EXHIBIT 10.63
[CALYPTE BIOMEDICAL LETTERHEAD]
December 10, 1998
Xxxxxx Xxxxxxxx
Director, Department of Diagnosis
Otsuka Pharmaceutical Co., Ltd.
000-00 Xxxxxxxx Xxxxxxxx-xxx
Xxxxxxxxx, Xxxxx 000-0000
Re: LETTER OF INTENT RE MODIFICATION OF DISTRIBUTION AGREEMENT
Dear Xx. Xxxxxxxx:
This Letter of Intent sets forth the understanding that Calypte and
Otsuka Pharmaceutical have reached with respect to modifying the Distribution
Agreement between our companies executed as of August 7, 1994. We at Calypte
value our long and friendly relationship with Otsuka, and we very much
respect and appreciate your response to our request that Otsuka agree to
relinquish (except in Japan) its role as distributor of Calypte's HIV test
kits in the Asian Territory. The following points, which have been approved
by Xxxxxxx's Board, describe the understanding we have reached regarding
modifications we will make to the Distribution Agreement:
1. Otsuka will retain the exclusive distribution rights in
Japan for Calypte's urine HIV-1 EIA Kit, the "Improved Kit" for which we are
now in the process of obtaining approval, and other improved or expanded HIV
test kits that Calypte may develop or to which it may obtain rights in the
future, including test kits for HIV-2 and HIV-1 Group O. Calypte will also
xxxxx Xxxxxx the exclusive right to conduct and distribute Western blot tests
in Japan. Commencing upon Otsuka's receipt of approval from the Japanese
regulatory authority to begin commercial sales and marketing of Calypte's EIA
test kit (which we anticipate will be the Improved Kit, not the original
kit), the minimum annual tests of such approval kit to be purchased by Otsuka
from Calypte
shall be fifty thousand (50,000); PROVIDED that, the first "year" to which
such purchase commitment shall apply shall be the balance of the calendar
year following the date on which Otsuka receives approval from the Japanese
regulatory authority PLUS the next calendar year (thereafter, such purchase
commitment shall apply in each subsequent calendar year). There shall be no
minimum purchase commitment for Western Blot tests.
2. Calypte will, in consideration of Otsuka relinquishing its
distribution rights outside of Japan, pay Otsuka one of the following amounts:
a) if the successor distributor pays Calypte an upfront
fee and/or milestone payments in addition to royalties or minimum purchases,
Calypte will pay Otsuka the greater of $500,000 or 25% of such
upfront/milestone payments paid to Calypte by the successor distributor (the
25% payments, if applicable, will be paid to Otsuka at the time the successor
distributor makes such payments to Calypte); or
b) if the successor distributor pays no such upfront
fees/milestone payments to Calypte, Calypte will pay Otsuka a total of
$350,000, payable in seven (7) monthly installments of $50,000 each, the
first such installment being due the first day of the calendar month
following execution of the agreement with the successor distributor.
The above payments contemplate that Calypte will select a successor
distributor for all substantial countries in the Asian Territory outside of
Japan. If the first successor distributor has a territory with fewer than all
of the substantial countries in the Asian Territory outside of Japan, Calypte
and Otsuka will discuss in good faith an adjustment to this fee arrangement.
3. Following Otsuka's relinquishment of its distribution
rights in the Asian Territory outside of Japan, Calypte will pay Otsuka five
percent (5%) of Calypte's revenues from the sale or use of Calypte HIV test
kits (urine and Western Blot) in or for the Asian Territory outside of Japan,
beginning on the date of the first commercial sale of such Calypte products
in the Asian Territory outside of Japan. Revenues that are the subject of the
percentage payments to be made under this paragraph will include Calypte's
gross revenues from the successor distributor(s) of Calypte's products in the
Asian Territory outside of Japan as well as gross revenues to Calypte from
its direct sales to such countries.
4. Otsuka is currently conducting or plans to conduct
clinical trials in Thailand and China and may continue such clinical trials
even through it will be relinquishing its distribution rights in the Asian
Territory outside of Japan. Otsuka agrees that it will work cooperatively
with Xxxxxxx on these clinical trials and, once this Letter of Intent has
been signed, Otsuka agrees to defer to Calypte on matters relating to any
clinical trials outside Japan. Otsuka will provide the results of such
clinical trials to Calypte and to the successor distributor designated by
Calypte. In addition, Otsuka will assign the regulatory approvals it has
obtained in Indonesia and Australia relating to Calypte products to the
successor distributor designated by Calypte. Otsuka will provide
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the above at no charge. Otsuka has recently commenced clinical trials of
Calypte products in China. Otsuka will provide a copy of the protocol for
such trials to Calypte and will provide any results obtained from such trials
to Calypte and to the successor distributor designated by Calypte. The
successor distributor will reimburse Otsuka for actual amounts paid by Otsuka
for the conduct of such clinical trials in China, excluding Otsuka's own
out-of-pocket expenses, which Otsuka shall bear. Given the difficulties
encountered with the original Calypte EIA test kit, described below, Xxxxxxx
does not expect Otsuka to engage in further development efforts relating to
the original product.
5. Certain problems encountered in Asia with the use of the
original HIV-1 EIA test kit (the current "Product" within the meaning of the
Distribution Agreement) delayed Otsuka's ability to introduce and
commercialize the Product in the Asian Territory. We appreciate the efforts
of Otsuka and hereby confirm that Otsuka is in good standing under the
Distribution Agreement. Calypte and Otsuka have worked cooperatively to find a
solution to such problems and to develop the "Improved Kit." In part, the
percentage payments to be made by Calypte to Otsuka, described above in
Paragraph 3, reflect Xxxxxxx's gratitude for the cooperative efforts of
Otsuka in the development of the Improved Kit. The Specifications referenced
in the Distribution Agreement will be modified to relate to the Improved Kit,
and the diligence commitments and references to the "Date of First Sale" in
the Distribution Agreement will all be deemed to apply to the Improved Kit,
upon its availability for development and commercialization.
We are pleased that we have reached an understanding on the basic
terms of modifications to be made to the Distribution Agreement. I believe
this Letter of Intent accurately reflects the understanding we have reached
in our meetings on this subject. If you agree, please sign below and return a
signed copy to me.
Again, I want to thank you for your consideration in this regard.
Very truly yours,
/s/ Xxxxxxx Xxxxxx
Xxxxxxx Xxxxxx, III President
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AGREED AND ACCEPTED:
OTSUKA PHARMACEUTICAL CO., LTD.
/s/ Xxxxxx Xxxxxxxx
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Signature
Xxxxxx Xxxxxxxx
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Name
Director, Diagnostic Department
OTSUKA PHARMACEUTICAL CO. LTD.
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Title
January 10, 1999
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Date
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