EXHIBIT 10.54
CORE DISTRIBUTION AGREEMENT
This Core Distribution Agreement ("AGREEMENT") is entered into as of December
23, 2004 by and between Connetics Corporation, a Delaware corporation with its
principal place of business located at 0000 Xxxx Xxxxxxxx Xxxx, Xxxx Xxxx,
Xxxxxxxxxx 00000 ("CONNETICS"), and McKesson Corporation, with its principal
place of business located at Xxx Xxxx Xxxxxx, Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
("MCKESSON"). Connetics and McKesson are sometimes referred to individually in
this Agreement as a "Party," and collectively as the "Parties."
BACKGROUND
X. XxXxxxxx provides distribution services for pharmaceutical companies,
including but not limited to logistics and inventory management services,
administrative services, and financial services; and Connetics wishes to
purchase such services from McKesson; and
X. XxXxxxxx is willing to provide to Connetics and Connetics desires to obtain
from McKesson certain additional services as needed and agreed upon by both
Parties; and
C. Connetics and McKesson desire to enhance the visibility of inventory
management of Products and assure adequate availability of supply of
Products (as defined in this Agreement).
NOW THEREFORE, in consideration of the foregoing, the mutual
representations contained in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Parties agree as follows:
ARTICLE 1
DEFINITIONS
As used in this Agreement, the capitalized terms listed below shall have
the meanings set forth. Terms not otherwise defined shall be deemed to have the
meaning most commonly ascribed to them in the pharmaceutical distribution
industry.
AGGREGATE INVENTORY. "Aggregate Inventory" means, at any given time, the total
amount of Products in units that (i) McKesson has on hand at all of its storage
and/or distribution facilities and (ii) McKesson has on order from Connetics.
AVERAGE WEEKLY MOVEMENT. "Average Weekly Movement " means, at any given time,
the total quantity of Products in units (sorted by NDC number) that McKesson has
sold to Providers over the immediately preceding eight (8) weeks, divided by
eight (8).
COMMITMENT PERIOD. "Commitment Period" means October 1, 2004 through and
including December 31, 2005, unless this Agreement is terminated earlier under
the provisions of ARTICLE 4.
** Portions of this exhibit have been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
CONFIDENTIAL INFORMATION. "Confidential Information" shall have the meaning set
forth in SECTION 5.2.
EFFECTIVE DATE. "Effective Date" means the date of full execution of this
Agreement.
INVENTORY REPORTS. "Inventory Reports" shall have the meaning set forth in
SECTION 2.5.1.
PRODUCTS. "Products" means all ethical pharmaceutical products that bear
Connetics' label and packaging, whether currently or at any time in the future,
which Connetics sells to wholesale customers in the United States. A list of
Connetics' products is attached as EXHIBIT A to this Agreement for convenient
reference, but no failure to update EXHIBIT A in the future shall be interpreted
to mean that the Products are limited to those in the attached exhibit.
PROVIDERS. "Providers" means the purchaser(s) of Products from McKesson in the
United States.
SALES REPORTS. "Sales Reports" shall have the meaning set forth in SECTION
2.5.1.
SERVICES. "Services" shall have the meaning set forth in Section 2.1.
SERVICES FEE. "Services Fee" means the fee payment to which McKesson is entitled
pursuant to Section 3.1 of this Agreement.
WAC. "WAC" means wholesale acquisition cost for Products as reported by
Connetics from time to time. It is understood that "WAC" is Connetics' price to
wholesalers without regard to any prompt payment or other discounts, rebates, or
chargebacks.
ARTICLE 2
THE SERVICES
The Parties agree that McKesson performs certain distribution and inventory
management services (collectively, the "SERVICES") from which Connetics may
benefit. The services include, but may not be limited to, the following:
2.1 ADMINISTRATIVE SERVICES
o Sophisticated ordering technology
o Daily consolidated deliveries to providers
o Emergency shipments
o Consolidated accounts receivable management
o Customer Service support
o Adequate working inventories to meet customer needs and service
levels
o Licensed, environmentally controlled, PDMA compliant, secure
facilities
2.2 BASE DISTRIBUTION SERVICES.
(a) Contract and Chargeback administration
(b) Returns processing
2.3 INVENTORY MANAGEMENT SERVICES.
2.3.1 INVENTORY LEVELS. During the term of this Agreement, McKesson
will use its best efforts to maintain an inventory level of between [**].
McKesson will not be penalized if McKesson has more than [**] due to an
unexpected reduction in demand from external events.
2.3.2 PURCHASE LIMITS. Connetics agrees to ship all McKesson purchase
orders in full provided they are consistent with product demand. Connetics has
the right to question any orders that exceed McKesson's Average Weekly Movement
and has the right to cancel any quantities for which McKesson is not able to
provide reasonable justifications and/or explanations.
2.3.3 INVENTORY ON THE EFFECTIVE DATE. If McKesson has more than [**]
of any Product as of the Effective Date, the Parties will agree to a timeline
during which the inventory levels in all distribution centers will be
transitioned to a level of between [**]. The Parties agree that McKesson will
not attain these inventory levels by returning Product to Connetics.
2.4 PRODUCT AVAILABILITY. McKesson and Connetics will jointly use their
best efforts to minimize Product shortages and maximize Product availability by
agreeing to the following:
(a) McKesson will institute a balancing system for Products in order
to optimize the use of existing inventories across the entire McKesson
network, including inventories held in McKesson's distribution center as a
broker fulfilling orders by chain warehouses.
(b) At any time that Product is on back order or there is otherwise
limited Product availability, and upon Connetics' request, McKesson will
implement more frequent order and receiving cycles to help reduce inventory
requirements.
(c) McKesson will not speculate by buying Product beyond target
inventory levels in order to take advantage of proposed or actual price
increases.
** Portions of this exhibit have been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
2.5 DATA / REPORTING SERVICES.
2.5.1 McKesson shall prepare inventory reports detailing the status of
its Aggregate Inventory ("INVENTORY REPORTS") and movement of Products ("SALES
REPORTS") by NDC number for the duration of this Agreement. McKesson shall
provide Connetics with Inventory Reports weekly and Sales Reports monthly. All
such Inventory and Sales Reports shall be transmitted in EDI 852 and EDI 867
formats, respectively, and shall include the information that Connetics
reasonably requests, including but not limited to the following:
o On hand inventory level by distribution center; and
o On order inventory level by distribution center; and
o Sales out by distribution center
2.5.2 If McKesson, due to contractual requirements, is required to
block data in the EDI 867 that would identify a Provider, McKesson will, at a
minimum, provide Connetics with zip code level reports.
2.5.3 Within 30 days after entering into this Agreement, the Parties
shall examine and test the capability of their respective EDI systems and
complete implementation of a mutually agreeable system whereby transfers of
information can be made effectively on a consistent basis. In the event that
critical internal support systems and electronic communication links, including
EDI, are not available for five business days, the Parties will cooperate to
promptly implement substitute procedures to document the information customarily
sent by EDI and prevent interruptions to each other's business.
2.6 PROVIDER ORDER MONITORING. During the term of this Agreement, McKesson
will implement processes and procedures, including order filtering, to monitor
and manage Provider order patterns to prevent speculative buying. If it is
determined that a Provider is speculating, McKesson will implement additional
steps to limit Provider purchases to reasonable levels. Provider purchasing
activity as well as McKesson's good faith efforts to prevent Provider
speculative buying will be provided to Connetics in 852 and 867 data. McKesson
agrees not to sell Product to or order Product from known secondary sources or
other wholesalers.
2.7 NEW PRODUCT LAUNCH SUPPORT. McKesson will provide support for new
product launches as long as McKesson's launch criteria are met. McKesson shall
provide Connetics with the information it requests relating to McKesson's launch
criteria.
2.8 PURCHASE REQUIREMENT. McKesson agrees to purchase 100% of its
requirements of Connetics Products directly from Connetics.
2.9 PROCESSING OF CREDITS, ETC. McKesson shall perform all the work
associated with credits, reconciliations, and returns at no additional cost to
Connetics.
2.10 RETURNS. The Parties will execute a separate agreement regarding the
procedures and terms for returns of Product by McKesson to Connetics.
ARTICLE 3
CONSIDERATION AND PAYMENT
3.1 SERVICE FEE.
(a) In recognition of McKesson"s performance of the Services,
Connetics will provide McKesson with a fee equal to [**] of McKesson's
gross purchases of Connetics Products during each calendar quarter (the
"SERVICE FEE"). In addition to the Service Fee, subject to the provisions
of this Section, McKesson shall be entitled to retain the full benefit of
any other programs or price concessions that Connetics offers, including
but not limited to price increases, non-launch discounts, and any other
deals and/or incentives that Connetics offers on Products..
(b) McKesson will invoice Connetics within 25 days after the close of
each calendar quarter during the Commitment Period. Connetics shall pay
each invoice no later than 30 days after it receives the invoice.
(c) It is the intention of the Parties that, over the Commitment
Period, McKesson shall receive a benefit from this Agreement equal to [**]
of its total gross Product purchases during the Commitment Period, and that
that benefit be derived from a combination of the Service Fee and the other
commercial activities described in SUBSECTION 3.1(A), not including
Connetics' standard [**] prompt pay discount. [**].
ARTICLE 4
TERM AND TERMINATION; REMEDIES
This Agreement shall remain in full force from the Effective Date through
December 31, 2005. Either Connetics and/or McKesson may terminate this Agreement
upon the earlier of (a) the mutual written agreement of Connetics and McKesson;
or (b) a breach by the other Party of any of the terms of this Agreement that is
not cured within thirty (30) days of written notification thereof by the
non-breaching Party; or (c) thirty (30) days' prior written notice of
termination without cause by Connetics or McKesson to the other Party; or (d)
the institution (whether voluntarily or involuntarily) of bankruptcy,
insolvency, liquidation or similar proceedings by or
** Portions of this exhibit have been omitted anf filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
against Connetics or McKesson, or the assignment of Connetics' or McKesson's
assets for the benefit of creditors.
ARTICLE 5
MISCELLANEOUS
5.1 NATURE OF RELATIONSHIP. The relationship between Connetics and McKesson
is that of service buyer-seller, and no agency, franchise, partnership, joint
venture or other relationship shall be construed to exist between the Parties.
Nothing contained in this Agreement shall be construed as giving McKesson any
exclusive rights as a wholesaler of Products, whether in any territory or with
respect to any class of customers for Products. Connetics reserves the right to
appoint additional distribution service suppliers and to sell directly to
customers, including without limitation, the U.S. Government (including any
agencies, departments or services thereof), qualifying tax-supported and
non-profit institutions, mail service and other retail providers, and such other
accounts as Connetics deems appropriate.
5.2 CONFIDENTIALITY.
5.2.1 PROTECTION OF CONFIDENTIAL INFORMATION. During the term of this
Agreement, each Party, its respective agents, employees and representatives
(collectively, the "RECEIVING PARTY") may receive or have access to confidential
materials and information of the other Party (the "DISCLOSING PARTY"). All such
materials and information (including, but not limited to the terms of this
Agreement, Product information, operations, methods, strategies, formulas, price
lists, discount programs, incentives, rebates, records of unit movement for
Products, shipping and warehousing, and confidential proprietary information
from third parties), are collectively referred to as "CONFIDENTIAL INFORMATION"
and constitute the property of the disclosing party. During the term of this
Agreement and for a period of one (1) year thereafter (except as required to
comply with any applicable reporting obligations under a federal or state health
care program) the receiving party shall not use or disclose to third persons any
such Confidential Information without the disclosing party's prior written
consent, excepting (a) disclosures made on a confidential basis to and use by
the directors, officers, employees, and agents of the receiving party who have a
reasonable need to know such information in connection with the receiving
party's performance of this Agreement, (b) disclosures that are required by law,
as reasonably determined by the receiving party or its legal counsel, or are
made on a confidential basis to the receiving party's attorneys, accountants,
and other professional advisors in connection with matters relating to this
Agreement, and (c) routine disclosures in the normal course of business,
including to IMS/DDD or similar organizations.
5.2.2 RETURN OF CONFIDENTIAL INFORMATION. Upon termination of this
Agreement (for any reason) each Party upon written request of the disclosing
party will promptly: (a) return to the other Party all documentation and other
materials (including copies of original documentation or other materials)
containing any Confidential Information of the other Party; or (b) certify to
the other Party, pursuant to a certificate in form and substance reasonably
satisfactory to the other Party, as to the destruction of all such documentation
and other materials.
5.3. ASSIGNMENT AND DELEGATION. Neither Party may assign this Agreement
without the prior written consent of the other Party; PROVIDED, HOWEVER, that
either Party may assign this Agreement without such consent to an Affiliate. For
purposes of this SECTION 5.3, an Affiliate shall be defined to include any
company controlling, controlled by, or under common control with McKesson or
Connetics as the case may be through stock ownership, direct or indirect. This
Agreement shall be binding upon and shall inure to the benefit of the successors
and assigns of the Parties.
5.4 GOVERNING LAW. This Agreement shall be interpreted in accordance with,
and governed by, the laws of the [**], without regard to any conflicts of laws'
rules.
5.5 SEVERABILITY; WAIVER. If a court of competent jurisdiction holds any
provision of this Agreement to be invalid, illegal, or unenforceable, then: (a)
such provision will be deemed amended to conform to applicable laws of such
jurisdiction so as to be valid and enforceable, or, if it cannot be so amended
without materially altering the intention of the Parties, it will be stricken;
(b) the validity, legality and enforceability of such provision will not in any
way be affected or impaired thereby in any other jurisdiction; and (c) the
remaining provisions of this Agreement will remain in full force and effect. No
term or condition of this Agreement is considered waived unless reduced to
writing and duly executed by an officer of the waiving Party, and any waiver by
any Party of a breach of any term or condition of this Agreement is not
considered as a waiver of any subsequent breach of the same or any other term or
condition.
5.6 STATUTE OF FRAUDS. All EDI transmissions made pursuant to this
Agreement shall be deemed to be the same as written communication for all
purposes, and for all applications of law and statutes, including but not
limited to, the Statue of Frauds under the California Uniform Commercial Code.
5.7 FORCE MAJEURE. Neither Party shall be liable for delay in delivery or
nonperformance in whole or in part nor shall the other Party have the right to
terminate this Agreement where delivery or performance has been affected by a
condition of force majeure. For purposes of this Agreement, force majeure means
a condition which results from causes beyond a Party's reasonable control,
including, but not limited to, acts of God, acts of the other Party, shortages,
fires, labor disputes, strikes, floods, epidemics, quarantines, war, riot, delay
in transportation, compliance with any applicable governmental regulation or
order, whether or not it later proves to be invalid, or inability to obtain
labor, materials or manufacturing facilities. If either Party is affected by a
force majeure event, such Party shall, within 10 days of its occurrence, give
notice to the other Party stating the nature of the event, its anticipated
duration and any action being taken to avoid or minimize its effect. The
suspension of performance shall be of no greater scope and no longer duration
than is reasonably required and the non-performing Party shall use its best
efforts to remedy its inability to perform.
5.8 NOTICES. All notices to either Party (each a "NOTICE") shall be in
writing, shall refer specifically to this Agreement and shall be hand delivered
or sent by express courier service, costs prepaid, or by facsimile to the
respective addresses specified below (or to such other address as may be
specified by Notice to the other Party):
** Portions of this exhibit have been omitted anf filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
If to McKesson, to:
McKesson Corporation
Xxx Xxxx Xxxxxx
Xxx Xxxxxxxxx, XX 00000
Attention: Xxxx Xxxxx
FACSIMILE NO.: 000-000-0000
If to Connetics, to:
Connetics Corporation
0000 Xxxx Xxxxxxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Attention: Chief Commercial Officer
FACSIMILE NO.: 0-000-000-0000
5.9. ENTIRE AGREEMENT. With the exception of McKesson's Buying Terms Form
previously executed by Connetics in December 1987, this Agreement constitutes
the entire agreement between the Parties and supersedes all prior contracts,
agreements and understandings between the Parties whether written or oral with
regard to the subject matter of this Agreement. This Agreement may not be
amended except in writing signed by authorized representatives of the Parties.
5.10. LIMITATION OF LIABILITY. In no event shall McKesson be liable to
Connetics for any special, consequential, incidental, or indirect damages,
however caused, on any theory of liability and whether or not McKesson has been
advised of the possibility of such damages.
\\
\\
\\
\\
\\
\\
\\
\\
\\
\\
\\
\\
\\
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective
Date.
CONNETICS CORPORATION MCKESSON CORPORATION
By: /s/ Xxxx X. Xxxxxxx By: /s/ Xxxxxx Xxxxxx-Xxxxxx
------------------------------- -------------------------------
Name: Xxxx X. Xxxxxxx Name: Xxxxx Xxxxxx-Xxxxxx
Title: CFO Title: Dir. Brand Rx Prod. Mangt.
EDI Contact Person: EDI Contact Person:
Name: Xx. Xxxxxxx Xxxxxx Name: Xxxxx Stuell
E-mail: xxxxxxx@xxxxxxxxx.xxx E-Mail: xxxxx.xxxxxx@xxxxxxxx.xxx
Phone: 000-000-0000 Phone: 000-000-0000
EXHIBIT A
SEE ARTICLE 3 FOR FEE AND PAYMENT DETAILS.
PRODUCTS
PRODUCT SKU NDC NUMBER
Luxiq 150 g 00000-000-00
Luxiq 100g 00000-000-00
Luxiq 50g 00000-000-00
OLUX 100g 63032-031-00
OLUX 50g 00000-000-00
Soriatane 25 mg 00000-000-00
Soriatane 10 mg 00000-000-00
Evoclin (clindamycin foam) 100g 63032-061-00
Evoclin (clindamycin foam) 50g 00000-000-00
Velac gel XXX XXX
