Transcept Pharmaceuticals Inc (Form: 10-Q, Received: 11/16/2009 16:49:05)

Large accelerated filer

Accelerated filer

Non-accelerated filer

x (Do not check if a smaller reporting company)

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2009

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

For the transition period from to

Commission File No. 000 – 51967

TRANSCEPT PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware		33-0960223
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

1003 W. Cutting Blvd., Suite #110 Pt. Richmond, California		94804
(Address of principal executive offices)		(Zip Code)

(510) 215-3500

Registrant’s telephone number, including area code

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

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

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

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

As of November 11, 2009, 13,373,796 shares of our common stock, $0.001 par value, were outstanding.

Index to Financial Statements

Transcept Pharmaceuticals, Inc.


Item No.		Page No.
PART I FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	1

	Condensed Consolidated Balance Sheets—September 30, 2009 and December 31, 2008	1

	Condensed Consolidated Statements of Operations—Three and Nine Months Ended September 30, 2009 and 2008	2

	Condensed Consolidated Statements of Cash Flows—Nine Months Ended September 30, 2009 and 2008	3

	Notes to Condensed Consolidated Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34

Item 4T.	Controls and Procedures	34

PART II OTHER INFORMATION		34

Item 1.	Legal Proceedings	34

Item 1A.	Risk Factors	34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51

Item 3.	Defaults Upon Senior Securities	51

Item 4.	Submission of Matters to a Vote of Security Holders	52

Item 5.	Other Information	52

Item 6.	Exhibits	52

	SIGNATURES	54

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

Transcept Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets


	September 30,			December 31,
	2009			2008
	(Unaudited)			(Note 1)
Assets
Current assets:
Cash and cash equivalents	$	10,729,594		$	4,431,505
Marketable securities		82,267,092			7,250,987
Prepaid and other current assets		1,714,064			381,836
Restricted cash		200,000			200,000

Total current assets		94,910,750			12,264,328
Property and equipment, net		1,318,083			1,450,216
Goodwill		2,961,664			—
Other assets		826,243			65,970

Total assets	$	100,016,740		$	13,780,514

Liabilities, convertible preferred stock and stockholders’ equity (net capital deficiency)
Current liabilities:
Accounts payable	$	605,529		$	575,269
Accrued liabilities		2,185,011			1,468,415
Lease liability, short-term portion		297,853			—
Deferred revenue, short-term portion		12,500,000			—
Loan payable, short-term portion		43,908			3,347,010

Total current liabilities		15,632,301			5,390,694
Deferred revenue, long-term portion		10,416,666			—
Warrant liability		—			599,845
Deposit for stock purchase		51,780			87,656
Deferred rent		100,161			77,044
Lease liability, long-term portion		639,325			—
Loan payable, long-term portion		136,370			169,636
Other liabilities		12,500			—

Total liabilities		26,989,103			6,324,875
Convertible preferred stock: $0.001 par value; 7,593,091 shares authorized; 0 shares issued and outstanding at September 30, 2009; Series A - 60,212, Series B - 1,126,020, Series C - 2,838,091 and Series D - 3,325,647 shares issued and outstanding at December 31, 2008		—			71,036,951
Stockholders’ equity (net capital deficiency):
Common stock, $0.001 par value; 100,000,000 shares authorized; 13,336,431 and 454,676 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively		13,336			455
Additional paid-in capital		157,516,702			1,503,841
Accumulated deficit		(84,567,159	)		(65,111,433	)
Accumulated other comprehensive income		64,758			25,825

Total stockholders’ equity (net capital deficiency)		73,027,637			(63,581,312	)

Total liabilities, convertible preferred stock and stockholders’ equity (net capital deficiency)	$	100,016,740		$	13,780,514

See accompanying notes.

Transcept Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Revenue:
License fee revenue	$	2,083,334		$	—		$	2,083,334		$	—
Operating expenses:
Research and development		2,135,622			2,453,237			6,607,022			8,844,666
General and administrative		3,839,612			2,141,535			13,072,734			5,365,574
Merger related transaction costs		—			—			2,223,860			—

Total operating expenses		5,975,234			4,594,772			21,903,616			14,210,240

Loss from operations		(3,891,900	)		(4,594,772	)		(19,820,282	)		(14,210,240	)
Interest income		54,729			133,878			239,661			682,117
Interest expense		(4,176	)		(176,060	)		(175,100	)		(618,188	)
Other income (expense), net		36,499			377,264			299,995			306,307

Net loss	$	(3,804,848	)	$	(4,259,690	)	$	(19,455,726	)	$	(13,840,004	)

Basic and diluted net loss per share	$	(0.29	)	$	(10.08	)	$	(1.65	)	$	(35.93	)

Weighted average shares outstanding		13,174,807			422,777			11,764,652			385,214

See accompanying notes.

Transcept Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,
	2009			2008
Operating activities
Net loss	$	(19,455,726	)	$	(13,840,004	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		414,373			375,760
Stock-based compensation		1,083,745			459,749
Amortization of loan costs		27,661			27,661
Amortization of discount (warrants) on debt		47,332			121,020
Amortization of lease liability		(163,869	)		—
Remeasurement of preferred stock warrants		(199,673	)		(322,200	)
Loss on disposals of fixed assets		6,751			3,796
Gain on sale of marketable securities		(110,747	)		—
Amortization (accretion) of premium/ discount on available for sale securities		887,002			(445,569	)
Changes in operating assets and liabilities:
Prepaid and other current assets		15,567			(1,673,094	)
Other assets		(17,934	)		—
Accounts payable		30,260			1,215,460
Accrued liabilities		(1,015,865	)		(472,314	)
Deferred revenue		22,916,666			—
Deferred rent		23,117			3,334

Net cash provided by (used in) operating activities		4,488,660			(14,546,401	)

Investing activities
Purchases of property and equipment, net		(296,491	)		(189,855	)
Purchases of marketable securities		(120,185,915	)		(17,651,047	)
Maturities and sales of marketable securities		77,306,874			34,773,461
Cash and cash equivalents received from the Merger		47,986,875			—

Net cash provided by investing activities		4,811,343			16,932,559

Financing Activities
Payments on long-term debt		(3,353,060	)		(2,719,463	)
Proceeds from issuance of common stock, net		351,146			65,221

Net cash used in financing activities		(3,001,914	)		(2,654,242	)
Net increase (decrease) in cash and cash equivalents		6,298,089			(268,084	)
Cash and cash equivalents at beginning of period		4,431,505			5,695,849

Cash and cash equivalents at end of period	$	10,729,594		$	5,427,765

See accompanying notes.

Transcept Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

1. Organization and Summary of Significant Accounting Policies

Transcept Pharmaceuticals, Inc. (“Transcept” or the “Company”) is a specialty pharmaceutical company focused on the development and commercialization of proprietary products that address important therapeutic needs in neuroscience. The most advanced Transcept product candidate is Intermezzo ^® (zolpidem tartrate sublingual tablet), for which a New Drug Application (“NDA”) was submitted to the U.S. Food and Drug Administration (“FDA”) in September 2008 seeking approval as a prescription sleep aid for use in the middle of the night at the time a patient awakens and has difficulty returning to sleep. In October 2009, Transcept received a Complete Response Letter from the FDA on the Intermezzo ^® NDA and is working to respond to issues raised in the letter (see Note 11 – Subsequent Events). On July 31, 2009, Transcept and Purdue Pharmaceutical Products, L.P. (“Purdue”) entered into the United States License and Collaboration Agreement (the “Collaboration Agreement”) in connection with the development and commercialization of Intermezzo ^® in the United States. As a result of the revenues recognized pursuant to the Collaboration Agreement and the late development stage of Intermezzo ^® , Transcept is no longer considered a Development Stage Company as of the third quarter 2009. Transcept operates in one business segment.

Prior to January 30, 2009, the name of the Company was Novacea, Inc. (“Novacea”). On August 29, 2008, Novacea, Pivot Acquisition, Inc., a Delaware corporation and a wholly-owned subsidiary of Novacea, and Transcept Pharmaceuticals, Inc., a private Delaware corporation (“TPI”), entered into an Agreement and Plan of Merger and Reorganization, which was amended on December 23, 2008 (collectively referred to as the “Merger Agreement”). On January 30, 2009, Novacea completed its business combination with TPI in accordance with the terms of the Merger Agreement, pursuant to which TPI became a wholly-owned subsidiary of Novacea (referred to as the “Merger”). Also on January 30, 2009, in connection with the Merger, Novacea effected a 1-for-5 reverse stock split of its common stock, and the name of Novacea was changed to “Transcept Pharmaceuticals, Inc.” The Merger, reverse stock split and the name change of Novacea were approved by the stockholders of Novacea at a special meeting of Novacea stockholders held on January 27, 2009. These financial statements reflect the historical results of TPI prior to the Merger and that of the combined company following the Merger, and do not include the historical results of Novacea prior to the completion of the Merger. All share and per share disclosures have been retroactively adjusted to reflect the exchange of shares in the Merger, and the 1-for-5 reverse stock split of the common stock on January 30, 2009.

Under the terms of the Merger Agreement, Novacea issued shares of common stock to the TPI stockholders at the rate of 0.14134 shares of common stock, after giving effect to the 1-for-5 reverse stock split, for each share of TPI common stock outstanding on January 30, 2009. Additionally, each share of common stock underlying TPI options and warrants as of January 30, 2009 was converted to 0.14134 shares of Transcept common stock. After consummation of the Merger, former TPI stockholders, option holders and warrant holders as of January 30, 2009 owned approximately 61% of Transcept common stock on a fully-diluted basis. The stockholders, option holders and warrant holders of Novacea prior to the Merger owned approximately 39% of the Transcept common stock on a fully-diluted basis following the Merger. Under generally accepted accounting principles in the United States, the Merger is treated as a “reverse merger” under the purchase method of accounting. For accounting purposes, TPI is considered to have acquired Novacea.

As part of the consummation of the Merger, Novacea securities listed on the NASDAQ Global Market, trading under the ticker symbol “NOVC,” were suspended for trading as of the close of business on January 30, 2009 and trading of Transcept securities on the NASDAQ Global Market under the ticker symbol “TSPT” commenced on February 2, 2009.

Transcept Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not contain all of the information and footnotes required for complete consolidated financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s interim financial information. The accompanying condensed consolidated balance sheet at December 31, 2008 has been derived from our audited financial statements at that date. The results for the nine months ended September 30, 2009 are not necessarily indicative of the results to be expected for the full year ending December 31, 2009 or for any other interim period or any other future year.

The accompanying unaudited condensed consolidated financial statements and notes to consolidated financial statements should be read in conjunction with the Company’s audited financial statements in its Current Report on Form 8-K/A for the year ended December 31, 2008, as filed with the United States Securities and Exchange Commission on March 31, 2009.

Need to Raise Additional Capital

As of September 30, 2009, the Company had cash, cash equivalents and marketable securities of $93.0 million, working capital of $79.3 million, and an accumulated deficit of approximately $84.6 million. Management expects to continue to incur additional losses in the foreseeable future as the Company continues its research and development activities and prepares for the potential commercialization of Intermezzo ^® . Management believes that cash, cash equivalents and marketable securities balances on hand at September 30, 2009 will be sufficient to fund planned expenditures for at least the next twelve months. Management recognizes the potential need to raise additional funds in the future. There can be no assurance that the Company will be successful in consummating any such financing transaction, or if the Company does consummate such a transaction, that the terms and conditions of such transaction will be favorable. Any failure to obtain additional funding may have a material negative effect on the Company and will likely result in a substantial reduction in the scope of the Company’s operations.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management bases its estimates on historical experience and on assumptions believed to be reasonable under the circumstances. Actual results could differ materially from those estimates. Management makes estimates when preparing the financial statements including those relating to revenue recognition, clinical trials, stock-based compensation and warrant liability valuation.

Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the results of operations of Transcept Pharmaceuticals, Inc. and its wholly-owned subsidiary, Pivot Acquisition, Inc. All significant intercompany accounts and transactions have been eliminated in the consolidation.

Cash and Cash Equivalents

The Company invests its excess cash in bank deposits, money market accounts, and other marketable securities. The Company considers all highly liquid investments purchased with a maturity of three months or less from the date of purchase to be cash equivalents. Cash equivalents are carried at fair value. The Company invests in money market securities in a U.S. bank and is exposed to credit risk in the event of default by the financial institution to the extent of amounts recorded on the balance sheet.

Transcept Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

Restricted cash represents a Certificate of Deposit (“CD”) which functions as security for the Company credit cards with the domestic financial institution that issued the credit cards. The CD will remain as security concurrent with the continuation of the Company credit card program.

Marketable Securities

All marketable securities have been classified as “available-for-sale” and are carried at fair value as determined based upon quoted market prices. Management determines the appropriate classification of its investments in debt securities at the time of purchase and reevaluates such designation as of each balance sheet date. Management views its investment portfolio as available for use in current operations and, accordingly, has reflected all such investments as current assets although the stated maturity of individual investments may be one year or more beyond the balance sheet date. Unrealized gains and losses are included in other comprehensive net income (loss) and reported as a separate component of stockholders’ equity (net capital deficiency). Realized gains and losses and declines in value judged to be other-than-temporary, if any, on available-for-sale securities are included in other income (expense), net. The cost of securities sold is based on the specific identification method. Interest on marketable securities is included in interest income. The net carrying value of debt securities classified as available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity, over the estimated life of the security. Such amortization is computed under the effective interest method and included in interest income.

Property and Equipment

Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets, ranging from two to five years. Leasehold improvements are amortized over the shorter of their estimated useful lives or the related lease term.

Long-Lived Assets

Long-lived assets include property and equipment. 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 is less than its carrying amount or appraised value, as appropriate. Through September 30, 2009, there have been no such impairments.

Goodwill

Goodwill represents purchase consideration in excess of fair values assigned to the underlying net assets of acquired businesses. Goodwill is not amortized, but tested for impairment annually at September 30th, and at any time when events suggest impairment may have occurred. The Company’s goodwill impairment test is performed by comparing the fair value of the reporting unit to the carrying value of the reporting unit. The Company has one reporting unit to which the goodwill is assigned and tested for impairment. In the event the carrying value of a reporting unit exceeds its fair value, an impairment loss would be recognized to the extent the carrying amount of the reporting unit’s goodwill exceeds its implied fair value. Goodwill as of September 30, 2009 was approximately $3.0 million, and was recorded in connection with the Company’s merger with Novacea (see Note 2). Through September 30, 2009, there have been no impairments.

Transcept Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

Revenue Recognition

The Company applies the revenue recognition criteria outlined in Staff Accounting Bulletin No. 104, Revenue Recognition in Financial Statements , and Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 605 Revenue Recognition, Sub-topic 25 Multiple-Element Arrangements.

Revenue arrangements with multiple components are divided into separate units of accounting if certain criteria are met, including whether the delivered component has stand-alone value to the customer, and whether there is objective and reliable evidence of the fair value of the undelivered items. Consideration received is allocated among the separate units of accounting based on their respective fair values. Applicable revenue recognition criteria are then applied to each of the units.

Revenue is recognized when the four basic criteria of revenue recognition are met: (1) persuasive evidence of an arrangement exists; (2) transfer of technology has been completed or services have been rendered; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured.

For each source of revenue, the Company complies with the above revenue recognition criteria in the following manner:

•

Up-front license payments are assessed to determine whether or not the licensee is able to obtain any stand-alone value from the license. Where this is not the case, the Company does not consider the license deliverable to be a separate unit of accounting, and the revenue is deferred with revenue recognition for the license fee being assessed in conjunction with the other deliverables that constitute the combined unit of accounting. When the period of deferral cannot be specifically identified from the agreement, management estimates the period based upon provisions contained within the agreement and other relevant facts. The Company periodically reviews the estimated involvement period, which could impact the deferral period and, therefore, the timing and the amount of revenue recognized. It is possible that future adjustments will be made if actual conditions differ from the Company’s current plan and involvement assumptions.

•

Payments received that are related to substantive, performance-based “at-risk” milestones are recognized as revenue upon achievement of the milestone or event specified in the underlying contracts, which represents the culmination of the earnings process. Amounts received in advance, if any, are recorded as deferred revenue until the milestone is reached.

•

Royalty revenue from sales of the Company’s licensed products, if and when approved for marketing by the appropriate regulatory agency, will be recognized as earned in accordance with the contract terms when royalties from licensees can be reasonably estimated and collectability is reasonably assured.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development costs consist of salaries and benefits, travel and related expenses, lab supplies and facility costs, as well as fees paid to other entities that conduct certain research and development activities on behalf of the Company.

Comprehensive Net Loss

The Company reports comprehensive net loss in accordance with FASB ASC Topic 220 Comprehensive Income (“ASC Topic 220”) . Among other things, ASC Topic 220 requires unrealized gains or losses on the Company’s available-for-sale marketable securities to be included in other comprehensive loss and be reported as a separate component of stockholders’ equity (net capital deficiency).

Transcept Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

Income Taxes

The Company utilizes the liability method of accounting for income taxes as required by FASB ASC Topic 740 Income Taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax reporting bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Uncertain tax positions are evaluated in accordance with this topic and if appropriate, the amount of unrecognized tax benefits are recorded within deferred tax assets. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. Currently, there is no provision for income taxes as the Company has incurred operating losses to date.

Clinical Trials

The Company accrues and expenses costs for clinical trial activities performed by third parties, including clinical research organizations and clinical investigators, based upon estimates made of the work completed as of the reporting date, in accordance with agreements established with contract research organizations and clinical trial sites and the agreed upon fee to be paid for the services. The Company determines these estimates through discussion with internal personnel and outside service providers as to the progress or stage of completion of the trials or services. Costs of setting up clinical trial sites for participation in the trials are expensed immediately as research and development expenses. Clinical trial site costs related to patient enrollment are accrued as patients are entered into the trial and reduced by any initial payment made to the clinical trial site when the first patient is enrolled.

Stock-Based Compensation

Effective January 1, 2006, the Company adopted the provisions of FASB ASC Topic 718 Compensation—Stock Compensation (“ASC Topic 718”) (formerly Statement of Financial Accounting Standards (“SFAS”) No. 123(R), Share-Based Payment ) using the prospective transition method and therefore, prior period results have not been restated. ASC Topic 718 superseded Accounting Principles Board Opinion No. 25, Accounting for Stock issued to Employees (“APB Opinion No. 25”), and its related interpretations, and revised guidance in SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”). Under the prospective transition method, those options issued prior to January 1, 2006 and valued using the minimum value method are excluded from the fair value accounting of ASC Topic 718. ASC Topic 718 requires an entity to measure the cost of employee services received in exchange for an award of equity instruments based on the fair value of the award on the date of grant and to recognize the cost over the period during which the employee is required to provide service in exchange for the award. Additionally, the Company is required to include an estimate of the number of awards that will be forfeited in calculating compensation costs, which are recognized over the requisite service period of the awards on a straight-line basis.

The Company recorded employee share-based compensation costs of $424,026 and $920,710 for the three and nine month periods ended September 30, 2009, respectively and $158,268 and $443,146 for the three and nine month periods ended September 30, 2008, respectively. No related tax benefits of share-based compensation costs have been recognized since the Company’s inception.

Prior to January 1, 2006, the Company applied the intrinsic-value-based method of accounting prescribed by APB Opinion No. 25, and its related interpretations, to account for its equity-based awards to employees and directors, and had adopted the disclosure-only provisions of SFAS No. 123, the predecessor to ASC Topic 718. The Company continues to account for stock awards issued to employees prior to January 1, 2006 under the recognition and measurement provisions of APB Opinion No. 25, and related interpretations.

Transcept Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

The Company accounts for equity instruments issued to nonemployees in accordance with the provisions of ASC Topic 505, subtopic 50, Equity-Based Payments to Non-Employees (formerly Emerging Issues Task Force No. 96-18, Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services ), using a fair-value approach. The equity instruments, consisting of stock options and warrants granted to lenders and consultants, are valued using the Black-Scholes valuation model. The measurement of stock-based compensation is subject to periodic adjustments as the underlying equity instruments vest and is recognized as an expense over the term of the related financing or the period over which services are received.

Warrants to Purchase Convertible Preferred Stock

Effective July 1, 2005, the Company adopted the provisions of ASC Topic 480 Distinguishing Liabilities from Equity (“ASC Topic 480”) (formerly FASB Staff Position No. 150-5, Issuer’s Accounting Under FASB Statement No. 150 for Freestanding Warrants and Other Similar Instruments with Characteristics of Both Liabilities and Equity , an interpretation of SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity ). Under ASC Topic 480, freestanding warrants to purchase shares of convertible preferred stock were classified as liabilities on the balance sheets at fair value because the warrants may conditionally obligate the Company to transfer assets at some point in the future. The warrants were subject to remeasurement at each balance sheet date, and any change in fair value was recognized as a component of other income (expense), net in the statements of operations.

The Company recorded $199,673 and $322,200 in other income (expense), net relating to changes in fair value of all preferred stock warrants during the nine month periods ended September 30, 2009 and 2008, respectively. The Company continued to record adjustments to the fair value of the warrants until the closing of the merger transaction on January 30, 2009, when they became warrants to purchase shares of common stock, wherein the warrants were no longer subject to ASC Topic 480. As of January 30, 2009, $400,172, the then-current aggregate fair value of these warrants, was reclassified from a liability to additional paid-in capital, a component of stockholders’ equity (net capital deficiency).

Concentration of Credit Risk

Financial instruments that are potentially subject to concentration of credit risk consist primarily of cash, cash equivalents, and marketable securities. The Company’s investment policy restricts investments to high-quality investments and limits the amounts invested with any one issuer other than U.S. Treasury debt obligations, U.S. agency debt obligations, or Securities and Exchange Commission (“SEC”) registered money market funds. This policy was further amended during 2009 to limit investments to U.S. Treasury debt or SEC registered money market funds effective September 30, 2009. The goals of the investment policy are as follows: preservation of capital, fulfillment of liquidity needs, maximization of investment performance, and fiduciary control of cash and investments. The Company’s exposure to market risk is limited primarily to interest income sensitivity, which is affected by changes in the general level of United States interest rates, particularly because the majority of the Company’s investments are in short-term debt securities.

Recently Adopted Accounting Standards

Effective January 1, 2009, the Company adopted ASC Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”) (formerly SFAS No. 157, Fair Value Measurements ), for nonfinancial assets and liabilities. The adoption of ASC Topic 820 for nonfinancial assets and liabilities did not have a material effect on the Company’s results of operations and financial condition.

Effective January 1, 2009, the Company adopted ASC Topic 805, Business Combinations (“ASC Topic 805”) (formerly SFAS No. 141R, Business Combinations ). ASC Topic 805 amends previous guidance, and retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs

Transcept Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

as incurred. It also provides disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The Company has recorded its acquisition of Novacea in accordance with the provision of ASC Topic 805. See Note 2, “Merger Agreement” for further details.

In May 2009, the FASB issued ASC Topic 855, Subsequent Events (“ASC Topic 855”) (formerly SFAS No. 165, Subsequent Events ). ASC Topic 855 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but prior to the issuance of the financial statements. The statement requires disclosure of the date through which subsequent events were evaluated and the basis for that date. ASC Topic 855 sets forth the following: (1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and (3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. ASC Topic 855 was effective for the Company for the period ending June 30, 2009 and requires prospective application. The Company has evaluated certain events and transactions occurring after September 30, 2009 and through November 16, 2009, the date of our Form 10-Q filing. See Footnote 11—Subsequent Events.

In June 2009, the FASB issued FASB ASC Topic 105, Generally Accepted Accounting Principles , which establishes the FASB ASC as the sole source of authoritative generally accepted accounting principles. Pursuant to the provisions of FASB ASC Topic 105, the Company has updated references to generally accepted accounting principles in its financial statements issued for the period ended September 30, 2009. The adoption of FASB ASC Topic 105 did not impact the Company’s financial position or results of operations.

In September 2009, the FASB Emerging Issues Task Force reached a consensus on ASC Update 2009-13 (“Topic 605-25”), Multiple-Deliverable Revenue Arrangements (“ASC Update 2009-13”). ASC Update 2009-13 applies to multiple-deliverable revenue arrangements that are currently within the scope of ASC Topic 605-25. ASC Update 2009-13 provides principles and application guidance on whether multiple deliverables exist and how the arrangement should be separated and the consideration allocated. ASC Update 2009-13 requires an entity to allocate revenue in an arrangement using estimated selling prices of deliverables, if a vendor does not have vendor-specific objective evidence or third-party evidence of selling price. The update eliminates the use of the residual method and requires an entity to allocate revenue using the relative selling price method and also significantly expands the disclosure requirements for multiple-deliverable revenue arrangements. ASC Update 2009-13 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier application permitted. As a result, ASC Update 2009-13 will be effective for the Company no later than the first quarter of fiscal 2011. The adoption of ASC Update 2009-13 may have a material impact on the Company’s financial position or results of operations for future collaboration arrangements.

2. Merger Agreement

As described in Note 1, the Company completed the Merger on January 30, 2009. Pursuant to the Merger, stockholders of TPI exchanged their shares of TPI stock for a total of 7,882,622 shares of Transcept common stock and a total of 156,007 warrants to purchase Transcept common stock. Immediately following the Merger, approximately 61% of the fully-diluted shares of Transcept common stock were owned by former stockholders of TPI. For accounting purposes, TPI was deemed to be the acquiring company, and the Merger was accounted for as a reverse acquisition.

The purchase consideration was approximately $83.1 million. The purchase consideration was determined based on the fair value of the net assets exchanged.

Transcept Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

Transcept and Novacea completed the Merger principally to continue the development of the late-stage product candidate held by TPI utilizing the additional cash resources held by Novacea.

Allocation of total purchase consideration:

Under the purchase method of accounting, the total purchase consideration was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of January 30, 2009. The excess of the purchase price over the fair value of assets acquired and liabilities assumed was allocated to goodwill. The allocation of the purchase price is as follows (in thousands):


	Allocation of Purchase Price
Cash, cash equivalents and marketable securities	$	80,861
Other assets		3,794
Goodwill		2,962
Existing assumed liabilities		(1,466	)
Assumed lease liability		(856	)
Assumed severance, retention and other merger related obligations		(2,177	)

Total	$	83,118

Goodwill is derived from the value obtained from the additional resources of the combined company.

Assumed severance, retention and other merger related obligations:

Upon completion of the Merger on January 30, 2009, the Company became liable to pay approximately $2.2 million in payments due to Novacea employees upon a change in control, all of which has been paid as of September 30, 2009. None of these payments required on-going services of the employees subsequent to the change in control.

Pro forma information:

The following unaudited pro forma information presents a summary of our consolidated results of operations as if the Merger had taken place as of January 1, 2008 (in thousands, except per share information):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Revenue ⁽¹⁾	$	2,083		$	93		$	2,083		$	60,621
Net income (loss)	$	(3,805	)	$	(11,141	)	$	(20,228	)	$	25,230
Pro forma net income (loss) per share:
Basic	$	(0.29	)	$	(0.86	)	$	(1.54	)	$	1.96

Diluted	$	(0.29	)	$	(0.86	)	$	(1.54	)	$	1.89

Shares used in computing net income (loss) per share:
Basic		13,175			12,947			13,097			12,892

Diluted		13,175			12,947			13,097			13,328

(1)	Revenue for the three and nine month periods ended September 30, 2009 relates to the Collaboration Agreement between the Company and Purdue (see Note 8). Revenue for the three and nine months ended September 30, 2008 related to the collaboration agreement between Novacea and Schering Corporation

Transcept Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

(“Schering”) (the “Schering Collaboration Agreement”). Upon termination of the Schering Collaboration Agreement on April 4, 2008, Novacea recognized as revenue during the second quarter of 2008 the previously deferred revenue balance of $52.4 million related to the non-refundable upfront payments. The deferred revenue balance related to the non-refundable upfront payments from Schering was zero as of September 30, 2008.

The unaudited pro forma results of operations are not necessarily indicative of what would have occurred had the Merger been completed at the beginning of the respective periods or of the results that may occur in the future.

3. Results of Operations

Net Loss Per Share

Basic net loss per share is computed by dividing net loss by the weighted average number of vested shares outstanding during the period. Diluted net loss per share is computed by giving effect to all potential dilutive common securities, including options and common stock subject to repurchase.

The following table presents the calculation of basic and diluted net loss per share (unaudited):


	Three months ended September 30,						Nine months ended September 30,
	2009			2008			2009			2008
Numerator:
Net loss	$	(3,804,848	)	$	(4,259,690	)	$	(19,455,726	)	$	(13,840,004	)

Denominator:
Weighted average shares outstanding		13,209,405			492,640			11,808,005			463,856
Less: Weighted average shares subject to repurchase		(34,598	)		(69,863	)		(43,353	)		(78,642	)

Denominator for basic and diluted net loss per share		13,174,807			422,777			11,764,652			385,214

Basic and diluted net loss per share	$	(0.29	)	$	(10.08	)	$	(1.65	)	$	(35.93	)

The following outstanding shares subject to options and warrants to purchase common stock, common stock subject to repurchase, convertible preferred stock and shares subject to warrants to purchase convertible preferred stock were antidilutive due to a net loss in the periods presented and, therefore, were excluded from dilutive securities computation as of the periods indicated below (unaudited):


	September 30,
	2009	2008
Shares subject to options to purchase common stock	1,798,972	1,077,298
Shares subject to warrants to purchase common stock	156,007	—
Common stock subject to repurchase	29,406	64,671
Convertible preferred stock (as-converted basis)	—	7,349,970
Shares subject to warrants to purchase convertible preferred stock	—	156,007

Total	1,984,385	8,647,946

Transcept Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income (loss) and unrealized gains (losses) on available-for-sale securities. Total comprehensive income (loss) for the three and nine months ended September 30, 2009 and 2008 are as follows:


	Three months ended September 30,						Nine months ended September 30,
	2009			2008			2009			2008
Net loss	$	(3,804,848	)	$	(4,259,690	)	$	(19,455,726	)	$	(13,840,004	)
Changes in unrealized gain (loss) on marketable securities		(8,126	)		(3,203	)		38,933			(70,673	)

Comprehensive net income (loss)	$	(3,812,974	)	$	(4,262,893	)	$	(19,416,793	)	$	(13,910,677	)

4. Fair Value

On January 1, 2008, the Company adopted ASC Topic 820, “ Fair Value Measurements and Disclosures ” (formerly SFAS No. 157) as it applies to its financial assets and financial liabilities. ASC Topic 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Fair value is defined as the estimated exit price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date rather than on an entry price which represents the purchase price of an asset or liability. ASC Topic 820 establishes a fair

value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:

•

Level 1 - Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

•

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•

Level 3 - Unobservable inputs (i.e. inputs that reflect the reporting entity’s own assumptions about the assumptions that market participants would use in estimating the fair value of an asset or liability) are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

In accordance with ASC Topic 820, the following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and marketable securities) and liabilities (convertible preferred stock warrant liabilities) measured at fair value on a recurring basis as of September 30, 2009:


	September 30, 2009		Fair Value Measurements at Reporting Date Using
	September 30, 2009		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Certificates of deposit	$	200,072	$	200,072	$	—	$	—
Money market funds		10,104,892		10,104,892		—		—
U.S. Treasury securities		82,267,020		—		82,267,020		—

	$	92,571,984	$	10,304,964	$	82,267,020	$	—

Liabilities
Convertible preferred stock warrant liabilities	$	—	$	—	$	—	$	—

Transcept Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

The following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and marketable securities) and liabilities (convertible preferred stock warrant liabilities) measured at fair value on a recurring basis as of December 31, 2008:


	December 31, 2008		Fair Value Measurements at Reporting Date Using
	December 31, 2008		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Certificates of deposit	$	200,187	$	200,187	$	—	$	—
Money market funds		4,031,129		4,031,129		—		—
U.S. corporate debt		999,960		—		999,960		—
U.S. government sponsored enterprise issues		5,750,850		—		5,750,850		—
U.S. Treasury securities		499,990		—		499,990		—

	$	11,482,116	$	4,231,316	$	7,250,800	$	—

Liabilities
Convertible preferred stock warrant liabilities	$	599,845	$	—	$	—	$	599,845

The following table sets forth the changes in the fair value of the Company’s Level 3 financial liabilities (convertible preferred stock warrant liabilities), which were measured at fair value on a recurring basis for the period ended September 30, 2009:


Fair value as of December 31, 2008	$	599,845
Change in fair value		(199,673	)
Transfer to equity upon conversion of preferred stock to common stock on January 30, 2009		(400,172	)

Fair value as of March 31, June 30 and September 30, 2009	$	—

The decrease in fair value of the convertible preferred stock warrant liabilities of $199,673 was recognized in other income (expense), net in the statements of operations. Concurrent with the Merger as described in Note 1 above, the warrants to purchase preferred stock were converted into warrants to purchase common stock with the same exercise prices and expiration dates, and the aggregate fair value of these warrants was reclassified from a liability to additional paid-in capital, a component of stockholders’ equity (net capital deficiency).

No other assets and liabilities were carried at fair value as of September 30, 2009.

Transcept Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

5. Cash, Cash Equivalents, and Marketable Securities

The following is a summary of cash, cash equivalents, restricted cash, and short-term marketable securities as of the respective dates:


	September 30, 2009
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Cash	$	624,702	$	—	$	—	$	624,702
Certificates of deposit		200,072		—		—		200,072
Money market funds		10,104,892		—		—		10,104,892
U.S. Treasury securities		82,202,262		64,758		—		82,267,020

	$	93,131,928	$	64,758	$	—	$	93,196,686


	December 31, 2008
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Cash	$	400,376	$	—	$	—	$	400,376
Corporate notes		997,833		2,127		—		999,960
Certificates of deposit		200,187		—		—		200,187
Government sponsored enterprise issues		5,727,573		23,277		—		5,750,850
Money market funds		4,031,129		—		—		4,031,129
U.S. Treasury securities		499,568		422		—		499,990

	$	11,856,666	$	25,826	$	—	$	11,882,492


During the first nine months of 2009, proceeds from the sales of available-for-sale marketable securities totaled $47,281,706 with realized gains of $110,747. There were no sales of available-for-sale marketable securities during the first nine months of 2008. The amortized cost and estimated fair value of available-for-sale marketable securities at September 30, 2009 and December 31, 2008 were as follows:

	September 30, 2009				December 31, 2008
	Cost		Fair value		Cost		Fair value
Cash equivalents	$	10,729,594	$	10,729,594	$	4,431,505	$	4,431,505
Marketable securities		82,202,334		82,267,092		7,225,161		7,250,987
Restricted cash		200,000		200,000		200,000		200,000

	$	93,131,928	$	93,196,686	$	11,856,666	$	11,882,492

Based on the fair value of the Company’s marketable securities at September 30, 2009, $2,024,340 had a contractual maturity of between one and two years, and the remaining $80,242,752 had a contractual maturity of one year or less.

6. Loans and Security Agreement

In February 2006, the Company entered into a Loan and Security Agreement (the “Agreement”) with Hercules Technology Growth Capital (“Hercules”). Under the terms of the Agreement, the Company was initially entitled to draw up to $4.0 million. This amount was raised to $10.0 million upon reaching certain development milestones, which were achieved in October 2006. Interest under the loan was fixed at prime plus 2.69% at the date of the initial draw. The Company drew down an advance of $4.0 million on May 31, 2006, and drew down the remaining available advance of $6.0 million on December 28, 2006, against which interest accrued at rates of 10.69% and 10.94%, respectively. The draw required interest only repayment for the period from initial borrowing to December 31, 2006. Principal and interest repayment commenced in January 2007, to be continued for 33 months. Under the terms of the Agreement, the Loan was secured by a perfected first priority security interest in all of the Company’s tangible and intangible assets owned or subsequently acquired, except for intellectual property. On February 3, 2009, the Company repaid the remaining outstanding principal and interest under this loan, in the amount of $2,763,437, which included a 2% prepayment charge. The prepayment charge of $54,153 was included in interest expense during the first quarter of 2009.

Transcept Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

In connection with the Agreement, the Company was required to pay approximately $123,000 in facility and other fees. These fees were capitalized in other assets and were being amortized to interest expense over the term of the loan. In conjunction with the full repayment of the loan in February 2009, as noted above, the remaining facility and other fees of $27,661 were amortized to interest expense during the first quarter of 2009.

In addition, in connection with the Agreement in May and December 2006, the Company issued warrants to purchase 61,452 shares of Series C convertible preferred stock at an exercise price of $8.136 per share. These warrants were valued using the Black-Scholes valuation model, and the resulting estimated fair value of the warrants at the date of issuance was $439,968, which was recorded as a debt discount to the credit facility in 2006. The discount was amortized to interest expense over the repayment period. In conjunction with the full repayment of the loan in February 2009, as noted above, the remaining debt discount of $47,332 was charged to interest expense during the first quarter of 2009.

7. Commitments and Contingencies

Leases

In February 2006, the Company signed an operating lease for its corporate offices that include approximately 11,600 square feet of office and laboratory space in Pt. Richmond, California. The lease term is for seven years, commencing on June 1, 2006. In June 2007, the Company amended this operating lease to add approximately 3,000 square feet of additional office space. The lease term of this amendment coincides with the original lease agreement, with a separate commencement date of September 12, 2007. As part of this amendment, the landlord agreed to contribute $60,000 toward the costs of tenant improvements for the additional space. This landlord contribution is being amortized on a straight-line basis over the term of the lease as a reduction to rent expense.

On February 20, 2009, the Company signed an operating lease for 12,257 square feet of general office space in Pt. Richmond, California. The lease term commenced in March 2009 and terminates on May 31, 2013, with an option to renew for an additional five years. Total base rent payable by the Company from commencement of the lease through the end of the first term of the lease is approximately $0.8 million. In conjunction with the restructuring described in Note 9 below, the Company vacated this property in August 2009 and has recorded a charge of $178,000 related to the fair value of the remaining lease payments reduced by estimated sublease income. This liability will be amortized using the effective interest method over the remaining life of the lease.

In June 2007, Novacea entered into an operating lease for 25,288 square feet for corporate facilities located in South San Francisco, California. The lease for the facilities is non-cancelable and has a five-year term with a total obligation of $3.6 million. The lease provides for periodic rent increases based upon previously negotiated or consumer price indexed adjustments, or in the case of an extension, market adjusted rates. As of September 30, 2009, the Company maintained a Certificate of Deposit acting as a security deposit of $770,000 required under conditions of the lease, which was recorded as a noncurrent asset on the Company’s balance sheet. On March 25, 2009, the Company entered into a sublease agreement dated as of March 24, 2009 for 18,368 square feet of the 25,288 square feet located in South San Francisco. The term of the sublease commenced on June 1, 2009 and ends on October 31, 2012. Total base rent payable by the subleasee through the end of the term of the sublease is approximately $1.1 million. In connection with this sublease, on April 6, 2009 the Company received an irrevocable standby letter of credit in the amount of $100,000, expiring May 31, 2010, as a security deposit. On June 16, 2009, the Company entered into a sublease agreement dated for reference purposes as of June 11, 2009 for the remaining 6,920 square feet of the South San Francisco facility. The term of the sublease commenced on July 1, 2009 and ends on October 31, 2012. Total base rent payable by the sublease through the end of the term of the sublease is approximately $0.4 million.

Transcept Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

Contingent Liabilities

Tooling costs—Anderson Packaging

On February 4, 2009, the Company signed a letter agreement with its packaging supplier, Anderson Packaging, Inc. (“API”) related to tooling costs of approximately $624,000 incurred in conjunction with the anticipation of commercialization of Intermezzo ^® . The costs associated with the tooling are intended to be recovered over the first 2,000,000 units of packaged product purchased under the supply agreement. If the full amount of the tooling costs has not been recovered by the second anniversary of the first commercial sale of the packaged product, the Company would be obligated to pay the unpaid balance of the tooling costs. In the event that the launch of the product is delayed beyond February 28, 2010 or cancelled, the Company will reimburse API for the entire amount of the tooling costs.

Indemnity agreements

The Company indemnifies its officers and directors for certain events or occurrences, subject to certain limits. The Company believes the fair value of these indemnification agreements is minimal. Accordingly, the Company has not recognized any liabilities relating to these agreements as of September 30, 2009.

8. Collaboration Agreement

On July 31, 2009, the Company signed the Collaboration Agreement with Purdue that provides an exclusive license to Purdue to commercialize Intermezzo ^® in the United States and pursuant to which:

•

Purdue paid the Company a $25 million non-refundable license fee in August 2009 in connection with the Company’s entry into the Collaboration Agreement.

•

The Company is obligated to seek FDA approval of Intermezzo ^® and to continue development of Intermezzo ^® at its expense until FDA approval.

•

If Purdue does not exercise its right to terminate the Collaboration Agreement, including its right to terminate the agreement after review of any final label for Intermezzo ^® , if approved, Purdue is obligated to pay the Company up to $30 million based upon the timing of an FDA approval of Intermezzo ^® . If Purdue elects to continue with the collaboration, the Company is obligated to transfer the Intermezzo ^® NDA to Purdue and Purdue is obligated to assume the expense associated with maintaining the NDA and further development of Intermezzo ^® in the United States. If the approval of Intermezzo ^® is delayed beyond June 30, 2010, the $30 million milestone payment associated with Purdue’s acceptance of an NDA approval will be reduced by $2 million for each 30-day period between the date of receipt of NDA approval and June 30, 2010.

•

Purdue is then obligated to commercialize Intermezzo ^® in the United States at its expense and pay the Company tiered double-digit base royalties on net sales of Intermezzo ^® in the United States ranging up to the mid-twenty-percent level.

•

Purdue is potentially obligated to pay the Company up to an additional $90 million upon meeting certain intellectual property milestones and upon the achievement of certain net sales targets for Intermezzo ^® in the United States.

•

The Company retained an option to co-promote Intermezzo ^® to psychiatrists in the United States as early as the first anniversary of commercial launch of Intermezzo ^® and upon entry into the market under the co-promotion option, the Company would receive an additional double-digit royalty from Purdue on sales generated by psychiatrists in the United States.

The Company also granted Purdue and an associated company the right to negotiate for the commercialization of Intermezzo ^® in Mexico and Canada, respectively, and retained rights to commercialize Intermezzo ^® in the rest of the world.

Transcept Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

The Company’s co-promote option is terminable by Purdue upon acquisition of the Company or in the event of entry of generic competition to Intermezzo ^® . The royalty payments discussed above are subject to reduction in connection with, among other things, the entry of generic competition to Intermezzo ^® .

The Company plans to recognize revenue from the $25 million non-refundable license fee ratably over an estimated 24-month period starting August 1, 2009 and ending on July 31, 2011. The Company believes that this period for revenue recognition represents the estimated period for which it has significant participatory obligations for the commercialization of Intermezzo ^® . The revenue recognized in connection with the license fee in the three and nine months ended September 30, 2009 was $2.1 million.

9. Restructuring

On August 17, 2009, the Company implemented a reduction of approximately 30% of the Company’s workforce. Affected employees were notified on August 17, 2009. The reduction plan carries out a realignment of the Company’s workforce and operations after a reassessment of the Company’s development activities and corporate objectives in connection with the Company’s recent entry into the Collaboration Agreement described in Note 8 above. The Company expects to substantially complete the reduction plan by the end of 2009. Employees subject to the workforce reduction plan are eligible for one-time severance benefits that include severance pay of approximately $533,000 in total and one year accelerated vesting on outstanding options upon signing a separation and release agreement with the Company. Further, the affected employees were given the choice to extend the exercise period of their options to one year following termination. Total expense related to the modification of these stock options awards is expected to be approximately $138,000.

Additionally, the Company recorded a charge of approximately $178,000 related to the fair value of the remaining lease payments on 12,257 square feet of general office space in Pt. Richmond, California, reduced by estimated sublease income. This liability will be amortized over the remaining life of the lease, which expires on May 31, 2013.

The Company records restructuring activities in accordance with ASC topic 420 Exit or Disposal Cost Obligations (formerly SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities ). The following tables summarize the charges recorded during the quarter and nine months ended September 30, 2009 related to the restructuring plan by type of activity (no such charges were recorded in the comparable prior year periods):


Three and nine months ended September 30, 2009	Severance benefits		Stock option modification		Contract termination costs		Total
Research and development	$	220,131	$	40,946	$	—	$	261,077
General and administrative		206,473		61,660		177,653		445,786

	$	426,604	$	102,606	$	177,653	$	706,863

Since the inception of its restructuring plan through September 30, 2009, the Company has incurred approximately $427,000 of the estimated $533,000 of severance benefits expected to be incurred.

Transcept Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements


	Severance benefits
Restructuring reserves as of January 1, 2009	$	—
Expense		426,604
Payments		(171,039	)

Restructuring reserves as of September 30, 2009	$	255,565

The severance benefit liability is included in accrued liabilities while the contract termination costs are included in the lease liability in the balance sheet.

10. Stockholders’ Equity

Preferred stock

On January 30, 2009, pursuant to the Merger, all outstanding shares of convertible preferred stock were exchanged for a total of 7,349,970 shares of common stock. As of September 30, 2009, there are no issued or outstanding shares of redeemable convertible preferred stock.

Employee stock purchase plan

On June 3, 2009, at the annual meeting of stockholders, the stockholders of the Company approved the 2009 Employee Stock Purchase Plan (“ESPP”). The number of shares available for issuance over the term of the ESPP is limited to 500,000 shares. The ESPP is designed to allow eligible employees of the Company to purchase shares of common stock through periodic payroll deductions. The price of common stock purchased under the ESPP will be equal to 85% of the lower of the fair market value of the common stock on the commencement date of each offering period or the specified purchase date. The first offering period began July 16, 2009 and will end on November 30, 2009. Consequently, no shares have yet been purchased under this plan.

11. Subsequent Events

On October 28, 2009, the Company received a Complete Response Letter from the FDA regarding the NDA for Intermezzo ^® indicating that the NDA was not approved.

In the Complete Response Letter, the FDA stated that it believes the Company has submitted substantial evidence of effectiveness for the use of Intermezzo ^® in the as-needed treatment of insomnia characterized by difficulty returning to sleep after awakening in the middle of the night. The FDA further recognized that the Intermezzo ^® data submitted by the Company did not indicate significant next day residual effects at four hours after use. However, the FDA indicated that the intended use of Intermezzo ^® in the middle of the night represents a unique insomnia indication and dosing strategy for which safety has not been previously established and that the Company did not adequately demonstrate that Intermezzo ^® could reliably be used safely.

The FDA requested additional data demonstrating that Intermezzo ^® , when taken as directed in the middle of the night, would not present an unacceptable risk of residual effects, with particular reference to next day driving ability.

The FDA also expressed two concerns regarding the possibility of patient dosing errors in the middle of the night that could lead to next day residual effects. Specifically, the FDA has asked the Company to address methods to avoid inadvertent dosing with less than four hours of bedtime remaining, and inadvertent re-dosing in a single night.

Based upon the content of the letter, it is possible that the Company will need to conduct one or more additional safety studies. The Company has requested a meeting with the FDA to discuss specific requirements for approval.

Item 2.

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

This report contains forward-looking statements that are based upon current expectations within the meaning of the Private Securities Litigation Reform Act of 1995. We intend that such statements be protected by the safe harbor created thereby. Forward-looking statements involve risks and uncertainties and actual results and the timing of events may differ significantly from those results discussed in the forward-looking statements. Examples of such forward-looking statements include, but are not limited to, statements about or relating to:

•

expectations regarding the need to conduct safety studies or to modify the package presentation in support of potential resubmission of a New Drug Application, or NDA, with the U.S. Food and Drug Administration, or FDA, for Intermezzo ^® ;

•

the potential for Intermezzo ^® to be the first sleep aid approved specifically for use for middle of the night awakenings;

•

expected activities and responsibilities of us and Purdue Pharmaceutical Products L.P., or Purdue, under our United States License and Collaboration Agreement, or the Collaboration Agreement;

•

our potential receipt of revenue under the Collaboration Agreement, including milestone and royalty revenue;

•

the satisfaction of conditions under the Collaboration Agreement with Purdue required for continued commercialization, the payment of potential milestone payments, royalties and other Purdue obligations under the Collaboration Agreement;

•

the potential benefits of, and markets for, Intermezzo ^® and other product candidates;

•

our plans for the manufacturing of Intermezzo ^® , including the manufacture of validation batches;

•

potential competitors and competitive products;

•

expectations with respect to our ability to carry out plans to promote Intermezzo ^® to psychiatrists in the United States through our co-promote option under the Collaboration Agreement, including development of a potential sales and marketing capability;

•

guidance with respect to expected cash, cash equivalents and marketable securities, research and development expenses, and general and administrative expenses;

•

our ability to satisfy liquidity requirements for at least the next twelve months or through the end of 2010;

•

losses, costs, expenses, expenditures and cash flows, including the period of time over which we expect to recognize the revenue associated with the up-front payment under the Collaboration Agreement and expected payments in regard to tooling and validation costs to Anderson Packaging, Inc., or API;

•

capital requirements and our needs for additional financing;

•

the ability and degree to which we will obtain and maintain market exclusivity from the FDA for Intermezzo ^® under Section 505(b)(2) of the Federal Food and Drug Cosmetic Act;

•

future payments under lease obligations and equipment financing lines;

•

our ability to obtain and maintain patent protection for Intermezzo ^® without violating the intellectual property rights of others; and

•

expected future sources of revenue and capital.

We undertake no obligation to, and expressly disclaim any obligation to, revise or update the forward-looking statements made herein or the risk factors whether as a result of new information, future events or otherwise. Forward-looking statements involve risks and uncertainties, which are more fully discussed in the “Risk Factors” section and elsewhere in this Quarterly Report, including, but not limited to, those risks and uncertainties relating to:

•

our ability to design or successfully carry out additional safety studies in support of potential resubmission of an NDA for Intermezzo ^® ;

•

positive results in clinical trials and successful delivery of additional data from safety studies may not be sufficient to obtain FDA regulatory approval of Intermezzo ^® or to grant marketing exclusivity for Intermezzo ^® under Hatch-Waxman;

•

potential termination of the Collaboration Agreement by Purdue;

•

our satisfaction of conditions under the Collaboration Agreement with Purdue required for Purdue to carry out its obligations under such agreement;

•

difficulties or delays in building a sales organization in connection with any exercise of our co-promote option to psychiatrists under the Collaboration Agreement;

•

physician or patient reluctance to use Intermezzo ^® , if approved;

•

changing standards of care and the introduction of products by competitors, including generic products whose introduction could reduce our royalty rates under the Collaboration Agreement, or alternative therapies for the treatment of indications we target;

•

unexpected adverse side effects or inadequate therapeutic efficacy of our product candidates that could slow or prevent product approval or approval for particular indications;

•

inability to obtain additional financing, if necessary;

•

the uncertainty of protection for our intellectual property, through patents, trade secrets or otherwise;

•

potential infringement of the intellectual property rights or trade secrets of third parties; and

•

other difficulties or delays in development, testing, obtaining regulatory approval for, and undertaking production and marketing of our product candidates.

Intermezzo ^® , Bimucoral ^® , Transcept Pharmaceuticals, Inc.™, and Asentar™ are registered and unregistered trademarks in the United States and other jurisdictions. Other trademarks and trade names referred to in this Quarterly Report on Form 10-Q are the property of their respective owners.

Overview

Prior to January 30, 2009 we were known as Novacea, Inc. On January 30, 2009, we completed a business combination, referred to as the Merger, with Transcept Pharmaceuticals, Inc., or TPI. For accounting purposes, TPI was deemed to be the acquiring entity in the Merger. In connection with the Merger, we changed our name to Transcept Pharmaceuticals, Inc. and effected a 1-for-5 reverse stock split of our Common Stock. All share and per share disclosures have been retroactively adjusted to reflect the exchange of shares in the Merger, and the 1-for-5 reverse split of our Common Stock on January 30, 2009. All references to “Transcept,” “we,” “us,” “our” or the “Company” mean Transcept Pharmaceuticals, Inc., the publicly-traded combined company resulting from the Merger and, as successor to the business of TPI, includes activities taking place with respect to the business of TPI prior to the merger of TPI and Novacea, as applicable.

The following analysis reflects the historical financial results of TPI prior to the Merger and that of the combined company following the Merger, and does not include the historical financial results of Novacea prior to the completion of the Merger.

We are a specialty pharmaceutical company focused on the development and commercialization of proprietary products that address important therapeutic needs in neuroscience. Our most advanced product candidate, Intermezzo ^® , is a sublingual low dose formulation of zolpidem that is being developed for use in the middle of the night at the time a patient awakens and has difficulty returning to sleep.

We submitted an NDA for Intermezzo ^® to the FDA on September 30, 2008, which was accepted for filing on December 15, 2008. On October 28, 2009, we received a Complete Response Letter from the FDA regarding our NDA indicating that it was not approved.

In the Complete Response Letter the FDA stated that it believes we had submitted substantial evidence of effectiveness for the use of Intermezzo ^® in the as-needed treatment of insomnia characterized by difficulty returning to sleep after awakening in the middle of the night. The FDA further recognized that the Intermezzo ^® data we submitted did not indicate significant next day residual effects at four hours after use. However, the FDA indicated that the intended use of Intermezzo ^® in the middle of the night represents a unique insomnia indication and dosing strategy for which safety has not been previously established and that we did not adequately demonstrate that Intermezzo ^® could reliably be used safely.

The FDA also expressed two concerns regarding the possibility of patient dosing errors in the middle of the night that could lead to next day residual effects. Specifically, the FDA has asked us to address methods to avoid inadvertent dosing with less than four hours of bedtime remaining, and inadvertent re-dosing in a single night.

Based upon the content of the letter, it is possible that we will need to conduct one or more additional safety studies. We have requested a meeting with the FDA to discuss specific requirements for approval.

On July 31, 2009, we entered into the Collaboration Agreement with Purdue that provides for an exclusive license to Purdue to commercialize Intermezzo ^® in the United States and pursuant to which:

•

On August 4, 2009, Purdue paid us a $25 million non-refundable license fee in connection with our entry into the Collaboration Agreement.

•

We are obligated to seek FDA approval of Intermezzo ^® and to continue development of Intermezzo ^® at our expense until FDA approval.

•

If Purdue does not exercise its right to terminate the Collaboration Agreement, including its right to terminate the agreement after review of any final label for Intermezzo ^® , if approved, Purdue is obligated to pay us up to $30 million based upon the timing of an FDA approval of Intermezzo ^® . If Purdue elects to continue with the collaboration, we are obligated to transfer the Intermezzo ^® NDA to Purdue and Purdue is obligated to assume the expense associated with maintaining the NDA and further development of Intermezzo ^® in the United States. If the approval of Intermezzo ^® is delayed beyond June 30, 2010, the $30 million milestone payment associated with Purdue’s acceptance of an NDA approval will be reduced by $2 million for each 30 day period between the date of receipt of NDA approval and June 30, 2010.

•

Purdue is then obligated to commercialize Intermezzo ^® in the United States at its expense and pay us tiered double-digit base royalties on net sales of Intermezzo ^® in the United States ranging up to the mid-twenty-percent level;

•

Purdue is potentially obligated to pay us up to an additional $90 million upon meeting certain intellectual property milestones and upon the achievement of certain net sales targets for Intermezzo ^® in the United States.

•

We retained an option to co-promote Intermezzo ^® to psychiatrists in the United States as early as the first anniversary of commercial launch of Intermezzo ^® and upon entry into the market under the co-promotion option, we would receive an additional double-digit royalty from Purdue on sales generated by psychiatrists in the United States.

We also granted Purdue and an associated company the right to negotiate for the commercialization of Intermezzo ^® in Mexico and Canada, respectively, and retained rights to commercialize Intermezzo ^® in the rest of the world.

Our co-promote option is terminable by Purdue upon our acquisition by a third party or in the event of entry of generic competition to Intermezzo ^® . The royalty payments discussed above are subject to reduction in connection with, among other things, the entry of generic competition to Intermezzo ^® .

We have incurred net losses since inception as we have devoted substantially all of our resources to research and development, including contract manufacturing and clinical trials. As of September 30, 2009, we had cash, cash equivalents, and marketable securities of $93.0 million, working capital of $79.3 million and an accumulated deficit of $84.6 million.

Our ability to generate near term revenue is dependent upon the receipt of milestone and royalty payments under our Collaboration Agreement with Purdue, which are dependent upon the regulatory approval by the FDA of our lead product candidate, Intermezzo ^® . To achieve profitable operations, Intermezzo ^® must be successfully developed and commercialized and we may need to identify, develop and commercialize future product candidates. Even if approved, our products may not achieve market acceptance and will face competition from both generic and branded pharmaceutical products.

Financial Operations Overview

Revenue

We plan to recognize revenue from the $25 million non-refundable license fee received pursuant to our Collaboration Agreement with Purdue ratably over an estimated 24-month period starting August 1, 2009 and ending on July 31, 2011. We believe that this period for revenue recognition represents the estimated period for which we have significant participatory obligations for the commercialization of Intermezzo ^® . The revenue recognized in connection with the license fee in the three and nine months ended September 30, 2009 was $2.1 million.

Research and Development Expenses

Research and development expenses have represented approximately 36% and 53% of total operating expenses for the three months ended September 30, 2009 and 2008, respectively and 30% and 62% of total operating expenses for the nine months ended September 30, 2009 and 2008, respectively. Research and development costs are expensed as incurred. Research and development expenses consist of expenses incurred in identifying, researching, developing and testing product candidates. These expenses primarily consist of the following:

•

Salaries, benefits, travel and related expense of personnel associated with research and development activities;

•

Fees paid to professional service providers for services related to the conduct and analysis of clinical trials;

•

Contract manufacturing costs for formulations used in clinical trials, as well as scale up activities in anticipation of a potential launch of Intermezzo ^® ;

•

Laboratory supplies and materials;

•

Depreciation of equipment; and

•

Allocated costs of facilities and infrastructure.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related expenses for personnel in executive, marketing, finance and accounting, information technology and human resource functions. Other costs include facility costs not otherwise included in research and development expenses and professional fees for legal and accounting services.

Following the Merger, we have increased our general and administrative expenses for activities associated with operating as a publicly-traded company, including professional fees for consulting, legal and accounting as well as business licenses and fees. These increases include the hiring of additional personnel.

As we continued working toward commercialization of Intermezzo ^® in the United States, we increased spending on our sales and marketing infrastructure, including increased headcount and marketing expenses necessary to prepare for the commercialization of Intermezzo ^® . Following our entry into the Collaboration Agreement with Purdue, the majority of our sales and marketing activities have been transitioned to Purdue.

Interest Income

We receive interest income from cash, cash equivalents, restricted cash and marketable securities held with certain financial institutions.

Interest Expense

We incurred interest expense on the outstanding balance from our $10.0 million venture debt facility agreement, which was repaid in full during the first quarter of 2009. We also incur interest expense on a $0.3 million loan for tenant improvements, payable to the landlord of our corporate facility in Pt. Richmond, California.

Other Income/Expense (Net)

Other income/expense (net) relates to the change in fair value of preferred stock warrants, gains or losses on sales of marketable securities and other miscellaneous items. In connection with the Merger, the outstanding preferred stock warrants became outstanding common stock warrants and therefore are no longer treated as a liability requiring remeasurement to fair market value at each balance sheet date.

Results of Operations

Comparison of the Three Months Ended September 30, 2009 and 2008

The following table summarizes results of operations with respect to the items set forth below for the three months ended September 30, 2009 and 2008, in thousands, together with the percentage change in those items.


	For the Three Months Ended September 30,
	2009			2008			$ Change			% Change
Revenue	$	2,083		$	—		$	2,083		—
Research and development expenses		2,136			2,453			(317	)	(13	)%
General and administrative expenses		3,840			2,142			1,698		79	%
Interest income		55			134			(79	)	(59	)%
Interest expense		(4	)		(176	)		172		98	%
Other income (expense), net		36			377			(341	)	(90	)%

Revenue

Revenue for the three month period ended September 30, 2009 relates to recognition of a portion of the $25 million non-refundable license fee we received from Purdue in connection with our entry into the Collaboration Agreement. We plan to recognize revenue over an estimated 24-month period starting in August 2009 through July 2011 as we have continuing participatory obligations under the agreement for the commercialization of Intermezzo ^® . Therefore, we have deferred the license fee and will recognize $1.04 million per month from the date we received the payment in August 2009 through July 2011.

Research and Development Expenses

Research and development expenses decreased 13% to $2.14 million for the three months ended September 30, 2009 from $2.45 million for the comparable period in 2008. The decrease of $0.31 million for the three months ended September 30, 2009 is primarily attributable to reduced levels of activities for regulatory affairs and contract manufacturing. These decreases were partially offset by severance expenses incurred in connection with the restructuring announced in August 2009. In addition, non-cash stock-based compensation expenses increased for the quarter ended September 30, 2009 over the comparable period in 2008.

General and Administrative Expenses

General and administrative expenses increased 79% to $3.84 million for the three months ended September 30, 2009 from $2.14 million for the comparable period in 2008. The approximate $1.70 million increase for the three months ended September 30, 2009 as compared to September 30, 2008 consists of the following:

•

Personnel costs and related expenses increased by $0.78 million due to an increase in headcount to operate as a publicly-traded company and to prepare for the potential commercialization of Intermezzo ^® . Headcount increases were in the marketing, finance, executive and operations functions. In addition, severance expenses related to the restructuring as noted above and higher non-cash stock-based compensation expense also contributed to increased general and administrative expense in the current quarter;

•

Professional fees, including consulting, legal and accounting fees increased by $0.50 million primarily attributable to costs associated with operating as a publicly-traded company and negotiating our Collaboration Agreement with Purdue; and

•

Other general and administrative expenses increased by $0.42 million due to increased insurance for operating as a publicly-traded company and costs associated with additional office space.

Interest Income

Interest income decreased 59% to $55,000 for the three months ended September 30, 2009 from $134,000 for the comparable period in 2008. The decrease of approximately $79,000 for the three months ended September 30, 2009 is primarily attributable to changing the mix of investments toward lower risk, lower yield instruments due to the downturn in the U.S. and world economy during the second half of 2008. In addition, investments held during the third quarter of 2008 were, in the aggregate, purchased at a discount to face value whereas investments held during the third quarter of 2009 were primarily acquired at a premium. Amortization of bond premiums is recorded as a reduction of interest income.

Interest Expense

Interest expense decreased 98% to $4,000 for the three months ended September 30, 2009 from $176,000 for the comparable period in 2008. The $172,000 decrease for the three months ended September 30, 2009 was primarily attributable to lower average outstanding debt during the 2009 period as compared to the same period in the prior year due to the repayment in full of our debt under a Loan and Security Agreement with Hercules Technology Growth Capital during the first quarter 2009.

Other Income (Expense), Net

Other income (expense), net decreased 90% to $36,000 for the three months ended September 30, 2009 from $377,000 for the comparable period in 2008. Other income for the three months ended September 30, 2009 primarily consisted of realized gains on sales of marketable securities. Other income for the three months ended September 30, 2008 related to a decrease in the fair value of the preferred stock warrants resulting in other income for the period and a decrease in the warrant liability.

Comparison of the Nine Months Ended September 30, 2009 and 2008

The following table summarizes results of operations with respect to the items set forth in the following table for the nine months ended September 30, 2009 and 2008, in thousands, together with the percentage change in those items.


	For the Nine Months Ended September 30,
	2009			2008			$ Change			% Change
Revenue	$	2,083		$	—		$	2,083		—
Research and development expenses		6,607			8,845			(2,238	)	(25	)%
General and administrative expenses		13,073			5,366			7,707		144	%
Merger related transaction costs		2,224			—			2,224		—
Interest income		240			682			(442	)	(65	)%
Interest expense		(175	)		(618	)		443		72	%
Other income (expense), net		300			306			(6	)	(2	)%

Revenue

Revenue for the nine month period ended September 30, 2009 relates to recognition of a portion of the $25 million non-refundable license fee we received from Purdue in connection with our entry into the Collaboration Agreement. We plan to recognize revenue over an estimated 24-month period starting in August 2009 through July 2011 as we have continuing participatory obligations under the agreement for the commercialization of Intermezzo ^® . Therefore, we have deferred the license fee and will recognize $1.04 million per month from the date we received the payment in August 2009 through July 2011.

Research and Development Expenses

Research and development expenses decreased 25% to $6.61 million for the nine months ended September 30, 2009 from $8.85 million for the nine months ended September 30, 2008. The decrease of $2.24 million for the nine months ended September 30, 2009 is primarily attributable to Intermezzo ^® development costs as a result of the following:

•

a decrease in clinical trial costs of $0.83 million due primarily to the Phase 3 outpatient trial being largely completed by year end 2007, with trial closeout activities occurring during the first half of 2008;

•

a decrease of $0.65 million in registration and submission third party costs related to the filing of our NDA in September 2008; and

•

a decrease in manufacturing costs of $0.61 million as formulation development and packaging development as well as the purchase of raw materials was largely completed by September 2008 when we filed our NDA partially offset by the manufacture of validation batches during the first three quarters of 2009 and expected to continue for the remainder of the year.

The remaining $0.15 million reduction in research and development expenses is due to a reduction of staffing levels in our clinical development department during the latter half of 2008 resulting in reduced salary and related benefits during the first three quarters of 2009 as compared to the first three quarters of 2008. The decrease was partially offset by severance expenses incurred in connection with the restructuring announced in August 2009.

We expect full year 2009 research and development expenses to be comparable or slightly lower than our 2008 research and development expense levels until such time as we initiate development activities for Intermezzo ^® outside the United States, advance the development of our pipeline product candidates, or undertake additional development of Intermezzo ^® in support of regulatory approval in the United States.

General and Administrative Expenses

General and administrative expenses increased 144% to $13.07 million for the nine months ended September 30, 2009 from $5.37 million for the comparable period in 2008. The approximate $7.70 million increase for the nine months ended September 30, 2009 as compared to September 30, 2008, respectively, consists of the following:

•

Professional fees, including consulting, legal and accounting fees increased by $2.90 million primarily attributable to costs associated with operating as a publicly-traded company and negotiating our Collaboration Agreement with Purdue;

•

Personnel costs and related expenses increased by $2.23 million due to an increase in headcount to operate as a publicly-traded company, to prepare for the potential commercialization of Intermezzo ^® , and for severance expenses related to the restructuring as noted above. Headcount increases were in the marketing, finance, executive and operations functions;

•

Market research and other third party marketing expenses increased by $1.24 million to support the development of the Intermezzo ^® commercialization plan; and

•

Other general and administrative expenses increased by $1.33 million due to increased insurance for operating as a publicly-traded company, costs associated with additional office space and increased travel to prepare for potential Intermezzo ^® commercialization.

Full year 2009 general and administrative expenses are expected to increase as compared to 2008 in connection with professional fees related to the merger of Transcept and Novacea and the Collaboration Agreement between Transcept and Purdue, administrative infrastructure and professional fees related to our public company status and marketing activities related to preparation for potential commercialization of Intermezzo ^® . Following our entry into the Collaboration Agreement with Purdue, the majority of marketing activities for Intermezzo ^® were transitioned to Purdue.

Merger related transaction costs

Merger related transaction costs consist primarily of $2.0 million in financial and advisory fees and $0.2 million in legal fees incurred in connection with the close of the merger transaction in January 2009.

Interest Income

Interest income decreased 65% to $240,000 for the nine months ended September 30, 2009 from $682,000 for the comparable period in 2008. The decrease of approximately $442,000 for the nine months ended September 30, 2009 is primarily attributable to changing the mix of investments toward lower risk, lower yield instruments due to the downturn in the U.S. and world economy during the second half of 2008. In addition, investments held during the first three quarters of 2008 were, in the aggregate, purchased at a discount to face value whereas investments held during the first three quarters of 2009 were primarily acquired at a premium. Amortization of bond premiums is recorded as a reduction of interest income.

Interest Expense

Interest expense decreased 72% to $175,000 for the nine months ended September 30, 2009 from $618,000 for the comparable period in 2008. The $443,000 decrease for the nine months ended September 30, 2009 was primarily attributable to lower average outstanding debt during the 2009 period as compared to the same period in the prior year and included $129,000 related to repayment in full of the Hercules debt, including a charge for early repayment, write off of remaining debt discount and loan fees.

Other Income (Expense), Net

Other income (expense), net decreased 2% to $300,000 for the nine months ended September 30, 2009 from $306,000 for the comparable period in 2008. In 2008 through January 2009, the fair market value of the preferred stock warrants declined significantly, resulting in a reduction of the warrant liability and corresponding increase in other income. Other income in 2009 also included $111,000 of realized gains on the sales of marketable securities.

Liquidity and Capital Resources

At September 30, 2009, we had cash, cash equivalents and marketable securities of $93.0 million.

From our inception through the completion of the Merger, we financed our operations primarily through private placements of preferred stock, debt financing and interest income. Through September 30, 2009, we received net proceeds of $71.1 million from the sale of preferred stock. In January 2009, through the Merger, we acquired an additional $80.9 million in cash, cash equivalents and marketable securities. On August 4, 2009, we received a $25 million non-refundable license fee from Purdue in connection with our entry into the Collaboration Agreement.

In April 2006, we entered into a $10.0 million venture debt facility agreement with Hercules Technology Growth Capital, Inc., or Hercules, and drew down $4.0 million in May 2006 and $6.0 million in December 2006, against which interest accrued at rates of 10.69% and 10.94%, respectively. Outstanding principal, accrued interest, and unpaid interest under the loan and security agreement became due and payable on certain change of control transactions. In conjunction with the Merger noted above and pursuant to an agreement with Hercules, on February 3, 2009 we repaid in full all amounts outstanding related to this loan.

The following table summarizes our cash provided by (used in) operating, investing and financing activities (in thousands):


	Nine Months Ended September 30, (unaudited)
	2009			2008
Net cash provided by (used in) operating activities	$	4,489		$	(14,546	)
Net cash provided by investing activities		4,811			16,933
Net cash used in financing activities		(3,002	)		(2,654	)

Operating Activities

Net cash provided by operating activities was $4.5 million for the nine months ended September 30, 2009, compared to cash used by operating activities of $14.5 million for the nine months ended September 30, 2008. Net cash provided by operations during the nine months ended September 30, 2009 was primarily related to our net loss adjusted for deferred revenue resulting from the $25.0 million non-refundable license fee from Purdue in connection with our entry into the Collaboration Agreement. Net cash used in operating activities for the nine months ended September 30, 2008 consisted primarily of our net loss adjusted for noncash items such as depreciation, amortization, stock-based compensation charges and noncash interest expense, as well as net changes in working capital.

Investing Activities

Net cash provided by investing activities was $4.8 million for the nine months ended September 30, 2009, compared to net cash provided by investing activities of $16.9 million for the nine months ended September 30, 2008. $80.9 million of net cash provided by investing activities during the first three quarters of 2009 relates to the cash, cash equivalents and marketable securities that came from our merger with Novacea. This was partially offset by $75.8 million used in investing activities for the nine months ended September 30, 2009 due to purchases of marketable securities, net of sales and maturities, during the period. $17.1 million provided by investing activities for the nine months ended September 30, 2008 was primarily due to maturities of marketable securities, net of purchases, during the period. Uses of cash in investing activities for both periods also included net purchases of property and equipment.

Financing Activities

Net cash used in financing activities during the nine months ended September 30, 2009 was $3.0 million, compared to net cash used in financing activities during the nine months ended September 30, 2008 of $2.7 million. While both periods consisted primarily of debt repayment, the outstanding debt with Hercules Technology Growth Capital was fully repaid during the first quarter of 2009.

Capital Resources

Based on currently available information, we expect that our cash, cash equivalents, and marketable securities balances will be sufficient to satisfy our liquidity requirements for at least the next twelve months. If, at any time, our prospects for the commercialization of Intermezzo ^® diminish, we may decide to reduce operating expenses by limiting research and development efforts with respect to other potential product candidates. Alternatively, we may decide to raise funds through public or private financings, collaboration relationships or other arrangements. There can be no assurance that funding, if needed, will be available on attractive terms, or at all. Furthermore, any additional equity financing may be dilutive to stockholders and debt financing, if available, may involve restrictive covenants. Similarly, financing obtained through future collaborations may require us to forego certain commercialization and other rights to our drug candidates. Our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategy.

Merger Related Uses of Cash

Shortly after the January 30, 2009 close of the Merger with Novacea, we repaid in full our outstanding credit obligations to Hercules Technology Growth Capital in the approximate amount of $2.8 million including interest and prepayment penalty and also paid merger-related financial advisory fees of approximately $2.0 million.

Upon completion of the Merger on January 30, 2009, we became liable to pay approximately $2.2 million in payments due to Novacea employees upon a change in control, all of which has been paid as of September 30, 2009. None of these payments required on-going services of the employees subsequent to the change in control.

Potential Impact of Global Market and Economic Conditions on Our Liquidity

In the United States and around the world, recent market and economic conditions have been unprecedented and challenging, with tighter credit conditions and slower growth through 2008. During 2008 and into 2009, continued concerns about the systemic impact of the availability and cost of credit, energy costs, geopolitical issues, the U.S. mortgage market, a declining real estate market in the U.S. and added concerns fueled by the federal government interventions in the U.S. financial and credit markets have contributed to instability in both U.S. and international capital and credit markets and diminished expectations for the U.S. and global economy. These conditions, combined with volatile oil prices, declining business and consumer confidence and increased unemployment have contributed to volatility of unprecedented levels and an economic slowdown.

As a result of these market conditions, the cost and availability of capital and credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads. If volatile and adverse market conditions continue, they may limit our ability to timely borrow or access the capital and credit markets to meet liquidity needs, resulting in an adverse effect on our financial condition and results of operations. In addition, the bio-pharmaceutical industry has fluctuated significantly in the past and has experienced significant downturns in connection with, or in anticipation of, deterioration in general economic conditions, and we cannot accurately predict the severity or duration of any downturn.

Contractual Obligations

On February 20, 2009, we signed an operating lease for 12,257 square feet of general office space in Pt. Richmond, California. The lease term commenced in March 2009 and terminates on May 31, 2013, with an option to renew for an additional five years.

On March 25, 2009, we entered into a sublease agreement dated as of March 24, 2009 for 18,368 square feet of the 25,288 square feet located at our South San Francisco facilities. The term of the sublease commenced on June 1, 2009 and ends on October 31, 2012. On June 16, 2009, we entered into a sublease agreement dated for reference purposes as of June 11, 2009 for the remaining 6,920 square feet of the South San Francisco facility. The term of the sublease commenced on July 1, 2009 and ends on October 31, 2012.

In light of the foregoing, our revised contractual obligations and commitments as of September 30, 2009 include potential purchase commitments and future minimum lease payments under operating leases, as shown in the following table (in thousands):


	Payments due by period
Contractual Obligations	Total		Less than one year (2009)		1 to 3 years (2010-2012)		3 to 5 years (2013-2015)		More than 5 years
Operating leases ⁽¹⁾	$	4,069	$	292	$	3,557	$	220	$	—
Purchase commitments ⁽²⁾		350		—		350		—		—
Loan payable ⁽³⁾		222		27		171		24		—

Total contractual obligations	$	4,641	$	319	$	4,078	$	244	$	—

(1)

Includes obligations under an operating lease for current corporate facilities of Transcept, as well as obligations under an operating lease for the former Novacea corporate facilities. In February 2006, we signed an operating lease for our corporate offices that include approximately 11,600 square feet of office and laboratory space in Pt. Richmond, California. The lease term is for seven years, commencing on June 1, 2006. In June 2007, we amended this operating lease to add approximately 3,000 square feet of additional office space. The lease term of this amendment coincides with the original lease agreement, with a separate commencement date of September 12, 2007. Both of these leases provide for periodic rent increases based upon previously negotiated or consumer price indexed adjustments.

In June 2007, Novacea entered into an operating lease for its corporate facilities, located in South San Francisco, California. The Novacea lease for the corporate facilities is non-cancelable and has a five year term. The lease provides for periodic rent increases based upon previously negotiated or consumer price indexed adjustments. On March 25, 2009, we entered into a sublease agreement dated as of March 24, 2009 for 18,368 square feet of the 25,288 square feet located at our South San Francisco facilities. The term of the sublease commenced on June 1, 2009 and ends on October 31, 2012. On June 16, 2009, we entered into a sublease agreement dated for reference purposes as of June 11, 2009 for the remaining 6,920 square feet of the South San Francisco facility. The term of the sublease commenced on July 1, 2009 and ends on October 31, 2012. The above obligations do not include partially offsetting sublease income of approximately $1.4 million.

(2)	Pursuant to the terms of our agreement with Plantex USA Inc., under the purchase order dated August 8, 2008, we are obligated to purchase $350,000 worth of zolpidem tartrate during 2010.

(3)	Loan payable represents a loan from the landlord of our corporate offices in Pt. Richmond, California for tenant improvements.

Additionally, because we did not receive FDA approval on the Intermezzo ^® NDA Prescription Drug User Fee Act date in October 2009, we expect that FDA approval, if received, and resulting launch, of the product will be delayed beyond February 2010. Thus, we expect to be obligated to pay tooling and validation costs of approximately $700,000, including approximately $624,000 in tooling costs to API in 2010.

Critical Accounting Policies

This discussion and analysis of financial condition and results of operations is based on financial statements, which have been prepared in conformity 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 expenses during the reporting periods. We evaluate our estimates and assumptions on an ongoing basis, and base our estimates on historical experience and on various other factors 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 could differ materially from those estimates under different assumptions and conditions.

Significant accounting policies are described in Note 1 to the financial statements included in Part I, Item 1 of this quarterly report on Form 10-Q. Some of these accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates on matters that are inherently uncertain. We believe that the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of our financial statements.

Revenue Recognition

We apply the revenue recognition criteria outlined in Staff Accounting Bulletin No. 104, Revenue Recognition in Financial Statements , and Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 605 Revenue Recognition, 25 Multiple-Element Arrangements.

Revenue is recognized when the four basic criteria of revenue recognition are met:

•

persuasive evidence of an arrangement exists;

•

transfer of technology has been completed or services have been rendered;

•

the fee is fixed or determinable; and

•

collectability is reasonably assured.

For each source of revenue, we comply with the above revenue recognition criteria in the following manner:

•

Up-front license payments are assessed to determine whether or not the licensee is able to obtain any stand-alone value from the license. Where this is not the case, we do not consider the license deliverable to be a separate unit of accounting, and the revenue is deferred with revenue recognition for the license fee being assessed in conjunction with the other deliverables that constitute the combined unit of accounting. When the period of deferral cannot be specifically identified from the agreement, management estimates the period based upon provisions contained within the agreement and other relevant facts. We periodically review the estimated involvement period, which could impact the deferral period and, therefore, the timing and the amount of revenue recognized. It is possible that future adjustments will be made if actual conditions differ from our current plan and involvement assumptions.

•

Royalty revenue from sales of our licensed products, if and when approved for marketing by the appropriate regulatory agency, will be recognized as earned in accordance with the contract terms when royalties from licensees can be reasonably estimated and collectability is reasonably assured.

Clinical Trials

We accrue and expense costs for clinical trial activities performed by third parties, including clinical research organizations and clinical investigators, based upon estimates made of the work completed as of the reporting date, in accordance with agreements established with contract research organizations and clinical trial sites and the agreed upon fee to be paid for the services. We determine these estimates through discussion with internal personnel and outside service providers as to the progress or stage of completion of the trials or services. If the actual timing of performance of services or the level of effort varies from these estimates, the accrual will be adjusted accordingly. Costs of setting up clinical trial sites for participation in the trials are expensed as the activities are performed. Clinical trial site costs related to patient enrollment are accrued as patients are entered into the trial and reduced by any initial payment made to the clinical trial site when the first patient is enrolled. We adjust the estimates as actual costs become known. Through September 30, 2009, differences between actual and estimated activity levels for any particular study have not been material. However, if management does not receive complete and accurate information from vendors or underestimates activity levels associated with a study at a given point in time, we would have to record additional and potentially significant research and development expenses in future periods.

Stock-Based Compensation

Effective January 1, 2006, we adopted the provisions of FASB ASC Topic 718 Compensation—Stock Compensation , or ASC Topic 718 (formerly Statement of Financial Accounting Standards, or SFAS, No. 123(R), Share-Based Payment ) using the prospective transition method and therefore, prior period results have not been restated. ASC Topic 718 superseded Accounting Principles Board Opinion No. 25, Accounting for Stock issued to Employees , and its related interpretations, and revised guidance in SFAS No. 123, Accounting for Stock-Based Compensation . Under the prospective transition method, those options issued prior to January 1, 2006 and valued using the minimum value method are excluded from the fair value accounting of ASC Topic 718. ASC Topic 718 requires an entity to measure the cost of employee services received in exchange for an award of equity instruments based on the fair value of the award on the date of grant and to recognize the cost over the period during which the employee is required to provide service in exchange for the award. Additionally, we are required to include an estimate of the number of awards that will be forfeited in calculating compensation costs, which are recognized over the requisite service period of the awards on a straight-line basis.

Measurement and recognition of share-based compensation under ASC Topic 718 involve significant estimates and subjective inputs. The grant date fair value of stock option awards is determined using an option valuation model, such as the Black-Scholes model used by Transcept, and the amount of expense recognized during the period is affected by many complex and subjective assumptions. These assumptions include estimates of our future volatility, employee exercise behavior, the expected term of the stock options, and the number of options expected to ultimately vest. Until the Merger with Novacea, our stock did not have a readily available market. Consequently, expected future volatility is derived from the historical volatilities of several unrelated public companies within the specialty pharmaceutical industry. When making the selection of our industry peer companies to be used in the volatility calculation, consideration is given to the stage of development, size and financial leverage of potential comparable companies. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to each grant’s expected life. The assumed dividend yield was based on our expectations of not paying dividends in the foreseeable future. Given our limited history to accurately estimate the expected lives for the various employee groups, we used the “simplified” method as provided by Staff Accounting Bulletin No. 107, Share Based Payment . The “simplified” method is calculated as the average of the time-to-vesting and the contractual life of the

options. Share-based compensation recorded in our Statements of Operations is based on awards expected to ultimately vest and has been reduced for estimated forfeitures. Estimated forfeitures may differ from actual forfeiture rates which would affect the amount of expense recognized during the period. Share-based compensation is adjusted to reflect the value of options which ultimately vest as such amounts become known in future periods.

If in the future, our management determines that another method is more reasonable, or if another method for calculating these input assumptions is prescribed by authoritative guidance, and, therefore, should be used to estimate volatility or expected life, the fair value calculated for our stock options could change significantly. Higher volatility and longer expected lives result in an increase to stock-based compensation expense determined at the date of grant. Stock-based compensation expense affects both our research and development expense and general and administrative expense.

There is inherent uncertainty in these estimates and if we had made different assumptions than those described above, the amount of stock-based compensation expense, net loss and net loss per share amounts could have been significantly different.

No related tax benefits of share-based compensation costs have been recognized since our inception.

Warrants to Purchase Convertible Preferred Stock

Effective July 1, 2005, we adopted the provisions of ASC Topic 480 Distinguishing Liabilities from Equity , or ASC Topic 480, (formerly FASB Staff Position No. 150-5, Issuer’s Accounting Under FASB Statement No. 150 for Freestanding Warrants and Other Similar Instruments with Characteristics of Both Liabilities and Equity , an interpretation of SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity ). Under ASC Topic 480, freestanding warrants to purchase shares of convertible preferred stock were classified as liabilities on the balance sheets at fair value because the warrants may conditionally obligate us to transfer assets at some point in the future. The warrants were subject to remeasurement at each balance sheet date, and any change in fair value was recognized as a component of other income (expense), net in the statements of operations. We estimated the fair value of these warrants at the respective balance sheet dates using the Black-Scholes option-pricing model as described in the stock-based compensation section above, based on the estimated market value of the underlying convertible preferred stock at the valuation measurement date, the remaining contractual term of the warrant, risk-free interest rates and expected dividends on and expected volatility of the price of the underlying convertible preferred stock. The assumptions used in the Black-Scholes option-pricing model, especially the market value of the underlying convertible preferred stock and the expected volatility, are highly judgmental and could differ materially in the future.

We continued to record adjustments to the fair value of the warrants at each balance sheet date until the closing of the merger transaction on January 30, 2009, when they became warrants to purchase shares of common stock, wherein the warrants were no longer subject to ASC Topic 480. As of January 30, 2009, the current aggregate fair value of these warrants of $400,172 was reclassified from a liability to additional paid-in capital, a component of stockholders’ equity. We will no longer record any related periodic fair value adjustments. Upon the closing of the merger transaction, the preferred stock warrants were converted into common stock warrants with the same exercise prices and expiration dates.

Off-Balance Sheet Arrangements

Since inception, we have not engaged in any off-balance sheet financing activities, including the use of structured finance, special purpose entities or variable interest entities.

Inflation

We do not believe that inflation has had a significant impact on our results of operations since inception.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk is confined to cash, cash equivalents and marketable securities which have contractual maturities of eighteen months or less, bear interest rates at fixed rates and are denominated in, and pay interest in, U.S. dollars. The goals of our investment policy are preservation of capital, fulfillment of liquidity needs, and fiduciary control of cash and investments. We also seek to achieve income from investments consistent with our investment policy. Investments are classified as available-for-sale. We do not use derivative financial instruments in our investment portfolio. To achieve our goals, we invest excess cash in securities with different maturities to match projected cash needs and limit concentration of credit risk by diversifying investments among a variety of high credit-quality issuers, including U.S. government agencies, commercial paper, corporate bonds and money market funds. The portfolio includes marketable securities with active secondary or resale markets to ensure portfolio liquidity, and we regularly review our portfolio against our policy. Our policy was further amended during 2009 to limit investments to U.S. Treasury debt or Securities and Exchange Commission, or SEC, registered money market funds effective September 30, 2009. Because of the relatively short-term maturities of our investments, we believe that an increase of 10% in market rates would not have a significant impact on the value of our investment portfolio.

Item 4T.

Controls and Procedures

(a) Evaluation of disclosure controls and procedures

Our management evaluated, with the participation and under the supervision of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded, subject to the limitations described below, that our disclosure controls and procedures were effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosures.

(b) Changes in internal control over financial reporting

There were no changes in our internal controls over financial reporting during the nine months ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the controls are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met.

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

None.

Item 1A.

Risk Factors

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below and all information contained in this report before you decide to purchase our common stock. If any of the possible adverse events described below actually occurs, we may be unable

to conduct our business as currently planned and our financial condition and operating results could be harmed. In addition, the trading price of our common stock could decline due to the occurrence of any of these risks, and you may lose all or part of your investment.

In the following discussion, references to “Transcept,” the “Company,” “we,” “us” and “our” refer to the public company formerly known as Novacea, Inc. and now known as Transcept Pharmaceuticals, Inc., and (as successor to the business of the private company formerly known as Transcept Pharmaceuticals, Inc., or TPI, that is now the wholly owned subsidiary of Transcept following the merger of TPI and Novacea) also relates to activities taking place with respect to, and the financial information of, the business of TPI prior to the merger of TPI and Novacea.

We have had a brief operating history that may make it difficult for you to evaluate the potential success of our business and we have a history of incurring losses.

We were founded in January 2001 under our former name Novacea, Inc., and in January 2009 underwent a merger with TPI, a private company founded in 2002 whose business is currently conducted by us. Our operations to date have been limited to organizing and staffing, acquiring, developing and securing technology and undertaking preclinical studies and clinical trials. We have not yet demonstrated an ability to obtain regulatory approval and manufacture marketed products to the U.S. Food and Drug Administration, or FDA, and other regulatory standards, to conduct sales and marketing activities or to support commercialization efforts of a collaboration partner like Purdue. Consequently, any predictions you make about our future success or viability may not be as accurate as they would be if we had a longer operating history.

Furthermore, our business is not profitable and has incurred losses in each year since the inception of TPI in 2002. Our net loss for the years ended December 31, 2008, 2007 and 2006 was $20.0 million, $20.4 million and $13.6 million, respectively. As of December 31, 2008, we had an accumulated deficit of $65.1 million. Our net loss for the nine month period ended September 30, 2009 was $19.5 million. As of September 30, 2009, we had an accumulated deficit of $84.6 million. We expect to continue to incur losses for the foreseeable future unless Intermezzo ^® is approved by the FDA and we receive milestone and royalty revenue from our collaboration with Purdue Pharmaceutical Products L.P., or Purdue, that exceed our expenses. For the foreseeable future, we expect our accumulated deficit to increase as we continue our research, development, regulatory and pre-commercialization efforts with respect to Intermezzo ^® (both in support of our collaboration partner in the United States and potential collaboration partners worldwide) and other product candidates. If Intermezzo ^® or our other product candidates do not gain regulatory approval, are not commercialized or do not achieve market acceptance, we may not be able to generate any revenue. We cannot assure you that we will ever be profitable even if Intermezzo ^® or any other product candidate is commercialized or that we can sustain profitability, even if achieved. If we fail to achieve and maintain profitability, or if we are unable to fund our continuing losses, investors could lose all or part of their investment.

Our success depends substantially on our ability to obtain regulatory approval in the United States for our lead product candidate, Intermezzo ^® and to overcome issues presented by the FDA in response to our New Drug Application.

Our success depends substantially on obtaining regulatory approval for our most advanced product candidate, Intermezzo ^® , for use as needed for the treatment of insomnia when a middle of the night awakening is followed by difficulty returning to sleep, or middle of the night awakening. Regulatory approval to market pharmaceutical products in the United States requires the completion of extensive non-clinical and clinical evaluations of a product candidate, referred to as clinical trials, to demonstrate substantial evidence of both safety and efficacy of the candidate, as well as development of manufacturing processes that demonstrate the ability to reliably and consistently produce the candidate under current Good Manufacturing Practice, or cGMP, regulations. Each of these elements requires pharmaceutical development companies to exercise certain judgments concerning applicable regulatory requirements and to predict what the regulatory authority will ultimately deem acceptable. There can be no assurance that the results of the clinical trials or manufacturing processes for Intermezzo ^® will satisfy the regulatory requirements for approval. A failure to meet these requirements would significantly delay or prevent approval of Intermezzo ^® and seriously harm our ability to generate revenue.

In September 2008, we submitted a New Drug Application, or NDA, to the FDA for Intermezzo ^® which was accepted for filing on December 15, 2008. On October 28, 2009, we received a Complete Response Letter from the FDA formally responding to our Intermezzo ^® NDA. The Complete Response Letter indicated that the FDA did not believe we adequately demonstrated that Intermezzo ^® could reliably be used safely. The NDA was therefore not approved.

In the Complete Response Letter, the FDA noted that we are seeking to gain approval of Intermezzo ^® in a unique insomnia indication for which safety has not previously been established, specifically, the as needed treatment for difficulty returning to sleep after a middle of the night awakening. The FDA’s Complete Response Letter noted that data presented in the Intermezzo ^® NDA indicated no significant residual effects four hours after dosing, as measured by both the Digit Symbol Substitution Test, a commonly used test to measure the impairment of patients taking sedative hypnotics, and next day patient questionnaires. However, the FDA requested additional data demonstrating that Intermezzo ^® , when taken as directed in the middle of the night, would not present an unacceptable risk of residual effects, with particular reference to a patient’s ability to drive the next morning.

The FDA also expressed two concerns in the Complete Response Letter regarding the possibility of patient dosing errors in the middle of the night that could lead to next day residual effects, with particular reference to next day driving ability. Specifically, the FDA asked us to address methods to avoid inadvertent dosing with less than four hours of bedtime remaining, and inadvertent re-dosing of Intermezzo ^® in a single night.

We do not yet definitively know what specific steps we can take in support of FDA approval of the NDA. We plan to meet with the FDA to discuss the FDA’s concerns in greater detail in an effort to gain understanding as to what achievable steps, if any, can be taken in support of the NDA. We believe such steps may include additional safety studies focused on next day driving ability after dosing of Intermezzo ^® in a manner consistent with the proposed label. The risk of designing and conducting studies of a drug’s residual effects on a study subject’s ability to drive is heightened by the fact that such studies have not typically been required for FDA approval of a new sleep agent. Additional studies in support of the NDA, if required, may also or alternatively include studies to assess other measurements of drug safety.

We also need to determine how best to demonstrate to the FDA that Intermezzo ^® would be used in a manner consistent with the proposed label, which may involve the use of a new presentation of the proposed product that may include new dosing instructions, packaging and/ or dispensing methods for Intermezzo ^® to maximize the likelihood that Intermezzo ^® would be taken as directed. Sufficiently demonstrating to the FDA that such new product presentation can adequately minimize patient dosing errors may be difficult or not possible to achieve. Any such new presentation could make Intermezzo ^® a less attractive commercial product and more costly to produce. There can be no assurance that we will be able to identify a new product presentation that will address the FDA’s concerns regarding inadvertent mis-dosing of Intermezzo ^® by patients to a degree sufficient to warrant FDA approval of Intermezzo ^® . If an evaluation of a new product presentation is required in support of FDA approval of Intermezzo ^® , there also can be no assurance that we will be able to effectively design or carry out such evaluation in a cost-effective manner or at all, or that the FDA will find any data arising from such evaluation to be supportive of our efforts to gain approval for Intermezzo ^® . The risks associated with designing and conducting such an evaluation of a new product presentation, which may include clinical studies, are heightened by the fact that recognized standards for such evaluations have not been established. We cannot assure you that any such new presentation, if identified or developed, will be cost-effective or easy to manufacture, and if the Intermezzo ^® NDA is approved after meeting FDA requirements, that such new presentation will not make Intermezzo ^® a less commercially attractive product.

Additionally, despite the FDA’s statement in the Complete Response Letter finding that we presented substantial evidence of effectiveness of Intermezzo ^® , there can also be no assurance that the FDA will not come to a different interpretation of our previously submitted clinical trial data, including data from our two pivotal Phase 3 clinical trials that served as the basis for our Intermezzo ^® NDA, or otherwise alter its view and conclude that Intermezzo ^® is not sufficiently effective to warrant approval.

Because the FDA has not approved a pharmaceutical product specifically to treat middle of the night awakening, there can be no assurance that the FDA will approve this new indication within the insomnia category, even though the FDA did not raise such a concern in its Complete Response Letter. While we expect to continue our efforts to obtain and to follow FDA guidance in order to obtain approval of Intermezzo ^® , the FDA may not agree that any new data or trial results we submit will be sufficient to support Intermezzo ^® approval or may reconsider its guidance, require more clinical trials or otherwise require additional data or studies to justify a new middle of the night awakening indication in the insomnia market.

In addition, we have limited experience in preparing, submitting and prosecuting regulatory filings, including NDAs and other applications necessary to gain regulatory approvals. Unless we receive regulatory approval from the FDA, Intermezzo ^® cannot be commercialized in the United States. Significant delay or the inability to commercialize Intermezzo ^® in the United States would significantly harm our business and financial prospects.

Our success depends on meeting the conditions for approval and market exclusivity under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or FFDCA.

We are seeking approval for Intermezzo ^® under Section 505(b)(2) of the FFDCA, enacted as part of the Drug Price Competition and Patent Restoration Act of 1984, otherwise known as the Hatch-Waxman Act, which permits applicants to rely in part on clinical and non-clinical data generated by third parties. Specifically, we are relying in part on third party data with respect to zolpidem, which is the active ingredient in Intermezzo ^® and the previously approved insomnia products Ambien ^® and Ambien CR ^® . There can be no assurance that the FDA will not require us to conduct additional non-clinical or clinical studies or otherwise obtain new supplementary data with respect to some or all of the data upon which we may rely prior to approving an Intermezzo ^® NDA.

Our NDA also relies on prior FDA findings of safety and effectiveness of previously-approved products, and we have made certifications in our NDA under Section 505(b)(2) requirements based on the listed patents in the FDA publication “Approved Drug Products with Therapeutics Equivalence Evaluations,” or the Orange Book, for certain of these referenced products. Currently, there are no unexpired patents for immediate release zolpidem products listed in the Orange Book. In the event that one or more patents is listed in the Orange Book for the referenced product after our submission of additional information in support of our NDA for Intermezzo ^® , we may also be required to evaluate the applicability of these patents to Intermezzo ^® and submit additional certifications. A paragraph III certification, stating that a listed patent has not expired, but will expire on a particular date, may delay the approval of Intermezzo ^® until the expiration of the patent. A paragraph IV certification, stating that a listed patent is invalid, unenforceable, or not infringed by Intermezzo ^® may require us to notify the patent owner and the holder of the NDA for the referenced product of the existence of the Intermezzo ^® NDA, and may result in patent litigation against us and the entry of a 30-month stay of FDA ability to issue final approval of the 505(b)(2) NDA for Intermezzo ^® .

Our success also relies, in part, on obtaining Hatch-Waxman marketing exclusivity in connection with any approval of our NDA for Intermezzo ^® . Such exclusivity protection would preclude the FDA from approving a marketing application for a duplicate of Intermezzo ^® , a product candidate that the FDA views as having the same conditions of approval as Intermezzo ^® (for example, the same indication, the same route of delivery and/or other conditions of use), or a 505(b)(2) NDA submitted to the FDA with Intermezzo ^® as the reference product, for a period of three years from the date of Intermezzo ^® approval, although the FDA may accept and commence review of such applications. This form of exclusivity may not prevent FDA approval of an NDA that relies only on its own data to support the change or innovation. Similarly, if, prior to approval of the Intermezzo ^® NDA, another company obtains approval for a product candidate under, in the view of the FDA, the same conditions of approval that we are seeking for Intermezzo ^® , Intermezzo ^® could be blocked until the other company’s three-year Hatch-Waxman marketing exclusivity expires.

We are dependent upon the efforts of Purdue for commercializing Intermezzo ^® in the United States, and will be dependent on the efforts of other collaboration partners if we enter into additional strategic collaborations outside the United States.

The success of sales of Intermezzo ^® in the United States will be dependent on the ability of Purdue to successfully launch and commercialize Intermezzo ^® , if approved by the FDA, pursuant to the Collaboration Agreement we signed in July of 2009. The terms of the Collaboration Agreement provide that Purdue has the ability to terminate such arrangement without regard to the reason at any time upon 180 days notice and within 10 business days after review of documentation we receive from the FDA in connection with any approval of Intermezzo ^® in the United States. Thus, for example, even if the measures taken to address FDA concerns on the safety of Intermezzo ^® are successful to obtain FDA approval, Purdue may determine that such measures, or the outcome of any clinical trials from such measures, have made Intermezzo ^® a less attractive commercial product for Purdue and terminate our collaboration. If the Collaboration Agreement is terminated, our business and our ability to generate revenue from sales of Intermezzo ^® will be substantially harmed and we will be required to develop our own sales and marketing organization or enter into another strategic collaboration in order to commercialize Intermezzo ^® in the United States. Such efforts may not be successful and, even if successful, would require substantial time and resources to carry out.

The manner in which Purdue launches Intermezzo ^® , including the timing of launch and potential pricing, will have a significant impact on the ultimate success of Intermezzo ^® in the United States, and the success of the overall commercial arrangement with Purdue. If launch of commercial sales of Intermezzo ^® in the United States by Purdue is delayed or prevented, our revenue will suffer and our stock price will decline. Further, if launch and resulting sales of Intermezzo ^® are not deemed successful, our stock price will decline. The outcome of Purdue commercialization efforts could also have an effect on investors’ perception of potential sales of Intermezzo ^® outside of the United States, which could also cause a decline in our stock price and may make it more difficult to enter into strategic collaborations outside the United States.

The Collaboration Agreement provides for Purdue to be responsible for conducting any post-approval studies of Intermezzo ^® , both if such studies are required or requested in connection with FDA approval of Intermezzo ^® . The planning and execution of these studies will be primarily the responsibility of Purdue, and may not be carried out in accordance with our preferences, or could yield results that are detrimental to Purdue’s sales of Intermezzo ^® in the United States or detrimental to our efforts to develop or commercialize Intermezzo ^® outside the United States.

Our ability to receive any significant revenue from our product candidates covered by a strategic collaboration, such as our Collaboration Agreement with Purdue, will be dependent on the efforts of the collaboration partner and may result in lower levels of income than if we marketed or developed our product candidates entirely on our own. The collaboration partner may not fulfill its obligations or carry out marketing activities for our product candidates as diligently as we would like. We could also become involved in disputes with our partner, which could lead to delays in or termination of commercialization programs and time-consuming and expensive litigation or arbitration. If a collaboration partner terminates or breaches its agreement, or otherwise fails to complete its obligations in a timely manner, the chances of successfully developing or marketing our product candidates would be materially and adversely affected.

We may decide to enter into additional strategic collaborations for the development and commercialization of Intermezzo ^® outside the United States. We may not be able to enter into additional collaborations on acceptable terms, if at all. Our establishment of Purdue as our commercial partner for Intermezzo ^® in the United States could also limit the potential collaboration options we have outside the United States or could render potential collaborators less inclined to enter into an agreement with us because of such relationship. Further, we have granted Purdue an option to negotiate with us for a license to commercialize Intermezzo ^® in Mexico and Canada. While these options and subsequent negotiation periods continue, we are prevented from negotiating with and being able to enter into commercialization agreements with other potential strategic partners for development or commercialization of Intermezzo ^® in such countries.

If we are unable to establish a sales and marketing infrastructure in the United States if we choose to exercise our co-promotion option, our product candidates may not be successfully commercialized.

In order to commercialize Intermezzo ^® or any other product candidates successfully, we must enter into and maintain strategic collaborations to perform, and/or acquire or internally develop a sales, marketing and distribution infrastructure. We have entered into a strategic collaboration for commercialization of Intermezzo ^® in the United States with Purdue and may develop our own sales force and marketing infrastructure for Intermezzo ^® to co-promote Intermezzo ^® to psychiatrists in the United States, but we have no experience in building a sales and marketing organization. If we exercise our

co-promotion option and we are unable to develop our own sales, marketing and distribution infrastructure to effectively commercialize Intermezzo ^® , our ability to generate revenue from potential sales of Intermezzo ^® to psychiatrists would be substantially harmed.

The development of sales, marketing and distribution infrastructure is difficult, time consuming and requires substantial financial and other resources. Factors that may hinder our efforts to develop an internal sales, marketing and distribution infrastructure include:

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inability to recruit, retain and effectively manage adequate numbers of effective sales and marketing personnel;

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the inability of sales personnel to obtain access to or convince adequate numbers of physicians to prescribe our products;

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the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and

•

unforeseen delays, costs and expenses associated with creating a sales and marketing organization.

We may require substantial additional funding and may be unable to raise capital when needed.

We have no current source of product revenue. We have a limited operating history and have not yet commercialized any products. We had cash, cash equivalents and marketable securities of $93.0 million at September 30, 2009. We expect our negative cash flows from operations to continue for the foreseeable future as we determine and undertake activities to support the planned resubmission of the Intermezzo ^® NDA, pursue the regulatory approval and commercialization of Intermezzo ^® internationally and develop other product candidates. We do not know how long it will take to obtain regulatory approval of Intermezzo ^® , or if such approval is obtainable. We also expect negative cash flows beyond any potential regulatory approval and product launch of Intermezzo ^® . As a result, we will need to generate significant revenues to pay these costs and achieve profitability. We do not know whether or when we will become profitable because of the significant uncertainties with respect to our ability to gain regulatory approval of Intermezzo ^® and generate revenues from the sale of our products and from our existing and potential future collaborations.

If the timing of potential product approval and launch is significantly delayed as a result of FDA or other regulatory approval delays, the Collaboration Agreement with Purdue is terminated or other factors arise, our cash, cash equivalents and marketable securities may prove insufficient to fund our operations through the commercial launch of Intermezzo ^® . Further, the development and potential regulatory approval of additional product candidates will likely require additional funding which may not be available at and as of the time needed on commercially reasonable terms, if at all.

We currently believe that our available cash, cash equivalents and marketable securities and interest income will be sufficient to fund our anticipated levels of operations through at least the end of 2010. However, our future capital requirements will depend on many factors, including:

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the success of our ability to obtain FDA approval of Intermezzo ^® and to develop and commercialize Intermezzo ^® ;

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the scope and results of our efforts to respond to the Complete Response Letter received by the FDA on the Intermezzo ^® NDA, including the cost, timing and results of any additional studies;

•

advancement of other product candidates into development;

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potential acquisition or in-licensing of other products or technologies;

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the timing of, and the costs involved in, obtaining regulatory approvals;

•

the cost of development and manufacturing activities;

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the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other patent-related costs, including litigation costs and the results of such litigation; and

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our ability to establish and maintain additional collaborative arrangements.

Additional financing may not be available to us when we need it or it may not be available on favorable terms. If we are unable to obtain adequate financing on a timely basis, we may be required to significantly curtail one or more of our development, licensing or acquisition programs. We could be required to seek funds through arrangements with collaborators or others that may require us to relinquish rights to some of our technologies, product candidates or products which we would otherwise pursue on our own. If we raise additional funds by issuing equity securities, our then-existing stockholders will experience dilution and the terms of any new equity securities may have preferences over our common stock.

Intermezzo ^® and our other product candidates may not achieve market acceptance even if we obtain regulatory approvals.

Even if we receive regulatory approvals for the commercial sale of Intermezzo ^® or our other product candidates, the commercial success of these product candidates will depend upon, among other things, acceptance by physicians and patients. Market acceptance of, and demand for, any product that we develop and that are commercialized by us or our collaboration partner will depend on many factors, including:

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the ability to provide acceptable evidence of safety and efficacy of Intermezzo ^® or future products for their respective indications;

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the ease of use of Intermezzo ^® ;

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the existence of generic or branded competition for Intermezzo ^® ;

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the ability to obtain adequate pricing and sufficient insurance coverage and reimbursement;

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the availability, relative cost and relative efficacy and safety of alternative and competing treatments;

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the effectiveness of our or a collaboration partner’s sales, marketing and distribution strategies; and

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the ability to produce commercial quantities sufficient to meet demand.

If Intermezzo ^® or our other product candidates fail to gain market acceptance, we may be unable to earn sufficient revenue to continue our business.

We will face substantial competition from large companies with established products.

We plan to seek approval of Intermezzo ^® for use as needed for the treatment of insomnia when a middle of the night awakening is followed by difficulty returning to sleep, an indication that we believe represents an opportunity in the broader insomnia therapeutic market. The insomnia market is large, deeply commercialized and characterized by intense competition among large, established pharmaceutical companies with well funded and staffed sales and marketing organizations and far greater name recognition than us or our collaboration partner.

If Intermezzo ^® receives marketing approval, it will compete in this large market against well-established branded products with significant advertising support, as well as with generic competitors selling zolpidem and other sleep aids at a fraction of the price at which we or our collaboration partner will most likely seek to sell Intermezzo ^® .

We believe that if Intermezzo ^® is approved on a timely basis, and with the label we have requested from the FDA, it will be the first sleep aid approved by the FDA specifically for use in the middle of the night when patients awaken and have difficulty returning to sleep. However, currently marketed seven to eight hour therapeutics can also treat this condition when used to deliver a prophylactic dose at the beginning of the night. The most directly competitive currently-marketed products in the United States are Ambien ^® and Ambien CR ^® , marketed by Sanofi-Aventis, and the multiple generic manufacturers of zolpidem. Zolpidem, in both its branded and generic forms, is the most widely-prescribed drug in the United States for treatment of insomnia. Additionally, Lunesta ^® , marketed by Dainippon-Sumitomo Pharma can similarly treat middle of the night awakenings by providing a prophylactic dose at bed-time in order to avoid a middle of the night awakening, and short duration products such as Sonata, which utilizes the active ingredient zaleplon and marketed by King Pharmaceuticals, Inc., have been used off-label for the as-needed treatment of middle of the night awakenings. Other drugs, such as the antidepressant generic trazadone, are also widely prescribed off-label for the treatment of insomnia.

Other companies may develop products to compete with Intermezzo ^® .

We are aware of several products currently in development which may compete with Intermezzo ^® . Neurocrine Biosciences received an approvable letter, pending additional clinical and pre-clinical studies, from the FDA for its product candidate, indiplon, proposed to be used for sleep initiation and middle of the night dosing. Sanofi-Aventis is seeking FDA approval for Ciltyri ^® , a non-sedating product candidate focused on sleep maintenance in connection with which it recently received a Complete Response Letter from the FDA. There are many other companies working to develop new products and other therapies to treat insomnia, including but not limited to Orexo AB, NovaDel Pharma, Inc., Alexza Pharmaceuticals, Eli Lilly and Company, GlaxoSmithKline in conjunction with Actelion Ltd., and Somnus Therapeutics. Several of these compounds are already marketed for other indications, and some, including Zolpimist ^TM , an orally administered spray for which NovaDel Pharma, Inc. received marketing approval from the FDA in December 2008, and Edluar ^TM , a sublingual tablet for which Orexo received marketing approval from the FDA in March 2009, use zolpidem as the active pharmaceutical ingredient and are formulated for the purported absorption of zolpidem across the tissues of the mouth. NovaDel Pharma, Inc. also recently announced that it commenced development of a low-dose version of Zolpimist™ for the treatment of middle-of-the-night awakenings with the intent to enter such product candidate into clinical trials, and Somnus Therapeutics has indicated that it is similarly targeting treatment of middle of the night awakenings with development of its controlled-release zaleplon formulation, SKP-1041. Additionally, Somaxon Pharmaceuticals, Inc. is developing Silenor, which it stated has the potential to be the first non-scheduled prescription sleep aid approved for the treatment of “the most commonly reported nighttime symptoms of insomnia: waking frequently during the night (sleep maintenance) and waking too early and being unable to return to sleep,” and in connection with which it expects an action letter from the FDA in December 2009. Furthermore, new developments, including the development of other drug technologies and methods of treating conditions, occur in the biopharmaceutical industry at a rapid pace. Any of these developments may negatively affect the commercial prospects of Intermezzo ^® .

Many potential competitors, either alone or together with their partners, have substantially greater financial resources, research and development programs, clinical trial and regulatory experience, expertise in prosecution of intellectual property rights, and manufacturing, distribution and sales and marketing capabilities than us or our collaboration partner. As a result of these factors, these competitors may:

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develop product candidates and market products that are less expensive, safer, more effective or easier to use than our current product candidates and contemplated future products;

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commercialize competing products before Intermezzo ^® or other product candidates can be launched;

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initiate or withstand substantial price competition more successfully than we can;

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have greater success in recruiting skilled scientific workers from the limited pool of available talent;

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more effectively negotiate third-party licenses and strategic collaborations; and

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take advantage of acquisition or other opportunities more readily than us or our collaboration partner.

Governmental and third-party payors may impose restrictions or reimbursement or pricing controls that could limit product revenue.

The continuing efforts of government and third-party payors to contain or reduce the costs of health care through various means may reduce potential revenue we may receive from sales of Intermezzo ^® , if approved. In particular, third-party insurance coverage may not be available to patients for Intermezzo ^® or our other products, especially in light of the availability of low-cost generic zolpidem therapeutics, regardless of the fact that such products are not specifically designed or indicated to specifically treat middle of the night awakening. Government and third-party payors could also impose price controls and other conditions that must be met by patients prior to providing coverage for use of our products. For example, insurers may establish a “step-edit” system that requires a patient to utilize a lower price alternative product prior to becoming eligible for reimbursement of a higher price product. If government and third-party payors do not provide adequate coverage and reimbursement levels for our products, or if price controls, prior authorization or step-edit systems are enacted, our product revenue will suffer.

Negative publicity and documented side effects concerning products used to treat patients in the insomnia market may harm commercialization of Intermezzo ^® or our other product candidates.

Products containing zolpidem, the active ingredient in Intermezzo ^® , are widely marketed. Zolpidem use has been linked to negative effects, such as sleepwalking and amnesia, and has the potential to cause physical or psychological dependence. Furthermore, zolpidem is classified as a Schedule IV substance under the Comprehensive Drug Abuse and Prevention Control Act of 1970, and is subject to certain packaging, prescription and purchase volume limitations. There can be no assurance that additional negative publicity or increased governmental controls on the use of zolpidem or other compounds used in products for the insomnia market would not inhibit or prevent commercialization of Intermezzo ^® or our other product candidates. Furthermore, negative publicity concerning zolpidem and other hypnotic pharmaceuticals could cause the FDA to make approval of new products for the insomnia market more difficult, by requiring additional or different non-clinical or clinical studies or taking other actions, out of safety or other concerns, or could lead to reduced consumer usage of sleep aids, including both zolpidem products and Intermezzo ^® .

Even if our product candidates receive regulatory approval, they will be subject to ongoing regulatory requirements and may face regulatory or enforcement action.

Any product candidate for which we receive regulatory approval, together with related third-party manufacturing facilities and processes, post-approval clinical data, and advertising and promotional activities for the product, will be subject to significant review, oversight and ongoing and changing regulation by the FDA and other regulatory agencies. Failure to comply with regulatory requirements may subject us to administrative and judicially-imposed sanctions. These may include warning letters, adverse publicity, civil and criminal penalties, injunctions, product seizures or detention, product recalls, total or partial suspension of production, and refusal to approve pending product marketing applications.

Even if we receive regulatory approval to market a particular product candidate, the approval could be conditioned on our conducting additional costly post-approval studies or could limit the indicated uses included in our labeling. Moreover, the product may later cause adverse effects that limit or prevent its widespread use, force us to withdraw it from the market or impede or delay the ability to obtain regulatory approvals in additional countries.

The FDA has also requested that all manufacturers of sedative-hypnotic pharmaceutical products modify their product labeling to include strong language concerning potential risks. These risks include severe allergic reactions and complex sleep-related behaviors, which may include sleep-driving. The FDA also recommended that pharmaceutical manufacturers conduct clinical studies to investigate the frequency with which sleep-driving and other complex behaviors occur in association with individual drug products. We have not conducted such studies, and it is unclear how and to what extent, if any, these requests and recommendations will affect Intermezzo ^® or our other product candidates.

If manufacturers supplying our product candidates fail to produce in the volumes and quality that are required on a timely basis, or to comply with stringent regulations applicable to pharmaceutical manufacturers, there may be delays in the development and commercialization of, or an inability to meet demand for, our products, if any, and we may lose potential revenue.

We do not manufacture Intermezzo ^® , and we do not plan to develop the capacity to do so. We have a primary manufacturing and supply agreement with Patheon, Inc. to manufacture a commercial supply of Intermezzo ^® . We also have agreements with Mikart, Inc. to qualify it as a backup commercial supplier of finished product, as well as a backup commercial manufacturer of a key excipient used in the manufacture of Intermezzo ^® , Anderson Packaging, Inc. as a primary packager of Intermezzo ^® , and Sharp Corporation to supply sample packaging. We rely upon SPI Pharma, Inc. as a supplier for certain key excipients contained within Intermezzo ^® , for one of such excipients as the sole source, and upon Plantex USA, Inc. as our sole source for a special form of zolpidem tartrate. These agreements have set terms of duration, some of which automatically renew for successive one or three year periods. The first to expire among these agreements, the Packaging and Supply Agreement with Anderson Packaging, Inc., has a term that ends in September of 2011, although such agreement automatically renews for one year periods thereafter. Purdue is similarly dependent on these manufacturers for the commercial supply of Intermezzo ^® and has entered into direct agreements with certain of such manufacturers in connection with entry into the Collaboration Agreement. Any of the risks that we face with respect to these manufacturers are therefore similarly applicable to Purdue, and the realization of these risks by Purdue would have a significant impact on Purdue commercialization efforts and our ability to generate revenue under the Collaboration Agreement.

The manufacture of pharmaceutical products requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties in production, particularly in scaling up initial production. These problems include difficulties with production costs and yields, quality control, including stability of the product candidate and quality assurance testing, shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. Third-party manufacturers and key suppliers may not perform as agreed, may terminate their agreements, or may experience manufacturing difficulties due to resource constraints or as a result of labor disputes, unstable political environments at foreign facilities or financial difficulties. For example, a supplier with a manufacturing facility in Israel may face geopolitical risk that could prevent it from providing supplies from such facility. Additionally, third-party manufacturers and key suppliers may become subject to claims of infringement of intellectual property rights of others, which could cause them to incur substantial expenses, and, if such claims were successful, could cause them to incur substantial damages or cease production of our products or product components. These manufacturers and suppliers may also choose, or be required, to seek licenses from the claimant, which may not be available on acceptable terms or at all. If these manufacturers or key suppliers were to encounter any of these difficulties, or otherwise fail to comply with their contractual obligations, ability to launch Intermezzo ^® or any other product candidate, if approved, would be jeopardized. Even if we were able to launch a product, these difficulties could cause increases in the prices we or our collaborators pay for supply of such product and its components which could substantially hinder or prevent commercialization efforts.

In addition, all manufacturers and suppliers of pharmaceutical products must comply with current Good Manufacturing Practice, or cGMP, requirements enforced by the FDA through its facilities inspection program. The FDA is likely to conduct inspections of third-party manufacturer and key supplier facilities as part of its review of any of our NDAs. If third-party manufacturers and key suppliers are not in compliance with cGMP requirements, it may result in a delay of approval, particularly if these sites are supplying single source ingredients required for the manufacture of Intermezzo ^® . These cGMP requirements include quality control, quality assurance and the maintenance of records and documentation. Furthermore, regulatory qualifications of manufacturing facilities are applied on the basis of the specific facility being used to produce supplies. As a result, if one of these manufacturers shifts production from one facility to another, the new facility must go through a complete regulatory qualification process and be approved by regulatory authorities prior to being used for commercial supply. Manufacturers may be unable to comply with these cGMP requirements and with other FDA, state and foreign regulatory requirements. A failure to comply with these requirements may result in fines and civil penalties, suspension of production, suspension or delay in product approval, product seizure or recall, or withdrawal of product approval. If the safety of any quantities supplied is compromised due to a third-party manufacturer or key supplier failure to adhere to applicable laws or for other reasons, we may not be able to obtain regulatory approval for our product candidates and, even if such approval is obtained, any resulting products may not be successfully commercialized.

There are no alternate manufacturers qualified at this time with respect to the commercial supply of Intermezzo ^® , nor are there alternate manufacturers identified or qualified with respect to the commercial supply of several of the key ingredients and packaging materials used in Intermezzo ^® . If manufacturers are required to be changed, prior approval by the FDA and comparable foreign regulators will be required. In addition, we or Purdue would likely have to incur significant costs and expend significant efforts to educate the new manufacturer with respect to, or to help the new manufacturer independently develop, the processes necessary for production. Manufacturing and supply switching costs in the pharmaceutical industry can be very high, and switching manufacturers or key suppliers can frequently take 12 to 18 months to complete, although in certain circumstances such a switch may be significantly delayed or prevented by regulatory and other factors.

Any of these factors could cause the delay or suspension of regulatory submissions, required regulatory approvals or commercialization of Intermezzo ^® or any other product candidate that we develop, entail higher costs or result in an inability to effectively commercialize our products, if any are approved. Furthermore, if manufacturers fail to deliver the required commercial quantities of raw materials, including the active pharmaceutical ingredient, key excipients or finished product on a timely basis and at commercially reasonable prices, we or our strategic partners would be unable to meet demand for our products and we would lose potential revenue.

Our clinical trials may fail to demonstrate adequately the safety and efficacy of our product candidates, which could prevent or delay regulatory approval and commercialization.

Before obtaining regulatory approvals for the commercial sale of our product candidates, we must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that the product candidate is both safe and effective for use in each target indication. The results obtained in completed clinical trials and non-clinical studies may not be predictive of results from ongoing or future trials.

Our trial results may be negatively affected by factors that had not been fully anticipated prior to commencement of the trial. Such trials may fail to demonstrate efficacy in the treatment of the intended disorder or may fail to demonstrate that a product candidate is safe when used as directed or even when misused. Although we design our clinical trial protocols to address known factors that may negatively affect results, there can be no assurance that protocol designs will be adequate or that factors that we may or may not be aware of or anticipate will not have a negative effect on the results of our clinical trials. Once a study has commenced, we may voluntarily suspend or terminate the study if at any time we believe that there is an unacceptable safety risk to patients. Clinical trials in other indications or in different or progressively larger patient populations could reveal more frequent, more severe or additional side effects that were not seen in earlier studies. These side effects could interrupt, delay or halt clinical trials of our product candidates and could result in the FDA or other regulatory authorities stopping further development of or denying approval of our product candidates. Based on results at any stage of clinical trials, we may decide to repeat or redesign a trial, modify our regulatory strategy or even discontinue development of one or more of our product candidates.

If our product candidates are not shown to be both safe and effective in clinical trials, the resulting delays in developing other compounds and conducting associated non-clinical testing and clinical trials, as well as the potential need for additional financing, would have a material adverse effect on our business, financial condition and results of operations.

We rely on third parties to conduct our non-clinical and clinical trials. If these third parties do not perform as contractually required or otherwise expected, we may not be able to obtain regulatory approval for our product candidates.

We do not currently conduct non-clinical and clinical trials on our own, and instead rely on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories, to assist us with our non-clinical and clinical trials. We are also required to comply with regulations and standards, commonly referred to as Good Clinical Practice, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the trial participants are adequately protected. If these third parties do not successfully carry out their duties with regard to Intermezzo ^® development or fail to successfully carry out their duties to us as they relate to meeting future regulatory obligations or expected deadlines, if the third parties need to be replaced, or if the quality or accuracy of the data these third parties obtained during the development of Intermezzo ^® or in the future is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our non-clinical development activities or clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for our product candidates, including Intermezzo ^® .

Delays in the commencement or completion of clinical testing could result in increased costs to us and delay our ability to generate revenue.

We do not know whether future clinical trials will begin on time or be completed on schedule, if at all. The commencement and completion of clinical trials can be disrupted for a variety of reasons, including difficulties in:

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addressing issues raised by the FDA regarding safety, design, scope and objectives of clinical studies;

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recruiting and enrolling patients to participate in a clinical trial;

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obtaining regulatory approval to commence a clinical trial;

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reaching agreement on acceptable terms with prospective clinical research organizations and trial sites;

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manufacturing sufficient quantities of a product candidate; and

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obtaining institutional review board approval to conduct a clinical trial at a prospective site.

A clinical trial may also be suspended or terminated by us or the FDA or other regulatory authorities due to a number of factors, including:

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failure to conduct the clinical trial in accordance with regulatory requirements or in accordance with our clinical protocols;

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inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold;

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unforeseen safety issues; or

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inadequate patient enrollment or lack of adequate funding to continue the clinical trial.

In addition, changes in regulatory requirements and guidance may occur and we may need to amend clinical trial protocols to reflect these changes, which could impact the cost, timing or successful completion of a clinical trial. If we experience delays in the commencement or completion of our clinical trials, the commercial prospects for our product candidates and our ability to generate product revenue will be harmed. Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also lead to the denial of regulatory approval of a product candidate.

We may face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability for a product candidate and may have to limit such candidate’s commercialization.

The use of our product candidates in clinical trials and the sale of any products for which we obtain marketing approval exposes us to the risk of product liability claims. Product liability claims might be brought against us by consumers, health care providers, pharmaceutical companies or others selling our products. If we cannot successfully defend ourselves against these claims, we will incur substantial liabilities. We are also obligated under certain circumstances to indemnify suppliers and others with whom we have contractual relationships for product liability claims such entities might incur with respect to our products and product candidates. Regardless of merit or eventual outcome, liability claims may result in:

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decreased demand for our products;

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impairment of our business reputation;

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withdrawal of clinical trial participants;

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costs of related litigation;

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substantial monetary awards to patients or other claimants;

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loss of revenue; and

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the inability to commercialize our product candidates.

Although we currently have product liability insurance coverage for our clinical trials with limits that we believe are customary and adequate to provide us with coverage for foreseeable risks associated with our development efforts, this insurance coverage may not reimburse us or may be insufficient to reimburse us for the actual expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. We intend to expand our insurance coverage to include the sale of commercial products if we obtain marketing approval for Intermezzo ^® , but we may be unable to obtain such product liability insurance on commercially reasonable terms.

We depend on key personnel and if we are not able to retain them our business will suffer.

We are highly dependent on the principal members of our management and scientific staff, including but not limited to Glenn A. Oclassen, our President and Chief Executive Officer, and Nikhilesh N. Singh, Ph.D., our Senior Vice President and Chief Scientific Officer. The competition for skilled personnel among biopharmaceutical companies in the San Francisco Bay Area is intense and the employment services of our scientific, management and other executive officers are terminable at-will. If we lose one or more of these key employees, our ability to implement and execute our business strategy successfully could be seriously harmed. Replacing key employees may be difficult and may take an extended period of time because of the limited number of individuals in the biopharmaceutical industry with the breadth of skills and experience required to develop, gain regulatory approval of and commercialize products successfully. We do not carry key man life insurance on any of our key personnel other than Dr. Singh.

If we do not raise additional capital, we may be forced to delay, reduce or eliminate our development programs and commercialization efforts.

Our future capital requirements will depend on, and could increase significantly as a result of, many factors, including:

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the costs and timing of regulatory approval;

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the need to conduct additional clinical trials;

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the costs of establishing or contracting for sales and marketing capabilities, including potential costs of being required to engage in contracting for replacements for such capabilities if an existing arrangement is terminated;

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the rate of progress and cost of our clinical trials and other development activities;

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the extent to which we acquire or in-license new products, technologies or businesses;

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the effect of competing technological and market developments; and

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the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.

We may need to seek additional funding through strategic collaborations or through public or private sales of our equity securities. In addition, we may obtain equipment leases and may pursue opportunities to obtain debt financing in the future. There can be no assurance, however, that strategic collaborations, additional equity or debt financing will be available on reasonable terms, if at all. If adequate funds are not available, we may be required to delay, reduce the scope of, or eliminate one or more of our then existing or planned development, commercialization or expansion activities.

Raising additional funds by issuing securities or through licensing arrangements may cause dilution to existing stockholders, restrict our operations or require us to relinquish proprietary rights.

To the extent that we raise additional capital by issuing equity securities, our existing stockholders’ ownership will be diluted. Any debt financing we enter into may involve covenants that restrict our operations. These restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of our assets, as well as prohibitions on our ability to create liens, pay dividends, redeem our stock or make investments. In addition, if we raise additional funds through licensing arrangements, it may be necessary to relinquish potentially valuable rights to potential products or proprietary technologies, or grant licenses on terms that are not favorable to us.

The commercial success, if any, of Intermezzo ^® depends, in part, on the rights we are seeking through certain patent applications.

The potential commercial success of Intermezzo ^® depends on patents that may issue in connection with two families of patent applications that we have pending with the U.S. Patent and Trademark Office, or USPTO, each family covering, respectively, certain formulations and/or methods of use of zolpidem. We received a notice from the USPTO that the USPTO has allowed one patent covering the formulation of Intermezzo ^® , a significant step toward patent issuance. In addition, we have pending certain foreign equivalent patent applications with respect to formulations and manufacture of zolpidem for use in treatment of middle of the night awakening, as well as applications covering combinations and methods of use of ondansetron in conjunction with atypical antipsychotic drugs. There can be no assurance that our pending patent applications, allowed patent, those applications we may file in the future, or those applications we may license from third parties, will result in patents being issued in a timely manner, or at

all. Even if patents issue, the claims in such patents may not issue in a form that will be advantageous to us, may not encompass Intermezzo ^® or our other product candidates and their unique features, and may not provide us with proprietary protection or competitive advantages. For instance, competitors may be able to engineer around our formulation patent applications with alternate formulations that deliver therapeutic effects similar to potential products covered by our zolpidem formulation patent applications. Other drug companies may also be able to develop generic versions of our products if we are unable to maintain our proprietary rights. For example, generic drug makers may attempt to introduce generic low dose zolpidem products similar to our products immediately after the expiration of Hatch-Waxman marketing exclusivity and prior to the expiration of patents that may be issued relating to Intermezzo ^® . Furthermore, among other limitations, the method of use patent applications that have been filed to encompass Intermezzo ^® are limited in scope to certain uses of zolpidem, so potential competitors could develop similar products using active pharmaceutical ingredients other than zolpidem. Any patents that have been allowed, we have obtained or do obtain may be challenged by re-examination, opposition, or other administrative proceeding, or may be challenged in litigation, and such challenges could result in a determination that the patent is invalid.

The active, and many of the inactive, ingredients in Intermezzo ^® , including generically manufactured zolpidem, have been known and used for many years and, therefore, are no longer subject to patent protection. Accordingly, certain of our pending patent applications are directed to the particular formulations of these ingredients in our products, and their use. Although we believe our formulations and their use are patentable and provide a competitive advantage, even if such patents are issued, such patents may not prevent others from marketing formulations using the same active and inactive ingredients in similar but different formulations. Moreover, if our patents were successfully challenged and ruled to be invalid, we would be exposed to a greater risk of direct competition.

Failure to obtain effective patent protection for Intermezzo ^® and our other product candidates would allow for products to be marketed by competitors that would undermine sales, marketing and collaboration efforts for our product candidates, and reduce or eliminate our revenue. In addition, both the patent application process and the process of managing patent disputes can be time consuming and expensive.

If we are unable to maintain and enforce our proprietary rights, we may not be able to compete effectively or operate profitably.

Our commercial success will depend, in part, on obtaining and maintaining patent protection, trade secret protection and regulatory protection of our proprietary technology and information as well as successfully defending against third-party challenges to our proprietary technology and information. We will be able to protect our proprietary technology and information from use by third parties only to the extent that we have valid and enforceable patents, trade secrets or regulatory protection to cover them and we have exclusive rights to utilize them.

Our commercial success will continue to depend in part on the patent rights we own, the patent rights we have licensed, the patent rights of our suppliers and the patent rights we plan to obtain related to future products we may market. Our success also depends on our and our licensors’ and suppliers’ ability to maintain these patent rights against third-party challenges to their validity, scope or enforceability. Further, we do not fully control the patent prosecution of the patents and patent applications we have licensed. There is a risk that licensors to us will not devote the same resources or attention to the prosecution of the licensed patent applications as we would if we controlled the prosecution of the patent applications, and the resulting patent protection, if any, may not be as strong or comprehensive as if we had prosecuted the applications ourselves. The patent positions of biopharmaceutical companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in such companies’ patents has emerged to date in the United States. The patent situation outside the United States is even more uncertain. Changes in either the patent laws or in interpretations of patent laws in the United States or other countries may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party patents. For example:

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we or our licensors might not have been the first to make the inventions covered by pending patent applications and issued patents;

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we or our licensors might not have been the first to file patent applications for these inventions;

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others may independently develop similar or alternative technologies or duplicate any of our technologies;

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it is possible that none of our pending patent applications or any pending patent applications of our licensors will result in issued patents;

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our patents, if issued, and the issued patents of our licensors may not provide a basis for commercially viable products, or may not provide us with any competitive advantages, or may be challenged and invalidated by third parties;

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we may not develop additional proprietary technologies or product candidates that are patentable; or

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the patents of others may have an adverse effect on our business.

We also rely on trade secrets to protect our technology, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. While we seek to protect confidential information, in part, by confidentiality agreements with our employees, consultants, contractors, or scientific and other advisors, they may unintentionally or willfully disclose our information to competitors. If we were to enforce a claim that a third party had illegally obtained and was using our trade secrets, it would be expensive and time consuming, and the outcome would be unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets.

If we are not able to defend the patent or trade secret protection position of our technologies and product candidates, then we will not be able to exclude competitors from developing or marketing competing products, and we may not generate enough revenue from product sales, if any, to justify the cost of development of our product candidates and to achieve or maintain profitability.

If we are sued for infringing intellectual property rights of other parties, such litigation will be costly and time consuming, and an unfavorable outcome would have a significant adverse effect on our business.

Although we believe that we would have valid defenses to allegations that our current product candidates, production methods and other activities infringe the valid and enforceable intellectual property rights of any third parties of which we are aware, we cannot be certain that a third party will not challenge our position in the future. Other parties may own patent rights that might be infringed by our products or other activities. There has been, and we believe that there will continue to be, significant litigation and demands for licenses in the life sciences industry regarding patent and other intellectual property rights. Competitors or other patent holders may assert that or products and the methods we employ are covered by their patents. These parties could bring claims against us that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages or possibly prevent us from commercializing our product candidates. Further, if a patent infringement suit were brought against us, we could be forced to stop or delay research, development, manufacturing or sales of the product or product candidate that is the subject of the suit.

As a result of patent infringement claims, or in order to avoid potential claims, we may choose to seek, or be required to seek, a license from the third party and would most likely be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we were able to obtain a license, the rights may be non-exclusive, which would give competitors access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations if, as a result of actual or threatened patent infringement claims, we or our collaborators are unable to enter into licenses on acceptable terms. This could harm our business significantly.

These risks of intellectual property infringement are similarly faced by our suppliers and collaborators, which could hinder or prevent them from manufacturing or commercializing our products.

We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights.

In the event a competitor infringes upon one of our patents or other intellectual property rights, litigation to enforce our intellectual property rights or to defend our patents against challenge, even if successful, could be expensive and time consuming and could require significant time and attention from management. We may not have sufficient resources to enforce our intellectual property rights or to defend our patents against challenges from others.

The pharmaceutical industry is characterized by extensive litigation and administrative proceedings over patent and other intellectual property rights. We could therefore become subject to litigation that could be costly, result in the diversion of management’s time and efforts, and require us to pay damages. Whether a product infringes a patent involves complex legal and factual issues, the determination of which is often uncertain. Our competitors may assert that they own U.S. or foreign patents containing claims that cover our products, components of our products, or the methods we employ in making or using our products. In addition, we may become a party to an interference proceeding declared by the USPTO to determine the priority of inventions. Because patent applications can take many years to issue, and in many instances, at least 18 months to publish, there may be applications now pending of which we are unaware, which may later result in issued patents that contain claims that cover our products. There could also be existing patents, of which we are unaware, that contain claims that cover one or more components of our products. As the number of participants in our industry increases, the possibility of patent infringement claims against us also increases.

Any interference proceeding, litigation, or other assertion of claims against us may cause us to incur substantial costs, could place a significant strain on our financial resources, divert the attention of management from our core business and harm our reputation. If the relevant patents were upheld as valid and enforceable and we were found to infringe, we could be required to pay substantial damages and/or royalties and could be prevented from selling our products unless we could obtain a license or were able to redesign our products to avoid infringement. Any such license may not be available on reasonable terms, if at all. If we fail to obtain any required licenses or make any necessary changes to our products or technologies, we may be unable to make, use, sell, or otherwise commercialize one or more of our products. In addition, if we are found to willfully infringe, we could be required to pay treble damages, among other penalties.

If we fail to comply with our obligations in the agreements under which we license rights to products or technology from third parties, we could lose license rights that are important to our business.

We are a party to a number of agreements that include technology licenses that are important to our business and expect to enter into additional licenses in the future. For example, we hold licenses from SPI Pharmaceuticals, Inc. relating to key excipients used in the manufacture of Intermezzo ^® . If we fail to comply with these agreements, the licensor may have the right to terminate the license, in which event we and our collaboration partners would not be able to market products covered by the license, including Intermezzo ^® .

We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of former employers.

Many of our employees were previously employed at universities or other biotechnology or pharmaceutical companies, including competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims that these employees or we ourselves have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of former employers. Litigation may be necessary to defend against these claims. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. A loss of key research personnel or their work product could hamper or prevent our or a collaboration partner’s ability to develop or commercialize certain potential products, which could severely harm our business. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

If our agreements with employees, consultants, advisors and corporate partners fail to protect our intellectual property, proprietary information or trade secrets, it could have a significant adverse effect on us.

We have taken steps to protect our intellectual property and proprietary technology by entering into confidentiality agreements and intellectual property assignment agreements with our employees, consultants, advisors and corporate partners. However, such agreements may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements, and we may not be able to prevent such unauthorized disclosure. Monitoring unauthorized disclosure is difficult, and we do not know whether the steps we have taken to prevent such disclosure are, or will be, adequate. Furthermore, the laws of some foreign countries may not protect our intellectual property rights to the same extent as do the laws of the United States.

Our stock price is expected to be volatile.

The market price of our common stock could be subject to significant fluctuations. Market prices for securities of early-stage pharmaceutical, biotechnology and other life sciences companies have historically been particularly volatile. Some of the factors that may cause the market price of our common stock to fluctuate include:

•

our ability to obtain regulatory approvals for Intermezzo ^® or other product candidates, and delays or failures to obtain such approvals;

•

the termination of key commercial partner agreements, such as our Collaboration Agreement with Purdue;

•

failure of any product candidates, if approved, to achieve commercial success;

•

issues in manufacturing approved products, if any, or product candidates;

•

the results of current and any future clinical trials of our product candidates;

•

the entry into, or termination of, key agreements, including additional commercial partner agreements;

•

the initiation of, material developments in, or conclusion of litigation to enforce or defend our intellectual property rights or defend against the intellectual property rights of others;

•

announcements by commercial partners or competitors of new commercial products, clinical progress or the lack thereof, significant contracts, commercial relationships or capital commitments;

•

adverse publicity relating to the insomnia market, including with respect to other products and potential products in such market;

•

the introduction of technological innovations or new therapies that compete with our potential products;

•

the loss of key employees;

•

changes in estimates or recommendations by securities analysts, if any, who cover our common stock;

•

future sales of our common stock;

•

general and industry-specific economic conditions that may affect our research and development expenditures;

•

changes in the structure of health care payment systems; and

•

period-to-period fluctuations in financial results.

Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of our common stock.

In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm our profitability and reputation.

Anti-takeover provisions in our Collaboration Agreement with Purdue, in our charter documents and under Delaware law could make an acquisition of us more difficult and may prevent attempts by stockholders to replace or remove management.

Provisions in our Collaboration Agreement with Purdue, certificate of incorporation and bylaws may delay or prevent an acquisition or a change in management. These provisions include an agreement with Purdue that prevents Purdue from acquiring above a certain percentage of our stock and engaging in certain other activities that may lead to an acquisition of our company. Such provisions in our charter documents include a classified board of directors, a prohibition on actions by written consent of stockholders and the ability of the board of directors to issue preferred stock without stockholder approval. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits stockholders owning in excess of 15% of our outstanding voting stock from merging or combining with us. Although we believe these provisions collectively will provide for an opportunity to receive higher bids by requiring potential acquirers to negotiate with our board of directors, they would apply even if the offer may be considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts by stockholders to replace or remove the then-current management by making it more difficult for stockholders to replace members of the board of directors, which is responsible for appointing the members of management.

We have never paid dividends on our capital stock, and do not anticipate that we will pay any cash dividends in the foreseeable future.

We have not paid cash dividends on any of our classes of capital stock to date, and our current expectation is that we will retain our future earnings to fund the development and growth of our business. As a result, capital appreciation, if any, of our common stock will be the sole source of gain, if any, as a result of holding shares of our common stock, for the foreseeable future.

Future sales of shares by existing stockholders could cause our stock price to decline.

The market price of our common stock could decline as a result of sales by our existing stockholders in the market, or the perception that these sales could occur. These sales might also make it more difficult for us to issue and sell equity securities at a time and price that we deem appropriate. The lock-up agreements delivered by our executive officers and directors and certain other stockholders in connection with the merger of Novacea and TPI expired in July 2009. Subject to applicable securities law restrictions and other agreements between the company and certain of such stockholders, these shares are now freely tradable.

The highly concentrated ownership of our common stock may prevent stockholders from influencing significant corporate decisions and may result in conflicts of interest that could cause our stock price to decline.

Our executive officers, directors and their affiliates beneficially own or control approximately 52% of the outstanding shares of our common stock as of September 30, 2009. Accordingly, these executive officers, directors and their affiliates, acting as a group, will have substantial influence over the outcome of corporate actions requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transactions. These stockholders may also delay or prevent a change of control of us, even if such a change of control would benefit the other stockholders. The significant concentration of stock ownership may adversely affect the trading price of our common stock due to investors’ perception that conflicts of interest may exist or arise.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.

Defaults Upon Senior Securities

Not applicable.

Item 4.

Submission of Matters to a Vote of Security Holders

None.

Item 5.

Other Information

Not applicable.

Item 6.

Exhibits

(a) Exhibits:


Exhibit No.		Description of Exhibit

3.1(1)		Amended and Restated Certificate of Incorporation of Transcept Pharmaceuticals, Inc.

3.2(1)		Bylaws of Transcept Pharmaceuticals, Inc., as amended.

4.1(2)		Specimen Common Stock certificate of Transcept Pharmaceuticals, Inc.

4.2(2)		Form of Preferred Stock Purchase Warrant issued to certain TPI investors as of March 21, 2005.

4.3(2)		Preferred Stock Purchase Warrant issued by TPI to Hercules Technology Growth Capital, Inc., dated as of April 13, 2006.

4.4(3)		2005 Amended and Restated Investor Rights Agreement, dated as of December 21, 2005, by and between Novacea and purchasers of Novacea Series A, Series B and Series C Preferred Stock.

10.1*		United States License and Collaboration Agreement by and between Transcept Pharmaceuticals, Inc. and Purdue Pharmaceutical Products L.P. dated July 31, 2009

10.2*		Letter Agreement by and between Transcept Pharmaceuticals, Inc. and Purdue Pharmaceutical Products L.P. dated July 31, 2009

10.3*		Letter Agreement by and between Transcept Pharmaceuticals, Inc. and LP Clover Limited dated July 31, 2009

10.4		Amendment #2 to Patheon Manufacturing Services Agreement dated July 29, 2009

10.5		Amendment #1 to Supply Agreement by and between Pivot Acquisition, Inc. and SPI Pharma, Inc dated July 30, 2009

10.6*		Amendment #2 to Supply Agreement by and between Pivot Acquisition, Inc. and SPI Pharma, Inc dated July 30, 2009

10.7*		First Amendment Plantex Supply Agreement dated July 31, 2009

31.1		Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Company’s Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1)	Incorporated by reference from the first Current Report on Form 8-K filed with the Securities and Exchange Commission on February 5, 2009.

(2)	Incorporated by reference from the second Current Report on Form 8-K filed with the Securities and Exchange Commission on February 5, 2009.

(3)	Incorporated by reference from the Registration Statement on Form S-1, Securities and Exchange Commission file number 333-131741, filed on February 10, 2006.

*	Pursuant to a request for confidential treatment, portions of this exhibit have been redacted from the publicly filed document and have been furnished separately to the Securities and Exchange Commission as required by Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized as of the 16 ^th day of November 2009.

Transcept Pharmaceuticals, Inc.

/s/ T HOMAS P. S OLOWAY

Thomas P. Soloway

Senior Vice President, Operations and

Chief Financial Officer

(Principal Financial Officer)

Exhibits:


Exhibit No.		Description of Exhibit

3.1(1)		Amended and Restated Certificate of Incorporation of Transcept Pharmaceuticals, Inc.

3.2(1)		Bylaws of Transcept Pharmaceuticals, Inc., as amended.

4.1(2)		Specimen Common Stock certificate of Transcept Pharmaceuticals, Inc.

4.2(2)		Form of Preferred Stock Purchase Warrant issued to certain TPI investors as of March 21, 2005.

4.3(2)		Preferred Stock Purchase Warrant issued by TPI to Hercules Technology Growth Capital, Inc., dated as of April 13, 2006.

4.4(3)		2005 Amended and Restated Investor Rights Agreement, dated as of December 21, 2005, by and between Novacea and purchasers of Novacea Series A, Series B and Series C Preferred Stock.

10.1*		United States License and Collaboration Agreement by and between Transcept Pharmaceuticals, Inc. and Purdue Pharmaceutical Products L.P. dated July 31, 2009

10.2*		Letter Agreement by and between Transcept Pharmaceuticals, Inc. and Purdue Pharmaceutical Products L.P. dated July 31, 2009

10.3*		Letter Agreement by and between Transcept Pharmaceuticals, Inc. and LP Clover Limited dated July 31, 2009

10.4		Amendment #2 to Patheon Manufacturing Services Agreement dated July 29, 2009

10.5		Amendment #1 to Supply Agreement by and between Pivot Acquisition, Inc. and SPI Pharma, Inc dated July 30, 2009

10.6*		Amendment #2 to Supply Agreement by and between Pivot Acquisition, Inc. and SPI Pharma, Inc dated July 30, 2009

10.7*		First Amendment Plantex Supply Agreement dated July 31, 2009

31.1		Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Company’s Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1)	Incorporated by reference from the first Current Report on Form 8-K filed with the Securities and Exchange Commission on February 5, 2009.

(2)	Incorporated by reference from the second Current Report on Form 8-K filed with the Securities and Exchange Commission on February 5, 2009.

(3)	Incorporated by reference from the Registration Statement on Form S-1, Securities and Exchange Commission file number 333-131741, filed on February 10, 2006.

*	Pursuant to a request for confidential treatment, portions of this exhibit have been redacted from the publicly filed document and have been furnished separately to the Securities and Exchange Commission as required by Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

Exhibit 10.1

CONFIDENTIAL

UNITED STATES LICENSE AND COLLABORATION AGREEMENT

by and between

TRANSCEPT PHARMACEUTICALS, INC.

and

PURDUE PHARMACEUTICAL PRODUCTS L.P.

TABLE OF CONTENTS


		PAGE
ARTICLE 1	DEFINITIONS	1

1.1	“1934 Act”	1
1.2	“AB-Rated Product”	1
1.3	“Acquisition”	1
1.4	“Active Ingredient”	2
1.5	“Affiliate”	2
1.6	“Alliance Managers”	2
1.7	“ANDA”	2
1.8	“Applicable Law”	2
1.9	“Authorized Generic”	2
1.10	“Bankrupt Party”	3
1.11	“BBU”	3
1.12	“Business Day”	3
1.13	“Claim”	3
1.14	“Collaboration”	3
1.15	“Commercialization”	3
1.16	“Commercially Reasonable Efforts”	3
1.17	“Confidential Information”	3
1.18	“Control”	3
1.19	“Co-Promotion Commencement Date”	4
1.20	“Co-Promotion Material Breach”	4
1.21	“Co-Promotion Right”	4
1.22	“Co-Promotion Term”	4
1.23	“Detail” or “Detailing”	4
1.24	“Development”	4
1.25	“Existing Confidentiality Agreement”	4
1.26	“FDA”	4
1.27	“FD&C Act”	4
1.28	“Federal Arbitration Act”	4
1.29	“First Commercial Sale”	4
1.30	“GAAP”	4
1.31	“Generic Product”	4
1.32	“Governmental Authority”	5
1.33	“IND”	5
1.34	“Indemnified Party”	5
1.35	“Indemnifying Party”	5
1.36	“Information”	5
1.37	“Insomnia”	5
1.38	“JAMS Rules”	5
1.39	“Joint Invention”	5
1.40	“Joint Patent”	5

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		PAGE
1.41	“JCC”	5
1.42	“JDC”	5
1.43	“Losses”	6
1.44	“Marketing Plan”	6
1.45	“Marketplace Change”	6
1.46	“NDA”	6
1.47	“Net Sales”	7
1.48	“Net Sales Deductions”	8
1.49	“OIG”	8
1.50	“Orange Book”	8
1.51	“Orange Book Listing”	8
1.52	“[***]”	8
1.53	“PDE”	8
1.54	“Phase 4 Clinical Trial”	8
1.55	“PhRMA Code”	9
1.56	“Post-Generic Launch Period”	9
1.57	“Pre-Generic Launch Period”	9
1.58	“Primary Detail”	9
1.59	“Product”	9
1.60	“Product Infringement”	9
1.61	“Product Launch”	9
1.62	“[***]”	9
1.63	“Promote”	9
1.64	“Promotional Materials”	9
1.65	“[***]”	9
1.66	“Prosecuting Party”	10
1.67	“Psychiatric Net Sales”	10
1.68	“Psychiatric Sales Ratio”	10
1.69	“Psychiatrist”	10
1.70	“Psychiatrist Co-Promotion Option”	10
1.71	“Psychiatrist Co-Promotion Option Period”	10
1.72	“Psychiatrist Promotional Materials”	10
1.73	“Publication”	10
1.74	“Purdue CIA”	10
1.75	“[***]”	10
1.76	“Purdue Indemnitees”	10
1.77	“Purdue Know-How”	10
1.78	“Purdue Notice”	10
1.79	“Purdue Patents”	10
1.80	“Purdue PDE Commitment”	11
1.81	“Purdue PDE Commitment Term”	11
1.82	“Purdue PDE Cost”	11

[***] Confidential treatment has been requested for portions of this exhibit. These portions have been omitted from this exhibit and have been filed separately with the Securities and Exchange Commission.

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		PAGE
1.83	“Purdue Response Notice”	11
1.84	“Purdue Technology”	11
1.85	“Purdue Trademarks”	11
1.86	“PV Agreement”	11
1.87	“Regulatory Approval”	11
1.88	“Regulatory Authority”	11
1.89	“Regulatory Materials”	12
1.90	“REMS”	12
1.91	“Sales Force”	12
1.92	“Sales Quarter”	12
1.93	“Sales Year”	12
1.94	“Sample Authorization”	12
1.95	“Sample Cost”	12
1.96	“SEC”	12
1.97	“Secondary Detail”	12
1.98	“Selling Party”	12
1.99	“[***]”	12
1.100	“Sole Inventions”	13
1.101	“Specialty Group Physicians”	13
1.102	“Standstill Period”	13
1.103	“Term”	13
1.104	“Tertiary Detail”	13
1.105	“Third Party”	13
1.106	“Transcept Acquisition Notice”	13
1.107	“Transcept Assigned Domain Names”	13
1.108	“Transcept Assigned Trademarks”	13
1.109	“Transcept Exclusive Patents”	14
1.110	“Transcept Indemnitees”	14
1.111	“Transcept Know-How”	14
1.112	“Transcept Licensed Trademarks”	14
1.113	“Transcept Minimum PDEs”	14
1.114	“Transcept Patents”	14
1.115	“Transcept PDE Cost”	15
1.116	“Transcept Target PDEs”	15
1.117	“Transcept Technology”	15
1.118	“Transcept Territory”	15
1.119	“Transcept Trademarks”	15
1.120	“U.S. Affiliates”	15
1.121	“U.S. Territory”	15
1.122	“Voucher Cost”	15

ARTICLE 2	LICENSES	15

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		PAGE
2.1	Rights to Purdue.	15
2.2	Licenses to Transcept.	16
2.3	No Other Licenses	17
2.4	Sublicense Agreements	17
2.5	Third Party Agreements	18
2.6	Mutual Exclusivity	18

ARTICLE 3	GOVERNANCE	19

3.1	Joint Commercialization Committee	19
3.2	Meetings of the JCC	19
3.3	Responsibilities of the JCC	20
3.4	Areas Outside the JCC’s Authority	20
3.5	JCC Decisions	20
3.6	Joint Development Committee	21
3.7	Meetings of the JDC	21
3.8	Responsibilities of the JDC	21
3.9	Areas Outside the JDC’s Authority	21
3.10	JDC Decisions	22
3.11	Subcommittees	23
3.12	Alliance Manager	23

ARTICLE 4	DEVELOPMENT; REGULATORY	23

4.1	Development	23
4.2	Regulatory Matters	24
4.3	Rights of Reference to Regulatory Materials; Use of Clinical Data	25
4.4	Adverse Event Reporting and Safety Data Exchange	26
4.5	Communications with Regulatory Authorities	26
4.6	Regulatory Inspection or Audit	27
4.7	Product Withdrawals and Recalls	27

ARTICLE 5	COMMERCIALIZATION; MANUFACTURING	27

5.1	General; Formation of BBU	27
5.2	Marketing Plan	28
5.3	Commercialization by Purdue	28
5.4	Commercialization Reports	32
5.5	Purdue Records and Audits	33
5.6	Authorized Generic	33
5.7	Cross-Territory Sales	34
5.8	Manufacture and Supply of Product	34

ARTICLE 6	TRANSCEPT CO-PROMOTION RIGHT	35

6.1	Psychiatrist Co-Promotion Option	35

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		PAGE
6.2	Option Period; Option Exercise	36
6.3	Termination of Psychiatrist Co-Promotion Option	36
6.4	[***]	36
6.5	Purdue Detailing to Psychiatrists	38
6.6	Grant of Co-Promotion Right	38
6.7	Co-Promotion Term	38
6.8	Promotion to Non-Psychiatrists	39
6.9	Marketing Plan; Management	39
6.10	Promotion of Products by Purdue	39
6.11	Promotion of Product by Transcept	40
6.12	Sales Force	43
6.13	Compliance	44
6.14	No Sales or Distribution; Returns	45
6.15	Sample Authorizations	45
6.16	Expenses	45
6.17	Information Exchange; PV Agreement	45
6.18	Transcept Records and Audits	46
6.19	Transcept Reports	46
6.20	Termination of Co-Promotion Right	46
6.21	Effects of Termination of Co-Promotion Right	47

ARTICLE 7	FINANCIALS	48

7.1	License Fee	48
7.2	Milestone Payments	48
7.3	Super Royalty Payments	49
7.4	Royalties	49
7.5	Royalty Adjustments	50
7.6	Co-Promotion Royalties	52
7.7	Royalty Payments and Reports	52
7.8	Taxes	53
7.9	Late Payments	53
7.10	Records; Audits	53

ARTICLE 8	INTELLECTUAL PROPERTY	53

8.1	Ownership of Inventions	53
8.2	Disclosure of Inventions	54
8.3	Prosecution of Patents	54
8.4	Enforcement of Transcept Patents	55
8.5	Patent Marking	57
8.6	Trademarks	57
8.7	Promotional Materials	58
8.8	Regulatory Data Protection	60

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		PAGE
8.9	Infringement of Third Party IP	60
8.10	Discussion of IP-Related Matters	60
8.11	The CREATE Act	61

ARTICLE 9	REPRESENTATIONS, WARRANTIES AND COVENANTS	61

9.1	Mutual Representations and Warranties	61
9.2	Transcept Technology	62
9.3	Transcept Trademark Representations and Warranties	63
9.4	Compliance with Law	64
9.5	Representations regarding Debarment and Compliance	64
9.6	Exclusion Screening	64
9.7	Covenants regarding Purdue CIA Requirements	65
9.8	Regulatory Matters	66
9.9	Co-Promotion Covenant of Purdue	66
9.10	No Broker	67
9.11	Material Contracts	67
9.12	Disclaimer	67
9.13	No Other Representations or Warranties	67

ARTICLE 10	INDEMNIFICATION	67

10.1	Indemnification by Transcept	68
10.2	Indemnification by Purdue	68
10.3	Indemnification Procedures	68
10.4	Product Liability and Related Claims	69
10.5	Limitation of Liability	69
10.6	Insurance	70

ARTICLE 11	CONFIDENTIALITY	71

11.1	Confidentiality	71
11.2	Authorized Disclosure	72
11.3	Publicity; Terms of Agreement	72
11.4	Publications	73
11.5	Clinical Trial Registries	73

ARTICLE 12	TERM AND TERMINATION	74

12.1	Term	74
12.2	Termination by Purdue at Will	74
12.3	Termination by Either Party for Cause	74
12.4	Termination for Patent Challenge	76
12.5	Termination Upon Bankruptcy	76
12.6	Effect of Termination of the Agreement	76
12.7	Accrued Liabilities; Other Remedies	79

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		PAGE
12.8	Rights in Bankruptcy	79
12.9	Survival	79

ARTICLE 13	DISPUTE RESOLUTION	79

13.1	Disputes	79
13.2	Arbitration	80
13.3	Arbitrator	80
13.4	Decision	80
13.5	Award	80
13.6	Costs	81
13.7	Injunctive Relief	81
13.8	Confidentiality	81
13.9	Survivability	81
13.10	Patent and Trademark Disputes	81
13.11	Certain IP Disputes	82

ARTICLE 14	MISCELLANEOUS	82

14.1	Entire Agreement; Amendment	82
14.2	Force Majeure	82
14.3	Notices	83
14.4	No Strict Construction; Headings; Interpretation	83
14.5	Assignment	84
14.6	Standstill	84
14.7	[***]	86
14.8	Records Retention	87
14.9	Governing Law	87
14.10	No Solicitation	87
14.11	No Third Party Beneficiaries	88
14.12	Performance by Affiliates	88
14.13	Further Assurances and Actions	88
14.14	Compliance with Applicable Law	89
14.15	Severability	89
14.16	No Waiver	89
14.17	Independent Contractors	89
14.18	Counterparts	89

-vii-

CONFIDENTIAL

UNITED STATES LICENSE AND COLLABORATION AGREEMENT

T HIS U NITED S TATES L ICENSE AND C OLLABORATION A GREEMENT (the “Agreement” ) is entered into as of the 31 ^st day of July, 2009 (the “ Effective Date ”) by and between T RANSCEPT P HARMACEUTICALS , I NC . , a Delaware corporation having its principal offices at 1003 W. Cutting Blvd, Suite #110, Pt. Richmond, California 94804 ( “Transcept” ), and P URDUE P HARMACEUTICAL P RODUCTS L.P. , a Delaware limited partnership having a place of business at One Stamford Forum, 201 Tresser Boulevard, Stamford, Connecticut 06901-3431 ( “Purdue” ). Transcept and Purdue are sometimes referred to herein individually as a “Party” and collectively as the “Parties” .

R ECITALS

Transcept owns certain intellectual property rights relating to a therapeutic drug candidate known as Intermezzo™ (sublingual zolpidem tartrate tablet), including related patent applications described herein.

Purdue and Transcept desire to establish a collaboration for the continued development and commercialization of Intermezzo™ in the United States.

N OW T HEREFORE , in consideration of the foregoing premises and the mutual promises, covenants and conditions contained in this Agreement, the Parties agree as follows:

ARTICLE 1

DEFINITIONS

As used in this Agreement, the following initially capitalized terms, whether used in the singular or plural form, shall have the meanings set forth in this Article 1.

1.1 “1934 Act” means the Securities Exchange Act of 1934, as amended.

1.2 “ AB-Rated Product” means “therapeutically equivalent” as set forth in the Preface to the current edition of the Orange Book, as such requirements may be amended in the future, as evidenced by the assignment of any ‘A’ rating, such that one pharmaceutical product that is therapeutically equivalent to another pharmaceutical product is generally substitutable by the pharmacist for such other pharmaceutical product when filling a prescription written for such other pharmaceutical product without having to seek authorization to do so from the physician writing such prescription.

1.3 “Acquisition” means (a) any consolidation or merger of Transcept with or into any other corporation or other entity or person, or any other corporate reorganization, in which the capital stock of Transcept immediately prior to such consolidation, merger or reorganization, represents less than fifty percent (50%) of the voting power of the surviving entity (or, if the surviving entity is a wholly owned subsidiary, its parent) immediately after such consolidation,

merger or reorganization; or (b) any transaction or series of related transactions, as a result of which, an entity or person shall have become, directly or indirectly, the beneficial owner (within the meaning of Rule 13d-3 under the 1934 Act) of the securities of Transcept representing fifty percent (50%) or more of Transcept’s voting power; or (c) the consummation of a sale of all or substantially all of the assets of Transcept in any transaction or series of related transactions, other than a sale of all or substantially all of the assets of Transcept to an entity, more than fifty percent (50%) of the combined voting power of the voting securities of which are owned by shareholders of Transcept in substantially the same proportions as their ownership of Transcept immediately prior to such sale.

1.4 “Active Ingredient” means, except as provided in the last sentence of this Section 1.4, zolpidem [***] or mixture of any of the foregoing. For the purposes of Section 1.31(b)(ii), “Active Ingredient” shall not include [***].

1.5 “Affiliate” means, with respect to a particular Party, any person, firm, trust, corporation, company, partnership, or other entity or combination thereof that directly or indirectly controls, is controlled by or is under common control with such Party. For the purposes of this definition, the word “control” (including, with correlative meaning, the terms “controlled by” or “under the common control with”) means (a) ownership of fifty percent (50%) or more, including ownership by trusts with substantially the same beneficial interest, of the voting and equity rights of such person, firm, trust, corporation, company, partnership or other entity or combination thereof, or (b) the power to direct the management of such person, firm, trust, corporation, company, partnership, or other entity or combination thereof. For purposes of this Agreement, “Affiliate” shall not include, in the case of Purdue, The Purdue Frederick Company, Inc., a New York corporation d/b/a The Purdue Frederick Company.

1.6 “Alliance Managers” has the meaning set forth in Section 3.12.

1.7 “ANDA” means an Abbreviated New Drug Application, as described in Section 505(j) of the FD&C Act.

1.8 “Applicable Law” means any and all statutes, ordinances, regulations or rules of any kind whatsoever and any and all requirements under permits, orders, decrees, judgments or directives and requirements of applicable Governmental Authorities, in each case pertaining to any of the activities contemplated by this Agreement, including any regulations promulgated by any Regulatory Authority in the U.S. Territory, all as amended from time to time.

1.9 “Authorized Generic” means any product that (a) contains an Active Ingredient, (b) is marketed or sold by or under license, waiver, covenant or other actual or effective authorization of, or supplied by or on behalf of Purdue or any of its U.S. Affiliates or licensees, and (c) is not marketed or sold under a Transcept Trademark or Purdue Trademark. Authorized Generic shall not include any Generic Product sold by a Third Party under a limited license,

waiver, covenant or other actual or effective authorization from Purdue granted in connection with the settlement of patent litigation (it being understood that any such license, waiver, covenant or other actual or effective authorization shall be subject to any Transcept consent required by the terms of this Agreement, including Section 8.4(c)).

1.10 “Bankrupt Party” has the meaning set forth in Section 12.8.

1.11 “BBU” has the meaning set forth in Section 5.1.

1.12 “Business Day” means each day of the week excluding Saturday, Sunday or a day on which banking institutions in New York, New York are closed.

1.13 “Claim” means all investigations, claims, suits, actions, cross-complaints, demands, rights, requests, arbitrations, mediations, causes of action, obligations, settlements or orders, whether at law, equity or otherwise, or whether sounding in tort, contract, equity, strict liability or any statutory or common law cause of action of any sort.

1.14 “Collaboration” means the collaborative Development and Commercialization of Products to be undertaken by the Parties pursuant to this Agreement.

1.15 “Commercialization” means the marketing, Promotion, sale, offering for sale, importation and/or distribution of Products for use in the U.S. Territory, including activities directed to obtaining pricing or reimbursement approval. “Commercialize” has a correlative meaning.

1.16 “Commercially Reasonable Efforts” means, with respect to a Party’s obligations under this Agreement, the reasonable and good faith efforts normally used by a company in the pharmaceutical industry for a product (regardless of whether the product is owned by the company or the company has obtained rights to such product), which is of similar market potential at a similar stage in its development or product life, which level of effort is at least commensurate with the level of effort that a Party would devote to its own internally discovered compounds or products that are of most closely comparable market potential at a most closely comparable stage in their development or product life, taking into account regulatory requirements of safety and efficacy, product profile, the competitiveness of the marketplace, the proprietary position of the product, and the cost of scaling up a manufacturing process (including facility costs) and the market potential of the applicable product.

1.17 “Confidential Information” means, with respect to a Party, all proprietary Information of such Party that is disclosed to or accessed by the other Party under this Agreement.

1.18 “Control” means, with respect to any material, Information, or intellectual property right, that a Party owns or has a license, right or covenant to such material, Information, or intellectual property right and has the ability to grant to the other Party access, a license, or a sublicense right or covenant (as applicable) to such material, Information, or intellectual property

right on the terms and conditions set forth herein without violating the terms of any then-existing agreement or other arrangement with any Third Party.

1.19 “Co-Promotion Commencement Date” shall have the meaning set forth in Section 6.7.

1.20 “Co-Promotion Material Breach” shall have the meaning set forth in Section 6.20(b)(ii).

1.21 “Co-Promotion Right” shall have the meaning set forth in Section 6.6.

1.22 “Co-Promotion Term” shall have the meaning set forth in Section 6.7.

1.23 “Detail” or “Detailing” means each separate face-to-face contact by a professional sales representative with a physician or other professional with authority to write prescriptions during which time the promotional message involving a Product is presented and is a topic of discussion. When used as a verb, “ Detail ” shall mean to engage in a Detail.

1.24 “Development” means all activities that relate to obtaining, maintaining or expanding Regulatory Approval of Product. This includes (a) research, preclinical testing, toxicology, formulation and clinical studies of Product; (b) preparation, submission, review, and development of data or information for the purpose of submission to a Governmental Authority to obtain, maintain and/or expand Regulatory Approval of Product; and (c) post-Regulatory Approval product support for Product (including laboratory and clinical efforts directed toward the further understanding of the safety and efficacy of Product). “Develop” and “ Developed ” have correlative meanings.

1.25 “Existing Confidentiality Agreement” means the Confidentiality Agreement entered into by Purdue Pharma L.P. and Transcept, dated August 13, 2008.

1.26 “FDA” means the United States Food and Drug Administration or its successor.

1.27 “FD&C Act” means the United States Federal Food, Drug and Cosmetic Act.

1.28 “Federal Arbitration Act” has the meaning set forth in Section 13.2.

1.29 “First Commercial Sale” means, with respect to a Product, the initial shipping of commercial quantities of a Product to wholesalers in the U.S. Territory after Regulatory Approval of such Product has been obtained as a, or for, commercial sale to a Third Party, excluding any shipping for Sample Authorizations or shipping for research, test marketing, clinical trial purposes, compassionate or other similar use or for warehousing or staging in advance of release of the Product for commercial sale.

1.30 “GAAP” has the meaning set forth in Section 1.47.

1.31 “Generic Product” means any product that (a) is marketed or sold without any license, waiver, covenant or other actual or effective authorization of, and not supplied by or on

behalf of, Purdue or any of its Affiliates or licensees and (b) [***] is approved under an ANDA as an AB-Rated Product with respect to a Product [***]. Notwithstanding the foregoing, a Generic Product shall not include (x) any Authorized Generic, or (y) any Generic Product sold by a Third Party under a limited license, waiver, covenant or other actual or effective authorization from Purdue granted in connection with the settlement of patent litigation (it being understood that any such license, waiver, covenant or other actual or effective authorization shall be subject to any Transcept consent required by the terms of this Agreement, including Section 8.4(c)).

1.32 “Governmental Authority” means any multi-national, federal, state, county, local, municipal or other government authority or self regulating organization of any nature (including any governmental division, subdivision, department, agency, bureau, branch, office, commission, council, court or other tribunal), including the SEC and The NASDAQ Stock Market, Inc.

1.33 “IND” means an Investigational New Drug Application, as defined in the FD&C Act.

1.34 “Indemnified Party” has the meaning set forth in Section 10.3.

1.35 “Indemnifying Party” has the meaning set forth in Section 10.3.

1.36 “Information” means any data, results, and information of any type whatsoever, in any tangible or intangible form, including know-how, trade secrets, practices, techniques, methods, processes, inventions, developments, specifications, formulations, formulae, software, algorithms, marketing reports, expertise, stability, technology, data including pharmacological, biological, chemical, biochemical, toxicological, and clinical test data, analytical and quality control data, stability data, studies and procedures.

1.37 “Insomnia” means [***].

1.38 “JAMS Rules” has the meaning set forth in Section 13.2.

1.39 “Joint Invention” has the meaning set forth in Section 8.1.

1.40 “Joint Patent” has the meaning set forth in Section 8.3(b).

1.41 “JCC” means the joint commercialization committee formed by the Parties as described in Section 3.1.

1.42 “JDC” means the joint development committee formed by the Parties as described in Section 3.6.

1.43 “Losses” means (a) all damages (including compensatory damages, monetary damages, statutory damages, punitive and exemplary damages and any pre-judgment and post-judgment interest), judgments, or settlements payable to Third Parties; and (b) all legal expenses (including attorneys’ fees and disbursements, expert and witness fees, fees and costs associated with any investigations, court costs and appeal bonds).

1.44 “Marketing Plan” has the meaning set forth in Section 5.2(a).

1.45 “Marketplace Change” means:

(a) Transcept does not receive approval of an NDA for a Product prior to or on July 31, 2011;

(b) a Third Party receives Regulatory Approval of a product in the U.S. Territory with “middle of the night awakening” (or functionally equivalent phrasing) as part of the indication statement in the FDA approved labeling, between the Effective Date and the date Transcept receives approval of an NDA for a Product in the U.S. Territory;

(c) a Third Party receives Regulatory Approval in the U.S. Territory for a product containing an Active Ingredient at a dosage strength of [***], prior to Transcept’s receipt of approval of an NDA for a Product in the U.S. Territory;

(d) a Governmental Authority prohibits the Commercialization of a Product or imposes an adverse constraint or adverse restriction that results in or is reasonably likely to result in a material impairment on the ability of the Parties to Commercialize a Product;

(e) a serious health or serious safety concern arises with respect to a Product that results in or is reasonably likely to result in a material impairment on the ability of the Parties to Commercialize a Product; or

(f) at any time following the date that is [***] after the Effective Date, the Parties agree or a determination is made [***] that it is not likely that the Product will [***].

For avoidance of doubt, in the absence of other factors, each of the following shall not constitute a Marketplace Change: (i) the restriction by a Governmental Authority on the content of any Promotional Material for a Product, (ii) the fact that the FDA requires a REMS plan for the Product, or (iii) [***].

1.46 “NDA” means a New Drug Application, as defined in the FD&C Act.

1.47 “Net Sales” means the amount invoiced or otherwise billed by Purdue or its U.S. Affiliate or sublicensee (“ Selling Party ”) for sales or other commercial disposition of a Product (but excluding any Product in OTC form) to a Third Party purchaser, less the following (collectively, “ Net Sales Deductions ”):

(a) discounts, including cash, trade and quantity discounts, price reduction or incentive programs, Voucher Costs, retroactive price adjustments with respect to sales of such Product, charge-back payments, distribution fees and sales commissions to Third Parties, and rebates granted to managed health care organizations or to federal, state and local governments (or their respective agencies, purchasers and reimbursers) or to trade customers, including wholesalers and chain and pharmacy buying groups;

(b) credits or allowances taken upon rejections or returns of Products, including for recalls or damaged goods;

(d) customs duties, surcharges and other governmental charges incurred in connection with the exportation or importation of such Product;

(e) bad debts relating to sales of Products that are actually written off by the Selling Party; and

(f) taxes, duties or other governmental charges levied on, absorbed or otherwise imposed on sale of such Product, including value-added taxes, or other governmental charges otherwise measured by the billing amount, as adjusted for rebates and refunds, but specifically excluding taxes based on net income of the Selling Party;

provided that all of the foregoing deductions are calculated in accordance with then-current generally accepted accounting principles in the Unites States, consistently applied (“ GAAP ”) during the applicable calculation period throughout the Selling Party’s organization.

Notwithstanding the foregoing, if any Product is sold in the form of a combination product containing one or more active ingredients which are not Products or sold under a bundled or capitated arrangement with one or more products which are not Products (“ Combination/Bundled Product ”), then Net Sales for such Combination/Bundled Product shall be calculated by multiplying actual Net Sales of such Combination/Bundled Product by the fraction A/(A+B), where A is the average amount invoiced or otherwise billed for the Product if sold separately by the Selling Party in finished form in the U.S. Territory, and B is the average amount invoiced or otherwise billed for all other active ingredients or products in finished form in the U.S. Territory. If the Product or the other active ingredients or products are not sold separately in finished form, then Net Sales of the Combination/Bundled Product shall be determined by the Parties in good faith based on the relative fair market value for the Product and each active ingredient or product, as applicable.

A sale of a Product is deemed to occur upon transfer of risk-of-loss with respect to the Product.

For sake of clarity and avoidance of doubt, the transfer of Product by a Selling Party or one of its U.S. Affiliates to another Affiliate of such Selling Party or to a sublicensee of such Selling Party for resale shall not be considered a sale; in such cases, Net Sales shall be determined based on the amount invoiced or otherwise billed by such Affiliate or sublicensee to an independent Third Party, less the Net Sales Deductions allowed under this Section 1.47. Notwithstanding the foregoing, sales of Product by Purdue to a bona fide Third Party distributor or to a distributor of an Authorized Generic in the U.S. Territory (whether an Affiliate or Third Party) in an arms length transaction shall be considered a sale to a Third Party customer and Net Sales shall be determined based on all amounts invoiced or otherwise billed to, or other consideration paid by, the distributor, less the Net Sales Deductions allowed under this Section 1.47.

Any Products used (but not sold for more than nominal consideration) for Sample Authorizations, Promotional, advertising or humanitarian purposes or used (but not sold for more than nominal consideration) for clinical or other research purposes shall not be considered in determining Net Sales hereunder.

Notwithstanding the foregoing, in the event Medicaid or other U.S. Government sales rebates applicable to a particular sale of Product in the U.S. Territory result in a reduction in the Net Sales price for such sale to a level that is equal to or less than [***] of WAC, then such sale shall not be considered part of Net Sales for the purposes of calculating royalties payable to Transcept under Sections 7.4, 7.5(a) and 7.6. As used herein, “ WAC ” means the wholesaler acquisition cost for the Product for the U.S. Territory.

1.48 “Net Sales Deductions” has the meaning set forth in Section 1.47.

1.49 “OIG” means the United States Department of Health and Human Services Office of the Inspector General.

1.50 “Orange Book” means the FDA publication entitled “Approved Drug Products with Therapeutic Equivalence Evaluations” or any replacement thereof established or approved by the FDA.

1.51 “Orange Book Listing” means the actual listing of an issued Transcept Exclusive Patent covering the Product in a published version of the Orange Book available on-line or in hard copy.

1.52 “[***]” has the meaning set forth in [***].

1.53 “PDE” means a primary detail equivalent as reported by either Party’s sales call reporting system, which shall be equal to any of the following: (a) [***] Primary [***]; (b) [***] Secondary [***]; or (c) [***] Tertiary [***]. Details other than Primary Details, Secondary Details and Tertiary Details will have no effect on any calculation of PDEs.

1.54 “Phase 4 Clinical Trial” means a human clinical trial or other study of a Product conducted after Regulatory Approval of such Product has been obtained from an appropriate Regulatory Authority, which trial or study is (a) conducted voluntarily by a Party to enhance

marketing or scientific knowledge of the Product, or (b) conducted due to a request or requirement of a Regulatory Authority.

1.55 “ PhRMA Code ” means the Pharmaceutical Research and Manufacturers of America Code on Interactions with Healthcare Professionals, as amended from time to time.

1.56 “Post-Generic Launch Period” means any rolling three (3) month period after the date of launch of the applicable [***].

1.57 “Pre-Generic Launch Period” means the full calendar quarter that immediately precedes the date of launch of the applicable [***].

1.58 “Primary Detail” means a Detail involving a full Product presentation in which at least one Product is presented orally in the first position.

1.59 “Product” means a drug product that contains an Active Ingredient in any formulation and any dosage strength, including Intermezzo™ and all line extensions and any over-the-counter (“ OTC ”) versions thereof. For the avoidance of doubt, the term Product includes any Authorized Generic.

1.60 “Product Infringement” has the meaning set forth in Section 8.4(a).

1.61 “Product Launch” means the first recordation by Purdue or its U.S. Affiliate of a PDE for the Product in its sales call reporting system.

1.62 “ [***] ” means [***].

1.63 “ Promote ” means those activities, including detailing and distributing samples of a product, normally undertaken by a pharmaceutical company’s sales force to implement marketing plans and strategies aimed at encouraging the appropriate use of a particular prescription pharmaceutical product. When used as a verb, “ Promote ” shall mean to engage in such activities. “ Promotion ” and “ Promotional ” have correlative meanings.

1.64 “ Promotional Materials ” means all training materials and all written, printed, graphic, electronic, audio or video matter, including journal advertisements, sales visual aids, leave items, formulary binders, reprints, direct mail, direct-to-consumer (“ DTC ”) advertising, Internet postings and broadcast advertisements, in each case created by Purdue or on its behalf, and used or intended for use by the Sales Forces in connection with any Promotion of any Product in the U.S. Territory under this Agreement.

1.65 “ [***] ” means that [***].

1.66 “Prosecuting Party” has the meaning set forth in Section 8.3(b).

1.67 “Psychiatric Net Sales” means, for a given time period, [***] in the U.S. Territory in such time period. [***].

1.68 “Psychiatric Sales Ratio” means, for a given time period, the ratio of (a) IMS dollarized Xponent prescription sales of Product to Psychiatrists in the U.S. Territory during such time period to (b) total IMS dollarized Xponent prescription sales of Product in the U.S. Territory during such time period, in each case as reported by IMS or a similar quality market research vendor mutually agreed by the Parties.

1.69 “Psychiatrist” means (a) any physician included within IMS’ database with a primary specialty designation of psychiatry; provided that in the event that IMS ceases to maintain such database, the Parties shall agree on a substantially equivalent manner of identifying Psychiatrists and (b) any Specialty Group Physician included pursuant to Section 6.8.

1.70 “Psychiatrist Co-Promotion Option” has the meaning set forth in Section 6.1.

1.71 “Psychiatrist Co-Promotion Option Period” has the meaning set forth in Section 6.2.

1.72 “ Psychiatrist Promotional Materials ” shall have the meaning provided in Section 8.7(d).

1.73 “Publication” has the meaning set forth in Section 11.4.

1.74 “Purdue CIA” means the Corporate Integrity Agreement effective as of July 31, 2007 between Purdue Pharma L.P. and OIG.

1.75 “[***]” has the meaning set forth in Section 6.4(b).

1.76 “Purdue Indemnitees” has the meaning set forth in Section 10.1.

1.77 “Purdue Know-How” means all Information (excluding any Purdue Patents or Joint Inventions) that (a) becomes under the Control of Purdue or Purdue Pharma L.P. or any U.S. Affiliate after the Effective Date as a result of the activities of Purdue or Purdue Pharma L.P. or any U.S. Affiliate under this Agreement ([***]) and (b) is reasonably necessary or useful for the research, development, manufacture, use, importation or sale of Products.

1.78 “Purdue Notice” has the meaning set forth in Section 4.2(b)

1.79 “Purdue Patents” means (a) all patents and patent applications (excluding any Joint Patents) that become under the Control of Purdue or Purdue Pharma L.P. or any U.S.

Affiliate after the Effective Date and that disclose or claim a Product or the manufacture, use, or sale of a Product, (b) all substitutions, divisions, continuations, continuations-in-part (to the extent directed to the subject matter disclosed in a patent or patent application described in (a)) and requests for continued examination of any of the foregoing, (c) all patents arising from or claiming priority to any of the foregoing, and/or (d) all reissues, renewals, registrations, confirmations, re-examinations, extensions, and supplementary protection certificates of any of the foregoing, in each case in the U.S. Territory whether or not such patents are listed in the Orange Book. In no event shall the Purdue Patents include any patent applications or patents Controlled by Purdue or Purdue Pharma L.P. or any U.S. Affiliate directed to the making, using or selling of [***]. For clarity, the Purdue Patents shall not include the Transcept Patents licensed to Purdue hereunder.

1.80 “Purdue PDE Commitment” has the meaning set forth in Section 5.3(c)(i).

1.81 “Purdue PDE Commitment Term” means the period commencing with Product Launch and ending upon the earlier of (a) [***] or (b) the date upon which the first Generic Product is approved in the U.S. Territory if there is a commercially reasonable expectation (as defined in Section 5.6(b)) of a launch of a Generic Product in the U.S. Territory by a Third Party within [***] of the approval date; provided that in the event it is reasonably likely that the first approved Generic Product will be launched more than [***] from the approval date, then the Purdue PDE Commitment Term shall end on the date which is [***] prior to the anticipated launch date.

1.82 “Purdue PDE Cost” means [***] per PDE of Purdue’s sales force responsible for Detailing Product. Purdue PDE Cost shall be adjusted at the end of each Sales Year for annual inflation based on the Employment Cost Index for Civilian Workers published by the U.S. Bureau of Labor.

1.83 “Purdue Response Notice” has the meaning set forth in Section 14.7(a).

1.84 “Purdue Technology” means the Purdue Patents and Purdue Know-How.

1.85 “Purdue Trademarks” has the meaning set forth in Section 8.6(a).

1.86 “PV Agreement” has the meaning set forth in Section 6.17(b).

1.87 “Regulatory Approval” means all approvals necessary for the manufacture, marketing, importation and sale of a Product for one or more indications in a country or regulatory jurisdiction, which may include satisfaction of all applicable regulatory and notification requirements, but which shall exclude any pricing and reimbursement approvals.

1.88 “Regulatory Authority” means, in a particular country or regulatory jurisdiction, any applicable Governmental Authority involved in granting Regulatory Approval and/or, to the extent required in such country or regulatory jurisdiction, governmental pricing or reimbursement approval of a Product in such country or regulatory jurisdiction, including the FDA and the United States Drug Enforcement Administration or its successor.

1.89 “Regulatory Materials” means regulatory applications, submissions, notifications, registrations, Regulatory Approvals and/or other filings made to or with a Regulatory Authority that are necessary or reasonably desirable in order to Develop, manufacture, market, sell or otherwise commercialize a Product in a particular country or regulatory jurisdiction and all internal contact reports of agency interactions. Regulatory Materials include INDs and NDAs.

1.90 “REMS” has the meaning set forth in Section 4.2(b).

1.91 “ Sales Force ” means each Party’s respective sales personnel Promoting Product in the U.S. Territory including employees of and contract sales organizations engaged by a Party who are qualified to do so pursuant to the terms and conditions of this Agreement.

1.92 “Sales Quarter” means the three-month period commencing with the first full calendar month after Product Launch and each consecutive three (3)-month period thereafter.

1.93 “Sales Year” means the twelve (12) month period commencing with the first full calendar month after Product Launch, and each subsequent twelve (12) month period. The first Sales Year is referred to herein as “Sales Year 1,” the second Sales Year is referred to herein as “Sales Year 2,” and so on.

1.94 “Sample Authorization” means the distribution to a physician’s office of (a) a voucher for free Product or (b) free Product packaged as a complimentary trial for use by patients in the U.S. Territory and in accordance with the Prescription Drug Marketing Act of 1987, as amended, with or without presentation of a Primary Detail or Secondary Detail.

1.95 “Sample Cost” means the fully burdened cost of any sample of Product included in a Sample Authorization falling within the scope of Section 1.94(b).

1.96 “SEC” means the United States Securities and Exchange Commission or any successor.

1.97 “Secondary Detail” means a Detail involving a Product presentation in which at least one Product is presented orally in the second position.

1.98 “ Selling Party ” has the meaning set forth in Section 1.47.

1.99 “ [***] ” means any [***].

[***] :


[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]

1.100 “Sole Inventions” has the meaning set forth in Section 8.1.

1.101 “ Specialty Group Physicians ” shall have the meaning provided in Section 6.8.

1.102 “Standstill Period” has the meaning set forth in Section 14.6(b).

1.103 “Term” has the meaning set forth in Section 12.1.

1.104 “Tertiary Detail” means (a) a Detail in which at least one Product is presented orally in a position other than first or second or (b) a Sample Authorization not as part of a Primary Detail or Secondary Detail.

1.105 “Third Party” means any legal person, entity or organization other than Transcept, Purdue or an Affiliate of either Party.

1.106 “Transcept Acquisition Notice” has the meaning set forth in Section 14.7(a).

1.107 “Transcept Assigned Domain Names” means any domain names containing the Transcept Assigned Trademarks Controlled by Transcept or otherwise related to the Product as of the Effective Date. The Transcept Assigned Domain Names shall be listed on Exhibit C .

1.108 “Transcept Assigned Trademarks” means (a) the mark “INTERMEZZO”, together with any registrations or applications for registration therefor, in the U.S. Territory, including U.S. Registration No. 3,327,585, and all other marks confusingly similar thereto, all

variations of such marks, all members of any families of any of the foregoing marks, all designs and styles used by Transcept in the depiction of the foregoing marks and any copyrights therein, and all goodwill appurtenant to any of the foregoing and (b) the mark “INTERMID”, together with any registrations or applications for registration therefor, in the U.S. Territory, including U.S. Registration No. 3,327,586, and all other marks confusingly similar thereto, all variations of such marks, all members of any families of any of the foregoing marks, all designs and styles used by Transcept in the depiction of the foregoing marks and any copyrights therein, and all goodwill appurtenant to any of the foregoing, in each case that are Controlled by Transcept as of the Effective Date. The Transcept Assigned Trademarks shall be listed on Exhibit C .

1.109 “ Transcept Exclusive Patents ” means the Transcept Patents identified as the Transcept Exclusive Patents on Exhibit A hereto.

1.110 “Transcept Indemnitees” has the meaning set forth in Section 10.2.

1.111 “Transcept Know-How” means all Information (excluding any Transcept Patents or Joint Inventions) that (a) is Controlled as of the Effective Date or during the Term by Transcept or its Affiliates and (b) relates to a Product ([***]) or researching, developing, methods of manufacturing, using, importing or selling a Product (including without limitation, all Product-related data).

1.112 “Transcept Licensed Trademarks” means (a) the mark “BIMUCORAL”, including rights under any registrations or applications therefor in the U.S. Territory, including US Registration No. 3,310,008 and (b) all other marks confusingly similar thereto, all other trademarks, service marks and trade dress used by Transcept in connection with a Product in the U.S. Territory (other than the Transcept Assigned Trademarks), whether or not registered, all variations of such marks, all members of any families of any of the foregoing marks, all designs and styles used by Transcept in the depiction of the foregoing marks and any copyrights therein, in each case that are Controlled by Transcept as of the Effective Date or during the Term. The Transcept Licensed Trademarks shall be listed on Exhibit C .

1.113 “Transcept Minimum PDEs” shall have the meaning set forth in Section 6.11(a).

1.114 “Transcept Patents” means (a) all patents and patent applications (excluding Joint Patents) that are Controlled as of the Effective Date or during the Term by Transcept or its Affiliates and that disclose or claim a Product or the manufacture, use, or sale of a Product ([***]), (b) all substitutions, divisions, continuations, continuations-in-part (to the extent directed to the subject matter disclosed in a patent or patent application described in (a)) and requests for continued examination of any of the foregoing, (c) all patents arising from or claiming priority to any of the foregoing, (d) all reissues, renewals, registrations, confirmations, re-examinations, extensions, and supplementary protection certificates of any of the foregoing, in each case, in the U.S. Territory, and in each case, whether or not such patents are listed in the Orange Book. Solely for purposes of the license granted in Section 2.1(a)(ii)(B), “Transcept Patents” shall also include any and all patents and patent applications outside the U.S. Territory that fall within the scope of subsection (a), (b),

(c), or (d) above (including any foreign equivalents of the categories described therein). As of the Effective Date, the Transcept Patents include the patents and patent applications set forth on Exhibit A . For clarity, the Transcept Patents shall not include any Purdue Patents licensed to Transcept hereunder

1.115 “ Transcept PDE Cost ” means [***] per PDE. Transcept PDE Cost shall be adjusted at the end of each Sales Year for annual inflation based on the Employment Cost Index for Civilian Workers published by the U.S. Bureau of Labor.

1.116 “ Transcept Target PDEs ” shall have the meaning provided in Section 6.11(a).

1.117 “Transcept Technology” means the Transcept Patents and Transcept Know-How.

1.118 “Transcept Territory” means the entire world other than the U.S. Territory, and Canada and Mexico and their respective territories and possessions, subject to the last sentence of Section 14.1.

1.119 “Transcept Trademarks” means the Transcept Assigned Trademarks and Transcept Licensed Trademarks.

1.120 “U.S. Affiliates” means Purdue’s Affiliates organized in the U.S. Territory [***].

1.121 “U.S. Territory” means the United States and all United States territories and possessions.

1.122 “Voucher Cost” means the amount paid or credited to a Third Party purchaser of Product as a result of the return of a voucher for free Product distributed as a Sample Authorization, including amounts for coupons for lowering the patient’s out-of-pocket costs, the margin to the pharmacy for dispensing the samples, and the sales recorded for samples dispensed.

ARTICLE 2

LICENSES

2.1 Rights to Purdue .

(a) License under Transcept Technology . Subject to the terms and conditions of this Agreement, Transcept hereby grants to Purdue an exclusive (even as to Transcept), royalty-bearing, sublicensable (subject to Section 2.4(a)) license under:

(i) the Transcept Exclusive Patents for all purposes in the U.S. Territory, including the purposes set forth in Section 2.1(a)(ii); and

(ii) the Transcept Technology and Joint Patents, to (A) develop, use, distribute, import, Promote, market, sell, and offer for sale Products in the U.S. Territory, and (B) make and have made Product anywhere in the world for sale in the U.S. Territory.

For the avoidance of doubt, Transcept shall not grant any right, license or covenant to any Third Party under the Transcept Exclusive Patents in the U.S. Territory.

Transcept shall disclose to Purdue any Transcept Technology that has not already been disclosed to Purdue within thirty (30) days after the Effective Date and on a reasonably periodic (but not less than quarterly) basis during the Term.

(b) License under Transcept Licensed Trademarks . Subject to the terms and conditions of this Agreement including the terms set forth in Section 8.6, Transcept hereby grants to Purdue an exclusive (even as to Transcept), sublicensable (subject to Section 2.4(a)) license to use the Transcept Licensed Trademarks solely in connection with the Commercialization of Products in the U.S. Territory.

(c) Assignment of Transcept Assigned Trademarks . Subject to the terms and conditions of this Agreement, on the date the approved NDA for the Product is transferred to Purdue pursuant to Section 4.2(c), Transcept agrees to assign and hereby assigns to Purdue the Transcept Assigned Trademarks, together with the goodwill appurtenant thereto, in all respects free and clear of any and all liens, hypothecations, mortgages, charges, security interests, pledges and other encumbrances and claims of any nature. On the date the approved NDA for the Product is transferred to Purdue pursuant to Section 4.2(c), Transcept shall execute and deliver to Purdue an Assignment of Trademark suitable for recordation in the United States Patent and Trademark Office (“ USPTO ”) in the form attached as Exhibit B hereto, and thereafter shall take all reasonable actions requested by Purdue to perfect Purdue’s rights in the Transcept Assigned Trademarks in the U.S. Territory at the expense of Purdue, including the execution and delivery of any additional documents of assignment. For the avoidance of doubt, even though Purdue’s and its Affiliates’ right to use the Transcept Assigned Trademarks in connection with the Products is limited to the U.S. Territory, unless otherwise agreed in writing by Transcept and Purdue or its Affiliates and except as set forth in Section 2.2(d), Transcept shall not use the Transcept Assigned Trademark INTERMEZZO™ anywhere in the world.

(d) Assignment of Transcept Assigned Domain Names . Subject to the terms and conditions of this Agreement, on the Effective Date, Transcept agrees to assign and hereby assigns to Purdue the Transcept Assigned Domain Names, and thereafter shall take all reasonable actions requested by Purdue to perfect its rights in the Transcept Assigned Domain Names.

2.2 Licenses to Transcept .

(a) Research License Under Purdue Technology . Subject to the terms and conditions of this Agreement, Purdue hereby grants to Transcept a non-exclusive, royalty-free, sublicensable (subject to Section 2.4(b)) license under the Purdue Technology solely to the extent necessary to (i) conduct those responsibilities assigned to Transcept under this Agreement and

(ii) to conduct research, Development and manufacturing activities in the U.S. Territory solely in support of the Regulatory Approval of Products in the Transcept Territory.

(b) Commercial License Under Purdue Technology . Upon written request of Transcept, Purdue agrees to negotiate in good faith the terms of a non-exclusive or exclusive (as mutually agreed by the Parties), royalty-bearing license to Transcept under the Purdue Technology (and any other Purdue intellectual property mutually agreed by the Parties) solely to: (i) use, distribute, import, Promote, market, sell, and offer for sale Products in the Transcept Territory; and (ii) make and have made Products in a territory (as mutually agreed by the Parties) for sale in the Transcept Territory. Any license mutually agreed to by the Parties shall contain commercially reasonable terms and include a royalty payable by Transcept to Purdue on net sales of Products that incorporate or are covered by Purdue Technology; provided however that any license agreed to by the Parties under this Section shall be royalty-free with respect to Purdue Know-How developed by Purdue in the performance of [***] that relates to Product or its manufacture or use either (A) in the form and formulation that is the subject of the NDA for the Product in the U.S. Territory as of the Effective Date or (B) [***].

(c) License Under Transcept Technology . Subject to the terms and conditions of this Agreement, Purdue hereby grants to Transcept, (i) a non-exclusive, royalty-free, sublicensable (subject to Section 2.4(b)), license under the Transcept Technology solely to the extent necessary to conduct those responsibilities assigned to Transcept under this Agreement and (ii) an exclusive (even as to Purdue), royalty-free, sublicensable (subject to Section 2.4(b)), license under the Transcept Technology to conduct research, Development, and manufacturing activities in the U.S. Territory solely in support of the Regulatory Approval or commercialization of Products in the Transcept Territory.

(d) Transcept Assigned Trademarks . Subject to the terms and conditions of this Agreement, during the Term, Purdue hereby grants to Transcept a non-exclusive, royalty-free sublicensable license in the U.S. Territory to use the Transcept Assigned Trademarks solely for the purpose of carrying out Transcept’s rights and obligations under this Agreement. All rights arising from the use by Transcept of the Transcept Assigned Trademarks in the U.S. Territory during the Term shall inure to Purdue’s benefit.

2.3 No Other Licenses. Neither Party grants to the other Party any rights, licenses or covenants in or to any intellectual property, whether by implication, estoppel, or otherwise, other than the license rights that are expressly granted under this Agreement.

2.4 Sublicense Agreements .

(a) Sublicensing by Purdue. The licenses granted by Transcept to Purdue in Section 2.1 may be sublicensed by Purdue to: (i) any U.S. Affiliate of Purdue without any requirement of consent, provided that such sublicense to a U.S. Affiliate of Purdue shall immediately terminate if and when such party ceases to be a U.S. Affiliate of Purdue or (ii) any Third Party or other Affiliate only with the prior written consent of Transcept, which consent shall not be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing,

Purdue may grant a sublicense to any Third Party or Affiliate without any requirement of consent in order for the Third Party or Affiliate to perform manufacturing, distribution or Authorized Generic activities under this Agreement or to any Third Party contract sales organization, subject to Section 5.3(c)(ii) and any applicable requirements or restrictions imposed by Section 5.8. Any sublicense under the licenses granted by Transcept to Purdue in Section 2.1 shall be consistent with the terms of this Agreement and shall include confidentiality and non-use obligations no less stringent than those set forth in Article 11.

(b) Sublicensing by Transcept . The licenses granted by Purdue to Transcept in Section 2.2(a) and 2.2(c)(i) may be sublicensed by Transcept to Transcept’s Affiliates or to any of Transcept’s subcontractors existing on the Effective Date or Transcept’s future subcontractors approved by the JCC. The licenses granted by Purdue to Transcept in Section 2.2(c)(ii) may be freely sublicensed by Transcept. Any sublicense under the licenses granted by Purdue to Transcept in Section 2.2(a) and 2.2(c) shall be consistent with the terms of this Agreement and shall include confidentiality and non-use obligations no less stringent than those set forth in Article 11.

2.5 Third Party Agreements. Purdue shall be solely responsible for obtaining, at its sole expense and subject to Section 7.5(e), any agreements with Third Parties required in order to lawfully perform its manufacturing and Commercialization responsibilities under this Agreement.

2.6 Mutual Exclusivity. Except for its activities with respect to Product under this Agreement, Transcept and Purdue each hereby covenants that neither it nor its Affiliates or U.S. Affiliates, respectively, will, directly or indirectly, without the other Party’s written consent, such consent not to be unreasonably withheld, conditioned or delayed:

(a) research, develop or commercialize, or enter into any collaboration or license agreement, covenant, or similar arrangement with any Third Party in connection with the research, development, commercialization, marketing, Promotion, sale, offering for sale, importation and/or distribution of, any product in the U.S. Territory with [***] approved by the FDA or for which FDA approval is sought; provided that this Section 2.6(a) applies only during the period commencing with the Effective Date and continuing during the Term until [***] in the U.S. Territory; or

(b) commercialize, or enter into any collaboration or license agreement, covenant, or similar arrangement with any Third Party in connection with the commercialization, marketing, Promotion, sale, offering for sale, and/or distribution of, any product [***] in the U.S. Territory; provided that the restrictive covenants set forth in this Section 2.6(b) will not apply to any activities of either Party with respect to [***] in the U.S. Territory; and provided further that this Section 2.6(b) applies only during the period commencing with the Effective Date and continuing during the Term until the earlier of [***] after the Effective Date or the date a [***] in the U.S. Territory. For clarity, this Section 2.6(b) shall not prohibit either Party from researching or developing or entering into an agreement with any Third Party for the research, development and/or commercialization of a product [***] so long as such Party or Third Party does not

commercialize, market, Promote, sell, offer for sale or distribute such product [***] in violation of this Section 2.6(b). As used herein, “[***]” means a drug that contains no [***] that has been approved by the FDA in any other application submitted under Section 505(b) of the FD&C Act, and “[***]” means [***].

Transcept hereby additionally covenants that, except for its activities with respect to Product under this Agreement, neither Transcept nor its Affiliates will, directly or indirectly, market, Promote, sell, offer for sale, import and/or distribute any product containing an Active Ingredient in the U.S. Territory, and Purdue hereby additionally covenants that (i) neither it nor its U.S. Affiliates will market, Promote, sell, offer for sale, import and/or distribute any product containing an Active Ingredient in the U.S. Territory (other than the form and formulation of Intermezzo™ existing on the Effective Date or additional forms and formulations of Product approved by the JDC) and (ii) [***].

ARTICLE 3

GOVERNANCE

3.1 Joint Commercialization Committee . Within five (5) days after the Effective Date, Transcept and Purdue shall form a joint commercialization committee ( “JCC” ) consisting of four (4) representatives from Transcept and four (4) representatives from Purdue. Each Party may replace its JCC representatives with another employee of such Party at any time upon prior written notice to the other Party.

3.2 Meetings of the JCC. Prior to the first anniversary of Product Launch, the JCC shall meet on at least a monthly basis, and thereafter the JCC shall meet at least four (4) times every calendar year, in each case unless a particular meeting is waived by mutual consent. In addition, each Party shall have the right to call a meeting of the JCC on reasonable notice to the other Party. Subject to the foregoing, the JCC shall meet on such dates and at such times as agreed by the JCC and shall meet via teleconference or videoconference or, if mutually agreed by the Parties, at a location determined by the JCC. Upon prior written notice to, and approval of, the JCC, each Party may permit visitors to attend meetings of the JCC, provided that any approved visitor shall be subject to confidentiality and non-use obligations no less stringent than the terms of Article 11. Each Party shall be responsible for its own expenses for participating in the JCC. Meetings of the JCC shall be effective only if at least one (1) representative of each Party is present or participating, subject to the following sentence. The Parties acknowledge and agree that Transcept shall have the right to opt out of its participation in the JCC, which shall only be effective if done in writing with specific reference to this subsection, at any time, in which case Purdue shall have the right to make the decisions and take the actions previously reserved to the JCC, and shall keep Transcept informed of its plans and activities on at least a semi-annual basis. In the event Transcept opts out of its participation in the JCC, Transcept shall

not have the right to re-join the JCC. In addition, in the event either (a) the Psychiatrist Co-Promotion Option is terminated pursuant to Section 6.4(a) or (b) Transcept’s right to Promote Products under the Co-Promotion Right is terminated pursuant to Section 6.4(b), then neither Transcept nor any acquiror of or successor to Transcept shall have a right to participate on the JCC effective as of the date of such termination.

3.3 Responsibilities of the JCC. The JCC shall have the responsibility and authority to:

(a) Plan, implement, and oversee the Commercialization of Product in the U.S. Territory, and the manufacturing of Product in support of such activities;

(b) Review the Marketing Plan and any proposed amendments or updates thereto;

(d) Establish subcommittees pursuant to Section 3.11 on an as-needed basis, oversee the activities of all subcommittees so established, and address disputes or disagreements arising in all such subcommittees; and

(e) Perform such other functions as the Parties may agree in writing.

3.4 Areas Outside the JCC’s Authority . The JCC shall not have any authority other than that expressly set forth in Section 3.3 and, specifically, shall have no authority to (a) amend or interpret this Agreement, or (b) determine whether or not a breach of this Agreement has occurred.

3.5 JCC Decisions .

(a) Consensus; Good Faith; Action Without Meeting. The JCC shall decide all matters by consensus, with each Party having one collective vote. The members of the JCC shall act in good faith to cooperate with one another and to reach agreement with respect to issues to be decided by the JCC. Action that may be taken at a meeting of the JCC also may be taken without a meeting if a written consent setting forth the action so taken is signed by one (1) duly authorized representative of each Party.

(b) Failure to Reach Consensus. In the event that the members of the JCC cannot come to consensus within ten (10) days with respect to any matter over which the JCC has authority and responsibility, the JCC shall submit the respective positions of the Parties with respect to such matter for discussion in good faith by the Alliance Managers. If such Alliance Managers are not able to mutually agree upon the resolution to such matter within ten (10) days after the JCC’s submission to them, then the Alliance Managers shall submit the respective positions of the Parties with respect to such matter to the respective chief executive officers of Transcept and Purdue for resolution. If such chief executive officers are not able to mutually agree upon the resolution to such matter within [***] after submission to them, then,

subject to the limitations of Section 3.4, [***] shall have the right to decide such matter [***] legitimate interest under this Agreement, and except that in no event can the [***] such matter in a manner that is contrary to the express terms of this Agreement.

3.6 Joint Development Committee . Within five (5) days after the Effective Date, Transcept and Purdue shall form a joint development committee ( “JDC” ) consisting of four (4) representatives from Transcept and four (4) representatives from Purdue. Each Party may replace its JDC representatives with another employee of such Party at any time upon prior written notice to the other Party.

3.7 Meetings of the JDC. The JDC shall meet at least two (2) times every calendar year, unless otherwise agreed by the Parties, in each case unless a particular meeting is waived by mutual consent. In addition, each Party shall have the right to call a meeting of the JDC on reasonable notice to the other Party. Subject to the foregoing, the JDC shall meet on such dates and at such times as agreed by the JDC and shall meet via teleconference or videoconference or, if mutually agreed by the Parties, at a location determined by the JDC. Upon prior written notice to, and approval of, the JDC, each Party may permit visitors to attend meetings of the JDC, provided that any approved visitor shall be subject to confidentiality and non-use obligations no less stringent than the terms of Article 11. Each Party shall be responsible for its own expenses for participating in the JDC. Meetings of the JDC shall be effective only if at least one (1) representative of each Party is present or participating, subject to the following sentence. The Parties acknowledge and agree that Transcept shall have the right to opt out of its participation in the JDC, which shall only be effective if done in writing with specific reference to this subsection, at any time, in which case the JDC shall dissolve and all matters that previously fell within the purview of the JDC shall be decided by mutual consent of the Parties.

3.8 Responsibilities of the JDC. The JDC shall have the responsibility and authority to:

(a) Plan, implement, and oversee any further Development of Product with respect to the U.S. Territory;

(b) Discuss and monitor the Development of Product with respect to the Transcept Territory;

(c) Establish subcommittees pursuant to Section 3.11 on an as-needed basis, oversee the activities of all subcommittees so established, and address disputes or disagreements arising in all such subcommittees; and

(d) Perform such other functions as the Parties may agree in writing.

3.9 Areas Outside the JDC’s Authority . The JDC shall not have any authority other than that expressly set forth in Section 3.8 and, specifically, shall have no authority to (a) amend

or interpret this Agreement, or (b) determine whether or not a breach of this Agreement has occurred.

3.10 JDC Decisions .

(a) Consensus; Good Faith; Action Without Meeting. The JDC shall decide all matters by consensus, with each Party having one collective vote. The members of the JDC shall act in good faith to cooperate with one another and to reach agreement with respect to issues to be decided by the JDC. Action that may be taken at a meeting of the JDC also may be taken without a meeting if a written consent setting forth the action so taken is signed by one (1) duly authorized representative of each Party.

(b) Failure to Reach Consensus. In the event that the members of the JDC cannot come to consensus within ten (10) days with respect to any matter over which the JDC has authority and responsibility, the matter shall be resolved as follows:

(i) Prior to approval of the NDA for the Product in the U.S. Territory and subject to Section 4.2(a), Transcept’s representatives on the JDC shall have the right to decide such matter reasonably, except that in no event can Transcept’s representatives on the JDC unilaterally decide such matter in a manner that is contrary to the express terms of this Agreement.

(ii) After approval of the NDA for the Product in the U.S. Territory, for any matter pertaining to Development of Product in the Transcept Territory or to Development of Product in the U.S. Territory in support of Regulatory Approval in the Transcept Territory, the JDC shall submit the respective positions of the Parties with respect to such matter for discussion in good faith by the Alliance Managers. If such Alliance Managers are not able to mutually agree upon the resolution of such matter within ten (10) days after the JDC’s submission to them, then the Alliance Managers shall submit the respective positions of the Parties to the respective chief executive officers of Transcept and Purdue for resolution. If such chief executive officers are not able to mutually agree upon the resolution of such matter within [***] after submission to them, then, subject to the limitations of Section 3.9, [***] shall have the right to decide such matter reasonably, [***] legitimate interest under this Agreement, except that in no event can the [***] such matter in a manner that is contrary to the express terms of this Agreement;

(iii) After approval of the NDA for the Product in the U.S. Territory, for any matter pertaining to the Development of Product in the U.S. Territory (but excluding Development of Product in the U.S. Territory in support of Regulatory Approval in the Transcept Territory and any activity described in Section 4.1(b)), the JDC shall submit the respective positions of the Parties with respect to such matter for discussion in good faith by the Alliance Managers. If such Alliance Managers are not able to mutually agree upon the resolution to such matter within ten (10) days after the JDC’s submission to them, then the Alliance Managers shall submit the respective positions of the Parties with respect to such matter to the respective chief executive officers of Transcept and Purdue for resolution. If such chief executive officers are not

able to mutually agree upon the resolution to such matter within [***] after submission to them, then (A) if such matter pertains to [***] shall have the right to decide such matter [***] legitimate interest under this Agreement, except that in no event can the [***] such matter in a manner that is contrary to the express terms of this Agreement and (B) with respect to all matters other than [***], the Parties shall continue to operate under the status quo and [***]. For the avoidance of doubt, [***] under Section 3.10(b)(iii)(A) shall not diminish [***] set forth in Section 3.10(b)(ii) with respect to [***].

3.11 Subcommittees. The JCC and JDC shall each have the right to establish subcommittees and to delegate certain of its powers and responsibilities thereto. Subcommittees established by the JCC shall operate under the same rules as the JCC, except that any disputes that cannot be resolved by a subcommittee in a reasonable time period shall be submitted to the JCC for resolution in accordance with Section 3.5. Subcommittees established by the JDC shall operate under the same rules as the JDC, except that any disputes that cannot be resolved by a subcommittee in a reasonable time period shall be submitted to the JDC for resolution in accordance with Section 3.10.

3.12 Alliance Manager. Each Party shall appoint one employee representative who possesses a general understanding of clinical, regulatory, manufacturing, and marketing issues to act as its respective alliance manager for this relationship (“ Alliance Manager ”). The Alliance Manager would be one of the four (4) representatives on the JCC for each Party.

ARTICLE 4

DEVELOPMENT; REGULATORY

4.1 Development .

(a) Prior to NDA Approval . Prior to approval of the NDA for the Product in the U.S. Territory, Transcept shall have the sole responsibility and right to conduct, at its sole cost, any Development work (including clinical trials) to the extent required by the FDA for NDA approval of the Product. Prior to undertaking any such Development work, Transcept shall provide the JDC with its overall plan (including clinical trial design if applicable) in sufficient time for review and comment by the JDC. Transcept shall reasonably consult with the JDC with respect to any such Development work and Transcept shall be obligated to provide to the JDC any data or results generated by or on behalf of Transcept in the performance of such Development work. Other than the foregoing, prior to approval of the NDA for the Product, neither Party shall have the right to perform any Development work ([***]) with respect to the Product, unless agreed by the Parties in writing; provided, however, that in the event that, during such period, Transcept desires to perform non-clinical Development work in support of Regulatory Approval of the Product in the Transcept Territory, Purdue shall not unreasonably withhold, condition, or delay approval of such work.

(b) After NDA Approval . Following approval of the NDA for the Product in the U.S. Territory, neither Party shall conduct Development activities with respect to the Product anywhere in the world, without the prior approval of the JDC, except that (i) Purdue may conduct at its sole expense any clinical trial of the Product that is a post-approval requirement of, or otherwise requested by, the FDA, and (ii) either Party may manufacture Product subject to Section 5.8. In the event the Parties agree or it is determined pursuant to Section 3.10 that Development activities shall be conducted, then the Party performing the Development activities shall (A) be responsible for all of its costs in connection with such Development activities, unless otherwise mutually agreed by the Parties, and (B) be obligated to provide to the other Party any data or results generated by or on behalf of such Party in the performance thereof.

4.2 Regulatory Matters .

(a) Transcept Responsibility Prior to NDA Approval . Prior to final approval by the FDA of the NDA for the Product, Transcept shall be responsible for preparing and filing all Regulatory Materials and seeking all Regulatory Approvals in the U.S. Territory, including preparing all reports necessary as part of an NDA. During this period, all Regulatory Materials for Products in the U.S. Territory shall be filed in the name of Transcept, and Transcept alone shall be responsible for all communications and other dealings with regulatory agencies relating to the Products in the U.S. Territory. As between the Parties, during this period, Transcept shall be the legal and beneficial owner of all Regulatory Approvals in the U.S. Territory. All costs associated with the foregoing regulatory activities shall be borne solely by Transcept. Transcept shall use Commercially Reasonable Efforts to obtain final approval by the FDA of the NDA for the Product.

Prior to final approval by the FDA of the NDA for the Product, Transcept shall promptly notify Purdue of all material Regulatory Materials (including all material written communications with the FDA) that it submits or receives and shall promptly provide Purdue with a copy (which may be wholly or partly in electronic form) of such Regulatory Materials in the U.S. Territory for review by Purdue. Transcept shall retain the right to make any final decisions with respect to the content of any such communications; provided, however, that Purdue shall be entitled to approve in advance in writing any commitments to post-approval activity required for FDA approval of the NDA, which approval by Purdue shall not be unreasonably withheld, conditioned or delayed. Transcept shall provide Purdue with reasonable advance notice of any scheduled meeting with any Regulatory Authority relating to the Product and/or any Regulatory Approval in the U.S. Territory, and Purdue shall have the right to have up to three (3) individuals attend any such meeting as non-participating observers, to the extent practicable and permitted by Applicable Law; provided that Transcept will retain the lead role and responsibility in any such meetings.

(b) Notice of NDA Approval and Review by Purdue . Immediately upon receipt of NDA approval by the FDA for the Product, Transcept shall provide Purdue with a copy of all Regulatory Materials received as part of the approval from the FDA, including a copy of the full prescribing information for the Product (including any patient information, medication guide and/or Risk Evaluation and Mitigation Strategy (“ REMS ”), if any) for review by Purdue in order for Purdue to determine whether to proceed with the Commercialization of the Product

under this Agreement. No later than ten (10) Business Days from receipt by Purdue of all of such information, Purdue shall provide written notice to Transcept that either (i) Purdue will proceed with the Commercialization of the Product under this Agreement (the “ Purdue Notice ”), in which case Purdue shall make the payment calculated in accordance with Section 7.2(a), or (ii) Purdue is terminating this Agreement in accordance with Section 12.2(b). If Purdue fails to provide the Purdue Notice or a termination notice within such time period, Purdue shall be deemed to have provided the Purdue Notice.

(c) Purdue Responsibilities Following NDA Approval . Within thirty (30) days after Purdue has made the payment set forth in Section 7.2(a), Transcept will transfer all right, title and interest in the Regulatory Materials (including the electronic inventory but excluding the IND and NDA) for the Product to Purdue. Within ten (10) days of receipt, Purdue will confirm whether Purdue reasonably believes that a full and complete transfer of such Regulatory Materials has occurred. If such full and complete transfer has not occurred, Transcept shall transfer any missing Regulatory Materials or otherwise correct any deficiencies within five (5) days of notice from Purdue. Once the transfer of such Regulatory Materials to Purdue is complete, then within two (2) Business Days, Transcept will transfer all right, title and interest in the NDA for the Product to Purdue and the Parties will provide appropriate notice to the FDA. Thereafter, Purdue will be responsible for all regulatory affairs for the Product in the U.S. Territory, at Purdue’s sole expense, including regulatory reporting and maintenance requirements, medical safety services, pharmacovigilance, product recall, and customer complaints with respect to Product in the U.S. Territory. Without limiting the generality of the foregoing, following transfer of the NDA to Purdue, Purdue will be responsible for negotiating with the FDA, and developing and implementing, an FDA approved REMS, if required (it being recognized that a REMS plan may be agreed to in conjunction with receipt of the initial FDA approval), and at Purdue’s reasonable request, Transcept will cooperate and assist Purdue in respect of such endeavor. Purdue agrees that, during the Term, it shall not transfer any right, title and interest in the NDA for the Product or any Regulatory Materials to any Affiliate (other than a U.S. Affiliate) or any Third Party, except pursuant to Section 14.5.

Purdue shall promptly notify Transcept of all material Regulatory Materials (including all material written communications with the FDA) that it submits or receives, and shall promptly provide Transcept with a copy (which may be wholly or partly in electronic form) of such Regulatory Materials for review by Transcept. Purdue shall retain the right to make any final decisions with respect to the content of any such communications. Purdue will provide Transcept with reasonable advance notice of any scheduled meeting with any Regulatory Authority relating to the Product and/or any Regulatory Approval in the U.S. Territory, and Transcept shall have the right to have up to three (3) individuals attend any such meeting as non-participating observers, to the extent practicable and permitted by Applicable Law, provided that Purdue will retain the lead role and responsibility in any such meetings.

4.3 Rights of Reference to Regulatory Materials; Use of Clinical Data. Transcept hereby grants to Purdue an exclusive right of reference to all Regulatory Materials (including the IND) and Regulatory Approvals owned or Controlled by Transcept solely for the purpose of obtaining Regulatory Approval for Product in the U.S. Territory during the Term. Purdue hereby grants to Transcept an exclusive right of reference to all Regulatory Materials and Regulatory

Approvals owned or Controlled by Purdue solely for the purpose of obtaining Regulatory Approval for Product in the Transcept Territory during the Term. Notwithstanding the terms of Article 2, each Party shall have the right, without any additional payment, to use any clinical data developed by the other Party and its Affiliates relating to the Product solely (a) to support the Regulatory Approval of Products in such Party’s territory and (b) for Promotional, marketing, and medical education purposes in support of the Commercialization of Product in such Party’s territory, which right may be sublicensed by such Party (with the consent of the other Party, not to be unreasonably withheld, conditioned or delayed) to any Third Party collaborator or licensee that agrees to allow any Product-related clinical data developed by such collaborator to be used by the other Party for such purposes in a reciprocal manner in such other Party’s territory. For clarity, the rights of reference and use granted by this Section 4.3 shall be in addition to the licenses and other rights granted under this Agreement and shall be independent of the ownership of the Regulatory Materials and Regulatory Approvals as allocated or transferred by this Agreement.

4.4 Adverse Event Reporting and Safety Data Exchange. At any time after the Effective Date, any adverse event (any unwanted or unintended experience in a person that is associated with the use of a drug, whether or not that experience is caused by that drug, including any known side effects) or any Product complaint (any physical or organoleptic defect to the Product itself and/or package) received by Transcept regarding a Product originating from the U.S. Territory will be forwarded to the Purdue Drug Safety Operations Group as soon as possible, but no later than two (2) calendar days after Transcept receives such adverse event or complaint, by telephone (888-726-7535 prompt 2), fax (203-588-6395) or secure E-mail ( drugsafetyandpharmacovigilance@pharma.com ). At any time after the Effective Date, Purdue shall provide Transcept with any serious adverse event information received by Purdue regarding a Product originating from the U.S. Territory as soon as reasonably practicable, but in any event no later than ten (10) days following receipt, and shall promptly provide Transcept with such other information reasonably requested by Transcept to comply with its reporting obligations in connection with the Development of Product in support of Regulatory Approval in the Transcept Territory, including any reporting obligations imposed as a result of Transcept holding an IND in the U.S. Territory. Purdue and Transcept (or its licensee, as appropriate) shall enter into a pharmacovigilance agreement containing specific terms, conditions and obligations of the Parties with respect to collection, reporting and monitoring of all adverse drug reactions, adverse events, product complaints, medical inquiries and other relevant drug safety matters, sufficient to enable each Party to comply with its reporting obligations and regulatory submissions in its respective territory, not later than the date of transfer of the NDA to Purdue pursuant to Section 4.2(c).

4.5 Communications with Regulatory Authorities .

(a) General. Each Party shall keep the other Party informed, in a timely manner compliant with the reporting requirements of Regulatory Authorities in the other Party’s territory, of notification of any action by, or notification or other information which it receives (directly or indirectly) from any Regulatory Authority in such Party’s territory with respect to the Product and which may have a material impact on Regulatory Approval or the continued commercialization of the Product.

(b) Other Communications. Except as may be required by Applicable Law, Transcept shall not, subsequent to final approval by the FDA of the NDA for the Product, communicate regarding the Product with any Regulatory Authority having jurisdiction in the U.S. Territory unless explicitly requested or permitted in writing to do so by Purdue or unless so ordered by such Regulatory Authority in the U.S. Territory, in which case Transcept shall immediately provide notice of such order to Purdue. Except as may be required by Applicable Law, Purdue shall not communicate with any Regulatory Authority having jurisdiction in the Transcept Territory regarding any Product unless explicitly requested or permitted in writing to do so by Transcept, or unless so ordered by such Regulatory Authority, in which case Purdue shall immediately provide notice of such order to Transcept.

4.6 Regulatory Inspection or Audit. If a Regulatory Authority desires to conduct an inspection or audit of either Party’s facility or a facility under contract with either Party with regard to the Product in the U.S. Territory, such Party shall cooperate and cause the contract facility to cooperate with such Regulatory Authority during such inspection or audit. Following receipt of the inspection or audit observations of such Regulatory Authority (a copy of which such Party will immediately provide to the other Party), such Party will prepare the response to any such observations. Such Party agrees to conform its activities under this Agreement to any commitments made in such a response, except to the extent it believes in good faith that such commitments violate Applicable Laws.

4.7 Product Withdrawals and Recalls. Purdue shall have the right and responsibility, at its expense, to control any product recall, field correction, or withdrawal of any Product in the U.S. Territory. As between the Parties, Transcept shall have the right, at its expense, to control all recalls, field corrections, and withdrawals of any Product in the Transcept Territory. To the extent practicable, the Parties shall discuss the circumstances of any potential product recall, field correction or withdrawal of any Product and possible appropriate courses of action. Each Party shall maintain complete and accurate records of any recall in its territory for such periods as may be required by Applicable Laws, but in no event for less than five (5) years.

ARTICLE 5

COMMERCIALIZATION; MANUFACTURING

5.1 General; Formation of BBU. Subject to the terms of this Agreement, Purdue shall have responsibility and decision-making authority for Commercialization activities to be carried out in accordance with the Marketing Plan. Except as otherwise provided herein, Purdue shall be responsible for all costs and expenses associated with the Commercialization activities. Promptly following the Effective Date, Purdue shall create a Brand Business Unit (“ BBU ”) dedicated to the Commercialization of the Product. The BBU will be responsible for developing proposals for the overall Marketing Plan, which would include the field level promotional plan for the Product. Subject to the terms of this Agreement (including Sections 3.10 and 4.1), Transcept shall have responsibility and decision-making authority for Development and commercialization activities for Products in the Transcept Territory. Transcept shall keep the JCC and JDC reasonably informed of its plans and progress with respect to Products in the Transcept Territory.

5.2 Marketing Plan .

(a) Commercialization of the Product under this Agreement shall be governed by a written marketing plan setting forth anticipated Commercialization activities to be performed with respect to Product in the U.S. Territory by Purdue or on its behalf by Third Parties (including market research studies, launch plans, detailing and Promotion), as well as projected timelines and line-item quarterly budgets for such activities (the “Marketing Plan” ). Each updated Marketing Plan shall include plans for sales training, staffing, Detailing and call plans, Sample Authorization quantities, pricing and contracting strategy, Product positioning and communication strategy, convention and trade show attendance, DTC and non-DTC advertising.

(b) Promptly following the Effective Date, Purdue shall develop via the BBU a draft Marketing Plan covering activities to be conducted in preparation of Product Launch and during Sales Year 1. No later than [***] after the later of the Effective Date or approval of the NDA for the Product by the FDA, Purdue shall provide the JCC with a draft outline of the launch plan for the Product in the U.S. Territory. No later than [***] after the later of the Effective Date or approval of the NDA for the Product by the FDA, Purdue shall propose a draft Marketing Plan to the JCC. Purdue shall consult with Transcept through meetings of the JCC in the development of such launch year Marketing Plan (i.e., while it is still being developed by the BBU). The JCC shall either approve the proposed Marketing Plan or request specific changes to it. The BBU shall then modify the proposal based on the JCC direction and re-submit the Marketing Plan for JCC review and approval.

(c) Purdue shall thereafter update the Marketing Plan via the BBU on an annual basis as follows: Purdue shall provide the JCC with a draft update to the Marketing Plan no later than September 15 of each year. In preparing the updated version of the Marketing Plan, the BBU shall analyze the effectiveness of the elements of the prior year Marketing Plan and an updated sales forecast to develop a future year Marketing Plan. The JCC shall either approve the proposed Marketing Plan or request specific changes to it. The BBU shall then modify the proposal based on the JCC direction and re-submit the Marketing Plan for JCC review and approval. Purdue may, at its election, update the Marketing Plan between annual updates by following this same procedure.

(d) Each Party shall use Commercially Reasonable Efforts in performing its obligations under this Section 5.2 concerning (as applicable) the preparation, review, and approval of the Marketing Plan.

(e) In the event of any inconsistency between the Marketing Plan and this Agreement, the terms of this Agreement shall prevail.

5.3 Commercialization by Purdue. Purdue, itself or through its Affiliates or sublicensees, shall use Commercially Reasonable Efforts to Commercialize Products for which Regulatory Approval has been received in the U.S. Territory. Without limiting the generality of the foregoing, Purdue shall satisfy each of the following requirements:

(a) Product Launch . Purdue shall commence a Product Launch in the U.S. Territory no later than [***] after the date upon which Regulatory Approval for such Product is granted in the U.S. Territory, provided that such [***] period may be extended by up to [***] as reasonably determined by the JCC, and provided further that Purdue shall not be obligated to commence a Product Launch if a Third Party manufacturer fails to complete its obligations in connection with Product Launch (including the obligation to supply sufficient initial launch quantities of Product to satisfy the Marketing Plan not less than [***] following the date upon which Regulatory Approval for the Product is granted in the U.S. Territory) and such failure makes it impossible or impracticable to meet this deadline, in which case Purdue shall commence such Product Launch as soon as commercially reasonable thereafter. As part of its Purdue PDE Commitment set forth in Section 5.3(c), Purdue shall provide no less than [***] in the [***].

(b) Promotional Spend . For the U.S. Territory, Purdue shall support the Product with a minimum Promotional spend (including costs associated with the Sample Authorization program, but excluding any Sales Force costs and any other costs not directly associated with Promotion of a Product), as follows:

(i) [***] for each of the [***] Years for Promotional spend other than DTC advertising costs; and

(ii) [***] for DTC advertising costs for each of [***] after DTC advertising is allowed under Applicable Law, except to the extent DTC advertising is constrained by any Governmental Authority or industry guideline, in which case such amounts shall be used as soon as practical. For clarity, it is anticipated that Purdue will perform certain preparatory work relating to DTC advertising prior to DTC advertising being allowed under Applicable Law, and the amounts spent by Purdue on such preparatory work shall be included as DTC advertising costs for [***] period described above.

Notwithstanding the foregoing, (A) in the event a Marketplace Change occurs or a Generic Product is approved and is reasonably likely to be launched within [***] of approval in the U.S. Territory, the JCC shall appropriately reduce Purdue’s minimum Promotional spend under this Section and (B) in the event a Governmental Authority in the U.S. Territory alters the existing tax treatment of Promotional spending, then Purdue shall have the right, in its discretion, to re-allocate the amounts set forth in subsection (ii) above to other Promotional activities or Detailing in support of the Product.

The allocation of this Promotional spend shall be further detailed in the Marketing Plan. After the periods set forth in subsections (i) and (ii) above, Purdue shall support the Product with a Promotional spend that is consistent with the amounts budgeted in the applicable Marketing Plan.

If the actual level of Promotional spend provided by Purdue during any period set forth in subsections (i) or (ii) above is less than [***] but greater than or equal to [***] of the target set forth above, then Purdue shall make up the shortfall in the following [***] (i.e., in addition to

the baseline level of Promotional spend established by the budget for such [***] in the most recently approved Marketing Plan covering such [***]). If the actual level of Promotional spend provided by Purdue during any period set forth in (i) or (ii) above is less than [***] of the target set forth above, then Purdue shall make up [***] of the shortfall in the following [***] (i.e., in addition to the baseline level of Promotional spend established by the budget for such [***] in the most recently approved Marketing Plan covering such [***]). If Purdue fails to make up such shortfall by the end of [***] required by the preceding two sentences, then Purdue shall [***].

(c) Purdue PDE Commitment . Purdue shall comply with the following PDE requirements during the Purdue PDE Commitment Term in the U.S. Territory:

(i) Purdue shall Detail the Product in the U.S. Territory at a level no less than [***] of the PDE Target listed below for each Sales Year during the Purdue PDE Commitment Term ([***], the “ Purdue PDE Commitment ”), subject to the remainder of this Section 5.3 and to any modifications set forth in Article 6:


	PDE Target if Transcept has not commenced Promotion activities under the Co-Promotion Right	PDE Target if Transcept has commenced Promotion activities under the Co- Promotion Right

Sales Year [***]	[***]	[***]

Sales Year [***]	[***]	[***]

Sales Years [***]	[***]	[***]

All PDE Targets in the foregoing table refer to PDEs per Sales Year to physicians in [***] of insomnia prescribers in the U.S. Territory as such deciles are defined by IMS.

(ii) Purdue shall provide the Purdue PDE Commitments in any Sales Year through its own employees and/or through the engagement of a contract sales organization.

(iii) If the actual number of PDEs provided by Purdue during any Sales Year (or for Sales Year [***], during the first half of such Sales Year) is less than [***] but equal to or greater than [***] of the PDE Target set forth in the foregoing table for such Sales Year or half of a Sales Year, as the case may be (with PDE Targets for a half of Sales Year [***] calculated by [***] the PDE Targets set forth in the table above by [***]) then Purdue shall make up the difference between the actual number of PDEs and the applicable Purdue PDE Commitment (the “ Purdue Shortfall ”) in the [***] of the following Sales Year or of the second half of Sales Year [***], as the case may be (i.e., in addition to the Purdue PDE Commitment for such [***], as determined by [***] the Purdue PDE Commitment for the next Sales Year by [***] or in addition to the Purdue PDE Commitment for the second half of Sales Year [***] as applicable). Purdue shall make up the Purdue Shortfall either (A) through the provision of additional PDEs equaling the Purdue Shortfall, (B) by

applying the Purdue PDE Cost of additional PDEs equaling the Purdue Shortfall to an equivalent value of other Product sales and/or marketing support (where such additional sales and/or marketing support will be measured relative to the baseline established by the budget for such [***] in the most recently approved Marketing Plan covering such [***]), or (C) by some combination of (A) and (B) in Purdue’s discretion.

(iv) If the actual number of PDEs provided by Purdue during any Sales Year (or for Sales Year [***], during the first half of such Sales Year) is less than [***] of the PDE Target set forth in the foregoing table but greater than [***] for such Sales Year or [***] for a half of a Sales Year, as the case may be (with PDE Targets for a half of Sales Year [***] calculated by [***] the PDE Targets set forth in the table above by [***]), then Purdue shall make up [***] of the difference between the actual number of PDEs and the applicable Purdue PDE Commitment (the “ Purdue [***] Shortfall ”) in the [***] of the following Sales Year or of the second half of Sales Year [***], as the case may be (i.e., in addition to the Purdue PDE Commitment for such Sales Quarter, as determined by [***] the Purdue PDE Commitment for the next Sales Year by [***] or in addition to the Purdue PDE Commitment for the second half of Sales Year [***], as applicable). Purdue shall make up the Purdue [***] Shortfall either (A) through the provision of additional PDEs equaling the Purdue [***] Shortfall, (B) by applying the Purdue PDE Cost of additional PDEs equaling the Purdue [***] Shortfall to an equivalent value of other Product sales and/or marketing support (where such additional sales and/or marketing support will be measured relative to the baseline established by the budget for such [***] in the most recently approved Marketing Plan covering such [***]) or (C) by some combination of (A) and (B) in Purdue’s discretion. The calculation of the value of any such Purdue [***] Shortfall in Purdue PDE Commitment and the application of such value to Product sales and/or marketing support shall be a matter submitted to, and approved by, the JCC and Transcept on a timely basis so that the value of such Purdue [***] Shortfall can be applied as soon as practicable.

For purposes of illustration only, if Purdue were to deliver [***] PDEs in the first Sales Year (i.e., [***] of the PDE Target of [***] PDEs) with a Purdue [***] Shortfall of [***] PDEs, Purdue would spend [***] (i.e., [***] of [***] PDEs multiplied by the Purdue PDE Cost of [***]) on a combination of PDEs and other Promotional spend during the [***] of the second Sales Year beyond the targeted PDEs and Promotional spend for the [***] of second Sales Year.

(v) If Purdue fails to make up the Purdue Shortfall or Purdue [***] Shortfall by the end of the [***] required by Section 5.3(c)(iii) or (iv), respectively, then: (A) Purdue shall [***], and (B) [***].

(vi) If prior to the end of the Purdue PDE Commitment Term and provided that a Marketplace Change has not occurred, the actual number of PDEs provided by Purdue during any [***] period falls below [***], Transcept shall have the right to terminate this Agreement immediately upon written notice to Purdue. The effect of such termination is described in Article 12.

(vii) If Net Sales in Sales Year [***] are below [***], or if Net Sales in Sales Year [***] are below [***], or if Net Sales in Sales Year [***] are below [***], then, provided that Purdue satisfied the Purdue PDE Commitment for such Sales Year, the JCC shall appropriately reduce the Purdue PDE Commitment for the Product for each subsequent Sales Year of the Purdue PDE Commitment Term. Unless Transcept otherwise agrees, the JCC shall not be permitted to reduce the Purdue PDE Commitment, on a percentage basis, by more than the percentage shortfall of Net Sales below the thresholds provided above, plus [***]; provided, however, that if the percentage shortfall of Net Sales below the thresholds provided above is greater than [***], then the JCC shall be free to reduce the Purdue PDE Commitment without restriction. Thereafter, the provisions of this Section 5.3(c) (other than subsection (vi) and this subsection (vii)) shall be appropriately adjusted to apply to such new PDE targets. For purposes of illustration only, (1) if Net Sales in Sales Year [***] are [***], which is [***] lower than [***], then the Purdue PDE Commitment for Sales Year [***] may be reduced by up to [***], or (2) if Net Sales in Sales Year [***] are [***], which is [***] lower than [***], then the JCC shall be free to reduce the Purdue PDE Commitment for Sales Year [***] without restriction.

(viii) If a Marketplace Change occurs, the JCC shall appropriately reduce the Purdue PDE Commitment for the Product for the remainder of the Purdue PDE Commitment Term.

(ix) During the first [***] Sales Years during the Purdue PDE Commitment Term, (A) a minimum of [***] of the total Purdue PDE Commitment shall be in the Primary Detail position, and (B) a maximum of [***] of the total Purdue PDE Commitment shall be permitted to be in the Secondary Detail position. For the [***] Years during the Purdue PDE Commitment Term, a maximum [***] of the total Purdue PDE Commitment shall be permitted to be in the Tertiary Detail position.

(x) The terms and conditions of this Section 5.3(c) set forth Transcept’s sole and exclusive remedies for Purdue’s failure to provide the Purdue PDE Commitment in any Sales Quarter and such failure shall not be treated as a material breach of this Agreement by Purdue under Section 12.3; provided, however, that the foregoing shall not limit Transcept’s available remedies with respect to Purdue’s failure to [***] under Section 5.3(c)(v).

5.4 Commercialization Reports. Purdue shall keep the JCC reasonably informed regarding the material progress and results of its Commercialization activities and those of its Affiliates, sublicensees and Third Party contractors, including providing the following:

(a) On a [***] basis during Sales Years 1 to 5 and [***] basis thereafter during the Term, an email report of gross sales of the Products in the U.S. Territory during said period and on a Sales Year-to-date basis;

(b) Within [***] days after the end of each calendar quarter during the Term following Product Launch, Purdue shall provide to the JCC a written report summarizing Purdue’s material Commercialization activities pursuant to this Agreement for such quarter and on a calendar year-to-date basis, including: (i) the number of Details made (by Primary Details, Secondary Details and Tertiary Details); (ii) the total number of Samples Authorizations delivered and/or redeemed, and (iii) Information in Purdue’s possession regarding any direct mail advertising, journal advertising and DTC advertising.

Any report submitted to Transcept by Purdue under this Agreement shall be in a reasonable format, as determined by Purdue in its discretion. Each such report shall be considered Purdue’s Confidential Information.

5.5 Purdue Records and Audits. Purdue shall keep complete and accurate records of (a) the number of Details delivered by sales representatives under Purdue’s control, (b) whether each Detail delivered is a Primary Detail, Secondary Detail or Tertiary Detail, (c) the total number of Sample Authorizations distributed, and (d) Information regarding any direct mail advertising, journal advertising and DTC advertising. All such records shall be retained for at least five (5) years following the Sales Year in which they are generated, or longer if required by Applicable Laws. At Transcept’s request, such records and Purdue’s Detail and Sample Authorization distribution activity reporting system shall be available for review not more than once each calendar year (during normal business hours on a mutually agreed date with reasonable advance notice at a Purdue facility in the United States) by an independent Third Party auditor mutually agreed upon by the Parties and subject to confidentiality and non-use obligations no less stringent than those set forth in Article 11 for the sole purpose of verifying for Transcept the accuracy of the reports furnished by Purdue pursuant to this Section. The expense of such auditor shall be borne solely by Transcept. Such auditor shall not disclose Purdue’s confidential information to Transcept, except to the extent such disclosure is necessary to verify the accuracy of the reports furnished by Purdue.

5.6 Authorized Generic .

(a) The Parties agree that Purdue and its Affiliates will have the right [***] to enter into an agreement or sublicense with one or more Affiliates or Third Parties that have experience in the commercialization of generic pharmaceutical products, in order to market, advertise, Promote, offer to sell and sell in the U.S. Territory one or more Authorized Generics.

(b) Purdue may, in its reasonable discretion after consultation with the JCC, launch or authorize the launch of any Authorized Generic in the U.S. Territory, upon either (i)

final FDA approval of a Generic Product or (ii) [***]. Purdue will have the right, in its sole discretion after consultation with the JCC, to terminate the distribution of any Authorized Generic at any time. Except as set forth above and subject to Purdue’s obligations to its Affiliates and Third Parties, Purdue shall provide that any right or sublicense to market, advertise, Promote, offer to sell or sell in the U.S. Territory any Authorized Generic shall apply only during such time that there is a Generic Product in the distribution and supply chain in the U.S. Territory. Purdue shall provide Transcept with written notification of a launch of an Authorized Generic by, or on the authorization of, Purdue within twenty-four (24) hours after such launch.

5.7 Cross-Territory Sales . Each Party shall use Commercially Reasonable Efforts (consistent with any Applicable Law) to obligate its sublicensees, distributors or wholesalers to not deliver or cause to be delivered Product outside each Party’s territory and to not sell any Product to a purchaser if in either case such sublicensees, distributors or wholesalers knows, or has reason to believe, that such purchaser intends to remove such Product from such Party’s territory for the purpose of sales or use by patients of the Product in the other Party’s territory.

5.8 Manufacture and Supply of Product.

(a) Transcept Responsibility. Prior to the transfer of the NDA for the Product to Purdue pursuant to Section 4.2(c), Transcept will be solely responsible for the manufacturing of Products in bulk and finished form for use by Purdue, its Affiliates, and its sublicensees in the U.S. Territory and, if applicable, for Transcept’s own use. During this period, Transcept shall work in coordination with Purdue to prepare for Product Launch, it being understood that any manufacturing work performed by Transcept at the written request of Purdue during this period will be performed by Transcept at Purdue’s sole expense based on Transcept’s documented out-of-pocket costs [***], except that any such requested manufacturing work performed by Transcept and required for NDA approval of the Product shall be at Transcept’s sole expense. For the avoidance of doubt, none of Transcept’s written agreements as of the Effective Date with Third Party manufacturers and suppliers for the Product shall be assigned to Purdue.

(b) Purdue Responsibility . Effective as of the date of the transfer of the NDA for the Product to Purdue pursuant to Section 4.2(c), Purdue will be solely responsible

(using either Third Parties or its own or its Affiliates’ facilities) for the manufacture and supply of Products in bulk and finished form for use or sale by Purdue, its Affiliates and its sublicensees in the U.S. Territory. The Parties acknowledge that, as of the Effective Date, Purdue has entered into written agreements for the manufacture and supply of Product for sale by Purdue, its Affiliates and sublicensees in the U.S. Territory with certain Third Parties and that Purdue’s rights under such agreements are expressly contingent upon the approved NDA for the Product being transferred to Purdue pursuant to Section 4.2(c).

(c) Transfer of Manufacturing Technology. Upon the transfer to Purdue of the approved NDA for the Product pursuant to Section 4.2(c) and thereafter as reasonably necessary for so long as Product is manufactured by or on behalf of Purdue, Transcept shall transfer to Purdue, its Affiliate or a Third Party manufacturer selected by Purdue all Information, including the specifications for the Product, Controlled by Transcept at such time that is necessary or useful to enable Purdue, its Affiliate or such Third Party manufacturer (as appropriate) to replicate the process employed by or on behalf of Transcept to manufacture Product in accordance with the approved NDA. Purdue, its Affiliate and/or its Third Party manufacturer shall use any Information transferred pursuant to this Section 5.8(c) in accordance with the license granted in Section 2.1 and solely for the purpose of manufacturing Products for uses permitted under this Agreement, and for no other purpose. Transcept shall take all reasonable steps to ensure the smooth and timely transfer of the manufacturing process for Products to Purdue, its Affiliate or Third Party manufacturer. Purdue acknowledges and agrees that Transcept may condition its agreement to transfer (or to permit Purdue to transfer) any Transcept manufacturing technology or Information to a Third Party manufacturer (other than those Third Party manufacturers with which Purdue has written agreements as of the Effective Date) on the execution of a confidentiality agreement between such Third Party manufacturer and Purdue that contains obligations of confidentiality and non-use no less stringent than those of Article 11 of this Agreement. In the event that either (i) [***], or (ii) [***], then Transcept shall cooperate with Purdue or its Affiliate, and provide all reasonable assistance and take all reasonable actions (including executing any further agreements or documents) to enable Purdue or its Affiliate to [***] from any Third Party, either directly from such Third Party or through Transcept, under terms no less favorable to Purdue or its Affiliate than the terms applicable to Transcept.

ARTICLE 6

TRANSCEPT CO-PROMOTION RIGHT

6.1 Psychiatrist Co-Promotion Option . Transcept shall have an option (the “ Psychiatrist Co-Promotion Option ”) to Promote to Psychiatrists in the U.S. Territory all Products that are being Commercialized by Purdue under this Agreement as of or subsequent to the date of exercise of the Psychiatrist Co-Promotion Option on the terms set forth in this Article 6; provided that if Transcept exercises such Psychiatrist Co-Promotion Option, then upon written request of Transcept, a Product Commercialized by Purdue under this Agreement as of the date of exercise shall not be included in the Co-Promotion Right if agreed by the JCC. Transcept’s

Promotion of any Products in the U.S. Territory under the Co-Promotion Right shall be subject to the Purdue CIA and overseen by the JCC.

6.2 Option Period; Option Exercise . Transcept may exercise the Psychiatrist Co-Promotion Option by written notice to Purdue at any time during the Psychiatrist Co-Promotion Option Period, provided that Transcept may not exercise the Psychiatrist Co-Promotion Option if Transcept is in material breach of this Agreement and has not cured such breach within the sixty (60) day period set forth in Section 12.3(d). As used herein, the “ Psychiatrist Co-Promotion Option Period ” means the period commencing on [***] and ending [***].

6.3 Termination of Psychiatrist Co-Promotion Option . If Transcept has not provided written notice to Purdue of its exercise of the Psychiatrist Co-Promotion Option during the Psychiatrist Co-Promotion Option Period, the Psychiatrist Co-Promotion Option shall automatically and irrevocably expire. Transcept may, in its sole discretion, terminate the Psychiatrist Co-Promotion Option at any time prior to exercise. Following exercise, the Parties’ rights to terminate Transcept’s Co-Promotion Right shall be as set forth in Sections 6.4(b) and 6.20 below.

6.4 [***].

(a) [***].

(b) [***]:

(i) [***];

(ii) [***].

(iii) [***]:

(iv) [***].

(v) [***].

6.5 Purdue Detailing to Psychiatrists. Notwithstanding Transcept’s exercise of the Psychiatrist Co-Promotion Option, Purdue retains the option to Detail the Product to Psychiatrists at Purdue’s expense, [***] pursuant to Section 7.6 or any other provision under this Agreement. Following Transcept’s exercise of the Psychiatrist Co-Promotion Option and until the Co-Promotion Commencement Date, Purdue shall continue to use Commercially Reasonable Efforts to Detail the Product to Psychiatrists in the U.S. Territory.

6.6 Grant of Co-Promotion Right. In the event Transcept exercises the Psychiatrist Co-Promotion Option by written notice to Purdue pursuant to Section 6.2, then commencing on the Co-Promotion Commencement Date, Purdue hereby grants to Transcept the co-exclusive (with Purdue) right to Promote Product to Psychiatrists in the U.S. Territory during the Co-Promotion Term, on the terms and subject to the conditions set forth herein (the “ Co-Promotion Right ”). Transcept shall have the right to subcontract its rights and obligations under this Agreement pursuant to Section 6.12(a). For clarity, Transcept shall have no right to Detail or Promote the Product in the U.S. Territory prior to the Co-Promotion Commencement Date.

6.7 Co-Promotion Term . Subject to Section 6.11(c), the Co-Promotion Right shall commence on the date specified in subsection (a) or (b) below, as applicable (the “ Co-Promotion Commencement Date ”) and shall continue in effect until the expiration or termination of this Agreement, unless terminated earlier as provided in this Article 6 (the “ Co-Promotion Term ”); provided that in no event shall Transcept commence activities under the Co-Promotion Right prior to the end of Sales Year 1;

(a) If delivery of the written notice of the exercise of the Psychiatrist Co-Promotion Option by Transcept pursuant to Section 6.2 occurs on or prior to [***],

the Co-Promotion Right by Transcept will commence [***] (with the exact start date to be determined by Transcept in its sole discretion but in consultation with Purdue and specified in the initial notice made in the prior calendar year). For example, if Transcept delivers notice to Purdue on or before [***], such notice may specify that Transcept shall begin Promoting the Product to Psychiatrists [***] and [***].

(b) If delivery of the written notice of the exercise of the Psychiatrist Co-Promotion Option by Transcept pursuant to Section 6.2 occurs [***], such notice shall specify that Promotion by Transcept under the Co-Promotion Right will commence [***]. For example, if Transcept delivers notice to Purdue on [***], such notice shall specify that Transcept shall begin Promoting the Product to Psychiatrists on [***].

6.8 Promotion to Non-Psychiatrists . If Transcept desires to Promote the Product to physicians (a) who are not Psychiatrists, (b) who are within a specific specialty agreed upon by the JCC, and (c) to whom Purdue is not Detailing the Product (the “ Specialty Group Physicians ”), then Transcept shall notify Purdue in writing. Upon approval of the JCC, Transcept shall have the right to Promote the Product to such Specialty Group Physicians in accordance with this Agreement, and the definition of Psychiatrists in this Agreement shall be deemed to include such Specialty Group Physicians for all purposes, except that Transcept’s Details to such Specialty Group Physicians shall not be included for the purpose of determining whether Transcept has satisfied its Transcept Minimum PDEs obligations under Section 6.11. The Parties will coordinate Transcept’s Detailing to Specialty Group Physicians by the Transcept Sales Force with Details by the Purdue Sales Force in a manner intended to increase effective coverage of the target audience and to decrease non-productive efforts.

6.9 Marketing Plan; Management. During the Co-Promotion Term, all Details and Promotion activities conducted by the Parties under this Agreement shall be in accordance with the then-current annual Marketing Plan prepared and approved under this Agreement, and will be overseen by the JCC. Transcept shall manage the Transcept Sales Force and shall implement Purdue’s sales strategies and plans including the Marketing Plan, except to the extent that activities, or lack of activity, proposed by Transcept are reviewed in sufficient detail for the JCC to make a reasonably informed determination and are approved in writing by the JCC. Transcept shall use Commercially Reasonable Efforts to provide the Transcept Sales Force with the level of oversight, management, direction and sales support with respect to the Promotion of Product to effectively and efficiently Promote the Product in accordance with the terms of this Agreement.

6.10 Promotion of Products by Purdue. The Parties acknowledge that the Purdue PDE Commitment is reduced as set forth in Section 5.3(c)(i) of this Agreement upon the commencement of Promotion activities by Transcept under the Co-Promotion Right. Purdue’s election pursuant to Section 6.5 to Promote the Product to Psychiatrists shall not limit Transcept’s right to Promote the Product under the Co-Promotion Right to any and all Psychiatrists in the U.S. Territory. During any period in which the Purdue Sales Force is Promoting the Product to Psychiatrists, the Parties will use Commercially Reasonable Efforts at the local level to coordinate such Details by the Purdue Sales Force with Details by the Transcept

Sales Force in a manner intended to increase effective coverage of the target audience and to decrease non-productive efforts.

6.11 Promotion of Product by Transcept .

(a) Upon the grant of the Co-Promotion Right and during the Co-Promotion Term, Transcept shall Detail and Promote the Product to Psychiatrists in the U.S. Territory in accordance with this Agreement and the then-current Marketing Plan, commencing on the Co-Promotion Commencement Date. Subject to the remainder of this Section 6.11, Transcept shall perform the following numbers of PDEs to Psychiatrists, but no fewer than [***] of such numbers (such full amounts, the “Transcept Target PDEs” , and [***] of the Transcept Target PDEs, the “Transcept Minimum PDEs” ):

(i) during the [***] PDEs,

(ii) during the [***] PDEs, and

(iii) for all subsequent Sales Years during the Co-Promotion Term, that number of PDEs as determined by the JCC; provided that Transcept shall not be required, without its consent, such consent not to be unreasonably withheld, conditioned or delayed, to perform a substantially greater portion of the total PDEs performed by both Parties than it is required to provide in the [***] Years.

The foregoing Transcept Target PDEs refer to PDEs per Sales Year to Psychiatrists in [***] of the insomnia prescribers in the U.S. Territory as defined by IMS.

If the Co-Promotion Commencement Date is not the first day of a Sales Year, then the PDE requirements for the Sales Year in which the Co-Promotion Commencement Date occurs shall be prorated accordingly for the period between the Co-Promotion Commencement Date and the end of the applicable Sales Year.

(b) Adjustment of Transcept Target PDEs .

(i) If Net Sales of Product in Sales [***] are below [***], or if Net Sales in Sales [***] are below [***], or if Net Sales in Sales [***] are below [***], the JCC shall appropriately reduce the Transcept Target PDEs for the Product for each subsequent Sales Year in a manner consistent with the reduction of the Purdue PDE Commitment pursuant to Section 5.3(c)(vii).

(ii) If a Marketplace Change occurs, the JCC shall appropriately reduce the Transcept Target PDEs for the Product in a manner consistent with the reduction of the Purdue PDE Commitment pursuant to Section 5.3(c)(viii).

(iii) If [***] for any two (2) consecutive calendar quarters, then Transcept shall reasonably reduce the Transcept Target PDEs and Transcept Minimum PDEs set forth in Section 6.11(a) by an appropriate amount solely for so long as [***]; provided that Transcept shall not reduce the

Transcept Target PDEs and Transcept Minimum PDEs to a number that is less than [***] of the number of Transcept Target PDEs and Transcept Minimum PDEs set forth in Section 6.11(a).

(c) Termination of Transcept’s PDE Obligation . Transcept’s PDE obligations set forth in Section 6.11(a) of this Agreement (and Transcept’s right to receive royalties from Purdue pursuant to Section 7.6 of this Agreement) shall terminate upon the first to occur of: (i) termination of this Agreement, (ii) termination of the Co-Promotion Right, or (iii) the date of launch of a Generic Product in the U.S. Territory ([***]); provided, however, that in the case of subsection (iii), Transcept shall have the right to have the Co-Promotion Right reinstated at such time that (A) such Generic Product is no longer sold in the U.S. Territory and (B) Purdue’s unit sales volume of Product in the U.S. Territory returns to the unit sales volume achieved prior to the approval of such Generic Product; provided that Transcept may not make such election if Transcept is in material breach of this Agreement and has not cured such breach within the sixty (60) day period set forth in Section 12.3(d). If Transcept elects to have the Co-Promotion Right reinstated, Transcept must provide written notice to Purdue within twelve (12) months of the date on which subsections (A) and (B) above are met and such Co-Promotion Right shall be reinstated on the date determined in a manner consistent with the time periods set forth in Section 6.7(a) and (b).

(d) If the Co-Promotion Commencement Date occurs prior to the end of the [***] Sales Year, then during the [***] Year, at least [***] of the PDEs provided by Transcept to Psychiatrists shall be Primary Details, no more than [***] of the PDEs to Psychiatrists may be Secondary Details, and none of the PDEs to Psychiatrists may be Tertiary Details. Following the [***] Sales Year, up to [***] of the PDEs to Psychiatrists provided by Transcept may be Tertiary Details.

(e) Transcept, in its discretion and at its own expense, may provide a level of Promotional effort for the Product to Psychiatrists in excess of the PDE requirements set forth in Section 6.11(a).

(f) Transcept PDE Shortfall .

(i) If the actual number of PDEs provided by Transcept during any Sales Year following the Co-Promotion Commencement Date (or during the first half of the [***] Sales Year following the Co-Promotion Commencement Date) is less than [***] but equal to or greater than [***] of the Transcept Target PDEs for such Sales Year following the Co-Promotion Commencement Date (or, for the Sales Year containing the Co-Promotion Commencement Date, the prorated number of Transcept Target PDEs for the remainder of the Sales Year) or half of the [***] Sales Year following the Co-Promotion Commencement Date, as the case may be (with Transcept Target PDEs for such half of the [***] Sales Year following the Co-Promotion Commencement Date calculated by [***] the Transcept PDE Targets set forth in Section 6.11(a) by [***]), then Transcept shall make up the difference between the actual number of PDEs and the Transcept Minimum PDEs

(the “ Transcept Shortfall ”) in the [***] of the following Sales Year or of the second half of the [***] Sales Year following the Co-Promotion Commencement Date, as the case may be (in addition to the Transcept Minimum PDEs for such [***], as determined by [***] the Transcept Minimum PDEs for the next Sales Year by [***]).

By way of example, if during the [***], Transcept provides [***] (i.e. [***] of the Transcept Target PDEs), then Transcept shall provide the Transcept Shortfall of [***] PDEs in the subsequent [***], in addition to the PDEs required for such subsequent [***].

(ii) If the actual number of PDEs provided by Transcept during any Sales Year following the Co-Promotion Commencement Date (or during the first half of the second Sales Year following the Co-Promotion Commencement Date) is less than [***] of the Transcept Target PDEs for such Sales Year following the Co-Promotion Commencement Date (or, for the Sales Year containing the Co-Promotion Commencement Date, the prorated number of Transcept Target PDEs for the remainder of the Sales Year) or half of the second Sales Year following the Co-Promotion Commencement Date, as the case may be (with Transcept Target PDEs for such half of the second Sales Year following the Co-Promotion Commencement Date calculated by [***] the Transcept PDE Targets set forth in Section 6.11(a) by [***]), then Transcept shall make up [***] of the difference between the actual number of PDEs and the Transcept Minimum PDEs (the “ Transcept [***] Shortfall” ) in the [***] of the following Sales Year or of the second half of the second Sales Year following the Co-Promotion Commencement Date, as the case may be (in addition to the Transcept Minimum PDEs for such [***], as determined by [***] the Transcept Minimum PDEs for the next Sales Year by [***]).

By way of example, if during the third Sales Year, Transcept provides [***] (i.e. [***] of the Transcept Target PDEs), then Transcept shall provide the Transcept [***] Shortfall (i.e., [***] of the shortfall of [***], or [***]) in the subsequent [***], in addition to the PDEs required for such subsequent [***].

(iii) If Transcept fails to make up a Transcept Shortfall or Transcept [***] Shortfall by the end of the [***] as required by Section 6.11(f)(i) or (ii), respectively, Transcept shall pay Purdue for any remaining PDE shortfall at a rate equal to Transcept’s PDE Cost, which payment shall be due no later than thirty (30) days after the end of such [***].

(iv) If the actual number of PDEs provided by Transcept during any [***] month period during the Co-Promotion Term is less than [***] of the Transcept Minimum PDEs for such time period, Purdue shall have the right to terminate the Co-Promotion Right immediately upon written notice to Transcept; provided, however, that the foregoing shall not apply to any Sales Year or portion thereof for which the JCC has determined that there are no Transcept Target PDEs. The effect of such termination is described in Section 6.21.

(v) If during any [***] month period during the Co-Promotion Term, (A) Transcept has met or exceeded [***] of the Transcept Minimum PDEs [***] then Transcept shall have no obligation to make up or pay for PDE shortfalls as provided above during such [***] month period.

(vi) The terms and conditions of this Section 6.11 set forth Purdue’s sole and exclusive remedies for Transcept’s failure to provide the Transcept Minimum PDEs in any Sales Year or half Sales Year and such failure shall not be treated as a material breach of this Agreement by Transcept under Section 12.3; provided, however, that the foregoing shall not limit Purdue’s available remedies with respect to Transcept’s failure to make any payment due under Section 6.11(f)(iii).

6.12 Sales Force .

(a) Transcept Sales Force . Transcept shall at all times during the Co-Promotion Term maintain a Sales Force containing a reasonable number of sales representatives in order to satisfy the Transcept Minimum PDEs obligation. The Transcept Sales Force may consist of employees of Transcept or a contract sales force (or a combination thereof); provided that Transcept shall remain responsible for the management, supervision, and performance of such contract sales force and require such contract sales force to comply with all obligations applicable to the Transcept Sales Force, including with respect to the Purdue CIA, except as provided in subsection (d) herein.

(b) Qualifications. Unless otherwise agreed by the Parties, Transcept shall ensure that each member of its Sales Force has the qualifications set forth in Exhibit D attached to this Agreement.

(c) Compensation . Each Party shall be solely responsible for all costs and expenses of recruiting, hiring, maintaining and compensating its Sales Force, including salaries, benefits and incentive compensation, provided that such incentive compensation shall not be structured in a manner that would reasonably be expected to inappropriately motivate such individuals to engage in the improper Promotion or sales of Product.

(d) Training . Purdue shall be responsible for providing compliance, product, and sales training for all newly hired members of the Transcept Sales Force and members of Transcept’s sales management; provided that Transcept shall not attend any portion of any training directed to Purdue products other than the Product. Purdue shall provide such new hire training to the Transcept Sales Force using a training program that relates solely and exclusively to the Product (including training materials) and that is provided to the Purdue Sales Force, at a time that is mutually acceptable to the Parties, which time shall be consistent with Purdue’s regularly scheduled training programs and reasonably prior to the Co-Promotion Commencement Date. Purdue shall provide training to members of Transcept’s sales management using training programs relating solely and exclusively to the Product (including training materials) that are provided to Purdue’s district managers. After the new hire and initial managers’ training, Purdue shall periodically provide additional training and continuing education materials (including any computer-based modules and written materials) to Transcept, at Purdue’s expense, on a regular

basis so that Transcept may align on-going training of the Transcept Sales Force to the content training provided to Purdue sales representatives. Transcept agrees to provide such on-going training at Transcept’s cost consistent with and on a schedule no less frequent than that provided to the Purdue Sales Force by Purdue.

(e) Costs . Purdue shall bear all incremental costs and expenses of the trainers, training facility and training materials to train the Transcept Sale Force and Transcept’s sales management, and Transcept shall be responsible for all travel expenses and out-of-pocket expenses incurred by the Transcept Sales Force and Transcept’s sales management in connection with such training. In addition to training on the Product, the training provided by Purdue shall include regular healthcare compliance training sufficient to satisfy the obligations of Section 6.13.

(f) SOPs . Transcept’s Sales Force shall follow and comply with relevant portions of Purdue’s sales force standard operating policies manual provided to Transcept by Purdue on or prior to the Co-Promotion Commencement Date, as such policies may be updated from time to time by Purdue upon such advance notice from Purdue to Transcept as is reasonably practicable to Purdue.

6.13 Compliance.

(a) During the Co-Promotion Term, the Parties, through the JCC, shall consult on all medical and regulatory compliance matters solely as it relates to the Product, including any reports as to their compliance with HIPAA, the PhRMA Code, and the OIG’s Compliance Program Guidance for Pharmaceutical Manufacturers (the “ CPG ”). In performing its duties hereunder, each of Purdue and Transcept shall and shall cause its Sales Force to: (i) Promote the Product in conformity with its approved labeling; and (ii) comply with all Applicable Laws, including all applicable laws and regulations and other guidelines concerning the advertising of prescription drug products, the CPG, the AMA’s Guidelines on Gifts to Physicians, the PhRMA Code, the Accreditation Council for Continuing Medical Education standards, and the Purdue CIA, in each case, to the extent applicable to the services to be provided hereunder and as may be amended or supplemented from time to time.

Each of Transcept and Purdue shall use Commercially Reasonable Efforts to ensure that each of its employees and Sales Force representatives does not make any representation, statement, warranty or guaranty with respect to the Product that is inconsistent with its current labeling or with the Promotional Materials, that is deceptive or misleading, or that disparages the Product or the good name, goodwill or reputation of Purdue, Transcept or their respective Affiliates. Each Party shall use Commercially Reasonable Efforts to ensure that its services delivered pursuant to this Agreement will be provided in a professional, ethical and competent manner.

(b) Unless otherwise required by Applicable Law, each of Transcept and Purdue shall maintain sole responsibility for its compliance with Applicable Law regarding Promotion of prescription drug products, including the maintenance of comprehensive compliance programs and the reporting of respective Sales Force activities.

6.14 No Sales or Distribution; Returns. With respect to the U.S. Territory, Purdue shall sell all Product to each customer, and shall book each sale. The Parties recognize that Transcept may from time to time receive orders for the Product directly from Third Parties for delivery in the U.S. Territory. In such event, Transcept promptly shall advise such Third Party that Transcept is not authorized to accept orders for the Product and shall immediately and accurately forward such order to Purdue, or its designee, which order Purdue may accept or reject in its sole discretion. Purdue shall be responsible for handling all returns of the Product with respect to the U.S. Territory. If any Product sold in the U.S. Territory is returned to Transcept, Transcept shall either promptly destroy or ship such Product to Purdue or its designee, as directed by Purdue, at Purdue’s expense, and in accordance with Applicable Laws.

6.15 Sample Authorizations . Purdue shall supply the quantity of Sample Authorizations specified in the Marketing Plan to Transcept or Transcept’s designee. Purdue shall be responsible for the design, production and procurement of all aspects of the Sample Authorizations, at Purdue’s expense.

6.16 Expenses. Each Party will bear all of the costs and expenses incurred by such Party or its employees, consultants, service providers, or agents in connection with this Agreement. Notwithstanding the foregoing, Purdue will be responsible for (a) Purdue’s incremental costs and expenses of sales force trainers, training facilities and training materials in satisfaction of Purdue’s compliance and sales training of the Transcept Sales Force and members of Transcept’s management, as contemplated by Section 6.12(d), (b) the reasonable out-of-pocket expenses of destroying or shipping returned Product to Purdue or its designee, as contemplated by Section 6.14, and (c) Purdue’s proportionate share (based on the number of Psychiatrist Promotional Materials ordered by Purdue) of out-of-pocket expenses incurred by both Parties to develop and print the Psychiatrist Promotional Materials, as contemplated by Section 8.7(d).

6.17 Information Exchange; PV Agreement .

(a) In addition to each Party’s obligations under the PV Agreement, each Party shall provide the other Party with such information as the other Party may reasonably request during the Co-Promotion Term in order to support the requesting Party’s compliance with Applicable Laws and its Sales Force’s Promotion and Detailing of the Product in the U.S. Territory. Transcept shall report to Purdue, in accordance with commercially reasonable methodologies requested by Purdue, all information necessary to permit Purdue to make timely reports as required by any Regulatory Authority in the U.S. Territory regarding the Product, and shall advise Purdue if there is any respect in which it has been unable to do so. To facilitate efficient communication and data sharing between Purdue and Transcept, Purdue shall establish and maintain a secure method of transferring information between the Parties. The Parties shall work together to identify any support hardware, software and services appropriate for the sharing of information with respect to Promotion of the Product. Wherever possible, the Parties agree that all technologies and platforms used for such purposes shall be in accordance with each Party’s technology architecture and security standards. Except as provided in this Agreement, each Party shall be solely responsible for all costs and expenses of acquiring and maintaining its infrastructure and reporting systems to support its Sales Force.

(b) Not later than thirty (30) days prior to the Co-Promotion Commencement Date, the Parties shall enter into a separate pharmacovigilance agreement (the “ PV Agreement ”) containing the specific terms, conditions and obligations of the Parties with respect to the collection, reporting and monitoring of all adverse drug reactions, adverse events, product complaints, medical inquires and other relevant drug safety matters with respect to Products during the Co-Promotion Term.

6.18 Transcept Records and Audits. Transcept shall keep complete and accurate records of (a) the number of Details delivered by the Transcept Sales Force to each Psychiatrist, (b) whether each Detail delivered is a Primary Detail, Secondary Detail or Tertiary Detail, and (c) the number of Sample Authorizations distributed. All such records, and any records of call notes, shall be retained for at least five (5) years following the Sales Year in which they are generated, or longer if required by Applicable Laws. At Purdue’s request, such records shall be made available for review and copying by Purdue or its designees not more than once each calendar year (during normal business hours on a mutually agreed date with reasonable advance notice) by an independent Third Party auditor mutually agreed upon by the Parties and subject to confidentiality obligations at least as stringent as those set forth in Article 11 of this Agreement for the sole purpose of verifying for Purdue the accuracy of the reports furnished by Transcept pursuant to this Section. The expense of such auditor shall be borne solely by Purdue. Such auditor shall not disclose Transcept’s confidential information to Purdue, except to the extent such disclosure is necessary to verify the accuracy of the reports furnished by Transcept.

6.19 Transcept Reports. Within thirty (30) days after the end of each calendar quarter during the Co-Promotion Term following the Co-Promotion Commencement Date, Transcept shall provide to the JCC a written report summarizing Transcept’s Promotional activities pursuant to this Agreement for such quarter and on a calendar year-to-date basis, including: (a) the number of Details made to Psychiatrists (by Primary Details, Secondary Details and Tertiary Details); and (b) the total number of Sample Authorizations delivered. Transcept shall submit such reports in a format mutually agreed upon by the Parties. Each such report shall be considered Transcept’s Confidential Information.

6.20 Termination of Co-Promotion Right.

(a) Termination by Transcept at Will .

(i) Transcept shall have the right to terminate the Co-Promotion Right upon [***] prior written notice to Purdue.

(ii) Upon termination pursuant to this Section 6.20(a), and in addition to the consequences and remedies under Sections 6.21, the following obligations shall apply: (A) Transcept shall remain responsible for all of Transcept’s accrued but unpaid costs as of the date of such notice of termination, and (B) Transcept shall not, during the applicable notice period, take any action that is intended to materially adversely affect or impair the further Promotion of the Product.

(b) Termination by Either Party for Cause .

(i) Purdue shall have the right to terminate the Co-Promotion Right immediately in the event that Transcept has failed to cure a material breach under Section 12.3(d) of this Agreement.

(ii) Without prejudice to any remedy or claim it may have against the other Party for material breach or non-performance of this Agreement, either Party (the “ Non-Breaching Party ”) may terminate this Co-Promotion Right for cause if the other Party (the “ Breaching Party ”) fails to materially comply with or perform any material provision of this Article 6 (a “ Co-Promotion Material Breach ”) in accordance with the following provisions: the Non-Breaching Party shall notify the Breaching Party of any such Co-Promotion Material Breach in writing, specifying such Co-Promotion Material Breach in reasonable detail and stating such Non-Breaching Party’s intention to terminate the Co-Promotion Right for cause (the “ Notification ”). If the Breaching Party fails to cure such Co-Promotion Material Breach within a period of thirty (30) days following receipt by the Breaching Party of such Notification, the Co-Promotion Right shall terminate upon written notice by the Non-Breaching Party.

(iii) Either Party shall have the right to terminate the Co-Promotion Right immediately in the event that the other Party is excluded from participation in federal healthcare programs.

(iv) The Co-Promotion Right shall terminate in the event Purdue delivers the Purdue Co-Promotion Termination Notice pursuant to Section 6.4(b).

(c) Subject to Section 6.11(c), the Co-Promotion Right shall terminate in the event a Generic Product is launched in the U.S. Territory [***].

6.21 Effects of Termination of Co-Promotion Right . Upon any termination or expiration of the Co-Promotion Right, Transcept will immediately cease any and all Promotion and Detailing of the Product in the U.S. Territory and will cooperate with Purdue in the collection and return to Purdue of all Promotional Materials and other Product-related materials with respect to the U.S. Territory then in the possession of, or under the control of, Transcept or any of the Transcept Sales Force, as promptly as practicable after the date thereof. Purdue shall cooperate with Transcept with respect to such activities so as to minimize disruption to sales activities. Except as expressly provided in this Agreement, expiration or termination of the Co-Promotion Right shall be without prejudice to (x) any remedies that any Party may then or thereafter have hereunder or at law, (y) Transcept’s right to receive any amounts accrued under this Agreement prior to the effective date of expiration or termination that are unpaid or become payable thereafter, and (z) either Party’s right to obtain performance of any obligation provided for in this Agreement that shall survive termination. Sections 6.4(b)(ii) – (v), 6.16, 6.18, 6.20(a)(ii) and 6.21 shall survive any expiration or termination of the Co-Promotion Right. In addition, any provision of this Agreement that, either from the express language or the context thereof, is intended to survive any termination or expiration of the Co-Promotion Right shall survive any such expiration or termination.

ARTICLE 7

FINANCIALS

7.1 License Fee . No later than ten (10) Business Days after the Effective Date, Purdue shall pay to Transcept a non-refundable, non-creditable license fee of twenty-five million dollars (US $25,000,000) by wire transfer of immediately available funds into an account designated by Transcept.

7.2 Milestone Payments. Purdue shall make milestone payments to Transcept as follows:

(a) Transfer of NDA . No later than five (5) Business Days after Purdue’s delivery (or deemed delivery) of the Purdue Notice pursuant to Section 4.2(b), Purdue shall pay to Transcept a non-refundable, non-creditable payment of thirty million dollars (US $30,000,000); provided, however, that if the first approval of an NDA for a Product by the FDA for marketing in the U.S. Territory is received by Transcept after June 30, 2010, such payment shall be reduced by two million dollars (US $2,000,000) for each thirty (30) day period between the date of receipt of such approval and June 30, 2010.

(b)[***] No later than [***] after the [***] and provided that [***] a Generic Product [***] has not been approved or launched in the U.S. Territory [***] on or before the [***], Purdue shall pay to Transcept the following non-refundable, non-creditable payments:

(i) ten million dollars (US $10,000,000) for the Orange Book Listing of a Transcept Exclusive Patent issuing from one of the patent applications listed in (a) on Exhibit A (or any substitutions, divisions, continuations or continuations-in-part, but in the case of continuations-in-part only to the extent directed to the subject matter disclosed in such patent application listed in (a) on Exhibit A , or requests for continued examination thereof); and

(ii) [***] for the [***].

As used herein, “[***]” means [***]. For clarity, each payment under this Section 7.2(b) will be due, if at all, only once, and only in connection with an [***]

for the first approved Product after the delivery or deemed delivery of the Purdue Notice and before the expiration of the [***].

7.3 Super Royalty Payments. Purdue shall make each of the super royalty payments indicated below to Transcept when aggregate Net Sales of all Products in any calendar year in the U.S. Territory reach the specified dollar values, provided that an Orange Book Listing has occurred prior to or during such calendar year:


*Aggregate Net Sales in a Calendar Year*		*Payment*
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]

Each super royalty payment in this Section 7.3 shall be paid only once. The maximum total amount of payment to Transcept pursuant to this Section 7.3 shall be [***]. Purdue shall notify and pay to Transcept the amounts set forth in this Section 7.3 within [***] after the delivery of the quarterly report pursuant to Section 7.7 for the calendar quarter in which the applicable event was achieved. For clarity, (i) in the event that more than one of the aggregate Net Sales thresholds is achieved in a calendar year, Purdue shall owe each of the corresponding payments and (ii) no payment will be made retroactively for Net Sales generated prior to an Orange Book Listing, but payments will be made during the next calendar year in which the applicable aggregate Net Sales target is achieved. Each such payment shall be made by wire transfer of immediately available funds into an account designated by Transcept. Each such payment is nonrefundable and noncreditable against any other payments due hereunder.

7.4 Royalties. During the Term, Purdue shall pay to Transcept royalties on Net Sales of Products in the U.S. Territory as provided in either Section 7.4(a) or 7.4(b), as the case may be, and in each case as adjusted pursuant to Section 7.5 and subject to Section 1.47:

(a) For Net Sales in the U.S. Territory generated prior to the date of an Orange Book Listing, Purdue shall pay to Transcept a royalty on such Net Sales equal to [***] in the U.S. Territory; or

(b) For Net Sales in the U.S. Territory generated on or after the date of an Orange Book Listing, Purdue shall pay to Transcept royalties on such Net Sales in the U.S. Territory at a royalty rate determined by aggregate Net Sales of all Products in a calendar year in the U.S. Territory as follows:


*Aggregate Net Sales of Products in a calendar year in the U.S. Territory*		*Royalty Rate*
Portion of Net Sales less than or equal to [***]		[***]
Portion of Net Sales greater than [*] and less than or equal to [*]		[***]
Portion of Net Sales greater than [***]		[***]

The royalty rate tier applicable to Net Sales following an Orange Book Listing will be determined based on aggregate Net Sales across the entire calendar year regardless of the date on which the Orange Book Listing occurs. For purposes of illustration only, in the event the Orange Book Listing occurs on [***] and Net Sales in the U.S. Territory for [***] were [***], Purdue would pay Transcept a royalty of [***] on [***]. For Net Sales in the U.S. Territory accumulated beginning on [***], Purdue would pay Transcept a royalty of [***], provided that if Net Sales in the U.S. Territory later exceed [***] before the end of [***], Purdue would pay Transcept a royalty of [***] on the portion of such Net Sales exceeding [***].

(c) Duration . Royalties shall be payable under this Section 7.4 during the period commencing with First Commercial Sale in the U.S. Territory and continuing until the later of: (i) expiration of the last to expire issued Transcept Patent covering the first Product and (ii) fifteen (15) years after First Commercial Sale of such Product in the U.S. Territory.

7.5 Royalty Adjustments .

(a) Royalty Increase. During the period of time commencing on the [***] of the first day of the first full calendar quarter following the approval of an NDA for the Product in the U.S. Territory and ending on the [***] of such date and subject to Section 1.47, the royalty rates specified in Section 7.4(b) shall each be increased by [***] percentage points (i.e., from [***] to [***], from [***] to [***] or from [***] to [***]), provided, however, that no such increase shall apply (i) if there is, or there was previously, on the market in the U.S. Territory [***] a Generic Product [***] or [***] during any period that a Generic Product [***] is approved in the U.S. Territory. For clarity, no increase shall apply under this Section 7.5(a) if there is no Orange Book Listing for the Product.

(b) Royalty Reduction – First Generic Product . During the time that a Generic Product is being sold by a Third Party or Third Parties in the U.S. Territory under one ANDA and continuing until (i) such Generic Product is no longer sold and (ii) Purdue’s unit sales volume of Product in the U.S. Territory returns to the unit sales volume achieved prior to the approval of such Generic Product, the royalty rates set forth in Sections 7.4 and 7.6 (as such rates may have been adjusted or otherwise established under Section 7.5(e) or (f)) shall be reduced by [***] subject to the royalty duration provided for under Section 7.4(c)

and 7.6(b), respectively [***].

(c) Royalty Reduction – Second Generic Product . During the time that Generic Products are being sold by Third Parties in the U.S. Territory under more than one ANDA and continuing until (i) such Generic Products are no longer sold and (ii) Purdue’s unit sales volume of Product in the U.S. Territory returns to the unit sales volume achieved prior to the approval of such Generic Products, the royalty rates set forth in Sections 7.4 and 7.6 (as such rates may have been adjusted or otherwise established under Section 7.5(e) or (f)) shall be reduced by [***] subject to any royalty duration provided for under Section 7.4(c) and 7.6(b), respectively. For clarity, Section 7.5(b) and this Section 7.5(c) shall be mutually exclusive. [***].

(d) Royalty Reduction – Patent Expiry. In the event the expiration of the last to expire valid claim of a Transcept Patent in the U.S. Territory occurs prior to the expiration of (i) the fifteen (15) year period set forth in Section 7.4(c), or (ii) the period set forth in 7.6(b), the royalty rates set forth in Sections 7.4 and 7.6, respectively (as such rates may have been adjusted or otherwise established under Section 7.5(a), (e) or (f)) shall be reduced by [***] for the remainder of the applicable royalty duration. Notwithstanding the foregoing, this Section 7.5(d) shall not apply during any time period that the royalty rates are reduced pursuant to Section 7.5(b) or 7.5(c). In the event that, on the one hand, Section 7.5(b) or 7.5(c) applies and, on the other hand, Section 7.5(d) applies, then royalties shall be reduced in accordance with the Section that causes Purdue’s royalty to be reduced to the greatest extent possible (provided that in no event will more than one of such Sections be applied in calculating royalties due for a particular time period).

(e) Royalty Reduction – Anti-Stacking . In the event the use by Purdue, its Affiliate or sublicensee of any Transcept Technology to Develop, manufacture or Commercialize the Product in the U.S. Territory under this Agreement would infringe the intellectual property rights of any Third Party absent a license thereunder and Purdue obtains a royalty-bearing license under such intellectual property rights, then Purdue may deduct from the royalties due to Transcept pursuant to Section 6.4(b), 7.4 and 7.6 [***] of the royalties actually paid to any such Third Party as consideration for any such license; provided that in no event shall the royalties due to Transcept for a given time period be reduced under this Section 7.5(e) by more than [***]. Unused credit amounts may be carried over into subsequent quarterly periods.

(f) Royalty Reduction – OTC Product . The Parties agree that, in the event any Product is sold in an OTC form, the royalty rates set forth herein shall not apply to such Product sold in OTC form and Parties shall negotiate in good faith a commercially reasonable

reduced royalty rate for Net Sales (applied mutatis mutandis ) generated by OTC sales of such Product.

7.6 Co-Promotion Royalties.

(a) In addition to the royalties set forth in Section 7.4, if Transcept exercises the Psychiatrist Co-Promotion Option, Purdue shall pay to Transcept a royalty on [***] at a royalty rate determined by the Sales Year in which the Co-Promotion Commencement Date occurs, in each case as adjusted pursuant to Section 7.5(b), (c), (d), (e) and (f) and subject to Section 1.47:


*Sales Year in which Co-Promotion* *Commencement Date Occurs*		*Royalty Rate on Psychiatric Net Sales*
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]

provided that if the Co-Promotion Commencement Date occurs in any month other than the first month of a Sales Year, then the royalty rates set forth above shall be reduced by [***] per month.

(b) Royalties shall be payable under this Section 7.6 during the period commencing with the Co-Promotion Commencement Date and continuing until the first to occur: (i) termination of the Co-Promotion Right, (ii) the date of launch of a Generic Product [***]; provided that Purdue shall not be obligated to make payment under this Section 7.6 solely if both (A) Transcept has failed to fully achieve the Transcept Minimum PDEs under Section 6.11 and (B) Transcept has not fully cured such failure in accordance with the remedies specified in Section 6.11. Once the above royalty percentage has been set as set forth above, it remains fixed for the royalty duration (i.e., it will not step down each year), except as otherwise adjusted pursuant to Section 7.5(b), (c), (d), (e) or (f). For clarity, in the event of termination of the Psychiatrist Co-Promotion Option or the Co-Promotion Right, Purdue shall have no obligation to provide payment under this Section 7.6, provided, however, that in the case of subsection (ii) or (iii) above, Purdue shall reinstate the royalty payments under this Section 7.6 if the Co-Promotion Right is reinstated pursuant to Section 6.11(c).

7.7 Royalty Payments and Reports. Within [***] days after the end of each calendar quarter, Purdue shall provide Transcept with a statement of (a) the amount of gross sales of Product during the applicable calendar quarter, (b) an itemized calculation of Net Sales ([***]) showing Net Sales Deductions during such calendar quarter, (c) a calculation of the amount of royalty payment due on such sales for such calendar quarter pursuant to Sections 6.4(b), 7.4 and 7.6, and (d) any super royalty payment due pursuant to Section 7.3. Within [***] after the delivery of such quarterly statement,

Purdue shall provide Transcept with the royalty payment due for such calendar quarter pursuant to Sections 6.4(b), 7.4 and 7.6 and any super royalty payment due pursuant to Section 7.3; provided however that with respect to the royalty payments pursuant to Section 6.4(b) and 7.6, in the event the quarterly payments hereunder do not result in Transcept receiving the royalties [***] as calculated for the relevant twelve (12) month period under Section 6.4(b) or 7.6, then Purdue shall pay Transcept any remaining true-up amount due, if any, with the next following quarterly payment. All amounts payable to Transcept under this Agreement shall be paid in United States dollars.

7.8 Taxes. The Parties agree to cooperate and to comply with all applicable tax laws, rules and regulations. The Parties acknowledge and agree that it is their mutual objective, to the extent feasible, not to pay any unnecessary taxes with respect to their collaborative efforts under this Agreement and that they shall use their best efforts to cooperate and coordinate with each other to achieve such objective.

7.9 Late Payments. If a Party does not receive payment of any sum due to it on or before the due date, simple interest shall thereafter accrue on the sum due to such Party from the due date until the date of payment at the prime rate plus [***] percent ([***]%) per annum or the maximum rate allowable by Applicable Law, whichever is less.

7.10 Records; Audits. Purdue shall maintain complete and accurate books and records in accordance with GAAP (to the extent appropriate) in sufficient detail to permit Transcept to confirm the accuracy of milestones, super royalty payments, royalty payments and other compensation payable under this Agreement for a period of five (5) years from the creation of individual records or any longer period required by Applicable Law. At Transcept’s request, records going back no more than three (3) years shall be available for review not more than once each calendar year (during normal business hours on a mutually agreed date with reasonable advance notice) by an independent Third Party auditor selected by Transcept and approved by Purdue (such approval not to be unreasonably withheld, conditioned, or delayed) and subject to confidentiality and non-use obligations no less stringent than those set forth in Article 11 for the sole purpose of verifying for Transcept the accuracy of the financial reports furnished by Purdue pursuant to this Agreement or of any payments made by Purdue to Transcept pursuant to this Agreement. Any such auditor shall not disclose Purdue’s Confidential Information to Transcept, except to the extent such disclosure is necessary to verify the accuracy of the financial reports furnished by Purdue or the amount of payments due by Purdue under this Agreement. Any amounts shown to be owed but unpaid or overpaid and in need of reimbursement shall be paid or refunded (as the case may be) within [***] after the accountant’s report, plus interest (as set forth in Section 7.9) from the original due date. Transcept shall bear the full cost of such audit unless such audit reveals an underpayment by Purdue of [***] percent ([***]%) or more during the applicable audit period, in which case Purdue shall bear the full cost of such audit.

ARTICLE 8

INTELLECTUAL PROPERTY

8.1 Ownership of Inventions. Each Party shall own all inventions and Information made solely by the respective employees, agents, and independent contractors of it and its

Affiliates in the course of conducting such Party’s activities under this Agreement (collectively, “Sole Inventions” ). All inventions and Information that are made jointly by employees, Affiliates, agents, or independent contractors of both Parties in the course of performing activities under this Agreement (collectively, “Joint Inventions” ) shall be owned jointly by the Parties in accordance with joint ownership interests of co-inventors under United States patent laws.

8.2 Disclosure of Inventions. Each Party shall promptly disclose to the other all Sole Inventions or Joint Inventions relating to Product or its manufacture or use, including all invention disclosures or other similar documents submitted to such Party by its, or its Affiliates’, employees, agents or independent contractors describing such Sole Inventions or Joint Inventions. Such Party shall also respond promptly to reasonable requests from the other Party for more Information relating to such inventions.

8.3 Prosecution of Patents.

(a) Transcept Patents. Except as otherwise provided in this Section 8.3(a), as between the Parties, Transcept shall have the sole right and authority to prepare, file, prosecute (including any interferences, reissue proceedings and reexaminations) and maintain the Transcept Patents in the U.S. Territory and to retain counsel in its sole discretion in connection therewith, all at Transcept’s expense.

Transcept shall provide Purdue with all documents (including all office actions, communications from the USPTO and drafts of any filings or responses thereto, and foreign filings and foreign search reports) relevant to such preparation, filing, prosecution and maintenance of the Transcept Patents in the U.S. Territory in sufficient time to allow for review and comment by Purdue. Transcept shall incorporate any and all comments by Purdue unless Transcept has a reasonable basis for rejecting Purdue’s comment, prior to taking any action before the USPTO; provided that the foregoing shall not prevent Transcept from making filings without consulting Purdue on an emergency basis in the opinion of patent counsel to secure and protect Transcept patents or if Purdue has not responded promptly to a prior request for consultation by Transcept.

If Transcept determines in its sole discretion to abandon or not maintain any Transcept Patent in the U.S. Territory, then Transcept shall provide Purdue written notice of such determination at least thirty (30) days before any deadline for taking action to avoid abandonment and shall provide Purdue with the opportunity to have all right, title and interest in such Transcept Patent in the U.S. Territory assigned to Purdue, at no cost to Purdue.

If Purdue desires Transcept to file in the U.S. Territory a Transcept Patent that claims priority to another Transcept Patent, Purdue shall provide written notice to Transcept requesting that Transcept file (at Purdue’s expense) such patent application in such jurisdiction. If Purdue provides such written notice to Transcept, Transcept shall either (i) file and prosecute such patent application and maintain any patent issuing thereon in such jurisdiction, or (ii) notify Purdue that Transcept does not desire to file such patent application and provide Purdue with the opportunity to, in Purdue’s sole discretion, control the filing and prosecution of such patent application and

maintain any patent issuing thereon on behalf of Transcept. Purdue’s rights under this Section 8.3(a) with respect to any Transcept Patent licensed to Transcept by a Third Party shall be subject to the rights of such Third Party to file, prosecute, and/or maintain such Transcept Patent; provided that Transcept shall use reasonable efforts to obtain from the Third Party the right for Transcept to control the prosecution of any such licensed patent.

(b) Joint Patents. With respect to any potentially patentable Joint Invention, the Parties shall meet and agree upon which Party, if any, shall prepare, file, prosecute (including any interferences, reissue proceedings and reexaminations) and maintain patent applications covering such Joint Invention (any such patent application and any patents issuing therefrom a “Joint Patent” ) in any jurisdictions throughout the world, as well as the manner in which patent expense for such Joint Patent will be shared by the Parties. In the event the parties agree to file any Joint Patent but disagree on any aspect of the filing or prosecution thereof, the Parties shall refer the disagreement to a mutually acceptable patent attorney for resolution pursuant to Section 13.11.

The Party that prosecutes a patent application in the Joint Patents (the “ Prosecuting Party ”) shall provide the other Party reasonable opportunity to review and comment on such prosecution efforts regarding the applicable Joint Patents in the particular jurisdictions, and such other Party shall provide the Prosecuting Party reasonable assistance in such efforts. The Prosecuting Party shall provide the other Party with a copy of all material communications from any patent authority in the applicable jurisdictions regarding the Joint Patent being prosecuted by such Party, and shall provide drafts of any material filings or responses to be made to such patent authorities a reasonable amount of time in advance of submitting such filings or responses. In particular, each Party agrees to provide the other Party with all information necessary or desirable to enable the other Party to comply with the duty of candor/duty of disclosure requirements of any patent authority.

Either Party may determine that it is no longer interested in supporting the continued prosecution or maintenance of a particular Joint Patent in a country or jurisdiction, in which case the disclaiming Party shall provide the other Party with written notice of such determination at least thirty (30) days before any deadline for taking action to avoid abandonment and shall provide the other Party with the opportunity to have the disclaiming Party’s interest in such Joint Patent in such country or jurisdiction assigned to the other Party, at no cost to the other Party.

Subject to the license granted to Purdue pursuant to Section 2.1(a), each Party shall have the right to practice, license and exploit the Joint Patents worldwide, without consent of the other Party (where consent is required by law, such consent is hereby deemed granted) and without a duty of accounting to the other Party.

(c) Cooperation in Prosecution. Each Party shall provide the other Party all reasonable assistance and cooperation in the Patent prosecution efforts provided above in this Section 8.3, including providing any necessary powers of attorney and executing any other required documents or instruments for such prosecution.

8.4 Enforcement of Transcept Patents.

(a) Notification . If there is any infringement, threatened infringement, or alleged infringement of the Transcept Patents on account of a Third Party’s manufacture, use or sale of a product in the U.S. Territory (in each case, a “Product Infringement” ), then each Party shall promptly notify the other Party in writing of any such Product Infringement of which it becomes aware, and shall provide evidence in such Party’s possession demonstrating such Product Infringement.

Each Party shall immediately, but in no case more than five (5) Business Days, give written notice to the other Party of any certification of which it becomes aware filed pursuant to 21 U.S.C. Sections 355(b)(2)(A)(iv) or 355(j)(2)(A)(vii)(IV) claiming any Transcept Patent covering Product is invalid or unenforceable, or that infringement will not arise from the manufacture, use or sale of a product by a Third Party.

(b) Enforcement Rights .

(i) Subject to Section 8.4(d) and the remainder of this Section 8.4(b), during the Term, Purdue shall have the first right, but not the obligation, to bring an appropriate suit or other action against any person or entity engaged in such Product Infringement of the Transcept Patents in the U.S. Territory. If Purdue has not brought suit to enforce such Transcept Patent against such person or entity within thirty (30) days after Purdue’s receipt or delivery (as applicable) of notice and information under Section 8.4(a), then Transcept shall have the right, but not the obligation, to commence a suit or take action to enforce the applicable Transcept Patents with respect to such Product Infringement in the U.S. Territory. Each Party shall provide to the Party enforcing any such rights under this Section 8.4(b) reasonable assistance in such enforcement, including using best efforts if required to establish and maintain standing to join such action as a party plaintiff if required by Applicable Law to pursue such action. The enforcing Party shall keep the other Party regularly informed of the status and progress of such enforcement efforts, and shall reasonably consider the other Party’s comments on any such efforts.

(ii) In the event a Party brings a claim, suit or action under Section 8.4(b)(i) against any person or entity engaged in Product Infringement of the Transcept Patents in the U.S. Territory, Purdue shall be responsible for [***] and Transcept shall be responsible for [***] of the costs and expenses (including attorneys’ fees and expenses of litigation) incurred by the Parties as a result of such claim, suit or action. Notwithstanding the foregoing, in connection with any such claim, suit or action initiated by Purdue, Transcept’s responsibility for costs and expenses shall not exceed [***] per calendar year or [***] in aggregate over the Term, except with Transcept’s written consent. If either Party expends less than its respective percentage share of such costs and expenses, such Party shall pay the other Party the amount required to satisfy its percentage share for the relevant time period in cash or by offset against other amounts due to such Party from the other Party under this Agreement on a calendar quarter basis; provided that if Purdue is the Party that brings such claim, suit, or action, then Purdue shall have the right to offset such costs and expenses against payments due to Transcept under Article 7 so long as such payments are not reduced by more than [***] with any unused offset carried forward. If a Party recovers monetary damages or any other payments from such

Third Party in such suit or action (including as a result of settlement), such recovery shall be allocated first to the reimbursement of any unreimbursed costs and expenses incurred by the Parties in such litigation, and any remaining amount shall be distributed as follows: [***] to Purdue and [***] to Transcept.

(c) Settlement . Without the prior written consent of the other Party, such consent not to be unreasonably withheld, conditioned or delayed, neither Party shall settle any claim, suit or action that it brought under this Section 8.4 involving Transcept Patents in any manner that would negatively impact such intellectual property or that would limit or restrict the ability of Purdue or its Affiliates or licensees to sell Products in the U.S. Territory or the ability of Transcept or its Affiliates or licensees to sell Products in the Transcept Territory. Each Party shall have the right to settle any claim, suit or action that it brought under this Section 8.4 involving the Transcept Patents in any manner that would not negatively impact such intellectual property or that would not limit or restrict the ability of Purdue or its Affiliates or licensees to sell Products in the U.S. Territory or the ability of Transcept or its Affiliates or licensee to sell Products in the Transcept Territory. Notwithstanding anything to the contrary in this Section 8.4(c), Purdue shall have the right to settle any such claim, suit or action without the consent of Transcept by granting the Third Party a license, waiver, covenant or other actual or effective authorization to commercialize a limited quantity of Product in the U.S. Territory.

(d) Transcept Patents Licensed from Third Parties. Purdue’s rights under this Section 8.4 with respect to any Transcept Patent licensed to Transcept by a Third Party shall be subject and subordinated to the rights of such Third Party to enforce such Transcept Patent and/or defend against any claims that such Transcept Patent is invalid or unenforceable, and the rights of such Third Party to share in any recoveries.

8.5 Patent Marking . Purdue shall, and shall require its Affiliates and sublicensees, to mark Products sold by it hereunder with appropriate patent numbers or indicia to the extent permitted by Applicable Law, in those countries in which such markings or such notices impact recoveries of damages or equitable remedies available with respect to infringements of patents.

8.6 Trademarks.

(a) Purdue Trademarks . Other than the Transcept Licensed Trademarks, Purdue shall be responsible for the selection, adoption, registration, maintenance and defense of all trademarks for use in connection with the sale or marketing of Products in the U.S. Territory (the “Purdue Trademarks” ), as well as all expenses associated therewith. Purdue shall own all Purdue Trademarks. Transcept shall not at any time adopt, use, register or cause to be registered any other trademark, name or design confusingly similar to any of the Purdue Trademarks. All rights arising from the use by Transcept of the Purdue Trademark in the U.S. Territory during the Term shall inure to Purdue’s benefit.

(b) Transcept Assigned Trademarks . Purdue’s use of the Transcept Assigned Trademarks in the U.S. Territory shall be limited to the marketing, sale and distribution of the Product. Purdue shall be responsible for maintaining in its own name the registrations for any or all of the Transcept Assigned Trademarks in the U.S. Territory, and for defending the

Transcept Assigned Trademarks in the U.S. Territory, all at Purdue’s sole expense. Transcept shall not at any time adopt, use, register or cause to be registered any other trademark, name or design confusingly similar to any of the Transcept Assigned Trademarks anywhere in the world. Transcept shall, as soon as practicable after receiving notice of any potential infringement of the Transcept Assigned Trademarks, inform Purdue of any such potential infringement. Purdue shall have the sole right and discretion to bring infringement or unfair competition proceedings involving the Transcept Assigned Trademarks. Purdue agrees that, during the Term, it will not assign the Transcept Assigned Trademarks to any Third Party, except pursuant to Section 14.5.

(c) Transcept Licensed Trademarks . Purdue’s use of the Transcept Licensed Trademarks shall be limited to the marketing, sale and distribution of the Product in the U.S. Territory. Purdue shall not at any time register or cause to be registered any other trademark, name or design confusingly similar to any of the Transcept Licensed Trademarks without the express consent of Transcept, which consent shall not be unreasonably withheld, conditioned or delayed. Purdue shall properly designate the Transcept Licensed Trademarks on the packaging of the final Product, to the extent required or permissible by the applicable Regulatory Approvals. All rights arising from the use of the Transcept Licensed Trademarks in the U.S. Territory during the Term shall inure to Transcept’s benefit. Purdue agrees that the Products with which the Transcept Licensed Trademarks are used shall conform to all requirements of the Regulatory Authority in the U.S. Territory. Purdue shall, as soon as practicable after receiving notice of any potential infringement of the Transcept Licensed Trademarks in the U.S. Territory, inform Transcept of any such potential infringement. Transcept shall have the sole right and discretion to bring infringement or unfair competition proceedings involving the Transcept Licensed Trademarks.

8.7 Promotional Materials .

(a) All uses of the Transcept Trademarks and Purdue Trademarks shall comply with all Applicable Laws in the U.S. Territory. Unless otherwise agreed by the Parties or required by the FDA, Purdue shall sell the Product in the U.S. Territory under the Transcept Assigned Trademark Intermezzo™. Purdue may include its company name and associated logos on all Product packaging and Promotional Materials for the U.S. Territory.

(b) Purdue shall be responsible, at its expense, for preparing and producing the Promotional Materials, which will be reviewed by the JCC. All Promotional Materials produced by Purdue for use in Detailing the Product in the U.S. Territory shall include Transcept’s name, and shall display the names and logos of Purdue and Transcept in equal prominence to the extent practical; provided, however, that upon the Co-Promotion Commencement Date, Purdue itself shall have the continued right to use any stock of Promotional Materials prepared prior to the exercise of the Psychiatrist Co-Promotion Option until such stock is exhausted. Except as specifically permitted by this Section 8.7, neither Party shall distribute or have distributed any materials bearing the name or any trademarks of the other Party without the prior written approval of such other Party. To the extent that Transcept disagrees with Promotional messages or tactics proposed by Purdue, it may raise such issues with the JCC for discussion and resolution. Purdue and Transcept will be bound by the decision of the JCC with respect to any activities of Transcept that flow or result from the JCC decision.

(c) Upon the Co-Promotion Commencement Date, Purdue shall provide Transcept with the Promotional Materials then used by the Purdue Sales Force to Promote the Product, at no charge to Transcept, in quantities specified in the Marketing Plan and sufficient for Transcept to satisfy its obligations under this Agreement and the Marketing Plan. Transcept shall be responsible for distributing the Promotional Materials to the Transcept Sales Force. Except for Transcept Licensed Trademarks, Purdue shall own all right, title and interest in the Promotional Materials, including all intellectual property rights appurtenant thereto. Purdue hereby grants to Transcept a royalty-free license to use the Promotional Materials during the Term solely in connection with its Promotion of the Product in the U.S. Territory and in accordance with this Agreement and Applicable Laws, subject to Transcept’s payment of costs as provided in this Section. Transcept may sublicense such license only to its contract sales force under Section 6.12(a).

(d) Transcept may propose to the JCC that the Parties develop Promotional Materials specifically for use by the Parties in Detailing the Product to Psychiatrists (the “Psychiatrist Promotional Materials” ), which materials Transcept shall create and develop in accordance with Applicable Laws, subject to prior review and approval by Purdue, such approval not to be unreasonably withheld, conditioned or delayed, and Purdue shall print and produce the Psychiatrist Promotional Materials. Transcept shall reimburse Purdue for all out-of-pocket costs incurred by Purdue to produce the Psychiatrist Promotional Materials; provided, however, that if Purdue orders any Psychiatrist Promotional Materials for use by the Purdue Sales Force, then Purdue shall be responsible for a proportionate share (based on the number of units ordered by Purdue) of the out-of-pocket costs incurred by both Parties to develop and print the Psychiatrist Promotional Materials. Except for any Purdue Trademarks and any portion of the Psychiatrist Promotional Materials that is the same as Promotional Materials produced by Purdue, Transcept shall own all right, title and interest in and to the Psychiatrist Promotional Materials, including all intellectual property rights appurtenant thereto. Transcept hereby grants to Purdue a royalty-free license to use Psychiatrist Promotional Materials during the Term in connection with its Promotion of the Product to Psychiatrists in accordance with this Agreement and Applicable Laws, subject to Purdue’s payment of costs as provided in this Section.

(e) Neither Party shall use or distribute in connection with Detailing the Product in the U.S. Territory any promotional materials other than the Promotional Materials and the Psychiatrist Promotional Materials in the form(s) prepared and approved in accordance with this Section 8.7. Purdue shall be solely responsible for timely submitting, as applicable, any Promotional Materials and Psychiatrist Promotional Materials to the FDA’s Division of Drug Marketing, Advertising and Communications and to any applicable state Governmental Authorities in the U.S. Territory. Transcept shall not be required to distribute any Promotional Materials that: (i) do not mention the Product (except for non-branded materials provided by Purdue if approved by the JCC); or (ii) Transcept believes, in its sole discretion, to be false or misleading. Each Party shall distribute the Promotional Materials and Psychiatrist Promotional Materials in accordance with the Marketing Plan and the terms of this Agreement. Neither Party shall distribute any out-dated Promotional Materials or Psychiatrist Promotional Materials. Transcept shall certify that any such out-dated Materials have been returned to Purdue or its designee or destroyed, in accordance with Purdue’s written policy delivered on the Co-Promotion Commencement Date, as such policies may be updated from time to time by Purdue.

8.8 Regulatory Data Protection . The Parties will evaluate in good faith and identify all patents that may meet the requirements for listing with FDA in the Orange Book, in connection with any NDA for a Product in the U.S. Territory. Subject to the terms of this Section 8.8, the Party that holds the NDA for the Product shall be solely responsible for deciding which such patents to submit to FDA for listing in the Orange Book on a timely basis. In the case of newly allowed patents, prior to issuance and no later than five (5) Business Days following a notice of allowance of any such patent, the Party that holds the NDA for the Product shall inform the other Party whether it believes that there is a reasonable basis for listing such patent in the Orange Book. If the Party that holds the NDA for the Product does not believe that there is a reasonable basis for listing a patent in the Orange Book and the other Party disagrees with that determination, the other Party may demand that the Parties submit such disagreement within three (3) Business Days to an independent, nationally recognized law firm with expertise in such matters to review such patent and determine pursuant to Section 13.11 whether there is a reasonable basis for listing in the Orange Book. Such determination shall be made as soon as reasonably practical but in no event later than the issuance of the subject patent and shall be final and binding on the Parties. The Party that holds the NDA for the Product shall maintain with FDA correct and complete listings of applicable patents for such Product, including any patents for which it is determined pursuant to Section 13.11 that there is a reasonable basis for listing in the Orange Book. Any patent to be submitted for listing in the Orange Book under this Section 8.8 shall be submitted as soon as practicable but in no event later than ten (10) Business Days after issuance.

8.9 Infringement of Third Party IP. Each Party shall promptly notify the other in writing of any allegation, claim or suit that the manufacture, use or sale of a Product infringes or misappropriates a Third Party’s Patent or other intellectual property rights. Subject to Article 10 and Section 7.5(e), each Party shall have the sole right to control any defense of any such claim involving alleged infringement of Third Party rights by such Party’s activities, at its own expense and by counsel of its own choice. In the event Purdue decides to settle any actual or alleged infringement, misappropriation or other violation of a Third Party’s intellectual property rights arising out of or related solely to the use of any Transcept Technology to Develop, manufacture or Commercialize the Product in the U.S. Territory under this Agreement, royalties payable by Purdue as a result of such settlement shall be creditable against royalties due hereunder in accordance with Section 7.5(e).

8.10 Discussion of IP-Related Matters. It is the goal of the Parties to facilitate the exchange of information between them regarding each Party’s performance of its responsibilities under this Article 8. To this end, the Parties may from time to time during the Term convene an ad hoc advisory group of individuals having the requisite expertise in order to (a) facilitate the sharing of information between the Parties regarding the Parties’ activities under this Agreement relating to the filing, prosecution, maintenance and enforcement of the Transcept Patents and Transcept Know-How in the U.S. Territory, including Orange Book Listings, and (b) provide a forum for discussing such matters. Such group shall not have any decision-making rights or responsibilities, and any failure or delay in obtaining consensus with respect to any issue discussed by this group shall not preclude the Party having control over a particular matter pursuant to this Article 8 from taking action with respect to such matter.

8.11 The CREATE Act . Each Party acknowledges and agrees that:

(a) the provisions herein are intended to encompass and include a joint research agreement for the performance of experimental, developmental and research work as contemplated by 35 U.S.C. § 103(c)(3), and that any invention made in connection with the activities contemplated in this Agreement, whether made solely by or on behalf of one Party or jointly by or on behalf of both Parties, is intended to and should have the benefit of the rights and protections conferred by Public Law 108-453, the Cooperative Research and Enhancement Act of 2004 as codified in 35 U.S.C. §103(c)(2) (the “ CREATE Act ”);

(b) in the event that a Party seeks to rely on the foregoing and invoke the CREATE Act with respect to any invention that is the subject of a patent application filed by or on behalf of such Party, such Party will give prior written notice(s) to the other Party of its intent to invoke the CREATE Act and of each submission or disclosure such Party intends to make to the USPTO pursuant to the CREATE Act, including: (i) any disclosure of or regarding the existence or contents of this Agreement to the USPTO; (ii) the disclosure of any “subject matter developed by the other Party” (as such term is used in the CREATE Act) in, without limitation, an information disclosure statement, or (iii) the filing of any terminal disclaimer over the intellectual property of the other Party, it being agreed that no such submission, disclosure or filing shall be made by such Party without the prior written consent of the other Party, such consent not to be unreasonably withheld, conditioned or delayed;

(c) without limiting subsection (b) above, it shall not be a violation of confidentiality obligations hereunder for a Party, as necessary in connection with the invocation of the CREATE Act, to disclose to the USPTO (i) the intellectual property of the other Party in, without limitation, an information disclosure statement or (ii) this Agreement, provided that such Party exercises reasonable efforts to limit the scope of such disclosure as strictly necessary to invoke the CREATE Act, including by reasonably redacting the material terms of this Agreement before any such disclosure; and

(d) without limiting subsection (b) above, each Party will provide reasonable cooperation to the other Party in connection with such other Party’s efforts to invoke and rely on the CREATE Act.

ARTICLE 9

REPRESENTATIONS, WARRANTIES AND COVENANTS

9.1 Mutual Representations and Warranties . Each Party hereby represents, warrants, and covenants (as applicable) to the other Party as follows, as of the Effective Date:

(a) Corporate Existence and Power . It is a corporation or limited partnership, as applicable, duly organized, validly existing, and in good standing under the laws of the jurisdiction in which it is incorporated or formed, and has all requisite power and authority and the legal right to own and operate its property and assets and to carry on its business as it is now being conducted and as contemplated in this Agreement, including the right to grant the licenses granted by it hereunder.

(b) Authority and Binding Agreement . It has the requisite power and authority and the legal right to enter into this Agreement and perform its obligations hereunder; it has taken all necessary action on its part required to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder; and this Agreement has been duly executed and delivered on its behalf, and constitutes a legal, valid, and binding obligation of such Party that is enforceable against it in accordance with its terms, subject as to enforcement of remedies to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting generally the enforcement of creditors’ rights and subject to a court’s discretionary authority with respect to the granting of a decree ordering specific performance or other equitable remedies.

(c) Consents . All necessary consents, approvals and authorizations of all Governmental Authorities and other Third Parties required to be obtained by it in connection with the execution, delivery and performance of this Agreement have been obtained by it.

(d) No Conflict . The execution and delivery of this Agreement, the performance of such Party’s obligations hereunder and the licenses and sublicenses to be granted pursuant to this Agreement (i) do not and will not conflict with or violate any requirement of Applicable Law existing as of the Effective Date, (ii) do not and will not conflict with or violate the certificate of incorporation, certificate of formation, by-laws, limited partnership agreement or other organizational documents of such Party, and (iii) do not and will not conflict with, violate, breach or constitute a default under any contractual obligations of such Party or any of its Affiliates (or in the case of Purdue, its U.S. Affiliates) existing as of the Effective Date.

(e) Notice of Infringement or Misappropriation. Except as already disclosed to Purdue in writing, such Party has not received any written notice from any Third Party asserting or alleging that the research, Development, making or using of Products by such Party prior to the Effective Date or upon Commercialization, infringed, misappropriated or diluted, or will infringe, misappropriate or dilute the intellectual property rights of such Third Party.

9.2 Transcept Technology . Transcept hereby represents and warrants to Purdue as of the Effective Date that:

(a) Except for the joint ownership of certain Transcept Patents, as noted on Exhibit A, Transcept is the sole owner of all right, title and interest in and to, or Controls, with the right to sublicense, the Transcept Patents, free and clear of any mortgage, pledge, claim, security interest, covenant, easement, encumbrance, lien, lease, sublease, option, or charge of any kind, limitations on transfer or any subordination arrangement in favor of a Third Party and, except for the licenses and sublicenses contemplated by Article 2 and the Material Contracts, as of the Effective Date it has granted no other rights in favor of a Third Party under the Transcept Technology in the U.S. Territory;

(b) Transcept has disclosed to Purdue all prior art and other facts that, to Transcept’s knowledge as of the Effective Date, are material to the validity or enforceability of the Transcept Patents in the U.S. Territory;

(c) no Third Party nor employee of Transcept has asserted or alleged in writing to Transcept that it has an ownership interest in the Transcept Technology other than the claims of SPI Pharma, Inc. as reflected in the jointly owned patent applications of SPI Pharma, Inc. and Transcept, and no Third Party has contested or asserted in writing to Transcept that the Transcept Patents are not valid or enforceable in the U.S. Territory;

(d) to the knowledge of Transcept as of the Effective Date, the Development, manufacture and Commercialization of the Product (in its current form) in the U.S. Territory does not infringe any valid or enforceable Third Party patents ([***]) granted as of the Effective Date;

(e) Transcept has not received written notice of any interference or opposition proceeding relating to the Transcept Patents;

(f) Transcept has made available to Purdue all data, results or other information derived from or regarding any preclinical or clinical study that would be reasonably expected to be relevant to an evaluation of any safety risks associated with the Product; and

(g) [***].

9.3 Transcept Trademark Representations and Warranties . Transcept hereby represents and warrants to Purdue as of the Effective Date that:

(a) to the knowledge of Transcept, there is no Third Party using or infringing any of the Transcept Trademarks in the U.S. Territory in derogation of the rights granted to Purdue in this Agreement;

(b) Transcept has not received notice of any opposition or cancellation action or litigation pending or any communication which expressly threatens an opposition or cancellation action, or other litigation, before any trademark office, court or any other governmental entity in the U.S. Territory with respect to any of the Transcept Trademarks;

(c) the Transcept Trademarks listed on Exhibit C attached hereto are the only trademarks owned, held, Controlled, licensed or otherwise used (or intended to be used) by Transcept or its Affiliates with respect to the Product in the U.S. Territory; and

(d) to the knowledge of Transcept, it has all rights necessary to use the Transcept Trademarks with respect to the Product in the U.S. Territory and to assign to Purdue the Transcept Assigned Trademarks as set forth above and Transcept has not obtained any Third Party consents in connection with the prosecution of the Transcept Trademarks in the U.S. Territory; and

(e) to the knowledge of Transcept, it has not infringed, misappropriated, diluted or otherwise violated any trademark of any Third Parties by registering or using the Transcept Trademarks in the U.S. Territory.

9.4 Compliance with Law . Each Party shall, and shall ensure that its Affiliates and sublicensees shall, comply with all Applicable Laws in exercising their rights and fulfilling their obligations under this Agreement.

9.5 Representations regarding Debarment and Compliance.

(a) Each Party represents, warrants and covenants that as of the Effective Date and during the Term, neither it nor its Affiliates nor any of their respective directors, officers, employees, or consultants, and, to its knowledge based upon reasonable inquiry, any Third Party (and its directors, officers, employees and consultants), in each case who were responsible for the development or whose responsibilities involve the Development or Commercialization of the Product as authorized by this Agreement or the Promotion of the Product as authorized by the Co-Promotion Right:

(i) are debarred under Section 306(a) or 306(b) of the FD&C Act;

(ii) have been charged with, or convicted of, any felony or misdemeanor under Applicable Laws related to any of the following: (A) the development or approval of any drug product or the regulation of any drug product under the FD&C Act; (B) a conspiracy to commit, aid or abet the development or approval of any drug product or regulation of any drug product; (C) health care program-related crimes (involving Medicare or any State health care program); (D) patient abuse, controlled substances, bribery, payment of illegal gratuities, fraud, perjury, false statement, racketeering, blackmail, extortion, falsification or destruction of records; (E) interference with, obstruction of an investigation into, or prosecution of, any criminal offense; or (F) a conspiracy to commit, aid or abet any of these listed felonies or misdemeanors; and

(iii) is excluded, suspended or debarred from participation, or otherwise ineligible to participate, in any Federal or State health care programs (including convicted of a criminal offense that falls within the scope of 42 U.S.C. §1320a-7 but not yet excluded, debarred, suspended, or otherwise declared ineligible), or excluded, suspended or debarred from participation, or otherwise ineligible to participate, in any Federal procurement or nonprocurement programs.

(b) Each Party will notify the other Party immediately, but in no event later than five (5) days, after knowledge of any exclusion, debarment, suspension or other ineligibility set forth in Section 9.5(a)(iii) occurring during the Term, or if Purdue concludes based on its good faith business judgment that a pending action or investigation is likely to lead to the exclusion, debarment, suspension or other ineligibility of Purdue.

9.6 Exclusion Screening . Each Party at its own expense hereby covenants that it shall, as part of the pre-hiring or pre-contracting process, screen against Exclusion Lists all of its directors, officers, employees, consultants, and any Third Party (and those of such Third Party’s directors, officers, employees and consultants that are known to such Party), in each case that such Party hires or engages whose responsibilities, to such Party’s knowledge based on reasonable inquiry, involve the Development or Commercialization of the Product as authorized

by this Agreement or the Promotion of the Product as authorized by the Co-Promotion Right, and will conduct such screens on an annual basis thereafter. Upon request by a party, the other Party shall certify the results of such screening to the requesting Party. For purposes of this Agreement, “Exclusion Lists” include at a minimum: (i) the HHS/OIG List of Excluded Individuals/Entities (available through the Internet at http://www.oig.hhs.gov) or any successor list; and (ii) the General Services Administration’s List of Parties Excluded from Federal Programs (available through the Internet at http://www.epls.gov) or any successor list.

9.7 Covenants regarding Purdue CIA Requirements.

(a) Transcept covenants to the following with regard to its directors, officers, employees, consultants, and any Third Party (and its directors, officers, employees and consultants) whose responsibilities involve the Development or Commercialization of the Product as authorized by this Agreement or the Promotion as authorized by the Co-Promotion Right:

(i) Unless otherwise instructed by Purdue, Transcept will provide a copy of Purdue’s Code of Business Ethics and, if applicable, a copy of any Purdue Standard Operating Procedures (the “ Materials ”) to such individuals;

(ii) Unless otherwise instructed by Purdue, Transcept will require that each such individual will agree to, read, and certify to understanding the Materials and shall abide by the Materials in such Development or Commercialization activities; and

(iii) Each such individual shall attend compliance training required by Purdue and participate in such compliance training as required by Purdue, at Purdue’s sole expense.

(b) Transcept shall notify Purdue within five (5) days of acquiring knowledge of a matter that a reasonable person would consider a potential violation of criminal, civil or administrative laws applicable to any Federal health care program and/or any FDA requirements relating to the labeling or Promotion of Products for which penalties or exclusion may be authorized. Transcept shall provide sufficient detail regarding any information it has concerning such matter in a timely manner and shall cooperate with any reasonable requirements by Purdue to allow Purdue to investigate such matter to determine if such conduct is a reportable event under the Purdue CIA.

(c) Transcept agrees that Transcept shall not interfere with the OIG’s request, as may be communicated through Purdue, to interview any of Transcept’s or its Affiliates and their respective directors, officers, employees, consultants and any Third party (and its directors, officers, employees and consultants) whose responsibilities involve the Development or Commercialization of the Product as authorized by this Agreement or the Promotion of the Product as authorized by the Co-Promotion Right, and Transcept agrees that such interviews may take place at Transcept’s place of business during normal business hours or at such other place and time as may be mutually agreed upon between Transcept and OIG. Purdue will bear any and all reasonable out-of-pocket costs associated with any interview as part of an OIG Investigation

that is related to the Purdue CIA and the Parties shall cooperate to mitigate any expenses incurred as a result of such OIG investigation.

(d) Purdue will provide notice to Transcept of any OIG investigation or Reportable Event (as defined under the Purdue CIA) arising out of Purdue’s Promotion of the Product promptly after becoming aware of any such investigation or following notification to OIG, respectively.

9.8 Regulatory Matters . Transcept hereby represents and warrants the following to Purdue as of the Effective Date:

(a) Transcept has provided or made available, when requested by Purdue to conduct its due diligence review, any and all documents and communications in its possession from and to the FDA or any other Governmental Authority, or prepared by the FDA or any other Governmental Authority, related to a Product, that may bear on compliance with the requirements of the FDA or any other Governmental Authority, including any notice of inspection, inspection report, warning letter, deficiency letter, or similar communication;

(b) Neither Transcept nor any of its Affiliates has received, with respect to a Product, any oral or written communication (including any warning letter, untitled letter, or similar notices) from the FDA and there is no action pending or, to Transcept’s knowledge, threatened (including any prosecution, injunction, seizure, civil fine, suspension or recall), in each case alleging that with respect to a Product, Transcept or any of its Affiliates is not currently materially in compliance with any and all Applicable Laws implemented by the FDA. Neither Transcept nor any of its Affiliates has received any written notice from any Governmental Authority claiming that the research, development, manufacture, use, offer for sale, sale, or import of a Product is noncompliant with any Applicable Laws;

(c) To Transcept’s knowledge, none of Transcept, any of its Affiliates or any of their respective officers, employees or agents has made, with respect to a Product, an untrue statement of a material fact to the FDA or other Governmental Authority or failed to disclose a material fact required to be disclosed to the FDA or other Governmental Authority;

(d) To Transcept’s knowledge, all testing, research and manufacture of the Products by or on behalf of Transcept and its Affiliates has been conducted in compliance with all Applicable Laws as applicable and required at the time such activity was performed; and

(e) There is no material matter known to Transcept as of the Effective Date which has not been disclosed by Transcept to Purdue concerning the safety or efficacy of any Product.

9.9 Co-Promotion Covenant of Purdue. As of the Co-Promotion Commencement Date, Purdue hereby covenants to Transcept that the Sample Authorizations to be provided by Purdue under this Agreement will, at the time of shipment by or on behalf of Purdue, not be unfit for distribution under any Applicable Laws (including not being adulterated or misbranded as

defined under the FD&C Act or an article that may not, under the FD&C Act, be introduced into interstate commerce) and shall otherwise comply with all Applicable Laws.

9.10 No Broker . No broker, finder, agent or similar intermediary has acted for or on behalf of a Party or its Affiliates in connection with this Agreement or the transactions contemplated hereby, and no broker, finder, agent or similar intermediary is entitled to any broker’s, finder’s or similar fee or other commission in connection therewith based on any agreement, arrangement or understanding with a Party or its Affiliates or any action taken by a Party or its Affiliates; provided that a Party shall bear all liabilities associated with claims by any broker, finder, agent or similar intermediary that it is entitled to any broker’s, finder’s or similar fee or other commission in connection with this Agreement or the transactions contemplated hereby asserted against such Party or its Affiliates.

9.11 Material Contracts. Schedule 9.11 sets forth all of the agreements to which Transcept or its Affiliates are a party as of the Effective Date that involve the manufacturing of Products in bulk and finished form or otherwise relevant to the manufacture or supply of Product for sale in the U.S. Territory (the “ Material Contracts ”). All of the Material Contracts have been delivered or made available to Purdue (or where a contract or agreement is other than in writing, Schedule 9.11 contains a true, accurate and complete summary of the material terms of such contract or agreement) and, as of the Effective Date, are valid, subsisting agreements, in full force and effect and binding upon the parties thereto in accordance with their terms and Transcept or its Affiliate has paid in full all amounts due thereunder and has satisfied in full all of its accrued liabilities and obligations thereunder, and is not in default under any of them nor, to the knowledge of Transcept, is any other party to any such contract or other agreement in default thereunder, nor does any condition exist which with notice or lapse of time or both would constitute a default thereunder. Except as separately identified on Schedule 9.11 , no consent by, notice to or approval from any Third Party is required, and no obligations of Transcept or its Affiliates, or any rights of the counter party will be triggered or increased, under any of the Material Contracts as a result of or in connection with the execution, delivery or performance of this Agreement and the consummation of the transactions contemplated herein.

9.12 Disclaimer . Transcept makes no warranties except as set forth in this Article 9 concerning the Product or Transcept Technology and Purdue makes no warranties except as set forth in this Article 9 concerning the Purdue Technology.

9.13 No Other Representations or Warranties . EXCEPT AS EXPRESSLY STATED IN THIS ARTICLE 9, NO REPRESENTATIONS OR WARRANTIES WHATSOEVER, WHETHER EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT, OR NON-MISAPPROPRIATION OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS, IS MADE OR GIVEN BY OR ON BEHALF OF A PARTY. ALL REPRESENTATIONS AND WARRANTIES, WHETHER ARISING BY OPERATION OF LAW OR OTHERWISE, ARE HEREBY EXPRESSLY EXCLUDED.

ARTICLE 10

INDEMNIFICATION

10.1 Indemnification by Transcept. Transcept shall defend, indemnify, and hold harmless Purdue, its Affiliates, and their respective officers, directors, employees, consultants and authorized agents and their respective successors and assigns or heirs, as the case may be (the “Purdue Indemnitees” ) from and against any and all Losses to the extent resulting from any Claim of a Third Party against such Purdue Indemnitee based on or arising out of:

(a) any misrepresentation or breach of any of Transcept’s representations, warranties, covenants or obligations under this Agreement; or

(b) the negligence or willful misconduct of, or violation of Applicable Law by, Transcept, its Affiliates, licensees, distributors or their respective officers, directors, employees, consultants or authorized agents under this Agreement; or

(c) any claim of actual or alleged infringement, misappropriation or other violations of a Third Party’s intellectual property rights [***] arising from Purdue’s Development, manufacture or Commercialization of the Product (in its current form) in the U.S. Territory under this Agreement.

The foregoing indemnity obligations shall not apply to the extent that the Losses of such Purdue Indemnitee were caused by: (i) a breach of any of Purdue’s representations, warranties, covenants, or obligations under this Agreement; or (ii) the negligence or willful misconduct of, or violation of Applicable Law by, such Purdue Indemnitee.

10.2 Indemnification by Purdue. Purdue shall defend, indemnify and hold harmless Transcept, its Affiliates, and their respective officers, directors, employees, consultants and authorized agents and their respective successors and assigns or heirs, as the case may be (the “Transcept Indemnitees” ) from and against any and all Losses to the extent resulting from any Claim of a Third Party against such Transcept Indemnitee based on or arising out of:

(a) any misrepresentation or breach of any of Purdue’s representations, warranties, covenants or obligations under this Agreement; or

(b) the negligence or willful misconduct of, or violation of Applicable Law by, Purdue, its Affiliates, licensees, distributors or their respective officers, directors, employees, consultants or authorized agents under this Agreement.

The foregoing indemnity obligation shall not apply to the extent that the Losses of such Transcept Indemnitee were caused by: (i) a breach of any of Transcept’s representations, warranties, covenants, or obligations under the Agreement; or (ii) the negligence or willful misconduct of, or violation of Applicable Law by, such Transcept Indemnitee.

10.3 Indemnification Procedures. The Party claiming indemnity under this Article 10 (the “Indemnified Party” ) shall give written notice to the Party from whom indemnity is being sought (the “Indemnifying Party” ) promptly and in no event later than thirty (30) days after learning of a written Claim (“ Indemnified Claim ”). Failure by an Indemnified Party to give notice of an Indemnified Claim within thirty (30) days of receiving a writing reflecting such Claim shall not relieve the Indemnifying Party of its indemnification obligations hereunder

except and solely to the extent that such Indemnifying Party is actually prejudiced as a result of such failure to give such notice. The Indemnifying Party shall have the right to assume the conduct and defense of the Indemnified claim with counsel of its choice. The Indemnified Party shall provide the Indemnifying Party with reasonable assistance in connection with the defense of the Indemnified Claim. The Indemnified Party may monitor such defense with counsel of its own choosing at its sole expense. The Indemnifying Party may not settle the Indemnified Claim without the prior written consent of the Indemnified Party, such consent shall not be unreasonably withheld, delayed or conditioned. If the Indemnifying Party does not assume and conduct the defense of the Indemnified Claim as provided above: (a) the Indemnified Party may assume and conduct the defense of the Indemnified claim at the Indemnifying Party’s expense; (b) the Indemnified Party may consent to the entry of any judgment or enter into any settlement with respect to the Indemnified Claim in any manner the Indemnified Party may deem reasonably appropriate (and the Indemnified Party need not consult with, or obtain any consent from, the Indemnifying Party in connection therewith); and (c) the Indemnifying Party will remain responsible to indemnify the Indemnified Party for Losses as provided in this Article 10.

10.4 Product Liability and Related Claims. Notwithstanding the foregoing Sections 10.1 through 10.3, in the event that a Claim alleging product liability or personal or economic injury arising from the use of Products under this Agreement is asserted by any Third Party against one or both Parties, then (a) Purdue will assume and conduct the defense of such Claim, (b) Transcept shall provide Purdue with reasonable assistance in connection with the defense of such claim, (c) Transcept may monitor such defense with counsel of its own choosing at its sole expense, and (d) [***].

10.5 Limitation of Liability. NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY EXEMPLARY, SPECIAL, CONSEQUENTIAL, INCIDENTAL, PUNITIVE, OR INDIRECT DAMAGES, COSTS OR EXPENSES (INCLUDING LOST PROFITS, LOST REVENUES AND/OR LOST SAVINGS) ARISING FROM OR RELATING

TO ANY BREACH OF THIS AGREEMENT, REGARDLESS OF ANY NOTICE OF THE POSSIBILITY OF SUCH DAMAGES. NOTWITHSTANDING THE FOREGOING, NOTHING IN THIS SECTION 10.5 IS INTENDED TO OR SHALL LIMIT OR RESTRICT THE INDEMNIFICATION RIGHTS OR OBLIGATIONS OF ANY PARTY IN CONNECTION WITH (A) THIRD PARTY CLAIMS UNDER SECTION 10.1 OR 10.2, (B) DAMAGES AVAILABLE FOR A PARTY’S BREACH OF ARTICLE 11, OR (C) DAMAGES TO THE EXTENT ARISING FROM OR RELATING TO GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR FRAUDULENT ACTS OR OMISSIONS OF A PARTY.

10.6 Insurance.

(a) Each Party shall procure and maintain insurance during the Term of this Agreement and for a period of three (3) years following the termination or expiration of this Agreement, adequate to cover its obligations hereunder and which are consistent with normal business practices of prudent companies similarly situated. All policies with the exception of Product Liability shall be written on an occurrence basis. Such insurance shall be written by insurance companies with a rating of at least an “A-” in the latest addition of A.M. Best or its equivalent and shall have the following minimum coverages:

(i) Commercial General Liability including coverages for Premises Operations, Blanket Contractual, Vendors, Personal Injury and Advertising Injury with minimum per claim limits of at least [***] per occurrence and [***] annual aggregate, the policy(ies) for which will be primary and non-contributory;

(ii) Workers’ Compensation coverage as mandated by applicable state statutes, and Employer’s Liability coverage with minimum per claim limits of at least [***] per occurrence and annual aggregate;

(iii) Automobile Liability covering all owned, hired and non-owned automobile equipment with minimum per claim limits of [***] per occurrence and annual aggregate;

(iv) Excess Liability “follow-form” coverage with minimum per claim limits of at least [***] per occurrence and annual aggregate prior to Product Launch and at least [***] per occurrence and annual aggregate commencing on or before Product Launch; and

(v) Products Liability coverage with minimum per claim limits of at least [***] per occurrence and annual aggregate prior to Product Launch and at least [***] per occurrence and annual aggregate commencing on or before Product Launch with a [***] extended reporting period endorsement.

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 10.

(b) Each Party, its respective Affiliates and its and their respective officers, directors, shareholders, employees, consultants, authorized agents, and assigns will be additional insureds under Commercial General Liability and Excess Liability insurance obtained by a Party.

(c) Each Party shall provide the other with a certificate of insurance ACORD Form 25-S (1/95), or latest edition, signed by a duly authorized officer or agent of the insurer and listing the parties set forth in Section 10.6(b) as an additional insured. Each Party shall also provide certified endorsements evidencing the existence of the requirements contained above. In addition, each Party shall provide the other with written notice at least thirty (30) days prior to the cancellation or non renewal of such insurance. If a Party receives notice of a cancellation less than thirty (30) days in advance, notice of such cancellation shall be provided as soon as practicable, but in no event later than ten (10) days after the Party receives the notice of such cancellation.

(d) Each Party waives, and will require all of its insurers to waive, all rights of recovery against the other Party, its Affiliates and its or their officers, directors, shareholders, employees, consultants, authorized agents and assigns, arising from any perils insured against in connection with this Agreement pursuant to insurance policies required by Sections 10.6(a)(i), (ii), (iii) or (iv), whether in contract, tort (including negligence and strict liability) or otherwise; provided, however, that the foregoing waiver of subrogation shall only apply to claims pursuant to Commercial General Liability and Excess Liability insurance policies.

(e) If either Party engages a contract sales organization to perform its duties hereunder then, as a condition of engagement, the engaging Party shall cause such contract sales organization to comply with the obligations contained in this Section 10.6.

ARTICLE 11

CONFIDENTIALITY

11.1 Confidentiality. Except to the extent expressly authorized by this Agreement or otherwise agreed in writing by the Parties, each Party agrees that, for the Term and for five (5) years thereafter, it shall keep confidential and shall not publish or otherwise disclose and shall not use for any purpose other than as provided for in this Agreement any Confidential Information of the other Party except for that portion of such information or materials that the receiving Party can demonstrate by competent proof:

(a) was already known to the receiving Party or its Affiliate, other than under an obligation of confidentiality, at the time of disclosure by the other Party;

(b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving Party;

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

(d) is subsequently disclosed to the receiving Party or its Affiliate by a Third Party without obligations of confidentiality with respect thereto; or

(e) is subsequently independently discovered or developed by the receiving Party or its Affiliate without the aid, application, or use of Confidential Information.

Notwithstanding the foregoing, the receiving Party may disclose without violation of this Agreement such portion of the Confidential Information as is required or permitted to be disclosed if, on the advice of counsel, it is required under Applicable Law or pursuant to legal process to disclose such Confidential Information of the other Party; provided that unless otherwise prohibited by Applicable Law, the receiving Party first advises the disclosing Party of such intended disclosure and provides the disclosing Party with the opportunity to seek appropriate judicial or administrative relief to avoid, or obtain confidential treatment of, such disclosure at the disclosing Party’s sole cost and expense.

The confidentiality provisions set forth herein shall supersede and replace the Existing Confidentiality Agreement and shall be deemed to cover all Confidential Information (as defined in the Existing Confidentiality Agreement) disclosed or obtained under the Existing Confidentiality Agreement.

11.2 Authorized Disclosure. Each Party may disclose Confidential Information belonging to the other Party to the extent such Party determines such disclosure is reasonably necessary in the following situations:

(a) prosecuting or defending litigation relating to this Agreement;

(b) disclosure to its and its Affiliates respective directors, officers, employees, consultants, professional advisors, lenders, insurers and sublicensees only on a need-to-know basis and solely as necessary in connection with this Agreement, provided that each disclosee must be bound by obligations of confidentiality and non-use no less stringent than those set forth in Sections 11.1 and 11.2 prior to any such disclosure; and

(c) solely with respect to the material terms of this Agreement, disclosure to any bona fide potential or actual investor, investment banker, acquirer, merger partner, or other potential or actual financial partner; provided that each disclosee must be bound by obligations of confidentiality and non-use no less stringent than those set forth in Sections 11.1 and 11.2 prior to any such disclosure. The receiving Party shall be liable for any breach of such confidentiality and non-use obligations by any such Third Party.

11.3 Publicity; Terms of Agreement.

(a) The Parties have agreed to make a joint public announcement of the execution of this Agreement substantially in the form of the press release attached as Exhibit E on or after the Effective Date. The Parties agree that the material terms of this Agreement are the Confidential Information of both Parties, subject to the authorized disclosure provisions set forth in Section 11.2 and this Section 11.3. Transcept may publicly disclose without violation of this Agreement, such terms of this Agreement as are, on the advice of Transcept’s counsel, required

by the rules and regulations of the SEC or The NASDAQ Stock Market, Inc.; provided that Transcept shall advise Purdue of such intended disclosures and provide Purdue with reasonable opportunity to request that Transcept seek (at Transcept’s expense) confidential treatment of such disclosures to be filed with the SEC. Subject to the immediately preceding sentence, Transcept shall consult with Purdue, and Purdue shall have the right to review and comment with respect to the redaction of the terms of this Agreement or Purdue Confidential Information as part of the confidential treatment request to the SEC.

(b) After release of the press release announcing this Agreement and excluding any public disclosures of the terms of this Agreement that are authorized by Section 11.3(a), if either Party desires to make a public announcement concerning the material terms of this Agreement, milestones achieved under this Agreement or other Confidential Information of the other Party, such Party shall give reasonable prior advance notice of the proposed text of such announcement to the other Party for its prior review and approval (except as otherwise provided herein), such approval not to be unreasonably withheld, conditioned or delayed. A Party commenting on such a proposed press release shall provide its comments, if any, within one (1) Business Day after receiving the press release for review. In relation to Purdue’s review of such an announcement, Purdue may make specific, reasonable comments on such proposed press release or other public disclosure within the prescribed time for commentary. Neither Party shall be required to seek the permission of the other Party to disclose any information already disclosed or otherwise in the public domain, provided such information remains accurate.

11.4 Publications . Neither Party shall publicly present or publish results of studies, clinical or otherwise, carried out under this Agreement (each such presentation or publication, a “ Publication ”) without the opportunity for prior review by the other Party. The submitting Party shall provide the other Party the opportunity to review any proposed Publication at least thirty (30) days prior to the earlier of its presentation or intended submission for publication. The submitting Party agrees, upon request by the other Party, not to submit or present any Publication until the other Party has had an additional thirty (30) days to comment on any material in such Publication. The submitting Party shall consider the comments of the other Party in good faith, but will retain the sole authority to submit the manuscript (or other form of publication) for Publication. The submitting Party shall provide the other Party a copy of the Publication at the time of the submission or presentation. Notwithstanding the foregoing, Purdue shall not have the right to publish or present Transcept’s Confidential Information without Transcept’s prior written consent, and Transcept shall not have the right to publish or present Purdue’s Confidential Information without Purdue’s prior written consent.

11.5 Clinical Trial Registries. In connection with any data or other information generated by a Party hereunder, each Party shall have the right to publish such data and information without further approval from the other on ClinicalTrials.gov or other public web based data entry system in accordance with the International Committee of Medical Journal Editors (ICMJE). The Party that conducts the clinical study in accordance with this Agreement shall be exclusively responsible for registering the study in accordance with the Food and Drug Administration Amendments Act (FDAAA) of 2007, updating and/or amending such clinical trial registration as appropriate, and publishing the results of such trial in accordance with Applicable Laws.

ARTICLE 12

TERM AND TERMINATION

12.1 Term. This Agreement shall become effective on the Effective Date and, unless earlier terminated pursuant to this Article 12, shall remain in effect until the expiration of the last to expire royalty obligation with respect to Products under this Agreement (the “Term” ). Upon the expiration of the Term, the licenses in Section 2.1 shall become fully paid, freely transferable and irrevocable.

12.2 Termination by Purdue at Will.

(a) Purdue shall have the right to terminate this Agreement in its entirety upon one hundred eighty (180) days prior written notice to Transcept.

(b) Notwithstanding subsection (a), Purdue shall have the right to terminate this Agreement immediately by written notice to Transcept during the ten (10) Business Day period set forth in Section 4.2(b).

(c) Notwithstanding subsection (a), Purdue shall have the right to terminate this Agreement immediately in the event that (i) the FDA or other Governmental Authority initiates an action that materially impairs, or is reasonably likely to materially impair, Purdue’s ability to Commercialize the Product in the U.S. Territory in accordance with the terms of this Agreement or (ii) a serious event with respect to safety issues involving the Product occurs.

(d) Upon termination pursuant to this Section 12.2, and in addition to the consequences described in Section 12.6 and the remedies provided in Section 12.7, the following obligations shall apply: (i) Purdue shall remain responsible for all of Purdue’s accrued but unpaid regulatory or Commercialization costs as of the date of such notice of termination; and (ii) Purdue shall not, during the applicable notice period, take any action that is intended to or reasonably likely to materially adversely affect or impair the further development or Commercialization of the Products.

12.3 Termination by Either Party for Cause.

(a) Breach by Purdue. Transcept shall have the right to terminate this Agreement upon written notice to Purdue if Purdue, after receiving written notice from Transcept identifying a material breach by Purdue of its obligations under this Agreement, fails to cure such material breach within sixty (60) days from the date of such notice (or, in the case of payment obligations, thirty (30) days from the date of such notice). For the avoidance of doubt (and without limiting Transcept’s remedies for any other breaches by Purdue), Purdue’s uncured failure to pay the amount set forth in Section 7.1 or 7.2(a) shall be deemed to be a material breach of this Agreement.

(b) PDE Threshold . Notwithstanding Section 12.3(a), Transcept shall have the right to immediately terminate this Agreement upon written notice to Purdue under the circumstances set forth in Section 5.3(c)(vi).

(c) Government Action. Transcept shall have the right to terminate this Agreement immediately upon written notice to Purdue in the event Purdue is excluded from participation in federal healthcare programs.

(d) Breach by Transcept . In the event Transcept, after receiving written notice from Purdue identifying a material breach by Transcept of its obligations under this Agreement, fails to cure such material breach within sixty (60) days from the date of such notice, then Purdue may elect to either:

(i) terminate this Agreement, in which case the licenses granted to Purdue under Section 2.1 shall terminate, except as necessary for Purdue to exercise its continuing rights and fulfill its continuing obligations under Section 12.6(e), all license rights granted to Transcept under Section 2.2 shall terminate (including any license agreements executed pursuant to Section 2.2(b)), and Purdue shall be entitled to claim from Transcept all damages which would otherwise be due to Purdue and to seek all other remedies otherwise available to Purdue for such breach; or

(ii) allow this Agreement to remain in effect, in which case:

(A) Purdue shall be entitled to offset the amount of any damages and costs obtained in a final judgment or award of monetary damages or costs against Transcept against any amounts otherwise due to Transcept under Article 7,

(B) the JDC and JCC shall be abolished, and thereafter Purdue shall have the right to make the decisions and take the actions previously reserved to the JCC, and all matters that previously fell within the purview of the JDC shall thereafter be decided by mutual consent of the Parties, except that any matter pertaining to the Development of Product in the U.S. Territory (but excluding Development of Product in the U.S. Territory in support of Regulatory Approval in the Transcept Territory) shall thereafter be decided by Purdue,

(D) solely with respect to a material breach by Transcept that results or is reasonably likely to result in a serious impairment of the rights licensed to Purdue under this Agreement or Purdue’s exercise of such rights, or the commercial prospects or potential for the Product, future milestone and super royalty payments payable to Transcept under Article 7 shall be reduced by [***] and royalty rates specified in Sections 6.4(b), 7.4 and 7.6 for future Net Sales by Purdue shall be reduced by [***], and any arbitrator or court making a final judgment or award of monetary damages or costs shall offset the total amount of damages or costs that would otherwise be awarded by the value of the reduction in payments provided for in this subsection (D).

Purdue’s election between the remedies provided in clause (i) and clause (ii) hereof shall be made by notice in writing to Transcept within thirty (30) days after the end of the sixty (60) cure period set forth above. For the avoidance of doubt, a failure by Transcept to comply with or perform any provision of Article 6, including any Co-Promotion Material Breach, shall not be treated as a material breach by Transcept under this Section 12.3, provided that the Parties agree, or it is determined by an arbitrator pursuant to Article 13, that the remedies available to Purdue under Article 6 and Article 10 are sufficient remedy.

12.4 Termination for Patent Challenge. Transcept may terminate this Agreement in its entirety upon written notice to Purdue if Purdue or any U.S. Affiliate, directly or indirectly, individually or in association with any other person or entity, commences any action or proceeding that challenges the validity, enforceability or scope of any Transcept Patent in the U.S. Territory.

In the event Purdue is aware that its Affiliate (other than a U.S. Affiliate), directly or indirectly, individually or in association with any other person or entity, commences any action or proceeding that challenges the validity, enforceability or scope of any Transcept Patent in the U.S. Territory, Purdue shall use reasonable efforts to cause such Affiliate to cease such challenge. If such challenge does not stop within thirty (30) days of Purdue becoming aware of such challenge, Transcept may terminate this Agreement in its entirety upon written notice to Purdue.

12.5 Termination Upon Bankruptcy . Either Party shall have the right to terminate this Agreement immediately by providing written notice, if the other Party: (a) applies for or consents to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its assets, (b) makes a general assignment for the benefit of its creditors, (c) is dissolved or liquidated in full or in substantial part, (d) commences a voluntary case under Chapter 7 (or “ Chapter 7 Case ”) of the United States Bankruptcy Code or consents to any such relief or to the appointment of or taking possession of its property by any official in such an involuntary case or such other proceeding commenced against it, (e) takes any corporate action for the purpose of effecting any of the foregoing, (f) a case under Chapter 11 of the Bankruptcy Code in respect of such Party is converted to a Chapter 7 Case, or (g) becomes the subject of an involuntary Chapter 7 Case or other proceeding seeking liquidation with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect that is not dismissed within sixty (60) days after commencement.

12.6 Effect of Termination of the Agreement. Upon termination of this Agreement, the following shall apply (in addition to any other rights and obligations under Section 12.2 and Section 12.6 or otherwise under this Agreement with respect to such termination):

(a) Licenses; Covenant. In the event of termination by Purdue under Section 12.2 or by Transcept pursuant to Section 12.3(a), (b) or (c) or Section 12.4, the licenses granted to Purdue under Section 2.1 shall terminate (and all rights in the Transcept Technology shall return to Transcept) and the licenses granted to Transcept pursuant to Section 2.2(a)(ii) and (b) shall survive but shall be expanded as follows: Purdue hereby grants Transcept, effective upon such termination, a non-exclusive, royalty-free license under the Purdue Technology solely to the

extent necessary (i) to conduct research, Development and manufacturing activities in the U.S. Territory solely in support of Regulatory Approval worldwide of Products that are being commercialized in the U.S. Territory as of the effective date of such termination (“ Termination Products ”), (ii) to use, distribute, import, Promote, market, sell, and offer for sale Termination Products in the U.S. Territory, and (iii) to make and have made Termination Products in the U.S. Territory for sale in the U.S. Territory. Transcept shall have the right to sublicense the license under the Purdue Patents described above with Purdue’s consent, not to be unreasonably withheld, conditioned or delayed and shall have the right to sublicense the license under Purdue Know-How described above, without any obligation to obtain Purdue’s consent. Solely to the extent that Transcept, its Affiliates, or their respective licensees, collaborators, suppliers, or distributors conduct any of the activities described in subsections (i), (ii), and (iii) above with respect to any Termination Product and to the extent such Termination Product differs from the Product as of the Effective Date, Purdue and its U.S. Affiliates hereby covenant not to sue such entities (or their respective customers) based on a claim that such Termination Product or such activities (A) infringes any patent owned or controlled by Purdue or its U.S. Affiliates that claims or covers inventions made on or before the date of termination of this Agreement relating to the composition, manufacture or use of such Termination Product or (B) constitutes misappropriation of a trade secret owned or controlled by Purdue or its U.S. Affiliates prior to the Effective Date that is reasonably necessary or useful for the Development, manufacture, or Commercialization of any such Termination Product and that was properly obtained by Transcept or its Affiliates under this Agreement or as a result of the termination of this Agreement. The foregoing shall not limit or waive Transcept’s non-disclosure obligations under Article 11.

(b) Marks. In the event of termination by Purdue under Section 12.2 or by Transcept pursuant to Section 12.3(a), (b) or (c) or Section 12.4, Purdue shall assign to Transcept all right, title and interest in and to the Transcept Assigned Trademarks and Purdue shall grant Transcept a non-exclusive, royalty-bearing license under the Purdue Trademarks solely to continue the commercialization of Products in the U.S. Territory under commercially reasonable terms to be mutually agreed in good faith.

(c) Regulatory Materials . Purdue shall transfer and assign to Transcept all Regulatory Materials not previously disclosed and all Regulatory Approvals for Products in the U.S. Territory that are Controlled by Purdue or its U.S. Affiliates.

(d) Transition Assistance . In the event of termination by Purdue under Section 12.2 or by Transcept pursuant to Section 12.3(a), (b) or (c) or Section 12.4, at no cost to Transcept, Purdue shall transfer or transition to Transcept all Purdue Know-How necessary for Transcept to continue researching, Developing, manufacturing, or Commercializing Products in the U.S. Territory that has not been previously disclosed to Transcept and Transcept cannot reasonably procure elsewhere. For clarity, Transcept shall not obtain any rights to Purdue’s sales call reporting system upon termination.

If Purdue or its Third Party manufacturer is manufacturing Product as of the date of termination then Purdue shall, as requested by Transcept, use Commercially Reasonable Efforts to manufacture and supply (or to cause its Third Party manufacturer to supply) reasonable quantities of Product to Transcept, until the earlier of (i) such time as Transcept can secure an

alternative supply for the U.S. Territory, which Transcept shall endeavor to secure as quickly as is reasonably possible, or (ii) eighteen (18) months from the date of termination. Transcept shall purchase such supply under a mutually agreed upon agreement with Purdue containing terms that include the purchase price reflecting cost plus a commercially reasonable margin. At Transcept’s request, Purdue shall reasonably cooperate with Transcept in coordinating the transfer to Transcept of all Product manufacturing and supply rights in the U.S. Territory, including providing notice of termination of this Agreement to any Third Party manufacturers, if such notice is necessary for Transcept to obtain all Product manufacturing and supply rights in the U.S. Territory.

(e) Remaining Inventories . At Transcept’s request, Transcept may purchase at cost plus a commercially reasonable margin all of the inventory of bulk or finished Products held by Purdue as of the date of termination (including raw materials, intermediates, and finished, unfinished, or partially finished goods). Transcept shall notify Purdue within ten (10) days after the date of termination whether Transcept wishes to purchase such inventory. In the event Transcept does not purchase such inventory, then Purdue and its Affiliates shall be permitted to sell such inventory; provided that such sales occur within six (6) months after termination; and provided further that Purdue shall remain obligated to pay, and report to Transcept on, Net Sales of such inventory.

(f) Royalty to Purdue. Solely in the event that (i) Transcept terminates this Agreement pursuant to Section 12.3(b) at any time after the end of Sales Year [***] or Purdue terminates this Agreement pursuant to Section 12.2(a) at any time after the end of Sales Year [***], and (ii) Purdue has either fully complied with its obligations under Section 5.3 during the first [***] Sales Years or fully cured any failure to comply with Section 5.3 during such period in accordance with the remedies specified therein, Transcept shall pay a quarterly royalty to Purdue on Net Sales (applied mutatis mutandis ) of Products by Transcept, its Affiliates or licensees during the [***] following termination at the following rates:


*Time Period Following Termination*		*Royalty Rate*
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]

For the avoidance of doubt, all royalty obligations under this Section 12.6(f) shall cease at the end of the [***] following termination.

(g) Sublicense Agreements . The Parties agree that upon termination of this Agreement for any reason, all sublicenses granted by Purdue to Affiliates or Third Parties under the Transcept Technology shall immediately terminate.

12.7 Accrued Liabilities; Other Remedies. Termination or expiration of this Agreement for any reason shall not release either Party from any liability or obligation that already has accrued prior to such expiration or termination (including any milestone or other payment that has been triggered by an event occurring prior to the effective date of termination or expiration), nor affect the survival of any provision hereof to the extent it is expressly stated to survive such termination. Termination or expiration of this Agreement for any reason shall not constitute a waiver or release of, or otherwise be deemed to prejudice or adversely affect, any rights, remedies or claims, whether for damages or otherwise, that a Party may have hereunder or that may arise out of or in connection with such termination or expiration.

12.8 Rights in Bankruptcy. All rights and licenses granted under or pursuant to this Agreement by Transcept and Purdue are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the United States Bankruptcy Code, licenses of rights to “intellectual property” as defined under Section 101 of the United States Bankruptcy Code. The Parties agree that each Party, as licensee of certain rights under this Agreement, shall retain and may fully exercise all of its rights and elections under the United States Bankruptcy Code. The Parties further agree that, in the event of the commencement of a bankruptcy proceeding by or against a Party (such Party, the “Bankrupt Party” ) under the United States Bankruptcy Code, the other Party shall be entitled to a complete duplicate of (or complete access to, as appropriate) any intellectual property licensed to such other Party and all embodiments of such intellectual property, which, if not already in such other Party’s possession, shall be promptly delivered to it (a) upon any such commencement of a bankruptcy proceeding upon such other Party’s written request therefor, unless the Bankrupt Party elects to continue to perform all of its obligations under this Agreement or (b) if not delivered under clause (a), following the rejection of this Agreement by the Bankrupt Party upon written request therefor by the other Party. In addition, in the event Transcept is the Bankrupt Party, then neither Transcept nor any assignee shall have a right to participate on the JCC effective as of the date of such bankruptcy.

12.9 Survival. The following provisions shall survive any expiration or termination of this Agreement for the period of time specified: Sections 4.7 (last sentence only), 5.5, 6.16, 6.18, 6.21, 7.10, 8.1, 8.2 (solely with respect to Inventions made prior to such expiration or termination), 8.11, 9.12, 9.13, 12.2(d), 12.3(d)(i), 12.6, 12.7, 12.8, 14.1 through 14.4, and 14.8 through 14.14 and Articles 10, 11 and 13, and any relevant definitions in Article 1.

ARTICLE 13

DISPUTE RESOLUTION

13.1 Disputes . The Parties recognize that disputes as to certain matters may from time to time arise during the Term which relate to either Party’s rights and/or obligations hereunder. It is the objective of the Parties to establish procedures to facilitate the resolution of disputes arising under this Agreement in an expedient manner by mutual cooperation and without resort to litigation. To accomplish this objective, the Parties agree to follow the procedures set forth in this Article 13 if and when a dispute arises under this Agreement.

(a) Referred From Committee. Any dispute, controversy or difference arising from the JCC pursuant to Article 3 shall be resolved in accordance with Section 3.5 and

any dispute, controversy or difference arising from the JDC pursuant to Article 3 shall be resolved in accordance with Section 3.10.

(b) Arising Between the Parties. Other than any dispute, controversy or difference which may arise from the JCC or JDC or as described in Section 13.11, any disputes, controversies or differences which may arise between the Parties out of or in relation to or in connection with this Agreement, including any alleged failure to perform, or breach, of this Agreement, or any issue relating to the interpretation or application of this Agreement, then upon the request of either Party, the Parties agree to meet and discuss in good faith a possible resolution thereof, which good faith efforts shall include at least one in-person meeting between the chief executive officers of each Party. If the matter is not resolved within thirty (30) days following the request for discussions, either Party may then invoke the provisions of Section 13.2.

13.2 Arbitration. Any dispute, controversy or claim arising out of or relating to the validity, construction, interpretation, enforceability, breach, performance, application or termination of this Agreement that is not resolved pursuant to Section 13.1(b), except for a dispute, claim or controversy under Section 13.10, shall be settled by binding arbitration administered by JAMS pursuant to its Comprehensive Arbitration Rules and Procedures of JAMS then in effect (the “JAMS Rules” ), except as otherwise provided herein. The arbitration shall be governed by the United States Federal Arbitration Act, 9 U.S.C. §§ 1-16 (the “Federal Arbitration Act” ), to the exclusion of any inconsistent state laws. The United States Federal Rules of Civil Procedure shall govern discovery and the rules of evidence for the arbitration. The arbitration will be conducted in Chicago, Illinois, and the Parties consent to the personal jurisdiction of the United States federal courts, for any case arising out of or otherwise related to this arbitration, its conduct and its enforcement. Any situation not expressly covered by this Agreement shall be decided in accordance with the JAMS Rules.

13.3 Arbitrator. The arbitrator shall be one (1) neutral, independent and impartial arbitrator selected from a pool of retired federal judges or magistrates to be presented to the Parties by JAMS. Failing the agreement of the Parties as to the selection of the arbitrator within thirty (30) days, the arbitrator shall be appointed by JAMS in accordance with the JAMS Rules.

13.4 Decision. The power of the arbitrator to fashion procedures and remedies within the scope of this Agreement is recognized by the Parties as essential to the success of the arbitration process. The arbitrator shall not have the authority to fashion remedies which would not be available to a federal judge hearing the same dispute. The arbitrator is encouraged to operate on this premise in an effort to reach a fair and just decision. Reasons for the arbitrator’s decisions should be set forth in accordance with the JAMS Rules. Such a written decision shall be rendered by the arbitrator following a full comprehensive hearing, no later than twelve (12) months following the selection of the arbitrator as provided for in Section 13.3.

13.5 Award. Any award shall be promptly paid in United States dollars free of any tax, deduction or offset; and any costs, fees or taxes incident to enforcing the award shall, to the maximum extent permitted by Applicable Law, be charged against the Party resisting enforcement. If as to any issue the arbitrator should determine under the Applicable Law that the

position taken by a Party is in violation of the standards of Rule 11(b) of the Federal Rules of Civil Procedure, the arbitrator shall also award an appropriate allocation of the adversary’s reasonable attorney fees, costs and expenses to be paid by the offending Party, the precise sums to be determined after a bill of attorney fees, expenses and costs consistent with such award has been presented following the award on the merits. Each Party agrees to abide by the award rendered in any arbitration conducted pursuant to this Article 13, and agrees that, subject to the Federal Arbitration Act, judgment may be entered upon the final award in any court of competent jurisdiction and that other courts may award full faith and credit to such judgment in order to enforce such award. The award shall include interest from the date of the award until paid in full, at a rate fixed by the arbitrator and the arbitrator may, in his or her discretion, award pre-judgment interest. With respect to money damages, nothing contained herein shall be construed to permit the arbitrator or any court or any other forum to award punitive or exemplary damages. By entering into this agreement to arbitrate, the Parties expressly waive any claim for punitive or exemplary damages.

13.6 Costs. Except as set forth in Section 13.5 and 13.11, each Party shall bear its own legal fees. The arbitrator shall assess his or her costs, fees and expenses against the Party losing the arbitration unless he or she believes that neither Party is the clear loser, in which case the arbitrator shall divide his or her fees, costs and expenses according to his or her sole discretion.

13.7 Injunctive Relief. Provided a Party has made a sufficient showing under the rules and standards set forth in the Federal Rules of Civil Procedure and applicable case law, the arbitrator shall have the freedom to invoke, and the Parties agree to abide by, injunctive measures after either Party submits in writing for arbitration claims requiring immediate relief. Additionally, nothing in this Article 13 will preclude either Party from seeking equitable relief or interim or provisional relief from a court of competent jurisdiction, including a temporary restraining order, preliminary injunction or other interim equitable relief, concerning a dispute either prior to or during any arbitration if necessary to protect the interests of such Party or to preserve the status quo pending the arbitration proceeding.

13.8 Confidentiality. The arbitration proceeding shall be confidential and the arbitrator shall issue appropriate protective orders to safeguard each Party’s Confidential Information. Except as required to comply with Applicable Laws, including rules and regulations promulgated by the SEC, The NASDAQ Stock Market or any securities exchanges, no Party shall make (or instruct the arbitrator to make) any public announcement with respect to the proceedings or decision of the arbitrator without prior written consent of the other Party. The existence of any dispute submitted to arbitration, and the award, shall be kept in confidence by the Parties and the arbitrator, except as required in connection with the enforcement of such award or as otherwise required by Applicable Law.

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

13.10 Patent and Trademark Disputes. Other than as set forth in Section 13.11, any dispute, controversy or claim relating to the scope, validity, enforceability or infringement of any Transcept Patents or Marks covering the manufacture, use, importation, offer for sale or sale of

Products shall be submitted to a court of competent jurisdiction in the country in which such patent or trademark rights were granted or arose.

13.11 Certain IP Disputes . In the event the Parties are unable to agree upon: (a) [***], (b) the prosecution of a Joint Patent under Section 8.3(b) or (c) whether to list a Transcept Patent in the Orange Book pursuant to Section 8.8, then the Parties shall appoint a mutually acceptable, independent patent attorney from a nationally recognized law firm with expertise in such matters for resolution. The determination of such patent attorney shall be final and binding upon the Parties. [***]. The patent attorney shall assess his or her costs, fees and expenses against the Party losing the determination unless he or she believes that neither Party is the clear loser, in which case the patent attorney shall divide his or her fees, costs and expenses according to his or her sole discretion. In order to expedite resolution of disputes under this Section 13.11, the Parties shall agree on the identity of such patent attorney no later than [***] after the Effective Date and shall revisit this decision from time to time as the need arises.

ARTICLE 14

MISCELLANEOUS

14.1 Entire Agreement; Amendment . This Agreement, including the Exhibits hereto, sets forth the complete, final and exclusive agreement and all the covenants, promises, agreements, warranties, representations, conditions and understandings between the Parties hereto with respect to the subject matter hereof and supersedes, as of the Effective Date, all prior agreements and understandings between the Parties with respect to the subject matter hereof, including, the Existing Confidentiality Agreement. The foregoing shall not be interpreted as a waiver of any remedies available to either Party as a result of any breach, prior to the Effective Date, by the other Party of its obligations pursuant the Existing Confidentiality Agreement. There are no covenants, promises, agreements, warranties, representations, conditions or understandings, either oral or written, between the Parties other than as are set forth herein and therein. No subsequent alteration, amendment, change or addition to this Agreement shall be binding upon the Parties unless reduced to writing and signed by an authorized officer of each Party. Notwithstanding the foregoing, upon delivery of written notice from Purdue to Transcept, the Transcept Territory will automatically be deemed to include Canada and/or Mexico.

14.2 Force Majeure . Both Parties shall be excused from the performance of their obligations under this Agreement to the extent that such performance is prevented by force majeure and the nonperforming Party promptly provides notice of the prevention to the other Party. Such excuse shall be continued so long as the condition constituting force majeure continues and the nonperforming Party takes reasonable efforts to remove the condition. For purposes of this Agreement, force majeure shall mean conditions beyond the control of the Parties, including an act of God, war, civil commotion, terrorist act, labor strike or lock-out, epidemic, failure or default of public utilities or common carriers, destruction of production facilities or materials by fire, earthquake, storm or like catastrophe, and failure of plant or machinery (provided that such failure could not have been prevented by the exercise of skill,

diligence, and prudence that would be reasonably and ordinarily expected from a skilled and experienced person engaged in the same type of undertaking under the same or similar circumstances). Notwithstanding the foregoing, a Party shall not be excused from making payments owed hereunder because of a force majeure affecting such Party.

14.3 Notices. Any notice required or permitted to be given under this Agreement shall be in writing, shall specifically refer to this Agreement, and shall be addressed to the appropriate Party at the address specified below or such other address as may be specified by such Party in writing in accordance with this Section 14.3, and shall be deemed to have been given for all purposes when received, if hand-delivered or by means of facsimile or other electronic transmission, or one Business Day after being sent by a reputable overnight delivery service.


If to Transcept:		Transcept Pharmaceuticals, Inc.
		1003 W. Cutting Blvd
		Suite #110
		Pt. Richmond, CA 94804
		Attention: Chief Executive Officer and General Counsel

With a copy to:		Cooley Godward Kronish LLP
		Five Palo Alto Square
		3000 El Camino Real
		Palo Alto, CA 94306
		Attention: Robert L. Jones, Esq.

If to Purdue:		Purdue Pharma L.P.
		One Stamford Forum
		201 Tresser Boulevard
		Stamford, CT 06901-3431
		Attention: Office of the General Counsel

With a copy to:		Chadbourne & Parke LLP
		30 Rockefeller Plaza
		New York, New York 10112
		Attention: Stuart D. Baker, Esq.

14.4 No Strict Construction; Headings; Interpretation. This Agreement has been prepared jointly and shall not be strictly construed against either Party. Ambiguities, if any, in this Agreement shall not be construed against any Party, irrespective of which Party may be deemed to have authored the ambiguous provision. The headings of each Article and Section in this Agreement have been inserted for convenience of reference only and are not intended to limit or expand on the meaning of the language contained in the particular Article or Section. The definitions of the terms herein apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun will include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” will be deemed to be followed by the phrase “without limitation.” Unless the context requires otherwise, (a) any definition of or reference to any agreement, instrument or other document herein will be

construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or therein), (b) any reference to any laws herein will be construed as referring to such laws and any rules or regulations promulgated thereunder as from time to time enacted, repealed or amended, (c) any reference herein to any person will be construed to include the person’s successors and assigns, (d) the words “herein”, “hereof” and “hereunder”, and words of similar import, will be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (e) any reference herein to the words “mutually agree” or “mutual written agreement” will not impose any obligation on either Party to agree to any terms relating thereto or to engage in discussions relating to such terms except as such Party may determine in such Party’s sole discretion, except as expressly provided in this Agreement, (f) as applied to a Party, the word “will” shall be construed to have the same meaning and effect as the word “shall,” and (g) all references herein without a reference to any other agreement to Articles, Sections, or Exhibits will be construed to refer to Articles, Sections, and Exhibits of or to this Agreement.

14.5 Assignment . Neither Party may assign or transfer this Agreement or any rights or obligations hereunder without the prior written consent of the other, except that a Party may make such an assignment without the other Party’s consent to such Party’s Affiliate or to a successor to (a) all or substantially all of the business of such Party, whether by way of merger, sale of stock, sale of assets or other transaction or (b) in the case of Purdue, that portion of Purdue’s business to which this Agreement pertains. Any permitted successor or assignee of rights and/or obligations hereunder shall, in a writing to the other Party, expressly assume performance of such rights and/or obligations. Notwithstanding any assignment of this Agreement, the assigning Party shall remain liable for performance of its obligations hereunder, unless the non-assigning Party agrees otherwise in writing. The Transcept Technology shall exclude any intellectual property held or developed by a permitted successor of Transcept prior to the transaction in which it became a successor of such Party and the Purdue Technology shall exclude any intellectual property held or developed by a permitted successor of Purdue prior to the transaction in which it became a successor of such Party. Any permitted assignment shall be binding on the successors of the assigning Party. Any assignment or attempted assignment by either Party in violation of the terms of this Section 14.5 shall be null, void and of no legal effect.

14.6 Standstill .

(a) In consideration of the transactions contemplated by this Agreement and the willingness of Transcept to enter into the Collaboration, Purdue hereby agrees that, during the Standstill Period (as defined below), unless the restrictions set forth in this Section 14.6 have been specifically waived in writing by Transcept, neither Purdue nor any of its Affiliates will in any manner, directly or indirectly:

(i) effect or seek, offer or propose (whether publicly or otherwise) to effect, or cause or participate in or in any way advise any other person to effect or seek, offer or propose (whether publicly or otherwise) to effect or participate in, (A) any acquisition of securities (or beneficial ownership thereof) if, after such acquisition, Purdue and its Affiliates would beneficially own (as such term is defined in Rule 13d-3 of the 1934 Act) in the aggregate

[***] percent ([***]%) or more of the voting securities of Transcept then outstanding on a fully diluted as converted basis, whether or not in a tender offer or exchange offer, or any acquisition of Transcept’s assets or business; (B) any tender or exchange offer, merger or other business combination involving Transcept; provided however, for the avoidance of doubt, the limitation in this Section 14.6 shall not preclude any such person from selling Transcept securities in a tender or exchange offer initiated by a person other than Purdue or its Affiliates, or from voting Transcept securities owned by it or them in favor of or against any such sale; (C) any recapitalization, restructuring, liquidation, dissolution or other extraordinary transaction with respect to Transcept; provided however, this clause (C) shall not apply to any transactions contemplated by this Agreement and shall not preclude any such person from participating in any such transaction as a result of which the percentage interest in Transcept held by Purdue and its Affiliates would not increase from the percentage held by Purdue and its Affiliates immediately prior to such transaction (other than solely as a result of a redemption or other repurchase by Transcept, whether directly or indirectly, of securities outstanding in a transaction in which none of Purdue nor any of its Affiliates was directly or indirectly a sponsor), or voting Transcept securities owned by it in favor of or against any such transaction, or receiving assets from Transcept upon Transcept’s liquidation (unless Purdue or any of its Affiliates was directly or indirectly a sponsor of such liquidation); or (D) any “solicitation” (as soliciting party) of “proxies” (as such terms are used in the proxy rules of the Securities and Exchange Commission) or consents to vote any voting securities of Transcept;

(ii) form, join or in any way participate in a “group” (as defined under the 1934 Act) with respect to any acquisition by any such person of securities of [***] percent ([***]%) or more of the voting securities of Transcept then outstanding on a fully diluted as converted basis;

(iii) seek alone or in concert with others, to control or influence the management, board of directors or policies of Transcept (other than influence as part of commercial discussions in the ordinary course of business under this Agreement, any amendments hereto and/or the activities contemplated hereby);

(iv) take any action (other than to disclose the existence of this Agreement or matters arising hereunder in any Schedule 13D or 13G under the 1934 Act or in any other disclosure required by Applicable Law) which would reasonably be expected to force Transcept to make a public announcement regarding any of the types of prohibited matters set forth in this Section 14.6; or

(v) enter into any discussions or arrangements with any Third Party, which discussions or arrangements ultimately result in Purdue or its Affiliates or such Third Party taking any of the foregoing prohibited actions or participating in any of the foregoing prohibited matters.

(b) Purdue also agrees, during the Standstill Period, not to request Transcept (or its directors, officers, employees or agents), directly or indirectly, to amend or waive any provision of this Section 14.6 (including this sentence). For purposes hereof, “ Standstill

Period ” shall mean the period commencing on the Effective Date and terminating on the [***] of Product Launch.

(c) Notwithstanding the foregoing, Purdue shall not be prohibited from taking the actions described in Sections 14.6(a)(i)(A) or (B): (i) as described in Section 14.6(d); (ii) as an offer for or acquisition of Transcept’s securities or assets following the making of a publicly announced bona fide offer by an unrelated Third Party not acting in conjunction with Purdue or its Affiliates or representatives for the acquisition (whether by merger, consolidation, purchase, or otherwise) of a majority of Transcept’s equity securities or substantially all of its assets or, alternatively, following the time Transcept first enters into a definitive merger or sale agreement with any such Third Party agreeing to any such Acquisition, unless the offer by such Third Party has been withdrawn or the merger or sale agreement has terminated, as the case may be, prior to such time as Purdue’s or its Affiliate’s offer has been publicly announced; (iii) to acquire any assets or securities of Transcept, as debtor, in a transaction subject to the approval of the United States Bankruptcy Court pursuant to proceedings under the United States Bankruptcy Code; or (iv) as otherwise expressly required or permitted by this Agreement.

(d) Notwithstanding anything to the contrary contained herein, the prohibitions set forth in this Section 14.6 shall not apply to (i) any investment in any securities of Transcept by or on behalf of any pension or employee benefit plan or trust, including (A) any direct or indirect interests in portfolio securities held by an investment company registered under the Investment Company Act of 1940, as amended, or (B) interests in securities comprising part of a mutual fund or broad based, publicly traded market basket or index of stocks approved for such a plan or trust in which such plan or trust invests; (ii) securities of Transcept held by a person acquired by Purdue on the date such person first entered into an agreement to be acquired by Purdue or acquired after such person was acquired by Purdue pursuant to an agreement requiring (but only to the extent requiring) such person to acquire such securities, which agreement was in effect on the date such person first entered into an agreement to be acquired by Purdue; (iii) any negotiation conducted between the Parties pursuant to Section 14.7 following and in response to Purdue’s receipt of a Transcept Acquisition Notice, or (iv) an offer to discuss an Acquisition of Transcept by Purdue or its Affiliates made privately and confidentially by a designated officer of Purdue to the board of directors of Transcept for its consideration; provided, however, that no offer to discuss an Acquisition shall be made by Purdue or its Affiliates pursuant to this subsection (iv) following Purdue’s receipt of a Transcept Blackout Notice. For purposes hereof, a “ Transcept Blackout Notice ” shall mean a certificate signed by Transcept’s chief executive officer stating that in the good faith judgment of Transcept’s board of directors it would be materially detrimental to Transcept and its stockholders to undertake Acquisition discussions with Purdue or its Affiliates, because such action would require premature disclosure of material information that Transcept has a bona fide business purpose for preserving as confidential or render Transcept unable to comply with requirements under the Securities Act of 1933, as amended, or the 1934 Act; provided, however, that (x) no Transcept Blackout Notice may have a duration longer than [***] and (y) Transcept may not invoke this right more than [***] in any [***] period.

14.7 [***] .

(a) [***].

(b) [***].

14.8 Records Retention . Each of Transcept and Purdue will maintain complete and accurate records pertaining to its activities under this Agreement, including records pertaining to Development or Commercialization of any Products and reports and information provided to any Governmental Authority or Regulatory Authority, in accordance with Applicable Law. Each of Transcept and Purdue will retain such records for a duration prescribed by Applicable Law, but not in any event for less than five (5) years after the Effective Date (or longer if a Party is notified, ordered or otherwise required to maintain such records for a longer period in connection with a legal proceeding or government investigation).

14.9 Governing Law. Resolution of all disputes arising out of or related to this Agreement or the validity, construction, interpretation, enforcement, breach, performance, application or termination of this Agreement and any remedies relating thereto, shall be governed by and construed under the substantive laws of the State of New York, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction.

14.10 No Solicitation . During the Term and for one year thereafter, neither Transcept nor any of its Affiliates will solicit or endeavor to entice away from Purdue or its Affiliates, hire, or offer employment to, any person or entity who is, or was within the one-year period immediately prior thereto, employed by Purdue or its Affiliates, or otherwise interfere with any

such person’s relationship with Purdue or its Affiliates; provided, however, that this restrictive covenant shall not prohibit Transcept or its Affiliates from making any general solicitation for employees or engaging in public advertising of employment opportunities (including through the use of employment agencies) not specifically directed to any of Purdue’s or its Affiliates’ respective directors, officers or employees. During the Term and for one year thereafter, neither Purdue nor any of its Affiliates will solicit or endeavor to entice away from Transcept or its Affiliates, hire, or offer employment to, any person or entity who is, or was within the one-year period immediately prior thereto, employed by Transcept or its Affiliates, or otherwise interfere with any such person’s relationship with Transcept or its Affiliates; provided, however, that this restrictive covenant shall not prohibit Purdue or its Affiliates from making any general solicitation for employees or engaging in public advertising of employment opportunities (including through the use of employment agencies) not specifically directed to any of Transcept’s or its Affiliates’ respective directors, officers or employees.

14.11 No Third Party Beneficiaries . This Agreement will be binding upon and inure solely to the benefit of the Parties and their successors and permitted assigns and no provision of this Agreement, express or implied, is intended to or will be deemed to confer upon Third Parties any right, benefit, remedy, claim, liability, reimbursement, claim of action or other right of any nature whatsoever under or by reason of this Agreement other than the Parties and, to the extent provided in Sections 10.1 and 10.2, the Indemnified Parties. Without limitation, this Agreement will not be construed so as to grant employees of either party in any country any rights against the other Party pursuant to the laws of such country.

14.12 Performance by Affiliates . Any obligation of Transcept under or pursuant to this Agreement may be satisfied, met or fulfilled, in whole or in part, at Transcept’s sole and exclusive option, either by Transcept directly or by any Affiliate of Transcept that Transcept causes to satisfy, meet or fulfill such obligation, in whole or in part. Any obligation of Purdue under or pursuant to this Agreement may be satisfied, met or fulfilled, in whole or in part, at Purdue’s sole and exclusive option, either by Purdue directly or by any U.S. Affiliate of Purdue that Purdue causes to satisfy, meet or fulfill such obligation, in whole or in part. With respect to any particular action, the use of the words “Transcept will” also means “Transcept will cause” the particular action to be performed, and the use of the words “Purdue will” also means “Purdue will cause” the particular action to be performed. Each of the Parties guarantees the performance of all actions, agreements and obligations to be performed by any Affiliates of such Party under the terms and conditions of this Agreement, and shall cause its Affiliates to comply with the provisions of this Agreement in connection with such performance. Any breach by a Party’s Affiliate of any of such Party’s obligations under this Agreement shall be deemed a breach by such Party, and the other Party may proceed directly against such Party without any obligation to first proceed against such Party’s Affiliate.

14.13 Further Assurances and Actions . Each Party, upon the request of the other Party, without further consideration, will do, execute, acknowledge, and deliver or cause to be done, executed, acknowledged or delivered all such further acts, deeds, documents, assignments, transfers, conveyances, powers of attorney, instruments and assurances as may be reasonably necessary to effect complete consummation of the transactions contemplated by this Agreement, and to do all such other acts, as may be necessary or appropriate in order to carry out the

purposes and intent of this Agreement. The Parties agree to execute and deliver such other documents, certificates, agreements and other writings and to take such other actions as may be reasonably necessary in order to consummate or implement expeditiously the transactions contemplated by this Agreement.

14.14 Compliance with Applicable Law. Each Party shall comply with all Applicable Laws in the course of performing its obligations or exercising its rights pursuant to this Agreement.

14.15 Severability . If any one or more of the provisions of this Agreement is held to be invalid or unenforceable by any court of competent jurisdiction from which no appeal can be or is taken, the provision shall be considered severed from this Agreement and shall not serve to invalidate any remaining provisions hereof. The Parties shall make a good faith effort to replace any invalid or unenforceable provision with a valid and enforceable one such that the objectives contemplated by the Parties when entering this Agreement may be realized.

14.16 No Waiver . Any delay in enforcing a Party’s rights under this Agreement or any waiver as to a particular default or other matter shall not constitute a waiver of such Party’s rights to the future enforcement of its rights under this Agreement, except with respect to an express written and signed waiver relating to a particular matter for a particular period of time.

14.17 Independent Contractors. Each Party shall act solely as an independent contractor, and nothing in this Agreement shall be construed to give either Party the power or authority to act for, bind, or commit the other Party in any way. Nothing herein shall be construed to create the relationship of partners, principal and agent, or joint-venture partners between the Parties.

14.18 Counterparts . This Agreement may be executed in one (1) or more counterparts, including by facsimile or other electronic transmission, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

Signature Page to Follow

CONFIDENTIAL

I N W ITNESS W HEREOF , the Parties have executed this Agreement in duplicate originals by their duly authorized officers as of the Effective Date.


T RANSCEPT P HARMACEUTICALS , I NC .		P URDUE P HARMACEUTICAL P RODUCTS L.P. BY P URDUE P HARMACEUTICAL P RODUCTS INC ., ITS GENERAL PARTNER

By:	/s/ Glenn A. Oclassen	By:	/s/ John H. Stewart

Name:	Glenn A. Oclassen	Name:	John H. Stewart

Title:	CEO and President	Title:	President and Chief Executive Officer

EXHIBITS

Exhibit A - Transcept Patents

Exhibit B - Form of Trademark Assignment

Exhibit C - Transcept Trademarks and Domain Names

Exhibit D - Sales Force Minimum Qualifications

Exhibit E - Press Release

SCHEDULES

Schedule [***] – [***]

Schedule [***] – [***]

Schedule 9.11 – Material Contracts of Transcept

E XHIBIT A

Transcept Patents


OMM File No.	Country	Title	Application No. Patent No.	Filing Date Issue Date	Status

[***]	[***]	[***]	[***]	[***]	[***]

[***]	[***]	[***]	[***]	[***]	[***]

[***]	[***]	[***]	[***]	[***]	[***]

[***]	[***]	[***]	[***]	[***]	[***]

[***]	[***]	[***]	[***]	[***]	[***]

[***]	[***]	[***]	[***]	[***]	[***]

[***]	[***]	[***] ¹	[***]	[***]	[***]

[***]	[***]	[***]	[***]	[***]	[***]

[***]	[***]	[***]	[***]	[***]	[***]

[***]	[***]	[***]	[***]	[***]	[***]

[***]	[***]	[***]	[***]	[***]	[***]

[***]	[***]	[***]	[***]	[***]	[***]

1 [***]


OMM File No.	Country	Title	Application No. Patent No.	Filing Date Issue Date	Status
[***]	[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***] ¹	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]	[***]


OMM File No.	Country	Title	Application No. Patent No.	Filing Date Issue Date	Status
[***]	[***]	[***] ¹	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]	[***]

Note: [***].

[***]: means:

(a)

[***];

(b)

[***];

(c)

[***];

(d)

[***],

(e)

[***]

(f)

[***].

E XHIBIT B

Form of Trademark Assignment

T RANSCEPT P HARMACEUTICALS , I NC . , a Delaware corporation having its principal offices at 1003 W. Cutting Blvd, Suite #110, Pt. Richmond, California 94804 ( “Transcept” ), owning the entire ownership of each of the INTERMEZZO™ and INTERMID™ trademarks set forth on Schedule A hereto, hereby, for good and valuable consideration received by Transcept, (a) confirms that it has sold and assigned, and does hereby sell and assign, to P URDUE P HARMACEUTICAL P RODUCTS L.P. , a Delaware limited partnership having a place of business at One Stamford Forum, 201 Tresser Boulevard, Stamford, Connecticut 06901-3431 ( “Purdue” ), its successors and assigns the entire ownership interest in each of the INTERMEZZO™ and INTERMID™ trademarks set forth on Schedule A hereto and the goodwill attached thereto, to be held and enjoyed by Purdue, its successors, assigns or other legal representatives, to the full end of the term thereof, as may be extended by law as fully and entirely as the same would have been held and enjoyed by Transcept if this assignment and sale had not been made, including, but not limited to, the right to sue for past infringement, and (b) authorizes and requests the Commissioner of Patents and Trademarks and any other granting authority to issue any trademark, and any extensions or Supplementary Protections, resulting from or based in whole upon said INTERMEZZO™ and INTERMID™ trademarks to Purdue.


Transcept Pharmaceuticals, Inc.

By:
		Name:
		Title:

E XHIBIT C

Transcept Trademarks and Domain Names

Transcept Assigned Trademarks :


MARK	APPLICATION/ REGISTRATION NO.	GOODS/SERVICES
INTERMEZZO	Reg. No. 3,327,585	Pharmaceutical preparations for the prevention and treatment of insomnia and other sleep-related disorders, in Class 5
INTERMID	Reg. No. 3,327,586	Pharmaceutical preparations for the prevention and treatment of insomnia and other sleep-related disorders, in Class 5

Transcept Licensed Trademarks :

MARK

APPLICATION/

REGISTRATION

NO.

GOODS/SERVICES

BIMUCORAL

Reg. No. 3,310,008

Drug delivery agents consisting of compounds that facilitate delivery of a wide range of pharmaceuticals, in

Class 5

Transcept Assigned Domain Names :

[***]

E XHIBIT D

S ALES F ORCE M INIMUM Q UALIFICATIONS

[***]

E XHIBIT E

Press Release

Purdue Pharmaceutical Products L.P. and Transcept Pharmaceuticals, Inc. Sign

Exclusive Agreement to Commercialize Intermezzo ^® in the United States

Transcept Retains Option to Co-Promote to Psychiatrists

Intermezzo ^® under FDA review for use as needed for the treatment of insomnia when a middle-of-the-night awakening is followed by difficulty returning to sleep

Stamford, CT, and Pt. Richmond, CA, August 2, 2009 – Purdue Pharmaceutical Products L.P. and Transcept Pharmaceuticals, Inc. (Nasdaq: TSPT) today announced entry into an exclusive license and collaboration agreement to commercialize Intermezzo ^® (zolpidem tartrate sublingual tablet) in the United States. If approved by the U.S. Food and Drug Administration (FDA), Intermezzo ^® has the potential to be the first prescription sleep aid specifically approved for use in the middle of the night at the time a patient awakens and has difficulty returning to sleep. The FDA has established October 30, 2009 as the Prescription Drug User Fee Act (PDUFA) action date for the Intermezzo ^® New Drug Application (NDA).

In the agreement announced today, Transcept has granted Purdue and a Purdue associated company an exclusive license to market, sell and distribute Intermezzo ^® in the United States and the right to negotiate for the commercialization of the product in Canada and Mexico. Transcept has retained an option to co-promote Intermezzo ^® to psychiatrists in the United States and has retained rights to commercialize Intermezzo ^® in the rest of the world.

Under the terms of the agreement, Purdue will pay Transcept near-term milestones that include an upfront cash payment of $25 million and an additional payment of up to $30 million based upon the timing of an FDA approval of Intermezzo ^® , which approval and payment are subject to review and acceptance by Purdue. Transcept is eligible to receive up to an additional $90 million upon reaching future milestones related to achievement of intellectual property and U.S. net sales targets.

Purdue will pay double-digit royalties to Transcept ranging up to the mid-twenty percent level on U.S. net sales of Intermezzo ^® . If Transcept elects to exercise its psychiatrist co-promotion option, Transcept will receive an additional double-digit royalty on the portion of U.S. net sales generated by psychiatrists. Under the agreement, Transcept can enter the market under the co-promotion option as early as the first anniversary of the commercial launch of Intermezzo ^® by Purdue.

Glenn A. Oclassen, President and Chief Executive Officer of Transcept, said, “This agreement is a transforming event for Transcept. Purdue has an established and growing primary care marketing and sales capability that we believe is ideally positioned to introduce Intermezzo ^® to physicians. Purdue has a demonstrated track-record in the key disciplines

needed to drive the awareness and acceptance of Intermezzo ^® , including successful experience marketing to national distributors, managed care organizations and primary care physicians. We believe that Intermezzo ^® has the potential to occupy an important position in the substantial worldwide market for prescription sleep aids, and that our U.S. partnership with Purdue is a key step toward the commercial success of Intermezzo ^® .”

Mr. Oclassen continued, “This agreement further increases our substantial cash reserves and aligns us with a powerful partner that will make a significant U.S. primary care sales and marketing investment. Our agreement with Purdue establishes the potential for a substantial Transcept revenue stream, and now enables us to focus increasing attention on prospective Intermezzo ^® commercialization partners in other parts of the world. The increased resources Transcept receives from this collaboration will also support our continued product pipeline expansion efforts. Finally, our option to co-promote Intermezzo ^® in the United States provides a foundation for achieving our long-term goal of becoming a fully integrated specialty pharmaceutical company and creating even greater value for our shareholders.”

Purdue’s President and Chief Executive Officer, John H. Stewart commented, “We are excited to be working with Transcept towards the launch of this potential new entry into the prescription sleep aid market. This agreement is part of Purdue’s plan to diversify our product portfolio and broaden our commercial focus into therapeutic areas that complement our leadership position in pain management.” Mr. Stewart added, “We are confident that prescribers will find Intermezzo ^® to be a valuable therapeutic option for managing patients with middle-of-the-night sleep disorders that fall within the proposed indication for the product’s use.”

About Intermezzo ^®

Intermezzo ^® (zolpidem tartrate sublingual tablet) has the potential to be the first prescription sleep aid specifically approved for use in the middle of the night at the time a patient awakens and has difficulty returning to sleep. Intermezzo ^® is a sublingual low dose formulation of zolpidem, the active agent most commonly prescribed in the United States for the treatment of insomnia. Intermezzo ^® uses approximately one-quarter to one-third of the dose of active drug contained in currently marketed zolpidem-based sleep aids, in a formulation designed to promote rapid sublingual absorption. Transcept believes that Intermezzo ^® , by combining the reduced zolpidem dose with administration only on those nights when a middle of the night awakening actually occurs, has the potential to reduce unnecessary sedative-hypnotic exposure.

Two Phase 3 clinical studies evaluated 376 patients receiving either Intermezzo ^® or placebo. In the first study, a sleep laboratory trial using an objective polysomnographic endpoint, Intermezzo ^® demonstrated a statistically significant decrease versus placebo in the time it took patients to return to sleep as measured by Latency to Persistent Sleep. In the second study, an outpatient trial, Intermezzo ^® demonstrated a statistically significant decrease in Latency to Sleep Onset, a subjective patient reported endpoint. The most common adverse event seen in these trials was headache (2.7 percent active versus 1.4 percent placebo in the outpatient study).

The FDA has established October 30, 2009 as its target date under PDUFA to take action on its review of the NDA. Transcept is actively pursuing patents to protect Intermezzo ^® in the

United States and key non-U.S. markets, and, as part of the NDA submission, has requested that the FDA grant three years of Hatch-Waxman marketing exclusivity to Intermezzo ^® .

About Transcept

Transcept Pharmaceuticals, Inc. is a specialty pharmaceutical company focused on the development and commercialization of proprietary products that address important therapeutic needs in neuroscience. For further information, please visit the company’s website at: www.transcept.com .

About Purdue

Purdue Pharma L.P. and its associated U.S. companies are privately-held pharmaceutical companies known for pioneering research on persistent pain. Headquartered in Stamford, CT, Purdue is engaged in the research, development, production, and distribution of both prescription and over-the-counter medicines and hospital products. Additional information about Purdue can be found at www.purduepharma.com .

Transcept Conference Call

Transcept will host a conference call at 8:30 a.m. ET on Monday, August 3, 2009, to discuss the agreement. The conference call will be simultaneously web cast on the Investor Relations section of the Transcept website at www.transcept.com. A replay of the call will be available on the website shortly after the conclusion of the call until Monday, September 7, 2009.

Date: Monday, August 3, 2009

Time: 8:30 a.m. ET

Dial-in (U.S.): 877-545-1490

Dial-in (International): 719-325-4864

A telephone replay of the conference call will be available beginning August 3, 2009 at 11:30 a.m. ET and ending on August 17, 2009. The replay telephone number is 888-203-1112 (U.S.) or 719-457-0820 (International), Replay Passcode: 5541799.

Transcept Forward-Looking Statements

This press release contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this press release regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. Examples of such statements include, but are not limited to, statements relating to expectations with respect to the launch and market potential of Intermezzo ^® ; expectations with respect to the activities of Transcept and Purdue and the satisfaction of conditions under the United States License and Collaboration Agreement (Collaboration Agreement); expectations regarding potential milestone payments and royalties under the Collaboration Agreement; the timing of regulatory decisions with respect to the NDA for Intermezzo ^® with the FDA; expectations for use of proceeds that may be obtained pursuant to the Collaboration Agreement; plans of Transcept to exercise the option to co-promote Intermezzo ^® and to develop a specialty sales force; plans of Purdue to make a significant U.S. primary care marketing investment and prioritize Intermezzo ^® commercialization; Intermezzo ^® being the

first commercially available sleep aid in the United States in its target indication; the potential reduction of hypnotic sleep aid dosing through use of Intermezzo ^® ; and the ability of Transcept to achieve its goal of becoming a fully integrated specialty pharmaceutical

company. Transcept may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on these forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Various important factors could cause actual results or events to differ materially from the forward-looking statements that Transcept makes, including risks related to: the opinion of the FDA on the sufficiency of the NDA to support marketing approval of Intermezzo ^® ; the grant by the FDA and maintenance of exclusivity to Intermezzo ^® under Hatch-Waxman; a decision by Purdue to terminate the Collaboration Agreement, even if the Intermezzo ^® NDA is approved; commercial acceptance of Intermezzo ^® , if approved; competition for Intermezzo ^® , if approved; unforeseen expenses related to FDA approval and the business of Transcept generally; dependence on third parties to manufacture Intermezzo ^® ; a decision by Purdue to not devote sufficient time or resources to commercialization of Intermezzo ^® ; obtaining, maintaining and protecting the intellectual property incorporated into Intermezzo ^® ; other difficulties or delays in the commercialization of Intermezzo ^® , carrying out activities or obtaining payments under the Collaboration Agreement and clinical development of, and obtaining regulatory approval for, Transcept product candidates; the ability of Transcept to expand it product candidate portfolio; and the ability of Transcept to obtain additional funding, if needed, to support its business activities. These and other risks are described in greater detail in the “Risk Factors” section of Transcept periodic reports filed with the SEC. Forward-looking statements do not reflect the potential impact of any future in-licensing, collaborations, acquisitions, mergers, dispositions, joint ventures, or investments Transcept may enter into or make. Transcept does not assume any obligation to update any forward-looking statements, except as required by law.


Contacts:

Purdue Pharma L.P.		Transcept Pharmaceuticals, Inc.
James Heins		Greg Mann
Senior Director, Public Affairs		Director of Corporate Communications
(203) 588-8069		(510) 215-3567
james.heins@pharma.com		gmann@transcept.com

Libby Holman		The Ruth Group
Associate Director, Public Affairs		Investors / Media
(203) 588-7670		Sara Ephraim Pellegrino / Jason Rando
libby.holman@pharma.com		(646) 536-7017 / 7025
		spellegrino@theruthgroup.com
		jrando@theruthgroup.com

S CHEDULE [***]

[***]

[***].

S CHEDULE [***]

[***]

[***]

10.

[***]

11.

[***]

12.

[***]

13.

[***]

14.

[***]

15.

[***]

16.

[***]

17.

[***]

18.

[***]

19.

[***]

20.

[***]

21.

[***]

22.

[***]

23.

[***]

24.

[***]

25.

[***]

26.

[***]

27.

[***]

28.

[***]

29.

[***]

30.

[***]

31.

[***]

[***].

Table 1: [***]

[***]

Table 1: [***] (Continued)

[***]

Table 2: [***]


[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]

Table 3: [***]


[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]


[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]

[***].

Table 4: [***]

[***]

S CHEDULE 9.11

Material Contracts

1.	Supply Agreement, by and between Transcept and Plantex USA, Inc., dated as of March 31, 2006.

2.	Letter Agreement, by and between Transcept and Plantex USA, Inc., dated as of August 6, 2008.

3.	Packaging and Supply Agreement, by and between Transcept and Anderson Packaging, Inc., dated as of September 14, 2006.

4.	Amendment to Packaging and Supply Agreement, by and between Transcept and Anderson Packaging, Inc., dated as of August 9, 2008.

[***].

8.	Manufacturing Services Agreement, among Transcept, Patheon Inc. and Patheon Pharmaceuticals Inc., dated as of October 6, 2006.

9.	Amendment #1 to Manufacturing Services Agreement, among Transcept, Patheon Inc. and Patheon Pharmaceuticals Inc., dated as of January 1, 2008.

10.

[***].

11.

[***].

12.

[***].

13.

[***]

14.	Supply and Sublicense Agreement, by and between Transcept and Mikart, Inc., dated as of January 22, 2008.

15.	Manufacturing and Supply Agreement, by and between Transcept and Mikart, Inc., dated as of August 21, 2008.

16.

[***].

17.

[***].

18.	Packaging and Supply Agreement, by and between Transcept and Sharp Corporation, dated as of June 16, 2008.

19.

[***].

20.

[***].

21.	Supply and License Agreement, by and between Transcept and SPI Pharma, Inc., dated as of June 27, 2006.

22.	Amendment #1 to Supply and License Agreement, by and between Transcept and SPI Pharma, Inc., dated as of March 14, 2008.

23.	Supply Agreement, by and between Transcept and SPI Pharma, Inc., dated as of July 23, 2007.

24.

[***].

25.

[***].

26.

[***].

Exhibit 10.2

EXECUTION COPY

Purdue Pharmaceutical Products L.P.

One Stamford Forum

Stamford, CT 06901

July 31, 2009

Glenn A. Oclassen, President

Transcept Pharmaceuticals, Inc.

1003 W. Cutting Blvd., Suite #110

Point Richmond, CA 94804

Dear Mr. Oclassen:

This letter agreement sets out the understanding of the undersigned concerning a proposed license agreement between Purdue Pharmaceutical Products L.P. or one of its affiliates (“ Purdue ”) and Transcept Pharmaceuticals, Inc. (“ Transcept ”), under which Purdue would receive an exclusive license to seek regulatory approval of and commercialize Intermezzo® in the territory of Mexico (the “ Proposed Transaction ”). Transcept has agreed to grant Purdue (i) the exclusive right to review, study and determine, in Purdue’s sole discretion, the feasibility of developing and commercializing Intermezzo® in Mexico, and (ii) the exclusive option to negotiate the Proposed Transaction with Transcept ((i) and (ii) collectively, the “ Option ”), subject to the terms and conditions set forth below.

1) Purdue will pursue the Proposed Transaction if, in its sole judgment, Purdue determines that (i) [***] and (ii) [***]. If Purdue decides to pursue the Proposed Transaction and notifies Transcept of its decision in writing before the expiration of the Option Period (as defined below), then Purdue and Transcept will negotiate in good faith to agree upon a non-binding term sheet for the Proposed Transaction (the “ Term Sheet ”). Upon agreement of the Term Sheet, each party will request its counsel to begin working in good faith with the other party’s counsel as soon as reasonably practicable on the definitive transaction agreement and related documents containing the terms set forth in the Term Sheet and such other provisions as are customary in transactions of this nature. If Purdue decides not to pursue the Proposed Transaction before the expiration of the Option Period, it shall confirm and notify Transcept of its decision in writing. Upon Transcept’s receipt of Purdue’s written notification indicating that Purdue has decided not to pursue the Proposed Transaction, the Option shall automatically terminate and Transcept shall be permitted to negotiate a license agreement for Intermezzo® as it relates to the territory of Mexico with another party. Upon the expiration or termination of the Option pursuant to the terms of this letter agreement without the parties entering into a definitive transaction agreement in respect of the Proposed Transaction, a copy of the notice attached hereto as Exhibit A that has been duly executed by Purdue shall be delivered to Transcept.

2) The initial period of the Option shall be the [***] period beginning on the date of this letter agreement (the “ Initial Option Period ”, and together with any Renewal Period as

defined below, the “ Option Period ”). The Option will renew for [***] periods following the Initial Option Period (each, a “ Renewal Period ”) if Purdue pays the Option Fee (as defined below) prior to the expiry of the then-current Option Period. Purdue shall be obligated to pay a fee of [***] to Transcept at the commencement of the Initial Option Period and prior to the commencement of each Renewal Period, if any (the “ Option Fee(s) ”). Notwithstanding the foregoing, prior to the date that Purdue gives Transcept notice of its acceptance of the United States New Drug Application for Intermezzo® following such New Drug Application’s final approval by the United States Food and Drug Administration (the “ NDA Acceptance Date ”), the Option will automatically renew for successive Renewal Periods on the [***] of the date of this letter agreement, unless the Option is terminated by Purdue as set forth in paragraph 1, and no Option Fees shall be payable by Purdue but instead shall accrue upon the commencement of each Option Period. All accrued Option Fees shall be paid to Transcept within [***] after the NDA Acceptance Date. Transcept shall be required to negotiate the Proposed Transaction, if so requested by Purdue, at any time during the Option Period, so long as Purdue has paid to Transcept the Option Fee(s) required to be paid to Transcept as of such time. For the avoidance of doubt, (i) if, (A) following the NDA Acceptance Date, Purdue fails to pay the accrued Option Fee(s) required to be paid to Transcept by the deadline set forth above and Purdue does not make such payment within [***] of Purdue receiving written notice from Transcept that Purdue has failed to pay such Option Fee(s) by the deadline set forth above, or (B) after the NDA Acceptance Date, Purdue elects not to pay any subsequent yearly renewal Option Fee within [***] of Purdue receiving written notice from Transcept that Purdue has failed to pay such Option Fee, then the restrictions described in paragraph 5 below shall no longer apply and Transcept shall be free to negotiate with third parties regarding the Proposed Transaction and to enter into a definitive agreement with one or more third parties with respect to the Proposed Transaction, (ii) no Option Fee(s) will be paid to Transcept prior to the NDA Acceptance Date, and (iii) if the NDA Acceptance Date does not occur or the Option expires pursuant to paragraph 3 below prior to the NDA Acceptance Date, then Purdue will not owe Transcept any accrued Option Fee(s).

3) If, at any time after the date hereof, the United States License and Collaboration Agreement, dated as of July 31, 2009, by and between Transcept and Purdue expires or terminates, then the Option shall be terminable upon thirty (30) days’ prior written notice from Transcept to Purdue.

4) On the date the approved NDA No. 22-328 for Intermezzo® is transferred to Purdue (the “ NDA Transfer Date ”), Transcept shall assign or cause its affiliates to assign to Purdue or Purdue’s designee, the mark “INTERMEZZO™”, together with any registrations or applications for registration therefor, in Mexico, and all other marks confusingly similar thereto, all variations of such marks, all members of any families of any of the foregoing marks, all designs and styles used by Transcept in the depiction of the foregoing marks and any copyrights therein, and all goodwill appurtenant to any of the foregoing, that are owned or controlled by Transcept as of the NDA Transfer Date, in all respects free and clear of any and all liens, hypothecations, mortgages, charges, security interests, pledges and other encumbrances and claims of any nature. In connection with the foregoing, on the date the assignment of said trademark(s) occurs, Transcept shall take all reasonable actions and execute all documentation necessary to effect such assignment, including an Assignment of Trademark, substantially in the form of assignment attached hereto as Exhibit B and suitable for recordation with the Instituto Mexicano de la

Propiedad Industrial (Mexican Patent and Trademark Office) and/or any other applicable governmental or regulatory authority in Mexico and thereafter shall take all reasonable actions requested by Purdue to perfect Purdue’s rights in the assigned trademark(s) throughout Mexico at the expense of Purdue, including the execution and delivery of any additional documents of assignment.

5) In order to provide a reasonable period for Purdue to evaluate and for the parties to reach a definitive agreement in respect of the Proposed Transaction, the parties agree that during the Option Period, unless Purdue shall have notified Transcept in writing that it has decided not to pursue the Proposed Transaction, neither Transcept nor any of its affiliates, or any of its or their respective directors, officers, employees, financial advisors or counsel, agents or representatives or any other party retained or engaged by Transcept or any affiliate of Transcept to assist in the analysis, the arranging, brokering, financing, negotiation or consummation of the Proposed Transaction at any time will (either directly or through any intermediary) solicit, entertain offers or bids from, respond to, negotiate with or consider any offer, bid or proposal of any other person for a transaction that would conflict with or impede the Proposed Transaction in any respect, or provide any non-public information to any third party in connection with such an offer, bid or proposal. Nothing herein shall preclude Transcept from responding to inquiries from prospective licensees regarding the Proposed Transaction by informing such prospective licensees that Transcept is contractually prohibited from negotiating or granting licenses to Intermezzo® in Mexico.

6) Except as otherwise agreed between the parties, during the period from the date hereof until the earlier of (i) the expiration or termination of the Option Period and (ii) the date on which Purdue provides Transcept with written notice that negotiations towards a definitive agreement are terminated, Transcept will (a) reasonably cooperate with Purdue to provide access to Purdue of Transcept’s books and records, and all other relevant documents and data, in each case, to the extent related to the Proposed Transaction, (b) prepare, file, prosecute and maintain all of its patents related to the Intermezzo® product in Mexico, and (c) keep Purdue informed, in a timely manner, of material communications, notifications or other information which it receives or provides (directly or indirectly) with respect to the Intermezzo® product or related patents and intellectual property with any regulatory authority in Mexico, including, without limitation, the Instituto Mexicano de la Propiedad Industrial (Mexican Patent and Trademark Office) and Federal Commission for Sanitary Risk Protection (COFEPRIS). Notwithstanding the foregoing subsections (b) and (c) above, Transcept agrees that it shall not, during the Option Period, develop Intermezzo® for Mexico or contact any regulatory authority in Mexico regarding Intermezzo® without obtaining Purdue’s prior written consent.

7) Except as and to the extent required by law, without the prior written consent of the other party, neither Purdue nor Transcept will, and each will direct and cause its officers, directors, employees, attorneys, accountants and other agents and representatives not to, directly or indirectly, make any public comment, statement or communication with respect to, or otherwise publicly disclose or permit the public disclosure of this letter agreement or any of the terms, conditions or other aspects of the Proposed Transaction between the parties. If a party is required by law to make any such disclosure, it shall first provide to the other party the content of the proposed disclosure, the reasons such disclosure is required by law and the time and place the disclosure will be made and the opportunity to consult with respect thereto. Disclosure shall be

made only of that part of information that counsel advises that the party is legally required to disclose. All disclosures are subject to the terms of the Confidentiality Agreement (as defined in paragraph 10).

8) Transcept represents and warrants that Transcept has not and will not incur any liability in connection with the Proposed Transaction to any third party with whom Transcept has had discussions regarding any other transaction or the Proposed Transaction, and Transcept shall indemnify and hold harmless Purdue and its affiliates and any of their respective successors and assigns from any and all such claims.

9) Each party will be responsible for and bear all of its own fees and expenses (including any broker’s or finder’s fees and the fees and expenses of its attorneys and other advisors) incurred at any time in connection with pursuing or consummating the Proposed Transaction.

10) Except for the Confidentiality Agreement, dated July 31, 2009, by and between Transcept and Mundipharma International Corporation Limited, an affiliate of Purdue (the “ Confidentiality Agreement ”), the provisions of this letter agreement constitute the entire agreement between the parties and supersede all prior oral or written agreements, understandings, representations and warranties and courses of conduct or dealings between the parties on the subject matter set forth herein. The provisions of this letter agreement may only be amended or modified by a writing executed by each of the parties. This letter agreement will be governed by and construed under the laws of the State of New York, without regard to conflict of laws principles. This letter agreement may be executed in one or more counterparts, each of which will be deemed to be an original and all of which, taken together, will constitute one and the same agreement. This letter agreement will be binding on each party’s successors or assigns. Any successor of a party or assignee of a party’s rights and/or obligations hereunder will expressly assume performance of such rights and/or obligations.

11) Neither party will be obligated to proceed with the Proposed Transaction unless and until it is approved by both parties’ respective boards of directors and a definitive transaction agreement is signed, it being the express intent of the parties hereto that neither party shall be bound in the absence of such board approvals and such definitive agreement. Neither party will have any obligation of any sort under this letter agreement or in connection with the Proposed Transaction except (i) as may be agreed in writing by the parties hereafter in a definitive transaction agreement and (ii) as provided explicitly in this letter agreement (the “ Binding Obligations ”). In all other respects, this letter will not bind any party to enter into the Proposed Transaction. Except as may be expressly provided in the Binding Obligations, no past or future action, course of conduct or failure to act relating to the Proposed Transaction, or relating to the negotiation of, or the failure to negotiate, the terms of the Proposed Transaction will give rise to any obligation or other liability on the part of the parties hereto. In the event the parties enter into a definitive agreement with respect to the Proposed Transaction, such agreement will supersede this letter agreement in all respects. In the event this letter agreement is terminated prior to entering into a definitive agreement relating to the Proposed Transaction, numbered paragraphs 7, 8, 9, 10 and 11 shall survive such termination.

[ remainder of this page intentionally left blank ]

If the foregoing correctly sets forth our entire understanding, please sign and return the enclosed copy of this letter agreement in the space provided below.


Very truly yours,

PURDUE PHARMACEUTICAL PRODUCTS L.P.

By:		Purdue Pharmaceutical Products Inc., its
general partner

By:		/s/ Edward B. Mahony
		Name: Edward B. Mahony
		Title: EVP and CFO


Accepted and Agreed to :

TRANSCEPT PHARMACEUTICALS, INC.

By:		/s/ Glenn A. Oclassen
		Name: Glenn A. Oclassen
		Title: President

EXHIBIT A

[ Letterhead of Purdue Pharmaceutical Products L.P. ]

[ ] , 20 [ ]

Transcept Pharmaceuticals, Inc.

1003 W. Cutting Blvd., Suite #110

Point Richmond, CA 94804

Dear [ ] :

The undersigned hereby agrees that the territory of Mexico is deemed to be a part of the “Transcept Territory” as that term is defined in the license and collaboration agreement in respect of Intermezzo® between Transcept and the undersigned. This agreement shall be effective solely upon, and as of the date of, delivery of this letter to Transcept.


Very truly yours,

Purdue Pharmaceutical Products L.P.

By:		Purdue Pharmaceutical Products Inc., its
general partner

By:
		Name:
		Title:

EXHIBIT B

FORM OF ASSIGNMENT

Transcept Pharmaceuticals, Inc., a Delaware corporation having its principal offices at 1003 W. Cutting Blvd., Suite # 110, Pt. Richmond, California 94804 (“ Transcept ”), owning the entire ownership of the INTERMEZZO™ trademarks set forth on Schedule A hereto, hereby, for good and valuable consideration received by Transcept, (a) confirms that it has sold and assigned, and does hereby sell and assign, to PURDUE PHARMACEUTICAL PRODUCTS L.P., a Delaware limited partnership having a place of business at One Stamford Forum, Stamford, Connecticut 06901 (“ Purdue ”), its successors and assigns, the entire ownership interest in the INTERMEZZO™ trademarks set forth on Schedule A hereto and the goodwill attached thereto, to be held and enjoyed by Purdue, its successors, assigns, or other legal representatives, to the full end of the term thereof, as may be extended by law as fully and entirely as the same would have been held and enjoyed by Transcept if this assignment and sale had not been made, including, but not limited to, the right to sue for past infringement, and (b) authorizes and requests the Instituto Mexicano de la Propiedad Industrial (Mexican Patent and Trademark Office) and any other granting authority to issue any trademark, and any extensions or Supplementary Protections, resulting from or based in whole upon said INTERMEZZO™ trademarks to Purdue.


TRANSCEPT PHARMACEUTICALS, INC.

By:
		Name:
		Title:

Exhibit 10.3

EXECUTION COPY

LP Clover Limited

Par La Ville Place

14 Par-La-Ville Road

P.O. Box HM 2332

Hamilton HM JX, Bermuda

July 31, 2009

Glenn A. Oclassen, President

Transcept Pharmaceuticals, Inc.

1003 W. Cutting Blvd., Suite #110

Point Richmond, CA 94804

Dear Mr. Oclassen:

This letter agreement sets out the understanding of the undersigned concerning a proposed license agreement between LP Clover Limited or one of its affiliates (“ Clover ”) and Transcept Pharmaceuticals, Inc. (“ Transcept ”), under which Clover would receive an exclusive license to seek regulatory approval of and commercialize Intermezzo® in the territory of Canada (the “ Proposed Transaction ”). Transcept has agreed to grant Clover (i) the exclusive right to review, study and determine, in Clover’s sole discretion, the feasibility of developing and commercializing Intermezzo® in Canada, and (ii) the exclusive option to negotiate the Proposed Transaction with Transcept ((i) and (ii) collectively, the “ Option ”), subject to the terms and conditions set forth below.

1) Clover will pursue the Proposed Transaction if, in its sole judgment, Clover determines that (i) [***] and (ii) [***]. If Clover decides to pursue the Proposed Transaction and notifies Transcept of its decision in writing before the expiration of the Option Period (as defined below), then Clover and Transcept will negotiate in good faith to agree upon a non-binding term sheet for the Proposed Transaction (the “ Term Sheet ”). Upon agreement of the Term Sheet, each party will request its counsel to begin working in good faith with the other party’s counsel as soon as reasonably practicable on the definitive transaction agreement and related documents containing the terms set forth in the Term Sheet and such other provisions as are customary in transactions of this nature. If Clover decides not to pursue the Proposed Transaction before the expiration of the Option Period, it shall confirm and notify Transcept of its decision in writing. Upon Transcept’s receipt of Clover’s written notification indicating that Clover has decided not to pursue the Proposed Transaction, the Option shall automatically terminate and Transcept shall be permitted to negotiate a license agreement for Intermezzo® as it relates to the territory of Canada with another party. Upon the expiration or termination of the Option pursuant to the terms of this letter agreement without the parties entering into a definitive transaction agreement in respect of the Proposed Transaction, a copy of the notice attached hereto as Exhibit A that has been duly executed by Clover’s affiliate shall be delivered to Transcept.

2) The initial period of the Option shall be the [***] period beginning on the date of this letter agreement (the “ Initial Option Period ”, and together with any Renewal Period as defined below, the “ Option Period ”). The Option will renew for [***] periods following the Initial Option Period (each, a “ Renewal Period ”) if Clover pays the Option Fee (as defined below) prior to the expiry of the then-current Option Period. Clover shall be obligated to pay a fee of [***] to Transcept at the commencement of the Initial Option Period and prior to the commencement of each Renewal Period, if any (the “ Option Fee(s) ”). Notwithstanding the foregoing, prior to the date that an affiliate of Clover gives Transcept notice of its acceptance of the United States New Drug Application for Intermezzo® following such New Drug Application’s final approval by the United States Food and Drug Administration (the “ NDA Acceptance Date ”), the Option will automatically renew for successive Renewal Periods on the [***] of the date of this letter agreement, unless the Option is terminated by Clover as set forth in paragraph 1, and no Option Fees shall be payable by Clover but instead shall accrue upon the commencement of each Option Period. All accrued Option Fees shall be paid to Transcept within [***] after the NDA Acceptance Date. Transcept shall be required to negotiate the Proposed Transaction, if so requested by Clover, at any time during the Option Period, so long as Clover has paid to Transcept the Option Fee(s) required to be paid to Transcept as of such time. For the avoidance of doubt, (i) if, (A) following the NDA Acceptance Date, Clover fails to pay the accrued Option Fee(s) required to be paid to Transcept by the deadline set forth above and Clover does not make such payment within [***] of Clover receiving written notice from Transcept that Clover has failed to pay such Option Fee(s) by the deadline set forth above, or (B) after the NDA Acceptance Date, Clover elects not to pay any subsequent yearly renewal Option Fee within [***] of Clover receiving written notice from Transcept that Clover has failed to pay such Option Fee, then the restrictions described in paragraph 5 below shall no longer apply and Transcept shall be free to negotiate with third parties regarding the Proposed Transaction and to enter into a definitive agreement with one or more third parties with respect to the Proposed Transaction, (ii) no Option Fee(s) will be paid to Transcept prior to the NDA Acceptance Date, and (iii) if the NDA Acceptance Date does not occur or the Option expires pursuant to paragraph 3 below prior to the NDA Acceptance Date, then Clover will not owe Transcept any accrued Option Fee(s).

3) If, at any time after the date hereof, any license and collaboration agreement in respect of Intermezzo® between Transcept and an affiliate of Clover in the United States expires or terminates, then the Option shall be terminable upon thirty (30) days’ prior written notice from Transcept to Clover.

4) On the date the approved NDA No. 22-328 for Intermezzo® is transferred to an affiliate of Clover (the “ NDA Transfer Date ”), Transcept shall assign or cause its affiliates to assign to Clover or Clover’s designee, the mark “INTERMEZZO™”, together with any registrations or applications for registration therefor, in Canada, and all other marks confusingly similar thereto, all variations of such marks, all members of any families of any of the foregoing marks, all designs and styles used by Transcept in the depiction of the foregoing marks and any copyrights therein, and all goodwill appurtenant to any of the foregoing, that are owned or controlled by Transcept as of the NDA Transfer Date, in all respects free and clear of any and all liens, hypothecations, mortgages, charges, security interests, pledges and other encumbrances and claims of any nature. In connection with the foregoing, on the date the assignment of said trademark(s) occurs, Transcept shall take all reasonable actions and execute all documentation

necessary to effect such assignment, including an Assignment of Trademark, substantially in the form of assignment attached hereto as Exhibit B and suitable for recordation with the Canadian Intellectual Property Office and/or any other applicable governmental or regulatory authority in Canada and thereafter shall take all reasonable actions requested by Clover to perfect Clover’s rights in the assigned trademark(s) throughout Canada at the expense of Clover, including the execution and delivery of any additional documents of assignment.

5) In order to provide a reasonable period for Clover to evaluate and for the parties to reach a definitive agreement in respect of the Proposed Transaction, the parties agree that during the Option Period, unless Clover shall have notified Transcept in writing that it has decided not to pursue the Proposed Transaction, neither Transcept nor any of its affiliates, or any of its or their respective directors, officers, employees, financial advisors or counsel, agents or representatives or any other party retained or engaged by Transcept or any affiliate of Transcept to assist in the analysis, the arranging, brokering, financing, negotiation or consummation of the Proposed Transaction at any time will (either directly or through any intermediary) solicit, entertain offers or bids from, respond to, negotiate with or consider any offer, bid or proposal of any other person for a transaction that would conflict with or impede the Proposed Transaction in any respect, or provide any non-public information to any third party in connection with such an offer, bid or proposal. Nothing herein shall preclude Transcept from responding to inquiries from prospective licensees regarding the Proposed Transaction by informing such prospective licensees that Transcept is contractually prohibited from negotiating or granting licenses to Intermezzo® in Canada.

6) Except as otherwise agreed between the parties, during the period from the date hereof until the earlier of (i) the expiration or termination of the Option Period and (ii) the date on which Clover provides Transcept with written notice that negotiations towards a definitive agreement are terminated, Transcept will (a) reasonably cooperate with Clover to provide access to Clover of Transcept’s books and records, and all other relevant documents and data, in each case, to the extent related to the Proposed Transaction, (b) prepare, file, prosecute and maintain all of its patents related to the Intermezzo® product in Canada, and (c) keep Clover informed, in a timely manner, of material communications, notifications or other information which it receives or provides (directly or indirectly) with respect to the Intermezzo® product or related patents and intellectual property with any regulatory authority in Canada, including, without limitation, the Canadian Intellectual Property Office, Health Canada and the Patent Medicines Price Review Board. Notwithstanding the foregoing subsections (b) and (c) above, Transcept agrees that it shall not, during the Option Period, develop Intermezzo® for Canada or contact any regulatory authority in Canada regarding Intermezzo® without obtaining Clover’s prior written consent; provided , however , Transcept shall be permitted to undertake and perform development work in Canada solely in connection with Transcept seeking regulatory approval for Intermezzo® anywhere in the world other than in Canada (subject to any restrictions imposed by other written agreements between Transcept and Clover or its affiliates).

7) Except as and to the extent required by law, without the prior written consent of the other party, neither Clover nor Transcept will, and each will direct and cause its officers, directors, employees, attorneys, accountants and other agents and representatives not to, directly or indirectly, make any public comment, statement or communication with respect to, or otherwise publicly disclose or permit the public disclosure of this letter agreement or any of the terms,

conditions or other aspects of the Proposed Transaction between the parties. If a party is required by law to make any such disclosure, it shall first provide to the other party the content of the proposed disclosure, the reasons such disclosure is required by law and the time and place the disclosure will be made and the opportunity to consult with respect thereto. Disclosure shall be made only of that part of information that counsel advises that the party is legally required to disclose. All disclosures are subject to the terms of the Confidentiality Agreement (as defined in paragraph 10).

8) Transcept represents and warrants that Transcept has not and will not incur any liability in connection with the Proposed Transaction to any third party with whom Transcept has had discussions regarding any other transaction or the Proposed Transaction, and Transcept shall indemnify and hold harmless Clover and its affiliates and any of their respective successors and assigns from any and all such claims.

10) Except for the Confidentiality Agreement, dated July 31, 2009, by and between Transcept and Mundipharma International Corporation Limited, an affiliate of Clover (the “ Confidentiality Agreement ”), the provisions of this letter agreement constitute the entire agreement between the parties and supersede all prior oral or written agreements, understandings, representations and warranties and courses of conduct or dealings between the parties on the subject matter set forth herein. The provisions of this letter agreement may only be amended or modified by a writing executed by each of the parties. This letter agreement will be governed by and construed under the laws of the State of New York, without regard to conflict of laws principles. This letter agreement may be executed in one or more counterparts, each of which will be deemed to be an original and all of which, taken together, will constitute one and the same agreement. This letter agreement will be binding on each party’s successors or assigns. Any successor of a party or assignee of a party’s rights and/or obligations hereunder will expressly assume performance of such rights and/or obligations.

prior to entering into a definitive agreement relating to the Proposed Transaction, numbered paragraphs 7, 8, 9, 10 and 11 shall survive such termination.

[ remainder of this page intentionally left blank ]

If the foregoing correctly sets forth our entire understanding, please sign and return the enclosed copy of this letter agreement in the space provided below.


Very truly yours,

LP CLOVER LIMITED

By:		/s/ Douglas Docherty
		Name: Douglas Docherty
		Title: General Manager


Accepted and Agreed to :

TRANSCEPT PHARMACEUTICALS, INC.

By:		/s/ Glenn A. Oclassen
		Name: Glenn A. Oclassen
		Title: President

EXHIBIT A

[ Letterhead of affiliate of LP Clover Limited ]

[ ] , 20 [ ]

Transcept Pharmaceuticals, Inc.

1003 W. Cutting Blvd., Suite #110

Point Richmond, CA 94804

Dear [ ] :

The undersigned hereby agrees that the territory of Canada is deemed to be a part of the “Transcept Territory” as that term is defined in the license and collaboration agreement in respect of Intermezzo® between Transcept and the undersigned. This agreement shall be effective solely upon, and as of the date of, delivery of this letter to Transcept.


Very truly yours,

[ Affiliate of LP Clover Limited ]

By:
		Name:
		Title:

EXHIBIT B

FORM OF ASSIGNMENT

Transcept Pharmaceuticals, Inc., a Delaware corporation having its principal offices at 1003 W. Cutting Blvd., Suite # 110, Pt. Richmond, California 94804 (“ Transcept ”), owning the entire ownership of the INTERMEZZO™ trademarks set forth on Schedule A hereto, hereby, for good and valuable consideration received by Transcept, (a) confirms that it has sold and assigned, and does hereby sell and assign, to LP CLOVER LIMITED, a Bermuda corporation having a place of business at 14 Par La Ville Place, 14 Par-La-Ville Road, P.O. Box HM 2332, Hamilton HM JX, Bermuda (“ Clover ”), its successors and assigns, the entire ownership interest in the INTERMEZZO™ trademarks set forth on Schedule A hereto and the goodwill attached thereto, to be held and enjoyed by Clover, its successors, assigns, or other legal representatives, to the full end of the term thereof, as may be extended by law as fully and entirely as the same would have been held and enjoyed by Transcept if this assignment and sale had not been made, including, but not limited to, the right to sue for past infringement, and (b) authorizes and requests the Canadian Intellectual Property Office and any other granting authority to issue any trademark, and any extensions or Supplementary Protections, resulting from or based in whole upon said INTERMEZZO™ trademarks to Clover.


TRANSCEPT PHARMACEUTICALS, INC.

By:
		Name:
		Title:

Exhibit 10.4

AMENDMENT #2 TO

PATHEON MANUFACTURING SERVICES AGREEMENT

This Amendment #2 (hereinafter referred to as this “ Amendment ”), dated as of the 29th day of July, 2009 (the “ Amendment Date ”), is made by and between Patheon Inc., a corporation existing under the laws of Canada (“ Patheon Canada ”), Patheon Pharmaceuticals Inc., a corporation existing under the laws of Delaware (hereinafter referred to as “ Patheon ”), and Pivot Acquisition, Inc., a Delaware corporation formerly known as Transcept Pharmaceuticals, Inc. (hereinafter referred to as “ Client ”) and a wholly-owned subsidiary of Transcept Pharmaceuticals, Inc. (a publicly-traded Delaware corporation hereinafter referred to as “ Transcept ”). Patheon Canada, Patheon and Client are sometimes referred to herein individually as a “ Party ” or collectively as the “ Parties ”.

WHEREAS, the Parties have entered into that certain Manufacturing Services Agreement dated October 6, 2006, as amended on January 1, 2008, pursuant to which Patheon agreed to supply quantities of Products to Client in the Territory (the “ MSA ”);

WHEREAS, Transcept has entered into that certain United States License and Collaboration Agreement dated as of the date hereof with Purdue Pharma L.P., a Delaware limited partnership having a place of business at One Stamford Forum, 201 Tresser Boulevard, Stamford, Connecticut 06901-3431 (hereinafter referred to as “ Purdue ” and such agreement the “ Collaboration Agreement ”), pursuant to which, among other matters, Transcept has granted Purdue exclusive rights with respect to the commercialization of Products solely in the United States;

WHEREAS, Patheon and Purdue desire to enter into an agreement setting forth the terms and conditions of Patheon’s manufacture and supply of a Product for Purdue solely with respect to the United States (the “ Purdue MSA ”);

WHEREAS, Patheon and Transcept desire to amend the MSA so that Purdue may enter into such agreement with Patheon solely with respect to the United States;

WHEREAS, Patheon and Transcept desire for Client to retain all rights under the MSA with respect to the Territory excluding the United States and its territories and possessions; and

WHEREAS, the rights granted by Transcept to Purdue under the Collaboration Agreement do not come into effect until such time as the approved NDA for a Product is transferred to Purdue pursuant to Section 4.2(c) of the Collaboration Agreement (hereinafter referred to as the “ NDA Transfer ”).

NOW, THEREFORE, the Parties agree as follows:

1. Capitalized Terms . All capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings given to them in the MSA.

2. Effective Date . This Amendment shall be effective as of the Effective Date. As used herein, “ Effective Date ” means the date of Patheon’s deemed receipt (in accordance with Section 13.9 of the MSA) of the written notice from Transcept to Patheon pursuant to which Transcept notifies Patheon that the NDA Transfer has occurred, such notice to be substantially in the form attached hereto as Exhibit A .

3. Territory . Effective as of the Effective Date, the defined term “Territory” in Section 1.1 of the MSA shall be deleted in its entirety and amended as follows:

“ Territory ” means worldwide, except for the United States and its territories and possessions.

Notwithstanding the foregoing, effective upon any termination of the Purdue MSA, any and all rights with respect to the United States and its territories and possessions shall revert to Client and the United States and its territories and possessions shall be included in the Territory under the MSA. Client and Transcept shall not be liable for any acts or omissions of Purdue under any such Purdue MSA or otherwise.

4. Miscellaneous .

(a) Entire Agreement . This Amendment constitutes the entire agreement among the Parties with respect to the amendment of the MSA, and supersedes all prior agreements and understandings, both written and oral, among the Parties with respect to the amendment and addition of the same.

(b) No Further Amendment; No Conflict . The MSA shall remain in full force and effect except solely to the extent modified by this Amendment. In the event of a conflict between the MSA and this Amendment, this Amendment shall control.

(c) Governing Law . This Amendment shall be construed and enforced in accordance with the laws of the State of New York and the laws of the United States applicable therein, without regard to any conflicts-of-law principle that directs the application to another jurisdiction’s law. The Parties expressly agree that the UN Convention on Contracts for the International Sale of Goods shall not apply to this Agreement.

(d) Counterparts . This Amendment may be executed in counterparts, each of which shall be deemed an original, and all of which together shall constitute one instrument.

IN WITNESS WHEREOF , this Amendment has been executed by the Parties hereto as of the Amendment Date.


Patheon Inc.		Pivot Acquisition, Inc.

By:	/s/ Robert L. Zinger	By:	/s/ Glenn A. Oclassen

Name:	Robert L. Zinger	Name:	Glenn A. Oclassen

Title:	Exec. Dir. Tech. Svcs. and Bus. Mgt. N.D.		CEO and President

Patheon Pharmaceuticals Inc.

By:	/s/ Francis P. McCone

Name:	Francis P. McCone

Title:	Secretary

Exhibit A

NOTICE OF EFFECTIVE DATE

, 2009

Patheon Inc.

4721 Emperor Blvd.

Suite 200

Durham, NC 27703

Attention: President, North America and Chief Commercial Officer

Patheon Pharmaceuticals Inc.

2110 East Galbraith Road

Cincinnati, Ohio 45237-1625

Attention: Director of Legal Services

Re:

Manufacturing Services Agreement between Patheon Inc., Patheon Pharmaceuticals Inc. and Pivot Acquisition, Inc., dated October 6, 2006, as amended on January 1, 2008 and July 29, 2009.

Pursuant to the terms and conditions of the Manufacturing Services Agreement between Patheon Inc. (“ Patheon Canada ”), Patheon Pharmaceuticals Inc. (“ Patheon ”) and Pivot Acquisition, Inc., dated October 6, 2006, as amended on January 1, 2008 and July 29, 2009 (the “ Agreement ”) this letter serves as written notice from Transcept Pharmaceuticals, Inc. to Patheon Canada and Patheon that the NDA Transfer (as defined in Amendment #2 of the Agreement) has occurred.

Regards,

Transcept Pharmaceuticals, Inc.

Name:

Title:

Exhibit 10.5

AMENDMENT #1

SUPPLY AGREEMENT

This Amendment #1 (hereinafter referred to as this “ Amendment ”), dated as of the 30th day of July, 2009 (the “ Amendment Date ”), is made by and between SPI Pharma, Inc., a Delaware corporation with its principal offices at Rockwood Office Park, 503 Carr Road, Wilmington, Delaware 19809 (hereinafter referred to as “ Supplier ”), and Pivot Acquisition, Inc., a Delaware corporation formerly known as Transcept Pharmaceuticals, Inc. (hereinafter referred to as “ Purchaser ”) and a wholly-owned subsidiary of Transcept Pharmaceuticals, Inc. (a publicly-traded Delaware corporation hereinafter referred to as “ Transcept ”) with its principal offices at 1003 W. Cutting Blvd., Suite 110, Pt. Richmond, California 94804. Purchaser and Supplier are sometimes referred to herein individually as a “ Party ” or collectively as the “ Parties ”.

WHEREAS, the Parties have entered into that certain Supply Agreement dated July 23, 2007 pursuant to which Supplier agreed to supply quantities of Product to Purchaser in the Territory (the “ Supply Agreement ”);

WHEREAS, Transcept has entered into that certain United States License and Collaboration Agreement dated as of the date hereof with Purdue Pharma L.P., a Delaware limited partnership having a place of business at One Stamford Forum, 201 Tresser Boulevard, Stamford, Connecticut 06901-3431 (hereinafter referred to as “ Purdue ” and such agreement the “ Collaboration Agreement ”), pursuant to which, among other matters, Transcept has agreed to cause Purchaser to grant Purdue exclusive rights with respect to the commercialization of Finished Product solely in the United States;

WHEREAS, Supplier and Purdue desire to enter into an agreement setting forth the terms and conditions of Supplier’s manufacture and supply of Product for Purdue solely with respect to the United States (the “ Purdue Supply Agreement ”);

WHEREAS, Supplier and Purchaser desire to amend the Supply Agreement so that Purdue may enter into such agreement with Supplier solely with respect to the United States;

WHEREAS, Supplier and Purchaser desire for Purchaser to retain all rights under the Supply Agreement with respect Territory excluding the United States; and

WHEREAS, the rights to be granted by Purchaser to Purdue under the Collaboration Agreement do not come into effect until such time as the approved NDA for the Finished Product is transferred to Purdue pursuant to Section 4.2(c) of the Collaboration Agreement (hereinafter referred to as the “ NDA Transfer ”).

NOW, THEREFORE, the Parties agree as follows:

1. Capitalized Terms . All capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings given to them in the Supply Agreement.

2. Effective Date . This Amendment shall be effective as of the Effective Date. As used herein, “ Effective Date ” means the date of Supplier’s deemed receipt (in accordance with Section 15.9 of the Supply Agreement) of the joint written notice from Transcept and Purdue to Supplier pursuant to which Transcept and Purdue notify Supplier that the NDA Transfer has occurred, such notice to be substantially in the form attached hereto as Exhibit A .

3. Territory . Effective as of the Effective Date, the defined term “Territory” in Article 1 of the Supply Agreement shall be deleted in its entirety and amended as follows:

“Territory” means worldwide excluding the United States and its territories and possessions.”

Notwithstanding the foregoing, effective upon any termination of the Purdue Supply Agreement, any and all rights with respect to the United States and its territories and possessions shall revert to Purchaser and the United States and its territories and possessions shall be included in the Territory under the Supply Agreement. Purchaser and Transcept shall not be liable for any acts or omissions of Purdue under any such Purdue Supply Agreement or otherwise.

4. Additional API. For so long as the Territory excludes the United States, Section 4.3 of the Supply Agreement shall be amended to read as follows :

“ Licenses . Supplier shall grant and hereby grants a perpetual, irrevocable, royalty-free, fully paid-up exclusive license, with the right to grant and authorize sublicenses, to Purchaser under Supplier’s right, title and interest in the Agreement IP for the sole purpose of and only to the extent reasonably necessary to use, sell, offer to sell, and/or distribute Finished Product in the Territory and in the United States and its territories and possessions. Purchaser shall grant and hereby grants a perpetual, irrevocable royalty-free, fully paid-up exclusive license, with the right to grant and authorize sublicenses, to Supplier under Purchaser’s right, title and interest in the Agreement IP to make, have made, use, sell, offer to sell, and distribute Buffered Soda Technology alone or in combination with an active pharmaceutical ingredient other than API in the Territory and in the United States and its territories and possessions.”

In addition, for the avoidance of doubt, Purchaser’s rights under Article 9 of the Supply Agreement shall be on a worldwide basis.

5. Representation of Purchaser . Purchaser hereby represents and warrants that the execution, delivery and performance by Purchaser of the Collaboration Agreement does not (i) violate or cause a default under Article 11 of the S& L Agreement or any other obligation of the Purchaser to provide confidential treatment to the Information of SPI, or (ii) materially violate or cause a material default under any of the other provisions of the S&L Agreement.

6. Miscellaneous .

(a) Entire Agreement . This Amendment constitutes the entire agreement among the Parties with respect to the amendment of the Agreement, and supersedes all prior agreements and understandings, both written and oral, among the Parties with respect to the amendment and addition of the same.

(b) No Further Amendment; No Conflict . The Supply Agreement shall remain in full force and effect except solely to the extent modified by this Amendment. In the event of a conflict between the Supply Agreement and this Amendment, this Amendment shall control.

(c) Governing Law . THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, without reference to Delaware’s choice of law rules.

(d) Counterparts . This Amendment may be executed in counterparts, each of which shall be deemed an original, and all of which together shall constitute one instrument.

IN WITNESS WHEREOF , this Amendment has been executed by the Parties hereto as of the Amendment Date.


SPI Pharma, Inc.		Pivot Acquisition, Inc.

By:	/s/ R. Sarath Chandar	By:	/s/ Glenn A. Oclassen

Name:	R. Sarath Chandar	Name:	Glenn A. Oclassen

Title:	Vice President	Title:	CEO and President

Exhibit A

NOTICE OF EFFECTIVE DATE

, 2009

SPI Pharma, Inc.

Rockwood Office Park

503 Carr Road

Wilmington, DE 19809

Attn: Joseph Rogus

Re:

Supply Agreement between SPI Pharma and Pivot Acquisition, Inc., dated July 27, 2007, as amended on July , 2009.

Dear Joseph:

Pursuant to the terms and conditions of the Supply Agreement between SPI Pharma (“ SPI ”) and Pivot Acquisition, Inc., dated July 27, 2007, as amended on July , 2009 (the “ Agreement ”), this letter serves as written notice from Transcept Pharmaceuticals, Inc. and Purdue Pharma L.P. to SPI that the NDA Transfer (as defined in Amendment #1 of the Agreement) has occurred.

Regards,

Transcept Pharmaceuticals, Inc.

Name:

Title:

Purdue Pharma L.P.

Name:

Title:

Exhibit 10.6

AMENDMENT #2

SUPPLY AND LICENSE AGREEMENT

This Amendment #2 (hereinafter referred to as this “ Amendment ”), dated as of the 30th day of July, 2009 (the “ Amendment Date ”), is made by and between SPI Pharma, Inc., a Delaware corporation with its principal offices at Rockwood Office Park, 503 Carr Road, Wilmington, Delaware 19809 (hereinafter referred to as “ Supplier ”), and Pivot Acquisition, Inc., a Delaware corporation formerly known as Transcept Pharmaceuticals, Inc. (hereinafter referred to as “ Purchaser ”) and a wholly-owned subsidiary of Transcept Pharmaceuticals, Inc. (a publicly-traded Delaware corporation hereinafter referred to as “ Transcept ”) with its principal offices at 1003 W. Cutting Blvd., Suite 110, Pt. Richmond, California 94804. Purchaser and Supplier are sometimes referred to herein individually as a “ Party ” or collectively as the “ Parties ”.

WHEREAS, the Parties have entered into that certain Supply and License Agreement dated June 27, 2006, as amended on March 14, 2008, pursuant to which Supplier agreed to supply quantities of Product to Purchaser in the Territory (the “ S&L Agreement ”);

WHEREAS, Transcept has entered into that certain United States License and Collaboration Agreement dated as of the date hereof with Purdue Pharma L.P., a Delaware limited partnership having a place of business at One Stamford Forum, 201 Tresser Boulevard, Stamford, Connecticut 06901-3431 (hereinafter referred to as “ Purdue ” and such agreement the “ Collaboration Agreement ”), pursuant to which, among other matters, Transcept has agreed to cause Purchaser to grant Purdue exclusive rights with respect to the commercialization of Finished Product solely in the United States;

WHEREAS, Supplier and Purchaser desire to amend the S&L Agreement so that Purdue may enter into such agreement with Supplier solely with respect to the United States;

WHEREAS, Supplier and Purchaser desire for Purchaser to retain all rights under the S&L Agreement with respect Territory [***]; and

NOW, THEREFORE, the Parties agree as follows:

1. Capitalized Terms . All capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings given to them in the S&L Agreement.

2. Effective Date . This Amendment shall be effective as of the Effective Date. As used herein, “ Effective Date ” means the date of Supplier’s deemed receipt (in accordance with Section 14.9 of the S&L Agreement) of joint written notice from Transcept and Purdue to Supplier pursuant to which Transcept and Purdue notify Supplier that the NDA Transfer has occurred, such notice to be substantially in the form attached hereto as Exhibit A .

3. Territory . Effective as of the Effective Date, the defined term “Territory” in Article 1 of the Supply Agreement shall be deleted in its entirety and amended as follows:

“Territory” means [***].”

Notwithstanding the foregoing, effective upon any termination of the Purdue S&L Agreement, any and all rights with respect to [***] shall revert to Purchaser and [***] shall be included in the Territory under the S&L Agreement. Purchaser and Transcept shall not be liable for any acts or omissions of Purdue under any such Purdue S&L Agreement or otherwise.

4. Retention of License Fee Credit . Effective as of the Effective Date, the Section 4.2.3 of the S&L Agreement shall be deleted in its entirety and amended as follows:

“Upon the commercial launch of a Finished Product, Supplier agrees to credit an amount of Thirty-Five Thousand Dollars $35,000 of the License Fee (the “ Credit Amount ”) towards Purchaser’s future purchases of Product in the form of a 10% discount on the amounts that would otherwise be due to Supplier on each such future purchase by Purchaser of Product until the Credit Amount has been fully credited against such purchases.”

6. Miscellaneous .

(b) No Further Amendment; No Conflict . The S&L Agreement shall remain in full force and effect except solely to the extent modified by this Amendment. In the event of a conflict between the S&L Agreement and this Amendment, this Amendment shall control.

(c) Governing Law . THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, without reference to Delaware’s choice of law rules.

(d) Counterparts . This Amendment may be executed in counterparts, each of which shall be deemed an original, and all of which together shall constitute one instrument.

IN WITNESS WHEREOF , this Amendment has been executed by the Parties hereto as of the Amendment Date.


SPI Pharma, Inc.		Pivot Acquisition, Inc.

By:	/s/ R. Sarath Chandar	By:	/s/ Glenn A. Oclassen

Name:	R. Sarath Chandar	Name:	Glenn A. Oclassen

Title:	Vice President	Title:	CEO and President

Exhibit A

NOTICE OF EFFECTIVE DATE

, 2009

SPI Pharma, Inc.

Rockwood Office Park

503 Carr Road

Wilmington, DE 19809

Attn: Joseph Rogus

Re:

Supply and License Agreement between SPI Pharma and Pivot Acquisition, Inc., dated June 27, 2006, as amended on March 14, 2008 and July , 2009.

Dear Joseph:

Pursuant to the terms and conditions of the Supply and License Agreement between SPI Pharma (“ SPI ”) and Pivot Acquisition, Inc., dated June 27, 2006, as amended on March 14, 2008 and July , 2009 (the “ Agreement ”), this letter serves as written notice from Transcept Pharmaceuticals, Inc. and Purdue Pharma L.P. to SPI that the NDA Transfer (as defined in Amendment #2 of the Agreement) has occurred.

Regards,



Transcept Pharmaceuticals, Inc.
Name:

Title:


Purdue Pharma L.P.
Name:

Title:

Exhibit 10.7

FIRST AMENDMENT

PLANTEX SUPPLY AGREEMENT

This First Amendment (hereinafter referred to as this “ Amendment ”), dated as of the 31 ^st day of July, 2009 (the “ Amendment Date ”), is made by and between Plantex USA, Inc., a corporation with its principal offices at 2 University Plaza, Suite 305, Hackensack, NJ 07601 (hereinafter referred to as “ Supplier ”), and Pivot Acquisition, Inc., a Delaware corporation formerly known as Transcept Pharmaceuticals, Inc. (hereinafter referred to as “ Purchaser ”) and a wholly-owned subsidiary of Transcept Pharmaceuticals, Inc. (a publicly-traded Delaware corporation hereinafter referred to as “ Transcept ”). Purchaser and Supplier are sometimes referred to herein individually as a “ Party ” or collectively as the “ Parties ”.

WHEREAS, the Parties have entered into that certain Supply Agreement dated March 31, 2006 pursuant to which Supplier agreed to supply quantities of Product to Purchaser in the Territory (the “ Supply Agreement ”);

WHEREAS, Supplier and Purchaser desire to amend the Supply Agreement so that Purdue may enter into such agreement with Supplier solely with respect to the United States;

WHEREAS, Supplier and Purchaser desire for Purchaser to retain all rights under the Supply Agreement with respect to the Territory [***]; and

WHEREAS, the rights granted by Transcept to Purdue under the Collaboration Agreement do not come into effect until such time as the approved NDA for the Finished Product is transferred to Purdue (hereinafter referred to as the “ NDA Transfer ”).

NOW, THEREFORE, the Parties agree as follows:

1. Capitalized Terms . All capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings given to them in the Supply Agreement.

2. Effective Date . This Amendment shall be effective as of the Effective Date. As used herein, “ Effective Date ” means the date of written notice from Transcept to Supplier pursuant to which Transcept expressly notifies Supplier that the NDA Transfer has occurred, which will not in

any event be more than two (2) business days following the date of such NDA Transfer. Such notice shall be substantially in the form attached hereto as Exhibit A .

3. Territory . Effective as of the Effective Date, the defined term “Territory” in Article 1 of the Supply Agreement shall be deleted in its entirety and amended as follows:

“ Territory ” — shall mean [***].

Notwithstanding the foregoing, effective upon any termination of the Purdue Supply Agreement, any and all rights with respect to [***] shall revert to Purchaser and [***] shall be included in the Territory under the Supply Agreement. Purchaser and Transcept shall not be liable for any acts or omissions of Purdue under the Purdue Supply Agreement.

4. Limited Waiver of Section 3.7 . Supplier hereby waives the requirements of Section 3.7 of the Supply Agreement solely with respect to any transfer or sale by the Purchaser to Purdue (or its affiliates) of any Product manufactured or ordered under the Supply Agreement prior to the date of this Amendment.

5. Termination of the Collaboration Agreement . Purchaser shall notify Supplier in writing of any termination of the Collaboration Agreement no later than five (5) days after such termination.

6. Miscellaneous .

(c) Governing Law . This Amendment will be governed and construed in accordance with the laws of the State of New York, except for its conflict of law provisions, and the 1980 U.N. Convention on Contracts for the International Sale of Goods shall not apply to this Amendment or the rights or obligations of the Parties herein. The Parties agree that the any dispute arising under or in connection with this Amendment shall be subject to the exclusive jurisdiction of the state courts and federal courts of the State of New York.

(d) Counterparts . This Amendment may be executed in counterparts, each of which shall be deemed an original, and all of which together shall constitute one instrument.

[Signature Page Follows]

IN WITNESS WHEREOF , this Amendment has been executed by the Parties hereto as of the Amendment Date.


Plantex USA, Inc.		Pivot Acquisition, Inc.

By:	/s/ John Denman	By:	/s/ Glenn A. Oclassen

Name:	John Denman	Name:	Glenn A. Oclassen

Title:	President	Title:	CEO and President

By:	/s/ Allen Lefkowitz

Name:	Allen Lefkowitz

Title:	Chief Financial Officer

Exhibit A

NOTICE OF NDA TRANSFER

, 2009

Plantex USA, Inc.

2 University Plaza, Suite 305

Hackensack, NJ 07601

Attention: President

Re:

Supply Agreement between Plantex USA, Inc. and Pivot Acquisition, Inc., dated March 31, 2006, as amended on July 31, 2009.

Pursuant to the terms and conditions of the Supply Agreement between Plantex USA, Inc. (“ Plantex ”) and Pivot Acquisition, Inc. dated March 31, 2006, as amended on July 31, 2009 (the “ Agreement ”), this letter serves as written notice from Transcept Pharmaceuticals, Inc. to Plantex that the NDA Transfer (as defined in the First Amendment of the Agreement) has occurred.

Regards,

Transcept Pharmaceuticals, Inc.

Name:

Title:

Exhibit 31.1

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Glenn A. Oclassen, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Transcept Pharmaceuticals, Inc.;

2. 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;

3. 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;

4. 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

5. 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: November 16, 2009

/s/ Glenn A. Oclassen

Glenn A. Oclassen

President and Chief Executive Officer

(Principal Executive Officer)

Exhibit 31.2

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Thomas P. Soloway, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Transcept Pharmaceuticals, Inc.;

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: November 16, 2009

/s/ Thomas P. Soloway

Thomas P. Soloway

Senior Vice President, Operations and
Chief Financial Officer

(Principal Financial Officer)

Exhibit 32.1

Certification of Chief Executive Officer and Chief Financial Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officers of Transcept Pharmaceuticals, Inc. (the “ Company ”) hereby certify, to such officers’ knowledge, that:

(i) the accompanying Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 (the “ Report ”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date: November 16, 2009		/s/ Glenn A. Oclassen
		Glenn A. Oclassen President and Chief Executive Officer

Date: November 16, 2009		/s/ Thomas P. Soloway
		Thomas P. Soloway Senior Vice President, Operations and Chief Financial Officer