuant to Section 3.4.3; or

LONZA's failure to supply to PCYC at least [ *** ] of the quantity of Acceptable Product set forth in any Purchase Order submitted to and accepted by LONZA pursuant to Section 3.4 by the delivery date set forth in such Purchase Order.

[ *** ]

"NDA" means a New Drug Application filed with the FDA or any other regulatory filing necessary to obtain marketing approval from a Regulatory Authority.

"Packaging Specifications" means, with respect to each Product to be Manufactured hereunder, the written specifications for the packaging of such Product as set forth in the applicable Product Appendix.

"PCYC Materials" means, with respect to each Product to be Manufactured hereunder, those Materials for such Product that PCYC is obligated to supply as set forth in the applicable Product Appendix.

"PCYC Technology" means all patents (including without limitation, reissues, re-examinations and inventor's certificates) covering the Manufacture of Products hereunder, and all information, trade secrets and know-how related thereto, that is Controlled by PCYC during the term of this Agreement.

"Prior Agreement" means that certain Feasibility Evaluation Agreement entered into between the Parties effective April 15, 1999, as amended March 29, 2000.

"Product" means a Drug Substance or Intermediate, as applicable, to be Manufactured by LONZA hereunder.

"Product Appendix" means, for each Product to be Manufactured hereunder, the Product Specifications, the price per kilogram and the validation and Manufacturing activities to be performed by LONZA for such Product, including without limitation the testing programs and development schedules, all to be agreed upon by the Parties as further described in Section 2.1. The documentation comprising the Product Appendices shall be attached and incorporated herein as Schedule 1.33 hereto, and may be amended only by the Parties' written agreement.

"Product Specifications" means, with respect to each Product to be Manufactured hereunder, the written specifications for the testing of such Product, as detailed in the applicable Product Appendix.

"Purchase Orders" means written purchase orders provided by PCYC to LONZA, which shall specify: (a) the quantity of Product to be Manufactured by LONZA, (b) the Purchase Price of such Product as set forth in the applicable Product Appendix, (c) the dates on which such Product shall be shipped, and (d) the shipping address(es) designated by PCYC.

"Purchase Price" means, with respect to each Product to be Manufactured hereunder, the price per kilogram of such Product as set forth in the applicable Product Appendix.

"QC Sample" shall have the meaning ascribed in Section 4.1.

"Regulatory Approval" means all authorizations by the appropriate Regulatory Authority necessary for use, development, Manufacture, distribution or sale of a Product or Drug Product in a particular regulatory jurisdiction.

"Regulatory Authority" means any national, supranational, regional, cantonal, state or local regulatory agency, department or other government entity with the authority to approve and regulate the use, development, Manufacture, distribution or sale of a Product or Drug Product in a regulatory jurisdiction. "Regulatory Authority" shall also include any non-governmental group licensed by an entity described in the preceding sentence to perform inspections, audits and/or reviews.

"Release Criteria" shall have the meaning ascribed in Section 4.2.1.

"Released Executed Batch Record" means the completed batch record and associated deviation reports, investigation reports and certificates of analysis created by LONZA for each Batch Manufactured hereunder, including written confirmation that such batch record has been reviewed and approved by LONZA's quality assurance unit.

"Test Methods" means, with respect to each Product Manufactured hereunder, the written procedures for evaluating compliance with the applicable Product Specifications, as set forth in the applicable Product Appendix.

Product Appendices

Product Appendices.

For each Product to be Manufactured by LONZA hereunder, the Parties shall agree in writing upon a Product Appendix. For all Products that PCYC desires LONZA to Manufacture hereunder, PCYC shall prepare and deliver to LONZA two (2) copies of the corresponding Product Appendix. LONZA shall either sign such Product Appendix and return one (1) copy to PCYC, or shall return an amended Product Appendix acceptable to LONZA, in each case within [ *** ] of receipt of such Product Appendix from PCYC. If such amended Product Appendix is not acceptable to PCYC, then PCYC shall so notify LONZA within [ *** ] of PCYC's receipt of such amended Product Appendix, and the Parties shall promptly meet in order to resolve in good faith any outstanding disagreements with respect to such amended Product Appendix.

Notwithstanding any other provision of this Section 2.1, this Agreement shall not be deemed to be amended or modified in any manner by any provision of any Product Appendix. Notwithstanding the foregoing, a particular Product Appendix may supersede a particular term of this Agreement, solely with respect to the work that is the subject of such Product Appendix, only if such Product Appendix specifically and expressly sets forth the intent that such term shall be so superseded.

Amendments to Product Appendix. Each Product Appendix may be amended from time to time, as the Parties' experience with the development, Manufacture, testing and use of the applicable Product warrants, upon mutual written agreement of PCYC and LONZA.

Manufacturing

Agreement to Purchase and Supply. During the term of this Agreement, PCYC agrees to purchase from LONZA and LONZA agrees to Manufacture, sell and deliver to PCYC, such quantities of each Product as may be set forth on Purchase Orders placed by PCYC and accepted by LONZA, pursuant to the terms and conditions of this Agreement (including without limitation the applicable Product Appendix). LONZA may also Manufacture certain Intermediates to be held in inventory for use in its Manufacture of other Products, as agreed upon in writing by the Parties.

Supply of Materials.

LONZA shall supply, at its expense, all Materials necessary to Manufacture each Product other than the PCYC Materials.

PCYC shall supply, at its expense, all PCYC Materials necessary to Manufacture each Product hereunder. PCYC shall deliver or cause to be delivered a reasonably sufficient amount of each of the applicable PCYC Materials for each Product to be Manufactured hereunder to the applicable Facility sufficiently in advance of the time that such PCYC Materials will be required for use in the Manufacture of such Product under the applicable Purchase Order. Such required advance times and amounts shall be set forth in the applicable Product Appendix, as well as any applicable storage requirements for such PCYC Materials.

Upon receipt of the PCYC Materials as set forth above, LONZA shall review the accompanying certificate(s) of analysis and test the PCYC Materials for conformance with the applicable Identification Testing Standards, in accordance with the analytical test methods set forth in the applicable Product Appendix. Both such Identification Testing Standards and related analytical test methods may be amended from time to time upon mutual written agreement of PCYC and LONZA.

Within [ *** ] of receipt of the PCYC Materials described in Section 3.2.2, or such other period as may be specified in the applicable Product Appendix, LONZA shall determine if such PCYC Materials meet the applicable Identification Testing Standards. If LONZA determines that such PCYC Materials meet the Identification Testing Standards, then such PCYC Materials shall be used by LONZA in performing its Manufacturing obligations under this Agreement. If LONZA determines that any such PCYC Materials do not meet the Identification Testing Standards, then LONZA shall make no use of such non-conforming PCYC Materials and shall promptly confer with PCYC to determine how to proceed. LONZA shall return, rework or destroy any non-conforming PCYC Materials as directed by PCYC in writing and at PCYC's expense.

From the time of delivery of the PCYC Materials to LONZA until the earlier of (a) delivery by LONZA of Product, or (b) return or destruction of the PCYC Materials by LONZA that do not meet the Identification Testing Standards, each in the manner provided in this Agreement, LONZA shall bear all risk of loss of such PCYC Materials. LONZA shall comply with all applicable laws, rules, regulations and guidelines in the use, storage, handling and transportation of the PCYC Materials. PCYC shall retain all right, title and interest in and to all PCYC Materials at all times.

If PCYC fails to deliver to LONZA the PCYC Materials necessary to fulfill a Purchase Order submitted by PCYC and accepted by LONZA in accordance with Section 3.4.2, in the quantities and time frame described in Section 3.2.2, or if LONZA determines in accordance with Section 3.2.4 that such PCYC Materials do not meet the applicable Identification Testing Standards, then:

PCYC may, at its election, cancel such Purchase Order, with the effect set forth in Section 3.5; or

PCYC may request that LONZA reschedule the manufacturing campaign for such Purchase Order, and LONZA shall use reasonable, good faith efforts to fulfill such request.

To the extent that such rescheduling directly results in the plant capacity reserved for the fulfillment of such Purchase Order being unutilized, PCYC shall reimburse LONZA for such unutilized capacity in accordance with Section 3.5.2.

If LONZA does not reject, in writing, PCYC's request to reschedule such manufacturing campaign within [ *** ] following LONZA's receipt of PCYC's written request, then LONZA shall be deemed to have accepted such request.

If LONZA rejects PCYC's request to reschedule such manufacturing campaign, then such Purchase Order shall be deemed to have been cancelled, with the effect set forth in Section 3.5.

Forecasts. PCYC shall provide to LONZA [ *** ] a written rolling forecast of the quantities of such Product it intends in good faith to purchase under this Agreement [ *** ]:

[ *** ];

[ *** ]:

[ *** ]

[ *** ]

[ *** ]

Purchase Orders.

All purchases of Products shall be made pursuant to Purchase Orders which shall be delivered to the Facility, or such other location as agreed to in writing by the Parties, at least [ *** ] in advance of the date of shipment specified in said Purchase Order, or to such other location and/or within such other time period as may be specified in the applicable Product Appendix. The Parties anticipate that the lead time for a Purchase Order for a Product shall be decreased if LONZA has sufficient quantities of the necessary Intermediates to fulfill such Purchase Order in inventory.

LONZA shall ship all Products Manufactured hereunder as set forth in Sections 3.4.1 and 4.5 by the date and in the quantities specified in the applicable Purchase Order, unless otherwise specified in the applicable Product Appendix. PCYC shall be obligated to buy and LONZA shall be obligated to Manufacture and sell only the quantities of Product that are subject to a Purchase Order accepted by LONZA. Any Purchase Order (or portion thereof) for which PCYC has not received a written rejection from LONZA within [ *** ] of LONZA's receipt of such Purchase Order shall automatically be deemed accepted by LONZA. LONZA shall be obligated to accept any Purchase Order meeting the requirements of Section 3.3.2, and shall use reasonable efforts to accept any Purchase Order in excess of such quantities.

Within [ *** ] following its acceptance of a Purchase Order, LONZA shall provide to PCYC a written schedule of its intended Manufacturing campaign for fulfilling such Purchase Order.

To the extent that the terms of a Purchase Order are inconsistent with the terms of this Agreement, this Agreement shall control.

Amendment or Cancellation of Purchase Order. PCYC may amend or cancel any Purchase Order by providing LONZA written notice of such amendment or cancellation. If such amendment would result in an increase in such Purchase Order, LONZA shall not be obligated to accept such increase, but shall consider such amendment in good faith. In the event that PCYC decreases or cancels any Purchase Order, LONZA's sole and exclusive remedy shall be as follows:

PCYC shall reimburse LONZA for any non-cancelable, out- of-pocket costs for Materials reasonably incurred by LONZA in fulfilling such amended or canceled Purchase Order up to the time of LONZA's receipt of such notice of amendment or cancellation. Such reimbursement shall only be made to the extent of costs that are not otherwise recoverable by LONZA. Title in all Materials for which PCYC so reimburses LONZA shall vest in PCYC. Such Materials shall not be used for any purpose other than the Manufacture of Products for PCYC hereunder, unless otherwise agreed in writing by PCYC. At PCYC's request, all Materials paid for by PCYC under this Section 3.5 shall be shipped to PCYC at PCYC's expense; and

PCYC shall reimburse LONZA for its fixed costs for unused plant capacity reserved for the fulfillment of such amended or cancelled Purchase Order and to the extent that LONZA cannot otherwise utilize such plant capacity, provided that LONZA has made commercially reasonable, good faith efforts to otherwise utilize such plant capacity. A schedule setting forth the maximum amount payable for such unused plant capacity for each Product shall be included in the applicable Product Appendix.

Testing of Batches by LONZA. LONZA will test each Batch of Product in accordance with the applicable Test Methods and Product Specifications, and shall supply PCYC with a certificate of analysis confirming that such Batch meets the applicable Product Specifications and Packaging Specifications at the time of batch release if practicable, but in any event no later than with shipment of the QC Sample. LONZA shall hold and store samples from each Batch in accordance with, and for the period required under, Section 6.3.1. If LONZA notices any testing or material manufacturing discrepancies during the Manufacturing of a Product, LONZA shall promptly notify PCYC. PCYC may retest a Product as more fully set forth in Section 4.2 to confirm that it meets the applicable Product Specifications and Packaging Specifications.

LONZA Covenant. LONZA shall not (a) sell, provide or transfer any Product to any third party, nor (b) use, allow any third party to use nor otherwise dispose of any Product, except in each case as specifically set forth in this Agreement or as expressly authorized by PCYC in writing. PCYC shall retain all right, title and interest in and to the Products Manufactured hereunder at all times, subject to its payment in full for the Products in accordance with Sections 5.1 and 5.2.

Material Supply Breach.

If, within [ *** ] following receipt of written notice from PCYC that a Material Supply Breach has occurred, (a) LONZA has failed to deliver to PCYC a plan detailing how LONZA will cure such Material Supply Breach to PCYC's satisfaction, or (b) PCYC has accepted such plan to cure such Material Supply Breach and LONZA fails to adhere to such plan to PCYC's reasonable satisfaction, then in addition to any other rights that PCYC may have at law or equity, [ *** ].

If LONZA reasonably anticipates that there is a substantial likelihood that a Material Supply Breach will occur, then LONZA shall promptly notify PCYC in writing thereof. Upon receipt of such notice, the Parties shall promptly confer to discuss the circumstances and magnitude of such potential Material Supply Breach, and to determine in good faith whether there are any reasonable steps that LONZA could take to avoid such Material Supply Breach. [ *** ]

If PCYC cancels any Purchase Orders as described in this Section 3.8, then upon PCYC's request LONZA shall promptly, but no later than [ *** ] after receipt of PCYC's request, either (a) ship to PCYC or its designee, [ *** ], any PCYC Materials delivered to LONZA under Section 3.2.2 for use in Manufacturing such Product which have not been consumed in the Manufacture of such Product, and/or [ *** ]

Subcontractors. LONZA may not subcontract its obligations under this Agreement to any third party or Affiliate without PCYC's prior written consent or as specifically set forth in the applicable Product Appendix. All such subcontractors shall agree in writing to be bound by the terms of this Agreement prior to conducting any work hereunder.

LONZA's Facility. All Manufacture of Product hereunder shall be conducted at the Facility. In the event that LONZA sells or otherwise transfers ownership or control of the Facility to any third party or Affiliate, such third party or Affiliate shall expressly assume LONZA's obligations hereunder in writing. Notwithstanding the foregoing, any such assumption shall not relieve LONZA of any liability for such third party's or Affiliate's failure to perform under this Agreement; provided that [ *** ]. LONZA hereby expressly waives any requirement that PCYC exhaust any right, power or remedy, or proceed directly against such third party or Affiliate, for any obligation or performance hereunder prior to proceeding directly against LONZA.

[ *** ]

Delivery and Acceptance

Quality Control Sample of Product. At least [ *** ] prior to the shipment of any Batch of Product, LONZA shall provide PCYC with (a) a quality control sample of such Batch as specified in the applicable Product Appendix (the "QC Sample") for the purpose of confirming that such Batch meets the Product Specifications and Packaging Specifications, and (b) a certificate of analysis for such Batch, including written confirmation that the associated Released Executed Batch Record has been reviewed and approved by LONZA's quality assurance department. The corresponding Released Executed Batch Record shall be available for PCYC's inspection. Upon PCYC's request, LONZA shall provide PCYC with a copy of such Released Executed Batch Record.

Acceptance and Rejection of Product.

PCYC may reject any Batch delivered hereunder that does not conform with the applicable Master Batch Record, LONZA's standard operating procedures, certificate of analysis, Product Specifications or Packaging Specifications, or documentation or process requirements (collectively, the "Release Criteria") based upon PCYC's testing of the QC Sample in accordance with the Test Methods and review of the Released Executed Batch Record. Any such notice of rejection shall be in writing and shall indicate the reasons for such rejection. Such notice is to be delivered to LONZA within [ *** ] from PCYC's receipt of the QC Sample and certificate of analysis or such other period as may be specified in the applicable Product Appendix (the "Testing Period"). If LONZA does not receive such notice of rejection by the end of the Testing Period, then PCYC shall be deemed to have accepted such Batch.

After notice of rejection is given, PCYC shall cooperate with LONZA in establishing the root cause of the rejection and shall deliver to LONZA a sample of the allegedly non-conforming QC Sample for LONZA's evaluation. LONZA will evaluate process issues and other reasons for such non- compliance. LONZA shall notify PCYC as promptly as reasonably possible whether it disputes PCYC's basis for any rejection, but in any event no later than [ *** ] after its receipt of PCYC's notice of rejection of such non-conforming sample or such other period as may be specified in the applicable Product Appendix (the "Response Period"). If PCYC does not receive such notice of dispute by the end of the Response Period, then LONZA shall be deemed to agree with PCYC's rejection of such Batch.

If LONZA disagrees with PCYC's determination that a QC Sample does not meet the Release Criteria, then such QC Sample shall be submitted to a mutually acceptable, independent third party laboratory to determine whether such QC Sample conforms to the Release Criteria. The Parties agree that such third party laboratory's determination shall be final and binding.

If the third party laboratory determines that such QC Sample meets the Release Criteria, then PCYC shall be deemed to have accepted such Batch, and shall pay for such Batch as set forth in Section 5.2.

If the third party laboratory determines that such Product does not meet the Release Criteria, then such Batch shall be deemed rightfully rejected, and PCYC shall have no further obligation under this Agreement with respect to such Batch.

The Party against whom such independent third party laboratory rules shall bear the expenses of such laboratory with respect to such testing of such Batch.

[ *** ]

Any Batch accepted by PCYC under this Agreement shall remain subject to LONZA' warranties in Sections 8.2 and 8.3.

Replacement Batches. Whether or not LONZA accepts PCYC's basis for rejection of a Batch under Section 4.2, promptly following receipt of a notice such rejection and receipt of the applicable PCYC Materials from PCYC, LONZA shall use its best efforts at PCYC's written request to replace such rejected Batch. PCYC shall purchase such replacement Batch at the applicable Purchase Price, subject to its acceptance of such Batch pursuant to Section 4.2.

Destruction of Product. Neither Party may destroy any Product rejected by PCYC under Section 4.2.1 until the independent third party laboratory determines whether such Product meets such Release Criteria and provides written notification to the Parties with respect to such determination, unless LONZA accepts PCYC's basis for such rejection. Thereafter, LONZA shall have the obligation to destroy, or have destroyed, at its cost, all such rejected Product. Upon LONZA's written request and at LONZA's cost, PCYC shall return to LONZA any rejected Product. The Parties agree that in the event of destruction of Product, the method of such destruction shall be in compliance with all national, cantonal, federal, state and local laws, rules and regulations.

Delivery of Product. All deliveries of Product and QC Samples shall be shipped FCA (INCOTERMS 2000) the Facility to a location designated by PCYC, using a carrier acceptable to PCYC. All Batches shall be so shipped within [ *** ] following acceptance of each Batch pursuant to Section 4.2 unless otherwise agreed in writing by the Parties. At PCYC's request, LONZA shall hold the Product at the Facility for shipment to locations other than the United States or, in the case of an Intermediate, in inventory for later use. PCYC shall be responsible for all freight and delivery charges, including without limitation insurance charges, and shall assume all risk of loss of the Product and QC Samples after transfer of possession to the designated carrier. All Product and QC Samples shall be delivered to PCYC free and clear of all liens, claims and encumbrances.

Purchase Price and Payment.

Purchase Price. Subject to the terms of this Section 5.1, PCYC shall pay LONZA the applicable Purchase Price for each shipment of Product delivered by LONZA and accepted by PCYC pursuant to Section 4.2. The Purchase Price shall be deemed to be full compensation for all work performed by LONZA relating to the Manufacture and supply of such Product hereunder, including without limitation all LONZA Materials used in such Manufacture, all overhead, all quality inspection and testing activities performed by LONZA and delivery of such Product as set forth in Section 4.5, unless expressly provided otherwise herein or in the applicable Product Appendix.

Payment. Each Product Manufactured and supplied hereunder shall be invoiced at the applicable Purchase Price following PCYC's acceptance thereof pursuant to Section 4.2. Payments by PCYC shall be made in U.S. dollars by check mailed to LONZA by regular first class mail within [ *** ] from the date of shipment of the applicable Batch, or within such other time period and/or manner as set forth in the applicable Product Appendix.

Records. LONZA shall keep accurate records in sufficient detail to permit the determination of all invoices and fees payable, credits due and quantities of Product Manufactured hereunder. Within [ *** ] following a request by PCYC, LONZA shall permit PCYC or its designee to examine such records during ordinary business hours for the purpose of verifying the correctness of any such invoices, fees, credits and quantities. LONZA shall retain such records for at least [ *** ] from the date of each invoice to which such records pertain or for such longer period as may be required by any Regulatory Authority.

Quality Assurance; Regulatory.

Master Batch Record. Each Master Batch Record for each Product shall be prepared and maintained in LONZA's standard format by LONZA. Each Master Batch Record must be approved by Pharmacyclics' Chemical Operations and Quality Assurance groups. Master Batch Records will be written in German but LONZA will provide a certified English translation.

Audits.

PCYC shall have the right to conduct a general audit of the Facility and of the equipment, system, processes and related documentation used in the Manufacture of Products to evaluate compliance with cGMP [ *** ], or more frequently for cause (including without limitation in the case of an emergency as described in Section 6.7) or at PCYC's request, such request not to be unreasonably denied by LONZA. Such audits shall be conducted during normal business hours, unless otherwise agreed by the Parties in writing. PCYC may make recommendations to LONZA based on such audit, and LONZA agrees to give such recommendations good faith consideration. LONZA shall be responsible for compliance with cGMP and shall promptly take such action, at its expense, as may be necessary to bring said equipment, system, processes, documentation and Facility into conformance therewith.

In the event that PCYC notifies LONZA following an audit under this Section 6.2.1 that LONZA is not in compliance with cGMP, and LONZA disagrees with such finding, then the Parties shall promptly meet to resolve in good faith the issues relating to such alleged non-compliance.

Reasonable notice will be provided by PCYC to LONZA to schedule the date of such audit. If LONZA needs to cancel such audit due to events outside of LONZA's reasonable control (e.g., FDA inspection unrelated to the Product, act of God, etc.), LONZA will immediately contact PCYC to re- schedule the audit.

PCYC's failure to exercise its right to audit the Facility will not represent a waiver of any future exercise of this right or of any other rights under this Agreement, nor does it represent acceptance of any conditions past or present that might exist or result from such conditions at the Facility.

Regulatory Matters; Records.

LONZA shall keep documentation and records in accordance with the requirements of cGMP. LONZA shall provide fully-executed copies of all documents approved by PCYC promptly following signature of such documents by each Party's authorized representative. Copies of all documentation and information relating to the Manufacture, processing, packaging and shipping of Product and/or required to support PCYC's NDAs (or INDs, if appropriate) or other regulatory submissions, including but not limited to information relating to Batch records, specifications, methods, method validations, equipment and the Facility, will be provided by LONZA to PCYC for review and inclusion as necessary in PCYC's regulatory submissions. LONZA shall maintain all records and documentation under this Section 6.3 and any inspection samples and data for at least [ *** ] past the expiration dates of each Batch or for such longer period as may be required by cGMP or other regulations promulgated by the Regulatory Authorities applicable to the relevant Product.

Prior to LONZA's destruction of any of the records or documentation described in Section 6.3.1, LONZA shall notify PCYC in writing specifically identifying the records or documentation that it wishes to destroy. PCYC shall have [ *** ] from its receipt of such notice to notify LONZA that it desires to receive such records or documentation. In such event, such records or documentation shall be delivered to PCYC or its designee at PCYC's expense. If PCYC does not notify LONZA that it desires to receive such records or documentation within such thirty-day period, then LONZA shall be free to destroy such records or documentation.

LONZA shall be solely responsible, at its expense, for obtaining and maintaining all Regulatory Approvals required for it to carry out its development, regulatory and Manufacturing obligations hereunder. LONZA agrees to cooperate fully with PCYC in PCYC's efforts to obtain and maintain any Regulatory Approval which may be required for the use of the Products, or the Manufacture and/or marketing of Drug Products, in any country. Such efforts shall include, without limitation, (a) providing information in LONZA's possession that is useful or required by PCYC to submit regulatory filings or obtain or maintain Regulatory Approvals with respect to Products and/or Drug Products, including all information necessary for PCYC to complete the CMC portions of its regulatory filings; (b) allowing the use of LONZA's name in any such filings; and (c) taking any and all other actions reasonably required to assist PCYC and/or its designee in obtaining Regulatory Approval of Drug Products.

Upon the request of any Regulatory Authority, such entity shall have access to observe and inspect the Facility and LONZA's quality and manufacturing documents and procedures used for the Manufacture of any Product, including process development and Manufacturing operations, and to audit such Facility, documents and procedures for compliance with cGMP and/or other applicable regulatory standards. LONZA shall give PCYC immediate notice of any upcoming inspections or audits by a Regulatory Authority of the Facility, documents and/or procedures relating to any Product Manufactured hereunder, and shall provide PCYC the opportunity to conduct a pre-inspection of the Facility and such documents and procedures, and to observe and participate in such inspection or audit.

LONZA also agrees to notify PCYC within [ *** ] of any written or oral inquiries, notifications, or inspection activity by any Regulatory Authority in connection with any Product. LONZA shall provide a reasonable written description to PCYC of any such inquiries, notifications or inspections promptly (but in no event later than [ *** ]) after such visit or inquiry. LONZA shall furnish to PCYC (a) within [ *** ]after receipt, any report or correspondence issued by the Regulatory Authority in connection with such visit or inquiry, including but not limited to any FDA Form 483 (List of Inspectional Observations) or warning letter, and (b) not later than [ *** ] prior to the time it provides to a Regulatory Authority, copies of any and all proposed written responses or explanations relating to items set forth above (each, a "Proposed Response"), in each case purged only of trade secrets or other confidential or proprietary information of LONZA that are unrelated to the obligations under this Agreement or are unrelated to Products. LONZA shall discuss with PCYC any comments provided by PCYC on the Proposed Response and the Parties shall mutually agree on the final written response or explanation to be provided to the Regulatory Authority but only to the extent that such reply is specific to a Product. After the filing of a response with the appropriate Regulatory Authority, LONZA will notify PCYC of any further contacts with a Regulatory Authority relating to LONZA's Manufacture of Products.

LONZA shall promptly notify PCYC of any other production issues or other information of which LONZA becomes aware that may affect the regulatory status of a Product or the ability of LONZA to supply a Product in accordance with PCYC's forecasted requirements.

LONZA agrees to promptly rectify or resolve any deficiencies noted by a Regulatory Authority in a report or correspondence issued to LONZA, and that are based on LONZA's performance under this Agreement, at LONZA's expense.

Each Party shall promptly notify the other of new regulatory requirements of which it becomes aware which are relevant to the Manufacture of a Product under this Agreement and which are required by the FDA, other applicable Regulatory Authority or other applicable laws or governmental regulations, and shall confer with each other with respect to the best means to comply with such requirements.

Drug Master File. LONZA shall file and maintain the appropriate DMF for its Manufacture of each Product hereunder, at LONZA's expense except as otherwise agreed by the Parties in writing. LONZA shall provide PCYC and/or its designee with letters of authorization to reference such DMF in its filings with the FDA and other Regulatory Authorities

Stability Testing. LONZA shall be responsible for performing stability testing of each commercial Product, in accordance with the requirements of all applicable Regulatory Authorities.

Changes in Manufacture.

LONZA shall not alter any processing steps with respect to the Manufacture of each Product, as such steps are set forth in the NDA, DMF (or IND, if appropriate), applicable Manufacturing protocols, Master Batch Records or any other document governing such steps. LONZA may, from time to time, suggest to PCYC changes LONZA may wish to make in the Manufacture of a Product, the location of Manufacture within the Facility, the equipment used to Manufacture such Intermediate or Product or the process used to Manufacture such Intermediate or Product. LONZA shall notify PCYC of any such suggested changes via LONZA's change notice procedure, but shall not implement any such changes until signature approval has been received from PCYC's authorized Quality Assurance and Chemical Operations representatives designated in the applicable Product Appendix. PCYC shall have no obligation to accept any such suggestions. Any such changes shall be made in accordance with both LONZA's and PCYC's change control policies and procedures.

In the event that [ *** ], unless otherwise agreed by the Parties in writing:

[ *** ]

[ *** ]

For clarity, neither [ *** ]

[ *** ].

Emergency Access. In case of an emergency with the potential to affect the quality of any Product, a PCYC representative shall have [ *** ] access to LONZA's project manager(s) for the applicable Product(s), who shall [ *** ] access to the Facility and all applicable personnel, records and documents for the purpose of dealing with such emergency.

Compliance with Laws. In its performance under this Agreement, LONZA shall comply with all applicable present and future orders, regulations, requirements and laws of the United States and Swiss national, state and local authorities and agencies, and all other Regulatory Authorities (including without limitation any cantonal Regulatory Authorities), including without limitation all laws and regulations applicable to the transportation, storage, use, handling and disposal of hazardous materials. LONZA represents and warrants to PCYC that it has and will maintain during the term of this Agreement all Regulatory Approvals, including without limitation health, safety and environmental permits, necessary for the conduct of the actions and procedures that it undertakes pursuant to this Agreement.

Complaints; Recalls.

Complaints and Adverse Reactions.

LONZA shall advise PCYC of any complaints, adverse reaction reports, safety issues or toxicity issues relating to any Product of which it becomes aware, regardless of the origin of such information, within the time frame required by cGMP and 21 CFR 312 and 314, and the corresponding regulations of the applicable Regulatory Authorities (collectively, the "Regulations"), but in no event later than [ *** ] from the initial complaint or report, except where such complaint or report would not be required to be reported to the applicable Regulatory Authority, in which case LONZA shall inform PCYC of such complaint or report as soon as reasonably possible.

PCYC's shall notify LONZA promptly of those complaints and adverse reactions that are relevant to the Manufacturing activities conducted by LONZA hereunder, but shall not be obligated to notify LONZA of complaints or adverse reactions due to inherent Product characteristics or arising from the activities of third parties unrelated to LONZA.

PCYC shall retain and manage complaints in accordance with the Regulations. The Parties hereby agree to cooperate with one another and with any Regulatory Authority in the evaluation and investigation of any complaint, claim or adverse reaction report related to the Manufacture of a Product with the intention of promptly complying with the Regulations.

If any such event occurs, LONZA shall retain any unused supplies of such Product and its associated Materials (including without limitation PCYC Materials), and all associated Batch and other production records in such manner as PCYC may reasonably direct. Such retention shall be at PCYC's expense, except to the extent that such event is caused by LONZA's wrongful act or omission. LONZA agrees to respond to PCYC in respect to such complaint investigations involving LONZA's Manufacturing of a Product or services rendered hereunder as soon as reasonably possible but in any case within [ *** ] from receipt by LONZA of the report of such complaint and sample (if available), or in the case of a serious adverse event, within [ *** ] from receipt of the report of such complaint and sample (if available). PCYC and/or its designee shall serve as the sole point of contact with the FDA or other applicable governmental entity concerning any complaints, adverse reaction reports, safety issues or toxicity issues with respect to the Product. LONZA shall have the opportunity to comment upon PCYC's proposed written responses to the FDA or other applicable governmental entity solely to the extent that such response relates specifically to LONZA's Manufacturing activities hereunder; provided that PCYC must receive LONZA's comments within [ *** ] of LONZA's receipt of such proposed response.

Product Defects. If either Party becomes aware at any time of any defect or the possibility of any defect associated with any Product Manufactured by LONZA hereunder, such Party will notify the other Party immediately and confirm the notification as soon as possible in writing.

Recalls.

PCYC shall notify LONZA promptly if any Drug Product employing or incorporating a Product Manufactured by LONZA hereunder is the subject of a recall, market withdrawal or correction, and PCYC and/or its designee shall have the sole responsibility for the handling and disposition of such recall, market withdrawal or correction.

If a recall is required as a result of LONZA's breach of any of its warranties set forth in Section 8.2 hereof, then LONZA shall reimburse PCYC for the Purchase Price of such Product and all other reasonable costs and expenses associated with such Drug Product recall, market withdrawal or correction, but only to the extent that the foregoing costs and expenses are attributable to LONZA's breach of its warranties hereunder. [ *** ] In all other events of a recall, market withdrawal or correction, all costs and expenses incurred in connection with such Drug Product recall, market withdrawal or correction shall be borne by PCYC.

PCYC and/or its designee shall serve as the sole point of contact with the FDA or other applicable Regulatory Authority concerning any recall, market withdrawal or correction with respect to such Drug Product.

Representations and Warranties.

Mutual Representations and Warranties. Each Party hereby represents and warrants to the other Party that: (a) the person executing this Agreement is authorized to execute this Agreement; (b) this Agreement is legal and valid and the obligations binding upon such Party are enforceable by their terms; and (c) the execution, delivery and performance of this Agreement does not conflict with any agreement, instrument or understanding, oral or written, to which such Party may be bound, nor violate any law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it.

LONZA Product Warranties. LONZA warrants that all Products Manufactured by LONZA hereunder shall, at the time of delivery to PCYC's designated carrier: (a) conform to the applicable Product Specifications and Packaging Specifications; (b) have been Manufactured, handled, stored, labeled, packaged and transported in accordance with the Master Batch Records, and with cGMP and all other applicable laws, regulations and other requirements of all applicable Regulatory Authorities; and (c) not be (i) adulterated or misbranded by LONZA within the meaning of the FD&C Act, or (ii) an article that may not be introduced into interstate commerce under the provisions of Sections 404 or 505 of the FD&C Act.

No Debarment or Convictions. LONZA represents and warrants that: (a) it has not and will not use in any capacity the services of any persons debarred under 21 U.S.C. Section 335a(a) or 335a(b) in connection with its Manufacture of any Product hereunder; (b) neither LONZA nor any LONZA official or employee has been convicted of a felony under Federal law for conduct relating to the development or approval, including the process for development or approval, of any drug, product, NDA, abbreviated NDA or IND; and (c) no LONZA official or employee has been convicted of a felony under United States law for conduct otherwise relating to the regulation of any drug substance or drug product under the FD&C Act.

Intellectual Property. LONZA represents and warrants that: (a) PCYC's practice of the Development Technology and/or the LONZA Technology as contemplated herein will not infringe upon the intellectual property rights of any third party; and (b) none of the Development Technology or the LONZA Technology has been misappropriated from any third party nor is the result of any misuse of any third party's intellectual property; and (c) there is no action, suit or proceeding pending or that has been threatened, orally or in writing, against LONZA, with respect to the infringement or misappropriation of any third party's intellectual property rights through the use of the Development Technology or the LONZA Technology.

Indemnification.

Indemnification by LONZA.

Subject to PCYC's compliance with Section 9.3, LONZA shall indemnify, defend and hold harmless PCYC and its directors, officers, employees and agents from all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including without limitation reasonable attorneys' fees) or disbursements of any kind and nature whatsoever arising out of property damage or personal injury (including without limitation death) of third parties (collectively, "Claims"), to the extent that such Claims arise from any: (a) breach by LONZA of any of its obligations under this Agreement including without limitation any of its warranties and representations hereunder (except to the extent caused by inherent characteristics of a Product or by LONZA's adherence to PCYC's written instructions), (b) gross negligence, recklessness or willful misconduct of LONZA or its employees or agents, and/or (c) infringement of any third party patents or other proprietary rights by LONZA's manufacturing processes.

[ *** ]

Indemnification by PCYC. Subject to LONZA's compliance with Section 9.3, PCYC shall indemnify, defend and hold harmless LONZA and its directors, officers, employees and agents from all Claims to the extent that such Claims arise from any: (a) breach by PCYC of any of its obligations under this Agreement including without limitation any of its warranties and representations hereunder, (b) gross negligence, recklessness or willful misconduct of PCYC or its employees or agents, (c) personal injury caused by adverse reaction to the formula of a Product Manufactured by LONZA hereunder, and/or (d) the promotion, labeling, marketing, distribution, use or sale of any Product Manufactured by LONZA hereunder, but in each case only to the extent that such liability is not covered by LONZA's indemnification obligations under Section 9.1.

Indemnification Procedures. A Party (the "Indemnitee") which intends to claim indemnification under this Article 9 shall promptly notify the other Party (the "Indemnitor") in writing of any action, claim or other matter in respect of which the Indemnitee or any of its Affiliates, or any of their respective directors, officers, employees or agents, intend to claim such indemnification; provided, however, the failure to provide such notice within a reasonable period of time shall not relieve the Indemnitor of any of its obligations hereunder except to the extent the Indemnitor is prejudiced by such failure. The Indemnitee shall permit, and shall cause its directors, officers, employees and agents to permit, the Indemnitor at its discretion to settle any such action, claim or other matter, and the Indemnitee agrees to the complete control of such defense or settlement by the Indemnitor. Notwithstanding the foregoing, the Indemnitor shall not enter into any settlement that would adversely affect the Indemnitee's rights hereunder, or impose any obligations on the Indemnitee in addition to those set forth herein in order for it to exercise such rights, without Indemnitee's prior written consent, which shall not be unreasonably withheld or delayed. No such action, claim or other matter shall be settled without the prior written consent of the Indemnitor, which shall not be unreasonably withheld or delayed. The Indemnitor shall not be responsible for any attorneys' fees or other costs incurred other than as provided herein. The Indemnitee and its directors, officers, employees and agents shall cooperate fully with the Indemnitor and its legal representatives in the investigation and defense of any action, claim or other matter covered by the indemnification obligations of this Article 9. The Indemnitee shall have the right, but not the obligation, to be represented in such defense by counsel of its own selection and at its own expense.

Insurance.

LONZA shall at all times maintain general liability (including product liability) insurance coverage at its own expense in full force and effect. LONZA shall maintain insurance coverage [ *** ] with a responsible insurance carrier. Such insurance shall not be terminated or reduced without providing PCYC with at least [ *** ] advance written notice. PCYC may request reasonable proof of the existence and maintenance of this insurance coverage at any time.

Intellectual Property; License Grants.

License Grant by PCYC. During the term of this Agreement, and subject to the terms and conditions of this Agreement, PCYC hereby grants to LONZA a nonexclusive, royalty-free license, without the right to sublicense, under the PCYC Technology, solely to Manufacture Products for PCYC as provided herein.

[ *** ]

[ *** ] with respect to each Product only if:

[ *** ]; or

LONZA has committed a Material Supply Breach with respect to such Product.

If, during the term of this Agreement, [ *** ] shall give [ *** ] written notice thereof. Upon [ *** ] receipt of such notice, the Parties shall [ *** ] If the Parties [ *** ] receipt of such notice, then [ *** ] shall have no further obligations to [ *** ] under this Section 11.2.2.

Ownership of Inventions and Improvements.

All IP shall be owned solely by PCYC. LONZA shall promptly provide PCYC with a copy of any formal invention disclosure document that relates to IP. IP shall be deemed to be the Confidential Information of PCYC.

LONZA shall take all necessary actions to perfect PCYC's title to the IP, including without limitation executing all necessary instruments of assignment. LONZA will cooperate with PCYC in the filing and prosecution of patent applications covering the IP. Such cooperation will include, but not be limited to, furnishing supporting data and affidavits for the prosecution of patent applications and completing and signing forms needed for the prosecution, assignment and maintenance of patent applications.

[ *** ]. Upon the [ *** ] automatically shall be deemed to have granted to [ *** ] this Agreement is [ *** ], or [ *** ] pursuant to Section [ *** ] in all other cases of [ *** ] the Parties shall [ *** ] as follows: For [ *** ] the Parties shall [ *** ] as to the [ *** ] If the Parties [ *** ] shall have no further obligations to [ *** ] under this Section 11.4.

[ *** ]

If, during the term of this Agreement, [ *** ] shall give [ *** ] written notice thereof. Upon [ *** ] receipt of such notice, the Parties shall [ *** ] including without limitation a [ *** ]. If the Parties [ *** ] receipt of such notice, then [ *** ] shall have no further obligations to [ *** ] under this Section 11.5.

If, during the term of this Agreement, [ *** ] shall first notify [ *** ] in writing. If, within [ *** ] receipt of [ *** ] notice, [ *** ] receives written notice from [ *** ] that [ *** ] then the Parties shall proceed under Section [ *** ] does not receive such written notice from [ *** ] shall have no further obligations to [ *** ] under this Section 11.5.

Confidentiality.

Confidentiality and Exceptions. Except as otherwise provided in this Agreement, all information disclosed by one Party (the "Disclosing Party") to the other Party (the "Receiving Party") pursuant to this Agreement shall be deemed to be the Disclosing Party's "Confidential Information." Confidential Information shall include, but not be limited to, information relating to the structure of a Product or PCYC Materials, any know-how relating to the Manufacture of any Product or Drug Product, the Manufacturing records and documentation and the Manufacturing costs, purchase prices and other financial arrangements made pursuant to this Agreement. Each Party agrees that it will take the same steps to protect the confidentiality of the other Party's Confidential Information as it takes to protect its own proprietary and confidential information, which shall in no event be less than reasonable steps. Each Party, and its employees and agents, shall protect and keep confidential and shall not use, publish or otherwise disclose to any third party, except as permitted by this Agreement, or with the other Party's written consent, the other Party's Confidential Information. For the purposes of this Agreement, Confidential Information shall not include such information that:

was already known to the Receiving Party at the time of disclosure by the other Disclosing Party, other than under an obligation of confidentiality; or

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

was lawfully disclosed to the Receiving Party, other than under an obligation of confidentiality, by a third party who had no obligation not to disclose such information to others; or

was independently developed by or for the Receiving Party without the aid, application or use of the other Party's Confidential Information by persons who did not have access to such Confidential Information.

Authorized Disclosure.

Each Party may disclose Confidential Information hereunder to the extent such disclosure is reasonably necessary for prosecuting or defending litigation, filing for Regulatory Approvals, complying with applicable government regulations or conducting preclinical or clinical trials; provided that if a Party is required by law or regulation to make any such disclosure of the other Party's Confidential Information it will, except where impracticable for necessary disclosures (for example in the event of medical emergency), give reasonable advance notice to the other Party of such disclosure requirement and will use its best efforts to assist such other Party to secure a protective order or confidential treatment of such Confidential Information required to be disclosed.

Neither Party shall disclose Confidential Information of the other Party in any patent filings without the prior written consent of the disclosing Party.

Confidentiality and Publicity. The Parties agree that, except as may otherwise be required by applicable laws, regulations, rules, or orders, including without limitation the rules and regulations promulgated by the United States Securities and Exchange Commission, and except as may be authorized in Section 12.2, no information concerning this Agreement and the transactions contemplated herein shall be made public by either Party without the prior written consent of the other. The Parties agree that the public announcement of the execution of this Agreement shall be by one or more press releases mutually agreed to by the Parties. A failure of a Party to return a draft of a press release with its proposed amendments or modifications to such press release to the other Party within [ *** ] of such Party's receipt of such press release shall be deemed as such Party's approval of such press release as received by such 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 and any other governmental and regulatory agencies, including requests for confidential treatment of Confidential Information of either Party included in any such disclosure.

Survival of Confidentiality. All obligations of confidentiality and non-use imposed upon the Parties under this Agreement shall continue for [ *** ] following the date of expiration or termination of the Agreement.

Term and Termination of Agreement.

Term.

This Agreement shall commence upon the Effective Date and, unless terminated sooner in accordance with the terms and conditions provided for herein, shall remain in full force and effect with respect to each Product to be Manufactured hereunder until the date which is five (5) years from the date of Regulatory Approval of such Product by the FDA, or, where such Product is an Intermediate, then five (5) years from the date of Regulatory Approval by the FDA of both of the Drug Substances motexafin gadolinium and motexafin lutetium. Thereafter, this Agreement will automatically renew with respect to such Product for successive two (2) year terms, subject to Section 13.2 and Article 14, unless either Party provides one (1) year written notice to the other Party prior to the expiration of the then-current term that the Agreement shall not be renewed with respect to such Product.

Termination for Breach.

Either Party may terminate this Agreement upon thirty (30) days prior written notice in the event of a material breach of this Agreement by the other Party which is not cured by the breaching Party within such thirty (30) day period. At the option of the non-breaching Party, such termination may be with respect to the entire Agreement, or only with respect to the Product which is the subject of such material breach.

A Material Supply Breach shall be deemed to be a material breach of this Agreement. PCYC shall have the right to terminate this Agreement for an uncured Material Supply Breach as described in Section 13.2.1, provided that PCYC first follows the procedures set forth in Section 3.8.1.

In the event that a Party materially breaches this Agreement [ *** ], the other Party shall have the right to terminate this Agreement pursuant to this Section 13.2 either with respect to the Product(s) that is the subject of such material breach or in its entirety, effective upon giving the breaching Party written notice thereof, and without being required to provide the breaching Party the cure period described in the first sentence of this Section 13.2.

Consequences of Termination or Expiration.

Upon any termination or expiration of this Agreement:

All licenses granted pursuant to Sections 11.1 and 11.2 shall terminate;

LONZA shall return to PCYC all PCYC Materials and Products currently in inventory that are not being used as set forth in Section 13.3.2. PCYC shall pay the shipping costs associated therewith, provided that if PCYC terminates this Agreement for LONZA's material breach, then LONZA shall pay such shipping costs.

Each Party shall, within sixty (60) days of such termination, return all tangible forms of Confidential Information provided by other Party in its possession; provided, however, that each Party may return an archival copy of such Confidential Information solely for determining the scope of its confidentiality obligations hereunder.

Upon termination of this Agreement under Section 13.2, except for termination for LONZA's material breach:

PCYC agrees to purchase, and LONZA agrees to sell, any quantity of Products Manufactured by LONZA and held by LONZA against the requirements of a Purchase Order on the effective date of termination at the applicable Purchase Price, and subject to PCYC's acceptance of such Product pursuant to Section 4.2.

At the request of PCYC, LONZA shall fulfill any outstanding Purchase Orders for Product using, at LONZA's option, Materials on hand or on order by LONZA for such Purchase Order, in accordance with the terms of this Agreement. In such event, such Product shall be purchased by PCYC at the applicable Purchase Price, subject to PCYC's acceptance of such Product pursuant to Section 4.2. Alternatively, PCYC agrees to purchase any Materials which have been ordered by LONZA pursuant to a non-cancelable order and unutilized for such Purchase Order, at cost, which Materials shall be delivered free and clear of all liens, claims and encumbrances.

If this Agreement is terminated only with respect to one or more Product(s) and not in its entirety, then this Section 13.3 shall apply only with respect to such Product(s). Termination of this Agreement with respect to a Product shall also include termination of the applicable Product Appendix.

Bankruptcy Rights. In the event that this Agreement is terminated or rejected by a Party or its receiver or trustee under applicable bankruptcy laws due to such Party's bankruptcy, then all rights and licenses granted under or pursuant to this Agreement by such Party to the other Party are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the United States Bankruptcy Code (the "Bankruptcy Code") and any similar law or regulation in any other country, licenses of rights to "intellectual property" as defined under Section 101(35A) of the Bankruptcy Code. The Parties agree that all intellectual property rights licensed hereunder, including without limitation any trade secrets, patents or patent applications of a Party in any country covered by the license grants under this Agreement, are part of the "intellectual property" as defined under Section 101(35A) of the Bankruptcy Code subject to the protections afforded the non-terminating Party under Section 365(n) of the Bankruptcy Code, and any similar law or regulation in any other country.

Survival. The following provisions shall survive termination of this Agreement: Sections 3.2.5, 3.7, 4.4, 5.3, 6.3.1, 6.3.2, 11.3, 11.4, 13.3, 13.4 and 13.5, and Articles 7, 9, 12 and 15. Termination of this Agreement shall not relieve either Party of any liability or obligation which accrued hereunder prior to the effective date of such termination, nor preclude either Party from pursuing all rights and remedies it may have hereunder or at law or in equity with respect to any breach of this Agreement, nor prejudice either Party's right to obtain performance of any obligation.

Force Majeure Events.

Miscellaneous.

Notices. All notices, requests and other communications provided for herein shall be given or made in writing and shall be deemed to have been duly given if (a) delivered by hand, (b) mailed by certified mail, return receipt requested, or (c) delivered by a recognized courier service, or (d) transmitted by facsimile and confirmed by overnight delivery of a hard copy, with appropriate documentation of delivery, to the intended recipient and, in the case of mail or courier service, at the following address:

PCYC:

Pharmacyclics, Inc.
995 E. Arques Avenue
Sunnyvale, California 94086-4521
Fax: (408) 774-0340
Attention: President
With copies to: General Counsel and Vice President, Chemical Operations

LONZA:

LONZA LTD.
Münchensteinerstrasse 38
CH-4002 Basel
Fax: +41 61 316 83 01
Attention: Assistant Vice President, Head of Fine Chemicals Pharma

Independent Contractor. Nothing herein shall create any association, partnership, joint venture or the relation of principal and agent between the Parties hereto, it being understood that LONZA is Manufacturing Products as an independent Contractor, and neither Party shall have the authority to bind the other or the others' representatives in any way. Nothing in this Agreement shall constitute LONZA as an employee, agent, or general representative of PCYC.

Amendments. No provision of this Agreement or of the Product Appendices attached hereto may be modified or supplemented except by an instrument in writing signed by a duly authorized of officer of each Party.

Waiver. No failure on the part of either Party to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

Headings. The article and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement.

Assignment. Neither Party may assign or transfer this Agreement or any rights or obligations hereunder without the prior written consent of the other, except that a Party may make such an assignment without the other Party's consent to a successor-in-interest to substantially all of the business assets of such Party to which this Agreement relates, whether in a merger, sale of stock, sale of assets or other transaction. Any permitted successor or assignee of rights and/or obligations hereunder shall, in a writing to the other Party, expressly assume performance of such rights and/or obligations. Any permitted assignment shall be binding on the successors of the assigning Party. Any assignment or attempted assignment by either Party in violation of the terms of this Section 15.6 shall be null and void and of no legal effect. This Agreement shall be binding upon and shall inure to the benefit of each Party's successors-in-interest and permitted assigns.

Complete Agreement. This Agreement, together with the Product Appendices hereto, which are hereby incorporated into and shall form part of this Agreement, represents the complete Agreement between the Parties hereto as to all matters covered hereby or thereby, and supersedes any prior agreements or understanding (oral or written) between the Parties regarding the subject matter hereof. Notwithstanding the foregoing, this Agreement is not intended to supersede or replace the Prior Agreement.

Severability. If, for any reason, any provision of this Agreement shall be deemed by a court of competent jurisdiction to be illegal, invalid or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired, and such provision shall be modified to the minimum extent necessary to make such provision consistent with applicable law, and in its modified form such provision shall be enforceable and enforced.

Governing Law and Language. This Agreement shall be governed exclusively by laws of the State of [ *** ], U.S.A., as such laws apply to contracts made between, and performed entirely in that State, by [ *** ] residents, and LONZA hereby consents to the jurisdiction of the courts of the United States and of the State of [ *** ]. The official text of this Agreement and any appendices, exhibits and schedules hereto, or any notice given or accounts, reports or statements required by this Agreement shall be in English. In the event of any dispute concerning the construction or meaning of this Agreement, reference shall be made only to this Agreement as written in English and not to any other translation into any other language.

Dispute Resolution. In the event of any controversy or claim arising out of, relating to or in connection with any provision of this Agreement, or the rights or obligations of the Parties hereunder, the Parties shall try to settle their differences amicably between themselves by referring the disputed matter to the President of PCYC and the President of LONZA or their designates for discussion and resolution. Either Party may initiate such informal dispute resolution by sending written notice of the dispute to the other Party, and within [ *** ] of such notice the President of PCYC and the President of LONZA or their designates shall meet for attempted resolution by good faith negotiations. If such personnel are unable to resolve such dispute within [ *** ] of initiating such negotiations, each Party may thereafter pursue any and all rights and remedies it may have at law or equity. If mutually agreeable, the Parties may explore alternative forms of dispute resolution, such as mediation and/or arbitration. Notwithstanding any other provision of this Section 15.10, either Party may seek a temporary restraining order or injunction against the other Party in the event of a breach of any confidentiality obligation hereunder, or to prevent a Party's wrongful use of any intellectual property hereunder.

Remedies. Except as otherwise specifically provided in this Agreement, the remedies provided under this Agreement are cumulative, and are not exclusive of other remedies available to a Party in law or equity.

Days. "Days" in this Agreement means calendar days unless expressly stated otherwise.

United States Dollars. References in this Agreement to "Dollars" or "$" shall mean the legal tender of the United States of America.

Counterparts. This Agreement may be executed in counterparts with the same force and effect as if each of the signatories had executed the same instrument.

Ambiguities. Ambiguities, if any, in this Agreement shall not be construed against either Party, regardless of which Party is deemed to have drafted the provision at issue.

In Witness Whereof, the Parties hereto have caused this Agreement to be duly executed and delivered as of the Effective Date.

LONZA AG PHARMACYCLICS, INC.

By: /s/ Marc New By: /s/ Richard Miller

Name: Marc New Richard A. Miller, M.D.

Title: Assistant VP Fine Chemicals Ph. President and Chief Executive Officer

LONZA INC.

By: /s/ M. Gemmend

Name: M. Gemmend

Title: VP Exclusive Synthesis

Schedule 1.33

Product Appendices

-----END PRIVACY-ENHANCED MESSAGE-----

Delaware	94-3148201
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification Number)

PART I. Financial Information	Page No.

Item 1. Financial Statements (unaudited):

Condensed Balance Sheets as of December 31, 2000 and June 30, 2000	3

Condensed Statements of Operations for the three and six months ended December 31, 2000 and 1999.	4

Condensed Statements of Cash Flows for the six months ended December 31, 2000 and 1999.	5

Notes to Condensed Financial Statements	6

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	8

PART II. Other Information

Item 1. legal Proceedings	20

Item 2: Changes in Securities and Use of Proceeds	20

Item 3: Defaults Upon Senior Securities	20

Item 4: Submission of Matters to a Vote of Security Holders	20

Item 5: Other Information	21

Item 6. Exhibits and Reports on Form 8-K	21

Signatures	22



	Richard A. Miller, M.D.
	President and Chief Executive Officer



	Leiv Lea
	Vice President, Finance and Administration and Chief Financial Officer

DIXIE CHEMICAL COMPANY	PHARMACYCLICS, INC.
By: /s/ Gary L. Mossman	By: /s/ Richard Miller
Name: Gary L. Mossman	Name: Richard A. Miller, M.D.
Title: President	Title: President and Chief Executive Officer

PHARMACYCLICS, INC.	DIXIE CHEMICAL COMPANY, INC.
By /s/ David A. Lowin David A. Lowin Vice President Intellectual Property Counsel Date 8/6/98	By /s/ R. G. Brown Print NameRobert G. Brown Title Vice President Date 8-14-98

LONZA AG	PHARMACYCLICS, INC.
By: /s/ Marc New	By: /s/ Richard Miller
Name: Marc New	Richard A. Miller, M.D.
Title: Assistant VP Fine Chemicals Ph.	President and Chief Executive Officer