AVIGEN INC \DE (Form: 10-K, Received: 03/16/2006 17:11:34)

Report of Independent Registered Public Accounting Firm

Balance Sheets

Statements of Operations

Statements of Stockholders’ Equity

Statements of Cash Flows

Notes to Financial Statements

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

[X]

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

For the fiscal year ended December 31, 2005
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 0-28272

AVIGEN, INC.

(Exact name of registrant as specified in its charter)

Delaware				13-3647113
(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification No.)

1301 Harbor Bay Parkway
Alameda, California 94502

(Address of principal executive offices and zip code)

(510) 748-7150

(Registrant’s telephone number,
including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. [X]

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

Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]

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

The aggregate market value of the Common Stock held by non-affiliates of the registrant as of June 30, 2005, was approximately $62,074,000 based upon the closing sale price of the registrant’s Common Stock as reported on the NASDAQ National Market on such date. Shares of common stock held by each officer and director have been excluded in that such persons may be deemed to be affiliates of the registrant. Shares held by all other stockholders have not been excluded, as no other stockholder holds a percentage of the registrant’s outstanding Common Stock that the registrant believes is necessary to exercise control over the registrant, nor has any other stockholder otherwise exhibited any ability to exercise control over the registrant.

The number of outstanding shares of the registrant’s Common Stock as of March 1, 2006, was 20,910,655 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for the 2006 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K, are incorporated by reference in Part III, Items 10-14 of this Form 10-K.

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005

TABLE OF CONTENTS


PART I
Item 1.	Business	2
Item 1A.	Risk Factors	11
Item 1B.	Unresolved Staff Comments	19
Item 2.	Properties	19
Item 3.	Legal Proceedings	19
Item 4.	Submission of Matters to a Vote of Security Holders	19

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	21
Item 6.	Selected Financial Data	22
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 8.	Financial Statements and Supplementary Data	35
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	63
Item 9A.	Controls and Procedures	63
Item 9B.	Other Information	65

PART III
Item 10.	Directors and Executive Officers of the Registrant	65
Item 11.	Executive Compensation	65
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	65
Item 13.	Certain Relationships and Related Transactions	66
Item 14.	Principal Accountant Fees and Services	66

PART IV
Item 15.	Exhibits and Financial Statement Schedules	66

SIGNATURES	.	70

CAUTIONARY INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based upon current expectations that involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. These statements include, but are not limited to:

•

the potential of our product development programs, including AV650 for neuromuscular spasm and spasticity, AV411 for neuropathic pain, and AV513 for the treatment of multiple bleeding disorders, including hemophilia;

•

our expectations with respect to the clinical development of our product candidates, our clinical trials and the regulatory approval process, including the potential acceleration of clinical development in the U.S. of our two lead product development programs that are based on compounds with prior experience in human clinical trials outside the U.S.;

•

our intention to submit Investigational New Drug filings (INDs) to the FDA regarding AV650 and AV411;

•

our expectations relating to our selection of additional disease targets for compounds we are developing;

•

our expectations with regard to our ability to expand our drug development portfolio through a combination of internal research, acquisitions, and in-licensing opportunities from third parties;

•

our expectations regarding our receipt of future revenues based on the development success by Genzyme Corporation in developing and commercializing gene therapy products based on rights included in our assignment agreement;

•

our expectations regarding expense savings and cash burn rate resulting from the reduction in our staff level, consolidation of operations, and the sublease of portions of our facilities; and

•

our expectations regarding our capital requirements, how long our current financial resources will last, and our needs for additional financing.

We have identified the forward-looking statements we make by using such terms as “may,” “might,” “can,” “will,” “should,” “could,” “would,” “expect,” “plan,” “seek,” “anticipate,” “believe,” “estimate,” “project,” “intend,” “predict,” “potential,” “if” and similar expressions which imply that the statements relate to future events or expectations. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. We discuss many of these risks and uncertainties in greater detail in “Item 1A Risk Factors,” below. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this Form 10-K.

You should read this Form 10-K and the documents that we incorporate by reference completely and with the understanding that our actual future results may be materially different from what we currently expect. We may not update these forward-looking statements, even though our situation may change in the future. We qualify all of our forward-looking statements by these cautionary statements.

PART I

Item 1.

Business

Overview

Avigen is a biopharmaceutical company with a mission to develop and commercialize small molecule therapeutics and biologics to treat serious neurological and neuromuscular disorders. Currently, our lead product candidates (AV650 and AV411) primarily address neuromuscular spasm and spasticity and neuropathic pain. Avigen has retained rights to commercialize our products in North America and therefore we expect, when appropriate, to build a sales and marketing infrastructure. We will seek to out-license rights to develop and market our products outside the United States. Over the next year, we do not expect to add products to our development portfolio; however, we will continue to opportunistically look for promising drug candidates to expand our pipeline of compounds in the future through a number of sources, including internal research, acquisitions, and in-licensing. Avigen, Inc. is a Delaware corporation that was incorporated on October 22, 1992 and is based in the San Francisco Bay Area.

In building our pipeline, we focus on selecting compounds we believe have the potential to strongly differentiate themselves from existing therapies and address needs currently unmet by, or with an improved risk-benefit profile when compared to, alternative available treatments. In particular, we believe our drug candidates have unique mechanisms of action in the indications being pursued and have the potential to minimize side-effects such as sedation, that can interfere markedly with resumption of normal activity. Moreover, our two leading programs involve compounds that have been commercialized as human drugs in markets outside the United States. We believe this significant human experience in markets outside the U.S. will help accelerate our clinical development and approval for these product candidates in North America.

We currently have in development AV650, a compound for neuromuscular spasm and spasticity, AV411, a compound for neuropathic pain, and AV513, a compound for the treatment of multiple bleeding disorders, including hemophilia. We also have other candidates in research, including AV333 for neuropathic pain. We have supported the financial needs of our research and development activities since our inception primarily through public offerings and private placements of our equity securities. We expect that we will need to obtain additional funding to support the anticipated future needs of our research and development activities, including the costs to complete clinical trials, as well as to build an appropriate level of sales and marketing infrastructure at the appropriate time if we determine to do so. At December 31, 2005 we had an accumulated deficit of $171.3 million and cash, cash equivalents, available-for-sale securities, and restricted investments of approximately $70.4 million. We believe that our capital resources at December 31, 2005, after considering our anticipated spending on our current programs, will be adequate to fund our operating needs for approximately the next three years.

Prior to 2003, Avigen focused exclusively on building a product development portfolio of DNA-based drug delivery technologies, based primarily on adeno-associated virus (AAV) vectors we developed. Our efforts included significant investment in early stage research in the field of gene therapy, which led to our filing of three separate INDs and our initiation of three corresponding phase I or phase I/II clinical trials. In 2003, we began to pursue the development of non-gene therapy products to diversify our portfolio, which is now our focus. In December 2005, we entered into an agreement with Genzyme Corporation, which is intended to provide independent funding for the ongoing development of our gene therapy technologies. Under the terms of the agreement, we assigned to Genzyme our rights to certain AAV-related intellectual property, our gene therapy clinical trial programs for Parkinson’s disease and hemophilia, AAV-related contracts, and the use of previously manufactured clinical-grade vector materials. However, if Genzyme fails to diligently pursue the commercialization or marketing of products using the assigned technologies, as specified in the agreement, certain of the rights we assigned could revert back to Avigen at a future date. Under the terms of the agreement, Avigen received a $12.0 million initial payment and could receive significant future milestone sublicensing fees, and royalty payments based on the successful development of products by Genzyme utilizing technologies previously developed by us.

Recent Business Highlights

•

Entered into an agreement with Genzyme Corporation in December 2005, conveying patent rights and other assets related to our previously developed gene therapy technologies in exchange for an initial payment of $12.0 million, potential future development-based milestones, sublicensing fees and royalty payments, and certain diligence commitments from Genzyme;

•

Completed an in-license agreement in January 2006 for North American rights to AV650 for neuromuscular spasm and spasticity with a division of Sanochemia, an Austrian-based pharmaceutical company;

•

Reduced operating expenses associated with prior gene therapy activities by reducing staff and subleasing portions of our facilities, and

•

Published data from AV513, our drug candidate for hemophilia, which was highlighted by an editorial in the January 2006 edition of “Thrombosis and Haemostasis.”

Products in Development

AV650 — Neuromuscular spasm and spasticity

Disease. Disabling muscle spasm is a sudden, violent, painful contraction of muscles which may be caused by muscle injuries in either acute or chronic settings. These muscle injuries, typically due to trauma or overuse, often result in severe pain and limitation of movement for hours to days. Spasticity is more typically associated with serious neurological disorders such as Multiple Sclerosis, stroke, spinal cord injury, and Cerebral Palsy. Spastic limbs become chronically stiff or rigid because muscles fail to relax, lacking normal regulation of contraction because of damage to the nervous system. Both spasticity and sudden, painful muscle spasms can occur as complications of the neurologic disorders mentioned above.

Unmet Medical Need . Many of the current medications have limited clinical utility because of central nervous system side effects. Acute spasms are often treated with muscle relaxants such as Skelaxin® and Flexeril®, and other therapies. Spasticity is often treated with such medications as baclofen, diazepam, tizanidine or clonazepam. Physical therapy regimens may include muscle stretching and range of motion exercises to help prevent shrinkage or shortening of muscles and to reduce the severity of symptoms. Surgery may be recommended for tendon release or to sever the nerve-muscle pathway. While muscle relaxants and antispasmodics can make it possible for patients to begin therapeutic exercise and rehabilitation, common central nervous system side effects, especially sedation and interaction with alcohol, can impair the ability of the patient to perform normal daily functions.

The ideal therapy for disabling muscular spasms and for spasticity would provide excellent safety, tolerability and efficacy, a predictable mechanism of action, and minimal or no muscle weakness, sedation or interaction with alcohol. We believe AV650 may represent such a drug.

AV650 . In January 2006, we acquired exclusive license rights to develop and commercialize proprietary formulations of the compound tolperisone (AV650) for the North American market. We licensed these rights from SDI Diagnostics International LTD, a division of Sanochemia Pharmazeutika AG. For ease of reference, we refer to SDI Diagnostics throughout this document as “Sanochemia”. These rights include Sanochemia’s relevant patent filings, as well as their clinical data relating to AV650. Sanochemia has also agreed to supply AV650 to us exclusively for the North American market. Under the terms of the agreement, we made an upfront payment of $3 million and will make additional payments to Sanochemia based on the parties’ achievement of clinical and regulatory product development milestones and sales of AV650.

AV650 is based on an orally administered centrally-acting small molecule that is currently marketed by others for the treatment of muscular spasm and spasticity in Europe and Asia. Avigen is developing AV650 for the North American market under a license and supply agreement with Sanochemia. Sanochemia has completed preclinical studies which are expected to be used by Avigen to file a U.S. IND in 2006. Avigen’s development program is designed to build on the extensive ex-U.S. safety and efficacy experience with this compound. AV650 is an important potential therapy for disabling neuromuscular spasms and spasticity. Because of AV650’s established record of successful use and safety in many international markets, Avigen is seeking to bring this product to the U.S. market to provide a fast-acting muscle relaxant without sedation or alcohol interaction.

Avigen is investigating the use of AV650 in both muscle spasms and spasticity. For treating acute spasms, we believe that as a safe, non-sedating potential drug, AV650 may not only provide pain relief, but may also prevent the changes in pain signaling pathways in the nervous system that can sometimes lead to chronic pain. For treating chronic muscle spasms and spasticity in serious, irreversible neurologic diseases, we believe that the use of AV650 on a long-term basis may offer both treatment and prevention of recurrent, painful muscle spasms, leading to improved function, sleep uninterrupted by pain, and better quality of life overall.

We are currently in the process of preparing a U.S. IND for filing and intend to initiate a clinical trial in the U.S. within the next year.

Market for Neuromuscular Spasm and Spasticity Treatment . The United States prescription market for treatments for neuromuscular spasm and spasticity has been estimated to be approximately $1.6 billion despite being dominated by generic products. Retail sales of Skelaxin, the only product in this category without generic competition, were in excess of $450 million in 2005. In Germany, a Western European country in which tolperisone is sold as a generic product, sales of tolperisone represent approximately one third of all sales of pharmaceutical treatments for spasm and spasticity despite not being actively promoted in that market.

AV411 — Neuropathic pain and other neurological disorders

Disease. Neuropathic pain results from nerve injury and can be particularly difficult to treat, and often becomes chronic. Unlike acute pain, which is usually immediate and short-lived and for which the cause can usually be identified and treated, chronic pain, is continuous and often persists beyond the normal time for healing. It can range from mild to severe and can last months or years. The cause of chronic pain is not always known. Although it can be associated with disorders such as cancer, arthritis, diabetes, or various infections, chronic pain may occur in the absence of any known underlying disease or injury.

Neuropathic pain can distort signaling in the spinal cord such that even normal sensation is perceived as painful. In addition, spontaneous pain, exaggerated responses to otherwise mildly painful sensations, and widespread hypersensitivity extending beyond the area of original injury can become disabling. Chronic neuropathic pain affects up to one-third of individuals with diabetes, and is common after nerve damage caused by various cancer treatments, surgical procedures, trauma, accidental or therapeutic amputation, and as a complication of viruses which target the nervous system such as herpes zoster (the cause of shingles) or HIV. Several hereditary conditions also are associated with neuropathic pain. While estimates of prevalence vary, more than 2 million North Americans are believed to be afflicted with neuropathic pain, and often are inadequately treated with available therapies.

Unmet Medical Need . Despite a common understanding among researchers in the field of the pathophysiology and molecular biology of the condition, patients with neuropathic pain are under-served. Current medications, including gabapentin, lidocaine, tramadol, antiepileptics, and tricyclic antidepressants, are largely ineffective at treating a large portion of patients with neuropathic pain. With few exceptions, such medications were not initially developed for pain, but rather other diseases such as depression and epilepsy. For many patients the drugs’ profiles limit their utility, because of poor efficacy, significant central nervous system side effects, such as sedation, a short duration of action and/or addictive properties. Other patients with severe neuropathic pain may rely on oral or injected opioids such as morphine for pain relief. Unfortunately, these opioid therapies typically require substantial dose increases over time, and patients often must endure side effects including sedation, cognitive impairment, severe constipation, itching and edema. Addiction and the stigma of using narcotics are also major concerns for both patients and treating physicians.

Avigen is developing a drug to treat neuropathic pain that we believe has a good safety profile with limited central nervous system side effects, offers good efficacy by focusing on a new mechanism of action based on leading neuropathic pain research, provides long lasting relief (especially through the night), and is non-addictive.

AV411 . Our product in development is based on an approved drug that is currently marketed by others outside the U.S. for a non-pain-related illness. AV411 is an orally administered small molecule with good human pharmacokinetic, pharmacodynamic, and safety profiles at the doses used for non-pain related illnesses. Traditionally, the development of treatments for neuropathic pain has focused on drugs that interact directly with neural cells. Based on our collaborative research with Linda Watkins, Ph.D., from the Center for Neuroscience at

the University of Colorado at Boulder, we believe that certain specialized cells in the nervous system known as “glial cells” or “glia”, rather than other nervous system cells known as “neurons” or “nerve cells”, are important mediators of neurological pain states. Neurons have long been considered the sole cell types responsible for the development and maintenance of neuropathic pain. Glia traditionally have been disregarded as being little more than supporting cells for neurons. However, recent research has demonstrated that glia enhance the release of neurotransmitters that relay pain information to the spinal cord, and, as is even more strikingly, release substances that increase the excitability of pain-responsive neurons in the spinal cord. These substances, called pro-inflammatory cytokines, create and maintain exaggerated or pathological pain responses. Blocking the activation of glia has been shown in preclinical models to reduce pro-inflammatory cytokines and reverse pathological pain.

We believe AV411 has glial-attenuating properties and have pursued and validated its efficacy in animal models of neuropathic pain. We have demonstrated that AV411 provides relief of allodynia, the painful sensation of a normally innocuous stimulus, in clinically-relevant standard rodent models of neuropathic pain, including chemotherapy- and trauma-induced neuropathic pain. AV411 represents an important potential advance towards what we believe may be an ideal pain therapy with its established safety profile at the doses used for non-pain related illnesses, new mechanism of action in this indication, and long-lasting, non-addictive profile. In addition, data from our preclinical studies in various models of neuropathic pain demonstrate that in certain animals, AV411 preserves normal sensation and has minimal side effects.

We are currently in the process of initiating a Phase I/II trial to assess safety, tolerability and preliminary efficacy in neuropathic pain patients in Europe and Australia, and have submitted applications to the appropriate regulatory authorities. We are also in the process of undertaking non-clinical studies that may enable us to file a U.S. IND by the end of 2006.

Market for Neuropathic Pain Treatment . According to the International Association for the Study of Pain and other sources, pain accounts for over 70 million office visits per year in the United States. An American Pain Society study in 1999 found that over 50% of individuals with chronic, non-cancer-related pain classify their pain as severe or very severe, and that fewer than half of these feel that their pain is adequately controlled by currently available medication. In 2002, sales of oral opioids, commonly prescribed for chronic pain, were estimated to exceed $2 billion. In both 2003 and 2004, sales of Gabapentin, which was developed to treat epilepsy, but is also commonly used to treat moderate neuropathic pain, were estimated to exceed $2.7 billion. We are not able, however, to ascertain what portion of these sales were for the treatment of moderate neuropathic pain.

Other indications: morphine tolerance and withdrawal . Morphine and similar synthetic drugs are collectively known as opioids. Two major side effects of opioid use are tolerance and withdrawal. These undesirable side effects of opioids result in the reluctance of physicians to prescribe them, and the reluctance of patients to use them. Tolerance refers to the need of a patient to require ever-increasing doses to achieve relief from pain. Withdrawal refers to the serious effects of ending opioid therapy due to their addictive properties. However, the appropriate use of opioids can be beneficial, since relief from pain contributes significantly to the healing process. Accordingly, the avoidance of the tolerance and withdrawal associated with opioid therapy represents an opportunity to achieve an equally significant but unmet medical need. Avigen has discovered that AV411 may counteract opioid tolerance and withdrawal symptoms by blocking the activation of certain kinds of glial cells in the spinal cord. Together with our collaborators, Drs. Linda Watkins and Mark Hutchinson at the University of Colorado, Avigen has initiated preclinical studies to demonstrate this hypothesis. Initial results have been positive. With continued success these studies may provide guidance for the design of clinical trials to demonstrate these effects in humans.

AV513 — Bleeding disorders, including hemophilia

Disease. Hemophilia is an inherited blood clotting disorder characterized by the reduction or absence of a clotting factor. There are two major forms of hemophilia: hemophilia A, in which patients are deficient in the factor VIII protein and hemophilia B, in which patients are deficient in the factor IX protein. Due to the inability to produce sustained levels of factor VIII or factor IX in the body, patients with hemophilia can experience frequent internal bleeding during the course of normal daily activities. Currently, patients in developed countries with a severe form of the disease inject themselves with factor VIII or factor IX several times a week in order to prevent these bleeding episodes.

Unmet Medical Need . Over the last 25 years, researchers have focused on methods of raising the levels of circulating factor VIII and IX proteins in the body in order to stimulate a normal blood clotting response in patients with hemophilia. As a result, the primary treatment for patients with bleeding disorders includes replacement injections of factor proteins. This approach can be effective, but has significant limitations, primarily related to the inconvenience of intravenous injections. There are no current therapies using orally delivered medications.

AV513 . We believe AV513 represents a unique asset for Avigen. While outside our strategic focus on neurological and neuromuscular disorders, AV513 leverages our extensive experience with hemophilia. Through our research in large and small animal models of hemophilia with clinically relevant endpoints, we have identified that low doses of certain charged polysaccharides, known to be relatively safe in animals, can stimulate coagulation, offsetting the type of poorly controlled bleeding characteristic of hemophilia. AV513 is one variation of this kind of compound. Based on our research, we believe that AV513 has the potential to become the first non-gene therapy and non-Factor approach to treating hemophilia A and B, and other bleeding disorders such as Factor VII deficiency and severe von Willebrand’s disease. Importantly, if AV513 does become an approved therapy, it would become the first therapy for hemophilia to be delivered orally based on approved treatments today. Our strategy is to establish safety and proof-of-concept with the compound through early-stage human clinical trials and to pursue a possible future spin out, sale or out-license.

Data from our research on AV513 were published in the January 2006 edition of “Thrombosis and Haemostasis” and highlighted by an editorial in the same journal. Portions of this publication are available on our website. No part of our website, however, is incorporated into this Annual Report on Form 10-K, including the portions of that publication on our website.

Market for Hemophilia Treatment . According to data published by the National Hemophilia Foundation, hemophilia B affects approximately one in every 30,000 males and hemophilia A affects approximately one in every 10,000 males worldwide. Based on these estimates, hemophilia A and B combine to afflict an estimated 50,000 to 65,000 individuals in developed countries, with approximately 40% to 50% of those affected with a severe form of the disease. According to these data, the average annual amount spent by patients for currently-available factor protein exceeds $100,000 per year. In addition, because protein therapy is often ineffective in preventing muscle, bone, or joint damage requiring surgery, patients may also require an additional $100,000 to $150,000 in indirect medical care whenever surgery is needed. We believe that the current market for providing recombinant protein factor VIII and IX to patients in developed countries, who have a severe form of the disease, exceeds $2.4 billion per year.

Gene Therapy Product Development Interests

In connection with our agreement with Genzyme Corporation, we do not have any advisory or operational obligations to support the on-going development of gene therapy products. However, under the terms of the agreement, we retain an opportunity to receive significant additional revenues in connection with the potential successful development by Genzyme of gene therapy products based on technologies we originally developed. The additional revenues could be from milestone payments, sublicense fees and/or royalties. Because the transaction is based on our gene therapy intellectual property, the estimate that the potential for us to realize additional revenues under this agreement could extend through approximately 2020, depending on when the last of the issued patents subject to the agreement is scheduled to expire. If Genzyme fails to diligently pursue the commercialization or marketing of products using the assigned technologies, as specified in the agreement, certain rights assigned to Genzyme under the agreement could revert back to Avigen at a future date.

Research Programs

Neuropathic Pain

We maintain a small ongoing preclinical research effort to identify additional opportunities to expand our product development pipeline. Our efforts primarily focus on additional treatments for neuropathic pain and include, through external contract laboratories, a medicinal chemistry optimization effort focused on identification of new chemical entities (NCEs) with glia-attenuating characteristics similar to those of AV411, but with improved physicochemical properties. Additional therapeutic indications for AV411 are also being pharmacologically tested.

We also continue to investigate, through our collaborators, potential products based on the potent anti-inflammatory cytokine interleukin-10 (IL-10) and related molecules. This research, which is also based on glial cell activation, includes our development candidate AV333. AV333 is a plasmid, or DNA sequence, that drives the production of IL-10 within the spinal cord to reverse, we believe, the neuropathic pain resulting from glial activation. AV333 is delivered by an intrathecal injection similar to the routine procedure used to deliver spinal analgesics. Standardized animal models have shown that AV333 is well-tolerated and completely reverses neuropathic pain symptoms for up to ninety days from a single course of treatment. This information was presented at the 8 ^th International Conference on Mechanisms and Treatment of Neuropathic Pain in 2005.

Research and Development Expenses

We incurred research and development expenses of approximately $13.8 million, $19.3 million, and $21.8 million in 2005, 2004, and 2003, respectively. During these years, we did not receive any reimbursements from governmental or other research grants or any other third parties to offset our expenses. As of December 31, 2005, we were party to one collaborative agreement with the University of Colorado, under which we have the potential to receive partial reimbursement for certain research and development expenses under a grant by the National Institutes of Health. We do not expect future reimbursements under this agreement to have a material impact on our financial statements.

Strategic Relationships and Manufacturing

Research and commercial collaborations will continue to play a significant role in our business strategy. We have built strategic relationships with recognized scientists, clinicians and opinion leaders in the fields that our product candidates address. We feel these relationships, including our relationship with the University of Colorado, enhance the potential of our portfolio of products by providing us with additional resources with the capacity to accelerate a broader array of research testing and by advising us on the latest scientific advances relevant to our needs. We have also established a commercial collaboration with Sanochemia. Under the terms of this collaboration, we have acquired North American development and marketing rights to AV650 and have access to data from Sanochemia’s non-U.S. research studies that we believe may help accelerate the pace of our clinical development in the U.S.

We also expect to rely on strategic relationships with third-party manufacturers of the compounds used for our product candidates. We believe that third-party suppliers, such as Sanochemia for AV650, can manufacture high quality drug substance and final drug products in a cost effective manner for use both in our clinical trials and for commercial sale. We believe these third-party suppliers are compliant with the FDA’s current good manufacturing practice regulations.

In our AAV transaction with Genzyme Corporation, we sought a company that we believed had the resources and commitment to continue the development of products using AAV-based technologies. Through this transaction, we retained the potential for significant future financial participation in the success of AAV products through contingent development milestones, sublicensing fees and royalty payments. In addition, we delivered on management’s commitment to enable work based on AAV technologies we developed to continue for the benefit of patients suffering from Parkinson’s disease and hemophilia.

As we continue to identify new development opportunities for compounds in our product candidate portfolio or acquire access to new product candidates, we will continue to evaluate opportunities to increase the potential success of these investments through strategic relationships. These may take the form of additional research and development or manufacturing and supply agreements. We may also seek to license out development and marketing rights to our existing products outside the U.S. If we acquire access to new products or identify new development opportunities for our compounds, including through strategic relationships, we may fund such transactions with the issuance of additional equity securities, which may further dilute our existing stockholders.

Competition

Pharmaceutical drug development is characterized by rapidly evolving technology and intense competition. Many companies of all sizes, including major pharmaceutical companies and specialized biotechnology companies, engage in activities similar to our activities. Many of the companies we compete with have substantially greater

financial and other resources and larger research and development and clinical and regulatory affairs staffs. We expect our products, if approved, will face competition from both branded pharmaceuticals and generic compounds. In addition, colleges, universities, governmental agencies and other public and private research organizations continue to conduct research and are becoming more active in seeking patent protection and licensing arrangements to collect royalties for use of technologies that they have developed. We also must compete with these institutions in recruiting highly qualified scientific personnel. Some of our competitors’ products and technologies are in direct competition with ours. In addition, we are aware that physicians may utilize other products in an off-label manner for the treatment of disorders we attempt to target.

Neuromuscular Spasm and Spasticity. Therapies for acute and chronic spasm and spasticity include Skelaxin (metaxalone, King Pharmaceuticals), Flexeril (cyclobenzaprine, McNeil Consumer & Specialty Pharmaceuticals), Zanaflex (tizanidine, Acorda Therapeutics), Lioresal (baclofen, Novartis), and Soma (carisoprolol, Wallace Laboratories). We anticipate that our products will compete with all of these products. Controlled release formulations or other delivery or dosage forms of these products may be in development and generic versions of many of them are also available. Although we are not aware of any other products in development for neuromuscular spasm or spasticity, products including Sativex (GW Pharmaceuticals) are in development or marketed for indications including the pain associated with spasm and/or spasticity.

Neuropathic Pain. Therapies for chronic pain range from over-the-counter compounds, such as aspirin, to opioids, such as morphine. We anticipate that our products will compete with other drugs that are currently prescribed by physicians, including anti-epileptics such as Neurontin (gabapentin, Pfizer), Lyrica (pregabalin, Pfizer), and antidepressants, including Cymbalta, (duloxetine, Eli Lilly & Co). We are aware of additional compounds for chronic neuropathic pain that are currently in development at numerous companies including Bayer, GlaxoSmithKline, Merck & Co., Inc., Novartis AG, Pfizer, Cognetix, Inc., GW Pharmaceuticals plc, Indevus Pharmaceuticals, Inc., Nastech Pharmaceutical Company Inc., Renovis, Inc., Avanir Pharmaceuticals, and Pain Therapeutics, Inc.

Companies that complete clinical trials, obtain required regulatory approvals, and commence commercial sales of their products before their competitors may achieve a significant competitive advantage. In order to compete successfully, we must develop proprietary or otherwise protected positions in products for therapeutic markets that have not been satisfactorily addressed by current alternatives. These products, even if successfully tested and developed, may not be adopted by physicians over other products and may not offer economically feasible alternatives to other therapies.

Marketing and Sales

We have retained rights to commercialize our current portfolio of products in North America and expect to build marketing and sales capabilities using our own resources. However, we currently do not have a marketing or sales staff. If we are successful in achieving FDA approval of any of our product candidates, we will need to build a commercial capability. There is no assurance that we will be able to build our own commercial organization with our current resources.

Patents and Intellectual Property

Patents and other proprietary rights are important to our business. We seek to procure patent protection for our anticipated products, or obtain protection from the relevant patents owned by our licensors. Our intellectual property strategy is to file patent applications that protect our technology, inventions and improvements to our inventions that we consider commercially important to the development of our business. We also rely on a combination of trade secrets, know-how and licensing opportunities to develop and protect intellectual property rights pertaining to our products and technology.

As of March 1, 2006, we owned, co-owned, or held licenses to 1 issued U.S. patent and 12 pending U.S. patent applications, as well as corresponding-pending non-U.S. patent applications. These patent applications are primarily related to our development portfolio of small molecule-based products and are currently directed to methods of treating various indications using AV411 and formulations of AV650. If issued, all patents within our current portfolio are scheduled to expire in the U.S. between 2019 and 2026.

Some of the compounds used in our development products have been previously patented by others. When we identify previously patented technologies that we believe are critical to the development and commercialization of our products, we seek to in-license such rights under the most favorable terms. Such licenses normally last for the life of the underlying patent. Licenses typically require us to pay license fees and royalties based on the net sales of products that fall within the scope of the license. Some licenses require us to exercise our best efforts or another level of efforts to achieve research, clinical, and commercial milestones and may require us to make additional payments upon the completion of such milestones. Our failure to be diligent or achieve any required development milestones or to negotiate appropriate extensions of any of our license agreements or to make all required milestone and royalty payments when due, and the subsequent decision of any such institution to terminate such license, could have a material adverse effect on our financial position.

The exclusive licenses that we feel are important to our future commercial interests in our development products are:

Sanochemia . In January 2006, we entered into an agreement with Sanochemia for rights to develop and market AV650 in North America. We paid an initial license fee of $3.0 million and will make additional milestone and royalty payments based on the success of the parties’ development and commercialization of AV650. Additionally, we must pay to purchase the supply of AV650 formulations from Sanochemia. The license is exclusive for the duration of the patents and pending patent applications that may issue. Under the agreement, we must be diligent in our development of one and under certain circumstances up to two formulations of AV650 and Sanochemia must supply us exclusively with AV650 formulations for North America.

University of Colorado. In November, 2003, we entered into an agreement with the University of Colorado for rights to certain intellectual property related to the treatment of chronic pain. The license is exclusive for the duration of any issued patents embodying the licensed intellectual property, or until approximately 2023.

We cannot assure you that the claims in our pending patent applications will be issued as patents, that any issued patents will provide us with significant competitive advantages, or that the validity or enforceability of any of our patents will not be challenged or, if instituted, that these challenges will not be successful. The cost of litigation to uphold the validity and prevent infringement of our patents could be substantial. Furthermore, we cannot assure you that others will not independently develop similar technologies or duplicate our technologies or design around the patented aspects of our technologies. We can provide no assurance that our proposed technologies will not infringe patents or rights owned by others, the licenses to which might not be available to us.

In addition, if we pursue patent applications in foreign countries, their approval processes for patent applications may differ significantly from the processes in the U.S. The patent authorities in each country administer that country’s laws and regulations relating to patents independently of the laws and regulations of any other country and the patents must be sought and obtained separately. Therefore, issuance in one country does not necessarily indicate that it can be obtained in other countries. Our policy is to make a case-by-case determination as to whether to file a foreign application to correspond to each of our U.S. applications. Sometimes we decide not to do so. We make the decision with respect to each patent application on a country-by-country basis.

Gene Therapy-Related Patents

In December 2005, we trasferred the intellectual property rights (including in-licenses) for our AAV gene therapy-based products to Genzyme Corporation. Under the terms of the agreement, we assigned to Genzyme our rights to certain AAV-related intellectual property, our gene therapy clinical trial programs for Parkinson’s disease and hemophilia, certain AAV-related contracts, and the use of previously manufactured clinical-grade vector materials. These intellectual property rights included 62 U.S. and international patents owned by us. However, if Genzyme fails to diligently pursue the commercialization and marketing of products using the assigned technology, as specified in the agreement, certain of the rights we assigned could revert back to Avigen at a future date. Under the terms of the agreement, Avigen received a $12.0 million initial payment and could receive significant future milestone, sublicensing fees and royalty payments based on the successful development of products by Genzyme utilizing technologies previously developed by us.

Government Regulation

The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries regulate extensively the clinical development, manufacture, distribution and sale of pharmaceutical products. These agencies and other federal, state and local entities regulate research and development activities and the testing, manufacture, quality control, safety, effectiveness, labeling, storage, distribution, record keeping, approval and promotion of our development products. All of our products will require regulatory approval before commercialization. In particular, therapeutic products for human use are subject to rigorous preclinical and clinical testing and other requirements of the Federal Food, Drug, and Cosmetic Act, implemented by the FDA, as well as similar statutory and regulatory requirements of foreign countries and supervisory review boards affiliated with institutions that may perform our clinical trials.

Obtaining marketing approvals and subsequently complying with ongoing statutory and regulatory requirements is costly and time consuming. Any failure by us or our collaborators, third-party manufacturers, licensors or licensees to obtain, or any delay in obtaining regulatory approval or in complying with other requirements, could adversely affect the commercialization of products then being developed by us and our ability to receive product or royalty revenues.

This process of clinically testing drugs and seeking approval to market them can take a number of years and typically requires substantial financial resources. The results of preclinical studies and initial clinical trials are not necessarily predictive of the results from large-scale clinical trials. All clinical trials may be subject to additional costs, delays or modifications due to a number of factors, including the difficulty in obtaining enough subjects, clinical investigators, drug supply, or financial support, or because of unforeseen adverse effects. In addition, as a condition of approval, the FDA also can require further testing of the product and monitoring of the effect of commercialized products, and the agency has the power to prevent or limit further marketing of a product based on the results of these post-marketing programs. Upon approval, a drug product may be marketed only in those dosage forms and for those indications for which it is approved.

In addition to obtaining FDA approval for each indication to be treated with each product, each domestic drug product manufacturing establishment must register with the FDA, list its drug products with the FDA, comply with current Good Manufacturing Practices and pass inspections by the FDA. Manufacturers of biological products also must comply with FDA general biological product standards. Moreover, the submission of applications for marketing approval from the FDA may require additional time to complete manufacturing stability studies. Foreign establishments manufacturing drug products for distribution in the United States also must list their products with the FDA and comply with current Good Manufacturing Practices. They also are subject to periodic inspection by the FDA or by local authorities under agreement with the FDA. If we rely on strategic relationships with third-party manufacturers, with either U.S. or foreign manufacturing establishments, as with Sanochemia, we may not be able to ensure effective compliance with these FDA requirements, which could impact the timing and potential success of our development and commercialization of our potential products. Because our current facilities are located in California, if we decide to manufacture any of our products in our facilities that are administered to humans, including products used for testing in clinical trials, we would also be required to obtain a drug manufacturing license from the State of California.

Other Regulations

In addition to regulations enforced by the FDA, in the U.S. we are also subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act, and other federal, state and local regulations. Our research and development activities involve the controlled use of hazardous materials, chemicals, biological materials, and various radioactive compounds. Although we believe that our safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, we could be held liable for any damages that result from accidental contamination or injury and this liability could exceed our resources. In addition, our handling, care, and use of laboratory rodents are subject to the Guide for the Care and Use of laboratory Animals published by the National Institutes of Health.

Our clinical trials may also involve subjects who reside outside of the U.S. which can involve subsequent monitoring of the subjects’ responses at clinical sites outside the U.S. where other regulations apply.

Employees

As of March 1, 2006, Avigen had 32 full-time employees, including 7 with Ph.D. degrees and 2 with M.D. degrees. Approximately 18 employees are involved in our research and development activities, including research, preclinical development, clinical and regulatory affairs, and quality assurance and quality control, and 14 employees are involved in general administration, finance, legal, and business development activities. We also rely on a number of temporary staff positions and third-party consultants to supplement our workforce. None of our employees are represented by a collective bargaining agreement nor have we ever experienced a work stoppage. We believe that our relationship with our employees is good.

Revenues

Our revenues in 2005, 2004 and 2003 were $12,026,000, $2,195,000 and $463,000, respectively. Of these amounts, $12 million in 2005 was from the initial payment received from Genzyme Corporation in December 2005 in connection with our transfer to them of certain AAV gene therapy assets. Also, $2,125,000 and $375,000 in 2004 and 2003, respectively, were from the $2.5 million payment received from Bayer Corporation in 2003 in connection with our development collaboration on a gene therapy-based treatment for hemophilia. We terminated this agreement in December 2004. Both of these corporations are located in the United States. All of our revenues were from companies located in the United States, and all of our long-lived assets are located in the United States.

Available Information and Website Address

Our website address is www.avigen.com; however, information found on our website is not incorporated by reference into this Annual Report on Form 10-K. We file electronically with the Securities and Exchange Commission our annual reports on Form 10-K, quarterly interim reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. We make available on or through our website, free of charge, copies of these reports as soon as reasonably practicable after we electronically file or furnish it to the SEC. You can also request copies of such documents by contacting our Investor Relations Department at (510) 748-7150 or sending an email to ir@avigen.com.

Item 1A. Risk Factors

This section briefly discusses certain risks that should be considered by stockholders and prospective investors in Avigen. Many of these risks are discussed in other contexts in other sections of this report.

Risks Related to Our Business

We expect to continue to operate at a loss and we may never achieve profitability

Since our inception in 1992, we have not been profitable, and we cannot be certain that we will ever achieve or sustain profitability. To date, we have been engaged in research and development activities and have not generated any revenues from product sales. As of December 31, 2005, we had an accumulated deficit of $171.3 million. Developing new compounds will require significant additional research and development activities, including preclinical testing and clinical trials, and regulatory approval. We expect these activities, together with our general and administrative expenses, to result in operating losses for the foreseeable future. Our ability to achieve profitability will depend, in part, on our ability to successfully identify, acquire and complete development of proposed products, and to obtain required regulatory approvals and manufacture and market our approved products directly or through business partners.

If we are able to enhance our existing pipeline of product candidates through the in-license or other acquisition of additional development candidates, we may expose ourselves to new risks that were not identified prior to negotiating the in-license or other acquisition agreement that may prevent us from successfully developing or commercializing our product candidates

Even if we are able to in-license or acquire potential products, we may fail to identify risks during our due diligence efforts, or new risks may arise later in the development process of our product candidates, that we may be unable to adequately address. If we are unable to address such previously unidentified risks in a timely manner, we will have paid too much for the acquisition or in-license of the potential product, and our business and results of operations will be harmed.

Our historic research and development activities have primarily focused on our gene delivery products, which raises uncertainty about our ability to develop and commercialize more conventional small molecule product candidates effectively

We have limited experience in developing or commercializing conventional small molecule product candidates. If we are unable to effectively develop any of the products in our development portfolio or any new products we in-license or acquire, it would significantly reduce our ability to create commercial opportunities for such products.

Many potential competitors who have greater resources and experience than we do may develop products and technologies that make ours non-competitive or obsolete

There are many entities, both public and private, including well-known, large pharmaceutical companies, chemical companies, biotechnology companies and research institutions engaged in developing pharmaceuticals for neurological and other applications similar to those that may be targeted by us. Competitors may succeed in developing products that are more effective and less costly than any that we develop and also may prove to be more successful in the manufacturing and marketing of products, which would render the products that we develop non-competitive or obsolete. Furthermore, many of our competitors are more experienced than we are in drug development and commercialization, obtaining regulatory approvals, and product manufacturing and marketing. Accordingly, our competitors may succeed in obtaining regulatory approval for products more rapidly and more effectively than we do. Any product that we successfully develop and for which we gain regulatory approval must then compete for market acceptance and market share. Accordingly important competitive factors, in addition to completion of clinical testing and the receipt of regulatory approval, will include product efficacy, safety, timing and scope of regulatory approvals, availability of supply, marketing and sales capacity, reimbursement coverage, pricing and patent protection.

We are aware that other companies are conducting preclinical studies and clinical trials for products that could compete with products we intend to acquire or develop. See “Item 1. Business — Competition” for a more detailed discussion of the competition we face.

The regulatory process is expensive, time consuming and uncertain and may prevent us from obtaining required approvals for the commercialization of our product candidates

Prior to marketing in the United States, any product developed by us must undergo rigorous preclinical testing and clinical trials as well as an extensive regulatory approval process implemented by the FDA. This process is lengthy, complex and expensive, and approval is never certain. Positive results from preclinical studies and early clinical trials do not ensure that positive results will be demonstrated in clinical trials designed to permit application for regulatory approval.

Potential problems we may encounter in the implementation stages of our studies include the chance that we may not be able to conduct clinical trials at preferred sites, obtain sufficient test subjects, or begin or successfully complete clinical trials in a timely fashion, if at all. Furthermore, the FDA may temporarily suspend clinical trials at any time if it believes the subjects participating in trials are being exposed to unacceptable health risks, if it finds deficiencies in the clinical trial process or conduct of the investigation, or to better analyze data surrounding any unexpected developments.

Because of the risks and uncertainties in biopharmaceutical development, our products could take a significantly longer time to gain regulatory approval than we expect or may never gain FDA approval. If we do not receive these necessary approvals from the FDA, we will not be able to generate substantial revenues or become profitable.

We may not be successful in obtaining required foreign regulatory approvals, which would prevent us from marketing our products internationally

We cannot be certain that we will obtain any regulatory approvals in other countries. In order to market our products outside of the United States, we must comply with numerous and varying foreign regulatory requirements implemented by foreign regulatory authorities. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ from that required to obtain FDA approval. Foreign regulatory approval process includes all of the risks associated with obtaining FDA approval set forth above, and approval by the FDA does not ensure approval by the regulatory authorities of any other country.

If we fail to comply with regulatory requirements, or if we experience unanticipated problems with our approved products, our products could be subject to restrictions or withdrawal from the market

Any product for which we obtain marketing approval from the FDA, along with the manufacturing processes, post-approval clinical data collection and promotional activities for such product, will be subject to continual review and periodic inspection by the FDA and other regulatory bodies. After approval of a product, we will have significant ongoing regulatory compliance obligations. Later discovery of previously unknown problems with our products or manufacturing processes, or failure to comply with regulatory requirements, may result in penalties or other actions, including removal of a product or products from the market.

We may need to secure additional financing to acquire and complete the development and commercialization of our products

At December 31, 2005 we had cash, cash equivalents, available-for-sale securities, and restricted investments of approximately $70.4 million. We anticipate that our existing capital resources as of December 31, 2005 will be adequate to fund our needs for approximately three years. However, beyond that, or earlier if we are successful in pursuing additional indications for compounds in our portfolio or acquiring additional product candidates, we may require additional funding to complete the research and development activities currently contemplated, to acquire new products, and to commercialize our products. Our future capital requirements will depend on many factors, including:

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continued scientific progress in research and development programs;

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the scope and results of preclinical studies and clinical trials;

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the time and costs involved in obtaining regulatory approvals;

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the costs involved in filing, prosecuting and enforcing patent claims and other intellectual property rights;

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the costs involved in obtaining licenses to patented technologies from third parties that may be needed to commercialize our products;

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how successful, if at all, we are at expanding our drug development portfolio through a combination of internal research, acquisitions, and in-licensing compounds, and the nature of the consideration we pay for acquiring or in-licensing compounds;

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competing technological developments;

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the cost of manufacturing for clinical trials and commercialization;

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the cost of commercialization activities; and

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other factors which may not be within our control.

additional funds by issuing equity securities there may be further dilution to existing stockholders. We cannot assure our investors that we will be able to enter into such financing arrangements on acceptable terms or at all. Without such additional funding, we may be required to delay, reduce the scope of, or eliminate one or more of our research or development programs.

We expect to depend on third parties to manufacture compounds for our product candidates. If these manufacturers fail to meet our requirements and the requirements of regulatory authorities, our business, financial condition and results of operations could be harmed

We intend to use third parties to manufacture active pharmaceutical ingredients and supplies for our product candidates. For example, we rely entirely on Sanochemia to manufacture and supply to us AV650 for both clinical and commercial supply. We have entered into an exclusive arrangement with them for this. We have no experience in manufacturing small molecule compounds and do not have any manufacturing facilities. If we are unable to enter into supply and processing contracts with third party manufacturers or processors for our other product candidates, or even if we are able to enter into supply and processing contracts, if Sanochemia or such other manufacturers or processors are unable to or do not satisfy our requirements, or if disputes arise between us and our suppliers, we may experience a supply interruption and we may incur additional cost and delay in the clinical development or commercialization of our products. If we are required to find an additional or alternative source of supply, there may be additional cost and delay in the development or commercialization of our products. Furthermore, with AV650, while we are entitled to require Sanochemia to redundantly source certain AV650 finishing activities beginning as of the time and solely to the extent specified in the contract, we are not entitled to establish a second or independent source of AV650 supply other than under specified circumstances. In this and any future exclusive supply contracts for our full requirements, we are or will be particularly reliant on our suppliers. Additionally, the FDA inspects all commercial manufacturing facilities before approving a New Drug Application for a drug manufactured at those sites. If any of our manufacturers or processors fails to pass the FDA inspection, our clinical trials, the potential approval and eventual commercialization of our products may be delayed.

If we are able to bring our potential products to market, we will face a number of risks outside of our control as we may be dependent on others to market our products, as well as to facilitate demand for our products

Even if we are able to develop our potential products and obtain necessary regulatory approvals, we have no experience in marketing or selling any of our proposed products. We currently do not have a marketing or sales staff. If we are successful in achieving FDA approval of any product candidate, including any product that we may acquire as a result of our business development efforts, we will need to build a commercial capability. The development of a marketing and sales capability will require significant expenditures, management resources and time. 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 marketing and sales efforts may be unsuccessful. We may not be able to find a suitable sales and marketing partner for our products. If we are unable to successfully establish a sales and marketing capability in a timely manner or find suitable sales and marketing partners, our business and results of operations will be harmed. Even if we are able to develop a sales force or find a suitable marketing partner, we may not successfully penetrate the markets for any of our proposed products.

We intend to enter into distribution and marketing agreements with other companies for our products outside the U.S. and do not anticipate establishing our own foreign sales and marketing capabilities for any of our potential products in the foreseeable future. If any of our foreign marketing partners do not perform under future agreements, we would need to identify an alternative marketing and distribution partner, or market this product ourselves, and we may not be able to establish adequate marketing capabilities for this product.

Our success is dependent on acceptance of our products. We cannot assure you that our products will achieve significant market acceptance among patients, physicians or third-party payers, even if we obtain necessary regulatory and reimbursement approvals. Failure to achieve significant market acceptance will harm our business. In addition, we cannot assure you that these products will be considered cost-effective and that reimbursement to the consumer will be available or will be sufficient to allow us to sell our products on a profitable basis. In both the United States and elsewhere, sales of medical products and treatments are dependent, in part, on the availability of reimbursement to the consumer from third-party payers, such as government and private insurance plans. Third-party payers are increasingly challenging the prices charged for medical products and services. We cannot predict

whether any legislative or regulatory proposals will be adopted or the effect that such potential proposals or managed care efforts may have on our business.

We may be unable to attract and retain the qualified employees, consultants and advisors we need to be successful

We are highly dependent on key members of our senior management and scientific staff. The loss of any of these persons could substantially impair our research and development efforts and impede our ability to develop and commercialize any of our products. Recruiting and retaining qualified scientific, technical and managerial personnel will also be critical to our success. Biotechnology and pharmaceutical personnel with these skills are in high demand. As a result, competition for and retention of personnel, particularly for employees with technical expertise, is intense and the turnover rate for these people can be high.

In addition, we rely on consultants and advisors to assist us in formulating our research and development strategy. A majority of our scientific advisors are engaged by us on a consulting basis and are employed on a full-time basis by others. We have limited control over the activities of these scientific collaborators which often limit their availability to us. Failure of any of these persons to devote sufficient time and resources to our programs could delay our progress and harm our business. In addition, some of these collaborators may have consulting or other advisory arrangements with other entities that may conflict or compete with their obligations to us.

Changes in board and management composition could adversely disrupt our operations.

We have recently experienced changes to our board of directors and senior management team, including the death of our Chariman of the Board in December 2005 and the resignation of our Chief Financial Officer in January 2006. We have filled these two roles with members of our current board and executive staff. We are in the process of recruiting additional candidates to fill the vacancy and expand the size of our board of directors, and hope to add to our commercialization and clinical development expertise. These changes could be disruptive, and we may experience difficulties in attracting and retaining new directors or in integrating members of the Board and management team into new roles with respect to our business.

We face the risk of liability claims which may exceed the scope or amount of our insurance coverage

The manufacture and sale of medical products entails significant risk of liability claims. We currently carry liability insurance; however, we cannot assure you that this coverage will remain in place or that this coverage will be adequate to protect us from all liabilities which we might incur in connection with the use of our products in clinical trials or the future use or sale of our products upon commercialization. In addition, we may require increased liability coverage as additional products are used in clinical trials and commercialized. This insurance is expensive and may not be available on acceptable terms in the future, if at all. A successful liability claim or series of claims brought against us in excess of our insurance coverage could harm our business. We must indemnify certain of our licensors against any liability claims brought against them arising out of products developed by us under these licenses.

Our use of hazardous materials exposes us to the risk of environmental liabilities, and we may incur substantial additional costs to comply with environmental laws in connection with the operation of our research and manufacturing facilities

We use radioactive materials and other hazardous substances in our research and development operations. As a result, we are potentially subject to substantial liabilities related to personal injuries or property damages they may cause. In addition, clean up costs associated with radioactivity or other hazardous substances, and related damages or liabilities could be significant and could harm our business. We do not believe that our current level of use of these controlled substances will require any material capital expenditures for environmental control facilities for the next few years. We are also required to comply with increasingly stringent laws and regulations governing environmental protection and workplace safety which could impose substantial fines and criminal sanctions for violations. If we were to fail to maintain compliance with these laws and regulations we could require substantial additional capital.

The testing of our potential products relies heavily on the voluntary participation of subjects in our clinical trials, which is not within our control, and could substantially delay or prevent us from completing development of such products

The development of our potential products is dependent upon collecting sufficient data from human clinical trials to demonstrate safe and effective results. We experienced delays in enrolling subjects in our previous gene therapy clinical trials, and we may experience similar difficulties with our current products in the future. Any delay or failure to recruit sufficient numbers of subjects to satisfy the level of data required to be collected under our clinical trial protocols could prevent us from developing any products we may target.

AAV Gene therapy technology is new and developing rapidly and Genzyme Corporation may face delays in developing products based on technologies included in our assignment agreement, in which case we may not receive any additional milestone, sublicense or royalty payments in connection with the agreement

Development of drug products, including gene therapy products, is unpredictable and is subject to many risks and uncertainties. We are not aware of any gene therapy products that Genzyme Corporation has fully developed or for which it has received regulatory approval for commercial sale in the U.S. As such, we face the risk that they will not be able to develop or receive regulatory approval for commercial sale of any product candidates that might utilize technologies included in our assignment agreement. Therefore, we may never receive any additional milestone, sublicense or royalty payments in connection with our previous work on AAV gene therapy activities.

Risks Related to Our Intellectual Property

Our success is dependent upon our ability to effectively protect our patents and proprietary rights, which we may not be able to do

Our success will depend to a significant degree on our ability to obtain patents and licenses to patent rights, preserve trade secrets, and to operate without infringing on the proprietary rights of others. If we are not successful in these endeavors, our business will be substantially impaired.

To date, we have filed a number of patent applications in the U.S. relating to technologies we have developed or co-developed. In addition, we have acquired licenses to certain issued patents and pending patent applications. We cannot guarantee that patents will issue from these applications or that any patent will issue on technology arising from additional research or, if patents do issue, that claims allowed will be sufficient to protect our technologies.

The patent application process takes several years and entails considerable expense. The failure to obtain patent protection on the technologies underlying certain of our proposed products may have a material adverse effect on our competitive position and business prospects. Important legal issues remain to be resolved as to the scope of patent protection for biotechnology and pharmaceutical products, and we expect that administrative proceedings, litigation, or both may be necessary to determine the validity and scope of our and others’ patents. These proceedings or litigation may require a significant commitment of our resources in the future.

If patents can be obtained, we cannot assure you that any of these patents will provide us with any competitive advantage. For example, others may independently develop similar technologies or duplicate any technology developed by us, and patents may be invalidated or held unenforceable in litigation. For example, for at least one of our product candidates, the compound in it is no longer patented. For that candidate, we intend to rely (if they issue) primarily on formulation and potentially use patent claims (combined with any available regulatory exclusivity) rather than more traditional composition-of-matter patent claims on the active ingredient itself. Formulation and use coverage may not be effective in preventing others from marketing the active compound in competition with us. As another example, in our AV411 program, the compound is off-patent. We have filed and own a patent application on its use for the indications for which we are developing. However, we cannot assure you that this patent application, even if it one day issues as a patent, will effectively prevent others from marketing the same drug for the indications currently claimed by our patent application.

We also rely on a combination of trade secret and copyright laws, employee and third-party nondisclosure agreements and other protective measures to protect intellectual property rights pertaining to our products and technologies. We cannot be certain that these measures will provide meaningful protection of our trade secrets,

know-how or other proprietary information. In addition, the laws of certain foreign countries do not protect our intellectual property rights to the same extent as do the laws of the United States. We cannot assure you that we will be able to protect our intellectual property successfully.

We may not be able to patent certain formulations of our products in development and may need to rely on protections under the Hatch-Waxman Act to prevent generics from copying our product candidates

Certain of our products in development are molecules that are in the public domain. While we are working to obtain patent protection for our formulations, manufacturing processes, and uses of these molecules, there is no guarantee that we will be able to do so. In cases where no patent protection can be obtained, regulatory exclusivity providing protection against generic competition can be obtained under the Hatch-Waxman Act if we are the first to obtain regulatory approval to market these compounds. There is no guarantee that we will be able to do so. Biotechnology or pharmaceutical companies with greater financial and personnel resources may be able to obtain regulatory approval to market one or more of these compounds prior to our obtaining such approval. Failure to obtain patent protection or regulatory exclusivity will adversely impact our ability to commercialize our products and realize a positive return on our investment.

Other persons may assert rights to our proprietary technology, which could be costly to contest or settle

Third parties may assert patent or other intellectual property infringement claims against us with respect to our products, technologies, or other matters. Any claims against us, with or without merit, as well as claims initiated by us against third parties, can be time-consuming and expensive to defend or prosecute and resolve. There may be third-party patents and other intellectual property relevant to our products and technology which are not known to us. We have not been accused of infringing any third party’s patent rights or other intellectual property, but we cannot assure you that litigation asserting claims will not be initiated, that we would prevail in any litigation, or that we would be able to obtain any necessary licenses on reasonable terms, if at all. If our competitors prepare and file patent applications in the U.S. that claim technology also claimed by us, we may have to participate in interference proceedings declared by the Patent and Trademark Office to determine priority of invention, which could result in substantial cost to us, even if the outcome is favorable to us. In addition, to the extent outside collaborators apply technological information developed independently by them or by others to our product development programs or apply our technologies to other projects, disputes may arise as to the ownership of proprietary rights to these technologies.

We may be required to obtain rights to proprietary genes and other technologies to further develop our business, which may not be available or may be costly

We currently investigate and use certain gene sequences or proteins encoded by those sequences, including the IL-10 gene, and manufacturing processes that are or may become patented by others. As a result, we may be required to obtain licenses to these gene sequences or proteins or other technology in order to test, use or market products. We may not be able to obtain these licenses on terms favorable to us, if at all. In connection with our efforts to obtain rights to these gene sequences or proteins or other technology, we may find it necessary to convey rights to our technology to others. Some of our products may require the use of multiple proprietary technologies. Consequently, we may be required to make cumulative royalty payments to several third parties. These cumulative royalties could become commercially prohibitive. We may not be able to successfully negotiate these royalty adjustments to a cost effective level, if at all.

If we do not fulfill our obligations under our in-license agreements, including our in-license for AV650, we may not be able to retain our rights under those agreements and may be forced to cease our activities with the affected product candidate or technology

We have entered into license agreements with third parties for technologies related to our product development programs. Typically, we have obligations under these agreements to diligently pursue commercialization of products using the technologies licensed to us, among other obligations including payment, patent prosecution, information-sharing and licensing obligations. We have these kinds of obligations to Sanochemia under our AV650 agreement with them. If we fail to fulfill our obligations under these agreements and fail to obtain a waiver of any material failure to fulfill such obligations, the licensor may terminate these license agreements with relatively short notice

to us. Termination of any of our license agreements could harm our business and force us to cease our activities with the affected product candidate or technology.

Similarly, if disputes arise between us and our licensors, our rights to the licensed product candidates and technologies could be threatened. In addition, any such dispute could harm us through taking our management’s time and attention to resolve the dispute.

Risks Related to Our Stock

Anti-takeover effects of certain charter provisions and Delaware law may negatively affect the ability of a potential buyer to purchase some or all of our stock at an otherwise advantageous price, which may limit the price investors are willing to pay for our common stock

Certain provisions of our charter and Delaware law may negatively affect the ability of a potential buyer to attempt a takeover of Avigen, which may have a negative effect on the price investors are willing to pay for our common stock. For example, our board of directors has the authority to issue up to 5,000,000 shares of preferred stock and to determine the price, rights, preferences, and privileges of those shares without any further vote or action by the stockholders. This would enable the Board of Directors to establish a shareholder rights plan, commonly referred to as a “poison pill,” which would have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of Avigen. In addition, our board of directors is divided into three classes, and each year on a rotating basis the directors of one class are elected for a three-year term. This provision could have the effect of making it less likely that a third party would attempt to obtain control of Avigen through Board representation. Furthermore, certain other provisions of our restated certificate of incorporation may have the effect of delaying or preventing changes in control or management, which could adversely affect the market price of our common stock. In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, an anti-takeover law.

Our stock price is volatile, and as a result investing in our common stock is very risky

From January 1, 2004 to March 1, 2006, our stock price has fluctuated between a range of $2.63 and $7.93 per share. We believe that various factors may cause the market price of our common stock to continue to fluctuate, perhaps substantially, including announcements of:

•

technological innovations or regulatory approvals;

•

results of clinical trials;

•

new products by us or our competitors;

•

developments or disputes concerning patents or proprietary rights;

•

achievement or failure to achieve certain developmental milestones;

•

public concern as to the safety of pharmaceutical products;

•

health care or reimbursement policy changes by governments or insurance companies;

•

developments of significant acquisitions or in relationships with corporate partners;

•

announcements by us regarding financing transactions and/or future sales of equity securities; or

•

changes in financial estimates or securities analysts’ recommendations.

In addition, in recent years, the stock market in general, and the shares of biotechnology and health care companies in particular, have experienced extreme price fluctuations. These broad market and industry fluctuations may cause the market price of our common stock to decline dramatically.

Our future financial results will be affected by changes in the accounting rules governing the recognition of stock-based compensation expense.

Through December 31, 2005, we measured compensation expense for our employee stock compensation plans under the intrinsic value method of accounting prescribed by Accounting Principles Board Opinion No. 25 (“APB No. 25”), “Accounting for Stock Issued to Employees.” Beginning January 1, 2006, we are required to measure equity compensation expense using the fair value method, which will adversely affect our results of operations by increasing our reported losses or reducing future reported income and which may adversely affect our stock price. Had we accounted for our compensation expense under the fair value method of accounting prescribed by FAS 123, our equity compensation expenses for 2005, 2004, and 2003 would have been significantly higher, increasing by approximately $2.2 million, $6.4 million and $9.9 million, net of reported amounts prescribed under APB No. 25, respectively.

Item 1B. Unresolved Staff Comments

We have no unresolved written comments from the Securities and Exchange Commission.

Item 2. Properties

Our headquarters are located in a commercial neighborhood of Alameda, California, and consist of two leased buildings with an aggregate of 112,500 square feet. These buildings include facilities for laboratory research and development, manufacturing and office space. One building, which represents approximately 45,000 square feet, is under a 5-year lease that is scheduled to expire in May 2008. A second adjacent building, which represents approximately 67,500 square feet, is under a 10-year lease that is scheduled to expire in November 2010. The scheduled annual rental expense for 2006 under these leases is approximately $2.3 million. We currently sublease 15,250 square feet and 11,000 square feet, respectively, from the two buildings to two separate tenants. These subleases run concurrent with the duration of our underlying lease terms. Under these leases, we are scheduled to receive annual sublease rental income in 2006 of approximately $0.5 million and reimbursement for a portion of the related facilities overhead costs which will be recorded as a reduction to our operating expenses. We believe that the remaining space not under sublease in these two buildings is adequate for our projected needs for the foreseeable future.

Item 3. Legal Proceedings

As of March 1, 2006, we were not involved in any legal proceedings.

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

None.

Executive Officers of the Registrant

Our executive officers and their respective ages and positions as of March 14, 2006, are as follows:

Name	Age	Position
Kenneth G. Chahine, J.D., Ph.D.	41	President, Chief Executive Officer and Director
Michael D. Coffee	60	Chief Business Officer
Dawn McGuire, M.D.	52	Chief Medical Officer
Kirk Johnson, Ph.D.	46	Vice President, Preclinical Research
M. Christina Thomson, J.D.	35	Vice President, Corporate Counsel and Secretary
Andrew A. Sauter	39	Vice President, Finance

All of our officers are elected annually by the Board of Directors. There is no family relationship between or among any of the officers or directors.

Kenneth G. Chahine, J.D., Ph.D., was appointed President, Chief Executive Officer and director of Avigen in March 2004. Dr. Chahine has served as Avigen’s Chief Operating Officer since July 2002, and as Vice President, Business Development and Intellectual Property since 1998. Prior to joining Avigen, Dr. Chahine worked at the patent law firm of Madson & Metcalf, P.C. in Salt Lake City, Utah from 1994 to 1998. From 1992 to 1993, he worked as a research scientist at Parke-Davis Pharmaceuticals, a pharmaceutical company, and held another research

scientist post at the University of Utah Department of Human Genetics from 1994 to 1996. Dr. Chahine served as western regional news and legal correspondent for Nature Biotechnology from 1996 to 2002. Dr. Chahine holds a J.D. from the University of Utah and a Ph.D. in biochemistry and molecular biology from the University of Michigan .

Michael D. Coffee has served as Avigen’s Chief Business Officer since February 2005. Prior to joining Avigen, Mr. Coffee co-founded the Alekta Group, LLC in 2004, a consulting firm, to provide a comprehensive range of pharmaceutical development consulting services to emerging pharmaceutical companies. From 2001 to 2004 Mr. Coffee served as President and Chief Operating Officer of Amarin Pharmaceuticals, Inc., the U.S. drug development and marketing subsidiary of Amarin Corporation PLC. Mr. Coffee also served as President and Chief Operating Officer of Elan Pharmaceuticals, North America from 1998 to 2001 and held marketing and executive management positions, including President and Chief Operating Officer, of Athena Neurosciences, Inc. between 1991 and 1998. Mr. Coffee received a BS in biology from Siena College.

Dawn McGuire, M.D., has served as Avigen’s Chief Medical Officer since January 2004. Dr. McGuire has provided leadership in both pharmaceutical and biotechnical corporate settings, most recently as Chief Scientific Officer of Eunoe, Inc. (previously CSFluids, Inc.), a medical device company, from 2002 to January 2004. She was President and Chief Executive Officer of CSFluids from 1999 to 2002. From 1999 to 2000, Dr. McGuire also served as Vice President, Medical Affairs Worldwide at Collagen Corporation, a healthcare products company. From 1997 to 1999, Dr. McGuire served as Vice President, Clinical Research and Medical Affairs at Elan Pharmaceuticals and was responsible for, among other programs, the development through FDA submission of ziconotide (Prialt ^TM ). Dr. McGuire is a board-certified neurologist and has led clinical development programs in neuropathic pain, Alzheimer’s disease, AIDS dementia, Lou Gehrig’s disease, Multiple Sclerosis, and stroke. She is the co-author of over 40 scientific articles, book chapters, and invited reviews in neurotherapeutics. Since 2000, Dr. McGuire has served as a Scientific Reviewer and Study Section Member of the National Institute of Neurological Disorders and Stroke. Dr. McGuire received her B.A. with high honors from Princeton University, her M.D. from Columbia University College of Physicians and Surgeons, and trained in neurology at the University of California, San Francisco, followed by an NIH-funded postdoctoral fellowship in clinical trial design and experimental therapeutics.

Kirk Johnson, Ph.D., joined Avigen in January 2004 and was appointed Vice President, Preclinical Development in June 2004. Prior to joining Avigen, Dr. Johnson was Senior Director, Pharmacology & Preclinical Development and a member of the executive management team of Genesoft Pharmaceuticals from 2001 to 2004. From 1991 to 2001, Dr. Johnson was employed in both protein and small molecule therapeutic research and development at Chiron Corporation, a biopharmaceutical company, and eventually served as Director, Pharmacology and Preclinical Research. Dr. Johnson was involved in leading IND-enabling programs, supporting clinical development, and contributing to successful IND and NDA filings at Chiron and Genesoft. In addition to general pharmacology and other preclinical development responsibilities, he has lead research and clinical development projects for diverse indications including neuropathic pain, hemophilia, antibacterials, diabetes, obesity, acute inflammation and cardiovascular disease and has published more than 50 manuscripts and holds 4 U.S. patents. Dr. Johnson earned a B.S. in toxicology from U.C. Davis, and a Ph.D. in pharmacology and toxicology from the Medical College of Virginia. He completed postdoctoral fellowships studying the mechanism of action of IL-2 from 1986-1989 with Dr. Kendall Smith at Dartmouth College and from 1990-1991 with Dr. Marian Koshland at the University of California, Berkeley.

M. Christina Thomson, J.D., joined Avigen in February 2000 and was appointed Vice President, Corporate Counsel in June 2004. She has also served as our Chief Compliance Officer since March 2004 and Corporate Secretary since January 2005. Ms. Thomson is a registered patent attorney, and has managed significant growth in Avigen’s patent portfolio over the last five years. Ms. Thomson also oversees the company’s litigation and administrative patent proceedings, as well as contract administration. Prior to joining Avigen, Ms. Thomson worked as a patent attorney with the law firm Knobbe Martens Olson & Bear LLP in Newport Beach, California, as a patent agent with Madson & Metcalf, P.C. in Salt Lake City, Utah, and as a scientist for Myriad Genetic Laboratories. Ms. Thomson holds a J.D. from the University of Utah College of Law and an M.S. in biology from the University of Utah.

Andrew A. Sauter was appointed Vice President, Finance in January 2006, having joined Avigen as Controller in November 1999. Mr. Sauter is Avigen’s principal financial officer. Mr. Sauter oversees the financial reporting obligations of Avigen and has been responsible for Sarbanes-Oxley compliance. From 1992 to 1999, Mr. Sauter worked for BankAmerica Corporation in a variety of positions, including most recently as a vice president in the Capital Markets Finance organization. From 1989 to 1992, he worked for Ernst & Young LLP. Mr. Sauter is a certified public accountant and holds a B.A. degree in economics from Claremont McKenna College.

PART II

Item 5.

Market for Registrants Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

Shares of Avigen’s common stock commenced trading on the NASDAQ National Market on May 22, 1996, under the symbol “AVGN”. As of March 1, 2006, there were approximately 133 holders of record of our common stock.

We have never paid cash dividends and do not anticipate paying cash dividends in the foreseeable future.

The following table sets forth, for fiscal periods indicated, the range of high and low closing sales prices available for the years ended December 31, 2004 and 2005.

Year ended December 31, 2004	High		Low
Quarter End 3/31/04	$	7.93	$	5.29
Quarter End 6/30/04	$	5.40	$	3.00
Quarter End 9/30/04	$	3.79	$	3.12
Quarter End 12/31/04	$	3.77	$	3.15

Year ended December 31, 2005	High		Low
Quarter End 3/31/05	$	3.25	$	2.78
Quarter End 6/30/05	$	3.54	$	2.78
Quarter End 9/30/05	$	3.70	$	2.63
Quarter End 12/31/05	$	3.27	$	2.70

On March 1, 2006, the closing sales price of Avigen common stock was $5.84 per share.

Item 6. Selected Financial Data

The following tables should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of this report and the financial statements and related notes included in Item 8 of this report.

	Year Ended December 31,
Statement of Operations Data: (in thousands, except share and per share amounts)	2005			2004			2003			2002			2001			(1) Six Months Ended December 31, 2001			Fiscal Year Ended June 30, 2001			Period from October 22, 1992 (inception) through December 31, 2005
	(unaudited)
Revenue	$	12,026		$	2,195		$	463		$	57		$	94		$	8		$	116		$	15,471
Operating expenses:
Research and development		13,775			19,344			21,805			24,809			22,333			11,465			17,041			141,280
General and administrative		8,264			8,367			7,399			8,146			7,559			3,957			6,761			60,454
Impairment loss related to long-lived assets		6,130			—			—			—			—			—			—			6,130
In-license fees		—			—			—			—			—			—			—			5,034
Total operating expenses		28,169			27,711			29,204			32,955			29,892			15,422			23,802			212,898
Loss from operations		(16,143	)		(25,516	)		(28,741	)		(32,898	)		(29,798	)		(15,414	)		(23,686	)		(197,427	)
Interest expense		(323	)		(209	)		(250	)		(278	)		(347	)		(204	)		(180	)		(2,703	)
Interest income		1,682			1,905			3,282			5,569			9,364			4,316			7,907			28,992
Other income (expense), net		88			(103	)		(65	)		(132	)		(68	)		(17	)		(55	)		(137	)
Net loss	$	(14,696	)	$	(23,923	)	$	(25,774	)	$	(27,739	)	$	(20,849	)	$	(11,319	)	$	(16,014	)	$	(171,275	)
Basic and diluted net loss per common share	$	(0.71	)	$	(1.17	)	$	(1.28	)	$	(1.38	)	$	(1.05	)	$	(0.57	)	$	(0.85	)
Shares used in basic and diluted net loss per common share calculation		20,624,229			20,362,155			20,149,214			20,080,998			19,845,640			19,959,941			18,730,437

	December 31,															June 30,
Balance Sheet Data: (in thousands)	2005			2004			2003			2002			2001 (1)			2001
Cash, cash equivalents, available-for-sale securities and restricted investments	$	70,388		$	76,218		$	98,878		$	119,224		$	148,254		$	157,737
Working capital		59,649			63,873			86,051			107,398			137,486			151,341
Total assets		76,264			90,507			116,595			140,686			168,409			174,946
Long-term obligations		9,282			9,064			10,592			8,852			8,558			5,391
Deficit accumulated during development stage		(171,275	)		(156,579	)		(132,656	)		(106,882	)		(79,143	)		(67,823	)
Stockholders’ equity		65,464			79,875			103,886			130,057			157,350			167,182

(1)

We changed our fiscal year end from June 30 to December 31, effective December 31, 2001.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Avigen’s actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed herein and in “Item 1A — Risk Factors”.

Overview

Avigen is a biopharmaceutical company focused on developing and commercializing small molecule therapeutics and biologics to treat serious neurological and neuromuscular disorders. Our current lead product candidates primarily address neuromuscular spasm and spasticity and neuropathic pain. Our goal is to retain rights to commercialize our products in North America and therefore we expect, when appropriate, to build a sales and marketing infrastructure. We expect that we will seek to out-license rights to develop and market our products outside the United States. We will also continue to look for opportunities to expand our pipeline of compounds through a combination of internal research, acquisitions, and in-licensing as appropriate.

In building our pipeline, we focus on selecting compounds we believe have the potential to strongly differentiate themselves from existing therapies and address needs currently unmet by, or with an improved risk-benefit profile when compared to, alternative available treatments. In particular, we believe our drug candidates have unique mechanisms of action in the indications being pursued and have the potential to minimize side-effects, such as sedation, that can interfere markedly with resumption of normal activity. Moreover, our two leading programs are commercially approved pharmaceuticals outside the United States. We believe this significant human experience in markets outside the U.S. will help accelerate our clinical development and approval for these products in North America.

In January 2006, we acquired exclusive license rights to develop and commercialize proprietary formulations of the compound tolperisone (AV650) for the North American market. These rights include relevant patent filings, as well as clinical data held by Sanochemia relating to AV650. Sanochemia has also agreed to supply AV650 to us exclusively for the North American market. Under the terms of the agreement, we made an upfront payment of $3 million and will make additional payments to Sanochemia, our European collaborator, based on the parties’ achievement of clinical and regulatory product development milestones and sales of AV650.

Prior to 2003, we focused exclusively on building a product development portfolio of DNA-based drug delivery technologies based primarily on AAV vectors we developed. Our efforts included significant investment in early stage research in the field of gene therapy, which led to our filing of three separate INDs and our initiation of three corresponding phase I or phase I/II clinical trials. In 2003, we began to pursue the development of non-gene therapy products to diversify our portfolio, which is now our focus. In December 2005, we entered into an agreement with Genzyme Corporation, which is intended to provide independent funding for the ongoing development of our gene therapy technologies. Under the terms of the agreement, we assigned to Genzyme our rights to certain AAV-related intellectual property, our gene therapy clinical trial programs for Parkinson’s disease and hemophilia, AAV-related contracts, and the use of previously manufactured clinical-grade vector materials. However, if Genzyme fails to diligently pursue the commercialization or marketing of products using the assigned technology, as specified in the agreement, certain of the rights we assigned could revert back to Avigen at a future date. Under the terms of the agreement, we received a $12.0 million initial payment and could receive significant future milestone, sublicensing fees and royalty payments based on the successful development of products by Genzyme utilizing technologies previously developed by us.

From 2000 through 2004, we were party to a collaboration agreement with Bayer Corporation to develop a gene therapy product for hemophilia. In 2003, Bayer paid us $2.5 million to support our development of the product candidate. That payment was originally recorded as deferred revenue and was scheduled to be recognized ratably as revenue over the estimated five-year development period associated with the product. In May 2004, we suspended the related clinical trial and other development activities, and accelerated the recognition of the remaining portion of deferred revenue. We have terminated the collaboration agreement with Bayer and do not expect to receive any additional payments associated with similar gene therapy activities.

We are a development stage company and have primarily supported the financial needs of our research and development activities since our inception through public offerings and private placements of our equity securities. We have not received any revenue from the sale of our products in development, and we do not anticipate generating revenue from the sale of products in the foreseeable future. As a result, we expect that we will need to obtain additional funding to support the anticipated future needs of our research and development activities, including the costs to complete clinical trials. We expect our source of revenue, if any, for the next several years to consist of payments under the Genzyme agreement, collaborative arrangements with third parties, government grants, and non-gene therapy-related license fees. We have incurred losses since our inception and expect to incur substantial losses over the next several years due to lack of any substantial revenue and the continuation of our ongoing and planned research and development efforts, including preclinical studies and clinical trials. There can be no assurance that we will successfully develop, commercialize, manufacture, or market our product candidates or ever achieve or sustain product revenue for profitability. At December 31, 2005 we had an accumulated deficit of $171.3 million and cash, cash equivalents, available-for-sale securities and restricted investments of approximately $70.4 million. We believe that our capital resources at December 31, 2005, after considering our anticipated spending focus on our small molecule compound-based programs and away from gene therapy-related activities, will be adequate to fund our operating needs for approximately the next three years.

Critical Accounting Policies and Significant Judgments and Estimates

Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments related to revenue recognition, valuation of investments in financial instruments, impairment of property and equipment, and recognition of research and development expenses. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully described under Note 1 in the Notes to our Financial Statements, we believe the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our financial statements.

Revenue recognition

We recognize revenue when the four basic criteria for revenue recognition as described in SEC Staff Accounting Bulletin No. 104, “Revenue Recognition” are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the fee is fixed or determinable; and (4) collectibility is reasonably assured.

We recognize non-refundable license or assignment fees, including development milestone payments associated with license or assignment agreements, for which we have no further significant performance obligations and no continuing involvement requirements related to product development, on the earlier of the dates on when the payments are received or when collection is assured. For example, in connection with the $12.0 million payment received under the terms of the Genzyme agreement, we concluded that as of December 31, 2005, we did not have any significant performance obligations under the agreement that would defer the completion of the earnings process, and so recognized the entire $12.0 million payment received as revenue at that time.

We recognize revenue associated with up-front license, technology access and research and development funding payments under collaborative agreements ratably over the relevant periods specified in the agreements, generally the development phase. This development phase can be defined as a specified period of time, however, in certain cases, the collaborative agreement specifies a development phase that culminates with milestone objectives but does not have a fixed date and requires us to estimate the time period over which to recognize this revenue. Our estimated time periods are based on management’s estimate of the time required to achieve a particular development milestone considering the projected level of effort and current stage of development. If our estimate

of the development-phase time period changes, the amount of revenue we recognize related to up-front payments for a given period will accelerate or decrease accordingly. For example, in March 2003, we received a $2.5 million payment from Bayer under the terms of a collaboration agreement for Coagulin-B, a gene therapy product candidate for hemophilia. The revenue associated with the payment was being recognized ratably over the development phase, which was initially estimated to be five years. In May 2004, we suspended subject enrollment in the phase I clinical trial for this product candidate and, as a result, ended the development phase for this product candidate and recognized as revenue $2.0 million, constituting the portion of the $2.5 million payment not previously recognized as revenue, during the quarter ended June 30, 2004.

Valuation of investments in financial instruments

We carry investments in financial instruments at fair value with unrealized gains and losses included in accumulated other comprehensive income or loss in stockholders’ equity. Our investment portfolio does not include equity securities or derivative financial instruments that could subject us to material market risk; however, we do invest in corporate obligations that subject us to varying levels of credit risk. Management assesses whether declines in the fair value of investment securities are other-than-temporary. If a decline in fair value of a financial instrument is judged to be other-than-temporary, the cost basis of the individual security is written down to fair value and the amount of the write down is included in earnings. In determining whether a decline is other-than-temporary, management considers:

•

the length of time and the extent to which the market value of the security has been less than cost;

•

the financial condition and near-term prospects of the issuer; and

•

our intention and ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value, which could be until maturity.

The determination of whether a decline in fair value is other-than-temporary requires significant judgment, and could have a material impact on our balance sheet and results of operations. We have not had any write-downs for other-than-temporary declines in the fair value of our financial instruments since our inception.

In addition, when management commits to holding individual securities until maturity in order to avoid the recognition of an other-than-temporary impairment, those securities would no longer be classified as available-for-sale. In addition, such securities would be further evaluated to determine whether the security, based on the remaining duration until its scheduled maturity, should be identified as a current or long-term asset. As of December 31, 2005, management had not designated any individual securities as held-to-maturity for the purposes of avoiding an other-than-temporary impairment.

Impairment of property and equipment

We have invested significant amounts on construction for improvements to leased facilities we use for our research and development activities, with the largest portion of our spending made to modify manufacturing facilities that are intended to comply with requirements of government mandated manufacturing rules for pharmaceutical production. Management assesses whether the carrying value of long-lived assets is impaired whenever events or changes in circumstances indicate that the asset may not be fully recoverable. An impairment loss is recognized when the total of the estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying value or appraised value, as appropriate. If the value of our long-lived assets is judged to be impaired, the cost basis of the property and equipment is written down to fair value and the amount of the write down is included in net loss from operations. In determining whether the value of our property and equipment is impaired, management considers:

•

failure of manufacturing facilities and equipment to comply with government mandated policies and procedures;

•

failure of the product candidates for which the manufacturing facilities have been constructed to receive regulatory approval; and

•

the extent that facilities could be idled or abandoned due to a decrease in the scope of our research and development activities for an other-than-temporary period, resulting in excess capacity.

The determination of whether the value of our property and equipment is impaired requires significant judgment, and could have a material impact on our balance sheet and results of operations. During 2005, we determined that the scope of our research and development activities had changed such that we would not effectively utilize certain portions of our leased facilities that had been designed to support our gene therapy programs. After considering alternative uses for these spaces, we decided it was not cost effective to re-engineer the rooms representing approximately 40,000 square feet of manufacturing, laboratory, and office space under lease through May 2008 and approximately 11,000 square feet of similar space we have under lease through November 2010. We believe we would maximize our potential cost savings by subleasing the properties. Based on market conditions for rental property at the time of the reduction in the scope of our research and development activities, and our subsequent completion of sublease agreements for approximately 26,000 square feet, we do not expect to fully recover the value invested in leasehold improvements and equipment, and have reduced our net carrying value for these assets to their current fair value, resulting in an impairment loss for the year ended December 31, 2005 of approximately $6.1 million. This amount does not impact our cash flows and primarily represents an acceleration of depreciation charges that would have been recognized over the remaining three and five year lease periods.

Recognition of Research and Development Expenses

Research and development expenses consist of expenses incurred in performing research and development activities including related salaries and benefits, facilities and other overhead costs, clinical trial and related drug product costs, contract services and other outside service expenses. Research and development expenses are charged to operating expense in the period incurred and consist of costs incurred for our independent, as well as our collaborative, research and development activities.

Pursuant to management’s assessment of the services that have been performed on clinical trials and other contracts, we recognize expenses as the services are provided. Several of our contracts extend across multiple reporting periods. Management assessments include, but are not limited to an evaluation by the project manager of the work that has been completed during the period, measurement of progress prepared internally, estimates of incurred costs by the third-party service providers, and management’s judgment. The determination of the percentage of work completed that determines the amount of research and development expense that should be recognized in a given period requires significant judgment, and could have a material impact on our balance sheet and results of operations. These estimated expenses may or may not match the actual fees billed by the service providers as determined by actual work completed. We monitor service provider activities to the extent possible; however, if we underestimate activity levels associated with various studies at a given point in time, we could record significant research and development expenses in future reporting periods.

Results of Operations

Revenue

	Year Ended December 31,
(In thousands, except percentages)	2005			2004			2003
Revenue	$	12,026		$	2,195		$	463
Percentage increase over prior period		448	%		374	%

Revenue in 2005 primarily reflected the $12.0 million payment received in connection with our agreement with Genzyme Corporation. Revenue in 2004 primarily included the acceleration of deferred revenue associated with the termination of our gene therapy collaboration with Bayer Corporation for hemophilia. We had received a $2.5 million payment from Bayer in March 2003 in connection with our collaboration on a gene therapy product for hemophilia. The payment was being recognized ratably over the estimated development period of the product candidate, which was estimated at five years. In May 2004, we suspended patient enrollment in the trial, which resulted in the termination of the development of the product candidate and accelerated the recognition of all remaining deferred revenue.

Research license fees associated with our gene therapy technologies totaled $22,500, $64,500 and $79,000, during 2005, 2004, and 2003, respectively. These research license agreements allowed licensees to make or use products using our patented AAV technologies for research purposes only, and did not allow for the use of these

technologies in products for commercial sale. Royalty revenue totaled $3,200, $5,800 and $9,000 during 2005, 2004, and 2003, respectively, and was attributed to a single royalty license that was entered into in July 2000, which allowed for the development, manufacture, use and commercial sale of research products using our patented AAV technologies.

As a result of the assignment of our gene therapy assets to Genzyme, and termination of the collaboration agreement with Bayer in 2004, we are no longer a direct party to most of the license or collaboration agreements that gave rise to the revenues we recognized over the last three years. As a result, we do not expect any significant revenues for the foreseeable future and that such revenues, if any, will consist solely of payments that may be received in connection with the Genzyme agreement and other non-gene-therapy related activities.

Research and Development Expenses

Our research and development expenses can be divided into two primary functions, costs to support research and preclinical development and costs to support preparation for and implementation of human clinical trials. Research and preclinical development costs include activities associated with general research and exploration, animal studies, production of drug substances for use by external collaborators in general research and exploration, development of processes to translate research achievements into commercial scale capabilities, and in-house and independent third-party validation testing of potential acquisition or in-license drug candidates. Clinical development costs include activities associated with preparing for regulatory approvals, maintaining regulated and controlled processes, manufacturing drug substances for use in human clinical trials, and supporting subject enrollment and subject administration within clinical trials.

During the first half of 2004, our research and development activities were primarily focused on our AAV-based programs for hemophilia and Parkinson’s disease and our non-AAV programs for neuropathic pain. Our staff count dedicated to research and development activities at the time averaged approximately 76 employees. In July 2004, in connection with the suspension of a gene therapy-related clinical trial for hemophilia, we began to shift the focus of our resources toward neurological programs, and reduced our workforce by approximately 36 percent. This reduced the number of employees dedicated to our research and development activities to approximately 45 at December 31, 2004. In August 2005, we took additional steps to reduce our involvement with and spending on AAV-based activities and reduced our workforce by approximately 19 positions, or 33 percent. As a result, at December 31, 2005, the staff count associated with our current research and development activities, which focus on our portfolio of small molecule candidates for the treatment of serious neurological and neuromuscular disorders, was approximately 20.

The costs associated with these two primary functions of our research and development activities approximate the following:

	Year Ended December 31,
(In thousands, except percentages)	2005		2004		Percentage decrease 2005 over 2004			Year Ended December 31, 2003		Percentage decrease 2004 over 2003
Research and preclinical development	$	9,350	$	12,612		(26	)%	$	13,450		(6	)%
Clinical development		4,425		6,732		(34	)%		8,355		(19	)%
Total research and development expenses	$	13,775	$	19,344		(29	)%	$	21,805		(11	)%

Because a significant percentage of our research and development resources are dedicated to activities that focus on broad methods and mechanisms that may be used in multiple product applications, including production and administration techniques, the majority of our costs are not directly attributed to individual development programs. Decisions regarding our project management and resource allocation are primarily based on interpretations of scientific data, rather than cost allocations. Our estimates of costs between research and preclinical development and clinical development are primarily based on staffing roles within our research and development departments. As such, costs allocated to specific projects may not necessarily reflect the actual costs of those efforts and, therefore, we do not generally evaluate actual costs-incurred information on a project-by-project basis. In addition, we are unable to estimate the future costs to completion for any specific projects.

Research and preclinical development

	Year Ended December 31,
(In thousands)	2005		2004		2003
Personnel-related	$	2,938	$	4,880	$	5,015
External research and development		582		1,544		2,113
Other expenses including facilities overhead and depreciation		5,830		6,188		6,322
Total research and preclinical development expenses	$	9,350	$	12,612	$	13,450

Comparison of Years Ended December 31, 2005 and 2004. The decreases in our total research and preclinical development expenses for the year ended December 31, 2005, compared to 2004, of $3.3 million, were primarily due to changes in costs for the following:

•

lower personnel-related expenses of $1.9 million, reflecting the impact of a significantly lower average staff level as a result of staff reductions in July 2004 and August 2005, partially offset by higher average salaries and higher severance expense in 2005,

•

lower expenditures for external research and development services from third-party collaborators associated with our preclinical animal studies of $1.0 million, primarily related to our completion of significant preclinical work with Parkinson’s disease in 2004 as it transitioned into a clinical development phase, and

•

lower other expenses of $358,000, primarily reflecting a decrease in depreciation charges as a result of the write-down of the cost basis of our long-lived assets during the year due to impairment.

Comparison of Years Ended December 31, 2004 and 2003. The decreases in our total research and preclinical development expenses for the year ended December 31, 2004, compared to 2003, of $838,000, were primarily due to changes in costs for the following:

•

lower expenditures for external research and development services from third-party collaborators associated with our preclinical animal studies of $569,000, primarily related to our completion of a significant portion of our preclinical work with Parkinson’s disease in 2003 and a reduction in preclinical work associated with other gene therapy projects, primarily due to our lower staff levels in 2004,

•

lower personnel-related expenses of $135,000, primarily reflecting a lower average staff count as a result of the staff reduction in July 2004 and lower recruiting and relocation expenses reflecting a decline in hiring and the use of relocation payment incentives in 2004 compared to 2003, partially offset by higher severance expenses paid to employees affected by the staff reduction in 2004 and higher bonus expenses in 2004, and

•

lower other expenses of $134,000, primarily reflecting lower materials expenses due to a decrease in our consumption of materials to produce AAV vectors and support our other on-going research activities as a result of the transfer of our Parkinson’s program into a clinical development phase, and the general impact of our lower staff levels in 2004.

Clinical development

	Year Ended December 31,
(In thousands)	2005		2004		2003
Personnel-related	$	1,343	$	2,189	$	2,709
External research and development		543		660		435
Other expenses including facilities overhead and depreciation		2,539		3,883		5,211
Total clinical development expenses	$	4,425	$	6,732	$	8,355

Comparison of Years Ended December 31, 2005 and 2004. The decreases in our total clinical development expenses for the year ended December 31, 2005, compared to 2004, of $2.3 million, were primarily due to changes in costs for the following:

•

lower personnel-related expenses of $846,000, reflecting a significantly lower average staff level as a result of staff reductions in July 2004 and August 2005 and lower severance-related costs, partially offset by higher average salaries in 2005, and

•

lower other expenses of $1.3 million, primarily due to a decrease in depreciation charges as a result of the write-down of the cost basis of our long-lived assets during the year due to impairment, a decrease in the amounts of materials consumed in 2005 compared to the prior year in connection with the production of clinical-grade AAV vectors to support the needs of our clinical trials, and a decrease in other costs associated with our transition out of gene-therapy related activities.

Comparison of Years Ended December 31, 2004 and 2003. The decreases in our total clinical development expenses for the year ended December 31, 2004, compared to 2003, of $1.6 million, were primarily due to changes in costs for the following:

•

lower other expenses of $1.3 million, primarily reflecting lower license origination fees, including $97,000 of non-cash charges in connection with the issuance of warrants in 2003, and lower materials expenses reflecting lower levels of material consumed in 2004 for the production of clinical grade AAV vectors due to the delayed needs of our development programs at the clinical development stage, and

•

lower personnel-related expenses of $520,000, reflecting a lower average staff level, partially offset by higher severance expenses paid to employees affected by the staff reduction in 2004,

partially offset by,

•

higher expenditures for external clinical development services from third-party collaborators associated with recruiting and treating subjects in our clinical trials of $225,000, primarily related to regulatory costs associated with the filing for FDA approval and recruiting of our first subject in our phase I/II clinical trial for AV201, our gene-therapy-based product candidate for the treatment of Parkinson’s disease.

Total research and development expenses for 2005 were within management’s expectations, taking into account the scheduled pace of subject recruitment in our gene therapy-based Parkinson’s disease clinical trial and the lengthy time periods common to negotiations with external parties. We believe delays in regulatory approvals and scheduling of participants will continue to be factors that could limit the pace of progress in future clinical trials for our portfolio of small molecule product candidates, albeit to a lesser degree than we experienced with gene therapy clinical trials. As a result, we have taken steps to reduce our overhead and operating costs in order to extend the life of our financial resources. If we are successful in our efforts to develop our product candidates, including the initiation of clinical trials, or acquire or in-license additional product candidates for development, our total research and development spending in 2006 will be likely to remain the same or rise in order to meet the development needs of such product candidates.

General and Administrative Expenses

	Year Ended December 31,
(In thousands, except percentages)	2005			2004			2003
Personnel-related	$	3,434		$	3,162		$	3,244
Legal and professional fees		2,219			1,450			1,497
Non-recurring severance		22			1,022			—
Other expenses including facilities overhead and depreciation		2,589			2,733			2,658
Total general and administrative expenses	$	8,264		$	8,367		$	7,399
Percentage (decrease) increase over prior period		(1	%)		13	%

Comparison of the Years Ended December 31, 2005 and 2004 . The decrease of $103,000 in our general and administrative expenses in 2005, compared to 2004, was primarily due to changes in costs for the following:

•

lower severance expenses of $1.0 million, primarily related to severance expense accrued in March 2004 in connection with the resignation of our former CEO, and

•

lower other expenses of $144,000, including savings from lower corporate insurance premiums,

partially offset by,

•

higher legal and professional fees of $769,000, primarily related to an increase in costs associated with being a public company and increased use of third-party business consultants, and

•

higher personnel-related expenses of $272,000, reflecting higher average salaries and bonuses, partially offset by a slightly lower staff level in 2005.

Comparison of the Years Ended December 31, 2004 and 2003 . The increase of $968,000 in our general and administrative expenses in 2004, compared to 2003, was primarily due to severance expense of $1.0 million, approximately $900,000 of which was accrued in connection with the resignation of our former CEO in March 2004.

We expect our general and administrative expenses for 2006 to decrease below our 2005 levels, primarily due to lower average staff and overhead costs. However, if we are successful in the clinical development of our products, including increasing awareness of the market potential for our drug candidates, or expand our portfolio of development candidates through additional strategic relationships and collaborations, our expected general and administrative spending levels may increase in connection with the changing needs of the company.

Impairment Loss Related to Long-Lived Assets

				Year Ended December 31,
(In thousands)				2005				2004				2003
Impairment loss related to long-lived assets				$	6,130			$	—			$	—

The carrying value of long-lived assets is reviewed for impairment whenever events or changes in circumstances indicate that the asset may not be recoverable. An impairment loss is recognized when the total of estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount or appraised value, as appropriate.

During 2005, we recorded impairment charges of $6.1 million related to leasehold improvements and equipment associated with approximately 40,000 square feet of manufacturing, laboratory, and office space under lease through May 2008 and approximately 11,000 square feet of similar space we have under lease through November 2010. These charges were based on our assessments of changes in the scope of our research and development activities at June 30 and September 30, 2005, and the determination that it was not cost effective to re-engineer facilities that had been designed to support our AAV-based gene therapy programs. Based on these assessments, we have consolidated our operations and entered into sublease agreements for portions of these facilities. Under rental market conditions at the time of each assessment, we determined we would not receive incremental rents above the cost of our underlying lease obligations. Therefore, we adjusted the cost basis of the long-lived assets associated with these facilities to zero, to reflect their estimated fair value. These charges do not impact our cash flow and represent an acceleration of depreciation expenses that were scheduled to be recognized over the next three to five years. As a result of the recognition of these charges, future depreciation expenses for these long-lived assets will decrease.

Interest Income

	Year Ended December 31,
(In thousands, except percentages)	2005			2004			2003
Interest income	$	1,682		$	1,905		$	3,282
Percentage decrease over prior period		(12	%)		(42	%)

Almost all of our interest income is generated from our investments in high-grade marketable securities of government and corporate debt. The decline in interest income between 2005 and 2004 was primarily due to the

decrease in our outstanding interest-bearing cash and securities balances, due to the use of such resources to fund our on-going operations during the year, partially offset by a rising average yield earned on our portfolio of investments. The decline in interest income between 2004 and 2003 was due to the decrease in our outstanding interest-bearing cash and securities balance combined with a declining average yield earned on our portfolio of investments during the period.

Recently Issued Accounting Standards

See Note 1, “Summary of Significant Accounting Policies — New Accounting Pronouncements,” in the Notes to Consolidated Financial Statements for a discussion of recent accounting pronouncements and their effect, if any, on Avigen, which discussion is incorporated by reference here.

Deferred Income Tax Assets

In accordance with FAS 109, “ Accounting for Income Taxes ,” which is described in the Notes to our Financial Statements, we have calculated a deferred tax asset based on the potential future tax benefit we may be able to realize in future periods as a result of the significant tax losses experienced since our inception. However, the value of such deferred tax asset must be calculated using the tax rates expected to apply to the taxable income in the years in which such income occurs. Since we have no history of earnings, and cannot reliably predict when we might create taxable income, if at all, we have recorded a valuation allowance for the full amount of our calculated deferred tax asset.

Liquidity and Capital Resources

Since our inception in 1992, cash expenditures have significantly exceeded our revenue. We have funded our operations primarily through public offerings and private placements of our equity securities. After our initial public offering in May 1996, we raised $189 million from private placements and public offerings of our common stock and warrants to purchase our common stock. After our initial public offering, we also received additional funds as a result of exercises of previously issued warrants and options to purchase our common stock, including an additional $1.5 million during the three-year-period ended December 31, 2005. The timing of and amounts realized from the exercise of these warrants and options are determined by the decisions of the respective warrant and option holders, and are not controlled by us. Therefore, funds received from exercises of stock options and warrants in past periods should not be considered an indication of additional funds to be received in the future periods. In addition, a significant percentage of options and warrants currently outstanding have exercise prices that exceed the current trading price of our common stock, and so unless the trading price of our common stock increases significantly, those options and warrants may never be exercised.

In addition to funding our operations through sales of our common stock, in March 2003, we received $2.5 million in research support from Bayer Corporation in connection with our collaboration on a gene therapy product for hemophilia. In December 2005, we received a $12.0 million payment from Genzyme Corporation in connection with the agreement transferring to Genzyme rights to most of our AAV-based intellectual property, our gene therapy clinical trial programs for Parkinson’s disease and hemophilia, and clinical-grade vector materials.

We also have attempted to contain costs and reduce cash flow requirements by renting facilities, contracting with third parties to conduct research and development and using consultants, where appropriate. We expect to incur additional future expenses, resulting in significant additional cash expenditures, as we continue our research and development activities, including our efforts to develop, manufacture, and commercialize our current drug candidates, expand our product portfolio with additional development candidates through internal research, acquisition or in-licensing, and undertake additional preclinical studies and clinical trials of our product candidates. We also expect to incur substantial additional expenses relating to the filing, prosecution, maintenance, defense and enforcement of patent and other intellectual property claims.

At December 31, 2005, we had cash, cash equivalents, available-for-sale securities, and restricted investments, of approximately $70.4 million, compared to approximately $76.2 million at December 31, 2004 and $98.9 million at December 31, 2003. At December 31, 2005, 2004 and 2003, $10.4 million, $11.9 million, and $11.9 million, respectively, of restricted investments were pledged to secure certain long-term liabilities. The reduction of

$1.5 million in restricted investments at December 31, 2005, was directly associated with the reduction in our pledge to collateralize certain equipment operating leases. At December 31, 2005 and 2004, the portion of our investment portfolio pledged as collateral, which we refer to as restricted investments, includes $10.0 million for our line of credit and approximately $428,000 for letters of credit which serve as security deposits on a building lease. Our restricted investments would not be considered a current source of additional liquidity.

Operating Activities. Net cash used for operating activities was $6.0 million for 2005 compared to $21.8 million for 2004. The decrease in cash used for operating activities is primarily due to the receipt of $12.0 million in 2005 in connection with our transaction with Genzyme, and $5.6 million in lower 2005 research and development expenses as described previously.

Net cash used for operating activities in 2004 was $21.8 million compared to $19.3 million for 2003. The increase in the amount of cash used in 2004 compared to 2003 is primarily due to the $2.5 million payment received from Bayer in 2003 in connection with our collaboration agreement.

The cash used in operating activities for these years was primarily used to support our internal research and development activities, as well as preclinical studies and clinical trials performed by third parties, and our evaluation of potential in-license product opportunities. The level of cash used in operating activities in 2005 was in line with management’s expectations. The level of cash used for operating activities during 2004 was slightly lower than management’s expectations due to the general delays in the progress of our clinical trials.

Investing and Financing Activities . Net cash provided by investing and financing activities in 2005 was $14.0 million and $286,000, respectively, compared to $22.1 million and $512,000, respectively, for the same activities in 2004. The cash provided by investing activities consisted primarily of sales and maturities, net of purchases, of available-for-sale securities and the reduction in restricted investments, offset to a small degree by purchases of property and equipment of $277,000 in 2005 and $467,000 in 2004. During 2005, cash provided by investing activities also included $182,000 proceeds from our sale of laboratory and office equipment and furniture in connection with our consolidation of facilities previously used for our gene therapy activities. The cash provided by financing activities consisted of proceeds from the exercise of stock options and warrants during the period.

Net cash provided by investing and financing activities in 2003 was $13.1 million and $718,000, respectively. The cash provided by investing activities consisted primarily of sales and maturities, net of purchases, of available-for-sale securities, offset to a small degree by purchases of property and equipment of $555,000 and an increase in restricted investments of $428,000. The cash provided by financing activities consisted of proceeds from the exercise of stock options and warrants during the period.

During 2005, in connection with our decision to discontinue funding of our gene therapy programs, we took steps to reduce expenses by reducing our staff level and consolidating our operations in order to reduce overhead and sublease portions of our facilities. At December 31, 2005, we had reduced our full-time employee staff level to 35 from 60 at the end of the previous year, and completed sublease agreements for approximately 26,250 square feet of our leased facilities, or 23 percent. We believe that the future annual savings in personnel costs, including salaries, benefits, and temporary staffing, related to the impact of the August 2005 staff reduction will approximate $2.2 million per year, and that the sum of scheduled sublease income and related reimbursement of a portion of our facilities overhead costs from our subtenants will approximate $3.7 million over the remaining lease terms.

The following are contractual commitments at December 31, 2005 associated with debt obligations, lease obligations net of sublease income, and contractual commitments to fund third-party research (in thousands):

	Payments Due by Period
Contractual Commitment	Total			Less than 1 year			2-3 years			4-5 years
Operating leases	$	10,153		$	2,437		$	4,550		$	3,166
Sublease income		(1,989	)		(532	)		(966	)		(491	)
Net operating leases		8,164			1,905			3,584			2,675
Revolving line of credit		8,000			—			8,000			—
Research funding for third-parties		510			510			—			—
Total	$	16,674		$	2,415		$	11,584		$	2,675

In June 2004, we amended the terms of our $10.0 million revolving line of credit which had been put in place with Wells Fargo Bank in June 2000, to provide support for construction-related activities, and was subsequently amended in June 2002. Under the terms of the current amendment, the expiration date of the borrowing was extended from June 1, 2005 to June 1, 2007, thereby deferring the timetable to repay principal borrowed for two years. The debt instrument bears interest at a floating rate based on the London Inter-Bank Offered Rate, which is reset in three-month increments after the date of each drawdown, until such expiration. As of December 31, 2005 and 2004, the average annual rate of interest charged on the borrowing was approximately 4.97% and 2.70%, respectively. Also under the terms of this agreement, we pledged a portion of our portfolio of available for sale securities as collateral and have identified the amount of the pledged securities as restricted investments on our balance sheets. The amount of the pledged securities is equal to the amount of utilized borrowing capacity on the line of credit. At December 31, 2005, we had borrowed $8.0 million from the line of credit and had reserved the remaining $2.0 million in borrowing capacity to secure a letter of credit in connection with the property lease entered into in November 2000. As a result, at December 31, 2005, we have no more borrowing capacity under this facility.

Our current office and facility includes approximately 112,500 square feet of space. Of this, approximately 45,000 square feet of space is leased through May 2008 and approximately 67,500 square feet of space is leased through November 2010. We have completed sublease agreements for approximately 26,250 square feet of these leased facilities. Payments scheduled under these lease commitments and sublease agreements are included in the table above under operating leases and sublease income.

We enter into commitments to fund collaborative research and clinical work performed by third parties. While these contracts are cancelable by either party, we expect the research studies and clinical work to be completed as defined in the terms of the agreements, and all amounts paid when due. Payments scheduled to be made under these contracts are included in the table above under research funding for third-parties.

We believe we will continue to require substantial additional funding in order to complete the research and development activities currently contemplated and to commercialize our proposed products. We believe that with the reductions in our staff over the past two years, our efforts to reduce other legacy gene therapy-related spending, the receipt of $12 million from Genzyme in connection with the assignment of rights to our gene therapy interests, and the consolidation of our operations and sublease of portions of our facilities, our financial resources at December 31, 2005 will be adequate to fund our projected operating needs for approximately three years. However, this forward-looking statement is based upon our current plans and assumptions regarding our future operating and capital requirements, which may change. Our future operating and capital requirements will depend on many factors, including:

•

continued scientific progress in research and development programs;

•

the scope and results of preclinical studies and clinical trials;

•

the time and costs involved in obtaining regulatory approvals;

•

the costs involved in filing, prosecuting and enforcing patents claims and other intellectual property rights;

•

the costs involved in obtaining licenses to patented technologies from third-parties that may be needed to commercialize our product candidates;

•

competing technological developments;

•

the cost of manufacturing our product candidates for clinical trials and sales;

•

the costs of marketing and commercialization activities;

•

how successful, if at all, we are at acquiring or in-licensing additional compounds, and the nature of the consideration we pay for acquired or in-licensed compounds; and

•

other factors which may not be within our control.

We intend to continue to seek additional funding through public or private equity or debt financing, when market conditions allow, or through additional collaborative arrangements with corporate partners. We may consider issuing equity securities under our October 2000 shelf registration statement. The balance of securities available for sale under

the existing shelf registration agreement is approximately $26.4 million. If we raise additional funds by issuing equity securities, there may be further dilution to existing stockholders. We cannot assure our investors that we will be able to enter into such financing arrangements on acceptable terms or at all. Without such additional funding, we may be required to delay, reduce the scope of, or eliminate one or more of our research or development programs.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio and our long-term debt. We do not hold derivative financial investments, derivative commodity investments or other financial investments or engage in foreign currency hedging or other transactions that expose us to other market risks. None of our investments are held for trading purposes. Our investment objectives are focused on preservation of principal and liquidity. By policy, we manage our exposure to market risks by limiting investments to high quality issuers and highly liquid instruments with effective maturities of less than five years, and an average aggregate portfolio duration of approximately one to three years. Our entire portfolio is classified as available-for-sale and, as of December 31, 2005, consisted of 100% fixed-rate securities. This compares to approximately 95% fixed-rate securities and 5% variable-rate securities at December 31, 2004.

We have evaluated the risk associated with our portfolios of investments in marketable securities and have deemed this market risk to be immaterial. If market interest rates were to increase by 100 basis points, or 1%, from their December 31, 2005 levels, we estimate that the fair value of our securities portfolio would decline by approximately $533,000. Our estimated exposure at December 31, 2005 is lower than our estimated $740,000 exposure at December 31, 2004 due to the reduction in size of our overall portfolio. The modeling technique used measures duration risk sensitivity to estimate the potential change in fair value arising from an immediate hypothetical shift in market rates and quantifies the ending fair market value including principal and accrued interest.

Our long-term debt includes a $10.0 million revolving line of credit due June 1, 2007, of which we have drawn down $8.0 million in cash that will need to be repaid. Interest charged on the borrowing is based on LIBOR and is reset in three-month increments based on the date of each original drawdown. As of December 31, 2005, the average annual rate of interest charged on the borrowing was approximately 4.97% compared to 2.70% as of December 31, 2004.

Item 8. Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

The following financial statements are filed as part of this Report on Form 10-K. Condensed supplementary data for each of the quarters in the years ended December 31, 2005 and 2004 are set forth under Note 14 of our financial statements.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of Avigen, Inc.

We have audited the accompanying balance sheets of Avigen, Inc. (a development stage company) as of December 31, 2005 and 2004, and the related statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2005 and for the period from inception (October 22, 1992) through December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Avigen, Inc. at December 31, 2005 and 2004, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2005 and for the period from inception (October 22, 1992) through December 31, 2005, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Avigen Inc.’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 14, 2006 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

Palo Alto, California
March 14, 2006

Item 1. Financial Statements

AVIGEN, INC.
(a development stage company)

BALANCE SHEETS
(in thousands, except share and per share information)

	December 31,
	2005			2004
ASSETS
Current Assets:
Cash and cash equivalents	$	11,510		$	3,217
Available-for-sale securities		48,450			61,073
Accrued interest		470			708
Prepaid expenses and other current assets		737			443
Total current assets		61,167			65,441
Restricted investments		10,428			11,928
Property and equipment, net		3,929			12,497
Deposits and other assets		740			641
Total assets	$	76,264		$	90,507

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and other accrued liabilities	$	984		$	641
Accrued compensation and related expenses		534			927
Total current liabilities		1,518			1,568
Long-term loan payable		8,000			8,000
Deferred rent and other liabilities		1,282			1,064
Commitments
Stockholders’ equity:
Preferred Stock, $0.001 par value, 5,000,000 shares authorized, none issued and outstanding in 2005 and 2004		—			—
Common Stock, $0.001 par value, 50,000,000 shares authorized, and 20,907,273 and 20,381,250 shares issued and outstanding at December 31, 2005 and 2004, respectively		21			20
Additional paid-in capital		237,258			236,959
Accumulated other comprehensive loss		(540	)		(525	)
Deficit accumulated during development stage		(171,275	)		(156,579	)
Total stockholders’ equity		65,464			79,875
Total liabilities and stockholders’ equity	$	76,264		$	90,507

See accompanying notes.

AVIGEN, INC.
(a development stage company)

STATEMENTS OF OPERATIONS
(in thousands, except for share and per share information)

	Year Ended December 31,									Period from October 22, 1992 (inception) through
	2005			2004			2003			December 31, 2005
Revenue	$	12,026		$	2,195		$	463		$	15,471
Operating expenses:
Research and development		13,775			19,344			21,805			141,280
General and administrative		8,264			8,367			7,399			60,454
Impairment loss related to long-lived assets		6,130			—			—			6,130
In-license fees		—			—			—			5,034
Total operating expenses		28,169			27,711			29,204			212,898
Loss from operations		(16,143	)		(25,516	)		(28,741	)		(197,427	)
Interest expense		(323	)		(209	)		(250	)		(2,703	)
Interest income		1,682			1,905			3,282			28,992
Other income (expense), net		88			(103	)		(65	)		(137	)
Net loss	$	(14,696	)	$	(23,923	)	$	(25,774	)	$	(171,275	)
Basic and diluted net loss per common share	$	(0.71	)	$	(1.17	)	$	(1.28	)
Shares used in basic and diluted net loss per common share calculation		20,624,229			20,362,155			20,149,214

See accompanying notes.

AVIGEN, INC.
(a development stage company)

STATEMENTS OF STOCKHOLDERS’ EQUITY

Period from October 22, 1992 (inception) through December 31, 2005
(in thousands, except for share information)

	Preferred Stock				Common Stock				Class B Convertible Common Stock
	Shares		Amount		Shares		Amount		Shares		Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Gain (Loss)		Deficit Accumulated During the Development Stage			Total Stockholders’ Equity
Balance at October 22, 1992 (inception)		—	$	—		—	$	—		—	$	—	$	—	$	—	$	—		$	—
Issuance of common stock at $.004 per share in November and December 1992		—		—		896,062		1		—		—		4		—		—			5
Issuance of common stock at $.554 per share from January to June 1993 for services rendered		—		—		20,316		—		—		—		11		—		—			11
Issuance of common stock at $.004 to $.222 per share from November 1992 to March 1993 for cash		—		—		1,003,406		1		—		—		54		—		—			55
Issuance of Class B common stock at $.004 per share in December 1992 for cash		—		—		—		—		90,293		—		1		—		—			1
Issuance of Series A preferred stock at $4.43 per share from March to June 1993 for cash (net of issuance costs of $410,900)		678,865		1		—		—		—		—		2,595		—		—			2,596
Issuance of Series A preferred stock at $3.85 per share in March 1993 for cancellation of note payable and accrued interest		68,991		—		—		—		—		—		266		—		—			266
Issuance of common stock at $.004 per share in November 1993 pursuant to antidilution rights		—		—		22,869		—		—		—		1		—		—			1
Issuance of Series A preferred stock at $4.43 per share from July to November 1993 for cash and receivable (net of issuance costs of $187,205)		418,284		—		—		—		—		—		1,665		—		—			1,665
Issuance of Series B preferred stock at $5.54 per share in March 1994 for cash (net of issuance costs of $34,968)		128,031		—		—		—		—		—		674		—		—			674
Issuance of Series C preferred stock at $4.87 per share from July 1994 to June 1995 for cash and receivables (net of issuance costs of $259,620)		739,655		1		—		—		—		—		3,344		—		—			3,345
Issuance of Series C preferred stock at $4.87 per share in June 1995 for cancellation of notes payable		35,500		—		—		—		—		—		173		—		—			173
Net loss and comprehensive loss from inception to June 30, 1995		—		—		—		—		—		—		—		—		(8,608	)		(8,608	)
Balance at June 30, 1995 (carried forward)		2,069,326	$	2		1,942,653	$	2		90,293	$	—	$	8,788	$	—	$	(8,608	)	$	184

See accompanying notes.

AVIGEN, INC.
(a development stage company)

STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)

Period from October 22, 1992 (inception) through December 31, 2005
(in thousands, except for share information)

	Preferred Stock						Common Stock					Class B Convertible Common Stock
	Shares			Amount			Shares			Amount		Shares			Amount		Additional Paid-in Capital			Accumulated Other Comprehensive Gain (Loss)		Deficit Accumulated During the Development Stage			Total Stockholders’ Equity
Balance at June 30, 1995 (brought forward)		2,069,326		$	2			1,942,653		$	2		90,293		$	—	$	8,788		$	—	$	(8,608	)	$	184
Issuance of Series C preferred stock at $4.87 per share in July 1995 for cash (net of issuance costs of $26,000)		41,042			—			—			—		—			—		174			—		—			174
Issuance of Series D preferred stock at $7.09 per share from October 1995 to February 1996 for cash (net of issuance costs of $25,279)		205,351			—			—			—		—			—		1,430			—		—			1,430
Issuance of Series D preferred stock at $7.09 per share in March 1996 in settlement of accounts payable		22,574			—			—			—		—			—		160			—		—			160
Issuance of common stock at $.004 per share in March 1996 pursuant to antidilution rights		—			—			17,630			—		—			—		1			—		—			1
Issuance of stock options in February 1996 in settlement of certain accrued liabilities		—			—			—			—		—			—		137			—		—			137
Conversion of Class B common stock to common stock		—			—			231,304			1		(90,293	)		—		(1	)		—		—			—
Issuance of warrants to purchase common stock in connection with 1996 bridge financing in March 1996		—			—			—			—		—			—		300			—		—			300
Conversion of preferred stock to common stock in May 1996		(2,338,293	)		(2	)		2,355,753			2		—			—		(1	)		—		—			(1	)
Issuance of common stock at $8.00 per share in connection with the May 1996 initial public offering (net of issuance costs of $798,414 and underwriting discount of $1,500,000)		—			—			2,500,000			2		—			—		17,699			—		—			17,701
Proceeds from exercise of options at $0.44 per share in June 1996		—			—			6,178			—		—			—		3			—		—			3
Repurchase of common stock		—			—			(18,325	)		—		—			—		(1	)		—		—			(1	)
Deferred compensation		—			—			—			—		—			—		164			—		—			164
Amortization of deferred compensation		—			—			—			—		—			—		(128	)		—		—			(128	)
Net loss and comprehensive loss		—			—			—			—		—			—		—			—		(4,097	)		(4,097	)
Balance at June 30, 1996 (carried forward)		—		$	—			7,035,193		$	7		—		$	—	$	28,725		$	—	$	(12,705	)	$	16,027

See accompanying notes.

AVIGEN, INC.
(a development stage company)

STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)

Period from October 22, 1992 (inception) through December 31, 2005
(in thousands, except for share information)

	Preferred Stock				Common Stock				Class B Convertible Common Stock
	Shares		Amount		Shares		Amount		Shares		Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Gain (Loss)		Deficit Accumulated During the Development Stage			Total Stockholders’ Equity
Balance at June 30, 1996 (brought forward)		—	$	—		7,035,193	$	7		—	$	—	$	28,725	$	—	$	(12,705	)	$	16,027
Issuance of common stock at $8.00 per share in July 1996 in connection with the exercise of underwriters’ over-allotment option (net of underwriting discount of $150,000)		—		—		250,000		—		—		—		1,850		—		—			1,850
Proceeds from exercise of options at $0.44 to $0.71 per share		—		—		3,387		—		—		—		1		—		—			1
Amortization of deferred compensation		—		—		—		—		—		—		41		—		—			41
Net loss and comprehensive loss		—		—		—		—		—		—		—		—		(5,578	)		(5,578	)
Balance at June 30, 1997		—		—		7,288,580		7		—		—		30,617		—		(18,283	)		12,341
Proceeds from exercise of options at $0.44 to $0.71 per share		—		—		17,278		—		—		—		10		—		—			10
Amortization of deferred compensation		—		—		—		—		—		—		41		—		—			41
Compensation expense related to options granted for services		—		—		—		—		—		—		68		—		—			68
Net loss and comprehensive loss		—		—		—		—		—		—		—		—		(8,877	)		(8,877	)
Balance at June 30, 1998		—		—		7,305,858		7		—		—		30,736		—		(27,160	)		3,583
Proceeds from exercise of options at $0.44 to $4.31 per share		—		—		181,045		—		—		—		222		—		—			222
Amortization of deferred compensation		—		—		—		—		—		—		41		—		—			41
Issuance of common stock at $2.25–$2.94 per share and warrants in August to September 1998 in connection with a Private Placement (net of issuance cost of $233,584)		—		—		1,306,505		1		—		—		2,734		—		—			2,735
Issuance of common stock at $3.81–$4.88 per share and warrants in December 1998 in connection with a Private Placement (net of issuance cost of $438,183)		—		—		1,367,280		2		—		—		5,195		—		—			5,197
Issuance of common stock at $5.50–$6.00 per share and warrants in February to April 1999 in connection with a Private Placement (net of issuance cost of $1,033,225)		—		—		2,198,210		2		—		—		12,154		—		—			12,156
Net loss and comprehensive loss		—		—		—		—		—		—		—		—		(9,611	)		(9,611	)
Balance at June 30, 1999 (carried forward)		—	$	—		12,358,898	$	12		—	$	—	$	51,082	$	—	$	(36,771	)	$	14,323

See accompanying notes.

AVIGEN, INC.
(a development stage company)

STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)

Period from October 22, 1992 (inception) through December 31, 2005
(in thousands, except for share information)

	Preferred Stock				Common Stock				Class B Convertible Common Stock
	Shares		Amount		Shares		Amount		Shares		Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Gain (Loss)			Deficit Accumulated During the Development Stage			Total Stockholders’ Equity
Balance at June 30, 1999 (brought forward)		—	$	—		12,358,898	$	12		—	$	—	$	51,082	$	—		$	(36,771	)	$	14,323
Proceeds from exercise of options at $0.44 to $15.50		—		—		440,259		1		—		—		1,533		—			—			1,534
Proceeds from exercise of warrants at $2.81 to $31.95		—		—		1,017,215		1		—		—		8,427		—			—			8,428
Amortization of deferred compensation		—		—		—		—		—		—		5		—			—			5
Compensation expense related to options granted for services		—		—		—		—		—		—		89		—			—			89
Warrants granted for patent licenses		—		—		—		—		—		—		3,182		—			—			3,182
Warrants granted for building lease		—		—		—		—		—		—		1,738		—			—			1,738
Issuance of common stock at $16.19 to $25.56 per share and warrants in October and November 1999 in connection with a Private Placement (net of issuance cost of $2,804,255)		—		—		2,033,895		2		—		—		37,220		—			—			37,222
Issuance of common stock at $26 per share in April and May 2000 in connection with a Public Offering (net of issuance cost of $2,288,966)		—		—		1,150,000		1		—		—		27,610		—			—			27,611
Comprehensive loss:
Net loss		—		—		—		—		—		—		—		—			(15,039	)		(15,039	)
Net unrealized loss on available-for-sale securities		—		—		—		—		—		—		—		(80	)		—			(80	)
Comprehensive loss																						(15,119	)
Balance at June 30, 2000 (carried forward)		—	$	—		17,000,267	$	17		—	$	—	$	130,886	$	(80	)	$	(51,810	)	$	79,013

See accompanying notes.

AVIGEN, INC.
(a development stage company)

STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)

Period from October 22, 1992 (inception) through December 31, 2005
(in thousands, except for share information)

	Preferred Stock				Common Stock				Class B Convertible Common Stock
	Shares		Amount		Shares		Amount		Shares		Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Gain (Loss)			Deficit Accumulated During the Development Stage			Total Stockholders’ Equity
Balance at June 30, 2000 (brought forward)		—	$	—		17,000,267	$	17		—	$	—	$	130,886	$	(80	)	$	(51,810	)	$	79,013
Proceeds from exercise of options at $0.44 to $34.00 per share		—		—		165,700		—		—		—		869		—			—			869
Proceeds from exercise of warrants at $2.18 to $23.43		—		—		174,255		1		—		—		771		—			—			772
Compensation expense related to options granted for services		—		—		—		—		—		—		336		—			—			336
Issuance of common stock at $37.50 to $45.06 per share in November 2000 Public Offering (net of issuance cost of $4,622,188)		—		—		2,291,239		2		—		—		86,084		—			—			86,086
Issuance of common stock at $47.82 per share in February 2001 pursuant to a collaboration agreement		—		—		313,636		—		—		—		15,000		—			—			15,000
Comprehensive loss:
Net loss		—		—		—		—		—		—		—		—			(16,014	)		(16,014	)
Net unrealized gain on available-for-sale securities		—		—		—		—		—		—		—		1,120			—			1,120
Comprehensive loss																						(14,894	)
Balance at June 30, 2001		—		—		19,945,097		20		—		—		233,946		1,040			(67,824	)		167,182
Proceeds from exercise of options at $2.13 to $6.75 per share		—		—		11,282		—		—		—		60		—			—			60
Proceeds from exercise of warrants $7.50 per share		—		—		9,955		—		—		—		75		—			—			75
Compensation expense related to options granted for services		—		—		—		—		—		—		179		—			—			179
Comprehensive loss:
Net loss		—		—		—		—		—		—		—		—			(11,319	)		(11,319	)
Net unrealized gain on available-for-sale securities		—		—		—		—		—		—		—		1,173			—			1,173
Comprehensive loss																						(10,146	)
Balance at December 31, 2001		—		—		19,966,334		20		—		—		234,260		2,213			(79,143	)		157,350
Proceeds from exercise of options at $1.875 to $8.525 per share		—		—		34,627		—		—		—		113		—			—			113
Proceeds from exercise of warrants at $7.50 per share		—		—		99,585		—		—		—		747		—			—			747
Compensation expense related to options granted for services		—		—		—		—		—		—		217		—			—			217
Comprehensive loss:
Net loss		—		—		—		—		—		—		—		—			(27,739	)		(27,739	)
Net unrealized loss on available-for-sale securities		—		—		—		—		—		—		—		(631	)		—			(631	)
Comprehensive loss																						(28,370	)
Balance at December 31, 2002 (carried forward)		—	$	—		20,100,546	$	20		—	$	—	$	235,337	$	1,582		$	(106,882	)	$	130,057

See accompanying notes.

AVIGEN, INC.
(a development stage company)

STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)

Period from October 22, 1992 (inception) through December 31, 2005
(in thousands, except for share information)

	Preferred Stock				Common Stock				Class B Convertible Common Stock
	Shares		Amount		Shares		Amount		Shares		Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Gain (Loss)			Deficit Accumulated During the Development Stage			Total Stockholders’ Equity
Balance at December 31, 2002 (brought forward)		—	$	—		20,100,546	$	20		—	$	—	$	235,337	$	1,582		$	(106,882	)	$	130,057
Proceeds from exercise of options at $2.12 to $6.50 per share		—		—		63,746		—		—		—		242		—			—			242
Proceeds from exercise of warrants at $2.47 to $6.09 per share		—		—		112,102		—		—		—		476		—			—			476
Compensation expense related to options granted for services		—		—		—		—		—		—		65		—			—			65
Comprehensive loss:
Net loss		—		—		—		—		—		—		—		—			(25,774	)		(25,774	)
Net unrealized loss on available-for-sale securities		—		—		—		—		—		—		—		(1,180	)		—			(1,180	)
Comprehensive loss																						(26,954	)
Balance at December 31, 2003		—		—		20,276,394		20		—		—		236,120		402			(132,656	)		103,886
Proceeds from exercise of options at $0.443 to $6.313 per share		—		—		86,856		—		—		—		403		—			—			403
Proceeds from exercise of warrants at $6.05 per share		—		—		18,000		—		—		—		109		—			—			109
Compensation expense related to options granted for services		—		—		—		—		—		—		230		—			—			230
Warrants granted for patent licenses		—		—		—		—		—		—		97		—			—			97
Comprehensive loss:
Net loss		—		—		—		—		—		—		—		—			(23,923	)		(23,923	)
Net unrealized loss on available-for-sale securities		—		—		—		—		—		—		—		(927	)		—			(927	)
Comprehensive loss																						(24,850	)
Balance at December 31, 2004		—		—		20,381,250		20		—		—		236,959		(525	)		(156,579	)		79,875
Proceeds from exercise of options at $0.487 to $3.53 per share		—		—		526,023		1		—		—		286		—			—			287
Compensation expense related to options granted for services		—		—		—		—		—		—		13		—			—			13
Comprehensive loss:
Net loss		—		—		—		—		—		—		—		—			(14,696	)		(14,696	)
Net unrealized loss on available-for-sale securities		—		—		—		—		—		—		—		(15	)		—			(15	)
Comprehensive loss																						(14,711	)
Balance at December 31, 2005		—	$	—		20,907,273	$	21		—	$	—	$	237,258	$	(540	)	$	(171,275	)	$	65,464

See accompanying notes.

AVIGEN, INC.
(a development stage company)

STATEMENTS OF CASH FLOWS
(in thousands)

	Year Ended December 31,
	2005			2004			2003			Period from October 22, 1992 (inception) through December 31, 2005
Operating Activities
Net loss	$	(14,696	)	$	(23,923	)	$	(25,774	)	$	(171,275	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,549			3,610			3,640			18,526
Gain on disposal of property and equipment		(65	)		—			—			(65	)
Impairment loss related to long-lived assets		6,130			—			—			6,130
Amortization of deferred compensation		—			—			—			164
Non-cash rent expense for warrants issued in connection with the extension of the building lease		217			217			217			1,266
Amortization of deferred rent		3			97			115			954
Non-cash compensation expense for common stock, warrants, and stock options issued for services		13			230			65			1,718
Warrants issued for patent license		—			—			—			3,182
Changes in operating assets and liabilities:
Accrued interest		238			66			219			(286	)
Prepaid expenses and other current assets		(294	)		1			14			(921	)
Deposits and other assets		(316	)		—			210			(342	)
Accounts payable, other accrued liabilities and accrued compensation and related expenses		167			49			(160	)		2,245
Deferred revenue		—			(2,125	)		2,125			—
Net cash used in operating activities	$	(6,054	)	$	(21,778	)	$	(19,329	)	$	(138,704	)
Investing Activities
Purchases of property and equipment		(277	)		(467	)		(555	)		(28,455	)
Proceeds from disposal of property and equipment		231			—			—			231
Decrease (increase) in restricted investments		1,500			—			(428	)		(10,428	)
Purchases of available-for-sale securities		(66,475	)		(79,670	)		(84,129	)		(771,560	)
Maturities of available-for-sale securities		79,082			102,236			98,228			722,571
Net cash provided by (used in) investing activities		14,061			22,099			13,116			(87,641	)
Financing Activities
Proceeds from long-term obligations		—			—			—			10,133
Repayment of long-term obligations		—			—			—			(1,710	)
Proceeds from bridge financing		—			—			—			1,937
Repayment of bridge financing		—			—			—			(2,131	)
Payments on capital lease obligations		—			—			—			(2,154	)
Proceeds from sale-leaseback of equipment		—			—			—			1,927
Proceeds from issuance preferred stock, net of issuance costs		—			—			—			9,885
Proceeds from warrants and options exercised		286			512			718			14,349
Proceeds from issuance of common stock, net of issuance costs and repurchases		—			—			—			205,619
Net cash provided by financing activities		286			512			718			237,855
Net increase (decrease) in cash and cash equivalents		8,293			833			(5,495	)		11,510
Cash and cash equivalents, beginning of period		3,217			2,384			7,879			—
Cash and cash equivalents, end of period	$	11,510		$	3,217		$	2,384		$	11,510
Supplemental disclosure
Issuance of warrants in connection with building lease extension	$	—		$	—		$	—		$	1,738
Issuance of preferred stock for cancellation of accounts payable, notes payable and accrued interest		—			—			—			499
Issuance of stock options for repayment of certain accrued liabilities		—			—			—			137
Issuance of warrants in connection with bridge financing		—			—			—			300
Issuance of warrants in connection with the extension of the building lease		—			—			—			1,738
Deferred compensation related to stock option grants		—			—			—			164
Purchase of property and equipment under capital lease financing		—			—			—			226
Cash paid for interest	$	323		$	209		$	250		$	2,210

See accompanying notes.

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

Summary of Significant Accounting Policies

Description of Business and Basis of Presentation

Avigen, Inc. was incorporated on October 22, 1992 in Delaware and is focused on developing and commercializing small molecule therapeutics and biologics to treat serious neurological and neuromuscular disorders. Our current product candidates primarily address neuromuscular spasm and spasticity and neuropathic pain. Since our inception, our activities have consisted principally of acquiring product rights, raising capital, establishing facilities and performing research and development. Accordingly, we are considered to be in the development stage. We operate in a single segment.

At December 31, 2005, we had an accumulated deficit of $171.3 million and expect to continue to incur substantial losses over the next several years while we continue in this development stage. Our operations are subject to certain risks and uncertainties frequently encountered by companies in the early stages of operations, particularly in the evolving market for small biotech and specialty pharmaceuticals companies. Such risks and uncertainties include, but are not limited to, timing and uncertainty of achieving milestones in clinical trials and in obtaining approvals by the FDA and regulatory agencies in other countries. Our ability to generate revenues in the future will depend substantially the timing and success of reaching development milestones and in obtaining regulatory approvals and market acceptance of our products, assuming the FDA approves our new drug applications. We plan to meet our future capital requirements primarily through issuances of equity securities, payments under collaborative agreements with third parties, government grants, and license fees. We intend to seek additional funding through public or private equity or debt financing, when market conditions allow. There can be no assurance that we will be able to enter into financing arrangements on acceptable terms in the future, if at all.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires our management to make judgments, assumptions and estimates that affect the amounts reported in our financial statements and the accompanying notes. Actual results could differ materially from those estimates.

Cash and Cash Equivalents

We consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. These amounts are recorded at cost, which approximates fair market value.

Available-for-Sale Securities

We invest our excess cash balances in marketable securities, primarily corporate debt securities, federal agency obligations, asset-backed securities, U.S. treasuries, and municipal bonds, with the primary investment objectives of preservation of principal, a high degree of liquidity, and maximum total return. All marketable securities are held in our name under the custodianship of Wells Capital Management. We have classified all our investments in marketable securities as available-for-sale. Available-for-sale securities are reported at market value and unrealized holding gains and losses, net of the related tax effect, if any, are excluded from earnings and are reported in other comprehensive income and as a separate component of stockholders’ equity until realized. A decline in the market value of a security below its cost that is deemed to be other than temporary is charged to earnings, and would result in the establishment of a new cost basis for the security.

Our available-for-sale securities consist principally of obligations with a minimum short-term rating of A1/P1 and a minimum long-term rating of A- and with effective maturities of less than three years. The cost of securities sold is based on the specific identification method. Interest on securities classified as available for sale is included in interest income.

AVIGEN, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS — (Continued)

Fair value of financial instruments

The fair value of our cash equivalents and available-for-sale securities is based on quoted market prices. The fair value of our loans payable is based on current interest rates available to us for debt instruments with similar terms, degrees of risk, and remaining maturities. The carrying amount of our cash equivalents, available-for-sale securities and loan payable are considered to be representative of their respective fair value at December 31, 2005 and 2004.

Restricted Investments

In June 2000, we initially entered into a financing arrangement to support construction related activities. Under this arrangement, we have pledged $10.0 million of our portfolio of available-for-sale securities to secure this long-term obligation.

In January 2002, we also entered into equipment operating leases for certain research and development equipment. Under the terms of these leases, we pledged $1.5 million of our portfolio of available-for-sale securities to secure these equipment operating leases. These leases were terminated in December 2005 and the associated pledge removed.

In May 2003, we secured two letters of credit to serve as security deposits in connection with a building lease that became effective July 1, 2003. This building lease was executed in February 2000 and replaced our previous building lease and sublease on the same premises that expired June 30, 2003 under the original terms of the agreements. Under the terms of these letters of credit, we have pledged $428,000 of our portfolio of available-for-sale securities to secure these letters of credit.

At December 31, 2005 and 2004, $10.4 million and $11.9 million, respectively, were classified as restricted investments in long term assets, representing the combined aggregate portion of our portfolio of available-for-sale securities that were pledged in connection with these long-term liabilities.

Concentration of Credit Risk

Cash, cash equivalents, available-for-sale securities and restricted investments consist of financial instruments that potentially subject us to concentrations of credit risk to the extent of the value of the assets recorded on the balance sheet. We believe that we have established guidelines for investment of our excess cash that maintain safety and liquidity through our policies on diversification among asset classes and issuers, as well as across investment maturities.

Impairment of Long-Lived Assets

All long-lived assets are reviewed for potential impairment whenever events or changes in business circumstances indicate that the carrying value of an asset may not be fully recoverable under Statement of Financial Account Standards No. 144 “Accounting for Impairment or Disposal of Long-Lived Assets.” Impairment is determined by comparing future projected undiscounted cash flows to be generated by the asset to its carrying value. If impairment is identified, a loss would be recognized and reflected in net loss to the extent that the carrying amount of the asset exceeds its estimated fair value determined by discounted cash flow analyses or comparable fair valued or similar assets.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the respective assets, or in the case of leasehold improvements, over the lesser of the estimated useful lives or the remaining lease terms. The estimated useful lives of our property and equipment range from three to seven years.

AVIGEN, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS — (Continued)

Expenses for repairs and maintenance are charged to operations as incurred. Upon retirement, disposition, or sale, the cost of the property and equipment disposed of and the related accumulated depreciation are deducted from the accounts, and any resulting gain or loss is credited or charged to operations.

Revenue Recognition

Revenues from the License or Assignment of Intellectual Property Rights

Revenues from Collaborative Research and Development Agreements

We recognize fees associated with up-front license, technology access and research and development funding payments under collaborative agreements ratably over the relevant periods specified in the agreements, generally the development phase. This development phase can be defined as a specified period of time, however, in certain cases, the collaborative agreement specifies a development phase that culminates with milestone objectives but does not have a fixed date and requires us to estimate the time period over which to recognize this revenue. Our estimated time periods are based on management’s estimate of the time required to achieve a particular development milestone considering the projected level of effort and current stage of development. If our estimate of the development-phase time period changes, the amount of revenue we recognize related to up-front payments for a given period will accelerate or decrease accordingly.

Royalty Revenues

We record royalty revenue from license agreements as earned in accordance with the contract terms when third-party results can be reliably determined and collectibility is reasonably assured. We have recorded approximately $38,000 in royalty revenue since our inception in connection with sales from a third party of products that utilize our gene therapy technologies. These products were sold for research purposes only and were primarily sold within the U.S. As of December 31, 2005, we no longer were directly entitled to collect royalty revenue on these products under the license agreements under which we previously collected them. This is because we have assigned our rights under those agreements to Genzyme. However, we may be entitled to collect from Genzyme sublicensing fees and royalties on these products potentially at different or lower rates than we previously collected as a party to the third-party licenses.

Grant Revenue

We record grant revenue in the period in which the revenue is earned as defined by the grant agreement. Since our inception, we have recognized approximately $690,000 of grant revenue, which includes amounts earned pursuant to reimbursements under government grants, of which all have come from the National Institutes of Health.

AVIGEN, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS — (Continued)

Deferred Rent

We record our obligations under facility operating lease agreements as rent expense. We recognize rent expense on a straight-line basis over the term of the operating lease. The difference in actual amounts paid and amounts recorded as rent expense during the fiscal year has been recorded as deferred rent. Amounts classified as deferred rent totaled $1.1 million at both December 31, 2005 and 2004.

Comprehensive Loss

Components of other comprehensive loss, including unrealized gains and losses on available-for-sale investments, were included as part of total comprehensive loss. For all periods presented, we have disclosed comprehensive loss in the statement of stockholders’ equity.

Research and Development Expenses

Pursuant to management’s assessment of the services that have been performed on clinical trials and other contracts, we recognize expenses as the services are provided. Several of our contracts extend across multiple reporting periods. Management assessments include, but are not limited to, an evaluation by the project manager of the work that has been completed during the period, measurement of progress prepared internally, estimates of incurred costs by the third-party service providers, and management’s judgment. The determination of the percentage of work completed that determines the amount of research and development expense that should be recognized in a given period requires significant judgment, and could have a material impact on our balance sheet and results of operations. These estimated expenses may or may not match the actual fees billed by the service providers as determined by actual work completed. We monitor service provider activities to the extent possible; however, if we underestimated activity levels associated with various studies at a given point in time, we could record significant research and development expenses in future reporting periods.

Income Taxes

Income taxes are accounted for in accordance with FAS 109, Accounting for Income Taxes, which requires the use of the liability method. Deferred tax assets and liabilities are provided for temporary differences between the financial reporting and the tax bases of existing assets and liabilities. To date, we have no history of earnings. Therefore, our net deferred tax assets are reduced by a valuation allowance to the extent that realization of the related deferred tax asset is not assured. We have recorded a valuation allowance for the full amount of our calculated deferred tax asset as of December 31, 2005 and 2004.

Basic and Diluted Net Loss Per Common Share

Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. The computation of basic net loss per share for all periods presented is derived from the information on the face of the statement of operations, and there are no reconciling items in either the numerator or denominator.

AVIGEN, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS — (Continued)

Diluted net loss per common share is computed as though all potential common shares that are dilutive were outstanding during the year, using the treasury stock method for the purposes of calculating the weighted-average number of dilutive common shares outstanding during the period. Potential dilutive common shares consist of shares issuable upon exercise of stock options and warrants. Securities that potentially could have diluted basic earnings per common share, but were excluded from the diluted net loss per common share computation because their inclusion would have been anti-dilutive, were as follows:

	Year Ended December 31,
	2005		2004		2003
Potential dilutive stock options outstanding		273,667		530,731		554,852
Outstanding securities excluded from the potential dilutive common shares calculation (1)		3,756,850		3,970,588		4,512,838

(1)

For purposes of computing the potential dilutive common shares, we have excluded outstanding stock options and warrants to purchase common stock whose exercise prices exceed the average of the closing sale prices of our common stock as reported on the NASDAQ National Market for the period.

New Accounting Pronouncements

In May 2005, the FASB issued FASB Statement No. 154, (“FAS 154”), “Accounting Changes and Error Corrections.” FAS 154 establishes retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. FAS 154 also provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable. FAS 154 becomes effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We do not expect the adoption of FAS 154 to have a material impact on our financial position, cash flows or results of operations.

In December 2004, the FASB issued FASB Statement No. 123(R), (“FAS 123(R)”), “ Share-Based Payment ,” which is a revision of FASB Statement No. 123 (“FAS 123”), “ Accounting for Stock-Based Compensation. ” FAS 123(R) supercedes APB Opinion No. 25, (APB 25), “Accounting for Stock Issued to Employees,” and amends FASB Statement No. 95, “ Statement of Cash Flows. ” FAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values at the date of grant and to record that cost as compensation expense over the period during which the employee is required to perform service in exchange for the award (generally over the vesting period of the award). Excess tax benefits, as defined by FAS 123(R), will be recognized as an addition to common stock. In April 2005, the SEC adopted a new rule that amends the compliance dates for FAS 123(R). In accordance with the new rule, we are required to implement FAS 123(R) at the beginning of our fiscal year that begins January 1, 2006. The Commission’s new rule does not change the accounting required by FAS 123(R); it changes only the dates of compliance.

In November 2005, the FASB issued FASB Staff Position No. FAS 123(R)-3, “Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards.” The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of employee share-based compensation, and to determine the subsequent impact on the APIC pool and consolidated statements of cash flows of the tax effects of employee share-based compensation awards that are outstanding upon adoption of SFAS 123(R). An entity may make a one-time election to adopt the transition method described in this guidance and may take up to one year from the later of its initial adoption of SFAS 123(R) or the effective date of this guidance, which was November 11, 2005. We are in the process of determining whether to adopt the alternative transition method provided in FAS 123(R)-3 for calculating the tax effects of share-based compensation pursuant to SFAS 123(R).

AVIGEN, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS — (Continued)

Effective January 1, 2006, we will adopt FAS 123(R) using the modified prospective transition method, which provides for certain changes to the method for valuing share-based compensation. The valuation provisions of FAS 123(R) apply to new awards and to awards that are outstanding at the effective date and subsequently modified or cancelled. Estimated compensation expense for awards outstanding at January 1, 2006 will be recognized over the remaining service period using the compensation cost calculated for pro forma disclosure purposes under FAS 123. In accordance with the modified prospective transition method, our statements of operations for periods prior to January 1, 2006 will not be restated to reflect the impact of FAS 123(R).

Our calculation of share-based compensation expense in future periods will be calculated using the Black-Scholes option valuation model and will include the portion of share-based payment awards that is ultimately expected to vest during the period and therefore will be adjusted to reflect estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. In our pro forma information required under SFAS 123 for the periods prior to 2006, we accounted for forfeitures as they occurred. For share awards granted after January 1, 2006, expenses will be amortized under the straight-line attribution method. For share awards granted prior to 2006, expenses are amortized under the straight-line single option method prescribed by SFAS 123. We expect that our adoption of FAS 123(R) in 2006 will have a material impact on our results of operations and net loss per share.

Stock-Based Compensation

Until FAS 123(R) becomes effective for Avigen on January 1, 2006, we choose to continue to account for stock options granted to our employees and directors in accordance with APB Opinion 25, “Accounting for Stock Issued to Employees” (APB 25) and related interpretations. Under APB 25, when the exercise price of our employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.

The information regarding net loss and loss per common share as required by FAS 123 has been determined as if we had accounted for our employee stock options under the fair value method prescribed by FAS 123. The resulting effect on net loss and loss per common share pursuant to FAS 123 is not likely to be representative of the effects on net loss and loss per common share pursuant to FAS 123 in future years, because future years are likely to include additional grants and because of the variable impact of future years’ vesting.

The following table illustrates the effect on our net loss and loss per common share if we had applied the fair value recognition provisions of FAS 123 to our stock-based employee compensation (in thousands, except for per share data):

	Year Ended December 31,
	2005			2004			2003
Net loss — as reported	$	(14,696	)	$	(23,923	)	$	(25,774	)
Add: Stock-based employee compensation included in reported net loss		—			220			28
Less: Total stock-based employee compensation expense determined under the fair-value-based method for all awards		(2,219	)		(6,637	)		(9,941	)
Net loss — pro forma	$	(16,915	)	$	(30,340	)	$	(35,687	)
Net loss per common share basic and diluted — as reported	$	(0.71	)	$	(1.17	)	$	(1.28	)
Net loss per common share basic and diluted — pro forma	$	(0.82	)	$	(1.49	)	$	(1.77	)

AVIGEN, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS — (Continued)

For purposes of disclosure pursuant to FAS 123, as amended by FAS 148, the estimated fair value of our employee stock options is amortized to expense on a straight-line basis over the vesting period of the options, generally over four years. We use the Black-Scholes option valuation model to estimate the fair value of our options on the date of grant. Options that were granted during the years ended December 31, 2005, 2004 and 2003 were valued with the following weighted average assumptions:

	Year Ended December 31,
	2005			2004			2003
Expected volatility		0.6670			0.8110			0.8343
Risk free interest rate		4.05	%		3.43	%		2.97	%
Expected life of options in years		4.5			5			5
Expected dividend yield		—			—			—

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options and warrants that have no vesting restrictions and are fully transferable. In addition, option valuation models, including Black-Scholes, require the input of highly subjective assumptions, including the expected stock price volatility. Because our stock options and warrants are not traded, they have characteristics significantly different from those of traded options and warrants, and because changes in the subjective input assumptions can materially affect the fair value estimate, in our opinion, the existing option valuation models, including Black-Scholes, do not necessarily provide a reliable single measure of the fair value of our stock options and warrants.

Our employee stock options are granted at a price equal to the fair market value of our stock on the date of the grant. The weighted-average estimated fair values of stock options granted during the fiscal years ended December 31, 2005, 2004, and 2003 as calculated using the Black-Scholes option pricing model were $1.80, $2.63, and $2.60, respectively.

For equity awards to non-employees, including lenders, lessors, and consultants, we also apply the Black-Scholes method to determine the fair value of such investments in accordance with FAS 123 and Emerging Issues Task Force Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods, or Services.” The options and warrants granted to non-employees are re-measured as they vest and the resulting value is recognized as an expense against our net loss over the period during which the services are received or the term of the related financing.

Cash, Available-for-Sale Securities and Restricted Investments

The following is a summary of cash, restricted investments, and available-for-sale securities as of December 31, 2005 (in thousands):

	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Cash	$	11,510	$	—	$	—		$	11,510
Corporate debt securities		21,415		—		(197	)		21,218
Federal agency obligations		26,013		—		(306	)		25,707
Asset-backed and other securities		9,882		5		(24	)		9,863
Treasury obligations		2,108		—		(18	)		2,090
Total	$	70,928	$	5	$	(545	)	$	70,388
Amounts reported as:
Cash and cash equivalents	$	11,510	$	—	$	—		$	11,510
Restricted investments		10,428		—		—			10,428
Available for sale securities		48,990		5		(545	)		48,450
Total	$	70,928	$	5	$	(545	)	$	70,388

AVIGEN, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS — (Continued)

The weighted average maturity of our investment portfolio at December 31, 2005 was 291 days, with $37.7 million carrying an effective maturity of less than twelve months, and $32.7 million carrying an effective maturity between one and three years.

The following is a summary of cash, restricted investments, and available-for-sale securities as of December 31, 2004 (in thousands):

	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Cash	$	3,217	$	—	$	—		$	3,217
Corporate debt securities		33,438		1		(210	)		33,229
Federal agency obligations		27,362		—		(248	)		27,114
Asset-backed and other securities		3,200		—		(34	)		3,166
Auction rate certificates		3,350		—		—			3,350
Treasury obligations		6,176		—		(34	)		6,142
Total	$	76,743	$	1	$	(526	)	$	76,218
Amounts reported as:
Cash and cash equivalents	$	3,217	$	—	$	—		$	3,217
Restricted investments		11,928		—		—			11,928
Available-for-sale securities		61,598		1		(526	)		61,073
Total	$	76,743	$	1	$	(526	)	$	76,218

The weighted average maturity of our investment portfolio at December 31, 2004 was 354 days, with $42.7 million carrying an effective maturity of less than twelve months, and $33.5 million carrying an effective maturity between one and three years.

Net realized loss was approximately $32,000 for the year ended December 31, 2005, and net realized gains were $119,000, and $444,000 for the years ended December 31, 2004 and 2003, respectively.

At December 31, 2005 and 2004, we had the following available-for-sale securities that were in a continuous unrealized loss position but were not deemed to be other-than-temporarily impaired (in thousands):

	Less Than 12 Months					12 Months or Greater
	Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value
December 31, 2005
Corporate debt securities	$	(108	)	$	11,246	$	(88	)	$	8,883
Federal agency obligations		(101	)		12,789		(205	)		12,918
Asset-backed and other securities		(4	)		996		(20	)		5,385
Treasury obligations		(8	)		1,201		(11	)		889
Total	$	(221	)	$	26,232	$	(324	)	$	28,075

	Less Than 12 Months					12 Months or Greater
	Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value
December 31, 2004
Corporate debt securities	$	(96	)	$	18,844	$	(114	)	$	13,532
Federal agency obligations		(50	)		8,434		(199	)		18,680
Asset-backed and other securities		(34	)		2,885		—			—
Treasury obligations		(25	)		4,848		(8	)		1,294
Total	$	(205	)	$	35,011	$	(321	)	$	33,506

AVIGEN, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS — (Continued)

The gross unrealized losses reported above for 2005 and 2004 were caused by rises in market interest rates during those periods. No significant facts or circumstances have occurred to indicate that these unrealized losses are related to any deterioration in the creditworthiness of the issuers of the marketable securities we own. Based on our review of these securities, including our assessment of the duration and severity of the related unrealized losses, we have not recorded any other-than-temporary impairments on these investments.

Property and Equipment

Property and equipment consist of the following (in thousands):

	December 31,
	2005			2004
Leasehold improvements	$	6,742		$	18,439
Laboratory equipment		1,551			6,930
Office furniture and equipment		1,702			2,301
		9,995			27,670
Less accumulated depreciation and amortization		(6,066	)		(15,173	)
Property and equipment, net	$	3,929		$	12,497

Total depreciation and amortization expense for the years ended December 31, 2005, 2004 and 2003, was $2.5 million, $3.6 million, and $3.6 million, respectively. For the year ended December 31, 2005, the decreases in the balances of leasehold improvements, laboratory equipment, and office furniture and equipment reflect reductions in our cost basis for these long-lived assets due to impairment charges recorded during the year of $11.7 million, $5.4 million, and $260,000, respectively. Similarly, for the year ended December 31, 2005, accumulated depreciation was reduced by $11.2 million, primarily in connection with the recognition of the impairment charges.

Impairment Loss related to Long-Lived Assets

During 2005, we took steps to discontinue funding of our AAV-based programs in order to focus our development efforts and financial resources on our non-gene therapy product candidates. As a result, we determined that our future operations would not require the full capacity of our currently leased facilities. Therefore, at June 30, 2005, we evaluated the ongoing value of the leasehold improvements and equipment associated with approximately 40,000 square feet of manufacturing, laboratory, and office space, which we have under lease through July 2008. In September 2005, we took additional steps to consolidate our operations in order to sublease additional portions of our leased facilities. As a result, at September 30, 2005, we evaluated the ongoing value of the leasehold improvements associated with 11,000 square feet of manufacturing, laboratory, and office space we have under lease through November 2010.

Based on these evaluations, we determined that long-lived assets with a net carrying value of $6.1 million were no longer recoverable and were in fact impaired. For the year ended December 31, 2005, we recorded an impairment loss related to long-lived assets in the facilities and wrote down the related carrying value of the leasehold improvements, laboratory and office equipment and furniture to approximate their estimated fair value.

Fair value was based on the expected incremental sublease cash flows we estimated we could receive in excess of our prorated existing operating lease obligations based on current market lease rental rates at the time for similar mixed use properties. Based on current market conditions, including vacancy rates and the expected time needed to sublease the facilities, we did not expect to receive significant incremental rents related to the long-lived assets. The impairment charges primarily represent accelerated depreciation expense, which is a non-cash expense that was scheduled to be recognized over the next five years.

AVIGEN, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS — (Continued)

Termination Costs Associated with Exit Activities

In August 2005, we took steps to reduce our research and development spending attributable to gene therapy activities. As a result, we reduced the level of our total staff by approximately 19 positions, primarily in research and development. This action qualified as an exit activity under FAS 146, “Costs Associated with Exit or Disposal Activities.” In connection with this reduction in staff, we incurred approximately $646,000 in severance and other termination-related benefits. Approximately $624,000 of the costs associated with the workforce reduction are included in research and development expenses and approximately $22,000 are included in general and administrative expenses for year ended December 31, 2005. At December 31, 2005, approximately $25,000 was unpaid and included on our balance sheet under accrued compensation and related expenses. These accrued amounts primarily represent deferred severance payments and extended health care benefits for certain impacted employees. We do not expect to incur any additional costs associated with the workforce reduction.

Collaboration Agreement — Bayer Corporation

In March 2003, we received a $2.5 million payment from Bayer Corporation under the terms of a collaboration agreement for the development of an AAV-based gene therapy product for hemophilia. This amount was recorded as deferred revenue and was being recognized as revenue ratably at approximately $125,000 per quarter over the estimated development period for this product, which was determined to be five years. In May 2004, we suspended subject enrollment in the phase I clinical trial, which resulted in the termination of the development of the product candidate associated with the Bayer payment. As a result, we accelerated the recognition of the remaining $2.0 million of deferred revenue in our statements of operations during the year ended December 31, 2004.

AAV Gene Therapy Assignment Agreement — Genzyme Corporation

In December 2005, we entered into an agreement with Genzyme Corporation which included the assignment of certain of our intellectual property to previously developed gene therapy technologies, rights to our gene therapy clinical trial programs for Parkinson’s disease and hemophilia, and certain clinical-grade materials, subject to the potential reversion to us of specified rights under specified conditions. Under the terms of the agreement, we received a $12 million initial payment and could receive significant additional development-based milestone, sublicensing fees and royalty payments. The initial payment was non-refundable and as of December 31, 2005, and Avigen did not have any significant performance obligations associated with the agreement. Because we could receive significant future cash flows in connection with this agreement, if Genzyme is successful in developing products using patents included in the agreement, we have not accounted for this transaction as discontinued operations. As such, we recognized the entire initial payment as revenue in 2005 and expect that any future payments we receive under the terms of the agreement will also be recorded as revenue.

Loan Payable

In June 2000, we entered into a financing arrangement to support construction related activities. Under this arrangement, we had the right to borrow up to $10.0 million through June 1, 2003. This revolving line of credit was amended in June 2002 to extend the expiration date to June 1, 2005, and amended again in June 2004 to extend the expiration date to June 1, 2007. Accordingly, the loan continues to be classified as long term. Amounts borrowed under this arrangement bear interest at the London Inter-Bank Offered Rate plus a margin adjustment that varies between 0.5% and 1.0% on the date of each drawdown based on the market value of our investment portfolio held with a subsidiary of Wells Fargo. This interest rate is subsequently reset every three months. The weighted average interest rate for all outstanding drawdowns on this long-term obligation was 4.97% and 2.70% at December 31, 2005 and 2004, respectively. We have pledged a portion of our portfolio of available-for-sale securities equal to the amount of outstanding borrowings to secure this long-term obligation, and have identified these pledged assets as restricted investments on our balance sheets. As of both December 31, 2005 and 2004, we had borrowed $8.0 million from the line of credit. Payments of interest only are due monthly through June 1, 2007, at which time a balloon payment of outstanding principal is due. In November 2000, we reserved $2.0 million in borrowing

AVIGEN, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS — (Continued)

capacity from the line of credit to secure a letter of credit. The letter of credit was established pursuant to the terms required under a ten-year property lease entered into in November 2000, and was issued in favor of the property owner. As a result of the cash borrowings and the establishment of the letter of credit, we did not have any remaining borrowing capacity under the line of credit at December 31, 2005.

Stockholders’ Equity

Common Stock

In August and September 1998, we issued an aggregate of 1,306,505 shares of our common stock at $2.25 to $2.94 per share to selected institutional investors. The offering was completed through a private placement. As part of the transaction, we issued warrants to purchase 261,301 shares of our common stock with an exercise price of $2.18 to $3.67 per share. The exercise price was 125% of the fair market value per share of our underlying stock on the corresponding closing day and the warrants carry a five-year term. After deducting commissions and fees from the gross proceeds of $2,969,000, net proceeds from this transaction approximated $2,735,000.

In December 1998, we issued 1,367,280 shares of our common stock at $3.81 to $4.88 per share to selected institutional investors. The offering was completed through a private placement. As part of this transaction, we issued warrants to purchase 273,456 shares of our common stock with an exercise price ranging from $4.76 to $6.09 per share. The exercise price was 125% of the fair market value per share of our underlying stock on the corresponding closing day and the warrants carry a five-year term. After deducting commissions and fees from the gross proceeds of $5,635,000, net proceeds from this transaction approximated $5,197,000.

In February and April 1999, we issued an aggregate of 2,198,210 shares of our common stock at $5.50 to $6.00 per share to selected institutional investors. The offering was completed through a private placement. As part of this transaction, we issued warrants to purchase 439,642 shares of our common stock with an exercise price of $6.87 to $7.50 per share. The exercise price was 125% of the fair market value per share of the underlying stock on the corresponding closing day and the warrants carry a five-year term. After deducting commissions and fees from the gross proceeds of $13,189,000, net proceeds from this transaction approximated $12,156,000.

In October and November 1999, we issued an aggregate of 2,033,895 shares of our common stock at $16.19 to $25.56 per share to selected institutional investors. The offering was completed through a private placement. As part of this transaction, we issued warrants to purchase 406,779 shares of our common stock with an exercise price of $20.25 to $31.95 per share. The exercise price was 125% of the fair market value per share of our underlying stock on the corresponding closing day and the warrants carry a five-year term. After deducting commissions and fees from the gross proceeds of $40,028,000, net proceeds from this transaction approximated $37,222,000.

In March 2000, we issued a warrant to purchase 40,000 shares of our common stock as partial consideration for the extension of our building lease. The fair value of this warrant at the date of issuance was approximately $1,738,000. This fair value is being amortized over the life of the lease extension, or May 2008. This warrant was issued with an exercise price equal to the fair market value per share of our underlying stock at the time of issuance, or $56.00, and carried a five-year term. In March 2005, this warrant expired unexercised.

Also, in March 2000, we issued a warrant to purchase 50,000 shares of our common stock as partial consideration for the acquisition of certain patent licenses previously used in our gene therapy-related research and development activities. The fair value of this warrant at the date of issuance was approximately $3,182,000 and was fully expensed in the year ended June 30, 2000. This warrant was issued with an exercise price equal to the fair market value per share of our underlying stock at the time of issuance, or $82.00, and carried a five-year term. In March 2005, this warrant expired unexercised.

AVIGEN, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS — (Continued)

In April and May 2000, we issued an aggregate of 1,150,000 shares of our common stock at $26.00 per share through a public offering. After deducting commissions and fees from the gross proceeds of $29,900,000, net proceeds from this transaction totaled $27,611,000.

In November 2000, we issued an aggregate of 2,291,239 shares of our common stock between $37.50 and $45.06 per share through a public offering. After deducting combined commissions and fees from the gross proceeds of $90,706,000, net proceeds from this transaction totaled $86,086,000.

In February 2001, we issued 313,636 shares of common stock at $47.82 per share to Bayer AG, in connection with a collaboration agreement entered into with Bayer Corporation dated November 17, 2000. Net proceeds from this transaction totaled $15,000,000.

In March 2004, we issued a warrant to purchase 15,000 shares of our common stock as partial consideration for the acquisition of certain intellectual property rights used in our research and development activities. The fair value of this warrant was approximately $97,000 when we entered into the corresponding license agreement in October 2003. The fair value of the warrant was fully expensed and recorded in accounts payable and other accrued liabilities as of December 31, 2003. Upon issuance, the fair value of the warrant was reclassified to additional paid in capital for the year ended December 31, 2004. This warrant was issued with an exercise price equal to the fair market value per share of our underlying stock at the time of issuance, or $6.50, and carries a ten-year term. At December 31, 2005, this was the only issued warrant Avigen had that was outstanding.

During the year ended December 31, 2005, we received $286,000 in cash proceeds related to the exercise of stock options for 526,023 shares of common stock.

Shares Reserved for Future Issuance

We have reserved shares of our common stock for future issuance as follows:

				December 31, 2005
Stock options outstanding					3,487,254
Stock options available for grant					4,798,546
Warrants to purchase common stock					15,000
Shares available for Employee Stock Purchase Plan					360,000
					8,660,800

10.

Stock Options and Stock Purchase Plan

Employee Stock Option Plans

Under the 1993 Stock Option Plan (the “1993 Plan”), prior to March 1996, incentive and nonqualified stock options could be granted to our key employees, directors and consultants to purchase up to 1,500,000 shares of common stock. Under the 1993 Plan, options could be granted at a price per share not less than the fair market value at the date of grant. In March 1996, the Board determined to grant no further options under the 1993 Plan and adopted the 1996 Equity Incentive Plan. At December 31, 2005, there were options to purchase 24,458 shares outstanding under the 1993 Plan, with no further shares available for grant. These options were scheduled to expire in February 2006.

The 1996 Equity Incentive Plan (“1996 Plan”) provides for grants of incentive and nonqualified stock options, restricted stock purchase awards, stock bonuses and stock appreciation rights to our employees, directors and consultants. The Plan originally authorized the grant of options to purchase up to 600,000 shares of common stock. As a result of a series of amendments which were approved by stockholders, prior to December 31, 2005, there

AVIGEN, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS — (Continued)

were 3,500,000 shares authorized for grant under the 1996 Plan. Under the 1996 Plan, incentive stock options may be granted at a price per share not less than the fair market value at the date of grant, and nonqualified stock options may be granted at a price per share not less than 85% of the fair market value at the date of grant. Options granted generally have a maximum term of 10 years from the grant date and become exercisable over four years. At December 31, 2005, there were options to purchase 1,213,161 shares outstanding under the 1996 Plan and 1,537,137 shares available for grant. This Plan is scheduled to expire in March 2006. At that time, the Plan would no longer have any options available for future grant.

In June 2000, the Board of Directors adopted the 2000 Equity Incentive Plan (“2000 Plan”) which provides for grants of nonqualified stock options, restricted stock purchase awards, and stock bonuses to our employees, directors and consultants to purchase up to 5,000,000 shares of common stock; provided, however, that generally only up to 40% of the shares subject to grants under the 2000 Plan may be made to our directors and officers. Under the 2000 Plan, options may be granted at a price per share not less than 85% of the fair market value at the date of grant. Options granted generally have a maximum term of 10 years from the grant date and become exercisable over four years. At December 31, 2005, there were options to purchase 1,967,252 shares outstanding under the 2000 Plan and 3,018,792 shares available for grant.

Employee Stock Purchase Plan

In September 1997, we adopted the 1997 Employee Stock Purchase Plan (“Purchase Plan”). A total of 360,000 shares of our common stock have been reserved for issuance under the Purchase Plan. As of December 31, 2005, there have been no employee contributions to the Purchase Plan.

Non-employee Stock Options

In July 1995, we granted the Chairman of our Board of Directors an option to purchase 515,248 shares of our common stock at $0.49 per share, exercisable for 10 years from the date of grant. Such grant was made outside of any of our stock option plans. In July 2005, the option was fully exercised and was no longer outstanding.

The 1996 Non-Employee Directors’ Stock Option Plan (the “Directors’ Plan”) provides for automatic grants of options to purchase shares of our common stock to our non-employee directors. The Plan originally authorized the grant of options to purchase up to 200,000 shares of common stock. As a result of a series of amendments which were approved by stockholders, prior to December 31, 2005, there were 550,000 shares authorized for grant under the Director’s Plan at December 31, 2005. As of December 31, 2005, nonqualified options to purchase approximately 327,383 shares of common stock between $2.00 and $40.75 per share, exercisable for 10 years from the date of grant, have been granted under the Directors’ Plan, of which options to purchase 282,383 shares remained outstanding. At December 31, 2005, there were 242,617 shares available for grant under the Directors’ Plan. This Plan is scheduled to expire in March 2006. At that time, the Plan would no longer have any options available for future grant.

AVIGEN, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS — (Continued)

The following table summarizes option activity with regard to all stock options:

	Outstanding Options
	Number of Shares			Weighted-Average Exercise Price per Share
Outstanding at December 31, 2002		4,144,488			14.31
Granted		685,800			3.73
Canceled		(404,100	)		16.21
Exercised		(63,746	)		3.81
Outstanding at December 31, 2003		4,362,442			12.62
Granted		1,111,150			3.92
Canceled		(962,008	)		14.63
Exercised		(86,856	)		4.63
Outstanding at December 31, 2004		4,424,728			10.16
Granted		658,366			3.17
Canceled		(1,069,817	)		8.25
Exercised		(526,023	)		0.54
Outstanding at December 31, 2005		3,487,254			10.87

The following table summarizes information with regard to total stock options outstanding under all stock option plans at December 31, 2005:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Of Shares		Weighted- Average Remaining Contractual Life		Weighted- Average Exercise Price		Number Of Shares		Weighted- Average Exercise Price
$ 0.71 – $ 3.13		469,633		8.09	$	2.85		147,916	$	2.59
3.14 – 3.31		180,929		7.96	$	3.20		51,737	$	3.26
3.38 – 3.38		365,625		8.48	$	3.38		124,999	$	3.38
3.45 – 3.53		458,362		7.42	$	3.50		199,813	$	3.52
3.63 – 6.00		362,950		4.29	$	4.93		302,286	$	5.04
6.16 – 8.53		459,249		6.60	$	7.42		310,577	$	7.70
8.88 – 14.36		124,374		5.92	$	10.77		123,492	$	10.77
14.63 – 14.63		496,632		4.22	$	14.63		496,632	$	14.63
15.44 – 38.19		527,000		3.74	$	33.20		527,000	$	33.20
40.75 – 47.63		42,500		4.51	$	43.99		42,500	$	43.99
$ 0.71 – $47.63		3,487,254		6.12	$	10.87		2,326,952	$	14.42

The numbers of options exercisable at December 31, 2004 and 2003 were 2,720,885 and 2,787,690, respectively, with a weighted average exercise price of $13.32 and $14.28, respectively.

In August 2005, in connection with the resignation of an executive, we modified the expiration terms for options representing 107,500 shares of common stock, but did not extend the maximum contractual term. At the time of this modification, there was no intrinsic value as the exercise price for these stock options exceeded the market price. As a result, we did not record any compensation expense in connection with the modification. At December 31, 2005, these options expired unexercised.

AVIGEN, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS — (Continued)

In March 2004, in connection with the resignation of an executive, we modified the vesting and expiration terms for options representing 473,000 shares of common stock, but did not extend the maximum contractual term. These modifications resulted in the recognition of $220,000 in non-cash compensation expense during 2004.

In February 2003, in connection with the resignation of two executives, we modified the vesting and expiration terms for options representing 276,872 shares of common stock, but did not extend the maximum contractual term. These modifications resulted in the recognition of $28,000 in non-cash compensation expense during 2003.

11.

Employee Profit Sharing/401(k) Plan

In January 1996, we adopted a Tax Deferred Savings Plan under Section 401(k) of the Internal Revenue Code (the “Plan”) for all full-time employees. Under the Plan, our eligible employees can contribute amounts to the Plan via payroll withholding, subject to certain limitations. Our matching contributions to the Plan are discretionary and can only be made in cash. Effective July 1, 2001, we began matching 25% of an employee’s contributions up to $2,500 per Plan year. These matching contributions vest ratably over a five-year period based on the employee’s initial hire date. Our matching contributions for all employees for the years ended December 31, 2005, 2004 and 2003 were approximately $76,000, $100,000 and $112,000, respectively.

12.

Commitments and Sublease Accounting

We lease an aggregate of 112,000 square feet of laboratory, manufacturing, and office facilities from two adjacent buildings in Alameda, California under two non-cancelable operating lease agreements which expire in May 2008 and November 2010. Our lease for 45,000 square feet from one building which expires in May 2008, contains an extension option for five years under the same terms and conditions as the original lease agreement. As security for performance of future obligations under these leases, we have pledged $2.4 million of our available-for-sale securities to secure letters of credit that serve as deposits. These amounts are classified as restricted investments in our balance sheets.

As of December 31, 2005, approximately 26,250 square feet of our aggregate facilities is subleased to two separate corporate tenants not affiliated with Avigen. The sublease agreements run concurrent with the respective duration of our underlying lease term on each building.

At December 31, 2005, our future minimum commitments under non-cancelable facilities operating leases, net of sublease income, are a follows (in thousands):

	Minimum Lease Commitments		Sublease Income			Net Lease Commitments
Year ending December 31:
2006	$	2,437	$	(532	)	$	1,905
2007		2,543		(574	)		1,969
2008		2,007		(392	)		1,615
2009		1,624		(252	)		1,372
2010 and thereafter		1,542		(239	)		1,303
Total	$	10,153	$	(1,989	)	$	8,164

Expenses and income associated with operating leases and subleases were as follows (in millions):

	Year Ended December 31,
	2005			2004		2003
Rent Expense	$	2.6		$	2.6	$	2.4
Sublease income, net		(0.1	)		—		—

AVIGEN, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS — (Continued)

In 2005, we recorded an investment in deferred financing leases of approximately $220,000 and recorded unearned income of approximately $155,000. This deferred financing lease was related to equipment sold to one of our subtenants and carries a term equal to the related sublease agreement, or 30 months. Unearned income will be recognized ratably over the term of the lease, or approximately $5,200 per month.

In the ordinary course of business, we enter into commitments to fund collaborative research and clinical work performed by third parties. While these contracts are cancelable, we expect the research studies and clinical work to be completed as defined in the terms of the agreements, and all amounts paid when due. At December 31, 2005, the estimated costs related to these commitments totaled approximately $510,000, all of which is expected to be paid within the next twelve to twenty-four months.

Sublease Accounting

We have entered into sublease agreements for portions of our leased laboratory and office facilities. Based on the terms of the agreements, the fair value of our remaining lease liability is less than the scheduled sublease income. As a result, in the period ended December 31, 2005, we did not record any lease exit costs associated with the sublease of our operating facilities located at 1201 and 1301 Harbor Bay Parkway. In connection with the sublease agreements, we recorded initial direct costs of $114,000 in commission expenses. We amortize initial direct costs to operating expenses on a straight-line basis over the term of the sublease.

13.

Income Taxes

Significant components of our deferred tax assets are as follows (in thousands):

	December 31,
	2005			2004
Net operating loss carryforward	$	56,000		$	52,500
Research and development credits		7,600			7,400
Capitalized research and development		7,100			6,500
Depreciation		3,200			2,700
Capitalized patents		500			800
Other		3,300			1,000
Gross deferred tax assets		77,700			70,900
Valuation allowance		(77,700	)		(70,900	)
Net deferred tax assets	$	—		$	—

No provision has been made for income taxes because we have incurred losses since our inception. Deferred income taxes reflect the net tax effects of temporary differences between the carrying value of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

We have increased our valuation allowance by $6.8 million, $10.0 million and $11.0 million in 2005, 2004 and 2003, respectively, to provide a full valuation allowance for deferred tax assets since the realization of these benefits is not considered more likely than not.

At December 31, 2005, we had unused net operating loss carryforwards of $159.0 million available to reduce federal taxable income expiring on various dates from 2008 through 2025 and $33.0 million available to reduce state taxable income expiring on various dates from 2006 through 2015. We also have federal and state research tax credits of $5.2 million and $3.7 million, respectively, available to offset federal and state income taxes, which expire on various dates from 2012 through 2025. Deferred tax assets related to carryforwards at December 31, 2005 include approximately $2.0 million associated with stock option activity for which any subsequently recognized benefits will be credited directly to stockholders’ equity. Our net operating losses and tax credit

AVIGEN, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS — (Continued)

carryforwards may be subject to the annual limitation provisions of Internal Revenue Code (IRC) Sections 382 and 383 if we incur a “change in ownership.”

14.

Condensed Quarterly Financial Information (Unaudited)

	Year Ended December 31, 2005
(amounts in thousands except per share data)	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Total revenue	$	9		$	11		$	4		$	12,002
Net loss		(5,190	)		(9,848	)		(6,764	)		7,106
Net loss per share, basic and diluted		(0.25	)		(0.48	)		(0.32	)		0.34

	Year Ended December 31, 2004
(amounts in thousands except per share data)	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Total revenue	$	150		$	2,002		$	8		$	35
Net loss		(7,281	)		(4,513	)		(6,470	)		(5,659	)
Net loss per share, basic and diluted		(0.36	)		(0.22	)		(0.32	)		(0.27	)

15.

Subsequent Event — Sanochemia-License Agreement

In January 2006, we entered into a license agreement with SDI Diagnostics International LTD, a division of Sanochemia Pharmazeutika AG (Sanochemia). Under the terms of the agreement, Avigen received an exclusive license to develop and commercialize the compound tolperisone in North America. This compound is the active pharmaceutical ingredient in our product candidate, AV650, for the treatment of neuromuscular spasm and spasticity. Under the terms of the agreement, Avigen paid Sanochemia $3.0 million in initial license costs and will make additional future payments based on successful clinical and regulatory product development milestones and royalty payments on sales. The companies have also entered into a long-term supply agreement under which Sanochemia will manufacture the AV650 product for Avigen. We will also owe payments for clinical and commercial supply.

16.

Subsequent Event — Severance

In January 2006, our Chief Financial Officer resigned from the Company. In connection with his resignation, Avigen has agreed to pay severance benefits including base salary for a period of one year and continued health benefits for up to twelve months. As a result of this separation, we expect to report a charge in the quarter ending March 31, 2006 of approximately $290,000. In addition, Avigen agreed to modify outstanding stock options held by the executive to allow for six months of additional vesting and an extended period to exercise all vested stock options for up to two years. As a result of this modification, we expect to report a charge for non-cash compensation expense for the quarter ending March 31, 2006.

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of disclosure controls and procedures . With the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934, Rules 13a-15(e) and 15(d)-15(e)), as of December 31, 2005. Based on that evaluation, the principal executive officer and principal financial officer have concluded that these disclosure controls and procedures were effective to ensure, at a reasonable assurance level, that the information required to be disclosed by us in reports we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and instructions for such reports.

Management’s Report on Internal Control over Financial Reporting . Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2005. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Our management has concluded that, as of December 31, 2005, our internal control over financial reporting was effective based on these criteria.

Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2005 has been audited by Ernst & Young LLP, the independent registered public accounting firm that audited our financial statements included in this Annual Report on Form 10-K, as stated in their report, a copy of which is included on the next page.

Changes in Internal Control over Financial Reporting . There were no changes in our internal control over financial reporting during the quarter ended December 31, 2005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of Avigen Inc.

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Controls over Financial Reporting, that Avigen, Inc. maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Avigen Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Avigen, Inc. maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Avigen, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the balance sheets of Avigen, Inc. as of December 31, 2005 and 2004, and the related statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005 and the period from inception (October 22, 1992) through December 31, 2005 of Avigen, Inc. and our report dated March 14, 2006 expressed an unqualified opinion thereon.

Palo Alto, California
March 14, 2006

Item 9B. Other Information

On December 19, 2005, Avigen, Inc. entered into an agreement under which Genzyme Corporation would acquire Avigen’s non-pain related AAV gene therapy assets. Under the terms of the agreement, Avigen sold the rights to its extensive patent estate based on adeno-associated virus technologies, rights to its clinical development program for Parkinson’s disease, which includes the related phase I/II clinical trial currently underway at University of California, San Francisco, and the rights to a clinical collaboration in hemophilia with Dr. Katharine High of the University of Pennsylvania School of Medicine.

Avigen received an upfront payment from Genzyme of $12.0 million and will receive additional milestone and royalty payments and license fees based on the development, approval and sale of all products developed by Genzyme that rely on intellectual property purchased from Avigen. However, if Genzyme fails to diligently pursue the commercialization or marketing of products using the assigned technology, as specified in the agreement, certain of the rights Avigen assigned could revert back to Avigen at a future date. The agreement is filed as Exhibit 10.58 to this Annual Report on Form 10-K.

The $12.0 million received from Genzyme was booked as revenue for the quarter ending December 31, 2005, and increased Avigen’s cash at December 31, 2005 by $12.0 million and correspondingly decreased its deficit accumulated during the development stage by $12.0 million. Other than these items, the transaction has no other impact on Avigen’s balance sheet as of December 31, 2005 or statement of operations for the quarter or year ended December 31, 2005.

PART III

Item 10. Directors and Executive Officers of the Registrant

The information required by this Item with respect to Executive Officers may be found under the caption, “Executive Officers of the Registrant” at the end of Part I of this Annual Report on Form 10-K. The information required by this Item with respect to Directors, including information with respect to audit committee financial experts, is incorporated herein by reference from the information under the caption, “Proposal 1 — Election of Directors” appearing in the definitive Proxy Statement to be delivered to Avigen’s stockholders in connection with the solicitation of proxies for Avigen’s 2006 Annual Meeting of Stockholders to be held on May 31, 2006 (the “Proxy Statement”).

Section 16(a) Beneficial Ownership Reporting Compliance

The information required by this Item with respect to compliance with Section 16(a) of the Exchange Act is incorporated herein by reference from the section captioned “Section 16(a) Beneficial Ownership Reporting Compliance” contained in the Proxy Statement.

Code of Business Conduct and Ethics

The information required by this Item with respect to our code of ethics is incorporated herein by reference from the section captioned “Proposal 1 — Election of Directors — Code of Business Conduct and Ethics” contained in the Proxy Statement.

Item 11.

Executive Compensation

The information required by this Item is set forth in the Proxy Statement under the captions, “Executive Compensation” and “Compensation Committee Interlocks and Insider Participation.” Such information is incorporated herein by reference.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item with respect to security ownership of certain beneficial owners and management is set forth in the Proxy Statement under the caption, “Security Ownership of Certain Beneficial Owners and Management.” Such information is incorporated herein by reference.

The information required by this Item with respect to securities authorized for issuance under our equity compensation plans is set forth in the Proxy Statement under the caption “Proposal 2 — Approval of the Avigen,

Inc. 2006 Equity Incentive Plan — Equity Compensation Plan Information”. Such information is incorporated herein by reference.

Item 13.

Certain Relationships and Related Transactions

The information required by this Item is set forth in the Proxy Statement under the heading “Certain Relationships and Related Transactions.” Such information is incorporated herein by reference.

Item 14.

Principal Accountant Fees and Services

The information required by this Item is set forth in the Proxy Statement under the heading “Proposal 3 — Ratification of Selection of Independent Registered Public Accounting Firm.” Such information is incorporated herein by reference.

Consistent with Section 10A(i)(2) of the Securities Exchange Act of 1934, as added by Section 202 of the Sarbanes-Oxley Act of 2002, we are responsible for listing the non-audit services approved by our Audit Committee to be performed by Ernst & Young LLP, our external auditor. Non-audit services are defined as services other than those provided in connection with an audit or a review of our financial statements. The Audit Committee has not approved, and Ernst & Young LLP has not provided, any non-audit services other than those that Avigen has disclosed in previous SEC filings.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)

The following documents are filed as part of this Annual Report on Form 10-K:

(1)

Financial Statements:

Report of Independent Registered Public Accounting Firm
Balance Sheets
Statements of Operations
Statements of Stockholders’ Equity
Statements of Cash Flows
Notes to Financial Statements

(2)

Financial Statement Schedules

Financial statement schedules have been omitted from this Annual Report on Form 10-K because they are either not applicable or the required information is provided in the financial statements or the notes thereto.

(3)

Exhibits

Exhibit Number				Exhibits
2.1				See Exhibit 10.58
3.1(1)				Amended and Restated Certificate of Incorporation
3.1.1(13)				Certificate of Amendment to Certificate of Incorporation
3.2 (1)				Restated Bylaws of the Registrant
4.1(1)				Specimen Common Stock Certificate
10.2(1, 2)				1993 Stock Option Plan
10.3 (2, 17)				1996 Equity Incentive Plan, as amended
10.4(1, 2)				Form of Incentive Stock Option Grant for 1996 Equity Incentive Plan
10.5(1, 2)				Form of Nonstatutory Stock Option Grant for 1996 Equity Incentive Plan
10.6(2, 14)				1996 Non-Employee Directors’ Stock Option Plan, as amended
10.7(2, 4)				1997 Employee Stock Purchase Plan
10.8(1, 2)				Form of Indemnification Agreement between Avigen and its directors and executive officers.
10.10(2, 5)				2000 Equity Incentive Plan
10.11(2, 12)				Form of Nonstatutory Stock Option Grant for 2000 Equity Incentive Plan
10.14(2, 15)				Form of Incentive Stock Option Grant for 1993 Stock Option Plan
10.15(2, 15)				Form of Nonstatutory Stock Option Grant for 1993 Stock Option Plan
10.16(2, 24)				Form of Nonstatutory Stock Option Grant for 1996 Non-Employee Directors’ Stock Option Plan, as amended
10.17(2, 25)				Compensation Agreements with Named Executive Officers
10.29(2, 6)				Employment Agreement dated August 14, 1996, between Avigen and Thomas J. Paulson.
10.32(15)				Revolving line of credit note signed November 2, 2000 with Wells Fargo Bank.
10.33(15)				Letter Agreement to the revolving line of credit note signed November 2, 2000 with Wells Fargo Bank.
10.36(2, 8)				Management Transition Plan
10.41(10)				Property Lease Agreement between ARE-1201 Harbor Bay, LLC and Avigen, dated February 29, 2000
10.45(13)				Office Lease Agreement between Lincoln-RECP Empire OPCO, LLC and Avigen, Inc., dated November 2, 2000.
10.46(13)				First Amendment to Lease Agreement between Lincoln-RECP Empire OPCO, LLC and Avigen, Inc., dated December 1, 2000.
10.47(13)				Second Amendment to Lease Agreement between Lincoln-RECP Empire OPCO, LLC and Avigen, Inc., dated February 12, 2001.
10.49(16)				Revolving line of credit note with Wells Fargo Bank, dated June 1, 2002.
10.50(16)				Letter of Agreement to the revolving line of credit note signed June 1, 2002 with Wells Fargo Bank.
10.51(11, 23)				License Agreement, dated November 21, 2003, by and between University of Colorado and Avigen

Exhibit Number				Exhibits
10.52 (2, 22)				Separation Agreement dated March 8, 2004 between Avigen and John Monahan
10.53 (20)				Revolving line of credit note with Wells Fargo Bank, dated June 1, 2004
10.54 (20)				Amendment to Letter of Agreement to the revolving line of credit note signed June 1, 2004 with Wells Fargo Bank
10.55 (2, 21)				Arrangement Regarding Non-Employee Director Compensation
10.56 (26)				Sublease Lease Agreement, dated November 4, 2005, between Pepgen Corporation and Avigen
10.57 (27)				Sublease Lease Agreement, dated November 29, 2005, between Advanced Cell Technology, Inc. and Avigen
10.58 (3)				Assignment Agreement, dated December 19, 2005, by and between Genzyme Corporation and Avigen
10.59 (3)				License Agreement, dated January 12, 2006, by and between SDI Diagnostics International LTD, a division of Sanochemia Pharmazeutika AG, and Avigen
10.60 (2)				Separation Agreement, dated January 6, 2006, between Avigen and Thomas J. Paulson, together with Amendment No. 1 thereto dated February 3, 2006.
23.1				Consent of Independent Registered Public Accounting Firm
24.1				Power of Attorney (included on the signature pages hereto)
31.1				CEO Certification required by Rule 13a-14(a) or Rule 15d-14(a)
31.2				CFO Certification required by Rule 13a-14(a) or Rule 15d-14(a)
32.1(19)				Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350)

Keys to Exhibits:

(1)

Filed as an exhibit to the Registrant’s Registration Statement on Form S-1 (No. 333-03220) and incorporated herein by reference.

(2)

Management Contract or Compensation Plan.

(3)

Confidential treatment has been requested for portions of this exhibit.

(4)

Incorporated by reference from such document filed with the SEC as an exhibit to Avigen’s Annual Report on Form 10-K for the year ended June 30, 1999, as filed with the SEC (Commission File No. 000-28272).

(5)

Incorporated by reference from such document filed with the SEC as an exhibit to Avigen’s Registration Statement on Form S-8 (Registration No. 333-42210) filed with the SEC on July 25, 2000.

(6)

Incorporated by reference from such document filed with the SEC as an exhibit to Avigen’s Annual Report on Form 10-K for the year ended June 30, 1997, as filed with the SEC (Commission File No. 000-28272).

(8)

Incorporated by reference from such document filed with the SEC as an exhibit to Avigen’s Current Report on Form 8-K filed with the SEC on May 31, 2005 (Commission File No. 000-28272).

(10)

Incorporated by reference from such document filed with the SEC as an exhibit to Avigen’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, as filed with the SEC (Commission File No. 000-28272).

(11)

Portions of this exhibit have been omitted pursuant to a grant of confidential treatment.

(12)

Incorporated by reference from such document filed with the SEC as an exhibit to Avigen’s Annual Report on Form 10-K for the year ended June 30, 2000, as filed with the SEC on September 27, 2000 (Commission File No. 000-28272).

(13)

Incorporated by reference from such document filed with the SEC as an exhibit to Avigen’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2000, as filed with the SEC (Commission File No. 000-28272).

(14)

Incorporated by reference from such document filed with the SEC as an exhibit to Avigen’s Registration Statement on Form S-8 (Registration No. 333-56274) filed with the SEC on June 22, 2004.

(15)

Incorporated by reference from such document filed with the SEC as an exhibit to Avigen’s Annual Report on Form 10-K for the year ended June 30, 2001, as filed with the SEC on September 27, 2001 (Commission File No. 000-28272).

(16)

Incorporated by reference from such document filed with the SEC as an exhibit to Avigen’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, as filed with the SEC (Commission File No. 000-28272).

(17)

Incorporated by reference from such document filed with the SEC as an exhibit to Avigen’s Registration Statement on Form S-8 (Registration No. 333-90504) filed with the SEC on June 14, 2002.

(19)

This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Avigen under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.

(20)

Incorporated by reference from such document filed with the SEC as an exhibit to Avigen’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, as filed with the SEC (Commission File No. 000-28272).

(21)

Incorporated by reference from the disclosure contained in Item 1.01 of Avigen’s Current Report on Form 8-K filed with the SEC on February 21, 2006 discussing such compensation (Commission File No. 000-28272).

(22)

Incorporated by reference from such document filed with the SEC as an exhibit to Avigen’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, as filed with the SEC (Commission File No. 000-28272).

(23)

Incorporated by reference from such document filed with the SEC as an exhibit to Avigen’s Annual Report on Form 10-K for the year ended December 31, 2003, as filed with the SEC on March 15, 2004 (Commission File No. 000-28272).

(24)

Incorporated by reference from such document filed with the SEC as an exhibit to Avigen’s Annual Report on Form 10-K for the year ended December 31, 2004, as filed with the SEC on March 15, 2004 (Commission File No. 000-28272).

(25)

Incorporated by reference from the disclosure contained in Item 1.01 of Avigen’s Current Reports on Form 8-K filed with the SEC on May 31, 2005 and February 28, 2006 (Commission File No. 000-28272).

(26)

Incorporated by reference from such document filed with the SEC as an exhibit to Avigen’s Current Report on Form 8-K filed with the SEC on November 28, 2005 (Commission File No. 000-28272).

(27)

Incorporated by reference from such document filed with the SEC as an exhibit to Avigen’s Current Report on Form 8-K filed with the SEC on December 16, 2005 (Commission File No. 000-28272).

SIGNATURES

Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

AVIGEN, INC.

By:

/s/ KENNETH G. CHAHINE
Kenneth G. Chahine, J.D., Ph.D.
President and Chief Executive Officer

Dated: March 14, 2006

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kenneth Chahine and Andrew A. Sauter, and each or any one of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ KENNETH G. CHAHINE	President, Chief Executive Officer and Director	March 14, 2006
Kenneth G. Chahine, J.D., Ph.D.	(Principal Executive Officer)

/s/ ANDREW A. SAUTER	Vice President, Finance	March 14, 2006
Andrew A. Sauter	(Principal Financial and Accounting Officer)

/s/ ZOLA HOROVITZ,	Chairman of the Board	March 14, 2006
Zola Horovitz, Ph.D.

/s/ YUICHI IWAKI	Director	March 14, 2006
Yuichi Iwaki, M.D., Ph.D.

/s/ JOHN K.A. PRENDERGAST	Director	March 14, 2006
John K.A. Prendergast, Ph.D.

/s/ DANIEL VAPNEK	Director	March 14, 2006
Daniel Vapnek, Ph.D.

EXHIBIT INDEX

Exhibit Number				Exhibits
2.1				See Exhibit 10.58
3.1(1)				Amended and Restated Certificate of Incorporation
3.1.1(13)				Certificate of Amendment to Certificate of Incorporation
3.2 (1)				Restated Bylaws of the Registrant
4.1(1)				Specimen Common Stock Certificate
10.2(1, 2)				1993 Stock Option Plan
10.3 (2, 17)				1996 Equity Incentive Plan, as amended
10.4(1, 2)				Form of Incentive Stock Option Grant for 1996 Equity Incentive Plan
10.5(1, 2)				Form of Nonstatutory Stock Option Grant for 1996 Equity Incentive Plan
10.6(2, 14)				1996 Non-Employee Directors’ Stock Option Plan, as amended
10.7(2, 4)				1997 Employee Stock Purchase Plan
10.8(1, 2)				Form of Indemnification Agreement between Avigen and its directors and executive officers.
10.10(2, 5)				2000 Equity Incentive Plan
10.11(2, 12)				Form of Nonstatutory Stock Option Grant for 2000 Equity Incentive Plan
10.14(2, 15)				Form of Incentive Stock Option Grant for 1993 Stock Option Plan
10.15(2, 15)				Form of Nonstatutory Stock Option Grant for 1993 Stock Option Plan
10.16(2, 24)				Form of Nonstatutory Stock Option Grant for 1996 Non-Employee Directors’ Stock Option Plan, as amended
10.17(2, 25)				Compensation Agreements with Named Executive Officers
10.29(2, 6)				Employment Agreement dated August 14, 1996, between Avigen and Thomas J. Paulson.
10.32(15)				Revolving line of credit note signed November 2, 2000 with Wells Fargo Bank.
10.33(15)				Letter Agreement to the revolving line of credit note signed November 2, 2000 with Wells Fargo Bank.
10.36(2, 8)				Management Transition Plan
10.41(10)				Property Lease Agreement between ARE-1201 Harbor Bay, LLC and Avigen, dated February 29, 2000
10.45(13)				Office Lease Agreement between Lincoln-RECP Empire OPCO, LLC and Avigen, Inc., dated November 2, 2000.
10.46(13)				First Amendment to Lease Agreement between Lincoln-RECP Empire OPCO, LLC and Avigen, Inc., dated December 1, 2000.
10.47(13)				Second Amendment to Lease Agreement between Lincoln-RECP Empire OPCO, LLC and Avigen, Inc., dated February 12, 2001.
10.49(16)				Revolving line of credit note with Wells Fargo Bank, dated June 1, 2002.
10.50(16)				Letter of Agreement to the revolving line of credit note signed June 1, 2002 with Wells Fargo Bank.
10.51(11, 23)				License Agreement, dated November 21, 2003, by and between University of Colorado and Avigen

Exhibit Number				Exhibits
10.52 (2, 22)				Separation Agreement dated March 8, 2004 between Avigen and John Monahan
10.53 (20)				Revolving line of credit note with Wells Fargo Bank, dated June 1, 2004
10.54 (20)				Amendment to Letter of Agreement to the revolving line of credit note signed June 1, 2004 with Wells Fargo Bank
10.55 (2, 21)				Arrangement Regarding Non-Employee Director Compensation
10.56 (26)				Sublease Lease Agreement, dated November 4, 2005, between Pepgen Corporation and Avigen
10.57 (27)				Sublease Lease Agreement, dated November 29, 2005, between Advanced Cell Technology, Inc. and Avigen
10.58 (3)				Assignment Agreement, dated December 19, 2005, by and between Genzyme Corporation and Avigen
10.59 (3)				License Agreement, dated January 12, 2006, by and between SDI Diagnostics International LTD, a division of Sanochemia Pharmazeutika AG, and Avigen
10.60 (2)				Separation Agreement, dated January 6, 2006, between Avigen and Thomas J. Paulson, together with Amendment No. 1 thereto dated February 3, 2006.
23.1				Consent of Independent Registered Public Accounting Firm
24.1				Power of Attorney (included on the signature pages hereto)
31.1				CEO Certification required by Rule 13a-14(a) or Rule 15d-14(a)
31.2				CFO Certification required by Rule 13a-14(a) or Rule 15d-14(a)
32.1(19)				Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350)

Keys to Exhibits:

(1)

Filed as an exhibit to the Registrant’s Registration Statement on Form S-1 (No. 333-03220) and incorporated herein by reference.

(2)

Management Contract or Compensation Plan.

(3)

Confidential treatment has been requested for portions of this exhibit.

(4)

(5)

Incorporated by reference from such document filed with the SEC as an exhibit to Avigen’s Registration Statement on Form S-8 (Registration No. 333-42210) filed with the SEC on July 25, 2000.

(6)

(8)

Incorporated by reference from such document filed with the SEC as an exhibit to Avigen’s Current Report on Form 8-K filed with the SEC on May 31, 2005 (Commission File No. 000-28272).

(10)

(11)

Portions of this exhibit have been omitted pursuant to a grant of confidential treatment.

(12)

(13)

(14)

Incorporated by reference from such document filed with the SEC as an exhibit to Avigen’s Registration Statement on Form S-8 (Registration No. 333-56274) filed with the SEC on June 22, 2004.

(15)

(16)

(17)

Incorporated by reference from such document filed with the SEC as an exhibit to Avigen’s Registration Statement on Form S-8 (Registration No. 333-90504) filed with the SEC on June 14, 2002.

(19)

(20)

(21)

(22)

(23)

(24)

(25)

(26)

Incorporated by reference from such document filed with the SEC as an exhibit to Avigen’s Current Report on Form 8-K filed with the SEC on November 28, 2005 (Commission File No. 000-28272).

(27)

Incorporated by reference from such document filed with the SEC as an exhibit to Avigen’s Current Report on Form 8-K filed with the SEC on December 16, 2005 (Commission File No. 000-28272).

EXHIBIT 10.58

ASSIGNMENT AGREEMENT

This ASSIGNMENT AGREEMENT is made and entered into on December 19, 2005 (the “Effective Date”) by and between Avigen, Inc., a Delaware corporation having its principal place of business at 1301 Harbor Bay Parkway, Alameda, California 94502 (“Avigen”), and Genzyme Corporation, a Massachusetts corporation having its principal place of business at 500 Kendall Street, Cambridge, Massachusetts 02142 (“Genzyme”) (hereinafter, each of Avigen and Genzyme a “Party” and, collectively, the “Parties”).

W I T N E S S E T H:

WHEREAS , Avigen has developed, licensed and/or controls certain intellectual property relating to gene therapy, including without limitation products based on adeno-associated virus vector (“AAV”, as more particularly defined below) that may be used for the treatment of inherited diseases, and methods of making and using such products;

WHEREAS , Avigen has in the past conducted or has ongoing several research and development programs regarding certain such products (including one for Parkinson’s disease that is currently the subject of an ongoing phase I/II clinical trial, one for a Factor IX product to treat hemophilia B that has previously been in two phase I/II clinical trials, one for a Factor VIII product to treat hemophilia A that has been studied preclinically, and other earlier-stage research programs), and has developed or obtained certain clinical data, know-how and regulatory filings regarding such products;

WHEREAS , Genzyme is a leading biotechnology company with expertise in developing and commercializing biopharmaceutical products; and

WHEREAS , Genzyme wishes to acquire Avigen’s gene therapy intellectual property and current gene therapy research and development programs (other than its IL-10 Patent Rights and IL-10 Product, each as defined herein), all for the purpose of pursuing the further pre-clinical and clinical development and commercialization of these and other potential therapeutic gene therapy products;

NOW THEREFORE , in consideration of the above stated premises and of the mutual covenants and agreements set forth below, and intending to be legally bound by the provisions of this Agreement, the Parties hereby agree as follows:

ARTICLE 1

DEFINITIONS

As used in this Agreement, the following initially capitalized terms shall have the meanings indicated (with derivative forms being interpreted accordingly):

* = confidential treatment requested; certain confidential information, in the places marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

1.1 “AAV” shall mean any adeno-associated virus vector, including without limitation all [*] .

1.2 “ Affiliate ” shall mean any business entity which directly or indirectly controls, is controlled by, or is under common control with either Party to this Agreement. A business entity shall be deemed to “control” another business entity if (i) it owns, directly or indirectly, at least fifty percent (50%) of the issued and outstanding voting securities, capital stock, or other comparable equity or ownership interest of such business entity, or (ii) it otherwise has the right or de facto ability to control or direct the management of such business entity (through voting agreement or otherwise). If the laws of the jurisdiction in which such entity operates prohibit ownership by a Party of fifty percent (50%) or more, “control” shall be deemed to exist at the maximum level of ownership allowed by such jurisdiction.

1.3

“ Agreement ” shall mean this Assignment Agreement.

1.4 “ Ancillary Agreements ” shall mean those agreements and instruments the Parties are required to execute pursuant to Section 2.4.

1.5

“ Assumed Liabilities ” shall have the meaning set forth in Section 2.2.

1.6 “ Avigen Indemnitee ” shall mean Avigen, its Affiliates, successors and assigns, and each of their respective directors, officers, employees, and agents.

1.7 “ Avigen Related Know-How ” shall mean all Know-How that is as of the Effective Date owned or controlled by or licensed to (with the right to grant sublicenses of the scope and content set forth herein) Avigen that is not Gene Therapy Listed Know-How but [*] including without limitation data relating to [*].

1.8 “ Avigen Trademark ” shall mean all trademarks owned or controlled by Avigen related to the Products as of the Effective Date, including without limitation the trademark “COAGULIN-B” for the use of which in connection with the Product Avigen has filed and owns an intent to use application. The Avigen Trademark excludes all Avigen housemarks (i.e., the name “Avigen” and other names and marks associated with Avigen as a company).

1.9 “ BLA ” means a Biologics License Application to be filed with the FDA (or any successor or other filing with the FDA or such successor serving an equivalent purpose) and/or any other application required to be filed with an appropriate Regulatory Agency in a country or group of countries other than the United States (including, without limitation, a Product License Application or Marketing Authorization in the European Union) in order to manufacture, market, sell or use the Product in such country or group of countries.

1.10 “ Business Day ” means Monday, Tuesday, Wednesday, Thursday or Friday of any week, other than such a day on which a United States federal government holiday falls or on which banks in either California or Massachusetts are closed.

1.11 “ Claim ” shall mean a claim of [*] which has not been held permanently revoked, unenforceable or invalid by a decision of a court or other governmental agency of competent

jurisdiction, unappealable or unappealed within the time allowed for appeal, and which has not been admitted to be invalid or unenforceable through reissue or disclaimer or otherwise.

1.12 “ Commercial Launch ” shall mean, with respect to a country where Regulatory Approval has been obtained and, if applicable, Pricing Approval has been obtained, for a Product, the first sale of such Product in such country for consideration from a Third Party that occurs after such Regulatory Approval has been obtained and, if applicable, Pricing Approval has been obtained, for such Product in such country. To avoid any doubt, Pricing Approval is not applicable with respect to the United States as of the Effective Date.

1.13 “ Commercially Reasonable and Diligent Efforts ” shall mean the level of effort which, consistent with [*] would be applied by a company in the biotechnology industry for a product owned by it or to which it has rights which [*] taking into account issues of safety and efficacy, product profile, the competitiveness of the marketplace, the proprietary position of the product, the regulatory structure involved, the cost of scaling up a manufacturing process (including facility costs), the profitability of the applicable products, and other relevant factors.

1.14 “ Confidential Information ” shall mean, with respect to a Party, all confidential and all proprietary information and Know-How it discloses to the other Party in connection with this Agreement, including but not limited to, the terms of this Agreement. All proprietary information and Know-How that is included in the Gene Therapy Assets assigned from Avigen to Genzyme hereunder shall be deemed Genzyme’s Confidential Information, in accordance with Section 7.1 hereof.

1.15

“ Consent ” shall have the meaning given in Section 2.7.

1.16 “ Cover ” shall mean, with respect to a particular product and a particular patent, that such patent claims or covers, [*] or any of [*] or an [*] in the [*] of [*] (for example (but without limitation) with respect to [*] ; and as another example (without limitation) with respect to [*] ).

1.17 “ Current Factor IX Product ” shall mean that certain Factor IX Product delivered by Gene Therapy that was the subject of clinical trials under and is described in IND # 9398 and IND # 8033.

1.18 “ Current Parkinson’s Product ” shall mean that certain Product that contains the AADC gene and that is the subject of the Ongoing Parkinson’s Trial as of the Effective Date and is described in IND # 11366.

1.19 “ Current Regulatory Filings ” shall mean the INDs and other Regulatory Filings set forth in Schedule 1.19 hereto.

1.20 “ Damages ” shall mean damages, losses, liabilities, costs and expenses, including (without limitation) reasonable attorneys’ fees and expenses.

1.21

“ Dollar ” shall mean the United States dollar.

1.22 “ Effective Date ” shall have the meaning set forth in the first paragraph of this Agreement.

1.23 “ EMEA ” shall mean the European Medicines Agency or any successor agency thereto with responsibilities similar to those of the European Medicines Agency.

1.24	“ Excluded Assets ” shall have the meaning given in Section 2.3.
1.25	“ Excluded Liabilities ” shall have the meaning given in Section 2.3.

1.26 “ Facility ” shall mean Avigen’s facility located at 1201 Harbor Bay Parkway in Alameda, California.

1.27 “ Factor IX Product ” shall mean a Product that is (a) the Current Factor IX Product or (b) any Product containing a Factor IX gene or a derivative of such a gene and which is delivered by Gene Therapy.

1.28 “ Factor VIII Product ” shall mean any Product containing a Factor VIII gene or a derivative of such a gene and which is delivered by Gene Therapy.

1.29 “ FDA ” shall mean the United States Food and Drug Administration or any successor agency thereto with responsibilities similar to those of the United States Food and Drug Administration.

1.30	“ FDA Decision ” shall have the meaning given in Section 4.4(b)(ii).
1.31	“ Force Majeure ” shall have the meaning set forth in Section 11.11.

1.32 “GAAP” shall mean the then-current United States generally accepted accounting principles, consistently applied.

1.33 “Gene Therapy” shall mean the treatment or prevention of a disease, or remedying of a gene deficiency, of humans or animals, by genetic modification of [*].

1.34

“ Gene Therapy Assets ” shall have the meaning given in Section 2.1.

1.35 “ Gene Therapy Know-How ” shall mean Gene Therapy Listed Know-How, the Avigen Related Know-How and all other Know-How to which Avigen derives rights through any Upstream License and/or Selected Other Gene Therapy Contract.

1.36 “ Gene Therapy Patents ” shall mean the Gene Therapy Listed Patents, the Gene Therapy Upstream License Patents, and the Gene Therapy Other Contract Patents.

1.37 “ Gene Therapy Listed Know-How ” shall mean Know-How that is listed on Schedule 1.37 and that (i) is owned by Avigen and (ii) relates to, arises from or is useful for any Product and/or its manufacture or pharmaceutical utility, including without limitation data relating to formulation, analytical methods, pre-clinical and clinical trials, pharmacology, toxicology, regulatory information, and data relating to the manufacture and use of such

Products, but excluding any Know-How that is commonly available from another source (other than Avigen and its Affiliates) or is necessary for the research, development, manufacture or sale of IL-10 Products.

1.38 “ Gene Therapy Listed Patents ” shall mean [*] those patent applications listed on Schedule 1.38; all divisionals, continuations, continuations-in-part and substitutions thereof; all patents issuing on any of the foregoing; those patents listed on Schedule 1.38; all re-examinations, re-issues, extensions and renewals of any of the foregoing patents; [*] all counterparts in other countries to any of the foregoing; and [*].

1.39 “ Gene Therapy Other Contract Patents ” shall mean all patent applications and patents to which Avigen derives rights through any Selected Other Gene Therapy Contract (including without limitation the following types of patent applications and patents, to the full extent of Avigen’s rights under the Selected Other Gene Therapy Contracts: all divisionals, continuations, continuations-in-part and substitutions, re-examinations, re-issues, extensions and renewals and foreign counterparts thereof). To avoid any doubt, this includes (without limitation) patent applications and patents to which Avigen derives rights through any contract that becomes a Selected Other Gene Therapy Contract through Section 8.5.

1.40 “Gene Therapy Upstream License Patents” shall mean all patent applications and patents to which Avigen derives rights through any Upstream License (including without limitation the following types of patent applications and patents, to the full extent of Avigen’s rights under the Upstream Licenses: all divisionals, continuations, continuations-in-part and substitutions, re-examinations, re-issues, extensions and renewals and foreign counterparts thereof).

1.41 “ Genzyme Indemnitee ” shall mean Genzyme, its Affiliates, successors, assigns and Licensees, and each of their respective directors, officers, employees, and agents.

1.42 “Genzyme Retained Product” shall mean any Product that [*] with respect to a [*] together with all [*] as that of [*] or a [*] or [*] with respect to which [*] together with all [*] or a [*] such gene. For purposes of this Section 1.42, [*] shall mean [*] to be [*] for such [*] that [*] the [*] with respect to all [*] Genzyme. [*] this is the [*] of the [*] The Parkinson’s Product and the Factor IX Product shall [*] on the [*] of [*] of [*] as of the Effective Date ( [*] ). If Genzyme [*] then the Parkinson’s Product shall not [*] Product.

1.43 “ HSR Act ” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (15 U.S.C. 18a), and the rules and regulations promulgated thereunder.

1.44 “ IL-10 ” shall mean interleukin 10 and all other anti-inflammatory cytokines disclosed in the IL-10 Patent Rights [*]

1.45 “ IL-10 Patent Rights ” shall mean the patents and patent applications identified in Schedule 2.3 hereto.

1.46

“ IL-10 Product ” shall mean any product [*] .

1.47 “ IND ” shall mean an investigational new drug application filed with the FDA and/or any other similar application filed with an appropriate Regulatory Agency in a country or group of countries other than the United States.

1.48	“ Indemnify ” shall have the meaning given in Section 6.1.
1.49	“ IRB ” shall mean an Institutional Review Board.

1.50 “ Know-How ” shall mean all technical information, data (including, without limitation, regulatory data), patentable and unpatentable inventions, developments, discoveries, methods and processes that are, in each case, not disclosed in a published patent application or patent or otherwise publicly available.

1.51 “ Legal Requirements ” means any applicable present and future national, state, local, foreign or similar laws (whether under statute, rule, regulation or otherwise); applicable requirements under permits, orders, decrees, judgments or directives, and requirements of applicable Regulatory Agencies (including, without limitation, current Good Manufacturing Practices as specified in 21 CFR Parts 210 and 211, and 21 CFR Part 312); and applicable regulations pertaining to Investigational New Drug Applications (as amended or revised from time to time). To avoid any doubt, Legal Requirements do not include contractual obligations to non-governmental Persons.

1.52 “ Licensee ” shall mean any Third Party to which Genzyme or its Affiliate grants on or after the Effective Date under any Gene Therapy Patent or Gene Therapy Know-How a license, sublicense, option, covenant not to sue, non-suit, assignment (other than an assignment together with this Agreement as a whole pursuant to Section 11.13), right to use or reference or other right to practice free from claims of infringement or misappropriation of any Gene Therapy Patent or Gene Therapy Know-How (each of the foregoing, a “License”). [*] To avoid any doubt, if the rights Genzyme obtains to the Gene Therapy Patents and Gene Therapy Know-How pursuant to this Agreement [*] that Third Party shall be deemed to be Licensee; provided, however , that [*] Licensee also means any Genzyme Affiliate described in the last paragraph of Section 3.4. References in this Agreement to any given Licensee shall be deemed to include such Person’s affiliates (with such term having a perfectly analogous meaning with respect to such Person as the definition of “Affiliate” set forth in this Agreement has with respect to each Party) if and to the extent such affiliates are also covered by the license granted by Genzyme or its Affiliate to such Licensee.

1.53	“ Licensing Revenue ” shall have the meaning given in Section 3.4.
1.54	“ Licensing Transaction ” shall have the meaning given in Section 3.4.

1.55 “ Lysosomal Storage Disorder Product ” shall mean any Product that is intended to be developed or is developed to treat any lysosomal storage disorder to be delivered by Gene Therapy.

1.56

“ Major Market Country ” shall mean any of the following: [*] and [*] .

1.57 “ Net Sales ” with respect to any Product shall mean the invoiced sales prices of all such Product to Third Parties by Genzyme, its Affiliates or its Licensees, less the following items [*] customary under industry practices and are actually allowed and taken in accordance with standard allocation procedures, allowance methodologies and accounting methods consistently applied, which methods are in accordance with GAAP: (a) credits or allowances granted upon returns, rejections or recalls, retroactive price reductions, billing corrections or allowances for bad debt; (b) freight, shipping and insurance costs; (c) quantity and other trade discounts, credits or allowances; (d) customs duties, taxes and surcharges and other governmental charges imposed on the production, sale, transportation, delivery, use, exportation or importation of Products; (e) government mandated rebates and discounts; (f) Third Party rebates and charge backs, hospital buying group/group purchasing organization administration fees or managed care organization rebates; and (g) distribution fees and sales commissions paid to Third Parties. The transfer of any Product by Genzyme or one of its Affiliates or Licensees to another Affiliate of Genzyme or to Genzyme or a Licensee shall not be considered a sale; in such cases, Net Sales shall be determined based on the invoiced sales price by Genzyme, the Affiliate or Licensee, as the case may be, to its Third Party customer, less the deductions allowed under this Section. “Net Sales” excludes transfers of Product for the purposes described in Section 3.5.

If Genzyme or any of its Affiliates or Licensees [*] or sells a [*] or [*] for [*] where [*] and such Product is Commercially Launched anywhere in the world, then the [*] shall equal [*] the [*] of the [*] Product sold, as determined in accordance with Section 3.16. Similarly, if Genzyme or any of its Affiliates or Licensees chooses to sell any Product in combination with another product of Genzyme or a Genzyme Affiliate, [*] (i.e. [*] or [*] in part on the [*] ), then Net Sales will be based on the [*] Product as determined in accordance with [*] For the avoidance of doubt, the Parties acknowledge and agree that [*] not be [*] or any other [*] under this Agreement [*] sold in combination with such Product [*] and the determination in [*] with respect to such Products is intended to [*] based on the [*] not the [*] with [*] or not [*].

Any determination of [*] pursuant to [*] shall apply only to determine Net Sales for purposes of payments to Avigen hereunder. It shall not be deemed to give Avigen input or control over the price set by Genzyme, its Affiliate or Licensee for Products or any other product. Genzyme shall be bound by such determination of [*] for purposes of making payments to Avigen hereunder only, and not for purposes of determining the price at which Products or other products are sold to customers.

1.58 “ Notice ” shall have the meaning set forth in Section 11.6 of this Agreement.

1.59 “ Ongoing Parkinson’s Trial ” shall mean that certain Phase I/II Trial (IND # 11366) that Avigen is conducting as of the Effective Date entitled “A Phase 1 Open-label Safety Study of Intrastriatal Infusion of Adeno-Associated Virus Encoding Human Aromatic L-Amino Acid Decarboxylase (AAV-hAADC-2) in Subjects with Advanced Parkinson’s Disease {AAV-hAADC-2-003}” and identified as AAV-hAADC-2-003.

1.60 “ Other Gene Therapy Contracts ” shall mean the contracts, purchase orders and other commitments listed on Schedule 1.60.

1.61 “ Parkinson’s Product ” shall mean a Product that is (a) the Current Parkinson’s Product or (b) any other Product that contains the same gene to be delivered by Gene Therapy as that of the Current Parkinson’s Product, or a derivative of such gene.

1.62 “Patent Rights” shall mean any patents and/or patent applications including (without limitation) all of the following types: all divisionals, continuations, continuations-in-part, substitutions, re-examinations, reissues, extensions and renewals, and all counterparts in other countries to any of the foregoing).

1.63 “ Person ” shall mean any individual, partnership, corporation, limited liability company, unincorporated organization or association, any trust or any other legal entity.

1.64 “ Phase I Clinical Trial ” shall mean a clinical trial in humans that is in the portion of a clinical development program that involves controlled trials of the Product in a pilot study on a group of patients for the primary purposes of evaluating safety, dose escalation and pharmacokinetic studies, as more specifically defined in 21 C.F.R. §312.21(a).

1.65 “ Phase II Clinical Trial ” shall mean a clinical trial in humans that is designed to establish the safety and biological activity of the product for its intended use, and to define the dosage range to be tested in further clinical trials, as more specifically defined in 21 C.F.R. §312.21(b).

1.66 “ Phase III Clinical Trial ” shall mean a clinical trial in humans that is designed to serve the same purpose as a Phase II Clinical Trial, and in addition is designed to obtain data to support a filing to request Regulatory Approval for the Product, as more specifically defined in 21 C.F.R. §312.21(c).

1.67 “ Pivotal Trial ” shall mean any human clinical trial the results of which are used, or that is designed so that the results of it may be used, in a filing to request Regulatory Approval for the product candidate being studied (without the need for additional later trials in a phase of development prior to Regulatory Approval of that product candidate to treat that indication). Pivotal Trials for purposes of the milestones set forth in Schedule 3.2 includes any trial designed or intended to serve the foregoing purpose, regardless of whether it is or is denominated to be a Phase II Clinical Trial, Phase II/III Clinical Trial or Phase III Clinical Trial, or is otherwise denominated.

1.68 “ Price Approval ” shall mean, with respect to any country in which the price at which Genzyme or its Affiliate or Licensee sells Product must be approved by a governmental or regulatory authority for reimbursement or payment purposes, the receipt of approval by the applicable authority with respect to such price.

1.69 “ Product ” shall mean any product [*] Covered by at least one (1) Claim of the Gene Therapy Patents [*] All such pharmaceutical products that are based on or incorporate a particular gene sequence (or sequences) shall be deemed to be a single Product. The Products include (without limitation) the Parkinson’s Product, the Factor IX Product, the Factor VIII Product and Lysosomal Storage Disorder Products. The Products specifically exclude all IL-10 Products. To avoid any confusion, [*] for purposes of this definition [*] is determined as if [*] in [*] regardless of the [*]

1.70 “ RAC ” shall have the meaning given in Section 4.4(a)(iii).

1.71 “ Regulatory Agency ” means, with respect to the United States, the FDA, and, in the case of a country other than the United States, such other appropriate regulatory agency with similar responsibilities, including, without limitation, the EMEA.

1.72 “ Regulatory Approval ” shall mean, with respect to a particular country and Product, the receipt of all regulatory approvals (including, without limitation, through mutual recognition of Regulatory Approval by another country), other than any Price Approval, necessary for sale of the Product in that country.

1.73 “ Regulatory Filing ” shall mean any filing with any Regulatory Agency with respect to the manufacture, use in clinical trials or marketing of a pharmaceutical or biologic product (including without limitation INDs, BLAs, NDAs, DMFs and CMCs filed with the FDA).

1.74 “ Royalty Term ” shall mean, with respect to a particular Product, the period from Commercial Launch of such Product until [*] the expiration of the last Claim of a Gene Therapy Patent that Covers such Product [*] or [*] if the [*] (regardless of whether or not [*] until the [*] of the [*] of the [*] of the [*] Royalty Terms shall be determined on a Product-by-Product basis.

1.75 “Selected Other Gene Therapy Contracts” shall mean those Other Gene Therapy Contracts that are listed in Schedule 1.75, and all other Other Gene Therapy Contracts that Genzyme by timely written notice under Section 2.12 elects to include among the Selected Other Gene Therapy Contracts.

1.76	“SOP(s)” shall mean standard operating procedure(s).
1.77	“ Term ” shall have the meaning given in Section 9.1.
1.78	“ Third Party ” shall mean any Person who is not a Party or a Party’s Affiliate.

1.79 “ Upstream Licenses ” shall mean those agreements that are listed in Schedule 1.79.

ARTICLE 2

ACQUISITION AND ACTIONS TO TRANSFER

2.1 Assets Acquired . Upon the terms and subject to the terms and conditions set forth in this Agreement, on the Effective Date, Avigen shall convey, sell, transfer, and assign to Genzyme and Genzyme shall purchase from Avigen, free and clear of any encumbrances, all of the following:

(a) All of Avigen’s right, title and interest as of the Effective Date in and to the Gene Therapy Listed Patents, including but not limited to all rights to obtain patent term

extensions, renewals, continuations, divisions or other extensions of legal protections pertaining thereto;

(b) All of Avigen’s rights as of the Effective Date in and to claims, causes of action, actions or suits and all rights to sue at law or equity for any past or future infringement or other impairment of any Gene Therapy Patent, including the right to receive all proceeds and damages therefrom;

(c) All of Avigen’s right, title and interest as of the Effective Date in and to the Gene Therapy Listed Know-How;

(d) All of Avigen’s rights as of the Effective Date under the Upstream License Agreements, except as provided in Section 2.7;

(e) All of Avigen’s rights as of the Effective Date under the Selected Other Gene Therapy Contracts, except as provided in Section 2.7;

(f) All of Avigen’s rights as of the Effective Date in and to finished product inventories, work-in-process inventories, product-in-transit inventories and other inventories of the Current Parkinson’s Product and Current Factor IX Product, and all AAV or active pharmaceutical ingredient inventories [*] either such Product that are owned by Avigen, including in any event those items listed on Schedule 2.1(f), but excluding [*] and all SOPs, batch records, release data, stability data and other data related to the production of such Products;

(g) All laboratory supplies, cell lines, raw materials, reagents and related research materials owned by Avigen as of the Effective Date that [*] Gene Therapy Assets [*] and are listed on Schedule 2.1(g) hereto (subject only to any applicable contractual use restrictions and Legal Requirements), including without limitation all standards, internally produced reagents and controls for performing the quality control tests on the Products and all stability samples currently in inventory and all materials (cell lines, SOPs, media, etc.) for producing any non-commercially available reagents [*] with the Products and all SOPs related to performing release and stability assays ( but excluding items specifically [*] IL-10 Products);

(h) Those books, documents and records of Avigen (existing and owned by Avigen as of the Effective Date) that contain preclinical and clinical data with respect to Product, or that otherwise relate exclusively to AAV (but not IL-10 Products) and/or Products, except that Avigen is entitled to provide redacted versions (or copies) of any such books, documents and records that relate to Products or AAV as well as to the IL-10 Product or products that are not deemed Products (which shall be redacted to only the extent necessary to remove information that specifically relates to the IL-10 Product or such other non-Products) (collectively, “Transferred Records”); provided however , that, subject to Avigen’s obligations of confidentiality and non-use set forth in ARTICLE 7, Avigen may retain an archival copy of all Transferred Records in the confidential files of its legal counsel);

(i) All of Avigen’s rights as of the Effective Date in all licenses, permits, consents, authorizations and approvals of any federal, state or local regulatory, administrative or

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other governmental agency or body relating to Gene Therapy and/or the Products, including without limitation the Current Regulatory Filings;

(j) All of Avigen’s right, title and interest as of the Effective Date in and to the Avigen Trademark;

(k) To the extent permitted under the applicable agreement, the right to enforce any agreement that requires the counterparty or counterparties to maintain the confidentiality of any information Avigen is required to maintain confidential pursuant to ARTICLE 7, to the extent required for Genzyme to enjoin, restrain, recover damages from or obtain specific performance against such counterparty or counterparties for any breach, suspected breach or anticipatory breach of such confidentiality requirement (with the mechanics of cooperation from Avigen to provide copies of the executed version of any such agreement that has been breached with respect to such information protected by ARTICLE 7 being as set forth in Section 7.4);

(l) All claims of Avigen against Third Parties relating to the Gene Therapy Assets (as defined below), whether choate or inchoate, known or unknown, contingent or noncontingent; and

(m) All of Avigen’s right, title and interest in the assets listed on Schedule 2.1(m), whether or not such assets are listed in 2.1(a) through 2.1(l) and notwithstanding anything in Section 2.3 to the contrary.

The assets referred to in (a) through (m) are, together with the license set forth in the next paragraph, collectively, the “Gene Therapy Assets.” If after the Effective Date, Avigen discovers any item of Know-How that was owned by Avigen as of the Effective Date, and [*] any Product and/or its manufacture or pharmaceutical utility (including without limitation any such items of Know-How that are data relating to formulation, analytical methods, pre-clinical and clinical trials, pharmacology, toxicology, regulatory information, and data [*] ; but excluding any Know-How that falls into any of the following categories: (x) Know-How that is commonly available from another source (other than Avigen and its Affiliates), (y) Know-How that is subject to any existing (as of the Effective Date) written agreement with the University of Colorado in connection with IL-10 Products or necessary for the research, development, manufacture or sale of IL-10 Products, and (z) Know-How that is an Excluded Asset (the Know-How described in this sentence that does not fall into any of (x), (y) or (z), the “Later-Identified Know-How”), then Avigen will promptly provide Notice to Genzyme of such item of Later-Identified Know-How and such item of Later-Identified Know-How will, effective upon such notice, automatically be deemed included in the Gene Therapy Listed Know-How and retroactively assigned to Genzyme in accordance with the assignment of Gene Therapy Listed Know-How provided for in this Section 2.1.

Effective as of the Effective Date, Avigen hereby grants Genzyme an exclusive (even as to Avigen) license under the Avigen Related Know-How, to make, have made, use, sell, offer for sale and import Products throughout the world. Such license shall be fully and freely sublicenseable one (1) or more times through one (1) or more tiers of sublicensees without

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Avigen’s consent, provided, however, that this license and the definition of Avigen Related Know-How do not obligate Avigen to disclose any Avigen Related Know-How to Genzyme.

2.2 Liabilities Assumed . Upon the terms and subject to the conditions set forth in this Agreement, on the Effective Date, Genzyme shall assume from Avigen and agree to satisfy and/or perform when due: (a) those liabilities and obligations of Avigen identified on Schedule 2.2 hereto; (b) all of the duties, obligations and liabilities of Avigen arising after the Effective Date under all Upstream Licenses that are assigned to Genzyme under this Agreement; (c) all of the liabilities of Avigen [*] ; and (d) all of the duties, obligations and liabilities of Avigen under all Selected Other Gene Therapy Contracts [*]. The foregoing obligations described in this Section 2.2 are hereinafter collectively referred to as the “Assumed Liabilities.”

2.3 Excluded Assets and Excluded Liabilities . Other than the assets specifically referred to in Section 2.1 and the liabilities specifically referred to in Section 2.2, Avigen shall not be required to transfer to Genzyme, and Genzyme shall not be required to acquire or assume, any other assets or liabilities of Avigen or its Affiliates. Without limiting the foregoing sentence, notwithstanding the provisions of Sections 2.1 and 2.2 -- except as they operate to include those assets listed in Schedule 2.1(m) among the Gene Therapy Assets or those liabilities listed in Schedule 2.2 among the Assumed Liabilities -- neither the Gene Therapy Assets nor the Assumed Liabilities shall include, and Avigen shall not be required to transfer to Genzyme and Genzyme shall not be required to acquire or assume:

(i) Any cash, cash equivalents or accounts receivable;

(ii) The Facility and any equipment, fixtures, and furniture located therein;

(iii) In accordance with Section 2.7, any Selected Other Gene Therapy Contract for which a Consent (as defined in Section 2.7) is required to be obtained from any Person in order to permit the assignment to Genzyme of Avigen’s rights under such Contract which Consent shall not have been obtained on or prior to the Effective Date;

(iv) All materials that Avigen must retain in order to comply with Legal Requirements (including without limitation samples of plasmids and cell lines);

(v) The other assets listed on Schedule 2.3 (Certain Excluded Assets);

(vi) Avigen’s equity or debt interests in any subsidiaries or other Affiliates of Avigen;

(vii) Any contractual obligations of Avigen to Third Parties other than pursuant to the Upstream Licenses or Selected Other Gene Therapy Contracts or as described in Section 2.2 (i.e. as included among the Assumed Liabilities under Section 2.2 without reference to this Section 2.3);

(viii) Any debts (in the form of indebtedness or a loan), [*] or outstanding amounts (pursuant to a payment obligation) owed by Avigen related to any Gene Therapy Asset on or prior to the Effective Date and any payments due by Avigen pursuant to the

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Selected Other Gene Therapy Contracts or the Upstream Licenses on or prior to the Effective Date;

(ix) Any liabilities with respect to the Facility or any equipment, fixtures or furniture located therein;

(x) Any liability of Avigen incurred in connection with entering into this Agreement or any Ancillary Agreement, including (but limited to) brokerage, accounting and counsel fees, transfer and other taxes and fees due Third Parties with respect to the execution of this Agreement or any Ancillary Agreement, and expenses of Avigen arising from performance by Avigen of its obligations hereunder or thereunder (except to the extent required to be reimbursed by Genzyme as explicitly provided elsewhere in this Agreement);

(xi) Any obligations to Avigen’s current or former employees, including without limitation, any salaries, wages, bonuses, benefits, severance payments, or pension, retirement, or profit-sharing plan or trust payments or benefits;

(xii) Any litigation, proceeding or claim by any person or entity against Avigen or other obligation of Avigen related to the business or operations of Avigen or otherwise relating to the Gene Therapy Assets prior to the Effective Date, [*] and except to the extent such litigation, proceeding or claim constitutes an Assumed Liability (with Assumed Liabilities being determined without reference to any exclusion provided under this Section 2.3, and Assumed Liabilities therefore, to avoid any doubt, including without limitation those liabilities referred to in Schedule 2.2);

(xiii) Any tax obligations or benefits of Avigen or its Affiliates, whether relating to periods before or after the Effective Date;

(xiv) Any obligations or liabilities (for violations or otherwise) of Avigen under any Legal Requirements (including without limitation pertaining to antitrust, civil rights, labor, employment, discrimination and environmental laws) or arising from or related to the gross negligence or intentional misconduct of Avigen or its Affiliates or their respective current or former officers, directors, employees, consultants or agents (other than any such obligation or liability that constitutes an Assumed Liability (with Assumed Liabilities, to avoid any doubt, including without limitation those liabilities referred to in Schedule 2.2)); or

(xv) Any expenses or liabilities resulting from the closure of AAV production at the Facility or any other facilities and/or the termination of any employees of Avigen;

Subject to the introductory paragraph to this Section 2.3, the assets referred to in (i) through (vi) and the tax benefits referred to in (xiii) are, collectively, but excluding any asset referred to in Schedule 2.1(m), the “Excluded Assets” and the liabilities referred to in (vii) through (xv) are, collectively, but excluding any liability referred to in Schedule 2.2, the “Excluded Liabilities.” To avoid any shadow of a doubt, nothing in this Section 2.3 is intended to remove those assets referred to in Schedule 2.1(m) from the Gene Therapy Assets or those liabilities referred to in Schedule 2.2 from the Assumed Liabilities.

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In addition, Genzyme hereby grants Avigen an exclusive (even as to Genzyme) license under the Gene Therapy Patents and Gene Therapy Listed Know-How, to make, have made, use, sell, offer for sale and import IL-10 Products throughout the world, subject to the terms and conditions of the Upstream Licenses and Selected Other Gene Therapy Contracts including without limitation any royalty obligations contained therein. Such license shall be fully and freely sublicenseable one (1) or more times through one (1) or more tiers of sublicensees without Genzyme’s consent, subject to the terms and conditions of the Upstream Licenses and Selected Other Gene Therapy Contracts. If Genzyme has a prospective sublicensee within the scope of this license to Avigen for Avigen to consider, and wishes to discuss the possibility of a sublicense with Avigen, Genzyme will Notify Avigen. Avigen agrees to discuss and consider in good faith the possibility of granting such a sublicense on appropriate terms, but retains discretion over whether or not to grant such sublicense.

2.4 Ancillary Agreements . On the Effective Date, the Parties shall enter into the following additional agreements and deliver the following instruments (collectively, the “Ancillary Agreements”):

(a)	A bill of sale substantially in the form of Exhibit A;
(b)	An assignment and assumption agreement in the form of Exhibit B;
(c)	A general technology assignment instrument in the form of Exhibit C; and

(d) A trademark assignment instrument in the form of Exhibit D; provided that such trademark assignment instrument, though signed, notarized and effective as of the Effective Date, may be delivered within one business day thereafter.

2.5 Transition Assistance . For a period of six (6) months after the Effective Date (or such longer period as may be mutually agreed upon by the Parties), at Genzyme’s request and upon reasonable advance notice and at reasonable (in view of the relevant personnel’s other responsibilities) times, Avigen shall make the Avigen personnel set forth in Schedule 2.5 hereto available to Genzyme for transition services related to the Gene Therapy Assets on a consulting basis ( provided that such personnel continue to be employed by Avigen or an Affiliate of Avigen and only for so long as such personnel continue to be so employed). Avigen shall provide (as requested by Genzyme) up to the applicable number of hours of such transition services per month set forth in Schedule 2.5 in exchange for Genzyme paying to Avigen for the time of each person at an hourly rate equal to [*] as calculated above. Promptly following a request from Genzyme delivered no earlier than January 3, 2006, Avigen will provide Genzyme with a true and correct list of the [*]. Avigen shall not be required to provide access to each Avigen person’s time beyond the maximum number of hours for such person stated in Schedule 2.5, and Genzyme shall pay Avigen for the number of hours actually spent providing such services within forty-five (45) days after receipt of a reasonably detailed invoice therefor from Avigen.

2.6 Regulatory Filings . Within thirty (30) days after the Effective Date, Avigen shall deliver to Genzyme executed original letters and other documentation necessary or desirable to be delivered to each Regulatory Agency to assign and officially transfer authority and responsibility for each of the Current Regulatory Filings to Genzyme. Genzyme and Avigen

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shall mutually agree on the form and content of each such letter or other documentation, but in any event Genzyme shall not unreasonably withhold its consent to letters and other documentation provided by Avigen that are consistent with this Agreement and legally effective to transfer such authority and responsibility in accordance with the relevant Regulatory Agency’s practices. Genzyme shall file such letters or other documents with the relevant Regulatory Agencies within three (3) Business Days after provided by Avigen. If Genzyme does not timely do so, then Avigen shall be entitled to file these letters on Genzyme’s behalf.

2.7 Non-Assignment of Certain Contracts . Notwithstanding anything to the contrary in this Agreement, to the extent that the assignment hereunder of any contracts included in the Gene Therapy Assets shall require the consent of any Third Party (each, a “Consent”) that has not been obtained by Avigen on or prior to the Effective Date, neither this Agreement nor any action taken pursuant to it shall constitute an assignment or an agreement to assign if such assignment or attempted assignment would constitute a breach of the relevant contract and/or result in the loss or diminution of any Gene Therapy Asset; provided, however , that in each such case, Avigen shall, [*] use its reasonable efforts to obtain the Consent of such other party to an assignment to Genzyme equivalent to that otherwise provided for herein as soon as practicable after the Effective Date and, promptly upon such receipt, execute and deliver to Genzyme such documentation as the Parties mutually agree is reasonably necessary or appropriate to effect the assignment of such contract (with it being acknowledged that documentation in the form of Exhibit C (Form of Assignment and Assumption Agreement) shall suffice); provided further that Avigen shall not be required to [*] . Nothing herein shall be deemed a waiver by Genzyme of its right to receive on a timetable that is consistent with this Agreement an effective assignment of or sublicense under each Upstream License that is included in the Gene Therapy Assets.

2.8

Other Closing-Related Deliveries of the Parties .

(a) Inventory . Avigen shall physically transfer to Genzyme all materials required to be transferred to Genzyme under Sections 2.1(f)-2.1(g), except that Avigen may retain a sufficient amount of such materials (other than any such materials described on Schedule 2.1(m)) to the full extent required by Legal Requirements. The transfer of these materials shall be at [*] expense and [*] costs incurred in connection with such transfer.

(b) Files . Avigen shall deliver to Genzyme, an original (or, if Avigen is required under Legal Requirements to retain the original, a copy) of all files possessed and maintained by Avigen related to: the Upstream License and the, Selected Other Gene Therapy Contracts (and activities thereunder), Gene Therapy Listed Patents and Gene Therapy Listed Know-How and the other Gene Therapy Assets (other in each case than those files that fall within the categories of Sections 2.1(h) and (i)); those items assigned to Genzyme in Sections 2.1(h) and (i); and the Current Regulatory Filings, including without limitation all correspondence and minutes of meetings and teleconferences with Regulatory Agencies relating thereto (other in each case than those files that fall within the categories of Sections 2.1(h) and (i)). Avigen shall be entitled to retain a copy of each such item for archival purposes in the confidential files of its legal counsel or, with respect to regulatory matters, in the confidential files of its regulatory department.

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(c) Recordation . Promptly following receipt from Genzyme of a patent assignment acknowledgement substantially in the form of Exhibit E with respect to a Gene Therapy Listed Patent on file as of the Effective Date, Avigen will execute and deliver such patent assignment acknowledgement to Genzyme in a form suitable for recordation with the applicable governmental entity. Genzyme shall properly record at its own expense all Gene

Therapy Listed Patent assignment acknowledgement documents provided by Avigen pursuant to this Section 2.8(c) as and when reasonably determined by Genzyme in a manner consistent with its patent practices, policies and procedures.

(d) Opinion of Counsel . Avigen shall provide to Genzyme an opinion from Avigen’s outside counsel in the form of Exhibit F, dated the Effective Date.

(e) Inventor Signatures . Avigen shall (i) seek to contact the inventors of the patents and/or patent applications listed on Schedule 8 [*] its [*] to obtain signatures from such inventors on the applicable patent assignment recordation documents and [*] information and declarations required to make the proper filings with the U.S. Patent and Trademark Office to proceed with respect to the patents and/or patent applications listed on Schedule 8 [*] including without limitation providing Genzyme with copies of the employment agreements of such inventors and documenting Avigen's efforts to contact such inventors if requested by Genzyme.

The mechanics and timing of the transfer and deliveries called for in this Section 2.8 shall be as set forth in Schedule 2.8. In accordance with such Schedule, certain aspects of this transfer shall be accomplished by Genzyme’s personnel visiting Avigen’s facility. Accordingly, Avigen’s responsibility to “physically transfer” these items to Genzyme is limited to making these items available to Genzyme at Avigen’s facility as per the procedures provided in such Schedule. With respect to the clinical trial material inventories covered by Section 2.8(a), at Genzyme’s expense, Avigen shall (x) continue to store such materials in accordance with all of its internal standard operating procedures and representations made to the FDA in connection with the production and maintenance of clinical trial material for IND # 11366 (for the Current Parkinson’s Product inventory) and IND # 9398 or 8033 (for the Current Factor IX Product inventory), (y) until [*] continue to perform such testing and assays as are required in such internal standard operating procedures and such representations made to the FDA, and (z) until the inventories of the Current Parkinson’s Product have been transferred to Genzyme, ship quantities of the inventories of the Current Parkinson’s Product to clinical sites of the Ongoing Parkinson’s Trial in accordance with Genzyme’s written requests. As regards (z), Genzyme must provide reasonable notice prior to any requested shipment.

2.9 Sales and Transfer Taxes . Except as otherwise provided herein, each Party shall bear and be solely responsible for any sales taxes, use taxes, transfer taxes, documentary charges, recording fees, filing fees and similar taxes, charges, fees and expenses that may become payable by such Party in connection with the transactions contemplated by this Agreement.

2.10 Clinical Trial Insurance Coverage . At Genzyme’s request, Avigen shall (a) purchase an extended reporting period for its insurance policies with respect to liabilities incurred prior to the Effective Date that arise out of the clinical trials conducted pursuant to IND # 9398 and IND # 8033 and (b) cause Genzyme to be added to such policies as an additional

16.

named insured. The length of the extended reporting period and the liability limits of such policies shall be those requested by Genzyme, and Genzyme shall reimburse Avigen for the premium payments required to purchase such coverage and to add Genzyme as an additional insured within 45 days of receipt of Notice from Avigen that such premium payment has been made. It is understood and agreed that Avigen is not required to make any claim under an insurance policy other than those policies described in this Section 2.10 to discharge, satisfy or mitigate (in whole or in part) any Assumed Liability.

2.11 Non-Compete . Except as otherwise expressly provided herein, prior to the expiration of the Royalty Term applicable to each Product, neither Avigen nor any of its Affiliates shall directly by the actions of any of them or indirectly by acting with or through a Third Party (including, without limitation, by granting a Third Party a license under intellectual property rights), conduct research or development activities regarding, or engage in the manufacture, marketing, sale or distribution of Products; provided, however, that if Genzyme [*] then this non-compete shall not apply to [*] effective upon receipt by Avigen of the Notice delivered by Genzyme pursuant to [*] . In the event that this Agreement is terminated in its entirety pursuant to Section 9.2, then the non-compete under this Section 2.11 shall expire effective on the effective date of such termination.

2.12 Selection of Additional Other Gene Therapy Contracts . Avigen will, beginning January 5 2006, make available to Genzyme at Avigen’s facility all Other Gene Therapy Contracts not listed on Schedule 1.75. On or before February 20, 2006, Genzyme shall Notify Avigen which of the Other Gene Therapy Contract not listed on Schedule 1.75 Genzyme wishes to include among the Selected Other Gene Therapy Contracts, and they shall be so included, provided that no Other Gene Therapy Contracts that become Selected Other Gene Therapy Contracts after the Effective Date will be Represented Contracts for the purpose of Section 8.1(j), and [*] .

2.13 Maintenance of Essential Materials . Genzyme shall maintain those quantities of materials included among the Gene Therapy Assets that are listed in Schedule 2.13, under the storage conditions set forth in that Schedule. The purpose of this (in addition to being part of Genzyme risk management and operational practices with like materials) is [*] . Avigen acknowledges and agrees that the quantities of such materials set forth in Schedule 2.13 will be sufficient to serve this purpose, and in no circumstances shall Genzyme’s obligation to maintain tangible Gene Therapy Assets be deemed to extend beyond the materials listed in Schedule 2.13.

2.14 Lists of In-Licensed and Contracted-For Patents . On the Effective Date, Avigen shall deliver to Genzyme (a) a list prepared in good faith by Avigen of those Gene Therapy Upstream License Patents of which Avigen is aware, and (b) a list prepared in good faith by Avigen of those Gene Therapy Other Contract Patents of which Avigen is aware.

ARTICLE 3

FINANCIAL CONSIDERATION; PAYMENT TERMS

As partial consideration for the sale of the Gene Therapy Assets, Genzyme shall make the following payments to Avigen on the following terms and conditions:

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3.1 Initial Consideration . Genzyme shall pay to Avigen Twelve million Dollars ($12,000,000) in cash by wire transfer (the “Upfront Payment”) within two (2) Business Days after the Effective Date. The Upfront Payment shall be non-refundable, shall not be creditable against any other amount due hereunder and shall not be subject to offset or reduction of any kind except, if applicable, as provided in Section 3.8. Without limiting the requirements of Section 3.8, Genzyme shall make the Upfront Payment from a U.S. entity to Avigen (itself a U.S. entity).

3.2 Milestone Payments . Subject to Section 9.6 (to the extent it applies) and the additional terms and conditions set forth in Schedule 3.2, Genzyme shall pay to Avigen each of the amounts in Dollars set forth in the tables set forth in Schedule 3.2 within [*] days after the first achievement of the corresponding milestone event by or on behalf of Genzyme, its Affiliate or any Licensee with respect to each Product. Each such amount shall be non-refundable, shall not be creditable against any other amount due hereunder and shall not be subject to offset or reduction of any kind, except as explicitly set forth in the first paragraph after Part F of Schedule 3.2 and except as provided in Section 3.8 (if applicable) and Section 6.8. The milestones in Part A, Part B and Part C of Schedule 3.2 shall be [*] . The milestones in Part D, Part E and Part F of Schedule 3.2 shall be [*] .

3.3

Royalty Payments; One Royalty; Offsets for Third Party Royalties .

(a) Genzyme shall pay to Avigen a royalty on worldwide Net Sales of each Product during the Royalty Term for such Product as follows based on cumulative (not annual) Net Sales of such Product worldwide during said Royalty Term:

(i) For all Net Sales of such Product up to or equal to [*] , [*] percent [*] of such Net Sales;

(ii) For all Net Sales of such Product above [*] and less than [*] , [*] percent [*] of such Net Sales; and

(iii) For all Net Sales of such Product equal to and above [*] , [*] percent [*] of such Net Sales;

provided, however , that if a royalty is payable with respect to [*] solely because [*] then the royalties payable with respect to [*] shall be at [*] Royalties payable pursuant to this Section 3.3 shall not be subject to offset, deduction or reduction of any kind except as provided in Section 3.8 (if applicable) and Section 6.8. Such royalties shall be payable quarterly within sixty (60) days after the end of the calendar quarter in which the Net Sales on which the royalty is due were made.

(b) Only one earned royalty will accrue and be paid on a given Product regardless of the number of Claims of Gene Therapy Patent or number of countries having Claims of Gene Therapy Patent, even if the manufacture of such Product in one country is Covered by the Claims of the Gene Therapy Patents and the use, sale or importation in another country is Covered by the Claims of the Gene Therapy Patents. This Section 3.3(b) shall not be read to modify the way “Coverage” is determined for purposes of the “Product” definition and the “Royalty Term” definition, rather this Section 3.3(b)) relates to clarifying that the royalty

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rates of Section 3.3(a) are the rates that apply, and they are not doubled nor applied multiple times to the same Net Sales under the circumstances described above in this Section 3.3(b).

3.4 Licensing Revenues . Genzyme shall pay to Avigen the cash equivalent of [*] percent [*] of any and all payments (whether received by Genzyme in cash, equity, loan forgiveness or other form) that Genzyme or any of its Affiliates receives from any Licensee through, in connection with or pursuant to any transaction (or series of transactions) in which the Licensee obtained any right that qualifies it as a Licensee in accordance with the definition of such term (“Licensing Transaction”), but excluding any payment that is calculated as a percentage of net sales or profits or similar metric (all such payments that Genzyme is required to pay a share of to Avigen, “Licensing Revenues”). Licensing Revenues include (without limitation) Licensing Transaction initial payments, upfront payments, milestone payments and annual maintenance fees. Licensing Revenues exclude payments that are in explicit consideration of funding for research, development, manufacturing, commercialization or other actual costs, or reimbursement on a pass-through basis of such actual costs [*] .

If there are multiple connected or otherwise related transactions any one (1) of which alone would be a Licensing Transaction (but including at least one (1) other transaction that would not alone be a Licensing Transaction), then the value of Licensing Revenues for that overall Licensing Transaction will be proportionally reduced based on the relative fair market values of the Gene Therapy Assets included therein, and of the other consideration provided by Genzyme, as determined in accordance with Section 3.16.

Licensing Revenues shall be proportionally reduced if a Licensing Transaction includes a grant of a license or other right under intellectual property other than those included within the Gene Therapy Patents and Gene Therapy Know How transferred hereunder, based on the relative fair market values of the Gene Therapy Patents and Gene Therapy Know How and such other intellectual property, as determined in accordance with Section 3.16.

Genzyme shall pay Avigen its share of each payment (in whatever form) of Licensing Revenue received by Genzyme or its Affiliate within sixty (60) days after the later of (i) Genzyme’s receipt thereof or (ii), if applicable, the fair market value of the Licensing Revenues is finally determined pursuant to Section 3.16.

If [*] and [*] shall be deemed a Licensee for all purposes hereunder, provided , however , that [*] Licensing Revenue.

3.5 Samples, Compassionate Use, Expanded Access, Charitable Donations and Investigator-Sponsored Studies . The Parties hereby agree that Genzyme may make Product available (i) for use as samples in the ordinary course of business, (ii) to patients under expanded access compassionate use programs prior to receipt of the necessary Regulatory Approvals for market such Product in the relevant country, (iii) through charitable donations or (iv) for preclinical studies, clinical trials and investigator-sponsored studies, in each case (i) through (iv) without including the value of the Product transferred for such purposes in Net Sales (and thus without paying any royalty hereunder on such the quantities of Product). However, if Genzyme sells a [*] , then the levels of the corresponding Product disposed of or transferred under Section 3.5(i), (ii) or (iii) shall be subject to the procedures contained in Section 3.16 including

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Industry Expert determination if applicable, applied to determine the fair market value on which a royalty shall be paid to Avigen pursuant to Section 3.16, such fair market value as determined under Section 3.16 to be equal to the imputed Net Sales value of any Product disposed of under this Section 3.5 that are in excess of customary levels of charitable or compassionate use of pharmaceutical products relative to actual sales of such products (determined on product-by-product basis).

3.6 Wire Transfer . Genzyme shall make payments by wire transfer of Dollars to the account specified by Avigen in writing prior to the Effective Date (as such address may be changed or updated by Avigen by providing Notice reasonably in advance of any payment becoming due or payable), or by such other payment method as the Parties may agree in writing upon from time to time.

3.7 Foreign Currency . Payments made under this Agreement shall be payable in Dollars. Net Sales calculated under this Agreement shall be computed for each quarter with foreign Net Sales converted into Dollars in accordance with GAAP, using the average of the relevant exchange rates for each month of such quarter (based on the rates published in The Wall Street Journal, East Coast Edition for such month).

3.8 Withholding . Any income or other taxes which Genzyme is required by Legal Requirements to pay or withhold on behalf of Avigen with respect to monies payable to Avigen under this Agreement shall be deducted from the amount of such payments and paid to the relevant competent taxing authority. If Genzyme is required to make any such withholding, Genzyme shall indicate the details of the withholding in its report to Avigen accompanying the payment from which withholding has been made. Upon written request from Avigen, Genzyme shall promptly provide Avigen with a certificate or other documentary evidence to enable Avigen to support a claim for a refund or a foreign tax credit with respect to any such tax so withheld or deducted by Genzyme. Genzyme and Avigen will reasonably cooperate in completing and filing documents required under the provisions of any applicable tax treaty or under any other applicable law, in order to enable Genzyme to make such payments to Avigen without any deduction or withholding, if possible. Genzyme is a U.S. entity and, except as provided in Section 3.12 below, shall make all [*] required of it hereunder from a U.S. entity or from a non-U.S. entity in a circumstance where tax or other withholding of any portion of such payment is not required, provided, that in a circumstance where withholding is required: (a) at the reasonable request of Genzyme, Avigen will execute and deliver such administrative or ministerial certificates that will enable such a payment to be made without withholding and in a circumstance where withholding is required and (b) Genzyme may make the payment from such entity if Genzyme also makes a gross-up payment to Avigen that makes Avigen whole for the amount withheld.

3.9 Reports . With each payment that Genzyme is required to make to Avigen under ARTICLE 3, Genzyme shall provide a written report, showing the calculation of Net Sales together with the calculation of the royalty thereon that is required to be paid. The calculation of Net Sales in the report shall include a statement of gross sales and in aggregate form within each category the amount of each deduction provided for in the definition of Net Sales. With each milestone or Licensing Revenue payment that Genzyme is required to make to Avigen under ARTICLE 3, Genzyme shall provide a written report stating the amount and calculation of the

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payment, the milestone or other event triggering such payment and the Product and/or Licensing Transaction, as applicable, for which such payment is being made.

3.10 Records . Genzyme shall, and shall cause its Affiliates and Licensees to, keep and maintain for [*] after the relevant calendar quarter complete and accurate books and records in sufficient detail so that Net Sales and payments made hereunder can be properly calculated.

3.11 Interest on Late Payments . Interest shall accrue on late payments by Genzyme at the rate announced from time to time by Bank of America in Boston, Massachusetts U.S.A. (or its successors or assigns) as its prime rate, calculated on the number of days payment is delinquent, or the maximum amount permitted by law, whichever is less; provided , that if such payment has been delayed because it is related to a dispute raised by a Party in good faith that is undergoing the dispute resolution procedures set forth in ARTICLE 10 hereof, interest shall be calculated on the number of days payment is delinquent starting on the day after such dispute is finally resolved.

3.12 Exchange Controls . Notwithstanding any other provision of this Agreement, if at any time legal restrictions prevent the prompt remittance of part or all of the royalties with respect to Net Sales in any country, payment shall be made through such lawful means or methods as Genzyme may determine after reasonable consultation with Avigen. When in any country the law or regulations prohibit both the transmittal and deposit of royalties on sales in such a country, royalty payments may be suspended for as long as such prohibition is in effect (and such suspended payments shall not accrue interest), and promptly after such prohibition ceases to be in effect, all royalties that Genzyme would have been obligated to transmit or deposit, but for the prohibition, shall be deposited or transmitted, as the case may be, to the extent allowable (with any interest earned on such suspended royalties which were placed in an interest-bearing bank account in that country, less any transactional costs).

3.13 Audit . No more frequently than once during each calendar year during the Term and once during the [*] period thereafter, Genzyme shall permit Avigen’s independent auditors, to whom Genzyme has no reasonable objection and with reasonable advance notice at any time during normal business hours, accompanied at all times, to inspect, audit and copy reasonable amounts of relevant accounts and records of Genzyme, its Affiliates and reports submitted to Genzyme and its Affiliates by Licensees, for the sole purpose of verifying the accuracy of the calculation of payments to Avigen pursuant to ARTICLE 3 and the reports which accompanied them. The accounts, records and reports related to any particular period of time may only be audited one time under this Section 3.13. Avigen will cause its independent auditors not to provide Avigen with any copies of such accounts, records or reports and not to disclose to Avigen any information other than information relating solely to the accuracy of the accounting and payments made by Genzyme pursuant to ARTICLE 3. Avigen shall cause its independent auditors to promptly provide a copy of their report to Genzyme. If such audit determines that payments are due to Avigen, Genzyme shall pay to Avigen any such additional amounts within thirty (30) days after the date on which such auditor’s written report is delivered to Genzyme and Avigen, unless such audit report is disputed by Genzyme, in which case the dispute shall be resolved in accordance with ARTICLE 10. If such audit determines that Genzyme has overpaid any amounts to Avigen, Avigen shall refund any such overpaid amounts to Genzyme within thirty (30) days after the date on which such auditor’s written report is delivered to Genzyme and

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Avigen. Any such inspection of records shall be at Avigen’s expense unless such audit discloses a deficiency in the payments made by Genzyme (whether for itself or on behalf of its Affiliates and Licensees) of more than [*] of the aggregate amount payable for the relevant period, in which case Genzyme shall bear the cost of such audit. Each of the Parties agree that all information subject to review under this Section 3.13 is Genzyme’s Confidential Information that is subject to Avigen’s confidentiality and non-use obligations under ARTICLE 7, and Avigen agrees that it shall cause its accounting firm to also retain all such information subject to the confidentiality and non-use restrictions of ARTICLE 7 or similar (but no less stringent) obligations of confidentiality and non-use customary in the accounting industry.

3.14 Fair Market Value of Gene Therapy Assets . The Parties acknowledge that the purchase price represents the fair market value for the Gene Therapy Assets and was determined by arm’s length negotiations. The Parties agree that no consideration is or will be paid for the value of any referrals to or from either Party to the other, or their respective Affiliates that violates any Legal Requirements.

3.15 Allocation of Consideration . Within sixty (60) days after the Effective Date, Genzyme shall allocate the consideration among the Gene Therapy Assets. Such allocation shall be made in accordance with the provisions of Section 1060 of the Internal Revenue Code of 1986, as amended (the “Code”), and shall be binding upon both Parties for tax purposes. The Parties also each agree to file tax returns consistently with the foregoing and in accordance with Section 1060 of the Code.

3.16 Fair Market Value Determination for Products or Licensing Transactions

(a) If Genzyme or an Affiliate or Licensee [*] as described in the second sentence of Section 3.5, Genzyme will notify Avigen of the per-unit Net Sales value Genzyme proposes with respect to the relevant Product, reflecting the fair market value of the Product. [*] in excess of the limitations contained in Section 3.5, as described in the last sentence of Section 3.5.)

(b) If there are multiple connected or otherwise related transactions any one (1) of which alone would be a Licensing Transaction (but at least one (1) of which would not alone be a Licensing Transaction), as soon as practicable after Genzyme consummates such transaction, Genzyme will notify Avigen of the value Genzyme proposes to allocate to Licensing Revenue for the overall Licensing Transaction, based on the fair market value of the rights to Gene Therapy Assets that are granted as part of the Licensing Transaction relative to the fair market value of the other consideration provided by Genzyme under the Licensing Transaction (excluding consideration provided to Genzyme which is already excluded from Licensing Revenue based on the definition of such term set forth in Section 3.4).

(c) If there is a Licensing Transaction that involves the grant of a right under Gene Therapy Patents and Gene Therapy Know-How as well as the grant of the right under other intellectual property, as soon as practicable after Genzyme consummates such transaction, Genzyme will notify Avigen of the value Genzyme proposes to allocate to Licensing Revenue based on such Licensing Transaction, based on the fair market value of the rights to Gene Therapy Patents and Gene Therapy Know-How that are granted as part of the Licensing

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Transaction relative to the fair market value of the rights to the other intellectual property provided by Genzyme under the Licensing Transaction (excluding consideration provided to Genzyme which is already excluded from Licensing Revenue based on the definition of such term set forth in Section 3.4).

(d) If Avigen and Genzyme fail to agree on the relevant fair market value(s) within [*] days after Avigen receives Genzyme’s proposal, the Parties shall attempt to resolve the dispute amicably and promptly by negotiations between senior executives (at the level of Vice President or above) who have authority to settle the dispute. Within [*] Business Days after the dispute is submitted to such senior executives, they shall meet at a mutually acceptable time and place, or by means of telephone or video conference, and thereafter as often as they reasonably deem necessary, to attempt to resolve the dispute. Each Party’s such senior executives shall be reasonably available during a [*] day period for such discussions. If the matter is not resolved within such [*] days, either Party may proceed under clause (e) below.

(e) If the Parties fail to resolve the dispute on the relevant fair market value(s) pursuant to clause (d) above, then the Parties shall refer the determination of fair market value(s) to an industry expert with no less than [*] of experience valuing biopharmaceutical assets (such as [*] ) who has not been affiliated with either of the Parties or their Affiliates (an “Industry Expert”) to determine the fair market value(s). If the Parties cannot agree on a single Industry Expert within such [*] days, each shall choose one (1) Industry Expert by the end of the [*] days and such two (2) experts shall choose a third Industry Expert within an additional [*] . In this case, the Parties would engage the third Industry Expert to resolve the dispute, and the third Industry Expert is the person who shall make the determination as to fair market value. Within thirty (30) days after engaging the expert, each Party shall submit no more than ten (10) pages of analysis demonstrating its view of the fair market value of the relevant Product (the ten-page limit is on a per-country basis in cases where per-unit Product fair market values for sales in different countries are being determined). Within [*] days after these written analyses are due, the Industry Expert shall hold a proceeding in which each Party is entitled to make a presentation of no more than [*] . Neither Party shall engage in any ex parte communications with the Industry Expert. Within [*] days after the in-person proceeding, the Industry Expert shall deliver in writing his or her decision as to all fair market values referred for determination simultaneously to both Parties. This decision must be for a value that is [*] , as to each fair market value. The Industry Expert is instructed (i) to make this determination based on valuation techniques that are customary and usual in the biopharmaceutical industry, including without limitation for [*] and all other relevant factors typically taken into account, including without limitation issues of safety and efficacy, product profile, the competitiveness of the marketplace, the proprietary position of the product, the regulatory structure involved, the cost of scaling up a manufacturing process (including facility costs), and the profitability of the applicable products; and (ii) that the purpose of the procedures under this Section 3.16 is to ensure that [*] in accordance with the terms and conditions of this Agreement based on Net Sales and Licensing Revenue values that fairly reflect the fair market values of Products, Gene Therapy Patents and Gene Therapy Know How or Gene Therapy Assets, as applicable. The Industry Expert’s decision shall not result in any payments being made to Avigen based on [*] rather Avigen must be compensated in accordance with the terms and conditions of this Agreement based on the fair market value of Products, Gene Therapy Patents and Gene Therapy Know How or Gene Therapy

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Assets, as applicable. The Industry Expert’s decisions shall be final and binding on the Parties absent fraud.

(f) [*] to an [*] under subsection (b) one time only, provided that [*] shall [*] based on [*] in the [*] for Finished Goods published by the [*] the [*] and [*] of the [*] as the [*] for [*] .

(g) The Parties shall bear equally the costs of engaging the Industry Expert under this Section 3.16, including without limitation the Industry Expert’s fees and expenses and any other costs incurred to conduct the proceedings contemplated hereunder.

3.17 Recognition of Potential Reversion in Licensing Transactions . If, after the Effective Date, Genzyme licenses Gene Therapy Assets to a Third Party for the research and development of the Parkinson’s Product, Genzyme will cause the terms and conditions of such license to recognize and permit the potential reversion of Gene Therapy Assets and grant of other rights with respect to the Parkinson’s Product set forth in Section ARTICLE 9, for no consideration to Genzyme’s counterparty to the applicable transaction. This Section is not intended to limit Avigen’s rights under ARTICLE 9.

ARTICLE 4

DEVELOPMENT; COMMERCIALIZATION

4.1 General Diligence Obligation . Genzyme (either itself or through its Affiliates, Licensees or any Third Party selected by Genzyme) shall be responsible [*] for: (i) the research, development, manufacturing, commercialization and distribution of Products selected by Genzyme and the related regulatory, reimbursement and marketing activities; (ii) the identification and selection of any Third Party to be utilized in connection with any clinical trials or research project related to, or the manufacture, distribution or marketing of, the Products and the negotiation of the arrangements with such Third Party and (iii) preparing, submitting and obtaining (in the name of Genzyme or its Affiliates or Licensees) all Regulatory Approvals and orphan drug designations (and similar designations outside of the United States) for Products. In addition to complying with the more specific diligence obligations set forth in Section 4.4 below, Genzyme shall use its Commercially Reasonable and Diligent Efforts to research, develop (including without limitation preclinically, clinically and with respect to manufacturing processes), manufacture and seek Regulatory Approval [*] . This [*] but if [*] to [*] the [*] to the [*] then this shall be [*] . Genzyme may satisfy its diligence obligations under Sections 4.1 and 4.4 through its own efforts, and through those of its Affiliates, Licensees and subcontractors.

4.2 Development Reports . By January 31st and July 31st of each year until the Commercial Launch of the first Product, Genzyme shall submit a written report setting forth in reasonable detail: (a) Genzyme’s (and its Affiliates’ and Licensees’) efforts to research and develop Products since the date of the last report delivered to Avigen under this Section and (b) Genzyme’s plan for such activities in the next year (including without limitation any milestone events described in Schedule 3.2 that are anticipated to occur during the covered year. The first such report shall be due on March 31, 2006 and shall be in lieu of the report that would otherwise be required on January 31, 2006. Genzyme’s obligations under this Section 4.2 shall

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be subject to (i) Genzyme’s confidentiality obligations to Third Parties, (ii) any restrictions under Legal Requirements and (iii) [*] All reports delivered by Genzyme pursuant to this Section 4.2 shall be deemed Genzyme’s Confidential Information and shall be subject to Avigen’s confidentiality and non-use obligations under ARTICLE 7.

4.3 Ongoing Parkinson’s Trial . From the Effective Date until such time as the IND for the Ongoing Parkinson Trial has been effectively transferred to Genzyme as required pursuant to Section 2.6, Avigen shall not take action to suspend or terminate the Ongoing Parkinson’s Trial unless there arises a safety issue or request from the FDA or IRB of a clinical site.

4.4 Parkinson’s Disease Product

(a) Once the IND for the Ongoing Parkinson’s Trial is transferred to Genzyme, Genzyme shall:

(i) conduct the Ongoing Parkinson’s Trial to completion in accordance with its current protocol (subject to any amendments or updates that may be required by the FDA or the IRB of any of the clinical sites for the trial or that Genzyme in its prudent scientific or business judgment deems necessary or advisable),

(ii) obtain FDA review (a Type C or other similar meeting) of a protocol for a subsequent Clinical Trial for a Current Parkinson’s Product [*] .

(iii) if Genzyme determines to submit a protocol for a subsequent Clinical Trial for a Current Parkinson’s Product to the Recombinant DNA Advisory Committee (“RAC”) for review, submit such protocol to the RAC [*] , and

(iv) if the RAC requests that Genzyme attend a meeting of the RAC to discuss the protocol, obtain RAC review of the protocol [*] provided that if [*] Genzyme shall [*] as an [*] and [*] to [*] this meeting to be [*] at the earliest possible date [*] .

(b)

(i) Within [*] after the [*] Genzyme shall [*] in [*] either [*] Avigen [*] or [*] the [*] with respect to [*] to [*] to Avigen [*] . Also, if Genzyme treats a patient in [*] of a [*] (meaning [*] )) without a [*] then the [*] .

(ii) The term “FDA Decision” means, [*] if Genzyme does not submit a protocol to the RAC as described in Section 4.4(a)(iii), the date of the FDA Type C or other similar meeting with Genzyme to discuss the Ongoing Parkinson’s Trial results and a proposed protocol for a subsequent Clinical Trial for a Current Parkinson’s Product, [*] and the [*] the date the RAC has held the meeting with Genzyme to discuss the protocol.

(c) In the case where the FDA (or the RAC, if Genzyme elects to submit a protocol to the RAC as contemplated by Section 4.4(a)(iii) and does so in a timely manner) [*] however, to be clear, anything [*] provided that Genzyme has devoted Commercially Reasonable and Diligent Efforts [*] feedback as required by Section 4.4(a) and devotes Commercially

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Reasonable and Diligent Efforts to [*] in order for them to provide such feedback, the FDA Decision will be the date of [*] If the FDA or RAC (if Genzyme elects to submit a protocol to the RAC as contemplated by Section 4.4(a)(iii) and does so in a timely manner) provides Genzyme with a notice that [*] the FDA Decision will be the date of such notice.

(d) If the FDA or RAC [*] based on the information and data produced by the Ongoing Parkinson’s trial, Genzyme may:

(i)

[*] to [*] to [*] pursuant to [*] of the Agreement, or

(ii) Perform further work, which may include an additional clinical trial, which in Genzyme’s best scientific or business judgment, will provide information and data that the FDA will deem sufficient to approve a clinical protocol for a subsequent clinical trial of a Current Parkinson’s Product following a Type C or similar meeting (or a meeting with the RAC, if Genzyme elects to submit a protocol to the RAC as contemplated by Section 4.4(a)(iii) and does so in a timely manner), exercising Genzyme’s judgment in making such decisions in accordance with the Commercially Reasonable and Diligent Efforts standard and devoting Commercially Reasonable and Diligent Efforts to such activities. In such case, the FDA Decision will be the date of a subsequent Type C or other similar meeting (or meeting with the RAC if Genzyme elects to submit a protocol to the RAC as contemplated by Section 4.4(a)(iii) and does so in a timely manner, whichever is later) that is scheduled as soon as possible after the further work is performed by Genzyme.

4.5 Commercialization . Genzyme shall use its Commercially Reasonable and Diligent Efforts to promote (including without limitation reasonable pre-marketing, advertising, education and detailing), market, distribute, sell, and provide product support for, each Product for which Genzyme obtains Regulatory Approval and, if applicable, Pricing Approval. Genzyme may satisfy its diligence obligations hereunder through its own efforts, and through those of its Affiliates, Licensees, distributors and subcontractors.

4.6 Regulatory Reporting . Beginning on the date that the authority and responsibilities for the Current Regulatory Filings are transferred by Avigen to Genzyme, as between the Parties, Genzyme shall have sole responsibility for and control of such transferred Regulatory Filings and all future Regulatory Filings for the Products and all regulatory reporting that is required in relation thereto with respect to periods beginning on such date.

ARTICLE 5

PROTECTION OF INTELLECTUAL PROPERTY

5.1 Filing, Prosecution and Maintenance of Patent Rights

(a) Patent Rights . Except as provided in subsection (b), as between the Parties, Genzyme shall have sole responsibility for and control over the filing, prosecution (including without limitation conducting interferences and oppositions), and maintenance, all at its sole expense, the Gene Therapy Patents. Except as provided in any Upstream License or Other Gene Therapy Agreement, Genzyme shall file, prosecute and maintain the Gene Therapy Patents in a manner consistent with its general patent practices and policies as in effect from time

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to time. Avigen agrees to (i) promptly execute such documents (or require its current employees or consultants to execute such documents, and encourage its former employees or consultants to execute such documents, as applicable) and perform such acts as Genzyme may reasonably require to enable Genzyme’s filing, prosecution and maintenance of any and all Gene Therapy Patents and [*] . In response to any reasonable requests from Avigen, Genzyme shall keep Avigen reasonably informed of [*] related to the filing [*] prosecution and maintenance of the Gene Therapy Patents.

It is understood and agreed that with respect to any Gene Therapy Patents to which rights are derived through an Upstream License or Other Gene Therapy Agreement, Genzyme’s rights and obligations to file, prosecute and maintain such Gene Therapy Rights under this ARTICLE 5 are subject to any applicable terms and conditions of the relevant Upstream License or Other Gene Therapy Agreement.

(b) Maintenance of Certain Patents . Genzyme may elect to [*] in a manner consistent with [*] as in effect from time to time [*] subject to [*] with respect to any Products [*] by such [*] to the full extent required under [*]

5.2

Infringement of Patent Rights .

(a) Action Against Infringement . Genzyme shall promptly deliver Notice to Avigen of any alleged or threatened infringement of the Gene Therapy Patents of which it becomes aware. Genzyme shall have the right to prosecute any such infringement at its own and sole expense. If Genzyme recovers any damages, by way of settlement or otherwise, such recovery shall be used first to reimburse Genzyme for its litigation expenses (including internal and expenses of Avigen that are required to be reimbursed by Genzyme as described below). Any remaining amounts from such recovery shall (i) to the extent [*] , (ii) to the extent [*] and (iii) the rest to be retained by Genzyme without any obligations to Avigen with respect thereto. In the event Genzyme brings an infringement action, Avigen shall cooperate fully in response to Genzyme’s reasonable requests for assistance but at Genzyme’s sole expense for all of Avigen’s reasonable invoiced out-of-pocket expenses (including both internal and external expenses), including, if required to bring such action, the furnishing of a power of attorney.

(b) Indispensable Party . If Genzyme reasonably determines that Avigen (and/or its Affiliate) is an indispensable party to any action brought by Genzyme pursuant to this Section 5.2, Avigen hereby consents to be joined and agrees to use its reasonable efforts to cause its Affiliate, as the case may be, to consent to be joined. Avigen (or its Affiliate, as the case may be) shall bear its own costs if it elects to be represented by separate counsel, but Genzyme shall bear all other litigation costs, including without limitation all of Avigen’s reasonable invoiced out-of-pocket expenses, whether internal or external (other than such costs of Avigen’s separate counsel).

(c) Reimbursement of Internal Avigen Costs . Internal costs of Avigen reimbursable pursuant to Section 5.2(a) or 5.2(b) are limited to the [*] Time spent by an Avigen employee shall not be eligible for reimbursement pursuant to Section 5.2(a) or 5.2(b) until Avigen has provided Genzyme with Notice of the annual salary of the Avigen employee (the “Annual Salary”). The amount Genzyme is required to reimburse Avigen with respect to the

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time spent by any Avigen employee with respect to such infringement action will be calculated by [*] .

5.3

Third Party Intellectual Property .

(a) Notice . If the development, manufacture, use, import, export, offer for sale or sale of any Product by or on behalf of Genzyme, any of its Affiliates and Licensees results in a claim for patent infringement or other violation of intellectual property rights of any Third Party (“Third-Party Infringement Claim”), Genzyme shall promptly Notify Avigen.

(b) Action . Genzyme may, in its sole discretion, elect to defend or settle any such claim related to the Gene Therapy Patents or Gene Therapy Know-How, at its own expense, using counsel of its own choice. Genzyme shall keep Avigen reasonably informed of all material developments in connection with any such claim, suit or proceeding and Avigen shall reasonably cooperate in the defense of the suit at Genzyme’s sole expense. If Genzyme recovers any damages, by way of settlement or otherwise, in connection with any counterclaim made by it in any such Third Party infringement suit, such recovery shall be used first to reimburse Genzyme for its litigation expenses (including, without limitation, the costs and expenses incurred in pursuing any counterclaims in such suit). Any remaining amounts from such recovery shall be [*] .

ARTICLE 6

REMEDIES, INDEMNIFICATION AND LIABILITY

6.1 Indemnification in Favor of Avigen . Genzyme shall indemnify, defend and hold harmless (collectively, “Indemnify”) each and every Avigen Indemnitee from and against any and all Damages incurred by it, her, him or them arising out of, resulting from or directly or indirectly relating to: (a) any fraud of Genzyme or (b) any demand, claim, lawsuit or other action brought by any Third Party (each an “Action”) made, brought or threatened against any of the Avigen Indemnitees arising out of or resulting from: (i) any breach of, or inaccuracy in, any representation or warranty made by Genzyme in this Agreement, any Ancillary Agreement or in any document, schedule, instrument or certificate delivered pursuant to this Agreement; (ii) any breach or violation of any covenant or agreement of Genzyme in or pursuant to this Agreement (including without limitation this Section 6.1) or any Ancillary Agreement; (iii) any Assumed Liability; (iv) the research, development, testing, manufacture, use, sale, offer for sale, import, export, storage or distribution of Products by or on behalf of Genzyme, its Affiliates, the Licensees or the distributors or subcontractors of any of them (including without limitation patent infringement claims and products liability claims with respect to such activities) or (v) the matters referred to in [*] Clause (v) of the foregoing sentence includes (without limitation) [*] .

6.2 Indemnification In Favor of Genzyme . Avigen hereby agrees to Indemnify each Genzyme Indemnitee from and against any and all Damages incurred by it, her, him or them arising out of, resulting from or directly or indirectly relating to: (a) any fraud of Avigen or (b) any Action made, brought or threatened against any of the Genzyme Indemnitees arising out of or resulting from: (i) any breach of, or inaccuracy in, any representation or warranty made by Avigen in this Agreement, any Ancillary Agreement or in any document, schedule, instrument or

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certificate delivered pursuant to this Agreement (to avoid any doubt other than the Lists delivered under Section 2.14 of this Agreement, which are required to be prepared in good faith but not to adhere to any higher standard); (ii) any breach or violation of any covenant or agreement of Avigen in or pursuant to this Agreement [*] ; or (iv) following a reversion of rights to the Parkinson’s Product pursuant to Section 9.6 or a termination of this Agreement to which Section 9.4 applies, the research, development, testing, manufacture, use, sale, offer for sale, import, export, storage or distribution of Products occurring after the date of such reversion or termination by or on behalf of Avigen, its Affiliates, licensees or the distributors or subcontractors of any of them (including without limitation patent infringement claims and products liability claims with respect to such activities).

6.3 Limitations . Notwithstanding anything to the contrary set forth in this Agreement, in no event shall either Party be required to Indemnify any Person as a result and to the extent the relevant Damages are caused by the negligence, recklessness, intentional misconduct or default of the other Party or its Affiliates, Licensees or distributors, excluding only as regards Assumed Liabilities described in numbered item 1 of Schedule 2.2.

6.4 Notice . Should any Action arise which could reasonably be expected to lead to a claim for Indemnification hereunder, the Party seeking indemnification (the “Indemnified Party”) shall promptly deliver Notice to the other Party (the “Indemnifying Party”) of the Action and the facts constituting the basis for such Action; provided that no delay in providing Notice shall relieve Indemnifying Party from any obligation under this ARTICLE 6, except to the extent that such delay actually and materially prejudices the Indemnifying Party.

6.5 Defense of Third Party Claims . The Indemnified Party and its Indemnitees shall, promptly after learning of or being put on notice of any Action giving rise to an indemnification obligation hereunder and to the extent requested in writing by the Indemnifying Party, tender defense of the Action to the Indemnifying Party; provided that the Indemnified Party shall not be required to tender defense of the Action unless (a) the Indemnifying Party gives written notice to the Indemnified Party within [*] days after the Indemnified Party has given notice of the Action that the Indemnifying Party will Indemnify the Indemnified Party against the entirety of any and all Damages the Indemnified Party may suffer associated with such Action to the extent required to be indemnified against under Sections 6.1 - 6.3, (b) the Indemnifying Party provides the Indemnified Party with [*] , and (c) the Indemnifying Party agrees to conduct the defense of the Action actively and diligently. If the Indemnifying Party assumes the defense of any Action, it shall assume the defense thereof with counsel from a law firm that is nationally recognized or otherwise is mutually satisfactory to the Parties. The Indemnifying Party shall not settle or compromise any such Action without the prior written consent of the Indemnified Party, which consent shall not be unreasonably withheld, conditioned or delayed; provided, however , that no consent shall be required to be obtained if the Indemnified Party is fully released of all liability without admission of liability or wrongdoing, the settlement provides for money damages as the sole remedy and does not involve any finding or admission of any violation of law or the rights of any Person. The failure to deliver Notice to the Indemnifying Party within a reasonable time after the commencement of any such Action, if materially prejudicial to its ability to defend such Action, shall relieve such Indemnifying Party of any liability to the Indemnified Party under this ARTICLE 6 with respect to such Action, but the omission so to deliver Notice to the Indemnifying Party will not relieve it of any liability that

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it may have to any Indemnitee otherwise than under this ARTICLE 6. The Indemnified Party shall cooperate fully with the Indemnifying Party and its legal representatives in the investigation of any Damages or Action covered by this indemnification.

If the Parties cannot agree as to the application of Sections 6.1 - 6.3 to any particular Action, then each is entitled to conduct its own defense of such Action at its own expense and reserves the right to claim indemnification hereunder upon resolution of the underlying action.

6.6 Insurance . Each Party shall procure and maintain insurance or self-insurance, including product liability insurance, adequate to cover its obligations hereunder and which are consistent with normal business practices of prudent companies similarly situated, at all times during which any Product is being clinically tested in human subjects or commercially distributed or sold by or on behalf of such Party. It is understood that such insurance or self-insurance shall not be construed to create a limit of either Party’s liability with respect to its indemnification obligations under this ARTICLE 6. Each Party shall provide the other with written evidence of such insurance or self-insurance upon written request. Each Party shall provide the other Party with written notice at least [*] days prior to the cancellation, non-renewal or material change in such insurance or self-insurance which materially adversely affects such other Party’s rights. Each Party shall name the other Party as an additional insured on each policy that it is required to maintain under this Section.

6.7 Limitation of Liability . EXCEPT TO THE EXTENT SUCH PARTY MAY BE REQUIRED TO INDEMNIFY THE OTHER PARTY UNDER THIS ARTICLE 6 FOR DAMAGES INCURRED IN AN ACTION BROUGHT BY ANY THIRD PARTY OR IN RESPECT OF A BREACH OF ARTICLE 7 (WHICH ARTICLE GENERALLY REGARDS CONFIDENTIALITY OBLIGATIONS), NEITHER PARTY NOR ITS RESPECTIVE AFFILIATES AND (IN THE CASE OF GENZYME) LICENSEES SHALL BE LIABLE FOR PUNITIVE DAMAGES OR FOR INDIRECT, SPECIAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES, WHETHER IN CONTRACT, WARRANTY, TORT, STRICT LIABILITY OR OTHERWISE. The representations and warranties included in this Agreement shall survive the Effective Date, provided that each representation and warranty speaks only as of the Effective Date unless another date is specified therein, in which case the representation and warranty speaks as of such other date to the extent specified therein. Neither Party shall have any liability for a breach of or inaccuracy in a representation or warranty hereunder with respect to which the other Party has not made any claim for breach [*] . This [*] does not apply to claims based on (a) fraud; (b) [*] ; or (c) [*] . Avigen’s aggregate liability [*] but only with respect to [*] of [*] and [*] shall be limited to [*] and [*] to [*] in [*] by [*] the [*] of [*] and shall not otherwise be payable by Avigen.

6.8 Right of Set-Off . Genzyme may at its sole option and election set off and apply the amount of any payment obligation owed by Avigen to Genzyme or any Genzyme Indemnitee pursuant to ARTICLE 6 (with no such payment obligation being deemed owed until such time as there is a settlement or final judgment in place) against any amounts payable to Avigen hereunder (including without limitation pursuant to ARTICLE 3) thereafter.

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6.9 Indemnification Not Exclusive Remedy . Genzyme and Avigen acknowledge and agree that indemnification pursuant to this ARTICLE 6 is not the exclusive remedy for breaches of this Agreement.

6.10 Damages From Breach of Section 8.1(h) Also Constructively or Actually Covered by Insurance Or Otherwise . Avigen shall not be liable for a breach of the representation and warranty set forth in Section 8.1(h) to the extent that (a) the Damages caused by such breach would have been covered by insurance policies maintained by Avigen immediately prior to the Effective Date (without regard to dollar limitations on the amount of coverage provided by such insurance policies – i.e. type, not amount, of liability is what determines whether the particular liability counts against the cap on damages contained in Section 6.7) or (b) Genzyme receives insurance proceeds from either the insurance policies described in Section 2.10 of this Agreement or insurance purchased by Genzyme to cover the risks arising out of the Ongoing Parkinson’s Trial or any Factor IX Product clinical trial under IND# 9398 or IND# 8033, or recovers damages from a counterparty to a Selected Other Gene Therapy Contract. Genzyme shall use its commercially reasonable efforts to seek the insurance proceeds or to recover the damages from such a counterparty, each as described in (b) above, to the full extent a claim for such proceeds or damages is reasonable.

ARTICLE 7

CONFIDENTIAL INFORMATION

7.1 Confidentiality and Non-Use Requirement . From the Effective Date through the [*] anniversary of the termination or expiration of this Agreement, each Party shall keep confidential, and shall cause its respective Affiliates and Licensees and their respective officers, directors, employees and agents to keep confidential, and not to use for any purpose other than to perform or exercise a right granted under this Agreement, the other Party’s Confidential Information, provided that the foregoing restrictions shall not apply to information that (i) is or hereafter becomes generally available to the public other than by reason of any default by such Party with respect to its confidentiality and non-use obligations under this Agreement, (ii) is hereafter disclosed to such Party by a Third Party who does not have a fiduciary duty to the other Party and is not and would not be, to the knowledge of such Party, in default of any confidentiality obligation to the other Party by virtue of disclosing such information to such Party, (iii) is hereafter developed by or on behalf of such Party without reliance on, use of or reference to the other Party’s Confidential Information by personnel not having had access thereto, or (iv) is provided by such Party under appropriate terms and conditions, including without limitation confidentiality and non-use provisions at least as stringent as those in this Agreement, to Third Parties solely for accounting, legal and similar purposes, or to the Parties’ permitted assigns under this Agreement. Each Party recognizes that any violation of this confidentiality provision may cause the other Party irreparable harm and agrees that the other Party may be entitled, in addition to any other right or remedy it may have, at law or in equity, to seek to obtain an injunction without the posting of any bond or other security, enjoining the disclosing Party, its Affiliates, and (in the case of Genzyme) its Licensees, and their respective officers, directors, employees and agents from any violation or potential violation of this Article. It is understood and agreed by the Parties that all Confidential Information that is included in or reflects the Gene Therapy Assets shall, effective as of the Effective Date, be deemed to be

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Genzyme’s Confidential Information, and Avigen and its Affiliates shall be subject to the confidentiality and non-use obligations under this ARTICLE 7 with respect thereto.

7.2 Permitted Disclosure of Confidential Information . Either Party shall be entitled to disclose the other Party’s Confidential Information to the extent required to comply with Legal Requirements; provided, however , that such first Party provides such other Party, if possible, advance written notice of the required disclosure (and, in any event promptly notifies the other of the required disclosure) so as to provide such other Party with a reasonable opportunity to attempt to obtain confidential treatment or a protective order for the Confidential Information required to be disclosed.

7.3 Publicity; Terms of Agreement . Except as required by Legal Requirements, neither Party or its Affiliates shall use the names of the other Party or such other Party’s Affiliates or Licensees in any publicity or advertising without the prior written approval of the other Party. Either Party may disclose the existence of this Agreement to any Third Party. The material terms of this Agreement, however, shall be deemed Confidential Information of both Parties, subject to the special authorized disclosure provisions set forth below in this Section 7.3 and provided that the material terms of this Agreement may be disclosed in any proceeding to enforce this Agreement. Each Party has reviewed and consented to the text of the press release to be issued by the other Party announcing certain terms and the execution of this Agreement set forth in Exhibit G. Beyond such press release, if either Party desires to make a public announcement concerning the terms of this Agreement, such Party shall give reasonable prior advance notice (no less than [*] ) of the proposed text of such announcement to the other Party for its prior review and approval, such approval not to be unreasonably withheld, conditioned or delayed. Genzyme agrees that Avigen shall have the right to make a press release upon the achievement of each milestone described in Schedule 3.2 regarding and disclosing the milestone that has been achieved and the associated payment, after review by Genzyme pursuant to the procedure set forth in the preceding sentence; provided, however, that Genzyme shall have the right to publicly disclose the milestone and the associated payment contemporaneously with any press release Avigen intends to issue. A Party shall not be required to seek the permission of the other Party to repeat any information as to the terms of this Agreement that have already been publicly disclosed by such Party in accordance with the foregoing or by such other Party. Either Party may disclose the terms of this Agreement to its Affiliates and to potential acquirers or investors or, in the case of Genzyme, potential Licensees who are bound in writing by obligations of non-disclosure and non-use with respect to the terms of this Agreement that are substantially similar to (but at least as stringent as) those contained in this ARTICLE 7. The Parties acknowledge that either or both of the Parties may be obligated to file a copy of this Agreement with the U.S. Securities and Exchange Commission (the “SEC”), and each Party shall be entitled to make such a required filing, provided that it requests confidential treatment of the sensitive terms of this Agreement to the extent such confidential treatment is reasonably available to the filing Party under the circumstances then prevailing. If a Party must make such a filing, the filing Party will provide the non-filing Party with an advance copy of the Agreement marked to show provisions for which the filing Party intends to seek confidential treatment and [*] Notwithstanding anything to the contrary herein, nothing in this Agreement shall be deemed to prohibit either Party from complying with its obligations under Legal Requirements in a timely manner.

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7.4 Cooperation Regarding [*] Confidentiality Obligations . If [*] believes that [*] under a written agreement [*] assigned to Genzyme under this Agreement [*] then [*] shall notify [*] in writing. [*] shall reasonably cooperate with [*] to provide [*] and reasonable assistance as regards information necessary [*] .

ARTICLE 8

REPRESENTATIONS AND WARRANTIES

8.1 Avigen’s Representations and Warranties . Avigen hereby represents and warrants the following to Genzyme:

(a) Due Organization . Avigen (i) is a corporation duly organized, validly existing, and in good standing under the laws of Delaware, with its principal place of business as indicated in the first paragraph of this Agreement; (ii) is duly qualified as a corporation and in good standing under the laws of each jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification, or where the failure to be so qualified would have a material adverse effect on the ability of Avigen to perform its obligations hereunder; (iii) has the requisite corporate power and authority and the legal right to conduct its business as now conducted and hereafter currently contemplated to be conducted; (iv) has all necessary licenses, permits, consents, or approvals from or by, and has made all necessary notices to, all governmental authorities having jurisdiction, to the extent required for such ownership and operation; and (v) is in compliance with its certificate of incorporation and by-laws.

(b) Execution, Delivery and Performance . The execution, delivery and performance of this Agreement and the Ancillary Agreements by Avigen and all instruments and documents to be delivered by Avigen hereunder and thereunder: (i) are within the corporate power of Avigen; (ii) have been duly authorized by Avigen by all necessary or proper corporate action; (iii) are not in contravention of any provision of the certificate of incorporation or by-laws of Avigen; (iv) will not violate any law or regulation or any order or decree of any court of governmental instrumentality; (v) except as set forth in Schedule 8, will not violate any terms of, cause a default under, or require any consent or notice under any indenture, mortgage, deed of trust, lease, agreement, or other instrument to which Avigen is a party or by which Avigen or any of its property is bound; and (vi) do not require any filing or registration with, or the consent or approval of, any governmental body, agency, authority or any other Person, which has not been made or obtained previously other than filings with the U.S. Patent and Trademark Office with respect to the assignment of Gene Therapy Listed Patents and the Avigen Trademark and with the FDA or equivalent Regulatory Agency in a country or group of countries other than the United States with respect to the assignment of the Current Regulatory Filings.

(c) Legal, Valid and Binding Obligation . This Agreement and each Ancillary Agreement have been duly executed and delivered by Avigen and each constitutes a legal, valid and binding obligation of Avigen, enforceable against Avigen in accordance with its terms, except as such enforceability may be limited by applicable insolvency and other laws affecting creditors’ rights generally or by the availability of equitable remedies.

(d)

Proprietary Rights .

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(i) Title . Schedule 1.38 (Gene Therapy Listed Patents) contains a true, complete and accurate list of all Patent Rights that are owned by Avigen as of the Effective Date that [*] but excluding Patent Rights listed on or referred to in or claiming an invention listed on or referred to in Schedule 2.3 (Excluded Assets). Except as set forth in the Schedule of Gene Therapy Listed Patents as not being solely owned by Avigen (for example, the jointly owned Patent Rights listed there indicated to have an additional owner beyond Avigen), as of the Effective Date, Avigen is the sole owner of, and has good title to, all the Gene Therapy Listed Patents and the Gene Therapy Listed Know-How, free and clear of any lien, license or other encumbrance of like nature that is not provided in any Other Gene Therapy Contract or Upstream License. Except as otherwise provided in any Upstream License or Other Gene Therapy Contract, Avigen has as of the Effective Date the right to develop, manufacture and commercialize the subject matter of the Gene Therapy Patents and the Gene Therapy Listed Know-How free from any currently (as of the Effective Date)-committed-to royalty or other payment obligations to Third Parties; provided, however , that this means only that no royalties and other payments other than those set forth in any Upstream Agreement or Other Gene Therapy Agreement are due in relation to the Gene Therapy Patents or Gene Therapy Listed Know-How on the practice of such subject matter pursuant to a contract in effect as of the Effective Date, and is explicitly not intended to provide any representation or warranty with regard to any other Third-Party Patent Rights that may be required to practice such subject matter free from claims of infringement.

(ii) Proprietary Information of Third Parties . No Third Party has claimed in a written notice to Avigen that any person currently or formerly employed by or contractually affiliated with Avigen has, in any way related to the Gene Therapy Patents or Gene Therapy Know-How, (a) violated or may be violating any of the terms or conditions of such person’s employment, non-competition or non-disclosure agreement with such Third Party or (b) disclosed or may be disclosing or utilized or may be utilizing any trade secret or proprietary information or documentation of such Third Party, in the case of each of (a) and (b), within the scope of services performed by such person for Avigen; except as disclosed in Schedule 8.

(iii) Gene Therapy Patents; Gene Therapy Know-Know . As of the Effective Date and to the best knowledge of Avigen, [*] . As of the Effective Date and except as previously disclosed to Genzyme, Avigen has provided to Genzyme all formal written opinions of outside counsel which address the possible or alleged infringement by Avigen, its Affiliates or any of their respective employees or consultants of any patents or other intellectual property rights of others in connection with the Products, the Gene Therapy Patents and Gene Therapy Know-How. As of the Effective Date and except as previously disclosed to Genzyme or has been cited by a patent office in the course of the prosecution of the Gene Therapy Patents, Avigen [*] . No interference or opposition proceeding was, as of the Effective Date, pending or threatened in writing with regard to any of the Gene Therapy Patents. Except as contemplated by this Agreement, Avigen has not granted any person or entity any right to use the Gene Therapy Patents or Gene Therapy Know-How except as set forth in any Other Gene Therapy Agreement or Upstream License.

(iv) Filings . Except as disclosed in Schedule 8: all of the Gene Therapy Listed Patents have been [*] , and to Avigen’s knowledge, all of the Gene Therapy Other Contract Patents and all of the Gene Therapy Upstream License Patents have been [*] provided,

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however , that Avigen makes no representation or warranty as to [*] All of the Gene Therapy Listed Patents have been [*] and, to Avigen’s knowledge, [*] have been [*] , and, to Avigen’s knowledge, in each such other jurisdiction, and, to the knowledge of Avigen, are in good standing; provided, however , that Avigen makes no representation or warranty as to the [*] [*] prepared as of any day (or combination of days, it being understood and agreed that different outside counsel are responsible for different portions of the Gene Therapy Patent portfolio) during the week of December 12, 2005 of all maintenance fees and office action responses with respect to any Gene Therapy Patents that are owned by Avigen or with respect to which Avigen has prosecution rights which office action responses are falling due within ninety (90) days after the date the applicable list was prepared, have been provided to Genzyme by Avigen.

(v) Disclosures . Avigen has and prior to the Effective Date has had processes in place intended to produce the result that Avigen has disclosed or made available confidential information and trade secrets within the Gene Therapy Listed Know-How only to (i) employees of Avigen who had executed a written employee nondisclosure agreement with Avigen and who, to Avigen’s knowledge, have exercised a similar degree of care to preserve the confidentiality of such information and trade secrets as they have to preserve the confidentiality of other confidential information and trade secrets of Avigen and (ii) consultants or other Third Parties (including without limitation Genzyme) who have executed written confidentiality agreements governing their use of such confidential information and trade secrets.

(e) Work-For-Hire . To Avigen’s knowledge, all of the research and development work performed that generated any of the Gene Therapy Listed Patents and Gene Therapy Listed Know-How prior to the Effective Date was performed under an obligation to assign to Avigen or one of its Affiliates, other than such research and development work as was not performed by an employee or consultant of Avigen where Avigen acquired the particular Patent Rights or Know-How subsequently to the relevant patentable invention being invented or Know-How being developed.

(f) No Claims or Suits Regarding Avigen Gene Therapy Technology . There are no judicial, arbitral, regulatory or administrative proceedings or actions or suits relating to the Gene Therapy Patents or Gene Therapy Know-How pending against Avigen in any court or by or before any governmental body or agency, other than proceedings before the USPTO and patent offices in other jurisdictions. [*] judicial, arbitral, regulatory or administrative proceedings or actions or suits relating to the Gene Therapy Patents or Gene Therapy Know-How that have been threatened in writing against Avigen [*] other than proceedings before the USPTO and patent offices in other jurisdictions.

(g) Disclosure of Data and Reports . Prior to the Effective Date, Avigen has made available to Genzyme true and correct copies of all of the following information in its possession or control to the extent related to the development of the Current Parkinson’s Product and the Current Factor IX Product as conducted to date:

(1)	adverse event reports;
(2)	clinical study reports and material study data; and

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(3)	FDA inspection reports, notices of adverse findings, warning letters, regulatory approval filings and letters and other correspondence with the FDA and other Regulatory Authorities.

(h) Compliance with Legal Requirements . All of the studies, tests and pre-clinical and clinical trials of the Current Parkinson’s Product and Current Factor IX Product conducted prior to, or being conducted as of, the Effective Date by Avigen, or to Avigen’s knowledge, by Third Parties, have been, and, in the case of the Current Parkinson’s Trial, are, [*] .

(i) No Government Rights . Except as disclosed in Schedule 8, neither Avigen nor any of its Affiliates is or has been a party to any agreement with the U.S. federal government, any foreign government or an agency thereof pursuant to which the U.S. federal government, any foreign government or such agency provided funding for the development of the Current Parkinson’s Product, the Current Factor IX Product, the Gene Therapy Patents or Gene Therapy Know-How that would give the U.S. federal government, any foreign government or any agency thereof any rights therein; provided, however , that Genzyme acknowledges that this applies only to agreements to which Avigen or its Affiliate is a party and does not extend to agreements and obligations of the Upstream Licensors, and some or all of the Upstream Licenses may be subject to Bayh-Dole, march-in, and other government rights.

(j) Upstream Licenses and Other Gene Therapy Contracts . Schedules 1.60 (Other Gene Therapy Contracts) and 1.79 (Upstream Licenses) contain true, complete and accurate lists of all written in-licenses and other agreements -- other than any referred to in Schedule 2.3 (Excluded Assets) -- (i) to which Avigen is a party as of the Effective Date that remain in effect as of the Effective Date and (ii) that regard any Product and/or its manufacture or pharmaceutical utility, or (iii) that regard the Gene Therapy Patents, Gene Therapy Know-How (other than the Avigen Related Know-How), Current Parkinson’s Product or Current Factor IX Product. Neither Avigen nor any of its Affiliates is a party to any other agreements with Third Parties specific or relevant to AAV or for Gene Therapy other than agreements that are referred to in Schedule 2.3 (Excluded Assets). Each Upstream License and each of the Selected Other Gene Therapy Contracts identified as “Represented Contracts” on Schedule 1.75, is legal, binding, valid, enforceable and in full force and effect as of the Effective Date, Avigen has not received notice of any breach or default by Avigen under any Upstream License or any of the Selected Other Gene Therapy Contracts identified as “Represented Contracts” on Schedule 1.75, in accordance with the notice provisions of such contract, there are no material defaults thereunder by Avigen or any of its Affiliates thereunder (excluding breaches of diligence and reporting obligations), and true and correct copies of each such agreement, and any amendments thereto, have been or will be furnished or made available to Genzyme on a timetable consistent with the remainder of this Agreement.

(k) Good Title . Avigen has sole, exclusive, and good title to all of the tangible Gene Therapy Assets described in Section 2.1(f), (g) and (h). None of such Gene Therapy Assets is subject to any encumbrance, lien or other restriction other than as set forth in any Upstream License or Other Gene Therapy Contract.

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(l) No Broker Fees . Avigen has no liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement for which Genzyme could become liable or obligated.

(m) Inventory of Products . Avigen has, with respect to the inventory of the Current Parkinson’s Product and the Current Factor IX Product, each as described in Schedule 2.1(f) and in some cases more particularly on Schedule 2.1(m) and included in the Gene Therapy Assets, and except to the extent that non-compliance does not lead to material Damages, complied with all internal standard operating procedures and representations made to the FDA in connection with the production and maintenance of clinical trial material for IND #11366 (for the Current Parkinson’s Product) or IND # 9398 or 8033 (for the Current Factor IX Product), including without limitation those relating to storage conditions, stability assays, sterility and other measures intended to maintain the integrity of such inventory.

(n) Solvency . Avigen is not now insolvent, and will not be rendered insolvent, by any of the transactions contemplated by this Agreement. As used on this section, “insolvent” means that the sum of the debts and other probable liabilities of Avigen exceeds the present fair saleable value of Avigen’s assets. Immediately after giving effect to the consummation of the transactions contemplated by this Agreement, (i) Avigen will be able to pay its liabilities as they become due in the ordinary course of business and (ii) Avigen will not have unreasonably small capital with which to conduct its present or proposed business.

(o) No Material Omissions . The information contained in Schedule 1.19 (Current Regulatory Filings), and the information contained in Schedule 1.38 (Gene Therapy Listed Patents) is true and accurate, and the information contained in Schedule 2.1(f) (Inventory) and ARTICLE 8 (Seller Disclosure Schedule) hereto is true, accurate and complete except as noted therein and provided that it is understood and agreed that while Schedule 1.38 indicates which Patent Rights are owned solely by Avigen and which are co-owned by Avigen and another Person, the Schedule does not indicate and does not purport to indicate the identity of the other co-owner. Avigen has not knowingly omitted to furnish Genzyme with any non-public information concerning (i) the Gene Therapy Patents and Gene Therapy Know-How (other than Avigen Related Know-How, with respect to which Avigen has no disclosure obligation not explicitly provided in ARTICLE 2 of this Agreement), (ii) the Current Parkinson’s Product or Current Factor IX Product or (iii) [*] set forth herein and therein.

8.2 Genzyme’s Representations and Warranties . Genzyme hereby represents and warrants the following to Avigen:

(a) Due Organization . Genzyme (i) is a corporation duly organized, validly existing, and in good standing under the laws of The Commonwealth of Massachusetts, with a place of business as indicated in the first paragraph of this Agreement; (ii) is duly qualified as a corporation and in good standing under the laws of each jurisdiction where ownership or lease of property or the conduct of its business requires such qualification, or where the failure to be so qualified would have a material adverse effect on the ability of Genzyme to perform its obligations hereunder; (iii) has the requisite corporate power and authority and the legal right to conduct its business as now conducted and hereafter currently contemplated to be conducted; (iv) has all necessary licenses, permits, consents, or approvals from or by, and has made all

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necessary notices to, all governmental authorities having jurisdiction, to the extent required for such ownership and operation; and (v) is in compliance with its Restated Articles of Organization and by-laws.

(b) Execution, Delivery and Performance . The execution, delivery and performance of this Agreement and the Ancillary Agreements by Genzyme and all instruments and documents to be delivered by Genzyme hereunder or thereunder: (i) are within the corporate power of Genzyme; (ii) have been duly authorized by all necessary or proper corporate action; (iii) are not in contravention of any provision of the Restated Articles of Organization or by-laws of Genzyme; (iv) will not violate any law or regulation or any order or decree of any court of governmental instrumentality; (v) will not violate the terms of any indenture, mortgage, deed of trust, lease, agreement, or other instrument to which Genzyme is a party or by which Genzyme or any of its property is bound, which violation would have an adverse effect on the ability of Genzyme to perform its obligations hereunder; and (vi) do not require any filing or registration with, or the consent or approval of, any governmental body, agency, authority or any other Person, which has not been made or obtained previously other than other than filings with the U.S. Patent and Trademark Office with respect to the assignment of Gene Therapy Listed Patents and the Avigen Trademark and with the FDA or equivalent Regulatory Agency in a country or group of countries other than the United States with respect to the assignment of the Current Regulatory Filings.

(c) Legal, Valid and Binding Obligation . This Agreement and each Ancillary Agreement has been duly executed and delivered by Genzyme and constitutes a legal, valid and binding obligation of Genzyme, enforceable against Genzyme in accordance with its terms, except as such enforceability may be limited by applicable insolvency and other laws affecting creditors’ rights generally or by the availability of equitable remedies.

(d) Value of US Assets Acquired . Genzyme, by a duly authorized officer designated by its Board of Directors has, on a date no earlier than fifty-nine (59) days prior to the Effective Date, determined in good faith and in accordance with 16 C.F.R. Section 801.10(b), that the fair market value of the US patents assigned under this Agreement and other exclusive US rights provided by Avigen pursuant to this Agreement is not greater than fifty-three million one hundred thousand dollars ($53,100,000.00). This representation and warranty is made solely for the purpose of determining the applicability to the transactions contemplated by this Agreement of the HSR Act.

8.3 Compliance with Law . Both Parties and their respective Affiliates and Licensees will materially comply with Legal Requirements applicable to their respective activities in connection with this Agreement.

8.4 Disclaimer of Warranties . EXCEPT AS EXPLICITLY PROVIDED IN THIS ARTICLE 8, NEITHER PARTY MAKES ANY WARRANTIES OF ANY KIND, INCLUDING EXPRESS, IMPLIED, OR STATUTORY, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, NONINFRINGEMENT OR NON-MISAPPROPRIATION OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS, CUSTOM, TRADE, QUIET ENJOYMENT, INFORMATIONAL CONTENT, OR SYSTEM INTEGRATION.

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8.5

Updates to IP Definitions and Lists .

(a) Any Patent Rights that meet the definition of Gene Therapy Listed Patents but are not listed in Schedule 1.38 (i.e., those Patent Rights referred to in [*] are assigned to Genzyme in accordance with this Agreement because they are by definition included among the Gene Therapy Listed Patents. If any Prong B Owned Patent comes to light, Avigen will provide written confirmation to Genzyme of such assignment within two (2) weeks after either Party Notifies the other of such Prong B Owned Patent. To the extent that any Prong B Owned Patent is effectively assigned to Genzyme, then Avigen shall not be deemed to have breached the representation and warranty of Section 8.1(d)(i) by the omission of such Prong B Owned Patent from Schedule 1.38 (Gene Therapy Listed Patents) and no remedy shall be available to Genzyme for such omission, other than receiving confirmation from Avigen that such Prong B Owned Patent has been effectively assigned to Genzyme as one of the Gene Therapy Listed Patents.

(b) Each contract that is not listed in Schedule 1.60 (Other Gene Therapy Contracts) or Schedule 1.79 (Upstream Licenses) but is a contract that satisfies all of the following: (i) it is not referred to in Schedule 2.3 (Excluded Assets), (ii) Avigen was a party to it as of the Effective Date and it remained in effect as of the Effective Date, and (iii) [*] is an “Omitted Contract.” If any Omitted Contract comes to either Party’s attention, it shall promptly Notify the other Party. Within five (5) Business Days after such Notice between the Parties, Avigen shall provide Genzyme with a true and correct copy of such Omitted Contract. Genzyme shall have the right, within thirty (30) days after receiving such copy from Avigen by Notice to Avigen within such time period, to include such Omitted Contract among the Selected Other Gene Therapy Contracts assigned to Genzyme (and Assumed Liabilities in relation to which are assumed by Genzyme), subject to the next sentence. If such Omitted Contract requires consent of Avigen’s Third-Party counterparty for the assignment, then Section 2.7 shall apply to such Omitted Contract. If Genzyme declines to make a given Omitted Contract a Selected Other Gene Therapy Contract, or Avigen successfully assigns a given Omitted Contract to Genzyme or complies with Section 2.7 with respect to any required consent to assign such Omitted Contract to Genzyme, then Avigen shall not be deemed to have breached the representations and warranties of the first two (2) sentences of Section 8.1(j) by the omission of such Omitted Contract from Schedules 1.60 (Other Gene Therapy Contracts) and 1.79 (Upstream Licenses), and no remedy shall be available to Genzyme for such omission, other than the remedy set forth in this Section 8.5(b). To avoid any doubt, to the extent any Omitted Contract becomes a Selected Other Gene Therapy Contract under this Section 8.5(b), all Patent Rights to which Avigen derived rights under such Omitted Contract shall be included among the Gene Therapy Other Contract Patents.

ARTICLE 9

TERM AND TERMINATION

9.1 Term . The term of this Agreement (“Term”) shall commence on the Effective Date and shall continue unless and until the latest to occur of [*] or, if earlier, the effective date of termination if this Agreement is terminated in its entirety as set forth in this ARTICLE 9. The following Sections and Articles shall survive all expirations and terminations of this Agreement:

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ARTICLE 1 (to the extent utilized by other surviving sections), ARTICLE 2 (to the extent not already fully performed), ARTICLE 6 (except obligations thereunder which have expired by their terms), ARTICLE 9 (to the extent applicable depending upon the nature of the termination), ARTICLE 10 and ARTICLE 11 and Sections 7.1 - 7.3, 8.1 and 8.2. The Parties’ accrued rights and obligations -- having accrued prior to the effective date of expiration or termination -- shall survive expiration and any earlier termination of this Agreement. In addition to those Sections and Articles that survive any termination, the following Sections and Article shall survive any termination of this Agreement following which Section 9.4 (Additional Effect of Termination in cases Where Genzyme has [*] applies: ARTICLE 3 (to the extent indicated in Section 9.4(d)), ARTICLE 5 (as modified by Section 9.4(e) and 9.4(f)) and Section 7.4

9.2

Early Termination .

(a) By Avigen for Genzyme’s Breach or Default . This Agreement may be terminated after the Effective Date by Avigen in its entirety:

(i) for Genzyme’s breach of any of its material obligations [*] remaining uncured [*] days after Notice from Avigen specifying the breach; provided that the cure period shall be extended to [*] days if Genzyme has engaged in good faith efforts to remedy such default within such [*] -day period and indicated in writing to Avigen prior to the expiration of such [*] -day period that it believes that it will be able to remedy the default within such [*] -day period (which belief must be objectively reasonable), but such extension shall apply only so long as Genzyme is engaging in good faith, commercially reasonable efforts to remedy such default; provided, further , that if the question of whether Genzyme actually breached the material obligation identified in such Notice from Avigen is the subject of a dispute initiated in good faith by a Party that is undergoing the dispute resolution procedures set forth in ARTICLE 10, the [*] -day or [*] -day cure period (as applicable) pursuant to this Section 9.2(a)(i) shall be suspended and shall not start to run again unless and until such time as such dispute has been finally resolved in accordance with ARTICLE 10 hereof and it is finally determined that Genzyme breached a material obligation, or

(ii) if Genzyme fails to make any payment under ARTICLE 3 within [*] days after such payment becomes due and payable and such failure is not remedied within [*] days after receipt of Notice from Avigen specifying such failure; provided, however , that if such payment is the subject of a dispute initiated in good faith by a Party that is undergoing the dispute resolution procedures set forth in ARTICLE 10, Avigen shall not deliver Notice pursuant to this Section 9.2(a)(ii) until such dispute has been finally resolved in accordance with ARTICLE 10 hereof.

(b) By Genzyme at Will . After the Effective Date, Genzyme shall have the right to terminate this Agreement in its entirety with or without cause on a voluntary basis on no less than [*] prior written notice to Avigen.

9.3

Effect of Termination In All Cases .

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(a) Effective Date . Any termination of this Agreement by Avigen under Section 9.2(a) shall be effective upon delivery of valid Notice of termination to Genzyme (to be given on or after the expiration of the applicable cure period). Any termination of this Agreement under Section 9.2(b) shall be effective on expiration of the notice period specified in such Section.

(b) No Release; Sale of Existing Inventory . Termination of this Agreement for any reason shall not be construed to release any Party of any obligation matured prior to the effective date of such termination. Genzyme and each of its Affiliates may, for [*] after the effective date of such termination, sell all Products (including without limitation work-in-progress) that it has on hand at such effective date and shall be liable for payment of any royalties due under Section 3.3.

(c) Assumed Liabilities . Avigen shall assume all of the duties, obligations and liabilities of Genzyme arising after the effective date of such termination under all Upstream Licenses and Selected Other Gene Therapy Contracts that are assumed by Avigen pursuant to Section 9.4(a)(i) or Section 9.5(a)(i), as applicable.

9.4 Additional Effects of Termination in Cases Where Genzyme [*] If Avigen terminates this Agreement under Section 9.2(a)(i) (explicitly not 9.2(a)(ii), which regards non-payment breaches), and Genzyme has [*] ( provided that if the termination is in dispute, [*] until thirty (30) days after the settlement of such dispute or a final, nonappealable judgment with respect to such termination), such termination shall have the following effects (in addition to the effects stated in Sections 9.1 and 9.3):

(a)

Assignment of Intellectual Property; Assumed Liabilities .

(i) General . Genzyme shall assign to Avigen (A) all right, title and interest in the Gene Therapy Listed Patents (excluding any continuations-in-part thereof), the Gene Therapy Listed Know-How and the Avigen Trademark and (B) the Upstream Licenses and Selected Other Gene Therapy Contracts to the extent (1) permissible under the relevant contract without Third Party consent, (2) the Upstream License or Selected Other Gene Therapy Contract does not exclusively relate to Genzyme Retained Products and (3) Avigen does not reject such assignment by Notice to Genzyme within [*] days after the effective date of termination. With respect to each Upstream License and Selected Other Gene Therapy Contract which requires a consent for the assignment to Avigen, Genzyme shall use commercially reasonable efforts to seek such consent [*] and upon obtaining any such consent, Genzyme shall immediately assign such Upstream License or Selected Other Gene Therapy Contract to Avigen. If such consent is not obtained despite the application of such efforts, the Parties shall reasonably cooperate to effect the grant of a sublicense or other arrangement permitted by the contract to enable Avigen to practice the intellectual property covered by such contract [*]

(ii)

[*] . If the [*] is not [*] then [*]

(b) License to Genzyme. Avigen shall, subject to the terms and conditions of any Upstream License or Selected Other Gene Therapy Contract (including without limitation payment by Genzyme of any milestones and royalties due the counterparties to such contracts

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based on Genzyme’s activities in exercise of the following license), grant Genzyme (a) an exclusive, worldwide, perpetual license (or sublicense, as applicable) under the Gene Therapy Patents, Gene Therapy Know How and Avigen-Related Know How to research, develop, make, have made, use sell, offer for sale and import the Genzyme Retained Products (subject to Genzyme’s obligations under Section 9.4(d) below), and such license (or sublicense, as applicable) shall be sublicenseable through one (1) or more layers of sublicensees without Avigen’s consent.

(c) Return of Items Transferred . To the extent requested in writing by Avigen at the time of termination, Genzyme shall return to Avigen all documents, files, and other tangible items Avigen has transferred to Genzyme under ARTICLE 2 to the extent [*] and to the extent such items are (i) necessary to research, develop, commercialize, manufacture or sell any Product and not necessary to research, develop, commercialize, manufacture or sell a Genzyme Retained Product or (ii) useful in connection with the research, development, commercialization, manufacture or sale of any Product other than a Genzyme Retained Product, [*] and if such a tangible item is necessary to research, develop, commercialize, manufacture or sell any Product that is not a Genzyme Retained Product, then the Parties shall reasonably cooperate to ensure that each Party has sufficient quantities to exercise its rights regarding Products and Genzyme Retained Products, as applicable, in light of the amount of such tangible item available.

(d) Milestones and Royalties . In consideration for the license granted in Section 9.4(b), Genzyme’s obligations under ARTICLE 3 (and the related definitions under ARTICLE 1) shall remain in effect following termination of the Agreement, but only with respect to Genzyme Retained Products.

(e) Prosecution of Intellectual Property . Section 5.1(a) of this Agreement shall remain in effect following termination of the Agreement, but Genzyme will have all of Avigen’s rights and obligations thereunder, and Avigen will have all of Genzyme’s rights and obligations thereunder, except that (i) if Avigen fails to discharge its responsibilities thereunder, Genzyme may, at Genzyme’s expense, prosecute and maintain any of the Gene Therapy Patents with respect to which Avigen has failed to discharge its responsibilities (this step-in right being Genzyme’s only available remedy for such failure) and (ii) upon Notice to Genzyme, Avigen may allow Genzyme to prosecute and maintain at Genzyme’s expense any of the Gene Therapy Patents, in which case Avigen will have no obligation to prosecute and maintain such Gene Therapy Patents.

(f) Action against Infringement . Each of Genzyme and Avigen shall promptly deliver Notice to the other of any alleged or threatened infringement of the Gene Therapy Patents of which it becomes aware within the scope of the other Party’s permitted activities under the Gene Therapy Patents. If alleged or threatened infringement of a Gene Therapy Patent is [*] to a Genzyme Retained Product, then Genzyme shall have the right to prosecute any such infringement at its own and sole expense. [*] If alleged or threatened infringement of a Gene Therapy Patent is not primarily competitive to a Genzyme Retained Product, then Avigen shall have the right to prosecute any such infringement at its own and sole expense retaining all recoveries. If Avigen fails to prosecute diligently infringement of a Gene Therapy Patent that is competitive to a Genzyme Retained Product [*] Genzyme shall have the right to prosecute such infringement at its own and sole expense, and if Genzyme fails to

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prosecute diligently infringement of a Gene Therapy Patent that is primarily competitive to a Genzyme Retained Product, Avigen shall have the right to prosecute such infringement at its own and sole expense. In either case, the Party not entitled to prosecute the infringement shall cooperate fully with the prosecuting Party, at the prosecuting Party’s sole expense.

(g) LSD Non-Compete . Until [*] , neither Avigen nor any of its Affiliates shall directly by the actions of any of them or indirectly by acting with or through a Third Party (including, without limitation, by granting a Third Party a license under intellectual property rights or transferring intellectual property rights to a Third Party), conduct research or development activities regarding, or engage in, the manufacture, marketing, sale or distribution of any Lysosomal Storage Disorder Product.

9.5 Effect of Termination Where Genzyme Has No Genzyme Retained Product Rights . If (x) Avigen terminates this Agreement under Section 9.2(a)(ii), (y) Avigen terminates this Agreement under Section 9.2(a)(i) and Genzyme has not [*] ( provided that if the termination is in dispute, [*] until thirty (30) days after the settlement of such dispute or a final, nonappealable judgment with respect to such termination); or (z) Genzyme terminates this Agreement under Section 9.2(b), then such termination shall have the following effects (in addition to the effects stated in Sections 9.1 and 9.3):

(a) Assignment of Intellectual Property; Continuation of Third Party Licenses .

(i) General . Genzyme shall assign to Avigen (i) all right, title and interest in the Gene Therapy Listed Patents (excluding any continuations-in-part), Gene Therapy Listed Know-How and the Avigen Trademark and (ii) the Upstream Licenses and Selected Other Gene Therapy Contracts to the extent (1) Avigen does not reject assignment within 30 days after the effective date of termination and (2) permissible under the relevant contract without Third Party consent. With respect to each Upstream License and Selected Other Gene Therapy Contract which requires a consent for the assignment to Avigen, Genzyme shall use commercially reasonable efforts to seek such consent [*] and upon obtaining any such consent, Genzyme shall immediately assign such Upstream License or Selected Other Gene Therapy Contract to Avigen. If such consent is not obtained despite the application of such efforts, the Parties shall reasonably cooperate to effect the grant of a sublicense or other arrangement permitted by the contract to enable Avigen to practice the intellectual property covered by such contract [*] .

(ii) Parkinson’s Product . Genzyme shall, subject to the terms and conditions of any license agreement or other contract (including any royalty obligations contained therein) (to avoid any doubt, we refer here to license agreements and other contracts that are not Upstream Licenses and Other Gene Therapy Contracts), grant Avigen a non-exclusive, worldwide, royalty-free (except to the extent any royalties are required by such license agreement or other contract), perpetual license (or sublicense, as applicable), with the right to sublicense through one (1) or more tiers of sublicensees without Genzyme’s consent, under (i) all Patent Rights owned by or licensed to Genzyme that Cover the Parkinson’s Product [*] and (ii) all Know-How owned by or licensed to Genzyme that is necessary or useful to practice the Parkinson’s Product [*] to research, develop, make, have made, use sell, offer for sale and import

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the Parkinson’s Product [*] If the terms of any license agreement or other contract (other, in each case than a Licensing Transaction; Licensing Transactions covering the Parkinson’s Product shall not impose any restriction, royalty or other payment obligation with respect to the Parkinson’s Product on reversion in accordance with this Agreement) do not permit Genzyme to license Patent Rights or Know-How that would be licensed pursuant to this Section 9.5(a)(ii) if the terms of such license agreement or other contract permitted such license, then Genzyme shall use its reasonable commercial efforts to obtain a consent to such license or waiver of such restriction. If such consent is not obtained despite the application of such efforts, the Parties shall reasonably cooperate to effect the grant of a sublicense or other arrangement permitted by the contract to enable Avigen to practice the intellectual property covered by such [*] .

(iii) Know-How is Confidential Information . All Know-How assigned to Avigen under this Section shall thereafter be deemed Avigen Confidential Information, not Genzyme’s Confidential Information, protected under Article 7.

(b)

Post-Marketing Commitments; Continuation of Supply to Patients .

(i) General . Genzyme is entitled to retain its Regulatory Filings and Regulatory Approvals [*] Subject to Section 9.5(b)(ii), Genzyme shall fulfill any and all post-marketing commitments with respect to the Products, if any, and (b) any and all obligations under applicable Legal Requirements with respect to such Products, and shall continue to supply such Products to patients who are receiving treatment with such Products under the retained Regulatory Filings and Regulatory Approvals at the time of termination, if any. Avigen shall grant a non-exclusive, worldwide, royalty-free, perpetual license (or sublicense, as applicable), with the right to sublicense through one (1) or more tiers of sublicensees without Avigen’s consent, under all intellectual property transferred to Avigen pursuant to Section 9.5(a)(i) to the extent required for Genzyme to satisfy its obligations under this Section 9.5(b)(i) and permitted by the applicable agreements (and the Parties shall reasonably cooperate to achieve a similar result in a manner permitted by the applicable agreements (such as through a service provider relationship) if an outright license is not permitted).

(ii) Parkinson’s . With respect to all Regulatory Filings and Regulatory Approvals with respect to Parkinson’s Products at the time of termination, if requested in writing by Avigen, Genzyme shall promptly transfer these to Avigen (or Avigen’s designee) together with all related files and correspondence at the time of termination, and a sample of each plasmid and other biological material used to produce Parkinson’s Product listed in Schedule 2.13 or developed by Genzyme and used to manufacture Parkinson’s Products during the term of this Agreement. If Avigen takes assignment of these Regulatory Filings and Regulatory Approvals, then Avigen shall be responsible for any obligations under applicable Legal Requirements to continue to supply Products to patients (if any) who had prior to termination received treatment under the transferred Regulatory Filings and Regulatory Approval.

(c)

Supply of Products .

(i) General . If requested by Avigen in writing within thirty days after the effective date of termination, Genzyme and Avigen shall [*] a supply agreement for

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Genzyme to Product(s) that are not Parkinson’s Products that Avigen may develop, such supply agreement to contain customary and commercially reasonable terms and conditions [*] on the supply of such non-Parkinson’s Product(s).

(ii) Parkinson’s Products . Genzyme shall manufacture on Avigen’s behalf and supply to Avigen -- at a cost equal to [*] -- any Parkinson’s Product(s) that are under development or on the market at the time of termination to Avigen (with supplied quantities to conform to the standards of the Regulatory Filings and Regulatory Filings transferred under subsection (b)) until the earlier of (i) up to [*] from the effective date of such termination (or such longer period as the Parties may mutually agree) and (ii) [*] after Avigen has the ability to (x) legally use in any ongoing or open (as of termination) clinical trials, or (y) fulfill obligations to patients treated during the term of this Agreement, quantities of such Parkinson’s Product manufactured by or on behalf of Avigen. Genzyme and Avigen shall negotiate in good faith to execute and deliver an agreement containing other customary and commercially reasonable terms and conditions with respect to such transitional manufacturing arrangement, but the execution and delivery of such agreement shall not be a precondition to Genzyme’s obligation to manufacture and supply Parkinson(s) Products pursuant to this Section 9.5(c)(ii). If desired by Avigen and Genzyme at the time of termination, Genzyme and Avigen may negotiate, execute and deliver a long-term supply agreement containing such terms (including price) as are negotiated at such time, however such a further written agreement is not required for Avigen to obtain the supply provided for in this subsection (c)(ii).

(d) Transition Assistance . Genzyme will provide Avigen with reasonable transition assistance for [*] after the effective date of such termination [*] that shall be mutually agreed upon by the Parties before Genzyme shall be obliged to commence any such assistance; provided, however , that in no event shall Genzyme be required to provide a greater number of hours of assistance than Avigen is required to provide to Genzyme under Section 2.5 (unless otherwise mutually agreed upon by the Parties), [*] .

(e) Return of Items Transferred . To the extent requested in writing by Avigen within thirty (30) days after termination, Genzyme shall return to Avigen all documents, files, and other tangible items Avigen has transferred to Genzyme under ARTICLE 2 to the extent (i) any such items that are biological materials [*] , or (ii) any such items that are not biological materials [*] Avigen transfers to Genzyme under this Agreement.

9.6

Reversion of Rights to the Parkinson’s Product .

(a) At any time after the FDA Decision, Genzyme may elect [*] to cause the Parkinson’s Product to revert to Avigen by delivering Notice of such election to Avigen. Except as explicitly provided in this Section 9.6, any such election shall not affect the remainder of this Agreement or any of Genzyme’s rights and obligations hereunder with respect to the Gene Therapy Assets or other Products.

(b) If Genzyme elects to revert the Parkinson’s Product to Avigen under Section 9.6(a), then Genzyme shall:

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(i) Promptly grant Avigen (A) subject to the terms and conditions of the Upstream Licenses and Selected Other Gene Therapy Contracts (including any royalty obligations therein), an exclusive, worldwide, royalty-free (except to the extent any royalties are required by an Upstream License or Selected Other Gene Therapy Contract), perpetual license under the Gene Therapy Patents and Gene Therapy Know-How, as well as all Parkinson’s Product tradenames and trademarks, to use and practice the subject matter of any and all of the foregoing to research, develop, make, have made, use, sell offer for sale and import the Parkinson’s Product, and (B) subject to the terms and conditions of any license agreement or other contract (including any royalty obligations contained therein) (to avoid any doubt, we refer here to contracts that are not Upstream Licenses or Selected Other Gene Therapy Contracts), a non-exclusive, worldwide, royalty-free (except to the extent any royalties are required by such a license agreement or other contract), perpetual license (or sublicense as applicable) under all other Patent Rights owned by or licensed to Genzyme that Cover the Parkinson’s Product and all other Know-How owned by or licensed to Genzyme that is [*] in each case [*] to research, develop, make, have made, use, sell, offer for sale and import the Parkinson’s Product [*] Such licenses shall be sublicenseable one (1) or more times through one (1) or more layers of sublicensees without Genzyme’s consent. If the terms of any license agreement or other contract do not permit Genzyme to license Patent Rights or Know-How that would be licensed pursuant to this Section 9.6(b)(i) if the terms of such license agreement or other contract permitted such license, then Genzyme shall use its reasonable commercial efforts to obtain a consent to such license or waiver of such restriction; provided that Licensing Transactions shall not impose any such restrictions nor royalties nor other payment obligations on reversion of the Parkinson’s Product to Avigen in accordance with this Agreement;

(ii) (a) transfer to Avigen (or its designee) to the extent requested by Avigen, all then-existing Regulatory Filings and Regulatory Approvals for the Parkinson’s Product and related files and correspondence, and a sample of each plasmid and other biological material used to produce such Product, except in each case to the extent Genzyme or its Affiliates or Licensees are required under the Legal Requirements to retain the originals or retain samples themselves, and (b) assign to Avigen (or its designee) to the extent reasonably requested by Avigen and to the extent permissible under the relevant contracts without Third Party consent (unless and until such consents shall have been obtained) all supply, materials transfer, clinical and other contracts that [*] to such Product, provided, however , that in no event shall Genzyme be required to make any payments to obtain Third Party consents to transfer any of the aforementioned contracts, and provided further that in the event that Genzyme is unable to so transfer any such Regulatory Filings and Regulatory Approvals, Genzyme shall, at Avigen’s sole expense, maintain such Regulatory Filings and Regulatory Approvals in accordance with Avigen’s reasonable instructions for Avigen’s exclusive benefit and the Parties shall take such reasonable steps that Avigen deems necessary or advisable in good faith to enable Genzyme to transfer such Regulatory Filings and Regulatory Approvals to Avigen (or its designee) as soon as practicable;

(iii) if requested by Avigen in writing within thirty (30) days of receipt of Notice from Genzyme pursuant to Section 9.6(a) to revert the Parkinson’s Product to Avigen, supply any then-manufactured and each then-in-clinical-development Parkinson’s Product(s) to Avigen until the earlier of (i) a [*] and [*] Avigen has the ability to manufacture such Product either itself or through its Affiliates or a Third Party and to legally use such quantities in any

46.

clinical trials of such Product(s) then ongoing or to sell any such Product(s) that are then on the market, in each case subject to customary and commercially reasonable terms and conditions (but at a price [*] ;

(iv) execute and deliver to Avigen all reasonably required documentation and instruments reasonably required to effect that Avigen shall have the sole and exclusive right to enforce the Gene Therapy Patent Rights and Gene Therapy Know-How against infringement and misappropriation by activities with Parkinson’s Products, controlling all such suits and retaining all recoveries on them, and Genzyme shall provide Avigen with all reasonable or required cooperation in such suits (including without limitation by agreeing to be joined as party plaintiff in any such suit or furnishing a power of attorney) at Avigen’s sole expense;

(v) provide Avigen with reasonable transition assistance solely with respect to the Parkinson’s Products for [*] after the effective date of such termination [*] that shall be mutually agreed upon by the Parties before Genzyme shall be obliged to commence any such assistance; provided, however , that in no event shall Genzyme be required to provide a greater number of hours of assistance than Avigen is required to provide to Genzyme under Section 2.5 (unless otherwise mutually agreed upon by the Parties), [*] ; and

(vi) to the extent relating to Parkinson’s Products and requested in writing by Avigen within thirty (30) days after termination, return to Avigen all documents, files, and other tangible items Avigen has transferred to Genzyme under ARTICLE 2 to the extent such items [*] . Genzyme is required under the foregoing sentence to return to Avigen any and all original notebooks and assignments Avigen transfers to Genzyme under this Agreement that [*] to Parkinson’s Product(s), but may provide copies of other notebooks and assignments.

ARTICLE 10

DISPUTE RESOLUTION

10.1 Initial Dispute Resolution Efforts . The Parties shall attempt to resolve any dispute, controversy, or claim arising out of, or in connection with, this Agreement amicably and promptly by negotiations between senior executives (at the level of Vice President or above) who have authority to settle the controversy. To commence these discussions, either Party may give the other Party Notice of any dispute not resolved in the normal course of business. Within ten (10) Business Days after delivery of such Notice, such senior executives of the Parties shall meet at a mutually acceptable time and place, or by means of telephone or video conference, and thereafter as often as they reasonably deem necessary, to attempt to resolve the dispute. Each Party’s such senior executives shall be reasonably available during a sixty (60) day period for such discussions. If the matter is not resolved within such sixty (60) days, either Party may proceed under Section 10.2.

10.2 Unresolved Disputes . Either Party may seek an appropriate remedy from a court of competent jurisdiction with respect to any dispute(s) arising hereunder that remain unresolved after such Party complies with Section 10.1 in seeking to resolve such dispute.

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ARTICLE 11

GENERAL PROVISIONS

11.1 Further Assurances . Each of the Parties shall execute such documents, further instruments of transfer and other papers and take such further actions as may be reasonably required to carry out the provisions hereof and the transactions contemplated hereby, [*]

11.2 No Rights by Implication . No rights or licenses with respect to any other products are granted or deemed granted hereunder or in connection herewith, other than those rights expressly granted in this Agreement.

11.3 No Obligation to Refer . The Parties acknowledge that neither Party is under any obligation to solicit, refer or solicit referrals of customers for the other Party’s business. Neither Party will receive any benefit of any kind for making such referrals, nor suffer any detriment for not making them.

11.4 Bulk Sales Law . Each of the Parties hereby waive compliance with obligations imposed on vendors under Article VI of the Uniform Commercial Code or the equivalent as adopted in any applicable jurisdiction as a result of the transactions contemplated by this Agreement.

11.5 Expenses . Each of the Parties hereto shall bear their own respective costs and expenses in connection with the negotiation, execution and delivery of this Agreement and the Ancillary Agreements and the transactions contemplated hereby and thereby.

11.6 Notice . Notices provided for herein (each, a “Notice”) shall be in writing and shall be delivered by (i) hand, (ii) the next business day delivery service of a nationally recognized overnight courier service (signature required), (iii) mail (certified or registered, in either case with return receipt requested) or (iv) facsimile (and promptly confirmed by personal delivery or overnight courier) as follows:

If to Genzyme, to:

Genzyme Corporation

500 Kendall Street

Cambridge, Massachusetts 02142

Attention: Executive Vice President, Therapeutics

Facsimile: (617) 768-9669

with a copy, which shall not constitute notice hereunder, sent to:

Genzyme Corporation

500 Kendall Street

Cambridge, Massachusetts 02142

Attention: General Counsel

Facsimile: (617) 252-7553

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and

If to Avigen, to:

Avigen, Inc.

1301 Harbor Bay Parkway

Alameda, CA 94502

Attn: Chief Executive Officer

Facsimile: (510) 748-7368

with a copy, which shall not constitute notice hereunder, sent to:

Avigen, Inc.

1301 Harbor Bay Parkway

Alameda, CA 94502

Attention: Legal Department

Facsimile: (510) 748-7368.

All Notices and other communications given to any Party in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt if delivered by hand, overnight courier service or facsimile, or on the date ten (10) Business Days after dispatch by certified or registered mail (postage prepaid) if mailed, in each case delivered, sent or mailed (properly addressed) to such Party to its address as set forth in this Section, or to such other address that such Party may have notified to the other Party from time to time.

11.7 Governing Law . This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of California, other than its conflict of laws principles directing the application of any law other than that of the State of California, except that, for patents, the law of the country that grants the patent determines questions affecting the construction and effect of such patent.

11.8 Registration and Filing of this Agreement . If a Party concludes in good faith that it is required to file or register a notification or copy of this Agreement with any governmental authority, including, without limitation, the Competition Directorate of the Commission of the European Communities, the U.S. Department of Justice or the U.S. Federal Trade Commission, in accordance with Legal Requirements, such Party shall inform the other Party thereof and both Parties shall cooperate each at their own respective expense in such filing or notification and shall execute all documents reasonably required in connection therewith. In such filing or registration, the Parties shall request confidential treatment of sensitive provisions of the Agreement, to the extent reasonably available under the circumstances and permitted by law. The Parties shall promptly inform each other as to the activities or inquiries of any such governmental authority relating to the execution or consummation of this Agreement, and shall cooperate to respond to any request for further information therefrom on a timely basis. Filings of this Agreement with the U.S. Securities and Exchange Commission are separately addressed in Section 7.3.

49.

11.9 Relationship . This Agreement shall not constitute any Party as the legal representative or agent of the other, nor shall any Party have the right or authority to assume, create or incur any liability or any obligation of any kind, express or implied, against, or in the name of or on behalf of, the other Party. This Agreement shall not constitute, create or in any way be interpreted as a joint venture, partnership or formal business organization of any kind.

11.10 No Third Party Beneficiaries . Nothing in this Agreement, express or implied, is intended to or shall confer upon any person other than Avigen and Genzyme and their respective successors and permitted assigns any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. Each Party’s Avigen Indemnitees and Genzyme Indemnitees under ARTICLE 6 are not third-party beneficiaries of this Agreement but rather to obtain Indemnification under this Agreement the Genzyme Indemnitees must work through Genzyme and the Avigen Indemnitees must work through Avigen.

11.11 Force Majeure . If either of the Parties is impeded in fulfilling its undertakings in accordance with this Agreement by extraordinary, circumstances beyond its reasonable control, such as, but not limited to, strikes, lockouts or other labor conflicts, lightening striking, acts of God, earthquake, fire, flood, embargos, war (whether war is declared or not), acts of terrorism, mobilization or unforeseen military call-up of a large magnitude, requisition, confiscation, commandeering, public decrees, riots, insurrections, civil commotions, material changes in Legal Requirements, acts or delays in acting by any Regulatory Authority or any other governmental authority or the other Party, and technical events beyond such Party’s reasonable control that are not ordinary course, the impediment shall be considered a Force Majeure condition and the relevant Party shall be exempted from liability and excused from performance for delays due to such reasons; provided , however , that it notifies the other Party thereof without undue delay after such a circumstance has occurred and shall resume performance with reasonable dispatch after the causes of the Force Majeure condition are removed.

11.12 Headings . The headings used in this Agreement are included for convenience only and are not to be used in construing or interpreting this Agreement.

11.13 Assignment . This Agreement may not be assigned by either Party without the prior written consent of the other Party, which consent shall not be unreasonably withheld, delayed or conditioned, except that either party may assign this Agreement in whole in connection with a merger or acquisition of such party or the sale or merger of all or substantially all of its assets or all of its assets to which this Agreement relates. Any purported assignment in violation of the preceding sentences shall be void. Any assignee shall assume all obligations of its assignor under this Agreement in writing . Notwithstanding the foregoing, Genzyme hereby agrees that it will not assign its rights, title and interest in the Gene Therapy Assets to a Third Party without also contemporaneously assigning this Agreement to such Third Party. Furthermore, Genzyme acknowledges that Avigen may decide to [*] and, if Avigen notifies Genzyme of Avigen’s interest in doing so, Avigen shall be entitled to do so without any obligation to obtain from Genzyme its consent to such transaction unless the proposed assignment is to a [*] in which case the assignment shall require Genzyme’s prior written consent, not to be unreasonably withheld, delayed or conditioned, provided that it shall not be deemed unreasonable for Genzyme to [*] Genzyme acknowledges that a Person that purchases royalty streams in the ordinary course of its business and does not conduct research and

50.

development or commercialization of pharmaceutical products will not be deemed a [*] The assigning Party shall give the other Party written notice of any such assignment that does not require consent promptly after such assignment has occurred.

11.14 Entire Agreement; Survival of Representations and Warranties . This Agreement and all attachments (including exhibits and schedules) hereto, and together with the Ancillary Agreements, constitute the entire agreement among the Parties with respect to the matters set forth herein, and supersede and terminate all prior agreements and understandings, both written and oral, among the Parties with respect to such matters, including without limitation that certain Confidential Nondisclosure Agreement between the Parties dated February 2, 2005, provided, however that all information that qualifies as “Confidential Information” under such shall be deemed to be the Confidential Information hereunder of the Party having disclosed (except to the extent assigned to the other Party under this Agreement). This Section 11.14 does not limit Section 6.7.

11.15 Severability . If any term or provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic and legal substance of the underlying transaction, taken as a whole, is not affected in any manner materially adverse to either Party. Upon such determination that (i) any term of other provision is invalid, illegal or incapable of being enforced and (ii) the economic or legal substance of the underlying transaction, taken as a whole, is affected in a manner materially adverse to either Party, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in a mutually acceptable manner to the fullest extent permitted by Legal Requirements in order that the underlying transaction be completed as originally contemplated to the fullest extent possible.

11.16 Waivers; Amendment . The failure of either Party to insist, in any one or more instances, upon the performance of any of the terms, covenants or conditions of this Agreement or to exercise any right hereunder, shall not be construed as a waiver or relinquishment of the future performance of any such term, covenant or conditions or the future exercise of such right, and the obligation of the other Party with respect to such future performance shall continue in full force and effect. The rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies that either Party may otherwise have at law or in equity. No item or provision of this Agreement may be altered or amended except by a writing signed by both Parties.

11.17 Draftsmanship . This Agreement has been jointly prepared by the Parties and shall not be strictly construed against either Party by reason of draftsmanship.

11.18 Counterparts . This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute one and same instrument. Counterparts may be exchanged by facsimile.

11.19 Copies . Except with respect to Notices and copies thereof delivered pursuant to Section 11.6, wherever this Agreement calls for a copy of an original document or for

51.

information to be provided, such copy or information may be provided in electronic or soft copy form, and no hard copy shall be required.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

52.

IN WITNESS WHEREOF , the Parties hereto have caused this Agreement to be executed by their respective officers hereunto duly authorized as of the date first written above.

GENZYME CORPORATION

By: /s/ Georges Gemayel
	Name:	Georges Gemayel
	Title:	Executive Vice President
By: /s/ Michael S. Wyzga
	Name:	Michael S. Wyzga
	Title:	Executive Vice President

AVIGEN, INC.

By: /s/ Kenneth Chahine
	Name:	Kenneth Chahine
	Title:	President and Chief Executive Officer

53.

SCHEDULES LIST

Schedule 1.19: Current Regulatory Filings

Schedule 1.37: Gene Therapy Listed Know-How

Schedule 1.38: Gene Therapy Listed Patents

Schedule 1.60: Other Gene Therapy Contracts

Schedule 1.75: Certain Selected Other Gene Therapy Contracts

Schedule 1.79: Upstream Licenses

Schedule 2.1(f): Inventories

Schedule 2.1(g): Supplies

Schedule 2.1(m): Critical Gene Therapy Assets

Schedule 2.2: Assumed Liabilities

Schedule 2.3: Excluded Assets

Schedule 2.5: Transition Assistance

Schedule 2.8: Transfer Timelines

Schedule 2.13: Essential Materials to be Maintained and Maintenance Conditions

Schedule 3.2: Milestones

Schedule 8: Seller Disclosure Schedule

54.

Schedule 1.19

Current Regulatory Filings

[*]

55.

Schedule 1.37

Gene Therapy Listed Know-How

[* ]

56.

Schedule 1.38

Gene Therapy Listed Patents

[*] [17 pages omitted]

57.

Schedule 1.60

Other Gene Therapy Contracts

[*] [43 pages omitted]

58.

Schedule 1.75

Selected Other Gene Therapy Contracts

[*] [3 pages omitted]

59.

Schedule 1.79

Upstream Licenses

[*]

60.

Schedule 2.1(f)

Inventories

[*] [2 pages omitted]

61.

Schedule 2.1(g)

Supplies

[*]

62.

Schedule 2.1(m)

Critical Gene Therapy Assets

[*] [5 pages omitted]

63.

Schedule 2.2

Certain Assumed Liabilities

[*]

64.

Schedule 2.3

Excluded Assets

[*] [3 pages omitted]

65.

66.

Schedule 2.5

Transition Assistance

[*] [3 pages omitted]

67.

Schedule 2.8

Transfer Timelines

[*] [2 pages omitted]

68.

Schedule 2.13

Essential Materials to be Maintained and Maintenance Conditions

[*]

69.

Schedule 3.2

Milestone Payments

[*] [4 pages omitted]

70.

Schedule 8

Seller Disclosure Schedule

[*]

71.

EXHIBITS LIST

A.	Form of Bill of Sale
B.	Form of Assignment and Assumption Agreement
C.	Form of General Technology Assignment Instrument
D.	Form of Trademark Assignment
E.	Form of Patent Assignment Recordation Document
F.	Form of Opinion of Seller’s Counsel
G.	Forms of Press Release

EXHIBIT A

FORM OF BILL OF SALE

[PAGES ATTACHED]

BILL OF SALE AND CONVEYANCE

This BILL OF SALE AND CONVEYANCE is dated as of December 19, 2005 and is made from Avigen, Inc., a Delaware corporation (“ Seller ”), to Genzyme Corporation, a Massachusetts corporation (“ Buyer ”).

RECITALS

WHEREAS, the Buyer and the Seller are parties to an Assignment Agreement dated as of December 19, 2005 (the “ Agreement ”); and

WHEREAS, the Buyer and the Seller now desire to carry out the intent and purpose of the Agreement by the Seller's execution and delivery to the Buyer of this instrument evidencing the conveyance, assignment, transfer and delivery to the Buyer of the Gene Therapy Assets (as defined in the Agreement) that are tangible assets (the “ Acquired Assets ”);

NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Seller does hereby convey, assign, transfer and deliver unto the Buyer and its successors and assigns, all of the Seller's right, title and interest in, to and under Acquired Assets, subject to the terms and conditions of the Agreement, but otherwise free and clear of all liens, claims, restrictions, easements, rights of way, security agreements, rights of third parties, options or encumbrances.

TO HAVE AND TO HOLD the Acquired Assets unto the Buyer, its successors and assigns.

The Seller hereby constitutes and appoints the Buyer and its successors and assigns as its true and lawful attorneys in fact with respect to the transactions contemplated by this instrument, with full power of substitution, in the name and stead of the Seller but on behalf of and for the benefit of the Buyer and its successors and assigns, to demand and receive any and all of the Acquired Assets hereby conveyed, assigned, and transferred or intended so to be, and to give receipt and releases for and in respect of the same and any part thereof, and from time to time to institute and prosecute, in the name of the Seller or otherwise, for the benefit of the Buyer or its successors and assigns, proceedings at law, in equity, or otherwise, which the Buyer or its successors or assigns reasonably deem proper in order to collect or reduce to possession or endorse any portion of the Acquired Assets and to do all acts and things in relation to the assets which the Buyer or its successors or assigns reasonably deem desirable.

In the event that any provision of this Bill of Sale and Conveyance conflicts with a provision in the Agreement, the provision in the Agreement shall be deemed to be controlling and shall prevail. This Bill of Sale and Conveyance does not in any way amend, alter or modify, nor shall it be used to interpret, the terms of the Agreement. This instrument shall be binding upon and shall inure to the benefit of the successors and assigns of the Buyer. This Bill of Sale and Conveyance shall be construed and enforced in accordance with the laws (other than the conflict of law rules) of the State of California.

[Remainder of Page Intentionally Left Blank]

IN WITNESS WHEREOF, the undersigned has executed, made and delivered this Bill of Sale and Conveyance under seal as of the date first set forth above.

AVIGEN, INC.

By:_________________________

Name: Kenneth G. Chahine

Title: President & CEO

EXHIBIT B

FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT

[PAGES ATTACHED]

ASSIGNMENT AND ASSUMPTION AGREEMENT

This ASSIGNMENT AND ASSUMPTION AGREEMENT is dated as of December 19, 2005 and is made from Avigen, Inc., a Delaware corporation (“ Seller ”), to Genzyme Corporation, a Massachusetts corporation (“ Buyer ”).

RECITALS

WHEREAS, the Buyer and the Seller are parties to an Assignment Agreement dated December 19, 2005 (the “ Agreement ”);

WHEREAS, pursuant to the Agreement, the Buyer agreed to assume certain liabilities and obligations of the Seller, specifically the Assumed Liabilities (as defined in the Agreement), and Seller agreed to retain all other liabilities of the Seller, including, without limitation, the Excluded Liabilities (as defined in the Agreement); and

WHEREAS, it is the Parties’ intention to reflect (x) the transfer of title required by Section 2.1 of the Agreement of all contracts, agreements, undertakings, commitments, and other intangible property and assets, in each case that are Gene Therapy Assets (as defined in the Agreement) other than (a) the Avigen Trademark (as defined in the Agreement), (b) the Gene Therapy Listed Know How (as defined in the Agreement) and (c) the license of Avigen Related Know How (as defined in the Agreement) from Avigen to Genzyme that is contained in Section 2.1 of the Agreement (such non-excluded Gene Therapy Assets, the “ Assigned Assets ”); as well as (y) the assignment by Avigen and assumption by Genzyme of the Assumed Liabilities; both by the execution and delivery of this Assignment and Assumption Agreement between the Seller and the Buyer;

NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Buyer and the Seller hereby agree as follows:

The Seller hereby assigns to the Buyer, free and clear of all liens and encumbrances not set forth in the Agreement, all of the Seller’s right, title and interest in, to and under the Assigned Assets.

The Buyer hereby assumes and agrees to observe and perform all liabilities and obligations of the Seller constituting the Assumed Liabilities. The Buyer will not assume or perform any liabilities or obligations that are not Assumed Liabilities, and, in particular, will not assume any of the Excluded Liabilities (as defined in the Agreement).

In the event that any provision of this Assignment and Assumption Agreement is construed to conflict with a provision of the Agreement, the provision in the Agreement shall be deemed controlling and shall prevail. This Assignment and Assumption Agreement does not in any way amend, alter or modify, nor shall it be used to interpret, the terms of the Agreement. This Assignment and Assumption Agreement binds and inures to the benefit of the respective parties and their assigns, transferees and successors. This Assignment and Assumption Agreement shall be construed and enforced in

accordance with the laws (other than the conflict of law rules) of the State of California. This Assignment and Assumption Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument.

[Remainder of Page Intentionally Left Blank]

IN WITNESS WHEREOF, the undersigned have executed this instrument under seal as of the date first above written.

GENZYME CORPORATION

By:________________________________________
	Name:	Georges Gemayel
	Title:	Executive Vice President
By:________________________________________
	Name:	Michael S. Wyzga
	Title:	Executive Vice President

AVIGEN, INC.

By:________________________________________
	Name:	Kenneth Chahine
	Title:	President and Chief Executive Officer

EXHIBIT C

FORM OF GENERAL TECHNOLOGY ASSIGNMENT INSTRUMENT

[PAGES ATTACHED]

INVENTION ASSIGNMENT

This INVENTION ASSIGNMENT (this “ Invention Assignment ”) is dated as of December 19, 2005 and is made from Avigen, Inc., a Delaware corporation (“ Assignor ”), to Genzyme Corporation, a Massachusetts corporation (“ Assignee ”).

RECITALS

WHEREAS, pursuant to the Assignment Agreement dated as of December 19, 2005 (the “ Agreement ”) by and among Assignor and Assignee, Assignor has agreed to assign and transfer, among other things, “Gene Therapy Listed Know-How” as defined in the Agreement, to Assignee; and

WHEREAS, Assignee desires to acquire all rights, title and interests in and to said Gene Therapy Listed Know-How and any and all patents to be obtained therefor;

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Assignor,

Subject to the terms and conditions of the Agreement, Assignor hereby conveys, assigns, transfers and delivers to said Assignee, and its successors and assigns, all rights, title and interests throughout the world in and to the Gene Therapy Listed Know-How in any form or embodiment thereof, including the right to file both U.S. and foreign patent applications therefor, and claim priority under the provisions of any international convention or treaty, as well as all rights, title and interests throughout the world in and to any and all patents or reissues or extensions thereof to be obtained in this or any foreign country upon said Inventions and any divisional, continuation or continuation-in-part thereof or substitute applications therefor in this or any foreign country; and Assignor hereby authorizes and requests the issuing authority to issue any and all patents on any such application or applications to Assignee or its successors and assigns.

Assignor hereby conveys, assigns, transfers and delivers to Assignee, its successors and assigns, all of its rights, title and interests throughout the world in and to all books, documents and records described in Section 2.1(h) of the Agreement (the “ Documentation ”).

In the event that any provision of this Invention Assignment is construed to conflict with a provision of the Agreement, the provision in the Agreement shall be deemed controlling and shall prevail. This Invention Assignment does not in any way amend, alter or modify, nor shall it be used to interpret, the terms of the Agreement. This Invention Assignment binds and inures to the benefit of the respective parties and their assigns, transferees and successors. This Invention Assignment shall be construed and enforced in accordance with the laws (other than the conflict of law rules) of the State of California.

[Remainder of page intentionally left blank]

IN WITNESS WHEREOF, the undersigned has executed, made and delivered this Invention Assignment under seal as of the date first set forth above.

AVIGEN, INC.

By: ______________________________

Name: Kenneth G. Chahine
Title: President & CEO

EXHIBIT D

FORM OF TRADEMARK ASSIGNMENT

[PAGES ATTACHED]

TRADEMARK ASSIGNMENT

This TRADEMARK ASSIGNMENT is dated as of December 19, 2005, and is made from Avigen, Inc., a Delaware corporation (“ Assignor ”), to Genzyme Corporation, a Massachusetts corporation (“ Assignee ”).

RECITALS

WHEREAS, Assignor has filed or registered and/or adopted and used and/or is using in commerce the trademark[s] set forth in the attached Schedule 1 (the “ Trademarks ”); and

WHEREAS, pursuant to the Assignment Agreement dated as of December 19, 2005, by and among Assignor and Assignee, Assignor wishes to transfer to Assignee, and Assignee wishes to acquire from Assignor, the Trademarks and the goodwill associated with such Trademarks;

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Assignor hereby assigns to Assignee all of its rights, title and interests in and to the Trademarks, the goodwill of the business symbolized by the Trademarks, all registrations and applications for registration thereof, if any, all rights of action accrued and to accrue under and by virtue thereof, including the right to sue and recover for past infringement of said Trademarks, and all records and files relating to said Trademarks. This Trademark Assignment will be governed by the laws of the State of California without regard to its conflicts of laws principles.

Assignor shall sign all documents, provide all testimony and, in general, do all lawful things reasonably requested of it by Assignee to carry out and fulfill the purposes and intent of this Trademark Assignment.

Assignor hereby requests the U.S. Commissioner of Patents and Trademarks and the applicable foreign authorities to record this Trademark Assignment to Assignee.

[Remainder of Page Intentionally Left Blank]

IN WITNESS WHEREOF, the undersigned has executed, made and delivered this Trademark Assignment under seal as of the date first set forth above.

AVIGEN, INC.

By:_________________________

Name:

Title:

THE STATE OF CALIFORNIA

County of Alameda

This instrument was executed before me on this ___ day of ___________ 2005 by ___________________________[name], the _______________________ [title] of Avigen, Inc., a Delaware corporation, on behalf of said corporation.

WITNESS my hand and official seal.

_______________________________
Notary Public in and for
The State of California

_______________________________
Printed or Typed Name of Notary

My Commission Expires ______________

SCHEDULE 1

TRADEMARK ASSIGNMENT

Registered Trademark[s] :

Mark	Status	Registration #	Registration Date
Coagulin-B	Active	2,576,473	04 June 2002

Unregistered Trademark[s]

Mark
Coagulin-A

EXHIBIT E

FORM OF PATENT ASSIGNMENT RECORDATION DOCUMENT

[PAGES ATTACHED]

ACKNOWLEDGEMENT OF ASSIGNMENT

Avigen, Inc., a Delaware corporation (“Avigen”) was heretofore the owner of the entire right, title and interest in and to the following (check one only): o patent application serial no. ____________, entitled __________, executed and filed on _______________ (together with all other patent applications claiming priority thereto, patents issuing on any of the foregoing and all re-examinations, re-issues and extensions thereof, the “Assigned Patents”), -- OR -- o patent serial no. _______, entitled ________, executed and filed on ________ and issued on ________ (together with all re-examinations, re-issues and extensions thereof, the “Assigned Patents”).

By prior assignment pursuant to that certain Assignment Agreement executed between Avigen and Genzyme Corporation, a Massachusetts corporation (“Genzyme”) on ______, 2005 (“Avigen-Genzyme Assignment Agreement”), Avigen transferred, assigned and conveyed to Genzyme, the entire right, title and interest in and to the Assigned Patents, subject to Avigen’s rights under the Avigen-Genzyme Assignment Agreement (including without limitation rights to payments and reversionary rights that under certain circumstances cause the entire right, title and interest in and to the Assigned Patents to revert to Avigen all more fully described in the Avigen-Genzyme Assignment Agreement).

NOW THEREFORE, Avigen hereby acknowledges that pursuant to and subject to the terms and conditions of the Avigen-Genzyme Assignment Agreement, it has heretofore transferred, assigned and conveyed to Genzyme the entire right, title and interest in and to the Assigned Patents, subject to Avigen’s right described above.

Avigen hereby authorizes and requests the Commissioner of Patents and Trademarks of the United States and of all foreign countries to issue any Letters Patent granted among the Assigned Patents (whether on the foregoing explicitly identified by number application or on any subsequently filed division, continuation, continuation-in-part, reexamination or reissue application), to Genzyme, its successors and assigns.

IN TESTIMONY WHEREOF, the undersigned has executed this instrument on the ___ day of ______ 2005.

By: __________________________________________

Print Name:____________________________________

Title:_________________________________________

State of ______________	)
		) ss.
County of ___________	)

On __________________ before me, ______________________________ personally appeared ___________________________________________personally known to me or proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

______________________________ (Notary signature)

(Notary Seal)

EXHIBIT F

FORM OF OPINION OF SELLER’S COUNSEL

[PAGES ATTACHED]

LATHAM & WATKINS LLP

December 19, 2005

Genzyme Corporation

500 Kendall Street

Cambridge, MA 02142

Re:	Assignment of AAV Gene Therapy Assets by Avigen, Inc.

Ladies and Gentlemen:

We have acted as special counsel to Avigen, Inc., a Delaware corporation (the “ Company ”), in connection with the assignment of the Company’s assets relating to AAV gene therapy (the “ Gene Therapy Assets ”) pursuant to that certain Assignment Agreement dated as of the date hereof (the “ Agreement ”) between the Company and Genzyme Corporation (“ Genzyme ”). This letter is furnished pursuant to Section 2.8(d) of the Agreement. Capitalized terms defined in the Agreement, used herein, and not otherwise defined here, shall have the same meanings given to them in the Agreement.

As such counsel, we have examined such matters of fact and questions of law as we have considered appropriate for purposes of this letter, except where a specified fact confirmation procedure is stated to have been performed (in which case we have with your consent performed the stated procedure), and except where a statement is qualified as to knowledge (in which case we have with your consent made no or limited inquiry as specified below). We have examined, among other things, the following:

(a)

the Agreement;

(b)

the Bill of Sale and Conveyance, dated the date hereof, by the Company;

(c)

the Assignment and Assumption Agreement, dated the date hereof, between the Company and Genzyme;

(d)

the Invention Assignment, dated the date hereof by the Company;

(e)

the Trademark Assignment, dated the date hereof, by the Company;

LATHAM & WATKINS LLP

(f)	the Acknowledgement of Assignment, dated the date hereof, by the Company; and
(g)	the Amended and Restated Certificate of Incorporation, and Bylaws of the Company (the “ Governing Documents ”);

The documents described in subsections (a) - (f) above are referred to herein collectively as the “ Documents .”

With your consent we have relied upon the foregoing, including the representations and warranties of the Company in the Documents, and upon certificates of officers of the Company and others, with respect to certain factual matters. We have not independently verified such factual matters. Whenever a statement herein is qualified by “to our knowledge” or a similar phrase, it is intended to indicate that those attorneys in this firm who have rendered legal services in connection with the assignment of the Gene Therapy Assets do not have current, actual knowledge of the inaccuracy of such statement. However, except as otherwise expressly indicated, we have not undertaken any independent investigation to determine the accuracy of any such statement.

We are opining herein as to the effect on the subject transaction only of the federal laws of the United States, the internal laws of the State of California and in paragraphs 1, 2 and 4 of this letter, the General Corporation Law of the State of Delaware, and we express no opinion with respect to the applicability thereto, or the effect thereon, of the laws of any other jurisdiction or, in the case of Delaware, any other laws or as to any matters of municipal law or the laws of any local agencies within any state. Our opinions herein are based upon our consideration of only those statutes, rules and regulations which, in our experience, are normally applicable to the to asset assignment transactions.

Subject to the foregoing and the other matters set forth herein, it is our opinion that, as of the date hereof:

1. The Company is a corporation under the General Corporation Law of the State of Delaware, with corporate power and authority to enter into the Documents and perform its obligations thereunder. Based on certificates from public officials, we confirm that the Company is validly existing and in good standing under the laws of the State of Delaware and is qualified to do business in California.

2. The execution, delivery and performance of the Documents have been duly authorized by all necessary corporate action of the Company, and the Documents have been duly executed and delivered by the Company.

3. Each of the Documents constitutes a legally valid and binding obligation of the Company, enforceable against the Company in accordance with its terms.

4. The execution and delivery of the Documents by the Company and the performance of the obligations of the Company under the Documents on the date hereof does not (i) violate the provisions of the Governing Documents, (ii) violate the General Corporation Law of the State of Delaware or any federal or California statute, rule or regulation applicable to the

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Company, or (iii) require any consents, approvals, or authorizations to be obtained by the Company from, or any registrations, declarations or filings to be made by the Company with, any governmental authority, under the General Corporation Law of the State of Delaware or any federal or California statute, rule or regulation applicable to the Company on or prior to the date hereof that have not been obtained or made.

The opinions expressed in the paragraphs above are further subject to the following limitations, qualifications and exceptions:

(a) the effect of bankruptcy, insolvency, reorganization, preference, fraudulent transfer or conveyance, moratorium or other similar laws relating to or affecting the rights or remedies of creditors, including, without limitation, Sections 547 and 548 of the federal Bankruptcy Code and comparable provisions of state law;

(b) the effects of general principles of equity, whether considered in a proceeding in equity or at law (including the possible unavailability of specific performance or injunctive relief), concepts of materiality, reasonableness, good faith and fair dealing, and the discretion of the court before which a proceeding is brought;

(c) the unenforceability under certain circumstances under law or court decisions of provisions for the indemnification of or contribution to a party with respect to a liability where such indemnification or contribution is contrary to public policy or prohibited by law;

(d) we express no opinion as to the enforceability of (i) consents to, or restrictions upon, judicial relief or jurisdiction or venue; (ii) advance waivers of claims, defenses, rights granted by law, or notice, opportunity for hearing, evidentiary requirements, statutes of limitations, trial by jury or at law, or other procedural rights; (iii) waivers of broadly or vaguely stated rights; (iv) covenants not to compete; (v) provisions for exclusivity, election or cumulation of rights or remedies; (vi) provisions authorizing or validating conclusive or discretionary determinations; (vii) provisions to the effect that a guarantor is liable as a primary obligor, and not as a surety; (viii) provisions for the payment of attorney’s fees where such payment is contrary to law or public policy (and we call to your attention the provisions of Sections 1717 and 1717.5 of the California Civil Code, which limit and create obligations for the payment of attorneys’ fees); (ix) proxies, powers and trusts; (x) provisions prohibiting, restricting or requiring consent to assignment or transfer of any right or property; (xi) provisions for liquidated damages, default interest, late charges, monetary penalties, make-whole premiums or other economic remedies to the extent such provisions are deemed to constitute a penalty;

(e) the effect of California law, which provides that a court may refuse to enforce, or may limit the application of, a contract or any clause thereof which the court finds as a matter of law to have been unconscionable at the time it was made or contrary to public policy; and

LATHAM & WATKINS LLP

(f) we express no opinion as to the validity or enforceability of the patents, patent applications, rights, licenses, contracts or other intellectual property assets which are being sold or transferred pursuant to the Documents.

In rendering the opinions in clauses (ii) and (iii) of paragraph 4, we express no opinion as to securities laws, tax laws, antitrust or trade regulation laws, antifraud laws, pension or employee benefit laws, compliance with fiduciary duty requirements, usury laws, environmental laws, or other laws excluded by customary practice. With your consent, we have assumed (a) that the Documents have been duly authorized, executed and delivered by, and constitute legally valid and binding obligations of, the parties thereto other than the Company, enforceable against each of them in accordance with their respective terms, and (b) that the status of the Documents as legally valid and binding obligations of the parties is not affected by any (i) breaches of, or defaults under, agreements or instruments; (ii) violations of statutes, rules, regulations or court or governmental orders, or (iii) failures to obtain required consents, approvals or authorizations from, or make required registrations, declarations or filings with, governmental authorities, provided that we make no such assumption to the extent we have specifically opined as to such matters with respect to the Company herein.

This letter is furnished only to you and is solely for your benefit in connection with the transactions referenced in the first paragraph. This letter may not be relied upon by you for any other purpose, or furnished to, assigned to, quoted to or relied upon by any other person, firm or other entity for any purpose, without our prior written consent, which may be granted or withheld in our discretion.

Very truly yours,

EXHIBIT G

FORMS OF PRESS RELEASE

[PAGES ATTACHED]

Genzyme Acquires Avigen's Gene Therapy Technology

Date: December 21, 2005

Genzyme Corp. (Nasdaq: GENZ) today announced that it has acquired extensive gene therapy assets from Avigen, Inc., including rights to a broad patent estate focused on adeno-associated virus technology, a Phase 1/2 clinical development program in Parkinson's disease, and a clinical collaboration in hemophilia.

In exchange for these assets, Genzyme has made an up-front cash payment of $12 million to Avigen, and will make potential milestone and royalty payments based on the development, approval and sale of products developed under the intellectual property portfolio.

The acquired assets will support and diversify Genzyme's industry-leading gene therapy research program, which already includes work in cardiovascular disease, lysosomal storage disorders, and other conditions. Together with last month's acquisition of viral manufacturing facilities from Cell Genesys, Genzyme has significantly strengthened its ability to develop gene therapy products that utilize either adenovirus or adeno-associated virus vectors.

"This agreement provides Genzyme with a strong patent estate for our existing gene therapy platform, and reflects our commitment to achieve the medical advances that we believe are possible with this technology," said Rich Gregory, Genzyme's head of research. "We look forward to advancing Avigen's ongoing work in Parkinson's disease and hemophilia, areas where we believe gene therapy could play a meaningful role in treatment.”

The most advanced program in Genzyme's gene therapy portfolio is a Phase 2 clinical trial examining the safety and effectiveness of locally delivered Ad2/HIF-1__, an engineered form of the HIF-1_ gene. This experimental therapy is designed to promote the growth of new blood vessels and improve circulation in the limbs of patients with peripheral arterial disease. Genzyme's gene therapy portfolio also includes preclinical work related to lysosomal storage disorders and, in partnership with Excigen, Inc., atrial fibrillation. Genzyme is also conducting pre-clinical gene therapy research through a joint effort with Applied Genetic Technologies.

The Phase 1/2 clinical trial in Parkinson's disease is designed to evaluate the safety of increasing doses of AV201 in individuals with mid- to late-stages of the disease. AV201 is designed to restore the therapeutic effectiveness of levodopa, the primary treatment for Parkinson's disease, by enhancing the brain's ability to convert it into dopamine. The trial, which will now be funded by Genzyme, was initiated in December 2004, at the University of California San Francisco (UCSF) and Lawrence Berkeley National Laboratory (LBNL). Three patients have been treated in this planned 15-patient trial.

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In addition, Genzyme will continue Avigen's clinical collaboration in hemophilia gene therapy with Dr. Katharine High of the University of Pennsylvania School of Medicine.

About Genzyme

One of the world's leading biotechnology companies, Genzyme is dedicated to making a major positive impact on the lives of people with serious diseases. Founded in 1981, Genzyme has grown from a small start-up to a diversified enterprise with annual revenues exceeding $2 billion and more than 8,000 employees in locations spanning the globe. With many established products and services helping patients in more than 80 countries, Genzyme is a leader in the effort to develop and apply the most advanced technologies in the life sciences. The company's products and services are focused on rare inherited disorders, kidney disease, orthopaedics, cancer, transplant and immune diseases, and diagnostic testing. Genzyme's commitment to innovation continues today with a substantial development program focused on these fields as well as heart disease and other areas of unmet medical need.

This press release contains forward-looking statements that subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include the risks and uncertainties described in reports filed by Genzyme with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, including without limitation the information under the heading "Factors Affecting Future Operating Results" in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of the Genzyme Annual Report on Form 10-Q for the quarter ending September 30, 2005. Genzyme cautions investors not to place substantial reliance on the forward-looking statements contained in this press release. These statements speak only as of the date of this press release, and Genzyme undertakes no obligation to update or revise the statements.

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Avigen's Gene Therapy Technology Acquired by Genzyme

Avigen Receives Upfront Cash Payment, as well as Milestones and Royalty Payments on,

all Products Developed

Alameda, CA, December 21, 2005 — Avigen, Inc. (Nasdaq: AVGN) announced today that it has agreed to sell its AAV gene therapy assets to Genzyme Corporation. Under the terms of the agreement, Genzyme will acquire all of Avigen's non-pain related AAV assets. The assets include all rights to an extensive patent estate and Avigen's Parkinson's disease clinical trial program, which is in a Phase 1 /II study currently underway at University of California, San Francisco (UCSF). Genzyme will make an upfront cash payment of $12 million to Avigen, with additional milestone payments and royalty payments on all products developed under Avigen's comprehensive AAV intellectual property (IP) portfolio, including the current Parkinson's disease program.

"This agreement marks a significant milestone in Avigen's strategic move from a gene therapy company to a pharmaceutical company focused on small molecule therapeutics to treat neurological disorders," said Kenneth G. Chahine, Ph.D., J. D., Avigen's President and CEO. "The sale of Avigen's AAV assets makes sense at multiple strategic and financial levels and represents the achievement of the first of three critical goals we first presented in April when we announced Avigen's strategic shift."

Dr. Chahine continued, "The second goal was to significantly reduce operational expenses by eliminating the need to maintain an AAV manufacturing facility and associated expenses. This shift has already led to cost reductions totaling over $2 million on an annual basis. It also allows us the opportunity to further reduce our overhead expenses by subleasing unused parts of our facility. Avigen has successfully sublet sizeable pieces of lab, warehouse and office space, as well as all GMP space for an additional savings of $5 million through the term of Avigen's lease. Furthermore, it allows Avigen to focus on small molecule therapeutics that have a more established and predictable development process when compared to gene therapy, and allows Avigen to leverage part of the development with external contractors. And finally, it brings Avigen additional capital to fund our new strategic direction.

"Another important aspect of the transaction is that the work of Avigen and its collaborators, employees, clinical trial volunteers and patient advocacy groups over the years, especially those who contributed to the effort in hemophilia and Parkinson's disease, will continue," said Chahine. "It places these and other promising programs and IP in the hands of a leading biotechnology company that has for a number of years devoted significant resources to developing gene therapy programs," Chahine added.

Commenting on the agreement, Rich Gregory, Genzyme's head of research said, "in addition to building an impressive AAV IP estate, Avigen has made significant progress in advancing the clinical utility of gene therapy, thereby making the addition of its assets an important strategic acquisition for us.."

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The most advanced program in Genzyme's gene therapy portfolio is a Phase 2 clinical trial examining the safety and effectiveness of locally delivered Ad2/HIF-1 α , an engineered form of the HIF-1 α gene. This experimental therapy is designed to promote the growth of new blood vessels and improve circulation in the limbs of patients with peripheral arterial disease. Genzyme's gene therapy portfolio also includes pre-clinical work related to lysosomal storage disorders and, in partnership with Excigen, Inc., atrial fibrillation. Genzyme is also conducting pre-clinical gene therapy research through a joint effort with Applied Genetic Technologies. Among the Avigen assets being acquired by Genzyme is AV201, an experimental treatment for severe Parkinson's disease, which is in an FDA approved Phase 1/11 clinical trial. Genzyme will continue the clinical development of the Parkinson's program at UCSF. Commenting on the gene therapy product in development, UCSF Professor and Principal Investigator Dr. Michael Aminoff commented: "We have had an excellent relationship with Avigen and are looking forward to continuing the Parkinson's disease program with Genzyme, a leading biotechnology company with both extensive experience in Parkinson's disease and a reputation for rigorous clinical science."

In addition, Avigen and Genzyme have agreed to continue and extend the collaboration with a world leader in hemophilia gene therapy research, Dr. Katharine High, by providing existing vector and regulatory assistance for the continued clinical development scheduled to be initiated in early 2006. "We are happy that Genzyme, through its collaboration with Dr. High, will continue to build on the pioneering work of Avigen in the field of hemophilia gene therapy," said Alan Kinniburgh, Ph.D., Chief Executive Officer of the National Hemophilia Foundation. "The continuation of these clinical trials brings the possibility of gene therapy as a cure for those suffering from hemophilia and other bleeding disorders," he added.

Dr. Chahine further commented, "The third and final goal we committed to is building our product pipeline through in-licensing compounds that are in advanced clinical testing or, preferably, already being sold in various markets around the world. We are pleased to report we have been making steady progress toward achieving this important goal and have found promising opportunities that are undergoing advanced due diligence by the Avigen team." Avigen's leading program, AV411for the treatment of neuropathic pain, is representative of its strategic shift. This compound is an approved drug outside the United States for a non-pain related illness and acts as a glial cell modulator with anti-inflammatory properties. It is an orally bioavailable small molecule with good pharmacokinetic, pharmacodynamic and safety profiles. AV411 shows efficacy in the clinically relevant standardized animal models of neuropathic pain, including animal models of chemical and trauma induced neuropathic pain. Avigen's AV411 is also being explored for utility in other neurological disorders in which glial cell activation has been implicated as a fundamental contributor to the illness.

In addition, Avigen has an active acquisition and in-licensing program. The extensive experience of the senior management team with CNS small molecule development and commercialization, along with now expanded financial resources and status as a public

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company, put Avigen in a unique position to attract and acquire promising later-stage drug candidates to build its product pipeline.

Avigen CEO to Host Conference Call Today

Avigen management will discuss this announcement in a conference call that will also be webcast at 11:00 a.m. (EST), 8:00 a.m. (PST). The webcast will be hosted by Kenneth Chahine, Ph.D., J.D., Avigen's President and Chief Executive Officer. Also on the call will be Thomas J. Paulson , Avigen's CFO and Michael Coffee, Avigen's Chief Business Officer.

This call is being webcast by Thomson/CCBN and can be accessed Avigen's Web site at www.avigen.com .

The webcast is also being distributed through the Thomson StreetEvents Network to both institutional and individual investors. Individual investors can listen to the call at www.eamings.com , Thomson/CCBN's individual investor portal, powered by StreetEvents. Institutional investors can access the call via Thomson's password-protected event management site, StreetEvents at www.streetevents.com.

To access the live conference call, dial (800) 573-4752 (US) or (617) 801-6888 (non-US locations) and enter the passcode: 55466653. A telephone replay will also be available two hours after the conclusion of the conference call and remain available until January 4, 2006. The replay may be accessed by dialing: (888) 286-8010 (US) or (617) 801-6888 (non-US locations) and entering the passcode: 54976001.

About Avigen

Avigen is a biopharmaceutical company focused on unique small molecule therapeutics and biologics to treat serious neurological disorders, including neuropathic pain. Guided by a strong management team and supported by sound financials, Avigen's strategy is to build a robust pipeline through a combination of internal research, acquisitions, and in-licensing with the goal of becoming a fully integrated pharmaceutical company committed to its small molecule and biologics product development programs for serious neurological disorders. The company currently has in development preclinical candidates for neuropathic pain. The lead candidate in development, AV411 is a glial cell modulator with anti-inflammatory properties. An oral drug, it is approved outside of the U.S. for non-pain related illness. AV333 also acts upon neuropathic pain through glial cell attenuation. The compound's active ingredient is the potent anti-inflammatory protein, IL-10, delivered by intrathecal injection. Additionally, in development is AV513 for the treatment of hemophilia A and B which has the potential to be an orally delivered therapeutic. For more information about Avigen, consult the company website at http://www.avigen.com.

About Genzyme

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One of the world's leading biotechnology companies, Genzyme is dedicated to making a major positive impact on the lives of people with serious diseases. Founded in 1981, Genzyme has grown from a small start-up to a diversified enterprise with annual revenues exceeding $2 billion and more than 8,000 employees in locations spanning the globe. With many established products and services helping patients in more than 80 countries, Genzyme is a leader in the effort to develop and apply the most advanced technologies in the life sciences. The company's products and services are focused on rare inherited disorders, kidney disease, orthopedics, cancer, transplant and immune diseases, and diagnostic testing. Genzyme's commitment to innovation continues today with a substantial development program focused on these fields, as well as heart disease and other areas of unmet medical need.

For Avigen: Statement under the Private Securities Litigation Reform Act

This press release contains forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in these forward-looking statements. These risks and uncertainties include, among others, the risks and uncertainties described in reports filed by Avigen With the Securities and Exchange Commission. Avigen's belief that its decision to focus its existing resources on traditional pharmaceuticals offers a greater potential to increase shareholder value, Avigen's belief that it will be able to in-license or acquire later stage drug candidates, Avigen's expectation of receiving milestone and royalty payments from Genzyme, this transaction will lead a decrease in development costs and an increase in the overall likelihood of commercialization of gene therapy products and that small molecules will face more rapid and predictable development timelines when compared with biologics are forward-looking statements that are subject to risks and uncertainties. These risks and uncertainties include: Avigen's divested AAV technology assets may not be developed in the time frame Avigen currently expects, or at all; the development of small molecule therapeutics and other therapeutic discovery and development is a time and resource-intensive process with no guarantee of success, which may result in the expenditure of a significant amount of time and resources with no marketable product resulting from the effort. In addition, there are many other risks and uncertainties inherent in the development of drug products. Other risks relating to Avigen are detailed in Avigen's Annual Report on Form 10-K for the period ended December 31, 2004, under the caption "Risk Factors" in Item 1 of Part 1 of that report, which was filed with the SEC on March 16, 2005.

__________________________

Contact: Thomas J. Paulson

VP & Chief Financial Officer

Avigen, Inc.

Tel: 510-748-7159

Internet: tpaulson@avigen.com

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EXHIBIT 10.59

Patent and Know-How License, Development and Commercialization Agreement

THIS AGREEMENT dated 12 January 2006 is between:

(1)	SDI DIAGNOSTICS INTERNATIONAL LTD a limited liability company organized under the laws of Switzerland (“SDI”) whose registered office is at Baarerstrasse 96/PF 2252 CH-6302 Zug, Switzerland; and

(2)	AVIGEN, INC. a corporation organized under the laws of Delaware (“Avigen”) whose registered office is at 1301 Harbor Bay Parkway, Alameda, California 94502, USA.

RECITALS:

Tolperisone has been sold as a pharmaceutical product to treat acute and chronic pain, and muscle spasm and rigidity, for many years in some European countries and Japan, but has never been approved as a pharmaceutical product in North America and is anticipated to qualify for new chemical entity status in the US;

B.	SDI and its Affiliates have developed and manufacture two formulations of Tolperisone, one in an immediate release dosage form and one in a controlled release dosage form (the Current IR Product and Current CR Product, each as more particularly defined below);

C.	SDI has conducted some clinical development of each the Current IR Product and the Current CR Product, and plans further clinical development of each of them in order to seek approval to sell them in Europe;

D.	SDI possesses some and will develop more clinical data and other know-how relating to the Current IR Product and Current CR Product, and *[]** ;

E.	Avigen is located in North America and has a team experienced in developing and commercializing pharmaceutical products for the North American market, including in particular pharmaceutical products for neurological conditions;

Avigen wishes to acquire rights under SDI’s clinical data, other know-how, and patent rights relating to tolperisone products, as well as supply from SDI of these products, all for the development and commercialization of tolperisone products in North America (the Territory, more particularly defined below), in accordance with the provisions of this Agreement.

IT IS AGREED as follows:

1	Definitions

Section 12.7 provides certain rules of interpretation that apply to this Agreement. Also in this Agreement, the following words shall have the following meanings (with derivative forms being interpreted accordingly):

Advance Payment	Shall have the meaning given such phrase in Section 4.5.1.
Affiliate	Shall mean, in relation to a Party, any entity or person that Corporately Controls, is Corporately Controlled by, or is under common Corporate Control with that Party. SDI’s Affiliates include Sanochemia Pharmazeutika AG, an Austrian corporation.
Agreement	This Patent and Know-How License, Development and Commercialization Agreement (meaning this entire document, including all Schedules and Attachments, including the Supply Terms).
ANDA	Shall mean an abbreviated new drug application (abbreviated NDA) in the US.
API	Shall have the meaning given in the Supply Terms.
Article	An article of this Agreement. This Agreement contains 12 Articles.
Avigen Indemnitees	Shall have the meaning given such phrase in Section 9.6.
Clinical Trial Information	All technical information and data *[] to the []* is *[] by or on behalf of []* or *[]** . This includes the following kinds of data: data regarding the chemical and physical properties of the Licensed Product; pharmacological, toxicological, pharmacokinetic and clinical data; and quality control, testing and assay data.
Closely Related Compounds	Shall mean analogs and derivatives of Tolperisone described by the following chemical structure: *[]**
Combination Product	Shall have the meaning given such phrase in Section 4.3.5.
Commencement Date	Shall mean the date first set forth above, in the first paragraph of this Agreement (the first paragraph appearing after the initial title).
Committee	Shall have the meaning given such phrase in Section 5.1.
Competent Authority	Any national or local agency, authority, department, inspectorate, minister, ministry official, parliament or public or statutory person or other entity (whether autonomous or not) of any government of any country having jurisdiction or authority over either any of the activities and functions contemplated or described by this Agreement or the Parties including the European Commission, the Court of First Instance and the European Court of Justice. Competent Authorities include Regulatory Bodies.
Competing Product	Shall mean any *[] that (a) is a []* or contains a *[] as []* , (b) is *[] , and (c) []* be *[] to []* a *[] on the []* of the *[] in the []* .

Confidential Information	Shall have the meaning given such phrase in Section 3.3.1.
Control	Shall mean, with respect to a Party and a Patent or item of Know-How, the ability of such Party to grant a license as provided for hereunder under such Patent or item of Know-How, *[]**
Corporate Control	Shall mean, with respect to any entity, either (i) direct or indirect beneficial ownership of fifty percent (50%) or more of the capital stock, voting shares or other participating interest carrying the right to vote or to distribution of profits of that entity, or such lesser share as may be the maximum share permitted to be held in accordance with law; or (ii) the actual power to elect the management of or to control the policies of that entity.
CR-Qualified Product	Any pharmaceutical composition *[] providing for []* . A pharmaceutical composition providing for *[] in this context means that such pharmaceutical composition (a) []* in a manner that *[] a []* in the *[] that is []* of the *[] and (b) is []* to be *[] of []* or, where *[] satisfies the following paragraph (i.e. the remainder of the text of this definition excluding the final paragraph). In evaluating (b), []* to the *[] a particular such pharmaceutical composition []* in the *[] if: (i) []* a *[] of such pharmaceutical composition []* that would permit the *[] of []* to be *[] has []* and/or *[] in the []* or in *[] within the []* demonstrating that *[] in the []* a *[] for []* of *[] and []* the FDA *[] that []* composition would be *[] to be []* for a *[] that if []* to be *[] and (y) []* as *[] as []* in such *[] (ii) the Parties otherwise agree (in their sole discretions) that such pharmaceutical composition []* and *[] then such pharmaceutical composition shall be a CR-Qualified Product until and unless (x) whether it qualified under (i) or (ii), a []* such pharmaceutical composition either *[] not []* such *[] and/or []* or such pharmaceutical composition *[] but []* to be *[] for []* of *[] in the case of a pharmaceutical composition that []* Avigen *[] thereof or []* not to *[] for []* (it being understood that such a pharmaceutical composition *[]** In accordance with this determination of prong (b), the same pharmaceutical composition may be a CR-Qualified Product at one time, but not at another later time. If the Parties do not agree as to the application of clause (i) (above in this definition) to any particular formulation proposed as a possible CR-Qualified Product, then the determination of whether such formulation qualifies under clause (i) (above in this definition) shall be determined as set forth in Section 12.9.2. CR-Qualified Products may include the Current CR Product and other formulations of Tolperisone (to the extent described by the foregoing in this definition), and shall include them to the extent described by the foregoing definition or as provided in Section 5.6.
Current CR Product	That certain formulation of Tolperisone that SDI tested in that certain clinical trial identified by protocol number SFK-0300-01/I-003 filed with Independent

	Ethics Committee, Assen, The Netherlands.
Current IR Product	That certain formulation of Tolperisone that SDI most recently tested in those certain clinical trials identified by protocol numbers SFK-0300-01/I-001 and SFK-0300-01/I-002 filed with Independent Ethics Committee of the Landesärztekammer Brandenburg, Cottbus, Germany
Diligence Plan	Shall have the meaning given such phrase in Section 7.4.
Diligent and Reasonable Efforts	The level of efforts which, consistent with the exercise of prudent scientific and business judgment, would be applied by a company in the biotechnology industry for a product owned by it or to which it has rights, that (relative to Licensed Product) is of similar market potential and is at a similar stage in its development or product life, taking into account issues of safety and efficacy, product profile, the competitiveness of the marketplace, the proprietary position of the product, the regulatory structure involved, the profitability of the applicable products, and all other relevant factors. Diligent and Reasonable Efforts is evaluated in the context of Territory-wide efforts, recognizing that some development and commercialization activities may or may not be required by this standard for countries other than the US, and that a reasonable development and commercialization program may stage or stagger activities for different countries over time. A Party’s obligation to devote Diligent and Reasonable Efforts may be satisfied by the actions of a Party’s or its Affiliate’s own efforts, or those of a subcontractor or service provider; and in Avigen’s case the actions of a Sublicensee or Distributor.
Disclosing Party	Shall have the meaning given such phrase in Section 3.3.1.
Distributor	Shall have the meaning given such phrase in Section 2.4.
EMEA	European Medicines Evaluation Agency.
Event of Force Majeure	Shall have the meaning given such phrase in Section 12.1.
Excess	Shall have the meaning given such phrase in Section 4.5.3.
FDA	The United States Food and Drug Administration.
Field	The treatment of muscle spasticity and acute muscle spasm.
Finished Product	IR Product or CR-Qualified Product in finished product form, that is filled, labeled and packaged into finished product.
Fully Burdened Manufacturing Cost	Shall mean, with respect to any Licensed Product (in bulk or finished product form, as the case may be), one hundred percent (100%) of SDI’s fully burdened manufacturing cost to manufacture such Licensed Product in such form, consisting solely of: *[] Fully Burdened Manufacturing Costs excludes []*

	Fully Burdened Manufacturing Cost shall be calculated in accordance with *[]** generally accepted accounting principles, consistently applied throughout the manufacturing organization with respect to all product candidates and products that it manufactures.
Further Payment	Shall have the meaning given such phrase in Section 4.5.2.
Improvement	Shall have the meaning given such phrase in Section 8.3.1.
Improvement Patent	Shall have the meaning given in Section 8.3.1.
IND	An Investigational New Drug application in the US, or an equivalent filing in another country of the Territory required to be approved (or not rejected) in order for human clinical testing of a Licensed Product in such country to be legally conducted.
Indemnify	Shall have the meaning given such phrase in Section 9.5.
Industry Valuation Expert	Shall mean a human person who is unaffiliated with both Parties (including through their Affiliates) and has at least ten (10) years experience valuing pharmaceutical and/or biopharmaceutical assets in a senior business development, chief financial officer or investment banking role.
Information	Shall have the meaning given such phrase in Section 3.1.
IR Product	Any pharmaceutical composition containing Tolperisone as an active ingredient, that is not a CR-Qualified Product, *[]** IR Products include the Current IR Product.
Joint Improvement Patents	Shall have the meaning given such phrase in Section 8.3.1.
Know-How	Shall mean data, know-how, instructions, processes (including manufacturing and QA/QC processes), methods (including analytical methods), formulae, materials, expert opinions, technical or scientific information and biological materials (including without limitation cell lines, vectors and their progeny and derivatives), including biological, chemical, pharmacological, toxicological, pharmaceutical, physical and analytical, clinical, safety, manufacturing and quality control data and information.
Launch	Shall mean, for each IR Product and CR-Qualified Product in each country of the Territory, the first commercial sale of an IR Product or CR-Qualified Product (respectively) by or on behalf of Avigen, its Affiliates, Sublicensees or Distributors in such country following the Regulatory Approval of such IR Product or CR-Qualified Product (respectively) in such country.
Licensed Know-How	Shall mean the Clinical Trial Information (other than Avigen’s Clinical Trial Information), and all other Know-How Controlled by SDI or its Affiliates at any time prior to expiration of the term of this Agreement that is necessary or useful for the development (including seeking Regulatory Approval for), manufacture, use, sale, or commercialization of Tolperisone Products. As regards any of the foregoing Know-How that is useful but not necessary for

	such activities (“Useful Know-How”), the Licensed Know-How shall exclude Useful Know-How that only qualifies as such with respect to Licensed Products that include another active ingredient in addition to Tolperisone (due to the presence of such other active ingredient) in the Licensed Product, and *[] to active pharmaceutical ingredients other than []* The Licensed Know-How includes the Information.
Licensed Patents	The Listed Patent Rights, and all other Patents Controlled by SDI or any Affiliate of SDI during the term of this Agreement that claim any invention that is necessary or useful for the manufacture, use or sale of Tolperisone Products. The Licensed Patents exclude Patents that meet all of the following descriptions: (a) they are not referred to in the next paragraph, (b) they would not cover any Tolperisone Product but for the inclusion of another active ingredient other than Tolperisone or a Closely Related Compound in such Tolperisone Product, (c) they are directed *[]** to active pharmaceutical ingredients other than Tolperisone or Closely Related Compounds, and (d) they are not directed in whole or in part to combining (or the combination of) Tolperisone with any other active pharmaceutical ingredient; provided, however , that until all Royalty Terms under this Agreement have expired, SDI shall not for the Territory grant any Third Party a license under any of such excluded Patents with respect to any Tolperisone Product. The Licensed Patents include all Patents claiming inventions conceived or reduced to practice in the course of the SDI CR Clinical Program (and SDI shall ensure that it or an SDI Affiliate Controls such Patents for the full scope of activities specified in Section 2.1). Except to the extent excluded under (b), (c) and (d) above, the Licensed Patents also include all Patents claiming inventions conceived or reduced to practice in the course of all other testing of Licensed Product by or on behalf of SDI or its Affiliates, which inventions relate to Licensed Product (including via the composition, manufacture, formulation or use of any Licensed Product), and SDI shall ensure that it or an SDI Affiliate Controls such Patents for the full scope of activities specified in Section 2.1. The Licensed Patents also include SDI’s interest in all Improvements Patents, including those solely owned by SDI and the Joint Improvement Patents.
Licensed Products	IR Products, CR-Qualified Products, and all other Tolperisone Products.
Listed Patent Rights	The patents and patent applications listed in Schedule 1; all divisionals, converted provisionals, continuations, continuations-in-part, and substitutions of, and all other applications claiming priority to (or claiming priority to a common priority document as), any of the foregoing applications; all patents issuing on any of the foregoing applications; all re-examinations, reissues, renewals and extensions (including supplementary protection certificates or their equivalent) of the foregoing patents; all registrations and confirmations of any of the foregoing; and all counterparts in other countries of the Territory to any of the foregoing patents and patent applications.
Losses	Shall have the meaning given such phrase in Section 9.5.

NDA	A New Drug Application in the United States of America under Section 21 of the United States Code of Federal Regulations, Part 314.
Necessary	Shall have the meaning given such phrase in Section 8.9.1.

Net Sales	The gross invoice price of Licensed Products sold by or on behalf of Avigen or its Affiliates or Sublicensees to Third Parties, after deduction of all of the following (reasonably documented): (a) cash, trade and quantity discounts, actually paid or incurred; (b) discounts, refunds, rebates, chargebacks, retroactive price adjustments, and any other allowances actually made which effectively reduce the net selling price, including any institutional rebate or discount for government subsidy or reimbursement programs such as Medicare or Medicaid provided in the United States or any similar organization elsewhere in the world; amounts due under inventory management agreements or any comparable agreements with wholesalers or distributors; and distribution fees and sales commissions paid to Third Parties; (c) credits and allowances for product returns actually made and actually taken (for the selling entities’ financial reporting purposes) for recalls, retroactive price reductions, and billing corrections; (d) freight, packing, shipping, handling and insurance fees, but solely to the extent separately stated on the invoice and included in the gross invoice price; and (e) taxes, including value added taxes and sales taxes, but excluding taxes on seller’s net income. Amounts invoiced between Avigen, its Affiliates and Sublicensees for quantities of Licensed Product for use in clinical trials or for resale shall not be included in the calculation of Net Sales. Provided that Avigen’s (or its Affiliate’s or Sublicensee’s) invoiced sales of Licensed Product to Distributors are included in the calculation of Net Sales, amounts invoiced by Distributors to their customers are excluded from Net Sales, except as provided in the next sentence. If any Distributor pays Avigen or an Avigen Affiliate *[] then for purposes of calculating Net Sales hereunder such Distributor []*
Offsettable Consideration	Shall have the meaning given such phrase in Section 4.3.4.2.
Orange Book	The FDA’s list of Approved Drug Products with Therapeutic Equivalence Evaluations (commonly known as the “Orange Book”).
Other Licensee	Shall have the meaning given such phrase in Section 5.11.2.
Other Party	Shall have the meaning given such phrase in Section 10.2.3.
Parties	SDI and Avigen, and “Party” shall mean either of them.
Patent	Shall mean any patent application or patent, including all of the following kinds: provisional, converted provisional or regular, divisional, continuation, continuation-in-part, and substitution applications; and regular utility, re-issue,

	re-examination, renewal and extended patents.
Patent Expert	Shall have the meaning given such phrase in Section 8.9.1.2.
Phase II Design Standard	Shall mean with respect to a phase II clinical trial (a) that the design of such trial is consistent with the clinical program set forth in Schedule 2, and (b) that if a trial conducted in accordance with such design *[] in the []* or *[] the []* (but otherwise *[] such []* a determination that the subject pharmaceutical composition is *[]**
Pivotal Clinical Trial	Shall mean a clinical trial that is a part of a Pivotal Trial Program.
Pivotal Trial Program	That clinical trial or those clinical trials in humans that is or are required to *[]** on the basis of the results of such trial or trials alone (if such results are favorable), without the need for any further clinical testing to support such US Regulatory Approval Application (NDA).
Quarter	A period of three months commencing on 1st January, 1st April, 1st July and 1st October in each year during the term of this Agreement, and “Quarterly” shall be construed accordingly.
Receiving Party	Shall have the meaning given such phrase in Section 3.3.
Regulatory Approval	Any approval (in whatever form, whether a license, registration, authorization or approval) of any supra-national, national, regional, state or local regulatory agency, department, bureau, commission, council or other governmental entity, necessary for the legal sale of a given pharmaceutical product as such. In the US, Regulatory Approval is achieved by NDA approval.
Regulatory Approval Application	Shall mean an application for Regulatory Approval. Regulatory Approval Applications in the US include NDAs.
Regulatory Body	The FDA in the US, and any authorities responsible for the grant of Regulatory Approvals in the other countries of the Territory.
Related Entity End User	Shall have the meaning given such phrase in Section 4.3.8.
Relevant Patent	Shall have the meaning given such phrase in Section 8.5.1.
Required Phase II Clinical Trial	Shall have the meaning given such phrase in Section 5.5. The Required Phase II Clinical Trial is part of the SDI CR Clinical Program.
Royalty Term	Shall mean, with respect to each Licensed Product in each country of the Territory, the period (x) beginning on the date of Launch of (if such Licensed Product is an IR Product) the first IR Product anywhere in the Territory, or (if such Licensed Product is a CR-Qualified Product) the first CR-Qualified Product anywhere in the Territory, and (y) ending on the latest of: (a) the date on which there is first no longer any Valid Claim of the Licensed Patents that would be infringed by the manufacture, use or sale by Avigen of such Licensed Product in such country but for the license granted Avigen

	hereunder; (b) the date on which *[] -- if any -- []* to Avigen, an Avigen Affiliate or a Sublicensee with respect to such Licensed Product expires or lapses; and (c) the *[]** of (if such Licensed Product is an IR Product) the Launch of the first IR Product in the United States, or (if such Licensed Product is a CR-Qualified Product) the Launch of the first CR-Qualified Product in the United States, in each case by Avigen, an Avigen Affiliate or a Sublicensee or Distributor. If (c) occurs later than (a) or (b) with respect to any Licensed Product in any country of the Territory, then the period from the later of (a) and (b) (with respect to such Licensed Product in such country) to (c) (with respect to such Licensed Product in such country) is the “Second Part-Royalty Term” with respect to such Licensed Product in such country. The period of the Royalty Term includes -- to avoid any doubt -- that period that is the Second Part-Royalty Term.
Sales Estimate	Shall have the meaning given such phrase in Section 6.4.
SDI Communicator	Shall have the meaning given such phrase in Section 5.10.
SDI CR Clinical Program	Shall have the meaning given such phrase in Section 5.2.
SDI Indemnitees	Shall have the meaning given such phrase in Section 9.5.
SEC	Shall have the meaning given such phrase in Section 3.7.1.
Second Part-Royalty Term	Shall have the meaning given such phrase in the definition of Royalty Term.
Section	Shall mean a section of this Agreement. These Sections are the smaller (than Articles) numbered units that make up the Articles.

Significant Supply Failure	Shall mean SDI’s failure to supply at least *[] of Licensed Product properly ordered in accordance with the procedures contained in the Supply Terms by Avigen for delivery []* which failure SDI has not cured *[]** either by supplying itself or through another appropriately validated source.
Sublicensee	Any Third Party to which Avigen or an Avigen Affiliate grants a license under the Licensed Patents and/or Licensed Know-How to offer to sell, have sold or import Licensed Product in the Territory. Sublicensees exclude Distributors.
Supply Terms	Those terms and conditions for the supply of IR Product and CR-Qualified Product attached as Schedule 2.
Supply Terms Article	Shall mean an article of the Supply Terms.
Supply Terms Section	Shall mean a section of the Supply Terms.
Territory	North America. North America includes the United States of America, its territories and possessions; Canada, its territories and possessions; and Mexico, its territories and possessions.
Territory Infringement	Shall have the meaning given such phrase in Section 8.4.1.
Third Party	Any person, firm, trust, partnership, company or corporate or other entity that is not either a Party or an Affiliate of either Party. Once appointed, a Sub-licensee or Distributor shall cease to be a “Third Party” for the purposes of this Agreement.
Third-Party Claim	Shall have the meaning given such phrase in Section 9.5.
Trade Mark	Shall have the meaning given such phrase in Section 8.8.1.
Transfer Price Percentage	*[]**
Tolperisone	The compound currently identified by SDI as “Tolperisone,” the chemical formula for which is C16H23NO.HCl (including all isomers and steric forms described by such chemical formula).
Tolperisone Product	shall mean any pharmaceutical composition containing as an active ingredient Tolperisone or any *[]** of Tolperisone.
US	The United States of America, its territories and possessions.

Valid Claim

An issued claim of a patent, which claim has not expired, lapsed, been abandoned, been cancelled, been revoked, been held invalid or unenforceable by a court of competent jurisdiction in a final and non-appealable or unappealed judgment, and has not been admitted to be invalid or unenforceable through reissue, re-examination, disclaimer or otherwise.

2	Grant of license rights .

2.1

Licenses . Subject to the terms and conditions of this Agreement, SDI hereby grants to Avigen an exclusive, sublicenseable (subject to compliance with and as set forth in Section 2.3) license under the Licensed Patents and the Licensed Know-How to develop, have developed, use, have used, market, have marketed, offer for sale, sell, have sold, import and have imported the Licensed Products in the Territory. For the avoidance of doubt, such license shall not include any right to manufacture or have manufactured the Licensed Product. (However, for clarity, Avigen shall have those manufacturing rights that are set forth in Sections 4.5.5 and 10.4.2 and in Supply Terms Sections 6.5 and 8.3, under the circumstances referred to in such Section and Supply Terms Sections.)

2.2

Formal Licenses for Recordation Purposes Only . The Parties shall -- if requested in writing by Avigen -- execute such formal license recordation documents as may be necessary or appropriate for registration with Patent Offices and other relevant authorities in particular countries of the Territory. If any such license recordation document conflicts with this Agreement, this Agreement shall prevail, govern and control, in all cases. Prior to the execution of the formal license recordation document(s) (if any) referred to in this Section 2.2, the Parties shall so far as possible have the same rights and obligations towards one another as if such formal license recordation document(s) had been executed and recorded. The Parties shall use reasonable endeavors to ensure that, to the extent permitted by relevant authorities, this Agreement shall not form part of any public record, subject to Section 3.7.

2.3	Sublicensing . Avigen shall be entitled to grant sublicenses of its rights under this Agreement through one or more tiers of sublicensees without consent, including to its Affiliates and to Third Parties, provided that all of the following are satisfied:

2.3.1

Avigen notifies SDI in writing the identity of each Sublicensee within thirty (30) days after granting the sublicense.

2.3.2

The sublicense shall include obligations on the Sublicensee which are sufficient to allow Avigen to fulfil its obligations under this Agreement (e.g., the Sublicensee shall report its Net Sales to Avigen on a timeline that enables Avigen to make any royalty payments on the Sublicensee’s Net Sales required by this Agreement in a timely manner).

2.3.3

The sublicenses shall terminate automatically on termination of this Agreement under Section 10.2.3 for Avigen’s uncured material breach or insolvency or under Section 10.2.2 by Avigen at will. Avigen shall notify its Sublicensees promptly (within 30 days) after any such termination of this Agreement. If within 30 days of such notification a Sublicensee notifies SDI in writing that the Sublicensee wishes its sublicensed rights to continue as a direct license from SDI for the then remainder of the term of its sublicense, SDI may grant to the Sublicensee a direct license on the same terms as the sublicense provided such terms are in SDI’s reasonable view no more onerous and no less favorable to SDI than the terms of this Agreement.

2.3.4

Within 30 days of the grant of any sublicense Avigen shall provide to SDI a true copy of such portions of the sublicense as are necessary to verify that the sublicense is in accordance with this Agreement; and

2.3.5

Avigen shall remain responsible to SDI for any act or omission of a Sublicensee to the extent it constitutes a breach of the Agreement.

2.4

Distributors . In addition to its right to grant sublicenses, without granting a sublicense, Avigen may appoint any one or more Affiliate(s) or Third Party(ies) to distribute and sell Licensed Products (any such Third Party that is so appointed (but not any Affiliate that is so appointed), a “Distributor”) in one or more country(ies) of the Territory provided that all of the following are satisfied:

2.4.1

Avigen notifies SDI in writing the identity of each Distributor within thirty (30) days after granting the Distributorship;

2.4.2

The Distributor’s appointment shall terminate automatically on termination of this Agreement under Section 10.2.3 for Avigen’s uncured material breach or insolvency or under Section 10.2.2 by Avigen at will. Avigen shall notify its Distributors promptly (within 30 days) after any such termination.

2.4.3

Within 30 days after the appointment of a Distributor, Avigen shall provide to SDI a true copy of such portions of the distribution agreement as are necessary to verify compliance with this Section 2.4.

2.4.4

Avigen shall remain responsible to SDI for any act or omission of a Distributor to the extent it constitutes a breach of the Agreement.

2.5

Reservation of rights . No right, title or interest is granted, whether expressly or by implication, to any Patents or Know-How owned by SDI, except for the rights and licenses expressly granted under this Agreement under the Licensed Patents and Licensed Know-How. SDI reserves to itself all rights not expressly granted under this Agreement. This Agreement shall not be deemed to restrict SDI from exploiting any of its rights not expressly granted to Avigen under this Agreement. Without prejudice to the generality of the foregoing SDI reserves all rights under any and all Patents outside the Territory that are x-Territory counterparts to the Licensed Patents, and under the Licensed Know-How outside the Territory; provided , however , that SDI shall not grant any license or other right to practice outside the Territory under Licensed Patent counterparts outside the Territory, or under Licensed Know-How, with respect to Tolperisone Products, which license covers activities to supply any Tolperisone or Tolperisone Product into the Territory or would permit the licensee to supply any Tolperisone Product into the Territory.

2.6	Exclusivity Commitments . The Parties are making the exclusivity commitments set forth in Article 11.

2.7	Avigen License and Disclaimer . Avigen is granting SDI the license set forth in Section 8.3.2. Avigen makes the disclaimer with regard to all other licenses that is set forth in the second paragraph of Section 8.3.2.

3	Know-how and Confidential Information

3.1

Provision of Information . Upon Avigen’s reasonable request, SDI shall supply Avigen with all Know-How in SDI’s possession at the date of the request that (a) SDI Controls, (b) has not previously been supplied to Avigen; and (c) is necessary or useful to enable Avigen to undertake (x) the further development of the Licensed Products (including without limitation any such Know-How that is necessary or useful to include in an IND or NDA for any Licensed Product) and (y) prosecution for the Territory of the Licensed Patents (“Information”). The Information shall be subject to the confidentiality provisions of Clause 3.3. The Information shall include at a minimum each of the following:

3.1.1		[*
3.1.2
3.1.3
3.1.4
3.1.5		]

This Section 3.1 shall not be read to limit in any way SDI’s obligations to (a) disclose Clinical Trial Information to Avigen under Section 5.11, or (b) make disclosures as set forth in the Supply Terms.

3.2

Use of Information . Avigen undertakes that for so long as any part of the Information remains subject to the obligations of confidence of Section 3.3 it shall -- to the full extent provided for in such Section and subject to the exceptions and permitted disclosures of Sections 3.4-3.7 -- protect the Information as Confidential Information and shall not use the Information for any purpose except in accordance with (including pursuant to any license granted Avigen under this Agreement) the provisions of this Agreement. This Section 3.2 is not intended to impose any different standard or obligation on Avigen for confidentiality and use of Information than the confidentiality and non-use provisions of Section 3.3 regarding all Confidential Information.

3.3	Confidentiality obligations . Each Party (“Receiving Party”) undertakes:

3.3.1

to maintain as secret and confidential all Know-How and other business information disclosed by the other Party (“Disclosing Party”) (whether directly through the Disclosing Party or indirectly through its Affiliate, Sublicensee or Other Licensee) under this Agreement or that certain Confidential Disclosure Agreement between Avigen and Sanochemia Pharmazeutika AG dated August 11 ^th , 2005 (all of the foregoing information disclosed by a Party, including disclosures under Section 5.11 and including in the case of SDI, the Information, collectively, that Party’s “Confidential Information”);

3.3.2 not to use Confidential Information that is not Know-How (i.e. that is other business information), and to use Confidential Information that is Know-How exclusively within the scope of a license granted such Party under this Agreement or otherwise in a manner consistent with Article 11 ( provided that under no circumstances shall Avigen cite clinical trial data received from SDI in a filing for Regulatory Approval outside the Territory nor shall SDI cite clinical trial data received from Avigen in a filing for Regulatory Approval inside the Territory); and

3.3.3

to disclose Confidential Information only to those of its employees, contractors, Sublicensees and potential Sublicensees pursuant to this Agreement (if any) to whom and to the extent that such disclosure is reasonably necessary or useful for the purposes of this Agreement and as provided in Section 3.6.

3.4	Exceptions to obligations . The provisions of Section 3.3 shall not apply to Confidential Information that the Receiving Party can demonstrate by competent proof:

3.4.1

was, prior to its receipt by the Receiving Party from the Disclosing Party, in the possession of the Receiving Party and not subject to legally binding obligations of confidentiality or non-use; or

3.4.2

is subsequently disclosed to the Receiving Party without any obligations of confidence or non-use by a third party who has not derived it directly or indirectly from the Disclosing Party; or

3.4.3

is or becomes generally available to the public or publicly known through no act or default of the Receiving Party or its agents, employees, Affiliates or Sublicensees; or

3.4.4

[*]

3.5

Legally Required Disclosures . If the Receiving Party is legally required to disclose Confidential Information of the Disclosing Party to the courts of any competent jurisdiction, or to any government regulatory agency or financial authority, the Receiving Party shall be entitled to do so; provided that the Receiving Party shall (i) inform the Disclosing Party as soon as is reasonably practicable, and (ii) at the Disclosing Party’s request seek or provide the Disclosing Party with reasonable assistance to seek to persuade the court, agency or authority to have the information treated in a confidential manner, where this is possible under the court’s, agency’s or authority’s procedures.

3.6

Disclosure to employees etc . The Receiving Party is entitled to disclose the Disclosing Party’s Confidential Information: to the Receiving Party’s employees, contractors, Affiliates, legal and financial advisors, and to investors and underwriters doing diligence on the Receiving Party and their legal and financial advisors; in Avigen’s case, to actual and potential Sublicensees and Distributors; and in SDI’s case, subject to Section 5.11.2, to SDI’s actual and potential Other Licensees. The Receiving Party shall procure, however, that all of the foregoing entities (if any) who have access to any of the Disclosing Party’s Confidential Information shall be made aware of and legally bound to obligations of confidentiality and non-use at least as restrictive as provided in this Article 3 and which apply to the Disclosing Party’s Confidential Information. Disclosures to employees and contractors shall be limited as per Section 3.3.3.

3.7

Publicity . Neither Party may use the name of the other party in any publicity, advertising or in any other public way nor issue press releases or otherwise publicize or disclose any information related to the existence of this Agreement, the terms or conditions of this Agreement or any information relating to the subject matter hereof without the prior written consent of the other Party. A Party is not required to get permission to repeat information that has already been publicly disclosed in accordance with this Agreement. Nothing in the foregoing shall prohibit a Party from making disclosures to the extent required to any Competent Authority or by any Competent Authority or any securities exchange on which such Party’s stock is listed.

3.7.1

In particular (but without limitation), SDI hereby acknowledges that Avigen is a publicly traded company in the US. Because of this: (a) Avigen will be required to publicly file this Agreement with the US Securities and Exchange Commission (“SEC”), (b) to the extent considered material to Avigen (as Avigen may determine in its reasonable judgment or as it may be advised by outside counsel), Avigen is required to publicly disclose events and information that relate to the Licensed Products and this Agreement, and (c) Avigen will be required to refer to this Agreement, Licensed Products and information and events relating thereto in Avigen’s SEC filings (both its regular filings and those that it makes in relation to financing events). Avigen shall be entitled to make all of the foregoing legally required disclosures. On initial filing of this Agreement, Avigen will request confidential treatment of the sensitive terms of this Agreement (to the extent reasonably available based on current law and SEC practice). On achievement of material events or receipt of material information regarding the Licensed Products, if requested by Avigen SDI shall -- while it may make comments for Avigen to reasonably consider as to wording -- approve a press release (or other appropriate public disclosure requested by Avigen) to announce the event or information.

3.7.2

Also in particular but without limitation, Avigen hereby acknowledges that SDI is an Affiliate of a publicly traded company in Germany. Because of this, Section 3.7.1 shall apply mutatis mutandis for SDI as it does for Avigen.

4	Accounting and Payment

4.1

Signature fee . Within 30 days of signature of this Agreement, Avigen shall pay to SDI three million US dollars (US$3,000,000) by wire transfer of immediately available funds in one lump sum. The foregoing sum is non-refundable, and shall not be set-off against and is not an advance on any other payments or sums which may be due or payable by Avigen to SDI whether by way of milestones, transfer payments, royalties or otherwise.

4.2

Milestones . Avigen shall pay to SDI the following sums within thirty (30) days after the first occurrence of the stated milestones. Such sums shall be non-refundable, and shall not be set-off against and not an advance on any other payments or sums which may be due or payable by Avigen to SDI whether by way of other milestone payments, transfer payments, royalties or otherwise:

Amount	Milestone
[*






	*]

Each milestone shall be payable once only, regardless of whether achieved more than once with respect to one or more Licensed Products. With respect to those milestones referable to Net Sales, [*] the [*] of [*] to [*] Avigen shall notify SDI in writing within 30 days following the first occurrence of each milestone event.

4.3	Royalties .

4.3.1

Base Rate . Avigen shall pay SDI a royalty of [*] of Net Sales [*] For Net Sales that [*] Avigen shall pay SDI a royalty of

[*] of such Net Sales. Such obligation to pay royalties only applies with respect to Net Sales occurring during the applicable Royalty Term for each Licensed Product in each country. Avigen shall not have any obligation to pay royalty on Net Sales occurring after the applicable Royalty Term for each Licensed Product in each country.

4.3.2

Second Part-Royalty Term Rate . For Net Sales during the Second Part-Royalty Term, Avigen shall pay royalties on such Net Sales at a rate equal to [*] the rate otherwise set forth in Section 4.3.1, instead of a royalty at the rate set forth in Section 4.3.1.

4.3.3

Competition Adjustment . If (a) any Third Party [*] or (b) in any [*] Tolperisone Products not sold by Avigen, its Affiliate, Distributor or Sublicensee (i.e., Tolperisone Products sold by other Third Parties, taken all together) [*] achieve a [*] market share [*] then, with respect to such country, Avigen shall be entitled to the royalty reductions of Section 4.3.3.1 and/or 4.3.3.2 respectively as applicable. For purposes of (b), market share shall be measured by number of prescriptions filled (or units sold), by reference to IMS data, or an at-least similarly reputable, validated audit source. This Section 4.3.3 (including the reductions and measurements provided below) shall apply with respect to all IR Products taken together, and separately to all CR-Qualified Products taken together. IR Products and CR-Qualified Products shall not be aggregated for purposes of measuring the [*] market share described above.

4.3.3.1

In the case of (a), the royalty reduction shall apply on a country by country basis in the Territory, and shall be in an amount that compensates Avigen for [*] in the US for Tolperisone Products licensed under this Agreement. The extent of this [*] shall be determined [*] by reference to the [*]

The precise amount of such royalty reduction in the case of (a) shall be agreed by the Parties in writing. If the Parties are unable to agree in writing within [*] after Avigen notifies SDI of (a) occurring, then the royalty reduction shall be decided by an Industry Valuation Expert through baseball arbitration as follows: At the end of such [*] period, either Party may refer the matter for resolution by written notice to the other Party. The Parties shall agree on the Industry Valuation Expert within [*] days after the date of such notice. (If they have not agreed within such [*] days, then each shall propose one (1), and these two (2) persons shall choose a third Industry Valuation Expert. This third

Industry Valuation Expert shall be the Industry Valuation Expert to decide the royalty reduction. If such two (2) persons cannot agree on the third, then the arbitral body specified in Section 12.9.1 shall designate a single Industry Valuation Expert who shall be the person to decide the royalty reduction.) The Parties shall share equally the expenses incurred for the services of such Industry Valuation Expert and arbitral body. Within [*] days after the Industry Valuation Expert is selected, each Party shall submit no more than [*] pages of written documentation to him or her stating such Party’s proposed royalty reduction and justification of it. Each Party shall be entitled to see the other Party’s submission. Within [*] days after the written documentation is due, the Industry Valuation Expert shall conduct a proceeding in which each Party is entitled to make a presentation of no more than [*] and to respond to the Industry Valuation Expert’s questions for no more than [*] Neither Party shall engage in ex parte communications with the Industry Valuation Expert. Within [*] days after the proceeding, the Industry Valuation Expert shall render his or her decision as to the royalty reduction. Such royalty reduction must be equal to one of the Parties’ proposals. The Industry Valuation Expert’s decision shall be binding on the Parties absent fraud.

This royalty reduction applies beginning as of Launch in the relevant country of the Territory and applies for so long as [*] Thereafter, the royalty rates set forth in Section 4.3.1 shall apply as the base royalty rate (subject to any other reductions under this Section 4.3).

4.3.3.2

In the case of (b), the royalty rates set forth in Section 4.3.1 shall be reduced to rates equal to [*] the rates set forth in such Section with respect to Net Sales in all Quarters in the relevant country of the Territory. This reduction shall only apply from the beginning of the [*] and thereafter [*] the [*]

4.3.4

Third-Party IP .

4.3.4.1

General . Rights and responsibilities as between the Parties regSarding Third-Party intellectual property are set out in Section 8.9.

Offset . If -- having first followed the procedures regarding Third-Party intellectual property licenses set forth in Section 8.9 -- Avigen pays any Third Party consideration for an intellectual property license covering the Licensed Product or to settle an intellectual property dispute with respect to Licensed Product(s), which license [*] then Avigen shall be entitled to offset against royalties due SDI hereunder [*] of such consideration to the Third Party (“Offsettable Consideration”). To avoid any doubt, Avigen may carry forward any unused (i.e. not offset) Offsettable Consideration into future payment periods, and Avigen is not in any way restricted to taking or applying its offsets in the payment period in which they were incurred. If Avigen chooses to invoke this provision with respect to any given such Necessary license that Avigen has successfully obtained, this Section 4.3.4.2 shall be [*]

4.3.5

Calculation of Net Sales of Combination Products . Net Sales of any Licensed Product sold by or on behalf of Avigen, its Affiliates and/or its Sublicensees as part of a product that in addition to Tolperisone (or any of the forms of it referred to in the definition of Tolperisone Product) contains one or more other active ingredients (the product is a “Combination Product”), shall be calculated as follows:

4.3.5.1

The Net Sales for the purpose of determining royalties on sales of the Combination Product shall be calculated by multiplying Net Sales of such Combination Product by the fraction A/(A+B) where A is either: (a) the price to Third Party end users of the Tolperisone Product component of the Combination Product when sold separately, should Tolperisone Products be sold separately in the applicable country; or (b) the fair market value of the portion of the Combination Product containing the Tolperisone Product included in such Combination Product, as such fair market value is determined in good faith by the Parties, if Tolperisone Products are not sold separately in the applicable country, and B is either (c) the price to Third Party end users of product containing the other active ingredients of the Combination Product when sold separately should such active ingredients be sold separately in the applicable country; or (d) the fair market value of the portion of the Combination Product containing the other active ingredients, as such fair market value is determined in good faith by the Parties, should such active ingredients not be sold separately in the applicable country.

4.3.5.2

Regarding list prices when sold separately referred to in Section 4.3.5.1, if these are available for different dosages of Tolperisone and the other active ingredients than their dosages that are included in the Combination Product, then Avigen shall be entitled to make an equitable (typically, proportional) adjustment to the list prices in calculating the royalty-bearing Net Sales of the Combination Product.

4.3.5.3

Regarding fair market values called for in Section 4.3.5.1, if the Parties do not agree as to fair market values by good faith negotiations of no less than [*] days after either Party first proposes in writing such values to the other Party, then the mechanism of the second paragraph of Section 4.3.3.1 shall apply mutatis mutandis to have an Industry Valuation Expert decide which of the Parties’ proposals as to such fair market values shall be used for the calculation of Section 4.3.5.1.

4.3.6 Anti-Bundling . If Avigen (or its Affiliate or Sublicensee) prices a “bundle” of products, and the “bundle” includes Licensed Product, then (for purposes of calculating royalties due under this Section 4.3) Net Sales of the Licensed Product when sold as part of the “bundle” shall be discounted relative to the list price of that Licensed Product when sold separately, if at all, by no more than the average percentage discount of all products included in the “bundle,” calculated as follows:

Average percentage discount on a particular “bundle” of products = 1 - (A/B) x 100,

where A equals the total discounted price of the “bundle” of products, and B equals the sum of the undiscounted bona fide list prices or fair market values as established by other evidence of each unit of every product in such “bundle.”

For purposes of this Section 4.3.6, a “bundle” is a group of products for which Avigen (or its Affiliate or Sublicensee) establishes prices with individual customers as a group or package, such that the prices for all products in the group are negotiated together. (This practice is sometimes referred to as “portfolio pricing.”)

4.3.7

Payment Schedule . Avigen shall pay SDI the royalty required under this Section 4.3 within [*] days of the end of each Quarter in respect of sales of Licensed Product made and Net Sales generated during such Quarter.

4.3.8

Sales to Related Parties as End Users . Sales to Third Parties are presumed to occur at arm’s length. Net Sales regarding these sales in general require no special adjustments to ensure arm’s-length pricing. In cases, however, where Avigen or its Affiliate or Sublicensee sells Licensed Product to an entity in which any of them has a [*] and such entity (a) is not marketing or clinically testing Licensed Product, and (b) is the end user of such Licensed Product (“Related Entity End User”), then the value of Net Sales for the units sold to the Related Entity End User shall be equal to the average per-unit Net Sales price for Licensed Product in the country of the Related Entity End User. (To avoid any doubt, the sales to the Related Entity End User itself shall be excluded from the calculation of the average per-unit Net Sales value, which shall be based on the other sales of the applicable Licensed Product in that country.)

4.4

Clinical Supply Price . Supply of Finished Product to Avigen and made available by Avigen on a free of charge basis for the purposes of conducting clinical trials necessary for obtaining Regulatory Approvals and/or label expansions for Licensed Products that have already been approved, or for use in marketing studies, shall be at the price set forth in Schedule 5 for the Current IR Product and corresponding placebos, and the Current CR Product, and [*] If for such clinical purposes Avigen requires supply of any differently formulated IR Product or CR-Qualified Product (for example, if the FDA requires a modification to either of them), then SDI shall supply Avigen at a price that reflects any increase in SDI’s Fully Burdened Manufacturing Cost to manufacture the differently formulated version, relative to SDI’s Fully Burdened Manufacturing Cost as of the Commencement Date, to manufacture the Current IR Product and the Current CR Product. To avoid any doubt, nothing in this Section 4.4 is intended to make Avigen responsible in any way (on a pass-through basis through the supply price or otherwise) for any capital improvements that may be required for SDI to manufacture Licensed Products to supply Avigen hereunder.

4.5 Commercial Supply Price . In addition to the sums set out in clauses 4.1, 4.2, 4.3 and 4.4, and in consideration of all supply of Finished Product to Avigen other than for the purposes of conducting clinical trials necessary for obtaining or expanding Regulatory Approvals, Avigen shall pay SDI the following transfer prices, calculated and payable as follows:

4.5.1

An advance payment of [*] of Finished Product for the IR Product, and a price per pack of the CR-Qualified Product determined in accordance with Section 4.5.4, in each case delivered to Avigen or its designee (“Advance Payment”); and

4.5.2

A payment calculated as Net Sales in any Quarter multiplied by the Transfer Price Percentage (“Further Payment”); and

4.5.3

The payment required in Section 4.5.2 shall be reduced by the amount of the Advance Payment attributable to that same Quarter (i.e., by [*] of Licensed Product sold that Quarter to generate that Quarter’s Net Sales), and the payment of Section 4.5.2 is only required to actually be made to the extent the Further Payment in any Quarter exceeds the Advance Payment attributable to that same Quarter. To the extent the Advance Payment attributable to a Quarter (i.e., [*] of such Licensed Product sold that Quarter to generate that Quarter’s Net Sales) exceeds the Further Payment for that Quarter, Avigen is entitled to credit the amount by which such Advance Payment exceeds such Further Payment (the “Excess”) against subsequent payments due SDI hereunder, or, if no further payments are due SDI hereunder SDI shall refund to Avigen the Excess within [*] after requested in writing by Avigen.

4.5.4

When a phase III clinical trial to support US Regulatory Approval of a CR-Qualified Product is commenced, the Parties shall [*] Such Advance Payment on a per-unit basis shall be less than [*] If the [*] in [*] then the [*] shall be such Advance Payment.

4.5.5

If Net Sales per [*] then the Parties shall meet to discuss in good faith such measures as are appropriate and reasonable under the circumstances. Neither Party is required to agree to any change, reformation or amendment to this Agreement to address such circumstances. If the Parties are not able to agree in writing on such measures within six (6) months, then SDI shall either continue to supply Avigen in accordance with this Agreement (including the Supply Terms), or (b) notify Avigen in writing that the following rights of Avigen with respect to Licensed Product manufacture apply:

4.5.5.1

Avigen is released of its obligations to purchase its requirements of Licensed Product from SDI;

4.5.5.2

SDI hereby grants Avigen, effective upon grant of such rights hereunder, the exclusive right to manufacture Avigen’s (and its Affiliates’ and Sublicensees’) requirements of Licensed Product for the Territory (in any and all forms, including Tolperisone API and Finished Product forms), under all Patents and Know-How the subject matter of which was practiced under the Supply Terms; such license shall be sublicenseable through one (1) or more tiers of sublicensees without consent;

4.5.5.3

SDI shall -- and SDI shall cause all of its Affiliates and contractors who have been manufacturing Licensed Product (in any and all forms) supplied (or to be supplied) to Avigen under the Supply Terms to -- promptly after written request by Avigen perform all technology transfer requested by Avigen to establish all then-current manufacturing processes (including analytical methods) for Licensed Products (in any and all forms) at Avigen’s

manufacturing facility or the manufacturing facility of Avigen’s chosen supplier.

4.5.5.4

SDI shall continue to fill Avigen’s purchase orders for Licensed Product placed in accordance with the Supply Terms, until such time as Avigen is able to establish (pursuing such establishment with Diligent and Reasonable Efforts) an alternative source of supply that has been validated with and accepted by all Regulatory Bodies of the Territory in which Licensed Products have received Regulatory Approval, such that Avigen may legally sell Licensed Products under such Regulatory Approvals in such country;

4.5.5.5

Avigen shall remain responsible for royalties under Section 4.3, but except with respect to quantities actually supplied to Avigen by SDI in accordance with Section 4.5.5.4, Avigen shall not be responsible for any additional payments under Section 4.5.

4.6	Timing of Commercial Supply Payments .

4.6.1

The Advance Payment shall be paid within [*] of delivery in accordance with the Supply Terms.

4.6.2

The Further Payment (if any actual payment is required under Section 4.5.3) shall be made within [*] of the end of the Quarter to which such payment is attributable. The Further Payment shall be accompanied by an accurate and reasonably detailed statement setting out Avigen’s calculation of the Further Payment for such Licensed Products in accordance with clause 4.5 above based on actual invoiced gross sales (and deductions in accordance with the definition of Net Sales), as well as reconciling Advance Payments made with Further Payments due in that Quarter.

4.7

Late Payments . Any payment which is not paid within the time frames specified in this Article 4 shall bear interest, to the extent permitted by applicable law, at the prime rate of the Bank of America (or if it no longer exists under such name, the entity succeeding to all or substantially all of its banking assets) as reported in the Wall Street Journal (or its successor) from time to time, calculated on the number of days such payment is overdue.

4.8

Withholding . If provision is made in law or regulation of any country for withholding of taxes of any type, levies or other charges with respect to the signature fee, milestone payments, royalties or other amounts payable under this Agreement (including, to avoid any doubt, the Supply Terms) to SDI, then Avigen shall be entitled to deduct such taxes, levies and other charges from such amounts payable under this Agreement. Avigen shall promptly pay such tax, levy or charge for and on behalf of SDI to the proper government authority. Avigen shall thereafter promptly (within sixty (60) days) furnish SDI with receipt of payment. Avigen shall be entitled to be promptly reimbursed by SDI if no further payments are due from Avigen to SDI. Each Party agrees to assist the other Party in claiming exemption from such deductions or

withholdings under double taxation or similar agreement or treaty from time to time in force and in minimizing the amount required to be so withheld or deducted.

4.9	No Set Off . Except to the extent expressly stated otherwise in this Agreement (for example, in Section 4.8 with respect to withholding and *[]** ), all payments to SDI hereunder shall all be made without deduction or set-off of any nature whatsoever.

4.10	Records and Audits .

4.10.1

Avigen shall keep and ensure that its Affiliates and Sublicensees keep complete and accurate records of its inventory of Licensed Products, and sales and other dispositions (including use in clinical trials, or provision on a compassionate use basis or as marketing samples) of the Licensed Products including all such records that may be necessary for the purposes of calculating all payments due under this Agreement. SDI shall have the right to have a certified public accounting firm that is nationally recognized in the US examine such records. Avigen shall make such records available for inspection by SDI’s chosen such accounting firm at Avigen’s premises in the US on reasonable notice during regular business hours.

4.10.2	Accordingly, at the expense of SDI no more than once per year, SDI has the right to have such certified public accountant from a nationally recognized accounting firm perform on behalf of SDI an audit -- conducted in accordance with US generally accepted accounting principles -- of such books and records of Avigen, its Affiliates and its Sublicensees, as are deemed necessary by the independent public accountant to report on Net Sales for the period or periods requested by SDI and the correctness of any report or payments made under this Agreement (all subject to Section 4.10.3).
4.10.3	Upon timely request and at least *[] business days’ prior written notice from SDI, Avigen shall permit such audit to be conducted during regular business hours in such a manner as to not unnecessarily interfere with Avigen’s normal business activities. Such audit shall be limited to results in the []* prior to audit notification.
4.10.4	All information, data, documents and abstracts herein referred to shall be used only for the purpose of verifying compliance with this Agreement, shall be treated as Avigen Confidential Information subject to the obligations of this Agreement (in particular Article 3) and need neither be retained more than *[] after completion of an audit hereof, if an audit has been requested; nor more than []* from the end of the calendar year to which each shall pertain; nor more than one (1) year after the date of termination of this Agreement.
4.10.5	Audit results shall be shared by Avigen and SDI. However, no information that is not necessary to demonstrate any under- or over-payment will be disclosed by the auditor to SDI (nor is this information otherwise required under this Section to be shared with SDI). The auditor shall be under written obligations to Avigen of confidentiality and non-use (other than uses required by this Section 4.10).
4.10.6	If the audit reveals an overpayment, SDI shall promptly reimburse Avigen for the amount of overpayment.

4.10.7 If the audit reveals an underpayment, Avigen shall promptly make up such underpayment. If the audit reveals that the monies owed by Avigen to SDI has been understated by more than [*] Avigen shall, in addition, pay the reasonable costs of such audit.

4.11

Currency . All payments hereunder shall be made in US dollars by wire transfer to a bank account designated by SDI. Where the Net Sales underlying any royalty due hereunder are in a currency other than US dollars, the amount of each payment concerned shall be converted from such other currency using the exchange rate for the currency concerned available from the Bank of America (or if it no longer exists under such name, the entity succeeding to all or substantially all of its banking assets) on the date payment is first due.

5	Development and Regulatory .

5.1

Joint Committee . Promptly after the execution of this Agreement the Parties will form a joint information sharing committee (the “Committee”). The Committee shall be made up of an equal number of representatives of each of SDI and Avigen. It shall include at least one person at the level of Vice President or above from each Party. The role of the Committee is to provide a regular forum for communication between the Parties. The Committee is anticipated to be the first place and opportunity for the Parties to discuss any desired elements of collaboration and to consider together any potential amendments to this Agreement with regard to development activities. Neither Party is required to agree to any such amendments. Any actual amendments require an authorized officer of each Party to sign in writing the amendment. The Committee has no decision-making authority. The Committee has no power to amend, modify or waive compliance with this Agreement. The Committee shall meet Quarterly until Launch of the CR-Qualified Product in the US (or, if development of any CR-Qualified Product is abandoned by SDI, Launch of the IR Product in the US) and annually thereafter.

Avigen shall prepare and deliver progress reports regarding Licensed Product development not less than [*] prior to each meeting of the Committee. SDI shall do the same in time periods when SDI is conducting (including sponsoring) clinical trials of Licensed Products.

Each Party shall have the right to change their representation on the Committee upon not less than [*] written notice to the other Party. The Committee is not specific to development information sharing. It also applies to commercialization information sharing. It is anticipated that as Avigen’s primary Licensed Product activities shift from development to commercialization, the Parties may wish to update their Committee membership to include people more familiar with commercialization than development (but to be clear, this is voluntary, not required).

5.2

Overview and Background . SDI is seeking to gain Regulatory Approval to market the Current IR Product and Current CR Product in Europe. To work to achieve this, SDI has conducted certain clinical trials of each of the Current IR Product and the Current CR Product prior to the Commencement Date. For the Current IR Product, the Parties expect that data from the clinical trials for which SDI already (as of the Commencement Date) has the final reports and final data should enable Avigen to proceed directly to conduct [*] . For the Current CR Product, in contrast, SDI has conducted a PK trial, but not yet any phase II clinical trials on the Current CR Product. The phase II trial envisaged for the Current CR Product is the Required Phase II CR Clinical Trial, as further described in Section 5.5. As specified in Section 5.5, Avigen will not be conducting such trial or any similar trial unless it elects in its sole discretion to do so. It is not possible for Avigen to proceed directly to a Pivotal Trial Program of the

Current CR Product for the US market on the basis of SDI’s current clinical data. Therefore, Avigen’s clinical development of the Current CR Product -- which is intended by the Parties to begin with a Pivotal Trial Program, and not, except to the extent Avigen agrees in its sole discretion otherwise, any earlier stage trials ( [*] ) -- depends on the clinical trial of the Current CR Product for which SDI is responsible under Section 5.5, with Avigen’s consultation and input under such Section. Avigen shall also be obliged to contribute to a portion of the cost of such trial, solely if and to the extent specified in Section 5.5 with respect to a change to such trial [*] of which Avigen notifies SDI in writing under such Section that [*] Accordingly: (a) SDI is required to carry out certain further Current CR Product clinical programs as stated in Section 5.5, and an outline of which is attached at Schedule 2 (“SDI CR Clinical Program”), and (b) other than the obligations for Avigen to confer in a collaborative manner and provide input to SDI to the extent set forth in Section 5.5, Avigen’s diligence and other obligations for CR-Qualified Products do not begin prior to, and are subject to SDI’s successful completion of, the SDI CR Clinical Program, or [*] of a [*] that [*] the [*] that [*] through [*] on the timing and as provided in Section 7.2.3.

The remainder of this Article 5 and Article 6 (except with respect to Avigen’s obligation to use Diligent and Reasonable Efforts, and SDI’s obligations to use such efforts under Section 5.8.3), represent merely a general statement of the allocation of responsibilities among the Parties. Avigen’s diligence obligations with respect to these responsibilities are set forth in Article 7. Nothing in this Article 5 or Article 6 shall be read to modify Article 7 or impose a different or heightened standard on Avigen in lieu of or in addition to those of Article 7.

5.3

Avigen Overall Responsibility . Avigen shall as between the Parties be responsible to: (a) develop and obtain Regulatory Approval for Licensed Product for the Field in the Territory; (b) carry out a Launch in respect of Licensed Product in all countries in the Territory in which it receives Regulatory Approval (and any applicable governmental pricing approval that may in effect be required for a commercially reasonable product launch); and (c) promote, market, sell or otherwise commercially exploit Licensed Products for the Field in the Territory. All expenses incurred by Avigen for research, development and commercialization, including all required expenses for toxicology and all expenses for preclinical development, clinical trials, preparing, filing and maintaining INDs and NDAs and other regulatory activities, shall be borne and paid by Avigen.

5.4

Certain Service Providers for the Territory . Attached at Schedule 7is a list of agreements initiated and entered by SDI or its Affiliates prior to the Commencement Date and related to the development of the Licensed Products. By way of background, each item on the list [*] that Avigen would require written agreement with the service provider on in order to take over the relationships with these service providers for [*] Avigen shall [*] to reach [*] as to [*] with the service provider for each item listed at Schedule 7. If Avigen reaches such agreement on any item listed at Schedule 7, then Avigen shall assume all of SDI’s obligations under and responsibility for, and shall pay all fees and expenses payable by SDI under, such agreement to the extent they accrue and /or fall due on or after the Commencement Date. If Avigen fails to reach such agreement on any item listed at Attachment 4, then SDI shall retain responsibility for and the relationship

under such item and shall retain its obligations to the relevant service provider. If data generated under any such item is submitted by Avigen to a Regulatory Body (whether submitted in a Regulatory Approval Application or in response to a Regulatory Body request or requirement), then Avigen shall reimburse to SDI all fees and expenses paid by SDI under such agreement to the extent they accrued and /or fell due on or after the Commencement Date. In the case of the document written in the German language referred to in Schedule 7, SDI has provided a written translation of such document into English. Avigen is entitled to rely on such translation provided by SDI. As between the Parties, SDI shall be solely responsible for any discrepancies between the German version and the English translation provided by SDI.

5.5

SDI CR Clinical Program . Schedule 2 contains a description of the basic elements of the SDI CR Clinical Program. The SDI CR Clinical Program shall encompass [*] and that must meet the Phase II Design Standard (the “Required Phase II CR Clinical Trial”). Within one hundred twenty (120) days after the Commencement Date, the Parties shall discuss through the Committee a more detailed specification for such program, including protocols to be submitted for Regulatory Body and institutional permissions to conduct the trial, and in particular the design of and the formulation (recognizing that the Parties currently intend it to be the Current CR Product) of the potential CR-Qualified Product which is to be used in such Required Phase II CR Clinical Trial. These discussions are intended to explore advice, suggestions and questions Avigen may have regarding the Required Phase II CR Clinical Trial as proposed by SDI and to provide an opportunity for Avigen to give SDI feedback. However, [*] for [*] the [*] as to the [*] implementation of the Phase II CR Clinical Trial [*] the [*] or [*] of the [*] as [*] as well as the decisions regarding whether or how to conduct any further phase II clinical testing of potential CR-Qualified Products that SDI may choose to undertake to demonstrate whether a particular pharmaceutical composition actually meets the definition of CR-Qualified Product. SDI shall use its Diligent and Reasonable Efforts to conduct and complete the Required Phase II CR Clinical Trial. The costs of the Required Phase II Clinical Trial shall be borne by the Parties as follows:

(a) SDI shall be solely responsible for all such costs other than those set forth in clause (b) (immediately following) to be Avigen’s responsibility, and

(b) If the Parties discuss a potential addition or cost-increasing change to the Required Phase II CR Clinical Trial, which addition or cost-increasing change [*] be [*] to [*] a determination whether [*] then if Avigen -- once notified by [*] -- agrees (in its sole discretion) in writing to pay the costs of the addition or change, then Avigen may [*] that SDI implement such change on the basis that Avigen would pay such costs if SDI were to implement the change. SDI, [*] shall [*] whether or not to implement such change. In making this decision, [*] primary factors whether the addition or change would materially delay the trial or materially interfere with the trial, in which case depending the circumstances and importance of data from the addition or

change [*] the written agreement for the costs shall state in detail the particular addition or change that is to be implemented, as well as the costs of such change. Avigen may wish to fund an addition or change to obtain data that is not [*] or because Avigen believes [*] determination at that stage. However, in no event shall this provision be read to mean that if [*] or agree to [*] that the trial as conducted without such data is necessarily [*] merely because [*] designing the Required Phase II Clinical Trial that meets the Phase II Design Standard and yields data allowing this determination to be made remains [*] Beyond the Required Phase II CR Clinical Trial, each Party is responsible for the costs of the clinical trials of Licensed Products that such Party conducts, except only to the extent the Parties otherwise agree in writing (with each Party being entitled to withhold its consent in its sole discretion).

SDI is not required to undertake clinical testing of potential CR-Qualified Products beyond the SDI CR Clinical Program. However, SDI may choose to do so (at its sole expense). Avigen will have the obligations as regards an additional formulation (but only if further formulations are required) other than the Current CR Product that is proven in phase II to qualify (at that stage, subject to demonstration to the contrary at a later stage) as a CR-Qualified Product, that are set forth in Section 7.2.3.

5.6

Avigen Clinical Trials . Except for the SDI CR Clinical Program, Avigen shall be solely responsible for the cost of all studies necessary to file for Regulatory Approval of the Licensed Products in the Territory, whether or not such studies are contracted out to a Third Party. Avigen’s current plans for its clinical trials of the Current IR Product for the Field are as set forth in Schedule 6. Such plans are subject to change. Avigen does not covenant, represent or warrant that its actual clinical program for the Current IR Product will be as set forth in such Schedule. However, as Avigen develops these plans Avigen will discuss them with SDI through the Committee meetings. Avigen is not required to obtain SDI’s consent to Avigen’s clinical plans for any Licensed Product.

Regarding the Current CR Product, following completion of the Required Phase II CR Clinical Trial and any further trials of the Current CR Product that are conducted in accordance with Section 5.5 and final reports and analysis of data from such trial(s), Avigen shall decide whether to commence the Pivotal Trial Program with respect to the Current CR Product. If Avigen in its sole discretion decides not to request the FDA to hold a pre-IND meeting with Avigen [*] following completion of the determination that the Current CR Product is a CR-Qualified Product and availability to Avigen of the final reports from all clinical trials used to demonstrate such status (including the final report from the Required Phase II CR Clinical Trial) in order to seek permission to commence such Pivotal Trial Program, then for so long as (and only for so long as) the Current CR Product continues to be proven to qualify as a CR-Qualified Product, [*] If Avigen chooses to commence the Pivotal Trial Program with respect to the Current CR Product, then for so long as Avigen continues to pursue with Diligent and Reasonable Efforts a Pivotal Trial Program, [*] However, if Avigen thereafter ceases to pursue with Diligent and Reasonable Efforts such a Pivotal Trial

Program with respect to the Current CR Product, the Current CR Product shall only be deemed a CR Product if and for so long as it is demonstrated to meet the standards to be a CR Product in accordance with the definition of such term.

If the Required Phase II CR Clinical Trial is performed on a formulation other than the Current CR Product, then the foregoing paragraph applies mutatis mutandis to that formulation. In addition, if SDI presents an alternative formulation timely under Section 7.2.3 with phase II clinical trial data from a trial commensurate with the Required Phase II CR Clinical Trial demonstrating that such formulation at that stage is a CR-Qualified Product (“Alternative Formulation”), then the foregoing paragraph applies mutatis mutandis to the Alternative Formulation. To be clear, the foregoing sentence only applies if the Current CR Product fails in development or is not proven to be a CR-Qualified Product.

If Avigen is deemed under the foregoing in this Section 5.6 to have [*] develop as a CR-Qualified Product both the Current CR Product (or such alternative formulation tested in the Required Phase II CR Clinical Trial), and an Alternative Formulation (which -- by definition -- [*] then [*] solely and exclusively with respect to the [*] if and for so long as each continues to qualify as such, but Avigen shall [*]

5.7

Avigen Regulatory Filings . Avigen shall file and process all applications for Regulatory Approval in the Territory in its own name and shall be solely responsible for the cost of the filing and processing of all such applications in the Territory, taking such steps and actions as may be necessary and advisable to obtain Regulatory Approval for the Licensed Products in the Territory, including, without limitation, making all applications, requests for authorizations, submissions of information and data, connected with or related to the approval of clinical trials work and Regulatory Approvals for the Licensed Products under this Agreement with the Regulatory Body or other competent authorities of the Territory. Avigen shall provide to SDI copies of a draft summary of all manufacturing data and draft related submissions sufficiently in advance of submission to such Regulatory Body or authorities to allow SDI reasonable opportunity to comment thereon, and Avigen shall take reasonable account of SDI’s comments. In addition, upon request of SDI, Avigen shall provide to SDI copies of a draft summary of all other data and draft related submissions sufficiently in advance of submission to such Regulatory Body or authorities to allow SDI reasonable opportunity to comment thereon, [*] Avigen is entitled, if it chooses, to provide these copies in electronic form. SDI shall have the right to receive a copy with regard to any written submission to such Regulatory Body or authority.

5.8	Certain SDI Supply, Information Disclosure and Regulatory Responsibilities . In order to enable Avigen to file and process INDs and Regulatory Approval Applications SDI shall:

5.8.1

At the price referred to in Section 4.4 provide to Avigen Avigen’s requirement of clinical supplies of Licensed Products to support the work to be carried out by Avigen to obtain Regulatory Approval or any phase IV clinical trials.

5.8.2

Free of charge, provide to Avigen all information and documentation in its possession at the relevant time regarding the relevant Licensed Products and the manufacturing process therefore to the extent necessary to support such applications. This shall include but not be limited to any information typically required in drug master files (DMFs).

5.8.3 Use Diligent and Reasonable Efforts to support Avigen in obtaining Regulatory Approval for the Licensed Products in the Territory. Such support shall be provided free of charge (including internal and external costs) in so far as it relates to the provision of information which SDI has in its possession or can be derived (without generating any further data or information) from information within its possession and Control. Such support shall include [*]

5.9	Notices Regarding Certain Regulatory Submissions and Grants. Avigen shall promptly inform SDI of the submission and grant of any Regulatory Approval.

5.10	No SDI Communications with Territory Regulatory Bodies . Except to the extent Avigen requests in writing, SDI and its Affiliates and Other Licensees (“SDI Communicators”), shall not communicate with any Regulatory Body of the Territory (including the FDA) regarding any Licensed Products.

With respect to Licensed Product manufacture, SDI Communicators shall be entitled to communicate with Territory Regulatory Bodies to the extent provided in the Supply Terms. However, Avigen shall have the right to comment in advance (and SDI shall incorporate Avigen’s comments) on all such written communications and to participate in all meeting with Territory Regulatory Bodies regarding Licensed Product manufacture. In addition, to avoid any doubt, Avigen has those rights to notices and with respect to audits, inspections, communications and meetings by and with Regulatory Bodies that are set forth in the Supply Terms.

5.11	Clinical Trial Information from Each Party .

5.11.1

Disclosure . Each Party shall promptly disclose to the other, free of charge, and for the other Party’s use in accordance with this Agreement, any and all Clinical Trial Information that the disclosing Party develops or obtains or that otherwise becomes available to it before and during the term of this Agreement with respect to Licensed Product safety and Licensed Product efficacy for the Field.

5.11.2

Sharing with Other Licensees . Avigen acknowledges that SDI shall, subject to appropriate terms as to confidentiality, provide relevant Clinical Trial Information to its other Licensed Product licensees outside the Territory (together with any Licensed Product distributors outside the Territory, the “Other Licensees”), subject to the last sentence of this Section 5.11.2. SDI shall be entitled to use Avigen’s Clinical Trial Information itself for SDI’s own activities with regard to the Licensed Products outside the Territory. SDI shall only provide Avigen’s Clinical Trial Information to those Other Licensees who agree in writing in advance to provide all Know-How of the Other Licensee that if such Know-How were Controlled by SDI would be Clinical Trial Information, to Avigen, and that Avigen shall be entitled to use, practice and disclose such Know-How within the scope of, and for activities in exercise of, Avigen’s license under Section 2.1.

5.11.3

Control of Information from SDI CR Clinical Program . SDI covenants that it shall have the right to license to Avigen for the activities specified in Section 2.1 all Know-How generated in connection with the SDI CR Clinical Program and all other testing of Licensed Product by or on behalf of SDI or its Affiliates.

5.12 Adverse Events Reporting . The Parties shall perform their obligations under the adverse events reporting protocol agreed to in writing prior to the time that both Parties have regulatory reporting obligations with respect to Licensed Products, which protocol shall be consistent with the protocol provided at Schedule 8 as well as in any event providing for sufficiently fast reporting between the Parties of adverse events to permit Avigen to comply with Territory Regulatory Body requirements. SDI shall require its Other Licensees to provide information that -- if known to SDI -- would be required to be reported under such protocol, on a timeline that is at least fast enough to enable SDI to meet its obligations under such protocol.

6	Commercialization and Commercial Supply .

6.1

Committee at Commercialization Stage . The Committee shall (as per Section 5.1) continue to meet annually after US Launch of the CR-Qualified Product (or if CR-Qualified Product development is abandoned by SDI or Avigen, of the IR Product in the US). Avigen will provide the Committee with written updates regarding Avigen’s progress to commercialize Licensed Products, every [*] prior to the anticipated date of first Launch in the Territory and continuing so long as the Committee meets.

6.2

Marketing Plans . Avigen shall be responsible for the creation and implementation of marketing plans for the Licensed Products in the Territory. Avigen shall not be required to obtain SDI’s approval of Avigen’s marketing plans, promotional advertising and selling material. At a reasonable time and in no event later than [*] before anticipated Launch of a Licensed Product in the Territory, Avigen shall provide SDI with its marketing plan for the Territory. Thereafter Avigen shall provide SDI’s Marketing Representative (meaning one of SDI’s Committee members, whom SDI will designate as the primary contact for marketing information sharing) with Avigen’s annual marketing plan for the Territory [*] until (as to each Licensed Product) [*] after Launch of such Licensed Product in the US. SDI’s Marketing Representative’s function is to provide comment to Avigen to which Avigen shall give due consideration, but all decision-making authority (including the final decision) with regard to all promotional and other commercialization activity for the Licensed Products in the Territory shall remain with Avigen. Such marketing plans shall include (at a gross level of detail) the activities of Avigen’s Affiliates and Sublicensees, if any. Such marketing plan for Licensed Products shall include the following information:

6.2.1

6.2.2

6.2.3

6.2.4

6.2.5

]

each of the foregoing to the extent reasonably available to Avigen.

6.3

Net Sales Reports . Avigen shall inform SDI in writing within [*] following the end of each Quarter about the Net Sales value and calculation for the Quarter, and Avigen’s and its Affiliates’ and/or its Sublicensees’ inventories of the Licensed Products. Avigen may choose to combine this report with the report of Section 4.6.2.

6.4

Sales Estimates . In addition to the forecast and ordering procedures set out in the Supply Terms, Avigen shall provide to SDI a sales target report showing Avigen’s estimates of sales of Licensed Products by or on behalf of Avigen over a [*] period (“Sales Estimate”). The first Sales Estimate shall be provided no later than [*] prior to the anticipated date of Launch of the first Licensed Product, and shall estimate sales for the [*] period from Launch. The Sales Estimate shall be updated [*] . The Sales Estimate shall not be binding, but Avigen shall use its Diligent and Reasonable Efforts to ensure that it is a true and accurate reflection of Avigen’s then-expected sales performance, fairly and reasonably estimated based upon the information then available to Avigen.

6.5	Launch Notice . Avigen shall promptly (within *[]** days after occurrence) inform SDI in writing of the date of actual Launch of each Licensed Product in the Territory.

6.6	Pricing . Pricing policy for Licensed Products shall be the exclusive responsibility of Avigen.

6.7

Quality . Avigen shall procure that all of the Licensed Products marketed by or on behalf of it, its Affiliates and its Sublicensees are of satisfactory quality and comply with all applicable laws and regulations in each part of the Territory, including without limitation the Regulatory Approval therefor, and all subject to SDI meeting its obligations under the Supply Terms.

6.8

Promotional Material . No more frequently than once per year the Committee will review Avigen’s printed promotional materials for the Licensed Product. SDI shall be entitled to share its thoughts and comments with Avigen. Avigen, however, as between the Parties retains sole decision-making authority as to promotional materials.

6.9

Supply Terms . During the term of this Agreement, SDI agrees to supply Avigen and Avigen agrees to purchase from SDI, Avigen’s and its Affiliates’ and Sublicensees’ total clinical and commercial requirements of the Licensed Product for the Territory (to be clear, except as provided in Section 4.5.5, Section 10.4, and Supply Terms Articles 6 and 8). The supply and purchase shall be pursuant to the Supply Terms.

6.10	Relationship to Supply Terms . The Supply Terms shall be deemed part of this Agreement, and any breach thereof shall be deemed a breach of this Agreement.

7	Diligence and Diligence Determinations .

7.1	Diligence Obligation . Avigen shall devote Diligent and Reasonable Efforts, subject to SDI supplying Licensed Products in accordance with the Supply Terms, to:

7.1.1

conduct any Pivotal Clinical Trials of the Current IR Product that may be required to support US Regulatory Approval of the Current IR Product for [*] ;

7.1.2

if the results of the SDI CR Clinical Program are sufficient to support the commencement of a Pivotal Clinical Trial, which Pivotal Clinical Trial would be of a formulation that (at that stage) meets the definition of CR-Qualified Product, conduct those Pivotal Clinical Trials that are required to support US Regulatory Approval of that CR-Qualified Product for [*] provided, however , that for formulations that [*] to avoid any doubt, this Section 7.1.2 in no way alters the application of [*] and shall not be read or deemed to prevent Avigen from choosing to discontinue clinical trials of a formulation that [*] (so that unless the formulation separately [*] and this

Section 7.1.2 no longer applies to such formulation), nor require Avigen to continue any clinical trial (including a Pivotal Clinical Trial) of a formulation that no longer qualifies as a CR-Qualified Product ( [*] ); and provided, further , that to avoid any doubt, results of the SDI CR Clinical Program that support the commencement of a Pivotal Clinical Trial, but do not support that the subject formulation is a CR-Qualified Product (for example, that would support starting a Pivotal Clinical Trial, but not a Pivotal Clinical Trial that [*] ) do not give rise to an Avigen obligation under this Section 7.1.2 except only for so long as [*] );

7.1.3

within [*] after US Regulatory Approval of a first IR Product, Launch such IR Product in the US;

7.1.4

within [*] after US Regulatory Approval of a first CR-Qualified Product, Launch such CR-Qualified Product in the US;

7.1.5

after US Launch of each Licensed Product, promote and market such Licensed Product, including [*] ; and

7.1.6

after US Regulatory Approval, determine a strategy for whether to seek Regulatory Approval of such Licensed Product in the other countries of the Territory (it being understood and agreed that depending on pricing, parallel importation and all other relevant issues and concerns a reasonable commercial strategy for the Licensed Product may not involve seeking Licensed Product Regulatory Approval in or selling Licensed Product in such other countries of the Territory). It is anticipated by the Parties that not seeking Regulatory Approval for and selling Licensed Product in such other countries of the Territory may be consistent with the exercise of Diligent and Reasonable Efforts.

7.2	Development and Launch Diligence Goals and Timelines . Avigen shall be deemed to be meeting its obligations under Section 7.1 so long as it does not fail to meet any of the following diligence goals on the timeline set forth in this Section 7.2:

7.2.1	IR Product .
	7.2.1.1	File an IND with *[] for an IR Product within []*
	7.2.1.2	commence a clinical trial of the Current IR Product *[] for such trial ( []* to *[]** ); and
	7.2.1.3	if warranted by the results of the clinical program, submit an NDA to the FDA to request Regulatory Approval to market the Current IR Product, *[] after []* of such Licensed Product data from which trial will be incorporated in the NDA *[] of such Product data from which trial will be incorporated in the NDA []*

7.2.2

CR-Qualified Product .

7.2.2.1	file an IND for a CR-Qualified Product within four *[] after a pre-IND meeting with the FDA at which FDA indicates it will not reject such an IND and the clinical study for which it provides would be viewed by the FDA as a Pivotal Clinical Trial of the Current CR Product []*
7.2.2.2	commence a Pivotal Clinical Trial of the Current CR Product within *[]** after IND non-rejection for such trial;

7.2.2.3

if warranted by the results of such Pivotal Clinical Trial, submit an NDA to the FDA to request US Regulatory Approval for the Current CR Product, [*] after [*] if [*] as a [*] or [*] after [*] of such Licensed Product data from which trial will be incorporated in the NDA [*]

7.2.3

Reformulations . If either of the Current IR Product or the Current CR Product does not proceed in development or must be reformulated in order to proceed in development, then Avigen shall meet the diligence goals set forth in Sections 7.2.1 and 7.2.2 and Avigen’s other diligence obligations under this Agreement with a different IR Product or the CR Trial Formulation, as the case may be.

If the Current CR Product is not proven to meet the definition of CR-Qualified Product, then SDI may (but is not required to) at SDI’s sole expense, create and test additional formulations of Tolperisone to attempt to obtain a formulation that qualifies as a CR-Qualified Product. SDI may conduct clinical trials (outside the Territory) of such additional formulations. This shall be at SDI’s sole expense. If (a) SDI completes any [*] prior to the date [*] (b) such [*] and (c) the results of such [*] then Avigen’s obligations under Sections 7.1.2, 7.1.4 and 7.1.5 shall apply to such formulation for so long as it continues to be a CR-Qualified Product; provided, however , that this sentence and possibility to trigger a diligence requirement on Avigen’s part (if not triggered with respect to the Current CR Product) shall only apply with respect to one such further formulation.

7.2.4

Clarification in Relation to Supply Failures . Further, any failure by SDI to supply Licensed Products in accordance with the Supply Terms shall extend the timelines of this Section 7.2 by an amount of time equal to any delay resulting from this failure to supply.

7.3

Effect of Timelines . The Parties have agreed timelines for Licensed Product clinical development and regulatory diligence goals for Avigen for the Territory that the Parties consider are reasonable and likely to be consistent with the application of Diligent and Reasonable Efforts. However, the Parties recognize that Avigen’s failure to meet any diligence goal set forth in such Sections by the corresponding deadlines set forth in the applicable Section shall not in and of itself constitute a diligence failure nor a material breach of this Agreement for purposes of Section 7.4 so long as Avigen has devoted its Diligent and Reasonable Efforts but despite such efforts it has failed to meet the timelines set forth above. Furthermore, to the extent that Avigen has devoted its Diligent and Reasonable Efforts, and thereafter complies with the procedures set forth in Section 7.4 in relation to any failure to achieve a diligence milestone by the corresponding deadline, and carries out any Diligence Plan established in accordance with such Section to address such failure, Avigen shall not be deemed to have materially breached this Agreement by virtue of failure to achieve a Section 7.2 milestone by the corresponding deadline.

7.4

Milestone Timeline Meetings; Diligence Plans . If Avigen fails to meet any of the diligence goals set forth in Section 7.2 by the corresponding deadlines, then SDI may request a meeting with Avigen in writing. The Committee shall meet within [*] after SDI’s written request to discuss the reasons for Avigen not meeting the deadline, how Avigen may overcome any impediments that may have prevented it from achieving any of the diligence goal deadlines, and a reasonable revised timeline for Avigen to achieve the remaining diligence goals applying Diligent and Reasonable Efforts. Within [*] after the Parties’ meeting, Avigen shall provide to SDI Avigen’s written plan for the further development and commercialization of the applicable Product (the “Diligence Plan”). Any Diligence Plan shall take into consideration among other factors (including without limitation regulatory issues) that which is out of the reasonable control of Avigen or its ability to plan for (e.g., serious adverse events, Regulatory Authority-imposed or mandated delays or IRB-imposed or mandated delays). Avigen’s Diligence Plans must be reasonably calculated (taking into consideration the foregoing) to promptly meet all remaining diligence milestones set forth in the applicable Section of this Agreement as soon as is reasonably practicable after the original deadlines by the application of Diligent and Reasonable Efforts. However, while any Diligence Plan will include timelines, each will be focused primarily on activities. SDI may comment on Avigen’s Diligence Plan. If requested by SDI the Parties shall promptly (within [*] after SDI’s request) meet to discuss SDI’s comments. Avigen shall provide to SDI a revised written plan reasonably addressing SDI’s concerns within thirty (30) days after any such meeting, and this revised version will be the Diligence Plan. Once a Diligence Plan is in place, then Avigen shall use Diligent and Reasonable Efforts to carry out the Diligence Plan. So long as Avigen uses Diligent and Reasonable Efforts to comply with such a Diligence Plan, Avigen shall not be deemed to have been in breach of this Agreement by virtue of the failure to meet a particular diligence milestone set forth in this Agreement as of the Commencement Date by the corresponding deadline. Any failure by Avigen to use Diligent and Reasonable Efforts to comply with such a Diligence Plan shall be eligible to qualify as a material breach of this Agreement. However, any evaluation of whether a material breach has occurred must be based on an evaluation of all relevant facts and circumstances.

7.5

Commercial Diligence Discussions .

Should at any time during which (a) a Valid Claim subsists in any of the Patent Rights; or (b) data exclusivity, orphan drug status and other regulatory protection for the Licensed Products granted to Avigen or Sublicensee is in effect (i.e., during the Royalty Term, but prior to the Second Part-Royalty Term portion of it), Avigen’s Net Sales for all Licensed Products in any calendar year (i.e. period of twelve (12) consecutive months from January 1 to December 31 of the same year) [*] preceding calendar year (i.e. period of twelve (12) consecutive months from January 1 to December 31 of the same year) other than as a result of [*] the Parties shall meet through the Committee and discuss in good faith a mutually acceptable resolution to the issue. Avigen shall not under any circumstances be required to devote more than Diligent and Reasonable Efforts to Licensed Product marketing and other activities.

8	Intellectual Property .

8.1

Ownership . Any and all right, title and interest to any Patents and Know-How related to Licensed Product created by or on behalf of SDI (or its Affiliates) shall remain owned by SDI. Any and all right, title and interest to any Patents and Know-How related to Licensed Product created by or on behalf of Avigen (or its Affiliates, Sublicensees or Distributors) shall as between the Parties remain owned by Avigen.

8.2

Obtain and Maintain the Licensed Patents . Avigen shall have the right at its own cost and expense to file, prosecute, and maintain the Licensed Patents in the Territory. This includes prosecuting to issuance, paying the issue fees for and maintaining valid and enforceable issued Patents in the name of SDI for each of the patent applications listed in Schedule 1. (To facilitate this, SDI shall provide to Avigen within [*] after the Commencement Date, a complete copy of the file history and correspondence for each Listed Patent Right. Also, SDI shall inform Avigen within [*] business days after the Commencement Date of any impending deadlines (such as office action responses falling due) within the first [*] after the Commencement Date. SDI shall also promptly provide to Avigen any letter of authorization or similar documents required for Avigen to assume prosecution of the Licensed Patents in the Territory.)

Avigen shall consult in good faith with SDI with respect to Avigen’s prosecution of the Licensed Patents. To that end, Avigen shall provide SDI with a copy of all correspondence (including office actions) received from patent offices within [*] business days after receipt by Avigen itself (which may be later than when its external counsel receives such correspondence). Avigen shall provide SDI with a draft of any filing or correspondence with a patent office that Avigen proposes to make, no later than [*] days prior to when Avigen proposes to file or send such filing or correspondence. Avigen shall reasonably incorporate SDI’s comments raised in consultation, to the extent SDI’s comments are consistent with the goal of securing the broadest patent monopoly reasonably available that remains valid taking into account the prior art.

Avigen shall not finally abandon any Licensed Patent (or claim or portion of a Licensed Patent), without first offering to SDI, no later than [*] days prior to any such proposed abandonment, the right to prosecute and maintain such Licensed Patent (or claim or portion of a Licensed Patent) at SDI’s own expense. The Parties explicitly agree that Avigen may [*] without [*] provided that such further [*] remains an option after [*]

8.3 Improvements .

8.3.1

Disclosure and Ownership . All patentable [*] made or generated by either Party or its Affiliate in the course of performing hereunder or exercising a right granted hereunder (or, in SDI’s case, performing Tolperisone-related activities for outside the Territory) and whether or not having broader applicability than with Tolperisone Products (each, an “Improvement” and all Patent rights therein, an “Improvement Patent”) shall be promptly disclosed by the inventing Party to the other Party in reasonable detail. All such Improvements (and the Improvement Patents claiming them) solely invented by either Party (or solely by its employees or other humans who are its agents) shall be and remain the sole property of the solely inventing Party. All such Improvements (and the Improvement Patents claiming them) jointly invented by the Parties (or jointly invented by at least one employee or other human who is the agent of one Party, and at least one employee or other human who is the agent of the other Party) (these Improvement Patents are “Joint Improvement Patents”) shall be jointly owned by the Parties, subject to the licenses (a) to Avigen in Section 2.1, Section 10.4.2 (in case of a termination covered by such Section) and in the Supply Terms and (b) to SDI in Section 8.3.2. The right of the Parties as joint owners outside the scope of such licenses shall be as per Section 8.3.4.

Inventorship shall be determined in accordance with [*] patent law.

8.3.2

Rights and Licenses under Improvements and Improvement Patents . The Improvement Patents to the extent owned by SDI (including SDI’s interest in the Joint Improvement Patents) are included among the Licensed Patents exclusively licensed to Avigen in Section 2.1, Section 4.5.5, Section 10.4.2 (in case of a termination covered by such Section) and in the Supply Terms. Avigen hereby grants to SDI [*] exclusive license under Avigen’s interest in the Improvements Patents (including Avigen’s interest in the Joint Improvement Patents) to practice such Inventions outside the Territory. Such license granted by Avigen shall only be sublicensable to Other Licensees who grant an equivalent license back to Avigen with respect to the Territory under all Tolperisone-related (including via claiming its composition, manufacture, formulation or use (including methods of administration)) Patents (a) claiming inventions by or on behalf of such Other Licensee, or (b) otherwise Controlled by such Other Licensee. Such license granted by Avigen shall endure for the full term of this Agreement, and shall survive all terminations of this Agreement other than terminations for SDI’s material breach.

Other than the foregoing license under Improvement Patents and the right to use Avigen’s Clinical Trial Information outside the Territory (set forth in Section 5.11), Avigen grants SDI and its Affiliates no licenses express or implied under any Patents or Know-How owned or controlled by Avigen.

8.3.3

Filing and Prosecution . Prosecution of Improvement Patents that are Licensed Patents but are not Joint Improvement Patents is as per Section 8.2. The Parties shall mutually agree which Party shall file, prosecute and maintain the Joint Improvement Patents; provided that if they are unable to agree, [*] The Parties shall cooperate with respect to the filing, prosecution and maintenance of the Joint Improvement Patents. Avigen has the sole right to file, prosecute and maintain Improvement Patents that are solely owned by Avigen.

8.3.4

Joint Ownership Rights . Outside the scope of the licenses to Avigen in Section 2.1, Section 4.5.5, Section 10.4.2 (in case of a termination covered by such Section) and in the Supply Terms, and to SDI in Section 8.3.2, the Parties shall have rights as joint

owners of the Joint Improvement Patents, throughout the world, that are equivalent to the default rights of joint owners of US patents through co-inventorship under US patent law. Each Party agrees to reasonably cooperate with the other to provide any written permissions, consents, licenses and waivers necessary to achieve these same rights in countries other than the US.

8.4	Infringement of the Licensed Patents

8.4.1

Notice . Each Party shall inform the other Party promptly if it becomes aware of any actual infringement, or potential or threatened infringement, of any of the Licensed Patents by Tolperisone Product-related activities in the Territory. A Party providing a notice under this Section shall disclose any evidence in its possession to support an allegation of infringement. The Parties shall consult with each other promptly after any such notice to decide the best way to respond to such infringement. In these discussions, the Parties may seek to agree on a joint program of action, including how the costs of any such action are to be borne and how any damages or other sums received from such action are to be distributed, however, unless the Parties execute a written amendment to this Agreement (executed by authorized officers of each Party, as per Section 12.2), with respect to alleged actual infringement of the Licensed Patents in the Territory by activities with Tolperisone Products (“Territory Infringement” Territory Infringement includes, to avoid any doubt, any acts that would give rise to a right to bring suit against a generic under Hatch-Waxman (as it may be amended or under any legislation that may replace or supersede it)), the remainder of this Section 8.4 shall apply.

8.4.2

First Right for Territory Infringement . [*] shall have the first right to bring suit under the Licensed Patents against all instances of Territory Infringement, at [*] sole expense. [*] is, subject to Section 8.4.4, entitled to fully control all suits brought by it under this Section 8.4.2.

8.4.3

Back-Up Right for Territory Infringement . If [*] fails to bring suit to end any instance of Territory Infringement within 180 days after a notice between the Parties under Section 8.4.1 of the Territory Infringement, then [*] shall be entitled to bring suit against the Territory Infringer, at [*] sole expense. [*] is entitled to fully control all suits brought by it under this Section 8.4.3.

8.4.4

Cooperation . Each Party shall reasonably cooperate with the other Party in any suit brought by that other Party under Section 8.4.2 or 8.4.3. To support the costs of this cooperation, the Party bringing suit shall reimburse the cooperating Party for all reasonable out-of-pocket, external costs and expenses incurred by the cooperating Party in providing such cooperation. This excludes, however, the cooperating Party’s costs of retaining independent counsel, if the cooperating Party chooses to do so. The cooperating Party is entitled to invoice the Party bringing suit for such costs and expenses as frequently as monthly; the cooperating Party shall provide documentation for the invoice if requested in writing by the Party bringing suit; and these invoices shall be payable (and the Party bringing suit shall pay them) within thirty (30) days after receipt of the invoice by the Party bringing suit.

Cooperation under this Section includes agreeing to be named as a plaintiff in the suit.

With respect to any suit brought by any Third Party claiming invalidity or unenforceability of any Licensed Patent (or claim or portion of a Licensed Patent), which suit is being controlled by Avigen under Section [*] Avigen shall consult with

SDI in good faith with respect to the conduct of any defense to such suit. SDI shall ensure that its proposals with respect thereto are on the advice of appropriately experienced patent counsel, and Avigen shall take all due account of such proposals in consultation with SDI. If (a) for any reason the Parties do not agree on the strategy for defense of such suit as regards issues of validity and enforceability of Licensed Patents, and (b) Avigen’s proposal to conduct such defense involves any admission of invalidity or unenforceability of the Licensed Patent (or claim or portion of a Licensed Patent), then (c) Avigen shall not make any admission of invalidity or unenforceability, without first [*] If [*] to [*] such [*] as to [*] and [*] then [*] shall [*] of [*] including [*] directed at achieving a [*] in the [*] on the one hand, and [*] on the other hand.

8.4.5

Settlements . A Party bringing suit under 8.4.2 or 8.4.3 is entitled to settle the suit. However: (a) Avigen shall not settle any such suit in a manner involving [*] without first obtaining SDI’s consent, such consent not to be unreasonably withheld; and (b) SDI shall not settle any such suit in a manner involving [*]

8.4.6

Recoveries .

8.4.6.1

Any of Avigen’s recoveries in a suit under [*] shall go (a) first to reimburse Avigen its costs (including costs Avigen has reimbursed to SDI) of such suit, (b) second, where as a result of such suit the circumstances referred to in Section 4.3.3 no longer apply, to [*] and (c) and third, any remaining recovery shall be divided between the Parties as follows: the amount of infringing sales underlying such remaining awards shall be [*] with [*] on [*] and [*] the [*]

8.4.6.2

Any of SDI’s recoveries in a suit under Section [*] shall go (a) first to reimburse SDI its costs (including costs SDI has reimbursed to Avigen) of such suit, and (b) second, where as a result of such suit the circumstances referred to in Section 4.3.3 no longer apply, [*] and (c) and third, any remaining recovery shall be divided between the Parties as follows: the amount of infringing sales underlying such remaining award shall be determined; Avigen shall receive an amount equal

to [*] and SDI shall be entitled to retain the remainder.

8.5	Orange Book Listings

8.5.1

Intention . The Parties agree that they wish any issued patent within the Licensed Patents that claims the Licensed Products’ composition, manufacture or use in a way that legally qualifies for listing in the Orange Book for the Licensed Products (“Relevant Patents”) to be listed in the Orange Book with respect to the Licensed Products in accordance with the Federal Food, Drug, and Cosmetic Act, as amended by the Hatch-Waxman Act and any subsequent amendments. The Parties shall commence discussions to seek to agree, at NDA filing for a particular Licensed Product, and shall agree no later than [*] thereafter (or within such time period commence the procedures of Section 8.5.3 to determine whether particular Licensed Patents are Relevant Patents), which of the Licensed Patents meet the standard for Relevant Patents, that will therefore be notified to the FDA for listing in the Orange Book. Avigen shall be responsible for providing the FDA with the required patent information regarding the Relevant Patents, and for using all Diligent and Reasonable Efforts to seek to procure that the Relevant Patent(s) is/are listed in the Orange Book, whether such Relevant Patents issue prior to, on the date of or subsequent to NDA Approval.

8.5.2

Timing to List . Avigen shall provide the FDA with such patent information as soon as practicable, but in any event no later than [*] prior to the deadline for listing. Avigen shall notify SDI contemporaneously upon submitting such patent information to the FDA. Should Avigen fail to notify SDI of submission of such patent information within such period, then [*] and [*] with respect to [*] or that have been determined [*] to be [*] the patent information regarding that Relevant Patent to the FDA [*] (other than if this Agreement terminates) [*] in such circumstance.

8.5.3

Procedure to Determine Relevant Patents . For Licensed Patents that are issued as of NDA filing for a particular Licensed Product, if the Parties do not agree in writing whether particular such Licensed Patents are Relevant Patents within [*] after such NDA filing, then within an additional [*] then SDI may refer the matter for dispute resolution. The dispute resolution shall be as per the procedure of Section 8.9.1.2 applied mutatis mutandis to determine on a Licensed Patent-by-Licensed Patent basis which of them are Relevant Patents. For Licensed Patents that are not issued as of NDA filing but later issue, the Parties shall commence their discussions as to whether such Licensed Patent is a Relevant Patent promptly after the notice of allowance for such Licensed Patent is received by Avigen, shall complete such discussions within [*] and shall commence the determination procedure under this Section 8.5.3 (if any) within [*] thereafter.

8.6

Patent Term Extension . The Parties shall discuss any extension of patent term that may be available for any Licensed Patent with respect to each Licensed Product. After consulting with SDI, if Avigen chooses to do so it shall be entitled to apply to extend the term of any Licensed Patent with respect to Licensed Product(s) in any one or more countries of the Territory. If at the time the last Valid Claim of a Licensed Patent supporting a Royalty Term hereunder is scheduled to expire it is the case that in the US only one Patent may be extended with respect to each Licensed Product, and each Patent may only be extended once, Avigen shall make its decision whether to extend the term of a Licensed Patent with respect to a particular Licensed

Product based on the following standard: the extension of which Patent (whether or not a Licensed Patent) will provide the longest, most robust legal exclusivity for the particular Licensed Product and taking account of the availability for extensions of the applicable Patents for other Licensed Products (the “Extension Standard”). It is understood and agreed that this involves a balance between the length of time in which there is patent coverage, and the robustness of the patent coverage. [*] based on the substance of the Extension Standard, [*] Before applying to extend the term of any Patent with respect to a Licensed Product, Avigen shall notify SDI of Avigen’s decision which Patent to extend. If SDI does not agree that Avigen has made the right decision based on the Extension Standard, then [*] whether the [*] each [*] is the [*] with respect to a [*] based on the Extension Standard.

During the term of this Agreement, SDI is not entitled to extend the term of any Licensed Patent in the Territory with respect to Licensed Products. In any event, should a Licensed Patent be eligible for extension or restoration, but a Patent other than a Licensed Patent is chosen to be extended in accordance with this provision, [*] to the [*] of the [*] to which such [*] it been [*] for [*] in accordance with [*] but the [*] shall be the [*] apply in the [*]

8.7	Infringement of third party rights

8.7.1

If any warning letter or other notice of infringement is received by a Party, or legal suit or other action is brought against a Party, alleging infringement of Third-Party rights in the manufacture, use or sale of any Licensed Product, that Party shall promptly provide full details of the notice or a copy of the complaint filed in the suit to the other Party, and the Parties shall discuss the best way to respond.

8.7.2

The Party against which such Third-Party infringement is brought is entitled to defend itself against the suit and to control such defense, and will bear the full costs of such defense (but to the extent any resulting damages are required to be indemnified for under Article 9, this indemnification shall remain available). Nothing in this Section 8.7 is intended to alter the provisions of Article 9 regarding Indemnification. Avigen is entitled to tender defense of any Third-Party infringement suit to SDI to the full extent SDI is required to Indemnify for such suit under Article 9. In addition, to the extent any such suit that Avigen is entitled to tender relates to an injunction rather than money damages, Avigen is entitled to defend and control at its expense the portion of the suit that relates to the injunction, while still tendering defense of the remainder of the suit.

8.8	Trademarks

8.8.1

Avigen may market the Licensed Products in the Territory under a trade mark of its choice (“Trade Mark”), subject to first conferring with SDI as to the selection of such Trade Mark (however Avigen is not required to obtain consent from SDI as to such selection).

8.8.2

Upon termination (but not expiry) of this Agreement by SDI under Section 10.2.3 for Avigen’s uncured material breach or insolvency or by Avigen at will under Section 10.2.2, upon request Avigen shall assign and transfer to SDI the Trade Mark and all rights therein including any goodwill attached thereto. Such assignment and transfer shall be for the sum of $1.

8.8.3

In any event, Avigen shall not market any products in the Field under any trade mark which is confusingly similar to the Trade Mark.

8.9	Licenses for Third-Party Intellectual Property

8.9.1

Discussions . The Parties will discuss all potentially desirable intellectual property licenses for the Territory for Licensed Products through the mechanism provided in Section 8.9.1.1. Patent and Know-How and/or trademark licenses for the Territory that [*] shall be “Necessary”. If the Parties do not agree as to whether a particular license is Necessary, they will resolve the matter through the procedure stated in Section 8.9.1.2.

8.9.1.1

Licensing Discussion Procedures . While this Agreement is in effect, if either Party identifies any Third-Party Patents or Know-How that it believes may be desirable to license to cover activities hereunder, it shall request (in writing) a meeting of the Committee with internal or external counsel for each Party. Such meeting shall occur within thirty (30) days after requested. If requested by counsel for either Party, the Parties shall enter into an appropriate and customary joint defense/common interest agreement to cover any and all such discussions and document the Parties’ common interest with respect to Licensed Product-related Third-Party intellectual property. In their meeting and any follow-up meetings, the Parties shall seek to reach consensus as to the relevance of such Third-Party intellectual property to Licensed Products and their manufacture for the Territory, and whether a related license is Necessary. Any minutes of such meeting(s) shall be prepared and kept only by counsel and shall be at an appropriate level of detail and include only statements that are appropriate in view of the possibility of litigation.

8.9.1.2

Patent-Related Dispute Resolution . If the Parties through a period of up to one month of Committee discussions cannot agree as to the Necessity of any license, they will submit the disagreement to an experienced patent attorney mutually acceptable to the Parties -- and who does not otherwise perform work for either Party or any of its Affiliates and is not affiliated with them -- (a “Patent Expert”) for resolution. They shall engage such attorney within [*] days after either Party notifies the other of a disagreement as to Necessity. (If they cannot agree as to who such attorney shall be within such time period, then the total of two nominees of the Parties (one from each Party) shall select a third Patent Expert who shall be the attorney to resolve the dispute. If such two (2) people cannot agree on the third person, then the arbitral body referred to in Section 12.9.2 shall select the Patent Expert who shall be the attorney to resolve the dispute.) The Parties shall share equally the expenses incurred for the services of such Patent Expert and arbitral body. Within [*] days after engaging the patent attorney, the Parties shall each submit up to [*] pages of documentation to the patent attorney. Within [*] Business Days thereafter, the Parties shall convene a discussion with the patent attorney during which each Party may orally present its position as to Necessity for no more than [*] The Parties shall require the patent attorney to render his or her guidance as to Necessity within [*] Business Days after the oral presentations. Neither Party shall engage in any ex parte communications with the patent attorney. The Parties shall accept the patent attorney’s decision on Necessity of each license absent any fraud.

8.9.2

SDI is, as between the Parties, solely responsible to obtain all Necessary licenses to the extent those licenses [*] or [*] of [*] or [*] of [*] to [*] under this Agreement (except where such license is Necessary only because [*] approves an [*] SDI shall, for the avoidance of doubt, solely bear all costs payments and royalties that might be payable under any Necessary license for which SDI is responsible under this Section 8.9.2. Avigen has the right to offset under Section 4.3.4.2 [*] that Avigen pays on licenses that were SDI’s responsibility that Avigen takes because SDI has failed to do so.

8.9.3

Avigen is, as between the Parties, solely responsible to obtain all Necessary licenses to the extent those licenses [*] or [*] of [*] under this Agreement, excluding specifically those licenses for which SDI is responsible under Section 8.9.2. This means Avigen shall be solely responsible to obtain Necessary licenses under Patents that claim [*] in the [*] , but only where [*] Avigen shall, for the avoidance of doubt, solely bear all costs payments and royalties that might be payable under any Necessary license for which Avigen is responsible under this Section 8.9.3. Because Avigen is the marketing and selling Party, SDI is not entitled to take any Necessary licenses for which Avigen is responsible but must instead [*]

9.	Representations, Warranties and Indemnification .

9.1	Representations and Warranties by Both Parties . Each Party represents and warrants to the other that:

9.1.1

the representing and warranting Party is duly organized and validly existing under the laws of its state or country of incorporation, and has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof.

9.1.2

the representing and warranting Party is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder, and the person or persons executing this Agreement on its behalf has been duly authorized to do so by all requisite corporate action.

9.1.3

this Agreement is legally binding upon the representing and warranting Party and enforceable in accordance with its terms. The execution, delivery and performance of this Agreement by it does not conflict with any agreement, instrument or understanding, oral or written, to which the representing and warranting Party is a party or by which it may be bound, nor violate any material law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it.

9.1.4

the representing and warranting Party has not granted, and shall not grant during the term of the Agreement, any right to any Third Party which would conflict with the rights granted to the other Party hereunder. It has (or shall have at the time performance is due) maintained and shall maintain and keep in full force and effect all agreements necessary to perform its obligations hereunder.

9.1.5

the representing and warranting Party is not aware of any action, suit or inquiry or investigation instituted by any governmental agency which questions or threatens the validity of this Agreement.

9.2	Additional Representations and Warranties by SDI . SDI represents and warrants to Avigen as follows:

9.2.1

SDI is the sole and lawful owner of the entire right, title, and interest in and to the Listed Patent Rights and Controls the Information within the scope of activities included in Avigen’s license in Section 2.1;

9.2.2

as of the Commencement Date, there are no outstanding liens, security interests, pledges, charges, mortgages, restrictions, interests and/or encumbrances of any kind in or burdening any of the Listed Patent Rights or the Information;

9.2.3

as of the Commencement Date, the only Patents Controlled by SDI or any of its Affiliates that claim or relate to the Current IR Product, the Current CR Product, Tolperisone or any other Tolperisone Product are the Listed Patent Rights;

9.2.4

as of the Commencement Date, SDI has not granted, expressly or otherwise, any assignment, license or other extension of rights, covenant not to sue, or other similar interest or benefit, exclusive or otherwise, to, under or in the Listed Patent Rights or the Information with respect to the Territory, which remains in effect or in force, nor has any of SDI’s Affiliates done any of the foregoing;

9.2.5

SDI has not executed, and SDI further covenants that it shall not execute, any agreements inconsistent with this Agreement or to the detriment of the Listed Patent Right, other Licensed Patents or the Information (or other Licensed Know-How (including Clinical Trial Information); nor have nor shall any of SDI’s Affiliates;

9.2.6

as of the Commencement Date, SDI is not aware of any Patents or Know-How owned or controlled by a Third Party that would be infringed or misappropriated by the manufacture, use, sale, offer for sale, importation or development of Tolperisone Products (including the Current IR Product and Current CR Product);

9.2.7

as of the Commencement Date there are no interferences pending, declared or threatened regarding the Listed Patent Rights;

9.2.8

the safety- and efficacy-related data and information (including without limitation non-clinical and clinical data) regarding Tolperisone, the Current IR Product and the Current CR Product is -- as of the Commencement Date -- true and accurate in all material respects. SDI has not omitted to disclose to Avigen any data or information (including without limitation non-clinical and clinical data) that is or reasonably could be expected to be material to Avigen’s (or any reasonable prospective licensee’s) decision to enter into the transaction contemplated in this Agreement;

9.2.9

other than the Current IR Product and Current CR Product, SDI and its Affiliates do not as of the Commencement Date have in non-clinical development, IND-enabling work or clinical development any Tolperisone Products or Competing Product, nor does any of them market any Tolperisone Product or Competing Product in each case themselves or through contract(s) with any Third Party(ies); and

9.2.10

SDI and its Affiliates are not aware of any Third Party developing any Tolperisone Product for anywhere in the Territory. SDI and its Affiliates are not aware of any Third Party that has filed an IND for any Tolperisone Product anywhere in the Territory. SDI and its Affiliates are not aware of any Third Party that has submitted a Regulatory Approval Application for any Tolperisone Product to any Regulatory Body of the Territory.

9.3

Additional Representations and Warranties by Avigen . Avigen hereby warrants and represents to SDI that as of the Commencement Date neither Avigen nor its Affiliates has any Tolperisone Product or Competing Product in non-clinical development, IND-enabling work or clinical development or on the market.

9.4

No Other Warranties; Disclaimer . Each of Avigen and SDI acknowledges that, in entering into this Agreement, it does not do so in reliance on any representation, warranty or other provision except as expressly provided in this Agreement, and any conditions, warranties or other terms implied by statute or common law are excluded from this Agreement to the fullest extent permitted by law. Nothing in this Agreement shall be construed as a warranty by SDI or any acknowledgement or reliance by Avigen, that the Patent Rights are valid or enforceable or that their exercise does not infringe any Third Party patent rights. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN SECTIONS 9.1-9.3, ALL PATENTS AND KNOW-HOW PROVIDED BY EACH PARTY HEREUNDER ARE PROVIDED “AS IS” AND EACH PARTY EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, OR ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICES, INCLUDING WITHOUT LIMITATION THE WARRANTIES OF DESIGN, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES, OR THAT ANY PROGRAM TO SEEK REGULATORY APPROVAL IN THE US OR ELSEWHERE IN THE TERRITORY WILL BE SUCCESSFUL.

9.5

Indemnification by Avigen . Avigen hereby agrees to defend, hold harmless and indemnify (collectively “Indemnify”) SDI and its Affiliates, and its and their agents, directors, officers and employees (the “SDI Indemnitees”) from and against any and all liabilities, expenses, damages and/or losses (including without limitation reasonable legal expenses and attorneys’ fees) (collectively “Losses”) resulting from suits, claims, actions and demands, in each case brought by a Third Party (each, a “Third-Party Claim”) arising directly or indirectly out of (i) a breach of any of Avigen’s representations and warranties or covenants pursuant to Section 9.1 or 9.3; (ii) the development, storage, handling, use, sale, offer for sale or importation of Licensed Products by or on behalf of Avigen, its Affiliates, Sublicensees and Distributors in the Territory other than as part of transition assistance to SDI under Section 10.2.2 but including liabilities for which Avigen is responsible under Supply Terms Section 4.12; or (iii) [*] Avigen’s obligation to Indemnify the SDI Indemnitees pursuant to this Section 9.5 shall not apply to the extent that any such Losses (A) arise from the negligence or intentional misconduct of any SDI Indemnitee; (B) arise from any breach by SDI of this Agreement; or (C) are Losses for which SDI is obligated to Indemnify Avigen Indemnitees pursuant to Section 9.6.

9.6 Indemnification by SDI . SDI hereby agrees to Indemnify Avigen and its Affiliates and Sublicensees, and its and their agents, directors, officers and employees (the “Avigen Indemnitees”) from and against any and all Losses resulting from Third-Party Claims arising

directly or indirectly out of (i) a breach of any of SDI’s representations and warranties or covenants pursuant to Section 9.1 or 9.2 or its covenants in Supply Terms Section 7.1; (ii) the development, manufacture, storage, handling, use, sale, offer for sale or importation of Products by or on behalf of SDI and its Affiliates, Other Licensees and Licensed Product distributors outside the Territory; (iii) [*] ; (iv) any transition assistance to SDI under Section 10.2.2; or (v) any liabilities for which SDI is responsible under Supply Terms Section 4.12. SDI’s obligation to Indemnify Avigen Indemnitees pursuant to the foregoing sentence shall not apply to the extent that any such Losses (A) arise from the negligence or intentional misconduct of any Avigen Indemnitee; (B) arise from any breach by Avigen of this Agreement; or (C) are Losses for which Avigen is obligated to Indemnify the SDI Indemnitees pursuant to Section 9.5.

9.7

Procedure . To be eligible to be indemnified hereunder, the Indemnified Party shall provide the indemnifying Party with prompt notice of the Third-Party Claim giving rise to the indemnification obligation ( provided that any delay in giving notice -- if and to the extent it does not materially prejudice the claim -- shall not relieve the indemnifying Party of its Indemnification obligation) pursuant to this Article 9 and (except as provided in Section 8.7) the exclusive ability to defend (with the reasonable cooperation of the indemnified Party) or settle any such claim; provided, however , that the indemnifying Party shall not enter into any settlement for damages other than monetary damages without the indemnified Party’s written consent, such consent not to be unreasonably withheld or delayed. The indemnified Party shall have the right to participate, at its own expense and with counsel of its choice, in the defense of any claim or suit that has been assumed by the indemnifying Party. If the Parties cannot agree as to the application of Sections 9.5 and 9.6 to any particular Third Party Claim, the Parties may conduct separate defenses of such Third Party Claim. Each Party reserves the right to claim indemnity from the other in accordance with Sections 9.5 and 9.6 above upon resolution of the underlying claim, notwithstanding the provisions of this Section 9.7 requiring the indemnified Party to tender to the indemnifying Party the exclusive ability to defend such claim or suit.

9.8

Insurance . Each Party shall procure and maintain insurance, including product liability insurance, adequate to cover its obligations hereunder and which are consistent with normal business practices of prudent companies similarly situated, at all times during which any Product is being clinically tested in human subjects or commercially distributed or sold by or on behalf of such Party in amounts that are reasonable and customary in the U.S. for companies of comparable size and activities, in any event no less than [*] It is understood that such insurance shall not be construed to create a limit of either Party’s liability with respect to its indemnification obligations under this Article 9. Each Party shall provide the other with written evidence of such insurance or self-insurance upon request. Each Party shall provide the other with written notice at least thirty (30) days prior to the cancellation, non renewal or material change in such insurance or self-insurance which materially adversely affects the rights of the other Party hereunder.

9.9

Limitation of Liability . EXCEPT TO THE EXTENT SUCH PARTY MAY BE REQUIRED TO INDEMNIFY THE OTHER PARTY UNDER THIS ARTICLE 9 OR IN RESPECT OF A BREACH OF SECTION 3.2 OR 3.3 (CONFIDENTIALITY AND NON-USE OBLIGATIONS), NEITHER PARTY NOR ITS RESPECTIVE AFFILIATES AND LICENSEES SHALL BE LIABLE FOR SPECIAL, EXEMPLARY, CONSEQUENTIAL OR PUNITIVE DAMAGES, WHETHER IN CONTRACT, WARRANTY, TORT, STRICT LIABILITY OR OTHERWISE.

10	Duration and Termination .

10.1

Commencement and Termination by Expiry . This Agreement, and the licenses granted hereunder, shall come into effect on the Commencement Date and, unless terminated earlier in accordance with this Article 10, shall continue in force on a country-by-country and Licensed Product-by-Licensed Product basis until the expiration of the last Royalty Term in such country with respect to such Licensed Product expires. On expiration of this Agreement with respect to a particular Licensed Product in a particular country, Avigen’s license in Section 2.1 shall, with respect to that Licensed Product in that country, become a perpetual, irrevocable royalty-free license under the Licensed Know-How.

10.2	Early Termination

10.2.1

This Agreement may be terminated by the mutual written agreement of Avigen and SDI. Each Party is entitled to withhold its agreement to terminate, in its sole discretion.

10.2.2

Avigen may terminate this Agreement with or without cause on [*] written notice to SDI. In such circumstances, SDI may seek to reallocate the rights and responsibilities of Avigen hereunder to another person. Should SDI choose to do so, and despite using Diligent and Reasonable Efforts, has been unable to make such alternative arrangements within such [*] unless the reason for Avigen’s termination is a Licensed Product safety or liability concern, Avigen shall [*] provide reasonable assistance to SDI with a view to [*] Avigen may exercise its right of termination under this Section with respect to this entire Agreement, with respect to solely all IR Products, or with respect to solely all CR-Qualified Products.

10.2.3

Without prejudice to any other right or remedy, either Party may terminate this Agreement at any time by notice in writing to the other Party (“Other Party”), such notice to take effect as specified in the notice:

10.2.3.1

if the Other Party is in material breach of this Agreement remaining uncured ninety (90) days after such Other Party receives notice specifying the breach and requiring its remedy, except the time periods and cure requirements are as follows: (a) where the material breach is an undisputed payment obligation the Agreement may be terminated if the Party in default has not remedied or dispute the default within thirty (30) days of receiving notice from the non-defaulting Party, and (b) for breaches not reasonably capable of cure within ninety (90) days, such Other Party may within such ninety (90) days deliver a plan to cure the breach as promptly as possible by the application of Diligent and Reasonable Efforts together with an undertaking to carry out such plan (and the non-breaching Party shall not be entitled to terminate so long as such Other Party is carrying out such plan); or

10.2.3.2

if: (A) the Other Party becomes insolvent or unable to pay its debts as and when they become due, (B) an order is made or a resolution is passed for the winding up of the Other Party (other than voluntarily for the purpose of solvent amalgamation or reconstruction), (C) a liquidator, administrator, administrative receiver, receiver or trustee is appointed in respect of the whole or any part of the Other Party’s assets or business, (D) the Other Party ceases to continue its business, or (E) as a result of debt and/or maladministration the Other Party takes or suffers any similar or analogous action.

10.2.3.3

For terminations under 10.2.3.1, [*] under this Agreement, in which case the Agreement shall terminate in its entirety, if Avigen is the breaching Party, and the breach relates primarily or exclusively to only one of an IR Product or a CR-Qualified Product, then SDI’s termination right will be only for the IR Product or the CR-Qualified Product (respectively).

10.2.4

SDI may terminate this Agreement by giving written notice to Avigen, such notice to have immediate effect if [*] or [*] the [*] or [*] of any of the [*] This explicitly does not apply to [*] of [*] in [*] this Agreement.

10.2.5

A Party’s right of termination under this Agreement, and the exercise of any such right, shall be without prejudice to any other right or remedy (including any right to claim damages) that such Party may have in the event of a breach of contract or other default by the other Party. If the material breach for which a Party seeks to terminate is disputed, then this Agreement shall not terminate prior to the dispute being resolved in accordance with Section 12.9.

10.3	Consequences of Termination -- Avigen Voluntary Terminations and Terminations where Avigen is at Fault.

10.3.1	Upon termination of this Agreement as a whole by Avigen under Section 10.2.2, or by SDI under Section 10.2.3.1, 10.2.3.2 or 10.2.4:
	10.3.1.1	Avigen shall grant to SDI an exclusive, sublicenseable (through one (1) or more tiers of sublicensees), fully-paid, perpetual license under all data and information regarding the Licensed Products (including all Licensed Product specific (a) techniques, technology, practices, trade secrets, inventions (whether or not patentable), methods, manufacturing processes, formulae, formulations, specifications, documents, knowledge, skill, experience, test data and results (including that related to pharmacology, toxicology, preclinical testing, clinical testing, trials and studies, safety and efficacy, analytical and quality control), (b) compounds, formulations and compositions of matter, and (c) marketing data, including clinical studies designed to support promotional efforts), to make, have made, use, sell, offer to sell and import the Licensed Products in the Territory;

10.3.1.2

Avigen shall no longer be licensed to use or otherwise exploit in any way, either directly or indirectly, the Licensed Patents, in so far and for as long as any of such Patents remains in force, or the Licensed Know-How;

10.3.1.3

Any trade mark used by Avigen solely with the Licensed Products shall be assigned to SDI in accordance with Section 8.8.

10.3.1.4

Avigen shall consent to the cancellation of any formal license granted to it, or of any registration of it in any register, in relation to any of the Licensed Patent Rights and under Section 2.2; and

10.3.1.5

commensurate with legislative and regulatory requirements transfer to SDI or its nominee all Regulatory Approvals, Regulatory Approval Applications and INDs of Avigen and its Affiliates for the Licensed Products in the Territory.

10.3.2

Upon termination of this Agreement by Avigen under Section 10.2.2, or by SDI under Section 10.2.3.1, in either case with respect to either all IR Products or all CR-Qualified Products rather that as to this Agreement as a whole, then 10.3.1.1-10.3.1.5 shall apply, but solely with respect to all IR Products or solely with respect to all CR-Qualified Products (respectively).

10.4

Consequences of Termination -- Terminations where SDI is at Fault . Upon termination of this Agreement by Avigen under Section 10.2.3, (a) Avigen shall retain all of its rights under this Agreement; (b) Avigen shall be relieved of all of its obligations hereunder (including without limitation its diligence obligations under Article 7), except for its obligations with respect to royalties under Section 4.3, milestones under Section 4.2, confidentiality under Sections 3.2-3.7, and indemnification under Article 9; and (c) Avigen shall have the following rights with respect to Licensed Product manufacture:

10.4.1

Avigen is released of its obligations to purchase its requirements of Licensed Product from SDI;

10.4.2

SDI hereby grants Avigen, effective upon each such termination by Avigen, the exclusive right to manufacture Avigen’s (and its Affiliates’ and Sublicensees’) requirements of Licensed Product for the Territory (in any and all forms including Tolperisone API and Finished Product forms), under all Patents and Know-How the subject matter of which was practiced under the Supply Terms; such license shall be sublicenseable through one (1) or more tiers of sublicensees without consent;

10.4.3

10.4.4

SDI shall continue to fill Avigen’s purchase orders for Licensed Product placed in accordance with the Supply Terms, until such time as Avigen is able to establish an alternative source of supply that has been validated with and accepted by all Regulatory Bodies of the Territory in which Licensed Products have received Regulatory Approval, such that Avigen may legally sell Licensed Products under such Regulatory Approvals in such country, but in any event no longer than [*] ;

10.4.5

Avigen shall remain responsible for royalties under Section 4.3, but except with respect to quantities actually supplied to Avigen by SDI in accordance with Section 10.4.4, Avigen shall not be responsible for any additional payments under Section 4.5.

10.5	Survival Generally . All rights of the Parties having accrued prior to expiration or termination of this Agreement shall survive all expirations and terminations of this agreement. In addition, the following shall survive all expirations and terminations of this Agreement (subject to any later expiration provided for in such provisions).
	10.5.1	Articles 1, 3, 4 (but solely with respect to Net Sales prior to termination or expiration or as required to implement any surviving royalty obligation provided for under Section 10.4), 9, 10 and 12 ;

10.5.2

Sections 2.5, 5.12 (if the Parties are required after termination by law to report to Regulatory Bodies the events covered by the protocol adopted pursuant to such Section)), 8.3.1, the second paragraph of Section 8.3.2, 8.3.3 (to the extent regarding Joint Improvement Patents), 8.3.4, and 8.4 (as regards infringement while this Agreement or any surviving license to Avigen was or is in effect);

10.5.3

All Schedules, including the Supply Terms, except that the Supply Terms shall expire and may be terminated as set forth therein; the Supply Terms will not survive a termination the effects of which are stated in Section 10.3 (except to the extent required to supply Avigen during the transition period provided for in such Section), and except that to the extent Section 10.4 contradicts the Supply Terms Section 10.4 shall prevail and govern in the circumstances in which it applies.

11	Non-Competition .

11.1

Avigen . During the term of this Agreement neither Avigen nor its Affiliates shall directly or indirectly [*] a Competing Product in the Territory, except that where a Competing Product is obtained by Avigen through the acquisition or merger with a third party or any other circumstances under which a third party becomes an affiliate of Avigen, Avigen shall have a period of one (1) year or such longer period as may be reasonable under the circumstances provided it uses all commercially reasonable efforts from the date of consummation of such acquisition or merger or other triggering event, to divest of or otherwise dispose of any [*] in such Competing Product in the Territory.

11.2

SDI . During the term of this Agreement neither SDI nor its Affiliates shall directly or indirectly [*] a Competing Product in the Territory, except that where a Competing Product is obtained by SDI through the acquisition or merger with a third party or any other circumstances under which a third party becomes an affiliate of SDI, SDI shall have a period of one (1) year or such longer period as may be reasonable under the circumstances provided it uses all commercially reasonable efforts from the date of consummation of such acquisition or merger or other triggering event, to divest of or otherwise dispose of any [*] in such Competing Product in the Territory.

12	General .

12.1

Force majeure . Neither Party shall have any liability or be deemed to be in breach of this Agreement for any delays or failures in performance of this Agreement which result from extraordinary circumstances beyond the reasonable control of that Party (“Event of Force Majeure”). Events of Force Majeure are limited to extraordinary events. Extraordinary events include floods, earthquakes, tsunamis, acts of God, acts of war, acts of terrorism, general strikes and like events. Events of Force Majeure exclude labor disputes and strikes of solely the Party’s personnel. The Party affected by an Event of Force Majeure shall promptly notify the other Party in writing when such circumstances cause a delay or failure in performance and when they cease to do so and shall further exert Diligent and Reasonable Efforts to eliminate, cure and overcome any such Event of Force Majeure and to resume performance of its obligations with all possible speed.

12.2	Amendment . This Agreement may only be amended in writing signed by duly authorized officers of SDI and Avigen.

12.3	Assignment and third party rights .

12.3.1

Subject to Sections 12.3.2 and 12.3.3 below, neither Party shall assign, mortgage, charge or otherwise transfer any rights or obligations under this Agreement, including

any of the Listed Patent Rights or rights under the Listed Patent Rights, without the prior written consent of the other Party, which shall not be unreasonably withheld. Any purported assignment, sale, transfer, delegation or other disposition by either Party that is not in accordance with the foregoing sentence shall be null and void.

12.3.2

Either Party may assign all its rights and obligations under this Agreement to any company with which it merges or to which it transfers all of its assets or business to which this Agreement relates, PROVIDED that the assignee undertakes to the other Party to be bound by and perform the obligations of the assignor under this Agreement. However a Party shall not have such a right to assign this Agreement if it is insolvent or any other circumstance described in Section 10.2.3.2 applies to it.

12.3.3

Either Party may assign or transfer all or any of its rights or obligations under this Agreement to, and/or may have any of its obligations fulfilled by, an Affiliate of such Party.

12.4

Waiver . No failure or delay on the part of either Party to exercise any right or remedy under this Agreement shall be construed or operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy preclude the further exercise of such right or remedy. Obligations under this Agreement may only be waived by a writing explicitly stating the waiver and signed by an authorized officer of the waiving Party.

12.5	Invalid clauses . If any provision or part of this Agreement is held to be invalid, such provision shall be deemed stricken and severed from this Agreement but the other provisions of this Agreement to the maximum extent permissible under applicable law shall remain in effect.

12.6	No Agency . Neither Party shall act or describe itself as the agent of the other, nor shall it make or represent that it has authority to make any commitments on the other’s behalf.

12.7	Interpretation . In this Agreement:

12.7.1

the headings are used for convenience only and shall not affect its interpretation;

12.7.2

references to persons shall include incorporated and unincorporated persons; references to the singular include the plural and vice versa; and references to the masculine include the feminine;

12.7.3

references to Articles, Sections and Schedules mean articles and sections of, and schedules to, this Agreement;

12.7.4

references in this Agreement to termination shall include termination by expiry; and

12.7.5

where the word “including” (or a derivative form) is used it shall be understood as meaning “including without limitation” (or the appropriate derivative form); similarly, where the phrase “such as” or a like phrase is used or an example given, the intent is not to be limiting, and the provision shall not be read to be limiting.

12.8	Notices

12.8.1

Any notice to be given under this Agreement shall be in writing and shall be sent by first class mail or air mail, or by fax (confirmed by first class mail or air mail) to the address of the relevant Party set out at the head of this Agreement, or to the relevant fax number set out below, or such other address or fax number as that Party may from

time to time notify to the other Party in accordance with this Clause 12.8.1. The fax numbers of the Parties are as follows: SDI 43-1-3191456316; Avigen (510) 748 7368.

Notices to Avigen shall be sent to the attention of the CEO with a required copy to the Legal Department. Notices to SDI shall be sent to the attention of the CEO with a required copy to Head, Research and Development.

12.8.2

Notices sent as above shall be deemed to have been received three working days after the day of posting (in the case of inland first class mail), or seven working days after the date of posting (in the case of air mail), or on the next working day after transmission (in the case of fax messages, but only if a transmission report is generated by the sender’s fax machine recording a message from the recipient’s fax machine, confirming that the fax was sent to the number indicated above and confirming that all pages were successfully transmitted).

12.9	Law and Jurisdiction .

12.9.1

The validity, construction and performance of this Agreement, and all disputes arising hereunder, shall be governed by [*] law. All disputes arising under this Agreement (including disputes regarding its interpretation, but other than those disputes referred to in Section 12.9.2 or 12.9.3) shall first be submitted to the CEOs of each Party for good faith negotiation. If good faith negotiations over a period of [*] days do not resolve the dispute (and each Party shall make its CEO reasonably available for such discussions during such time period), then either Party may by written notice to the other Party refer the dispute for resolution before the [*] using its most relevant and applicable rules. The fees of such arbitral body shall be equally shared by the Parties. The arbitration shall take place in [*] The arbitration shall be conducted in English before arbitrator(s) from neutral country(ies). Such an arbitration proceeding, or a resolution in accordance with Section 12.9.2 or 12.9.3, shall be the exclusive means to resolve disputes arising under this Agreement. Such disputes shall not be submittable to any court, except as provided in the next sentence. A Party may seek an interim injunction in any court of competent jurisdiction pending arbitration under Section 12.9.1 or other resolution under Section 12.9.2 or 12.9.3.

12.9.2

If the Parties are unable to agree on whether the Current CR Product or an alternative formulation asserted to be a CR-Qualified Product, in either case following the completion of the Required Phase II CR Clinical Trial (or commensurate trial data from which is being presented under Section 7.2.3) in the US -- which dispute remains unresolved [*] days after referral to the Parties’ CEOs for good-faith discussions (and each Party shall make its CEO reasonably available for such discussions)) -- then either Party is entitled to refer this issue for decision by a panel of people each of whom is unaffiliated with both of the Parties and their Affiliates, and who have the following characteristics: One such person shall have been [*] leading up to the dispute. Two other such people shall be [*] to [*] One other such person shall be a [*] within the [*] The [*] role is to advise the other panel members objectively. The [*] will be a non-voting member of the panel (all other members are voting members). If possible, the Parties shall agree on each member of the panel. If the Parties cannot agree on the people who will be on the panel within [*] after referral of the dispute for resolution, then the arbitral body referred to in Section 12.9.1 shall designate such people. The panel shall, with access to and on the basis of [*] plus no more than [*] of argument and no more than [*] determine whether the applicable formulation -- at that time -- is a CR-Qualified Product in accordance with clause (i) of the definition of such term. The panel's decision shall be binding on the Parties as to whether the subject formulation -- at that time -- qualifies as a CR-Qualified

Product. However, it is understood and agreed that later information may change this status, and in particular, if the [*] , that until and unless the [*] the subject pharmaceutical composition shall not be considered a CR-Qualified Product. Neither Party shall engage in ex parte communications with the panel (or any member thereof). The Parties shall share equally the expenses incurred for the services of such panel and arbitral body.

The foregoing in this Section 12.9.2 shall apply mutatis mutandis to any other disputes over whether a given pharmaceutical composition qualifies as a CR-Qualified Product at a given time, on any other basis than clause (ii) of such definition.

12.9.3

Sections [*] provide specialized dispute resolution procedures for particular issues as provided for in such Sections. Disputes as to the subject matter of such dispute resolution procedures shall be resolved solely as set forth in each respective such Section, and not in any other manner.

12.10

Language . This Agreement has been prepared in the English language, American usage, which shall govern its meaning and interpretation.

12.11

Entire Agreement . This Agreement, including its Schedules and Attachments (including to avoid any doubt the Supply Terms), sets out the entire agreement between the Parties relating to its subject matter and supersedes all prior oral or written agreements, arrangements or understandings between them (or between either of them and the other’s Affiliate) relating to such subject matter, including the confidentiality agreement referred to in Section 3.3.1. The Parties acknowledge that they (and their Affiliates) are not relying on any representation, agreement, term or condition which is not set out in this Agreement.

12.12

Performance by Affiliates . A Party is entitled to perform hereunder via its Affiliates. Each Party hereby guarantees the performance of its Affiliates performing under this Agreement. A Party and its Affiliates performing hereunder shall be jointly and severally liable for such Party’s performance under this Agreement, and the other Party shall be entitled to proceed against any of them (or any combination of them) in such other Party’s sole discretion, without any obligation to first pursue a remedy against any of the others of them. For these purposes, it is understood and agreed that Sanochemia Pharmazeutika AG is an Affiliate of SDI performing under this Agreement. Accordingly, in case of any breach, Avigen is entitled to pursue a remedy against Sanochemia Pharmazeutika AG, if Avigen so chooses.

12.13

Third Parties . This Agreement does not create any right enforceable by any person who is not a party to it (‘Third Party’) under the Contracts (Rights of Third Parties) Act 1999, but this clause does not affect any right or remedy of a Third Party which exists or is available apart from that Act. There are no third party beneficiaries to this Agreement.

12.14

No Partnership or JV . The Parties’ relationship to each other is that of independent contractors. No partnership or joint venture, express or implied, is created by this Agreement of the Parties’ relationship hereunder. The Parties expressly disclaim and reject any partnership or joint venture between then in connection with this Agreement.

12.15

Counterparts; Facsimile Execution . This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which together shall constitute a single instrument. This Agreement may be executed by facsimile.

AGREED by the Parties through their authorized signatories:

For and on behalf of

SANOCHEMIA DIAGNOSTICS INTERNATIONAL LTD

/S/ JOSEF BOECKMANN

signed

JOSEF BOECKMANN

print name

CEO

title

12 January, 2006

Date

For and on behalf of

AVIGEN, INC

/S/ KENNETH G. CHAHINE

signed

KENNETH G. CHAHINE

print name

CEO

title

12 January, 2006

Date

SCHEDULE LIST

S CHEDULE	N UMBER
PATENTS AND PATENT APPLICATIONS		1
SDI CR CLINICAL PROGRAM		2
SUPPLY TERMS		3
CURRENT SDI IR PRODUCT AND CR PRODUCT CLINICAL TRIALS		4
CLINICAL SUPPLY PRICING		5
AVIGEN CURRENT PLANNED CLINICAL TRIAL PROGRAM		6
EXISTING SDI AGREEMENTS REGARDING LICENSED PRODUCTS		7
ADVERSE EVENT REPORTING PROTOCOL		8

SCHEDULE 1

PATENTS AND PATENT APPLICATIONS

[*] [2 pages omitted]

SCHEDULE 2

SDI CR CLINICAL PROGRAM

•

[*]

SCHEDULE 3

SUPPLY TERMS

1	DEFINITIONS and interpretation

Section 12.7 of the License Agreement provides certain rules of interpretation that apply to these Supply Terms (as well as the remainder of the Agreement). Also in these Supply Terms, those initially capitalized terms defined in the License Agreement shall have the meanings given such terms in the License Agreement, and in addition the following words shall have the following meanings (with derivative forms being interpreted accordingly):

API

Shall mean, for a given Licensed Product, the active pharmaceutical ingredient of such Licensed Product.

Binding Amount

Shall have the meaning given such phrase in Supply Terms Section 2.3.4.

Certificate of Analysis

Shall mean, with respect to an API, other ingredient, or Finished Product, an appropriately signed certificate of analysis stating the identity, strength, quality and purity of such API, other ingredient, or Finished Product.

License Agreement

Shall mean the body of this Agreement (to avoid any doubt, excluding these Supply Terms and all Schedules and Exhibits to the Agreement).

Lot

Shall mean a single production run of any Licensed Product or the API for that Licensed Product.

Manufacturing Defect

Shall mean, with respect to a specimen of API or Licensed Product, [*]

Manufacturing Liaison

Shall have the meaning given such phrase in Supply Terms Section 3.1.

Regulatory Filings

Shall mean, for a given Licensed Product, all INDs, Regulatory Approval Applications, and Regulatory Approvals for such Licensed Product in or for the Territory.

Regulatory Requirements

Shall mean all requirements of Regulatory Bodies of the Territory and/or otherwise having jurisdiction over a facility for Licensed Product manufacture for supply under these Supply Terms.

Required

Shall have the meaning given such phrase in Supply Terms Section 4.5.2.

Second Source Failure

Shall have the meaning given such phrase in Supply Terms Section 6.3.

Specifications

Shall mean, for a given API or Licensed Product, the specifications for such API or Licensed Product, as provided in Supply Terms Section 3.3, as these may be updated in accordance with such Supply Terms Section or Supply Terms Section 4.5.

2 SUPPLY OF PRODUCT -- GENERAL OBLIGATION; PRICING; FORECASTS AND ORDERING .

2.1

Supply -- General Obligation . SDI shall supply Avigen with Finished Products in the quantities ordered by Avigen in accordance with the forecasting and ordering provisions set forth in Supply Terms Section 2.3. SDI shall also supply Avigen with placebos for clinical trials of Licensed Products, as also ordered by Avigen in accordance with such Supply Terms Sections. While these Supply Terms refer primarily to SDI, it is understood and agreed that SDI may perform its obligations under these Supply Terms by acting through SDI’s Affiliates. SDI’s Affiliates performing hereunder will be held to the same standards and obligations as SDI. SDI guarantees the performance of its Affiliates under these Supply Terms. Further, Avigen has the rights set forth in Section 12.12 of the License Agreement as regards all performance by SDI and SDI Affiliates. While these Supply Terms refer to “Licensed Product” throughout, the Parties do not intend for SDI to be required to supply to Avigen any Combination Product, unless the Parties agree in writing otherwise in our sole discretions.

2.2	Pricing .

2.2.1

Clinical Supply Price . The price for supply of Licensed Products for use in clinical trials is as set forth in Section 4.4 of the License Agreement. The price for quantities of placebo Avigen orders from SDI shall be as set forth in Schedule 5 to the License Agreement.

2.2.2

Commercial Supply Prices .

2.2.2.1 Advance Payment . Avigen shall pay to SDI the Advance Payment stated in Section 4.5.1 of the License Agreement, for each shipment of Licensed Product under these Supply Terms, on the timing set forth in Section 4.6.1 of the License Agreement.

2.2.2.2

Ultimate Supply Price .

(a) Price . The full supply price for commercial supplies of Licensed Products is as set forth in Sections 4.5.2, 4.5.3 and 4.5.4 of the License Agreement.

(b) Payment . If the Further Payment for supply of quantities of Licensed Product sold in any Quarter exceeds the Advance Payment for such quantities, then Avigen shall pay SDI an amount in accordance with Section 4.5.3 of the License Agreement, on the timing set forth in Section 4.6.2 of the License Agreement.

(c)

Refund . If there is any Excess for the quantity of Licensed Product sold

in any Quarter (i.e. if Avigen has through the Advance Payment overpaid for such quantities), then Avigen is entitled to credit the Excess or to a refund as set forth in section 4.5.3 of the License Agreement.

2.2.2.3

Samples for Marketing .

(a) Initial Quantities . SDI shall supply to Avigen free of charge a quantity of each Licensed Product prior to its Launch equal to [*] through the end of the first [*] after such Launch. These quantities are intended to be used for samples and bona fide marketing purposes and not for sale. However, if Avigen or its Affiliate or Sublicensee sells any of these quantities to generate Net Sales (instead of using them as marketing samples), then Avigen shall pay SDI the balance of the Further Payment with respect to such quantities (if any), or be entitled to a credit or refund of any Excess, all in accordance with Supply Terms Section 2.2.2.2.

(b) Later Quantities . Other than the quantities referred to in Supply Terms Section 2.2.2.3(a), Avigen shall purchase all further quantities of Licensed Product intended to be used as marketing samples [*] at a price equal to the per-tablet prices for the IR Product specified in Schedule 5 to the License Agreement, supplied unpacked and in bulk. Should Avigen require those quantities to be packed, SDI shall upon request provide Avigen a quote for such supply in the requested packs. To avoid any doubt, if Avigen or its Affiliate or Sublicensee sells any quantities initially purchased to be used as marketing samples and generates Net Sales on such quantities, then Avigen shall pay SDI the balance of the Further Payment with respect to such quantities (if any), or be entitled to a credit or refund of any Excess, all in accordance with Supply Terms Section 2.2.2.2.

2.2.3

Third-Party Royalties . Sections 8.9 and 9.2 of the License Agreement, govern the Parties responsibilities regarding royalties owed Third Parties in connection with Licensed Product manufacture.

2.3	Forecasts - Orders .

2.3.1

Clinical . The Parties shall cooperate as to a reasonable lead time for Avigen to order quantities of Licensed Product for clinical supply. Avigen shall not be required to give more than [*] lead time prior to the requested delivery date. SDI shall supply Avigen with quantities requested by Avigen on such number of days notice. In addition, if Avigen requires quantities of Licensed Product for clinical testing faster than that, then SDI shall devote Diligent and Reasonable Efforts to deliver the requested quantities on the timeline Avigen requests, but SDI shall be deemed not to be in breach if, having devoted such Diligent and Reasonable Efforts to deliver on less than [*] lead time, it fails to deliver the requested quantities on the faster timeline that Avigen requested.

2.3.2

Long-range Non-binding Planning Forecast . [*] months prior to the date Avigen anticipates as the date of Launch of each Licensed Product, Avigen shall provide SDI with a written, [*] forecast of Avigen’s projected requirements of such Licensed Product. Avigen shall make its projections and prepare such forecast in good faith. However, such forecast is for informational purposes only and is not binding on Avigen nor SDI.

2.3.3

Commercial Forecasts . [*] prior to Launch of each Licensed Product, Avigen shall provide SDI with a forecast of quantities of such Licensed Product for delivery under these Supply Terms through the first [*] after such Launch. Thereafter, Quarterly on or before the first business day of each Quarter, Avigen shall provide an updated [*] forecast, rolling forward one Quarter in each forecast. The quantities specified in the fourth Quarter of each forecast shall in no event increase by more than [*] as it rolls forward over the next [*] to be the [*] of that forecast. The first [*] of each such forecast (and any prior period in the initial forecast) are binding as follows: (a) Avigen’s purchase order under Supply Terms Section 2.3.4 shall be for no less than [*] of the amount forecasted for delivery [*] (and any earlier period in the initial forecast) and -- to the extent ordered by Avigen in such a purchase order -- SDI must supply up to [*] of the amount forecasted for delivery [*] and (b) as regards [*] when it rolls forward in the [*] to be the [*] Avigen is not entitled (without SDI’s consent) to [*]

2.3.4

Commercial Purchase Orders . [*] prior to the first day of the Quarter of delivery, Avigen shall provide SDI with Avigen’s purchase order for quantities to be delivered in such Quarter. Such quantities must be for no less than [*] of the amount forecasted in the last Quarterly forecast under Supply Terms Section 2.3.3 for delivery in such Quarter. SDI is required to supply up to [*] of such amounts from such forecast. If Avigen places a purchase order for more than this [*] then SDI shall notify Avigen in writing within [*] working days what quantities beyond such [*] (if any) SDI accepts to timely deliver to Avigen. Any such additional amounts requested by Avigen that SDI accepts (within such [*] working days) to deliver in that Quarter, together with such portion of the [*] as Avigen ordered in its purchase order, is the “Binding Amount” for that Quarter.

2.3.5

Delivery Dates . In its forecasts, Avigen shall state the dates on which it anticipates requesting delivery in each Quarter for informational purposes only. In its purchase orders, Avigen shall state the dates on which it requires delivery of each quantity of Licensed Product. The delivery dates in the purchase orders are binding on Avigen and SDI.

2.3.6

IR Product and CR-Qualified Product Separately Forecasted and Ordered . In its forecasts and purchase orders, Avigen shall separately state quantities of IR Product and CR-Qualified Product. The bindingness of forecasts and Binding Amounts of purchase orders each operate on a Licensed Product-by-Licensed Product basis.

2.4

Invoicing . Each delivery of Finished Product supplied hereunder shall be invoiced separately by SDI on the day of delivery in accordance with Supply Terms Section 5.2 (but not before) for the Advance Payment associated with such quantities. These invoices shall be payable by Avigen within [*] days after receipt.

2.5

No Change in Terms Through Purchase Orders . No forecast, purchase order, purchase order acceptance or other document under these Supply Terms shall alter or amend the terms of these Supply Terms or the Agreement. This Agreement (including these Supply Terms) shall govern and control if there is any inconsistency between it (including them) and any such forecast, purchase

order, purchase order acceptance or other document under these Supply Terms. Any such inconsistencies presented by any such forecast, purchase order, purchase order acceptance or other documents are hereby expressly rejected.

3	PROCESS ESTABLISHMENT; SPECIFICATIONS; REGULATORY.

3.1

Manufacturing Liaisons . To facilitate coordination among the Parties with respect to process development, scale-up and supply of Licensed Products, within thirty (30) days after the Commencement Date each Party shall designate a “Manufacturing Liaison.” The Manufacturing Liaisons’ responsibilities include: (a) communicating regularly regarding the Parties’ activities under these Supply Terms; (b) remaining current on the status of such activities; (c) generally serving as the point-people between the Parties for these issues; and (d) escalating for Committee discussion any issues arising between the Parties under these Supply Terms that they are not able to resolve by their own discussions. SDI’s Manufacturing Liaison shall at all times be the person through whom the personnel working on Licensed Product process development and manufacturing activities report. The Manufacturing Liaisons have no power to amend, modify or waive compliance with this Agreement.

3.2

Scale-Up . SDI hereby covenants that it shall scale up to commercial scale the processes (including API manufacture, Finished Product manufacture, and all associated QA/QC and analytical methods) for each the IR Product and the CR-Qualified Product. SDI shall finish doing so for each Licensed Product prior to Avigen commencing any Pivotal Clinical Trial(s) of such Licensed Product that Avigen may undertake. Currently (as of the Commencement Date), Pivotal Clinical Trials of an IR Product are expected to commence no earlier than [*] However, these dates are not binding. Avigen will keep SDI updated as to Avigen’s clinical plans for Licensed Products through Committee meetings under Section 5.1 of the License Agreement.

3.3	Specifications .

3.3.1

Initial . The initial Specifications for the Current IR Product shall be SDI’s current specifications for the Current IR Product. These current specifications are the ones to which the quantities used in the clinical trials referenced in the definition of Current IR Product were required to be manufactured. The initial Specifications for the Current CR Candidate shall be SDI’s current Specifications for the Current CR Candidate. These current specifications are the ones to which the quantities used in the clinical trial referenced in the definition of Current CR Candidate were required to be manufactured.

3.3.2

NDA Submission . Avigen may require updates to the Specifications for each Licensed Product prior to Avigen’s Pivotal Clinical Trials of each Licensed Product or prior to NDA submission or in response to an FDA requirement to approve the NDA. SDI shall implement all such changes at SDI’s expense. There shall not be any change to the Advance Payment for any of these changes.

3.3.3

Subsequent Updates . All subsequent updates shall be made only as set forth in Supply Terms Section 4.5. The costs of all such subsequent updates shall be as set forth in such Supply Terms Section.

3.4 Manufacturing Approvals .

3.4.1

CMC Information and Support . If requested by Avigen, SDI shall, at no cost to Avigen, provide all information required by Avigen to include in the CMC (or other manufacturing) portion of its NDA or other Regulatory Filing for Licensed Products in the Territory. This includes provision of information regarding manufacture and supply by any Third-Party suppliers’ activities. To facilitate sharing of this information regarding SDI’s Third-Party suppliers’ activities, SDI shall provide any permissions necessary for such suppliers to provide such information directly to Avigen. If requested by Avigen, any or all of the foregoing information will be provided in electronic form.

SDI shall provide to Avigen at no cost to Avigen reasonable support in connection with the transfer of information under this Section 3.4. SDI shall be reasonably available to Avigen for such purposes.

3.4.2

Approvals . SDI shall obtain and procure that its Affiliates and other suppliers obtain and in both cases maintain all necessary permits, licenses and consents from the Regulatory Body and any other governmental departments or agencies and other bodies which may be required to enable them to manufacture the IR Products and the CR-Qualified Products and supply them to Avigen in compliance with the relevant, then-current Good Manufacturing Practice(s) (cGMP) and all applicable Regulatory Requirements. Before communicating with the Regulatory Bodies and other governmental departments and agencies regarding Licensed Products, SDI shall follow the procedures of Supply Terms Section 3.4.3. This Supply Terms Section shall not be read to limit Avigen’s right to approve of SDI’s future Third-Party Licensed Product suppliers as set forth in Supply Terms Section 3.5. Avigen shall have and SDI hereby grants Avigen (and shall require that its Affiliates and Third-Party suppliers grant Avigen) the right to reference for the Territory all approvals obtained by SDI, its Affiliates and Third-Party Licensed Product suppliers under this Supply Terms Section 3.4.2, including all DMFs for Licensed Products.

3.4.3

Communications with Regulatory Authorities; Governmental Inquiries .

3.4.3.1

If SDI (including through its Affiliates and contractors) becomes aware of any issues or information that may affect the regulatory status of any Licensed Product, or that may affect SDI’s ability to supply Licensed Product at Avigen’s forecasted (under Supply Terms Section 2.3) requirement levels. This includes any issues at a facility where Licensed Product is manufactured, that may affect SDI’s ability to so supply Avigen, even if the issue is not specific to Licensed Products. In addition, SDI shall notify Avigen after SDI learns of any inquiries, notifications or inspection activity by any Regulatory Body that regards any API or Licensed Product at or in connection with such facility. SDI shall notify Avigen within [*] days of first learning of such where the inquiry notification or inspection activity by any Regulatory Body is of a routine nature upon notice, and within [*] business day of first learning of such where the inquiry notification or inspection activity by any Regulatory Body is of an emergency nature or without longer notice. This includes notifications from Regulatory

Bodies of impending site visits and inspections. SDI shall with its notice to Avigen provide a copy of any correspondence from the Regulatory Body triggering the notice to Avigen.

3.4.3.2

SDI shall permit an Avigen representative (whether an employee or a consultant) to observe any governmental visits to or inspections of SDI’s manufacturing facility(ies) for API and Licensed Products, for those governmental visits or inspections that are specific to API or Licensed Products.

3.4.3.3

SDI shall allow Avigen to comment in advance on all written correspondence between SDI and its suppliers, and Territory Regulatory Bodies. SDI shall afford Avigen no less than [*] days for documents up to 10 pages and [*] days for longer documents to comment on these correspondence. For oral communications with these Regulatory Bodies, SDI shall confer with Avigen in advance and allow Avigen to be present (telephonically or otherwise depending whether the communication is by phone or in person) in the discussions. This also applies to any communications regarding APIs, Licensed Products or other manufacture, with any Regulatory Bodies outside Territory whose inspection or other judgment is on behalf of or will be relied upon by any Territory Regulatory Body through a reciprocity or other formal arrangement.

3.4.3.4

SDI shall limit its communications with Territory Regulatory Bodies regarding Licensed Products, to manufacturing topics solely.

3.5

Establishment and Maintenance of Second Sources . SDI currently manufactures the API for both the Current IR Product and the Current CR Candidate itself, at an SDI facility. SDI currently procures Finished Product manufacture for both the Current IR Product and the Current CR Candidate from a Third Party at a manufacturing facility that is outside the US. In addition to this facility (or a replacement facility for it), no later than [*] after the Commencement Date for the IR Product, and [*] from Initiation (defined in Section 4.2 of the License Agreement) of the Pivotal Trial Program for the CR-Qualified Product, SDI shall: (a) establish (through contract with a Third Party or through a facility owned by SDI or an SDI Affiliate) manufacture of the Finished Product form of such Licensed Product at a second facility in the Territory, and (b) validate such manufacture at such facility so that Avigen may legally sell quantities of such Licensed Product in Finished Product form in the US under its NDA. SDI shall notify Avigen in writing of the identity or identities of any Third Party or Third Parties with which SDI (or its Affiliate) intends to contract to be such a second Finished Product source. SDI shall confer with Avigen regarding such proposed second Finished Product sources and [*] before selecting and contracting with such a Third-Party manufacturer. SDI is entitled to seek Avigen’s [*] early in the process of negotiating with potential manufacturers and may seek [*] with respect to multiple manufacturers, even if SDI knows it will only contract with some of them. SDI is entitled to rely upon Avigen’s consent once granted. As noted above, Avigen shall not unreasonably withhold or delay its consent. If at any time SDI wishes to engage a new Third-Party supplier of Licensed Product quantities for supply to Avigen (or its designee) under these Supply Terms, SDI shall first obtain Avigen’s advance written consent, not to be unreasonably withheld or delayed if [*]

3.6

Notice of Regulatory Requirements . Other than cGMP (which must always be complied with), Avigen shall notify SDI of any Territory-specific Regulatory Requirements with which SDI must comply in its manufacture of Licensed Product hereunder. Other than a failure to comply with cGMP (which must always be complied with), SDI shall not be liable for any failure to comply

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with any Territory-specific Regulatory Requirements not reflected in the applicable Specifications

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and of which Avigen does not notify SDI in writing. It is understood and agreed that inclusion in the applicable Specifications constitutes notice for purposes of this Section.

3.7

Expiry Dating/Shelf Life . SDI represents that prior to the Commencement Date it has performed stability studies of the Current IR Product sufficient to support a [*] shelf life in accordance with all Regulatory Requirements and that it has commenced such stability studies with respect to the Current CR Candidate. SDI shall at its sole expense continue all stability testing necessary to obtain all data necessary to achieve an FDA-approved shelf life of [*] for each the Current IR Product and the Current CR Candidate. SDI shall devote Diligent and Reasonable Efforts to achieve these approved shelf lives as of Regulatory Approval of the NDA for each Licensed Product. In any event, all Licensed Product supplied hereunder for other than clinical supply shall have an FDA-approved shelf life remaining of at least (a) [*] until such time as each Licensed Product has an approved shelf life of [*] and (b) thereafter, [*] (To be clear, (a) and (b) operate on a Licensed Product-by-Licensed Product basis.)

3.8

Stability Studies . SDI shall at its sole expense conduct or have conducted stability studies on bulk API and Finished Products forms for at least one (1) Lot of each Licensed Product from each site where SDI (or its supplier) manufactures such API and Finished Product. This includes any Third-Party suppliers manufacturing such bulk drug substance and Finished Product.

3.9

Quality Agreement/Technical Agreement . As soon as practicable after the Commencement Date, the Parties shall, to the extent necessary or useful in relation to Territory Regulatory Body requirements and requested by Avigen, put in place a “quality agreement” or “technical agreement” setting forth briefly but in detail each Party’s regulatory responsibilities. Such quality or technical agreement must be consistent with the terms of this Agreement (including these Supply Terms). Such quality or technical agreement is intended only to facilitate communication with Regulatory Bodies. It is not intended to alter the Parties’ responsibilities under this Agreement.

3.10	Adverse Reaction Reporting . The Parties shall comply with the adverse events reporting protocol of Section 5.12 of the License Agreement, in accordance with such Section of the License Agreement.

3.11

Recalls, Product Withdrawals and Field Corrections . If either Party (or its Affiliate or supplier) becomes aware of any facts or circumstances that suggest a recall, product withdrawal or field correction of a quantity of Licensed Product supplied hereunder, it shall promptly notify the other Party in writing. If there is a recall, product withdrawal or field correction of Licensed Product, this will be executed in accordance with Avigen's Product Recall Procedure or other applicable SOP (a copy of the then-current version of which Avigen will supply promptly to SDI from time to time promptly after SDI’s written request). Avigen shall have the right to control all recalls, product withdrawals and field corrections for Licensed Products for the Territory. SDI will provide Avigen with all reasonable assistance during such recall, product withdrawal or field correction. The costs of such recall, product withdrawal or field correction shall be paid by the Party whose negligence or breach of contract caused such recall, or if neither Party was negligent or in breach, by the Party who initiated such recall, product withdrawal or field correction. Initiating a recall, as used here, means bringing to the attention of the other Party facts and circumstances within the notifying Party’s control or area of responsibility, which facts and circumstances lead to the recall, product withdrawal or field correction.

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4 M ANUFACTURE; TESTING; QUALITY ASSURANCE; AND LABELLING RESPONSIBILITIES .

4.1

Raw Materials Specifications . SDI shall use raw materials in the manufacture of Licensed Products that conform to the applicable Specifications for the relevant Licensed Product. This includes using API that conforms to the applicable Specifications. SDI (and its suppliers) shall verify such conformance in accordance with the testing standards and procedures specified in such Specifications.

4.2

Production and Manufacturing Standards . SDI (and its suppliers) shall manufacture, test, store and ship each quantity of Licensed Product for supply to Avigen hereunder in a manner that (a) assures that such quantity of Licensed Product meets the Specifications for such Licensed Product upon delivery to Avigen or its carrier FCA Seller’s facility; (b) is consistent with Supply Terms Section 7.1 and any Regulatory Requirements for such Licensed Product; and (c) is in accordance with any other procedures and written documents subsequently prepared and agreed to by the Parties in writing in accordance with these Supply Terms.

4.3

Audits . Avigen shall be entitled to have an Avigen employee, or other person acceptable to SDI (such acceptance not to be unreasonably withheld) inspect those parts of SDI's factory and premises which are used for the processing, packaging, storage and testing of the Licensed Products supplied to Avigen. Avigen shall give SDI reasonable notice (no less than [*] days) of its request for such inspection. Any such inspection shall be carried out during normal business hours not more than once per calendar year (except that follow-up inspections are permitted on a more frequent basis to address any issues observed in the audit that require correction). The employee or representative involved in such inspection shall be obliged to sign appropriate confidentiality undertakings and undertakings to adhere to all SDI or its Affiliates site rules and regulations while carrying out such inspection. Inspections shall be carried out at times and in a manner so as to minimize any disruption or interference to normal business activities carried out at the relevant site.

Avigen shall also be entitled to similarly audit SDI’s Affiliate and Third-Party suppliers. To facilitate this, if SDI is only entitled in its contract with any Third-Party supplier to audit once per year, SDI shall coordinate with Avigen, and allow Avigen to participate in, any audit of such Third-Party supplier that SDI conducted. Further, SDI shall exercise its audit right promptly if requested by Avigen.

4.4

No Changes to Manufacturing Process . Following manufacture of the Lots of each Licensed Product, data regarding which Lots will be included in the NDA or any associated DMF filed with the FDA and used to determine such Licensed Product’s shelf life in accordance with such Regulatory Filing, SDI (and its suppliers) shall not make any change in the materials, equipment, process or procedures used to manufacture such Licensed Product for supply to Avigen hereunder that (a) is not explicitly permitted pursuant to the applicable Specifications, and (b) would constitute a material change under cGMP, without Avigen’s prior written consent to the change. If Avigen in its discretion agrees in writing to allow any such change, then the Parties shall revise the relevant Specifications accordingly (if necessary). All costs of any such change shall be borne solely by SDI. SDI (and its suppliers) shall not change the manufacturing process for any Product in a manner that would require a filing with a Regulatory Body, without Avigen’s prior written

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consent.

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4.5 Changes to Specifications .

4.5.1

Effective Date of Changes . The Parties may revise the Specifications for any API or Licensed Product upon mutual written consent (such consent not to be unreasonably withheld). Neither Party may withhold its consent to Required changes to the Specifications. Any changes to the Specifications that are agreed upon or required by this Section 4.5 shall be effective as of the date mutually agreed upon in writing by the Parties, and all references to the relevant Specifications shall thereafter be deemed to refer to the Specifications as so modified.

4.5.2

Proposals . If either Party (the “Proposing Party”) wishes to change any Specifications (other than and after set through Supply Terms Section 3.3.2) it shall notify the other Party (the “Recipient”) in writing of the proposed change (a “Proposed Specification Change”). The Manufacturing Liaisons shall promptly review and discuss the Proposed Specification Change. As soon as is reasonably practicable after such written notice for a particular Proposed Specification Change, the Recipient shall promptly (in any event within thirty (30) days after the Recipient receives such notice) respond in writing whether it agrees to the Proposed Specification Change. Any Proposed Specification Change that is required by a Regulatory Body or Regulatory Requirement of any jurisdiction of the Territory is a “Required” change. The Parties shall make each Proposed Specification Change that is Required.

4.5.3

Costs Disclosure; Decision . For each Proposed Specification Change, SDI shall indicate for informational purposes whether implementing such change is expected to result in a material change to SDI’s Fully Burdened Manufacturing Cost to manufacture the relevant Licensed Product (the per-unit change in Fully Burdened Manufacturing Costs, the “Additional Cost”). For Proposed Specification Changes that are not Required and have been requested by Avigen, Avigen shall indicate in writing whether it continues to wish to implement such Proposed Specification Change. All Required changes, together with changes that are not required by that the Parties nevertheless agree to implement, are “Implemented Changes.”

4.5.4

Adjustment to Payments . For Additional Costs of Implemented Changes, the Parties shall adjust the relevant prices for clinical supply and marketing samples of the affected Licensed Product to reflect [*] These adjusted clinical supply and marketing sample prices shall apply to (but only to) all quantities of Licensed Product manufactured by processes that include the Implemented Change and supplied as clinical supplies or marketing samples. There shall not be any adjustment to the Advance Price regardless of the Additional Costs of Implemented Changes.

4.6	Quality Control Samples and Methods .

4.6.1

Samples . Until at least one (1) year after the expiration date of each Lot from which SDI supplies quantities of Licensed Product under these Supply Terms, SDI shall retain samples of bulk drug substance and Finished Product for such Lot. Expiration dates, for this purpose, shall be determined by reference to the US approved shelf life for the particular Licensed Product. The sample size shall be twice the size necessary to conduct

15.

quality control testing. Upon Avigen’s written request, SDI shall provide Avigen (or its designee) with up to one-half (½) the original amount of the retained samples.

16.

4.6.2

Exchange . SDI shall, at Avigen’s written request, send to Avigen test samples selected according to a sampling plan agreed between SDI and Avigen, before SDI has completed all of its testing for a particular Lot. This is intended to facilitate prompt and efficient generation and exchange of quality control data between the Parties.

4.6.3

QC Methods . If Avigen requests in writing, SDI shall disclose to Avigen (or its designee) the validated QC methods used by SDI to test the Licensed Products for conformity to the applicable Specifications. If Avigen requests in writing, SDI shall devote reasonable amounts of time at no additional cost to perform technology transfer activities and teach Avigen (or its designee) such validated QC methods such that they have the ability to perform these methods on quantities of Licensed Product supplied to Avigen under these Supply Terms.

4.7

Records . SDI shall maintain complete and adequate records pertaining to each stage of the manufacture, fill and finish of Licensed Product for supply under these Supply Terms, and the methods and facilities used for such manufacture, fill and finish, all in accordance with Regulatory Requirements. SDI may accomplish this, for records of any of its suppliers’ activities, by requiring the applicable supplier to maintain such records as to their activities.

4.8	Lot Failure . SDI shall notify Avigen within *[]** after the discovery of each of the following if it may interfere with SDI’s inability to meet Avigen’s requested delivery dates:

4.8.1

Suspected Lot failure, or any deviation from or variance in manufacturing procedures or standard operating procedures that can reasonably be expected to result in a Lot failure; and

4.8.2

SDI’s first knowledge of any confirmed failure of any Lot to meet standards found in the Regulatory Filings for the relevant Licensed Product.

4.9

Rework or Reprocess . SDI (and its suppliers) shall conduct any rework or processing activities with respect to Licensed Product or components thereof for supply to Avigen solely using rework or processing procedures, if any, that are both referenced in the applicable Specifications and permitted under the Regulatory Filings for the applicable Licensed Product. If no such rework or reprocessing procedures are both referenced in such Specifications and permitted under such Regulatory Filings, then SDI (and its suppliers) shall not rework or reprocess but instead shall supply Licensed Product quantities that have neither been reworked nor reprocessed. SDI (and its suppliers) shall document all rework and reprocessing activities under these Supply Terms.

4.10	Packaging and Labeling Responsibilities . SDI shall supply Licensed Products as Finished Products, packaged and finally labeled as required for sale. This final labeling shall be in accordance with labeling and packaging specifications designated by Avigen.

4.11

Import Permits . Avigen is responsible for obtaining any necessary import permits to allow Licensed Product importation into the Territory in Finished Product form (if applicable). SDI shall provide Avigen with reasonable assistance in connection with obtaining such import permits, at no additional charge. As between the Parties, SDI is solely responsible for all import permits to

17.

import API into the Territory (for example, to provide to SDI’s filler/finisher suppliers to manufacture Finished Product in the US).

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4.12

Testing and Release . SDI shall conduct all testing of the Licensed Products prior to delivery of Licensed Products hereunder, which testing is required for release of the Licensed Products. As Regulatory Approval holder, Avigen is responsible for release of the Licensed Product to the market. Avigen is entitled to do so, however, in reliance on the written documentation that SDI provides Avigen in accordance with these Supply Terms. Avigen is responsible for any liability for release to the market by Avigen, its Affiliates, Sublicensees, and Distributors of quantities of Licensed Product that, based on the written documentation provided by SDI, is defective. SDI is responsible for any liability arising out of (a) SDI’s provision of written documentation that is inaccurate as to the test results and/or procedures used to manufacture Licensed Product delivered hereunder, and/or (b) SDI’s failure to manufacture in accordance with the standards required by these Supply Terms, where such failure was not explicitly documented in the written documentation provided to Avigen under these Supply Terms.

5	DELIVERY; ACCEPTANCE AND REJECTION.

5.1	Shipping . SDI shall ship each quantity of Licensed Product with completed and appropriately signed Certificates of Analysis with respect to such quantities to Avigen (or Avigen’s designee identified in the Purchase Order for such quantities).

5.2	Delivery, Risk and Title .

The Licensed Products shall be delivered by SDI to Avigen FCA (in accordance with Incoterms 2000 Edition) Avigen’s receiving facility stated in Avigen’s Purchase Order for each shipment (and except as to details explicitly contradicted in this Section 5.2; the FCA term as so modified, “Contract FCA”). The right and title to (and risk of loss of) the quantities of Licensed Products supplied hereunder shall pass to Avigen upon delivery Contract FCA to Avigen’s receiving facility stated in Avigen’s purchase order for each shipment.

5.3	Vendor Lot Numbers . Seller shall number each shipment with a vendor lot number that allows the Parties to trace raw materials and/or components used to manufacture such shipment of Licensed Product.

5.4	Acceptance and Rejection .

5.4.1

Notice; Agreement . Any rejection of a shipment for non-conformity in quality and/or quantity shall be made in writing no later than [*] days from the date of delivery of each shipment of Licensed Product. If Avigen makes no such claim within such [*] day period, Avigen shall be deemed to have accepted such shipment of Licensed Product. If Avigen does make such a claim within such [*] day period, SDI shall accept or reject such claim by written notice to Avigen within [*] working days after Avigen’s rejection notice. If SDI accepts Avigen’s rejection or the Parties reach written agreement for SDI to accept the rejection, the failure shall be deemed remedied by replacement with the same Licensed Product conforming with the Specifications at no additional cost for Avigen as promptly as physically and technically possible, with SDI bearing all shipping and insurance costs, in any event no later than [*] after such acceptance or settlement. The Parties will try to settle any disagreement between them as to whether any rejection

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by Avigen was proper, by discussion in good faith.

20.

5.4.2

Third-Party Testing . If any such disagreement is not resolved (as evidenced by a written agreement) by the Parties within [*] working days after SDI notifies Avigen in writing that SDI rejects Avigen’s rejection of the shipment, then the question whether the shipped quantities conformed to the applicable Specifications upon delivery will be determined by the test result of a mutually acceptable independent laboratory. The laboratory’s decision shall be final and binding upon the Parties. (If the Parties cannot agree on the laboratory within [*] business days, then Avigen is entitled to choose any laboratory that is a Third Party.) The expenses of the Third-Party laboratory testing will be borne by the losing Party.

5.4.3

Tolling of Obligations . If any such claim as is referred to above is resolved in Avigen's favor and if as a result of SDI supplying such non-conforming Licensed Product Avigen is unable to fulfill its obligations under of any of the terms of this Agreement (including the License Agreement) Avigen shall be relieved of its obligations to the extent required to prevent it being in breach until the situation is remedied. Avigen shall have the benefit of such relief on a temporary basis where any such claim is in dispute and is not resolved. If any such claim is resolved in SDI's favor any such relief shall immediately be withdrawn, and if notified in writing under Section 10.2.3 of any material breach, Avigen shall have the cure period set forth in such Section in which to cure the breach. For clarity, this Supply Terms Section 5.4.3 shall not be read to limit any other remedies available to Avigen under this Agreement, at law or in equity.

5.4.4

Reasons for Rejection . Avigen is entitled to reject a shipment of Licensed Product for any of the following reasons: (a) quantities of Licensed Product therein did not conform to specifications; (b) quantities of Licensed Product therein were not manufactured in accordance with cGMP or other applicable Regulatory Requirements; (c) quantities of Licensed Product therein are adulterated or misbranded within the meaning of the United States Federal Food, Drug and Cosmetic Act; and/or (d) quantities of Licensed Product therein are not packaged and shipped in accordance with the requirements of these Supply Terms. It is understood and agreed that any such rejection may be made on the basis of testing of the QC samples provided under Supply Terms Section 4.6.2, for a Lot quantities from which are included in the rejected shipment.

5.5

Avigen Handling . Once each shipment of Licensed Product has been delivered to Avigen in accordance with Section 5.2, Avigen is responsible for all further distribution and storage of the quantities in that shipment. Avigen shall, store and distribute such quantities in accordance with its marketing rights and responsibilities under the License Agreement, the Specifications (to the extent applicable), and any relevant Regulatory Approval.

6	RISK REDUCTION; SUPPLY SHORTAGES AND INTERRUPTIONS.

6.1	Safety Stock . SDI shall hold, as “safety stock”, the following amounts of Finished Product and APIs for the Licensed Products:

6.1.1

IR Product . The quantity necessary to satisfy the next (at the time) [*] of Avigen’s requirements for IR Product based upon Avigen’s forecasts and orders placed in accordance with Supply Terms Section 2.3.

21.

22.

6.1.2

CR-Qualified Product . The quantity necessary to satisfy the next (at the time) [*] of Avigen’s requirements for CR-Qualified Product based upon Avigen’s forecasts and orders placed in accordance with Supply Terms Section 2.3.

Half of each foregoing safety stock shall be held as raw API and the rest as Finished Product. “Avigen’s requirements” as used throughout these Supply Terms includes Avigen requirements for itself, as well as Avigen’s requirements for its Affiliates, Sublicensees and Distributors.

After Launch of each Licensed Product, Avigen also [*] to maintain an inventory (including amounts held by Avigen directly and all inventory in trade channels within the Territory) of up to [*] of its projected requirements of each the IR Product and the CR-Qualified Product. However, Avigen is not required to hold this level of inventory.

6.2

Supply Shortage . If there is a shortage of any Licensed Product, then without limiting Avigen’s entitlement to have its orders under Supply Terms Section 2.3 filled to the full extent they do not exceed [*] of the applicable forecast under such Supply Terms Section, Avigen shall be entitled to be supplied with at least a proportionate share of the available quantities of Licensed Products. Such proportionate share shall be calculated based on (a) Avigen’s historical orders relative to the total of Avigen’s, SDI’s and SDI’s Other Licensees’ orders (or usage) in the year leading up to the shortage, or (b) if Avigen had not yet Commercially Launched the affected Licensed Product at least [*] prior to the shortage, the US market size, relative to the size of the market in the countries where SDI and its Other Licensees have Regulatory Approval for such Licensed Product.

6.3

Redundant Sourcing . As provided in Supply Terms Section 3.5, by [*] after the Commencement Date for the IR Product, and [*] from Initiation of the Pivotal Trial Program for the CR-Qualified Product, SDI shall have established and validated two (2) facilities (one of which for each Licensed Product must be within the Territory) from which quantities of such Licensed Product in Finished Product form may be legally sold by Avigen in the US in accordance with Avigen’s NDA for such Licensed Product. If SDI fails to do so by such time (as the same may be extended in accordance with Section 3.5), then Avigen shall notify SDI. SDI shall have a period of an additional [*] to complete establishment of such two (2) facilities (one of which must be within the Territory). If SDI fails to establish and validate the second source by the end of such additional [*] period, or ceases thereafter to maintain supply of such Licensed Product in Finished Product form from at least two (2) different, physically separated facilities (one of which must be within the Territory), then a “Second Source Failure” shall have occurred with respect to such Licensed Product.

If a Second Source Failure occurs with respect to any Licensed Product, then Avigen will benefit from the license provided in Supply Terms Section 6.5.1, and be entitled (but not obliged) to supply [*] of such Licensed Product each year by itself manufacturing or engaging an Affiliate or a Third Party to manufacture such Licensed Product, in addition to any amounts that are not automatically Binding Amounts and that SDI does not accept to include in the Binding Amount for any Avigen purchase order under Supply Terms Section 2.3.4. If requested by Avigen, SDI shall in this case provide technology transfer to Avigen (or its designee) as provided in Supply Terms Section 6.6, as regards the processes for making and testing the Finished Product form of the API for such Licensed Product. SDI is required to continue to supply in accordance with the other provisions of the Supply Terms Avigen’s full requirements of such Licensed Product, until Avigen’s other source is established and validated. SDI shall supply Avigen’s purchase orders under Supply Terms

23.

Section 2.3 thereafter (which, if Avigen chooses,

24.

will be for less than Avigen’s entire requirements (but no less than [*] of such Licensed Product). SDI’s obligation to supply and Avigen’s obligation to purchase other Licensed Products is unaffected by the Second Source Failure for a particular Licensed Product.

SDI shall supply Avigen with Avigen’s requirements of API for the Licensed Product with respect to which any Second Source Failure occurs. This supply shall be at a price equal to SDI’s Fully Burdened Manufacturing Cost of such API, on forecasting and ordering procedures that are as per Supply Terms Sections 2.3.3 - 2.3.5, applied mutatis mutandis to API supply. Further, if the analogous event to a Significant Supply Failure occurs with regard to API supply, Avigen shall have the right to manufacture its requirements of the API itself.

To be clear, Avigen is under no obligation to establish its own alternative supplier (whether itself or an Affiliate or Third Party) after any Second Source Failure. Also to be clear, because there may be one or more Second Source Failures, this Section 6.3 applies to each and every Second Source Failure.

6.4

Significant Supply Failure . If a Significant Supply Failure occurs, then Avigen shall notify SDI of the Significant Supply Failure. If desired by either Party, the Committee shall meet to discuss the situation within [*] days after Avigen’s notice. At this meeting, the Parties shall discuss any steps that SDI would take to ensure that its failure to supply would not be repeated. These discussions and any of the possibilities discussed at them in no way alter Avigen’s rights to choose to establish its own alternative sources of supply (whether through itself, or through Affiliates or Third Parties).

If a Significant Supply Failure occurs, then Avigen will benefit from the license of Supply Terms Section 6.5.2. Avigen, in its sole discretion, may choose to continue to receive from SDI under these Supply Terms all or any portion of its requirements of one or more Licensed Products from SDI after a Significant Supply Failure, and may choose to manufacture (or procure from an Affiliate or Third Party manufacture of) all or any portion of its requirements of one or more Licensed Products. If requested by Avigen, SDI shall provide technology transfer to Avigen (or its designee) under Supply Terms Section 6.6 with respect to any and all Licensed Products (and any and all APIs for which there is a supply failure under the next paragraph).

If and to the extent requested by Avigen, SDI shall supply Avigen with Avigen’s requirements of API for any Licensed Product Avigen chooses to manufacture any quantities of after a Significant Supply Failure. This supply shall be at a price equal to SDI’s Fully Burdened Manufacturing Cost of such API, on forecasting and ordering procedures that are as per Supply Terms Sections 2.3.3 - 2.3.5, applied mutatis mutandis to API supply. Further, if the analogous event to a Significant Supply Failure occurs with regard to API supply, Avigen shall have the right to manufacture its requirements of the API itself.

To be clear, Avigen is under no obligation to establish its own alternative supplier (whether itself or an Affiliate or Third Party) for any Licensed Product or multiple Licensed Products after a Significant Supply Failure. Also to be clear, because there may be one or more Significant Supply Failures, this Section 6.4 applies to each and every Significant Supply Failure.

25.

6.5 License .

6.5.1

Effective upon the occurrence of a Second Source Failure for any IR Product or CR-Qualified Product, SDI hereby grants Avigen a worldwide license to make and have made IR Products or CR-Qualified Products (respectively, as applicable whether it was an IR Product or CR-Qualified Product with respect to which the Second Source Failure occurred) worldwide in Finished Product form for purposes of their development, use, marketing, offer for sale, sale and import in the Territory. Such license shall be sublicenseable by Avigen through one (1) or more tiers of sublicensees without consent. This license may become effective once for IR Products and once for CR-Qualified Products.

6.5.2

Effective upon the occurrence of the first Significant Supply Failure, SDI hereby grants Avigen a worldwide license to make and have made Licensed Products worldwide in any and all forms, for purposes of their development, use, marketing, offer for sale, sale and import in the Territory. Such license shall be sublicenseable by Avigen through one (1) or more tiers of sublicensees without consent.

6.5.3

Effective upon the occurrence of the first event analogous to a Significant Supply Failure with respect to any API that SDI is required to supply to Avigen under Supply Terms Section 6.3 or 6.4, SDI hereby grants Avigen a worldwide license to make and have made API worldwide, solely for purposes of exercising Avigen’s licenses under Supply terms Section 6.5.1 and 6.5.2. The license of this Section 6.5.3 shall be sublicenseable by Avigen through one (1) or more tiers of sublicensees without consent.

6.5.4

To avoid any doubt, SDI shall have no right to approve of or reject any of Avigen’s Licensed Product manufacturers nor any of Avigen’s API manufacturers.

6.5.5

Quantities of Licensed Product in Finished Form that Avigen manufactures in exercise of either of the foregoing licenses shall be royalty-bearing to SDI under the License Agreement if sold during the applicable Royalty Term. Such quantities shall not, however, support any Advance Payment or Further Payment to SDI under Sections 4.5 and 4.6 of the License Agreement.

6.6

Technology Transfer . With respect to any Licensed Products and APIs that Avigen has the right manufacture under Supply Terms Sections 6.3 - 6.5, or with respect to which Avigen requests post-expiration or post-termination technology transfer under Supply Terms Section 8.6, SDI shall provide the following technology transfer:

SDI shall at no cost to Avigen perform (by SDI’s own actions and by procuring the actions of its Affiliates and relevant contractors) all technology transfer (including Know-How disclosure) reasonably required by Avigen to establish and validate manufacture of Licensed Products and APIs through Avigen (or its designee), by the same processes as reflected in the applicable NDAs and used by SDI (or its suppliers) to manufacture Licensed Products and APIs prior to the Significant Supply Failure or Second Source Failure. This may include site visit by personnel of Avigen (or its designee) at the manufacturing facilities previously used or contracted by SDI for such manufacture, visits of SDI’s personnel to the new facility where Avigen is seeking to establish

26.

and validate such processes, and access to at least [*] the working time of SDI’s Manufacturing Liaison for a period of no less than [*] all to the extent requested by Avigen. This technology transfer shall include providing Avigen with master batch records for all APIs and Licensed Products.

7	MANUFACTURING COVENANTS.

7.1	Conformance to Specifications . SDI hereby covenants that:

7.1.1

It and its suppliers shall manufacture each API and Licensed Product in accordance with the Specifications therefor and all other provisions of these Supply Terms, and in accordance with all applicable Regulatory Requirements, including cGMP;

7.1.2

all quantities of API and Finished Products supplied by SDI hereunder shall, upon delivery in accordance with Supply Terms Section 5.2, be free from Manufacturing Defects and shall otherwise conform to the relevant Specifications;

7.1.3

that it (itself and through its suppliers) shall not supply to Avigen hereunder any quantity of API or Finished Product that either (i) is defective in any way; (ii) has been misused, contaminated, tampered with or otherwise altered or mishandled prior to the time of delivery FCA to Avigen hereunder; or (iii) has been stored and handled prior to delivery FCA to Avigen hereunder in a manner inconsistent with the relevant Specifications; and

7.1.4

that it is not now, and it does not now and shall not engage any employee, consultant or contractor (including the Third-Party filler/finisher suppliers) that has been, debarred by the FDA or other Regulatory Body or is the subject of debarment proceedings of which SDI is aware, by the FDA or any other Regulatory Body.

7.2	Cross-Territory Sales . To the extent not prohibited by any applicable law, each Party hereby undertakes as follows:

7.2.1

Avigen hereby undertakes that neither it nor its Affiliates, Sublicensees nor Distributors shall sell any quantities of Licensed Products to any person outside the Territory, nor to any person in the Territory, where Avigen knows or has reason to believe that the person to whom such quantities of Licensed Products are sold intends to resell significant quantities of them in any country outside the Territory.

7.2.2

SDI hereby undertakes that neither it nor its Affiliates nor Other Licensees shall sell any quantities of Licensed Products to any person inside the Territory other than Avigen or any person whom Avigen designates in writing. As regards sales to Other Licensees or any other person outside the Territory, SDI undertakes that it shall require those Other Licensees and persons to agree not to sell the Licensed Products into the Territory.

7.2.3

If, notwithstanding the foregoing Supply Terms Sections 7.2.1 and 7.2.2, any significant quantity of Licensed Products supplied to Avigen hereunder is exported from the Territory, or any significantly quantity of Licensed Product not supplied to Avigen (or its designee) under these Supply Terms is imported into the Territory, each Party shall be

27.

obliged to notify the other promptly upon becoming aware of the situation. Thereafter, the Parties shall promptly discuss the situation and attempt in good faith to agree the legal, necessary steps to be taken and possible alternative arrangements to be made.

28.

8	TERM AND TERMINATION

8.1	Term . These Supply Terms shall become effective on the Commencement Date and shall continue until *[]** after the Commencement Date, except that:

8.1.1

They may renew one or more times as provided in Section 8.2.

8.1.2

They shall earlier terminate on any termination of the License Agreement pursuant to Section 10.2 of the License Agreement that results in Avigen’s loss of license under the License Agreement (but not earlier expiration of the License Agreement under Section 10.1 of the License Agreement or termination of the License Agreement not resulting in Avigen’s loss of license under the License Agreement) or as a remedy for termination of these Supply Terms under such Section of the License Agreement. It is understood and agreed that notices regarding, cure of and rights to terminate as a result of material breaches of the Agreement arising under these Supply Terms shall be as set forth in Section 10.2.3 of the License Agreement. However, if any such breach arises and is a breach by Avigen, the remedy for such breach shall not be termination of the entire Agreement (including the License Agreement), but instead shall be termination of only these Supply Terms.

8.1.3

It may earlier terminate as provided below in Supply Terms Sections 8.3 - 8.5.

To avoid any doubt, these Supply Terms provide for [*] of supply to Avigen (if there is no early termination). Depending on the [*] and time of Launch, these [*] may [*] the [*] of [*] The Parties expressly [*] and intend that [*] Avigen shall [*] and while it will not [*] of the License Agreement [*] of [*] under the License Agreement, it will continue to [*] as provided in these Supply Terms and [*] the License Agreement.

8.2

Renewals . No later than [*] prior to when these Supply Terms are next (at the time) scheduled to expire, either Party may, if it wishes to extend the term of these Supply Terms for an additional two (2) years, notify the other Party in writing. If such other Party wishes to renew these Supply Terms for an additional two (2) years, it shall respond in writing to this effect within [*] and these Supply Terms shall be extended for such two (2) years. These Supply Terms may be extended one (1) or more times.

8.3

SDI Cessation of Manufacturing . If SDI intends to cease manufacture of the Licensed Products, it shall notify Avigen in writing no less than [*] prior to the intended date of cessation (or [*] if SDI will continue to supply all APIs to Avigen at SDI’s Fully Burdened Manufacturing costs until such time as Avigen has an alternate, validated source of APIs), and upon expiry of such notice, these Supply Terms shall terminate. SDI hereby grants Avigen, effective on SDI’s notice to Avigen under this Section, a worldwide, royalty-free (except as provided in the License Agreement), perpetual license to make and have made Tolperisone and Tolperisone Products worldwide to supply the Territory, which license shall be exclusive for so long as there is any Royalty Term in effect under the License Agreement, but which shall be non-

29.

exclusive thereafter. Avigen shall be entitled to the technology transfer of Section 6.6 in such case. Termination of these Supply Terms pursuant to this provision shall not affect the License Agreement.

8.4

IP-related Cessation of Sales . Avigen may terminate or suspend these Supply Terms (including all then-pending purchase orders and forecasts hereunder), or adjust downwards its forecasts and orders hereunder, by not less than [*] prior written notice to SDI if the import, use or sale of the Licensed Products has been enjoined, halted or stopped anywhere in the Territory for a period of [*] as a result of an infringement or alleged infringement of Third-Party patent rights. Avigen may un-suspend these Supply Terms, in whole or in part (including all or selected (by Avigen) previously pending forecasts and purchase orders), by written notice to SDI. This Supply Terms Section 8.4 shall not be read to modify or limit in any way Sections 4.3.4, 8.9, 9.2 or 9.6 of the License Agreement.

8.5

Regulatory-related Cessation of Sales . Avigen shall be entitled to terminate or suspend these Supply Terms (including all then-pending purchase orders and forecasts hereunder), or adjust downwards its forecasts and orders hereunder, by not less than [*] prior written notice to SDI if Avigen is required to cease marketing a Licensed Product in any part of the Territory by any Regulatory Body having jurisdiction due to any reason, including medical or safety issues. Avigen may un-suspend these Supply Terms, in whole or in part (including all or selected (by Avigen) previously pending forecasts and purchase orders), by written notice to SDI.

8.6

Technology Transfer . Avigen may request technology transfer for API manufacture and manufacture of any and all Licensed Product in Finished Product form supplied under these Supply Terms, by written notice to SDI that shall be effective no earlier than the [*] SDI shall, to the full extent requested by Avigen, provide and promptly commence technology transfer as described in Supply Terms Section 6.6, with respect to API and any and all Licensed Products.

If these Supply Terms are extended under Supply Terms Section 8.2, then Avigen may request technology transfer in relation to any scheduled expirations of these Supply Terms that are later than the originally scheduled expiration date.

8.7	Effect of Expiration or Termination .

8.7.1

Expiration/Non-Renewal/No-Fault termination . Supply Terms Articles 1; 2, 4 and 5 (each solely to the extent applied to quantities delivered prior to expiration or termination and any Binding Amounts under purchase orders pending hereunder at the time of termination) 8; and 9; and Supply Terms Sections 3.10, 3.11, 6.5 (to the extent triggered by a Second Source Failure or Significant Supply Failure occurring prior to expiration or termination), 6.6 and 7.1 shall survive any expiration or non-renewal of these Supply Terms, and their termination by Avigen under Supply Terms Section 8.4 and 8.5.

8.7.2

Termination for an Avigen Fault . No Supply Terms Sections or Supply Terms Articles shall survive a termination of these Supply Terms by SDI under Section 10.2 of the License Agreement nor a termination by Avigen under Section 10.2.2 of the License Agreement. However, SDI shall deliver any quantities that are, at the time of termination,

30.

included in the Binding Amount for any then-pending Avigen purchase order.

31.

8.7.3

Termination for an SDI Fault . If Avigen terminates these Supply Terms under Section 10.2.3 of the License Agreement, or SDI terminates these Supply Terms under Supply Terms Section 8.3, then:

8.7.3.1

In addition to those Articles and Sections that survive under Section 8.7.1, the following shall survive: Sections 6.1 and 6.2 until Avigen’s alternate source is validated, and SDI’s obligations under Section 7.2.

8.7.3.2

SDI shall, to the full extent requested by Avigen, assign to Avigen SDI’s contracts with its API and Finished Product suppliers.

8.7.3.3

SDI shall continue to supply Avigen under these Supply Terms, to the full extent requested by Avigen, at a price equal to the applicable Advance Payments, until Avigen either (a) notifies SDI in writing Avigen no longer wishes to be supplied by SDI, or (b) has established and validated an alternative source of supply of each Licensed Product and is legally entitled to sell quantities of such Licensed Product manufactured by such alternative source of supply in the Territory. Avigen shall not owe any further Further Payments.

8.7.4

Accrued Rights . All rights of the Parties having accrued under these Supply Terms prior to expiration or termination of these Supply Terms shall survive all expirations and terminations of these Supply Terms.

9	LIMITATION OF LIABILITY

9.1	The limitation of liability of Section 9.9 applies to liability under these Supply Terms just as it does to liability under the remainder of this Agreement.

32.

SCHEDULE 4

CURRENT SDI’S PRIOR IR PRODUCT AND CURRENT CR PRODUCT CLINICAL TRIALS

Current IR Product

Protocol SFK-0300-01/I-001 filed with Independent Ethics Committee of the Landesärztekammer Brandenburg, Cottbus, Germany

Protocol SFK-0300-01/I-002 filed with Independent Ethics Committee of the Landesärztekammer Brandenburg, Cottbus, Germany

Current CR Product

Protocol SFK-0300-01/I-003 filed with Independent Ethics Committee, Assen, The Netherlands.

33.

SCHEDULE 5

CLINICAL SUPPLY PRICING

]

34.

SCHEDULE 6

AVIGEN CURRENT PLANNED CLINICAL TRIAL PROGRAM

•

[*]

]

35.

SCHEDULE 7

EXISTING SDI AGREEMENTS REGARDING LICENSED PRODUCTS

[*]

36.

SCHEDULE 8

ADVERSE EVENT REPORTING PROTOCOL

[*] [7 pages omitted]

37.

EXHIBIT 10.60

January 6, 2005

Thomas Paulson

557 Creedon Circle

Alameda, CA 94502

Dear Tom:

This letter agreement (this “Agreement”) confirms our understanding and agreement with respect to your resignation as Chief Financial Officer of Avigen, Inc. and sets forth the substance of the terms that Avigen, Inc. (the “Company”) is offering to you to aid in your employment transition.

1. Separation. Effective as of the date of this Agreement, you hereby resign your position of Chief Financial Officer, Vice President of Finance, and Corporate Secretary and all other positions you hold on behalf of Avigen, Inc. Your last day of work with the Company and your employment termination date will be January 10, 2006 (the “Separation Date”).

2. Accrued Salary And Paid Time Off. On the Separation Date, the Company will pay you all accrued salary, and all accrued and unused vacation earned through the Separation Date, subject to standard payroll deductions and withholdings. You are entitled to these payments by law.

3. Severance Payment. If you sign this Agreement, and allow the release contained herein to become effective, then the Company will pay you severance in the form of salary continuation through October 10, 2006. In the event you have not begun employment on a full-time basis with another employer by October 10, 2006, the Company will continue your salary payments through January 10, 2007 or until such time you begin employment on a full-time basis, whichever is earlier. These payments will be made on the Company’s regular payroll cycle beginning on the first regularly scheduled payroll date following the Effective Date (as defined in paragraph 14 below), and will be subject to standard payroll deductions and withholdings. [ Tom, the Company is willing to provide a lump-sum payment if you prefer]

4. Health Insurance. To the extent provided by the federal COBRA law or, if applicable, state insurance laws, and by the Company’s current group health insurance policies, you will be eligible to continue your group health insurance benefits at your own expense following the Separation Date. Later, you may be able to convert to an individual policy through the provider of the Company’s health insurance, if you wish. You will be provided with a separate notice describing your rights and obligations under COBRA. If you timely elect continued coverage under COBRA, then the Company, as part of this Agreement, will pay the COBRA premiums necessary to continue your current level of coverage through January 10, 2007. The Company’s obligation to make these payments will cease upon you becoming eligible for benefits under another employer’s health plan. You agree to promptly notify the Company of such eligibility.

5. Spherion Outplacement. You will receive three months of Spherion Outplacement Services.

6. Stock Options. During your employment with the Company, you were granted options to purchase shares of the Company’s common stock (the “Options”). If you sign this Agreement, and allow the release contained herein to become effective, then the Company will extend the post- termination exercise period with respect to each Option until the earlier to occur of: (a) October 10, 2006 (b) in the event you have not begun employment on a full-time basis with another employer by October 10, 2006, the Company will continue your exercise period through January 10, 2007 or until such time you begin employment on a full-time basis, whichever is earlier or (c) the end of the original contract life of the Option (this extension is explicitly understood to impact the exercise period of the Options only and shall not apply to the vesting period of such Options, which vesting period shall cease as of the Separation Date).

You understand that this extension of the exercise period may change the tax treatment of the Options, and you are hereby advised by the Company to seek independent legal advice with respect to tax issues regarding the Options. Except as expressly specified herein, the Options will continue to be governed in all respects by the terms of the applicable stock option agreement(s), grant notice(s) and plan documents.

7. Other Compensation or Benefits. You acknowledge that, except as expressly provided in this Agreement, you will not receive any additional compensation, severance, or benefits after the Separation Date.

8. Expense Reimbursements. You agree that within ten (10) days of the Separation Date, you will submit your final documented expense reimbursement statement reflecting all business expenses you incurred through the Separation Date, if any, for which you seek reimbursement. The Company will reimburse you for these expenses pursuant to its regular business practice.

9. Return Of Company Property. By the Separation Date, you agree to return to the Company all Company documents (and all copies thereof) and other Company property that you have had in your possession at any time, including, but not limited to, Company files, notes, drawings, records, business plans and forecasts, financial information, specifications, computer-recorded information, tangible property (including, but not limited to, computers), credit cards, entry cards, identification badges, and keys; and, any materials of any kind that contain or embody any proprietary or confidential information of the Company (and all reproductions thereof). Your timely return of all such Company documents and other property is a condition precedent to your receipt of the severance benefits provided under this Agreement.

10. Employment Agreement. You and the Company agree that your Employment Agreement with the Company dated August 14, 1996 and, except as otherwise provided herein, any other agreements relating to the terms of your employment with the Company, are hereby superseded and replaced by this Agreement, and the Company’s obligations under such agreements are hereby extinguished (for clarity, your Proprietary Information and Inventions Agreement dated August 15, 1996, shall not be deemed superceded by this Agreement).

11. Proprietary Information Obligations. You acknowledge your continuing obligations under your Proprietary Information and Inventions Agreement with the Company, dated August 15, 1996, including obligations not to use or disclose the Company’s confidential, proprietary or trade secret information, except as expressly authorized by the Company, following the termination of your employment with the Company.

12. Nondisparagement. You agree not to disparage the Company, its officers, directors, employees, shareholders, and agents, in any manner likely to be harmful to its or their business, business reputation, or personal reputation; provided that you will respond accurately and fully to any question, inquiry or request for information when required by legal process.

13. No Admissions. You understand and agree that the promises and payments in consideration of this Agreement shall not be construed to be an admission of any liability or obligation by the Company to you or to any other person, and that the Company makes no such admission.

14. Release of Claims. In exchange for the consideration under this Agreement to which you would not otherwise be entitled, you hereby generally and completely release the Company and its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date you sign this Agreement. This general release includes, but is not limited to: (a) all claims arising out of or in any way related to your employment with the Company or the termination of that employment; (b) all claims related to your compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (c) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (d) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (e) all federal, state, and local statutory claims, including claims

for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967, as amended (“ADEA”), and the California Fair Employment and Housing Act (as amended). By signing this release, you are not waiving any rights you may have to indemnification from the Company pursuant to contract (including but not limited to that certain Indemnification Agreement between you and the Company effective as of August 10, 1992), the Company's bylaws, or applicable law.

15. ADEA Waiver. You acknowledge that you are knowingly and voluntarily waiving and releasing any rights you may have under the ADEA, and that the consideration given for this waiver and release is in addition to anything of value to which you were already entitled. You further acknowledge that you have been advised by this writing, as required by the ADEA, that: (a) your waiver and release do not apply to any rights or claims that may arise after the date you sign this Agreement; (b) you have the right to consult with an attorney prior to executing this Agreement (although you may choose not to do so); (c) you have twenty-one (21) days to consider this Agreement (although you may choose voluntarily to execute this Agreement earlier); (d) you have seven (7) days following your execution of this Agreement to revoke the Agreement (in a written revocation sent to me); and (e) this Agreement will not be effective until the date upon which the revocation period has expired, which will be the eighth day after this Agreement is executed by you (the “Effective Date”).

16. Section 1542 Waiver. In granting the release herein, which includes claims which may be unknown to you at present, you acknowledge that you have read and understand Section 1542 of the California Civil Code: “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.” You hereby expressly waive and relinquish all rights and benefits under that section and any law or legal principle of similar effect in any jurisdiction with respect to the releases granted herein, including but not limited to the release of unknown and unsuspected claims granted in this Agreement.

17. Miscellaneous. Together with the Proprietary Information and Inventions Agreement dated August 15, 1996, this Agreement constitutes the complete, final and exclusive embodiment of the entire agreement between you and the Company with regard to its subject matter. It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises, warranties or representations. This Agreement may not be modified or amended except in a writing signed by both you and a duly authorized officer of the Company. This Agreement will bind the heirs, personal representatives, successors and assigns of both you and the Company, and inure to the benefit of both you and the Company, their heirs, successors and assigns. If any provision of this Agreement is determined to be invalid or unenforceable, in whole or in part, this determination will not affect any other provision of this Agreement, and the provision in question will be modified so as to be rendered enforceable. This Agreement will be deemed to have been entered into and will be construed and enforced in accordance with the laws of the State of California as applied to contracts made and to be performed entirely within California. Any ambiguity in this Agreement shall not be construed against either party as the drafter. Any waiver of a breach of this Agreement shall be in writing and shall not be deemed to be a waiver of any successive breach. This Agreement may be executed in counterparts, and facsimile signatures will suffice as original signatures.

If this Agreement is acceptable to you, please sign below and return the original to me.

We wish you the best in your future endeavors.

Sincerely,

AVIGEN, INC.

By: /s/ ZOLA HOROVITZ
	Zola Horovitz, Ph.D.

Chairman of the Board

I HAVE READ, UNDERSTAND AND AGREE FULLY TO THE FOREGOING AGREEMENT:

/s/ THOMAS J. PAULSON

Thomas Paulson

Date: 2/3/06

AMENDMENT NO. 1

to the

Separation Agreement

Offered by

Avigen, Inc.

Thomas Paulson

This Amendment No. 1 (hereinafter “Amendment”) to the Separation Agreement dated January 6, 2006, offered by Avigen, Inc. (hereinafter “Avigen”) to Thomas Paulson (hereinafter “Mr. Paulson”) (collectively, the “Parties”), (hereinafter “Separation Agreement”), is hereby modified as follows.

WHEREAS, Avigen wishes to amend the terms of the offer set forth in the Separation Agreement in a manner acceptable to Mr. Paulson in order to expedite resolution of any remaining issues between Mr. Paulson and Avigen, Inc.

NOW, THEREFORE, the Parties agree:

The term of the offer set forth in paragraph 15 of the Agreement is hereby extended an additional period of 7 days (from 21 days to 28 days), until February 3, 2006.

Paragraph 3 shall be replaced with the following:

Severance Payment. If you sign this Agreement, and allow the release contained herein to become effective, then the Company will pay you severance in the form of salary continuation through January 10, 2007. These payments will be made on the Company’s regular payroll cycle beginning on the first regularly scheduled payroll date following the Effective Date (as defined in paragraph 14 below), and will be subject to standard payroll deductions and withholdings.

Paragraph 4 shall be replaced with the following:

Health Insurance and Other Benefits. To the extent provided by the federal COBRA law or, if applicable, state insurance laws, and by the Company’s current group health insurance policies, you will be eligible to continue your group health insurance benefits at your own expense following the Separation Date. Later, you may be able to convert to an individual policy through the provider of the Company’s health insurance, if you wish. You will be provided with a separate notice describing your rights and obligations under COBRA. If you timely elect continued coverage under COBRA, then the Company, as part of this Agreement, will pay the COBRA premiums necessary to continue your current level of coverage through January 10, 2007. In addition, if you timely elect the portable coverage under your long term disability plans, long term care plan and/or your life insurance plan, the Company will make these payments on your behalf through January 10, 2007. The Company’s obligation to make these payments for you will cease on the date you could have been covered under another employer’s health plan, disability plan, long term care plan and/or life insurance plan but chose not to be covered by said plan(s), or on the date you become covered by said plan(s), whichever is earlier. You agree to promptly notify the Company when you become eligible for any such plan.

Paragraph 6 shall be replaced with the following:

Stock Options. During your employment with the Company, you were granted options to purchase shares of the Company’s common stock (the “Options”). If you sign this Agreement, and allow the release contained herein to become effective, then the Company will continue the vesting of the Options until July 10, 2006 and will extend the post- termination exercise period

with respect to each Option until the earlier to occur of: (a) January 10, 2008 or (b) the end of the original contract life of the Option. You understand that this extension of the vesting and exercise periods may change the tax treatment of the Options, and you are hereby advised by the Company to seek independent legal advice with respect to tax issues regarding the Options. Except as expressly specified herein, the Options will continue to be governed in all respects by the terms of the applicable stock option agreement(s), grant notice(s) and plan documents.

Paragraph 12 shall be replaced with the following:

Nondisparagement. You agree not to disparage the Company, its officers, directors, employees, shareholders, and agents, in any manner likely to be harmful to its or their business, business reputation, or personal reputation; provided that you will respond accurately and fully to any question, inquiry or request for information when required by legal process. The Company agrees that neither its Board members nor corporate officers shall disparage you in any manner likely to be harmful to your business or personal reputation, provided that such individuals will respond accurately and fully to any question, inquiry or request for information when required by legal process.

Except to the extent specifically modified herein, the Separation Agreement shall be made binding on both Parties upon full execution of this Amendment and shall be deemed effective as of the date this Amendment.

IN WITNESS WHEREOF, the Parties hereto have duly executed this Amendment effective February 3, 2006.

AGREED TO:

Avigen, Inc.			Thomas Paulson
1301 Harbor Bay Parkway
Alameda, CA 94502-6541

/s/ Kenneth G. Chahine

/s/ Thomas J. Paulson

By:

Name:

Kenneth G. Chahine, Ph.D., J.D.

Name:

2/3/06

Title:

President and CEO

Title:

READ AND UNDERSTOOD :

AVIGEN REQUESTOR

By:		n/a
Name:
Title:

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statements on Form S-8 (Reg. Nos. 333-12087, 333-68637, 333-94111, 333-42210, 333-56274, 333-90504 and 333-116740) pertaining to the 1993 Stock Option Plan, the Non-Statutory Stock Option, the 1996 Equity Incentive Plan, the 1996 Non-Employee Directors’ Stock Option Plan, the 1997 Employee Stock Purchase Plan, and the 2000 Equity Incentive Plan, and Registration Statements on Form S-3 (Reg. Nos. 333-68117, 333-72225, 333-79925, 333-92355 and 333-47680) and in the related Prospectuses of Avigen, Inc. of our reports dated March 10, 2005, with respect to the financial statements of Avigen, Inc., Avigen, Inc. management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Avigen, Inc., included in this Annual Report (Form 10-K) for the year ended December 31, 2005.

/s/ ERNST & YOUNG LLP

Palo Alto, California
March 14, 2006

EXHIBIT 31.1

CERTIFICATION

I, Kenneth Chahine, certify that:

I have reviewed this Annual Report on Form 10-K of Avigen, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 14, 2006

/s/ KENNETH G. CHAHINE

Kenneth G. Chahine
Chief Executive Officer and President
(Principal Executive Officer)

EXHIBIT 31.2

CERTIFICATION

I, Andrew A. Sauter, certify that:

I have reviewed this Annual Report on Form 10-K of Avigen, Inc.;

(a)

(b)

(c)

(d)

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 14, 2006

/s/ ANDREW A. SAUTER

Andrew A. Sauter
Vice President, Finance
(Principal Financial Officer)

EXHIBIT 32.1

CERTIFICATION

Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Kenneth Chahine, Chief Executive Officer of Avigen, Inc. (the “Company”), and Thomas J. Paulson, Chief Financial Officer of the Company, each hereby certify that, to the best of his knowledge:

The Company’s Annual Report on Form 10-K for the period ended December 31, 2005, and to which this Certification is attached as Exhibit 32.1, (the “Periodic Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act, and

The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

In Witness Whereof, the undersigned have set their hands hereto as of the 14th day of March, 2006.

/s/ KENNETH G. CHAHINE

Kenneth G. Chahine
Chief Executive Officer

/s/ ANDREW A. SAUTER

Andrew A. Sauter
Vice President, Finance