10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark one)

ý Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the fiscal year ended: December 31, 2005

OR

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period from:                          to                         

Commission File Number: 000-23267

DEPOMED, INC.

(Exact Name of Registrant as Specified in its Charter)

California	94-3229046
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1360 O’Brien Drive, Menlo Park, California	94025
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:  (650) 462-5900

Securities registered pursuant to Section 12(b) of the Act:
None

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

Title of Each Class

Common Stock, no par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes  o   No  ý

 Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.

Yes  o   No  ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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  ý   No  o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer, as defined in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer ý Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  o   No  ý

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $109,810,000 as of the last business day of the registrant’s most recently completed second fiscal quarter, based upon the closing sale price on the Nasdaq National Market reported for such date. Shares of common stock held by each officer and director and by each person who owns 10% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

There were 40,987,126 shares of the registrant’s common stock issued and outstanding as of March 13, 2006.

Documents Incorporated by Reference

Portions of the Proxy Statement to be filed with the Securities and Exchange Commission on or prior to April 30, 2006 and to be used in connection with the Annual Meeting of Shareholders expected to be held on or about June 9, 2006 are incorporated by reference in Part III of this Form 10-K.

DEPOMED, INC.

2005 FORM 10-K REPORT

TABLE OF CONTENTS

			Page
PART I			1
	Item 1.	BUSINESS	1
	Item 1A.	RISK FACTORS	13
	Item 1B.	UNRESOLVED STAFF COMMENTS	19
	Item 2.	PROPERTIES	19
	Item 3.	LEGAL PROCEEDINGS	20
	Item 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	20
		EXECUTIVE AND OTHER OFFICERS	20
PART II			22
	Item 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	22
	Item 6.	SELECTED FINANCIAL DATA	22
	Item 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	23
	Item 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	35
	Item 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	35
	Item 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	35
	Item 9A.	CONTROLS AND PROCEDURES	35
	Item 9B.	OTHER INFORMATION	38
PART III			39
	Item 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	39
	Item 11.	EXECUTIVE COMPENSATION	39
	Item 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS	39
	Item 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	39
	Item 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	39
PART IV			39
	Item 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K	39

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Statements made in this Annual Report on Form 10-K that are not statements of historical fact are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended. We have based these forward-looking statements on our current expectations and projections about future events. Our actual results could differ materially from those discussed in, or implied by, these forward-looking statements. Forward-looking statements may be identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may” and other similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. Forward-looking statements include, but are not necessarily limited to, those relating to:

•the timing of the commercial launch of Glumetza™;

•market acceptance of ProQuin^® XR and Glumetza;

•the efforts of Esprit Pharma, Inc. with respect to the marketing of ProQuin XR;

•the efforts of Biovail Corporation with respect to the marketing of Glumetza in Canada;

•results and timing of our clinical trials, including the results of the Gabapentin GR™ trials and publication of those results;

•our ability to raise additional capital;

•our ability to obtain marketing partners for our product candidates; and

•our plans to develop other product candidates.

Factors that could cause actual results or conditions to differ from those anticipated by these and other forward-looking statements include those more fully described in the “RISK FACTORS” section and elsewhere in this Annual Report on Form 10-K. We are not obligated to update or revise these forward-looking statements to reflect new events or circumstances.

PART I

Item 1.Business

Company Overview

We are a specialty pharmaceutical company engaged in the development of pharmaceutical products based on our proprietary oral drug delivery technologies. The United States Food and Drug Administration, or FDA, has approved two products we have developed. One of these products is also approved in Canada. We have out-licensed one of those products, which is now being sold in the U.S. We have out-licensed the other of these products in Canada, where it is now being sold and we plan to begin marketing it in the United States in 2006. We also plan to initiate a Phase III clinical trial with one of our product candidates in 2006.  Our primary oral drug delivery system is our patented AcuForm™ drug delivery technology. The AcuForm technology is a proprietary polymer-based drug delivery platform developed by Depomed that provides targeted drug delivery solutions for a wide range of compounds. The technology embraces diffusional, erosional, bilayer and multi-drug systems that can optimize oral drug delivery for both soluble and insoluble drugs. One application of the technology allows standard-sized tablets to be retained in the stomach for 6 to 8 hours after administration, thereby extending the time of drug delivery to the small intestine. The AcuForm delivery system can provide controlled and prolonged release of drug, which enables reduced frequency of dosing and reduced risk of adverse side effects with equivalent efficacy relative to immediate release drugs.

We are developing our own proprietary products and are also developing products utilizing our AcuForm technology in collaboration with other pharmaceutical and biotechnology companies.  In our collaborative programs, we generally apply our proprietary technology to the partner’s compound in exchange for research and development funding, milestone payments, license fees and royalties. For our internal development programs, we apply our proprietary technology to existing drugs and typically fund development at least through Phase II

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clinical trials.  Upon the completion of Phase II clinical trials, we evaluate, on a case-by-case basis, the feasibility of retaining marketing or co-marketing rights to our product candidates in the United States, taking into account such factors as the marketing and sales efforts required for each of the product candidates, potential collaborative partners and the proposed terms of any such collaboration. If we fund development through Phase III, we will again evaluate the feasibility of retaining marketing or co-marketing rights. When we license marketing rights to a collaborative partner, we generally expect the partner to fund the completion of the clinical trials, as appropriate, and to pay us license fees, milestones and royalties on sales of the product.

Our intellectual property position includes nine issued patents and twelve patent applications pending in the United States.

Glumetza™

In May 2005, our collaborative partner, Biovail Laboratories International, or Biovail, received a Notice of Compliance for the 500mg and 1000mg strength of Glumetza from the Therapeutic Products Directorate Canada, or TPD. The 500mg Glumetza is our internally developed once-daily metformin product for Type II diabetes. The 1000mg Glumetza was developed by Biovail utilizing a Biovail drug delivery technology. In June 2005, Biovail received FDA approval to market the 500mg and 1000mg Glumetza in the United States, and in July 2005, in accordance with our license agreement, Biovail paid us a $25.0 million license payment. Biovail is in the process of reformulating the 1000mg Glumetza in order to reduce the manufacturing cost. The new formulation is targeted for commercial availability in the first half of 2007 and Biovail does not intend to commercialize the original formulation of the 1000mg Glumetza.

In October 2005, we delivered a notice of breach to Biovail and subsequently filed suit in respect of our license agreement with Biovail. The notice of breach and lawsuit primarily related to Biovail’s commercial launch and marketing obligations under the license agreement with respect to the 500mg strength of Glumetza. In December 2005, we resolved the dispute with Biovail and entered into an amended license agreement whereby Biovail’s exclusive license to the 500mg Glumetza is limited to Canada, and we have the right to manufacture and market the 500mg Glumetza in the U.S. and internationally with the exception of Canada. Under the agreement, Biovail will pay us royalties of 6 percent on Canadian net sales of the 500mg Glumetza and 1 percent on Canadian net sales of the 1000mg Glumetza. We are currently developing the U.S. commercial launch strategy for the 500mg Glumetza, which we expect to implement in the third quarter of 2006. We will pay Biovail a 1 percent royalty on U.S. net sales of the 500mg Glumetza.

Also in connection with the resolution of the dispute with Biovail, we entered into a supply agreement and a manufacturing transfer agreement with Biovail related to the development, manufacturing, supply and marketing of the new formulation of 1000mg Glumetza. Under the agreements, Biovail transferred the NDA covering the 500mg Glumetza to us, granted us an exclusive license to market the new formulation of the 1000mg Glumetza in the U.S., agreed to perform development and certain other tasks associated with the completion of the development of the new formulation of the 1000mg Glumetza, and to assist us with the preparation and submission of a supplement to the Glumetza NDA covering the new formulation of the 1000mg Glumetza. Biovail also agreed to perform certain additional limited development if the supplemental NDA is not approved by the FDA. We will purchase the new formulation of the 1000mg Glumetza for specified supply prices, and subject to our back-up manufacturing rights under the supply agreement, Biovail will be our exclusive supplier of the new formulation of the 1000mg Glumetza.

ProQuin^®XR

In May 2005, we received FDA approval to market ProQuin XR, our internally developed once daily formulation of the antibiotic drug ciprofloxacin, for uncomplicated urinary tract infections. In July 2005, we exclusively licensed to Esprit Pharma, Inc. U.S. marketing and distribution rights to ProQuin XR. Esprit has agreed to pay us a $50 million license fee, of which $30 million has been paid with an additional $10 million due in July 2006 and the remaining $10 million due in July 2007. Also under the agreement, Esprit will pay us 15

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percent to 25 percent escalating royalties based on increasing product sales. In November 2005, Esprit launched ProQuin XR in the United States.

In November 2005, we entered into a distribution and supply agreement for ProQuin XR in Europe with a privately owned specialty pharmaceutical company, Madaus S.r.l. Under the terms of the agreement, we granted an exclusive right to Madaus for the commercialization of ProQuin XR in Europe and agreed to supply Madaus with commercial quantities of ProQuin XR tablets in bulk form.

Gabapentin GR™

We have developed Gabapentin GR, an extended release form of gabapentin.  Gabapentin is marketed by Pfizer Inc. for adjunctive therapy for epileptic seizures and postherpetic pain under the trade name Neurontin®.  It is also marketed by a number of other companies as a generic, immediate release drug. We initiated a Phase II double-blind, placebo-controlled clinical trial of Gabapentin GR in the first quarter of 2005 for the treatment of post-herpetic neuralgia, a long-lasting pain condition caused by nerve damage during a shingles, or herpes zoster, viral infection. In January 2006, we announced statistically significant safety and efficacy improvements relative to placebo of twice-daily Gabapentin GR based on the Phase II trial data, which measured average daily pain scores from week two to the end of treatment based on the Likert pain scale. Once-daily Gabapentin GR also showed a trend in pain improvement. These trial results have given us valuable information which will be used in the design of our Phase III program, especially in light of the high and variable nature of placebo responses often seen in pain clinical trials. We expect to initiate a Phase III clinical trial on Gabapentin GR in the second quarter of 2006.

Other Research and Development Activities

We are applying our AcuForm technology to other compounds in an effort to enhance the safety, efficacy and/or dosing compliance of the innovator product. For example, we have completed preclinical studies of a combination product comprising our 500mg Glumetza once-daily formulation of metformin with a once-daily sulfonylurea for Type II diabetes. Under our amended agreement with Biovail, Biovail no longer has an exclusive option to license this product from us. We expect that a Phase I clinical trial for this product will commence only if our ongoing commercial assessment warrants further development or if we enter into a licensing agreement related to the product with a third party.

The AcuForm technology can also be applied to address drug dosing and absorption challenges that companies face as they develop New Chemical Entities, or NCEs. We are currently collaborating with AVI BioPharma, Inc. on a project for the delivery of large antisense compounds, utilizing the AcuForm technology.

In April 2005, we entered into an agreement with Boehringer Ingelheim Pharmaceuticals, Inc. to conduct feasibility studies with an undisclosed pharmaceutical compound and in December 2005, we completed the studies and delivered the agreed feasibility results. All research and development work with the partner’s drug was funded by the partner. We do not expect that we will be requested to perform additional work that we will be requested to perform on this pharmaceutical compound.

In May 2005, we completed an extended Phase II clinical trial for Furosemide GR™, a controlled release formulation of the leading diuretic furosemide, which is used to treat edema in congestive heart failure, or CHF, patients. Data from the Phase II clinical trial and additional data from ten patients who underwent additional treatment indicated that Furosemide GR continued to produce comparable diuresis to immediate release furosemide, however with variable urinary urgency and frequency in both of the two treatment groups. We concluded that the CHF patients were not a suitable population for this formulation of furosemide. Consequently, resources previously allocated to Furosemide GR have been redirected to grow our pipeline with new programs and support other ongoing product development.

In June 2005, we entered into a development and license agreement with New River Pharmaceuticals, Inc. to apply the AcuForm technology to up to three proprietary New River compounds. New River will fund research

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and development under the agreement, and New River may acquire worldwide rights to use the AcuForm technology in the product candidates for agreed-upon milestone payments and royalties. New River has proposed an initial product candidate for development, and we are collaborating with New River on the work plan for the feasibility program and expect to begin development work on the product in the second quarter of 2006.

In addition to internal and partnered research and development programs, our activities since inception on August 7, 1995 have included establishing our offices and research facilities, recruiting personnel, filing patent applications, developing a business strategy and raising capital. In the third quarter of 2005, we received $30 million in payments from Esprit for the license of ProQuin XR and a $25 million license payment from Biovail based on the FDA’s approval of Glumetza. Those payments will be recognized as revenue over time. Substantially all of our prior revenue, which was received from collaborative research and feasibility arrangements, has been limited. We intend to continue investing in the further development of our drug delivery technologies and the AcuForm technology.

The Drug Delivery Industry

Drug delivery companies apply proprietary technologies to create new pharmaceutical products utilizing compounds developed by others. These products are generally novel, cost-effective dosage forms that provide any of several benefits, including better control of drug concentration in the blood, improved safety and efficacy, improved patient compliance, ease of use and an improved side effect profile. We believe that drug delivery technologies can provide pharmaceutical companies with a means of developing new or improved products as well as extending existing patent franchises.

The increasing need to deliver medication to patients efficiently and with fewer side effects has accelerated the pace of invention of new drug delivery systems and the development and maturation of the drug delivery industry. Medication can be delivered to a patient through many different delivery systems, including transdermal, injection, implant and oral methods. However, these delivery methods continue to have certain limitations. Transdermal patches are often inconvenient to apply, can be irritating to the skin and the rate of release can be difficult to control. Injections are uncomfortable for most patients. In most cases, both injections and implants must be administered in a hospital or physician’s office and, accordingly, are frequently not suitable for home use. Oral administration remains the preferred method of administering medication. However, conventional oral drug administration also has limitations. Because capsules and tablets have limited effectiveness in providing controlled drug delivery, they frequently result in drug release that is initially too rapid, causing incomplete absorption of the drug, irritation to the gastrointestinal tract and other side effects. In addition, they do not provide localized therapy. We believe that the need for frequent dosing of many drugs administered by capsules and tablets also can impede patient compliance with the prescribed regimen.

The AcuForm Drug Delivery Technology

The AcuForm technology is based on our proprietary oral drug delivery technologies and is designed to include formulations of drug-containing polymeric tablets that allow multi-hour delivery of an incorporated drug. Although our formulations are proprietary, the polymers utilized in the AcuForm technology are commonly used in the food and drug industries and are included in the list of inert substances approved by the FDA for use in oral pharmaceuticals. By using different formulations of the polymers, we believe that the AcuForm technology is able to provide continuous, controlled delivery of drugs of varying molecular complexity and solubility. With the use of different polymers and polymers of varying molecular weight, our AcuForm tablet technology can deliver drugs by diffusion, tablet erosion, or from a bi-layer matrix. In addition, our technology allows for the delivery of more than one drug from a single tablet. If taken with a meal, these polymeric tablets remain in the stomach for an extended period of time to provide continuous, controlled delivery of an incorporated drug. The AcuForm technology’s design is based in part on principles of human gastric emptying and gastrointestinal transit. Following a meal, liquids and small particles flow continuously from the stomach into the intestine, leaving behind the larger undigested particles until the digestive process is complete. As a result, drugs in liquid or dissolved form or those consisting of small particles tend to empty rapidly from the stomach and continue into the small intestine and on into the large intestine, often before the drug has time to act locally or to be absorbed in

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the stomach and/or upper small intestine. The drug-containing polymeric tablets of the AcuForm technology are formulated into easily swallowed shapes and are designed to swell upon ingestion. The tablets attain a size after ingestion sufficient to be retained in the stomach for multiple hours during the digestive process while delivering the drug content at a controlled rate. After drug delivery is complete, the polymeric tablet dissolves and becomes a watery gel, which is eliminated through the intestine.

The AcuForm technology is designed to address certain limitations of drug delivery and to provide for orally administered, conveniently dosed, cost-effective drug therapy that provides continuous, controlled delivery of a drug over a multi-hour period. We believe that the AcuForm technology can provide one or more of the following advantages over conventional methods of drug administration:

•Greater Patient and Caregiver Convenience.   We believe that the AcuForm technology may offer once-daily or reduced frequency dosing for certain drugs that are currently required to be administered several times daily. Such less frequent dosing promotes compliance with dosing regimens. Patient noncompliance with dosing regimens has been associated with increased costs of medical therapies by prolonging treatment duration, increasing the likelihood of secondary or tertiary disease manifestation and contributing to over-utilization of medical personnel and facilities. By improving patient compliance, providers and third-party payors may reduce unnecessary expenditures and improve therapeutic outcomes.

•Enhanced Safety and Efficacy through Controlled Delivery.   We believe that the AcuForm technology may improve the ratio of therapeutic effect to toxicity by decreasing the initial peak concentrations of a drug associated with toxicity, while maintaining levels of the drug at therapeutic, subtoxic concentrations for an extended period of time. Many drugs demonstrate optimal efficacy when concentrations are maintained at therapeutic levels over an extended period of time. When a drug is administered intermittently, the therapeutic concentration is often exceeded for some period after which concentrations fall below therapeutic levels. Excessively high concentrations are a major cause of side effects and subtherapeutic concentrations are ineffective.

•Expansion of Types of Drugs Capable of Oral Delivery.   Some drugs, including certain proteins, peptides and oligonucleotides (antisense molecules), because of their large molecular size and susceptibility to degradation in the gastrointestinal tract, must currently be administered by injection or by continuous infusion, which is typically done in a hospital or other clinical setting. We believe that the AcuForm technology may be able to make the oral delivery of some of these drugs therapeutically effective.

•Proprietary Reformulation of Generic Products.   We believe that the AcuForm technology may offer the potential to produce improved formulations of off-patent drugs. These proprietary formulations may be differentiated from existing generic products by virtue of reduced dosing requirements, improved efficacy, decreased toxicity or additional indications.

•More Efficient Gastrointestinal Drug Absorption.   We believe that the AcuForm technology can be used for improved oral administration of drugs that are inadequately absorbed when delivered as conventional tablets or capsules. Many drugs are primarily absorbed in the stomach, duodenum or upper small intestine regions, through which drugs administered in conventional oral dosage forms transit quickly. In contrast, the AcuForm technology is designed to be retained in the stomach, allowing for constant multi-hour flow of drugs to these regions of the gastrointestinal tract. Accordingly, for such drugs, we believe that the AcuForm technology offers a significantly enhanced opportunity for increased absorption. Unlike some insoluble drug delivery systems, the polymer comprising the AcuForm technology dissolves at the end of its useful life and is passed through the gastrointestinal tract and eliminated.

•Gastric Delivery for Local Therapy and Absorption.   We believe that the AcuForm technology can be used to deliver drugs which can efficiently eradicate gastrointestinal-dwelling microorganisms, such as H. pylori, the bacterium which is a cause of most peptic ulcers.

•Rational Drug Combinations.   We believe that the AcuForm technology may allow for rational combinations of drugs with different biological half-lives. Physicians frequently prescribe multiple drugs for treatment of a single medical condition. Single product combinations have not been considered feasible because the different biological half-lives of these combination drugs would result in an

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overdosage of one drug and/or an underdosage of the other. By appropriately incorporating different drugs into a AcuForm technology we believe that we can provide for the release of each incorporated drug continuously at a rate and duration (dose) appropriately adjusted for the specific biological half-lives of the drugs. We believe that future rational drug combination products using the AcuForm technology have the potential to simplify drug administration, increase patient compliance, and reduce medical costs. Our Glumetza/sulfonylurea product, currently in development, is an example of such a combination.

•Potential for Oral Delivery of Peptides, Proteins and Antisense Molecules.   Based on laboratory studies, we believe that the AcuForm technology can protect drugs from enzymes and acidity effects prior to their delivery in the stomach. This feature, coupled with gastric retention, could allow for continuous delivery of peptides and proteins (i.e., labile drugs) into the upper portion of the small intestine, the most likely site of possible absorption for many such drugs. We believe that this mechanism will allow effective oral delivery of some drugs that currently require administration by injection. In addition, we believe that the AcuForm technology can be formulated to provide for continuous, controlled delivery of insoluble or particulate matter, including protein, antigen-laden vesicles or oligonucleotides such as antisense molecules, liposomes, and microspheres or nanoparticles. We are collaborating with AVI BioPharma, Inc. on a project to develop the AcuForm technology for the delivery of large antisense molecules.

Product Development Initiatives

In addition to the products listed in the table below, from time to time we may enter into feasibility studies with collaborative partners that, if successful, may be followed by definitive agreements to advance development of the product. The following table summarizes our principal product development initiatives as of March 2006:

Program	Partner	Potential Indications	Development Status (1)
Gabapentin GR	In-house	Post-herpetic neuralgia	Phase III clinical trial expected to be initiated in 2Q-06
Undisclosed compound	New River Pharmaceuticals Inc.	Confidential (2)	Preclinical studies expected to be initiated by 2Q-06
Glumetza (500mg) and sulfonylurea	In-house	Type II diabetes	Preclinical studies completed; commercial assessment underway
Undisclosed NEUGENE® antisense compound	AVI BioPharma, Inc.	Confidential (3)	Preclinical studies underway

(1)See the section below entitled “Government Regulation” for additional information regarding the phases of drug development.

(2)The potential indication may not be disclosed pursuant to the terms of the agreement between Depomed and New River Pharmaceuticals Inc. See “Collaborative Relationships.”

(3)The potential indication may not be disclosed pursuant to the terms of the agreement between Depomed and AVI BioPharma, Inc. See “Collaborative Relationships.”

Our research and development expenses for 2005, 2004 and 2003 are discussed in detail below under Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Collaborative Relationships

Esprit Pharma, Inc. In July 2005, we entered into a license agreement with Esprit Pharma, Inc. to market and distribute ProQuin XR in the United States and Puerto Rico. Under the terms of the license agreement, Esprit also has right of first refusal for the sale and marketing of ProQuin XR for the Canadian market. Esprit has

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agreed to pay us a $50 million license fee, of which $30 million has been paid with an additional $10 million due in July 2006 and the remaining $10 million due in July 2007. Also under the agreement, Esprit will pay us 15 percent to 25 percent escalating royalties based on increasing sales of ProQuin XR. In connection with the license agreement, we also entered into a related supply agreement with Esprit, pursuant to which we will supply commercial quantities of ProQuin XR to Esprit. In November 2005, Esprit launched ProQuin XR in the United States. In 2005, we recognized approximately $2,024,000, or 46% of our total revenue for the year, under our agreements with Esprit. To date, all of our revenues from product sales and royalties have come from Esprit under our supply agreement with Esprit and our exclusive license and marketing agreement with Esprit.  If our agreements with Esprit related to ProQuin XR were to be terminated, whether due to a breach of those agreements by us, by Esprit, or otherwise, our business, results of operations and financial condition would be adversely affected.

Madaus S.r.l. In November 2005, we entered into a distribution and supply agreement for ProQuin XR in Europe with privately owned specialty pharmaceutical company Madaus S.r.l. Under the terms of the agreement, we granted an exclusive right to Madaus for the commercialization of ProQuin XR in Europe and agreed to supply Madaus with commercial quantities of ProQuin XR tablets in bulk form. Madaus will pay us at a pre-specified percent of Madaus’ wholesale ex-factory price, net of packaging costs. In January 2006, Madaus paid us a $200,000 license fee. An advance payment against future product sales of $300,000 will be due within 30 days of the first European regulatory approval. No revenue was recognized under the agreement in 2005.

New River Pharmaceuticals, Inc. In June 2005, we entered into a development and license agreement with New River Pharmaceuticals Inc. to develop through the feasibility phase up to three proprietary New River compounds in combination with the AcuForm technology. Pursuant to the agreement, New River will fund research and development under the agreement, and New River may acquire worldwide rights to use the AcuForm technology in the product candidates for agreed-upon milestone payments and royalties. New River has proposed an initial product candidate for development, and we are collaborating with New River on the work plan for the feasibility program and expect to begin development work on the product in the second quarter of 2006. No revenue was recognized under the agreement in 2005.

Boehringer Ingelheim Pharmaceuticals, Inc. In April 2005, we entered into an agreement with Boehringer Ingelheim Pharmaceuticals, Inc. to conduct feasibility studies with an undisclosed pharmaceutical compound and in December 2005, we completed the studies and delivered the agreed feasibility results. All research and development work with the partner’s drug was funded by the partner. We are not aware of any additional work that we will be requested to perform on this pharmaceutical compound. For the year ending December 31, 2005, we recognized $2,231,000 or 51% of our total revenue for the year, which approximated the costs under the agreement related to this collaboration.

LG Life Sciences, Ltd.   In August 2004, we entered into a license and distribution agreement granting LG Life Sciences an exclusive license to the 500mg Glumetza in the Republic of Korea. Upon signing of the agreement, LG paid us a $600,000 upfront license fee. The agreement also provides for a $700,000 milestone fee upon approval in Korea and royalties on net sales of the 500mg Glumetza. The upfront license fee will be amortized over a period of eight years, which represents the estimated length of time that we are obligated to provide assistance in development and manufacturing. For the years ended December 31, 2005 and 2004, we recognized $75,000 and $31,000 or 2% and 15%, respectively, of our total revenue for the years related to this collaboration.

Biovail Laboratories International. In December 2005, we and Biovail entered into an Amended and Restated License Agreement relating to Glumetza.  The Amended and Restated License Agreement supersedes our April 27, 2004 Amended License and Development Agreement with Biovail.

Pursuant to the Amended and Restated License Agreement:  (i) we granted Biovail an exclusive license in Canada to manufacture and market the 500mg formulation of Glumetza, and a non-exclusive license to manufacture the 500mg Glumetza in the United States for export to Canada; (ii) Biovail will pay us royalties of

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six percent of net sales of the 500mg Glumetza in Canada; and (iii) Biovail will pay us royalties of one percent of net sales of the 1000mg new formulation of Glumetza in Canada.  The royalty payable by Biovail on net sales of the 500mg Glumetza may be increased to ten percent if U.S. regulatory approval of the 1000mg new formulation of Glumetza is not obtained by June 30, 2007 (provided that we have complied with our obligations related to obtaining such regulatory approval).

In connection with the Amended and Restated License Agreement, we also entered into a Manufacturing Transfer Agreement related to the 1000mg aqueous formulation of Glumetza.  Pursuant to the Manufacturing Transfer Agreement:  (i) Biovail granted us a license to manufacture the 1000mg Glumetza in the United States from and after the time, if any, that we obtain back-up manufacturing rights under the Supply Agreement with Biovail described below; (ii) Biovail granted us an exclusive license to market the 1000mg Glumetza in the United States; (iii) Biovail granted us an exclusive license to the “Glumetza” trademark in the United States for the purpose of marketing Glumetza; (iv) Biovail has transferred to us the New Drug Application covering the 500mg Glumetza; (v) Biovail will assist us with manufacturing technology transfer to enable the commercial scale manufacturing of the 500mg Glumetza by or for us; (vi) we will pay Biovail royalties of six percent of net sales of the 1000mg Glumetza in the United States from and after any United States regulatory approval of the 1000mg Glumetza (or, if less, thirty percent of royalties and other similar payments from our licensees) with respect to any sales of the 1000mg Glumetza not purchased pursuant to the Supply Agreement described below; and (vii) we will pay Biovail royalties of one percent of net sales of the 500mg Glumetza in the United States (or, if less, five percent of royalties and other similar payments from our licensees).

Also in connection with the Amended and Restated License Agreement, we entered into a Supply Agreement with Biovail related to the development, manufacturing and supply of the 1000mg new formulation of Glumetza.  Pursuant to the Supply Agreement:  (i) Biovail will perform development and certain other tasks associated with the completion of the development of the 1000mg Glumetza, and will assist us with the preparation and submission of a supplement to the NDA covering the 1000mg Glumetza; (ii) we and Biovail may perform certain additional limited development if the supplement to the Glumetza NDA is not approved by the FDA; (iii) we will purchase the 1000mg Glumetza from Biovail for specified supply prices and, subject to our back-up manufacturing rights, Biovail will be our exclusive supplier of the 1000mg Glumetza; (iv) Biovail may supply us with the 500mg formulation of Glumetza through December 31, 2006; and (v) Biovail granted us certain back-up manufacturing rights in the event of its inability to supply us with the 1000mg Glumetza.

No cash payments were made by either party in connection with their entry into the above-described agreements.

In November 2005, Biovail Pharmaceuticals Canada, the sales and marketing division of Biovail, launched the 500mg Glumetza in Canada. We are currently developing the U.S. commercial launch strategy for the 500mg Glumetza which we expect to implement in the third quarter of 2006. For the year ending December 31, 2005, license revenue recognized under our agreements with Biovail was $76,000 or 2% of our total revenues. No revenues were received from Biovail in 2004 and 2003.

AVI BioPharma, Inc.   In June 2000, we entered into a joint collaboration to investigate the feasibility of controlled oral delivery of AVI’s proprietary NEUGENE antisense agents. The purpose of the collaboration is to study the feasibility of oral drug formulations based on our GR System. We have developed candidate dosage forms incorporating one of AVI’s antisense agents and preclinical testing is underway. The indication for this product has not been disclosed. No revenues have been received under this agreement.

Other Collaborations.   In October 2002, we signed an agreement with ActivBiotics, Inc. to conduct feasibility studies on a proprietary ActivBiotics’ antibiotic. We terminated the agreement in June 2004. For the years ended December 31, 2004 and 2003, revenues received for work performed for ActivBiotics were $28,000 and $476,000, respectively, or 14% and 48% of our total revenues, respectively. In June 2003, we signed an agreement with an undisclosed collaborative partner to conduct feasibility studies for the partner. We recognized revenue of approximately $144,000 and $408,000, or 71% and 42%, of our revenues in 2004 and 2003, respectively related to this agreement.

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Competition

Other companies that have oral drug delivery technologies competitive with the AcuForm technology include Bristol-Myers Squibb, IVAX Corporation, ALZA Corporation (a subsidiary of Johnson & Johnson), SkyePharma plc, Biovail Corporation, Flamel Technologies S.A., Ranbaxy Laboratories, Ltd., Kos Pharmaceuticals, Inc., Intec Pharma and Alpharma, Inc., all of which develop oral tablet products designed to release the incorporated drugs over time. Each of these companies has patented technologies with attributes different from ours, and in some cases with different sites of delivery to the gastrointestinal tract.

Bristol-Myers Squibb is currently marketing a sustained release formulation of metformin, Glucophage XR, with which Glumetza competes. The limited license that Bristol-Myers Squibb obtained from us under our November 2002 settlement agreement extends to certain current and internally-developed future compounds, which may increase the likelihood that we will face competition from Bristol-Myers Squibb in the future on products in addition to Glumetza. Several other companies, including IVAX Corporation, Barr Pharmaceuticals, Inc., Mylan Laboratories, Inc. and Teva Pharmaceutical Industries, Ltd. have received FDA approval for and are selling a controlled-release metformin product. Flamel Technologies has a controlled-release microparticle-based formulation of metformin product in Phase II clinical trials.

Bayer Corporation developed a once-daily ciprofloxacin product for the treatment of urinary tract infections, which is currently marketed by Schering-Plough Corporation. There may be other companies developing products competitive with Glumetza and ProQuin XR of which we are unaware.

To our knowledge, we are the only company currently in clinical trials with a sustained release formulation of gabapentin for the U. S. market.

Gabapentin is currently marketed by Pfizer as Neurontin for adjunctive therapy for epileptic seizures and for postherpetic pain. Pfizer’s basic U.S. patents relating to Neurontin have expired, and at least seven companies have received approval to market generic versions of the immediate release product. In addition, Pfizer has developed a new product, Lyrica™ (pregabalin), which has been approved for marketing in the U.S. and the European Union (EU).

Competition in pharmaceutical products and drug delivery systems is intense. We expect competition to increase. Competing technologies or products developed in the future may prove superior to the AcuForm technology or products using the AcuForm technology, either generally or in particular market segments. These developments could make the AcuForm technology or products using the AcuForm technology noncompetitive or obsolete.

Most of our principal competitors have substantially greater financial, marketing, personnel and research and development resources than we do. In addition, many of our potential collaborative partners have devoted, and continue to devote, significant resources to the development of their own drug delivery systems and technologies.

Patents and Proprietary Rights

Our success will depend in part on our ability to obtain and maintain patent protection for our technologies and to preserve our trade secrets. Our policy is to seek to protect our proprietary rights, by among other methods, filing patent applications in the U.S. and foreign jurisdictions to cover certain aspects of our technology. We currently hold nine issued U.S. patents and twelve U.S. patent applications are pending. In addition, we are preparing patent applications relating to our expanding technology for filing in the U.S. and abroad. We have also applied for patents in numerous foreign countries. Some of those countries have granted our applications and other applications are still pending. Our pending patent applications may lack priority over others’ applications or may not result in the issuance of patents. Even if issued, our patents may not be sufficiently broad to provide protection against competitors with similar technologies and may be challenged, invalidated or circumvented, which could limit our ability to stop competitors from marketing related products or may not provide us with competitive advantages against competing products.

We also rely on trade secrets and proprietary know-how, which are difficult to protect. We seek to protect such information, in part, through entering into confidentiality agreements with employees, consultants,

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collaborative partners and others before such persons or entities have access to our proprietary trade secrets and know-how. These confidentiality agreements may not be effective in certain cases, due to, among other things, the lack of an adequate remedy for breach of an agreement or a finding that an agreement is unenforceable. In addition, our trade secrets may otherwise become known or be independently developed by competitors.

Our ability to develop our technologies and to make commercial sales of products using our technologies also depends on not infringing others’ patents or other intellectual property rights. We are not aware of any intellectual property claims against us. However, the pharmaceutical industry has experienced extensive litigation regarding patents and other intellectual property rights. For example, Pfizer has initiated several suits against companies marketing generic gabapentin products, claiming that these products infringe Pfizer’s patents. The results of this litigation could adversely impact the commercialization of any generic gabapentin product. Also, we are aware that patents issued to third parties relating to sustained release drug formulations or particular pharmaceutical compounds could in the future be asserted against us, although we believe that we do not infringe any valid claim of any patents. If claims concerning any of our products were to arise and it was determined that these products infringe a third party’s proprietary rights, we could be subject to substantial damages for past infringement or be forced to stop or delay our activities with respect to any infringing product, unless we can obtain a license, or we may have to redesign our product so that it does not infringe upon others’ patent rights, which may not be possible or could require substantial funds or time. Such a license may not be available on acceptable terms, or at all. Even if we, our collaborators or our licensors were able to obtain a license, the rights may be nonexclusive, which would give our competitors access to the same intellectual property. In addition, any public announcements related to litigation or interference proceedings initiated or threatened against us, even if such claims are without merit, could cause our stock price to decline.

From time to time, we may become aware of activities by third parties that may infringe our patents. Infringement by others of our patents may reduce our market shares (if a related product is approved) and, consequently, our potential future revenues and adversely affect our patent rights if we do not take appropriate enforcement action. We may need to engage in litigation in the future to enforce any patents issued or licensed to us or to determine the scope and validity of third-party proprietary rights. Our issued or licensed patents may not be held valid by a court of competent jurisdiction. Whether or not the outcome of litigation is favorable to us, defending a lawsuit takes significant time, may be expensive and may divert management attention from other business concerns. We may also be required to participate in interference proceedings declared by the United States Patent and Trademark Office for the purpose of determining the priority of inventions in connection with our patent applications or other parties’ patent applications. Adverse determinations in litigation or interference proceedings could require us to seek licenses which may not be available on commercially reasonable terms, or at all, or subject us to significant liabilities to third parties. If we need but cannot obtain a license, we may be prevented from marketing the affected product.

In January 2006, we filed a complaint against IVAX Corporation in federal court for infringement of two of our U.S. patents related to the AcuForm delivery technology. The complaint alleges infringement of our patents by IVAX’s extended release metformin hydrochloride tablet. Although we intend to vigorously enforce our intellectual property rights, there can be no assurance that we will be successful in any litigation against IVAX.

Manufacturing

Although we have established internal manufacturing facilities to manufacture supplies for our Phase I and Phase II clinical trials, we do not have, and we do not intend to establish in the foreseeable future, internal commercial scale manufacturing capabilities. Rather, we intend to use the facilities of third parties to manufacture products for Phase III clinical trials and commercialization. Our dependence on third parties for the manufacture of products using the AcuForm technology may adversely affect our ability to deliver such products on a timely or competitive basis. The manufacturing processes of our third party manufacturers may be found to violate the proprietary rights of others. If we are unable to contract for a sufficient supply of required products on acceptable terms, or if we encounter delays and difficulties in our relationships with manufacturers, the market introduction and commercial sales of our products will be delayed, and our future revenue will suffer.

Applicable current Good Manufacturing Practices (cGMP) requirements and other rules and regulations prescribed by foreign regulatory authorities will apply to the manufacture of products using the AcuForm

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technology. We will depend on the manufacturers of products using the AcuForm technology to comply with cGMP and applicable foreign standards. Any failure by a manufacturer of products using the AcuForm technology to maintain cGMP or comply with applicable foreign standards could delay or prevent the initial or continued commercial sale of our products.

We are responsible for supplying commercial quantities of ProQuin XR to Esprit. For the manufacture of ProQuin XR tablets, we have entered into an agreement with MOVA Pharmaceuticals, as our sole supplier. Uquifa Mexico, S.A., our supplier of the active pharmaceutical ingredient to ProQuin XR, is also a sole supplier to us. We obtain the active pharmaceutical ingredient to ProQuin XR on a purchase order basis only. With respect to the 500mg strength of Glumetza, we are currently negotiating a supply arrangement with a tablet manufacturer, and we plan to purchase the active ingredient for 500mg Glumetza on a purchase order basis. If 1000mg Glumetza is approved, we will rely on Biovail as our sole supplier. Although we have obtained clinical batches of Gabapentin GR from a contract manufacturer, we currently have no long-term supply arrangement with respect to Gabapentin GR.

If we are unable, for whatever reason, to obtain the active pharmaceutical ingredient or ProQuin XR tablets from our contract manufacturers, we may not be able to manufacture ProQuin XR in a timely manner, if at all. Likewise, we will be unable to manufacture Glumetza in a timely manner, if at all, if we are unable to obtain Glumetza 500mg tablets or active ingredient from contract manufacturers, or Glumetza 1000mg tablets from Biovail.

Marketing and Sales

In 2004, we announced our determination to evolve from a solely product development focused company to an integrated organization with sales and marketing of our own products. While preliminary staffing for these activities began in 2005, we anticipate this process will continue over the next several years.

The marketing activities of our licensees of ProQuin XR and Glumetza, and our own marketing activities with respect to Glumetza or any other products for which we obtain regulatory approval, will be subject to numerous federal and state laws governing the marketing and promotion of pharmaceutical products. The FDA regulates post-approval promotional labeling and advertising to ensure that they conform with statutory and regulatory requirements. In addition to FDA restrictions, the marketing of prescription drugs is subject to laws and regulations prohibiting fraud and abuse under government healthcare programs. For example, the federal healthcare program antikickback statute prohibits giving things of value to induce the prescribing or purchase of products that are reimbursed by federal healthcare programs, such as Medicare and Medicaid. In addition, federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government. Under this law, the federal government in recent years has brought claims against drug manufacturers alleging that certain marketing activities caused false claims for prescription drugs to be submitted to federal programs. Many states have similar statutes or regulations, which apply to items and services reimbursed under Medicaid and other state programs, or, in some states, regardless of the payer. If we, or our collaborative partners, fail to comply with applicable FDA regulations or other laws or regulations relating to the marketing of our products, we could be subject to criminal prosecution, civil penalties, seizure of products, injunction, exclusion of our products from reimbursement under government programs, as well as other regulatory actions against our product candidates, our collaborative partners or us.

Government Regulation

Numerous governmental authorities in the United States and other countries regulate our research and development activities and those of our collaborative partners. Governmental approval is required of all potential pharmaceutical products using the AcuForm technology and the manufacture and marketing of products using the AcuForm technology prior to the commercial use of those products. The regulatory process takes several years and requires substantial funds. If new products using the AcuForm technology do not receive the required regulatory approvals or if such approvals are delayed, our business would be materially adversely affected. There can be no assurance that the requisite regulatory approvals will be obtained without lengthy delays, if at all.

In the United States, the FDA rigorously regulates pharmaceutical products, including any drugs using the AcuForm technology. If a company fails to comply with applicable requirements, the FDA or the courts may

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impose sanctions. These sanctions may include civil penalties, criminal prosecution of the company or its officers and employees, injunctions, product seizure or detention, product recalls and total or partial suspension of production. The FDA may withdraw approved applications or refuse to approve pending new drug applications, premarket approval applications, or supplements to approved applications.

We generally must conduct preclinical testing on laboratory animals of new pharmaceutical products prior to commencement of clinical studies involving human beings. These studies evaluate the potential efficacy and safety of the product. We then submit the results of these studies to the FDA as part of an Investigational New Drug application, which must become effective before beginning clinical testing in humans.

Typically, human clinical evaluation involves a time-consuming and costly three-phase process:

•In Phase I, we conduct clinical trials with a small number of subjects to determine a drug’s early safety profile and its pharmacokinetic pattern.

•In Phase II, we conduct limited clinical trials with groups of patients afflicted with a specific disease in order to determine preliminary efficacy, optimal dosages and further evidence of safety.

•In Phase III, we conduct large-scale, multi-center, comparative trials with patients afflicted with a target disease in order to provide enough data to demonstrate the efficacy and safety required by the FDA prior to commercialization.

The FDA closely monitors the progress of each phase of clinical testing. The FDA may, at its discretion, re-evaluate, alter, suspend or terminate testing based upon the data accumulated to that point and the FDA’s assessment of the risk/benefit ratio to patients.

The results of the preclinical and clinical testing are submitted to the FDA in the form of a New Drug Application (NDA) for approval prior to commercialization. An NDA requires that our products are compliant with cGMP. Failure to achieve or maintain cGMP standards for products using the AcuForm technology would adversely impact their marketability. In responding to an NDA, the FDA may grant marketing approval, request additional information or deny the application. Failure to receive approval for any products using the AcuForm technology would have a material adverse effect on the company.

The FDA regulates not only prescription and over-the-counter drugs approved by NDAs, but also over-the-counter products that comply with monographs issued by the FDA. These regulations include:

•cGMP requirements;

•general and specific over-the-counter labeling requirements (including warning statements);

•advertising restrictions; and

•requirements regarding the safety and suitability of inactive ingredients.

In addition, the FDA may inspect over-the-counter products and manufacturing facilities. A failure to comply with applicable regulatory requirements may lead to administrative or judicially imposed penalties. If an over-the-counter product differs from the terms of a monograph, it will, in most cases, require FDA approval of an NDA for the product to be marketed.

Foreign regulatory approval of a product must also be obtained prior to marketing the product internationally. Foreign approval procedures vary from country to country. The time required for approval may delay or prevent marketing in certain countries. In certain instances we or our collaborative partners may seek approval to market and sell certain products outside of the United States before submitting an application for United States approval to the FDA. The clinical testing requirements and the time required to obtain foreign regulatory approvals may differ from that required for FDA approval. Although there is now a centralized European Union (EU) approval mechanism in place, each EU country may nonetheless impose its own procedures and requirements. Many of these procedures and requirements are time-consuming and expensive. Some EU countries require price approval as part of the regulatory process. These constraints can cause substantial delays in obtaining required approval from both the FDA and foreign regulatory authorities after the

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relevant applications are filed, and approval in any single country may not meaningfully indicate that another country will approve the product.

Product Liability

Our business involves exposure to potential product liability risks that are inherent in the production and manufacture of pharmaceutical products. We have obtained product liability insurance for clinical trials currently underway and forecasted 2006 sales of our products, but:

•  we may not be able to obtain product liability insurance for future trials;

•  we may not be able to obtain product liability insurance for future products;

•  we may not be able to maintain product liability insurance on acceptable terms;

•  we may not be able to secure increased coverage as the commercialization of the AcuForm technology proceeds; or

•  our insurance may not provide adequate protection against potential liabilities.

Our inability to obtain adequate insurance coverage at an acceptable cost could prevent or inhibit the commercialization of our products. Defending a lawsuit would be costly and significantly divert management’s attention from conducting our business. If third parties were to bring a successful product liability claim or series of claims against us for uninsured liabilities or in excess of insured liability limits, our business, financial condition and results of operations could be materially harmed.

Employees

As of December 31, 2005, we had 90 full-time employees. None of our employees is represented by a collective bargaining agreement, nor have we experienced any work stoppage. We believe that our relations with our employees are good.

Our success is dependent in large part upon the continued services of John W. Fara, Ph.D., our Chairman, President and Chief Executive Officer, Carl Pelzel, our Executive Vice President and Chief Operating Officer, and other members of our executive management team, and on our ability to attract and retain key management and operating personnel. We do not have agreements with Dr. Fara, Mr. Pelzel or any of our other executive officers that provide for their continued employment with us. Management, scientific and operating personnel are in high demand in our industry and are often subject to competing offers. The loss of the services of one or more members of management or key employees or the inability to hire additional personnel as needed could result in delays in the research, development and commercialization of our products and potential product candidates.

Additional Information

The address of our Internet website is http://www.depomedinc.com. We make available, free of charge through our website or upon written request, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other periodic SEC reports, along with amendments to all of those reports, as soon as reasonably practicable after we file the reports with the SEC.

Item 1A.Risk Factors

In addition to other information in this report, the following factors should be considered carefully in evaluating our company. We believe the following risks, along with the risks described elsewhere in this Form 10-K, including the risks described above under “BUSINESS – Competition, – Patents and Proprietary Rights, – Manufacturing, – Marketing and Sales, – Government Regulation, – Product Liability, and –Employees”, are the material risks we face at the present time. If any of the risks or uncertainties described in this Form 10-K actually occurs, our business, results of operations or financial condition could be materially adversely affected. The risks and uncertainties described in this Form 10-K are not the only ones facing the company. Additional risks and uncertainties of which we are unaware or currently deem immaterial may also become important factors that may harm our business.

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We depend heavily on our marketing partners for the successful commercialization of our lead products, ProQuin XR and Glumetza.

Our two lead products, ProQuin XR and the 500mg strength Glumetza, have been approved by the FDA. Our other product candidates are in earlier stages of clinical or preclinical development. We anticipate that in the near term our success will depend on royalties generated from sales of ProQuin XR and sales of Glumetza.

We have licensed exclusive marketing rights to ProQuin XR in the United States to Esprit Pharma, Inc. Esprit launched ProQuin XR in November 2005. If Esprit fails to successfully commercialize ProQuin XR, our business, financial condition and results of operations will be materially and adversely affected.

We have licensed exclusive marketing rights to the 500mg Glumetza in Canada to Biovail. Biovail launched the 500mg Glumetza in Canada in November 2005. If Biovail fails to successfully commercialize Glumetza, our business and future revenues will be materially and adversely affected.

If we fail to enhance our marketing, sales and distribution capabilities, or fail to enter into arrangements with third parties, we will not be able to create a market for Glumetza in the United States.

Currently, we have limited sales and marketing staff, and no distribution capabilities. In order to generate sales of Glumetza or any other product candidates that receive regulatory approval that we choose to market or co-market, we must substantially enhance our internal marketing and sales force with technical expertise and with supporting distribution capabilities, or make arrangements with third parties to perform these services for us. The development of a sales and distribution infrastructure requires substantial resources, which may divert the attention of our management and key personnel. To the extent that we enter into marketing and sales arrangements with other companies, our revenues will depend on the efforts of others. These efforts may not be successful. If we fail to fully develop sales, marketing and distribution channels, or enter into arrangements with third parties, we will experience delays in product sales and incur increased costs.

We are expecting operating losses in the future.

To date, we have had limited revenues from license fees, product sales, collaborative research and development arrangements and feasibility studies, although we have received $55 million in license fees from Biovail and Esprit in 2005. For the year ended December 31, 2005, we had total revenues of $4.4 million and for the years ended December 31, 2004 and 2003, we had total revenues of $200,000 and $1.0 million, respectively. For the year ended December 31, 2005, we incurred net losses of $24.5 million and for the years ended December 31, 2004 and 2003, we incurred net losses of $26.9 million and $30.0 million, respectively. As we continue our research and development efforts, preclinical testing and clinical trial activities, and expand our sales and marketing organization, we anticipate that we will continue to incur substantial operating losses for at least the next year. Therefore, we expect our cumulative losses to increase. These losses, among other things, have had, and we expect that they will continue to have, an adverse impact on our total assets, shareholders’ equity and working capital.

Our product candidates are at early stages of development and may not be successful or achieve market acceptance.

We are preparing for a Phase III clinical trial of Gabapentin GR, and we have another product candidate in earlier stages of development. In addition, Biovail is assisting us with the preparation of a supplemental NDA filing for the new 1000mg formulation of Glumetza, and we expect to begin performing feasibility studies by the second quarter of 2006 with another compound in combination with the AcuForm technology for a collaborative partner. Our own product candidates and those of our collaborative partners are subject to the risk that any or all of them are found to be ineffective or unsafe, or otherwise may fail to receive necessary regulatory clearances. We are unable to predict whether any of these other product candidates will receive regulatory clearances or be successfully manufactured or marketed. Further, due to the extended testing and regulatory review process required before marketing clearance can be obtained, the time frames for commercialization of any products are long and uncertain. Even if these other product candidates receive regulatory clearance, our products may not achieve or maintain market acceptance. Also, all of our product candidates, other than the 1000mg formulation of Glumetza, use the AcuForm technology. If it is discovered that the AcuForm technology could have adverse

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effects or other characteristics that indicate it is unlikely to be effective as a delivery system for drugs or therapeutics, our product development efforts and our business would be significantly harmed.

Our quarterly operating results may fluctuate and affect our stock price.

The following factors will affect our quarterly operating results and may result in a material adverse effect on our stock price:

•  the timing of the commercial launch of Glumetza in the United States;

•  the degree of commercial success of ProQuin XR and Glumetza;

•  variations in revenues obtained from collaborative agreements, including milestone payments, royalties, license fees and other contract revenues;

•  decisions by collaborative partners to proceed or not to proceed with subsequent phases of a collaboration or program;

•  market acceptance of the AcuForm technology;

•  regulatory actions;

•  adoption of new technologies;

•  developments concerning proprietary rights, including patents, infringement allegations and litigation matters;

•  the introduction of new products by our competitors;

•  manufacturing costs and difficulties;

•  results of clinical trials for our products;

•  changes in government funding;

•  third-party reimbursement policies; and

•  the status of our compliance with the provisions of the Sarbanes-Oxley Act of 2002.

Our collaborative arrangements may give rise to disputes over commercial terms, contract interpretation and ownership of our intellectual property and may adversely affect the commercial success of our products.

We currently have a collaboration agreement for development of product candidates through the feasibility phase with New River Pharmaceuticals. In addition, we have in the past and may in the future enter into other collaborative arrangements, some of which have been based on less definitive agreements, such as memoranda of understanding, material transfer agreements, options or feasibility agreements. We may not execute definitive agreements formalizing these arrangements. Collaborative relationships are generally complex and may give rise to disputes regarding the relative rights, obligations and revenues of the parties, including the ownership of intellectual property and associated rights and obligations, especially when the applicable collaborative provisions have not been fully negotiated and documented. Such disputes can delay collaborative research, development or commercialization of potential products, and can lead to lengthy, expensive litigation or arbitration. The terms of collaborative arrangements may also limit or preclude us from developing products or technologies developed pursuant to such collaborations. Additionally, the collaborators under these arrangements might breach the terms of their respective agreements or fail to prevent infringement of the licensed patents by third parties. Moreover, negotiating collaborative arrangements often takes considerably longer to conclude than the parties initially anticipate, which could cause us to agree to less favorable agreement terms that delay or defer recovery of our development costs and reduce the funding available to support key programs.

We may not be able to enter into future collaborative arrangements on acceptable terms, which would harm our ability to develop and commercialize our current and potential future products.. Further, even if we do enter into collaboration arrangements, it is possible that our collaborative partners may not choose to develop and commercialize products using the AcuForm technology. Other factors relating to collaborations that may adversely affect the commercial success of our products include:

•  any parallel development by a collaborative partner of competitive technologies or products;

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•  arrangements with collaborative partners that limit or preclude us from developing products or technologies;

•  premature termination of a collaboration agreement; or

•failure by a collaborative partner to devote sufficient resources to the development and commercial sales of products using the AcuForm technology.

Generally, our collaborative arrangements do not restrict our collaborative partners from competing with us or restrict their ability to market or sell competitive products. Our current and any future collaborative partners may pursue existing or other development-stage products or alternative technologies in preference to those being developed in collaboration with us. Our collaborative partners may also terminate their collaborative relationships with us or otherwise decide not to proceed with development and commercialization of our products.

It is difficult to develop a successful product. If we do not develop a successful product we may not be able to raise additional funds.

The drug development process is costly, time-consuming and subject to unpredictable delays and failures. Before we or others make commercial sales of products using the AcuForm technology, other than Glumetza and ProQuin XR, we, our current and any future collaborative partners will need to:

•  conduct preclinical and clinical tests showing that these products are safe and effective; and

•  obtain regulatory approval from the FDA or foreign regulatory authorities.

We will have to curtail, redirect or eliminate our product development programs if we or our collaborative partners find that:

•  the AcuForm technology has unintended or undesirable side effects; or

•products that appear promising in preclinical or early-stage clinical studies do not demonstrate efficacy in later-stage, larger scale clinical trials.

Even when or if our products obtain regulatory approval, successful commercialization requires:

•  market acceptance;

•  cost-effective commercial scale production; and

•  reimbursement under private or governmental health plans.

Any material delay or failure in the governmental approval process and/or the commercialization of our potential products, particularly Glumetza or ProQuin XR, would adversely impact our financial position and liquidity and would make it difficult for us to raise financing on favorable terms, if at all.

If we do not achieve our projected development and commercialization goals in the timeframes we announce and expect, the commercialization of our product candidates may be delayed and our business will be harmed.

For planning purposes, we estimate the timing of the accomplishment of various scientific, clinical, regulatory and other product development and commercialization goals. These milestones may include our expectations regarding the commercial launch of our products by us or our licensees, and the commencement or completion of scientific studies and clinical trials and the submission of regulatory filings. From time to time, we may publicly announce the expected timing of some of these milestones, such as the commercial launch of the 500mg strength of Glumetza in the United States or the commencement of the Phase III clinical trial of Gabapentin GR. All of these milestones are based on a variety of assumptions. The actual timing of these milestones can vary considerably from our estimates depending on numerous factors, some of which are beyond our control, including:

•  our available capital resources;

•  the efforts of our licensees with respect to the commercialization of our products;

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•the rate of progress, costs and results of our clinical trial and research and development activities, including the extent of scheduling conflicts with participating clinicians and clinical institutions and our ability to identify and enroll patients who meet clinical trial eligibility criteria;

•  our receipt of approvals by the FDA and other regulatory agencies and the timing thereof;

•other actions by regulators;

•our ability to access sufficient, reliable and affordable supplies of components used in the manufacture of our product candidates, including insulin and materials for our GR System; and

•the costs of ramping up and maintaining manufacturing operations, as necessary.

If we fail to achieve our announced milestones in the timeframes we announce and expect, our business and results of operations may be harmed and the price of our stock may decline.

If we are unable to obtain or maintain regulatory approval, we will be limited in our ability to commercialize our products, and our business will be harmed.

The regulatory process is expensive and time consuming. Even after investing significant time and expenditures on clinical trials, we may not obtain regulatory approval of our product candidates. Data obtained from clinical trials are susceptible to varying interpretations that could delay, limit or prevent regulatory approval. Significant clinical trial delays would impair our ability to commercialize our products and could allow our competitors to bring products to market before we do. In addition, changes in regulatory policy for product approval during the period of product development and regulatory agency review of each submitted new application may cause delays or rejections. Even if we receive regulatory approval, this approval may entail limitations on the indicated uses for which we can market a product.

Further, with respect to our approved products, once regulatory approval is obtained, a marketed product and its manufacturer are subject to continual review. The discovery of previously unknown problems with a product or manufacturer may result in restrictions on the product, manufacturer or manufacturing facility, including withdrawal of the product from the market. Manufacturers of approved products are also subject to ongoing regulation, including compliance with FDA regulations governing current Good Manufacturing Practices (cGMP). Failure to comply with manufacturing regulations can result in, among other things, warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, refusal of the government to renew marketing applications and criminal prosecution.

The approval process outside the United States is uncertain and may limit our ability to develop, manufacture and sell our products internationally.

To market any of our products outside of the United States, we and our collaborative partners, including Madaus and LG Life Sciences, are subject to numerous and varying foreign regulatory requirements, implemented by foreign health authorities, governing the design and conduct of human clinical trials and marketing approval for drug products. The approval procedure varies among countries and can involve additional testing, and the time required to obtain approval may differ from that required to obtain FDA approval. The foreign regulatory approval process includes all of the risks associated with obtaining FDA approval set forth above, and approval by the FDA does not ensure approval by the health authorities of any other country, nor does the approval by foreign health authorities ensure approval by the FDA.

If we or our licensees are unable to obtain acceptable prices or adequate reimbursement for our products from third-party payers, we will be unable to generate significant revenues.

In both domestic and foreign markets, sales of our product candidates will depend in part on the availability of adequate reimbursement from third-party payers such as:

•government health administration authorities;

•private health insurers;

•health maintenance organizations;

•pharmacy benefit management companies; and

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•other healthcare-related organizations.

If reimbursement is not available for our products or product candidates, demand for these products may be limited. Further, any delay in receiving approval for reimbursement from third-party payers would have an adverse effect on our future revenues. Third-party payers are increasingly challenging the price and cost-effectiveness of medical products and services. Significant uncertainty exists as to the reimbursement status of newly approved healthcare products, including pharmaceuticals. Our products may not be considered cost effective, and adequate third-party reimbursement may be unavailable to enable us to maintain price levels sufficient to realize an acceptable return on our investment.

Federal and state governments in the United States and foreign governments continue to propose and pass new legislation designed to contain or reduce the cost of healthcare. Existing regulations affecting pricing may also change before many of our product candidates are approved for marketing. Cost control initiatives could decrease the price that we receive for any product we may develop.

We depend on third parties who are single source suppliers to manufacture ProQuin XR, Glumetza and our later stage product candidates. If these suppliers are unable to manufacture ProQuin XR, Glumetza or our product candidates, our business will be harmed.

We are responsible for supplying commercial quantities of ProQuin XR to Esprit. For the manufacturer of ProQuin XR tablets, we have entered into an agreement with MOVA Pharmaceuticals, as our sole supplier. Uquifa Mexico, S.A., our supplier of the active pharmaceutical ingredient to ProQuin XR, is also a sole supplier to us. We obtain the active pharmaceutical ingredient to ProQuin XR on a purchase order basis only. If we are unable, for whatever reason, to obtain the active pharmaceutical ingredient or ProQuin XR tablets from our contract manufacturers, we may not be able to manufacture ProQuin XR in a timely manner, if at all.

We are currently negotiating a supply arrangement with a tablet manufacturer for the 500mg strength of Glumetza, and we plan to purchase the active ingredient for the 500mg Glumetza on a purchase order basis. If the new formulation of 1000mg Glumetza is approved, we will rely on Biovail as our sole supplier. We will be unable to manufacture Glumetza in a timely manner if we are unable to obtain Glumetza 500mg tablets from contract manufacturers or active pharmaceutical ingredient from suppliers, or Glumetza 1000mg tablets from Biovail.

Although we have obtained clinical batches of Gabapentin GR from a contract manufacturer, we currently have no long-term supply arrangement with respect to Gabapentin GR.

If we choose to acquire new and complementary businesses, products or technologies instead of developing them ourselves, we may be unable to complete these acquisitions or to successfully integrate them in a cost effective and non-disruptive manner.

Our success depends on our ability to continually enhance and broaden our product offerings in response to changing customer demands, competitive pressures and technologies. Accordingly, we may in the future pursue the acquisition of complementary businesses, products or technologies instead of developing them ourselves. We have no current commitments with respect to any acquisition or such investment. We do not know if we would be able to successfully complete any acquisitions, or whether we would be able to successfully integrate any acquired business, product or technology or retain any key employees. Integrating any business, product or technology we acquire could be expensive and time consuming, disrupt our ongoing business and distract our management. If we were to be unable to integrate any acquired businesses, products or technologies effectively, our business would suffer. In addition, any amortization or charges resulting from the costs of acquisitions could harm our operating results.

We have implemented certain anti-takeover provisions.

Certain provisions of our articles of incorporation and the California General Corporation Law could discourage a third party from acquiring, or make it more difficult for a third party to acquire, control of our company without approval of our board of directors. These provisions could also limit the price that certain investors might be willing to pay in the future for shares of our common stock. Certain provisions allow the board of directors to authorize the issuance of preferred stock with rights superior to those of the common stock.

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We are also subject to the provisions of Section 1203 of the California General Corporation Law which requires a fairness opinion to be provided to our shareholders in connection with their consideration of any proposed “interested party” reorganization transaction.

We have adopted a shareholder rights plan, commonly known as a “poison pill”. The provisions described above, our poison pill and provisions of the California General Corporation Law may discourage, delay or prevent a third party from acquiring us.

Increased costs associated with corporate governance compliance may significantly impact our results of operations.

Changing laws, regulations and standards relating to corporate governance, public disclosure and compliance practices, including the Sarbanes-Oxley Act of 2002, new SEC regulations and Nasdaq National Market rules, are creating uncertainty for companies such as ours in understanding and complying with these laws, regulations and standards. As a result of this uncertainty and other factors, devoting the necessary resources to comply with evolving corporate governance and public disclosure standards has resulted in and may in the future result in increased general and administrative expenses and a diversion of management time and attention to compliance activities. We also expect these developments to increase our legal compliance and financial reporting costs. In addition, these developments may make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. Moreover, we may not be able to comply with these new rules and regulations on a timely basis.

These developments could make it more difficult for us to attract and retain qualified members of our board of directors, or qualified executive officers. We are presently evaluating and monitoring regulatory developments and cannot estimate the timing or magnitude of additional costs we may incur as a result. To the extent these costs are significant, our general and administrative expenses are likely to increase.

If we are unable to satisfy regulatory requirements relating to internal controls, our stock price could suffer.

Section 404 of the Sarbanes-Oxley Act of 2002 requires companies to do a comprehensive evaluation of their internal control over financial reporting. At the end of each fiscal year, we must perform an evaluation of our internal control over financial reporting, include in our annual report the results of the evaluation, and have our external auditors publicly attest to such evaluation. If we fail to complete future evaluations on time, or if our external auditors cannot attest to our future evaluations, we could fail to meet our regulatory reporting requirements and be subject to regulatory scrutiny and a loss of public confidence in our internal controls, which could have an adverse effect on our stock price.

Business interruptions could limit our ability to operate our business.

Our operations are vulnerable to damage or interruption from computer viruses, human error, natural disasters, telecommunications failures, intentional acts of vandalism and similar events. In particular, our corporate headquarters are located in the San Francisco Bay area, which has a history of seismic activity. We have not established a formal disaster recovery plan, and our back-up operations and our business interruption insurance may not be adequate to compensate us for losses that occur. A significant business interruption could result in losses or damages incurred by us and require us to cease or curtail our operations.

Item 1B.Unresolved Staff Comments

None.

Item 2.Properties

In February 2000, we entered into a five-year non-cancelable lease of approximately 21,000 square feet of laboratory and office facilities in Menlo Park, California. In May 2003, we renegotiated certain terms of our lease agreement including the lease term, which will now expire in April 2008 with an option to extend the lease for an

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additional five years. We also entered into a non-cancelable lease agreement to lease a 25,000 square foot facility adjacent to our existing facility in Menlo Park. This agreement also expires in April 2008 with an option to extend the lease for an additional five years. We expect that these facilities will accommodate our growth for the next one to two years.

Item 3.Legal Proceedings

We are involved in legal proceedings relating to some of our intellectual property rights.  In January 2006, Depomed filed a complaint against IVAX Corporation in the U.S. District Court for the Northern District of California for infringement of U.S. Patent Nos. 6,340,475 and 6,635,280, both of which are owned by Depomed. The patents relate our AcuForm delivery technology. The complaint alleges infringement of our patents by IVAX’s extended release metformin hydrochloride tablet.

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

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2005.

Executive and Other Officers

Our executive and other officers of the company and their ages as of December 31, 2005 are as follows:

Name	Age	Position
Executive Officers
John W. Fara, Ph.D.	63	Chairman, President and Chief Executive Officer
Carl A. Pelzel	55	Executive Vice President and Chief Operating Officer
Bret Berner, Ph.D.	53	Vice President, Product Development and Chief Scientific Officer
John F. Hamilton	61	Vice President, Finance and Chief Financial Officer
John N. Shell	52	Vice President, Operations
Other Officers
Jeff P. Miller	53	Vice President, Regulatory and Quality Assurance
Thadd M. Vargas	40	Vice President, Business Development

John W. Fara, Ph.D. has served as a director of the company since November 1995 and as its President and Chief Executive Officer since December 1996. In April 2000, he became Chairman of the Board of Directors of the company succeeding Dr. John W. Shell, the founder of the company. From February 1990 to June 1996 Dr. Fara was President and Chief Executive Officer of Anergen, Inc., a biotechnology company. Prior to February 1990 he was President of Prototek, Inc., a biotechnology company. Prior to Prototek, he was Director of Biomedical Research and then Vice President of Business Development during ten years with ALZA. Dr. Fara received a B.S. from the University of Wisconsin and a Ph.D. degree from the University of California, Los Angeles. He is also a member of the board of directors of AVI BioPharma, Inc. and Iomed, Inc., both of which are publicly held companies.

Carl A. Pelzel joined Depomed in June 2005 as Vice President, Marketing and Commercial Development; he was appointed to the position of Executive Vice President and Chief Operating Officer in September 2005. Before joining Depomed, Mr. Pelzel was senior vice president, Global Commercial Operations at Chiron Corporation. Under his leadership, Chiron Biopharmaceuticals generated sales on a global basis through operations in North America and Europe as well as a network of international distributors. Prior to joining Chiron, Mr. Pelzel was President and Chief Executive Officer of Invenux Inc., a privately-held biopharmaceutical company. Mr. Pelzel also spent 11 years with GlaxoSmithKline in senior-level sales, marketing and international operational positions, including Country Manager of Hong Kong and China. He spent 13 years with American Home Products, focused primarily on their antibiotics business. During his career, he directed the launch of five major pharmaceutical products, many on a global basis. Mr. Pelzel has a B.A. from Hartwick College of Oneonta, New York.

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Bret Berner, Ph.D. has served as the company’s Vice President, Product Development since December 1998. In February 2006, Dr. Berner was appointed to the position of Chief Scientific Officer. Before joining the company, Dr. Berner served as Vice President of Development at Cygnus, Inc. for four years, where he was responsible for formulation, analytical chemistry, toxicology, project management, and new drug delivery technology. From 1984 through 1994, Dr. Berner acted as the Director of Basic Pharmaceutics Research at Ciba-Geigy. Prior to 1984, he also held the position of Staff Scientist at The Procter & Gamble Company. Dr. Berner holds 18 patents, has authored more than 70 publications and edited two books on controlled drug delivery. He received his B.A. degree from the University of Rochester and a Ph.D. degree from the University of California, Los Angeles.

John F. Hamilton has served as the company’s Vice President of Finance and Chief Financial Officer since January 1997. Prior to joining the company, Mr. Hamilton was Vice President and Chief Financial Officer of Glyko, Inc. and Glyko Biomedical Ltd., a carbohydrate instrument and reagents company from May 1992 to September 1996. He was President and Chief Financial Officer of Protos Corporation, a drug design subsidiary of Chiron Corporation, from June 1988 to May 1992 and held various positions with Chiron Corporation, including Treasurer, from September 1987 to May 1992. Mr. Hamilton received a B.A. degree from the University of Pennsylvania and an M.B.A. degree from the University of Chicago.

John N. Shell served as Director of Operations for the company from its inception in August 1995 until December 1996, when he was named Vice President of Operations. From May 1994 to August 1995, Mr. Shell served in a similar capacity at the Depomed Division of M6. Mr. Shell served as a director of the company from its inception until November 2003. Prior to 1994, Mr. Shell served as Materials Manager for Ebara International Corporation, a multi-national semiconductor equipment manufacturer, and as Materials Manager for ILC Technology, an electro-optics and electronics manufacturer. Mr. Shell received his B.A. degree from the University of California, Berkeley.

Jeff P. Miller has served as Vice President of Regulatory Affairs and Quality Assurance for Depomed since November, 2005. Before joining Depomed, he was Vice President, Regulatory Affairs and Quality for the Drug Development Division of ICON (formerly, GloboMax), a worldwide clinical and regulatory consulting firm. From 2001 to 2003, Mr. Miller was Executive Director, Regulatory Affairs and Compliance for DURECT Corporation, a drug delivery technology company. His career also includes several senior level positions at biotechnology companies, including Clingenix/Research Services Inc., from 1999 to 2001, CV Therapeutics, Inc., from 1997 to 1999 and, from 1993 to 1997, Matrix Pharmaceutical, Inc., where he helped to establish the regulatory and compliance functions in-house to support clinical trials and commercial registration and supply. Earlier in his career, Mr. Miller spent 17 years at Syntex Research, Inc. in basic research, then Human Pharmaceutical Regulatory Affairs and Compliance. Mr. Miller holds a B.A. in Biological Sciences from the University of California, Santa Barbara.

Thadd M. Vargas has served as the company’s Vice President of Business Development since December 2002. Before joining the company, Mr. Vargas was Vice President of Finance at Worldres.com, Inc., Director of Finance at Kosan Biosciences, Inc. and Director of Business Development at Anergen, Inc. Prior to Anergen, Mr. Vargas was a member of Ernst & Young’s life sciences audit practice. Mr. Vargas holds a B.A. degree in Business Economics from the University of California at Santa Barbara.

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PART II

Item 5.Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

Our common stock commenced trading on the Nasdaq SmallCap Market under the symbol “DPMD” on December 1, 1997. On November 9, 1998, our common stock ceased trading on the Nasdaq SmallCap Market and began trading on the American Stock Exchange (AMEX) under the symbol “DMI”. On December 17, 2003 our common stock ceased trading on the AMEX and began trading on the Nasdaq National Market (Nasdaq) under the symbol “DEPO”. The following table sets forth the high and low closing prices of our common stock as reported by the Nasdaq from January 1, 2004 to December 31, 2005.

	2005				2004
	High		Low		High		Low
First Quarter	$	5.40	$	3.88	$	7.83	$	6.25
Second Quarter	$	4.72	$	3.46	$	8.87	$	4.94
Third Quarter	$	6.70	$	4.40	$	5.43	$	3.87
Fourth Quarter	$	6.50	$	4.83	$	5.60	$	3.96

As of December 31, 2005, there were approximately 66 stockholders of record of our common stock, one of which is Cede & Co., a nominee for Depository Trust Company, or DTC. All of the shares of common stock held by brokerage firms, banks and other financial institutions as nominees for beneficial owners are deposited into participant accounts at DTC, and are therefore considered to be held of record by Cede & Co. as one stockholder. We believe that there are approximately 3,000 beneficial holders of our common stock.

We have never paid a cash dividend on our common stock and we do not anticipate paying any cash dividends in the foreseeable future.

Information required by this item regarding our equity compensation plans is incorporated by reference from our definitive Proxy Statement to be filed pursuant to Regulation 14A under the Exchange Act in connection with our annual meeting of shareholders.

Item 6.Selected Financial Data

	Year Ended December 31,
	2005			2004			2003			2002			2001
Results of Operations
Revenue	$	4,405,329		$	202,569		$	981,990		$	1,661,186		$	3,673,326
Operating costs and expenses	30,916,856			26,537,341			30,380,445			30,088,624			17,994,753
Loss from operations	(26,511,527		)	(26,334,772		)	(29,398,455		)	(28,427,438		)	(14,321,427		)
Equity in loss of joint venture	—			—			(5,359		)	(2,435,667		)	(3,173,409		)
Gain from Bristol-Myers Squibb legal settlement	—			—			—			18,000,000			—
Gain from extinguishment of debt	1,058,935			—			—			—			—
Net loss before income taxes	(24,467,272		)	(26,774,637		)	(30,015,098		)	(13,494,565		)	(17,600,039		)
Provision for income taxes	—			(99,000		)	—			—			—
Net loss (1)	(24,467,272		)	(26,873,637		)	(30,015,098		)	(13,494,565		)	(17,600,039		)
Deemed dividend on preferred stock	(842,202		)	—			—			—			—
Net loss applicable to common stock shareholders	(25,309,474		)	(26,873,637		)	(30,015,098		)	(13,494,565		)	(17,600,039		)
Basic and diluted net loss per share applicable to common stock shareholders (1)(2)	$	(0.64	)	$	(0.78	)	$	(1.23	)	$	(0.92	)	$	(1.72	)
Shares used in computing basic and diluted net loss per share	39,821,182			34,628,825			24,458,259			14,642,745			10,220,223

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	December 31,
	2005			2004			2003			2002			2001
Balance Sheet Data
Cash, cash equivalents and securities available-for-sale	$	59,073,065		$	18,104,839		$	44,255,260		$	20,217,973		$	5,150,088
Total assets	66,377,514			22,868,583			47,692,649			23,179,277			8,746,846
Deferred revenue, less current portion	51,421,263			493,750			—			—			—
Long-term obligations, less current portion	—			10,280,591			9,497,845			9,003,937			5,566,686
Series A Preferred Stock (3)	12,015,000			12,015,000			12,015,000			12,015,000			12,015,000
Accumulated deficit	(144,451,897		)	(119,984,625		)	(93,110,988		)	(63,095,890		)	(49,601,325		)
Total shareholders’ equity (net capital deficiency) (3)	6,760,999			8,403,298			34,576,154			(6,413,866		)	(13,492,201		)

(1)Net loss, net loss applicable to common stock shareholders and net loss per share decreased in 2002 due to an $18.0 million payment we received in December 2002 from Bristol-Myers Squibb related to the settlement of the patent infringement lawsuit we filed against Bristol-Myers Squibb in January 2002.

(2)The net loss per common share for 2001 has been restated from amounts originally reported to eliminate the 7% dividend previously accrued on the Series A Preferred Stock. As the dividends were only convertible into our common stock, the amounts previously recorded as dividend represented adjustments to the conversion price of the Series A Preferred Stock. See Note 7 of the Notes to Consolidated Financial Statements, Series A Preferred Stock.

(3)Shareholders’ equity for 2001 has been restated to classify the Series A Preferred Stock outside of permanent equity. In September 2003, the joint venture agreements were amended and the exchange right associated with the Series A Preferred Stock was terminated and the Series A Preferred Stock was reclassified to permanent shareholders’ equity. See Note 7 of the Notes to Consolidated Financial Statements, Series A Preferred Stock.

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

In 2005, we received FDA and Canadian regulatory approval of Glumetza, our extended release metformin formulation for treatment of Type II diabetes and FDA approval of ProQuin XR, our extended release formulation of the antibiotic ciprofloxacin. In July 2005, we entered into a license agreement with Esprit Pharma, Inc. to market and distribute ProQuin XR in the U.S. and Puerto Rico with a right of first refusal to rights in Canada. Esprit agreed to pay us a $50 million license fee and 15 percent to 25 percent escalating royalties based on increasing product sales. Esprit launched ProQuin XR in the U.S. in November 2005. In December 2005, we settled a dispute with Biovail related to the commercialization of Glumetza which resulted in the establishment of our right to manufacture and market the 500mg formulation of Glumetza in the U.S. and all international markets with the exception of Canada and our gaining an exclusive right to market the 1000mg Glumetza in the U.S. In November 2005, Biovail launched the 500mg Glumetza in Canada. In 2005, we entered into agreements with New River Pharmaceuticals Inc. and Boehringer Ingelheim Pharmaceuticals, Inc. to conduct feasibility studies on their compounds using our AcuForm technology.

In 2005, we reported a net loss of $24.5 million or $0.64 per share, compared to a net loss of $26.9 million or $0.78 per share for the year ended December 31, 2004. Cash and investment balances at December 31, 2005 were $59.1 million.

Revenues for the year ended December 31, 2005 totaled approximately $4.4 million compared with $203,000 for the year ended December 31, 2004. Collaborative revenue increased to $2.2 million in 2005 from $171,000 in 2004 as a result of increased development services provided for Boehringer Ingelheim. License revenue increased to $575,000 from $31,000 due to revenue recognized under license agreements with Esprit and

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Biovail. Royalty revenue was $669,000 in 2005 as a result of our royalty on net sales of ProQuin XR by Esprit. Product sales revenue was $931,000 in 2005 as a result of sales of ProQuin XR under our supply agreement with Esprit. In 2004, there were no revenues recognized related to royalties or product sales.

Research and development expenses for the year ended December 31, 2005 were $18.3 million compared to $21.4 million for the year ended December 31, 2004. The decrease was primarily due to decreased external expenses such as clinical and manufacturing expenses for our 500mg Glumetza and ProQuin XR as the products proceeded from development to commercialization.

Critical Accounting Policies and Estimates

A detailed discussion of our significant accounting policies can be found in Note 1 of the Notes to Consolidated Financial Statements, and the impact and risks associated with our accounting policies are discussed throughout this Annual Report on Form 10-K and in the footnotes to the consolidated financial statements. Critical accounting policies are those that require significant judgment and/or estimates by management at the time that financial statements are prepared such that materially different results might have been reported if other assumptions had been made. We consider certain accounting policies related to revenue recognition and use of estimates to be critical policies. These estimates form the basis for making judgments about the carrying values of assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates.

We believe the following policies to be the most critical to an understanding of our financial condition and results of operations because they require us to make estimates, assumptions and judgments about matters that are inherently uncertain.

Revenue Recognition

Our revenue arrangements with multiple elements are divided into separate units of accounting if certain criteria are met, including whether the delivered element has stand-alone value to the customer and whether there is objective and reliable evidence of the fair value of the undelivered items. The consideration received is allocated among the separate units based on their respective fair values, and the applicable revenue recognition criteria are applied to each of the separate units. Advance payments received in excess of amounts earned are classified as deferred revenue until earned.

Revenue related to collaborative research agreements with corporate partners is recognized as the expenses are incurred for each contract. We are required to perform research activities as specified in each respective agreement on a best efforts basis, and we are reimbursed based on the costs associated with supplies, other outsourced activities and the hours worked by employees on each specific contract. Our business strategy includes performing additional development work for our partners, which we expect will generate milestone payments and license fees. We will recognize nonrefundable substantive milestone payments pursuant to collaborative agreements upon the achievement of specified milestones where no further obligation to perform exists under that provision of the arrangement and when collectibility is reasonable assured. Non-refundable license fees are recognized over the period of continuing involvement of a specific contract or, if no continuing involvement exists, such license fees are recognized upon receipt. Management has made assumptions relating to the period of continuing involvement, which are subject to change. Changes in these estimates and assumptions could affect the amount of revenues from licenses recorded in any given period. Royalties are recognized as earned in accordance with the contract terms when royalties from licensees can be reliably measured and collectibility is reasonably assured. Royalties received under our agreement with Esprit will initially be recognized based on Esprit’s cash receipts due to our inability to estimate returns and potential bad debt related to underlying sales following the initial commercialization of ProQuin XR. Esprit royalty revenue, therefore, is not reflective of Esprit’s actual product sales in the respective period. Product sales revenue related to our supply agreement with Esprit is recognized after a 30-day right of return has expired.

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Accrued Liabilities

We record accrued liabilities for certain contract research activities, including clinical trials, preclinical studies and other corporate activities. Some of the accrued liabilities are based on estimates because billings for these activities may not occur on a timely basis consistent with the performance of the services. If possible, we obtain information regarding the unbilled services directly from the service provider. However, we may be required to estimate these services based on information available to our product development or administrative staff. If we underestimate the activity associated with a study or service at a given point in time, it would result in understated expense in the period presented and overstated expense in subsequent periods. Historically, our estimated accrued liabilities have approximated actual expense incurred.

Stock-Based Compensation

The preparation of the financial statement footnotes requires us to estimate the fair value of stock options granted to employees and directors. While fair value may be readily determinable for awards of stock, market quotes are not available for long-term, nontransferable stock options because these instruments are not traded. We currently use the Black-Scholes option-pricing model to estimate the fair value of employee stock options. However, the Black-Scholes model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. Because our stock options have characteristics significantly different from those of traded options and changes to the subjective imputed assumptions can materially affect the fair value estimate, in management’s opinion, the existing models to not provide a reliable single measure of the fair value of our employee and director stock options. Option valuation models require the input of highly subjective assumptions. The most significant assumptions are our estimates of the expected volatility and the expected term of the award. There is limited historical information available to support our estimate of certain assumptions required to value stock options. The value of a stock option is derived from its potential for appreciation. The more volatile the stock, the more valuable the option becomes because of the greater possibility of significant changes in stock price. The expected option term also has a significant effect on the value of the option. The longer the term, the more time the option holder has to allow the stock price to increase without a cash investment and thus, the more valuable the option. Further, lengthier option terms provide more opportunity to take advantage of market highs. However, empirical data shows that employees, for a variety of reasons, typically do not wait until the end of the contractual term of a nontransferable option to exercise. Accordingly, companies are required to estimate the expected term of the option for input to an option-pricing model. When establishing an estimate of the expected term, we consider the vesting period for the award, our historical experience of employee and director stock option exercises, the expected volatility, and a comparison to relevant peer group data. As required under the accounting rules, we review our valuation assumptions at each grant date and, as a result, we are likely to change our valuation assumptions used to value stock based awards granted in future periods.

Change in Accounting Principle

In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46 (FIN 46), which requires a variable interest entity (VIE) to be consolidated by a company if that company absorbs a majority of the VIE’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interest in the VIE. Prior to the adoption of FIN 46, VIEs were generally consolidated only by companies owning a majority voting interest in the VIE.

We adopted FIN 46 on July 1, 2003, and consolidated DDL, as of that date, as we determined that DDL was a VIE, as defined by FIN 46, and that we absorbed a majority of its expected losses. Accordingly, we were required to consolidate the assets and liabilities of DDL on July 1, 2003. The adoption of FIN46 did not have a material impact on our financial position or results of operations. Also, as we had been responsible for 80% of DDL’s losses under the terms of our agreements with Elan, we had been recognizing 80% of DDL’s losses under the equity method of accounting prior to July 1, 2003. Since the inception of DDL through June 30, 2003, we had recognized approximately $19.8 million, or 80% of DDL’s expenses. Upon the adoption of FIN 46, we calculated what the impact would have been on our operations had we consolidated 100% of DDL’s expenses and recorded an offsetting “noncontrolling interest” equal to 20% of DDL’s expenses (the amounts funded by Elan under the

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arrangement) for the period from DDL’s inception through June 30, 2003, or $19.8 million, and determined that there was no cumulative catch-up charge to record upon the adoption of FIN 46.

Our results of operations include 100% of the operating results of DDL for the six months ended December 31, 2003. The noncontrolling interest for the period was not material, and it has been included as an offset to general and administrative expenses in the consolidated statement of operations. As DDL does not have any revenue, its accounts are reflected entirely in our consolidated operating expenses. In September 2003, we modified our agreements with Elan that govern the terms of the joint venture and as a result of such modifications, we became responsible for 100% of the funding requirements of DDL. Accordingly, subsequent to September 2003, we did not allocate any portion of DDL’s results of operations to the noncontrolling interest. In June 2004, DDL became our wholly owned subsidiary when we acquired Elan’s 19.9% interest in DDL.

RESULTS OF OPERATIONS

Years Ended December 31, 2005, 2004 and 2003

Revenues

Revenues for the years ended December 31, 2005, 2004 and 2003 were approximately $4,405,000, $203,000 and $982,000, respectively. In 2005, collaborative revenue consisted of $2,231,000 recognized under a collaboration with Boehringer Ingelheim. We do not expect to perform additional product development services for Boehringer Ingelheim under this collaboration agreement in 2006. License revenue was $575,000 and resulted from revenue recognized under license agreements with Esprit, Biovail and LG Life Sciences. We expect we will recognize license revenue of approximately $3.6 million in 2006 related to license fee payments received in, or prior to, 2005. In 2005, royalty revenue related to Esprit’s sales of ProQuin XR was $669,000 and product sales revenue was $931,000 and related to sales under our supply agreement with Esprit. In 2004, revenues consisted of $171,000 recognized under a collaboration with ActivBiotics and another collaborative partner. We completed product development services for both partners and we do not expect to perform additional product development services for these partners under the respective agreements. Other revenues in 2004 included $31,000 recorded under the license agreement with LG Life Sciences. In 2003, revenues consisted of $476,000 recognized under our collaboration with ActivBiotics and $506,000 from small collaborations with undisclosed partners.

Cost of Sales

Cost of sales for the year ended December 31, 2005 was approximately $909,000, or approximately 98% of product sales. However, cost of sales did not include the costs of certain material previously expensed. Prior to commercialization, materials that we purchased were expensed to research and development. We were able to use some of this material in our products sold. If we were to include the costs that were previously expensed to research and development but then used in our products sold, our cost of sales would have been approximately $169,000 greater than the reported amounts or 116% of product sales for the year ended December 31, 2005. Cost of sales consists of costs of the active pharmaceutical ingredient, contract manufacturing and packaging costs, product quality testing, internal labor related to the manufacturing process and shipping costs.

Research and Development Expense

Research and development expense for the year ended December 31, 2005 was approximately $18,369,000 compared to approximately $21,359,000 and $26,416,000 during the years ended December 31, 2004 and 2003, respectively. The decrease of $2,990,000 was due primarily to reductions of $3.5 million in expense related to ProQuin XR and Glumetza which were partially offset by increased depreciation of $218,000 related primarily to leasehold improvements completed in the fourth quarter of 2004. Since our two lead products were approved by the FDA in the second quarter of 2005 and our other product candidates are still in earlier stages of development, we believe that our research and development expenses will remain relatively flat during 2006 as we advance our other product candidates into later stage clinical development. The decrease of $5,058,000 in research and development expense in 2004 was primarily due to a decrease of $8,408,000 in external research and development expenses, including activities to complete clinical trials and reports for Glumetza and ProQuin in

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the fourth quarter of 2003, which were partially offset by $1,839,000 in expense related to the hiring of additional personnel to support the FDA filings and analytical testing of our product candidates.

Our research and development expenses currently include costs for scientific personnel, supplies, equipment, outsourced clinical and other research activities, consultants, depreciation, facilities and utilities. The scope and magnitude of future research and development expenses cannot be predicted at this time for our product candidates in research and in development as it is not possible to determine the nature, timing and extent of clinical trials and studies, the FDA’s requirements for a particular drug and the requirements and level of participation, if any, by potential partners. As potential products proceed through the development process, each step is typically more extensive, and therefore more expensive, than the previous step. Success in development therefore results, generally, in increasing expenditures. Furthermore, our business strategy involves licensing certain of our drug candidates to collaborative partners. Depending upon when such collaborative arrangements are executed, the amount of costs incurred solely by us will be impacted.

Our largest cumulative research and development expense over the last three years has been related to the development of Gabapentin GR, ProQuin XR and Glumetza. In 2005 and 2004, Gabapentin GR accounted for approximately 60% and 25%, respectively, of our research and development expenses for that year and none in 2003. In 2005, 2004 and 2003, ProQuin XR accounted for 10%, 50% and 45%, respectively, of our research and development expenses for that year. In 2005, 2004 and 2003, Glumetza, accounted for approximately 0%, 10% and 35%, respectively, of our total research and development expenses for that year.

Our research and development activities can be divided into preclinical stage programs, which include analytical testing, process development, pilot-scale production and preclinical testing, and later stage programs, which include clinical testing, regulatory affairs and manufacturing clinical supplies. The costs associated with these programs approximate the following:

	2005			2004			2003
Preclinical programs	$	3,098,000		$	666,000		$	2,356,000
Later stage programs	15,271,000			20,693,000			24,060,000
	$		18,369,000	$		21,359,000	$		26,416,000

Our research and development activities can be divided into those related to our internal projects and those related to collaboration arrangements. The costs related to internal projects versus collaboration arrangements approximate the following:

	2005			2004			2003
Internal projects	$	16,704,000		$	19,339,000		$	15,922,000
Collaborative arrangements funded by partners	1,484,000			153,000			1,020,000
Collaborative arrangements not funded by partners	181,000			1,867,000			9,474,000
	$		18,369,000	$		21,359,000	$		26,416,000

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The following table summarizes our principal product development initiatives and the related stages of development for each product in development. The information in the column labeled “Estimated Completion Date of Current Phase” contains forward-looking statements regarding timing of completion of product development phases. The actual timing of completion of those phases could differ materially from the estimates provided in the table. For a discussion of the risks and uncertainties associated with the timing of completing a product development phase, see Item 1A. Risk Factors and elsewhere in this Form 10-K. In addition to the products listed below, from time to time we may enter into feasibility studies with collaborative partners that, if successful, may be followed by definitive agreements to advance development of the product.

Program	Partner	Potential Indications	Development Status	Estimated Completion Date of Current Phase
Gabapentin GR	In-house	Post herpetic neuralgia	Protocol for Phase III clinical trial in preparation	2nd quarter of 2006
Undisclosed compound (1)	New River Pharmaceuticals Inc.	Confidential (1)	Preclinical studies expected to be initiated in the 2nd quarter of 2006	4th quarter of 2006
Glumetza (500mg) and sulfonylurea	In-house	Type II diabetes	Preclinical studies completed; commercial assessment underway	3rd quarter of 2006
Undisclosed NEUGENE® antisense compound	AVI BioPharma, Inc.	Confidential (2)	Preclinical studies underway	Unknown— Dependent upon AVI’s decision to proceed to clinical trials

(1)The product and potential indication may not be disclosed pursuant to the terms of the agreement between the company and New River Pharmaceuticals Inc. See “Collaborative Relationships.”

(2)The potential indication may not be disclosed pursuant to the terms of the agreement between the company and AVI BioPharma, Inc. See “Collaborative Relationships.”

We expect that the pharmaceutical products that we develop internally will take, on average, from four to eight years to research, develop and obtain FDA approval in the United States. We generally must conduct preclinical testing on laboratory animals of new pharmaceutical products prior to commencement of clinical studies involving human beings. These studies evaluate the potential efficacy and safety of the product. We then submit the results of these studies to the FDA as part of an Investigational New Drug Application (or IND) which, if successful, allows the opportunity for clinical study of the potential new medicine.

Typically, human clinical evaluation involves a time-consuming and costly three-phase process:

•In Phase I, we conduct clinical trials with a small number of subjects to determine a drug’s early safety profile and its blood concentration profile over time. A Phase I trial for our average potential product may take 6 to 12 months to plan and complete.

•In Phase II, we conduct limited clinical trials with groups of patients afflicted with a specific disease in order to determine preliminary efficacy, optimal dosages and further evidence of safety. A Phase II trial for our average potential product may take 9 to 18 months to plan and complete.

•In Phase III, we conduct large-scale, multi-center, comparative trials with patients afflicted with a target disease in order to provide enough data to demonstrate the efficacy and safety required by the FDA prior to commercialization of the product. A Phase III trial for our average potential product may take 1 to 3 years to plan and complete.

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The most significant expenses associated with clinical development derive from the Phase III trials as they tend to be the longest and largest studies conducted during the drug development process. We currently have two products that have completed Phase III.

The successful development of pharmaceutical products is highly uncertain. The FDA closely monitors the progress of each phase of clinical testing. The FDA may, at its discretion, re-evaluate, alter, suspend or terminate testing based upon the data accumulated to that point and the FDA’s assessment of the risk/benefit ratio to patients. Various statutes and regulations also govern or influence the manufacturing, safety, labeling, storage and record keeping for each product. The lengthy process of seeking FDA approvals, and the subsequent compliance with applicable statutes and regulation, require the expenditure of substantial resources.

General and Administrative Expense

General and administrative expense for the year ended December 31, 2005 was approximately $11,639,000, compared to approximately $5,179,000 for the year ended December 31, 2004. The increase of $6.5 million in 2005 was due to approximately $3,455,000 in expense related to the planning and organization of commercial manufacturing activities at our contract manufacturer for ProQuin XR, increased salary expense of $1,252,000 related to salary bonuses accrued under the bonus plan approved by the Compensation Committee of the Board of Directors in July 2005 and marketing expense of $828,000 primarily related to ProQuin XR marketing incurred prior to the licensing of ProQuin XR and during the transition of marketing activities to Esprit. General and administrative expense for the year ended December 31, 2004 was approximately $5,179,000, compared to approximately $3,964,000 for the year ended December 31, 2003. The increase of $1,215,000 in 2004 compared to 2003 was due to $795,000 in legal and accounting expense, $444,000 in increased salaries and $179,000 in consulting expense. Legal, accounting and consulting expense increases resulted primarily from increased costs related to our compliance with the Sarbanes-Oxley Act of 2002. Salary expense increased due to increased salaries and the hiring of additional employees, including our director of corporate communications. In 2006, we expect general and administrative expense will increase over 2005 levels as we continue building our sales and marketing capabilities to promote our product candidates.

Consolidated Subsidiary

 Prior to the adoption of FIN 46 on July 1, 2003, our equity in the loss of DDL was based on 100% of DDL’s losses (since we owned 100% of the DDL voting common stock), less the amounts funded by Elan. For the period from inception to June 30, 2003, we recognized approximately 80.1% of DDL’s loss, or approximately $19,817,000 as equity in the loss of the joint venture in our statement of operations. In 2003, we recognized approximately $5,000 of DDL’s net loss prior to the adoption of FIN 46 on July 1, 2003. In June 2004, we acquired the remaining 19.9% interest in DDL for $50,000. For the year ended December 31, 2005 and 2004, we consolidated 100% of DDL expenses, or approximately $7,000 and $6,000, respectively, included in general and administrative expenses in the consolidated statement of operations. We expect to consolidate general and administrative expense of approximately $8,000 in 2006 to dissolve DDL. DDL does not have any fixed assets, liabilities or employees and will not perform any further product development.

For the year ended December 31, 2005 and 2004, DDL recognized general and administrative expense and net loss of $7,000 and $6,000, respectively. For the year ended December 31, 2003, DDL recognized a loss of $16,000, in general and administrative expense. In August 2002, all research and development work for DDL ceased.

Interest Expense and Interest Income

Interest expense was approximately $460,000 for the year ended December 31, 2005 compared to interest expense of approximately $929,000 and $910,000 for the years ended December 31, 2004 and 2003, respectively. In 2005, interest expense decreased due to the repurchase of the Elan promissory note in June 2005 and also the payoff of our equipment loan and leasehold obligations in May 2005 and July 2005, respectively. In 2004, interest expense increased over 2003 due to compounding of accrued interest on the Elan convertible loan facility.

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For the year ended December 31, 2005, interest and other income increased to $1,445,000 from $489,000 and $299,000 in the years ended December 31, 2004 and 2003, respectively. In 2005, the increase was due to our increased investment balances as a result of $55.0 million in license fees received from Esprit and Biovail in the third quarter of 2005. In 2004, the increase was due to our increased investment balances as a result of our public offering in the fourth quarter of 2003. Increasing average interest rates earned in 2005 and 2004 also contributed to increased interest year over year.

Gain from Extinguishment of Debt

In connection with the formation of DDL, Elan made a loan facility available to us for up to $8,010,000 in principal to support our 80.1% share of the joint venture’s research and development costs pursuant to a convertible promissory note issued by us to Elan. The funding term of the loan expired in November 2002. The note had a six-year term, was due in January 2006, and bore interest at 9% per annum, compounded semi-annually, on any amounts borrowed under the facility. However, in June 2005, we repurchased the promissory note with an outstanding balance of $10,724,000, including $2,927,000 of accrued interest, for $9,665,000 including commissions paid to a financial consultant and legal fees. A gain on the extinguishment of the debt of $1,059,000 was recorded in other income for the second quarter of 2005.

Income Taxes 

Income tax expense for the year ended December 31, 2004 was $99,000 and none in 2005 and 2003. The tax was paid to the Republic of Korea on a license fee we received from LG Life Sciences, Ltd., a Korean company. All revenue received from LG Life Sciences will require income tax payment to the Republic of Korea.

We have not generated any federal or state taxable income to date. At December 31, 2005, the net operating losses available to offset future taxable income for federal income tax purposes were approximately $108.0 million. Future utilization of carryforwards may be limited in any fiscal year pursuant to Internal Revenue Code regulations. The carryforwards expire at various dates beginning in 2010 through 2025 if not utilized and federal research and development tax credits of approximately $1.8 million expire at various dates beginning in 2011 through 2025. Our net operating loss carryforwards for state income tax purposes were approximately $68.0 million which expire at various dates beginning in 2006 through 2015 and state research and development tax credits of approximately $1.8 million have no expiration date. As a result of the annual limitation, anticipated and future losses or changes in ownership of the company, all or a portion of these carryforwards may expire before becoming available to reduce our federal and state income tax liabilities.

Series A Preferred Stock and Dividends

In January 2000, we issued 12,015 shares of Series A Preferred Stock at a price of $1,000 per share to fund our 80.1% share of the initial capitalization of DDL. The Series A Preferred Stock accrues a dividend of 7% per annum, compounded semi-annually and payable in shares of Series A Preferred Stock. The Series A Preferred Stock and dividends are convertible at anytime into our common stock. The original conversion price of the Series A Preferred Stock was $12.00. However, as a result of our March 2002 and October 2003 financing, the conversion price has been adjusted to $9.51 per share. In December 2004, we entered into an agreement with the Series A Preferred stockholder to resolve a misunderstanding between us and the stockholder relating primarily to prior adjustments to the conversion price of the Series A Preferred Stock (the December 2004 Agreement). Pursuant to the December 2004 Agreement, among other matters, we agreed to adjust the conversion price to $7.50 per share. We and the stockholder also agreed to binding interpretations of certain other terms related to the Series A conversion price.

Prior to December 2004, the amounts calculated as Series A Preferred stock dividends were accounted for as an adjustment to the conversion price following EITF Issue No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios (Issue No. 98-5).As a result of the December 2004 Agreement, we determined that a significant modification of the preferred stock agreement had occurred, and, therefore, a new commitment date was established for the Series A Preferred Stock. Further, we determined that the fair value of the modified preferred stock was below the carrying value of such securities as of

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the date of the modification, therefore, no deemed dividend resulted from this modification. Also, we determined that although a new commitment date had been established, this change did not result in a beneficial conversion feature subject to recognition pursuant to Emerging Issues Task Force Issue No. 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments. However, an anti-dilution provision of the Series A Preferred Stock was triggered by the Company’s January 2005 financing, which adjusted the conversion price of the Series A Preferred Stock to $7.12. As a result of the adjusted conversion price and an increase in the amount of common stock issuable upon conversion of the Series A Preferred Stock due to additional accumulated dividends, the Series A Preferred Stock now contains a “beneficial conversion feature” subject to recognition pursuant to Issue No. 98-5. For the year ended December 31, 2005, we recognized Series A Preferred Stock deemed dividends of approximately $842,000 attributable to the beneficial conversion feature. We will continue to recognize Series A Preferred Stock deemed dividends until the earlier of, the time the Series A Preferred Stock is converted to common stock or January 2009.

In conjunction with the Series A Preferred stockholder agreement, we issued a warrant to the Series A Preferred stockholder. The warrant is exercisable for shares of our common stock during the period between January 2006 and January 2009. The exercise price of the warrant initially will be equal to the Series A Preferred Stock conversion in effect as of January 20, 2006. The exercise price of the warrant will decrease by approximately 4.8% per year during the exercise period, such that the number of shares of our common stock issuable upon exercise of the warrant will increase by approximately 5.1% per year. The exercise of the warrant will be satisfied only by surrender of outstanding shares of Series A Preferred Stock.

Stock-Based Compensation Expense

In December 2002, our Board of Directors authorized an increase in the number of shares authorized for issuance under our 1995 Stock Option Plan (the Plan) by 1,306,811 shares. On May 29, 2003, at the 2003 Annual Meeting of Shareholders, our shareholders approved the increase to the Plan. In December 2002 and March 2003, we granted options to purchase approximately 585,000 shares of common stock out of the 1,306,811 share increase of common stock at exercise prices of $1.71 and $2.70, respectively, which represented the fair market values of our common stock on the respective dates of grant. However, as the options were not deemed authorized for grant until the shareholders approved the increase in the number of shares authorized under the Plan, the applicable measurement date for accounting purposes was on the date such approval was obtained. Since the fair market value of the underlying common stock on May 29, 2003 was $3.50, which was greater than the exercise prices of the stock options granted, we were required to record the difference of approximately $1,015,000 as deferred stock-based compensation expense to be recognized ratably over the vesting period of the related stock options. In the year ended December 31, 2005, we recognized approximately $243,000 in stock-based compensation expense related to the stock options.

Common Stock Equivalents

Common stock equivalent shares from outstanding stock options, warrants and other convertible securities and loans as of December 31 are shown below:

	2005			2004			2003
	Common Equivalent Shares	Weighted- Average Exercise Price		Common Equivalent Shares	Weighted- Average Exercise Price		Common Equivalent Shares	Weighted- Average Exercise Price
Stock options	4,371,964	$	4.44	4,346,620	$	4.37	3,820,898	$	4.16
Warrants	2,010,071	$	3.16	2,942,404	$	2.89	3,211,283	$	3.09
Convertible preferred shares and accrued dividends	2,540,949			2,251,822			1,478,690	—
Convertible promissory note and accrued interest	—			1,338,620			1,037,709	—
Biovail Purchaser’s Option				3,901,961	$	8.21	3,871,467	$	6.73
	8,922,984			14,781,427			13,420,047

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Related Party Transactions

Consulting Agreement

In September 1998, we entered into a consulting agreement with Burrill & Company, whereby we were required to pay a monthly retainer of $5,000 and other fees related to partnering arrangements. The principal of Burrill & Company, G. Steven Burrill is a director of Depomed. We terminated the agreement as of November 30, 2003. For the year ended December 31, 2003, we paid a total of $55,000 in connection with this agreement.

AVI BioPharma, Inc.

In June 2000, we entered into a joint collaboration to investigate the feasibility of controlled oral delivery of AVI’s proprietary NEUGENE® antisense agents. Our Chairman, President and Chief Executive Officer, John W. Fara, is currently serving as a director of AVI BioPharma, Inc. No revenues have been received under this agreement.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

Cash provided by operations in the year ended December 31, 2005 was approximately $28,817,000, compared to cash used in operations of approximately $23,268,000 and $33,148,000 for the years ended December 31, 2004 and 2003, respectively. In 2005, the change in cash used in operations was due primarily to increases in deferred revenue related to license payments received under our agreements with Esprit and Biovail, partially offset by the net loss. In 2004, the change in cash used in operations was due primarily to the net loss and movements in working capital.

Investing Activities

Cash used in investing activities in the year ended December 31, 2005 totaled approximately $34,822,000 and consisted of a net increase in marketable securities of $34,031,000 resulting from investment of license fees received under our agreements with Esprit and Biovail in the third quarter of 2005 and $791,000 in purchases of lab and office equipment. Cash provided by investing activities in the year ended December 31, 2004 totaled approximately $4,086,000 and consisted primarily of a net decrease in marketable securities of $6,758,000 that was partially offset by $2,626,000 in purchases of capital equipment and leasehold improvements, including approximately $1,936,000 to build out the additional space we leased in May 2003. Cash used in investing activities in the year ended December 31, 2003 totaled approximately $16,718,000 and consisted primarily of a net increase in marketable securities of $15,589,000 and $1,123,000 of purchases of lab equipment, furniture, computers and leasehold improvements. Marketable securities were increased in 2003 after the completion of our public offering in the fourth quarter. We expect future capital expenditures will include additional product development and quality control laboratory equipment to maintain current Good Manufacturing Practices (cGMP) in our laboratories.

Financing Activities

Cash provided by financing activities for the year ended December 31, 2005 was $12,618,000 and consisted primarily of $21,019,000 of net proceeds from our registered direct public offering of 5,036,000 shares of common stock for $4.50 per share in January 2005 and $1,370,000 in proceeds from the exercise of stock options, warrants and purchases of common stock under our employee stock purchase plan, which were partially offset by the repayment of the Elan promissory note of $9,665,000 and $106,000 in payments on equipment loans and capital lease obligations. Cash provided by financing activities for the year ended December 31, 2004 was $91,000 and consisted primarily of $419,000 of proceeds from exercises of stock options and warrants partially offset by $328,000 in payments on equipment loans and capital leases. Cash provided by financing activities for the year ended December 31, 2003 was $58,377,000 and consisted primarily of net proceeds of $18,668,000 received in April 2003 from a private placement of common stock and net proceeds of $38,227,000 received from our public offering of common stock in the fourth quarter. Proceeds received in 2003 were partially offset by $441,000 in payments on equipment loans and capital leases.

Contractual Obligations and Capital Resources

Through December 31, 2005, we have invested approximately $8,405,000 in equipment, furniture and leasehold improvements, of which approximately $1,947,000 was financed through long-term debt equipment

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financing arrangements. As of December 31, 2002, there were no further borrowings available under the financing arrangements. If we do not obtain additional credit arrangements, we will need to spend our own resources for future equipment purchases.

As of December 31, 2005, our aggregate contractual obligations for the next three years are as shown in the following table. We have no contractual obligations with maturities greater than three years.

			Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1 to 3 years
Operating leases	$	2,305,270	$	979,162	$	1,326,108
Purchase orders	91,144		91,144		—
	$	2,396,414	$	1,070,306	$	1,326,108

As of December 31, 2005, we had approximately $59,073,000 in cash, cash equivalents and marketable securities, working capital of $54,931,000, and accumulated net losses of $144,452,000. In July 2005, we received a $25.0 million payment from Biovail for the FDA approval of Glumetza and $30.0 million from Esprit as upfront license fees for ProQuin XR. Esprit is required to pay us additional license fees totaling $20 million, in equal installments, on July 21, 2006 and July 21, 2007. We expect to continue to incur operating losses for at least the next year. We anticipate that our existing capital resources will permit us to meet our capital and operational requirements through at least December 2007. However, we base this expectation on our current operating plan, which may change as a result of many factors. Our cash needs may vary materially from our current expectations because of numerous factors, including:

•      results of research and development efforts;

•      financial terms of definitive license agreements or other commercial agreements we enter into, if any;

•      relationships with collaborative partners;

•      resolution of any disputes with collaborative partners;

•      changes in the focus and direction of our research and development programs;

•      technological advances;

•      results of clinical testing, requirements of the FDA and comparable foreign regulatory agencies; and

•      acquisitions or investment in complimentary businesses, products or technologies.

We will need substantial funds of our own or from third parties to:

•      conduct research and development programs;

•      conduct preclinical and clinical testing; and

•manufacture (or have manufactured) and market (or have marketed) potential products using the GR System.

Our existing capital resources may not be sufficient to fund our operations until such time as we may be able to generate sufficient revenues to support our operations. We have limited credit facilities and no other committed sources of capital. To the extent that our capital resources are insufficient to meet our future capital requirements, we will have to raise additional funds through the sale of our equity securities or from development and licensing arrangements to continue our development programs. We may not be able to raise such additional capital on favorable terms, or at all. If we raise additional capital by selling our equity or convertible debt securities, the issuance of such securities could result in dilution of our shareholders’ equity positions. If adequate funds are not available we may have to:

•      delay, postpone or terminate clinical trials;

•      curtail other operations significantly; and/or

•      obtain funds through entering into collaboration agreements on unattractive terms.

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The inability to raise capital would have a material adverse effect on our company.

Recently Issued Accounting Standards

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement No. 123R, Share-Based Payment (FAS 123R), which is a revision of FAS 123. FAS 123R supersedes APB No. 25 and amends FAS No. 95, Statement of Cash Flows. Generally, the approach in FAS 123R is similar to the approach described in FAS 123. FAS 123R requires all share-based payments to employees and directors, including grants of employee and director stock options, to be recognized in the statement of operations based on their fair values. Pro forma disclosure is no longer an alternative. In April 2005, the Securities and Exchange Commission adopted a new rule amending the compliance dates for FAS 123R. In accordance with the new rule, we will adopt FAS 123R on January 1, 2006.

FAS 123R permits public companies to adopt its requirements using one of two methods:  1) a “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of FAS 123R for all share-based payments granted after the effective date and (b) based on the requirements of FAS 123 for all awards granted to employees and directors prior to the effective date of FAS 123R that remain unvested on the effective date; or 2) a “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under Statement 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption. We plan to adopt FAS 123R using the modified prospective method.

As permitted by FAS 123, we currently account for share-based payments to employees and directors using APB No. 25’s intrinsic value method and, as such, recognize no compensation cost for employee and director stock options where the exercise price equals the fair market value of the underlying common shares on the measurement date. Accordingly, the adoption of FAS 123R’s fair value method will have a significant impact on our results of operations, although it will have no impact on our overall financial position. The impact of adoption of FAS 123R cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted FAS 123R in prior periods, the impact of that standard would have approximated the impact of FAS 123 as described in the disclosure of pro forma net loss and loss per share in Note 1, Summary of Significant Accounting Policies, Stock-Based Compensation to our Notes to Consolidated Financial Statements. We estimate that stock options granted prior to December 31, 2005 are expected to result in expense of approximately $1.7 million in 2006.

In June 2005, the FASB issued FAS No. 154, Accounting Changes and Error Corrections (FAS 154). FAS 154 replaces APB Opinion No. 20, Accounting Changes and FAS No. 3, Reporting Accounting Changes in Interim Financial Statements. FAS 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle unless it is impractical to do so. FAS 154 is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. The implementation of FAS 154 is not expected to have a material impact on our financial statements.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs—an amendment of ARB No. 43, Chapter 4”. SFAS No. 151 amends the guidance in Accounting Research Bulletin, or ARB, No. 43, Chapter 4, “Inventory Pricing”, to clarify that abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) are to be recognized as current-period charges. SFAS No. 151 is effective for fiscal years beginning after June 15, 2005. SFAS No. 151 is not expected to have a material impact on the Company’s financial statements.

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Item 7A.Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Sensitivity

Our operating results have not been sensitive to changes in the general level of U.S. interest rates, particularly because most of our cash equivalents and marketable securities are invested in short-term debt instruments. If market interest rates were to change immediately and uniformly by 10% from levels at December 31, 2005, the fair value of our cash equivalents and marketable securities would not change by a significant amount.

Foreign Currency Fluctuations

We have not had any significant transactions in foreign currencies, nor did we have any balances that were due or payable in foreign currencies at December 31, 2005. Therefore, a hypothetical 10% change in foreign currency rates would not have an impact on our financial position and results of operations. We do not hedge any of our foreign currency exposure.

Item 8.Financial Statements and Supplementary Data

The financial statements and supplementary data required by Item 8 are set forth below on pages F-1 through F-27.

Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.Controls and Procedures

(a)  Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

At the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2005 to ensure that information to be disclosed by us in this Annual Report on Form 10-K was recorded, processed summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and Form 10-K.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. There were no changes in our internal controls over financial reporting during the quarter ended December 31, 2005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We intend to review and evaluate the design and effectiveness of our disclosure controls and procedures on an ongoing basis and to correct any material deficiencies that we may discover. Our goal is to ensure that our management has timely access to material information that could affect our business. While we believe the present design of our disclosure controls and procedures is effective to achieve our goal, future events affecting our business may cause us to modify our disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

35

(b)  Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control - Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2005.

Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2005 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein.

36

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
Depomed, Inc.

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

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

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

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

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

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Depomed, Inc. as of December 31, 2005 and 2004, and the related consolidated statements of operations, redeemable preferred stock and shareholders’ equity (net capital deficiency), and cash flows for each of the three years in the period ended December 31, 2005 of Depomed, Inc. and our report dated March 15, 2006 expressed an unqualified opinion thereon.

Palo Alto, California

March 15, 2006

37

Item 9B.Other Information

On February 6, 2006, the compensation committee of Depomed’s board of directors approved the payment of bonuses to executive officers pursuant to Depomed’s bonus plan, and increases in the executive officers’ base salaries retroactive to January 1, 2006.  On February 10, 2006, Depomed’s executive officers received discretionary stock option grants under Depomed’s 2004 Equity Incentive Plan.  The bonus payments, base salary increases, and stock option grants are set forth in the table below.  The exercise price for each stock option is $6.29, the fair market value of Depomed’s common stock determined in accordance with the 2004 Equity Incentive Plan.  Each option vests in equal monthly installments over 48 months, with the exception of Mr. Pelzel’s option which is subject to a four-month cliff period followed by 44 months of equal monthly vesting.

Officer	Bonus Amount ($ )	Base Salary & Increase % ($ / %)	Stock Options Granted (#)
John W. Fara, Ph.D. Chairman, President and Chief Executive Officer	267,000	500,000 / 5.8	200,250
Carl A. Pelzel Executive Vice President and Chief Operating Officer	62,000	325,000 / 10.2	23,250
John F. Hamilton Vice President, Finance and Chief Financial Officer	113,000	294,000 / 5.0	84,750
Bret Berner, Ph.D. Vice President, Product Development and Chief Scientific Officer	112,000	275,000 / 5.8	84,000
John N. Shell Vice President, Operations	60,000	262,000 / 5.3	45,000

38

PART III

Item 10.Directors and Executive Officers of the Registrant

The information required by this Item with respect to executive officers is set forth in Part I of this report and the information with respect to directors, code of ethics, audit committee and audit committee financial experts of the company is incorporated by reference to the information set forth under the caption “Election of Directors” in the company’s Proxy Statement for the 2006 Annual Meeting of Shareholders.

The section entitled “Compliance Under Section 16(a) of the Securities Exchange Act of 1934” appearing in the Proxy Statement for the 2006 Annual Meeting of Shareholders sets forth the information concerning compliance by officers, directors and 10% shareholders of the company with Section 16 of the Exchange Act of 1934 and is incorporated herein by reference.

Item 11.Executive Compensation

The information required by this Item is incorporated herein by reference to the information set forth under the caption “Executive Compensation” in the Proxy Statement for the 2006 Annual Meeting of Shareholders.

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

The information required by this Item is incorporated herein by reference to the information set forth under the caption “Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters” in the Proxy Statement for the 2006 Annual Meeting of Shareholders.

Item 13.Certain Relationships and Related Transactions

The information required by this Item is incorporated herein by reference to the information set forth under the caption “Certain Relationships and Related Transactions” in the Proxy Statement for the 2006 Annual Meeting of Shareholders.

Item 14.Principal Accountant Fees and Services

The information required by this Item is incorporated herein by reference to the information set forth under the caption “Principal Accountant Fees and Services” in the Proxy Statement for the 2006 Annual Meeting of Shareholders.

PART IV

Item 15.Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) 1.   Financial Statements

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Cash Flows

Consolidated Statement of Redeemable Preferred Stock and Shareholders’ Equity (Net Capital Deficiency)

Notes to Consolidated Financial Statements

(a) 2.   Financial Statement Schedules

All schedules have been omitted because the required information is not present or because the information required is included in the financial statements, including the notes thereto.

39

(a) 3.   Exhibits:

3.1(1)	Amended and Restated Articles of Incorporation
3.2 (9)	Certificate of Amendment to Amended and Restated Articles of Incorporation
3.3(2)	Certificate of Determination of Rights and Preferences of Series A Preferred Stock filed with the State of California on January 14, 2000
3.4(15)	Bylaws, as amended
3.5(17)	Certificate of Determination of Series RP Preferred Stock of the company
4.1(3)	Form of Subscription Agreement dated as of May 2, 2001
4.2(3)	Supplement to Form of Subscription Agreement dated as of May 29, 2001
4.3(3)	Form of Warrant dated as of June 13, 2001
4.4(5)	Form of Subscription Agreement dated as of March 14, 2002
4.5(5)	Placement Agent Warrant dated as of March 14, 2002
4.6(10)	Form of Warrant dated as of April 21, 2003
10.1(6)	1995 Stock Option Plan, as amended
10.2(1)	Agreement re: Settlement of Lawsuit, Conveyance of Assets and Assumption of Liabilities dated August 28, 1995 by and among Depomed Systems, Inc., Dr. John W. Shell and M6 Pharmaceuticals, Inc.
10.3(1)	Form of Indemnification Agreement between the company and its directors and executive officers
10.4(4)	Loan agreement dated March 29, 2001 between the company and GATX Ventures, Inc.
+10.5(7)	Stock Purchase Agreement, dated as of May 28, 2002, between the company and Biovail Laboratories Incorporated
10.6(8)	Settlement and Release Agreement, dated as of November 22, 2002, between the company and Bristol-Myers Squibb Company
10.7(10)	Depomed, Inc. Securities Purchase Agreement, dated as of April 21, 2003
10.8(11)	Lease extension agreement dated April 30, 2003 between the company and Menlo Business Park LLC
10.9(11)	Lease agreement dated April 30, 2003 between the company and Menlo Park Business Park LLC
10.10(12)	Termination Agreement, dated as of September 16, 2003 among the company, Elan Corporation, plc, Elan Pharma International Limited, Ltd. and Depomed Development, Ltd.
10.11(12)	Exclusive License Agreement, dated as of September 18, 2003, between the company and Depomed Development, Ltd.
10.12(13)	2004 Equity Incentive Plan
10.13(13)	2004 Employee Stock Purchase Plan
10.14(14)	Agreement, dated as of December 10, 2004, between the company and Kings Road Investments, Ltd.
10.15(16)	Rights Agreement, dated as of April 21, 2005, between the company and Continental Stock Transfer and Trust Company as Rights Agent
10.16(18)	Offer Letter dated June 14, 2005 between the Company and Carl Pelzel
10.17(19)	Convertible Note Repurchase Agreement, dated as of June 24, 2005, between the company and Elan Pharma International Limited
10.18(20)	Bonus Plan
+10.19(21)	Exclusive License and Marketing Agreement dated July 21, 2005 between the company and Esprit Pharma
*10.20	Technology Transfer and Commercial Manufacturing Agreement dated October 18, 2005 between the company and MOVA Pharmaceutical Corporation
*10.21	Amended and Restated License Agreement dated December 13, 2005 between the company and Biovail Laboratories International SRL
*10.22	Supply Agreement dated December 13, 2005 between the company and Biovail Laboratories International SRL
*10.23	Manufacturing Transfer Agreement dated December 13, 2005 between the Company and Biovail Laboratories International SRL
23.1	Consent of Independent Registered Public Accounting Firm
24.1	Power of Attorney (See Page 37)
31.1	Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 of John W. Fara, Ph.D.
31.2	Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of John F. Hamilton
32.1	Certification pursuant to 18 U.S.C. Section 1350 of John W. Fara, Ph.D.
32.2	Certification pursuant to 18 U.S.C. Section 1350 of John F. Hamilton

(1)	Incorporated by reference to the company’s registration statement on Form SB-2 (File No. 333-25445)
(2)	Incorporated by reference to the company’s Form 8-K filed on February 18, 2000
(3)	Incorporated by reference to the company’s registration statement on Form S-3 (File No. 333-66688) filed on August 3, 2001
(4)	Incorporated by reference to the company’s Form 10-Q filed on November 14, 2001
(5)	Incorporated by reference to the company’s registration statement on Form S-3 (File No. 333-86542) filed on April 18, 2002

40

(6)	Incorporated by reference to the company’s registration statement on Form S-8 (File No. 333-101796) filed on December 12, 2002
(7)	Incorporated by reference to the company’s Form 8-K/A dated May 28, 2002 and filed on December 23, 2002
(8)	Incorporated by reference to the company’s Form 8-K/A dated November 22, 2002 and filed on December 23, 2002
(9)	Incorporated by reference to the company’s Form 10-K filed on March 31, 2003
(10)	Incorporated by reference to the company’s Form 8-K filed on April 25, 2003
(11)	Incorporated by reference to the company’s Form 10-Q filed on August 14, 2003
(12)	Incorporated by reference to the company’s Form 10-Q filed on November 14, 2003
(13)	Incorporated by reference to the company’s Form S-8 filed on June 21, 2004
(14)	Incorporated by reference to the company’s Form 8-K filed on December 14, 2004
(15)	Incorporated by reference to the company’s Form 8-K filed on April 19, 2005
(16)	Incorporated by reference to the company’s Form 8-A filed on April 22, 2005
(17)	Incorporated by reference to the company’s Form 10-Q filed on May 10, 2005
(18)	Incorporated by reference to the company’s Form 8-K filed on June 17, 2005
(19)	Incorporated by reference to the company’s Form 8-K filed on June 29, 2005
(20)	Incorporated by reference to the company’s Form 8-K filed on July 15, 2005
(21)	Incorporated by reference to the company’s Form 10-Q filed on November 9, 2005
+	Confidential treatment granted
*	Confidential treatment requested

41

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the issuer, a corporation organized and existing under the laws of the State of California, has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Menlo Park, State of California, on the 16^th day of March, 2006.

DEPOMED, INC.
By	/s/ JOHN W. FARA, Ph.D.
	John W. Fara, Ph.D. Chairman, President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints John W. Fara and John F. Hamilton, and each of them acting individually, as his true and lawful attorneys-in-fact and agents, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, with full power of each to act alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons in the capacities and on the dates indicated.

Signature
/s/ JOHN W. FARA, Ph.D.	Chairman, President and Chief Executive	March 16, 2006
John W. Fara, Ph.D.	Officer (Principal Executive Officer)
/s/ JOHN F. HAMILTON	Vice President, Finance and Chief	March 16, 2006
John F. Hamilton	Financial Officer (Principal Financial Officer)
/s/ G. STEVEN BURRILL	Director	March 16, 2006
G. Steven Burrill
/s/ GERALD T. PROEHL	Director	March 16, 2006
Gerald T. Proehl
/s/ JOHN W. SHELL, Ph.D.	Director	March 16, 2006
John W. Shell, Ph.D.
/s/ CRAIG R. SMITH, M.D.	Director	March 16, 2006
Craig R. Smith, M.D.
/s/ PETER D. STAPLE	Director	March 16, 2006
Peter D. Staple
/s/ JULIAN N. STERN	Director and Secretary	March 16, 2006
Julian N. Stern

42

DEPOMED, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

DEPOMED, INC. CONSOLIDATED FINANCIAL STATEMENTS

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Depomed, Inc.

We have audited the accompanying consolidated balance sheets of Depomed, Inc. as of December 31, 2005 and 2004, and the related consolidated statements of operations, redeemable preferred stock and shareholders’ equity (net capital deficiency), and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

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

As described in Note 2 of the consolidated financial statements, in 2003 the Company changed its method of accounting for variable interest entities.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Depomed, Inc.’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2006 expressed an unqualified opinion thereon.

Palo Alto, California

March 15, 2006

F-2

DEPOMED, INC.

CONSOLIDATED BALANCE SHEETS

	December 31,
	2005			2004
ASSETS
Current assets:
Cash and cash equivalents	$	7,565,556		$	953,295
Marketable securities	51,507,509			17,151,544
Accounts receivable	1,094,840			—
Unbilled accounts receivable	861,576			—
Inventories	864,786			—
Prepaid and other current assets	1,107,710			442,349
Total current assets	63,001,977			18,547,188
Property and equipment, net	3,146,611			3,941,127
Other assets	228,926			380,268
	$	66,377,514		$	22,868,583
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,588,999		$	1,733,474
Accrued compensation	1,989,606			910,723
Other accrued liabilities	781,793			556,084
Deferred margin	45,486			—
Capital lease obligation, current portion	—			32,412
Long-term debt, current portion	—			73,008
Deferred revenue, current portion	3,572,196			75,000
Other current liabilities	93,073			93,073
Total current liabilities	8,071,153			3,473,774
Promissory note from related party	—			10,280,591
Deferred revenue, non-current portion	51,421,263			493,750
Other long-term liabilities	124,099			217,170
Commitments
Shareholders’ equity:
Preferred stock, no par value, 5,000,000 shares authorized; Series A convertible preferred stock, 25,000 shares designated, 17,543 and 15,821 shares issued and outstanding at December 31, 2005 and 2004, respectively, with an aggregate liquidation preference of $18,091,559	12,015,000			12,015,000
Common stock, no par value, 100,000,000 shares authorized; 40,689,369 and 34,691,190 shares issued and outstanding at December 31, 2005 and 2004, respectively	139,640,599			117,070,946
Deferred compensation	(337,049		)	(621,980		)
Accumulated deficit	(144,451,897		)	(119,984,625		)
Accumulated other comprehensive (loss)	(105,654		)	(76,043		)
Total shareholders’ equity	6,760,999			8,403,298
	$	66,377,514		$	22,868,583

See accompanying notes.

F-3

DEPOMED, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended December 31,
	2005			2004			2003
Revenue:
Collaborative revenue	$	2,230,625		$	171,319		$	981,990
License revenue	575,291			31,250			—
Royalties	668,789			—			—
Product sales	930,624			—			—
Total revenue	4,405,329			202,569			981,990
Costs and expenses:
Cost of sales	908,521			—			—
Research and development	18,369,217			21,358,802			26,416,425
General and administrative	11,639,118			5,178,539			3,964,020
Total operating expenses	30,916,856			26,537,341			30,380,445
Loss from operations	(26,511,527		)	(26,334,772		)	(29,398,455		)
Other income (expenses):
Equity in loss of joint venture	—			—			(5,359		)
Gain from extinguishment of debt	1,058,935			—			—
Interest and other income	1,445,057			489,013			299,140
Interest expense	(459,737		)	(928,878		)	(910,424		)
Total other income (expenses)	2,044,255			(439,865		)	(616,643		)
Net loss before income taxes	(24,467,272		)	(26,774,637		)	(30,015,098		)
Provision for income taxes	—			(99,000		)	—
Net loss	(24,467,272		)	(26,873,637		)	(30,015,098		)
Deemed dividend on preferred stock	(842,202		)	—			—
Net loss applicable to common stock shareholders	$	(25,309,474	)	$	(26,873,637	)	$	(30,015,098	)
Basic and diluted net loss applicable to common stock shareholders per share	$	(0.64	)	$	(0.78	)	$	(1.23	)
Shares used in computing basic and diluted net loss per share	39,821,182			34,628,825			24,458,259

See accompanying notes.

F-4

DEPOMED, INC.

CONSOLIDATED STATEMENT OF REDEEMABLE PREFERRED STOCK

AND SHAREHOLDERS’ EQUITY (NET CAPITAL DEFICIENCY)

Period from December 31, 2002 to December 31, 2005

	Convertible Exchangeable Preferred Stock					Preferred Stock			Common Stock				Deferred Stock-Based			Accumulated			Accumulated Other Comp- rehensive Income			Shareholders’ Equity (Net Capital
	Shares		Amount			Shares	Amount		Shares	Amount			Compensation			Deficit			(Loss)			Deficiency)
Balances at December 31, 2002	12,015		$	12,015,000		—	$	—	16,460,566	$	56,679,288		$	—		$	(63,095,890	)	$	2,736		$	(6,413,866	)
Issuance of common stock, net of issuance costs	—		—			—	—		16,734,259	56,895,709			—			—			—			56,895,709
Issuance of common stock upon exercise of options	—		—			—	—		31,270	95,856			—			—			—			95,856
Issuance of common stock upon exercise of warrants	—		—			—	—		1,343,117	1,826,481			—			—			—			1,826,481
Stock-based compensation	—		—			—	—		—	1,043,507			(1,015,144		)	—			—			28,363
Amortization of deferred stock-based compensation	—		—			—	—		—	—			151,272			—			—			151,272
Issuance of preferred stock	(12,015	)	(12,015,000		)	12,015	12,015,000		—	—			—			—			—			12,015,000
Comprehensive loss:
Net loss	—		—			—	—		—	—			—			(30,015,098		)	—			(30,015,098		)
Unrealized gain (loss) on available-for-sale securities	—		—			—	—		—	—			—			—			(7,563		)	(7,563		)
Comprehensive loss																						(30,022,661		)
Balances at Dec. 31, 2003	—		—			12,015	12,015,000		34,569,212	116,540,841			(863,872		)	(93,110,988		)	(4,827		)	34,576,154
Common stock issuance costs	—		—			—	—		—	(935		)	—			—			—			(935		)
Issuance of common stock upon exercise of options	—		—			—	—		35,902	92,496			—			—			—			92,496
Issuance of common stock upon exercise of warrants	—		—			—	—		38,544	139,523			—			—			—			139,523
Issuance of common stock under employee stock purchase plan	—		—			—	—		47,532	188,227			—			—			—			188,227
Stock-based compensation	—		—			—	—		—	110,794			(15,629		)	—			—			95,165
Amortization of deferred stock-based compensation	—		—			—	—		—	—			257,521			—			—			257,521
Issuance of preferred stock	—		—			3,806	—		—	—			—			—			—			—
Comprehensive loss:
Net loss	—		—			—	—		—	—			—			(26,873,637		)	—			(26,873,637		)
Unrealized gain (loss) on available-for-sale securities	—		—			—	—		—	—			—			—			(71,216		)	(71,216		)
Comprehensive loss																						(26,944,853		)
Balances at Dec. 31, 2004	—		—			15,821	12,015,000		34,691,190	117,070,946			(621,980		)	(119,984,625		)	(76,043		)	8,403,298
Issuance of common stock, net of issuance costs	—		—			—	—		5,036,000	21,019,267			—			—			—			21,019,267
Issuance of common stock upon exercise of options	—		—			—	—		234,468	709,059			—			—			—			709,059
Issuance of common stock upon exercise of warrants	—		—			—	—		625,152	279,732			—			—			—			279,732
Issuance of common stock under employee stock purchase plan	—		—			—	—		102,559	381,005			—			—			—			381,005
Stock-based compensation	—		—			—	—		—	214,585			—			—			—			214,585
Amortization of deferred stock-based compensation	—		—			—	—		—	(33,995		)	284,931			—			—			250,936
Issuance of preferred stock	—		—			1,722	—		—	—			—			—			—			—
Comprehensive loss:
Net loss	—		—			—	—		—	—			—			(24,467,272		)	—			(24,467,272		)
Unrealized gain (loss) on available-for-sale securities	—		—			—	—		—	—			—			—			(29,611		)	(29,611		)
Comprehensive loss																						(24,496,883		)
Balances at Dec. 31, 2005	—		$	—		17,543	$	12,015,000	40,689,369	$	139,640,599		$	(337,049	)	$	(144,451,897	)	$	(105,654	)	$	6,760,999

See accompanying notes.

F-5

DEPOMED, INC

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2005			2004			2003
Operating Activities
Net loss	$	(24,467,272	)	$	(26,873,637	)	$	(30,015,098	)
Adjustments to reconcile net loss to net cash used in operating activities:
Equity in loss of joint venture	—			—			5,359
Depreciation and amortization	1,138,912			1,443,749			893,406
Gain on extinguishment of debt	(1,058,935		)	—			—
Accrued interest expense on shareholder notes	443,344			868,566			793,308
Employee and director stock-based compensation	385,960			257,521			151,272
Stock-based compensation issued to consultants	79,560			95,165			28,363
Changes in assets and liabilities:
Accounts receivable	(1,956,416		)	278,452			23,417
Inventories	(864,786		)	—			—
Other current assets	(665,361		)	249,842			(157,840		)
Other assets	151,342			(54,132		)	(34,260		)
Accounts payable and other accrued liabilities	81,234			(203,644		)	(4,910,627		)
Accrued compensation	1,078,883			101,214			380,018
Other current liabilities	—			—			(305,166		)
Deferred revenue	54,424,709			568,750			—
Deferred margin	45,486			—			—
Net cash provided by (used in) operating activities	28,816,660			(23,268,154		)	(33,147,848		)
Investing Activities
Investment in equity joint venture	—			—			(5,359		)
Expenditures for property and equipment	(791,247		)	(2,672,635		)	(1,122,950		)
Purchases of marketable securities	(64,197,066		)	(21,557,673		)	(41,368,779		)
Maturities of marketable securities	26,069,548			12,061,752			12,592,424
Sales of marketable securities	4,096,496			16,254,096			13,187,061
Net cash (used in) provided by investing activities	(34,822,269		)	4,085,540			(16,717,603		)
Financing Activities
Payments on capital lease obligations	(33,186		)	(38,541		)	(20,373		)
Payments on equipment loans	(73,008		)	(289,559		)	(420,850		)
Payment of promissory note from related party	(9,665,000		)	—			—
Proceeds from issuance of common stock	22,389,064			419,311			58,818,046
Net cash provided by financing activities	12,617,870			91,211			58,376,823
Net increase in cash and cash equivalents	6,612,261			(19,091,403		)	8,511,372
Cash and cash equivalents at beginning of year	953,295			20,044,698			11,533,326
Cash and cash equivalents at end of year	$	7,565,556		$	953,295		$	20,044,698
Supplemental Schedule of Non-Cash Financing and Investing Activities
Value of leasehold improvement allowance	$	—		$	356,780		$	—
Deferred compensation related to stock options granted to employees and consultants	$	—		$	31,500		$	1,015,144
Acquisition of property and equipment under capital leases	$	774		$	31,761		$	22,042
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest	$	459,737		$	928,878		$	910,424
Taxes	$	—		$	99,000		$	—

See accompanying notes.

F-6

DEPOMED, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  Organization and Basis of Presentation

Organization

Depomed, Inc. (the “Company” or “Depomed”) is a specialty pharmaceutical company engaged in the development of pharmaceutical products based on the Company’s proprietary oral drug delivery technologies.  The Company was incorporated in the State of California on August 7, 1995.  Since the Company’s inception, it has devoted its resources primarily to fund research and development programs. In the fourth quarter of 2005, the Company transitioned from a development-stage organization to a commercial entity.

In 2005, the United States Food and Drug Administration approved two products developed by the Company.  In July 2005, the Company licensed its ProQuin XR, a once-daily formulation of the antibiotic drug ciprofloxacin for uncomplicated urinary tract infections, to Esprit Pharma, Inc. (Esprit).  In November 2005, Esprit commercially launched ProQuin XR in the United States.  The Company licensed manufacturing and marketing rights for Canada to its second product, 500mg Glumetza, a once-daily metformin product for Type II diabetes, to Biovail Corporation (Biovail).  In November 2005, Biovail launched the 500mg Glumetza in Canada.

2.  Summary of Significant Accounting Policies

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. Actual results could differ from those estimates.

Principles of Consolidation

The consolidated financial statements for the year ended December 31, 2005 and 2004, include the accounts of the Company and DDL, its subsidiary which was formerly 19.9% owned by Elan. On July 1, 2003, the Company consolidated DDL, a variable interest entity in which the Company is the primary beneficiary, pursuant to the Financial Accounting Standards Board (FASB) Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46), an interpretation of Accounting Research Bulletin No. 51. In June 2004, the Company acquired Elan’s 19.9% interest and DDL became a wholly owned and consolidated subsidiary.  Material intercompany accounts and transactions have been eliminated.  In the fourth quarter of 2005, the Company’s Board of Directors approved the dissolution of DDL.

Change in Accounting Principle

In January 2003, the FASB issued FIN 46, which requires a variable interest entity (VIE) to be consolidated by a company if that company absorbs a majority of the VIE’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interest in the VIE.

The Company adopted FIN 46 on July 1, 2003, and consolidated DDL as of that date, as it was determined that DDL was a VIE, as defined by FIN 46, and that the Company absorbed a majority of DDL’s expected losses. Accordingly, the Company was required to consolidate the assets and liabilities of DDL on July 1, 2003, which did not have a material impact on the Company. Also, as the Company had been responsible for 80% of DDL’s losses under the terms of the joint venture agreements with Elan, the Company had been recognizing 80% of DDL’s losses under the equity method of accounting prior to July 1, 2003. Since the inception of DDL through June 30, 2003, the Company had recognized approximately $19.8 million, or 80% of DDL’s expenses. Upon the adoption of FIN 46, the Company calculated what the impact would have been on its operations had it consolidated 100% of DDL’s expenses and recorded an offsetting “noncontrolling interest” equal to 20% of DDL’s expenses for the period from DDL’s inception through June 30, 2003. As the impact on the Company’s

F-7

net loss would have been the same as what the Company has recorded as equity in loss of joint venture through June 30, 2003, or $19.8 million, there was no cumulative catch-up charge to record upon the adoption of FIN 46.

The Company’s results of operations include 100% of the operating results of DDL for the six months ended December 31, 2003. The noncontrolling interest for the quarter was not material, and it has been included as an offset to general and administrative expenses in the consolidated statement of operations for the period. In September 2003, the Company modified its agreements with Elan that govern the terms of the joint venture. As of September 16, 2003 and as a result of such modifications, the Company was responsible for 100% of the funding requirements of DDL. Accordingly, subsequent to September 15, 2003, the Company no longer allocated any portion of DDL’s results of operations to the noncontrolling interest.  In June 2004, the Company acquired the remaining 19.9% interest in DDL and DDL became a wholly owned subsidiary.  As DDL does not have any revenues, its accounts are reflected entirely in the Company’s consolidated operating expenses.

Cash, Cash Equivalents and Marketable Securities

The Company considers all highly liquid investments with an original maturity (at date of purchase) of three months or less to be cash equivalents. Cash and cash equivalents consist of cash on deposit with banks, money market instruments and commercial paper. The Company places its cash, cash equivalents and marketable securities with high quality, U.S. financial institutions and, to date, has not experienced material losses on any of its balances. The Company records cash and cash equivalents at amortized cost, which approximates the fair value. All marketable securities are classified as available-for-sale since these instruments are readily marketable.  These securities are carried at fair value, which is based on highly available market information, with unrealized gains and losses included in accumulated other comprehensive income (loss) within shareholders’ equity.  If the fair value of a marketable security is below its carrying value due to a significant adverse event, the impairment is considered to be other-than-temporary and the security is written down to its estimated fair value. Other-than-temporary declines in fair value of all marketable securities would be charged to “interest expense”.  The Company uses the specific identification method to determine the amount of realized gains or losses on sales of marketable securities.  Realized gains or losses have been insignificant and are included in “interest and other income”.  At December 31, 2005, the individual contractual period for all available-for-sale debt securities is within two years.

F-8

Securities classified as available-for-sale as of December 31, 2005 and 2004 are summarized below. Estimated fair value is based on quoted market prices for these investments.

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
December 31, 2005:
U.S. debt securities:
Total included in cash and cash equivalents	$	4,488,518	$	—	$	—		$	4,488,518
Total maturing within 1 year and included in marketable securities
U.S. corporate debt securities	25,152,443		—		—			25,152,443
U.S. government debt securities	21,996,005		744		(90,696		)	21,906,053
Total maturing between 1 and 2 years and included in marketable securities
U.S. corporate debt securities	2,464,715		—		—			2,464,715
U.S. government debt securities	2,000,000		—		(15,702		)	1,984,298
Total available-for-sale	$	56,101,681	$	744	$	(106,398	)	$	55,996,027
December 31, 2004:
U.S. debt securities:
Total included in cash and cash equivalents	$	—	$	—	$	—		$	—
Total maturing within 1 year and included in marketable securities	15,228,003		—		(60,779		)	15,167,224
Total maturing between 1 and 2 years and included in marketable securities	1,999,584		—		(15,264		)	1,984,320
Total available-for-sale	$	17,227,587	$	—	$	(76,043	)	$	17,151,544

The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2005:

	Less than 12 months					12 months or greater					Total
U.S. Debt Securities	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. corporate debt securities	$	26,069,487	$	(50,215	)	$	—	$	—		$	26,069,487	$	(50,215	)
U.S. government debt securities	21,954,462		(41,645		)	1,985,360		(14,538		)	23,939,822		(56,183		)
Total available-for-sale	$	48,023,949	$	(91,860	)	$	1,985,360	$	(14,538	)	$	50,009,309	$	(106,398	)

The Company’s investment in U.S. corporate debt securities consists primarily of investments in investment grade corporate bonds and notes. The Company’s investment in U.S. government debt securities consists of low risk government agency bonds typically with a rating of A or higher.  The unrealized losses on the Company’s investments in U.S. corporate debt and U.S. government debt securities were caused by interest rate increases.  An impairment charge is recognized when the decline in the fair value of a security below the amortized cost basis is determined to be other-than-temporary. The Company considers various factors in determining whether to recognize an impairment charge, including the duration of time and the severity to which the fair value has been less than the amortized cost basis, any adverse changes in the investees’ financial condition and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. The Company considers these unrealized losses to be temporary at December 31, 2005.

F-9

To date, the Company has not recorded any impairment charges on investments related to other-than-temporary declines in market value.

Concentration of Risk Related to Manufacturing and Sources of Supply

The Company relies on a single third-party manufacturer located outside of the U.S. to manufacture ProQuin XR. The Company also relies on a single third-party supplier located outside of the U.S. for the supply of ciprofloxacin hcl, which is the active pharmaceutical ingredient in ProQuin XR.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization (See Note 4 of the Notes to Consolidated Financial Statements). Depreciation is provided using the straight-line method over the estimated useful lives of the respective assets, generally three to five years. Leasehold improvements are amortized over the lesser of the lease term or the estimated useful lives of the related assets.

Stock-Based Compensation

As permitted under Statement of Financial Accounting Standards (or FAS) No. 123, Accounting for Stock-Based Compensation, the Company has elected to follow Accounting Principles Board (or APB) Opinion No. 25, Accounting for Stock Issued to Employees in accounting for stock-based awards to its employees and directors. Accordingly, the Company accounts for grants of stock options and common stock purchase rights to its employees and directors according to the intrinsic value method and, thus, recognizes no stock-based compensation expense for options granted with exercise prices equal to or greater than the fair value of the Company’s common stock on the date of grant. The Company records deferred stock-based compensation when the deemed fair value of the Company’s common stock for financial accounting purposes exceeds the exercise price of the stock options or purchase rights on the measurement date (generally, the date of grant). Any such deferred stock-based compensation is amortized ratably using the straight-line method over the vesting period of the individual options.

Pro forma net loss information using the fair value method accounting for grants of stock options to employees and directors is included in shown below:

	Year Ended December 31,
	2005			2004			2003
Net loss applicable to common stock shareholders—as reported	$	(25,309,474	)	$	(26,873,637	)	$	(30,015,098	)
Add: Total stock-based compensation expense, related to employee and director stock options, included in the determination of net loss as reported	385,960			257,521			151,272
Deduct: Total stock-based compensation expense determined under the fair value based method for all employee and director stock options	(2,122,504		)	(2,097,222		)	(1,471,112		)
Net loss applicable to common stock shareholders—pro forma	$	(27,046,018	)	$	(28,713,338	)	$	(31,334,938	)
Net loss applicable to common stock shareholders per share—as reported	$	(0.64	)	$	(0.78	)	$	(1.23	)
Net loss applicable to common stock shareholders per share—pro forma	$	(0.68	)	$	(0.83	)	$	(1.28	)

Options granted to non-employees are accounted for at fair value using the Black-Scholes Option Valuation Model in accordance with FAS No. 123 and Emerging Issues Task Force Consensus No. 96-18, and may be subject to periodic revaluation over their vesting terms. The resulting stock-based compensation expense is

F-10

recorded over the service period in which the non-employee provides services to the Company. The weighted-average assumptions used for 2005, 2004 and 2003 were as follows:

	Year Ended December 31,
Employee and Director Stock Options	2005		2004		2003
Risk free interest rate	4.07	%	3.22	%	3.23	%
Expected dividend yield	0		0		0
Expected option life in years	4.0		4.82		4.16
Expected stock price volatility	.66		.71		.80

	Year Ended December 31,
Employee Stock Purchase Plan Shares (1)	2005		2004
Risk free interest rate	3.49	%	1.61	%
Expected dividend yield	0		0
Expected option life in years	1.24		.48
Expected stock price volatility	.51		.74

(1)   Employee stock purchase plan was approved by shareholders on May 27, 2004.  2003 plan statistics are not applicable.

The weighted-average estimated fair value of employee and director stock options was $2.66, $3.21 and $4.03 per share for stock options granted at fair market value in 2005, 2004 and 2003, respectively. The weighted-average estimated fair value of employee and director stock options was $4.58 and $1.62 per share for stock options granted below fair market value in 2004 and 2003, respectively.  There were no stock options granted below fair market value in 2005.  The weighted-average estimated fair value of shares granted under the employee stock purchase plan during 2005 and 2004 was $1.64 and $1.83, respectively.

The option valuation models used in 2005, 2004 and 2003, were developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee and director stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee and director stock options.

Revenue Recognition

Revenue arrangements with multiple elements are divided into separate units of accounting if certain criteria are met, including whether the delivered element has stand-alone value to the customer and whether there is objective and reliable evidence of the fair value of the undelivered items.  The consideration received is allocated among the separate units based on their respective fair values, and the applicable revenue recognition criteria are applied to each of the separate units.  Advance payments received in excess of amounts earned are classified as deferred revenue until earned.

Collaborative revenue recognized relates to research and development services rendered in connection with collaborative arrangements, the achievements of milestones under such arrangements and product licenses.  Revenue related to collaborative research agreements with corporate partners is recognized as the expenses are incurred under each contract.  The Company is required to perform research activities as specified in each respective agreement on a best or commercially reasonable efforts basis, and the Company is reimbursed based

F-11

on the costs associated with supplies and the hours worked by employees on each specific contract.  Nonrefundable substantive milestone payments are recognized pursuant to collaborative agreements upon the achievement of specified milestones where no further obligation to perform exists under that milestone provision of the arrangement and when collectibility is reasonably assured.

Revenue from license arrangements, including license fees creditable against future royalty obligations (if any), of the licensee, is recognized when an arrangement is entered into if the Company has substantially completed its obligations under the terms of the arrangement and the Company’s remaining involvement is inconsequential and perfunctory.  If the Company has significant continuing involvement under such an arrangement, license fees are deferred and recognized over the estimated performance period.  Royalties are recognized as earned in accordance with the contract terms when royalties from licensees can be reliably measured and collectibility is reasonably assured.  Royalties received under the Company’s agreement with Esprit will initially be recognized based on Esprit’s cash receipts due to the Company’s inability to estimate returns and potential bad debt related to underlying sales following the initial commercialization of ProQuin XR.  Royalties received under the Company’s agreement with Biovail will be recognized when the royalty payments are received.

Revenue from product sales is recognized when there is persuasive evidence that an arrangement exists, when title has passed and the right of return has expired, the price is fixed or determinable and the Company is reasonably assured of collecting the resulting receivable. Product sales revenue related to the Company’s supply agreement with Esprit is recognized after a 30-day right of return has expired.

Shipping and Handling Costs

Shipping and handling costs incurred for inventory purchases and product shipments are recorded in Cost of Sales in the Consolidated Statements of Operations.

Comprehensive Income

Comprehensive income (loss) is comprised of net loss and other comprehensive income (loss). Other comprehensive income (loss) includes certain changes in equity of the Company that are excluded from net loss. Specifically, FAS No. 130, Reporting Comprehensive Income, requires unrealized holding gains and losses on the Company’s available-for-sale securities, which were reported separately in shareholders’ equity, to be included in accumulated other comprehensive income (loss). Comprehensive income (loss) for the years ended December 31, 2005, 2004 and 2003 has been reflected in the Consolidated Statements of Redeemable Preferred Stock and Shareholders’ Equity (Net Capital Deficiency).

Long-Lived Assets

In accordance with FAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company identifies and records impairment losses, as circumstances dictate, on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the discounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No such impairments have been identified with respect to the Company’s long-lived assets, which consist primarily of property and equipment.

Inventories

Inventories are stated at the lower of cost or market and as of December 31, 2005 consist of approximately $418,000 of work-in-process and $447,000 of raw materials used in the manufacture of the Company’s ProQuin XR. Inventories consist of costs of the active pharmaceutical ingredient, contract manufacturing and packaging costs.  Costs are accounted for by specific manufactured lot and are removed from inventory upon sale of such lot. The Company writes-off the value of inventory for potentially excess, dated or obsolete inventories based on an analysis of inventory on hand and on firm purchase commitments.  There were no such write-offs recorded as of December 31, 2005.

F-12

Net Loss Per Common Share

Net loss per share is computed using the weighted-average number of shares of common stock outstanding. Common stock equivalent shares from outstanding stock options, warrants and other convertible securities and loans are not included as their effect is antidilutive. As of December 31, the following potentially dilutive securities were excluded from the computation of diluted earnings per share:

	2005			2004			2003
	Common Equivalent Shares	Weighted- Average Exercise Price		Common Equivalent Shares	Weighted- Average Exercise Price		Common Equivalent Shares	Weighted- Average Exercise Price
Stock options	4,371,964	$	4.44	4,346,620	$	4.37	3,820,898	$	4.16
Warrants	2,010,071	$	3.16	2,942,404	$	2.89	3,211,283	$	3.09
Convertible preferred shares and accrued interest	2,540,949	—		2,251,822	—		1,478,690	—
Convertible promissory note and accrued interest	—	—		1,338,620	—		1,037,709	—
Biovail Conditional Option	—	—		—	—		—	—
Biovail Purchaser’s Option	—	—		3,901,961	$	8.21	3,871,467	$	6.73
	8,922,984			14,781,427			13,420,047

Income Taxes

Income taxes are computed in accordance with FAS No. 109, Accounting for Income Taxes, which requires the use of the liability method in accounting for income taxes. Under FAS No. 109, deferred tax assets and liabilities are measured based on differences between the financial reporting and tax basis of assets and liabilities using enacted rates and laws that are expected to be in effect when the differences are expected to reverse.

Fair Value of Financial Instruments

The estimated fair value of long-term debt and notes payable is estimated based on current interest rates available to the Company for debt instruments with similar terms, degrees of risk and remaining maturities. The carrying values of these obligations approximate their respective fair values.

Segment Information

The Company follows FAS No. 131, Disclosures about Segments of an Enterprise and Related Information. FAS No. 131 establishes standards for reporting financial information about operating segments in financial statements, as well as additional disclosures about products and services, geographic areas, and major customers. The Company operates in one operating segment and has operations solely in the United States.  To date, all of the Company’s revenues from product sales and royalties are related to U.S. sales of ProQuin XR under the Company’s supply agreement with Esprit and its exclusive license and marketing agreement with Esprit. The Company has recognized revenue from license agreements in the territories of the U.S., Canada and Korea.

Recently Issued Accounting Standards

In December 2004, the Financial Accounting Standard Board (FASB) issued Statement No. 123R, Share-Based Payment (FAS 123R), which is a revision of FAS 123. FAS 123R supersedes APB No. 25.  Generally, the approach in FAS 123R is similar to the approach described in FAS 123. FAS 123R requires all share-based payments to employees and directors, including grants of employee and director stock options, to be recognized in the statement of operations based on their fair values. Pro forma disclosure is no longer an alternative.  In April

F-13

2005, the SEC adopted a new rule amending the compliance dates for FAS 123R.  In accordance with the new rule, the Company will adopt FAS 123R on January 1, 2006.

FAS 123R permits public companies to adopt its requirements using one of two methods:  1) a “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of FAS 123R for all share-based payments granted after the effective date and (b) based on the requirements of FAS 123 for all awards granted to employees and directors prior to the effective date of FAS 123R that remain unvested on the effective date; or 2) a “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under FAS 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.  The Company plans to adopt FAS 123R using the modified prospective method.

As permitted by FAS 123, the Company currently accounts for share-based payments to employees and directors using APB No. 25’s intrinsic value method and, as such, recognizes no compensation cost for employee and director stock options where the exercise price equals the fair market value of the underlying common shares on the measurement date.  Accordingly, the adoption of FAS 123R’s fair value method will have a significant impact on the Company’s results of operations, although it will have no impact on our overall financial position. The impact of adoption of FAS 123R cannot be predicted at this time because it will depend on levels of share-based payments granted in the future.  However, had the Company adopted FAS 123R in prior periods, the impact of that standard would have approximated the impact of FAS 123 as described in the disclosure of pro forma net loss and loss per share in Note 1, Summary of Significant Accounting Policies, Stock-Based Compensation, of the these Notes to Consolidated Financial Statements.  The Company estimates that stock options granted prior to December 31, 2005 are expected to result in expense of approximately $1.7 million in 2006.

In June 2005, the FASB issued FAS No. 154, Accounting Changes and Error Corrections (FAS 154). FAS 154 replaces APB Opinion No. 20, Accounting Changes and FAS No. 3, Reporting Accounting Changes in Interim Financial Statements. FAS 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle unless it is impractical to do so.  FAS 154 is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. The implementation of FAS 154 is not expected to have a material impact on the Company’s financial statements.

In November 2004, the FASB issued FAS No. 151, Inventory Costs—an amendment of ARB No. 43, Chapter 4. FAS 151 amends the guidance in ARB, No. 43, Chapter 4, Inventory Pricing, to clarify that abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) are to be recognized as current-period charges. FAS 151 is effective for fiscal years beginning after June 15, 2005.  FAS 151 did not have a material impact on the Company’s financial statements.

3.   Collaborative Arrangements and Contracts

Elan Corporation, plc

In January 2000, the Company and Elan formed Depomed Development Ltd. (DDL), a Bermuda limited liability company and joint venture, to develop products using drug delivery technologies of both Elan and Depomed, Inc. DDL was owned 80.1% by Depomed and 19.9% by Elan.  In August 2002, DDL discontinued all product development activity.  In September 2003, the joint venture partners amended or terminated the contracts governing the operation of DDL, which included the termination of Elan’s participation in the management of

F-14

DDL.  In June 2004, the Company acquired Elan’s 19.9% interest in DDL for $50,000.  Also in June 2004, Elan sold its Depomed Series A Preferred Stock to an unrelated third party.

Pursuant to the Company’s adoption of FIN 46 on July 1, 2003, the Company consolidated the accounts of DDL as of July 1, 2003.  Since September 2003, the Company has recognized 100% of DDL’s operating results.  For the period from July 1, 2003 to September 15, 2003, the Company consolidated approximately $2,000 of DDL expenses, net of noncontrolling interest, which amount is included in general and administrative expenses in the consolidated statement of operations. For the years ending December 31, 2005 and 2004, the Company consolidated general and administrative expense of approximately $7,000 and $6,000, respectively, related to DDL.  DDL does not have any fixed assets, liabilities or employees and will not perform any further product development on behalf of Depomed or any other entity.  The Company expects it will dissolve DDL in 2006.

DDL recognized a net loss of approximately $7,000, $6,000 and $16,000 for the years ended December 31, 2005, 2004 and 2003, respectively.

Biovail Laboratories Incorporated

In May 2002, the Company entered into a development and license agreement granting Biovail Laboratories Incorporated (Biovail) an exclusive license in the United States and Canada to manufacture and market Glumetza™. Under the terms of the agreement, the Company was responsible for completing the clinical development program in support of the 500mg Glumetza. In April 2003, Biovail submitted a New Drug Application to the U.S. Food and Drug Administration (FDA) for approval and in July 2005, Biovail received FDA approval to market Glumetza in the US.  In accordance with the license agreement, Biovail paid a $25.0 million license fee payment to the Company.

In April 2004, the Company and Biovail amended the Glumetza licensing agreement.  Under the amended agreement, the Company would receive royalties on sales of Biovail’s 1000mg metformin HCl tablet in the United States and Canada in exchange for allowing Biovail to use the Company’s clinical data for its Metformin GR, a 500mg metformin HCl tablet, to support and accelerate regulatory submissions for Biovail’s 1000mg tablet and to establish equivalence between the two dosage forms.  In May 2005, Biovail received a Notice of Compliance for the 500mg and 1000mg strengths of Glumetza from the Therapeutic Products Directorate Canada to market the products in Canada.

In October 2005, the Company delivered a notice of breach to Biovail and subsequently filed suit in respect of its license agreement with Biovail, related to the failure of Biovail to make the first commercial sale of the 500mg strength Glumetza within 120 days of approval in each of Canada and the U.S. as required in the license agreement.  In December 2005, the Company settled its dispute with Biovail and entered into an amended license agreement whereby the Company granted to Biovail an exclusive license in Canada to manufacture and market the 500mg formulation of Glumetza and the Company established its right to manufacture and market the 500mg Glumetza in the U.S. and internationally with the exception of Canada.  Under the agreement, Biovail will pay the Company royalties of 6 percent on net sales of the 500mg Glumetza and 1 percent on Canadian net sales of the 1000mg Glumetza.  As part of the same settlement, Biovail granted the Company an exclusive license to market the 1000mg Glumetza in the U.S.  The Company will pay Biovail royalties of 6 percent and 1 percent on net sales in the U.S. of the 1000mg Glumetza and the 500mg Glumetza products, respectively.  In November 2005, Biovail Pharmaceuticals Canada, the sales and marketing division of Biovail, launched Glumetza 500mg in Canada.  The Company will recognize the $25.0 million license fee payment over the life of the patents covering the 1000mg Glumetza, approximately 17 years.  In the year ended December 31, 2005, the Company recognized license revenue of approximately $76,000 related to the $25.0 million license fee payment received in the third quarter of 2005.

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ActivBiotics, Inc.

In October 2002, the Company signed an agreement with ActivBiotics, Inc. to begin feasibility studies with ActivBiotics’ antibiotic compound, Rifalazil™. Under the agreement, ActivBiotics had funded the Company’s research and development expenses related to the feasibility studies. In June 2004 the Company gave notice of termination of its agreement with ActivBiotics.  The Company recognized collaborative revenue of approximately $28,000 during 2004, which approximated the costs recognized under the agreement.  There was no amount receivable as of December 31, 2004.

Other Collaborative Partner

In June 2003, the Company signed an agreement with an undisclosed collaborative partner to conduct feasibility studies for the partner. As of September 2004, the Company had completed its product development for the partner.  The Company recognized collaborative revenue of approximately $144,000 in 2004, which approximated the costs recognized under the agreement in 2004.  No amount was receivable as of December 31, 2004.

LG Life Sciences, Ltd.

In August 2004, the Company entered into a license and distribution agreement granting LG Life Sciences, Ltd. an exclusive license to market and sell Glumetza (500mg) in the Republic of Korea.  The agreement provides for an upfront license fee, a milestone fee upon approval in Korea and royalties on net sales of Glumetza (500mg).  The $600,000 upfront license fee will be amortized over a period of eight years, which represents the estimated length of time that the Company is obligated to provide assistance in development and manufacturing. The Company recognized license revenue of $75,000 and $31,000 in 2005 and 2004, respectively, related to the amortization of this upfront fee.

Boehringer Ingelheim Pharmaceuticals, Inc.

In April 2005, the Company entered into an agreement with Boehringer Ingelheim Pharmaceuticals, Inc. to conduct feasibility studies with an undisclosed drug and in December 2005, the Company completed the studies.  Under the agreement, all research and development work with the partner’s drug was funded by the partner.  The Company recognized collaborative revenue of $2,231,000 in 2005 which approximated the costs recognized under the agreement.  At December 31, 2005, the amount receivable under this agreement totaled $845,000.

New River Pharmaceuticals, Inc.

In June 2005, the Company entered into an agreement with New River Pharmaceuticals, Inc. to begin feasibility studies with up to three of New River’s proprietary compounds.  Under the agreement, all research and development work through Phase I clinical trials with New River’s compounds will be funded by New River.  New River may exercise an option to license each product candidate and advance the product into additional clinical trials, which will lead to the Company receiving milestone payments and royalties on any net sales of each product.  No revenue was recorded under the agreement in 2005 and there was no amount receivable as of December 31, 2005.

Esprit Pharma, Inc.

In July 2005, the Company entered into an agreement granting Esprit Pharma, Inc. (Esprit) an exclusive license to market ProQuin® XR in the U.S. (including its possessions) and Puerto Rico.  The agreement provides for a license fee of $50,000,000.  In July 2005, in accordance with the agreement, the Company received upfront payments of $30,000,000 for the license fee with remaining payments totaling $20,000,000 due in equal installments in July 2006 and July 2007.  The license fee payments actually received are being recognized ratably

F-16

beginning in the fourth quarter of 2005, coincident with the first commercial shipment of ProQuin XR to Esprit and ending in June 2020, which represents the estimated length of time that the Company is obligated to manufacture ProQuin XR for Esprit or its licensees.  The Company recognized collaborative and license revenue of $425,000 in 2005 related to the amortization of these upfront fees.  In addition, the Company will receive royalties of 15% on the first $20 million of annual sales of ProQuin XR by Esprit, 17.5% on the next $20 million of annual net sales, 20% on the next $40 million of annual net sales and 25% on annual net sales in excess of $80 million.  The annual royalty payment is subject to a minimum royalty of $4.6 million in 2006 and $5.0 million in each subsequent year of the term.  Esprit’s royalty obligation expires upon the last to expire of the Company’s U.S. patents covering ProQuin XR.  Royalties received under the Company’s agreement with Esprit will initially be recognized based on Esprit’s cash receipts due to the Company’s inability to estimate returns and potential bad debt related to underlying sales following the initial commercialization of ProQuin XR.   The Company recorded $669,000 in royalty revenue related to Esprit’s sales of ProQuin XR in 2005.  Esprit has a right of first refusal to market ProQuin XR in Canada.  In connection with the license agreement, the Company and Esprit also entered into a related supply agreement pursuant to which the Company will supply commercial quantities of ProQuin XR to Esprit.  In 2005, the Company recognized $931,000 related to the sales of ProQuin XR to Esprit.  The amount receivable under all agreements with Esprit as of December 31, 2005 is $1,111,000.

4.   Property and Equipment

As of December 31, property and equipment consists of the following:

	2005			2004
Furniture and office equipment	$	1,334,230		$	1,255,802
Laboratory equipment	4,071,695			3,563,173
Leasehold improvements	2,874,972			2,854,313
	8,280,897			7,673,288
Less accumulated depreciation and amortization	(5,134,286		)	(3,732,161		)
Property and equipment, net	$	3,146,611		$	3,941,127

There was no property and equipment included under capitalized leases as of December 31, 2005.  Property and equipment includes assets under capitalized leases of $139,000 at December 31, 2004.  Accumulated amortization related to assets under capital leases is included in accumulated depreciation and amortization and totals $30,000 and $108,000 at December 31, 2005 and 2004, respectively. Laboratory equipment includes approximately $47,000 of construction in process as of December 31, 2005.

During the years ended December 31, 2005 and 2004, the Company disposed of office and laboratory equipment with a net carrying value of approximately $18,000 and $30,000, respectively.  The Company determined that the equipment was obsolete and had no salvage value.  The carrying value was charged to expense.

5.   Commitments and Contingencies

Convertible Promissory Note

In connection with the formation of DDL, Elan made a loan facility available to the Company for up to $8,010,000 in principal to support the Company’s 80.1% share of the joint venture’s research and development costs pursuant to a convertible promissory note issued by the Company to Elan.  The funding term of the loan expired in November 2002.  The note had a six-year term, was due in January 2006, and bore interest at 9% per annum, compounded semi-annually, on any amounts borrowed under the facility.  However, in June 2005, the

F-17

Company repurchased the promissory note with an outstanding balance of $10,724,000, including $2,927,000 of accrued interest, for $9,665,000 including commissions paid to a financial consultant and legal fees.  A gain on the extinguishment of the debt of $1,059,000 was recorded in other income for the year ended December 31, 2005.

Long-Term Debt

In March 2001, the Company entered into a secured equipment financing credit facility. The credit facility allowed the Company to finance up to $2,000,000 of equipment and leasehold improvements purchased from August 2000 through December 31, 2001. The interest rate was recalculated with each draw at 7.5% above the then current thirty-six (36) month US Treasury Note rate. At the end of December 2001, the Company had utilized approximately $1,347,000 of the credit facility. The first draw under the facility, completed in March 2001, was $587,500, at an annual interest rate of 12.0% and was repaid as of April 2004.  The second draw under the facility, completed in September 2001, was $567,900, at an annual interest rate of 11.64% and was repaid as of March 2005. The third and final draw under the facility, completed in December 2001, was $192,000, at an annual interest rate of 11.65% and was repaid as of July 2005. The unused portion of the credit facility of $653,000 expired on December 31, 2001. The financed equipment served as collateral for the loans until the respective loans were repaid.

In connection with the March 2001 credit facility, the Company issued warrants to the lender to purchase 40,000 shares of the Company’s common stock at $3.98 per share. The warrants are exercisable until March 2006. The Company valued the warrants using the Black-Scholes Option Valuation Model and treated the resulting value of $112,400 as debt issuance costs. These costs were offset against the debt obligation and were amortized to interest expense over approximately four years, the term of the borrowing arrangement, using the effective interest method. During 2005, approximately $13,000 of the issuance costs was amortized into interest expense.

Leases

The Company leases its facilities under a non-cancelable operating lease that was to expire in March 2005. In May 2003, the Company renegotiated certain terms of its current lease including the lease term, which will now expire in April 2008 with an option to extend the lease term for an additional five years. In May 2003, the Company also entered into an agreement to lease a 25,000 square foot facility adjacent to its current facility in Menlo Park. The new facility is leased under a non-cancelable agreement that expires in April 2008, with an option to extend the lease for an additional five years. The Company’s leases are subject to annual rent increases on the anniversary of the commencement dates.

In 2004, the Company received a leasehold improvement allowance from the landlord of approximately $357,000 which was used to reimburse costs of remodeling the Company’s facility.  The Company recorded a corresponding leasehold obligation of $357,000 related to the allowance. During 2005 and 2004, approximately $93,000 and $47,000, respectively, was amortized to expense.

F-18

Future minimum payments under the operating leases and a purchase order for laboratory equipment at December 31, 2005, are as follows:

	Operating Leases		Purchase Order		Total
Year ending December 31,
2006	$	979,162	$	91,144	$	1,070,306
2007	992,149		—		992,149
2008	333,959		—		333,959
	$	2,305,270	$	91,144	$	2,396,414

Rent expense for the years ended December 31, 2005, 2004 and 2003 was approximately $1,058,000, $1,057,000 and $884,000, respectively.

6.   Related Party Transactions

Consulting Agreement

In September 1998, the Company entered into a consulting agreement with Burrill & Co., whereby the Company was required to pay a monthly retainer of $5,000 and other fees related to partnering arrangements. The principal of Burrill & Co., G. Steven Burrill, is a director of the Company. The Company terminated the agreement as of November 30, 2003.  For the year ended December 31, 2003, the Company paid a total of $55,000 in connection with this agreement.

Elan Corporation, plc

In January 2000, the Company formed a joint venture, Depomed Development, Ltd. (DDL), with Elan to develop a series of undisclosed proprietary products using drug delivery technologies and expertise of both companies.  DDL, a Bermuda limited liability company, was owned 80.1% by Depomed and 19.9% by Elan until the Company acquired Elan’s 19.9% interest in June 2004.  Also in 2004, Elan sold its Depomed Series A Preferred Stock to an unrelated third party.

AVI BioPharma, Inc.

In June 2000, the Company entered into a joint collaboration to investigate the feasibility of controlled oral delivery of AVI’s proprietary NEUGENE® antisense agents. The Company’s President and Chief Executive Officer, John W. Fara, is currently serving as a director of AVI BioPharma, Inc. No revenues have been received under this agreement.

7.   Redeemable Preferred Stock and Shareholders’ Equity

Series A Preferred Stock

The Series A Preferred Stock accrues a dividend of 7% per annum, compounded semi-annually and payable in shares of Series A Preferred Stock. The Series A Preferred Stock is convertible at anytime between January 2002 and January 2006 into the Company’s common stock. The original conversion price of the Series A Preferred Stock was $12.00; however, as a result of the Company’s March 2002 and October 2003 financings, the conversion price had been adjusted to $9.51 per share.  In December 2004, the Company entered into an agreement with the Series A Preferred stockholder to resolve a misunderstanding between the Company and the stockholder relating primarily to prior adjustments to the conversion price of the Series A Preferred Stock.  Pursuant to the agreement, among other matters, the Company agreed to adjust the conversion price to $7.50 per

F-19

share.  The Company and the stockholder also agreed to binding interpretations of certain other terms related to the Series A Preferred Stock conversion price.

Prior to December 2004, the amounts calculated as Series A Preferred stock dividends were accounted for as an adjustment to the conversion price following EITF Issue No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios (Issue No. 98-5).As a result of the modifications to the preferred stock agreement in December 2004, the Company determined that a “significant modification” of the agreement had been made, and, therefore, a new “commitment date” for accounting purposes had been established on December 10, 2004.  The Company measured the difference between the carrying value of the preferred stock and the fair value of the modified preferred stock pursuant to EITF Topic No. D-42, The Effect on the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock and determined that the fair value of the modified security was less than the carrying value of the security prior to the modification.  The Company also evaluated the effective conversion rate, after considering the reset rate of $7.50 per share in addition to the common stock issuable upon conversion of the unpaid, accumulated dividends.  The fair value of the underlying common stock on December 10, 2004 was $5.06 per share.  The Company determined that the conversion rate, after including the effect of the unpaid dividends, did not result in a beneficial conversion feature, which could have had the effect of also providing a deemed dividend to the preferred stockholder.  However, an anti-dilution provision of the Series A Preferred Stock was triggered by the Company’s January 2005 financing, which adjusted the conversion price of the Series A Preferred Stock to $7.12.  As a result of the adjusted conversion price and an increase in the amount of common stock issuable upon conversion of the Series A Preferred Stock due to additional accumulated dividends, the Series A Preferred Stock now contains a “beneficial conversion feature” subject to recognition pursuant to Issue No. 98-5.  For the year ended December 31, 2005, the Company recognized Series A Preferred Stock deemed dividends of approximately $842,000 attributable to the beneficial conversion feature.  The Company will continue to recognize Series A Preferred Stock deemed dividends until the earlier of, the time the Series A Preferred Stock is converted to common stock or until January 2009.

In conjunction with the agreement, the Company issued a warrant to the Series A Preferred stockholder.  The value of the warrant was considered in determining the value of the modified security.  The warrant is exercisable for shares of the Company’s common stock during the period between January 2006 and January 2009.  The exercise price of the warrant initially will be equal to the Series A Preferred Stock conversion price in effect as of January 20, 2006.  The exercise price of the warrant will decrease by approximately 4.8% per year during the exercise period, such that the number of shares of the Company’s common stock issuable upon exercise of the warrant will increase by approximately 5.1% per year.  The exercise of the warrant will be satisfied only by surrender of outstanding shares of Series A Preferred Stock.

As of December 31, 2005, the Series A Preferred Stock and accrued dividends were convertible into 2,540,949 shares of common stock.  The aggregate liquidation preference of the Series A Preferred Stock, including accrued dividends, was approximately $18,092,000 as of December 31, 2005.

Private Placements

In April 2003, the Company sold 9,259,259 shares of common stock and warrants to purchase 3,240,745 shares of common stock with net proceeds of approximately $18,668,000. The warrants are exercisable until April 2008 at an exercise price of $2.16. The fair value of the warrants on the date of issuance, using the Black-Scholes Option Valuation Model, was approximately $4.6 million. The value of the warrants has been recorded with offsetting entries in stockholders’ equity as the warrant value is also considered an issuance cost of the financing. As of December 31, 2005, warrants to purchase 1,136,284 shares of common stock remain outstanding related to this private placement.

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Public Offering

In October 2003, the Company sold 6,500,000 shares of common stock in an underwritten public offering at a public offering price of $5.50 per share with net proceeds of approximately $33,186,000. In November 2003, the Company sold an additional 975,000 shares of its common stock at a public offering price of $5.50 per share with net proceeds of approximately $5,041,000 pursuant to the exercise of the over-allotment option granted to the underwriters in connection with the public offering.

Registered Direct Public Offering

In January 2005, the Company completed a registered direct public offering of 5,036,000 shares of its common stock at $4.50 per share with net proceeds of $21,019,000.  As a result of this financing, the conversion price of the Series A Preferred Stock has been adjusted to $7.12.

Warrant and Option Exercises

During 2005, investors, consultants and employees exercised 932,333 warrants and 234,468 options for 859,620 shares of the Company’s common stock with net proceeds of approximately $989,000.

As of December 31, 2005, 2,010,071 shares of common stock were reserved for issuance for all outstanding warrants.

1995 Stock Option Plan

The Company’s 1995 Stock Option Plan (the 1995 Plan) was adopted by the Board of Directors and approved by the shareholders in September 1995, and has subsequently been amended. The 1995 Plan provides for the granting to employees of the Company, including officers and employee directors, of incentive stock options, and for the granting of nonstatutory stock options to employees, directors and consultants of the Company.

Generally, the exercise price of all incentive stock options and nonstatutory stock options granted under the 1995 Plan must be at least 100% and 85%, respectively, of the fair value of the common stock of the Company on the grant date. The term of an incentive and nonstatutory stock option may not exceed 10 years from the date of grant. An option shall be exercisable on or after each vesting date in accordance with the terms set forth in the option agreement. The right to exercise an option generally vests at the rate of at least 25% by the end of the first year and then ratably in monthly installments over the remaining vesting period of the option.

F-21

A summary of the Company’s 1995 Plan stock option activity and related information for the period from December 31, 2002 to December 31, 2005 follows:

			Outstanding Options
	Shares Available For Grant		Number of Shares		Weighted- Average Exercise Price
Balance at December 31, 2002	749,077		3,299,690		$	3.78
Shares authorized	493,189		—		—
Options granted at fair market value	(531,951	)	531,951		$	6.56
Options granted below fair market value	(25,527	)	25,527		$	2.70
Options exercised	—		(31,270	)	$	3.07
Options forfeited	5,000		(5,000	)	$	5.00
Balance at December 31, 2003	689,788		3,820,898		$	4.16
Options granted at fair market value	(74,490	)	74,490		$	7.32
Options granted below fair market value	(50,000	)	50,000		$	6.76
Options exercised	—		(35,902	)	$	2.58
Options forfeited and retired from pool	—		(120,810	)	$	5.25
Shares retired from pool	(565,298	)(1)	—		—
Balance at December 31, 2004	—		3,788,676		$	4.24
Options exercised	—		(221,438	)	$	2.91
Options forfeited and retired from pool	—		(156,744	)	$	6.48
Options expired and retired from pool	—		(4,940	)	$	4.36
Balance at December 31, 2005	—		3,405,554		$	4.22

(1)    On May 27, 2004, the 1995 Plan was terminated with respect to grants of new stock options.  All shares which were available for grant before May 27, 2004, were subsequently retired from the pool and are no longer available for grant.  After May 27, 2004, all options which expire or are forfeited will be retired from the pool.

In December 2002, the Board of Directors authorized an increase in the number of shares authorized for issuance under the 1995 Plan by 1,306,811 shares. On May 29, 2003 at the 2003 Annual Meeting of Shareholders, the Company’s shareholders approved this increase to the 1995 Plan. In December 2002 and March 2003, the Company granted options to purchase approximately 585,000 shares of common stock out of the 1,306,811 share increase at exercise prices of $1.71 and $2.70, respectively, which represented the fair market values of the Company’s common stock on the respective dates of grant. However, as the options were not deemed authorized for grant until the shareholders approved the increase in the number of shares authorized under the 1995 Plan, the applicable measurement date for accounting purposes was on the date such approval was obtained. Since the fair market value of the underlying common stock on May 29, 2003 was $3.50, which was greater than the exercise prices of the stock options granted, the Company was required to record the difference of approximately $1,015,000 as deferred stock-based compensation expense to be recognized ratably over the vesting period of the related stock options. For the year ended December 31, 2005, the Company recognized approximately $243,000 in stock-based compensation expense related to these stock options.

In December 2003, the Board of Directors approved a stock option which was subject to the optionee’s acceptance of employment which occurred in February 2004.  Since the fair market value of the underlying common stock was greater on the date of the optionee’s employment than on the grant date, the Company was required to record the difference of approximately $32,000 as deferred stock-based compensation expense to be recognized ratable over the vesting period of the related stock option.  In the year ended December 31, 2005, we recognized approximately $8,000 in stock-based compensation related to this stock option.

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Exercisable options granted under the 1995 Plan at December 31, 2005, 2004 and 2003, totaled 3,055,265, 2,946,736 and 2,405,865, respectively. Exercise prices for options outstanding as of December 31, 2005 ranged from $0.90 to $10.25. The following table summarizes information about options outstanding at December 31, 2005:

	Outstanding Options				Exercisable Options
Exercise Prices	Number of Options	Weighted- Average Exercise Price		Remaining Contractual Life (in years)	Number of Options	Weighted- Average Exercise Price
$0.90 -   1.95	666,401	$	1.63	6.10	519,883	$	1.61
$2.70 -   3.75	1,213,320	$	3.38	3.22	1,203,255	$	3.39
$4.19 -   5.80	777,747	$	4.97	5.20	777,192	$	4.97
$6.10 -   7.75	718,086	$	7.01	5.92	524,935	$	7.10
$9.50 - 10.25	30,000	$	9.70	2.22	30,000	$	9.70
	3,405,554				3,055,265

At December 31, 2005, the Company had 3,405,554 common shares reserved for issuance under the 1995 Plan.

2004 Equity Incentive Plan

The Company’s 2004 Equity Incentive Plan (the 2004 Plan) was adopted by the Board of Directors and approved by the shareholders in May 2004. The 2004 Plan provides for the granting to employees of the Company, including officers, of incentive stock options, and for the granting of nonstatutory stock options to employees, directors and consultants of the Company.

Generally, the exercise price of all incentive stock options and nonstatutory stock options granted under the Plan must be at least 100% and 85%, respectively, of the fair value of the common stock of the Company on the grant date. The term of incentive and nonstatutory stock options may not exceed 10 years from the date of grant. An option shall be exercisable on or after each vesting date in accordance with the terms set forth in the option agreement. The right to exercise an option generally vests at the rate of at least 25% by the end of the first year and then ratably in monthly installments over the remaining vesting period of the option.

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A summary of the Company’s 2004 Plan stock option activity and related information for the period from the 2004 Plan approval date (May 27, 2004) to December 31, 2005 follows:

			Outstanding Options
	Shares Available For Grant		Number of Shares		Weighted- Average Exercise Price
Shares authorized	3,500,000		—		—
Options granted at fair market value	(557,944	)	557,944		$	5.25
Balance at December 31, 2004	2,942,056		557,944		$	5.25
Options granted at fair market value	(471,738	)	471,738		$	5.08
Options exercised	—		(13,030	)	$	4.98
Options forfeited or expired	50,242		(50,242	)	$	5.01
Balance at December 31, 2005	2,520,560		966,410		$	5.18

Exercisable options granted under the 2004 Plan at December 31, 2005 and 2004, totaled 222,598 and 27,193, respectively. Exercise prices for options outstanding as of December 31, 2005 ranged from $4.04 to $7.78. The following table summarizes information about options outstanding at December 31, 2005:

	Outstanding Options				Exercisable Options
Exercise Prices	Number of Options	Weighted- Average Exercise Price		Remaining Contractual Life (in years)	Number of Options	Weighted- Average Exercise Price
$4.04 - 4.91	227,935	$	4.29	9.22	24,355	$	4.61
$5.03 - 5.85	591,688	$	5.18	9.11	162,749	$	5.06
$6.18 - 7.78	146,787	$	6.59	8.83	35,494	$	6.88
	966,410				222,598

At December 31, 2005, the Company had 3,486,970 common shares reserved for issuance under the 2004 Plan.

Amendment to Director Stock Option Agreements

In July 2003, the Board of Directors approved an amendment to all stock options granted to non-employee members of the Company’s Board of Directors. In the case of the death of a non-employee director, the amendment provides for the director’s beneficiary to exercise the director’s stock options at anytime over the remaining life of the stock option. A non-cash compensation expense related to the amended stock options will be recognized if and when a director’s beneficiary benefits from this modified provision. The maximum stock-based compensation expense would be $369,000 if all non-employee directors benefited from this provision with respect to outstanding options. As of December 31, 2005, expense of $135,000 had been recognized related to these options.

2004 Employee Stock Purchase Plan

In May 2004, the 2004 Employee Stock Purchase Plan (the ESPP) was approved by the shareholders.  The ESPP is qualified under Section 423 of the Internal Revenue Code.  The ESPP is designed to allow eligible employees to purchase shares of the Company’s common stock through periodic payroll deductions.  The price of the common stock purchased under the ESPP must be equal to at least 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.  In 2005, the Company sold 102,559 shares of common stock under the ESPP.  At December 31, 2005, the Company had 349,909 common shares reserved for issuance under the ESPP.

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Shareholder Rights Plan

On April 21, 2005, the Company adopted a shareholder rights plan, (the Rights Plan). Under the Rights Plan, the Company distributed one preferred share purchase right for each share of common stock outstanding at the close of business on May 5, 2005. If a person or group acquires 20% or more of the Company’s common stock in a transaction not pre-approved by the Company’s Board of Directors, each right will entitle its holder, other than the acquirer, to buy additional shares of the Company’s common stock at 50% of its market value, as defined in the Rights Plan. In addition, if an unapproved party acquires more than 20% of the Company’s common stock, and the Company is later acquired by the unapproved party or in a transaction in which all shareholders are not treated alike, shareholders with unexercised rights, other than the unapproved party, will be entitled to receive upon exercise of the rights, common stock of the merger party or asset buyer with a value of twice the exercise price of the rights.  Each right also becomes exercisable for one one-thousandth of a share of the Company’s Series RP preferred stock at the right’s then current exercise price ten days after an unapproved third party makes, or announces an intention to make, a tender offer or exchange offer that, if completed, would result in the unapproved party acquiring 20% or more of the Company’s common stock. The Board of Directors may redeem the rights for a nominal amount before an event that causes the rights to become exercisable. The rights will expire on April 21, 2015.

Purchasers’ Option

In July 2002 and in conjunction with a private placement of common stock with Biovail, Biovail received a three-year option to purchase additional shares of the Company’s common stock in an amount sufficient for Biovail to hold 20% of the Company’s common stock following exercise of the option.  In July 2005, Biovail’s three-year option expired.

Stock-Based Compensation

Stock-based compensation expense relating to employee and director stock options recorded in the 2005, 2004 and 2003 in the consolidated statements of operations was $386,000, $258,000 and $151,000, respectively. Further, the Company recognized expense of $80,000, $95,000 and $28,000 in 2005, 2004 and 2003, respectively relating to the value of stock options granted to consultants in exchange for services.

8.   Income Taxes

As of December 31, 2005, the Company had net operating loss carryforwards for federal income tax purposes of approximately $108,000,000, which expire in the years 2010 through 2025 and federal research and development tax credits of approximately $1,800,000 which expire in the years 2011 through 2025.  Net operating loss carryforwards for state income tax purposes were approximately $68,000,000, which expire in the years 2006 through 2015 and state research and development tax credits were approximately $1,800,000 which have no expiration date.

Utilization of the Company’s net operating loss and credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations provided by the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.

Deferred income taxes reflect the net tax effects of net operating loss and tax credit carryovers and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows:

F-25

	Year Ended December 31,
Deferred Tax Assets:	2005			2004			2003
Net operating loss carryforwards	$	40,400,000		$	39,500,000		$	27,900,000
Research credit carryforwards	3,000,000			2,000,000			1,100,000
In-process research and development	3,900,000			3,200,000			3,500,000
Capitalized research expenses	2,200,000			1,300,000			2,800,000
Other, net	10,400,000			200,000			200,000
Total deferred tax assets	59,900,000			46,200,000			35,500,000
Valuation allowance for deferred tax assets	(59,900,000		)	(46,200,000		)	(35,500,000		)
Deferred tax assets, net	$	—		$	—		$	—

Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $13,700,000, $10,700,000 and $11,700,000 during the years ended December 31, 2005, 2004 and 2003, respectively. Due to the Company’s history of operating losses, no provision for income taxes has been recorded for the years ended December 31, 2005 and 2003. The Company’s tax provision for the year ended December 31, 2004 included $99,000 of foreign taxes related to license fee withholdings by the Republic of Korea.

The provision for income taxes is from continuing operations and consists of the following:

	Year Ended December 31,
	2005		2004		2003
Current:
Foreign	$	—	$	99,000	$	—
Deferred:
Foreign	—		—		—
Total provision for income taxes	$	—	$	99,000	$	—

The difference between the actual tax rate and the statutory rates is as follows:

	Year Ended December 31,
	2005			2004			2003
Tax at federal statutory rate of 34%	$	(8,319,000	)	$	(9,297,000	)	$	(10,505,000	)
State tax, net of federal benefit	—			—			—
Foreign tax	—			99,000			—
Net operating losses not benefited	8,250,0000			9,098,0000			10,401,000
Other	69,000			199,000			104,000
	$	—		$	99,000		$	—

F-26

9.   Summarized Quarterly Data (Unaudited)

The following tables set forth certain consolidated statements of operations data for each of the eight quarters beginning with the quarter ended March 31, 2004 through the quarter ended December 31, 2005. This quarterly information is unaudited, but has been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflects all adjustments, consisting only of normal recurring adjustments necessary for a fair representation of the information for the periods presented. Operating results for any quarter are not necessarily indicative of results for any future period.

	2005 Quarter Ended
	December 31			September 30			June 30			March 31
Total revenue	$	3,163,079		$	795,032		$	428,468		$	18,750
Loss from operations	(4,547,054		)	(7,408,775		)	(7,841,526		)	(6,714,172		)
Net loss	(3,912,917		)	(6,966,879		)	(6,812,039		)	(6,775,437		)
Net loss applicable to common stock shareholders	(4,132,890		)	(7,185,168		)	(7,022,322		)	(6,969,094		)
Basic and diluted net loss per share	$	(0.10	)	$	(0.18	)	$	(0.18	)	$	(0.18	)

	2004 Quarter Ended
	December 31			September 30			June 30			March 31
Total revenue	$	18,750		$	64,094		$	—		$	119,725
Loss from operations	(5,712,240		)	(6,484,649		)	(7,537,643		)	(6,600,240		)
Net loss	(5,859,591		)	(6,703,007		)	(7,630,094		)	(6,680,945		)
Net loss applicable to common stock shareholders	(5,859,591		)	(6,703,007		)	(7,630,094		)	(6,680,945		)
Basic and diluted net loss per share	$	(0.17	)	$	(0.19	)	$	(0.22	)	$	(0.19	)

F-27

INDEX TO EXHIBITS

3.1(1)	Amended and Restated Articles of Incorporation
3.2 (9)	Certificate of Amendment to Amended and Restated Articles of Incorporation
3.3(2)	Certificate of Determination of Rights and Preferences of Series A Preferred Stock filed with the State of California on January 14, 2000
3.4(15)	Bylaws, as amended
3.5(17)	Certificate of Determination of Series RP Preferred Stock of the company
4.1(3)	Form of Subscription Agreement dated as of May 2, 2001
4.2(3)	Supplement to Form of Subscription Agreement dated as of May 29, 2001
4.3(3)	Form of Warrant dated as of June 13, 2001
4.4(5)	Form of Subscription Agreement dated as of March 14, 2002
4.5(5)	Placement Agent Warrant dated as of March 14, 2002
4.6(10)	Form of Warrant dated as of April 21, 2003
10.1(6)	1995 Stock Option Plan, as amended
10.2(1)	Agreement re: Settlement of Lawsuit, Conveyance of Assets and Assumption of Liabilities dated August 28, 1995 by and among Depomed Systems, Inc., Dr. John W. Shell and M6 Pharmaceuticals, Inc.
10.3(1)	Form of Indemnification Agreement between the company and its directors and executive officers
10.4(4)	Loan agreement dated March 29, 2001 between the company and GATX Ventures, Inc.
+10.5(7)	Stock Purchase Agreement, dated as of May 28, 2002, between the company and Biovail Laboratories Incorporated
10.6(8)	Settlement and Release Agreement, dated as of November 22, 2002, between the company and Bristol-Myers Squibb Company
10.7(10)	Depomed, Inc. Securities Purchase Agreement, dated as of April 21, 2003
10.8(11)	Lease extension agreement dated April 30, 2003 between the company and Menlo Business Park LLC
10.9(11)	Lease agreement dated April 30, 2003 between the company and Menlo Park Business Park LLC
10.10(12)	Termination Agreement, dated as of September 16, 2003 among the company, Elan Corporation, plc, Elan Pharma International Limited, Ltd. and Depomed Development, Ltd.
10.11(12)	Exclusive License Agreement, dated as of September 18, 2003, between the company and Depomed Development, Ltd.
10.12(13)	2004 Equity Incentive Plan
10.13(13)	2004 Employee Stock Purchase Plan
10.14(14)	Agreement, dated as of December 10, 2004, between the company and Kings Road Investments, Ltd.
10.15(16)	Rights Agreement, dated as of April 21, 2005, between the company and Continental Stock Transfer and Trust Company as Rights Agent
10.16(18)	Offer Letter dated June 14, 2005 between the Company and Carl Pelzel
10.17(19)	Convertible Note Repurchase Agreement, dated as of June 24, 2005, between the company and Elan Pharma International Limited
10.18(20)	Bonus Plan
+10.19(21)	Exclusive License and Marketing Agreement dated July 21, 2005 between the company and Esprit Pharma
*10.20	Technology Transfer and Commercial Manufacturing Agreement dated October 18, 2005 between the company and MOVA Pharmaceutical Corporation
*10.21	Amended and Restated License Agreement dated December 13, 2005 between the company and Biovail Laboratories International SRL
*10.22	Supply Agreement dated December 13, 2005 between the company and Biovail Laboratories International SRL
*10.23	Manufacturing Transfer Agreement dated December 13, 2005 between the Company and Biovail Laboratories International SRL
23.1	Consent of Independent Registered Public Accounting Firm
24.1	Power of Attorney (See Page 42)
31.1	Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 of John W. Fara, Ph.D.
31.2	Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of John F. Hamilton
32.1	Certification pursuant to 18 U.S.C. Section 1350 of John W. Fara, Ph.D.
32.2	Certification pursuant to 18 U.S.C. Section 1350 of John F. Hamilton

(1)	Incorporated by reference to the company’s registration statement on Form SB-2 (File No. 333-25445)
(2)	Incorporated by reference to the company’s Form 8-K filed on February 18, 2000
(3)	Incorporated by reference to the company’s registration statement on Form S-3 (File No. 333-66688) filed on August 3, 2001
(4)	Incorporated by reference to the company’s Form 10-Q filed on November 14, 2001
(5)	Incorporated by reference to the company’s registration statement on Form S-3 (File No. 333-86542) filed on April 18, 2002

(6)	Incorporated by reference to the company’s registration statement on Form S-8 (File No. 333-101796) filed on December 12, 2002
(7)	Incorporated by reference to the company’s Form 8-K/A dated May 28, 2002 and filed on December 23, 2002
(8)	Incorporated by reference to the company’s Form 8-K/A dated November 22, 2002 and filed on December 23, 2002
(9)	Incorporated by reference to the company’s Form 10-K filed on March 31, 2003
(10)	Incorporated by reference to the company’s Form 8-K filed on April 25, 2003
(11)	Incorporated by reference to the company’s Form 10-Q filed on August 14, 2003
(12)	Incorporated by reference to the company’s Form 10-Q filed on November 14, 2003
(13)	Incorporated by reference to the company’s Form S-8 filed on June 21, 2004
(14)	Incorporated by reference to the company’s Form 8-K filed on December 14, 2004
(15)	Incorporated by reference to the company’s Form 8-K filed on April 19, 2005
(16)	Incorporated by reference to the company’s Form 8-A filed on April 22, 2005
(17)	Incorporated by reference to the company’s Form 10-Q filed on May 10, 2005
(18)	Incorporated by reference to the company’s Form 8-K filed on June 17, 2005
(19)	Incorporated by reference to the company’s Form 8-K filed on June 29, 2005
(20)	Incorporated by reference to the company’s Form 8-K filed on July 15, 2005
(21)	Incorporated by reference to the company’s Form 10-Q filed on November 9, 2005
+	Confidential treatment granted
*	Confidential treatment requested

EX-10.20

Exhibit 10.20

CONFIDENTIAL TREATMENT REQUESTED

EXECUTION COPY

MOVA Pharmaceutical Corporation

and

Depomed, Inc.

TECHNOLOGY TRANSFER AND COMMERCIAL MANUFACTURING

AGREEMENT

THIS AGREEMENT is executed as of this 5th day of October, 2005 (the “Effective Date”), by and between MOVA Pharmaceutical Corporation (“MOVA”), a corporation organized under the laws of the Commonwealth of Puerto Rico, having its principal place of business at Caguas, Puerto Rico, and Depomed, Inc. (“DEPOMED”), a corporation organized under the laws of the State of California, having its principal place of business at 1360 O’Brien Drive, Menlo Park, California 94025.

WITNESSETH:

WHEREAS, MOVA is in the business of providing contract manufacturing services to the pharmaceutical industry and desires to provide such services to DEPOMED;

WHEREAS, DEPOMED desires to engage MOVA to provide certain of such services; and

WHEREAS, MOVA and DEPOMED have agreed upon a contract pursuant to which MOVA would provide manufacturing and packaging services for the Product (as hereinafter defined) for DEPOMED pursuant to the terms and conditions set forth below.

NOW, THEREFORE, in consideration of the foregoing premises, which are hereby incorporated as a substantive part of this Agreement, and in consideration of the performance of the mutual covenants and promises herein contained, MOVA and DEPOMED intending to be legally bound, agree as follows:

ARTICLE 1 – DEFINITIONS

The following terms have the following respective meanings:

1.1“AAA” shall have the meaning set forth in Article 17.

1.2“Act” shall have the meaning set forth in Section 15.1(d).

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION.  CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

1

CONFIDENTIAL TREATMENT REQUESTED

1.3“Active Pharmaceutical Ingredient” or “API” shall mean the substance having the name of ciprofloxacin, HCl.

1.4“Affiliate” shall mean, with respect to either party, all corporations or other business entities that, directly or indirectly, are controlled by, control or are under the common control with that party. For this purpose, the meaning of the word “control” shall mean having the ability substantially to direct the affairs or management of an entity, including, but not be limited to,  ownership of more than fifty percent (50%) of the voting shares or interest of such corporation or other business entity.

1.5“Batch Records” shall mean the executed manufacturing instructions, the executed packaging order, the analytical testing results and any other manufacturing related document, such as deviation or investigation reports.

1.6“Certificate of Analysis” shall mean documented test results in written form executed by an authorized responsible person that demonstrate compliance to the Specifications.

1.7“cGMPs” shall mean the then current and applicable good manufacturing practice regulations established in 21 C.F.R. Parts 210 and 211, as amended and in effect from time to time and other applicable FDA policies and the Guide to GMP for Medicinal Products as promulgated under European Directive 91/356/EEC, as applicable and in effect from time to time during the term of this Agreement.

1.8“Confidential Information” shall have the meaning set forth in Section 7.1

1.9“Correspondence” shall have the meaning set forth in Article 19.

1.10“FDA” shall mean the United States Food and Drug Administration.

1.11“Forecast” shall have the meaning set forth in Section 3.2.

1.12“Initial Term” shall have the meaning set forth in Section 11.1.

1.13“Laboratory” shall have the meaning set forth in Section 5.4.

1.14“Latent Defect” shall mean a defect in the Product or the API that results in the Product not conforming to the Specifications and that was not discoverable with commercially reasonable inspection.

1.15“Materials” shall mean all materials necessary for the manufacture and packaging of the Product, including but not limited to labels, excipients, packaging components and raw materials, excluding the Active Pharmaceutical Ingredient.

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION.  CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

2

CONFIDENTIAL TREATMENT REQUESTED

1.16“NDA” shall mean the New Drug Application(s) or Abbreviated New Drug Application, as the case may be, for the Product submitted to the FDA by DEPOMED, including any amendments and supplements thereto.

1.17“MOVA Facilities” shall mean the MOVA Pharmaceutical Corporation’s manufacturing facilities located in Caguas, Puerto Rico.

1.18“Product” shall mean those finished pharmaceutical products that contain Active Pharmaceutical Ingredient as its active ingredient.

1.19“Production Fee (s)” shall have the meaning set forth in Section 6.1.

1.20“Purchase Order” shall have the meaning set forth in Section 3.3.

1.21“Quality Agreement” shall mean the quality agreement attached hereto as Schedule D.

1.22“Section 335(a) or (b)” shall have the meaning set forth in Section 15.1(f).

1.23“Significant Deviation” shall have the meaning set forth in Section 5.4.

1.24“Specifications” shall mean the bulk drug specifications, the formulations, processing specifications, packaging specifications, packaging bills of material (BOMs), and finished product specifications that are set forth in Schedule A hereto for Product manufacturing, packaging and testing, and any revisions thereto. Specifications shall also include any specifications added to this Agreement by mutual written agreement of the parties during the term of this Agreement.

ARTICLE 2 – TECHNOLOGY TRANSFER

2.1Technology Transfer Complete. MOVA and DEPOMED hereby acknowledge that the technology transfer from DEPOMED to MOVA necessary for the manufacture of the Product under this Agreement has heretofore been completed.  All trial, demonstration, registration/stability and validation batches, to the extent required, have been performed, and DEPOMED has provided among other things HPLC developed residual test methods; developed methods for the API identification test for incoming purposes; developed methods for Finished Product and cleaning, and protocol and report for analytical methods validation.

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION.  CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

3

CONFIDENTIAL TREATMENT REQUESTED

ARTICLE 3 – COMMERCIAL MANUFACTURING

3.1Commercial Manufacturing. Based upon the successful technology transfer referred to above, during the term of and subject to the terms and conditions of this Agreement, DEPOMED hereby grants MOVA the exclusive right to manufacture and package its requirements for [***] of the Product set forth on Schedule C, and MOVA hereby agrees to manufacture and package such requirements of Product for DEPOMED.  At such time as DEPOMED first seeks manufacturing services of a nature similar to those provided by MOVA under this Agreement to meet the need for Product supply in a country or geographical region, as the case may be, where Product has not previously been sold, DEPOMED shall offer to MOVA the opportunity to discuss its capabilities relating to such supply outside [***] and to make a proposal to DEPOMED in such regard.

3.2Forecasts. Manufacturing, packaging and delivery of Product to DEPOMED shall be conducted by MOVA in accordance with the following forecasting procedure. On or before the first day of each quarter during the term of this Agreement, DEPOMED agrees to provide MOVA with a written forecast of the required quantities for each strength and unit size of the Product,  that DEPOMED expects to purchase during each of the next twelve (12) months commencing January 1, 2006 (“Forecast”). DEPOMED shall advise MOVA of any significant changes in its estimated forecast of Products. Except as otherwise explicitly described herein, the quarterly Forecast shall be non-binding.  Notwithstanding the foregoing to the contrary, the initial Forecast shall be submitted to MOVA on or before October 1, 2005, and shall incorporate Product to be manufactured by MOVA under purchase orders submitted by DEPOMED to MOVA and pending at the Effective Date.

3.3Purchase Orders. During the term of this Agreement, not less than ninety (90) calendar days prior to each requested delivery date, DEPOMED will provide MOVA with firm purchase orders setting forth the quantities of Product ordered for each month (“Purchase Order”). The quantities indicated in the Purchase Order will be for not less than [***] and no more than [***] of the total number of units of Product forecasted for such month, as provided to MOVA in the last quarterly Forecast prior to the placement of the Purchase Order. Within ten (10) calendar days from receipt of each Purchase Order, MOVA shall issue an order confirmation for such Purchase Order and shall notify DEPOMED of MOVA’s requirements for API to manufacture and package the quantities covered by the Purchase Order and the corresponding needs for each month of that quarter.  No Purchase Order, confirmation, shipping document or other document between the parties shall supplement or alter the terms set forth in this Agreement without the express written consent of the Parties.

3.4Supply of Materials for Commercial Manufacturing. MOVA shall purchase all Materials, except the Active Pharmaceutical Ingredient, required for the manufacture of

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION.  CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

4

CONFIDENTIAL TREATMENT REQUESTED

Product from DEPOMED’s approved vendors, or vendors mutually agreed to in writing by the parties. MOVA shall not change any vendors of packaging components or excipient materials without previous notification to and written approval from DEPOMED. MOVA shall be responsible for sampling, inspecting, testing and releasing all excipient material, packaging materials and labels for Product.

3.5Supply of Active Pharmaceutical Ingredient. DEPOMED shall furnish to MOVA at MOVA’s plant in Caguas, Puerto Rico,  the Active Pharmaceutical Ingredient [***], in a timely manner, in such quantities as are necessary, as established in Section 3.3, to enable MOVA to manufacture and package the required quantities of Product in accordance with the Specifications in Schedule A hereto. All shipments of Active Pharmaceutical Ingredient shall be accompanied by a certificate of analysis from the Active Pharmaceutical Ingredient manufacturer confirming the identity, purity and compliance with the Active Pharmaceutical Ingredient Specifications covering such Active Pharmaceutical Ingredient. MOVA shall verify the quantity of each Active Pharmaceutical Ingredient lot, and will release the supplied material based on tests of conformance detailed in the Specifications for Active Pharmaceutical Ingredient approved by DEPOMED.The failure of DEPOMED to supply API or any other item hereunder shall not give rise to a right to terminate this Agreement or to any cause of action by MOVA, but shall stand as sufficient justification for MOVA of its inability to deliver Product, without any further consequences to MOVA, to the extent it is a direct result of such failure to supply API by DEPOMED.

ARTICLE 4 – DELIVERY AND TITLE

4.1Shipment. MOVA shall deliver the Product, F.C.A., MOVA Facilities (Incoterms 2000)and ship it at [***], in accordance with DEPOMED’s written routing orders to DEPOMED’s designated distribution centers or warehouses. The Product shall be shipped by MOVA under conditions consistent with Product labeling, the Specifications and the type of transport to be established by DEPOMED. For each lot of Product shipped to DEPOMED by MOVA a Certificate of Analysis will be provided by MOVA.

4.2Title. Title and risk of loss to all Active Pharmaceutical Ingredient, all work in process to manufacture the Product, and all Product in the possession of, or under control or responsibility of, MOVA shall, at all times, remain in DEPOMED.  However, MOVA shall assume liability for any loss or damage relating to the foregoing due to MOVA’s negligence or willful misconduct.

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION.  CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

5

CONFIDENTIAL TREATMENT REQUESTED

ARTICLE 5 – QUALITY

5.1Quality Control. MOVA shall ensure that all Product supplied to DEPOMED complies with the Specifications and has been manufactured in accordance with cGMP’s.  In addition, without limiting the foregoing, MOVA and DEPOMED shall comply with their respective obligations under the Quality Agreement.

5.2Test Reports and Certificates of Analysis. Prior to delivery to DEPOMED of each lot of Products supplied pursuant to this Agreement, MOVA shall test the Product in accordance with the Specifications. Each test report shall set forth the items tested, the Specifications, and the test results in a Certificate of Analysis for each batch or lot of Product delivered. MOVA shall send such Certificate of Analysis to DEPOMED at the time of the shipment of Products. With every shipment MOVA shall certify that each batch or lot has been manufactured and packaged in accordance with cGMP’s and with the Specifications.

5.3Modifications. DEPOMED will inform MOVA in writing of any modifications required to the Specifications. Any change in the manufacturing process by MOVA (such as changes in Specifications, raw material testing, quality controls, equipment, facilities, manufacture and/or packaging) shall be subject to DEPOMED´s prior written approval. In the event that there are changes in laws or regulations, cGMP’s, or the Specifications in a manner that increases or decreases, in the aggregate, the manufacturing cost on a per lot basis by more than [***] of the per unit price to DEPOMED, the entire corresponding change on a per unit price to DEPOMED shall be made to the Production Fees set forth in Schedule B, any other relevant document and the related schedules shall be revised.

5.4Deviations.  MOVA will diligently track all deviations associated with the Product.  MOVA shall be responsible for investigating, resolving, and documenting deviations from Batch Records and Specifications and reporting on such matters to DEPOMED promptly and regularly.  MOVA will notify DEPOMED of any Significant Deviations (as defined herein) within twenty-four (24) hours of occurrence according to written standard operating procedures approved in writing by DEPOMED.  MOVA shall ensure that appropriate investigations are conducted.  MOVA shall provide quality assurance approval for all investigations and corrective and preventive action plans, all of which shall be shared in advance with DEPOMED and shall be subject to the reasonable approval of DEPOMED.  For purposes of this Agreement a “Significant Deviation” shall mean any deviation: (i) resulting in an immediate or probable wide-ranging impact on GMP products, processes or systems in any facility where activities are conducted pursuant to this Agreement, (ii) which could result in significant Product safety or efficacy risks (e.g., sterility failure or data integrity issues), (iii) which would require notification to a regulatory authority, or (iv) which would otherwise be considered by reasonable quality assurance professionals to be significant.

5.5Rejection. DEPOMED shall have thirty (30) calendar days following the date on which DEPOMED actually receives a shipment of Product from MOVA to reject the

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION.  CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

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CONFIDENTIAL TREATMENT REQUESTED

same, because all or part of the shipment fails to conform to cGMP’s or the Specifications. For purposes of this Agreement, no claims due to Latent Defects shall be made after six (6) months after the expiration date of the Product. DEPOMED shall notify MOVA within thirty (30) calendar days following discovery of any Latent Defect not discoverable upon reasonable physical inspection. MOVA shall not be held responsible for reasons related to the carrier; provided MOVA has packed and shipped in accordance with applicable Specifications and followed DEPOMED’s other shipping instructions. A shipment of Product shall not be deemed received until actual receipt by DEPOMED, or third parties designated by DEPOMED in the Purchase Order, of both the Product with the appropriate shipping documents, and copies of the complete certificates of analysis relating thereto including, but not limited to, certification of manufacture in compliance with cGMPs and including any deviation report.  Any rejection shall be made effective by DEPOMED giving notice to MOVA specifying the manner in which all or part of such shipment fails to meet the aforementioned requirements. Upon rejection of a shipment of PRODUCT, DEPOMED may require at its option, rework in accordance with procedures spelled out in the applicable NDA, destruction or replacement of the shipment. Cost associated with such rework, destruction or replacement of shipment shall be borne by the Party responsible.  MOVA shall be so responsible for only those failures due to its negligence or willful misconduct.  For clarification purposes and by means of example, MOVA’s failure to follow the protocols agreed to by the parties, MOVA’s standard operating procedures, written instructions from DEPOMED not contrary to law, or cGMP regulations shall be deemed to constitute negligence on the part of MOVA.  If MOVA and DEPOMED fail to agree on the cause for such Product failure, the dispute may be referred to a Laboratory pursuant to Section 5.6 herein, and the finding of such Laboratory shall be determinative as to the cause for such failure.  When there has been no definitive determination of the cause for failure, whether following reasonable investigations by MOVA and DEPOMED or referral of a dispute to the Laboratory, each of MOVA and DEPOMED shall bear their respective costs of such failure.  DEPOMED shall not be entitled to payment from MOVA for lost raw materials and MOVA shall not be entitled to payment for services in manufacturing such failed Product.  If DEPOMED, due to the negligence or willful misconduct of MOVA, rejects a shipment before the date on which payment therefor is due pursuant to Sections 6.1 and 6.2 hereof, DEPOMED may withhold payment for that shipment or the rejected portion thereof. In the event that DEPOMED, due to the negligence or willful misconduct of MOVA, rejects a shipment or portion thereof within such thirty (30) calendar day period but after payment therefor has been made, DEPOMED shall be entitled to recoup the payment amount by, at DEPOMED’s election, MOVA issuing a prompt refund or DEPOMED offsetting such amount against the payment of future invoices for shipments of Product that may become due hereunder. Payments for all shipments or portions thereof that DEPOMED rejects but, did not have the right to reject, shall be paid to MOVA within fifteen (15) calendar days following the date on which such determination is made and DEPOMED shall bear the responsibility for any costs incurred by MOVA as a consequence of such rejection, including the destruction of the rejected lots.  Notwithstanding the foregoing, MOVA

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shall not destroy any rejected lots as to which there exists a dispute until such dispute has been resolved.  DEPOMED’s exclusive remedies under this Agreement for the delivery of Product not conforming to the Specifications, delivered without the required documentation, or not manufactured in accordance with cGMPs shall be as set forth in this Article 5, Section 9.1, Section 11.3, and Section 11.7.

5.6Disputes. Notwithstanding anything in this Agreement to the contrary, if MOVA disputes DEPOMED’s right to reject all or part of any shipment of the Product pursuant to the provisions of Section 5.4 hereof, and such dispute is not resolved by mutual agreement of the parties within sixty (60) calendar days, such dispute shall be resolved by the determination of a laboratory approved by both MOVA and DEPOMED that is compliant with FDA guidelines and regulations or an independent expert of recognized repute within the United States pharmaceutical industry, as applicable, mutually agreed upon by the parties (the “Laboratory”), the appointment of which shall not be unreasonably withheld or delayed by either party. The determination of the Laboratory shall be final and binding upon the parties. The fees and expenses of the Laboratory making the determination as well as all costs relating to the supply of defective Product shall be paid by the party against whom the determination is made.

5.7Defective Active Pharmaceutical Product.In the event that the Laboratory or MOVA determines that the failure of Product to meet Specifications is due to a defect in Active Pharmaceutical Product that could not have been reasonably discovered using the testing methods set forth in the Specifications, and contemplated by, this Agreement, MOVA shall be entitled to the Production Fees (as defined in Section 6.1) for (i) such finished Product, and (ii) the costs of the testing methods employed by MOVA to determine the defect in Active Pharmaceutical Product.

5.8Access to MOVA Facilities by DEPOMED Representatives. Upon reasonable advance notice, MOVA shall permit DEPOMED representatives to enter MOVA’s plant during regular business hours for the purpose of making quality control inspections of the facilities used in the manufacture of Product for DEPOMED, during the period of such use. Any DEPOMED representatives shall be advised of the confidentiality obligations of Article 7 and shall follow such security and facility access procedures as are reasonably designated by MOVA. MOVA may require that at all times the DEPOMED representative be accompanied by a MOVA representative and that the DEPOMED representative not enter areas of the facility used in production of the Product at times other than when the production is occurring to assure protection of MOVA or third party confidential information.

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ARTICLE 6 – PRODUCTION FEES AND PAYMENT

6.1Production Fees. DEPOMED shall pay MOVA for manufacturing finished Product in accordance with the fees set forth in Schedule B hereto (“Production Fee(s)”). [***]

6.1.1 The Production Fees shall be adjusted [***].

6.2Invoices. MOVA shall invoice DEPOMED for the Production Fees on or after MOVA ships the subject Product and sends the manufacturing and testing records and deviation report, if any, for each lot of Product to DEPOMED. All invoices shall be due and payable within thirty (30) calendar days after the receipt of the invoice. If DEPOMED disagrees for any reason with the amount of any invoice submitted by MOVA, DEPOMED shall notify MOVA of such disagreement within fifteen (15) calendar days after receipt of such invoice, and the parties shall promptly attempt to resolve the difference. Any portion of the invoiced amount that is not in dispute shall be paid within thirty (30) calendar days after the original date of receipt of the invoice.

6.2.1 In the event that any Product manufactured in accordance with DEPOMED´s orders cannot be recommended for disposition by MOVA for a period of thirty (30) calendar days following completion of manufacturing and such delay arises from cause(s) which have been established to be other than the negligent or willful misconduct of MOVA or MOVA’s failure to fully comply with the manufacturing protocols and GMPs, MOVA may upon the expiration of such thirty (30) day period invoice DEPOMED for the applicable Production Fees and such invoice shall be due according to Section 6.2 hereof.

6.3Adjustments for Cost of Materials.  At any time during a calendar year when MOVA determines that its actual cost of Materials used in the manufacture of Product has increased or decreased in excess of [***] of the per unit prices set forth on Schedule B (or otherwise established) for either or both bulk and bottled Product, the price per unit of Product so affected shall be adjusted to give effect to the actual increase in cost or savings in the cost of Materials in excess of [***].  MOVA shall make such calculation on a per lot basis, but shall convert such calculation into the units expressed on Schedule B for proper comparison.  Such newly calculated prices shall take effect with the first lot of Material so affected.  Any such adjusted price shall remain in effect until next adjusted.  No adjustment shall be made in any calendar year when increases or decreases in the actual cost of Materials do not exceed [***], as described above.  In support of any adjustment to the prices of Product to DEPOMED made pursuant to this Section 6.3, MOVA shall disclose in writing to DEPOMED the costs of Materials before and after such adjustment.  MOVA shall keep complete and accurate records of such costs and shall allow DEPOMED or its representatives to audit such records.  MOVA shall use its best efforts to keep the cost of Materials at current levels while utilizing only those vendors approved by DEPOMED.

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ARTICLE 7 – CONFIDENTIAL INFORMATION

7.1Confidentiality. Any information or data (including but not limited to technical information, experience, or data) regarding either party’s formulations, plans, programs, plants, process, technical materials, products, production requirements, standard specifications, costs, equipment, operations, procedures, instructions or customers (all of which is herein referred to as “Confidential Information”) is the sole property of each respective party. Each party shall treat the other party’s Confidential Information in the same protective manner that it treats its own Confidential Information. Except as provided herein, the parties shall not during the term of this Agreement and for a period of five (5) years from the date of termination of expiration of this Agreement, use, or disclose to others, or permit their employees or agents to use or disclose to others Confidential Information which has heretofore come or hereafter may come within the knowledge of, or which has been or may hereafter be acquired or developed by the respective party, its employees or agents, in the performance of any services hereunder.  For the avoidance of doubt, manufacturing processes, analytical methods used in the manufacture of Product and test results shall be the Confidential Information of DEPOMED.  This paragraph shall not prevent either party from using or disclosing to others information:

(a)that is known to the receiving party at the time it is disclosed by or obtained from the disclosing party, which knowledge can be established by competent evidence; or

(b)that is in the public domain at the time of disclosure, or through no fault of the receiving party becomes available to the public;

(c) that lawfully becomes available to the receiving party from a source other than the disclosing party;

(d)that a party can prove by written records dated prior to the date of disclosures hereunder that such information was independently developed by persons not engaged in activities hereunder and without regard to any information conveyed hereunder or arising in connection herewith; or

(e)is required by law or court order or a judicial or administrative agency of competent jurisdiction to be disclosed, after maximum practicable notice by the Receiving Party to the Disclosing Party, provided that in each case the Receiving Party shall use its best efforts to limit such disclosure and maintain the confidentiality of such Confidential Information to the extent possible; or

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(f)that is needed to be disclosed for the sole purpose of carrying out the responsibilities and obligations of this Agreement.

7.2Obligations Upon Termination. Upon termination of this Agreement, if requested, the receiving party shall deliver to the disclosing party all notes, drawings, blueprints, manuals, letters, notebooks, reports and other materials of or pertaining to the Confidential Information, including all copies thereof, and all other Confidential Information that is in the possession of or under the control of the receiving party, except for one copy which shall be maintained in the files of counsel for the sole purpose of assuring compliance with the continuing confidentiality obligations under this Agreement.

7.3Access Restriction. The parties shall restrict access to Confidential Information to as few as practicable of their employees and agents, and in all cases shall restrict such knowledge to only those employees and agents who are directly connected with the performance of the services hereunder.

7.4Equitable and other Injunctive Relief.  The Parties acknowledge and agree that disclosure, distribution, use or any other handling of the Confidential Information contrary to the terms of this Agreement will cause irreparable harm to the Party owning such Confidential Information for which damages at law will not provide an adequate remedy.  The Parties agree that the provisions of this Article 7 may be specifically enforced in addition to any and all other remedies available at law or in equity.

ARTICLE 8 – INDEMNIFICATION

8.1Indemnification by DEPOMED. DEPOMED shall indemnify, defend and hold MOVA, its Affiliates and their respective directors, officers, employees and agents harmless from and against all claims, causes of action, suits, costs and expenses (including reasonable attorney’s fees), losses or liabilities of any kind asserted by third persons (except to the extent due to an act or omission of an indemnified party) that arise out of or are attributable to

(i) any material breach of this Agreement by DEPOMED; or

(ii) any negligence or willful misconduct on the part of DEPOMED, its employees, agents or representatives; or

(iii) any violation by DEPOMED of any intellectual property rights, including but not limited to, patent rights or any property rights of any third party related to the Product, except where such violation is attributable to MOVA.

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8.2Indemnification by MOVA. MOVA shall indemnify, defend and hold DEPOMED, its Affiliates and their respective directors, officers, employees and agents harmless from and against all claims, causes of action, suits, costs and expenses (including reasonable attorney’s fees), losses or liabilities of any kind asserted by third persons (except to the extent due to an act or omission of an indemnified party) that arise out of or are attributable to:

(i) any material breach of this Agreement by MOVA; or

(ii) any negligence or willful misconduct on the part of MOVA, its employees, agents or representatives; or

(iii) any violation by MOVA of any intellectual property rights, including but not limited to, patent rights or any property rights of any third party related to the Product, except where such violation is attributable to DEPOMED.

8.3 Consequential Damages. Under no circumstances whatsoever shall either party be liable to the other in contract, tort, negligence, breach of statutory duty or otherwise for (i) any (direct or indirect) loss of profits, of production, of anticipated savings, of business or goodwill or (ii) any other liability, damage, costs or expense of any kind incurred by the other party of an indirect or consequential nature, regardless of any notice of the possibility of such damages.  The foregoing shall not be construed to limit payment of any amount due pursuant to either Section 8.1 or Section 8.2.

8.4Indemnification Procedures. Each Party shall notify the other promptly of any threatened or pending claim or proceeding covered by any of the above Sections in this Article 8 and shall include sufficient information to enable the other Party to assess the facts. Each Party shall cooperate fully with the other Party in the defense of all such claims. No settlement or compromise shall be binding on a party hereto without its prior written consent, whereas such consent shall not be unreasonably withheld or delayed.  The indemnitee, its Affiliates and their respective directors, officers, employees and agents shall cooperate fully with the indemnitor and its legal representatives in the investigation and defense of any claim, lawsuit or other action covered by this indemnification, all at the reasonable expense of the indemnitor.  The indemnitee shall have the right, but not the obligation, to be represented by counsel of its own selection and expense.

8.5Insurance. During the term of this Agreement, each party shall maintain adequate product liability insurance. During the term of this Agreement, MOVA and DEPOMED shall each maintain comprehensive general liability insurance, including product liability. At the time of first commercial sale of

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Product manufactured pursuant to this Agreement, the insurance afforded by the parties shall be primary insurance with minimum limits of [***] per occurrence and an annual aggregate amount of [***]. Such insurance shall not be cancelled or modified without providing the other party at least thirty (30) calendar days prior written notice. If requested each party will provide the other with a certificate of insurance evidencing the above and showing the name of the issuing company, the policy number, the effective date, the expiration date and the limits of liability.   If a party is unable to maintain the insurance policies required under this Agreement through no fault on the part of such party, then such party shall forthwith notify the other party in writing and the parties shall in good faith negotiate appropriate amendments to the insurance provision of this Agreement in order to provide adequate assurances.

ARTICLE 9 – RECALLS

9.1Recalls. In the event (i) any government authority issues a request, directive or order that the Product be recalled, or (ii) a court of competent jurisdiction orders such a recall, or (iii) DEPOMED reasonably determines that the Product should be recalled, the parties shall take all appropriate corrective actions. In the event that such recall results from the manufacture, packaging, storage, testing and handling of the Product by MOVA and such recall or event is due to MOVA’s negligence or willful misconduct, MOVA shall be responsible for all expenses of recall. In all other cases, DEPOMED shall be responsible for the expenses of the recall. For the purposes of this Agreement, the expenses of recall shall include, without limitation, the expenses of notification and destruction or return of the recalled Product, and DEPOMED’s costs for the Product recalled. Marketing and advertising expenses associated with the goodwill of the Product subject to the recall shall not be included as an expense of recall and shall, in all instances, be borne by DEPOMED. The remedies set forth above shall constitute the sole remedy of each party under this Section 9.1.

9.2Recall Coordination. All coordination of any recall or field correction activities involving Product shall be handled by DEPOMED.

9.3Recall Records. Each of the parties shall maintain complete and accurate recall records of all the Product sold by it for such periods as may be required by applicable law, but in no event less than three (3) years after the date of the recall.

9.4Disputes. Any disputes, as between MOVA and DEPOMED, with regards to the quality of the Product shall be handled according to the provisions stated in Section 5.6 of this Agreement.

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ARTICLE 10 – RECORDS AND AUDITS

10.1Records and Retained Samples. During the term hereof, MOVA shall (i) prepare and maintain Batch Records and (ii) retain samples, properly stored, from each lot or batch of Products supplied by MOVA hereunder, sufficient to perform each quality control test specified in the Specifications at least twice. DEPOMED agrees to provide for such purpose all the information, processes, analytical methods, testing procedures, and any other information reasonably requested by MOVA and in the possession of DEPOMED necessary for manufacturing the Product in accordance with cGMP’s. MOVA agrees to provide DEPOMED upon release and delivery of the Product, copies of the analytical testing data such as Certificate of Analysis. MOVA agrees to provide DEPOMED copies of its executed Batch Records and related documents. Such records shall be available for audit by DEPOMED, and its designates, as well as FDA and foreign regulatory agencies, upon request. MOVA shall store the manufacture and analysis documentation for each batch of PRODUCT for the shelf life period of the respective batch and for two (2) years thereafter.

ARTICLE 11 – TERM AND TERMINATION

11.1Term. Subject to the termination provisions of Section 11.3, the initial term of this Agreement shall commence on the Effective Date and shall end on the fifth (5^th) anniversary from regulatory approval of the first dosage form of the Product at MOVA’s Facilities, the (“Initial Term”). Thereafter, this Agreement shall be automatically renewed for an additional term of two (2) years unless one party gives notice to terminate twelve (12) months prior to the expiration of the Initial Term or any extension thereof.

11.2Termination due to Market Conditions. At any timeafter a period of two (2) years from the Effective Date, DEPOMED shall be entitled to terminate this Agreement, upon one hundred and eighty (180) days written notice to MOVA, if due to market conditions, the Product becomes commercially unfeasible and DEPOMED discontinues selling the Product. If DEPOMED subsequently elects to resume commercializing the Product, this Agreement shall once again take effect between the parties, and the parties shall meet in good faith to determine the procedure to follow in order for DEPOMED to resume the purchase of Product from MOVA and MOVA resume the supply of Product to DEPOMED.

11.3Termination. This Agreement may be terminated under the conditions stated herein:

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(a)by either party by giving the other party written notice thereof if the other party fails to remedy and make good any breach in the performance of any condition or obligation under this Agreement after ninety (90) calendar days of the date of a written notice of breach is sent to the breaching party thereof, or if such breach cannot be reasonably remedied within such ninety (90) calendar day period; the party in default diligently commences and continues to remedy such breach; or

(b)by DEPOMED by giving MOVA written notice of a breach of the Quality Agreement if MOVA fails to remedy and make good any breach in the performance of any condition or obligation under the Quality Agreement after ninety (90) calendar days of the date of a written notice of breach is sent to the breaching party thereof, or if such breach cannot be reasonably remedied within such ninety (90) calendar day period;

(c)by either party if the other party is declared insolvent or bankrupt by a court of competent jurisdiction, or a voluntary petition of bankruptcy is filed in any court of competent jurisdiction by the other party, or the other party makes or executes any assignment for the benefit of creditors.

(d)by DEPOMED, immediately, by giving MOVA written notice of such termination as a result of any debarment, whether actual or threatened, or any conviction which could result in debarment, whether it does so in fact or not; provided that if such circumstance relates to an individual, MOVA may avoid such termination by the immediate removal of such person from all tasks performed pursuant to this Agreement and replacement of such person by another qualified person.

11.4Effect of Termination. Upon termination of this Agreement for any reason MOVA shall furnish to DEPOMED a complete inventory of all stock on hand of work-in-progress for the manufacture of the Product and finished Product. Unless otherwise agreed to between the parties, all stock on hand as of the effective date of termination of this Agreement shall be dealt with promptly as follows:

(a)Product manufactured and packaged pursuant to Purchase Orders from DEPOMED shall be delivered by MOVA to DEPOMED, whereupon DEPOMED shall pay MOVA therefor in accordance with the terms hereof;

(b)Work-in-progress commenced by MOVA against Purchase Orders from DEPOMED shall be completed by MOVA and delivered to DEPOMED, whereupon DEPOMED shall pay MOVA therefore in accordance with the terms hereof; and

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(c)Materials not necessary to complete 11.3(b) above but having been ordered or purchased by MOVA in accordance with DEPOMED´S then current twelve (12) months rolling forecast shall be disposed of by MOVA or returned to DEPOMED at DEPOMED’s option and expense. If MOVA terminates this Agreement under Section 11.3(a) herein, DEPOMED shall reimburse MOVA for MOVA’s actual cost of such raw materials purchased by MOVA in order to fulfill DEPOMED´s then current twelve (12) months rolling forecast. Additionally, DEPOMED shall reimburse MOVA for any fees charged to MOVA for the termination of such supply contracts for raw materials which MOVA can only use for the manufacture of Products. In all other events of termination and without prejudice to the above mentioned, the party having given reason to the termination shall bear the costs of disposal of raw materials and Active Pharmaceutical Ingredient.

11.5No Discharge of Obligations. Termination of this Agreement for any reason shall not discharge either party’s liability for obligations incurred hereunder and amounts unpaid at the time of such termination.

11.6Tooling. Upon any termination, MOVA shall after consultation with and upon request by DEPOMED deliver to DEPOMED or a third party designated by DEPOMED all tooling and equipment purchased and for which DEPOMED has remitted payment to MOVA, with delivery costs to be borne by DEPOMED.

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11.7Conversion to Non-Exclusive Rights. In the event that MOVA fails to deliver at least [***] of the Product volume per order for [***] consecutive months or [***] of the sum of the Product ordered during such [***] consecutive months (provided, that MOVA shall not be deemed to have failed to deliver any Product during a calendar month, if delivery of such Product occurs within five business days of the confirmed delivery date), for reasons other than those related to: (i) DEPOMED, including, failure to diligently place the corresponding purchase orders; (ii) DEPOMED’s failure to provide the Specifications or supplying Active Pharmaceutical Ingredient; or (ii) due to a Force Majeure Event (which shall be governed by Article 18); the exclusive manufacturing right granted to MOVA in Section 3.1 of this Agreement shall immediately, and with notice to MOVA, become non-exclusive entitling DEPOMED to place orders for the greater of (a) [***] of DEPOMED’S requirements for the Product, or (b) the quantity of Product not delivered by MOVA.  If DEPOMED exercises its right to use an alternative supplier hereunder, MOVA shall cooperate in good faith with DEPOMED’s reasonable requests relating to the provision of the Specifications, SOPs, analytical tests, procedures and all other applicable documents to the alternative supplier(s) designated by DEPOMED, which shall be entitled to use the same for DEPOMED.  The foregoing conversion shall not apply in the event that the reason for the delay or shortfall was due to a failure of supply of API by, or other fault of, DEPOMED.

ARTICLE 12 – REGULATORY MATTERS

12.1Regulatory Filings. DEPOMED shall be responsible for preparing and submitting all documents necessary for maintaining the NDA including without limitation adverse drug reaction reports and annual reports. MOVA shall use best efforts to assist DEPOMED in complying with any arising requirements of the FDA and any other regulatory authorities. MOVA agrees to comply with all reasonable commitments made in the NDA and any supplement thereto regarding MOVA’s manufacturing responsibilities as directed herein, provided that MOVA is notified of such responsibilities and given an opportunity to review such commitments with sufficient time prior to their being included in the submitted document by DEPOMED and provided they are not inconsistent with the then applicable Specifications. Any incremental costs as a result of the above are subject to the price adjustments as provided in Section 5.3 herein.

12.2Compliance. DEPOMED shall be responsible for compliance of the Specifications (including but not limited to the text and accuracy of any labeling required by DEPOMED) with FDA standards. MOVA shall be responsible for compliance of the manufacturing, processing, packaging procedures and testing procedures with FDA standards, including those pertaining to cGMPs. Each party will provide reasonable assistance to the other, at no charge, if necessary to respond to FDA audits, inspections, inquiries or requests concerning the Product. DEPOMED employees present at the

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facility shall at all times adhere to safety regulations, cGMPs and work schedule generally applicable to MOVA’s own employees, provided that such DEPOMED employees are notified of the same.

12.3Adverse Events Reporting and Product Information Requests.

(a)Adverse Reaction Reporting. During the term of this Agreement, MOVA shall immediately but in any case within twenty-four (24) hours notify DEPOMED, by facsimile or telephone, of any adverse drug experience involving the Product that a responsible employee of MOVA becomes aware of.

(b)Product Information Requests. Information concerning any complaints, inquiries and/or drug information requests from consumers, physicians, or other third parties regarding the Product shall be forwarded to DEPOMED within twenty-four (24) hours of MOVA’s receipt of the information and/or inquiry. DEPOMED shall respond to such complaints and inquiries, if necessary, in accordance with its usual and customary procedures. DEPOMED shall supply MOVA, for MOVA’s information purposes only, with copies of its standard response information for the Product as well as any updates thereto.

(c)Governmental Reports. DEPOMED shall be responsible for filing with the FDA any required adverse reaction reports that it receives directly from third parties and any adverse reaction reports that it receives through MOVA.

12.4Cooperation. The parties expect that any information concerning the Product required by the FDA will be submitted by DEPOMED. If MOVA is required to submit to the FDA any information concerning the Product as part of a FDA inspection or audit in connection with the manufacture of the Product, DEPOMED will provide to MOVA such documentation, data and other information as MOVA may require for submission to the FDA. DEPOMED shall also provide, if required by the FDA, information concerning its quality control procedures and marketing of the Product and any other information reasonably requested by FDA. DEPOMED shall provide its reasonable cooperation and consultation to MOVA in addressing any issue raised by FDA concerning manufacture of the Product.

12.5Compliance Audits. MOVA shall permit representatives of DEPOMED to conduct audits to confirm MOVA’s compliance with cGMPs and Specifications upon reasonable advance notice and subject to the provisions of Article 7. MOVA shall notify DEPOMED within twenty-four (24) hours after it receives notice of an FDA audit or inspection involving the Product, any component thereof, or any portion of MOVA’s facility used or likely to be used in connection with the activities of MOVA to be conducted under this Agreement, and shall allow DEPOMED to be present and to participate in any such inspection.  In each such case, whether or not DEPOMED

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attended such audit or inspection provide to DEPOMED copies of any resulting document of action (FDA Form 483 inspection observation report, regulatory letters, etc.) resulting from these audits, which pertains to the Product, any component thereof, or any portion of MOVA’s facility used or likely to be used in connection with the activities of MOVA to be conducted under this Agreement, within two (2) calendar days after receipt. Should either MOVA or DEPOMED receive any such document of action, it shall so notify the other within two (2) business days after receipt and shall provide to the other an opportunity to the extent feasible under the circumstances, to provide input to any response to any such document of action.

ARTICLE 13 – INTELLECTUAL PROPERTY

13.1Trademarks and Labeling. MOVA shall affix labeling to the Product as specified in the Specifications. That labeling shall bear one or more trademarks to be designated by DEPOMED. Nothing contained herein shall give MOVA any right to use any DEPOMED trademark except on Product for DEPOMED, and MOVA shall not obtain any right, title or interest in any DEPOMED trademark by virtue of this Agreement or its performance of services hereunder.

13.2No Rights Granted. Nothing in this Agreement shall grant, directly or indirectly, any rights to either party to any technology, information or intellectual property owned by, possessed by or licensed to the other party at the time of signing of this Agreement.

ARTICLE 14 – RELATIONSHIP OF PARTIES

14.1Independent Contractors. It is not the intent of the parties hereto to form any partnership or joint venture. Each party shall, in relation to its obligations hereunder, act as an independent contractor, and nothing in this Agreement shall be construed to give such party the power or authority to act for, bind or commit the other party in any way whatsoever.

14.2Public Statements. MOVA and DEPOMED each agree not to disclose the terms of this Agreement in any public statements, whether oral or written, including but not limited to shareholder reports, communications with stock market analysts, statements to other customers or prospective customers, press releases or other communications with the media, or prospectuses, without the other party’s prior written consent, which shall not be unreasonably withheld or delayed, or as required by applicable law. If possible, each party shall give the other at least five (5) calendar days advance written notice of a disclosure required by applicable law and will cooperate with the other party to minimize the scope and content of such disclosure.

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ARTICLE 15 – WARRANTIES

15.1MOVA’s Warranty. MOVA hereby represents and warrants as follows:

(a)The Product shall conform with the Specifications as set out in Schedule A at the time of delivery to a common carrier pursuant to Section 4.1.

(b)MOVA shall comply in all material respects with any law, regulation, ordinance, order, injunction, decree or requirement applicable to the manufacture of the Product (including cGMPs).  For purposes of this Section 15.1(b), and without limiting the foregoing sentence, any failure to comply with any such law, regulation, ordinance, order, injunction, decree or requirement that exposes DEPOMED to any sanction or liability, or prevents DEPOMED from using the Product as intended, shall be deemed to be a material non-compliance.

(c)MOVA shall maintain all required governmental permits, licenses, orders, applications and approvals regarding the manufacturing of the Product, and MOVA shall manufacture Product in accordance with all such permits, licenses, orders, applications and approvals. Any expenses incurred to obtain special permits for Product that MOVA would not have to acquire absent this Agreement will be reimbursed by DEPOMED.

(d)Product shall, at the time it is shipped to DEPOMED (i) not be adulterated or misbranded within the meaning of the Federal Food, Drug and Cosmetic Act (the “Act”) as amended, or within the meaning of any applicable State or municipal laws in the U.S.A. and (ii) not be articles that may not, under the Act or any other applicable law, statute or regulation, be introduced into interstate commerce.

(e)MOVA has full authority to enter into this Agreement, that it has been granted full rights and license to manufacture the Product under all relevant U.S. patents, to the extent applicable, and that nothing contained in any other agreements prohibits or restricts MOVA from entering into any part of this Agreement.

(f)MOVA represents as of the date of this Agreement and continuously during the term of this Agreement that it and its employees, affiliates, and agents have never been (i) debarred or (ii) convicted of a crime for which a person can be debarred, under Section 335(a) or 335(b) of the Federal Food, Drug, and Cosmetic Act (“Section 335(a) or (b)”).  MOVA represents that it has never been and, to the best of its knowledge after due inquiry, none of its employees, Affiliates, or agents has ever been (i) threatened to be debarred or (ii) indicted for

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a crime or otherwise engaged in conduct for which a person can be debarred, under Section 335(a) or (b).  MOVA agrees that it will promptly notify DEPOMED in the event of any such debarment, conviction, threat, or indictment.

15.2DEPOMED’s Warranty. DEPOMED hereby represents and warrants as follows:

(a)The Active Pharmaceutical Ingredient shall, to the best of DEPOMED’s knowledge, at the time it is shipped to MOVA, (i) not be adulterated or misbranded within the meaning of the Federal Food, Drug, and Cosmetic Act (“the Act “) or within the meaning of any applicable state or municipal law in which the definitions of adulteration and misbranding are substantially the same as those contained in the Act; (ii) not be articles that may not, under the Act or any other applicable law, statute or regulation, be introduced into interstate commerce,  (iii) comply with its specifications as provided by DEPOMED and (iv) to the best of DEPOMED’s knowledge, the use of the Active Pharmaceutical Ingredient for the manufacture of the Product does not infringe third party intellectual property rights.

(b)As of the time that any Product produced hereunder is sold, DEPOMED will own all rights to the Product trademarks and the Product labeling will meet regulatory requirements.

(c)The manufacture, marketing and sale of the Product by or on behalf of DEPOMED or its customers shall not, to the best of DEPOMED’s knowledge, infringe any patent, trademark, trade secret or other proprietary right of any third person.

(d)DEPOMED has full authority to enter into this Agreement, that it has been granted full rights and license to manufacture and sell the Product under all relevant U.S. patents, to the extent applicable, and that nothing contained in any other agreements prohibits or restricts DEPOMED from entering into any part of this Agreement.

(e)All material safety data sheets and other raw material, Active Pharmaceutical Ingredient or any data supplied by DEPOMED to MOVA are accurate to the best of DEPOMED’s knowledge. The parties understand that MOVA will not do analysis to verify the accuracy of such DEPOMED supplied data.

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15.3No Implied Warranties. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, MOVA AND DEPOMED MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, IN THE CASE OF MOVA, ANY EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

ARTICLE 16 – ASSIGNMENT

Except as set forth in this Article, this Agreement, and all rights and obligations hereunder, are personal to MOVA and shall not be assigned in whole or in part by MOVA to any other person or company without the prior written consent of DEPOMED, which consent shall not be unreasonably withheld.  Notwithstanding the foregoing, MOVA shall be entitled to assign this Agreement to an Affiliate whose performance is guaranteed by MOVA or to a party which is the successor to, or the assignee of, all or substantially all of MOVA’s pharmaceutical business; provided, however, that any such successor or assignee has agreed in writing to assume all of MOVA’s obligations under this Agreement.  DEPOMED may, without the consent of MOVA, assign this Agreement provided, however, that DEPOMED shall give prior written notice of any assignment to MOVA. Any assignee of DEPOMED to which it has sold or licensed rights to manufacture, market or sell the Product in the Territory, which has assumed all of DEPOMED’s obligations hereunder must be qualified and shall have (i) a financial condition at the time of assignment at least comparable to that of DEPOMED as of the Effective Date, and (ii) has neither been debarred by the FDA nor is otherwise subject to an order of the FDA or a court of competent jurisdiction which would prevent it from performing the obligations of DEPOMED hereunder.  In the event of any assignment pursuant to the provisions of this Article, the assigning party shall have no further obligations hereunder except:  (i) to the extent the same has accrued prior to such assignment or (ii) pursuant to the guarantee obligation set forth above.  The terms and conditions of this Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and permitted assigns.

ARTICLE 17 – GOVERNING LAW AND DISPUTE RESOLUTION

Any controversy, claim or dispute arising out of or relating to this Agreement or the breach thereof shall be settled, if possible, through good faith negotiation between the parties. Such good faith negotiations shall commence promptly upon a party’s receipt of notice of any claim or dispute from the other party and continue for a period of sixty (60) calendar days.

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If such efforts are not successful, such controversy, claim or dispute relating to, arising out of, or in any way connected with this Agreement or any term or condition hereof, or the performance by either party of its obligations hereunder, whether before or after termination of this Agreement, except as otherwise expressly provided in this Agreement, shall be finally resolved by binding arbitration. Whenever a party shall decide to institute arbitration proceedings, it shall give written notice to that effect to the other party. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Puerto Rico without reference to any rules of conflicts of law or renvoi. Disputes shall be resolved through arbitration before three (3) arbitrators. Such arbitration shall take place in the vicinity of the non-triggering Party, and shall proceed in accordance with the Commercial Arbitration Rules of the American Arbitration Association (“AAA”). Within seven (7) calendar days of either party making a demand for arbitration (or longer if the parties so agree), DEPOMED and MOVA shall each select one (1) arbitrator. A third arbitrator shall be selected by the arbitrators selected by the parties within thirty (30) calendar days of the demand for arbitration. In the event that either party shall fail to appoint its arbitrator, or the two arbitrators selected by the parties fail to appoint the third arbitrator, in either case within the prescribed time period, then either party may apply to the AAA for the appointment of such arbitrator. The determination of a majority of the panel of arbitrators shall be the decision of the arbitrators and shall be binding regardless of whether one of the parties fails or refuses to participate in the arbitration; said determination shall be enforceable by any court of competent jurisdiction. Each party shall pay for the arbitrator it selects with the cost of the third arbitrator being split equally between the parties. All other costs shall also be split equally between the parties. Either party may enter any arbitration award in any court having jurisdiction or may make application to any such court for a judicial acceptance of the award and order of enforcement, as the case may be. The parties’ agreement to submit to arbitration referred to herein shall in no way prevent either party from exercising its right to terminate this Agreement consistent with the terms herein.

ARTICLE 18 – FORCE MAJEURE

Neither party shall be liable to the other for default or delay in the performance of its obligations under this Agreement, if such default or delay shall be caused directly or indirectly by accident, fire, flood, riot, war, weather, act of God, embargo, strike, failure or delay of usual sources of supply of materials, or delay of carriers or governmental orders or regulations, or complete or partial shutdown of plant by any of the foregoing causes or other causes beyond its reasonable control, provided the same are not due to the negligence or willful misconduct of such party and provided further that any such default, delay or failure shall be remedied by such party as soon as possible after the removal of the cause of such default, failure or delay. Obligations to pay amounts due under this Agreement shall not be subject to the forestated excuses.  If due to force majeure MOVA is unable to supply DEPOMED with the Product for a period exceeding one hundred and

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twenty (120) days then DEPOMED shall have the right to terminate this Agreement without further cost and with immediate effect and upon written notice to MOVA.  At the end of the first sixty (60) days during the persistence of the force majeure event MOVA shall reasonably determine whether it will be able to resume supplying Product at the end of such one hundred and twenty (120) days period and notify DEPOMED in writing of such assessment.  If MOVA has concluded that it will be unable to resume supplying Product at the end of such period, DEPOMED shall have the right to terminate this Agreement upon thirty (30) days written notice to MOVA without further cost.   MOVA will provide reasonable assistance during the technology transfer for the Product upon termination due to force majeure.

ARTICLE 19 – NOTICES

Unless otherwise provided herein, any notice required or permitted to be given hereunder or any proposal for any modification of this Agreement (hereinafter collectively referred to as the “Correspondence”) shall be faxed, mailed by overnight mail, mailed by certified mail, postage prepaid, or delivered by hand to the party or the individual to whom such Correspondence is required or permitted to be given hereunder. If mailed, any such Correspondence shall be deemed to have been given five (5) business days from the date mailed, as evidenced by the postmark at the point of mailing. If delivered by hand or fax, any such Correspondence shall be deemed to have been given when received by the party to whom such Correspondence is given, as evidenced by written and dated receipt of the receiving party.

All correspondence to MOVA shall be addressed as follows:

MOVA Pharmaceutical Corporation

P.O. Box 8639

Caguas, Puerto Rico 00726

Attention: President

Facsimile: (787) 258-1794

with a copy to:

Patheon, Inc.

7070 Mississauga Road, Suite 350

Mississauga ON L5N 7J8

Attention:   General Counsel

fax:        (905) 812-6613

All correspondence to DEPOMED shall be addressed as follows:

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Depomed, Inc.

1360 O’Brien Drive

Palo Alto, California 94025

Attention: Vice President, Operation

Facsimile: (650) 462-9993

with a copy to:

Heller Ehrman LLP

4350 La Jolla Village Drive, 7th Floor

San Diego, California 92122

Attention:  Richard A. Kaufman, Esq.

Facsimile:  (858) 450-8499

Either party may change the address to which any correspondence to it is to be addressed by notification to the other party as provided herein.

ARTICLE 20 – CAPTIONS

The captions in this Agreement are solely for convenience of reference and shall not be used for purposes of interpreting or construing the provisions hereof.

ARTICLE 21 – SEVERABILITY

Should any part or provision of this Agreement be held unenforceable or in conflict with the applicable laws or regulations of any jurisdiction, the invalid or unenforceable part or provision shall be replaced with a provision that accomplishes, to the extent possible, the original business purpose of such part or provision in a valid and enforceable manner, and the remainder of this Agreement shall remain binding upon the parties hereto.

ARTICLE 22 – WAIVER

No failure on the part of either party hereto to exercise, and no delay in exercising, any right, privilege or power hereunder shall operate as a waiver or relinquishment of the provision giving rise thereto; nor shall any single or partial exercise by either party hereto of any right, privilege or power hereunder preclude any other further exercise thereof, or the exercise of any other right, privilege or power.

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ARTICLE 23 – SURVIVAL

The provisions of Articles 1, 7 through 10, Sections 11.4, 11.5, 11.6, 11.7, 12.4, 12.5, Articles 13 through 14, 18 through 23 and 24 shall survive the termination or expiration of this Agreement.

ARTICLE 24 – ENTIRE AGREEMENT

This Agreement, together with the Schedules hereto constitute the complete and exclusive Agreement between the parties hereto with reference to the subject matter hereof, and no statement or agreements, oral or written, made prior to or at the signing hereof shall vary or modify the written terms hereof, and neither party shall claim any modification or rescission from any provision hereof unless such modification or rescission is in writing, signed by the other party.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective duly authorized representatives as of the day and year first above written.

MOVA Pharmaceutical Corporation		Depomed, Inc.
Name:	/s/ Clive Bennett	Name:	/s/ John N. Shell
Title: Presendente & COO		Title: Vice President, Operations
Date: October 5, 2005		Date: October 18, 2005

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Schedule A

Specifications

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Schedule B

Commercial Production Fees

1.Per unit prices

The prices of Product are as follows:

(a) Bulk Tablets (not packaged) in 25 kilogram drums

or in other suitable bulk container:

[***]

(b) Tablets in bottles of 50:

[***]

2.Price Adjustments

[***]

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Schedule C

Commercial Volumes

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Schedule D

Quality Agreement

[TO BE INCLUDED AS SOON AS PRACTIBLE]

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EX-10.21

Exhibit 10.21

CONFIDENTIAL TREATMENT REQUESTED

EXECUTION COPY

AMENDED AND RESTATED LICENSE AGREEMENT
(Extended Release Metformin Formulations — Canada)

DEPOMED, INC.
a company organized under the laws of California, USA
with offices at
1360 O’Brien Drive
Menlo Park,
California, 94025

AND:

BIOVAIL LABORATORIES INTERNATIONAL SRL
a Barbados society with restricted liability organized under the laws of Barbados
whose head office is
Chelston Park
Building 2, Collymore Rock
St. Michael BH1
Barbados, West Indies

Biovail – Depomed Amended and Restated License Agreement

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

CONFIDENTIAL TREATMENT REQUESTED

Contents

1.		DEFINITIONS	2
2.		DEVELOPMENT AND DEVELOPMENT COSTS	8
3.		DISCLOSURE OF INFORMATION AND REPORTING	8
4.		LICENSE OF PRODUCT	8
5.		ROYALTIES	10
	500MG PRODUCT ROYALTIES		10
	1000MG PRODUCT ROYALTIES		11
	REDUCTION OF ROYALTIES		11
	ROYALTY REPORTS AND PAYMENTS		11
	RECORDS AND AUDITS		13
	500MG PRODUCT SUBSTITUTION		13
6.		REGULATORY AFFAIRS	14
	REGULATORY RESPONSIBILITY		14
	ADVERSE REACTION REPORTS		16
	WITHDRAWAL OF REGULATORY APPROVAL		16
	RIGHTS OF REFERENCE		16
7.		TECHNOLOGY TRANSFER; MANUFACTURING; BATCH RELEASE	17
	TECHNOLOGY TRANSFER TO BLS		17
8.		PATENTS, INFRINGEMENT	17
	INFRINGEMENT		17
	INFRINGEMENT OF THIRD PARTY PATENTS		19
9.		OWNERSHIP OF INVENTIONS AND KNOW-HOW	20
	OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS		20
	DISCLOSURE OF INVENTIONS		21
	FILING AND PROSECUTION OF PATENT APPLICATIONS BY BLS		21
	FILING AND PROSECUTION OF PATENT APPLICATIONS BY DEPOMED		22

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10.		CONFIDENTIALITY	22
11.		REPRESENTATIONS AND WARRANTIES; NON-COMPETITION; EXPORTATION	24
	REPRESENTATIONS AND WARRANTIES OF DEPOMED		24
	MUTUAL REPRESENTATIONS AND WARRANTIES		25
	NON-COMPETITION		26
	EXPORTATION OF 500MG PRODUCT		26
12.		INDEMNIFICATION	27
	INDEMNIFICATION OF DEPOMED		27
	INDEMNIFICATION OF BLS		28
13.		TERM	29
14.		EXPIRY AND TERMINATION	29
15.		PUBLICITY	31
16.		ASSIGNABILITY	32
17.		NOTICES	33
18.		FORCE MAJEURE	34
19.		MISCELLANEOUS	34
	PRIOR PAYMENT		37

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AMENDED AND RESTATED LICENSE AGREEMENT
(Extended Release Metformin Formulations — Canada)

THIS AMENDED AND RESTATED LICENSE AGREEMENT is made as of the 13^th day of December, 2005, by and between

DEPOMED, INC.
a company organized under the laws of California, USA
with offices at
1360 O’Brien Drive
Menlo Park,
California, 94025

(Hereinafter referred to as “Depomed”)

AND:

BIOVAIL LABORATORIES INTERNATIONAL SRL
a Barbados society with restricted liability organized under the laws of Barbados,
whose head office is
Chelston Park
Building 2, Collymore Rock
St. Michael BH1
Barbados, West Indies

(Hereinafter referred to as “BLS”)

RECITALS

A.Depomed and BLS (the successor in interest to Biovail Laboratories Incorporated) are parties to that certain Development and License Agreement, dated as of May 28, 2002, as amended as of April 27, 2004 (the “Prior Agreement”).

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B.Pursuant to the Prior Agreement, the Parties have developed the 500mg Product (as defined below) and obtained regulatory approval to market the 500mg Product in the Territory.

C.Depomed and BLS desire to amend and restate in part the Prior Agreement as set forth herein.

NOW, THEREFORE, in consideration of the agreements and covenants hereinafter set forth herein and intending to be legally bound hereby, the parties hereto covenant and agree as follows:

1.DEFINITIONS.

The terms defined in this Article 1 shall, for all purposes of this Agreement, have the following meanings:

1.1“500mg Product” shall mean the once-daily oral formulation of the Active Ingredient in combination with the AcuForm Delivery Technology that is the subject of NDS No. 091207, file number 9427-B1245-30 filed with the TPD on April 21, 2004 (as such NDS may be amended or supplemented subsequent to the Effective Date).

1.2“1000mg Approval” shall mean the approval by the FDA of a supplemental new drug application filed in accordance with the Supply Agreement for approval of the 1000mg Product for Marketing in the USA.

1.3“1000mg Product” shall mean the once daily oral tablet formulation of the Active Ingredient in a 1000 mg strength to be developed using proprietary BLS drug delivery technology pursuant to the Supply Agreement.

1.4“Active Ingredient” shall mean the chemical compound known as metformin HCl.

1.5“AcuForm Delivery Technology” shall mean Depomed’s delivery system designed to be retained in the stomach for an extended period of time while that delivery system delivers the incorporated drug or drugs, and includes the delivery system described in the patents and patent applications listed in Schedules 1.24(a) and 1.24(b) and any and all

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improvements to that delivery system. The AcuForm Delivery Technology was referred to as the “GR System” in the Prior Agreement.

1.6“Affiliate” shall mean any corporation or other entity that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with the designated party but only for so long as such relationship exists. For the purposes of this Section, “Control” shall mean ownership of at least fifty percent (or such lesser percent as may be the maximum that may be owned by foreign interests pursuant to the laws of the country of incorporation) of the shares of stock entitled to vote for directors in the case of a corporation and at least fifty percent (or such lesser percent as may be the maximum that may be owned by foreign interests pursuant to the laws of the country of domicile) of the interests in profits in the case of a business entity other than a corporation.

1.7“Applicable Permits” shall mean all permits or approvals necessary to market the 500mg Product in the Territory, including, without limitation, Regulatory Approvals granted by the TPD.

1.8“Application for Regulatory Approval”shall mean an application made to a Regulatory Authority in any country for permission to Market a pharmaceutical product in that country.

1.9“BMS Settlement Agreement” shall mean that certain Settlement Agreement and Release, dated as of November 22, 2002, by and between Depomed and Bristol-Myers Squibb Company.

1.10“Clinical Information”shall mean all in-vivo or clinical, pharmacology, toxicology, safety and efficacy data, formulary submissions, pharmaco-economic data, Phase I, II and III clinical data and results, and other such information now or hereafter known and

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

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available to Depomed or BLS or their Affiliates, whether generally known to others or not, relating to the 500mg Product.

1.11“Distributor” shall mean an entity designated by BLS to perform its distribution and Marketing activities with respect to the 500mg Product in the Territory, in accordance with the terms of this Agreement.

1.12“Effective Date” shall mean the date first written on page 1 of this Agreement.

1.13“FDA” shall mean the United States Food and Drug Administration or any successor United States governmental agency performing similar functions with respect to pharmaceutical products.

1.14“Final Judgment” shall mean a judgment by a court of competent jurisdiction that is unappealed (and the time for appealing has expired) or is unappealable.

1.15“Invention” shall mean the 500mg Product, any improvement to the 500mg Product, any new use of the 500mg Product, any new performance characteristic of the 500mg Product, any new process used to Manufacture the 500mg Product, or any step or steps in any such process, and includes all formulations of the 500mg Product developed pursuant to the Prior Agreement.

1.16“Know-How” shall mean all inventions, discoveries, trade secrets, improvements and information not in the public domain, whether or not patented or patentable (but excluding Patent Rights), together with all experience, data, formulas, procedures and results, and improvements thereon, now or hereafter developed or acquired by and proprietary or licensed with right to sublicense to Depomed on the date hereof or which are developed or acquired during the term of and in connection with this Agreement, which relate to or are used in conjunction with the development, manufacture or use of 500mg Product.

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

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1.17“knowledge” shall mean, with respect to Depomed, the actual knowledge of the executive officers of Depomed, after reasonable inquiry directed to such employees of Depomed who would reasonably be expected to have knowledge of relevant matters.

1.18“Manufacture” shall mean to process, prepare, make, have made and analyze, and Manufacturing and Manufactured shall have a corresponding meaning.

1.19“Manufacturing Transfer Agreement” shall mean the Manufacturing Transfer Agreement, dated as of the Effective Date, by and between Depomed and BLS providing for the grant to Depomed of exclusive Marketing rights in the United States to the 1000mg Product, and for the grant of Manufacturing rights in the United States to the 1000mg Product.

1.20“Market” shall mean to promote, distribute, package, label, market, advertise, sell or offer to sell, and Marketing shall have a corresponding meaning.

1.21“NDA” shall mean a New Drug Application or equivalent application for approval to market submitted to the FDA.

1.22“Net Sales” shall mean the total of all amounts invoiced by BLS, its Affiliates, Distributors and assigns for 500mg Product and 1000mg Product, as applicable, sold to independent, unrelated third parties in the Territory in bona fide arms-length transactions, less the following deductions actually allowed and taken by such third parties and not otherwise recovered by or reimbursed to BLS or its Affiliates, sub-licensees and assigns: (i) trade, cash and quantity discounts in such amounts as are customary in the trade; (ii) rebates, credits or other reimbursements actually paid; (iii) taxes on sales (such as sales or use taxes) to the extent added to the sales price and set forth separately as such in the total amount invoiced; (iv) value added taxes when included as part of the sales price and not refunded to the payor; (v) freight, insurance, and other transportation charges to the extent added to the sales price and set forth separately as such in the total amount invoiced; and (vi) amounts repaid or credited by reason of rejections, defects or returns or

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because of retroactive price reductions. Net Sales shall not include sales of a 500mg Product or a 1000mg Product between or among BLS, its Affiliates, sub-licensees or assigns.

1.23“Party” shall mean Depomed or BLS, and Parties shall mean Depomed and BLS.

1.24“Patent Rights” shall mean any patent application or issued patent covering 500mg Product or any improvement to 500mg Product or any methods for making or using 500mg Product or any improvement to such methods, which patents or patent applications are owned by or licensed to Depomed as of the date hereof or which are developed or acquired by or licensed to Depomed during the term of this Agreement, in the Territory, including any addition, continuation, continuation-in-part, or division thereof or any substitute application thereof, any reissue or extension of any such patent, and any confirmation patent, registration patent revalidation patent, or patent of addition based on any such patent, and includes without limitation the Canadian patents and patent applications set forth in Schedule 1.24(a). “Foreign Patent Rights” shall mean any patent application or issued patent covering 500mg Product or any improvement to 500mg Product or any methods for making or using 500mg Product or any improvement to such methods, which patents or patent applications are owned by or licensed to Depomed as of the date hereof or which are developed or acquired by or licensed to Depomed during the term of this Agreement, in the United States, including any addition, continuation, continuation-in-part, or division thereof or any substitute application thereof, any reissue or extension of any such patent, and any confirmation patent, registration patent revalidation patent, or patent of addition based on any such patent, and includes without limitation the United States patents and patent applications set forth in Schedule 1.24(b).

1.25“Regulatory Data” shall mean all information and data necessary to obtain or maintain Regulatory Approval for 500mg Product in the Territory, including post-approval reports, filings and submissions and shall include, but not be limited to, any Clinical Information required for that purpose.

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1.26“Regulatory Approval” shall mean the permission or consent granted by any relevant Regulatory Authority for the Marketing of a 500mg Product in the Territory, and includes all of the contents of the Application for Regulatory Approval as approved by that Regulatory Authority.

1.27“Regulatory Authority” shall mean, in respect of any country, any government or other agency responsible for the issuance of approval to Market pharmaceutical products in or sold from that country, including without limitation the TPD.

1.28“Substitute Product” shall mean any once daily oral formulation containing between 400 mg and 600 mg of Active Ingredient as the sole active ingredient and utilizing technology other than the AcuForm Delivery Technology and that does not infringe a Valid Claim.

1.29“Supply Agreement” shall mean the Supply Agreement, dated as of the Effective Date, between Depomed and BLS relating, inter alia, to the 1000mg Product.

1.30“Technical Information” shall mean all Know-How, and all trade secrets, inventions, data and technology relating to the 500mg Product, and any improvements and modifications to any of the foregoing, and includes, without limitation, processes and analytical methodology used in the development, testing, analysis and manufacture of the 500mg Product, and medical, clinical, toxicological and other scientific data relating to the 500mg Product.

1.31“Territory” shall mean the country of Canada.

1.32“TPD” means the Therapeutic Products Directorate — Health Canada or any successor Canadian governmental agency performing similar functions with respect to pharmaceutical products.

1.33“Valid Claim” shall mean a claim of (a) an unexpired issued patent falling within Patent Rights, which claim shall not have been withdrawn, cancelled, disclaimed or held invalid

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by a court, tribunal, arbitrator or governmental agency of competent jurisdiction in a final or unappealed or unappealable decision or (b) of any patent application that has not been cancelled, withdrawn or abandoned, or has been pending for more than seven years.

2.DEVELOPMENT AND DEVELOPMENT COSTS

2.1Depomed shall have no obligations to perform, or incur any expense with respect to, any research or development with respect to the 500mg Product.

3.DISCLOSURE OF INFORMATION AND REPORTING

3.1During the term of this Agreement, each Party shall disclose to the other, in confidence under the terms of Article 10 hereof, Technical Information and Clinical Information, and copies of correspondence with any Regulatory Authority (whether inside or outside of the Territory), as the same shall become available, including information and correspondence relating to the safety and efficacy of 500mg Product and any regulatory problems relating thereto, all to the extent necessary or useful to enable the receiving Party to Manufacture or Market the 500mg Product.

3.2Appropriate representatives of the Parties will meet (in person or by video or telephone conference) from time to time, but at least quarterly, to discuss regulatory affairs, marketing and commercialization of 500mg Product in Canada and the United States. Within two (2) weeks after the Effective Date, each Party shall designate a representative to coordinate the meetings contemplated by this Section 3.2.

4.LICENSE OF PRODUCT

4.1Depomed hereby grants to BLS an exclusive license in the Territory under the Patent Rights, Know-How and Technical Information, with the right, subject to Section 4.3, to grant sublicenses of the same scope as the license granted by this Agreement, or to

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appoint a Distributor, to Manufacture and Market 500mg Product in, and import 500mg Product into, the Territory.

4.2Depomed hereby grants to BLS a non-exclusive license under the Foreign Patent Rights, Know-How and Technical Information, with the right, subject to Section 4.3, to grant sublicenses of the same scope as the license granted by this Section 4.2, to Manufacture 500mg Product in the United States or Puerto Rico for export to the Territory for sale in the Territory in compliance with this Agreement.

4.3BLS may grant sub-licenses under Section 4.1 or Section 4.2 with respect to the Manufacturing of the 500mg Product (i) to any Affiliate of BLS without consent, and (ii) to no more than two third parties, simultaneously, with the prior written consent of Depomed, which consent shall not be unreasonably delayed or withheld. BLS shall not grant further sub-licenses without the consent of Depomed, which may be granted in Depomed’s discretion. The Parties acknowledge that 500mg Product will initially be manufactured for BLS by MOVA Pharmaceutical Corporation (“MOVA”) pursuant to a supply agreement between BLS and MOVA. Depomed acknowledges that BLS has granted a sublicense to MOVA under the Prior Agreement and consents to the continuation of that sub-license pursuant to Section 4.2 of this Agreement.

4.4BLS shall have the right to market and sell 500mg Product under any trademark or trademarks that BLS chooses and has the legal right to use, whether now or hereafter acquired or developed. Nothing herein shall be deemed to give either Party any rights to the trademarks of the other Party. BLS may freely refer to the trademark “AcuForm” with respect to 500mg Product so long as it is used in a form that is approved by Depomed and protects the proprietary interests of Depomed in such trademark. BLS shall endeavour to indicate in any promotional and marketing materials for the 500mg Product that the 500mg Products incorporates the AcuForm Delivery Technology, unless BLS determines in its sole discretion that the use of the trademark “AcuForm” may infringe a third party’s trademark in the Territory; provided, however, that BLS may deplete its existing stock of

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promotional and marketing materials that does not contain any reference to the AcuForm Delivery Technology.

5.ROYALTIES

500mg Product Royalties

5.1In consideration for the license granted herein, and subject to the other provisions of this Article 5 of this Agreement, BLS shall pay to Depomed an earned royalty of sixpercent of Net Sales which are Net Sales of 500mg Product. Notwithstanding the foregoing, the earned royalty payable under this Agreement in respect of Net Sales which are Net Sales of 500mg Product shall be increased to ten percent of such Net Sales in the event that the 1000mg Approval is not obtained on or before June 30, 2007 (whether or not the failure to obtain the 1000mg Approval constitutes a breach or default under the Supply Agreement), and shall apply to all Net Sales of the 500mg Product made from [***] until 1000mg Approval is obtained. If any delay in the obtaining of 1000mg Approval is due to Depomed’s failure to comply with Section 2.8 of the Supply Agreement, the increase in royalty shall not take effect on [***], but shall be delayed for a period of time equivalent to the length of any delay that is due to Depomed’s non-compliance with Section 2.8 of the Supply Agreement.

5.2BLS shall pay the earned royalties required by Section 5.1, in respect of the Net Sales of the 500mg Product in the Territory until:

(a)the expiry of [***] from the first commercial sale of 500mg Product in the Territory; or

(b)the 500mg Product is no longer covered by a Valid Claim ,

whichever is later.

5.3If at any time during the term of this Agreement, 500mg Product is not, or is no longer, covered by a Valid Claim, but the [***] period referred to in Section 5.2(a) has not

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expired in the Territory, then the Net Sales of 500mg Product in the Territory that are subject to payment of earned royalty shall be reduced to one-half of such actual Net Sales.

5.4Upon the expiration of the obligations of BLS to make the royalty payments required by Sections 5.1, 5.2 or 5.3 in the Territory, the licenses granted to BLS in Sections 4.1 and 4.2 shall become perpetual, fully paid-up, and royalty free.

1000mg Product Royalties

5.5In consideration for the license granted herein, and subject to the other provisions of this Article 5 of this Agreement, BLS shall pay to Depomed an earned royalty of one percent of Net Sales which are Net Sales of 1000mg Product.

5.6BLS shall pay the earned royalties required by Section 5.5, in respect of the Net Sales of the 1000mg Product in the Territory until the expiry of [***] from the first commercial sale of the 1000mg Product in the Territory.

Reduction of Royalties

5.7In the event that a court or governmental agency compels BLS to grant a sub-license to any third party for 500mg Product in the Territory under terms or conditions more favorable than those contained herein, BLS shall automatically have the benefit of the more favorable terms with respect to all sales of 500mg Product in the Territory.

Royalty Reports and Payments

5.8Within ten (10) days after the end of each calendar month, BLS shall deliver a report to Depomed specifying the gross sales of the 500mg Product sold by BLS, its Affiliates, sub-licensees or distributors in that calendar month in the Territory.

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5.9Within fifteen (15) days after the end of each calendar quarter, BLS shall submit to Depomed a report setting forth separately the Net Sales of 500mg Product and the 1000mg Product sold during said calendar quarter in the Territory, the calculation of earned royalties payable for such calendar quarter, and the basis for any reduction in those earned royalties taken pursuant to this Agreement. Earned royalty payments hereunder shall be made within forty-five days following the end of each calendar quarter, and each payment shall include royalties which shall have accrued during said calendar quarter.

5.10No multiple royalties shall be payable because the 500mg Product, or the 1000mg Product, or their respective manufactures, use or sale is or shall be covered by more than one Patent Right.

5.11The remittance of royalties payable on Net Sales in the Territory shall be made to Depomed in United States dollars at the free market rate of exchange of the currency for the last business day of the calendar quarter for which the report and payment referred to in Section 5.9 is applicable, as published in the Wall Street Journal (New York edition), less any withholding or transfer taxes which are applicable. BLS shall supply Depomed with proof of payment of any taxes deducted from the royalties payable to Depomed and paid on Depomed’s behalf.

5.12If the transfer or the conversion of all or a part of the remittance into the United States dollar equivalent in any such instance is not lawful or possible, the payment of such part of the royalties shall be made by the deposit thereof, in the currency of the country where the sale on which the royalty was based was made, to the credit and account of Depomed or its nominee in any commercial bank or trust company of Depomed’s choice located in that country. Notification of such choice of bank or trust company shall be given to Depomed at least thirty days prior to the date that any payment is due. Prompt notice of deposits by BLS shall be given to Depomed. Any tax burden levied by any country on

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payments due or made by BLS to Depomed under this Agreement shall be borne by Depomed.

Records and Audits

5.13BLS and its Affiliates shall keep and maintain, and shall cause its Distributors and assigns to keep and maintain, records of Net Sales. Such records shall be open to inspection by Depomed or, in the case of Distributors and assigns, by BLS on behalf of Depomed, at any mutually agreeable time during normal business hours within two years after the royalty period to which such records relate by an independent certified public accountant (or the equivalent in countries other than the United States) reasonably acceptable to BLS but selected by Depomed. Said accountant shall have the right to examine the records kept pursuant to this Agreement and report findings of said examination of records to Depomed only insofar as it is necessary to evidence any error on the part of BLS. This right of inspection shall be exercised only once for any calendar year. The cost of such inspection shall be borne by Depomed unless the result of such examination is the determination that Net Sales have been understated by at least three percent for any calendar year in which event BLS shall bear the reasonable cost of such inspection.

500mg Product Substitution

5.14If at any time during the Term of this Agreement BLS determines that the 500mg Product should not be Marketed in the Territory, BLS may Market, and authorize any Affiliate of BLS to Market, a Substitute Product. BLS shall pay to Depomed the royalties that would be required by this Article 5 if the Substitute Product were a 500mg Product, in respect of all net sales of that Substitute Product by BLS or by its Affiliate, calculated in a manner consistent with Section 1.22 of this Agreement. Provided that BLS makes the payments required by this Agreement in respect of such Substitute Product, BLS shall not be

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deemed to be in default of its obligations under this Agreement by reason of that substitution or its failure to Market the 500mg Product.

6.REGULATORY AFFAIRS

Regulatory Responsibility

6.1During the term of this Agreement, BLS shall have full control and authority, with full responsibility over, commercialization of 500mg Product in the Territory, and all such activity shall be undertaken at BLS’s expense. BLS will use, or will cause an Affiliate of BLS to use, commercially reasonable efforts in undertaking investigations and actions required to maintain appropriate governmental approvals to market 500mg Product in the Territory.

6.2BLS shall bear responsibility for, and shall bear all costs related thereto, to take such actions as may be necessary, in accordance with accepted business practices and legal requirements, to obtain and maintain the authorization and/or ability to Market the 500mg Product in the Territory. Notwithstanding the foregoing, BLS shall be entitled to allow any Regulatory Approval or other authorization to Market the 500mg Product to expire or lapse, and to discontinue Marketing the 500mg Product, if, as a consequence of any changes to any applicable laws or regulations, any Regulatory Authority requires any changes to the Marketing of the 500mg Product, the Manufacturing process for the 500mg Product, or to the 500mg Product specifications that BLS does not want to make (each an “Unforeseen Requirement”). If BLS discontinues the Marketing of the 500mg Product as a result of an Unforeseen Requirement, Depomed can terminate this Agreement with respect to 500mg Product, and itself Market the 500mg Product in the Territory, upon reimbursement of BLS for all regulatory and other fees associated with transfer of the 500mg Product to Depomed. BLS shall notify Depomed at least ninety days in advance of discontinuing the Marketing of the 500mg Product as a result of an Unforeseen Requirement.

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6.3BLS shall have the responsibility, and shall bear all costs related to, communications with any government agencies to satisfy its requirements regarding the authorization and/or continued authorization to Market the 500mg Product in commercial quantities in the Territory. Depomed shall promptly notify BLS of any inquiry or other communication that it receives from the TPD concerning the 500mg Product. BLS shall handle all communications with the TPD concerning the 500mg Product, including but not limited to reporting adverse reactions and responding to any inquiries concerning advertising or promotional materials, and shall provide copies of all such communication to Depomed. Depomed, however shall be able to communicate with such governmental agency regarding the 500mg Product if:

(a)Such communication is necessary to comply with the terms of this Agreement or the requirements of any law, governmental order or regulation;

(b)Depomed, if practical, made a request of such agency to communicate with BLS instead, and such agency refused such request; or

(c)Such communication relates to the AcuForm Delivery Technology generally (and not specifically to the 500mg Product); provided, however, that before making any communication under (a), (b) or (c) of this Section, Depomed shall give BLS notice as soon as possible of Depomed’s intention to make such communication, and BLS shall be permitted to accompany Depomed, take part in any such communications and receive copies of all such communications.

6.4BLS shall be responsible for handling all complaints from customers in the Territory relating to adverse reaction reports, adverse events, and recall activities with respect the 500mg Product and the 1000mg Product. Depomed shall promptly notify BLS of any such complaints received by Depomed.

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Adverse Reaction Reports

6.5During the Term of this Agreement, each Party shall promptly notify the other of all information required to be reported to the FDA or TPD coming into its possession concerning side effects, injury, toxicity or sensitivity reaction including unexpected increased incidence and severity thereof associated with commercial or clinical uses, studies, investigations or tests (animal or human) with the 500mg Product and the 1000mg Product, throughout the world, whether or not determined to be attributable to the 500mg Product or the 1000mg Product(“Adverse Reaction Reports”). Such adverse reaction reports shall be transmitted so that they are received by the receiving Party within three (3) business days after receipt by the transmitting Party, or such other reporting period as may be required to enable the receiving Party to comply with all applicable laws. All such communications shall be held in confidence by the Parties and shall be subject to the terms of Article 10 hereof.

Withdrawal of Regulatory Approval

6.6Subject to the provisions of Section 6.2, the Parties acknowledge and agree that “Cause” shall be deemed to exist pursuant to Section 14.2 of this Agreement upon any breach of the provisions of this Agreement by BLS that results in the withdrawal of the Regulatory Approval pertaining to 500mg Product if BLS does not immediately thereafter Market a Substitute Product in the Territory, or, if BLS has been Marketing a Substitute Product in lieu of the 500mg Product, and the Regulatory Approval of that Substitute Product is withdrawn, if BLS does not immediately thereafter Market another Substitute Product in the Territory.

Rights of Reference

6.7BLS shall have the right to use any Regulatory Data relating to the 500mg Product at any time after the Effective Date for the purpose of obtaining Regulatory Approval of the

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1000mg Product or a Substitute Product in the Territory. Except as set forth in the immediately preceding sentence, BLS shall not have the right to use any Regulatory Data relating to the 500mg Product for any purpose other than maintaining the Regulatory Approval of the 500mg Product or a Substitute Product in the Territory.

6.8Depomed shall be entitled to use the Regulatory Data at any time after the Effective Date for the purpose of obtaining regulatory approval of the 500mg Product in jurisdictions outside of the Territory.

7.TECHNOLOGY TRANSFER; MANUFACTURING; BATCH RELEASE

Technology Transfer to BLS

7.1The Parties acknowledge and agree that Depomed has transferred to BLS all Technical Information that Depomed was required to transfer to BLS pursuant to the Prior Agreement. BLS shall use the Technical Information only in accordance with this Agreement and shall not use it for any other purpose.

8.PATENTS, INFRINGEMENT

Infringement

8.1If either Party determines that any of the Patent Rights have been infringed by the Manufacture or Marketing in the Territory of a product containing metformin as its sole active ingredient, such Party shall give to the other Party notice of such alleged infringement, in which event BLS may at its discretion take such steps as it may consider necessary to prosecute such infringement. BLS may not settle any such litigation in a manner that adversely affects the rights of Depomed hereunder without the consent of Depomed, which consent shall not be unreasonably withheld. Depomed shall have the right, at its own expense, to be represented by counsel in any such litigation. If BLS, after such notice, elects not to bring suit, it shall notify Depomed of such election within thirty

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days after receipt of such notice and Depomed shall then have the right to bring suit at its own expense. Depomed shall also have the right to bring suit if BLS fails to institute suit within ninety days from the date of the original notice of infringement by Depomed. In furtherance and not in limitation of the foregoing provisions of this Section 9.1, Depomed may at its discretion take such steps as it may consider necessary to prosecute any infringement of any patent or other intellectual property rights owned or Controlled by Depomed by the Manufacture or Marketing outside of the Territory of any product containing metformin as the sole active ingredient, and BLS shall have no right to prosecute, or otherwise participate in the prosecution of, any such infringement.

8.2In any litigation brought by BLS under Section 8.1, BLS shall notify Depomed of the commencement of that litigation and shall have the right to use and sue in Depomed’s name, and Depomed shall have the right, at its own expense, to be represented by counsel. In any such litigation, Depomed may elect by notice to BLS to share equally with BLS the costs of such litigation (including any costs incurred by Depomed prior to the Effective Date) in exchange for the right to share equally with BLS in any recovery of damages resulting from such litigation. Such election by Depomed shall be made not later than 60 days from the date such litigation is commenced. BLS may not settle any such litigation in a manner that adversely affects the rights of Depomed hereunder without Depomed’s consent, which consent shall not be unreasonably withheld.

8.3In any litigation brought by Depomed following an election by BLS pursuant to Section 8.1 not to bring suit, Depomed shall notify BLS of the commencement of that litigation and shall have the right to use and sue in BLS’s name, and BLS shall have the right, at its own expense, to be represented by counsel. In any such litigation, BLS may elect by notice to Depomed to share equally with Depomed the costs of such litigation in exchange for the right to share equally with Depomed in any recovery of damages resulting from such litigation. Such election by BLS shall be made not later than 60 days from the date of the commencement of any such action. Depomed may not settle any

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such litigation in a manner that adversely affects the rights granted to BLS under this Agreement without BLS’s consent.

8.4BLS shall have the first right to institute proceedings under the Patented Medicines (Notice of Compliance) Regulations. BLS shall add Depomed or any Affiliate of Depomed as a party to any such litigation if required to do so by any applicable Law. BLS’s attorneys shall represent both BLS and Depomed in any such litigation, and BLS shall have sole control over any such proceedings. Depomed may retain its own lawyers at its own expense to advise Depomed with respect to the conduct of the litigation by BLS. Depomed shall fully co-operate with BLS, at the expense of BLS, and shall cooperate with BLS in the prosecution of such litigation. If BLS fails to exercise its exclusive right to take appropriate steps under the Patented Medicines (Notice of Compliance) Regulations, within thirty (30) days after a Notice of Allegation under the Patented Medicines (Notice of Compliance) Regulations is served on BLS, Depomed shall be entitled to take any such steps, and may do so in the name of BLS, if necessary.

Infringement of Third Party Patents

8.5In the event of a judgment in any suit requiring BLS to pay damages or a royalty to a third party in respect of the 500mg Product or in the event of a settlement of such suit or threatened suit consented to by Depomed (which consent shall not be unreasonably withheld) requiring damages or royalty payments to be made in respect of the 500mg Product, the future royalty payments due to Depomed pursuant to Article 5 in respect of the 500mg Product shall be reduced by the full amounts due under the requirement of such Final Judgment or under the terms of such settlement, until the full amount of such judgment or settlement has been recovered by BLS.

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9.OWNERSHIP OF INVENTIONS AND KNOW-HOW

Ownership of Intellectual Property Rights

9.1Rights in and/or title to all Inventions made prior to the Effective Date shall be governed by the Prior Agreement.

9.2All Inventions made by BLS or by Depomed in the performance of their respective obligations under this Agreement shall be owned as follows:

(a)any such Inventions relating to the formulations of the 500mg Product, to the AcuForm Delivery Technology, or to any process for manufacturing the 500mg Product shall belong to Depomed; and

(b)any such Inventions relating to the clinical use of the 500mg Product shall belong the Party making such Invention.

9.3BLS shall have the exclusive right to use, within the Territory, any Invention relating to the clinical use of the 500mg Product that is subject to Section 9.2(b) and that is owned or controlled by Depomed. Depomed shall have the exclusive right to use, outside the Territory, any Invention relating to the clinical use of the 500mg Product that is subject to Section 9.2(b) and that is owned or controlled by BLS.

9.4The determination of inventorship for Inventions shall be made in accordance with applicable laws relating to inventorship set forth in the patent laws of the United States (Title 35, United States Code).

9.5Except as expressly provided in this Agreement, each joint owner may make, use, sell, keep, license, assign, or mortgage any jointly owned Inventions, and otherwise undertake all activities a sole owner might undertake with respect to such inventions, to the extent of the joint owner’s interest therein, without the consent of and without accounting to the other joint owner.

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9.6Each of BLS and Depomed shall cause any inventor of any Invention employed by BLS or Depomed respectively to assign any and all rights that any such inventor may have in any such Invention to BLS or to Depomed, as contemplated by this Agreement, and shall at no further cost to BLS execute any documents that may reasonably be required to apply for and to obtain any such patents.

Disclosure of Inventions

9.7Each of Depomed and BLS shall endeavour to advise the other of any Inventions and of any patent applications that it intends to file that may be subject to the provisions of this Article 9, as promptly as possible, to arrange, to the fullest extent possible, for simultaneous filing of applications where appropriate and to avoid as much as possible any disclosure that may be considered to be prior art to an application filed by the other Party. If at any time during the term of this Agreement it appears that any further agreement between the Parties is reasonably required to assist in obtaining patent protection for the 500mg Product, the Parties shall act diligently and reasonably to negotiate the terms of, and enter into, such an agreement.

Filing and Prosecution of Patent Applications by BLS

9.8BLS shall have right and the responsibility for filing, prosecuting and maintaining patents and patent applications for all Inventions owned by BLS.

9.9BLS shall advise Depomed in writing of its plans to file patent applications for any such Invention, and of the countries in which BLS intends to file such applications. Depomed may at its own expense file an application for any Invention in any country in respect of which BLS has not indicated it will file an application. Any such application filed by Depomed and any patent issuing therefrom shall be filed in the name of the inventors or of BLS and shall at the request of Depomed be assigned to Depomed.

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Filing and Prosecution of Patent Applications by Depomed

9.10Depomed shall have right and the responsibility for filing, prosecuting and maintaining patents and patent applications for all Inventions owned by Depomed in the Territory. Depomed shall disclose to BLS the complete texts of all patent applications filed by Depomed that relate to the 500mg Product owned by Depomed, as well as all information received concerning the institution or possible institution of any interference, opposition, re-examination, reissue, revocation, nullification or any official proceeding involving such a patent application anywhere in the world. BLS shall have the right to review all such pending applications and other proceedings and make recommendations to Depomed concerning such applications. Depomed shall keep BLS promptly and fully informed of the course of patent prosecution or other proceedings relating to any such invention, and shall provide to BLS copies of any substantive communications submitted to or received from patent offices throughout the world.

9.11BLS shall have the right to assume responsibility for any patent or patent application filed in the Territory relating to the 500mg Product that Depomed intends to abandon or otherwise cause or allow to be forfeited. Depomed shall give BLS reasonable written notice prior to abandonment or other forfeiture of any patent or patent application so as to permit BLS to exercise its rights under this Section at its own expense.

10.CONFIDENTIALITY

10.1Each of BLS and Depomed shall maintain all Technical Information and Clinical Information, and any other information about this Agreement and the businesses or affairs of the other relating to each of the 500mg Product and the 1000mg Product, in confidence, and shall not at any time disclose any such information to persons other than their Affiliates, officers, employees, agents, consultants, advisers, and licensees and potential sub-licensees, except where permitted by this Agreement, and only to the extent necessary for the purposes of this Agreement. BLS and Depomed shall use such

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information only to the extent necessary or permitted by this Agreement, or required by law. BLS and Depomed shall take all reasonable steps to ensure that their respective Affiliates, agents, officers, employees, representatives, consultants, advisors and licensees and potential licensees and sub-licensees maintain the obligations of confidence imposed on BLS and Depomed by this Agreement.

10.2Section 10.1 shall not apply to any Technical Information or Clinical Information that:

(a)was known to BLS at the time of its disclosure by Depomed;

(b)has been published or is otherwise within the public knowledge or is generally known to the public;

(c)has come into the public domain without any breach of this Agreement;

(d)became known or available to BLS from a source having the right to make such disclosure to BLS and without restriction on such disclosure to BLS;

(e)is disclosed to the public and is generally available to the public as a result of compliance with any applicable law or regulation;

(f)is disclosed as the result of any applications for patents relating to the 500mg Products anywhere in the world; or

(g)after Regulatory Approval of the 500mg Product is reasonably required by BLS for the Marketing of the 500mg Product in the Territory

10.3Each Party acknowledges that improper use or disclosure of information of the other Party that must be kept in confidence under Section 10.1 above would cause substantial harm to the other Party (in particular in barring patent protection for that Party’s technology), and that such harm could not be remedied by the payment of damages alone. Accordingly, each Party will be entitled to preliminary and permanent injunctive relief

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and other equitable relief for any breach of this Article 10 by the other Party, without prejudice to all other remedies available at law or in equity.

11.REPRESENTATIONS AND WARRANTIES; NON-COMPETITION; EXPORTATION

Representations and Warranties of Depomed

11.1Depomed hereby warrants and represents to BLS that:

(a)to Depomed’s knowledge, Depomed has full right, title, and interest in and to or the right to practice all presently existing Patent Rights, Foreign Patent Rights, Know-How, and Technical Information relating to 500mg Product;

(b)subject only to the BMS Settlement Agreement, there are no outstanding written or oral agreements inconsistent with this Agreement; and

(c)subject only to the BMS Settlement Agreement, to Depomed’s knowledge, it is empowered and has the right to enter into this Agreement and to grant the licenses provided herein without burdens, encumbrances, restraints, or limitations of any kind which could adversely affect the rights of BLS under this Agreement; and

(d)Depomed has no knowledge of any patents or patent applications owned by a third party and not licensed to Depomed that would be infringed by the practice of the presently existing Patent Rights, Foreign Patent Rights, Know-How or Technical Information or by the Manufacture or Marketing of the 500mg Product in the Territory or by the Manufacture of the 500mg Product in the United States (including Puerto Rico), nor has Depomed received any claims by third parties with respect to such matters.

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(e)subject only to the BMS Settlement Agreement, Depomed has no knowledge of any claim that any third party asserts ownership rights in any of the Patent Rights, Foreign Patent Rights, Know-How, and Technical Information,

(f)Depomed has no knowledge that Depomed’s or its subsidiaries’ use of any of the Patent Rights, Foreign Patent Rights, Know-How, or Technical Information infringes any right of any third party.

(g)except for general disclosures that have not been and will not be in detail sufficient to enable the recipient to Manufacture the 500mg Product, and to Depomed’s knowledge, Depomed’s Technical Information has not been disclosed to others, and will not be disclosed to persons other than BLS, except pursuant to appropriate confidentiality agreements or to the extent disclosed in the patents, or as otherwise expressly permitted by this Agreement.

Mutual Representations and Warranties

11.2Each Party hereby represents and warrants to the other Party as follows:

(a)It is a corporation (in the case of Depomed) or a society with restricted liability (in the case of BLS) duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. It has all requisite power and authority to carry on its business and to own and operate its properties and assets. The execution, delivery and performance of this Agreement have been duly authorized by its Board of Directors;

(b)There is no pending or, to its knowledge, threatened litigation involving it which would have any material adverse effect on this Agreement or on its ability to perform its obligations hereunder; and

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(c)There is no indenture, contract, or agreement to which it is a party or by which it is bound which prohibits or would prohibit the execution and delivery by it of this Agreement or the performance or observance by it of any material term or condition of this Agreement.

Non-Competition

11.3Depomed covenants and agrees with BLS that, during the term of this Agreement, Depomed shall not, in the Territory, whether for its own or any Affiliate’s account or for the account or benefit of any third party, make, have made, use, import, offer for sale, sell, or otherwise commercialize any product that includes the Active Ingredient (or any other salt, chiral forms or metabolites thereof) as its sole active ingredient except as contemplated by this Agreement, or authorize, permit or assist any other person to do any of the foregoing, except as permitted by this Agreement.

11.4The provisions of Section 11.3 shall not apply to the Manufacture or Marketing by Depomed of the 500mg Product if this Agreement is terminated by Depomed with respect to the 500mg Product, or if Depomed acquires or re-acquires the right to the 500mg Product from BLS pursuant to this Agreement.

Exportation of 500mg Product

11.5To the extent legally permissible, BLS shall, and shall cause its Affiliates to, use commercially reasonable efforts to prevent the exportation of the 500mg Product outside of the Territory. BLS shall not, and shall cause it Affiliates not to, directly or indirectly, in any manner whatsoever, enter into or engage in the Marketing of the 500mg Product outside the Territory, and shall not sell the 500mg Product to any person or entity whom BLS or an Affiliate of BLS has reason to believe may sell or who, to the knowledge of BLS or an Affiliate of BLS, has in the past sold the 500mg Product outside the Territory (any such sale, an “Unauthorized Sale”). BLS shall promptly use commercially

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reasonable efforts to take any action reasonably available to BLS, and shall within sixty (60) days after any Unauthorized Sale has come to the attention of BLS or an Affiliate of BLS, initiate all steps lawfully available to BLS in the Territory, to prevent such Unauthorized Sales.

11.6Depomed and its Affiliates in the United States, shall use commercially reasonable efforts to take steps lawfully and reasonably available to them to prevent or reduce Unauthorized Sales.

12.INDEMNIFICATION

Indemnification of Depomed

12.1Subject to the provisions of Section 12.2, BLS shall indemnify and hold harmless Depomed and its officers, directors, employees and agents against and from any losses, damages, injuries, liabilities, claims, demands, settlement, judgments, awards, fines, penalties, taxes, fees, charges, or expenses (including reasonable attorneys’ fees) of Depomed or any of its officers, directors, employees or agents arising from or relating to:

(a)The breach or inaccuracy in any material respect of any BLS representation or warranty contained in Article 11 of this Agreement;

(b)Any claim that 500mg Product packaging, labels, inserts and marketing and sales materials, other than the Acuform trademark, infringe a trademark, trade dress or copyright of a third party in the Territory;

(c)Any injury or alleged injury to any person (including death) or to the property of any person not a party hereto arising out of the gross negligence or intentional act or omission of BLS or its employees or agents relating to the manufacture or sale of 500mg Product;

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(d)Any injury or alleged injury to any person (including death) or to the property of any person not a party hereto arising out of the use of the 1000mg Product in the Territory;

(e)The use, manufacture, promotion, marketing and sale of 500mg Product by BLS, its Affiliates, its sublicensees, distributors and customers; or

(f)The enforcement of Depomed’s indemnification rights hereunder.

Indemnification of BLS

12.2Depomed shall indemnify and hold harmless BLS and its officers, directors, employees and agents against and from any losses, damages, injuries, liabilities, claims, demands, settlement, judgments, awards, fines, penalties, taxes, fees, charges or expenses (including reasonable attorneys’ fees) of BLS or a third party arising from or relating to:

(a)The breach or inaccuracy in any material respect of any Depomed representation, warranty or covenant contained in Article 11 of this Agreement;

(b)Any injury or alleged injury to any person (including death) or to the property of any person not a party hereto arising out of the gross negligence or intentional act or omission of Depomed or its employees or agents relating to 500mg Product; or

(c)Any injury or alleged injury to any person (including death) or to the property of any person not a party hereto arising out of the use of the AcuForm Delivery Technology in the 500mg Product; or

(d)The enforcement of BLS’s indemnification rights hereunder.

12.3If any indemnified Party intends to claim indemnification under this Article 12 it shall promptly notify the other Party in writing of such alleged claim. The indemnifying Party shall have the sole right to control the defense and settlement thereof. The indemnified

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Party shall cooperate with the indemnifying Party and its legal representatives in the investigation of any action, claim or liability covered by this Article 12. The indemnified Party shall not, except at its own cost, voluntarily make any payment or incur any expense with respect to any claim or suit without the prior written consent of the indemnifying Party. In addition, the indemnifying Party shall be subrogated to the rights of the indemnified Party against any third party, and such indemnified Party hereby assigns to the indemnifying Party all claims, causes of action and other rights that the indemnified Party may then have against any third party, including Affiliates and sublicensees, with respect to the claim, suit or proceeding. Conversely, and without in any way limiting the obligation of either Party to indemnify the other Party as herein provided, to the extent that any Party shall fail to perform its indemnification obligations under Section 12.1 or Section 12.2, such Party owing a duty of indemnification hereby assigns to the indemnified Party to whom indemnification is owed all claims, cause of action and other rights that the Party owing such duty may then have against any third party, including Affiliates and sublicensees with respect to the claim, suit or proceeding.

13.TERM

Unless sooner terminated as herein provided, this Agreement shall become effective on the Effective Date and shall continue in effect thereafter until it is terminated in accordance with the terms hereof.

14.EXPIRY AND TERMINATION

14.1Unless earlier terminated pursuant to Section 14.2 below, this Agreement shall not expire.

14.2At any time during the Term of this Agreement, either BLS or Depomed may terminate this Agreement with respect to the 500mg Product or the 1000mg Product if the other Party is in material breach or default in the performance or observance of any of the provisions of this Agreement applicable to it and relating to the product in respect of which termination of this Agreement is sought, and such breach or default is not cured

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within sixty days (or thirty days in the case of failure to make royalty or other payments due hereunder) after the giving of notice by the Party specifying such breach or default.

14.3At any time during the Term of this Agreement, either BLS or Depomed may terminate this Agreement forthwith for cause, as “Cause” is described below, by giving written notice to the other Party. “Cause” for termination by one Party of this Agreement shall be deemed to exist if, with respect to the other Party:

(a)(i) a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect shall be instituted by such Party, or such Party shall consent to the entry of any order for relief in an involuntary case under any such law; (ii) a general assignment for the benefit of creditors shall be made by such Party; (iii) such Party shall consent to the appointment of or possession by a receiver, liquidation, trustee, custodian, sequestrator or similar official of the property of such Party or of any substantial part of its property; or (iv) such Party shall adopt a directors resolution in furtherance of any of the foregoing actions specified in this subsection (a); or

(b)a decree or order for relief by a court of competent jurisdiction shall be entered in respect of such Party in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, trustee, sequestrator or other similar official of such Party to wind up or liquidate its affairs, and any such decree or order shall remain unstayed or undischarged and in effect for a period of sixty days.

14.4Upon termination by Depomed pursuant to Section 14.2 or for Cause, BLS shall, at the request of Depomed, assign to Depomed the Regulatory Approval for the 500mg Product in the Territory, within ten (10) days after Depomed has paid to BLS all of the costs incurred by BLS in obtaining Regulatory Approval of the 500mg Product in the Territory.

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14.5Except as set forth in Sections 14.1 and 14.4, upon termination of this Agreement pursuant to Sections 14.2 or 14.3, the rights and licenses granted to BLS in Sections 4.1, 4.2, 4.3 and 4.4 of this Agreement shall terminate. Notwithstanding such termination, and subject to the terms and conditions of this Agreement, BLS may dispose of, by sale or otherwise, any remaining inventory of 500mg Product that BLS may have in its possession or control on the date of termination.

14.6Termination shall not release BLS or Depomed from any obligations or liabilities that matured prior to termination, including without limitation the obligations of BLS to make any payments owing at the time of termination through the date of termination. If the terms of this Agreement expressly state that a right or obligation shall survive expiration or termination of this Agreement, such right or obligation shall survive expiration or termination to the degree necessary to allow complete fulfilment or discharge of the right or obligation. The provisions of Sections 9.1 through 9.5, and Articles 10, 11, 12, and 15 of this Agreement shall survive the expiration or termination of this Agreement.

14.7In the event of termination or expiration, each of Depomed and BLS shall retain ownership of the ideas, inventions, discoveries, developments, designs, trademarks, trade secrets, improvements, know-how, process, procedures, techniques, formulae, computer programs, drawings, technology(ies) and intellectual and industrial property accorded to each under the terms of this Agreement.

15.PUBLICITY

15.1Neither Party will originate any publicity, news release, public comment or other public announcement, written or oral, whether to the press, to stockholders, or otherwise, relating to this Agreement, without the written consent of the other Party, except for such announcement which, in accordance with the advice of legal counsel to the Party making such announcement, is required by law or the regulations of the securities exchange or market on which the disclosing Party’s securities are traded. The Party making any

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announcement which is required by law or the regulations of the securities exchange or market on which the disclosing Party’s securities are traded will, unless prohibited by law, give the other Party an opportunity to review the form and content of such announcement and comment before it is made. Either Party shall have the right to make such filings with governmental agencies as to the contents and existence of this Agreement as it shall reasonably deem necessary or appropriate.

16.ASSIGNABILITY

16.1This Agreement may be assigned by either Party to an Affiliate or as part of the sale by either Party of all of its business of which this Agreement may be a part without the consent of the other Party; provided, however, that neither Party shall assign this Agreement to an Affiliate that is not reasonably capable of performing all of its obligations under this Agreement. Except as permitted by this Section 16.1, Depomed shall not assign any rights licensed to BLS under this Agreement. BLS may assign, sublicense, subcontract or delegate, to any Affiliate of BLS reasonably capable of performing such obligations, all or part of the rights and obligations of BLS under this Agreement, but in no event shall such assignment, sublicensing, subcontracting or delegation be deemed to relieve BLS of its liabilities or obligations to Depomed under this Agreement. BLS expressly acknowledges and agrees that BLS shall remain fully and unconditionally obligated and responsible for the full and complete performance of all of BLS’s obligations under the terms and conditions of this Agreement. This Agreement may not otherwise be assigned by either Party without the prior written consent of the other Party, which consent shall not be unreasonably withheld.

16.2No assignment permitted by this Article 16 to an Affiliate of either Party shall serve to release either Party from liability for the performance of its obligations hereunder.

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17.NOTICES

17.1All notifications, demands, approvals and communications required to be made under this Agreement shall be given in writing and shall be effective when either personally delivered or sent by facsimile if followed by prepaid air express addressed as set forth below. The Parties hereto shall have the right to notify each other of changes of address during the Term of this Agreement.

Depomed, Inc.
1360 O’Brien Drive
Menlo Park, California 94025
Attention: President

Facsimile: 650-462-9991

With a copy to:

Heller Ehrman LLP
275 Middlefield Road
Menlo Park, California 94025
Attention:  Matthew Gosling
Facsimile: 650-324-0638

Biovail Laboratories International SRL
Chelston Park
Building 2, Collymore Rock
St. Michael BH1
Barbados, West Indies

Attention: Mr. Eugene Melnyk, President
Facsimile No.: (246) 437-7085

With a copy to:

Biovail Corporation
7150Mississauga Road
Mississauga, Ontario
L5N 8M5

Attention:  Vice President and Associate General Counsel
Facsimile: 905 286 3374

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Any such notice mailed as aforesaid shall be deemed to have been received by and given to the addressee on the date specified on the notice of receipt and delivery evidenced to the sender.

18.FORCE MAJEURE

18.1In the event of any failure or delay in the performance by a Party of any provision of this Agreement due to acts beyond the reasonable control of such Party (such as, for example, fire, explosion, strike or other difficulty with workmen, shortage of transportation equipment, accident, act of God, or compliance with or other action taken to carry out the intent or purpose of any law or regulation, or an order or judgment of any court of competent jurisdiction, whether interim, temporary, interlocutory or permanent), then such Party shall have such additional time to perform as shall be reasonably necessary under the circumstances. In the event of such failure or delay, the affected Party will use its diligent efforts, consonant with sound business judgment and to the extent permitted by law, to correct such failure or delay as expeditiously as possible.

18.2In the event that a Party is unable to perform any of its obligations under this Agreement by a reason described in Section 18.1 above, the obligations under this Agreement shall be suspended during such time of non-performance.

19.MISCELLANEOUS

19.1This Agreement, the Manufacturing Transfer Agreement and the Supply Agreement define the full extent of the legally enforceable undertakings of the Parties hereto with respect to the Manufacture and Marketing of the 500mg Product and the 1000mg Product for and in the Territory as of and after the Effective Date, and with respect to the rights and obligations of the Parties relating to the subject matter hereof after the Effective Date, supersedes all previous writings and understandings. No terms or provisions of this Agreement shall be varied or modified by any prior or subsequent statement, conduct or act of either of the Parties, except that the Parties may amend this Agreement by written

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instruments specifically referring to and executed in the same manner as this Agreement. Nothing in this Agreement affects any rights or obligations of the Parties relating to the Manufacture or Marketing of the 500mg Product for or in the Territory prior to the Effective Date, and except as otherwise expressly provided by this Agreement, none of the rights or obligations of the Parties under the Prior Agreement, any amendments thereto or any other agreements between the Parties relating to the 500mg Product in the Territory prior to the Effective Date are affected by this Agreement, provided, however, that no such rights or obligations created or arising prior to the Effective Date shall continue in force after the Effective Date except as expressly provided in this Agreement. No promise or representation, written or oral, with respect to the subject matter hereof which is not set forth explicitly in this Agreement is intended by either Party to be legally binding. Both Parties acknowledge that in deciding to enter into this Agreement and to consummate the transactions contemplated hereby, neither has relied upon any statements or representations, written or oral, other than those explicitly set forth in this Agreement.

19.2It is the desire and intent of the Parties that the provisions of this Agreement shall be enforced to the extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision of this Agreement which substantially affects the commercial basis of this Agreement shall be determined to be invalid or unenforceable, such provision shall be amended as hereinafter provided to delete therefrom or revise the portion thus determined to be invalid or unenforceable. Such amendment shall apply only with respect to the operation of such provision of this Agreement in the particular jurisdiction for which such determination is made, provided no unfairness results. In such event, the Parties agree to use reasonable efforts to agree on substitute provisions, which, while valid, will achieve as closely as possible the same economic effects or commercial basis as the invalid provisions, and this Agreement otherwise shall continue in full force and effect. If the Parties cannot agree to such revision within sixty days after such invalidity or

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unenforceability is established, the matter may be submitted by either Party to arbitration as provided in this Agreement to finalize such revision.

19.3The waiver by a Party of any single default or breach or succession of defaults or breaches by the other shall not deprive either Party of any right under this Agreement arising out of any subsequent default or breach.

19.4All matters affecting the interpretation, validity, and performance of this Agreement shall be governed by the laws of the State of New York without regard to that state’s conflict of laws rules or principles.

19.5Nothing in this Agreement authorizes either Party to act as agent for the other Party as to any matter. The relationship between Depomed and BLS is that of independent contractors.

19.6Any and all disputes between the Parties relating in any way to the entering into of this Agreement and/or the validity, construction, meaning, enforceability, or performance of this Agreement or any of its provisions, or the intent of the Parties in entering into this Agreement, or any of its provisions arising under this Agreement, except for any disputes relating to the provisions of Articles 8, 11, 12 and 14, shall be settled by binding arbitration. Such arbitration shall be conducted at New York, New York, in accordance with the rules then pertaining of the American Arbitration Association with a panel of three arbitrators. Each Party shall select one arbitrator and the two selected arbitrators shall select the third arbitrator. If the two selected arbitrators cannot agree on a third arbitrator then the American Arbitration Association shall select said arbitrator from the National Panel of Arbitrators. Reasonable discovery as determined by the Arbitrators shall apply to the arbitration proceeding. The law of the State of New York shall apply to the arbitration proceedings. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The successful Party in such arbitration, in addition to all other relief provided, shall be entitled to an award of all its reasonable

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costs and expenses including attorney costs. Both Parties agree to waive, and the Arbitrators shall have no right to award, punitive damages in connection with an arbitration proceeding hereunder.

Prior Payment

19.7The Parties acknowledge that BLS has made to Depomed a payment of twenty five million US dollars (US$25,000,000) under the Prior Agreement.

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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed by their duly authorized officers on the date first above written.

DEPOMED, INC.
By:	/s/ Carl A. Pelzel
Name:			Carl A. Pelzel
Title:		Executive Vice President & COO
BIOVAIL LABORATORIES
INTERNATIONAL SRL
By:	/s/ John A.R. McCleery
Name:			John A.R. McCleery
Title:		Vice President, General Manager

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Schedule 1.24(a)

Patent Rights - Canadian Patents and Patent Applications

Application No.; Filing Date	Title
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]

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Schedule 1.24(b)

Patent Rights - Foreign Patents and Patent Applications

Issued Patent No. / Pending Patent Application No.	Title
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]

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EX-10.22

Exhibit 10.22

CONFIDENTIAL TREATMENT REQUESTED

EXECUTION COPY

SUPPLY AGREEMENT

(Extended Release Metformin Formulations – U.S.A.)

DEPOMED, INC.
a company organized under the laws of California, USA
with offices at
1360 O’Brien Drive
Menlo Park,
California, 94025

AND:

BIOVAIL LABORATORIES INTERNATIONAL SRL
a Barbados society with restricted liability organized under the laws of Barbados
whose head office is
Chelston Park
Building 2, Collymore Rock
St. Michael BH1
Barbados, West Indies

Biovail – Depomed Supply Agreement (1000mg Glumetza)

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Contents

1.		DEFINITIONS	2
2.		DEVELOPMENT	6
	WORK PLAN		6
	PROTOCOLS AND METHODS		7
	BLS FACILITIES AND EMPLOYEES		7
	SUPPLEMENTAL NDA		7
	ADDITIONAL DEVELOPMENT		8
3.		PRODUCT DEVELOPMENT COSTS	9
4.		PURCHASE OF 1000MG PRODUCT	9
5.		FORECASTS	10
	PLANNING FORECAST		10
	LAUNCH FORECAST		10
	SUPPLY FORECAST		10
	FIRST THREE MONTHS FIRM		11
	PERMITTED MODIFICATIONS TO FORECASTS		11
6.		PURCHASE ORDERS	12
	FORMS		13
7.		DELIVERY AND SHIPPING TERMS	13
	DELIVERY		13
	VARIANCE IN QUANTITIES DELIVERED		14
	SHIPPING TERMS		14
	LOSSES IN TRANSPORT		16
8.		PRICES AND PAYMENTS	17
	DEPOMED SALES		17
	DISTRIBUTOR SALES		17
	SUPPLY PRICES IF NO VALID CLAIM		17
	SAMPLE PRICE		18

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	INVOICING		18
	PAYMENT TERMS		18
	RECONCILIATION		19
	PRICE ADJUSTMENTS		20
	TAXES		21
9.		RECORD KEEPING; AUDIT	22
	RECORDS		22
	AUDIT		22
10.		MODIFIED SPECIFICATIONS	23
	CHANGES MANDATED BY GOVERNMENTAL AUTHORITY		23
	OTHER CHANGES		24
11.		QUALITY CONTROL	24
12.		FACILITY INSPECTION	25
13.		ACCEPTANCE AND REJECTION	26
	ACCEPTANCE TESTING		26
	DISCREPANT TEST RESULTS		26
	CONFIRMATION		27
	RETURN OR DESTRUCTION OF REJECTED SHIPMENTS		27
	REFUND; REPLACEMENT		27
	EXCEPTIONS		28
14.		SUPPLY OF 500MG PRODUCT	28
	PACKAGING AND BATCH RELEASE SERVICES		30
15.		CONTRACT MANUFACTURERS	30
16.		INABILITY TO SUPPLY	31
	NOTICE		31
	DEPOMED’S RIGHTS ON BLS FAILURE TO SUPPLY		31
17.		MATERIAL SAFETY	33

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18.		MARKETING OF THE 1000MG PRODUCT; GLUMETZA WEBSITE	33
19.		REGULATORY AFFAIRS	34
	REGULATORY RESPONSIBILITY		34
	ADVERSE REACTION REPORTS		36
	WITHDRAWAL OF REGULATORY APPROVAL		36
20.		LIMITED WARRANTIES; RECALL	37
	REPRESENTATIONS AND WARRANTIES BY BLS		37
	MUTUAL REPRESENTATIONS AND WARRANTIES		38
	PRODUCT RECALL.		39
21.		TECHNOLOGY TRANSFER TO DEPOMED	40
22.		INDEMNIFICATION	40
	BY BLS		40
	BY DEPOMED		41
	COSTS AND EXPENSES		41
	PROCEDURE		41
23.		CONFIDENTIALITY	42
24.		TERM; TERMINATION	43
	TERM		43
	TERMINATION FOR CAUSE		43
	TECHNOLOGY TRANSFER		44
	SURVIVAL		44
25.		PUBLICITY	45
26.		ASSIGNABILITY	45
	ASSIGNMENT		45
	LIABILITY		46
27.		NOTICES	46
	NOTICES		46

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	RECEIPT		47
28.		FORCE MAJEURE	47
	FORCE MAJEURE EVENT		47
	PERFORMANCE		48
29.		MISCELLANEOUS	48
	ENFORCEABILITY		48
	ENTIRE AGREEMENT		49
	WAIVER		49
	GOVERNING LAW		49
	INDEPENDENT CONTRACTORS		49
	COUNTERPARTS		49
	INCONSISTENCY		50
	ARBITRATION		50

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SUPPLY AGREEMENT

(Extended Release Metformin Formulations – U.S.A.)

THIS SUPPLY AGREEMENT (this “Agreement”) is made this 13^th day of December, 2005 (the “Effective Date”), by and between

DEPOMED, INC.
a company organized under the laws of California, USA
with offices at
1360 O’Brien Drive
Menlo Park,
California, 94025

(Hereinafter referred to as “Depomed”)

AND:

BIOVAIL LABORATORIES INTERNATIONAL SRL
a Barbados society with restricted liability organized under the laws of Barbados,
whose head office is
Chelston Park
Building 2, Collymore Rock
St. Michael BH1
Barbados, West Indies

(Hereinafter referred to as “BLS”)

BLS and Depomed are sometimes referred to herein individually as a “Party” and collectively as the “Parties.”

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Recitals

A.BLS is the owner of original processes, a patent application and know-how for the development and manufacture of, and has plans to seek Regulatory Approval for the 1000mg Product in the Territory, as contemplated by this Agreement.

B.BLS and Depomed have entered into an exclusive Manufacturing Transfer Agreement providing for the grant by BLS to Depomed of exclusive marketing rights to the 1000mg Product in the Territory (the “Manufacturing Transfer Agreement”).

C.BLS desires to sell 1000mg Product to Depomed, and Depomed desires to purchase 1000mg Product from BLS, in accordance with the terms and conditions contained herein.

It is therefore agreed as follows:

Agreement

1.DEFINITIONS.

For the purposes of this Agreement, the terms hereunder shall have the meanings as defined below:

1.1“1000mg Product” shall mean a once daily oral tablet formulation of 1000 mg of the Active Ingredient using proprietary BLS drug delivery technology to be developed pursuant to this Agreement.

1.2“500mg Product” shall mean the once-daily oral formulation of 500mg of the Active Ingredient in combination with the AcuForm Delivery Technology that is the subject of NDA No. 21-748 filed with the FDA on April 27, 2004 (as such NDA may be amended or supplemented subsequent to the Effective Date).

1.3“Affiliate” means any corporation or other entity that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with the designated Party but only for so long as such relationship exists. For the purposes of this section, “Control” mean ownership of at least fifty percent (or such lesser percent as may be the maximum that may be owned by foreign interests pursuant to the laws of the country of incorporation) of the shares of stock entitled to vote for directors in the case of

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a corporation and at least fifty percent (or such lesser percent as may be the maximum that may be owned by foreign interests pursuant to the laws of the country of domicile) of the interests in profits in the case of a business entity other than a corporation.

1.4“Applicable Laws” means all federal, state and local laws, statutes, rules, regulations and ordinances as in effect on the Effective Date, applicable to each Party’s activities hereunder, including, without limitation, the applicable regulations and guidelines of any Governmental Authority including the FDA and foreign counterparts and all applicable cGMPs together with amendments thereto.

1.5“Application for Regulatory Approval”shall mean an application made to a Regulatory Authority in any country for permission to Market a pharmaceutical product in that country.

1.6“Batch Size” shall mean:

(a)With respect to the 500mg Product, [***] tablets; and

(b)With respect to the 1000mg Product, [***] tablets,

and a Batch shall have a corresponding meaning.

1.7“Canadian Agreement” shall mean the Amended and Restated License Agreement providing for, inter alia, the grant by Depomed to BLS of exclusive marketing rights to the 500mg Product in Canada.

1.8“cGMP” means the then-current Good Manufacturing Practices as promulgated under the United States Federal Food, Drug and Cosmetic Act, as amended at 21 CFR (chapters 210 and 211), as the same may be amended or re-enacted from time to time and as interpreted in accordance with then-current industry standards and FDA policies.

1.9“Depomed Revenues” shall mean for any calendar quarter, the aggregate of all amounts received, or receivable in future periods, by Depomed or its Affiliates and assigns in respect of sales of 1000mg Product by Distributors made in that calendar quarter, including without limitation supply prices, royalties, trademark license fees, handling fees and commissions, less the following deductions actually allowed and taken and not

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otherwise recovered by or reimbursed to Depomed or its Affiliates and assigns in respect of such amounts:  (i) rebates, credits or other reimbursements actually paid; and (ii) amounts repaid or credited by reason of rejections, defects or returns or because of retroactive price reductions. Depomed Revenues shall not include amounts in respect of sales of 1000mg Product between or among Depomed or its Affiliates or assigns.

1.10“Develop” shall mean to perform all of the work set out in the Work Plan and this Agreement, and “Developed” and “Development” have corresponding meanings.

1.11“Distributor” shall mean an entity designated by Depomed to perform its distribution and Marketing activities with respect to the 1000mg Product in the Territory, in accordance with the terms of this Agreement.

1.12“FDA” means the United States Food and Drug Administration or any successor entity thereto.

1.13“First Commercial Sale” means the date of the first commercial sale of the 1000mg Product in the Territory by Depomed or a Distributor.

1.14“Governmental Authority” means any regulatory agency, department, bureau, or other governmental entity, including without limitation the FDA, which is responsible for issuing approvals, licenses, registrations, clearances, or authorizations necessary for the manufacture, use, storage, import, transport, marketing or sale of pharmaceutical products in a country in the Territory and having jurisdiction over any activity of a Party under this Agreement.

1.15“Manufacturing Transfer Agreement” shall mean the Manufacturing Transfer Agreement, dated as of the Effective Date, by and between Depomed and BLS providing for the grant to Depomed of exclusive Marketing rights in the United States to the 1000mg Product, and for the grant of Manufacturing rights in the United States to the 1000mg Product.

1.16“Net Sales” shall mean the total of all amounts invoiced by Depomed, its Affiliates, its Distributors, its licensees and assigns for 1000mg Product (other than samples) sold to independent, unrelated third parties in the Territory in bona fide arms-length transactions, less the following deductions actually allowed and taken by such third parties and not

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

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otherwise recovered by or reimbursed to Depomed its Affiliates, or its Distributors: (i) trade, cash and quantity discounts in such amounts as are customary in the trade; (ii) rebates, credits or other reimbursements actually paid; (iii) taxes on sales (such as sales or use taxes) to the extent added to the sales price and set forth separately as such in the total amount invoiced; (iv) value added taxes when included as part of the sales price and not refunded to the payor; (v) freight, insurance, and other transportation charges to the extent added to the sales price and set forth separately as such in the total amount invoiced; and (vi) amounts repaid or credited by reason of rejections, defects or returns or because of retroactive price reductions. Net Sales shall not include sales of 1000mg Product between or among Depomed, its Affiliates, Distributors, licensees or assigns.

1.17“Net Selling Price” shall mean, with respect to any calendar quarter, the Net Sales of the 1000mg Product for that calendar quarter divided by the number of tablets of the 1000mg Product (other than samples) sold by Depomed, its Affiliates and its Distributors in that calendar quarter (excluding any sales between or among Depomed, its Affiliates, Distributors, licensees or assigns).

1.18“Supplemental NDA” has the meaning set forth in the Manufacturing Transfer Agreement.

1.19“PPI Increase” shall mean, with respect to any twelve month period, the percentage increase in the producer price index for the pharmaceutical manufacturing industry over that twelve month period, as reported by the United States Bureau of Labor Statistics.

1.20“Patent Rights” has the meaning set forth in the Manufacturing Transfer Agreement.

1.21“Proprietary Information” means any and all scientific, clinical, regulatory, marketing, financial and commercial information or data, whether communicated in writing, orally or by any other means, which is owned and under the protection of one Party and is provided by that Party to the other Party in connection with this Agreement.

1.22“Regulatory Approval” shall mean the permission or consent granted by any relevant Regulatory Authority for the Marketing of the 1000mg Product in the Territory, including the approval of the manufacturing facility of BLS, its Affiliate or any contract

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manufacturer at which BLS intends to manufacture or have manufactured, commercial quantities of the 1000mg Product, and includes all of the contents of the Application for Regulatory Approval as approved by that Regulatory Authority, and any Drug Master File referenced by that Application for Regulatory Approval.

1.23“Specifications” means the specifications for as to manufacturing, packaging, labelling and testing of packaged, finished 1000mg Product ready for commercial sale set forth in Exhibit A attached hereto, as such specifications may be amended from time to time pursuant to Article 10 below.

1.24“Supply Price” shall mean each of the prices that Depomed shall pay to BLS for the 1000mg Product as set out in Schedules 8.1, 8.2, 8.4, 8.5 and for the 500mg Product, as set out in Schedule 14.6.

1.25“Territory” shall mean the United States and its possessions, including Puerto Rico.

1.26“Valid Claim” shall mean a claim of (a) an unexpired issued patent falling within Patent Rights, which claim shall not have been withdrawn, cancelled, disclaimed or held invalid by a court, tribunal, arbitrator or governmental agency of competent jurisdiction in a final or unappealed or unappealable decision or (b) of any patent application that has not been cancelled, withdrawn or abandoned, or has been pending for more than seven years.

1.27“Work Plan” shall mean the work plan related to the development of the 1000mg Product attached as Schedule 1.27 to this Agreement.

2.DEVELOPMENT

Work Plan

2.1BLS shall, at its own expense, use diligent efforts (i) to carry out its obligations under this Agreement and the Work Plan to Develop, and assist Depomed in obtaining Regulatory Approval for, the 1000mg Product, and (ii) to the extent specified in the Work Plan, to design and undertake any required analytical testing and clinical studies. BLS shall use diligent efforts to carry out such obligations in accordance with the time limits set out in

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the Work Plan. The Parties recognize that the time frames in the Work Plan include “target dates” and “assumptions” and may be dependent on FDA actions.

2.2BLS shall be responsible for obtaining, at its own expense, all materials, supplies and resources required for the Development of the 1000mg Product in accordance with the Work Plan.

Protocols and Methods

2.3To the extent specified in the Work Plan, BLS shall develop all of the analytical and clinical protocols that have not already been developed and that are required for Regulatory Approval of the Supplemental NDA, or for the manufacture of the 1000mg Product.

2.4To the extent specified in the Work Plan, BLS shall use diligent efforts to develop and validate all necessary analytical methods not already developed for the 1000mg Product .

BLS Facilities and Employees

2.5BLS shall use commercially reasonable efforts to ensure that any facilities at which all or part of the Development of the 1000mg Product is conducted complies with all required cGMP Standards.

2.6BLS shall use commercially reasonable efforts to ensure that any employee or sub-contractor of BLS to whom any Development work is assigned or sub-contracted is competent to perform the tasks assigned or sub-contracted at the time of such assignment or sub-contract.

2.7BLS shall bear the cost of any Development work that must be repeated because the facilities at which the work was conducted did not comply with all required cGMP standards, or because the work was assigned or sub-contracted to persons who were not competent to do that work.

Supplemental NDA

2.8Provided that BLS has complied in all material respects with its obligations under of this Agreement, and that all of the other data and information required for that purpose are

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available to Depomed in the form required for an Application for Regulatory Approval in respect of the Supplemental NDA, Depomed shall use commercially reasonable efforts to file, as soon as reasonably possible, in the name of Depomed, or any Affiliate or sub-licensee of Depomed, the Supplemental NDA and any amendments or supplements thereto contemplated by the Work Plan. BLS shall reimburse Depomed for any FDA fees incurred by Depomed in filing the Supplemental NDA.

2.9Each Party shall use diligent efforts to cause the Regulatory Approval for the 1000mg Product to be obtained on or before June 30, 2007 (consistent with the Parties’ respective obligations with respect to the Development of the 1000mg Product).

Additional Development

2.10If the FDA does not approve the Supplemental NDA notwithstanding the Parties’ compliance with their respective obligations hereunder in respect of the Development and Regulatory Approval of the 1000mg Product, then the Parties shall continue to develop and seek Regulatory Approval for the 1000mg Product, and, in connection therewith, shall incur no more than [***] of additional costs and expenses (or such other amount as agreed in writing by the Parties) calculated in a manner consistent with other research and development cost allocations by BLS for other similar projects. BLS shall be responsible for the [***] of such costs and expenses. The [***] of expenses shall be shared equally by the Parties.

2.11If the Parties have agreed, notwithstanding the provisions of Section 2.10, not to incur any additional costs and expenses for the Development of the 1000mg Product, or if, following any actions taken by the Parties pursuant to Section 2.10, the FDA does not approve the Supplemental NDA, then, unless otherwise agreed in writing by the Parties, neither Party shall have any additional obligations in respect of the development or Regulatory Approval of the 1000mg Product.

2.12If one Party elects to continue with the Development of the 1000mg Product, and the other Party does not wish to continue with that Development, then:

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(a)If BLS elects to continue with the Development of the 1000mg Product, and if Regulatory Approval of the 1000mg Product is granted, BLS shall notify Depomed of that election, and within thirty (30) days after that notice Depomed shall either (i) agree to market the 1000mg Product in accordance with its obligations under this Agreement or (ii) permit BLS to terminate this Agreement with respect to 1000mg Product, and itself Market the 1000mg Product in the Territory, upon reimbursement to Depomed of all regulatory and other fees associated with transfer of the 1000mg Product to BLS;

(b)If Depomed elects to continue with the Development of the 1000mg Product, Depomed may use the rights granted to it by this Agreement and the Manufacturing Transfer Agreement to do so, and may offset against any amounts due to BLS under this Agreement the costs incurred by Depomed in obtaining such approval in excess of those specified in Section 2.10.

3.PRODUCT DEVELOPMENT COSTS

3.1In consideration of the entering into of this Agreement by Depomed, and the agreement by Depomed to acquire its requirements for the 1000mg Product from BLS, BLS agrees to carry out its obligations under this Agreement and the Work Plan for the Development of the 1000mg Product after the Effective Date.

4.PURCHASE OF 1000MG PRODUCT

4.1Depomed agrees that it will purchase 1000mg Product exclusively from BLS and, other than as may be set forth herein, that it will not manufacture (or have manufactured on its behalf) 1000mg Product directly without BLS’s prior written consent or as provided in Section 16.2 hereof, and BLS agrees that it will produce (or have produced for it) and sell to Depomed one hundred percent of Depomed’s requirements for 1000mg Product, during the term of, and subject to the provisions of, this Agreement.

4.2BLS shall use commercially reasonable efforts to maintain a production capacity sufficient to supply Depomed with [***] of the 1000mg Product per calendar month.

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

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5.FORECASTS

Planning Forecast

5.1On the date that the first Supply Forecast is delivered pursuant to Section 5.3, and within one hundred twenty (120) days before the end of each Calendar Year thereafter, Depomed shall deliver to BLS a non-binding forecast, by Calendar month, of the quantities of 1000mg Product, by SKU (including samples), that Depomed expects to order from BLS for Marketing in the Territory, for the following eighteen (18) calendar months (the “Planning Forecast”). No less than once per Calendar Year, the Parties shall meet to review the then effective Planning Forecast of Depomed to compare the yearly requirements of 1000mg Product which Depomed expects would be necessary to fulfill the sales forecast provided in such Planning Forecast, projecting the highest level of sales of the 1000mg Product in the Territory.

Launch Forecast

5.2Promptly following the date of Regulatory Approval for the 1000mg Product in the Territory, Depomed shall deliver to BLS a non-binding (except as otherwise provided in this Section 5.2), forecast setting forth, by calendar month, the quantities of 1000mg Product, including all quantities of 1000mg Product required for stocking the trade in the Territory (the “Launch Forecast”) and for samples that Depomed expects BLS to deliver to Depomed during the twelve (12) calendar months period after Launch. Depomed shall include in that Launch Forecast Depomed’s good faith estimates of the Net Selling Price of the 1000mg Product upon Launch. Quantities of 1000mg Product identified in the Launch Forecast shall be in whole multiples of the Batch Size. The anticipated quantities for the first [***] covered by the Launch Forecast shall be a binding commitment by Depomed to purchase the quantities of Product set out in the Launch Forecast for such [***] period.

Supply Forecast

5.3Commencing in the first full Calendar month following Launch, Depomed shall deliver to BLS, on or before the fifteenth (15th) day of each calendar month, a rolling eighteen

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

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(18) calendar month Supply Forecast setting forth, by calendar month, the quantities of Product (including samples) that Depomed expects BLS to deliver to Depomed during each calendar month of the next eighteen (18) calendar month period for the Territory. Quantities of 1000mg Product identified in each Supply Forecast shall be in whole multiples of the Batch Size. BLS shall notify Depomed within fifteen (15) days after BLS’s receipt of any Supply Forecast of any inability of BLS to supply to Depomed any quantities of 1000mg Product that BLS is expected to deliver to Depomed pursuant to any such Supply Forecast in excess of the quantities set out in Section 4.2.

First [***] Firm

5.4The 1000mg Product quantity stated for the first [***] of each Supply Forecast shall be a binding commitment by Depomed to purchase and, subject to the provisions of Sections 5.5 to 5.7, binding commitment by BLS to deliver, the quantities of 1000mg Product set forth in such Supply Forecast for those [***]. The estimated requirements for each succeeding calendar month in each Supply Forecast shall be Depomed’s good faith estimates of Depomed’s requirements for 1000mg Product in each such calendar month, and may be varied only to the extent set out in Sections 5.5 to 5.7.

Permitted Modifications to Forecasts

5.5The forecast for any calendar month in the tenth (10th) through the eighteenth (18th) calendar months of any Supply Forecast may be varied from the forecast made for the same calendar month in the previous Supply Forecast by any reasonable percentage consistent with Depomed’s good faith estimates for its requirements for that calendar month, provided that quantities set out in each month in each Supply Forecast are in whole multiples of Batch Size.

5.6The forecast for the seventh (7th) through ninth (9th) calendar months of any Supply Forecast vary from the forecast made for that calendar month when it was the tenth (10^th) calendar month in a Supply Forecast, by an amount that does not exceed the greater of fifty (50%) of the forecast for that calendar month when it was the tenth (10^th) calendar

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

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month in a Supply Forecast or one Batch Size. provided that quantities set out in each month in each Supply Forecast are in whole multiples of Batch Size.

5.7The forecast for any of the fourth (4^th) through sixth (6th) calendar months of any Supply Forecast may vary from the forecast made for that calendar month when it was the seventh (7^th) calendar month in a Supply Forecast, by an amount that does not exceed the greater of twenty five per cent (25%) of the forecast for that calendar month when it was the seventh (7^th) calendar month in a Supply Forecast or one Batch Size, provided that quantities set out in each month in each Supply Forecast are in whole multiples of Batch Size.

5.8Notwithstanding the above, from time to time, due to unforeseen circumstances, Depomed may deliver to BLS a Supply Forecast for 1000mg Product volumes in excess of those specified in any prior Supply Forecast and/or in excess of the percentage variances permitted by Sections 5.5 to 5.7, provided that quantities set out in each month in each Supply Forecast are in whole multiples of Batch Size. BLS shall provide written notification to Depomed as soon as reasonably possible after the delivery of such Supply Forecast of the amount of any such excess that BLS determines it will be able to deliver to Depomed, and shall use commercially reasonable efforts to deliver that amount of 1000mg Product in addition to the amounts otherwise properly included in such Supply Forecast.

5.9Notwithstanding any forecast delivered by Depomed to BLS pursuant to the provisions of Article 5, BLS shall have no obligation to supply to Depomed quantities of the 1000mg Product in excess of the quantities specified in Section 4.2.

6.PURCHASE ORDERS

6.1Depomed shall deliver to BLS, concurrently with the delivery of the Launch Forecast delivered pursuant to Section 5.2, a firm Purchase Order for the quantities of 1000mg Product (including samples) required by Depomed for the first [***] of the Launch Forecast, specifying in such Purchase Order the required Delivery Date within each such month for the quantities so ordered. Each Purchase Order shall be in whole multiples of

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

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the Batch Size. The Delivery Date specified in any such Purchase Order shall not be less than ninety (90) days after the date of delivery of the Launch Forecast. The Purchase Order may be delivered electronically or by other means to such location, as BLS shall designate.

6.2Depomed shall deliver to BLS, with each Supply Forecast delivered pursuant to Section 5.3, a firm Purchase Order for the quantities of 1000mg Product required by Depomed for the third (3^rd) month of such Supply Forecast. Each Purchase Order shall be in whole multiples of the Batch Size, and shall specify the required Delivery Date within such month for the quantities so ordered. The Delivery Date specified shall not be less than ninety (90) days after the date of such Purchase Order. The Purchase Order may be delivered electronically or by other means to such location, as BLS shall designate.

6.3Notwithstanding any Purchase Orders delivered by Depomed to BLS pursuant to the provisions of section 6.1, BLS shall have no obligation to supply to Depomed quantities of the 1000mg Product in excess of the quantities specified in Section 4.2.

Forms

6.4In ordering or delivering 1000mg Product, each of Depomed and BLS may use its respective standard forms, provided that nothing in those forms shall be construed to modify or amend the terms and conditions of this Agreement. In the event of any conflict between the terms and conditions of any such form and the terms and conditions of this Agreement, the terms and conditions of this Agreement shall control.

7.DELIVERY AND SHIPPING TERMS

Delivery

7.1The quantities of 1000mg Product ordered in each Purchase Order shall be delivered no more than ten (10) business days before or after the Delivery Date specified in the relevant Purchase Order. In the event that BLS expects delivery of quantities of 1000mg Product ordered by Depomed to be delayed due to unforeseen transportation difficulties, BLS shall notify Depomed not later than ten (10) business days before the Delivery Date

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

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specified in the relevant Purchase Order, and shall inform Depomed of the expected delayed Delivery Date.

Variance in Quantities Delivered

7.2Quantities (in tablets) of 1000mg Product actually delivered by BLS may vary from the quantities specified in a Purchase Order by [***]. Depomed shall be invoiced only for the quantities of 1000mg Product actually delivered to Depomed.

Shipping Terms

7.3In the case of delivery of the 1000mg Product by BLS from BLS’s manufacturing facility in Puerto Rico, all 1000mg Product shall be delivered FCA (INCOTERMS 2000) to Depomed’s designated warehouse in the Territory, but outside Puerto Rico. Title to, ownership of and risk of loss of, the 1000mg Product shall transfer at the location that is immediately after the 1000mg Product leaves Puerto Rico and enters international waters while the 1000mg Product is in transit from BLS’s facility in Puerto Rico to Depomed’s designated warehouse in the Territory, but outside Puerto Rico.

7.4In the case of delivery of the 1000mg Product by BLS from a manufacturing site in Canada, all Product shipped to Depomed shall be delivered, Delivered Duty Paid (DDP) (INCOTERMS 2000) at the U.S. Customs port designated by Depomed, in accordance with Section 7.5 below, immediately after the 1000mg Product has cleared U.S. Customs (such location shall be the “Delivery Point”), except that Depomed shall, at Depomed’s determination, either pay the freight costs directly to the shipping company or reimburse BLS for the freight charges to the Delivery Point. Title to, ownership of, and risk of loss of the 1000mg Product shall pass from BLS to Depomed immediately after the 1000mg Product has cleared U.S. Customs. BLS shall be responsible for the payment of all duties, tariffs, taxes and other charges payable for the exportation of the 1000mg Product, and BLS shall be the importer of record of the 1000mg Product and be responsible for the payment of U.S. Customs’ duties and all other taxes, charges and administrative costs applicable to the U.S. Customs clearance of the 1000mg Product into the United States.

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

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BLS shall adhere to Depomed’s import policies and practices, and BLS and Depomed shall agree on a freight forwarder to use for delivery of the 1000mg Product to Depomed.

7.5BLS and Depomed shall cooperate with and assist each other in all aspects of the shipment, importation and delivery process in order to ensure the expeditious delivery of the 1000mg Product to the Delivery Point referred to in Section 7.4, including assisting in obtaining any documents that may be required. BLS shall consult with Depomed with regard to any communications with U.S. government agencies, including the FDA. Upon the request of Depomed, BLS’s customs broker shall provide information to Depomed regarding customs clearance and any issues related thereto. In the case of delivery of the 1000mg Product by BLS from a manufacturing site in Canada, Depomed shall designate the U.S. Customs entry points used by Depomed or Depomed’s designated customs broker that are on a reasonably direct route from the manufacturing facility to Depomed’s designated delivery facility.

7.6BLS shall notify Depomed that the 1000mg Product is ready for shipment no less than forty eight (48) hours before such time.

7.7Product ordered by Depomed and delivered by BLS shall be shipped by ground transportation in the case of delivery from a manufacturing facility in Canada, and by ship in the case of delivery from a manufacturing facility in Puerto Rico. Notwithstanding the foregoing, if Depomed has reasonably determined that shipment of the 1000mg Product by air freight is advisable, Depomed shall specify in the relevant Purchase Order that Depomed wishes to have the 1000mg Product which is the subject of such Purchase Order shipped by air freight. BLS shall arrange for such shipment of the 1000mg Product and Depomed shall pay for, or reimburse BLS for, the cost of air freight for the shipment in question. In the event BLS is responsible for any delay in the shipment of the 1000mg Product which would require shipment by air freight to meet the specified Delivery Date in the relevant Purchase Order (giving effect to the provisions of Section 7.1), BLS shall pay for, or reimburse Depomed for, any increase in cost incurred by Depomed occasioned by using air freight for such shipment. Delivery of the 1000mg Product so shipped shall, notwithstanding Sections 7.3 and 7.4 above, be (FCA)

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

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(INCOTERMS 2000), and title to, ownership of and risk of loss of, the 1000mg Product shall pass from BLS to Depomed at the location that (i) in the case of 1000mg Product shipped from Canada, is immediately after the 1000mg Product has left the territory of Canada, (including the airspace above international waters over which Canada may exercise rights in respect of the seabed and subsoil, and their natural resources, in accordance with international law and the laws of Canada) while in transit to Depomed’s designated warehouse in the Territory; or (ii) in the case of 1000mg Product shipped from Puerto Rico, is immediately after the 1000mg Product leaves the territory of Puerto Rico and enters the airspace above international waters in transit from Puerto Rico to Depomed’s designated warehouse in the Territory. Such location shall be the Delivery Point. All other terms of this Section 7 shall apply to such shipment.

Losses in Transport

7.8Depomed shall notify BLS in writing if Depomed determines from the applicable shipping documentation that the quantities of 1000mg Product delivered to Depomed differ from the quantities of 1000mg Product shipped by BLS and invoiced to Depomed, within thirty (30) days following delivery of any such 1000mg Product. Any claim for such a quantitative deficiency which is not made within such thirty (30) days shall be deemed to have been waived by Depomed. If the Parties agree that such quantitative deficiency occurred prior to delivery, BLS shall, at BLS’s option, and as Depomed’s exclusive remedy against BLS for such quantitative deficiency, (a) credit Depomed for the amount invoiced to or paid by Depomed to BLS in excess of the aggregate price for actual quantities delivered or (b) subject to BLS having sufficient 1000mg Product on hand at the time of request by Depomed, promptly deliver the appropriate quantities of 1000mg Product to Depomed sufficient to negate any such deficiency, at no additional cost to Depomed. Any unresolved dispute with respect to any quantitative deficiency asserted by Depomed under this Section 7.8 shall be resolved pursuant to Section 29.8.

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

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8.PRICES AND PAYMENTS

Depomed Sales

8.1BLS shall sell to Depomed, and Depomed shallpurchase from BLS, all quantities of the 1000mg Product to be Marketed by Depomed in the Territory at the applicable Supply Price per tablet set out in Schedule 8.1 and corresponding to the Net Selling Price per tablet of the 1000mg Product for that calendar quarter.

Distributor Sales

8.2BLS shall sell to Depomed and Depomed shallpurchase from BLS, all quantities of the 1000mg Product intended for resale by Depomed to a Distributor for Marketing in the Territory by that Distributor, at the applicable Supply Price per tablet set out in Schedule 8.2 and corresponding to the Depomed Revenue per tablet calculated on the Distributor’s Net Sales of the 1000mg Product for that calendar quarter, provided, however, that if the Supply Price set out in Schedule 8.2 is higher than the Supply Price set out in Schedule 8.1 or Schedule 8.4, as applicable, that would be paid based on the Distributor’s Net Selling Price, Depomed shall pay to BLS the Supply Price set out in Schedule 8.1 or Schedule 8.4, whichever is applicable.

8.3Depomed shall pay to BLS, as an additional supply price, within thirty (30) days after receipt by Depomed, [***] of the value of all consideration not otherwise included in Depomed Revenues or Net Sales and received by Depomed for the right to Market or distribute the 1000mg Product in the Territory under this Agreement or the Manufacturing Transfer Agreement.

Supply Prices if no Valid Claim

8.4Notwithstanding the provisions of Section 8.1, the Supply Price to paid by Depomed to BLS for each tablet of the 1000mg Product delivered by BLS to Depomed shall be the Supply Price set out in Schedule 8.4 during any calendar quarter when there is no Valid Claim.

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

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Sample Price

8.5The Supply Price to paid by Depomed to BLS for each tablet of the 1000mg Product delivered by BLS to Depomed packaged as a sample shall be the Supply Price set out in Schedule 8.5. In the event that samples are packaged other than as set forth in the Specifications, the Supply Price applicable to samples shall be adjusted to reflect any incremental increase or decrease in costs associated with sample packaging.

Invoicing

8.6BLS shall invoice Depomed upon shipment of the 1000mg Product to Depomed an amount for each tablet of the 1000mg Product shipped equal to the applicable Supply Price set out above, provided that, for the purposes of this Section, the Net Selling Price or Depomed Revenues to be used by BLS in preparing its invoices shall be either the estimated Depomed Revenues or estimated Net Selling Price of the 1000mg Product in the Territory as set out in the Launch Forecast, and thereafter the actual Depomed Revenue and Net Selling Price set out in the most recent Quarterly Reports delivered pursuant to Section 8.10 (the “Estimated Net Selling Price”).

Payment Terms

8.7Payment of all invoices issued by BLS to Depomed shall be made within thirty days after the date thereof. The running of such thirty day period shall be suspended during the pendency of any reasonable dispute pursuant to Section 13 below concerning the conformity of a shipment of 1000mg Product to the Specifications. Unpaid balances shall accrue interest, from due date until paid, at a rate equal to the lesser of (a) the prime rate, as reported in The Wall Street Journal, U.S. Edition, on the date such payment is due, plus an additional two percent or (b) the maximum rate permitted under applicable law. If any amount due hereunder and not subject to a reasonable, good-faith dispute by Depomed remains outstanding for more than forty-five days after its due date, BLS may, in addition to any other rights or remedies it may have, refuse to ship 1000mg Product hereunder except upon payment by Depomed in advance.

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

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8.8All prices set out in Schedules 8.1, 8.2, 8.4 and 8.5 are in U.S. dollars, and all payments due to BLS under this Agreement shall be made in U.S. dollars. All payments shall be made by wire transfer in immediately available funds to the account of BLS specified in Schedule 8.8 or such other account of BLS as BLS may indicate to Depomed in writing at least thirty (30) days prior to the date payment is due in accordance with Section 27.1.

Reconciliation

8.9Within ten (10) days after the end of each calendar month, Depomed shall deliver a report to BLS specifying the quantities of the 1000mg Product sold by Depomed and its Distributors in that calendar month in the Territory.

8.10Within fifteen (15) days after the end of each calendar quarter, Depomed shall deliver a report to BLS specifying, for such calendar quarter in the Territory:

(a)the quantities of the 1000mg Product sold by Depomed and its Distributors in that calendar quarter;

(b)Net Sales of the 1000mg Product in the Territory by each of Depomed and its Distributors during such calendar quarter,including itemization of all deductions provided for in Section 1.15;

(c)the Net Selling Price for the 1000mg Product sold in that calendar quarter in the Territory;

(d)the Depomed Revenues for the 1000mg Product for the calendar quarter, calculated in accordance with United States Generally Accepted Accounting Principles; and

(e)the total amount payable to BLS for all quantities of the 1000mg Product delivered during such calendar quarter calculated in accordance with Sections 8.1, 8.2 and 8.4, using the Depomed Revenues and the Net Selling Price, as applicable, for the 1000mg Product in the Territory for the just-ended calendar quarter.

8.11Depomed shall pay to BLS, within thirty (30) days after the delivery of such report, the difference, if any, between the aggregate amount invoiced by BLS under Section 8.6 for all quantities of the 1000mg Product delivered by BLS during the calendar quarter for

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

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which the report is rendered and the aggregate amount payable by Depomed for those quantities determined pursuant to Sections 8.1, 8.2 and 8.4, as applicable. In the event that calculations made in accordance with the immediately preceding sentence determine that Depomed has overpaid BLS, an amount equal to such overpayment shall be credited to Depomed on the immediately succeeding invoice rendered by BLS.

Price Adjustments

8.12The Supply Prices in each of Schedules 8.1, 8.2, 8.4 and 8.5 may be increased or decreased effective on the first business day of January in each year during the term, commencing in January 2007, as follows:

(a)subject to subsection (b), each Supply Price in each such Schedule may be increased by the percentage obtained by multiplying the PPI Increase over the most recent period of twelve consecutive months for which the PPI Increase is available by the PPI Multiplier corresponding to such Supply Price set forth on each such Schedule; and

(b)if BLS’s actual cost of manufacturing the 1000mg Product has decreased over the most recent period of twelve consecutive months for which the PPI Increase is available, each such Supply Price shall not be increased for the following calendar year, but shall be decreased by an amount equal to the amount of that decrease in manufacturing cost.

For purposes of illustration of Section 8.12(a) only, with respect to a Supply Price of $1.00, if the PPI Increase were 4.0% and the applicable PPI Multiplier were 0.5, such Supply Price would be increased by 2.0%, from $1.00 to $1.02, and that Supply Price, and the applicable schedule, would be amended accordingly. Each other Supply Price, and each other applicable schedule, would be amended in the same manner (subject to Section 8.12(b)). For the purposes of illustration of Section 8.12(b) only, with respect to a Supply Price of $1.00, if BLS’s actual cost of manufacturing the 1000mg Product has decreased by $0.005 per tablet, such Supply Price would be decreased from $1.00 to $0.995, and that Supply Price, and the applicable schedule, would be amended

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

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accordingly. Each other Supply Price, and each other applicable schedule, would be amended in the same manner. Any Supply Price adjusted pursuant to this Section 8.12 shall be rounded to the nearest four decimal places.

8.13BLS shall notify Depomed on or before the last business day of January in each year of the amount of any change in the Supply Prices in each of Schedules 8.1, 8.2, 8.4 and 8.5, in accordance with Section 8.12. If Depomed does not accept BLS’s assertion that there has been no decrease in the manufacturing cost of the 1000mg Product over the immediately preceding calendar year, Depomed shall within thirty (30) days of BLS’s notice identify to BLS in writing any cost savings which, in Depomed’s view, BLS ought to have realized over that calendar year, and BLS shall within thirty (30) days thereafter explain why such savings were not realized. If Depomed does not accept BLS’s explanation, and has reasonable grounds for believing that BLS has enjoyed cost savings, Depomed may conduct an audit (using any of the “Big Four” independent auditors free of a conflict of interest with respect to any such audit, or any other auditor reasonably acceptable to BLS, in each case subject to confidentiality restrictions) of BLS’s costs at Depomed’s own expense. Any dispute unresolved by that audit shall be resolved in accordance with the provisions of Section 29.8.

Taxes

8.14Depomed shall be responsible for all taxes imposed by any governmental authority that are applicable to (i) Depomed’s purchase of the 1000mg Product or 500mg Product from BLS (other than any taxes payable by BLS pursuant to Section 7.5) or (ii) to the marketing of the 1000mg Product in the Territory. BLS shall be responsible for all other taxes related to the manufacture of the 1000mg Product by BLS, including income, payroll and business licensing taxes.

8.15Depomed shall pay federal, state and local sales, use and other taxes imposed on or with respect to the sale of 1000mg Product by BLS for and to Depomed, if any.

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

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9.RECORD KEEPING; AUDIT

Records

9.1For at least three years after the end of each calendar quarter during the term of this Agreement, Depomed shall keep and maintain accurate and complete records concerning Depomed Revenues, and the gross sales and Net Sales of the 1000mg Product and of all deductions taken in calculating Net Sales and Net Selling Price, except in the event of an ongoing audit pursuant to Section 9.2, below, in which case such records shall be preserved until the completion of such audit and final resolution of any resulting dispute.

Audit

9.2During the term of this Agreement and for a period of at least three years thereafter, Depomed shall, at the request and expense of BLS, permit an independent certified public accountant appointed by BLS and reasonably acceptable to Depomed, during regular business hours, upon reasonable notice, and no more than once per calendar year, to examine all relevant records and documents in the possession or control of Depomed as may be necessary to verify the Depomed Revenues, and the gross sales and Net Sales of the 1000mg Product hereunder, as reported by Depomed to BLS during each of the past twelve calendar quarters. The results of any such examination shall be made available to both Parties and shall be subject to the obligations of confidentiality contained in Article 23 hereof. The cost of such examination shall be borne by BLS unless the result of such examination is the determination that the amount payable by Depomed hereunder has been understated by at least three percent for any calendar year, in which event Depomed shall bear the reasonable cost of such examination.

9.3Each of Depomed and BLS shall pay to the other any amounts determined by the audit conducted pursuant to Section 9.1 to be owing to the other, within thirty (30) days after the delivery of the audit report.

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

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10.MODIFIED SPECIFICATIONS

Changes Mandated by Governmental Authority

10.1If BLS proposes to change the Specifications due to a change in Applicable Laws or as mandated by a Governmental Authority (a “Mandated Change”), BLS shall notify Depomed within the earlier of (i) not less than one hundred twenty days prior to the proposed Mandated Change and (ii) the date BLS becomes aware of the change in Applicable Laws or mandate by a Governmental Authority necessitating such Mandated Change. To the extent such Mandated Change makes it necessary for Depomed to amend any of its filings with any Governmental Authority relating to the 1000mg Product, BLS shall cooperate fully with Depomed and provide all necessary information relating to such change in Specifications as may be required in such amended filings. BLS shall promptly advise Depomed as to any lead-time or delivery time changes, Purchase Volume Limitations or other terms which may result from a Mandated Change to the Specifications, including but not limited to price adjustments necessary to enable BLS to recover one-half of the costs it incurred for materials already purchased by BLS expressly for Depomed, its Affiliates, Distributors, sub-contractors or sublicensees and rendered unusable by Depomed, its Affiliates or sublicensees due to a Mandated Change, and the Parties shall document such changes in an amendment to this Agreement. BLS shall not be in breach of its obligations hereunder to the extent that a Mandated Change prevents, impairs or delays BLS’s performance hereunder (provided that a Mandated Change shall not excuse any breach by BLS hereunder to the extent that such breach is not related to a Mandated Change); provided, however, that Depomed shall be entitled to engage an alternate manufacturer of 1000mg Product in accordance with the provisions of Section 16.2(b) in the event that BLS fails to supply Depomed 1000mg Product that complies with any Mandated Change. For purposes of this Agreement, a Mandated Change shall include such changes to the Specifications as may be mandated by the FDA in connection with any approval of the Supplemental NDA. Not later than thirty (30) days following approval of the Supplemental NDA, the Parties shall agree upon complete, detailed product specifications consistent with such approval, which specifications, as so agreed

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

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upon, shall cover manufacturing, packaging, labelling and testing of packaged, finished 1000mg Product (including samples) ready for commercial sale, and shall be the Specifications for all purposes under this Agreement.

Other Changes

10.2If BLS proposes to change the Specifications for any reason other than a Mandated Change, and such change would make it necessary for Depomed to amend any of its filings with any Governmental Authority relating to the 1000mg Product (an “Elective Change”), BLS shall notify Depomed at least one hundred eighty days prior to the proposed Elective Change. Prior to implementing any such Elective Change, BLS and Depomed shall meet in good faith to determine a course of action, which shall be one of the following, as reasonably acceptable to Depomed:  BLS shall either (i) continue to supply Depomed for the term of this Agreement with 1000mg Product manufactured pursuant to the Specifications in effect prior to the Elective Change, (ii) make arrangements (including, without limitation, granting all applicable licenses) to have a third party manufacture 1000mg Product for Depomed pursuant to the Specifications in effect prior to the Elective Change or (iii) cooperate fully with Depomed and provide all necessary information relating to such change in Specifications as may be required in such amended filings and indemnify and hold Depomed harmless for all reasonable expenses (including all clinical, administrative and legal expenses) incurred by Depomed in amending such filings.

11.QUALITY CONTROL

11.1Prior to each shipment of 1000mg Product to Depomed, BLS shall conduct or have conducted quality control testing of 1000mg Product in accordance with the Specifications and such other BLS-approved quality control testing procedures that are consistent with FDA cGMPs (the “Testing Methods”). BLS shall retain or have retained accurate and complete records pertaining to such testing. BLS shall notify Depomed in writing at least thirty days prior to any proposed change in the Testing Methods and shall at its own expense make any changes necessary to any CMC section or drug master file

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

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relating to the 1000mg Product and provide Depomed a copy of the revised Testing Methods within thirty days prior to implementation of the changes. Each shipment of 1000mg Product hereunder shall be accompanied by a certificate of analysis (“Certificate of Analysis”) for each lot of 1000mg Product therein, as well as any other documentation required by any applicable laws or regulations.

11.2The Parties shall use commercially reasonable efforts to agree upon and execute, within thirty (30) days after the Effective Date, a quality agreement applicable to the 1000mg Product in form and substance customary in the pharmaceutical industry (the “Quality Agreement”). Subsequent to its execution, the Parties shall comply with their obligations under the Quality Agreement.

12.FACILITY INSPECTION

12.1BLS shall permit no more than three (3) of Depomed’s authorized representatives, during normal working hours and upon reasonable prior notice to BLS but in no event less than twenty days prior notice, to inspect that portion of all the facilities of BLS, it Affiliates or any Contract Manufacturer (as defined in Section 15 below) utilized for the manufacture, preparation, processing, storage or quality control of 1000mg Product, together with all related manufacturing, batch and QA/QC records, no more frequently than once per calendar year, except as provided below; provided, however, that BLS shall make available or cause to be made available for inspection all batch and QA/QC records upon reasonable advance notice from Depomed from time to time, as reasonably requested by Depomed. BLS may remove or expurgate from any such manufacturing, batch and QA/QC records any information that is proprietary or confidential to BLS, including, without limitation, any information relating to the process for manufacturing the 1000mg Product. Depomed’s authorized representatives shall be accompanied by BLS personnel at all times, shall comply with all applicable rules and regulations relating to facility security, health and safety, and shall execute a written confidentiality agreement with terms at least as restrictive as those set forth in Section 23 below. Except as provided below, in no event shall any such manufacturing audit exceed two days in duration.

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

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Depomed shall ensure that its authorized representatives conduct each manufacturing audit in such a manner as to minimize interference with the normal and ordinary operation of BLS, its Affiliates or its Contract Manufacturer. In the event that the manufacturing audit uncovers information that reasonably demonstrates that the 1000mg Product is not being manufactured in accordance with the Specifications (an “Inspection Failure”) or in the event of any communication from the FDA that reasonably requires inspection by Depomed, then Depomed shall have the right to schedule and execute one or more follow-up inspections until the Inspection Failure is resolved. Except as expressly set forth in this Section 12, neither Depomed nor its Affiliates, Distributors, licensees or their respective employees or representatives shall have access to BLS’s facilities or the facilities of any Contract Manufacturer engaged by BLS.

13.ACCEPTANCE AND REJECTION

Acceptance Testing

13.1Depomed shall have a period of thirty days from the date of receipt of each shipment of the 1000mg Product to test or cause to be tested that 1000mg Product. Depomed or its designee shall have the right to reject any shipment of 1000mg Product made to it under this Agreement that does not conform with the Specifications when received by it at such destination when tested in accordance with the Testing Methods. All shipments of 1000mg Product shall be deemed accepted by Depomed unless BLS receives written notice of rejection from Depomed within such thirty day period, describing the reasons for the rejection in reasonable detail. Once a delivery of 1000mg Product is accepted or deemed accepted hereunder, Depomed shall have no recourse against BLS in the event 1000mg Product is subsequently deemed unsuitable for use for any reason, except as provided in Section 22 (Indemnification) below.

Discrepant Test Results

13.2In the event of a discrepancy between BLS’s and Depomed’s test results such that one Party’s results fall within the Specifications and the other Party’s test results fall outside the Specifications, the Parties shall cause an independent laboratory to review records,

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

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test data and to perform comparative tests and/or analyses on samples of the alleged defective 1000mg Product. The independent laboratory’s results shall be final and binding. Unless otherwise agreed to by the Parties in writing, the costs associated with such testing and review shall be borne by the Party against whom the independent laboratory rules.

Confirmation

13.3After its receipt of a notice of rejection from Depomed pursuant to Section 13.1 above, BLS shall notify Depomed as soon as reasonably practical whether it accepts Depomed’s basis for rejection and Depomed shall cooperate with BLS in determining whether such rejection was necessary or justified. In the event that the Parties are unable to agree as to whether a shipment of 1000mg Product delivered to Depomed by BLS or its Contract Manufacturer hereunder meets the Specifications, such question shall be submitted to an independent laboratory pursuant to Section 13.2 hereof.

Return or Destruction of Rejected Shipments

13.4Depomed may not destroy any batch of 1000mg Product until it receives written notification from BLS that BLS does not dispute that the batch fails to meet the Specifications and that BLS does not request return of 1000mg Product. Upon written authorization from BLS to do so, Depomed shall promptly destroy the rejected batch of 1000mg Product in accordance with Applicable Laws and provide BLS with written certification of such destruction. BLS shall reimburse Depomed for the reasonable costs of such destruction. Upon receipt of BLS’s request for return,  Depomed shall promptly return the rejected batch of 1000mg Product to BLS at the expense of BLS.

Refund; Replacement

13.5Depomed shall not be required to pay any invoice with respect to any shipment of 1000mg Product properly rejected pursuant to this Section 13. Notwithstanding the foregoing, Depomed shall be obligated to pay in full for any rejected shipment of 1000mg Product that is subsequently determined to meet the Specifications, and shall be entitled to retain or receive and use the same, irrespective of whether Depomed has

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

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already paid BLS for a replacement shipment. In the event that Depomed pays in full for a shipment of 1000mg Product and subsequently properly rejects such shipment in accordance with this Section 13, Depomed shall be entitled, upon confirmation that such shipment failed to meet the Specifications in all material respects, either (a) to a refund or credit equal to the purchase price paid with respect to such rejected shipment, or (b) to require BLS to replace such rejected shipment at no additional cost to Depomed. In the event Depomed elects to require BLS to replace such rejected shipment, BLS shall deliver such replacement within sixty days of its receipt of notice from Depomed of Depomed’s election to receive such replacement. Depomed acknowledges and agrees that, except for the indemnification obligations set forth in Section 22 below, Depomed’s rights to a refund or credit for or to receive replacement of properly rejected shipments of 1000mg Product hereunder shall be Depomed’s sole and exclusive remedy, and BLS’s sole obligation, with respect to non-conforming 1000mg Product delivered hereunder.

Exceptions

13.6Depomed’s rights of rejection, return, refund and replacement set forth herein shall not apply to any 1000mg Product that is non-conforming due to damage (a) caused by Depomed, its Affiliates or Distributors or their respective employees or agents, including but not limited to, misuse, neglect, improper storage, transportation or use beyond any dating provided or (b) which occurs subsequent to delivery of such 1000mg Product to the carrier at the point of origin, including but not limited to any damage caused thereafter by accident, fire or other hazard and BLS shall have no liability or responsibility to Depomed with respect thereto.

14.SUPPLY OF 500MG PRODUCT

14.1During the period beginning on the Effective Date and ending on December 31, 2006, BLS shall, if so requested by Depomed or a sub-licensee of Depomed, supply Depomed with 500mg Product on the terms set forth in this Article 14.

14.2Within thirty (30) days after the Effective Date, Depomed shall deliver to BLS a non-binding supply forecast in whole multiples of Batch Sizes covering the period beginning

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on the Effective Date and ending on December 31, 2006 (the “Supply Period”) for estimated quantities of 500mg Product, by SKU, including physician’s samples.

14.3During the Supply Period, Depomed may submit (not more often than once per month) firm purchase orders for finished, packaged 500mg Product at least one hundred twenty (120) days prior to delivery dates requested in such purchase orders. BLS shall use commercially reasonable efforts to deliver the amount of 500mg Product specified in each such purchase order; provided, however, that BLS shall be entitled to supply the requirements of itself and its Affiliates for the Marketing of the 500mg Product in Canada prior to supplying Depomed with 500mg Product. BLS shall inform Depomed within ten (10) days after receipt of each purchase order whether it will supply to Depomed the requested quantities of the 500mg Product. Each purchase order shall be in whole multiples of the Batch Size for the 500mg Product. Purchase orders may be delivered electronically or by other means, to such location as BLS shall designate. In ordering or delivering Product, each of Depomed and BLS may use its respective standard forms, provided that nothing in those forms shall be construed to modify or amend the terms and conditions of this Agreement. In the event of any conflict between the terms and conditions of any such form and the terms and conditions of this Agreement, the terms and conditions of this Agreement shall control.

14.4BLS shall not be subject to any monetary or other penalty for a failure to supply Depomed with 500mg Product under this Article 14.

14.5500mg Product supplied to Depomed under this Agreement shall conform to the specifications applicable to 500mg Product set forth in the NDA relating to the 500mg Product.

14.6The supply price to Depomed per tablet (as delivered in finished, packaged bottles of 100 or 500 tablets of the 500mg Product) shall be as set out in U.S. dollars in Schedule 14.6. Depomed will reimburse BLS for any agreed-upon expenses incurred by BLS in connection with 500mg Product labelling changes processed by BLS.

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14.7The delivery, acceptance, payment, record keeping and quality assurance terms applicable to Depomed’s purchases of 1000mg Product set forth in Article 7, Section 11.1 and Article 13of this Agreement shall, and, except as otherwise set forth in this Article 14, apply to Depomed’s purchases of 500mg Product hereunder (except that references to the “1000mg Product” shall be deemed to be references to the 500mg Product, and all references to Specifications shall be deemed to be references to the specifications described in Section 14.5 for purposes of this Agreement).

Packaging and Batch Release Services

14.8If requested by Depomed, BLS shall perform during the Supply Period, those services necessary to provide final, finished 500mg Product from bulk tablets manufactured for Depomed in Puerto Rico by a contract manufacturer other than BLS or an Affiliate of BLS. Depomed shall pay BLS [***] per tablet for performing such functions. The foregoing amount shall not be applicable to quantities of 500mg Product supplied pursuant to the provisions of Sections 14.1 through 14.7 of this Agreement. BLS shall perform such services at BLS’s facility in Puerto Rico in a manner compliant with applicable FDA laws and regulations. Such services shall be completed not later than ten (10) business days following delivery to BLS’s batch release facility. Depomed will reimburse BLS for any agreed-upon expenses incurred by BLS in connection with 500mg Product labelling changes processed by BLS.

15.CONTRACT MANUFACTURERS

15.1Without limiting BLS’s responsibility under this Agreement, BLS shall have the right at any time to satisfy its supply obligations to Depomed hereunder either in whole or in part through arrangements with Affiliates of BLS or third parties engaged by and under license from BLS to perform services or supply facilities or goods in connection with the manufacture or testing of 1000mg Product (each, a “Contract Manufacturer”). BLS shall require that all such facilities comply with applicable manufacturing standards and will give Depomed prior written notice of any such arrangement. Further, it is understood that such Contract Manufacturers shall be subject to inspection by Depomed’s authorized

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representatives, in accordance with the terms of Section 12 above. It is understood that use of a Contract Manufacturer shall not relieve BLS of its obligations under Section 4.1. BLS agrees to give Depomed prompt written notice of (a) the termination, or receipt or delivery of notice of termination, of any third party supply agreement with a Contract Manufacturer or (b) any other event or development related to any supply agreement with a Contract Manufacturer that might adversely affect the ability of BLS to meet its obligations under this Agreement.

16.INABILITY TO SUPPLY

Notice

16.1BLS shall notify Depomed if BLS is unable to supply the quantity of 1000mg Product ordered by Depomed in any Purchase Order delivered in accordance with Section 6.1 and 6.2 above: (a) within thirty days after BLS’s receipt of that Purchase Order, (b) immediately upon becoming aware of an event of force majeure(as defined in Section 28 below), or (c) immediately upon becoming aware of any other event that would render BLS unable to supply to Depomed the quantity of 1000mg Product that BLS is required to supply hereunder.

Depomed’s Rights on BLS Failure to Supply

16.2In the event that (A) BLS shall deliver less than [***] of the aggregate amount ordered of 1000mg Product ordered under purchase orders conforming to the forecasting and purchase order requirements of Article 5 and as to which BLS is obligated to supply in any period of six (6) consecutive months and such failure to deliver is not cured by BLS within thirty days following written notice by Depomed, or (B) within any twelve month period BLS shall deliver quantities of 1000mg Product in amounts less than [***] of the aggregate of the amounts ordered under purchase orders conforming to the forecasting and purchase order requirements of Articles 5 and 6 for that twelve month period and as to which BLS is obligated to supply, within sixty days’ written notice thereof from Depomed, Depomed shall have any or all of the following rights:

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(a)Depomed shall no longer be obligated to purchase its requirements of 1000mg Product from BLS pursuant to this Agreement.

(b)Depomed shall be entitled to grant to a third party a sublicense of the rights granted to Depomed under the Manufacturing Transfer Agreement, to manufacture and supply the 1000mg Product for Marketing (but not for sale or other transfer to a party that is not an Affiliate or Distributor of Depomed) by Depomed, its Affiliates and Distributors in the Territory. In such event: (A) BLS shall provide to Depomed (or to a sublicensee reasonably acceptable to BLS (it being understood that MOVA Pharmaceutical Corporation (“MOVA”) is acceptable to BLS, and that BLS shall not unreasonably withhold or delay its acceptance of any such sublicensee) at the request of Depomed copies of all documentation that is reasonably necessary for Depomed to manufacture or have manufactured 1000mg Product, and (B) BLS shall provide technical assistance to Depomed (it being understood that MOVA is acceptable to BLS, and that BLS shall not unreasonably withhold or delay its acceptance of any such sublicensee) in the manufacture of the 1000mg Product in conformity with the Specifications, in accordance with Section 21.1. All documentation, technical assistance and other information is subject to the provisions and limitations of Section 21.1 of this Agreement.

(c)Depomed may terminate this Agreement with respect to the 1000mg Product by giving written notice to BLS in accordance with Section 27.

16.3The Parties shall discuss and endeavor to resolve promptly and in good faith any concern of either Party over the availability of 1000mg Product within the Territory so as to avoid any interruption in supply of 1000mg Product within the Territory. Such discussions shall include senior manufacturing, marketing and other management personnel of each Party. In the event that either Party believes it to be in the best interests of both Parties, as the licensor and licensee of the 1000mg Product in the Territory, to designate and qualify an alternative Contract Manufacturer of the 1000mg Product, each Party shall consider in good faith the views of the other Party as to the advisability of engaging an alternative contract manufacturer. If agreed after discussion between the Parties’

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principal executive officers that an alternative contract manufacturer should be designated and qualified, the Parties shall cooperate to ensure the transition of 1000mg Product manufacturing to a Third Party in a manner that minimizes any interruption of supply of 1000mg Product within the Territory.

17.MATERIAL SAFETY

17.1BLS shall provide Depomed, in writing, from time to time, with all information currently known to it regarding handling precautions, toxicity, and hazards with respect to 1000mg Product. In addition, BLS shall provide Depomed with the appropriate Material Safety Data Sheet for 1000mg Product as may be in effect from time to time. Notwithstanding the foregoing or anything in this Agreement to the contrary, Depomed is solely responsible for (a) its use of all documentation provided by BLS, including without limitation, use in any regulatory submission to the FDA or any other regulatory agency inside or outside of the United States, (b) document control and retention, (c) determining the suitability of any documentation provided by BLS hereunder for use in any regulatory submission and (d) for all filings necessary for maintaining Regulatory Approval.

18.MARKETING OF THE 1000MG PRODUCT; GLUMETZA WEBSITE

18.1Provided that BLS is in compliance with its supply obligations hereunder, Depomed shall cause the First Commercial Sale to occur within 120 days after Regulatory Approval of the 1000mg Product.

18.2The Parties will cooperate in good faith to cause traffic on any website dedicated to the 1000mg Product and/or the 500mg Product incorporating the “Glumetza” trademark to be directed in the United States to a Depomed-designated website and to be directed in Canada to a BLS-designated website.

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19.REGULATORY AFFAIRS

Regulatory Responsibility

19.1During the term of this Agreement, Depomed shall have full control and authority, with full responsibility over, commercialization of 1000mg Product in the Territory, and all such activity shall be undertaken at Depomed’s expense. Depomed will use commercially reasonable efforts in undertaking investigations and actions required to maintain appropriate governmental approvals to Market 1000mg Product in the Territory.

19.2Except as otherwise provided in this Agreement, Depomed shall bear responsibility for, and shall bear all costs related thereto, to take such actions as may be necessary, in accordance with accepted business practices and legal requirements, to obtain and maintain the authorization and/or ability to Market the 1000mg Product in the Territory. The Parties acknowledge and agree that, with respect to obtaining the authorization to Market the 1000mg Product in the Territory, Depomed’s obligations are as set forth in Article 2 of this Agreement. Notwithstanding the foregoing, Depomed shall be entitled to allow any Regulatory Approval or other authorization to Market the 1000mg Product to expire or lapse, and to discontinue Marketing the 1000mg Product, if, as a consequence of any changes to any applicable laws or regulations, any Regulatory Authority requires any changes to the Marketing of the 1000mg Product, the Manufacturing process for the 1000mg Product, or to the 1000mg Product specifications that Depomed does not want to make (each an “Unforeseen Requirement”). If Depomed discontinues the Marketing of the 1000mg Product as a result of an Unforeseen Requirement, BLS can terminate this Agreement with respect to 1000mg Product, and itself Market the 1000mg Product in the Territory, upon reimbursement to Depomed of all regulatory and other fees associated with transfer of the 1000mg Product to Depomed.

19.3BLS shall bear responsibility for the CMC section of the NDA relating to the 1000mg Product, and shall and shall bear all costs related thereto, and shall take such actions as may be necessary in connection therewith in order to maintain the authorization and/or ability to Market the 1000mg Product in the Territory. BLS shall notify Depomed

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promptly upon making any modifications to the CMC section of the NDA relating to the 1000mg Product. BLS shall cooperate with Depomed to the extent necessary to transfer responsibility for the CMC section of the of the NDA relating to the 1000mg Product in connection with Depomed’s exercise of its rights under Section 16.2(b) with respect to the manufacturing of the 1000mg Product.

19.4Depomed shall have the responsibility, and shall bear all costs related to, communications with any government agencies to satisfy its requirements regarding the authorization and/or continued authorization to Market the 1000mg Product in commercial quantities in the Territory (other than in connection with the CMC section of the NDA relating to the 1000mg Product, with respect to which BLS shall have such responsibility, and shall bear all such costs). BLS shall promptly notify Depomed of any inquiry or other communication that it receives from the FDA concerning the 1000mg Product, other than any such inquiry or other communication relating only to the CMC Section or any Drug Master File relating to the 1000mg Product. Depomed shall handle all communications with the FDA concerning the 1000mg Product, including but not limited to reporting adverse reactions and responding to any inquiries concerning advertising or promotional materials, and shall provide copies of all such communication to BLS. BLS, however shall be able to communicate with such governmental agency regarding the 1000mg Product if:

(a)Such communication is necessary to comply with the terms of this Agreement or the requirements of any law, governmental order or regulation;

(b)BLS, if practical, made a request of such agency to communicate with Depomed instead, and such agency refused such request;

(c)Such communication relates to the CMC section of the NDA relating to the 1000mg Product, or to any Drug Master File relating to the 1000mg Product; or

(d)Such communication relates generally to the BLS drug delivery technology incorporated within the 1000mg Product (and not specifically to the 1000mg Product); provided, however, that before making any communication under (a), (b) 

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or (c) of this Section, BLS shall give Depomed notice as soon as possible of BLS’s intention to make such communication, and Depomed shall be permitted to accompany BLS, take part in any such communications and receive copies of all such communications.

19.5Depomed shall be responsible for handling all complaints from customers in the Territory relating to adverse reaction reports, adverse events, and recall activities with respect the 1000mg Product. BLS shall promptly notify Depomed of any such complaints received by BLS.

Adverse Reaction Reports

19.6During the Term of this Agreement, each of BLS and Depomed shall promptly notify the other Party of all information required to be reported to the FDA (or any other Regulatory Authority) coming into its possession concerning side effects, injury, toxicity or sensitivity reaction including unexpected increased incidence and severity thereof associated with commercial or clinical uses, studies, investigations or tests (animal or human) with the 1000mg Product or the 500mg Product, throughout the world, whether or not determined to be attributable to the 1000mg Product or the 500mg Product (“Adverse Reaction Reports”). Each Party shall transmit such adverse reaction reports so that they are received by the other Party within three (3) business days after receipt by the transmitting Party, or such other reporting period as may be required by law. All such communications shall be held in confidence by each Party and shall be subject to the terms of Article 23 hereof.

Withdrawal of Regulatory Approval

19.7Subject to the provisions of Section 19.2, the Parties acknowledge and agree that “Cause” shall be deemed to exist pursuant to Section 24.3 of this Agreement upon any breach of the provisions of this Agreement by Depomed that results in the withdrawal of the Regulatory Approval pertaining to 1000mg Product.

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20.LIMITED WARRANTIES; RECALL

Representations and Warranties by BLS

20.1BLS represents and warrants to Depomed that all 1000mg Product sold to Depomed shall, at the time of delivery to Depomed:

(a)conform to the Specifications for 1000mg Product in effect at the time of such delivery;

(b)have been manufactured in accordance with the Specifications and FDA cGMPs and all other Applicable Laws.

20.2BLS represents and warrants to Depomed that

(a)BLS has not experienced any material difficulties in manufacturing the 500mg Product in commercial quantities, and has not experienced any material difficulty in obtaining active pharmaceutical ingredient or other excipients or components necessary for the Manufacture and packaging of the 500mg Product.

(b)BLS has experienced no batch failures following completion of the validation batches, in manufacturing commercial product batches for either the Canadian or United States markets.

(c)BLS has granted to Depomed under this Agreement and the Manufacturing Transfer Agreement, collectively, all of the rights under any Intellectual Property owned or controlled by BLS or its Affiliates necessary for the Manufacture or Marketing of the 500mg Product in the United States.

(d)The formulation of the 500mg Product reflected in the NDA for the 500mg Product is substantially similar to the formulation of the 500mg Product originally submitted to the FDA on April 27, 2004 in connection with the Application for Regulatory Approval for the 500mg Product.

(e)BLS has taken no steps that could reasonably be expected to affect the price that Depomed may charge for the 500 mg Product in the United States, including without

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limitation by (i) disseminating materials to any potential purchaser of the 500 mg Product in the United States indicating a price for the 500 mg Product in the United States applicable to wholesalers, distributors, retailers or government agencies, or (ii) by making any commitment, or undertaking any obligation, to sell the 500 mg Product to wholesalers, distributors, retailers or government agencies in the United States for a specified price or prices.

Mutual Representations and Warranties

20.3Each Party represents and warrants to the other as follows:

(a)it is a corporation (in the case of Depomed), or a society with restricted liability (in the case of BLS) duly organized and validly existing under the laws of the state of its organization;

(b)it has the complete and unrestricted power and right to enter into this Agreement and to perform its obligations hereunder;

(c)this Agreement has been duly authorized, executed and delivered by such Party and constitutes a legal, valid and binding obligation of such Party enforceable against such Party in accordance with its terms except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, receivership, moratorium, fraudulent transfer, or other similar laws affecting the rights and remedies of creditors generally and by general principles of equity;

(d)the execution, delivery and performance of this Agreement by such Party does not conflict with any agreement, instrument or understanding, oral or written, to which such Party is a party or by which such Party may be bound, nor violate any law or regulation of any court, governmental body or administrative or other agency having authority over such Party;

(e)all consents, approvals and authorizations from all governmental authorities or other third parties required to be obtained by such Party in connection with the execution and delivery of this Agreement have been obtained;

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(f)no person or entity has or will have, as a result of the transactions contemplated by this Agreement, any right, interest or valid claim against or upon such Party for any commission, fee or other compensation as a finder or broker because of any act by such Party or its agents; and

(g)it has not entered into any agreement with any third party that is in conflict with the rights granted to the other pursuant to this Agreement.

20.4EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, EACH OF DEPOMED AND BLS HEREBY DISCLAIMS ALL CONDITIONS, OTHER WARRANTIES AND STATEMENTS IN RESPECT OF THE 1000MG PRODUCT OR THE 500MG PRODUCT, WHETHER EXPRESS OR IMPLIED, BY STATUTE, CUSTOM OF THE TRADE OR OTHERWISE (INCLUDING, WITHOUT LIMITATION, ANY SUCH CONDITION, WARRANTY OR STATEMENT RELATING TO THE DESCRIPTION OR QUALITY OF THE EACH OF THE 1000MG PRODUCT AND THE 500MG PRODUCT, ITS MERCHANTABILITY OR ITS FITNESS FOR A PARTICULAR PURPOSE OR USE UNDER ANY CONDITIONS) AND ANY SUCH CONDITION, WARRANTY OR STATEMENT IS HEREBY DISCLAIMED BY EACH OF DEPOMED AND BLS AND EXCLUDED

Product Recall.

20.5In the event that any 1000mg Product should be alleged or proven not to meet the Specifications, Depomed shall notify BLS promptly, and both Parties shall cooperate fully regarding the investigation and disposition of any such matter. If Depomed should deem it appropriate to recall any 1000mg Product and such recall is due to any negligence or breach of warranty by BLS, then BLS agrees, upon substantiation thereof, to bear all reasonable direct costs associated with said recall, including refund of the purchase price for such 1000mg Product and the actual cost of conducting the recall in accordance with the recall guidelines of the applicable governmental authority. Depomed shall in all events be responsible for conducting any such recalls with respect to the 1000mg Product and shall maintain records of all sales of 1000mg Product and customers

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sufficient to adequately administer any such recall, for a period of five years after expiration or termination of this Agreement.

21.TECHNOLOGY TRANSFER TO DEPOMED

21.1In fulfillment of the obligations of BLS under Section 16.2(b), and at Depomed’s request upon reasonable notice, during normal business hours, BLS shall provide not more than three (3) people who are in BLS’s reasonable determination fully qualified with respect to and familiar with the procedures and processes used in the Manufacture of the 1000mg Product, for a cumulative period of not more than ten (10) business days each, to provide or to cause to be provided to Depomed at the facilities of Depomed, its licensee or its contract manufacturer, the assistance and Know-How required pursuant to Section 16.2 to assist Depomed, it’s licensee or its contract manufacturer, in the Manufacture of the 1000mg Product in the Territory and to observe and assist at no cost to Depomed in the Manufacture by Depomed, at Depomed’s expense, of three (3) pivotal batches of the 1000mg Product. BLS shall not be required to update any dossiers or other files provided to Depomed as part of the assistance to be provided to Depomed pursuant to this Article 21 beyond what is required to put such dossiers or files in compliance with the then current Laws of the Territory. The obligations of BLS to provide technical assistance under this Section 21.1 shall expire two (2) years after Depomed’s first request for documents or information under Section 16.2(b).

22.INDEMNIFICATION

By BLS

22.1BLS shall defend, indemnify and hold Depomed and its Affiliates and sublicensees, and each of their respective directors, officers and employees, harmless from and against any and all third party claims, suits or demands for liability, damages, losses, costs and expenses (including the reasonable costs and expenses of attorneys and other professionals) with respect to death or injury to person or damage to property (collectively, “Claims”) arising from (a) the manufacture of the 1000mg Product by BLS,

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its Affiliates, sublicensees, distributors, or agents in a manner that does not meet the Specifications, (b) a material breach of BLS’s representations and warranties set forth in Article 20 or (c) BLS’s negligence or willful misconduct, except to the extent such Claims arise out of any of the conditions specified in Section 22.2 below.

By Depomed

22.2Depomed shall defend, indemnify and hold BLS, its Affiliates and their respective directors, officers and employees, harmless from and against any and all Claims, arising out of (a) the use, handling, promotion, marketing, or distribution of 1000mg Product by Depomed, its Affiliates, sublicensees, distributors, or agents, (b) a material breach of Depomed’s representations or warranties set forth in Article 20 or (c) Depomed’s negligence or willful misconduct, except to the extent such Claims arise out of any of the conditions specified in Section 22.1 above.

Costs and Expenses

22.3As the Parties intend complete indemnification, all costs and expenses of enforcing any provision of this Section 22 shall also be reimbursed by the indemnifying Party.

Procedure

22.4A person or entity that intends to claim indemnification under this Section 22 (an “Indemnitee”) shall promptly notify the other Party (the “Indemnitor”) of any Claim in which the Indemnitee intends to claim such indemnification, and the Indemnitor shall assume the defense thereof whether or not such Claim is rightfully brought. The indemnity provided for under this Section 22 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Indemnitor, which consent shall not be withheld or delayed unreasonably. The Indemnitee, and its employees and agents, shall cooperate fully with the Indemnitor and its legal representatives in the investigations and defense of any Claim.

22.5EXCEPT FOR THE PARTIES’ INDEMNIFICATION OBLIGATIONS PROVIDED FOR HEREIN, UNDER NO CIRCUMSTANCES WILL EITHER PARTY BE LIABLE FOR ANY SPECIAL, INCIDENTAL, INDIRECT, PUNITIVE OR CONSEQUENTIAL

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DAMAGES, COSTS OR EXPENSES (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, LOST REVENUES AND/OR LOST SAVINGS), ARISING UNDER THIS AGREEMENT (OTHER THAN ARTICLE 21 HEREOF), EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, COSTS OR EXPENSES.

23.CONFIDENTIALITY

23.1Except as specifically authorized by this Agreement, each Party shall, for the term of this Agreement and for five years after the expiration or termination of this Agreement, keep confidential, not disclose to others and use only for the purposes authorized herein all Proprietary Information provided by the other under this Agreement; provided, however, that the foregoing obligations of confidentiality shall not apply to the extent that any such information is (i) already known to the recipient at the time of disclosure as evidenced by its prior written records; (ii) published or publicly known prior to or after disclosure other than through unauthorized acts or omissions of the recipient; (iii) disclosed in good faith to the recipient by a Third Party entitled to make such disclosure; or (iv) independently developed by or on behalf of the recipient without recourse to the disclosure herein as documented in writing. Notwithstanding the aforesaid, the recipient may disclose Proprietary Information to (i) governmental agencies as required by law, (ii) vendors and clinical investigators having a need to know and as may be necessary for the recipient to perform its obligations hereunder or (iii) to Third Parties with a need to know such Proprietary Information in connection with a debt financing, equity financing or other business arrangement, but only in each of the foregoing cases if such disclosure to vendors, clinical investigators (where practicable) and Third Parties other than governmental agencies is in accordance with a written agreement imposing essentially the same obligation of confidentiality on such Party as is imposed upon the recipient hereunder.

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24.TERM; TERMINATION

Term

24.1The term of this Agreement shall commence on the Effective Date and shall continue in effect until the expiration or termination of the Manufacturing Transfer Agreement, unless terminated earlier as set forth in Section 16.2 or this Section 24.

24.2Either Party may terminate this Agreement upon 180 days’ written notice to the other Party at any time on or after the [***] anniversary of the date of Regulatory Approval of the 1000mg Product.

24.3At any time during the Term of this Agreement, either BLS or Depomed may terminate this Agreement with respect to the 1000mg Product, and BLS may terminate this Agreement with respect to the 500mg Product, if the other Party is in material breach or default in the performance or observance of any of the provisions of this Agreement applicable to it and relating to the product in respect of which termination of this Agreement is sought, and such breach or default is not cured within sixty days (or thirty days in the case of failure to make royalty or other payments due hereunder) after the giving of notice by the Party specifying such breach or default.

Termination for Cause

24.4At any time prior to the expiration of this Agreement, either Depomed or BLS may terminate this Agreement forthwith for cause, as “Cause” is described below, by giving written notice to the other Party. “Cause” for termination by one Party of this Agreement shall be deemed to exist if, with respect to the other Party:

(a)(i) a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect shall be instituted by such Party, or such Party shall consent to the entry of any order for relief in an involuntary case under any such law; (ii) a general assignment for the benefit of creditors shall be made by such Party; (iii) such Party shall consent to the appointment of or possession by a receiver, liquidation, trustee, custodian, sequestrator or similar official of the

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property of such Party or of any substantial part of its property; or (iv) such Party shall adopt a directors resolution in furtherance of any of the foregoing actions specified in this subparagraph (a); or

(b)a decree or order for relief by a court of competent jurisdiction shall be entered in respect of such Party in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, trustee, sequestrator or other similar official of such Party to wind up or liquidate its affairs, and any such decree or order shall remain unstayed or undischarged and in effect for a period of sixty days.

Technology Transfer

24.5BLS may terminate this Agreement on one hundred twenty (120) days’ notice in writing to Depomed on completion of the Technology Transfer contemplated by Section 16.2(b).

Survival

24.6Notwithstanding any other provisions of this Agreement, any liability or obligation of either Party to the other for acts or omissions prior to the termination or expiration of this Agreement shall survive the termination or expiration of this Agreement. Such termination or expiration shall not relieve either Party from obligations that are expressly indicated to survive termination or expiration of this Agreement, nor shall expiration or termination of this Agreement relieve Depomed from its obligation to pay BLS sums due in respect of the 1000mg or the 500mg Product shipped prior to termination or expiration of this Agreement. In addition, upon termination of this Agreement by BLS pursuant to Section 24.3 above for breach by Depomed, Depomed shall, at BLS’s option, purchase from BLS at a purchase price equal to the lowest price set out on Schedule 14.6 (for the 500mg Product) or Schedule 8.1 (for the 1000mg Product) manufactured by or on behalf of BLS for the purpose of satisfying purchase orders submitted by Depomed prior to the effective date of termination. The Parties’ rights and obligations under Articles 19 (so long as Depomed is Marketing the 1000mg Product in the Territory), 22 and 23 shall survive termination or expiration of this Agreement.

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25.PUBLICITY

25.1Neither Party will originate any publicity, news release, public comment or other public announcement, written or oral, whether to the press, to stockholders, or otherwise, relating to this Agreement, without the consent of the other Party, except for such announcement which, in accordance with the advice of legal counsel to the Party making such announcement, is required by law; provided, however, that each Party shall be entitled to refer publicly to the relationship of the Parties reflected in this Agreement (i.e., BLS as the developer and manufacturer of the 1000mg Product and Depomed as the exclusive marketer and distributor of the 1000mg Product in the Territory) in a manner that is not damaging to the business or reputation of the other Party. Except as otherwise permitted pursuant to the immediately preceding sentence, any Party making any announcement which is required by law will, unless prohibited by law, give the other Party an opportunity to review the form and content of such announcement and comment before it is made. Either Party shall have the right to make such filings with governmental agencies, including without limitation the United States Securities and Exchange Commission, as to the contents and existence of this Agreement as it shall reasonably deem necessary or appropriate. The Parties have agreed upon the form and content of a joint press release to be issued by the Parties following the execution of this Agreement.

26.ASSIGNABILITY

Assignment

26.1This Agreement may be assigned by either Party to an Affiliate or as part of the sale by either Party of all of its business of which this Agreement may be a part without the consent of the other Party; provided, however, that neither Party shall assign this Agreement to an Affiliate that is not reasonably capable of performing all of its obligations under this Agreement. Except as permitted by this Section 26.1, Depomed shall not assign any rights licensed to BLS under this Agreement. BLS may assign,

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CONFIDENTIAL TREATMENT REQUESTED

sublicense, subcontract or delegate, to any Affiliate of BLS reasonably capable of performing such obligations, all or part of the rights and obligations of BLS under this Agreement, but in no event shall such assignment, sublicensing, subcontracting or delegation be deemed to relieve BLS of its liabilities or obligations to Depomed under this Agreement. This Agreement may not otherwise be assigned by either Party without the prior written consent of the other Party, which consent shall not be unreasonably withheld.

Liability

26.2No assignment permitted by this Article 26 shall serve to release either Party from liability for the performance of its obligations hereunder.

27.NOTICES

Notices

27.1All notifications, demands, approvals and communications required to be made under this Agreement shall be given in writing and shall be effective when either personally delivered or sent by facsimile if followed by prepaid air express addressed as set forth below. The Parties hereto shall have the right to notify each other of changes of address during the Term of this Agreement.

if to BLS:

Biovail Laboratories International SRL

Chelston Park

Building 2, Collymore Rock

St. Michael BH1

Barbados, West Indies

Attention: Mr. Eugene Melnyk, President

Facsimile No.: (246) 437-7085

With a copy to:

Biovail Corporation

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7150 Mississauga Road

Mississauga, Ontario

L5N 8M5

Attention: Vice President and Associate General Counsel

Facsimile: 905 286 3744

if to Depomed:

Depomed, Inc.

1360 O’Brien Drive

Menlo Park, California  94025

Attention:  President

Facsimile:  (650) 462-9991

With a copy to:

Heller Ehrman LLP

275 Middlefield Road

Menlo Park, California  94025

Attention:  Matthew Gosling

Facsimile:  (650) 324-0638

Receipt

27.2Any such notice mailed as aforesaid shall be deemed to have been received by and given to the addressee on the date specified on the notice of receipt and delivery evidenced to the sender.

28.FORCE MAJEURE

Force Majeure Event

28.1In the event of any failure or delay in the performance by a Party of any provision of this Agreement due to acts beyond the reasonable control of such Party (such as, for example, fire, explosion, strike or other difficulty with workmen, shortage of transportation equipment, accident, act of God, or compliance with or other action taken to carry out the intent or purpose of any law or regulation), then such Party shall have such additional

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time to perform as shall be reasonably necessary under the circumstances. In the event of such failure or delay, the affected Party will use its diligent efforts, consistent with sound business judgment and to the extent permitted by law, to correct such failure or delay as expeditiously as possible.

Performance

28.2In the event that a Party is unable to perform by a reason described in Section 28.1 above, its obligation to perform under the affected provision of this Agreement shall be suspended during such time of nonperformance.

29.MISCELLANEOUS

Enforceability

29.1It is the desire and intent of the Parties that the provisions of this Agreement shall be enforced to the extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision of this Agreement which substantially affects the commercial basis of this Agreement shall be determined to be invalid or unenforceable, such provision shall be amended as hereinafter provided to delete therefrom or revise the portion thus determined to be invalid or unenforceable, such amendment to apply only with respect to the operation of such provision of this Agreement in the particular jurisdiction for which such determination is made. In such event, the Parties agree to use reasonable efforts to agree on substitute provisions, which, while valid, will achieve as closely as possible the same economic effects or commercial basis as the invalid provisions, and this Agreement otherwise shall continue in full force and effect. If the Parties cannot agree to such revision within sixty days after such invalidity or unenforceability is established, the matter may be submitted by either Party to arbitration as provided in this Agreement to finalize such revision.

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Entire Agreement

29.2This Agreement and the Manufacturing Transfer Agreement represent the entire agreement between the Parties concerning the Manufacture and Marketing of the 1000mg Product in the Territory, and the supply by BLS of the 500mg Product to Depomed (except as specifically noted herein) and supersedes all prior or contemporaneous oral or written agreements of the Parties. This agreement may be modified, amended or changed only by a written instrument signed and delivered by the Parties, with clear intent to modify, amend or change the provisions hereof.

Waiver

29.3The waiver by a Party of any single default or breach or succession of defaults or breaches by the other shall not deprive either Party of any right under this Agreement arising out of any subsequent default or breach.

Governing Law

29.4All matters affecting the interpretation, validity, and performance of this Agreement shall be governed by the laws of the State of New York without regard to that state’s conflict of laws rules or principles.

Independent Contractors

29.5Nothing in this Agreement authorizes either Party to act as agent for the other Party as to any matter. The relationship between BLS and Depomed is that of independent contractors.

Counterparts

29.6This Agreement may be executed in several counterparts, each of which shall be deemed to be an original.

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Inconsistency

29.7If there is any inconsistency between the provisions of this Agreement and any other document passing between the Parties, including, but not limited to purchase orders, the provisions of this Agreement shall control and be determinative.

Arbitration

29.8Any and all disputes between the Parties relating in any way to the entering into of this Agreement and/or the validity, construction, meaning, enforceability, or performance of this Agreement or any of its provisions, or the intent of the Parties in entering into this Agreement, or any of its provisions arising under this Agreement shall be settled by binding arbitration. Such arbitration shall be conducted at New York, New York, in accordance with the rules then pertaining of the American Arbitration Association with a panel of three arbitrators. Each Party shall select one arbitrator and the two selected arbitrators shall select the third arbitrator. If the two selected arbitrators cannot agree on a third arbitrator then the American Arbitration Association shall select said arbitrator from the National Panel of Arbitrators. Reasonable discovery as determined by the Arbitrators shall apply to the arbitration proceeding. The law of the State of New York shall apply to the arbitration proceedings. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The successful Party in such arbitration, in addition to all other relief provided, shall be entitled to an award of all its reasonable costs and expenses including attorney costs. Both Parties agree to waive, and the Arbitrators shall have no right to award, punitive damages in connection with an arbitration proceeding hereunder.

[signature page follows]

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized officers as of the date and year first above written.

DEPOMED, INC.
By:	/s/ Carl A. Pelzel
Name:			Carl A. Pelzel
Title:		Executive Vice President & COO
BIOVAIL LABORATORIES
INTERNATIONAL SRL
By:	/s/ John A.R. McCleery
Name:			John A.R. McCleery
Title:		Vice President, General Manager

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EXHIBIT A

SPECIFICATIONS

Extended release formulation of metformin hydrochloride in the form of a 1000mg tablet manufactured using BLS’s AQ formulation technology, packaged in bottles of 90 or 500 (bottles of 21 in the case of samples) for distribution to the trade, tested in accordance with, and complying with, the requirements of the NDA, and including an approved product outsert containing approved product labeling.

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Schedule 1.27

Work Plan

1000mg Product Work Plan
Activity	Status/Timing
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]

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CONFIDENTIAL TREATMENT REQUESTED

Schedule 8.1

Supply Prices

Sales by Depomed

(as of the Effective Date and subject to adjustment in accordance with Section 8.12)

Net Selling Price per Tablet	Per tablet Supply Price	PPI Multiplier
[***]	[***]	[***]
[***]	[***]	[***]
[***]	[ ***]	[***]
[***]	[***]	[***]
[***]	[***]	[***]
[***]	[ ***]	[***]
[***]	[ ***]	[***]

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CONFIDENTIAL TREATMENT REQUESTED

Schedule 8.2

Supply Prices

Sales by Depomed’s Distributor

(as of the Effective Date and subject to adjustment in accordance with Section 8.12)

Revenue from 3rd party /tablet	Per tablet Supply Price	PPI Multiplier
[***]	[***]	[***]
[***]	[***]	[***]
[***]	[ ***]	[***]
[***]	[***]	[***]
[***]	[ ***]	[***]
[***]	[***]	[***]
[***]	[ ***]	[***]
[***]	[ ***]	[***]

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CONFIDENTIAL TREATMENT REQUESTED

Schedule 8.4

Supply Prices

if no Valid Claim

(as of the Effective Date and subject to adjustment in accordance with Section 8.12)

Net Selling Price per Tablet	Per tablet Supply Price	PPI Multiplier
[***]	[***]	[***]
[***]	[***]	[***]
[***]	[ ***]	[***]
[***]	[***]	[***]
[***]	[ ***]	[***]
[***]	[***]	[***]
[***]	[***]	[***]

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CONFIDENTIAL TREATMENT REQUESTED

Schedule 8.5

Supply Prices

for Samples

(as of the Effective Date and subject to adjustment in accordance with Section 8.12)

Supply Price per tablet	PPI Multiplier
[***]	[***]

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CONFIDENTIAL TREATMENT REQUESTED

Schedule 8.8

Banking Information

BIOVAIL LABORATORIES INTERNATIONAL SRL
Wire Transfer Instructions
Bank:	[***]
Address:	[***]
	[***]
ABA No:	[***]
Account Name:	[***]
Account No:	[***]
Currency:	United States Dollars
Amount:	US$
Payment Details:

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Schedule 14.6

Supply Price of 500mg Product

[***]

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EX-10.23

Exhibit 10.23

CONFIDENTIAL TREATMENT REQUESTED

EXECUTION COPY

‘MANUFACTURING TRANSFER AGREEMENT
(Controlled Release Metformin Formulations — USA)

DEPOMED, INC.
a company organized under the laws of California, USA
with offices at
1360 O’Brien Drive
Menlo Park,
California, 94025

AND:

BIOVAIL LABORATORIES INTERNATIONAL SRL
a Barbados society with restricted liability,
whose head office is
Chelston Park
Building 2, Collymore Rock
St. Michael BH1
Barbados, West Indies

Biovail – Depomed Manufacturing Transfer Agreement

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CONFIDENTIAL TREATMENT REQUESTED

Contents

1.		DEFINITIONS	2
2.		1000MG PRODUCT LICENSES	7
	PATENT LICENSE		7
	TRADEMARK LICENSE		7
	RESERVATION OF RIGHTS		8
	EXPORTATION		8
3.		TRANSFER OF NDA	9
	TRANSFER OF TECHNICAL INFORMATION		9
	MANUFACTURING OF THE 500MG PRODUCT		11
4.		ROYALTIES	11
	NO ROYALTIES ON CERTAIN PRODUCTS		11
	ROYALTIES ON 1000MG PRODUCT		11
	ROYALTIES ON 500MG PRODUCT		12
	REDUCTION OF ROYALTIES		12
	ROYALTY REPORTS AND PAYMENTS		13
	RECORDS AND AUDITS		13
5.		PATENTS, INFRINGEMENT	14
	INFRINGEMENT		14
	INFRINGEMENT OF THIRD PARTY PATENTS		15
6.		OWNERSHIP OF INVENTIONS AND KNOW-HOW	16
	OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS		16
	DISCLOSURE OF INVENTIONS		17
	FILING AND PROSECUTION OF PATENT APPLICATIONS BY DEPOMED		17
	FILING AND PROSECUTION OF PATENT APPLICATIONS BY BLS		18
7.		REPRESENTATIONS AND WARRANTIES; NON-COMPETITION	19
	REPRESENTATIONS AND WARRANTIES OF BLS		19
	MUTUAL REPRESENTATIONS AND WARRANTIES		20
	NON-COMPETITION		20

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8.		INDEMNIFICATION		21
	INDEMNIFICATION OF BLS			21
	INDEMNIFICATION OF DEPOMED			22
9.		CONFIDENTIALITY		23
10.			TERM	24
11.			EXPIRY AND TERMINATION	25
12.			PUBLICITY	27
13.			ASSIGNABILITY	27
14.			PATENT LIFE EXTENSION	28
15.			NOTICES	28
16.			FORCE MAJEURE	29
17.			MISCELLANEOUS	30

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MANUFACTURING TRANSFER AGREEMENT
(Controlled Release Metformin Formulations — USA)

THIS MANUFACTURING TRANSFER AGREEMENT is made as of the 13^th day of December, 2005, by and between

DEPOMED, INC.
a company organized under the laws of California, USA
with offices at
1360 O’Brien Drive
Menlo Park,
California, 94025

(Hereinafter referred to as “Depomed”)

AND:

BIOVAIL LABORATORIES INTERNATIONAL SRL
a Barbados society with restricted liability,
whose head office is
Chelston Park
Building 2, Collymore Rock
St. Michael BH1
Barbados, West Indies

(Hereinafter referred to as “BLS”)

RECITALS

A.BLS is the owner of original processes, a patent application and know-how for the development and manufacture of oral drug delivery systems which form the basis of the 1000mg Product (as defined herein).

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B.BLS has developed and may further develop products using proprietary BLS drug delivery technology, including without limitation as contemplated by the Supply Agreement.

C.BLS has agreed to assign to Depomed the Regulatory Approval obtained by BLS or its Affiliate for the 500mg Product, which Regulatory Approval will be supplemented with an Application for Regulatory Approval for the 1000mg Product.

D.Depomed desires to obtain rights to market and sell the 1000mg Product in the Territory.

NOW, THEREFORE, in consideration of the agreements and covenants hereinafter set forth herein and intending to be legally bound hereby, the parties hereto covenant and agree as follows:

1.DEFINITIONS.

The terms defined in this Article 1 shall, for all purposes of this Agreement, have the following meanings:

1.1“1000mg Product” shall mean the once-daily oral formulation of the Active Ingredient in combination with BLS’s proprietary drug delivery technology described in the Patent Rights and developed pursuant to the Work Plan.

1.2“500mg Product” shall mean the once daily oral tablet formulation of the Active Ingredient in a 500 mg strength using the AcuForm Delivery Technology that is the subject of NDA No. 21-748 filed with the FDA on April 27, 2004 (as such NDA may be amended or supplemented subsequent to the Effective Date).

1.3“Active Ingredient” shall mean the chemical compound known as metformin HCl.

1.4“Affiliate” shall mean any corporation or other entity that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with the designated party but only for so long as such relationship exists. For the purposes of this Section, “Control” shall mean ownership of at least fifty percent (or such lesser percent as may be the maximum that may be owned by foreign interests pursuant to the laws of the country of incorporation) of the shares of stock entitled to vote for directors in the case of a corporation and at least fifty percent (or such lesser percent as may be the

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maximum that may be owned by foreign interests pursuant to the laws of the country of domicile) of the interests in profits in the case of a business entity other than a corporation.

1.5“Application for Regulatory Approval”shall mean an application made to a Regulatory Authority in any country for permission to Market a pharmaceutical product in that country.

1.6“AcuForm Delivery Technology” shall mean Depomed’s delivery system designed to be retained in the stomach for an extended period of time while that delivery system delivers the incorporated drug or drugs, and includes the Depomed Patent Rights.

1.7“Depomed Revenues” shall mean for any calendar quarter, the aggregate of all amounts received, or receivable in future periods, by Depomed or its Affiliates and assigns in respect of sales of 1000mg Product by Distributors made in that calendar quarter, or in respect of sales by Depomed’s licensees of the 500mg Product made in that calendar quarter, as applicable, including without limitation supply prices, royalties, trademark license fees, handling fees and commissions, less the following deductions actually allowed and taken and not otherwise recovered by or reimbursed to Depomed or its Affiliates and assigns in respect of such amounts:  (i) rebates, credits or other reimbursements actually paid; and (ii) amounts repaid or credited by reason of rejections, defects or returns or because of retroactive price reductions. Depomed Revenues shall not include amounts in respect of sales of 1000mg Product or 500mg Product between or among Depomed or its Affiliates or assigns.

1.8“Distributor” shall mean an entity designated by Depomed to perform its distribution and Marketing activities with respect to the 1000mg Product in the Territory, in accordance with the terms of this Agreement.

1.9“Effective Date” shall mean the date first written on page 1 of this Agreement.

THE SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

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1.10“FDA” shall mean the United States Food and Drug Administration or any successor United States governmental agency performing similar functions with respect to pharmaceutical products.

1.11“Final Judgment” shall mean a judgment by a court of competent jurisdiction that is unappealed (and the time for appealing has expired) or is unappealable.

1.12“Invention” shall mean each of the 500mg Product and the 1000mg Product, any improvement to the 500mg Product or the 1000mg Product, any new use of the 500mg Product or the 1000mg Product, any new performance characteristic of the 500mg Product or the 1000mg Product, any new process used to Manufacture the 500mg Product or the 1000mg Product, or any step or steps in any such process, and includes all formulations of the 500mg Product or the 1000mg Product.

1.13“Know-How” shall mean all inventions, discoveries, trade secrets, improvements and information not in the public domain, whether or not patented or patentable (but excluding Patent Rights), together with all experience, data, formulas, procedures and results, and improvements thereon, now or hereafter developed or acquired by and proprietary or licensed with right to sublicense to BLS on the date hereof or which are developed or acquired during the term of and in connection with this Agreement, which relate to or are used in conjunction with the development, manufacture or use of 1000mg Product.

1.14“Knowledge” or “knowledge” shall mean, with respect to BLS, the actual knowledge of the executive officers of BLS, after reasonable inquiry directed to such employees of BLS who would reasonably be expected to have knowledge of relevant matters.

1.15“Manufacture” shall mean to process, prepare, make, and analyze, and Manufacturing and Manufactured shall have a corresponding meaning.

1.16“Market” shall mean to promote, distribute, package, label, market, advertise, sell or offer to sell, and Marketing shall have a corresponding meaning.

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1.17“NDA” shall mean a New Drug Application or equivalent application for approval to market submitted to the FDA.

1.18“Net Sales” shall mean the total of all amounts invoiced by Depomed, its Affiliates, Distributors, licensees and assigns for 1000mg Product and 500mg Product, as applicable, sold to independent, unrelated third parties in the Territory in bona fide arms-length transactions, less the following deductions actually allowed and taken by such third parties and not otherwise recovered by or reimbursed to Depomed or its Affiliates, sub-licensees and assigns: (i) trade, cash and quantity discounts in such amounts as are customary in the trade; (ii) rebates, credits or other reimbursements actually paid; (iii) taxes on sales (such as sales or use taxes) to the extent added to the sales price and set forth separately as such in the total amount invoiced; (iv) value added taxes when included as part of the sales price and not refunded to the payor; (v) freight, insurance, and other transportation charges to the extent added to the sales price and set forth separately as such in the total amount invoiced; and (vi) amounts repaid or credited by reason of rejections, defects or returns or because of retroactive price reductions. Net Sales shall not include sales of a 1000mg Product or a 500mg Product between or among Depomed, its Affiliates, Distributors, licensees or assigns.

1.19“Party” shall mean BLS or Depomed, and “Parties” shall mean BLS and Depomed.

1.20“Patent Rights” shall mean any patent application or issued patent covering 1000mg Product or any improvement to 1000mg Product or any methods for making or using 1000mg Product or any improvement to such methods, which patents or patent applications are owned by or licensed to BLS as of the date hereof or which are developed or acquired by or licensed to BLS during the term of this Agreement, in the Territory, including any addition, continuation, continuation-in-part, or division thereof or any substitute application thereof, any reissue or extension of any such patent, and any confirmation patent, registration patent revalidation patent, or patent of addition based on

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any such patent, and includes without limitation the United States patent application set forth in Schedule 1.20.

1.21“Regulatory Approval” shall mean the permission or consent granted by any relevant Regulatory Authority for the Marketing of 1000mg Product in the Territory, and includes all of the contents of the Application for Regulatory Approval as approved by that Regulatory Authority, and any Drug Master File referenced by that Application for Regulatory Approval.

1.22“Regulatory Authority” shall mean, in respect of any country, any government or other agency responsible for the issuance of approval to Market pharmaceutical products in or sold from that country, including without limitation the FDA.

1.23“Regulatory Data” shall mean all information and data necessary to obtain or maintain Regulatory Approval for 1000mg Product in the Territory, including post-approval reports, filings and submissions and shall include, but not be limited to, any Clinical Information required for that purpose.

1.24“Supplemental NDA” shall mean the supplemental NDA related to the 1000mg Product to be developed and submitted in accordance with the Work Plan.

1.25“Supply Agreement” shall mean the Supply Agreement, dated as of the Effective Date, between Depomed and BLS relating, inter alia, to the 1000mg Product.

1.26“Technical Information” shall mean all Know-How, and all trade secrets, inventions, data and technology relating to the 500mg Product or the 1000mg Product, and any improvements and modifications to any of the foregoing, and includes, without limitation, processes and analytical methodology used in the development, testing, analysis and manufacture of the 500mg Product or the 1000mg Product, and medical, clinical, toxicological and other scientific data relating to the 500mg Product or the 1000mg Product.

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1.27“Territory” shall mean the United States and its possessions, including Puerto Rico.

1.28“Trademark” shall mean the “Glumetza” trademark owned by BLS.

1.29“Valid Claim” shall mean a claim of (a) an unexpired issued patent falling within Patent Rights, which claim shall not have been withdrawn, cancelled, disclaimed or held invalid by a court, tribunal, arbitrator or governmental agency of competent jurisdiction in a final or unappealed or unappealable decision or (b) of any patent application that has not been cancelled, withdrawn or abandoned, or has been pending for more than seven years.

1.30“Work Plan” shall mean the work plan related to the development of the 1000mg Product, as referred in the Supply Agreement.

2.1000MG PRODUCT LICENSES

Patent License

2.1Subject to the provisions of Section 2.4, BLS hereby grants to Depomed an exclusive license in the Territory under Patent Rights, with the right to grant sublicenses of the same scope as the license granted by this Agreement, (except that any sublicensee shall have no right to grant further sublicenses), to Manufacture, have Manufactured, Market, use and sell 1000mg Product.

Trademark License

2.2Subject to the provisions of Section 2.4, BLS hereby grants to Depomed an exclusive license in the Territory to the Trademark for the purpose of Marketing the 1000mg Product in the Territory. Except as set forth in the preceding sentence, nothing herein shall be deemed to give either Party any rights to the trademarks of the other Party.

2.3The licenses granted to Depomed pursuant to sections 2.1 in respect of the Manufacture of the 1000mg Product shall become operative only when Depomed acquires the right to

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grant a sublicense to a third party supplier pursuant to Section 16.2(b) of the Supply Agreement.

Reservation of Rights

2.4BLS reserves to itself the right

(a)to Manufacture the 1000mg Product for supply to Depomed pursuant to the terms of the Supply Agreement, and to grant licenses to its Affiliates and to qualified third parties the right to Manufacture the 1000mg Product for that purpose; and

(b)to Manufacture the 1000mg Product in the Territory for Marketing outside the Territory.

Exportation

2.5To the extent legally permissible, Depomed shall use, and shall cause its Affiliates to use, commercially reasonable efforts to prevent the exportation of the 1000mg Product outside of the Territory. Depomed shall not, and shall cause its Affiliates not to, directly or indirectly, in any manner whatsoever, enter into or engage in the Marketing of the 1000mg Product outside the Territory, and shall not sell the 1000mg Product to any person or entity whom Depomed or an Affiliate of Depomed has reason to believe may sell or who, to the knowledge of Depomed or an Affiliate of Depomed, has in the past sold the 1000mg Product outside the Territory (any such sale, an “Unauthorized Sale”). Depomed shall promptly use commercially reasonable efforts to take any action reasonably available to Depomed, and shall within sixty (60) days after any Unauthorized Sale has come to the attention of Depomed or an Affiliate of Depomed, initiate all steps lawfully available to Depomed or that Affiliate in the Territory, to prevent such Unauthorized Sales.

2.6BLS and its Affiliates in the United States, shall use commercially reasonable efforts to take steps lawfully and reasonably available to them to prevent or reduce Unauthorized Sales.

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3.TRANSFER OF NDA

3.1As soon as practicable but in no event later than forty-five (45) days after the Effective Date, BLS shall provide Depomed with letters addressed to FDA authorizing and requesting that each of the NDA and IND owned by BLS and pertaining to the 500mg Product and 1000mg Product be transferred, in its entirety, to the name of Depomed. BLS shall provide Depomed with a copy of the letter and Depomed shall immediately send a letter to FDA accepting the NDA and IND. The Parties acknowledge that, prior to the transfer to Depomed contemplated by this Section 3.1:  (i) the CMC Section of the NDA related to the 1000mg Product will be transferred to a drug master file in order to preserve the confidentiality of certain BLS proprietary information reflected therein, and (ii) certain information related to a solvent-based 1000 mg extended release metformin formulation currently included within the NDA covering the 500mg Product will be removed from the NDA or transferred to a drug master file.

Transfer of Technical Information

3.2The Parties acknowledge that BLS has generated certain Technical Information related to the 500mg Product subsequent to the execution of the Prior Agreement. Accordingly, BLS shall at the written request of Depomed (a) disclose and transfer to Depomed all of the Technical Information in the possession of BLS and (b) provide to Depomed such training and support at the facilities of Depomed, its licensee or its contract manufacturer, as Depomed, its licensee or its contract manufacturer reasonably requires to efficiently and economically optimize use of the Technical Information related to the 500mg Product in the Manufacture and Marketing of the 500mg Product (the “Technology Transfer”). Depomed shall arrange for access to the facilities of any licensee or contract manufacturer, at its own expense, to enable such disclosure and transfer to be conducted. BLS shall provide sufficient personnel to assist in the Technology Transfer as described in this Article 3, and may direct or authorize any contract manufacturer of BLS to provide any part of such Technology Transfer. BLS and Depomed shall cooperate to ensure that

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the Technology Transfer may be completed as expeditiously as possible, but not later than [***].

3.3The training and support to be provided by BLS to Depomed for the Manufacture of the 500mg Product shall include, without limitation:

(a)training and support in all of the methods necessary to practice the Technical Information in the analysis, formulation and manufacturing of the 500mg Product;

(b)demonstration of, and support and training in, the manufacturing processes, analytical testing, packaging and QC using the Technical Information at that manufacturing facility of BLS or any third party contract manufacturer, and

(c)technical support for the successful manufacturing by Depomed of three validation batches of the 500mg Product.

3.4In fulfillment of the obligations of BLS under Section 3.3, and at Depomed’s request upon reasonable notice, during normal business hours, BLS shall provide not more than three (3) people who are in BLS’s reasonable determination fully qualified with respect to and familiar with the procedures and processes used in the Manufacture of the 500mg Product, for a cumulative period of not more than ten (10) business days each, to provide or to cause to be provided to Depomed the assistance and Know-How required pursuant to Section 3.3 to enable Depomed to Manufacture the 500mg Product in the Territory and to observe and assist in the Manufacture by Depomed, at Depomed’s own expense, of three (3) pivotal batches of the 500mg Product, at no cost to Depomed. BLS shall not be required to update any dossiers or other files provided to Depomed as part of the assistance to be provided to Depomed pursuant to this Article 3 beyond what is required to put such dossiers or files in compliance with the then current Laws of the Territory. The obligations of BLS to provide technical assistance under Section this Article 3 shall expire [***] years after Depomed’s first request for documents or information under Section 3.3.

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Manufacturing of the 500mg Product

3.5BLS will assist Depomed in facilitating supply arrangements between Depomed and BLS’s tablet and active pharmaceutical ingredient manufacturers of the 500mg Product, and other suppliers to BLS involved in the manufacture or packaging of the 500mg Product. Concurrently with the execution of this Agreement, BLS shall have eliminated any conditions in its supply agreements related to the 500mg Product that preclude any BLS supplier from manufacturing either the 500mg Product or active pharmaceutical ingredient for Depomed, and has provided Depomed with evidence of the elimination of any such provision.

4.ROYALTIES

No Royalties on Certain Products

4.1Notwithstanding the provisions of Sections 4.2 to 4.7 below, no royalties shall be payable on any Net Sales of, or on any Depomed Revenues relating to, any quantities of the 1000mg Product supplied to Depomed pursuant to the provisions of the Supply Agreement.

Royalties on 1000mg Product

4.2In consideration for the licenses granted herein, and subject to the other provisions of this Article 4 (including without limitation Section 4.1), Depomed shall pay to BLS an earned royalty equal to the lesser of:

(a)sixpercent of Net Sales which are Net Sales of 1000mg Product; and

(b)thirty percent of Depomed Revenues in respect of Net Sales which are of 1000mg Product.

4.3Subject to the provisions of Section 4.4, Depomed shall pay the earned royalties required by Section 4.2, in respect of the Net Sales (or, if applicable, Depomed Revenues) of the 1000mg Product in the Territory until:

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(a)the expiry of [***] from the first commercial sale of 1000mg Product in the Territory; or

(b)the 1000mg Product is no longer covered by a Valid Claim,

whichever is later.

4.4If at any time during the term of this Agreement, the 1000mg Product is not covered by a Valid Claim, and the ten year period referred to in Section 4.3(a) has not expired in the Territory, then the Net Sales (or, if applicable, Depomed Revenues) of the 1000mg Product in the Territory that are subject to payment of earned royalty shall be reduced to one-half of such actual Net Sales (or, if applicable, Depomed Revenues).

4.5Upon the expiration of the obligations of Depomed to make the royalty payments required by Section 4.2 in the Territory, the licenses granted to Depomed by Sections 2.1 and 2.2 shall be perpetual and fully paid-up.

Royalties on 500mg Product

4.6In consideration for the licenses granted herein, and subject to the other provisions of this Article 2.5 of this Agreement, Depomed shall pay to BLS an earned royalty of the lesser of:

(a)one percent of Net Sales which are Net Sales of 500mg Product; and

(b)five percent of Depomed Revenues in respect of Net Sales which are Net Sales of 500mg Product.

4.7Depomed shall pay the earned royalties required by Section 4.6, in respect of the Net Sales (or, if applicable, Depomed Revenues) of the 500mg Product in the Territory until the expiry of [***] from the first commercial sale of the 500mg Product in the Territory.

Reduction of Royalties

4.8In the event that a court or governmental agency compels Depomed to grant a sub-license to any third party for 1000mg Product under terms or conditions more favorable than

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those contained herein, Depomed shall automatically have the benefit of the more favorable terms with respect to all sales of 1000mg Product in the Territory wherein such third-party compulsory license has been granted.

Royalty Reports and Payments

4.9Within ten (10) days after the end of any calendar month in which Depomed has made any sales of 1000mg Product not purchased pursuant to the Supply Agreement, Depomed shall deliver a report to BLS specifying the gross sales of the 1000mg Product sold by Depomed and its Distributors in that calendar month in the Territory.

4.10Within fifteen (15) days after the end of any calendar quarter in which Depomed has made any sales of 1000mg Product not purchased pursuant to the Supply Agreement, Depomed shall submit to BLS a report setting forth separately the Net Sales of 1000mg Product (and, if applicable, the Depomed Revenues in respect of Net Sales of 1000mg Product) and the 500mg Product (and, if applicable, the Depomed Revenues in respect of Net Sales of 500mg Product) sold during said calendar quarter in the Territory, the calculation of earned royalties payable for such calendar quarter, and the basis for any reduction in those earned royalties taken pursuant to this Agreement. Earned royalty payments hereunder shall be made in United States dollars within forty-five days following the end of each calendar quarter, and each payment shall include royalties which shall have accrued during said calendar quarter.

4.11No multiple royalties shall be payable because 1000mg Product, its manufacture, use or sale is or shall be covered by more than one Patent Right. No multiple royalties shall be payable because 500mg Product, its manufacture, use or sale is or shall be covered by more than one Depomed Patent Right.

Records and Audits

4.12Depomed and its Affiliates shall keep and maintain, and shall cause its Distributors, licensees and assigns to keep and maintain, records of Net Sales and Depomed Revenues.

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Such records shall be open to inspection by BLS or, in the case of Distributors, licensees and assigns, by Depomed on behalf of BLS, at any mutually agreeable time during normal business hours within two years after the royalty period to which such records relate by an independent certified public accountant reasonably acceptable to Depomed but selected by BLS. Said accountant shall have the right to examine the records kept pursuant to this Agreement and report findings of said examination of records to BLS only insofar as it is necessary to evidence any error on the part of Depomed. This right of inspection shall be exercised only once for any calendar year. The cost of such inspection shall be borne by BLS unless the result of such examination is the determination that Net Sales (or, if applicable, Depomed Revenues) have been understated by at least three percent for any calendar year in which event Depomed shall bear the reasonable cost of such inspection.

5.PATENTS, INFRINGEMENT

Infringement

5.1If either Party determines that any of the Patent Rights have been infringed by the Manufacture or Marketing in the Territory of a product containing metformin as its sole active ingredient, such Party shall give to the other Party notice of such alleged infringement, in which event Depomed may at its discretion take such steps as it may consider necessary to prosecute such infringement. Depomed may not settle any such litigation in a manner that adversely affects the rights of BLS hereunder without the consent of BLS, which consent shall not be unreasonably withheld. BLS shall have the right, at its own expense, to be represented by counsel in any such litigation. If Depomed, after such notice, elects not to bring suit, it shall notify BLS of such election within thirty days after receipt of such notice and BLS shall then have the right to bring suit at its own expense. BLS shall also have the right to bring suit if Depomed fails to institute suit within ninety days from the date of the original notice of infringement by BLS. In furtherance and not in limitation of the foregoing provisions of this Section 5.1, BLS may at its discretion take such steps as it may consider necessary to prosecute any

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infringement of any patent or other intellectual property rights owned or Controlled by BLS by the Manufacture or Marketing outside of the Territory of any product containing metformin as the sole active ingredient, and Depomed shall have no right to prosecute, or otherwise participate in the prosecution of, any such infringement.

5.2In any litigation brought by Depomed under Section 5.1, Depomed shall notify BLS of the commencement of that litigation and shall have the right to use and sue in BLS’s name, and BLS shall have the right, at its own expense, to be represented by counsel. In any such litigation, BLS may elect by notice to Depomed to share equally with Depomed the costs of such litigation (including any costs incurred by BLS prior to the Effective Date) in exchange for the right to share equally with Depomed in any recovery of damages resulting from such litigation. Such election by BLS shall be made not later than 60 days from the date such litigation is commenced. Depomed may not settle any such litigation in a manner that adversely affects the rights of BLS hereunder without BLS’s consent, which consent shall not be unreasonably withheld.

5.3In any litigation brought by BLS following an election by Depomed pursuant to Section 5.1 not to bring suit, BLS shall notify Depomed of the commencement of that litigation and shall have the right to use and sue in Depomed’s name, and Depomed shall have the right, at its own expense, to be represented by counsel. In any such litigation, Depomed may elect by notice to BLS to share equally with BLS the costs of such litigation in exchange for the right to share equally with BLS in any recovery of damages resulting from such litigation. Such election by Depomed shall be made not later than 60 days from the date of the commencement of any such action. BLS may not settle any such litigation in a manner that adversely affects the rights granted to Depomed under this Agreement without Depomed’s consent.

Infringement of Third Party Patents

5.4In the event of a judgment in any suit relating to the 1000mg Product requiring Depomed to pay damages or a royalty in respect of the 1000mg Product to a third party or in the

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event of a settlement of such suit or threatened suit consented to by BLS (which consent shall not be unreasonably withheld) requiring damages or royalty payments to be made in respect of the 1000mg Product, the future royalty payments due to BLS pursuant to Sections 4.2, 4.3 and 4.4 in respect of the 1000mg Product shall be reduced by the full amounts due under the requirement of such Final Judgment or under the terms of such settlement, until the full amount of such judgment or settlement has been recovered by Depomed.

6.OWNERSHIP OF INVENTIONS AND KNOW-HOW

Ownership of Intellectual Property Rights

6.1Each of Depomed and BLS shall retain its rights in and/or title to all Inventions which it owned or controlled prior to the date hereof.

6.2All Inventions made by Depomed or by BLS in the performance of their respective obligations under the Prior Agreement, this Agreement, or the Work Plan shall be owned as follows:

(a)any such Inventions relating to the formulations of the 1000mg Product, to the BLS drug delivery technology described in the Patent Rights, or to any process for manufacturing the 1000mg Product shall belong to BLS; and

(b)any such Inventions relating to the clinical use of the 1000mg Product shall belong to the Party making such Invention.

6.3Depomed shall have the exclusive right to use, within the Territory, any Invention relating to the clinical use of the 1000mg Product that is subject to Section 6.2(b) and that is owned or controlled by BLS. BLS shall have the exclusive right to use, outside of the Territory, any Invention relating to the clinical use of the 1000mg Product that is subject to Section 6.2(b) and that is owned or controlled by Depomed.

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6.4The determination of inventorship for Inventions shall be made in accordance with applicable laws relating to inventorship set forth in the patent laws of the United States (Title 35, United States Code).

6.5Except as expressly provided in this Agreement, each joint owner may make, use, sell, keep, license, assign, or mortgage any jointly owned Inventions, and otherwise undertake all activities a sole owner might undertake with respect to such inventions, to the extent of the joint owner’s interest therein, without the consent of and without accounting to the other joint owner.

6.6Each of Depomed and BLS shall cause any inventor of any Invention employed by Depomed or BLS respectively to assign any and all rights that any such inventor may have in any such Invention to Depomed or to BLS, as contemplated by this Agreement, and shall at no further cost to Depomed execute any documents that may reasonably be required to apply for and to obtain any such patents.

Disclosure of Inventions

6.7Each of BLS and Depomed shall endeavour to advise the other of any Inventions and of any patent applications that it intends to file that may be subject to the provisions of this Article 6, as promptly as possible, to arrange, to the fullest extent possible, for simultaneous filing of applications where appropriate and to avoid as much as possible any disclosure that may be considered to be prior art to an application filed by the other Party. If at any time during the term of this Agreement it appears that any further agreement between the Parties is reasonably required to assist in obtaining patent protection for the 1000mg Product, the Parties shall act diligently and reasonably to negotiate the terms of, and enter into, such an agreement.

Filing and Prosecution of Patent Applications by Depomed

6.8Depomed shall have right and the responsibility for filing, prosecuting and maintaining patents and patent applications for all Inventions owned by Depomed.

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6.9Depomed shall advise BLS in writing of its plans to file patent applications for any such Invention, and of the countries in which Depomed intends to file such applications. BLS may at its own expense file an application for any Invention in any country in respect of which Depomed has not indicated it will file an application. Any such application filed by BLS and any patent issuing therefrom shall be filed in the name of the inventors or of Depomed and shall at the request of BLS be assigned to BLS.

Filing and Prosecution of Patent Applications by BLS

6.10BLS shall have right and the responsibility for filing, prosecuting and maintaining patents and patent applications for all Inventions owned by BLS in the Territory. BLS shall disclose to Depomed the complete texts of all patent applications filed by BLS that relate to the 1000mg Product owned by BLS, as well as all information received concerning the institution or possible institution of any interference, opposition, re-examination, reissue, revocation, nullification or any official proceeding involving such a patent application anywhere in the world. Depomed shall have the right to review all such pending applications and other proceedings and make recommendations to BLS concerning such applications. BLS shall keep Depomed promptly and fully informed of the course of patent prosecution or other proceedings relating to any such invention, and shall provide to Depomed copies of any substantive communications submitted to or received from patent offices throughout the world.

6.11Depomed shall have the right to assume responsibility for any patent or patent application filed in the Territory relating to the 1000mg Product that BLS intends to abandon or otherwise cause or allow to be forfeited. BLS shall give Depomed reasonable written notice prior to abandonment or other forfeiture of any patent or patent application so as to permit Depomed to exercise its rights under this Section at its own expense.

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7.REPRESENTATIONS AND WARRANTIES; NON-COMPETITION

Representations and Warranties of BLS

7.1BLS hereby warrants and represents to Depomed that:

(a)to BLS’s knowledge, BLS has full right, title, and interest in and to or the right to practice all presently existing Patent Rights, Know-How, and Technical Information relating to 1000mg Product;

(b)there are no outstanding written or oral agreements inconsistent with this Agreement; and

(c)to BLS’s knowledge, it is empowered and has the right to enter into this Agreement and to grant the licenses provided herein without burdens, encumbrances, restraints, or limitations of any kind which could adversely affect the rights of Depomed under this Agreement; and

(d)BLS has no knowledge of any patents or patent applications owned by a third party and not licensed to BLS that would be infringed by the practice of the presently existing Patent Rights, Know-How or Technical Information or by the Manufacture or Marketing of the 1000mg Product in the Territory nor has BLS received any claims by third parties with respect to such matters.

(e)BLS has no knowledge of any claim that any third party asserts ownership rights in any of the Patent Rights, Know-How, and Technical Information,

(f)BLS has no knowledge that BLS’s or its Affiliates’ use of any of the Patent Rights, Know-How, or Technical Information infringes any right of any third party.

(g)except for general disclosures that have not been and will not be in detail sufficient to enable the recipient to Manufacture the 1000mg Product, and to BLS’s knowledge, BLS’s Technical Information has not been disclosed to others, and will

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not be disclosed to persons other than Depomed, except pursuant to appropriate confidentiality agreements or to the extent disclosed in the patents, or as otherwise expressly permitted by this Agreement.

Mutual Representations and Warranties

7.2Each Party hereby represents and warrants to the other Party as follows:

(a)It is a corporation (or, in the case of BLS, a society with restricted liability) duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. It has all requisite power and authority to carry on its business and to own and operate its properties and assets. The execution, delivery and performance of this Agreement have been duly authorized by its Board of Directors;

(b)There is no pending or, to its knowledge, threatened litigation involving it which would have any material adverse effect on this Agreement or on its ability to perform its obligations hereunder; and

(c)There is no indenture, contract, or agreement to which it is a party or by which it is bound which prohibits or would prohibit the execution and delivery by it of this Agreement or the performance or observance by it of any material term or condition of this Agreement.

Non-Competition

7.3BLS covenants and agrees with Depomed that, during the term of this Agreement, BLS shall not, in the Territory, whether for its own or any Affiliate’s account or for the account or benefit of any third party, make, have made, use, import, offer for sale, sell, or otherwise commercialise any product that includes the Active Ingredient (or any other salt, chiral forms or metabolites thereof) as the sole active ingredient except as contemplated by this Agreement, or authorize, permit or assist any other person to do any of the foregoing, except as permitted by this Agreement.

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7.4The provisions of Section 7.3 shall not apply to the Manufacture or Marketing by BLS of the 1000mg Product if this Agreement is terminated by BLS with respect to the 1000mg Product, or if BLS acquires or re-acquires the right to the 1000mg Product from Depomed pursuant to this Agreement or to the Supply Agreement.

8.INDEMNIFICATION

Indemnification of BLS

8.1Depomed shall indemnify and hold harmless BLS and its officers, directors, employees and agents against and from any losses, damages, injuries, liabilities, claims, demands, settlement, judgments, awards, fines, penalties, taxes, fees, charges, or expenses (including reasonable attorneys’ fees) of BLS or any of its officers, directors, employees or agents arising from or relating to:

(a)The breach or inaccuracy in any material respect of any Depomed representation or warranty contained in Article 7 of this Agreement;

(b)Any claim that 1000mg Product packaging, labels, inserts and marketing and sales materials infringe a trademark, trade dress or copyright of a third party in the Territory (excluding any claim related to the Trademark);

(c)Any injury or alleged injury to any person (including death) or to the property of any person not a party hereto arising out of the gross negligence or intentional act or omission of Depomed or its employees or agents relating to the Marketing of 1000mg Product;

(d)The Marketing of 1000mg Product by Depomed, its Affiliates, its sublicensees, distributors and customers; or

(e)The enforcement of BLS’s indemnification rights hereunder.

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Indemnification of Depomed

8.2BLS shall indemnify and hold harmless Depomed and its officers, directors, employees and agents against and from any losses, damages, injuries, liabilities, claims, demands, settlement, judgments, awards, fines, penalties, taxes, fees, charges or expenses (including reasonable attorneys’ fees) of Depomed or a third party arising from or relating to:

(a)The breach or inaccuracy in any material respect of any BLS representation, warranty or covenant contained in Article 7 of this Agreement;

(b)Any injury or alleged injury to any person (including death) or to the property of any person not a party hereto arising out of the gross negligence or intentional act or omission of BLS or its employees or agents relating to 1000mg Product;

(c)Any injury or alleged injury to any person (including death) or to the property of any person not a party hereto arising out of the use of BLS’s proprietary drug delivery technology in the 1000mg Product;

(d)The CMC section of the NDA for the 1000mg Product;

(e)The manufacture of the 1000mg Product by or on behalf of BLS or its Affiliates; or

(f)The enforcement of Depomed’s indemnification rights hereunder.

8.3If any indemnified Party intends to claim indemnification under this Article 8 it shall promptly notify the other Party in writing of such alleged claim. The indemnifying Party shall have the sole right to control the defense and settlement thereof. The indemnified Party shall cooperate with the indemnifying Party and its legal representatives in the investigation of any action, claim or liability covered by this Article 8. The indemnified Party shall not, except at its own cost, voluntarily make any payment or incur any expense with respect to any claim or suit without the prior written consent of the indemnifying Party. In addition, the indemnifying Party shall be subrogated to the rights

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of the indemnified Party against any third party, and such indemnified Party hereby assigns to the indemnifying Party all claims, causes of action and other rights that the indemnified Party may then have against any third party, including Affiliates and sublicensees, with respect to the claim, suit or proceeding. Conversely, and without in any way limiting the obligation of either Party to indemnify the other Party as herein provided, to the extent that any Party shall fail to perform its indemnification obligations under Section 8.1 or Section 8.2, such Party owing a duty of indemnification hereby assigns to the indemnified Party to whom indemnification is owed all claims, cause of action and other rights that the Party owing such duty may then have against any third party, including Affiliates and sublicensees with respect to the claim, suit or proceeding.

9.CONFIDENTIALITY

9.1Each of Depomed and BLS shall maintain all Technical Information and Clinical Information, and any other information about this Agreement and the businesses or affairs of the other relating to each of the 500mg Product and the 1000mg Product, in confidence, and shall not at any time disclose any such information to persons other than their Affiliates, officers, employees, agents, consultants, advisers, and licensees and potential sub-licensees, except where permitted by this Agreement, and only to the extent necessary for the purposes of this Agreement. Depomed and BLS shall use such information only to the extent necessary or permitted by this Agreement, or required by law. Depomed and BLS shall take all reasonable steps to ensure that their respective Affiliates, agents, officers, employees, representatives, consultants, advisors and licensees and potential licensees and sub-licensees maintain the obligations of confidence imposed on Depomed and BLS by this Agreement.

9.2Section 9.1 shall not apply to any Technical Information or Clinical Information that:

(a)is owned or Controlled by Depomed, or jointly by Depomed and BLS;

(b)was known to Depomed at the time of its disclosure by BLS;

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(c)has been published or is otherwise within the public knowledge or is generally known to the public;

(d)has come into the public domain without any breach of this Agreement;

(e)became known or available to Depomed from a source having the right to make such disclosure to Depomed and without restriction on such disclosure to Depomed;

(f)is disclosed to the public and is generally available to the public as a result of compliance with any applicable law or regulation;

(g)is disclosed as the result of any applications for patents relating to the 1000mg Products anywhere in the world; or

(h)after Regulatory Approval of the 1000mg Product is reasonably required by Depomed for the Marketing of the 1000mg Product in the Territory

9.3Each Party acknowledges that improper use or disclosure of information of the other Party that must be kept in confidence under Section 9.1 above would cause substantial harm to the other Party (in particular in barring patent protection for that Party’s technology), and that such harm could not be remedied by the payment of damages alone. Accordingly, each Party will be entitled to preliminary and permanent injunctive relief and other equitable relief for any breach of this Article 9 by the other Party, without prejudice to all other remedies available at law or in equity.

10.TERM

10.1Unless sooner terminated as herein provided, this Agreement shall become effective on the Effective Date and shall continue in effect thereafter until it is terminated in accordance with the terms hereof.

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11.EXPIRY AND TERMINATION

11.1Unless earlier terminated pursuant to Section 11.2 below, this Agreement shall not expire.

11.2At any time during the Term of this Agreement, either BLS or Depomed may terminate this Agreement with respect to the 500mg Product or the 1000mg Product if the other Party is in material breach or default in the performance or observance of any of the provisions of this Agreement applicable to it and relating to the product in respect of which termination of this Agreement is sought, and such breach or default is not cured within sixty days (or thirty days in the case of failure to make royalty or other payments due hereunder) after the giving of notice by the Party specifying such breach or default.

11.3At any time during the Term of this Agreement, either Depomed or BLS may terminate this Agreement forthwith for cause, as “Cause” is described below, by giving written notice to the other Party. “Cause” for termination by one Party of this Agreement shall be deemed to exist if, with respect to the other Party:

(a)(i) a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect shall be instituted by such Party, or such Party shall consent to the entry of any order for relief in an involuntary case under any such law; (ii) a general assignment for the benefit of creditors shall be made by such Party; (iii) such Party shall consent to the appointment of or possession by a receiver, liquidation, trustee, custodian, sequestrator or similar official of the property of such Party or of any substantial part of its property; or (iv) such Party shall adopt a directors resolution in furtherance of any of the foregoing actions specified in this subsection (a); or

(b)a decree or order for relief by a court of competent jurisdiction shall be entered in respect of such Party in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, trustee, sequestrator or other similar official of such Party to wind up or

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liquidate its affairs, and any such decree or order shall remain unstayed or undischarged and in effect for a period of sixty days.

11.4Upon termination by BLS for Cause, Depomed shall, at the request of BLS, assign to BLS the Regulatory Approval for the 1000mg Product in the Territory, within ten (10) days after BLS has paid to Depomed all of the costs incurred by Depomed in obtaining Regulatory Approval of the 1000mg Product in the Territory.

11.5Except as set forth in Sections 11.1 and 11.4, upon termination of this Agreement pursuant to Section 11.2, the licenses granted to Depomed in Sections 2.1 and 2.2 of this Agreement shall terminate. Notwithstanding such termination, and subject to the terms and conditions of this Agreement, Depomed may dispose of, by sale or otherwise, any remaining inventory of 1000mg Product that Depomed may have in its possession or control on the date of termination.

11.6Termination shall not release Depomed or BLS from any obligations or liabilities that matured prior to termination, including without limitation the obligations of Depomed to make any payments owing at the time of termination through the date of termination. If the terms of this Agreement expressly state that a right or obligation shall survive expiration or termination of this Agreement, such right or obligation shall survive expiration or termination to the degree necessary to allow complete fulfilment or discharge of the right or obligation. The provisions of Articles 6.1 - 6.5, 7, 8, 9 and 12 of this Agreement shall survive the expiration or termination of this Agreement.

11.7In the event of termination or expiration, each of BLS and Depomed shall retain ownership of the ideas, inventions, discoveries, developments, designs, trademarks, trade secrets, improvements, know-how, process, procedures, techniques, formulae, computer programs, drawings, technology(ies) and intellectual and industrial property accorded to each under the terms of this Agreement.

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12.PUBLICITY

12.1Neither Party will originate any publicity, news release, public comment or other public announcement, written or oral, whether to the press, to stockholders, or otherwise, relating to this Agreement, without the written consent of the other Party, except for such announcement which, in accordance with the advice of legal counsel to the Party making such announcement, is required by law or the regulations of the securities exchange or market on which the disclosing Party’s securities are traded. The Party making any announcement which is required by law or the regulations of the securities exchange or market on which the disclosing Party’s securities are traded will, unless prohibited by law, give the other Party an opportunity to review the form and content of such announcement and comment before it is made. Either Party shall have the right to make such filings with governmental agencies as to the contents and existence of this Agreement as it shall reasonably deem necessary or appropriate.

13.ASSIGNABILITY

13.1This Agreement may be assigned by either Party to an Affiliate or as part of the sale by either Party of all of its business of which this Agreement may be a part without the consent of the other Party; provided, however, that neither Party shall assign this Agreement to an Affiliate that is not reasonably capable of performing all of its obligations under this Agreement. Except as permitted by this Section 13.1, Depomed shall not assign any rights licensed to BLS under this Agreement. BLS may assign, sublicense, subcontract or delegate, to any Affiliate of BLS reasonably capable of performing such obligations, all or part of the rights and obligations of BLS under this Agreement, but in no event shall such assignment, sublicensing, subcontracting or delegation be deemed to relieve BLS of its liabilities or obligations to Depomed under this Agreement. BLS expressly acknowledges and agrees that BLS shall remain fully and unconditionally obligated and responsible for the full and complete performance of all of BLS’s obligations under the terms and conditions of this Agreement. This Agreement

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may not otherwise be assigned by either Party without the prior written consent of the other Party, which consent shall not be unreasonably withheld.

13.2No assignment permitted by this Article 13 to an Affiliate of either Party shall serve to release either Party from liability for the performance of its obligations hereunder.

14.PATENT LIFE EXTENSION

Each Party undertakes to inform the other Party of:

(a)the date of filing any Applicable Permit covering 1000mg Product in a given country;

(b)the date of approval by the FDA or its equivalent from the relevant authority in the country, if required;

(c)the date of obtaining Product approval (or equivalent authorization) from the FDA or its equivalent in a given country;

(d)if applicable, the date of obtaining the price approval in a given country as well as the amount of the price approval with regard to any such country;

(e)the date of the first sale of 1000mg Product in a given country; and

(f)any events which might be material to the other Party in connection with a possible extension of the patent protection term.

15.NOTICES

15.1All notifications, demands, approvals and communications required to be made under this Agreement shall be given in writing and shall be effective when either personally delivered or sent by facsimile if followed by prepaid air express addressed as set forth below. The Parties hereto shall have the right to notify each other of changes of address during the Term of this Agreement.

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Depomed, Inc.
1360 O’Brien Drive
Menlo Park, California 94025
Attention: President

Facsimile: 650-462-9991

With a copy to:

Heller Ehrman LLP
275 Middlefield Road
Menlo Park, California 94025
Attention:  Matthew Gosling
Facsimile: 650-324-0638

Biovail Laboratories International SRL
Chelston Park
Building 2, Collymore Rock
St. Michael BH1
Barbados, West Indies

Attention: Mr. Eugene Melnyk, President
Facsimile No.: (246) 437-7085

With a copy to:

Biovail Corporation
7150Mississauga Road
Mississauga, Ontario
L5N 8M5

Attention: Vice President, Associate General Counsel
Facsimile: 905 286 3374

Any such notice mailed as aforesaid shall be deemed to have been received by and given to the addressee on the date specified on the notice of receipt and delivery evidenced to the sender.

16.FORCE MAJEURE

16.1In the event of any failure or delay in the performance by a Party of any provision of this Agreement due to acts beyond the reasonable control of such Party (such as, for example,

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fire, explosion, strike or other difficulty with workmen, shortage of transportation equipment, accident, act of God, or compliance with or other action taken to carry out the intent or purpose of any law or regulation, or an order or judgment of any court of competent jurisdiction, whether interim, temporary, interlocutory or permanent), then such Party shall have such additional time to perform as shall be reasonably necessary under the circumstances. In the event of such failure or delay, the affected Party will use its diligent efforts, consonant with sound business judgment and to the extent permitted by law, to correct such failure or delay as expeditiously as possible.

16.2In the event that a Party is unable to perform any of its obligations under this Agreement by a reason described in Section 16.1 above, the obligations under this Agreement shall be suspended during such time of non-performance.

17.MISCELLANEOUS

17.1This Agreement and the Supply Agreement define the full extent of the legally enforceable undertakings of the Parties hereto with respect to the Manufacture and Marketing of the 500mg Product and the 1000mg Product for and in the Territory as of and after the Effective Date, and with respect to the rights and obligations of the Parties relating the Manufacture and Marketing of the 500mg Product and the 1000mg Product for and in the Territory after the Effective Date, supersedes all previous writings and understandings. No terms or provisions of this Agreement shall be varied or modified by any prior or subsequent statement, conduct or act of either of the Parties, except that the Parties may amend this Agreement by written instruments specifically referring to and executed in the same manner as this Agreement. Nothing in this Agreement affects any rights or obligations of the Parties relating to the Manufacture or Marketing of the 500mg Product for or in the Territory prior to the Effective Date, and except as otherwise expressly provided by this Agreement, none of the rights or obligations of the Parties under the Prior Agreement, any amendments thereto or any other agreements between the Parties relating to the 500mg Product in the Territory prior to the Effective Date are

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affected by this Agreement, provided, however, that no such rights or obligations created or arising prior to the Effective Date shall continue in force after the Effective Date except as expressly provided in this Agreement. No promise or representation, written or oral, with respect to the subject matter hereof which is not set forth explicitly in this Agreement is intended by either Party to be legally binding. Both Parties acknowledge that in deciding to enter into this Agreement and to consummate the transactions contemplated hereby, neither has relied upon any statements or representations, written or oral, other than those explicitly set forth in this Agreement.

17.2It is the desire and intent of the Parties that the provisions of this Agreement shall be enforced to the extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision of this Agreement which substantially affects the commercial basis of this Agreement shall be determined to be invalid or unenforceable, such provision shall be amended as hereinafter provided to delete therefrom or revise the portion thus determined to be invalid or unenforceable. Such amendment shall apply only with respect to the operation of such provision of this Agreement in the particular jurisdiction for which such determination is made, provided no unfairness results. In such event, the Parties agree to use reasonable efforts to agree on substitute provisions, which, while valid, will achieve as closely as possible the same economic effects or commercial basis as the invalid provisions, and this Agreement otherwise shall continue in full force and effect. If the Parties cannot agree to such revision within sixty days after such invalidity or unenforceability is established, the matter may be submitted by either Party to arbitration as provided in this Agreement to finalize such revision.

17.3The waiver by a Party of any single default or breach or succession of defaults or breaches by the other shall not deprive either Party of any right under this Agreement arising out of any subsequent default or breach.

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17.4All matters affecting the interpretation, validity, and performance of this Agreement shall be governed by the laws of the State of New York without regard to that state’s conflict of laws rules or principles.

17.5Nothing in this Agreement authorizes either Party to act as agent for the other Party as to any matter. The relationship between BLS and Depomed is that of independent contractors.

17.6Any and all disputes between the Parties relating in any way to the entering into of this Agreement and/or the validity, construction, meaning, enforceability, or performance of this Agreement or any of its provisions, or the intent of the Parties in entering into this Agreement, or any of its provisions arising under this Agreement, except for any disputes relating to the provisions of Articles 5, 7, 8 and 11, shall be settled by binding arbitration. Such arbitration shall be conducted at New York, New York, in accordance with the rules then pertaining of the American Arbitration Association with a panel of three arbitrators. Each Party shall select one arbitrator and the two selected arbitrators shall select the third arbitrator. If the two selected arbitrators cannot agree on a third arbitrator then the American Arbitration Association shall select said arbitrator from the National Panel of Arbitrators. Reasonable discovery as determined by the Arbitrators shall apply to the arbitration proceeding. The law of the State of New York shall apply to the arbitration proceedings. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The successful Party in such arbitration, in addition to all other relief provided, shall be entitled to an award of all its reasonable costs and expenses including attorney costs. Both Parties agree to waive, and the Arbitrators shall have no right to award, punitive damages in connection with an arbitration proceeding hereunder.

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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed by their duly authorized officers on the date first above written.

DEPOMED, INC.
By:	/s/ Carl A. Pelzel
Name:			Carl A. Pelzel
Title:		Executive Vice President & COO
BIOVAIL LABORATORIES
INTERNATIONAL SRL
By:	/s/ John A.R. McCleery
Name:			John A.R. McCleery
Title:		Vice President, General Manager

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Schedule 1.20

Patent Rights - Patents and Patent Applications

[***]

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EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the following Registration Statements:

1)Registration Statements on Form S-3 (No. 333-66843, No. 333-53486, No. 333-66688, No. 333-86542, No. 333-104956, No. 333-108973, No. 333-1211891 and No. 333-130510) and in the related Prospectuses of Depomed, Inc.,

2)Registration Statements on Form S-8 (No. 333-66923, No. 333-85419, No. 333-54982, No. 333-101796 and No. 333-105994) pertaining to the 1995 Stock Option Plan, as amended, of Depomed, Inc.,

3)Registration Statement on Form S-8 (No. 333-116697) pertaining to the 2004 Equity Incentive Plan and the 2004 Employee Stock Purchase Plan of Depomed, Inc.,

of our reports dated March 15, 2006, with respect to the consolidated financial statements of Depomed, Inc., Depomed, Inc. management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Depomed, Inc., included in this Annual Report (Form 10-K) for the year ended December 31, 2005.

/s/ ERNST & YOUNG LLP

Palo Alto, California

March 15, 2006

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 15d-14
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John W. Fara, certify that:

1.I have reviewed this Annual Report of Depomed, 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(s) 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 officers 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 function):

(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.

March 16, 2006

By:	/s/ John W. Fara, Ph.D.
	John W. Fara, Ph.D.
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 15d-14
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John F. Hamilton, certify that:

1.I have reviewed this Annual Report of Depomed, 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(s) 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 officers 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 function):

(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.

March 16, 2006

By:	/s/ John F. Hamilton
	John F. Hamilton
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Depomed, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John W. Fara, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 16, 2006

/s/ John W. Fara, Ph.D.

John W. Fara, Ph.D.

President, Chairman and

Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Depomed, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John F. Hamilton, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 16, 2006

/s/ John F. Hamilton

John F. Hamilton

Chief Financial Officer