EXHIBIT 10.53
EXECUTION COPY
DISTRIBUTION SERVICES AGREEMENT
This Distribution Services Agreement ("AGREEMENT") is entered into as of
December 1, 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 Cardinal Health, Inc.* with its
principal place of business located at 0000 Xxxxxxxx Xxxxx, Xxxxxx, Xxxx 00000
("CARDINAL"). Connetics and Cardinal are sometimes referred to individually in
this Agreement as a "Party," and collectively as the "Parties."
RECITALS
WHEREAS, Cardinal 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 Cardinal; and
WHEREAS, Cardinal is willing to provide to Connetics and Connetics desires
to obtain from Cardinal certain additional services as needed and agreed upon by
both Parties; and
WHEREAS, Connetics and Cardinal 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) Cardinal has on hand at all of its storage
and/or distribution facilities and (ii) Cardinal 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 Cardinal 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.
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CONFIDENTIAL INFORMATION. "Confidential Information" shall have the meaning set
forth in SECTION 5.2.
INVENTORY REPORTS. "Inventory Reports" shall have the meaning set forth in
SECTION 2.5.1.
NEW PRICE. "New Price" means the WAC charged by Connetics effective upon any
price change Connetics institutes during the Commitment Period.
OLD PRICE. "Old Price" means the WAC charged by Connetics immediately preceding
the institution of a New Price.
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 Cardinal in the
United States.
SALES REPORTS. "Sales Reports" shall have the meaning set forth in SECTION
2.5.1.
SERVICE FEE. "Service Fee" shall have the meaning set forth in SECTION 3.1(a).
SERVICES. "Services" shall have the meaning set forth in SECTION 2.1.
TERM. "Term" means the date first written above, through and including December
31, 2005, unless this Agreement is terminated earlier under the provisions of
Article 4.
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 Cardinal 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.
- Sophisticated ordering technology
- Daily consolidated deliveries to providers
- Emergency shipments to providers 24/7/365
- Consolidated accounts receivable management
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- Customer Service support
- Adequate working inventories to meet customer needs and
service levels
- Licensed, environmentally controlled, PDMA compliant, secure
facilities
2.2 BASE DISTRIBUTION SERVICES.
(a) Contract and Chargeback administration
(b) Returns and Recall processing
2.3 INVENTORY MANAGEMENT SERVICES.
2.3.1 INVENTORY LEVELS. During the Term of this Agreement, Cardinal
will use its best efforts to maintain an inventory level of between [**]
2.3.2 PURCHASE LIMITS. Connetics agrees to ship all Cardinal
purchase orders in full provided they are consistent with product demand.
Connetics has the right to question any orders that exceed Cardinal's Average
Weekly Movement and has the right to cancel any quantities for which Cardinal is
not able to provide reasonable justifications and/or explanations.
2.3.3 INVENTORY DURING THE COMMITMENT PERIOD. If Cardinal has more
than [**] of any Product as of date this Agreement is signed, 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 do not
intend that Cardinal will attain these inventory levels by returning Product to
Connetics.
2.4 PRODUCT AVAILABILITY. Cardinal and Connetics will jointly use their
best efforts to minimize Product shortages and maximize Product availability by
agreeing to the following:
(a) Cardinal will institute an automated balancing system for
Products in order to optimize the use of existing inventories across the
entire Cardinal network, including inventories held in Cardinal'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, Cardinal will
implement more frequent order and receiving cycles to help reduce
inventory requirements.
(c) Cardinal 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.
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2.5 DATA / REPORTING SERVICES.
2.5.1 Cardinal 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. Cardinal
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:
- On hand inventory level by distribution center; and
- On order inventory level by distribution center; and
- Sales out by distribution center
2.5.2 Cardinal may, due to contractual requirements, be required to
block certain data in the EDI 867's that discloses Provider identity. In
particular, Cardinal may block information such as Provider name and DEA number,
and any other data that would identify a Provider, but only to the extent that
it would identify a Provider.
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,
Cardinal will implement processes and procedures to monitor Provider order
patterns. Cardinal and Connetics will agree upon parameters that may represent
speculative buy activity, and Cardinal will investigate any orders that meet
those parameters, and will report the outcome to Connetics. If it is determined
that a Provider is speculating, Cardinal will implement additional steps to
limit Provider purchases to reasonable levels. Cardinal agrees not to sell
Product to or order Product from known secondary sources or other wholesalers.
2.7 NEW PRODUCT LAUNCH SUPPORT. Cardinal will provide guaranteed support
for future Connetics new Product launches. Support will consist of the
following:
(a) stocking each distribution center with commercially appropriate
quantities;
(b) providing daily sales out reports for the first 90 days of
Product launch;
(c) providing automatic distribution to participating or targeted
pharmacies on qualified products through Cardinal's "First Script
Program"; and
(d) any other mutually agreed upon Product information updates.
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2.8 SERVICE LEVEL. Cardinal agrees to use its best commercial efforts to
service orders placed by Providers for Products without any outages [**] Service
level will be calculated according to Cardinal's then current, standard adjusted
service level report. As of the date of this Agreement, the report referenced in
this subsection is titled, "Service Level Report."
2.9 PURCHASE REQUIREMENT. Cardinal agrees to purchase 100% of its
requirements of Connetics Products directly from Connetics.
2.10 PROCESSING OF CREDITS, ETC. Cardinal shall perform all the work
associated with credits, reconciliations, and returns at no additional cost to
Connetics.
ARTICLE 3
CONSIDERATION AND PAYMENT
3.1 SERVICE FEE PROVIDED BY CONNETICS.
(a) In recognition of Cardinal's performance of the Services,
Connetics will provide Cardinal with a fee equal to [**] for Cardinal's
purchases of Connetics Products during each calendar quarter (the "SERVICE
FEE"). In addition to the Service Fee, subject to the provisions of this
Section, [**].
(b) Cardinal will invoice Connetics within 15 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, Cardinal shall receive a benefit from this Agreement equal to [**]
of its total 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.
[**]
**Portions of this exhibit have been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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[**]
3.2 OFFSET BY CARDINAL. Cardinal shall have the right to offset against
amounts owed to Connetics any chargebacks that Cardinal determines are permitted
by contract between Connetics and the entity to whom Cardinal has sold Product.
Cardinal agrees that it shall not take any deductions that are not related to
such chargebacks except in accordance with this SECTION. Cardinal will notify
Connetics of any planned deductions in a timely manner and will not take any
deductions for up to 30 days after the date of notification to give the Parties
the opportunity to meet and discuss the deductions. Cardinal will use its best
efforts to resolve any disagreements regarding deductions during this 30-day
period.
3.3 RETURN CREDIT. During the Commitment Period, Connetics will credit
Cardinal for returns for which Cardinal submits a return goods authorization
request, at a rate equal to [**]. Cardinal will make all returns in accordance
with the terms of Connetics' then-current Return Goods Policy.
3.4 COMPENSATION PERIOD. All compensation under this Agreement shall be
paid from the beginning and until the end of the Commitment Period.
ARTICLE 4
TERM; TERMINATION
This Agreement shall remain in full force through December 31, 2005, unless
terminated earlier in accordance with this ARTICLE 4. Either Connetics and/or
Cardinal may terminate this Agreement upon the earlier of (a) the mutual written
agreement of Connetics and Cardinal; or (b)
**Portions of this exhibit have been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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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) sixty (60) days' prior written notice of termination
without cause by Connetics or Cardinal to the other Party; or (d) the
institution (whether voluntarily or involuntarily) of bankruptcy, insolvency,
liquidation or similar proceedings by or against Connetics or Cardinal, or the
assignment of Connetics' or Cardinal's assets for the benefit of creditors.
ARTICLE 5
MISCELLANEOUS
5.1 NATURE OF RELATIONSHIP. The relationship between Connetics and
Cardinal 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
Cardinal 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 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 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
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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 Cardinal 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 State of the Ohio 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
**Portions of this exhibit have been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
PAGE 8
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):
If to Cardinal, to:
Cardinal Health, Inc
0000 Xxxxxxxx Xxxxx
Xxxxxx, Xxxx 00000
Attention: Xx. Xxx Xxxxxx
Facsimile No.: ______________
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. 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. For avoidance of
doubt, this Agreement is not intended to affect in any way the Distribution
Agreement between Connetics and Cardinal Health 105, Inc., f/k/a CORD Logistics,
Inc., dated January 1, 2001, as subsequently amended.
REMAINDER OF PAGE IS INTENTIONALLY BLANK
SIGNATURE PAGE FOLLOWS
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IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of the day
first written above.
CONNETICS CORPORATION CARDINAL HEALTH, INC.
By: /s/ Xxxx X. Xxxxxxx By: /s/ Xxx Xxxxx
------------------------------- -----------------------
Xxxx X. Xxxxxxx Name: Xxx Xxxxx
Exec. VP, Finance and Corporate Title: SVP. Purchasing
Development and CFO
EDI Contact Person: EDI Contact Person:
Name: Xx. Xxxxxxx Xxxxxx Name: Xx. Xxx Xxxxxx
E-mail: xxxxxxx@xxxxxxxxx.xxx E-Mail: Xxx.Xxxxxx@xxxxxxxx.xxx
Phone: 000-000-0000 Phone: 000-000-0000
Departmental Email:
xxxxxxxxx@xxxxxxxx.xxx
-----------------
* The term "Cardinal Health" shall include the following affiliated
operating companies: Cardinal Health 110, Inc., formerly known as Xxxxxxxx
Distribution Corporation, a Delaware corporation (Folsom, California); Cardinal
Health 106, Inc., formerly known as Xxxxx X. Xxxx, Inc., a Massachusetts
corporation (Peabody, Massachusetts); Cardinal Health 103, Inc., formerly known
as Cardinal Southeast, Inc., a Mississippi corporation (Richland, Mississippi);
Cardinal Health 100, Inc., formerly known as Bindley Western Industries, Inc.,
an Indiana corporation (Indianapolis, Indiana); Cardinal Health 104, LP f/k/a
Service Supplier Distribution, L.P., an Ohio limited partnership (Dublin, Ohio);
Cardinal Health 107, Inc., formerly known as National Pharmpak Services, Inc.,
an Ohio corporation; and any other subsidiary of Cardinal Health, Inc., an Ohio
corporation ("CHI"), as may be designated by CHI.
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EXHIBIT A
PRODUCTS
PRODUCT SKU NDC NUMBER
------- --- ----------
Luxiq 150g 00000-000-00
Luxiq 100g 00000-000-00
Luxiq 50g 00000-000-00
OLUX 100g 63032-031-00
OLUX 50g 00000-000-00
Soriatane 25mg 00000-000-00
Soriatane 10mg 00000-000-00
Evoclin (clindamycin foam) 100g 63032-051-00
Evoclin (clindamycin foam) 50g 00000-000-00
ketoconazole foam XXX XXX
Velac gel XXX XXX
