<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] 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 000-25769
ACCREDO HEALTH, INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 62-1642871
------------------------------ -------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1640 CENTURY CENTER PKWY, SUITE 101, MEMPHIS, TN 38134
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(901) 385-3688
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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 [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT April 28, 2000
<S> <C>
COMMON STOCK, $0.01 PAR VALUE................ 14,076,324
NON-VOTING COMMON STOCK, $0.01 PAR VALUE.....
---------
TOTAL COMMON STOCK........................... 14,076,324
==========
</TABLE>
<PAGE> 2
ACCREDO HEALTH, INCORPORATED
INDEX
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations (unaudited)
For the three months and nine months ended March 31,
1999 and 2000
Condensed Consolidated Balance Sheets
June 30, 1999 and March 31, 2000 (unaudited)
Condensed Consolidated Statements of Cash Flows (unaudited)
For the nine months ended March 31, 1999 and 2000
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Part II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(d) Use of Proceeds
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Note: Items 1 and 3 of Part II are omitted because they are not
applicable.
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ACCREDO HEALTH, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(000'S OMITTED, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Three Months
Ended March 31, Ended March 31,
-------------------- ------------------
2000 1999 2000 1999
-------- --------- ------- --------
<S> <C> <C> <C> <C>
Net patient service revenue $241,413 $ 176,816 $86,788 $ 63,068
Other revenue 11,483 8,861 4,092 3,214
Equity in net income of joint ventures 1,722 1,230 512 599
-------- --------- ------- --------
Total revenues 254,618 186,907 91,392 66,881
Cost of services 217,450 159,198 77,669 57,289
-------- --------- ------- --------
Gross profit 37,168 27,709 13,723 9,592
General & administrative 17,089 12,907 6,011 4,516
Bad debts 4,549 3,420 1,587 1,136
Depreciation and amortization 2,404 3,003 939 1,018
-------- --------- ------- --------
Income from operations 13,126 8,379 5,186 2,922
Interest expense, net 1,498 2,653 714 922
-------- --------- ------- --------
Income before income taxes 11,628 5,726 4,472 2,000
Provision for income taxes 4,580 2,843 1,740 980
-------- --------- ------- --------
Net income 7,048 2,883 2,732 1,020
Preferred stock dividends -- (1,532) -- (511)
-------- --------- ------- --------
Net income to common shareholders $ 7,048 $ 1,351 $ 2,732 $ 509
======== ========= ======= ========
Basic earnings per common share:
Net income $ 0.51 $ 0.34 $ 0.20 $ 0.12
Preferred stock dividends -- (0.18) -- (0.06)
-------- --------- ------- --------
Net income per common share $ 0.51 $ 0.16 $ 0.20 $ 0.06
======== ========= ======= ========
Diluted earnings per common share:
Net income $ 0.48 $ 0.31 $ 0.18 $ 0.11
Preferred stock dividends -- (0.16) -- (0.06)
-------- --------- ------- --------
Net income per common share $ 0.48 $ 0.15 $ 0.18 $ 0.05
======== ========= ======= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
ACCREDO HEALTH, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(000'S OMITTED, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,500 $ 5,542
Accounts receivable, less allowance for doubtful
accounts of $7,508 at March 31, 2000 and
$5,300 at June 30, 1999 62,054 54,816
Due from affiliates 2,638 2,105
Other accounts receivable 12,893 5,856
Inventories 31,869 19,927
Prepaids and other current assets 455 359
Deferred income taxes 2,819 1,554
-------- --------
Total current assets 121,228 90,159
Property and equipment, net 5,270 3,025
Other assets:
Joint venture investments 5,127 3,415
Goodwill and other intangible assets, net 69,767 50,147
-------- --------
Total assets $201,392 $146,746
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 79,403 $ 56,029
Accrued expenses 5,024 4,831
Income taxes payable 57 393
-------- --------
Total current liabilities 84,484 61,253
Long-term notes payable 41,500 20,500
Deferred income taxes 1,184 866
Stockholders' equity:
Undesignated Preferred Stock, 5,000,000 shares
authorized, no shares issued -- --
Non-voting Common Stock, $.01 par value;
2,500,000 shares authorized; no shares issued and outstanding at
March 31, 2000; 1,650,000 shares
issued and outstanding at June 30, 1999 -- 16
Common Stock, $.01 par value; 30,000,000 shares authorized;
14,076,324 and 11,965,631 shares issued and outstanding at
March 31, 2000 and June 30, 1999, respectively 141 120
Additional paid-in capital 66,365 63,322
Retained earnings 7,718 669
-------- --------
Total stockholders' equity 74,224 64,127
-------- --------
Total liabilities and stockholders' equity $201,392 $146,746
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
ACCREDO HEALTH, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(000'S OMITTED)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
2000 1999
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 7,048 $ 2,883
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 2,404 3,003
Original issue discount amortization -- 184
Provision for losses on accounts receivable 4,549 3,420
Deferred income tax benefit (998) (1,108)
Compensation resulting from stock transactions 138 138
Changes in operating assets and liabilities:
Patient receivables and other (16,802) (22,252)
Due from affiliates (1,110) (1,204)
Inventories (11,477) (2,699)
Prepaids and other current assets (91) (790)
Recoverable income taxes -- 151
Accounts payable and accrued expenses 22,749 15,193
Income taxes payable (336) 3
-------- --------
Net cash provided by (used in) operating activities 6,074 (3,078)
INVESTING ACTIVITIES:
Purchases of property and equipment (2,876) (941)
Business acquisitions and joint venture investments (22,490) (1,298)
Change in joint venture investments, net (1,712) (808)
-------- --------
Net cash used in investing activities (27,078) (3,047)
FINANCING ACTIVITIES:
Proceeds from long-term obligations 21,000 2,000
Issuance of common stock 2,962 212
-------- --------
Net cash provided by financing activities 23,962 2,212
-------- --------
Increase (decrease) in cash and cash equivalents 2,958 (3,913)
Cash and cash equivalents at beginning of period 5,542 5,087
-------- --------
Cash and cash equivalents at end of period $ 8,500 $ 1,174
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary to present fairly
the condensed consolidated financial position, results of operations and cash
flows of Accredo Health, Incorporated (the "Company" or "Accredo") have been
included. Operating results for the three and nine-month periods ended March 31,
2000, are not necessarily indicative of the results that may be expected for the
fiscal year ended June 30, 2000.
The balance sheet at June 30, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended June 30, 1999.
2. STOCKHOLDERS' EQUITY
During the quarter ended March 31, 2000, employees exercised stock
options to acquire 269,070 shares of Accredo common stock for exercise prices
ranging between $2.00 and $10.67 per share.
3. STOCK SPLIT
On January 31, 2000, the Company announced a three-for-two stock split
in the form of a 50% stock dividend for shareholders of record on February 11,
2000. Shareholders received one additional share of common stock on February 21,
2000 for every two shares held on the record date. The Company has adjusted
earnings per share and all other share related information to reflect the stock
split.
<PAGE> 7
4. EARNINGS PER SHARE
The following table sets forth the computation of basic and
diluted earnings per share (in thousands, except share data):
<TABLE>
<CAPTION>
Nine Months Ended March 31, Three Months Ended March 31,
----------------------------- -----------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Numerator for basic and diluted income per
share to common stockholders:
Net income $ 7,048 $ 2,883 $ 2,732 $ 1,020
Preferred stock dividends -- (1,532) -- (511)
------------- ------------- ------------- -------------
Net income to common stockholders $ 7,048 $ 1,351 $ 2,732 $ 509
============= ============= ============= =============
Denominator:
Denominator for basic income per
share to common stockholders -
weighted-average shares 13,764,744 8,433,618 13,903,097 8,438,430
Effect of dilutive stock options 976,631 888,536 948,228 886,702
------------- ------------- ------------- -------------
Denominator for diluted income per
share to common stockholders -
adjusted weighted-average shares 14,741,375 9,322,154 14,851,325 9,325,132
============= ============= ============= =============
Basic earnings per common share:
Net income $ 0.51 $ 0.34 $ 0.20 $ 0.12
Preferred stock dividends -- (0.18) -- (0.06)
------------- ------------- ------------- -------------
Net income per common share $ 0.51 $ 0.16 $ 0.20 $ 0.06
============= ============= ============= =============
Diluted earnings per common share:
Net income $ 0.48 $ 0.31 $ 0.18 $ 0.11
Preferred stock dividends -- (0.16) -- (0.06)
------------- ------------- ------------- -------------
Net income per common share $ 0.48 $ 0.15 $ 0.18 $ 0.05
============= ============= ============= =============
</TABLE>
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD LOOKING STATEMENTS
Some of the information in this quarterly report contains
forward-looking statements that involve substantial risks and uncertainties. You
can identify these statements by forward-looking words such as "may," "will,"
"expect," "anticipate," "believe," "intend," "estimate" and "continue" or
similar words. You should read statements that contain these words carefully for
the following reasons:
- - the statements discuss our future expectations;
- - the statements contain projections of our future earnings or of our
financial condition; and
- - the statements state other "forward-looking" information.
There may be events in the future that we are not accurately able to
predict or over which we have no control. The risk factors discussed below, as
well as any cautionary language in this quarterly report, provide examples of
risks, uncertainties and events that may cause our actual results to differ
materially from the expectations we describe in our forward-looking statements.
Examples of these risks, uncertainties and events include the availability of
new drugs, our relationship with the manufacturers whose drugs we handle,
competitive or regulatory factors affecting the drugs we handle or their
manufacturers, the demand for our services, our ability to expand through joint
ventures and acquisitions, our ability to maintain existing pricing arrangements
with suppliers, the impact of government regulation, our need for additional
capital, the seasonality of our operations and our ability to implement our
strategies and objectives.
Investors in our common stock should be aware that the occurrence of
any of the events described in the risk factors discussed elsewhere in this
quarterly report and other events that we have not predicted or assessed could
have a material adverse effect on our earnings, financial condition and
business. In such case, the trading price of our common stock could decline and
you may lose all or part of your investment.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
REVENUES
Total revenues increased 37% from $66.9 million to $91.4 million from the three
months ended March 31, 1999 to the three months ended March 31, 2000.
Approximately $12.2 million, or 50%, of this increase was attributable to our
increased sales of Avonex(R). Cerezyme(R) and Ceredase(R) drug sales increased
approximately $3.3 million, or 14% of the revenue increase. Approximately $2.7
million, or 11%, of this increase was attributable to increased hemophilia
revenue. Approximately $2.8 million, or 11%, of the increase was attributable to
increased sales of growth hormone products. Synagis(R) drug sales increased
approximately $1.2 million, or 5% of the increase, as a result of increased
patients. Approximately $1.7 million, or 7%, of the increase was attributable to
the sale of intravenous immunoglobulin ("IVIG") products we began distributing
in December 1999. The remaining $.6 million, or 2%, of the revenue increase was
attributable to increased sales of other ancillary drugs we dispense as part of
the patient's primary therapy or under contractual obligations within certain
managed care contracts. Total revenues included approximately $5.0 million of
revenues from companies we acquired in the previous quarter.
COST OF SERVICES
Cost of services increased from $57.3 million to $77.7 million, or 36%, from the
three months ended March 31, 1999 to the three months ended March 31, 2000. This
increase is commensurate with the increase in revenues discussed above. As a
percentage of revenues, cost of services decreased from 85.7% to 85.0% from the
three months ended March 31, 1999 to the three months ended March 31, 2000. This
decrease is primarily the result of changes in the revenue mix by therapy type
and more specifically increased sales of intravenous immunoglobulin drugs which
have a lower acquisition cost as a percentage of revenues than the other drugs
we distribute.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased from $4.5 million to $6.0 million,
or 33%, from the three months ended March 31, 1999 to the three months ended
March 31, 2000. This increase was primarily the result of increased salaries and
benefits associated with the expansion of our reimbursement, sales, marketing,
administrative and support staffs due to existing product line revenue growth,
new product line launches and the two acquisitions made during the previous
quarter. General and
<PAGE> 9
administrative expenses represented 6.8% and 6.6% of revenues for the three
months ended March 31, 1999 and 2000, respectively.
BAD DEBTS
Bad debts increased from $1,136,000 to $1,587,000, or 40%, from the three months
ended March 31, 1999 to the three months ended March 31, 2000 primarily due to
the increase in revenues. Bad debt expense was 1.7% of revenues in both of the
three-month periods ended March 31, 1999 and 2000.
DEPRECIATION AND AMORTIZATION
Depreciation expense increased from $160,000 to $302,000 from the three months
ended March 31, 1999 to the three months ended March 31, 2000 as a result of
purchases of property and equipment associated with our revenue growth and
expansion of our leasehold facility improvements. Capital expenditures amounted
to $1.5 million in fiscal year 1999 and $1.65 million in the three months ended
March 31, 2000. Amortization expense associated with goodwill and other
intangible assets decreased from $858,000 to $637,000 from the three months
ended March 31, 1999 to the three months ended March 31, 2000 due to certain
contract intangibles and a non-compete covenant that were fully amortized by the
end of fiscal year 1999. Amortization expense attributable to the acquisitions
made during the previous quarter amounted to approximately $211,000 in the three
months ended March 31, 2000.
INTEREST EXPENSE, NET
Interest expense, net, decreased from $922,000 to $714,000 from the three months
ended March 31, 1999 to the three months ended March 31, 2000. This decrease is
due to lower interest and margin rates payable under our revolving line of
credit agreement, lower fixed interest rate payments associated with our
interest rate swap agreement, and a reduced level of debt resulting from the
early payoff of a significant portion of our debt with a portion of the proceeds
from the initial public offering completed in April 1999. We generated interest
income of approximately $27,000 and $48,000 in the three months ended March 31,
1999 and 2000, respectively.
INCOME TAX EXPENSE
The effective tax rate decreased from 49.0% to 38.9% from the three months ended
March 31, 1999 to the three months ended March 31, 2000 as a result of the
increase in income before taxes while nondeductible amortization expense
decreased. The difference between the recognized tax rate and the statutory tax
rate was primarily attributed to approximately $615,000 and $204,000 of
nondeductible amortization expense in the three months ended March 31, 1999 and
2000, respectively, and state income taxes.
NINE MONTHS ENDED MARCH 31, 2000 COMPARED TO NINE MONTHS ENDED MARCH 31, 1999
REVENUES
Total revenues increased 36% from $186.9 million to $254.6 million, from the
nine months ended March 31, 1999 to the nine months ended March 31, 2000.
Approximately $36.8 million, or 54%, of this increase was attributable to the
increased sales of Avonex(R). Cerezyme(R) and Ceredase(R) drug sales increased
approximately $8.8 million, or 13% of the revenue increase. Approximately $7.6
million, or 11%, of this increase was attributable to increased hemophilia
revenue. Approximately $6.2 million, or 9%, of the increase was attributable to
increased sales of growth hormone products. Synagis(R) drug sales increased
approximately $2.5 million, or 4% of the increase, as a result of increased
patients. Approximately $2.4 million, or 4%, of the increase was attributable to
the sale of IVIG products we began distributing in December 1999. The remaining
$3.4 million, or 5%, of the revenue increase was primarily attributable to
increased sales of other ancillary drugs we dispense as part of the patient's
primary therapy or under contractual obligations within certain managed care
contracts and an increase of approximately $492,000 from our equity in net
income of joint ventures. Total revenues included approximately $8.3 million of
revenues from companies acquired during the nine months ended March 31, 2000.
COST OF SERVICES
Cost of services increased 37% from $159.2 million to $217.5 million from the
nine months ended March 31, 1999 to the nine months ended March 31, 2000. This
increase is commensurate with the increase in our revenues. As a percentage of
revenues, cost of services increased from 85.2% to 85.4% from the nine months
ended March 31, 1999 to the same period in 2000. The increase is primarily the
result of changes in the revenue mix by therapy type and increased pharmacy and
warehouse costs included in cost of services.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased from $12.9 million to $17.1
million, or 33%, for the nine months ended March 31, 1999 compared to the nine
months ended March 31, 2000. This increase was primarily the result of increased
salaries and benefits associated with the expansion of our reimbursement, sales,
marketing, administrative and support staffs due to existing
<PAGE> 10
product line revenue growth, new product line launches and the two acquisitions
made during the nine months ended March 31, 2000. General and administrative
expenses represented 6.9% and 6.7% of revenues for the nine months ended March
31, 1999 and 2000, respectively.
BAD DEBTS
Bad debts increased from $3.4 million to $4.5 million, or 32%, from the nine
months ended March 31, 1999 to the nine months ended March 31, 2000. Bad debt
expense was 1.8% of revenues for the nine months ended March 31, 1999 and 2000.
DEPRECIATION AND AMORTIZATION
Depreciation expense increased from $430,000 to $750,000 from the nine months
ended March 31, 1999 to the nine months ended March 31, 2000 as a result of
purchases of property and equipment associated with our revenue growth and
expansion of our leasehold facility improvements. Capital expenditures amounted
to $1.5 million in fiscal year 1999 and $2.9 million in the nine months ended
March 31, 2000. Amortization expense associated with goodwill and other
intangible assets decreased from $2,573,000 to $1,654,000 from the nine months
ended March 31, 1999 to the nine months ended March 31, 2000 due to certain
contract intangibles and a non-compete covenant that were fully amortized by the
end of fiscal year 1999. Amortization expense attributable to the acquisitions
made during the nine months ended March 31, 2000 amounted to approximately
$325,000.
INTEREST EXPENSE, NET
Interest expense, net decreased from $2,653,000 to $1,498,000 from the nine
months ended March 31, 1999 to the nine months ended March 31, 2000. This
decrease is due to lower interest and margin rates payable under our revolving
line of credit agreement, lower fixed interest rate payments associated with our
interest rate swap agreement, and a reduced level of debt resulting from the
early payoff of a significant portion of our debt with a portion of the proceeds
from the initial public offering completed in April 1999. We had interest income
of approximately $114,000 and $157,000 in the nine months ended March 31, 1999
and 2000, respectively.
INCOME TAX EXPENSE
The effective tax rate decreased from 49.6% to 39.4% from the nine months ended
March 31, 1999 to the nine months ended March 31, 2000 as a result of the
increase in income before taxes while nondeductible amortization expense
decreased. The difference between the recognized effective tax rate and the
statutory tax rate is primarily attributed to approximately $1,845,000 and
$612,000 of nondeductible amortization expense in the nine months ended March
31, 1999 and 2000, respectively, and state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, our working capital was $36.7 million. Cash and cash
equivalents were $8.5 million, and the current ratio was approximately 1.4 to
1.0.
Cash provided by operations was $6.1 million for the nine months ended March 31,
2000. During the nine months ended March 31, 2000, accounts receivable, net of
acquisitions, increased $13.4 million; inventory, net of acquisitions, increased
$11.5 million and accounts payable, net of acquisitions, increased $22.7
million. The increases are primarily due to our revenue growth and the timing of
the collection of receivables, inventory purchases and payments of accounts
payable.
One of our joint venture partners owes us approximately $2.0 million for product
and fees. This amount has been outstanding for more than 360 days. Our joint
venture partner's ability to satisfy this amount depends in part on its ability
to collect claims filed with the State of California's MediCal program. We
believe that we have sufficient reserves for any bad debt resulting from the
failure to collect these receivables. These receivables have reduced the amount
of cash that would have otherwise been provided by operations during the current
period.
Net cash used by investing activities was $27.1 million for the nine months
ended March 31, 2000. Cash used in investing activities consisted primarily of
$22.5 million for acquisitions, $2.9 million for purchases of property and
equipment and $1.7 million of undistributed earnings from our joint ventures.
Net cash provided by financing activities was $24.0 million for the nine months
ended March 31, 2000. Cash provided by financing activities consisted primarily
of $21.0 million of net borrowings on the revolving line of credit to finance
the acquisitions and $3.0 million from the proceeds of stock option exercises
and the tax benefit associated with the disqualifying disposition of a portion
of those shares.
Historically, we have funded our operations and continued internal growth
through cash provided by operations. We anticipate that our capital expenditures
for the year ending June 30, 2000 will consist primarily of additional leasehold
improvements,
<PAGE> 11
equipment and software systems for the continuing expansion of our leasehold and
to enhance our computer systems to meet needs resulting from our growth. We
expect the cost of our capital expenditures in fiscal year 2000 to be
approximately $4.0 million, exclusive of any acquisitions of businesses, and
expect to fund these expenditures through cash provided by operating activities
and/or borrowings under our revolving credit agreement. In addition, in
connection with two of our acquisitions made this fiscal year, we may be
obligated to make up to $2.2 million in earn-out payments during the fourth
quarter of fiscal year 2000.
We have a $60.0 million revolving credit facility under the terms of our
existing Credit Agreement. The Credit Agreement contains a $20.0 million
sub-limit for working capital loans and letters of credit and is subject to a
borrowing base limit that is based on our cash flow. All outstanding principal
and interest on loans made under the Credit Agreement is due and payable on
December 1, 2001. Interest on loans under the Credit Agreement accrues at a
variable rate index, at our option, based on the prime rate or London Inter Bank
Offered Rate for one, two, three or six months (as selected by us), plus in each
case, a margin depending on the amount of our debt to cash flow ratio as defined
by the Credit Agreement and measured at the end of each quarter for prospective
periods. During the nine months ended March 31, 2000, we have paid margin rates
of .75% to 1.50%.
Our obligations under the Credit Agreement are secured by a lien on
substantially all of our assets, including a pledge of all of the common stock
of each of our direct or indirect wholly owned subsidiaries. Each of our
subsidiaries has also guaranteed all of our obligations under the Credit
Agreement. These guarantee obligations are secured by a lien on substantially
all of the assets of each such subsidiary.
The Credit Agreement contains operating and financial covenants, including
requirements to maintain a certain debt to equity ratio and certain leverage and
debt coverage ratios. In addition, the Credit Agreement includes customary
affirmative and negative covenants, including covenants relating to transactions
with affiliates, use of proceeds, restrictions on subsidiaries, limitations on
indebtedness, limitations on liens, limitations on capital expenditures,
limitations on certain mergers, acquisitions and sales of assets, limitations on
investments, prohibitions on payment of dividends and stock repurchases, and
limitations on certain debt payments (including payment of subordinated
indebtedness) and other distributions. The Credit Agreement also contains
customary events of default, including certain events relating to changes in
control of our Company.
We are also a guarantor of a bank loan made to Children's Hemophilia Services, a
California general partnership in which we own a 50% interest. The original line
of credit amounted to $1,500,000. The payment schedule requires that all
outstanding principal amounts in excess of $1,000,000 be paid on January 1,
2000, all outstanding principal amounts in excess of $500,000 be paid on July 1,
2000 and all remaining principal shall be paid in full on November 24, 2000. As
of March 31, 2000, the partnership had $700,000 outstanding under the line of
credit.
We use interest rate swap agreements to manage our interest rate exposure under
the credit agreement. We have effectively converted, for the period through
October 31, 2001, $25.0 million of floating-rate borrowings to fixed rate
borrowings. We have a 5.5% fixed interest rate (exclusive of the margin rate)
under our current interest rate swap agreement.
While we anticipate that our cash from operations, along with the short term use
of the credit agreement will be sufficient to meet our internal operating
requirements and growth plans for at least the next 12 months, we expect that
additional funds may be required in the future to successfully continue our
growth beyond that 12-month period or in the event that we grow more than
expected within such period. We may be required to raise additional funds
through sales of equity or debt securities or seek additional financing from
financial institutions. There can be no assurance, however, that financing will
be available on terms that are favorable to us or, if obtained, will be
sufficient for our needs.
<PAGE> 12
IMPACT OF YEAR 2000 ISSUES
In prior years, we discussed the nature and progress of our plans to become Year
2000 ready. In late 1999, we completed the remediation and testing of our
systems. As a result of our planning and implementation efforts, we experienced
no disruptions in our mission critical information technology and
non-information technology systems. We believe these systems successfully
responded to the Year 2000 date change. We are not aware of material problems
resulting from Year 2000 issues, either with our internal systems, our services
or the products and services of third parties with whom we do business. We will
continue to monitor our mission critical computer applications and those of our
suppliers throughout the year 2000 to ensure that any Year 2000 issues that may
arise are properly addressed.
RISK FACTORS
You should carefully consider the risks we describe below before
investing in Accredo. The risks and uncertainties described below are NOT the
only risks and uncertainties that could develop. Other risks and uncertainties
that we have not predicted or evaluated could also affect our company.
If any of the following risks occur, our earnings, financial condition
or business could be materially harmed, and the trading price of our common
stock could decline, resulting in the loss of all or part of your investment.
WE ARE HIGHLY DEPENDENT ON OUR RELATIONSHIPS WITH A LIMITED NUMBER OF
BIOPHARMACEUTICAL SUPPLIERS.
We derive a substantial majority of our revenue and profitability from our
relationships with Genzyme Corporation, Biogen, Inc. and Genentech, Inc. The
table below shows the concentration of our revenue derived from these
relationships as a percentage of revenue for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS FISCAL YEAR ENDED
ENDED -----------------------------
MARCH 31, 2000 JUNE 30, 1999 JUNE 30, 1998
----------------- ------------- -------------
<S> <C> <C> <C>
Biogen 37% 31% 23%
Genzyme 31% 37% 46%
Genentech 4% 5% 6%
</TABLE>
Our agreements with these suppliers are short-term and cancelable by either
party without cause on 60 to 90 days prior notice. These agreements also limit
our ability to handle competing drugs during and, in some cases, after the term
of the agreement, but allow the supplier to distribute through channels other
than us. Further, the pricing and other terms of these relationships are
periodically adjusted. Any termination or adverse adjustment to any of these
relationships could have a material adverse effect on our business, financial
condition and results of operations.
OUR ABILITY TO GROW COULD BE LIMITED IF WE DO NOT EXPAND OUR EXISTING BASE OF
DRUGS OR IF WE LOSE PATIENTS.
We focus almost exclusively on a limited number of complex and expensive drugs
that serve small patient populations. The concentration of our revenue related
to these diseases and the associated drugs is shown in the table below as a
percentage of revenue for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS FISCAL YEAR ENDED
ENDED -----------------------------
MARCH 31, 2000 JUNE 30, 1999 JUNE 30, 1998
----------------- ------------- -------------
<S> <C> <C> <C>
Multiple Sclerosis 37% 31% 23%
Gaucher Disease 31% 37% 46%
Hemophilia and Autoimmune Disorders 20% 21% 23%
Growth Hormone-Related Disorders 7% 6% 7%
Crohn's Disease 1% 1% -
Respiratory Synctial Virus 2% 1% -
</TABLE>
Due to the small patient populations that use the drugs we handle, our future
growth is highly dependent on expanding our base of drugs. Further, a loss of
patient base or reduction in demand for any reason of the drugs we currently
handle could have a material adverse effect on our business, financial condition
and results of operation.
<PAGE> 13
OUR BUSINESS WOULD BE HARMED IF DEMAND FOR OUR PRODUCTS AND SERVICES IS REDUCED.
Reduced demand for our products and services could be caused by a number of
circumstances, including:
- - patient shifts to treatment regimens other than those we offer;
- - new treatments or methods of delivery of existing drugs that do not
require our specialty products and services;
- - a recall of a drug;
- - adverse reactions caused by a drug;
- - the expiration or challenge of a drug patent;
- - competing treatment from a new drug or a new use of an existing drug;
- - the loss of a managed care or other payor relationship covering a
number of high revenue patients;
- - the cure of a disease we service; or
- - the death of a high-revenue patient.
THERE IS SUBSTANTIAL COMPETITION IN OUR INDUSTRY, AND WE MAY NOT BE ABLE TO
COMPETE SUCCESSFULLY.
The specialty pharmacy industry is highly competitive and is continuing to
become more competitive. All of the drugs, supplies and services that we provide
are also available from our competitors. Our current and potential competitors
include:
- - other specialty pharmacy distributors;
- - specialty pharmacy divisions of wholesale drug distributors;
- - pharmacy benefit management companies;
- - hospital-based pharmacies;
- - retail pharmacies;
- - home infusion therapy companies;
- - comprehensive hemophilia treatment centers; and
- - other alternative site health care providers.
Many of our competitors have substantially greater resources and more
established operations and infrastructure than we have. We are particularly at
risk from any of our suppliers deciding to pursue its own distribution and
services and not outsource these needs to companies like us. A significant
factor in effective competition will be an ability to maintain and expand
relationships with managed care companies, pharmacy benefit managers and other
payors who can effectively determine the pharmacy source for their enrollees.
RECENT INVESTIGATIONS INTO REPORTING OF AVERAGE WHOLESALE PRICES COULD REDUCE
OUR PRICING AND MARGINS.
Recent government investigations into how the average wholesale price (or AWP)
for drugs is determined could result in reduced pricing and margins for some
drugs we handle. Various federal and state government agencies have been
investigating whether AWP of many drugs, including some that we sell, is an
appropriate or accurate measure of market prices from which government payors
determine how much they reimburse for the drug. Many government payors pay,
directly or indirectly, for some of the drugs that we sell at that drug's AWP,
or at a percentage off AWP. We have also contracted with a number of private
payors to sell our products at AWP or at a percentage discount off AWP. AWP for
most drugs is compiled and published by a private company, First DataBank, Inc.
As recently reported in The Wall Street Journal, there are also several
whistleblower lawsuits pending against manufacturers of certain drugs. These
government investigations and lawsuits involve allegations that manufacturers
have misrepresented the actual selling price of certain drugs to First
DataBank. Bayer AG, one of our suppliers of clotting factor, announced on May
10, 2000, that it is engaged in settlement discussions with the government
regarding these charges. Also, First DataBank announced that it will base AWP on
market prices certified by the manufacturer. First DataBank has published a
Market Price Survey of 437 drugs. The First DataBank survey reduces AWP
significantly for a number of the clotting factor products and IVIG we sell.
We cannot predict the eventual results of these investigations, and the changes
made in AWP by First DataBank. If the reduced average wholesale prices
published by First DataBank for the drugs that we sell are ultimately adopted
as the standard by which we are paid by government payors or private payors,
this could have a material adverse effect on our business, financial condition,
and results of operation, including reducing the pricing and margins on certain
of our products.
IF ADDITIONAL PROVIDERS OBTAIN ACCESS TO FAVORABLY PRICED DRUGS WE HANDLE, OUR
BUSINESS COULD BE HARMED.
We are not eligible to participate directly in the pricing program of the
federal Public Health Service, commonly known as PHS, which allows hospitals and
hemophilia treatment centers to obtain discounts on clotting factor. The federal
Health Resources and Services Administration recently issued a notice we expect
will broaden the number of facilities purchasing PHS priced clotting factor.
Increased competition from hospitals and hemophilia treatment centers may reduce
our profit margins.
IF ANY OF OUR RELATIONSHIPS WITH MEDICAL CENTERS ARE DISRUPTED OR CANCELLED, OUR
BUSINESS COULD BE HARMED.
We have significant relationships with seven medical centers that provide
services primarily related to hemophilia, growth hormone-related disorders and
respiratory synctial virus. For the fiscal years ended June 30, 1998 and 1999
and the nine-month period ended March 31, 2000, we received approximately 30%,
23% and 15%, respectively, of our earnings before income taxes and extraordinary
items from equity in the net income from our joint ventures. Our joint ventures
with Children's Home Care, Inc. represent approximately 10% of our earnings
before income taxes for the nine months ended March 31, 2000.
Our agreements with medical centers have terms between one and five years, and
may be cancelled by either party without cause upon notice of between one and
twelve months. Adverse changes in our relationships with those medical centers
could be caused, for example, by:
- - changes caused by consolidation within the hospital industry;
- - changes caused by regulatory uncertainties inherent in the structure of
the relationships; or
- - restrictive changes to regulatory requirements.
Any termination or adverse change of these relationships could have a material
adverse effect on our business, financial condition and results of operations.
<PAGE> 14
OUR ACQUISITION AND JOINT VENTURE STRATEGY MAY NOT BE SUCCESSFUL, WHICH COULD
CAUSE OUR BUSINESS AND FUTURE GROWTH PROSPECTS TO SUFFER.
As part of our growth strategy, we recently completed two acquisitions and
entered into two joint venture arrangements. We will continue to evaluate other
joint venture and acquisition opportunities, but we cannot predict or provide
assurance that we will complete any future acquisitions or joint ventures.
Acquisitions and joint ventures involve many risks, including:
- - difficulty in identifying suitable candidates and negotiating and
consummating acquisitions on attractive terms;
- - difficulty in assimilating the new operations;
- - increased transaction costs;
- - diversion of our management's attention from existing operations;
- - dilutive issuances of equity securities that may negatively impact the
market price of our stock;
- - increased debt; and
- - increased amortization expense related to goodwill and other intangible
assets that would decrease our earnings.
We could also be exposed to unknown or contingent liabilities resulting from the
pre-acquisition operations of the entities we acquire, such as liability for
failure to comply with health care or reimbursement laws.
OUR QUARTERLY FINANCIAL RESULTS MAY FLUCTUATE SIGNIFICANTLY.
Our results of operations may fluctuate on a quarterly basis, which could
adversely affect the market price of our common stock. Our results may fluctuate
as a result of:
- - below-expected sales or delayed launch of a new drug;
- - price and term adjustments with our drug suppliers;
- - increases in our operating expenses in anticipation of the launch of a
new drug;
- - product shortages;
- - inaccuracies in our estimates of the costs of ongoing programs;
- - the timing and integration of our acquisitions;
- - changes in governmental regulations;
- - the annual renewal of deductibles and co-payment requirements that
affect patient ordering patterns;
- - our provision of drugs to treat seasonal illnesses, such as respiratory
synctial virus;
- - physician prescribing patterns; and
- - general economic conditions.
WE ARE DEPENDENT ON CONTINUED RESEARCH, DEVELOPMENT AND PRODUCTION IN THE
BIOPHARMACEUTICAL INDUSTRY.
Our business is highly dependent on continued research, development,
manufacturing and marketing expenditures of biopharmaceutical companies, and the
ability of those companies to develop, supply and generate demand for drugs that
are compatible with the services we provide. Our business would be materially
and adversely affected if those companies stopped outsourcing the services we
provide or failed to support existing drugs or develop new drugs. Our business
could also be harmed if the biopharmaceutical industry undergoes any of the
following developments:
- - supply shortages;
- - adverse drug reactions;
- - drug recalls;
- - increased competition among biopharmaceutical companies;
- - an inability of drug companies to finance product development because
of capital shortages;
- - a decline in product research, development or marketing;
- - a reduction in the retail price of drugs from governmental or private
market initiatives;
- - changes in the FDA approval process; or
- - governmental or private initiatives that would alter how drug
manufacturers, health care providers or pharmacies promote or sell
products and services.
SOME OF THE PRODUCTS THAT WE DISTRIBUTE COULD BECOME SCARCE.
The biopharmaceutical industry is susceptible to product shortages. Some of the
products that we distribute, such as IVIG and blood-related products, are
collected and processed from human donors. Accordingly, the supply of these
products is highly dependant on human donors and their availability have been
constrained from time to time. If these products, or any of the other drugs that
we distribute, are in short supply for long periods of time, our business could
be harmed.
<PAGE> 15
IF SOME OF THE DRUGS THAT WE PROVIDE LOSE THEIR "ORPHAN STATUS," WE COULD FACE
MORE COMPETITION.
Our business could also be adversely affected by the expiration or challenge to
the "orphan drug" status that has been granted by the Food and Drug
Administration, FDA, to some of the drugs that we handle. When the FDA grants
"orphan drug" status, it will not approve a second drug for the same treatment
for a period of seven years unless the new drug is chemically different or
clinically superior. The "orphan drug" status applicable to drugs that we handle
expires as follows:
- - Cerezyme(R) expires May 2001;
- - AVONEX(R) expires May 2003; and
- - REMICADE(TM) expires September 2005.
The loss of orphan drug status could result in competitive drugs entering the
market, which could harm our business.
OUR ABILITY TO CONTINUE TO PROVIDE AVONEX(R) COULD BE AFFECTED BY A PENDING
CHALLENGE OF THE DRUG'S PATENT.
<PAGE> 16
Our ability to continue to service AVONEX(R) could also be affected by a pending
challenge by Berlex Laboratories, Inc. that Biogen is infringing on a Berlex
patent in the production of AVONEX(R). Berlex is seeking, among other things, a
permanent injunction restraining Biogen from manufacturing AVONEX(R). If the
permanent injunction is granted or if Biogen is unable to continue to supply
AVONEX(R) on terms favorable to us, our business could be harmed. As of the date
of this filing, no trial has been set in this case.
OUR PRODUCT DELIVERY REQUIREMENTS CAUSE US TO DEPEND HEAVILY ON SHIPPING
SERVICES.
Almost all of our revenues result from the sale of drugs we deliver to our
patients and principally all of our products are shipped by a single carrier,
FedEx. We depend heavily on these outsourced shipping services for efficient,
cost effective delivery of our product. There are many risks associated with
this dependence, including:
- - any significant increase in shipping rates;
- - strikes or other service interruptions by our primary carrier, FedEx,
or by another carrier that could affect FedEx; or
- - spoilage of high cost drugs during shipment, since our drugs often
require special handling, such as refrigeration.
OUR BUSINESS COULD BE HARMED IF PAYORS DECREASE OR DELAY THEIR PAYMENTS TO US.
Our profitability depends on payment from governmental and non-governmental
payors, and we could be materially and adversely affected by cost containment
trends in the health care industry or by financial difficulties suffered by
non-governmental payors. Cost containment measures affect pricing, purchasing
and usage patterns in health care. Payors also influence decisions regarding the
use of a particular drug treatment and focus on product cost in light of how the
product may impact the overall cost of treatment. Further, some payors,
including large managed care organizations and some private physician practices,
have recently experienced financial trouble. The timing of payments and our
ability to collect from payors also affects our revenue and profitability. If we
are unable to collect from payors or if payors fail to pay us in a timely
manner, it could have a material adverse effect on our business and financial
condition.
OUR BUSINESS WILL SUFFER IF WE LOSE RELATIONSHIPS WITH PAYORS.
We are highly dependent on reimbursement from non-governmental payors. For the
fiscal years ended June 30, 1998 and 1999 and nine-month period ended March 31,
2000, we derived approximately 80%, 82% and 82%, respectively, of our gross
patient service revenue from non-governmental payors (including self-pay), which
included 7%, 6% and 5%, respectively, from sales to private physician practices
whose ultimate payor is typically Medicare.
Many payors seek to limit the number of providers that supply drugs to their
enrollees. From time to time, payors with whom we have relationships require
that we and our competitors bid to keep their business, and there can be no
assurance that we will be retained or that our margins will not be adversely
affected when that happens. The loss of a payor relationship could result in the
loss of a significant number of patients and have a material adverse effect on
our business, financial condition and results of operations.
OUR BUSINESS COULD BE HARMED BY CHANGES IN MEDICARE OR MEDICAID.
Changes in the Medicare, Medicaid or similar government programs or the amounts
paid by those programs for our services may adversely affect our earnings. We
estimate that approximately 20% of our gross patient service revenue for the
fiscal year ended June 30, 1998 and 18% of our gross patient service revenue for
both the fiscal year ended June 30, 1999 and for the nine months ended March 31,
2000 consisted of reimbursements from federal and state programs, excluding
sales to private physicians whose ultimate payor is typically Medicare. Any
reductions in amounts reimbursable by government programs for our services or
changes in regulations governing such reimbursements could materially and
adversely effect our business, financial condition and results of operations.
<PAGE> 17
IF WE ARE UNABLE TO MANAGE OUR GROWTH EFFECTIVELY, OUR BUSINESS WILL BE HARMED.
Our rapid growth over the past four years has placed a strain on our resources,
and if we cannot effectively manage our growth, our business, financial
condition and results of operations could be materially and adversely affected.
We have experienced a large increase in the number of our employees, the size of
our programs and the scope of our operations. Our ability to manage this growth
and be successful in the future will depend partly on our ability to retain
skilled employees, enhance our management team and improve our management
information and financial control systems.
WE COULD BE ADVERSELY AFFECTED BY AN IMPAIRMENT OF THE SIGNIFICANT AMOUNT OF
GOODWILL ON OUR FINANCIAL STATEMENTS.
Our formation and our acquisitions of Southern Health Systems, Inc., Hemophilia
Health Services, Inc. and most recently Sunrise Health Management, Inc. and the
specialty pharmacy businesses of Home Medical of America, Inc. resulted in the
recording of a significant amount of goodwill on our financial statements. The
goodwill was recorded because the book value of the tangible and intangible
assets owned by those companies at the time they were acquired was less than the
purchase price. We have determined that the goodwill recorded as a result of
those acquisitions will benefit us for a period of no less than 40 years and, as
a result, we amortize this goodwill evenly over a 40-year period. There can be
no assurance that we will realize the full value of this goodwill. We evaluate
on an on-going basis whether events and circumstances indicate that all or some
of the carrying value of goodwill is no longer recoverable, in which case we
would write off the unrecoverable goodwill in a charge to our earnings.
If the amortization period for a material portion of goodwill is overly long, it
causes an overstatement of earnings in periods immediately following the
transaction in which the goodwill was recorded. In later periods, it causes
earnings to be understated because of an amortization charge for an asset that
no longer provides a corresponding benefit. Earnings in later periods could also
be significantly affected if the remaining balance of goodwill is impaired and
written off as a charge against earnings. We are not presently aware of any
persuasive evidence that any material portion of our goodwill will be impaired
and written off against earnings. As of March 31, 2000, we had goodwill, net of
accumulated amortization, of approximately $66.4 million, or 33% of total assets
and 89% of stockholders' equity.
Since our growth strategy may involve the acquisition of other companies, we may
record additional goodwill in the future. The amortization and possible
write-off of this goodwill could negatively impact our future earnings. Also, in
future acquisitions we will be required to allocate a portion of the purchase
price to the value of non-competition agreements, patient base and contracts
that are acquired. The value of any amounts allocated to these items could be
amortized over a period much shorter than 40 years. As a result, our earnings
and market price of our common stock could be negatively impacted.
WE RELY ON A FEW KEY EMPLOYEES.
We depend on a small number of key executives, and the loss of their services
could cause a material adverse effect to our company. We do not maintain "key
person" life insurance policies on any of those executives. As a result, we are
not insured against the losses that could result from their death. Further, we
must be able to attract and retain other qualified, essential employees for our
technical operating and professional staff, such as pharmacists. If we are
unable to attract and retain these essential employees, our business could be
harmed.
WE MAY NEED ADDITIONAL CAPITAL TO FINANCE OUR GROWTH AND CAPITAL REQUIREMENTS,
WHICH COULD PREVENT US FROM FULLY PURSUING OUR GROWTH STRATEGY.
In order to implement our growth strategy, we will need substantial capital
resources and will incur, from time to time, additional short- and long-term
indebtedness, the terms of which will depend on market and other conditions. We
cannot be certain that existing or additional financing will be available to us
on acceptable terms, if at all. As a result, we could be unable to fully pursue
our growth strategy. Further, additional financing may involve the issuance of
equity securities that would reduce the percentage ownership of our then current
stockholders.
OUR INDUSTRY IS SUBJECT TO EXTENSIVE GOVERNMENT REGULATION.
The marketing, sale and purchase of drugs and medical supplies is extensively
regulated by federal and state governments, and if we fail or are accused of
failing to comply with laws and regulations, our business, financial condition
and results of operations could materially suffer. Our business could also be
materially and adversely effected if the suppliers or clients we work with are
accused of violating laws or regulations. The applicable regulatory framework is
complex, and the laws are very broad in scope. Many of these laws remain open to
interpretation, and have not been addressed by substantive court decisions.
<PAGE> 18
The health care laws and regulations that especially apply to our activities
include:
- - The federal "Anti-Kickback Law" prohibits the offer or solicitation of
compensation in return for the referral of patients covered by almost
all governmental programs, or the arrangement or recommendation of the
purchase of any item, facility or service covered by those programs.
The Health Insurance Portability and Accountability Act of 1996, or
HIPAA, created new violations for fraudulent activity applicable to
both public and private health care benefit programs and prohibits
inducements to Medicare or Medicaid eligible patients. The potential
sanctions for violations of these laws range from significant fines, to
exclusion from participation in the Medicare and Medicaid programs, to
criminal sanctions. Although some "safe harbor" regulations attempt to
clarify when an arrangement will not violate the Anti-Kickback Law, our
business arrangements and the services we provide may not fit within
these safe harbors. Failure to satisfy a safe harbor requires analysis
of whether the parties intended to violate the Anti-Kickback Law. The
finding of a violation could have a material adverse effect on our
business.
- - The Department of Health and Human Services recently proposed
regulations implementing the Administrative Simplification provision of
HIPAA concerning the maintenance, transmission and security of
electronic health information, particularly individually identifiable
information. The new regulations, when enacted, will require the
development and implementation of security and transaction standards
for all electronic health information and impose significant use and
disclosure obligations on entities that send or receive individually
identifiable electronic health information. Failure to comply with
these regulations, or wrongful disclosure of confidential patient
information could result in the imposition of administrative or
criminal sanctions, including exclusion from the Medicare and state
Medicaid programs.
- - The Ethics in Patient Referrals Act of 1989, as amended, commonly
referred to as the "Stark Law," prohibits physician referrals to
entities with which the physician or their immediate family members
have a "financial relationship." A violation of the Stark Law is
punishable by civil sanctions, including significant fines and
exclusion from participation in Medicare and Medicaid.
- - State laws prohibit the practice of medicine, pharmacy and nursing
without a license. To the extent that we assist patients and providers
with prescribed treatment programs, a state could consider our
activities to constitute the practice of medicine. If we are found to
have violated those laws, we could face civil and criminal penalties
and be required to reduce, restructure, or even cease our business in
that state.
- - Pharmacies and pharmacists must obtain state licenses to operate and
dispense drugs. Pharmacies must also obtain licenses in some states to
operate and provide goods and services to residents of those states. If
we are unable to maintain our licenses or states place burdensome
restrictions or limitations on non-resident pharmacies, this could
limit or affect our ability to operate in some states which could
adversely impact our business and results of operations.
- - Federal and state investigations and enforcement actions continue to
focus on the health care industry, scrutinizing a wide range of items
such as joint venture arrangements, referral and billing practices,
product discount arrangements, home health care services, dissemination
of confidential patient information, clinical drug research trials and
gifts for patients.
- - The False Claims Act encourages private individuals to file suits on
behalf of the government against health care providers such as us. Such
suits could result in significant financial sanctions or exclusion from
participation in the Medicare and Medicaid programs.
THE MARKET PRICE OF OUR COMMON STOCK MAY EXPERIENCE SUBSTANTIAL FLUCTUATIONS FOR
REASONS OVER WHICH WE HAVE LITTLE CONTROL.
Our common stock is traded on the Nasdaq National Market. Since our common stock
has only been publicly traded for a short time, an active trading market for the
stock may not develop or be maintained. Also, the market price of our common
stock could fluctuate substantially based on a variety of factors, including the
following:
- - future announcements concerning us, our competitors, the drug
manufacturers with whom we have relationships or the health care
market;
- - changes in government regulations;
- - overall volatility of the stock market;
- - changes in earnings estimates by analysts; and
- - changes in operating results from quarter to quarter.
<PAGE> 19
Furthermore, stock prices for many companies fluctuate widely for reasons that
may be unrelated to their operating results. These fluctuations, coupled with
changes in our results of operations and general economic, political and market
conditions, may adversely affect the market price of our common stock.
SOME PROVISIONS OF OUR CHARTER DOCUMENTS MAY HAVE ANTI-TAKEOVER EFFECTS THAT
COULD DISCOURAGE A CHANGE IN CONTROL, EVEN IF AN ACQUISITION WOULD BE BENEFICIAL
TO OUR STOCKHOLDERS.
Our certificate of incorporation, our bylaws and Delaware law contain provisions
that could make it more difficult for a third party to acquire us, even if doing
so would be beneficial to our stockholders.
<PAGE> 20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company uses derivative financial instruments to manage its exposure to
rising interest rates on its variable-rate debt, primarily by entering into
variable-to-fixed interest rate swaps. We have fixed the interest rate through
October 31, 2001 on $25.0 million of our revolving credit facility through such
a financial instrument. Accordingly, we would not benefit from any decrease in
interest rates on this portion of our credit facility, nor would we be
detrimentally impacted by rising rates on the same portion of our outstanding
debt.
As of March 31, 2000, approximately $16.5 million of our outstanding debt was
not covered by a variable-to-fixed interest rate swap. As a result, the Company
was exposed to the risk of rising interest rates on this portion of its debt.
Accordingly, a 100 basis point increase in interest rates along the entire yield
curve would have reduced our pre-tax income by approximately $124,000 during the
nine months ended March 31, 2000 if this debt had been outstanding throughout
the period.
<PAGE> 21
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(d) Use of Proceeds
The Company's Registration Statement on Form S-1 (File No 333-62769)
was declared effective on April 15, 1999. There has been no change in the Use of
Proceeds since that reported in the Company's Form 10-K for the year ended June
30, 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(c) None
ITEM 5. OTHER INFORMATION.
On January 31, 2000, the Company announced a three-for-two stock split
in the form of a 50% stock dividend for shareholders of record on February 11,
2000. Shareholders received one additional share of common stock on February 21,
2000 for every two shares held on the record date. The Company has adjusted
current and historical earnings per share and other share related information to
reflect the stock split.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 10.1 Amended and Restated Distribution and Services Agreement
effective as of January 1, 2000 by and between Biogen,
Inc. and Nova Factor, Inc. The Company has requested
confidential treatment with respect to certain portions
of this Exhibit.
Exhibit 10.2 Additional Services Agreement dated January 1, 2000
by and between Biogen, Inc. and Nova Factor, Inc. The
Company has requested confidential treatment with
respect to certain portions of this Exhibit.
Exhibit 10.3 Amended and Restated Contract for the Sale and
Distribution of Genentech Human Growth Hormone effective
as of April 8, 2000 by and between Genentech, Inc. and
Nova Factor, Inc. The Company has requested confidential
treatment with respect to certain portions of this
Exhibit.
Exhibit 27 Financial Data Schedule (for SEC use only) (filed
herewith)
(b) Reports on Form 8-K
On February 11, 2000, we filed Form 8-K/A as amendment No. 1 to our
Current Report on Form 8-K filed on December 16, 1999 related to the acquisition
of Sunrise Health Management, Inc. on December 1, 1999. Form 8-K/A contained the
financial statements of Sunrise Health Management, Inc. and certain pro forma
financial information.
<PAGE> 22
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May 15, 2000 Accredo Health, Incorporated
/s/ David D. Stevens
--------------------------------------------
David D. Stevens
Chairman of the Board and
Chief Executive Officer
/s/ Joel R. Kimbrough
--------------------------------------------
Joel R. Kimbrough
Senior Vice President, Chief
Financial Officer and Treasurer
<PAGE> 23
Exhibit Index
Exhibit
Number Description of Exhibits
- ------ -----------------------
10.1 Amended and Restated Distribution and Services Agreement effective as
of January 1, 2000 by and between Biogen, Inc. and Nova Factor, Inc.
The Company has requested confidential treatment with respect to
certain portions of this Exhibit.
10.2 Additional Services Agreement dated January 1, 2000 by and between
Biogen, Inc. and Nova Factor, Inc. The Company has requested
confidential treatment with respect to certain portions of this
Exhibit.
10.3 Amended and Restated Contract for the Sale and Distribution of
Genentech Human Growth Hormone effective as of April 8, 2000 by and
between Genentech, Inc. and Nova Factor, Inc. The Company has requested
confidential treatment with respect to certain portions of this
Exhibit.
27 Financial Data Schedule (for SEC use only) (filed herewith)
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EXHIBIT 10.1
AMENDED AND RESTATED DISTRIBUTION AND SERVICES AGREEMENT
This Amended and Restated Distribution and Services Agreement is
effective as of the 1st day of January, 2000 by and between Biogen, Inc.,
through its offices located at 701 Green Valley Road, Suite 308, Greensboro, NC
27408 ("Biogen"), and Nova Factor, Inc., with principal offices located at 1620
Century Center Parkway, Suite 109, Memphis, TN 38134 ("Nova Factor").
WHEREAS, Biogen markets and sells AVONEX(R) (Interferon beta -1a)
worldwide in the treatment of multiple sclerosis;
WHEREAS, as part of its distribution network, Biogen has appointed a
limited number of preferred distributors to provide quality services to users of
AVONEX(R) and to provide data reporting and other services to Biogen;
WHEREAS, Biogen and Nova Factor are parties to a Distribution and
Services Agreement dated as of November 1, 1995, as amended (the "Original
Agreement") under which Nova Factor has been distributing AVONEX(R) as a
preferred distributor and providing data reporting and other services to Biogen.
WHEREAS, Biogen and Nova Factor desire to amend and restate the
Original Agreement so that Nova Factor continues as a preferred distributor of
AVONEX(R) in the United States on the terms and conditions set forth in this
Agreement.
NOW THEREFORE, in consideration of the premises and mutual covenants
herein contained in this Agreement, the parties hereby agree as follows:
1. DEFINITIONS
For purposes of this Agreement the following terms shall have the
following meanings:
1.1 "Adverse Event" shall have the meaning set forth in 21 CFR 600.80.
1.2 "Affiliates" shall mean, with respect to a given party, any
corporation, firm, partnership or other entity which directly or
indirectly controls or is controlled by or is under common control with
such party. For purposes of this Section 1.2, "control" shall mean
direct or indirect ownership of greater than fifty percent (50%) of the
equity having the power to vote on or direct the affairs of the entity.
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1.3 "Average Wholesalers' Price" ("AWP") for purposes of this Agreement
shall mean the suggested wholesale price submitted by Biogen in
responding to inquiries from commercial publishers of pricing
information, as adjusted by Biogen from time to time in its sole
discretion. In the event Biogen decides not to submit a suggested
wholesale price to commercial publishers of pricing information, the
parties shall meet to discuss a revised definition of AWP for purposes
of this Agreement.
1.4 "Database" shall have the meaning set forth in Section 7.1.
1.5 "Facility" shall mean Nova Factor's facility located at 1620 Century
Center Parkway, Suite 109, Memphis, TN or any other Nova Factor
facility approved by Biogen prior to use by Nova Factor in connection
with services to be provided under this Agreement.
1.6 "FDA" shall mean the United States Food and Drug Administration.
1.7 "Home Delivery Customers" shall mean multiple sclerosis patients in the
Territory who want Product delivered to their homes or to such other
residence, office or similar locations as they may specify, not
including pharmacies.
1.8 "Nova Factor Collection Policy" shall have the meaning set forth in
Section 5.1 (iv).
1.9 *
1.10 "Product" shall mean Biogen's AVONEX(R) (Interferon beta -1a) for the
treatment of multiple sclerosis in the packaged form listed in Schedule
A hereto, as amended from time to time by the parties.
1.11 "Specifications" shall mean the Product specifications attached hereto
as Schedule B as amended by Biogen from time to time.
1.12 "SOP" shall mean the written standard operating procedures,
specifications and instructions approved by both parties as the same
may be amended from time to time by the parties.
1.13 "Territory" shall mean the United States of America.
2. APPOINTMENT AS PREFERRED DISTRIBUTOR
Subject to the terms and conditions contained in this Agreement, Biogen
hereby appoints Nova Factor, and Nova Factor hereby accepts
appointment, as a nonexclusive, preferred distributor of Product to
Home Delivery Customers. Nova Factor shall not sell Product
* - Confidential Treatment Requested
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other than to Home Delivery Customers without the prior written consent
of Biogen. Biogen expressly reserves the right to appoint other
distributors, to sell Product to wholesalers, pharmacy benefit managers
and other third parties and to sell Product directly. Biogen shall
provide Nova Factor with written notice at least thirty (30) days prior
to the effective date of any agreement between Biogen and a third party
under which Biogen grants the third party the right to sell Product to
Home Delivery Customers which such notice shall specify the name of the
third party.
3. ORDERS, DELIVERY, FORECASTS
3.1 Orders. The parties hereto agree that, during the term of this
Agreement, Nova Factor shall purchase Product from Biogen at the prices
set forth in Section 8, and, subject to the right of Biogen to allocate
supplies of Product under Section 3.9, Biogen shall supply Product to
Nova Factor, for sale and distribution to Home Delivery Customers. Nova
Factor shall order Product from Biogen in such quantities as are
necessary to meet the demand for Product from Nova Factor's Home
Delivery Customers. On average during any month, Nova Factor shall
submit orders not more frequently than once per week. All orders shall
be firm and Nova Factor shall not change or cancel an order without
prior approval from Biogen. All purchases of Product by Nova Factor
shall be on the terms and conditions set forth in this Agreement. No
purchase order, invoice or other form shall be deemed to vary the terms
of this Agreement.
3.2 Forecasts. To assist Biogen in managing its manufacturing operations,
Nova Factor shall furnish to Biogen, on the first day of each month, a
nonbinding forecast of Nova Factor's anticipated needs for Product for
such month and the following five months. Each forecast shall represent
Nova Factor's good faith best estimate of its Product needs.
Notwithstanding anything herein to the contrary, if Biogen receives an
order in any month which would cause the total amount ordered for such
month to exceed the amount shown on the first forecast for such month,
Biogen shall have the right, in its sole discretion, to reject the
order.
3.3 Minimum Inventory. As soon as Nova Factor's inventory falls to a
one-week supply of Product, Nova Factor shall submit an order to Biogen
for an additional two (2) weeks' supply of Product, based on Nova
Factor's most recent forecast.
3.4 Shipment by Biogen. Biogen shall ship Product to Nova Factor not more
frequently than weekly FOB Biogen's warehouse facility. Biogen shall
ship Product to Nova Factor by means of transportation (commercial
truck or better) determined by Biogen and at Biogen's cost. While
Biogen shall use reasonable efforts to avoid any delay in delivering
Product on the delivery dates agreed upon by the parties, failure to
deliver Product by the agreed upon date will not be sufficient cause
for termination of this Agreement by Nova Factor as long as the delay
does not extend beyond two (2) weeks from the agreed upon delivery
date, nor will Biogen be liable to Nova Factor for late delivery.
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3.5 Storage and Handling of Product. Nova Factor shall unload each shipment
of Product immediately upon receipt from Biogen in accordance with the
applicable SOP. Nova Factor shall store Product in a refrigerated
storage area at the Facility. Nova Factor shall notify Biogen prior to
moving Product to another location for storage and distribution. Nova
Factor shall use storage facilities and storage conditions for Product
which comply with applicable SOPs. Nova Factor shall at all times
handle and store Product in accordance with applicable SOPs. Nova
Factor shall at all times comply with the information and
recommendations communicated by Biogen in writing with respect to the
storage, handling and shipment of Products, provided that if such
information and recommendations are materially different than those
included in the SOPs or otherwise set forth in this Agreement and
result in a material increase in the costs incurred by Nova Factor in
performing its obligations under this Agreement, the parties shall
negotiate in good faith *. Nova Factor shall be responsible for all
costs associated with storage, handling and shipment from the Facility
of Product.
3.6 No Alteration. Nova Factor shall not alter Product packaging without
Biogen's consent (except to remove Product from the shipping
containers) and shall not alter Product labeling except to add a
prescription label to Product.
3.7 Inspection of Product; Remedies and Procedures for Defects. Nova Factor
shall carefully examine Products upon delivery and shall notify Biogen
within one (1) business day of any nondelivery of a portion of a
shipment or any defect in any Product which is reasonably discoverable
upon visual inspection of the Product without unloading individual
shipping units. Along with notice of any defect, Nova Factor shall
furnish to Biogen a detailed description of the nature of the defect.
Upon receipt of notice of any defect or nondelivery, Biogen, at its
option, shall replace or repair any defective Product or issue Nova
Factor a credit in the amount of the purchase price paid for any
defective Product or replace or issue Nova Factor a credit in the
amount of purchase price paid for any undelivered Product. Except as
set forth in Section 16, the preceding sentence sets forth Biogen's
sole liability with respect to Product defects reasonably discoverable
upon visual inspection of the Product without unloading individual
shipping units or with respect to Product that is not in accordance
with Nova Factor's order and Section 9.1 sets forth Biogen's sole
liability with respect to other Product defects and Biogen shall not be
otherwise liable to Nova Factor. In the absence of written notice from
Nova Factor to Biogen in accordance with the terms of this Section 3.7,
a shipment of Products shall be deemed to have been delivered and
accepted by Nova Factor as complete and in satisfactory condition. Nova
Factor shall, at Biogen's request and expense, follow Biogen's
instructions to return to Biogen or Biogen's third party disposal
company any
* - Confidential Treatment Requested
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Products delivered to Nova Factor which are not in compliance with the
Specifications. Nova Factor shall cooperate with Biogen in
investigating the cause of any defect in Product.
3.8 Title and Risk of Loss. Title to Product shall transfer to Nova Factor
upon delivery of Product to the carrier for shipment to the Facility.
Risk of loss of Product shall transfer to Nova Factor upon delivery of
Product to the Facility.
3.9 Shortages. Notwithstanding anything herein to the contrary, in the
event of a shortage of Product, Biogen reserves the right to allocate
available supplies of Product in its sole discretion. If Biogen is not
able to supply Product to Nova Factor in the quantities ordered by Nova
Factor for more than twelve (12) weeks on any occasion during the term
of this Agreement because of a Product shortage, Nova Factor shall have
the right to terminate this Agreement for material breach under Section
14.3 excluding the thirty (30) day cure period.
4. CUSTOMER ORDERS AND HOME DELIVERY
4.1 Contact with Customers. Marketing and sales literature distributed by
Biogen's sales force will contain a Biogen toll-free number as the
point of contact for all potential and existing customers for Product.
Biogen's customer service representatives shall include a description
of the AVONEX(R) Direct Delivery program to potential customers of
various purchase and delivery options for Product, and, if a potential
customer expresses interest in Nova Factor's home delivery program, the
Biogen customer service representative shall forward the call or direct
the customer to Nova Factor. Biogen and Nova Factor shall mutually
agree on the description of Nova Factor to be used by Biogen's customer
service representatives. Biogen shall provide Nova Factor with a copy
of the script used by Biogen's customer service representatives in
describing Product distribution options to potential customers. Nova
Factor shall maintain a telephone line dedicated to calls transferred
from Biogen and to calls from customers for Product. Nova Factor shall
answer all calls from customers for Product in accordance with a script
mutually agreeable to Biogen and Nova Factor. If the customer has
volunteered information to Biogen, Biogen shall transmit the
information to Nova Factor. During initial customer contact, Nova
Factor shall record information using the standard intake form approved
by the parties. Nova Factor shall direct to Biogen's customer service
operation all potential users of Product who contact Nova Factor
directly in accordance with a script mutually agreeable to Biogen and
Nova Factor.
4.2 Shipment to Customers.
(a) Shipment. Nova Factor shall ship Product to customers at their
homes or to any other residence, office or similar location designated
by customer, not including pharmacies,
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via Federal Express standard overnight delivery service or another
mutually agreed to overnight carrier. Nova Factor shall package
Products for shipment in insulated shipping units in accordance with
the applicable SOP. Nova Factor shall use its best efforts to ship
Products such that Product having the earliest expiration date is
shipped first from available inventory. Nova Factor shall track each
shipment of Product to customer and confirm receipt. If Product is not
received by the intended customer, Nova Factor shall use reasonable
efforts to track the missing shipment until found and, if found, shall
retrieve the missing shipment. Any shipment not delivered to the
intended recipient which is found shall be retrieved by Nova Factor
and, if determined by Nova Factor to be unusable, shall be disposed of
by Nova Factor, at Nova Factor's cost.
(b) Timing. Except for initial shipments made to a customer's home or
designated location and except where the customer's payor requires
preapproval of subsequent shipments, Nova Factor shall, subject to
Product availability, ship Product to a customer within 48 hours of
receipt of an order. Nova Factor shall use reasonable efforts to obtain
reimbursement clearance, if necessary, for anticipated subsequent
orders from a customer prior to actual receipt of the subsequent order.
Nova Factor shall ship each initial order and any subsequent order
which requires reimbursement clearance to a customer's home or
designated location within 48 hours of reimbursement clearance unless
Biogen and Nova Factor have agreed upon a first shipment program. At
Biogen's request, Biogen and Nova Factor shall work together to develop
a first shipment program to allow shipment of initial quantities of
Product to a patient prior to reimbursement clearance. If the parties
have agreed upon a first shipment program, Nova Factor shall comply
with the timelines for delivery of Product contained in the program.
4.3 Billing and Collection. Nova Factor shall be responsible for all
billing and collection in connection with its sales of Product. Nova
Factor shall not bundle sales of Product with other products or
services, provided that Nova Factor may list Product on the same
invoice with other products for the same customer if required by the
customer's insurance provider, as long as the Product price and any
negotiated discount from or allowance taken with respect to the Product
price are listed separately. Nova Factor may bundle shipments of
Product with other products for delivery to the same customer, provided
that such bundling is covered by an SOP.
4.4 Costs and Expenses. Nova Factor shall be responsible for all costs
associated with distribution and delivery of Products to its customers.
5. REIMBURSEMENT-RELATED SERVICES
5.1 Reimbursement-related Procedures. To ensure a consistent, high level of
services and to maintain consistency of communications with end-users
of Product, the parties have agreed that Nova Factor will, as part of
its commitment to its customers, provide the
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following services for each potential or existing Nova Factor customer
who contacts Nova Factor for home delivery of Product:
(i) Nova Factor shall collect the relevant insurance information
from each new customer who has insurance and shall obtain
confirmation of the existence and extent of insurance coverage
for Product from the customer's insurance provider or other
third party payor. Nova Factor shall use its best efforts to
confirm reimbursement coverage within one (1) week of receipt
of an order from a customer. Biogen understands that, despite
Nova Factor's best efforts, confirmation of reimbursement
coverage will often take longer than one (1) week.
(ii) Nova Factor shall accept assignment of benefits from each
customer with reimbursement coverage unless the customer's
insurance provider or other third party payor does not allow
assignment of benefits. To effect the assignment of benefits,
Nova Factor shall, within two (2) business days of initial
contact with each customer, provide to the customer the
applicable forms and instructions for assignment of benefits
and shall file the forms with the customer's insurance
provider or other third party payor at the time of Product
shipment and billing.
(iii) Upon receipt of the appropriate approval, Nova Factor shall
bill and submit the appropriate claims to each customer's
insurance provider, third party payor or other responsible
party, including Medicaid, but not including Medicare.
(iv) Consistent with applicable law and Nova Factor's standard
collection policy, a copy of which is attached hereto as
Schedule C (the "Nova Factor Collection Policy"), Nova Factor
shall use its best efforts to collect the amount allowed from
each customer's insurance provider or other third party payor,
and shall work with customers and negotiate with providers and
third party payors to maximize reimbursement coverage.
(v) Nova Factor shall bill patient co-payments, self-pays or
deductibles and shall use reasonable good faith efforts to
collect such payments consistent with applicable law and the
Nova Factor Collection Policy. Nova Factor shall provide
Biogen with a copy of any changes to the Nova Factor
Collection Policy prior to implementation of such changes.
(vi) Nova Factor shall make the intake coordinator function
available from 8:30 a.m. to 8:00 p.m., E.S.T., Monday through
Friday, except Nova Factor holidays, to answer customer,
insurance provider, third party payor and prescriber
reimbursement questions. Biogen will, in its sales and
marketing material, list Biogen's toll-free number as the
number for users of the Product to call with reimbursement
questions. When Biogen receives a telephone call from a Nova
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Factor customer with a reimbursement question, the Biogen
customer service representative will transfer the telephone
call to Nova Factor.
(vii) Nova Factor shall use its best efforts to resolve
reimbursement issues of customers who would like to purchase
Product from Nova Factor.
(viii) Biogen shall furnish to Nova Factor the criteria for
eligibility in Biogen's financial assistance program, and Nova
Factor shall direct potential customers who meet the criteria
to Biogen's customer service department and to Biogen's
assistance program administrator.
5.2 No Denial of Products. Nova Factor shall not deny Product to customers
who do not have insurance or who have insufficient insurance coverage
if the customer has the ability to self-pay.
5.3 Information to Biogen. At Biogen's request, Nova Factor shall provide
to Biogen information regarding reimbursement policies for Product
generated by Nova Factor in the course of providing services under this
Agreement.
5.4 Costs and Expenses. Nova Factor shall be responsible for all costs
associated with the services provided under this Section 5.
5.5 Compliance with Law. Nova Factor shall be responsible for assuring that
the services provided under this Section are carried out in a manner
consistent with applicable federal and state laws.
6. OTHER SERVICES
6.1 Licensed Pharmacist. Nova Factor shall ensure that a licensed
pharmacist, who is properly trained to answer Product-related questions
or requests for emergency supplies of Product, is available by
telephone (i) from 8:30 a.m. to 8:00 p.m. E.S.T., Monday through
Friday, except Nova Factor holidays, for routine calls and (ii)
twenty-four hours (24) per day for emergency calls. Biogen's customer
service representatives will direct any appropriate calls from Nova
Factor's customers received on Biogen's toll-free line to the Nova
Factor pharmacist.
6.2 Contact Regarding Re-supply. Nova Factor shall, to the extent
consistent with applicable federal and state pharmacy laws, contact
each of its customers approximately one week before the customer's
supply of Product, assuming proper administration, will be depleted to
determine if the customer needs a new supply of Product.
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6.3 Inquiry Regarding Training. Upon receipt of an order from a new
customer, Nova Factor shall inquire whether the customer has received
Product administration training. If the customer has not received
Product administration training or would like to receive additional
training, Nova Factor shall direct the patient to Biogen's customer
service department or such other contact as Biogen shall designate.
6.4 Materials. Nova Factor shall maintain an inventory of Product
educational materials developed and provided by Biogen. Nova Factor
shall, to the extent permissible under applicable laws, ship the
materials as requested by Nova Factor's customers or by its customers'
insurance providers or other third party payors. At Biogen's request,
Nova Factor shall include in shipments of Product business reply cards,
pamphlets or other informational material supplied by Biogen.
6.5 Follow-up. To the extent allowable under applicable law, Nova Factor's
customer service representatives shall call each new customer one to
three weeks after the customer has received an initial shipment of
Product to check on the customer's progress. In checking on the
customer's progress, Nova Factor shall use a script and checklist
mutually agreeable to the parties. At Biogen's request, Nova Factor
shall during its telephone conversations with customers conduct
additional clinical efficacy and customer satisfaction surveys provided
by Biogen and shall report the resulting information to Biogen in a
manner consistent with any confidentiality restrictions. The parties
shall negotiate, in advance, the fee for each additional survey
initiated by Biogen.
6.6 Compliance with Law. Nova Factor shall be responsible for assuring that
the services provided under this Section are carried out in a manner
consistent with applicable federal and state laws, including state
pharmacy laws.
7. DATA AND REPORTS
7.1 Data. Nova Factor shall maintain in a separate, Biogen-specific
database (the "Database") the information specified in Schedule D for
each customer and each order. In addition, Nova Factor shall maintain
in the Database information, by customer, regarding (i) *, (ii) *, and
(iii) * requests Nova Factor to track to the extent that collection of
such other information will not result in a material increase in the
costs incurred by Nova Factor in performing its obligations under this
Agreement.
7.2 Reports. Nova Factor shall generate and furnish to Biogen monthly and
weekly reports from the Database as specified in Schedule D and such
other reports as Biogen may from time to time reasonably request to the
extent that generation of such other reports will not result in a
material increase in the costs incurred by Nova Factor in performing
its obligations under this Agreement. The reports shall identify
customers only by number
* - Confidential Treatment Requested
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and not by name. At Biogen's request, Nova Factor will deliver the
reports specified under this Section electronically through a
reasonably secure internet connection in a format mutually approved by
both parties.
8. PAYMENT
8.1 Purchase Price and Service Discount. Nova Factor shall purchase Product
from Biogen at a price *. Nova Factor shall have sole responsibility
and authority for determining the price at which it will sell Product
to its customers.
8.2 Payment Due; Late Fee. All amounts due hereunder shall be payable by
check to Biogen in United States funds. Biogen shall invoice Nova
Factor for all amounts due hereunder. Payment by Nova Factor for all
invoices dated on or after January 1, 2000 shall be due within * days
from the date of the invoice. Invoices dated prior to January 1, 2000
shall be paid in accordance with the terms of this Agreement in effect
prior to January 1, 2000, Nova Factor shall pay interest on a per diem
basis on any amounts past due at an annualized rate of one and one-half
percent (1-1/2%) over the prime rate then in effect at Fleet Bank,
Boston, Massachusetts.
8.3 Costs and Expenses. Except as otherwise expressly set forth herein,
Nova Factor shall be responsible for all costs and expenses associated
with fulfilling its obligations under this Agreement.
8.4 Taxes. All prices are exclusive of federal, state and local excise,
sales, use and other taxes levied or imposed on the sale, shipment,
delivery, ownership, possession or resale of Product or any other
activities contemplated under this Agreement. Except for taxes on
Biogen's income, Nova Factor shall be liable for and pay all taxes
imposed in connection with the activities contemplated hereunder.
8.5 Records and Audits. During the term of this Agreement and for a period
of three (3) years after termination or expiration of this Agreement,
Nova Factor shall keep complete and accurate records of sales of
Product in sufficient detail to enable Biogen to calculate and confirm
*. Nova Factor shall permit Biogen, during the term of this Agreement
and for a period of three (3) years after termination or expiration of
this Agreement, to examine periodically, but not more than once per
year during regular business hours, the books, ledgers and records of
Nova Factor for any year for the purpose of and to the extent necessary
to verify the information provided by Nova Factor *. The cost of such
examination shall be borne by Biogen unless it shall be established by
Biogen that, as a result of an error in information provided by Nova
Factor, there was a miscalculation *.
* - Confidential Treatment Requested
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8.6 Financial Condition; Security Interest; Guaranty.
(a) Financial Condition. At any time when in Biogen's reasonable
opinion the financial condition of Nova Factor or its parent
company so warrants, or if Nova Factor fails to make payments
when due or otherwise defaults under this Agreement, Biogen
may alter terms of payment (including requiring full or
partial payment in advance of delivery), suspend credit, delay
or cancel shipping, request quarterly financial statements or
other financial information on an ongoing basis, or pursue any
remedies available at law or under this Agreement.
(b) Security Interest. Nova Factor hereby grants to Biogen a
security interest in all Products as security for all payments
to be made by Nova Factor and the performance in full by Nova
Factor of its other obligations under this Agreement together
with the right, without liability and with or without notice
to Nova Factor, to repossess Products in the event of default
with respect to any such obligations. Biogen recognizes that
Nova Factor has previously granted a security interest to its
bank and that Biogen will not have a first lien on the
Products. This Agreement shall constitute a security agreement
with respect to such security interest, and Nova Factor hereby
appoints Biogen as its attorney-in-fact solely for the purpose
of signing and filing on Nova Factor's behalf any financing
statements or other documents that may be necessary or
appropriate to perfect such security interest and Nova Factor
agrees to sign any such documents and to take any such actions
as Biogen may reasonably request with respect to perfection
and/or enforcement of such security interest.
(c) Parent Guaranty. In connection with this Agreement, Nova
Factor's parent corporation will execute a form of guaranty
mutually agreeable to the parties under which the parent
corporation agrees to guaranty the obligations of Nova Factor
under this Agreement in the event of default by Nova Factor.
9. REPLACEMENTS AND RETURNS
9.1 Returns by Nova Factor. In the event Nova Factor returns or requests to
return a Product, Nova Factor shall promptly notify Biogen and Biogen
shall, upon return of Product, give Nova Factor a credit in the amount
of the purchase price paid by Nova Factor for the returned Product,
provided that the Product is returnable and returned under Biogen's
then current Return Goods Policy, a copy of which Biogen shall furnish
to Nova Factor, and provided that the reason for the return of the
Product does not arise from (i) the negligence or intentional
misconduct of Nova Factor or any of its agents or employees, (ii)
failure of Nova Factor to follow applicable SOPs or to otherwise comply
with the terms of this Agreement or (iii) misdelivery or loss of
Product by a carrier used by Nova Factor. For any return of Product
authorized by Biogen, Nova Factor shall send the
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Product, or shall instruct customers to send the Product, to Biogen or
Biogen's designated disposal company as specified and in the manner
described in the then current Return Goods Policy.
9.2 Replacement Product. Nova Factor shall refer any Nova Factor customer
who requests replacement product to one of Biogen's customer support
specialists for authorization. Biogen's customer support specialists
shall within thirty (30) days of the referral authorize the supply of
replacement Product at no charge to a Nova Factor customer under
appropriate circumstances as determined by Biogen. Biogen shall not
authorize the supply of replacement Product to a Nova Factor customer
at no charge if the need for replacement Product arises from (i) the
negligence or intentional misconduct of Nova Factor or any of its
agents or employees, (ii) failure of Nova Factor to follow applicable
SOPs or to otherwise comply with the terms of this Agreement or (iii)
misdelivery or loss of Product by a carrier used by Nova Factor. If
Biogen determines not to supply replacement Product at no charge, Nova
Factor may purchase the replacement Product at the prices and on the
terms set forth in Section 8.
9.3 Return Goods Policy. Biogen may change its Return Goods Policy in its
sole discretion, provided that if any change results in a material
increase in the costs incurred by Nova Factor in performing its
obligations under this Agreement, the parties shall meet *.
9.4 Costs and Expenses. Except as otherwise expressly set forth herein,
Nova Factor shall be responsible for all costs and expenses associated
with fulfilling its obligations under this Section 9.
9.4 Cooperation. Nova Factor shall cooperate with Biogen in investigating
the need for any replacement Product or the reason for return of a
Product by a Nova Factor customer.
10. ADVERSE EVENT REPORTING AND CUSTOMER COMPLAINTS
10.1 Adverse Events. Nova Factor shall record and promptly report to Biogen
any Adverse Events which come to the attention of Nova Factor in
accordance with the relevant SOP provided by Biogen.
10.2 Other Customer Complaints. Nova Factor shall give notice by fax to
Biogen's customer service department within two (2) business days of
all customer complaints related to Product, other than Adverse Events,
and all labeling and package insert issues, specifying the nature of
the complaint or issue. Nova Factor shall send Biogen a monthly report
describing all customer complaints, including complaints related to
customer service. The parties shall mutually agree on Product
information to be used by Nova Factor in addressing customer
complaints, Adverse Events and labeling and package insert issues.
* - Confidential Treatment Requested
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10.3 Cooperation. Nova Factor shall cooperate with Biogen in responding to
or investigating any customer complaints and Adverse Events.
11. SUSPENSION OF DISTRIBUTION AND RECALLS
11.1 Suspension of Distribution. If requested by Biogen as the result of a
problem with Product quality or a directive from the FDA, Nova Factor
shall suspend distribution of Product. If the suspension continues for
more than * and Nova Factor shall have the right to terminate this
Agreement for material breach under Section 14.3 excluding the thirty
(30) day cure period. In addition, any amounts payable on invoices
pending during the period of the suspension shall not be due until the
suspension has ended, and late fees and interest shall not be due for
the period of the suspension.
11.2 Recalls. Biogen shall promptly notify Nova Factor of any recalls
initiated by Biogen or required by the FDA. Upon receipt of notice of a
recall from Biogen, Nova Factor shall immediately notify the affected
customers. Biogen shall provide Nova Factor with the form of letter to
be used in connection with notice of any recall which shall contain the
appropriate instructions as to whether the customer should return or
dispose of the affected Product. Biogen shall be responsible for the
mailing, shipping and reasonable administrative expenses incurred by
Nova Factor in connection with the recall as well as the cost of
replacement Product for Nova Factor's customers, provided that the
reason for the recall does not arise from (i) the negligence or
intentional misconduct of Nova Factor or any of its agents or employees
or (ii) failure of Nova Factor to follow applicable SOPs or to
otherwise comply with the terms of this Agreement. Nova Factor shall
cooperate in any recalls by providing relevant Product tracking
information to Biogen.
11.3 Records. Nova Factor shall maintain for two (2) years after termination
or expiration of this Agreement such information as shall be reasonably
required by Biogen to effect a Product recall after termination or
expiration of this Agreement, and shall make such information available
to Biogen, at Biogen's request, in the event of such a recall.
11.4 Cooperation. Nova Factor shall cooperate with Biogen in investigating
any Product failure which resulted in the need for a recall.
12. REPRESENTATIONS, WARRANTIES AND COVENANTS OF NOVA FACTOR
12.1 Compliance. In performing its obligations under this Agreement, Nova
Factor shall comply with all applicable laws and regulations, including
federal and state pharmacy laws, laws relating to the disposal of
pharmaceutical products and hazardous wastes, to the
* - Confidential Treatment Requested
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<PAGE> 14
extent disposal of Product is Nova Factor's responsibility under this
Agreement, and all applicable professional and industry standards and
good business practices.
12.2 Quality of Employees and Monitoring. Nova Factor shall use a dedicated,
well-trained, knowledgeable team of employees to handle Product and to
perform the services to be performed by Nova Factor under this
Agreement. Subject to applicable laws, Biogen shall have the right to
have an employee monitor from time to time Nova Factor's responses
during telephone calls transferred from Biogen's customer support line,
and Nova Factor shall cooperate with Biogen to enable such monitoring
activities. The customer shall be notified at the beginning of a call
to be monitored that monitoring for quality assurance purposes is to
occur, each such notification to be in accordance with a script
mutually agreeable to the parties.
12.3 *
12.4 Medicaid Provider Status. Nova Factor represents that it is currently
eligible to participate as a provider in the Medicaid program in each
state in the Territory except those states listed on Schedule F, and
agrees to maintain such eligibility during the term of the Agreement.
Nova Factor may amend Schedule F in its sole discretion to add
additional states and shall provide Biogen with prompt notice of any
such amendment, provided that Nova Factor shall not add any state to
Schedule F unless the state has changed its laws to require an in-state
pharmacy presence for eligibility in its Medicaid program. Nova Factor
shall remove a state from Schedule F (and shall provide notice to
Biogen of such removal) when the state no longer requires an in-state
pharmacy presence for eligibility in the state's Medicaid program.
12.5 Actions. Nova Factor shall not take any action which would materially
adversely affect its standing or that of Biogen in the industry or with
respect to Product customer base or which would undermine the image of
Product.
12.6 Quality Reviews. Nova Factor shall periodically, but not less
frequently than once per year, perform written quality reviews of Nova
Factor's performance in fulfilling its obligations under this
Agreement, and shall provide Biogen with copies of such reviews. Nova
Factor shall administer a validation checklist to each employee
performing services related to Product upon completion of such
employee's initial training and annually thereafter, and shall provide
Biogen with copies of such checklists.
12.7 Licenses. Nova Factor represents that it now has and shall maintain in
full force during the term of this Agreement all federal and state
pharmacy, wholesaler and other licenses or approvals required by Nova
Factor to fulfill its obligations under this Agreement, except as
otherwise set forth in Section 12.4, and except that Nova Factor shall
not be required
* - Confidential Treatment Requested
14
<PAGE> 15
to maintain its licenses in any state which amends its laws and
regulations to require an in-state pharmacy presence as a requirement
for licensing if the new requirement would materially increase the
costs incurred by Nova Factor in performing its obligations under this
Agreement. Nova Factor shall provide Biogen with notice of any
communications with pharmacy licensing boards or the FDA which relate
to potential problems with facilities, operations or procedures used by
Nova Factor in its distribution of Product, including notices of
inquiries, investigations or inspections and resulting findings.
12.8 Limitation on Promotion. Nova Factor shall not make any performance
claims or engage in any promotional activities with respect to Product
except for the distribution of Product literature prepared by Biogen
and any other activities expressly approved by Biogen.
12.9 Use of Trademarks. Nova Factor shall not use the trademarks or
tradenames of Biogen except to the extent contained in Product
literature provided by Biogen and on Product labels or as otherwise
approved by Biogen.
12.10 Financial Statements. Nova Factor shall furnish to Biogen copies of
quarterly and annual financial statements of Nova Factor (including
balance sheet and income statements). Nova Factor shall promptly notify
Biogen of any significant change to the business or financial condition
of Nova Factor or its parent or any changes in its ownership or control
or the control of its parent. The financial statements provided to
Biogen by Nova Factor and its parent under this Section shall be
treated by Biogen as confidential information of Nova Factor under
Section 17.2, except to the extent publicly available.
12.11 Authority. Nova Factor represents that it has the authority to enter
into this Agreement and that its execution of this Agreement and its
performance of its obligations hereunder will not conflict with and is
not prohibited by any other agreement to which Nova Factor is a party.
12.12 Limitation on Liability. In no event shall Nova Factor be liable for
loss of profit or any other incidental or consequential damages of
Biogen.
12.13 Customer Lists. In no event shall Nova Factor use the list of its
Product customers except for purposes of performing services under this
Agreement or as otherwise approved by Biogen. Nova Factor shall not
make its Product customer list or any portion thereof available to any
third party other than third party payors (with respect to their
respective covered persons), its lender, or its auditors or attorneys.
13. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BIOGEN
13.1 Compliance with Law. Biogen shall be responsible for testing Product
and ensuring that Product complies, when shipped to Nova Factor, with
all applicable laws, regulations,
15
<PAGE> 16
directives and requirements of the FDA, including without limitation,
packaging and labeling requirements, product warning requirements,
product design and safety requirements and advertising requirements.
13.2 Use of Trademarks. Biogen shall not use the trademark or tradenames of
Nova Factor except to the extent necessary for activities contemplated
under this Agreement.
13.3 Warranty. Biogen warrants that, as of the date of shipment to Nova
Factor, Product will conform to the Specifications, will not be
adulterated or misbranded within the meaning of the Federal Food, Drug
and Cosmetic Act and will not be articles which may not, under the
provisions of the Act, be introduced into interstate commerce. THE
WARRANTIES CONTAINED IN THIS SECTION 13.3 ARE IN LIEU OF ALL OTHER
REPRESENTATIONS AND WARRANTIES. BIOGEN DISCLAIMS ALL OTHER WARRANTIES,
EXPRESSED OR IMPLIED, INCLUDING WITHOUT LIMITATION ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. Except as
otherwise set forth in Section 16, Biogen's sole liability and Nova
Factor's sole remedy for breach of warranty under this Agreement shall
be for Biogen to repair or replace the defective Product or to credit
Nova Factor's account in accordance with Section 3.7 and Section 9.1.
In no event shall Biogen be liable for loss of profit or any other
incidental or consequential damages of Nova Factor.
13.4 License. Biogen represents and warrants to Nova Factor that Biogen has
a license from the FDA to market and sell Product in the Territory.
13.5 Authority. Biogen represents that it has the authority to enter into
this Agreement and that its execution of this Agreement and its
performance of its obligations hereunder will not conflict with and is
not prohibited by any other Agreement to which Biogen is a party.
14. TERM AND TERMINATION
14.1 Term. This Agreement shall become effective on the date hereof and,
unless earlier terminated in accordance with this Section, shall
continue in effect for an initial term of three (3) years from the
effective date. The parties may extend this Agreement by mutual written
agreement.
14.2 Voluntary Termination. Either party may terminate this Agreement for
any reason, at any time upon ninety (90) days' prior written notice to
the other party.
14.3 Termination for Breach. Either party may terminate this Agreement (i)
for a material breach by the other party upon thirty (30) days' prior
written notice unless the breaching party cures the breach within such
thirty (30) day period or (ii) in the event of any
16
<PAGE> 17
proceedings, voluntary or involuntary, in bankruptcy or insolvency, by
or against the other party, or the appointment with or without the
other parties' consent of a receiver for such party.
14.4 Transition. Upon receipt or delivery of a termination notice by Nova
Factor or ninety (90) days prior to expiration of this Agreement at the
end of the term, as applicable, the parties shall begin to transition
distribution of Product for Nova Factor's customers to a party to be
designated by Biogen. Transition of distribution under this Section
14.4 shall mean the following:
(i) Biogen shall as soon as possible begin referring Nova
Factor customers who contact Biogen's customer service
department to the designated distributor.
(ii) At Biogen's request, Nova Factor shall provide notice to
all of Nova Factor's customers of the change in distributors.
(iii) Nova Factor shall complete any reimbursement clearances
and Product shipments then underway, but otherwise shall refer
customers to the designated distributor.
(iv) Nova Factor shall transfer a copy of the Database and
customer information, including prescription files, to the
designated distributor, provided that if applicable patient
confidentiality laws prohibit transfer of the customers' name
to the designated distributor, Nova Factor shall transfer the
Database and customer information using customer numbers
instead of names, and shall notify customers of their
respective customer numbers.
(v) Nova Factor's obligation to order additional Product when
its inventory falls to a one-week supply shall cease and
Biogen shall repurchase any Product held in inventory by Nova
Factor on the date of termination at the price paid for the
Product by Nova Factor.
After receipt of the termination notice and during the period
thereafter ending six months after termination, Nova Factor shall use
reasonable efforts to cooperate with Biogen in ensuring the smooth
transition of the services provided by Nova Factor under this Agreement
to the distributor designated by Biogen, provided that after
termination of this Agreement, Biogen shall reimburse Nova Factor for
its reasonable out-of-pocket, non-personnel-related expenses associated
with such cooperation.
14.5 Survival. Sections 9, 10, 11, 12.13, 14.4, 15, 16, 17 and 21.7 shall
survive termination or expiration of this Agreement.
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15. REGULATORY, INSPECTIONS, AUDITS
15.1 Information; Notices. Nova Factor shall provide to the FDA or, at
Biogen's request, shall provide to Biogen all documents and information
requested by the FDA or by Biogen in support of its regulatory filings.
Copies of all documents to be provided to the FDA shall be provided to
Biogen in advance, if practicable, or otherwise within two (2) business
days of delivery to the FDA. Nova Factor shall notify Biogen
immediately upon receipt of notice of any inspection by the FDA
directed specifically toward Product, and Biogen shall have the right
to have an employee present at any such inspection, if allowed by law.
Nova Factor shall notify Biogen immediately of any notices, requests
for information or other communications related to Product from the
U.S. Department of Health and Human Services or any other government
agency or any state healthcare program or other state agency and, to
the extent permitted under applicable law, shall give Biogen copies of
such communications.
15.2 Recalls, Returns or Investigations. Nova Factor shall provide to
Biogen, at Biogen's request, any information reasonably required in
connection with Biogen investigations relating to recalled or returned
Product or any requests or investigations by or filings with
governmental bodies, including the FDA or in support of Biogen's
applications to the FDA. Nova Factor shall respond within two (2)
business days to any reasonable requests for information by Biogen.
15.3 Audits and Inspections. Nova Factor shall from time to time submit to
inquiries, audits and inspections by Biogen during normal business
hours or at any other time during which the services being audited are
ongoing. Biogen shall give Nova Factor a least two (2) business days'
prior notice of any audit or inspection and shall bear the costs of
such audit or inspection.
16. INDEMNIFICATION
16.1 Biogen Indemnification of Nova Factor. Biogen shall at all times during
the term of this Agreement and thereafter defend, indemnify and hold
Nova Factor and its officers, directors, agents and employees harmless
from and against any and all claims, suits, damages, liabilities, costs
and expenses, including but not limited to court costs and reasonable
attorneys' fees, incurred in connection with any third-party claim
arising out of the use of any Product by an end-user, except to the
extent caused by (i) the negligence or intentional misconduct of Nova
Factor or any of its officers, directors, agents or employees or (ii)
breach by Nova Factor of any of the terms of this Agreement or (iii)
acts of Nova Factor or any of its officers, directors, agents or
employees which are outside the scope of this Agreement.
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<PAGE> 19
16.2 Nova Factor Indemnification of Biogen. Nova Factor shall at all times
during the term of this Agreement and thereafter defend, indemnify and
hold Biogen and its officers, directors, agents and employees harmless
from and against any and all claims, suits, damages, liabilities, costs
and expenses, including but not limited to court costs and reasonable
attorneys' fees, incurred in connection with any third-party claim
arising out of (i) the negligence or intentional misconduct of Nova
Factor or any of its officers, directors, agents or employees, (ii)
breach by Nova Factor of any of the terms of this Agreement, or (iii)
acts of Nova Factor or any of its officers, directors, agents or
employees which are outside the scope of this Agreement.
16.3 Procedures. A party seeking indemnification under this Section shall
give prompt notice of the claim to the other party and, provided that
the indemnifying party is not contesting the indemnity obligation,
shall permit the indemnifying party to control any litigation relating
to such claim and disposition of any such claim, provided that the
indemnifying party shall act reasonably and in good faith with respect
to all matters relating to the settlement or disposition of any claim
as the settlement or disposition relates to the parties being
indemnified under this Section and the indemnifying party shall not
settle or otherwise resolve any claim without prior notice to the
indemnified party. The indemnified party shall cooperate with the
indemnifying party in its defense of any claim for which
indemnification is sought hereunder.
17. CONFIDENTIALITY
17.1 Nova Factor Obligation. Nova Factor agrees to treat any confidential or
proprietary information obtained from Biogen and any confidential or
proprietary information generated by Nova Factor in performing its
obligations under this Agreement, including customer lists, information
regarding Biogen's pricing policies, information regarding
reimbursement for the Product, information regarding the cost of
providing services to Biogen and the information in the Database, and
anything derived therefrom, (collectively, the "Biogen Information") as
the confidential and exclusive property of Biogen, (except for the
information in the Database which shall be joint property of Biogen and
Nova Factor. subject to the limitations on Nova Factor's use of
customer lists as set forth in Section 12.13), and agrees not to
disclose any of the Biogen Information to any third party without first
obtaining the written consent of Biogen. Nova Factor agrees that it
will use any Biogen Information only for purposes of performing its
obligations hereunder and for no other purpose without the prior
written consent of Biogen. Nova Factor further agrees to take all
practicable steps to ensure that the Biogen Information will not be
used by its directors, officers or employees, except on like terms of
confidentiality as aforesaid, and will be kept confidential by them.
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<PAGE> 20
The above provisions of confidentiality shall not apply to that part of
the Biogen Information which Nova Factor is able to demonstrate by
documentary evidence:
(a) was in Nova Factor's possession prior to receipt from Biogen
and prior to being generated under this Agreement; or
(b) was in the public domain at the time of receipt from Biogen;
or
(c) became part of the public domain through no fault of Nova
Factor, its directors, officers or employees; or
(d) was lawfully received by Nova Factor from some third party not
disclosing the information on behalf of Biogen and having a
right of further disclosure; or
(e) is required by law to be disclosed, provided, however that
Nova Factor gives Biogen sufficient advance written notice to
permit Biogen to seek a protective order or other similar
order with respect to such Information.
Nova Factor agrees that, at Biogen's request, it shall return to Biogen
all parts of the Biogen Information existing in documentary form, not
including pharmacy records and will, at Biogen's request, return or
destroy any copies thereof made by Nova Factor, its directors, officers
or employees except that Nova Factor shall retain a copy of the
Database, subject to the ongoing obligation of confidentiality. Nova
Factor shall not dispose of the information in the Database without
first offering in writing, given at least sixty (60) days prior to such
disposal, to deliver the information to Biogen.
17.2 Biogen Obligation. Biogen agrees to treat any confidential or
proprietary information obtained from Nova Factor, (not including the
Database, information about insurers' reimbursement policies with
respect to Product and information used to calculate the *) and
anything derived therefrom, (collectively, the "Nova Factor
Information") as the confidential and exclusive property of Nova
Factor, and Biogen agrees not to disclose any of the Nova Factor
Information to any third party without first obtaining the written
consent of Nova Factor, provided that Biogen may disclose Nova Factor
Information to any third party providing reimbursement-related services
to Biogen as long as the third party is obligated to Nova Factor to
keep such information confidential. Biogen agrees that it will use any
Nova Factor Information only for purposes of activities contemplated
hereunder and for no other purpose without the prior written consent of
Nova Factor. Biogen further agrees to take all practicable steps to
ensure that the Nova Factor Information will not be used by its
directors, officers or employees, except on like terms of
confidentiality as aforesaid, and will be kept confidential by them.
The above provisions of confidentiality shall not apply to that part of
the Nova Factor Information which Biogen is able to demonstrate by
documentary evidence:
* - Confidential Treatment Requested
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<PAGE> 21
(a) was in Biogen's possession prior to receipt from Nova Factor;
or
(b) was in the public domain at the time of receipt from Nova
Factor; or
(c) became part of the public domain through no fault of Biogen,
its directors, officers or employees; or
(d) was lawfully received by Biogen from some third party not
disclosing the information on behalf of Nova Factor and having
a right of further disclosure; or
(e) is required by law to be disclosed, provided, however that
Biogen gives Nova Factor sufficient advance written notice to
permit Nova Factor to seek a protective order or other similar
order with respect to such Information.
Biogen agrees that, at Nova Factor's request, it shall return to Nova
Factor all parts of the Nova Factor Information existing in documentary
form and will, at Nova Factor's request, return or destroy any copies
thereof made by Biogen, its directors, officers or employees.
17.3 No Implied Licenses. Nothing contained herein shall be deemed to grant
to either party any rights or licenses under any patent applications or
patents or to any know-how, technology, inventions or other
intellectual property rights of the other party.
17.4 Publicity. Notwithstanding anything to the contrary contained in
Section 12.8, Nova Factor shall be permitted to disclose to potential
and existing customers of Nova Factor as well as to potential
purchasers of stock or assets of Nova Factor or other potential sources
of capital (i) that Nova Factor distributes Product and performs
services under agreements with Biogen and (ii) the general nature of
the relationship with Biogen. Nova Factor shall also be permitted to
make such public statements regarding its relationship with Biogen as
may be required by law, regulation or by obligations pursuant to any
listing agreement with any securities exchange. Nova Factor shall not
disclose the terms of this Agreement to any third party or, except as
expressly set forth in this Section, make any public announcement of
the existence of its relationship with Biogen without the prior written
consent of Biogen except to its auditors and lawyers or as required by
law.
17.5 Length of Obligation. The obligations of the parties under this Section
17 shall continue during the term of this Agreement and for a period
ending five (5) years after termination or expiration of this
Agreement.
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18. INSURANCE
Nova Factor agrees (i) to obtain and maintain, while this Agreement is
in effect, commercial general liability insurance, including product
liability insurance, with coverage limits of not less than $1,000,000
per occurrence and $3,000,000 in the aggregate, and (ii) not to cancel
the insurance or reduce the coverage without giving at least thirty
(30) days prior written notice to Biogen. Nova Factor shall cause
Biogen to be a notice party on each insurance policy such that Biogen
shall receive notice of any cancellation or change in the policy. At
the request of Biogen, Nova Factor shall provide Biogen with a copy of
a certificate of insurance to verify that insurance with the required
coverage is in effect.
19. TRAINING
Nova Factor shall be responsible for insuring that the personnel
handling Product, dealing with customers and payors and performing the
services contemplated under this Agreement are properly trained to
perform their functions. Biogen and Nova Factor will use a jointly
prepared training manual and orientation program for Nova Factor and
Biogen personnel to familiarize the personnel with the Product and the
market.
20. COMPETITIVE PRODUCTS
As long as Nova Factor is * approved by Biogen, other than distributors
authorized to sell to Medicaid customers in the states listed on
Schedule F, Nova Factor shall not distribute, as a reseller or as a
consignee, or provide reimbursement assistance with respect to, any
products which compete with Product in the treatment of multiple
sclerosis.
21. MISCELLANEOUS
21.1 Binding; Assignment. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective
successors and assigns, provided that neither party shall have the
right to assign this Agreement or its rights and obligations hereunder
without the prior written consent of the other party, which such
consent shall not be unreasonably withheld, except that Biogen may
assign this Agreement or its rights and obligations hereunder to its
Affiliates or successors in business who assume and agree to be bound
by the terms hereof provided the entity has demonstrated financial
ability to carry out Biogen's obligations hereunder.
21.2 Entire Agreement; Amendment. This Agreement and the Additional Services
Agreement between the parties dated as of the date hereof constitute
the entire and only agreement between the parties relating to the
subject matter hereof, and all prior negotiations,
* - Confidential Treatment Requested
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representations, agreements and understandings are superseded hereby,
including the Original Agreement. No agreements amending, altering or
supplementing the terms hereof may be made except by means of a written
document signed by the duly authorized representatives of both parties.
21.3 Notices. Any notice required by this Agreement shall be given by
prepaid, first class, certified mail, return receipt requested, or by
air courier, hand delivery or facsimile, to the parties at the
following addresses:
If to Biogen:
Biogen, Inc.
14 Cambridge Center
Cambridge, MA 02142
Attention: Vice President - Sales and Marketing
Fax: (617) 679-2333
with a copy to Vice President-General Counsel
Fax: (617) 679-2617
If to Nova Factor, Inc:
Nova Factor, Inc.
1620 Century Center Parkway
Suite 109
Memphis, TN 38134
Attention: President
Fax: (901) 385-3666
with a copy to:
1640 Century Center Parkway
Suite 101
Memphis, Tennessee 38134
Attention: Thomas W. Bell, Jr., Esq.
Fax: (901) 385-3689
Any notice sent under this Section shall be deemed delivered within
five (5) days if sent by mail and within twenty-four (24) hours if sent
by fax, courier or hand delivery.
21.4 Force Majeure. Neither party shall be liable for any failure or delay
caused by fires, flood, earthquakes, peril of the sea, accidents,
explosions, sabotage, strikes, or other labor disturbances (regardless
of the reasonableness of the demands of labor), civil
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<PAGE> 24
commotions, riots, invasions, wars, acts, restraints, requisitions,
regulations, or directions of governmental authorities, shortages of
labor, fuel, power, or raw material, inability to obtain equipment or
supplies, inability to obtain or delays in transportation, acts of God,
or any other cause beyond its reasonable control.
21.5 Headings. Headings included herein are for convenience only, and shall
not be used to construe this Agreement.
21.6 Independent Parties. For the purposes of this Agreement, the parties
shall be, and shall be deemed to be, independent contractors and not
agents or employees of the other party. No party shall have authority
to make any statements, representations or commitments of any kind, or
to take any action, which shall be binding on the other party, except
as may be explicitly provided for herein or authorized in writing.
21.7 No Publicity. Except as required by law, neither party shall use the
name of the other party or of any employee of the other party in
connection with any publicity without the prior written approval of the
other party.
21.8 Severability. If any provision of this Agreement shall be found by a
court to be void, invalid or unenforceable, the same shall either be
reformed to comply with applicable law or stricken if not so
conformable, so as not to affect the validity or enforceability of this
Agreement, except if the principal intent of the Agreement is
frustrated by such reformation or deletion in which case this Agreement
shall terminate.
21.9 No Deemed Waiver. Failure of either party to enforce a right under this
Agreement shall not act as a waiver of that right or the ability to
later assert that right relative to the particular situation involved
or to terminate this Agreement as a result of any subsequent default or
breach.
21.10 Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the Commonwealth of Massachusetts.
21.11 Arbitration. Unless waived by the parties, any dispute, controversy or
claim between the parties arising out of or relating to this Agreement
either during or after the term hereof (including the question as to
whether any particular matter is arbitrable) shall be solely and
finally settled by arbitration conducted in Memphis, Tennessee, if the
arbitration is initiated by Nova Factor or in the Boston, Massachusetts
metropolitan area, if the arbitration is initiated by Biogen, in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association then in force (the "Rules"). The party
requesting arbitration shall serve upon the other party to the
controversy, dispute or claim a written demand for arbitration stating
the substance of the controversy, dispute or claim, the contention of
the party requesting arbitration, and the name and address of the
arbitrator
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appointed by it. The recipient of such demand shall within twenty (20)
days after such receipt appoint an arbitrator and notify the party
requesting arbitration of the identity of the arbitrator so selected,
and the two arbitrators shall appoint a third, and the decision or
award of any two arbitrators shall be final and binding upon the
parties In the event that the two arbitrators fail to appoint a third
arbitrator within twenty (20) days of the appointment of the second
arbitrator, either arbitrator, or any party to the arbitration, may
apply to a judge of the United States District Court for the district
in which the arbitration is held for the appointment of the third
arbitrator and the appointment of such arbitrator by such judge or such
application shall have precisely the same force and effect as if such
arbitrator had been appointed by the two arbitrators. If for any reason
the third arbitrator cannot be appointed in the manner prescribed by
the preceding sentence, either regularly appointed arbitrator, or
either party to the arbitration, may apply to the American Arbitration
Association for appointment of the third arbitrator in accordance with
the Rules. If the parties upon whom the demand for arbitration has been
served fail or refuse to appoint an arbitrator within twenty (20) days,
the single arbitrator shall have the right to decide alone, and such
arbitrator's decision or award shall be final and binding upon the
parties. The decision of the arbitrator shall be in writing and shall
set forth the basis therefor. The parties shall abide by all awards
rendered in arbitration proceedings, and all such awards may be
enforced and executed in any court having jurisdiction over the party
against whom enforcement of such award is sought. The party losing the
dispute which was submitted to arbitration shall pay the administrative
charges, arbitrator's fees, and related expenses of arbitration, and
each parties legal fees incurred in connection with any such
arbitration. This agreement to arbitrate shall be specifically
enforceable under the prevailing arbitration law.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
BIOGEN, INC. BIOGEN, INC.
By: /s/ Michael W. Bonney By: /s/ Darlene Romine
---------------------------------- -------------------------------
Michael W. Bonney Darlene Romine
Vice President - Sales and Marketing Director of National Accounts
NOVA FACTOR, INC.
By: /s/ David D. Stevens
-------------------------------
Title: Chairman
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Schedule A
Products
*
* - Confidential Treatment Requested
<PAGE> 27
Schedule B
*
* - Confidential Treatment Requested
<PAGE> 28
Schedule C
*
* - Confidential Treatment Requested
<PAGE> 29
Schedule D
Data and Reports
<PAGE> 30
Schedule E
Pricing Discount
<PAGE> 31
Schedule F
Exclusion for Medicaid Eligibility
*
* - Confidential Treatment Requested
<PAGE> 1
EXHIBIT 10.2
ADDITIONAL SERVICES AGREEMENT
This Additional Services Agreement is entered into as of this 1st day
of January, 2000 by and between Biogen, Inc., through its offices located at 701
Green Valley Road, Suite 308, Greensboro, NC 27408 ("Biogen"), and Nova Factor,
Inc., with principal offices located at 1620 Century Center Parkway, Suite 109,
Memphis, TN 38134 ("Nova Factor").
WHEREAS, Biogen has appointed Nova Factor as a preferred distributor of
Biogen's AVONEX(R) (Interferon beta - 1a) under the terms of a Distribution and
Services Agreement between the parties dated as of January 1, 2000 (the
"Distribution Agreement");
WHEREAS, under the Distribution Agreement, Nova Factor has agreed to
provide reimbursement assistance and other customer services to end-users of
AVONEX(R) and to provide data reporting and other services to Biogen;
WHEREAS, Biogen desires Nova Factor to perform certain additional
services for Biogen in connection with Biogen's customer services efforts
related to AVONEX(R) and Nova Factor is willing to provide such additional
services on the terms and conditions set forth in this Agreement;
NOW THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement, the parties hereby agree as follows:
1. DEFINITIONS.
1.1 "Access Program" shall mean the financial assistance program available
to certain end-users of Product funded by Biogen and administered for
Biogen by a third party administrator designated by Biogen.
1.2 "Adverse Event" shall have the meaning set forth in 21 CFR 600.80.
1.3 "Affiliates" shall mean, with respect to a given party, any
corporation, firm, partnership or other entity which directly or
indirectly controls or is controlled by or is under common control with
such party. For purposes of this Section 1.3, "control" shall mean
direct or indirect ownership of greater than fifty percent (50%) of the
equity having the power to vote on or direct the affairs of the entity.
1.4 "Alliance Kit" shall mean a plastic ziplock bag containing five
syringes, five MicroPins(R) and five needles intended for use with
Product.
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1.5 "Alliance Program" shall mean a program established by Biogen to
provide educational information and materials to persons using Product.
1.6 "Alliance Program Participant" shall mean an end-user of Product who
has enrolled in the Alliance Program.
1.7 "Emergency Component Shipment" shall have the meaning set forth in
Section 2.2(d).
1.8 "FDA" shall mean the United States Food and Drug Administration.
1.9 "Hotline Customer" shall mean an end-user who is referred to Nova
Factor via the Reimbursement Hotline.
1.10 "Incentive Plan" shall have the meaning set forth in Section 10.2.
1.11 "IND" shall mean an Investigational New Drug application filed with the
FDA.
1.12 "Investigator" shall mean a physician who, with the consent of Biogen,
has filed and will be conducting research under an
investigator-sponsored IND for investigational use of Product.
1.13 "Outcome Call" shall have the meaning set forth in Section 8.1 of this
Agreement.
1.14 "Program Fee" shall have the meaning set forth in Section 3.4.
1.15 "Program Participant" shall have the meaning set forth in Section 3.2.
1.16 *
1.17 *
1.18 "Reimbursement Hotline" shall mean telephone access to reimbursement
specialists at Nova Factor who are trained to answer or find answers to
reimbursement questions and problems related to Product which such
access is available through a telephone line at Nova Factor dedicated
to calls transferred from Biogen, all as more fully described in
Section 7.
1.19 *
1.20 "Replacement Components" shall mean diluent, syringes, MicroPins(R) and
needles intended for use with Product.
1.21 "Services" shall mean the services to be provided by Nova Factor under
this Agreement.
1.22 "Service Fee Schedule" shall mean the schedule of service fees attached
to this Agreement as Schedule A.
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1.23 "Service Report" shall have the meaning set forth in Section 10.2.
1.24 "SOPs" shall mean the written standard operating procedures,
specifications and instructions approved by both parties, as the same
may be amended from time to time by the parties.
1.25 "Specifications" shall mean the specifications for Replacement
Components provided to Nova Factor by Biogen, as updated by Biogen from
time to time.
1.26 "Training Provider" shall mean Interim Healthcare, Inc. or such other
company as Biogen shall engage to provide Product administration
training services, and as to whose appointment Biogen shall notify Nova
Factor in writing at least 14 days in advance of the engagement.
1.27 "Triaged Customer" shall mean an end-user (other than a Hotline
Customer) who is referred to Nova Factor under the * or referred to
Nova Factor by a Biogen customer support specialist, as contemplated
under Distribution Agreement, but who decides not to use Nova Factor's
home delivery services for delivery of Product.
1.28 "Hours" In calculating time periods in hours or days throughout this
Agreement, except for purposes of Schedule C, weekends and holidays
shall be excluded from the calculation.
2. REPLACEMENT AND RETURN SERVICES.
2.1 Replacement Product.
(a) Obligation. From time to time users of Product and physicians who
prescribe Product will require replacement Product. Nova Factor agrees
to act as a supplier of replacement Product for Biogen. Upon receipt of
each authorization from a Biogen customer support specialist to send
replacement Product to an end-user of Product or to a physician who has
purchased Product, Nova Factor shall supply replacement Product from
its inventory to the end-user at the end-user's home, other residence,
office or similar location, as designated by the end-user, or to the
physician at the physician's office, whether or not such person is a
customer of Nova Factor.
(b) Authorization. Authorization from Biogen's customer support
specialist for Nova Factor to supply replacement Product shall be in
the form of the transfer of the telephone call from the end-user or
physician on Biogen's customer support line to Nova Factor followed by
same-day written confirmation from the Biogen customer support
specialist that replacement Product may be sent, such written
confirmation to specify the quantity of replacement Product to be sent
and to be in a form mutually agreeable to the parties.
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(c) Shipment. Nova Factor shall supply replacement Product in one or
more single dose packs or in the full package of four dose packs, as
authorized by Biogen's customer support specialist. In no event shall
Nova Factor open or alter the packaging of single dose packs of
Product. Nova Factor shall package Product for shipment in insulated
shipping units in accordance with the applicable SOP. Nova Factor shall
ship replacement Product via Federal Express standard overnight
delivery service or another mutually agreed to overnight carrier for
delivery within twenty-four (24) hours of receipt of authorization from
Biogen and notification to the patient, provided that Nova Factor has
received a copy of the applicable prescription form. Nova Factor shall
use reasonable efforts to obtain the prescription form for an end-user,
as necessary, and to notify the end-user about the planned shipment in
each case within twenty-four (24) hours of receipt of authorization
from Biogen to ship replacement Product to such end-user. Nova Factor
shall notify the appropriate Biogen customer support specialist in the
event Nova Factor has not received the prescription form for an
end-user within forty-eight (48) hours of receipt of authorization from
Biogen.
2.2 Replacement Components.
(a) Obligation. In addition to the Product replacement services
specified under Section 2.1, Nova Factor shall, under the terms of this
Agreement, act as a supplier of Replacement Components to end-users of
Product (whether or not the end-users are Nova Factor customers) who
have requested Replacement Components and whose requests have been
approved by a Biogen customer support specialist.
(b) Authorization. Approval from a Biogen customer support specialist
for Nova Factor to supply Replacement Components shall be in the form
of the transfer of the telephone call from the end-user on Biogen's
customer support line to Nova Factor followed by same-day written
confirmation from the Biogen customer support specialist. Upon receipt
of a request from an end-user for Replacement Components, Nova Factor
shall, using a qualified Nova Factor pharmacist, determine whether the
supply of Replacement Components under the circumstances set forth by
the end-user is appropriate and allowable, without a prescription,
under applicable law.
(c) Supply. If Nova Factor determines that the supply of Replacement
Components is appropriate and allowable, without a prescription, under
applicable law, Nova Factor shall supply the approved quantity and type
of Replacement Components from a consignment inventory of Replacement
Components provided by Biogen or from such other supply as Biogen shall
approve and that is provided at Biogen's cost. Nova Factor shall send
Replacement Components to an end-user at the end-user's home, other
residence, office or similar location, as designated by the end-user.
In the event Nova Factor determines that a prescription is required for
the supply of Replacement Components to an end-user, Nova Factor shall
use reasonable efforts to obtain the prescription from the end-user's
physician within twenty-four (24) hours of the request. If Nova Factor,
having used reasonable efforts, is unable to obtain a prescription from
the
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end-user's physician within five (5) business days of receipt of the
request for Replacement Components or if Nova Factor otherwise
determines that the supply of Replacement Components to an end-user is
not appropriate, Nova Factor shall notify a Biogen customer support
specialist.
(d) Shipment. Nova Factor shall ship Replacement Components to
end-users via first-class mail unless the end-user requires an
emergency supply in which case Nova Factor shall ship the Replacement
Components via Federal Express standard overnight delivery service or
another mutually agreed to overnight carrier (an "Emergency Component
Shipment"). Nova Factor shall ship Replacement Components within
twenty-four (24) hours of receipt of the request, unless Nova Factor
determines that a prescription is required in which case Nova Factor
shall ship Replacement Components within twenty-four (24) hours of
receipt of the applicable prescription. Nova Factor shall package
Replacement Components in accordance with industry standards, and shall
include in the package a Nova Factor pharmacy label. If Replacement
Components are not received by the intended recipient, Nova Factor
shall use reasonable efforts to track and retrieve the missing
shipment.
(e) Quality Assurance. Unless Biogen otherwise approves, Nova Factor
shall, in fulfilling its supply obligation under this Section 2, use
only Replacement Components from the inventory that has been provided
by Biogen or from an inventory otherwise approved by Biogen. Nova
Factor shall handle and store all Replacement Components in accordance
with applicable SOPs. Nova Factor shall ensure for each shipment of
Replacement Components to an end-user that a registered pharmacist or
pharmacy technician acting under the direct supervision of a registered
pharmacist has verified that the Replacement Components being shipped
are the Replacement Components that were requested and authorized.
2.3 Other Suppliers. Biogen reserves the right to appoint other suppliers
of replacement Product and Replacement Components.
2.4 Cooperation. At Biogen's request, Nova Factor shall cooperate with
Biogen in investigating the need for replacement Product and
Replacement Components.
3. ACCESS PROGRAM SUPPLY SERVICES.
3.1 Service. In addition to the other services to be provided by Nova
Factor under this Agreement, Nova Factor shall act as a supplier of
Product to participants in Biogen's Access Program.
3.2 Enrollment and Contact. Biogen shall have sole responsibility for
enrolling participants in the Access Program. Upon enrollment by Biogen
of a participant in the Access Program (each a "Program Participant"),
one of Biogen's customer support specialists or a representative of
Biogen's Access Program administrator shall notify Nova Factor in
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writing of the name, address and telephone number of the Program
Participant and the amount of his or her spend-down, if any. Nova
Factor shall obtain a copy of the applicable prescription form for the
Program Participant. Within twenty-four (24) hours of receipt of notice
under the preceding sentence, Nova Factor shall contact the Program
Participant to obtain an order for Product. If the Program Participant
has a spend-down component as part of the Access Program, the Program
Participant may purchase the spend-down portion from Nova Factor or
from another source. If the spend-down portion is purchased from Nova
Factor, Nova Factor shall report on a monthly basis and either remit or
credit against fees owed to it by Biogen the proceeds from the sale to
Biogen. If the Program Participant purchases the spend-down portion
from another source, Nova Factor shall obtain proof of purchase for the
spend-down portion prior to shipping Product to the Program Participant
under this Agreement.
3.3 Supply. Nova Factor shall supply Product to Program Participants from
Nova Factor's inventory and shall deliver Product to the office of the
Program Participant's physician within forty-eight (48) hours of
receipt of each order. If the Program Participant requests delivery of
Product to a location other than his or her physician's office, or if
the physician refuses to accept delivery of the Product, Nova Factor
shall notify Biogen, and Biogen will work with the Program Participant
to determine an alternate shipping destination. Upon determination of
an alternate shipping location, Biogen shall notify Nova Factor in
writing of the address to which Product is to be shipped for the
Program Participant, and Nova Factor shall then ship the Product in
accordance with this Section. * Nova Factor shall package Product for
shipment in insulated shipping units in accordance with the applicable
SOP. Nova Factor shall ship Product to Program Participants via Federal
Express standard overnight delivery services or another mutually agreed
to overnight courier.
3.4 Participant Shipment Fees. As a condition to participation in the
Access Program, Program Participants will agree to pay a shipment fee
of * for each shipment of Product (other than the spend-down portion)
after the initial shipment (the "Program Fee"). Nova Factor shall bill
each Program Participant for the Program Fee, and shall send a
follow-up reminder letter following the third shipment of Product if
the Program Participant has not paid the Program Fee. Nova Factor shall
apply the Program Fees collected for any month against the amount of
the Access Program shipment fees owed by Biogen for such month under
the Service Fee Schedule. Nova Factor shall not bill Program
Participants for Product other than for the spend-down portion and for
the amount of the Program Fees. Except to the extent expressly set
forth in this paragraph, Nova Factor shall not be responsible for
collecting Program Fees from Program Participants.
3.5 Follow-up; Change in Status. Nova Factor shall, to the extent
consistent with applicable federal and state pharmacy laws, contact
each Program Participant approximately one week before the Program
Participant's supply of Product, assuming proper administration, will
be depleted to determine if the person needs a new supply of Product.
During each follow-up telephone call to a Program Participant under
this Section 3.5, Nova Factor shall confirm that the Program
Participant's insurance status or financial condition has not changed.
If the Program Participant's insurance status or financial condition
has changed, Nova Factor shall immediately notify Biogen or Biogen's
third party Access Program
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administrator. Nova Factor shall have no obligation to verify
information received from a Program Participant as to insurance status.
Nova Factor shall not ship Product to a Program Participant under this
Section after Nova Factor receives written notice from Biogen or
Biogen's third party Access Program administrator that the Program
Participant is no longer eligible to participate in the Access Program.
3.6 Progress Checks. To the extent allowable under applicable law, Nova
Factor's customer service representatives shall call each new Program
Participant one to three weeks after such person has received an
initial shipment of Product under this Section to check on the person's
progress. In checking on a Program Participant's progress, Nova Factor
shall use a script and checklist mutually agreeable to the parties. At
Biogen's request, Nova Factor shall, during its telephone conversations
with Program Participants, conduct additional clinical efficacy and
customer satisfaction surveys provided by Biogen and report the
resulting information to Biogen in a manner consistent with any
applicable confidentiality restrictions. The parties shall negotiate,
in advance, the fee for each additional survey initiated by Biogen.
4. ALLIANCE PROGRAM.
4.1 Supply of Alliance Kits. As further additional services under this
Agreement, Nova Factor shall supply one Alliance Kit to each Alliance
Program Participant identified by Biogen. Nova Factor shall use its
best efforts not to send more than one Alliance Kit to each Alliance
Program Participant, and shall notify a Biogen customer support
specialist promptly in the event an Alliance Program Participant
submits more than one voucher. Nova Factor shall not ship Alliance Kits
to any Alliance Program Participant in any state in which a
prescription for any of the Replacement Components contained in the
Alliance Kits is required without having first obtained the necessary
prescription. In the event Nova Factor determines that a prescription
is required to supply an Alliance Kit to an Alliance Program
Participant, Nova Factor shall use reasonable efforts to obtain a
prescription from the end-user's physician within twenty-four (24)
hours of receipt of identification by Biogen. If Nova Factor, having
used reasonable efforts, is unable to obtain a prescription from an
end-user's physician within five (5) business days of receipt of
identification by Biogen, Nova Factor shall notify a Biogen customer
support specialist.
4.2 Delivery. Nova Factor shall ship Alliance Kits within two (2) business
days of receipt of identification by Biogen, unless Nova Factor
determines that a prescription is required in which case Nova Factor
shall ship Alliance Kits within two (2) business days of receipt of the
applicable prescription. Nova Factor shall send Alliance Kits via first
class mail, unless otherwise agreed by the parties. Nova Factor shall
package Alliance Kits in accordance with industry standards, and shall
include on the Alliance Kit a Nova Factor pharmacy label.
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4.3 Components.
(a) Source. Unless Biogen otherwise specifies, Nova Factor shall use
Replacement Components in the Alliance Kits from the inventory supplied
by Biogen.
(b) Quality Assurance. For each shipment of an Alliance Kit to an
end-user, Nova Factor shall ensure that a registered pharmacist or a
pharmacy technician acting under the direct supervision of a registered
pharmacist has verified that the Replacement Components contained in
the Alliance Kit are as specified in this Agreement.
5. SUPPLY OF PRODUCT FOR PHYSICIAN INVESTIGATIVE USE.
5.1 Service. As further additional services under this Agreement, Nova
Factor shall, upon receipt of written authorization from Biogen, supply
Product from Nova Factor's inventory to Investigators. Nova Factor
shall package Product for shipment in insulated shipping units in
accordance with the applicable SOP. Nova Factor shall ship Product to
the location specified by the Investigator via Federal Express standard
overnight delivery service or another mutually agreed to overnight
courier for delivery within twenty-four (24) hours of receipt of the
applicable authorization from Biogen. If the Investigator requests
delivery of the Product to an end-user's home, Nova Factor shall obtain
the necessary prescription from the physician. Product shall be
supplied to Investigators under this Section at no cost to the
Investigator.
5.2 Quantities. For the initial shipment of Product to an Investigator
under this Section, Nova Factor shall deliver one package of Product (a
one month's supply). For the next shipment to the Investigator, Nova
Factor shall deliver two (2) packages of Product (a two (2) months'
supply). For the final order of Product to an Investigator under a
Biogen authorization, Nova Factor shall deliver three (3) packages of
Product (a three (3) months' supply). Nova Factor shall not deliver
more than a total of six (6) packages (a six months' supply) of Product
to any Investigator without further authorization from Biogen.
Notwithstanding anything herein to the contrary, in no event shall Nova
Factor ship Product to any Investigator in a quantity more than the
Investigator ordered or otherwise specified or in a quantity more than
Biogen authorized or otherwise approved.
6. *
7. REIMBURSEMENT HOTLINE.
7.1 Hotline Services. As additional services under this Agreement, Nova
Factor shall operate a Reimbursement Hotline through which end-users,
physicians, nurses, pharmacies,
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payors, providers and others referred to Nova Factor by Biogen's
customer support specialists will be able to obtain assistance in
answering reimbursement-related questions and resolving
reimbursement-related issues and problems. Nova Factor shall make the
Reimbursement Hotline accessible as one of the connection options
available through the Nova Factor telephone line dedicated to calls
transferred from Biogen's customer support specialists. Services to be
provided by Nova Factor as part of the Reimbursement Hotline shall
include, but shall not be limited to, using reasonable efforts * If an
end-user or other person referred to Nova Factor on the Reimbursement
Hotline has any questions related to Medicare coverage for Product,
Nova Factor shall, unless otherwise specified by Biogen, transfer the
person to the third party service provider designated by Biogen to
provide further assistance on Medicare issues.
7.2 Delivery Options. In presenting the delivery options available to an
end-user referred to Nova Factor via the Reimbursement Hotline, Nova
Factor shall follow a script which accurately describes all potential
methods of delivery available to the end-user and which is in a form
mutually agreeable to Nova Factor and Biogen. If the end-user decides
not to use Nova Factor's home delivery services for delivery of
Product, Nova Factor shall use reasonable efforts to obtain the name,
telephone number and fax number of the desired dispensing pharmacy, and
shall provide to the dispensing pharmacy, by telephone or fax, all of
the information in Nova Factor's possession regarding the end-user.
7.3 Staffing. Nova Factor shall use qualified and properly trained
reimbursement specialists to answer calls on the Reimbursement Hotline.
The number of reimbursement specialists made available by Nova Factor
to answer calls on the Reimbursement Hotline shall be determined by the
volume of calls, and shall be that number which is sufficient to ensure
a high level of customer service and satisfaction. The parties
acknowledge that a "high level of customer service and satisfaction"
for purposes of the preceding sentence shall mean the answering of
eight-five percent (85%) of telephone calls within thirty (30) seconds.
If Biogen believes that the number of reimbursement specialists made
available by Nova Factor to answer calls on the Reimbursement Hotline
is not sufficient to ensure a high level of customer service and
satisfaction, Biogen shall notify Nova Factor and the parties shall
meet to determine what mutually agreeable corrective actions Nova
Factor shall take.
7.4 Direct Delivery Customers. Nothing in this Agreement or in the
operation of the Reimbursement Hotline shall be deemed to limit in any
way the obligation of Nova Factor to provide reimbursement-related
services under the terms of Section 5 of the Distribution Agreement to
those end-users who order Product from Nova Factor. Services provided
by Nova Factor to end-users under Section 5 of the Distribution
Agreement will not be considered Reimbursement Hotline services for
purposes of Section 7 of this Agreement.
7.5 Customer Satisfaction Survey. At Biogen's request from time to time,
Nova Factor shall, at no additional cost to Biogen, send customer
satisfaction surveys to Hotline Customers in a form mutually agreed
upon by the parties. The completed surveys shall be sent to Biogen.
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7.6 Reliance on Payor Information. Nova Factor shall have no liability for
relying upon information provided by third party payors concerning
coverage in the event that such information shall subsequently prove to
be incorrect, and Nova Factor may include a disclaimer to that effect
in any communication with end-users or others regarding coverage by
third party payors.
7.7 Information to Biogen. At Biogen's request, Nova Factor shall provide
to Biogen information regarding reimbursement policies for Product
generated by Nova Factor in the course of providing Services under this
Agreement.
8. *
9. DATA AND REPORTS.
9.1 Data. Nova Factor shall maintain the information specified in Schedule
B related to the Services in a Biogen-specific database (the
"Database") (which may be the same database maintained under the
Distribution Agreement).
9.2 Reports. Nova Factor shall generate and furnish to Biogen at the end of
each month reports from the Database as specified in Schedule B which
such reports shall include a service report, specifying the type and
quantity of Services performed in a format mutually agreeable to the
parties (the "Service Report"). At Biogen's request, Nova Factor will
deliver the reports specified under this Section electronically through
a reasonably secure internet connection in a format mutually approved
by the parties.
9.3 Other Information. Nova Factor shall furnish to Biogen such additional
information related to Services as Biogen may from time to time
reasonably request to the extent generating such information will not
result in a material increase in the costs incurred by Nova Factor in
performing Services under this Agreement.
9.4 Audits. During the term of this Agreement and for a period of three (3)
years after termination or expiration of this Agreement, Nova Factor
shall maintain true and accurate records of the Services provided by
Nova Factor under this Agreement in sufficient detail to enable Biogen
to verify the amounts payable to Nova Factor under this Agreement. Nova
Factor shall permit Biogen, during the term of this Agreement and for a
period of three (3) years after termination or expiration of this
Agreement, to examine periodically, but not more than once per year,
during regular business hours, the books, ledgers, and records of Nova
Factor for any year for the purpose of and to the extent necessary to
verify the information provided by Nova Factor under this Agreement.
The cost of such
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examination shall be borne by Biogen unless it shall be established by
Biogen that, as a result of an error in information provided by Nova
Factor, there was a miscalculation in the Service Fees or incentive
payments for any quarter resulting in an over payment by Biogen of more
than $10,000; provided that in no event shall audit costs borne by Nova
Factor exceed $10,000 per audit.
10. PAYMENT.
10.1 Service Fees. In consideration of the Services rendered by Nova Factor
to Biogen under this Agreement, Biogen shall pay Nova Factor in
accordance with the Service Fee Schedule attached to this Agreement as
Schedule A.
10.2 *
10.3 Invoices. Nova Factor shall invoice Biogen at the end of each month for
amounts due hereunder with respect to Services shown on the Service
Report for such month and for any incentives earned under the Incentive
Plan. The invoice shall be accompanied by data necessary to support the
amount of incentive payments being sought by Nova Factor under the
Incentive Plan. All amounts due hereunder shall be payable by check to
Nova Factor in United States funds. Payment by Biogen shall be due
within thirty (30) days from the date of the invoice.
10.4 Product Credit. Within thirty (30) days of receipt of the Service
Report for any month, Biogen shall issue to Nova Factor a credit memo
in an amount equal to the quantity of Product shipped during the month
from Nova Factor's inventory under the terms of Sections 2.1, 3.1 and
5.1 of this Agreement multiplied by the then current purchase price for
Product *. Nova Factor may apply credits given under this Section
against purchases of Product under the Distribution Agreement. Credits
may not be assigned or transferred by Nova Factor to a third party, and
no cash payments shall be made on account of any credit, except where
Nova Factor has credit due on the termination of the Distribution
Agreement. Nova Factor shall not unilaterally apply any credit against
or make any deductions from payment due to Biogen under the
Distribution Agreement without prior written notice to and approval of
Biogen. Credits shall be applied under the Distribution Agreement on a
first-in, first-out basis.
10.5 Other Costs and Expenses. Except as otherwise set forth herein, Nova
Factor shall be responsible for all costs and expenses associated with
fulfilling its obligations and performing Services under this
Agreement. In no event shall Nova Factor charge an end-user, insurance
provider or any other third party for any Services provided under this
Agreement.
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10.6 Payment Due; Late Fee. Biogen shall pay interest on a per diem basis on
any amounts past due at an annualized rate of one and one-half percent
(1 1/2%) over the prime rate then in effect at Fleet Bank, Boston,
Massachusetts.
11. TERM; TERMINATION.
11.1 Term. This Agreement shall become effective as of the date hereof and,
unless earlier terminated in accordance with this Section, shall
continue in effect for an initial term of three (3) years from the
effective date. The parties may extend this Agreement by mutual written
agreement.
11.2 Termination of Portion of Services. Biogen may terminate any portion of
the Services at any time * written notice to Nova Factor without
terminating the entire Agreement.
11.3 Voluntary Termination. Either party may terminate this Agreement for
any reason, at any time, upon ninety (90) days' prior written notice to
the other party.
11.4 Termination for Breach. Either party may terminate this Agreement (i)
for a material breach by the other party upon thirty (30) days' prior
written notice unless the breaching party cures the breach within such
thirty (30) day period or (ii) in the event of any proceedings,
voluntary or involuntary, in bankruptcy or insolvency, by or against
the other party, or the appointment with or without the other parties'
consent of a receiver for such party.
11.5 Transition. Upon receipt or delivery of a termination notice by Nova
Factor with respect to all or any part of the Services or ninety (90)
days prior to expiration of this Agreement at the end of the term, as
applicable, the parties shall begin transition of the Services (or any
part thereof being terminated) to a party to be designated by Biogen.
After receipt of the termination notice with respect to all or any part
of the Services, and during the period thereafter ending six (6) months
after termination, Nova Factor shall use reasonable efforts to
cooperate with Biogen in ensuring the smooth transition of the Services
(or any part thereof being terminated), provided that after termination
of this Agreement, Biogen shall upon receipt of Nova Factor's invoice
reimburse Nova Factor for its reasonable expenses associated with such
cooperation.
11.6 Transfer of Database and Files. Upon termination, Nova Factor shall
transfer to Biogen a copy of the Database and files related to
reimbursement policies applicable to Product, provided that if
applicable patient confidentiality laws prohibit transfer of an
end-user's name, Nova Factor shall transfer the Database using customer
numbers, instead of names.
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11.7 Return of Inventory. Within ten (10) days of termination of the
Agreement, Nova Factor shall at Biogen's cost return to Biogen all
Replacement Components and Alliance Kits then held in consignment
inventory at Nova Factor.
11.8 Survival. Sections 11.5, 11.8, 12.12, 13.4, 14.1, 15, 16 and 20.7 shall
survive termination or expiration of this Agreement.
12. REPRESENTATIONS, WARRANTIES AND COVENANTS OF NOVA FACTOR.
12.1 Judgment under Pharmacy Laws. Nova Factor understands that Biogen's
approval and transfer to Nova Factor of a request for Replacement
Components or the submission of a voucher by an Alliance Program
Participant shall not be deemed to replace, in whole or in part, the
exercise by the Nova Factor pharmacist of his or her judgment under
applicable pharmacy law as to whether the shipment of Replacement
Components or Alliance Kits is permissible under applicable pharmacy
laws.
12.2 Adverse Event Reporting. Nova Factor shall record and promptly report
to Biogen any Adverse Events which come to the attention of Nova Factor
in the performance of Services in accordance with the relevant SOP
provided by Biogen.
12.3 Limitation on Promotional Activities. Nova Factor shall not engage in
any promotional activities with respect to Product or the *, the Access
Program or the Reimbursement Hotline, other than the distribution of
literature approved by Biogen and other activities expressly authorized
by Biogen. Nova Factor shall not use any promotional materials which
refer to Product, the *, the Access Program or the Reimbursement
Hotline unless such promotional materials have been approved in writing
in advance by Biogen. Any promotional literature or verbal
representations describing Nova Factor's role in the *, the Access
Program or the Reimbursement Hotline shall be approved in advance in
writing by Biogen.
12.4 Compliance with Law and Professional Standards. In performing its
obligations under this Agreement, Nova Factor shall comply with all
applicable laws and regulations, including but not limited to, federal
and state pharmacy laws, laws relating to the disposal of
pharmaceutical products and hazardous wastes, to the extent disposal of
Product, Replacement Components and Alliance Kits is Nova Factor's
responsibility under this Agreement, and all applicable professional
and industry standards and good business practices.
12.5 Quality of Team. Nova Factor shall use a dedicated, well-trained,
knowledgeable team of employees to handle Product and to perform the
Services to be performed by Nova Factor under this Agreement. Subject
to applicable laws, Biogen shall have the right to have an employee
monitor from time to time Nova Factor's responses during telephone
calls made
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in connection with Services. Nova Factor shall cooperate with Biogen to
enable such monitoring activities. The end-user shall be notified at
the beginning of a call to be monitored that monitoring for quality
assurance purposes is to occur, each such notification to be in
accordance with a script mutually agreeable to the parties.
12.6 Actions. Nova Factor shall not take any action which would materially
adversely affect its standing or that of Biogen in the industry or with
respect to Product customer base or which would undermine the image of
Product.
12.7 Quality Reviews. Nova Factor shall periodically, but not less
frequently than once per year, perform written quality reviews of Nova
Factor's performance in fulfilling its obligations under this
Agreement, and shall provide Biogen with copies of such reviews. Nova
Factor shall administer a validation checklist to each employee
performing Services upon completion of such employee's initial training
and annually thereafter, and shall provide Biogen with copies of such
checklists.
12.8 Licenses. Nova Factor represents that it now has and shall maintain in
full force during the term of this Agreement all federal and state
pharmacy, wholesaler and other licenses or approvals required by Nova
Factor to fulfill its obligations under this Agreement, and except that
Nova Factor shall not be required to maintain its licenses in any state
which amends its laws and regulations to require an in-state pharmacy
presence as a requirement for licensing if the new requirement would
materially increase the costs incurred by Nova Factor in performing its
obligations under this Agreement. Nova Factor shall provide Biogen with
notice of any communications with pharmacy licensing boards which
relate to potential problems with facilities, operations or procedures
used by Nova Factor in performing Services, including notices of
inquiries, investigations or inspections and resulting findings.
12.9 Use of Trademarks. Nova Factor shall not use the trademarks or
tradenames of Biogen except to the extent contained in Product
literature provided by Biogen and on Product labels or as otherwise
approved by Biogen.
12.10 Authority. Nova Factor represents that it has the authority to enter
into this Agreement and that its execution of this Agreement and its
performance of its obligations hereunder will not conflict with and is
not prohibited by any other agreement to which Nova Factor is a party.
12.11 Limitation on Liability. In no event shall Nova Factor be liable for
loss of profit or any other incidental or consequential damages of
Biogen.
12.12 End-User Lists. In no event shall Nova Factor use the lists of
end-users generated in the course of Services except for purposes of
performing Services for Biogen under this Agreement except as otherwise
approved by Biogen. Nova Factor shall not make its end-user list or any
portion thereof available to any third party.
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<PAGE> 15
13. REPRESENTATIONS AND WARRANTIES OF BIOGEN
13.1 Compliance with Law. Biogen shall be responsible for testing Product
and ensuring that Product complies, when shipped to Nova Factor, with
all applicable laws, regulations, directives and requirements of the
FDA, including without limitation, packaging and labeling requirements,
product warning requirements, product design and safety requirements
and advertising requirements.
13.2 Use of Trademarks. Biogen shall not use the trademark or tradenames of
Nova Factor except to the extent necessary for activities contemplated
under this Agreement.
13.3 Authority. Biogen represents that it has the authority to enter into
this Agreement and that its execution of this Agreement and its
performance of its obligations hereunder will not conflict with and is
not prohibited by any other Agreement to which Biogen is a party.
13.4 Limitation on Liability. In no event shall Biogen be liable for loss of
profit or any other incidental or consequential damages of Nova Factor.
14. REGULATORY, INSPECTIONS, AUDITS
14.1 Information. Nova Factor shall provide to Biogen, at Biogen's request,
any information reasonably required in connection with Biogen
investigations relating to Services or any requests or investigations
by or filings with governmental bodies, including the FDA or in support
of Biogen's applications to the FDA. Nova Factor shall respond within
two (2) business days to any reasonable requests for information by
Biogen.
14.2 Audits, Inspections. Nova Factor shall from time to time submit to
inquiries, audits and inspections by Biogen during normal business
hours or at any other time during which the Services being audited are
ongoing. Biogen shall give Nova Factor a least two (2) business days'
prior notice of any audit or inspection and shall bear the costs of
such audit or inspection.
15. INDEMNIFICATION.
15.1 Biogen Indemnification of Nova Factor. Biogen shall at all times during
the term of this Agreement and thereafter defend, indemnify and hold
Nova Factor and its officers, directors, agents and employees harmless
from and against any and all claims, suits, damages, liabilities, costs
and expenses, including but not limited to court costs and reasonable
attorneys' fees, incurred in connection with any third-party claim
arising out of the use of any Product by an end-user, except to the
extent caused by (i) the negligence or intentional misconduct of Nova
Factor or any of its officers, directors, agents or
15
<PAGE> 16
employees or (ii) breach by Nova Factor of any of the terms of this
Agreement or (iii) acts of Nova Factor or any of its officers,
directors, agents or employees which are outside the scope of this
Agreement.
15.2 Nova Factor Indemnification of Biogen. Nova Factor shall at all times
during the term of this Agreement and thereafter defend, indemnify and
hold Biogen and its officers, directors, agents and employees harmless
from and against any and all claims, suits, damages, liabilities, costs
and expenses, including but not limited to court costs and reasonable
attorneys' fees, incurred in connection with any third-party claim
arising out of (i) the negligence or intentional misconduct of Nova
Factor or any of its officers, directors, agents or employees, (ii)
breach by Nova Factor of any of the terms of this Agreement, or (iii)
acts of Nova Factor or any of its officers, directors, agents or
employees which are outside the scope of this Agreement.
15.3 Procedures. A party seeking indemnification under this Section shall
give prompt notice of the claim to the other party and, provided that
the indemnifying party is not contesting the indemnity obligation,
shall permit the indemnifying party to control any litigation relating
to such claim and disposition of any such claim, provided that the
indemnifying party shall act reasonably and in good faith with respect
to all matters relating to the settlement or disposition of any claim
as the settlement or disposition relates to the parties being
indemnified under this Section and the indemnifying party shall not
settle or otherwise resolve any claim without prior notice to the
indemnified party. The indemnified party shall cooperate with the
indemnifying party in its defense of any claim for which
indemnification is sought hereunder.
16. CONFIDENTIALITY.
16.1 Nova Factor Obligation. Nova Factor agrees to treat any confidential or
proprietary information obtained from Biogen and any confidential or
proprietary information generated by Nova Factor in performing Services
under this Agreement, including information regarding end-users,
Biogen's pricing policies, information regarding reimbursement for the
Product, information regarding the cost of providing services to Biogen
and the information in the Database, and anything derived therefrom,
(collectively, the "Biogen Information") as the confidential and
exclusive property of Biogen, (except for the information in the
Database which shall be joint property of Biogen and Nova Factor,
subject to the limitations on Nova Factor's use of end-user lists as
set forth in Section 12.12), and agrees not to disclose any of the
Biogen Information to any third party without first obtaining the
written consent of Biogen. Nova Factor agrees that it will use any
Biogen Information only for purposes of performing its obligations
hereunder and for no other purpose without the prior written consent of
Biogen. Nova Factor further agrees to take all practicable steps to
ensure that the Biogen Information will not be used by its directors,
officers or employees, except on like terms of confidentiality as
aforesaid, and will be kept confidential by them.
16
<PAGE> 17
The above provisions of confidentiality shall not apply to that part of
the Biogen Information which Nova Factor is able to demonstrate by
documentary evidence:
(a) was in Nova Factor's possession prior to receipt from Biogen;
or
(b) was in the public domain at the time of receipt from Biogen;
or
(c) became part of the public domain through no fault of Nova
Factor, its directors, officers or employees; or
(d) was lawfully received by Nova Factor from some third party not
disclosing the information on behalf of Biogen and having a
right of further disclosure; or
(e) is required by law to be disclosed, provided, however that
Nova Factor gives Biogen sufficient advance written notice to
permit Biogen to seek a protective order or other similar
order with respect to such Information.
Nova Factor agrees that, at Biogen's request, it shall return to Biogen
all parts of the Biogen Information existing in documentary form, not
including pharmacy records, and will, at Biogen's request, return or
destroy any copies thereof made by Nova Factor, its directors, officers
or employees except that Nova Factor shall retain a copy of the
Database, subject to the ongoing obligation of confidentiality. Nova
Factor shall not dispose of the information in the Database without
first offering in writing, given at least sixty (60) days prior to such
disposal, to deliver the information to Biogen.
16.2 Biogen Obligation. Biogen agrees to treat any confidential or
proprietary information obtained from Nova Factor, (not including the
Database, information regarding end-users, and information about
insurers' reimbursement policies with respect to Product) and anything
derived therefrom, (collectively, the "Nova Factor Information") as the
confidential and exclusive property of Nova Factor, and Biogen agrees
not to disclose any of the Nova Factor Information to any third party
without first obtaining the written consent of Nova Factor, provided
that Biogen may disclose Nova Factor Information to any third party
providing reimbursement-related services to Biogen as long as the third
party is obligated to Nova Factor to keep such information
confidential. Biogen agrees that it will use any Nova Factor
Information only for purposes of activities contemplated hereunder and
for no other purpose without the prior written consent of Nova Factor.
Biogen further agrees to take all practicable steps to ensure that the
Nova Factor Information will not be used by its directors, officers or
employees, except on like terms of confidentiality as aforesaid, and
will be kept confidential by them.
The above provisions of confidentiality shall not apply to that part of
the Nova Factor Information which Biogen is able to demonstrate by
documentary evidence:
(a) was in Biogen's possession prior to receipt from Nova Factor;
or
17
<PAGE> 18
(b) was in the public domain at the time of receipt from Nova
Factor; or
(c) became part of the public domain through no fault of Biogen,
its directors, officers or employees; or
(d) was lawfully received by Biogen from some third party not
disclosing the information on behalf of Nova Factor and having
a right of further disclosure; or
(e) is required by law to be disclosed, provided, however that
Biogen gives Nova Factor sufficient advance written notice to
permit Nova Factor to seek a protective order or other similar
order with respect to such Information.
Biogen agrees that, at Nova Factor's request, it shall return to Nova
Factor all parts of the Nova Factor Information existing in documentary
form and will, at Nova Factor's request, return or destroy any copies
thereof made by Biogen, its directors, officers or employees.
16.3 No Implied License. Nothing contained herein shall be deemed to grant
to either party any rights or licenses under any patent applications or
patents or to any know-how, technology, inventions or other
intellectual property rights of the other party.
16.4 Publicity. Notwithstanding anything to the contrary contained in
Section 12.3, Nova Factor shall be permitted to disclose to potential
and existing customers of Nova Factor as well as to potential
purchasers of stock or assets of Nova Factor or other potential sources
of capital (i) that Nova Factor performs services and distributes
Product under agreements with Biogen and (ii) the general nature of the
relationship with Biogen. Nova Factor shall also be permitted to make
such public statements regarding its relationship with Biogen as may be
required by law, regulation or by obligations pursuant to any listing
agreement with any securities exchange. Nova Factor shall not disclose
the terms of this Agreement to any third party or, except as expressly
set forth in this Section, make any public announcement of the
existence of its relationship with Biogen without the prior written
consent of Biogen except to its auditors and lawyers or as required by
law.
16.5 Length of Obligation. The obligations of the parties under this Section
17 shall continue during the term of this Agreement and for a period
ending five (5) years after termination or expiration of this
Agreement.
17. INSURANCE.
Nova Factor agrees (i) to obtain and maintain, while this Agreement is
in effect, commercial general liability insurance, including product
liability insurance, with coverage limits of not less than $1,000,000
per occurrence and $3,000,000 in the aggregate, and (ii) not to cancel
the insurance or reduce the coverage without giving at least thirty
(30) days prior written notice to Biogen. Nova Factor shall cause
Biogen to be a notice party on each insurance policy such that Biogen
shall receive notice of any
18
<PAGE> 19
cancellation or change in the policy. At the request of Biogen, Nova
Factor shall provide Biogen with a copy of a certificate of insurance
to verify that insurance with the required coverage is in effect.
18. TRAINING.
Nova Factor shall be responsible for insuring that the personnel
handling Product and Replacement Components, dealing with customers and
payors and performing the Services contemplated under this Agreement
are properly trained to perform their functions. Biogen and Nova Factor
will use a jointly prepared training manual and orientation program for
Nova Factor and Biogen personnel to familiarize the personnel with the
Product, Services and the market.
19. COMPETITIVE PRODUCTS
As long as Nova Factor is providing Services under this Agreement, Nova
Factor shall not perform services which are similar to the Services
then being provided under this Agreement with respect to any products
which compete with Product in the treatment of multiple sclerosis.
20. MISCELLANEOUS
20.1 Binding; Assignment. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective
successors and assigns, provided that neither party shall have the
right to assign this Agreement or its rights and obligations hereunder
without the prior written consent of the other party, which such
consent shall not be unreasonably withheld, except that Biogen may
assign this Agreement or its rights and obligations hereunder to its
Affiliates or successors in business who assume and agree to be bound
by the terms hereof provided the entity has demonstrated financial
ability to carry out Biogen's obligations hereunder.
20.2 Entire Agreement; Amendments. This Agreement and the Distribution
Agreement constitute the entire and only agreement between the parties
relating to the subject matter hereof, and all prior negotiations,
representations, agreements and understandings are superseded hereby.
No agreements amending, altering or supplementing the terms hereof may
be made except by means of a written document signed by the duly
authorized representatives of both parties.
20.3 Notices. Any notice required by this Agreement shall be given by
prepaid, first class, certified mail, return receipt requested, or by
air courier, hand delivery or facsimile, to the parties at the
following addresses:
19
<PAGE> 20
If to Biogen:
Biogen, Inc.
14 Cambridge Center
Cambridge, MA 02142
Attention: Vice President - Sales and Marketing
Fax: (617) 679-2333
with a copy to Vice President-General Counsel
Fax: (617) 679-2617
If to Nova Factor, Inc:
Nova Factor, Inc.
1620 Century Center Parkway
Suite 109
Memphis, TN 38134
Attention: President
Fax: (901) 385-3666
with a copy to: General Counsel
Thomas W. Bell, Jr.
Accredo Health, Incorporated
1640 Century Center Parkway
Suite 101
Memphis, Tennessee 38134
Fax: (901) 385-3689
Any notice sent under this Section shall be deemed delivered within
five (5) days if sent by mail and within twenty-four (24) hours if sent
by fax, courier or hand delivery.
20.4 Force Majeure. Neither party shall be liable for any failure or delay
caused by fires, flood, earthquakes, peril of the sea, accidents,
explosions, sabotage, strikes, or other labor disturbances (regardless
of the reasonableness of the demands of labor), civil commotions,
riots, invasions, wars, acts, restraints, requisitions, regulations, or
directions of governmental authorities, shortages of labor, fuel,
power, or raw material, inability to obtain equipment or supplies,
inability to obtain or delays in transportation, acts of God, or any
other cause beyond its reasonable control.
20
<PAGE> 21
20.5 Headings. Headings included herein are for convenience only, and shall
not be used to construe this Agreement.
20.6 Independent Parties. For the purposes of this Agreement, the parties
shall be, and shall be deemed to be, independent contractors and not
agents or employees of the other party. No party shall have authority
to make any statements, representations or commitments of any kind, or
to take any action, which shall be binding on the other party, except
as may be explicitly provided for herein or authorized in writing.
20.7 No Publicity. Except as required by law, neither party shall use the
name of the other party or of any employee of the other party in
connection with any publicity without the prior written approval of the
other party.
20.8 Severability. If any provision of this Agreement shall be found by a
court to be void, invalid or unenforceable, the same shall either be
reformed to comply with applicable law or stricken if not so
conformable, so as not to affect the validity or enforceability of this
Agreement, except if the principal intent of the Agreement is
frustrated by such reformation or deletion in which case this Agreement
shall terminate.
20.9 No Deemed Waiver. Failure of either party to enforce a right under this
Agreement shall not act as a waiver of that right or the ability to
later assert that right relative to the particular situation involved
or to terminate this Agreement as a result of any subsequent default or
breach.
20.10 Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the Commonwealth of Massachusetts.
20.11 Arbitration. Unless waived by the parties, any dispute, controversy or
claim between the parties arising out of or relating to this Agreement
either during or after the term hereof (including the question as to
whether any particular matter is arbitrable) shall be solely and
finally settled by arbitration conducted in Memphis, Tennessee, if the
arbitration is initiated by Nova Factor or in the Boston, Massachusetts
metropolitan area, if the arbitration is initiated by Biogen, in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association then in force (the "Rules"). The party
requesting arbitration shall serve upon the other party to the
controversy, dispute or claim a written demand for arbitration stating
the substance of the controversy, dispute or claim, the contention of
the party requesting arbitration, and the name and address of the
arbitrator appointed by it. The recipient of such demand shall within
twenty (20) days after such receipt appoint an arbitrator and notify
the party requesting arbitration of the identity of the arbitrator so
selected, and the two arbitrators shall appoint a third, and the
decision or award of any two arbitrators shall be final and binding
upon the parties In the event that the two arbitrators fail to appoint
a third arbitrator within twenty (20) days of the appointment of the
second arbitrator, either arbitrator, or any party to the arbitration,
may apply to a judge of the United States District Court for the
district in which the arbitration is held for the appointment of the
third arbitrator and the appointment of such arbitrator
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<PAGE> 22
by such judge or such application shall have precisely the same force
and effect as if such arbitrator had been appointed by the two
arbitrators. If for any reason the third arbitrator cannot be appointed
in the manner prescribed by the preceding sentence, either regularly
appointed arbitrator, or either party to the arbitration, may apply to
the American Arbitration Association for appointment of the third
arbitrator in accordance with the Rules. If the parties upon whom the
demand for arbitration has been served fail or refuse to appoint an
arbitrator within twenty (20) days, the single arbitrator shall have
the right to decide alone, and such arbitrator's decision or award
shall be final and binding upon the parties. The decision of the
arbitrator shall be in writing and shall set forth the basis therefor.
The parties shall abide by all awards rendered in arbitration
proceedings, and all such awards may be enforced and executed in any
court having jurisdiction over the party against whom enforcement of
such award is sought. The party losing the dispute which was submitted
to arbitration shall pay the administrative charges, arbitrator's fees,
and related expenses of arbitration, and each parties legal fees
incurred in connection with any such arbitration. This agreement to
arbitrate shall be specifically enforceable under the prevailing
arbitration law.
IN WITNESS WHEREOF, the parties have executed this Addendum on the date
first above written.
BIOGEN, INC.
By: /s/ Michael W. Bonney
----------------------------------------
Michael W. Bonney
Vice President - Sales and Marketing
By: /s/ Darlene Romine
----------------------------------------
Darlene Romine
Director of National Accounts
NOVA FACTOR, INC.
By: /s/ David D. Stevens
----------------------------------------
Title: Chairman
22
<PAGE> 23
SCHEDULE A
SERVICE FEE SCHEDULE
<TABLE>
<CAPTION>
Activity Fee
-------- ---
<S> <C>
Shipment of Replacements Components *
Shipment of replacement Product to non-Nova Factor *
customers or shipment of Product to Investigators
Shipment of replacement Product to Nova Factor customers *
Shipment of Product to Access Program Participants *
Shipment of Alliance Kits *
Services related to Reimbursement Hotline and Hotline *
Customers
Outcome calls to Triaged Customers *
Shipment of Product to Access Program Participants who *
require reimbursement services
</TABLE>
* - Confidential Treatment Requested
23
<PAGE> 24
SCHEDULE B
DATA AND REPORTS
24
<PAGE> 25
SCHEDULE C
*
* - Confidential Treatment Requested
25
<PAGE> 26
Exhibit 1
*
* - Confidential Treatment Requested
26
<PAGE> 27
Exhibit 2
*
* - Confidential Treatment Requested
27
<PAGE> 1
EXHIBIT 10.3
AMENDED AND RESTATED CONTRACT FOR THE SALE AND DISTRIBUTION
OF GENENTECH HUMAN GROWTH HORMONE
This Amended and Restated Agreement is entered into effective April 8, 2000
("Effective Date'), by and between Genentech, Inc., a Delaware corporation with
offices at 1 DNA Way, South San Francisco, California 94080-4990 ("Genentech")
and Nova Factor, Inc., a Tennessee corporation with offices at 1620 Century
Center Parkway, Suite 109, Memphis, Tennessee 38134 ("Nova Factor"). Genentech
and Nova Factor are collectively referred to hereinafter as the "Parties" or
individually as a "Party".
WHEREAS, Genentech manufactures the recombinant human growth hormones
Protropin(R) (somatrem for injection), Nutropin(R) [somatropin (rDNA origin) for
injection], Nutropin AQ(R) [somatropin (rDNA origin) injection] and Nutropin(R)
Depot [somatropin (rDNA origin) for injectable suspension]; and
WHEREAS, the Parties entered into the Contract for the Sale and Distribution of
Genentech Human Growth Hormone effective March 1, 1997 ("1997 Agreement"), and
the Parties wish to amend the 1997 Agreement and restate their agreement
governing the sale of Genentech HGH (as defined below) to Nova Factor and the
distribution of such Genentech HGH by Nova Factor; and
WHEREAS, Nova Factor is a biotech contract pharmacy doing business throughout
the United States with respect to infusion care and human growth hormone
products;
NOW, THEREFORE, the Parties agree as follows:
1. Definitions
The following terms shall have the following meanings in this Agreement:
(a) "Affiliate" shall mean any entity or person which controls, is
controlled by or is under common control with a Party. For purposes of this
definition, "control" shall mean (a) in the case of corporate or limited
liability company entities, the direct or indirect ownership of at least
thirty percent (30%) of the stock, participating shares or member interest
entitled to vote; and (b) in the case of a partnership, the power
customarily held by a general partner owning at least a 50% interest in the
Partnership, and (c) in the case of a management contract the power to
direct the management of the other entity. The foregoing notwithstanding,
Roche Holding Ltd., a Swiss corporation, and its Affiliates (but
specifically excluding Genentech and any entity owned or controlled by
Genentech) shall not be considered Affiliates of Genentech for purposes of
this Agreement. Nova Factor shall provide Genentech with a list of all
current Affiliates, as defined below, beginning the Effective Date, which
shall be attached hereto as Exhibit A. Such list shall include each
Affiliate's name, address, class of trade, affiliation start date, type of
affiliation with Nova Factor (e.g., subsidiary, joint venture, etc.), Health
Industry Number ("HIN"), Drug Enforcement Agency Identification Number
("DEA"), and pharmacy department contact name, phone and fax number.
(b) "Appeal(s)" shall mean any and all reasonable appeals to a decision of a
third party payer to deny coverage for all or part of the pharmaceutical
costs of Genentech HGH.
(c) "Base Period" shall mean the six month period from October 1, 1999
through March 31, 2000.
(d) "Calendar Quarter" shall mean each full or partial calendar quarter
period from January 1 through March 31, April 1 through June 30, July 1
through September 30, October 1 through December 31 during the term of this
Agreement.
(e) "Calendar Year" shall mean each calendar year from January 1 through
December 31 during the term of this Agreement.
(f) "Competitive Unit" shall mean one milligram of Human Growth Hormone
Product, as defined below, which is prescribed for treatment of any FDA
approved indications for Genentech HGH.
* - Confidential Treatment Requested
1
<PAGE> 2
(g) "Contracted Customer" shall mean an entity with which Nova Factor
contracts to provide contract pharmacy services with respect to growth
hormone products to patients, or individuals enrolled as members, of such
entity.
(h) "Coverage Interruption" shall mean the date an insurance change or
termination becomes effective, the date of therapy restart on a patient
whose drug was therapeutically interrupted, or the date of determination of
lack of medical necessity by a third party payer.
(i) "Genentech HGH" shall mean those products listed in Exhibit B.
(j) "Genentech HGH Base Market Share" shall mean * to patients * by the sum
of (i) such total number of * to patients *, and (ii) the total number
of * to patients for *.
(k) "Genentech HGH Base Unit Volume" shall mean the total number of *.
(l) "Genentech HGH Market Share" shall mean the total number of * divided by
the sum of * and the *.
(m) "Genentech HGH Unit" shall mean one milligram of Genentech HGH product.
(n) "Genentech HGH Unit Volume" shall mean the total number of Genentech HGH
Units Purchased by Nova Factor during each Calendar Quarter.
(o) "Government Program" shall mean Medicaid, Medicare, Children's Medical
Services or other governmental or similar program.
(p) "Human Growth Hormone Product" shall mean any product (other than human
growth hormone manufactured and sold by Genentech) that contains human
growth hormone or an analog of human growth hormone, whether naturally
occurring or manufactured by any process, which is prescribed for treatment
of any FDA approved indications for Genentech HGH.
(q) "Naive Competitive Patient" shall mean any patient who for the first
time is prescribed and administered a Human Growth Hormone Product during
the term of this Agreement.
(r) "Naive Genentech HGH Patient" shall mean any patient who for the first
time is prescribed and administered Genentech HGH during the term of this
Agreement.
(s) "Naive Genentech HGH Patient Base Market Share" shall mean the total
number of *.
(t) "Naive Genentech HGH Patient Market Share" shall mean the total number
of *.
(u) "National Genentech HGH Market Sales" shall mean the * during each *
during each such * as determined by Genentech and subject to audit by Nova
Factor pursuant to Section 13 below.
(v) "National Nutropin Depot Market Sales" shall mean the total amount of *,
as defined below, during each * during each such * as determined by
Genentech and subject to audit by Nova Factor pursuant to Section 13 below.
(w) "Nutropin Depot Unit" shall mean one milligram of Nutropin Depot.
(x) For calculation purposes, "Dispensed" shall mean the transaction where a
Genentech HGH product or Human Growth Hormone Product is taken out of Nova
Factor's inventory and dispensed by Nova Factor to a patient, and
"Purchased" and/or "Purchases" shall mean the transaction where a Genentech
HGH product is ordered by and shipped to the purchasing entity.
2. Sales of Genentech HGH By Nova Factor. Genentech hereby appoints Nova Factor
as a non-exclusive national distributor to sell Genentech HGH and to perform the
services set out herein and Nova Factor hereby accepts such appointment. All
sales of Genentech HGH by Nova Factor to patients shall be pursuant to a
physician's prescription, except that Nova Factor may sell Genentech HGH
directly to physicians' offices. Nova
* - Confidential Treatment Requested
2
<PAGE> 3
Factor shall maintain the prescriptions for a period of at least four years or
as required by law, whichever is greater.
3. Genentech HGH Discounts/Rebates.
(a) Genentech HGH Discounts. The total "Discount" applicable to Genentech
HGH Purchased by Nova Factor in each Calendar Quarter during each year of
this Agreement shall equal the sum of the discount percentages described in
this Section 3 and Exhibits C, D and E attached hereto.
(1) Genentech HGH Base Discount.
(a) Base Discount. Commencing on the Effective Date and for each
Calendar Quarter throughout the term of this Agreement, Nova Factor
shall receive a discount off the then-current list price for
Genentech HGH in accordance with the discount schedule in Table 1 of
Exhibit C attached hereto for the time period indicated ("Base
Discount"). Genentech's published prices do not include applicable
sales taxes.
(b) Percent Decreases/Increases in Base Discount.
(i) For each Calendar Quarter that the Genentech HGH Unit Volume
decreases by at *, the Base Discount shall be reduced by *.
In the event that the total Genentech HGH Unit Volume for
all Calendar Quarters combined in a Calendar Year decreases
by *, then the Base Discount shall be reduced by * for a *.
Genentech HGH Base Unit Volume and Genentech HGH Unit Volume
for each Calendar Quarter shall be determined by Genentech
pursuant to Genentech's records and subject to audit by Nova
Factor pursuant to Section 13 below. Within thirty (30)
calendar days from the end of each Calendar Quarter during
the term of the Agreement, Genentech shall provide to Nova
Factor a report showing aggregate Genentech HGH Base Unit
Volume and aggregate Genentech HGH Unit Volume for each such
Calendar Quarter.
(ii) The Base Discount shall be reduced by an amount to be
mutually agreed upon in writing by Nova Factor and Genentech
for each Calendar Quarter that Genentech must pay a rebate
to a Contracted Customer on Genentech HGH Units Dispensed by
Nova Factor to patients, or individuals enrolled as members,
of such Contracted Customer.
(iii) For each Calendar Quarter for which (i) Nova Factor
provides Genentech with the reports listed in Section
8(b)(1) and (d) and Exhibits H and J below, in accordance
with the terms of such Section 8(b)(1) and (d) and Exhibits
H and J, and (ii) Exhibit J provided by Nova Factor reflects
that Nova Factor offered the Nursing Services Program
described in Section 8(d) and Exhibit F below to * shall be
added to the Base Discount commencing on * ("Data
Discount"). For any Calendar Quarter for which Nova Factor
fails to provide all such reports to Genentech in accordance
with the terms of Section 8(b)(1) and (d) and Exhibits H and
J, or Exhibit J fails to reflect that Nova Factor offered
such Nursing Services Program to at least * of (i) such
reports in accordance with the terms of such Section 8(b)(1)
and (d) and Exhibits H and J, and (ii) an Exhibit J which
reflects that Nova Factor offered such Nursing Services
Program to * immediately prior to such receipt.
(iv) In the event that Nova Factor provides the Financial
Hardship Program and the Nursing Services Program described
in Exhibit F below ("Programs") exclusively to patients who
are prescribed and administered Genentech HGH, * Genentech's
receipt of written evidence from Nova Factor of such
exclusivity ("Exclusivity Discount"). The Exclusivity
Discount shall remain in effect only so long as Nova Factor
continues to provide the Programs exclusively to patients
who are prescribed and administered Genentech HGH.
(2) Purchase Discount. For each Calendar Quarter that Nova Factor's
Purchases of Nutropin Depot Units as a percent of Nova Factor's total
Purchases of Genentech HGH Units * set forth in Table 1 of Exhibit D
attached hereto, the relevant additional discount amount set forth in
Table 1 of Exhibit D shall be added to the sum of the Base Discount and
any Data Discount and/or any Exclusivity Discount
* - Confidential Treatment Requested
3
<PAGE> 4
commencing on the * ("Purchase Discount"). For each Calendar Quarter
that Nova Factor's Purchases of Nutropin Depot Units as a percent of
Nova Factor's total Purchases of Genentech HGH Units *. In the event
that Nova Factor's Purchases of Nutropin Depot Units as a percent of
Nova Factor's total Purchases of Genentech HGH Units for all Calendar
Quarters combined in a Calendar Year *. Nova Factor's Nutropin Depot
Unit and Genentech HGH Unit Purchases for each Calendar Quarter and
National Nutropin Depot Market Sales and National Genentech HGH Market
Sales for each such Calendar Quarter shall be determined by Genentech
pursuant to Genentech's records. Within thirty (30) calendar days from
the end of each Calendar Quarter during the term of this Agreement,
Genentech shall provide to Nova Factor a report showing (i) Nova
Factor's total Purchases of Genentech HGH and Nutropin Depot for each
such Calendar Quarter, and (ii) the total amount of National Genentech
HGH Market Sales and National Nutropin Depot Market Sales for each such
Calendar Quarter.
(3) Naive Patient Genentech HGH Market Share Discount. For each Calendar
Quarter that Naive Genentech HGH Patient Market Share is *, plus any
Data Discount and/or any Exclusivity Discount, plus the relevant
Purchase Discount achieved commencing * in Table 2 of Exhibit E, *
("Naive Genentech HGH Patient Market Share Discount"). For each Calendar
Quarter that the Naive Genentech HGH Patient Market Share decreases by
at least *, the Base Discount shall be reduced by *. In the event that
the total Naive Genentech HGH Patient Market Share for all Calendar
Quarters combined in a Calendar Year *, then the Base Discount shall be
reduced by *.
(4) Naive Genentech HGH Patient Market Share Exclusions. Erroneous data
submitted to Genentech by Nova Factor shall not be included in the
calculation of the Naive Genentech HGH Patient Market Share. Erroneous
data shall include without limitation, duplicate Genentech HGH Units,
Genentech HGH Units with invalid prescription numbers and aberrant
Genentech HGH Unit amounts. Genentech shall provide written notice to
Nova Factor of any suspected erroneous data within thirty (30) calendar
days after Genentech's receipt of said erroneous data. Nova Factor shall
have fifteen (15) calendar days to respond from the date of Nova
Factor's receipt of such notice by providing Genentech with written
evidence of the validity of said erroneous data. Evidence of validity
shall include, but not be limited to, a physician prescription that does
not include any patient names or identifiers that would breach patient
confidentiality. In the event that Nova Factor fails to respond within
fifteen (15) calendar days of receipt of such notice, then said
erroneous data shall be excluded from the calculation of the Naive
Genentech HGH Patient Market Share.
(5) Affiliate Additions to and Deletions from the Discounts.
(a) Additions to the Discount/Discount Calculation.
(i) Additions to the Discount. For any entity that is added as
an Affiliate after the Effective Date of this Agreement
("Affiliate Addition"), the *, provided that Genentech
receives notice of such Affiliate Addition from Nova Factor
at least fifteen (15) calendar days prior to the date upon
which such Affiliate Addition is added as an Affiliate and
such notice includes the information set forth in the notice
requirements described in Section 8(c) below. In the event
that Nova Factor fails to provide such notice to Genentech
at least fifteen (15) calendar days prior to the date on
which such Affiliate Addition is added as an Affiliate in
accordance with the notice requirements of such Section
8(c), *; provided that such notice includes the information
set forth in the notice requirements of Section 8(c).
(ii) Additions to the Discount Calculation. The Genentech HGH
Units Purchased and/or Dispensed by Affiliate Additions to
Genentech HGH patients and/or Naive Genentech HGH Patients,
and Competitive Units Dispensed by such Affiliate Additions
to Naive Competitive Patients, for the Base Period and for
the Calendar Quarters following Genentech's receipt of
written notice from Nova Factor of such Affiliate Additions,
*; provided, however, that in order for Genentech HGH Units
Dispensed by such Affiliate Additions to Naive Genentech HGH
Patients and Competitive Units Dispensed by such Affiliate
Additions to Naive Competitive Patients *, Nova Factor must
provide to Genentech, at least two (2) calendar months prior
to the first day of such Calendar Quarter, (i) the Naive
Genentech HGH Patient Base Market Share report described in
Section 8(b)(2) and Exhibit I below for such Affiliate
Additions for the Base Period, and (ii) the Naive Genentech
HGH Patient Market Share report described in
* - Confidential Treatment Requested
4
<PAGE> 5
such Section 8(b)(2) and Exhibit I for such Affiliate
Additions for the Calendar Quarter period that occurs two
Calendar Quarters prior to such Calendar Quarter. By way of
example, if Genentech receives written notice from Nova
Factor on August 5, 2000, that an entity is to be added as
an Affiliate, *, i.e., to be included in the calculation of
the Discount that commences on *, Nova Factor must submit to
Genentech, at least two (2) calendar months prior to *, (i)
the Naive Genentech HGH Patient Base Market Share report
described in Section 8(b)(2) and Exhibit I below for such
Affiliate Addition for the Base Period, and (ii) the Naive
Genentech HGH Patient Market Share report described in such
Section 8(b)(2) and Exhibit I below for such Affiliate
Addition for the Calendar Quarter *.
(b) Deletions from the Discount/Discount Calculation. For any
entities that are deleted as Affiliates after the Effective Date
of this Agreement, the Genentech HGH Units Purchased by such
Affiliates shall be excluded from the Discount *, which notice
shall be provided in accordance with the notice requirements of
Section 8(c) below. The Genentech HGH Units Purchased and/or
Dispensed by such Affiliate deletions to Genentech HGH patients
and/or Naive Genentech HGH Patients, and Competitive Units
Dispensed by such Affiliate deletions to Naive Competitive
Patients, for the Base Period and for the Calendar Quarters
following Genentech's receipt of such notice, shall be excluded
from the calculation of the Discount beginning the first day of
the Calendar Quarter that * Genentech's receipt of such notice.
(6) Services. In consideration for the Base Discount, Nova Factor shall
offer all programs described in Exhibit F attached hereto to all
patients to whom it dispenses Genentech HGH and to which the program is
applicable.
(b)Genentech HGH Rebate. For each Calendar Quarter that Nova Factor has a
contractual arrangement with a Contracted Customer whereby Genentech HGH is
the exclusive human growth hormone utilized or purchased by such Contracted
Customer from Nova Factor, i.e., no other Human Growth Hormone Product is
utilized or purchased by such Contracted Customer from Nova Factor,
Genentech *, of such Contracted Customer within forty-five calendar (45)
days after receipt of the report described in Section 8(b) and Exhibit G
below.
4. Orders and Returns. All purchase orders for Genentech HGH shall be submitted
by Nova Factor to Genentech in writing, by telephone, via facsimile or
electronic data interchange ("EDI") at least two (2) business days prior to the
requested date of shipment. The Discount applicable to such purchase order shall
be the Discount in effect upon the date such purchase order is accepted by
Genentech. No order will be binding upon Genentech until accepted by Genentech,
and Genentech shall have no liability to Nova Factor for purchase orders that
are not accepted. Nova Factor's purchase orders submitted to Genentech for
purchase of Genentech HGH shall be governed by the terms of this Agreement.
Nothing contained in any purchase order shall modify any terms herein stated or
add any terms or conditions not stated herein. All Genentech HGH delivered to
Nova Factor under this Agreement shall be suitably packed for air freight
shipment in Genentech's shipping cartons, marked for delivery to the address
provided by Nova Factor with the relevant purchase order, and shall be shipped
to Nova Factor, FOB Origin. Genentech shall ship Nutropin AQ to Nova Factor in
temperature controlled, validated, insulated shipping containers. Genentech HGH
shall be delivered to Nova Factor via second day air freight with shipping costs
prepaid by Genentech. Shipping charges for overnight delivery requested by Nova
Factor for Genentech HGH in excess of the standard shipping method chosen by
Genentech, shall be borne by Nova Factor. Genentech HGH Purchased by Nova Factor
shall be returned for credit only upon prior authorization by Genentech.
Genentech HGH returns in any Calendar Quarter * for the previous Calendar
Quarter. The Discount percentage applicable to such credit will be the Discount
in effect upon the date the returned Genentech HGH is received by Genentech.
5. Nutropin AQ(R) and Nutropin Depot(TM) Shipping Requirements.
(a) Nutropin AQ(R). Nova Factor shall ship Nutropin AQ(R) via Standard
Overnight Service when external temperatures at any point in transit are
between -5(Degree) to 37(Degree) Celsius (23(Degree) to 100(Degree)
Fahrenheit), and via Priority Overnight Service with delivery by 10:30 a.m.
the following day when external temperatures are greater or less than the
foregoing parameters. Nova Factor shall ship, and shall require its agents
to ship, Nutropin AQ(R) to customers in accordance with Genentech's
validated shipping standards for Nutropin AQ.
* - Confidential Treatment Requested
5
<PAGE> 6
(b) Nutropin Depot(TM). Nova Factor shall ship, and shall require its agents
to ship, Nutropin Depot(TM) to customers in accordance with Genentech's
validated shipping standards for Nutropin Depot(TM).
6. Payment to Genentech. Nova Factor shall pay Genentech in full, including
payment of applicable taxes, for Genentech HGH furnished to Nova Factor by
Genentech in accordance with the following payment terms:
(a) From the Effective Date through *, Nova Factor's payment terms shall be
* from the date of the invoice from Genentech; and
(b) From *, through *, Nova Factor's payment terms shall be * from the date
of the invoice from Genentech; and
(c) From *, through the remaining term of this Agreement, Nova Factor's
payment terms shall be * from the date of the invoice from Genentech.
In the event that an Affiliate defaults in its payment to Genentech for any
Genentech HGH Purchased by such Affiliate in accordance with the payment
terms of this Section 6, Nova Factor shall be obligated to pay Genentech
for such Genentech HGH Purchased by such Affiliate within ten (10) calendar
days from the date of receipt of written notice from Genentech of such
Affiliate's default. All payments will be made by check or wire transfer to
Genentech's designated bank account on or before the morning of the due
dates described in Section 6(a), (b) or (c) above, as applicable, and
supporting documentation on the payment will be provided separately to
Genentech. Genentech's designated account is as follows, subject to change
by notice from Genentech:
If by wire transfer: If by check:
Bank: Mellon Bank Bank: Mellon Bank
Pittsburgh, PA Pittsburgh, PA
ABA Number: * Mail to: Genentech, Inc.
Account Name: Genentech, Inc. P.O. Box 360527
* * Pittsburgh, PA 15251
7. Product Availability; Responsibility for Expired, Damaged or Defective
Product. Genentech shall maintain a sufficient inventory of Genentech HGH
available to Nova Factor pharmacies to assure delivery thereof to a requesting
Nova Factor pharmacy by courier or mail within two (2) business days of
acceptance of a telephonic, EDI or written purchase order. In accordance with
Genentech's stated return of goods policy in effect at the relevant times,
Genentech shall reimburse or credit Nova Factor for any unused Genentech HGH
that is expired or defective, or that is damaged prior to or during shipment by
Genentech to a Nova Factor pharmacy, if it is returned to Genentech by Nova
Factor; provided that returns for each Calendar Quarter * by Nova Factor for the
previous Calendar Quarter. In the event of a product recall, Genentech shall
reimburse or credit Nova Factor for any unused Genentech HGH returned to
Genentech as a result of said recall, for the reasonable shipping costs and, for
the reasonable recall related administrative costs associated with said return.
8. Nova Factor Reports and Audits.
(a) Exclusive Genentech HGH Report. Within thirty (30) calendar days after
the end of each Calendar Quarter, Nova Factor shall submit a report showing
those Contracted Customers with which it has a contractual arrangement
whereby Genentech HGH is the exclusive human growth hormone utilized by such
Contracted Customer. Such report shall contain the identical data elements
listed in Exhibit G attached hereto and shall be submitted on a 3.5" floppy
disk in Microsoft Excel(TM) or text format to the address shown in the
Exhibit G.
(b) Market Share Reports.
(1) Within thirty (30) calendar days after the Effective Date, Nova
Factor shall provide Genentech with a Genentech HGH Base Market Share
report by Nova Factor customer for all patients that were Dispensed
Genentech HGH Units *. Thereafter, on or before the last day of the
calendar month immediately
* - Confidential Treatment Requested
6
<PAGE> 7
following the last day of each Calendar Quarter, Nova Factor shall
provide Genentech with a Genentech HGH Market Share report by Nova
Factor customer for all patients that were Dispensed Genentech HGH Units
*. Such reports shall contain the identical data elements listed in
Exhibit H attached hereto, and shall be submitted on a 3.5" floppy disk
in Microsoft Excel(TM) or text format to the address shown in Exhibit H.
In addition, Nova Factor, with guidance and assistance from Genentech,
shall develop and implement mutually agreeable market share programs to
increase Genentech HGH Market Share. Along with the Calendar Quarter
Genentech HGH Market Share report described in this Section 8(b)(1),
Nova Factor shall also provide Genentech with a written update
describing in detail any and all market share programs developed and
implemented by Nova Factor throughout the term of this Agreement.
Information concerning *.
(2) Within thirty (30) calendar days after the Effective Date, Nova
Factor shall provide Genentech with a Naive Genentech HGH Patient Base
Market Share report by Nova Factor customer for all Naive Genentech HGH
Patients that were Dispensed Genentech HGH Units for the Base Period and
for all * that were * for the Base Period. Thereafter, on or before the
last day of the calendar month immediately following the last day of
each Calendar Quarter, Nova Factor shall provide Genentech with a Naive
Genentech HGH Patient Market Share report by Nova Factor customer for
all Naive Genentech HGH Patients that were Dispensed Genentech HGH
Units, and for all Naive Competitive Patients that were *, for each such
Calendar Quarter. Such reports shall contain the identical data elements
listed in Exhibit I attached hereto, and shall be submitted on a 3.5"
floppy disk in Microsoft Excel(TM) or text format to the address shown
in the Exhibit I.
(3) No patient specific data shall be provided by Nova Factor if such
disclosure would violate any statute or regulation of any governmental
entity.
(c) Exhibit A Update Reports. Nova Factor shall provide Genentech with
written notice of any entity to be added or deleted as an Affiliate under
Exhibit A at least fifteen (15) calendar days prior to the date of such
addition or deletion as an Affiliate. Additions to Exhibit A shall
automatically be included as Affiliates under Exhibit A, unless Genentech
notifies Nova Factor to the contrary within ten (10) calendar days after
Genentech's receipt of such written notice. Genentech's approval of such
additions shall not be unreasonably withheld. Such written notice from Nova
Factor shall include the date upon which such entity is to be added or
deleted as an Affiliate, as well as the entity's name, address, class of
trade, HIN, DEA, type of affiliation with Nova Factor, and pharmacy
department contact name, phone and fax number. For any addition, Nova Factor
shall also provide a copy of such addition's applicable license. Nova Factor
shall also provide Genentech with an updated Exhibit A, which includes all
Nova Factor Affiliates, within thirty (30) calendar days from the end of
each Calendar Quarter during this term of this Agreement. Such updated
Exhibit A shall include the information set forth in this subsection(c) and
shall be submitted on a 3.5" floppy disk in Microsoft Excel(TM) or text
format. The information provided shall be submitted to Genentech, Managed
Care Operations, Contract Administrator, 1 DNA Way, MS 13, South San
Francisco, CA 94080 on a 3.5" floppy disk in excel or text format.
(d) Nursing Services Program Report. Within thirty (30) calendar days from
the Effective Date, Nova Factor shall develop the Nursing Services Program
described in Exhibit F below. On or before the last day of the calendar
month immediately following the last day of each Calendar Quarter, Nova
Factor shall provide Genentech with a Nursing Services Program report, which
shall contain the identical data elements listed in Exhibit J attached
hereto, and shall be submitted on a 3.5" floppy disk in Microsoft Excel(TM)
or text format to the address shown in the Exhibit J.
(e) Nova Factor shall provide Genentech with a weekly and monthly report as
follows:
(1) The Nova Factor weekly and monthly reports shall utilize the
parameters and information listed in Exhibit K attached hereto, and
shall cover all patients for whom Nova Factor has received a
prescription or purchase order for Genentech HGH in such week, all
patients who have experienced a Coverage Interruption and an
interruption in a patient's insurance or third party payer coverage for
Genentech HGH due to a loss of employment or other event beyond the
reasonable control of the patient or the patient's guardian; provided,
however, that said reports shall not include patient names.
* - Confidential Treatment Requested
7
<PAGE> 8
(2) Reports will be centrally generated by Nova Factor and will contain
transaction data from each of its distribution centers.
(3) Reports will include any returns or negative transactions but will
not include inter-distribution center transfers.
(4) Nova Factor will retain sales transaction data for a four-year
period or as required by law, whichever is greater.
(5) The weekly sales reports shall be delivered to Genentech on the
second business day following the end of each week and the monthly sales
reports shall be sent to Genentech prior to the fifteenth (15th) day
following the close of a calendar month.
(6) The weekly and monthly sales report shall be reported in: (1) tape
transfer using 8 mm. cassette tape or 9-track reel-to-reel tape in ASCII
format, via overnight service, (2) hard copy, mailed, or (3) on-line
modem transfer from Nova Factor to Genentech in ASCII format; provided
however, that electronic formats only (formats (1) and (3) above) shall
be provided commencing no later than April 1, 2000. Nova Factor in
consultation with Genentech, will provide the hardware and software
necessary to maintain and report the weekly and monthly sales
transaction data described above. Written sales transaction reports
should be sent to:
Genentech, Inc.
Attn: Sales Administration
1 DNA Way
South San Francisco, CA 94080.
(7) Upon reasonable request by Genentech, Nova Factor agrees to perform
reconciliation's of sales reports to verify or correct the accuracy of
the weekly and monthly reports.
(8) Nova Factor shall maintain for a period of at least four (4) years
all weekly and monthly reports and all correspondence with patients who
are prescribed and administered Genentech HGH and their physicians and
third party payers, including, without limitation copies of Statements
of Medical Necessity, Explanations of Benefit, financial assistance
applications and other Appeals correspondence. Nova Factor shall use its
commercially reasonable best efforts to remedy all discrepancies
identified by Genentech in its audits.
(9) Genentech agrees to return computer tapes to Nova Factor within
sixty (60) days of Genentech's receipt thereof.
f. Performance Standards. Nova Factor shall monitor and keep records of the
performance standards set forth in Exhibit L attached hereto. Nova Factor
shall not be required to report to Genentech the data elements and status
codes relating to such performance standards. Nova Factor shall be obligated
to meet the "Standard" performance standard described in Exhibit L attached
hereto. Any failure to meet such standard *. Nova Factor shall immediately
notify Genentech of its failure to meet such performance standard at any
time and its plan for correcting the default. Any such default shall be
remedied within thirty (30) days of Nova Factor's notification of such
default or Genentech's notification to Nova Factor that such default has
occurred. Genentech shall have the right, during any audit, to audit the
records of Nova Factor with respect to such performance standards.
9. Nova Factor Services: Records; Handling; Control; Licensure. Nova Factor
shall:
(a) in the event of a recall, supply Genentech with a complete record of
accountability within one (1) business day of receiving Genentech's request
for such record; and
(c) store Genentech HGH at between 2(degree) and 8(degree) Celsius in a
limited access refrigeration unit which will be locked during non-working
hours and protected by a suitable alarm system, and dispense Genentech HGH
* - Confidential Treatment Requested
8
<PAGE> 9
with due regard for the need to guard against potential abuse or diversion;
and
(d) monitor refrigeration unit temperature by physically recording the
temperature, at a minimum, twice each day or by utilizing a constant
temperature recording device; and
(e) maintain on a current basis all licenses and certifications as a
registered pharmacy as required by applicable federal, state or local laws
in all jurisdictions where Nova Factor delivers Genentech HGH; and
(f) maintain in each branch involved in the distribution of Genentech HGH, a
minimum Genentech HGH inventory level sufficient to meet two (2) weeks
anticipated demand for that branch.
10. Distribution of Genentech HGH
(a) Dispensing Obligation. In accordance with applicable laws and
regulations, Nova Factor shall evaluate the reimbursement status of, and
dispense Genentech HGH to, all patients with a prescription for Genentech
HGH who are referred by any person or entity to Nova Factor. Within three
(3) business days of Nova Factor's receipt of each prescription or other
appropriate shipment request, Nova Factor shall dispense Genentech HGH to
patients without regard to third party payer coverage of such patient's
Genentech HGH; provided, however, that if the patient or physician
specifically requests a delay in dispensing or if prior authorization is
required for a Government Program patient, both as documented by written
records of Nova Factor, said (3) day time frame shall not apply, and Nova
Factor shall use its commercially reasonable best efforts to ship the
requested Genentech HGH within thirty (30) days of such prescription or
shipment request. Notwithstanding the preceding provisions, Nova Factor will
not dispense Genentech HGH if the patient has drug on hand at the time of
the referral. If prior authorization is required, regardless of whether
payor is a government entity or not, Nova Factor *. As *, the criteria set
forth above shall be deemed to have been met. Nova Factor shall also refer
the *, mail order is less expensive for the patient, or if Nova Factor is an
out of network provider.
(b) Exceptions. Notwithstanding Section 10(a) above, Nova Factor shall not
be obligated to dispense Genentech HGH to patients:
(1) having no insurance or other third party payer coverage (or coverage
equal to an amount less than fifty percent (50%) of Nova Factor's
acquisition cost for Genentech HGH for such patient) for Genentech HGH
after a duly diligent evaluation by Nova Factor of such patient's
eligibility for all reasonable payer sources, including, without
limitation, a Government Program; or
(2) where the patient, physician or payer repeatedly and consistently
refuses to assist with the reimbursement process, to complete the
required documentation necessary to process the reimbursement request,
or to process a request for coverage, as demonstrated by: (i) a failure
to respond to at least three (3) consecutive Nova Factor contacts, at
least one (1) of which is a written contact and all of which are
documented in Nova Factor's written records; or (ii) a failure to
substantially comply with the material requirements of a contract
between the payer and the patient or physician; or (iii) a failure by
the patient to pay Nova Factor within a reasonable time frame, Nova
Factor agrees that it shall use its commercially reasonable best efforts
to remedy the refusal, including, without limitation, contacting and
cooperating with Genentech to resolve the issue with the patients, payer
or provider, and exhausting all legal options under the federal, state,
ERISA or other applicable reimbursement standards to resolve the
coverage or claim request; provided, however, that the *, or *. In the
event that such number of patients exceeds or threatens to exceed *
beyond the reasonable control of the Parties, then the Parties shall
meet to discuss methods to remedy such problems.
c. Notice to Genentech. Promptly (which means Nova Factor shall use its
commercially reasonable best efforts to notify within three (3) business
days) after Nova Factor learns that a patient either lacks or is not
eligible for any third party payer coverage for Genentech HGH, or at least
fifteen (15) business days prior to Nova Factor terminating or electing not
to ship to a patient during Appeals or due to a refusal to cooperate or
otherwise, Nova Factor shall notify Genentech of such patient and the
reasons for such patient's non-eligibility or lack of coverage, or for Nova
Factor's refusal to service, as the case may be, and Genentech may provide
Genentech HGH to such patient through its * or in any other manner Genentech
chooses.
* - Confidential Treatment Requested
9
<PAGE> 10
d. Delivery Obligations. Nova Factor shall deliver Genentech HGH to the home
of each patient or to such other delivery point as may be designated by the
patient. Nova Factor may distribute Genentech HGH through its Affiliates
and, with the prior written approval of Genentech, such approval not to be
unreasonably withheld, to other third parties; provided, however, that Nova
Factor hereby guarantees compliance by such Affiliates and third parties
with the terms of this Agreement.
e. Appeals and Collections. Nova Factor shall use its commercially
reasonable efforts to obtain reimbursement from the patient and/or the third
party payer or other payer, including in the event of a denial of insurance
coverage, prosecuting all Appeals. Said Appeals shall include at least the
following steps unless such step is not available: (a) obtaining a written
denial of payment which sets forth the rationale for such denial; (b)
sending a written appeal to the third party payer setting forth
comprehensively the nature of the appeal and providing all relevant support
for the appeal; and (c) sending a written appeal to the next higher level of
appeal at that third party payer. As a general matter, Nova Factor shall
ship on first level Appeals, and on second level Appeals when the clinical
information of the patient falls within reasonable medical review criteria
for treating growth hormone inadequacy. Nova Factor is not required to ship
on patients with pre-existing clauses, lack of coverage for injectables, or
no Rx coverage.
f. Governmental Programs and UPP. For each patient who does not have third
party payer coverage or for whom insurance coverage is in doubt, Nova Factor
will promptly refer the patient * to assess that patient's eligibility for
coverage of Genentech HGH under all appropriate Governmental Programs. Nova
Factor shall use its best efforts to inform patients about meeting and, for
patients with Governmental Program coverage, maintaining eligibility and
coverage by Governmental Programs. If third party payer or Governmental
Program coverage for Genentech HGH is not available, Nova Factor shall
promptly contact such patient to determine the patient's ability to pay for
the Genentech HGH with his or her individual funds. In the event that such
patient is unable to pay for the Genentech HGH individually, Nova Factor
shall promptly advise Genentech so that Genentech may consider the patient
for Genentech's *.
g. Patient Assistance Program. Nova Factor shall develop and administer a
patient assistance program in accordance with applicable law and regulations
to assist patients financially unable to afford Genentech HGH therapy;
provided; however, that Nova Factor shall not have any obligation related to
patients having no third party payer coverage for Genentech HGH therapy as
described in Section 10(b)(1) which patients may be eligible for Genentech's
*. Nova Factor shall develop its own financial criteria for patients and
shall review each patient's financial status on a case-by-case basis, all in
conformance with applicable laws, rules and regulations.
h. Genentech Single Point of Contact. Genentech has developed a *
reimbursement service program which is administered by Genentech or its
subcontractor for patients with prescriptions for Genentech HGH *. Attached
hereto as Exhibit M is a description of the *. Nova Factor shall be entitled
to refer any patient for whom it has a prescription for Genentech HGH to
such Program, provided that it complies with the requirements for
distributors described in Exhibit M.
i. Discontinuation of Provider Relationship. If at any time during the term
of this Agreement, Nova Factor should discontinue acting as a Genentech HGH
provider for a Nova Factor customer, then Nova Factor shall immediately
notify Genentech and in any event shall provide Genentech with no less than
sixty (60) business days prior written notice prior of such discontinuation
of its Genentech HGH provider relationship with such Nova Factor customer.
11. Substitution and Counter-Detailing of Genentech HGH Products. Except as may
be required by applicable law, Nova Factor agrees that it shall not substitute,
generically or therapeutically, any other Human Growth Hormone Products for
prescriptions written for Genentech HGH, or any other Genentech HGH products for
prescriptions written for Nutropin Depot, to patients covered under this
Agreement, but specifically excluding patients who are covered under a
Government Program. Nova Factor and its Affiliates shall not counter-detail
Genentech HGH. * Nova Factor and its Affiliates agree not to (1) promote
against, counter-detail, or disparage the Genentech * system to be administered
by Genentech or its subcontractor for patients with prescriptions of Genentech
HGH, (2) promote against, counter-detail, or disparage the Genentech * operated
by * and implemented by Genentech for the distribution of Genentech HGH through
a network of pharmacies licensed to dispense Genentech HGH *, or (3) promote *.
Nova Factor may inform its customers of its status as an authorized dispensing
pharmacy within *; provided, however, that Nova Factor shall not so inform its
customers in
* - Confidential Treatment Requested
10
<PAGE> 11
writing unless Genentech has previously approved, in writing, such written
materials, which approval shall not be unreasonably withheld. Nova Factor and
its Affiliates shall not convert or attempt to convert patients referred to Nova
Factor as a * provider to another delivery option. In the event that Genentech
elects to contract with an entity, other than * to operate *, Nova Factor
warrants and agrees that it shall cooperate with Genentech in transitioning
Genentech HGH patients to such entity. Nova Factor agrees that it shall make no
representation, guarantee or warranty about Genentech HGH, whether in writing or
orally, except as is contained in written materials delivered to Nova Factor by
Genentech for use in promoting and selling Genentech HGH or as may otherwise be
agreed to by Genentech in writing. Genentech shall have the right to approve
Nova Factor promotional materials which contain pertinent facts relative to
Genentech HGH and all such materials shall comply with applicable regulatory
requirements and shall not contain misrepresentations, either about Genentech
HGH or a competitive product, or disparage a competitive product.
12. Term; Termination.
(a) Term. The term of this Agreement shall commence as of the Effective Date
and shall remain in effect, unless terminated as provided below, until
December 31, 2002, or until approval by the Food and Drug Administration of
a new growth hormone product to be marketed and sold by Genentech, whichever
occurs first. At least sixty (60) calendar days prior to the end of each
year of this Agreement, the Parties shall conduct a business review to
review and discuss the overall performance of this Agreement.
(b) Termination Events. The foregoing notwithstanding, this Agreement may be
terminated by a Party: (a) upon any material breach of this Agreement by the
other Party which breach is not cured within sixty (60) days of written
notice by the non-breaching Party; or (b) immediately upon giving notice (i)
upon the institution by or against the other Party of insolvency,
receivership or bankruptcy proceedings or any other proceedings for the
settlement of the other Party's debts, (ii) upon the other Party's making an
assignment for the benefit of its creditors, or (iii) upon the other Party's
dissolution. This Agreement may also be terminated upon mutual agreement of
the Parties hereto.
(c) Effect of Termination. Upon termination, if requested by Genentech, Nova
Factor shall return all unused Genentech HGH to Genentech and shall be
reimbursed by Genentech for the reasonable shipping expenses of the return
and the purchase price of the Genentech HGH returned if the purchase price
was previously paid by Nova Factor. If Genentech does not request such
unused Genentech HGH to be returned, Nova Factor may sell such unused
Genentech HGH to patients or return it to Genentech for credit. Nova Factor
shall also return, if so requested by Genentech, all sales aids and other
associated material supplied to Nova Factor by Genentech. Termination shall
not relieve either Party of obligations incurred prior to termination,
including Nova Factor's obligation to pay for Genentech HGH ordered by and
delivered to it under this Agreement, provided that Genentech has not
requested return of that Genentech HGH. The provisions of Section 14(e) and
(l) shall survive any termination of this Agreement.
(d) Change In Control. If Nova Factor or any of its Affiliates or all or
substantially all of either of their assets are to be acquired by whatever
means, including merger within or into, another entity, including an
Affiliate (the "Acquiring Entity"), Nova Factor shall so notify Genentech in
writing at least sixty (60) business days prior to the date of occurrence of
such event, and Genentech shall have the right to terminate this Agreement
at any time until forty-five (45) business days after Genentech's receipt of
written notice from Nova Factor. In addition, Genentech shall have the right
to terminate this Agreement if Nova Factor or its Affiliates acquires all or
substantially all of the assets of an entity or a division of any entity
which in either case sold Genentech HGH within one year preceding such
purchase. Nova Factor shall notify Genentech in writing at least sixty (60)
business days prior to the occurrence of such event. If Genentech so
terminates this Agreement, Nova Factor agrees for itself, its Affiliates and
for any such entity that for a fourteen (14) month period (Restricted
Period) thereafter it shall not switch Restricted Patients from a Genentech
HGH product to a competitive Human Growth Hormone Product unless it receives
a prescription from a physician specifically written for the competitive
Human Growth Hormone Product. During the Restricted Period, Nova Factor
further agrees that it shall not engage in any activities directed to payers
or Restricted Patients or their physicians which are designed to switch
Restricted Patients to a Human Growth Hormone Product which is competitive
to Genentech HGH. During the Restricted Period, Nova Factor shall dispense
Genentech HGH to Restricted Patients, except pursuant to any prescription
specifically written for a Human Growth Hormone Product and comply with its
reporting obligations hereunder and obligations under the terms of this
Agreement in so far as the obligations relate to servicing the Restricted
Patients during the Restricted Period. During the Restricted
* - Confidential Treatment Requested
11
<PAGE> 12
Period, Genentech agrees that to facilitate Nova Factor serving said
patients, it shall sell Genentech HGH to Nova Factor at the then-current
discount at the time of Agreement termination. For this purpose, "Restricted
Patients" shall mean (i) those patients who on the date of the termination
of this Agreement are then receiving Genentech HGH from Nova Factor, and
(ii) new patients for whom Nova Factor receives a prescription for Genentech
HGH or generic prescription. Notices hereunder shall not be required to be
given if disclosure would cause Nova Factor or its Affiliates to be in
violation of the federal or state securities laws and Genentech in any event
agrees to keep such notices in strict confidence.
13. Audit. Either Party at its own expense may perform, or have an independent
third party auditor who has agreed to a confidentiality agreement reasonably
acceptable to the other Party perform, such audits as may be reasonably required
on a Party's business records and activities to ensure compliance with the terms
of the Agreement. Each Party shall provide the other Party with at least fifteen
(15) business days advance notice of such audits, and a Party shall cooperate
fully with the persons conducting the audit, including full access to the
necessary facilities and records at all reasonable times during business hours,
and copies, at such Party's expense, of all relevant records, provided; however,
that a Party's audit right shall be limited to bi-annual audits. Notwithstanding
the foregoing, Genentech shall also have the right to audit as Genentech may
deem necessary, in its reasonable judgment, to investigate quality assurance
problems that constitute material trends.
14. Miscellaneous.
(a) Relationship. Neither Party is in any way the legal representative or
agent of the other, nor authorized or empowered to assume any obligation of
any kind, implied or expressed, on behalf of the other Party, without the
express written consent of the other.
(b) Force Majeure. Nonperformance of either Party, other than the payment of
money, shall be excused to the extent that performance is rendered
impossible by strike, fire, earthquake, flood, governmental acts or orders
or restrictions, failure of suppliers, or any other reason where failure to
perform is beyond the control and not caused by the negligence of the
nonperforming Party.
(c) Entire Agreement. This Agreement is the entire agreement between the
Parties hereto, and supersedes any and all prior agreements between the
Parties whether oral or written, relating to the subject matter hereof.
Notwithstanding the foregoing, the Parties acknowledge the full and complete
satisfaction of all obligations due to the other under that certain Contract
For the Sale and Distribution of Genentech Human Growth Hormone, between
Genentech and Nova Factor dated March 1, 1997. No amendments or
modifications of the terms of the Agreement shall be binding on either Party
unless reduced to writing and signed by both Parties.
(d) Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Parties hereto and their respective successors and assigns;
provided, however, that this Agreement shall not be assignable by either
Party without the other's written consent except to a wholly-owned
subsidiary of such Party, the corporate parent of such Party, or a
corporation controlled by the corporate parent of such Party.
(e) Confidentiality. Nova Factor and Genentech shall take all reasonable
steps and do all things reasonably necessary to ensure that any information
relating to Genentech HGH, including the terms of this Agreement, the
information relating to Genentech HGH provided in the Nova Factor weekly and
monthly reports described in Section 8(e) and Exhibit K, or to the business
of the disclosing Party ("Confidential Information") acquired by virtue of
the position of the receiving Party under this Agreement, including, without
limitation, information received through the exercise of a party's audit
rights, shall not be disclosed or made use of outside this Agreement;
provided, however, that the foregoing shall not apply to Confidential
Information (a) which a receiving Party can show was known to it prior to
disclosure by the disclosing Party; (b) which is or becomes public knowledge
through no fault of the receiving Party; (c) which is lawfully disclosed to
the receiving Party by a third party; (d) which is required to be disclosed
pursuant to court order; or (e) which in the written opinion of legal
counsel is required to be disclosed pursuant to federal or state law or
regulation (including, without limitation, securities laws); provided that,
in the case of (d) and (e) above, a reasonable opportunity is afforded the
disclosing Party to challenge the requirement for such disclosure and/or
request confidential treatment. Nova Factor shall be prohibited from
providing or selling any data relating to Genentech HGH to a third party,
except that Confidential Information specifically related to a third party
payer's covered lives may
* - Confidential Treatment Requested
12
<PAGE> 13
be disclosed to such third party payer. This Section 14(e) shall survive any
termination of this Agreement for a period of five (5) years from disclosure
to the receiving Party.
(f) Publicity. Nova Factor shall not originate any news release or public
announcement, written or oral, to any person relating to this Agreement or
to Genentech HGH except as previously agreed to by Genentech in writing and
as in the written opinion of counsel to Nova Factor is required by law to be
made. Except as required by law, Genentech shall seek approval from Nova
Factor prior to utilizing Nova Factor's name in any written promotional
material.
(g) Waiver. Neither the waiver by either Party hereto of any breach of or
default under any of the provisions of this Agreement, nor the failure of
either Party to enforce any of the provisions of this Agreement or to
exercise any right hereunder, shall be construed as a waiver of any
subsequent breach or default, or as a waiver of any such rights or
provisions hereunder.
(h) Severability. If any part of this Agreement shall be invalid or
unenforceable under applicable law, such part shall be ineffective to the
extent of such invalidity or unenforceability only, without in any way
affecting the remaining parts of this Agreement.
(i) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California. No provision of this
Agreement shall be applied or construed in a manner inconsistent with
applicable federal and state laws and regulations.
(j) Enforceability. It is the explicit intention of the Parties hereto that
no person or entity other than the Parties hereto, except governmental
authorities to the extent required by law, is or shall be entitled to bring
any action to enforce any provision of this Agreement against either of the
Parties hereto.
(k) Headings. The headings in this Agreement are intended solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
(l) Notices. Except as otherwise provided, all notices which may be required
pursuant to this Agreement (a) shall be in writing, (b) shall be addressed,
if to a Party, to the person and address set forth at the end of this
Agreement (or to such other person or address as either Party may so
designate from time to time), or addressed, if to a patient, to the
patient's last known address, (c) shall be deemed to have been given three
(3) business days from the date of postmark if sent by mail or on the date
of delivery if transmitted by courier or telegram or on the date of
transmission if sent by telex or facsimile, and (d) shall be mailed, postage
prepaid, by first-class mail, registered mail, or certified mail, return
receipt requested, or transmitted by courier for hand delivery, or by
telegram, telex or facsimile with confirmation of transmission.
(m) Limitation on Liability. If either Genentech or Nova Factor terminates
this Agreement in accordance with the provisions of Section 12 above or if
Genentech or any governmental agency effects the nationwide withdrawal of
the sale of Genentech HGH for any reason, neither Party shall be liable to
the other for any special, incidental or consequential damages caused
directly or indirectly by such termination or withdrawal, whether arising
under this Agreement or relating to any injury or damage to business,
earnings, profits or goodwill suffered by that Party, including, without
limitation any liability for compensation, reimbursement or damages on the
account of the loss of prospective profits or anticipated sales or on
account of expenditures, inventory, investments, leases or commitments in
connection with the business or goodwill of either Party.
(n) Affiliates. It is recognized and agreed that during the term of this
Agreement, Nova Factor may distribute Genentech HGH to patients through its
Affiliates and such distribution shall be construed as a distribution by
Nova Factor and all provisions of this Agreement shall apply to such
distribution and to the patients to whom Genentech HGH is distributed by
Affiliates of Nova Factor.
(o) Records. To the extent required by ss. 1861 (v)(1)(I) of the Social
Security Act, 42 U.S.C. ss. 1395x(v)(1)(I), as amended, Genentech shall,
upon proper written request, allow the United States Department of Health
and Human Services, the Comptroller General of the United States and their
duly authorized representatives, access to this Agreement and to books,
documents and records necessary to verify the nature and extent of the costs
incurred pursuant to this Agreement at any time during the term of this
Agreement and for an additional period of four (4) years following the last
date goods are furnished under this Agreement.
* - Confidential Treatment Requested
13
<PAGE> 14
(p) Compliance with Laws. Each Party shall be responsible for compliance
with all state and federal laws, rules and regulations applicable to its
performance hereunder, including, without limitation, those of the Food and
Drug Administration and of Government Programs.
(q) Government Disclosure and Reporting Obligations. Genentech shall inform
Nova Factor of all Discounts and rebates payable hereunder to enable it to
comply with its reporting and informational obligations pursuant to Section
1128B(b) of the Social Security Act and 42 C.F.R. ss.1001.952, and all other
similar or related federal and state laws and regulations. Genentech hereby
informs Nova Factor that it must provide, upon request by the Secretary of
Health and Human Services or a state agency, information relating to the
Discounts and/or rebates provided by Genentech hereunder.
(r) Counterparts. This Agreement may be executed in counterparts, including
facsimile copies thereof, each of which shall be deemed an original, but all
of which taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, Genentech and Nova Factor have caused this Agreement to
be executed by their duly authorized representatives effective as of the day and
year first written above.
NOVA FACTOR, INC. GENENTECH, INC.
By: /s/ Randy Grow By: /s/ Kimberly J. Popovits
------------------------------ ----------------------------------
Name: Randy Grow Name: Kimberly J. Popovits
Title: President Title: Vice President, Sales
Date: 4/12/2000 Date: 4/7/2000
Address: Address:
1620 Century Center Parkway 1 DNA Way
Memphis, TN 38134 So. San Francisco, CA 94080-4990
(901) 385-3633 (650) 225-1000
Notices to be Addressed to: Notices to be Addressed to:
President Vice President - Sales
With a copy to: With a copy to:
Thomas W. Bell, Jr. Corporate Secretary
1640 Century Center Parkway
Suite 101
Memphis, Tennessee 38134
(901) 385-3680
* - Confidential Treatment Requested
14
<PAGE> 15
EXHIBITS
Exhibit A - Nova Factor Affiliates
Exhibit B - Genentech HGH Products
Exhibit C - *
Exhibit D - *
Exhibit E - *
Exhibit F - Base Discount Programs
Exhibit G - Exclusive Genentech HGH Dispensing Report
Exhibit H - Genentech HGH Market Share Report
Exhibit I - Naive Patient Genentech HGH Market Share Report
Exhibit J - Nursing Alliance Program Report
Exhibit K - Nova Factor Weekly Report
Exhibit L - Performance Standards
Exhibit M - *
* - Confidential Treatment Requested
<PAGE> 16
EXHIBIT A
NOVA FACTOR AFFILIATES
Accredo Health, Incorporated
Hemophilia Health Services, Inc.
AHI Pharmacies, Inc.
Sunrise Health Management, Inc.
Southern Health Systems, Inc.
PARTNERSHIPS
Texas Health Pharmaceutical Resources
Children's Home Care/Drug Therapies
Childrens Home Services
CM Factorcare
Childrens Biotech Pharmacy Services
Childrens Hemophilia Services
MANAGEMENT RELATIONSHIPS
LeBonheur Childrens Medical Center, Inc.
Alfred I. duPont Institute Children's Hospital
Dallas Childrens Medical Center
Cook Childrens Medical Center
* - Confidential Treatment Requested
<PAGE> 17
EXHIBIT B
GENENTECH HGH
Protropin(R) (somatrem for injection)
Nutropin(R) [somatropin (rDNA origin) for injection]
Nutropin AQ(R) [somatropin (rDNA origin) injection]
Nutropin Depot(TM)[somatropin (rDNA origin) for injectable suspension)
* - Confidential Treatment Requested
<PAGE> 18
EXHIBIT C
*
* - Confidential Treatment Requested
<PAGE> 19
EXHIBIT D
*
* - Confidential Treatment Requested
<PAGE> 20
EXHIBIT E
*
* - Confidential Treatment Requested
<PAGE> 21
EXHIBIT F
BASE DISCOUNT PROGRAMS
1. THERAPY DATA
Nova Factor provides weekly and monthly data to Genentech's Sales
Administration department. The data elements included in Exhibit K provide
Genentech with information to evaluate current and future activity by product,
physician, branch and patient identifiers. There reports include all patient
identifiers with any activity (new referral, active, on hold, discontinued,
Uninsured Patient Program or lost to the distributor).
2. NATIONAL MEDICAID PHARMACY NETWORK
Nova Factor maintains a national pharmacy network, providing service to
all states,except those listed on Exhibit F Schedule 1 which may be changed by
Nova Factor from time to time upon notice to Genentech.
3. REIMBURSEMENT & ADMISSIONS
*
4. FINANCIAL HARDSHIP PROGRAM
Nova Factor's Financial Hardship program (which is in no way promoted
or indicated as a service offering), is available for those patients who
demonstrate a need in meeting their co-payment obligations. Nova Factor shall
determine the patients' eligibility and work with the families to enroll them
into the program.
5. VERIFICATION & SHIPMENT STANDARDS
Nova Factor provides patients with high levels of care access and
responsiveness in accordance with the performance standards set forth in Exhibit
L below.
6. COMPLIANCE & PERSISTENCY PROGRAM
*
* - Confidential Treatment Requested
<PAGE> 22
7. COMMUNICATION COMPLIANCE PROGRAM
*
8. CUSTOMER SATISFACTION DATA
Customer satisfaction surveys & data analysis performed on an annual
basis.
9. PATIENT EDUCATION & TRAINING
Nova Factor shall provide comprehensive nursing services for ALL Naive
Patients and ongoing training as needed on Genentech's growth hormone products,
through Nova Factor's strategic Nursing Services Program. Specifically, services
consist of providing Injection site training for patients.
10. NURSING SERVICES PROGRAM SURVEY
*
11. DAILY INVENTORY RECONCILIATION - LOT TRACKING
Nova Factor's automated pharmacy system shall have the capability to
detect lot tracking in the event of product recall.
12. ANCILLARIES SUPPLIES PROVIDED
All ancillary hGH supplies shall at Nova Factor's discretion be
provided as part of Nova Factor's service to patients receiving Genentech HGH.
Nova Factor shall not at any time during the term of this Agreement provide
fewer ancillary hGH supplies to Genentech HGH patients than to other Human
Growth Hormone patients.
* - Confidential Treatment Requested
<PAGE> 23
EXHIBIT F
SCHEDULE I
STATES WITHOUT SERVICE
Connecticut
Washington, D.C.
Hawaii
Massachusetts
Maine
Nevada
Oregon
Rhode Island
Wisconsin
West Virginia
* - Confidential Treatment Requested
<PAGE> 24
EXHIBIT G
EXCLUSIVE GENENTECH HGH DISPENSING REPORT
*
* - Confidential Treatment Requested
<PAGE> 25
EXHIBIT H
GENENTECH HGH MARKET SHARE REPORTBU
*
Insert Exhibit H
* - Confidential Treatment Requested
<PAGE> 26
EXHIBIT I
NAIVE GENENTECH HGH PATIENT MARKET SHARE REPORT
*
* - Confidential Treatment Requested
<PAGE> 27
EXHIBIT J
*
* - Confidential Treatment Requested
<PAGE> 28
EXHBIT K
*
* - Confidential Treatment Requested
<PAGE> 29
EXHIBIT L
PERFORMANCE STANDARDS
Nova Factor shall monitor data elements and status codes on all patients
receiving Genentech HGH. Performance will be monitored on all patients receiving
Genentech HGH except patients with diagnosis codes relating to infertility.
Patients receiving Genentech HGH through the * program shall have their first
shipment from Nova Factor measured as a maintenance shipment. Genentech's *
program shall notify Nova Factor at least seven (7) calendar days in advance of
the expected exhaust date of patients who have previously received a starter kit
and have chosen Nova Factor as the designated provider of service.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Performance Optimal Standard Suboptimal Failure to Meet
Standard Standard
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
#1 Time to verify At least 90% 80-89% within 72 hours 75-79% within 72 <75% within 72 hours
coverage within 72 hours hours
- -------------------------------------------------------------------------------------------------------------
#2 Time to Ship At least 90% 80-89% within 72 hours 75-79% within 72 <75% within 72 hours
within 72 hrs. of of referral date for hours of referral of referral date for
referral date for initial shipment and date for initial initial shipment and
initial shipment 72 hours prior to shipment and 72 72 hours prior to
and 72 hours exhaust for hours prior to exhaust for
prior to exhaust maintenance patients exhaust for maintenance patients
for maintenance maintenance patients
patients
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* - Confidential Treatment Requested
<PAGE> 30
EXHIBIT L (CONT.'D)
DESCRIPTION OF PERFORMANCE STANDARDS
*
* - Confidential Treatment Requested
<PAGE> 31
EXHIBIT L (CONT.'D)
ASSUMPTIONS/DEFINITIONS:
*
* - Confidential Treatment Requested
<PAGE> 32
EXHIBIT M
*
* - Confidential Treatment Requested
<PAGE> 33
EXHIBIT M (CONT.'D)
*
* - Confidential Treatment Requested
<PAGE> 34
EXHIBIT M (CONT.'D)
*
* - Confidential Treatment Requested
<PAGE> 35
EXHIBIT M (CONT.'D)
*
* - Confidential Treatment Requested
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF ACCREDO HEALTH, INCORPORATED FOR THE NINE
MONTHS ENDED MARCH 31, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 8,500
<SECURITIES> 0
<RECEIVABLES> 82,455
<ALLOWANCES> 7,508
<INVENTORY> 31,869
<CURRENT-ASSETS> 121,228
<PP&E> 7,276
<DEPRECIATION> 2,006
<TOTAL-ASSETS> 201,392
<CURRENT-LIABILITIES> 84,484
<BONDS> 41,500
0
0
<COMMON> 141
<OTHER-SE> 74,083
<TOTAL-LIABILITY-AND-EQUITY> 201,392
<SALES> 241,413
<TOTAL-REVENUES> 254,618
<CGS> 210,854
<TOTAL-COSTS> 217,450
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,549
<INTEREST-EXPENSE> 1,498
<INCOME-PRETAX> 11,628
<INCOME-TAX> 4,580
<INCOME-CONTINUING> 7,048
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,048
<EPS-BASIC> .51
<EPS-DILUTED> .48
</TABLE>
