Exhibit 10.1
HEADS OF AGREEMENT
TransCyte(TM) Manufacture and Distribution - U.S.
This Agreement is entered into effective as of August 6, 1998, by and
between Advanced Tissue Sciences, Inc., a Delaware corporation ("ATS"), and
Xxxxx & Nephew plc, a company organized under the laws of the United Kingdom
("S&N"), on their own behalf and on behalf of their respective Affiliates (ATS
Dermagraft, Inc., a California corporation, Xxxxx & Nephew SNATS, Inc., a
Delaware corporation and the Wound Management Division of Xxxxx & Nephew, Inc.,
a Delaware corporation), with respect to the following facts:
RECITALS
1. ATS and S&N, through their Affiliates, have entered into certain
agreements, dated as of April 29, 1996, as follows:
a. Agreement of General Partnership of Dermagraft U.S., a Delaware
general partnership (the "U.S. Partnership Agreement").
b. Agreement of General Partnership of Dermagraft International, a
Delaware general partnership (the "International Partnership Agreement").
c. U.S. License Agreement (the "U.S. License Agreement").
d. International License Agreement (the "International License
Agreement").
e. U.K. License Agreement (the "U.K. License Agreement").
f. DermEquip, L.L.C. Agreements.
For convenience of reference, the above-referenced agreements collectively shall
be referred to as the "Dermagraft Agreements".
2. Certain capitalized terms used in this Agreement are defined to have
the meaning as specified on Exhibit A attached hereto and made a part hereof.
Other capitalized terms used in this Agreement are defined in the Dermagraft
Agreements.
3. The Dermagraft Agreements involve the development, manufacture,
marketing and sale of Dermagraft(R) for the treatment of diabetic foot ulcers.
4. Through a Heads of Agreement dated as of January 14, 1998, ATS and
S&N have expanded the scope of the Dermagraft Agreements to include, amongst
other things, the ATS product known as Dermagraft-TC(R) for certain Wound Care
Applications, but excluding xxxxx (partial thickness and full thickness)
heretofore manufactured and distributed in the United States by ATS for its own
account.
5. The parties intend this Agreement to be binding and enforceable on
the parties in accordance with the terms of this Agreement. The parties
understand and intend that amendments to or restatements of the Dermagraft
Agreements or other agreements between ATS and S&N will be prepared subsequently
for approval and signature by both parties and their Affiliates, in order to
further implement the parties' agreements as set forth in this Agreement.
WHEREFORE, the parties hereto mutually agree to the following principal
terms and agreements:
1. Product Name. Effective October 1, 1998, the name to be used for
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the product previously known as Dermagraft-TC will be changed to TransCyte(TM).
Dermagraft U.S., the Delaware general partnership formed by ATS and S&N, shall
have the right and license to use the trademark TransCyte in connection with the
sale of products manufactured by ATS for the treatment of xxxxx (partial
thickness or full thickness) using ATS Technology.
2. Manufacture of TransCyte.
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a. Effective October 1, 1998, and in accordance with forecasts and
purchase orders which ATS shall receive from Dermagraft U.S. from time to time,
ATS shall manufacture TransCyte for the treatment of xxxxx (partial thickness
and full thickness) using ATS Technology. TransCyte shall be manufactured,
packaged and labeled by ATS in conformity with good manufacturing practices.
b. From October 1, 1998 to December 31, 1999, ATS will sell
reasonable amounts of TransCyte to Dermagraft U.S. for use as samples at ATS'
standard cost for materials and labor plus 50%.
c. All costs of manufacturing TransCyte for the U.S. burn market
shall be charged to Dermagraft U.S. at fully burdened cost including period
costs. From October 1, 1998 to December 31, 1999, for the purposes set forth in
Section 6 of the U.S. Partnership Agreement, ATS will be allocated 100% of all
manufacturing costs in excess of the Retail List Price or Contract Price (as
defined in 3(a) below) of TransCyte in the U.S. market less 40% and less samples
sold to Dermagraft U.S. (the "Subsidized Manufacturing Costs") at the time of
any "true-up" of the capital accounts of ATS and S&N under the U.S. Partnership
Agreement.
d. For illustrative purposes, the parties have attached hereto as
Exhibit B an example of how the manufacturing costs would be allocated to ATS
using certain hypothetical assumptions and the calculation formula set forth in
this Section 2.
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3. Distribution of TransCyte.
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a. Effective October 1, 1998, the Wound Management Division of Xxxxx
& Nephew, Inc. ("Wound Management Division") shall take over from ATS as the
exclusive distributor of TransCyte in the United States. The Retail List Price
at October 1, 1998 shall be $1,350 per cassette until and as agreed upon by the
Executive Board of Dermagraft U.S. from time to time, provided that certain
customers shall be charged the Contract Price shown on Exhibit C until the
termination dates of their contracts. ATS will cooperate with the Wound
Management Division in the transfer of sales, customer service and distribution
responsibilities from ATS to the Wound Management Division.
b. ATS will be responsible for the costs of its own sales and
marketing personnel. If Dermagraft U.S. or the Wound Management Division
requests ATS to retain any such personnel beyond October 1, 1998, Dermagraft
U.S. or the Wound Management Division will be responsible for all costs
associated with any such personnel after such date. Notwithstanding the
foregoing, ATS will be responsible for any severance costs associated with such
sales and marketing personnel unless Dermagraft U.S. or the Wound Management
Division requests utilization of such personnel for any period after December
31, 1998 and the parties agree thereto in writing. ATS will be responsible for
all claims related to product sales prior to October 1, 1998. Thereafter, the
responsibilities of the parties and of Dermagraft U.S. for claims related to
product sales shall be as set forth in the Dermagraft Agreements.
c. All costs of selling and distributing TransCyte shall be charged
to Dermagraft U.S. from October 1, 1998 to December 31, 1999. For the purposes
set forth in Section 6 of the U.S. Partnership Agreement, ATS will be allocated
all such distribution costs (the definition of which is to be agreed by the
parties) in excess of 10% of U.S. sales of TransCyte (the "Subsidized
Distribution Costs") at the time of any "true-up" of the capital accounts of ATS
and S&N under the U.S. Partnership Agreement. Such distribution costs shall not
include the distribution costs associated with samples of TransCyte which
Dermagraft U.S. may purchase from ATS pursuant to Section 2.b.
4. Recovery of Subsidized Costs. At any time subsequent to December
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31, 1999 at the time of "true-up" of the partners capital accounts under the
U.S. Partnership Agreement, ATS will be allocated the greater of (i) any net
income from the TransCyte business in the U.S. or (ii) any gross profit in
excess of 40% of net sales in the U.S. (gross profit defined as net sales less
fully burdened manufacturing costs including period costs but excluding
distribution costs) during the applicable period, if any, until such allocated
net income or gross profit is equal to the cumulative Subsidized Manufacturing
Costs and Subsidized Distribution Costs incurred by ATS from October 1, 1998 to
December 31, 1999. In addition, at such time ATS will also be paid interest
from the end of the calendar quarter in which the subsidized costs were
incurred, compounded quarterly until paid. Interest shall be calculated by
averaging the 3-month LIBOR rates and the 3-month U.S. Treasury Xxxx rates
during the relevant time period.
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5. Clinical Trials. ATS will be allocated all costs incurred from
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October 1, 1998 to December 31, 1999 for clinical trials of TransCyte as
required in conjunction with FDA premarket approval of TransCyte for the
treatment of full and partial thickness xxxxx net of any gross margin on product
sold for use in such clinical trials. Dermagraft U.S. will be responsible for
the cost of such clinical trials, if any, subsequent to December 31, 1999.
6. Other Revenues and Expenses. Other than as set forth in this
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Agreement, revenues and expenses connected with the manufacture and distribution
of TransCyte in the U.S. market will be allocated, and the business of the U.S.
Partnership will be managed, in accordance with the U.S. Partnership Agreement.
7. Sales Milestones. Sales of TransCyte in the U.S. market will be
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included in "Net Sales" for the purposes of calculating sales milestones under
the Dermagraft Agreements.
8. Implementing Documents. The parties will pursue good faith
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negotiations and analysis to enter into amendments to the existing Dermagraft
Agreements, in order to implement and to carry out the purposes and intentions
of this Agreement. In the meantime, any conflict or inconsistencies between the
terms of this Agreement and the terms of the Dermagraft Agreements (or the Heads
of Agreement between ATS and S&N dated as of January 14, 1998), shall be
controlled by the terms of this Agreement.
9. Governing Law. This Agreement shall be construed and enforced in
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accordance with the laws of the State of Delaware.
10. Arbitration. Any disputes arising with respect to this Agreement
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shall be resolved through binding arbitration by a single, qualified arbitrator
selected from a list of three candidates furnished by the President of the
Health Industry Manufacturing Association ("HIMA"). If the President of HIMA is
unwilling or unable to provide a list of candidates, the candidates shall be
proposed by the American Arbitration Association ("AAA"), Chicago, Illinois,
from its Complex Dispute Panel. The arbitration proceedings shall be conducted
in accordance with such other rules or procedures as the arbitrator may specify.
If the parties do not promptly select an arbitrator, the arbitrator shall be
selected by AAA. The arbitration shall take place in Chicago, Illinois, U.S.A.
Each party shall bear all of its own arbitration expenses, plus one-half of the
arbitrator's fee.
ADVANCED TISSUE SCIENCES, INC.
By: /s/ Xxxxxx X. Xxxxxxxxx
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XXXXX & NEPHEW plc
By: /s/ X. X. X'Xxxxxxx
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EXHIBIT A
Definitions
"Affiliate" means (i) any entity directly or indirectly controlling,
controlled by, or under common control with another entity, (ii) any person or
entity owning or controlling 50% or more of the outstanding voting securities of
an entity, or (iii) any officer, director or partner of an entity. "Control"
means the possession of the power to direct or cause the direction of the
management and the policies of an entity, whether through the ownership of a
majority of the outstanding voting securities or by contract or otherwise.
"ATS Technology" means ATS patented technology and related technology,
know-how, methods, procedures and licenses for developing and selling cell based
and/or tissue engineered, three-dimensional tissues on biocompatible matrices,
to the extent said technology is useful for the Subject Wound Care Applications.
The patent rights from which the ATS Technology is derived are listed on Exhibit
B attached to the U.S. License Agreement. The ATS Technology shall include all
U.S. divisions, continuations, reissues and extensions which are derived from
the patents and patent applications pertaining to the technology, patents and
applications listed on said Exhibit B. The ATS Technology available for use
pursuant to this Agreement is limited to the Subject Wound Care Applications as
defined in the Heads of Agreement dated as of January 14, 1998.
"Contract Price" shall have the meaning set forth in Section 3.a.
"Dermagraft Agreements" means the agreements described in Recital A above.
"Dermagraft-TC(R)" means the ATS human fibroblast-derived temporary skin
substitute product which is formulated through the ATS Technology.
"LIBOR" means the London Interbank Offering Rate.
"Retail List Price" shall have the meaning set forth in Section 3.a.
"Subsidized Distribution Costs" shall have the meaning set forth in Section
3.c.
"Subsidized Manufacturing Costs" shall have the meaning set forth in
Section 2.c.
"TransCyte(TM)" means the product previously known as "Dermagraft-TC" and
the trademark under which Dermagraft-TC will be sold in the U.S. market after
October 1, 1998.
"Wound Care Applications" means applications of the ATS Technology (e.g.,
Dermagraft, Dermagraft-TC and TransCyte) for the medical care and treatment of
skin tissue wounds on humans. Without limiting the generality of the foregoing,
Wound Care Applications includes diabetic ulcers, pressure ulcers, venous
ulcers, xxxxx (partial thickness and full thickness), cosmetic surgery for skin
tissue defects or post-surgical or post-trauma skin tissue rehabilitation (but
not cosmetic surgery for the enhancement of normal skin tissue (e.g., chemical
peels and laser resurfacing)) and ostomy applications.
