<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter ended March 31, 1999.
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 No. 0-18549
-------
GENSIA SICOR INC.
-----------------
(Exact name of registrant as
specified in its charter)
Delaware 33-0176647
---------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
19 Hughes
Irvine, California 92618
-----------------------------------
(Address of principal executive offices and zip code)
(949) 455-4700
------------------------
(Registrant's telephone number, including area code)
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 _____
-----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common stock $.01 par value 79,856,889
- --------------------------- -------------------------------
Class Outstanding at March 31, 1999
<PAGE>
GENSIA SICOR INC.
INDEX
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements PAGE
--------------------
<S> <C>
Consolidated Balance Sheets at March 31, 1999 and
December 31, 1998 3
Consolidated Statements of Operations and Comprehensive Loss
for the three months ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows for the three
months ended March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
Results of Operations - for the three months ended
March 31, 1999 and 1998 9
Liquidity and Capital Resources 10
Impact of Year 2000 11
PART II OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE DATA)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 25,166 $ 24,461
Accounts receivable, net 52,718 51,407
Inventories, net 50,582 52,746
Other current assets 10,082 11,926
--------- ---------
Total current assets 138,548 140,540
Property and equipment, net 105,772 105,067
Other noncurrent assets 11,617 11,243
Intangibles, net 45,648 46,572
Goodwill, net 67,706 68,392
--------- ---------
$ 369,291 $ 371,814
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 43,788 $ 46,552
Accrued payroll and related expenses 4,296 3,156
Other accrued liabilities 20,252 17,577
Short-term borrowings 42,896 49,625
Current portion of long-term debt 6,997 5,241
Current portion of capital lease obligations 1,296 1,057
---------- ---------
Total current liabilities 119,525 123,208
Other long-term liabilities 9,465 5,826
Long-term debt, less current portion 40,769 41,108
Long-term debt with related party 10,000 10,000
Long-term capital lease obligations, less current portion 2,197 1,210
Deferred taxes 20,645 21,453
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 5,000 shares authorized,
1,600 issued and outstanding, liquidation preference of
$80,000 16 16
Common stock, $.01 par value, 125,000 shares authorized,
79,857 and 79,717 shares issued and outstanding
at March 31, 1999 and December 31, 1998, respectively 798 797
Additional paid-in capital 527,621 528,545
Accumulated deficit (360,554) (360,389)
Accumulated other comprehensive income (loss) (1,191) 40
---------- ---------
Total stockholders' equity 166,690 169,009
---------- ---------
$ 369,291 $ 371,814
========== =========
</TABLE>
See accompanying notes.
3
<PAGE>
GENSIA SICOR INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------------
1999 1998
---------- --------
<S> <C> <C>
Revenues:
Product sales $ 48,357 $ 41,271
Contract research and license fees 5,303 2,333
-------- --------
Total revenues 53,660 43,604
Costs and expenses:
Cost of sales 33,287 28,136
Research and development 5,322 5,233
Selling, general and administrative 9,623 9,726
Amortization expense 1,528 1,388
Interest and other, net 2,595 1,702
Write-down of investment -- 1,130
-------- --------
Total costs and expenses 52,355 47,315
-------- --------
Net income (loss) before income taxes 1,305 (3,711)
Provision for income taxes (1,501) (17)
-------- --------
Net loss before minority interest (196) (3,728)
Minority interest 31 287
-------- --------
Net loss before dividends (165) (3,441)
Dividends on preferred stock (1,488) (1,488)
-------- --------
Net loss applicable to common shares (1,653) (4,929)
Other comprehensive loss:
Foreign currency translation (net of minority interest of $112 in 1998) (1,231) (496)
-------- --------
Comprehensive net loss $ (2,884) $ (5,425)
======== ========
Basic and diluted net loss per common share $ (.02) $ (.06)
======== ========
Shares used in computing basic and diluted net loss
per common share 79,813 79,194
======== ========
</TABLE>
See accompanying notes.
4
<PAGE>
GENSIA SICOR INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
Three months ended March 31,
------------------------------
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (165) $ (3,441)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 4,875 4,345
Minority interest (31) (287)
Net deferred income taxes (9) (1,381)
Inventory purchase price allocation adjustment 104 164
Write-down of investment -- 1,130
Change in operating assets and liabilities, net of effects
from acquisitions:
Accounts receivable (3,067) (6,660)
Inventories (306) (1,248)
Prepaid expenses and other assets 610 (112)
Accounts payable and accrued expenses 7,532 (1,698)
--------- --------
Net cash provided by (used in) operating activities 9,543 (9,188)
Cash flows from investing activities:
Purchase of property and equipment (8,166) (3,980)
Acquisitions of businesses, net of cash acquired -- (1,903)
Proceeds from short-term investments -- 1,000
Purchases of short-term investments -- (2,000)
--------- --------
Net cash used in investing activities (8,166) (6,883)
Cash flows from financing activities:
Payments of preferred stock dividends (1,488) (1,488)
Issuance of common stock and warrants, net 511 500
Change in short-term borrowings (3,174) (3,791)
Issuance of long-term debt and capital lease obligations 6,532 1,032
Principal payments on long-term debt and capital lease obligations (1,716) (930)
--------- --------
Net cash provided by (used in) financing activities 665 (4,677)
Effect of exchange rate changes on cash (1,337) (312)
--------- --------
Increase (decrease) in cash and cash equivalents 705 (21,060)
Cash and cash equivalents at beginning of period 24,461 41,624
--------- --------
Cash and cash equivalents at end of period $ 25,166 $ 20,564
========= ========
Supplemental schedule of noncash investing and financing activities:
Common stock issued to settle accrued liabilities $ -- $ 3,050
</TABLE>
See accompanying notes.
5
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
1. ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
ORGANIZATION
Gensia Sicor Inc. ("Gensia Sicor" or the "Company"), a Delaware
corporation, was incorporated November 17, 1986. Gensia Sicor is a specialty
pharmaceutical company focused on the development, manufacture and marketing of
products for worldwide oncology and injectable pharmaceutical markets. The
company is headquartered in Irvine, California. On February 28, 1997, Gensia
Sicor completed the acquisition of Rakepoll Holding B.V. ("Rakepoll Holding")
from Rakepoll Finance N.V. ("Rakepoll Finance"). Rakepoll Holding is the parent
company of three specialty pharmaceutical businesses: SICOR-Societa Italiana
Corticosteroidi S.p.A. ("Sicor") of Milan, Italy, and two companies located in
Mexico: Lemery, S.A. de C.V. ("Lemery") and Sicor de Mexico, S.A de C.V.
("Sicor de Mexico"). In addition, in December 1997, Sicor purchased a 50% equity
interest in Diaspa S.p.A. ("Diaspa"), an Italian company engaged in the
manufacture of certain raw materials used in Sicor's business. In June 1998,
Sicor purchased the remaining 50% of Diaspa.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiary companies, all of which are wholly owned, except for
Metabasis Therapeutics, Inc ("Metabasis"), which is 92% owned. An affiliated
company in which the Company does not have a controlling interest, or for which
control is expected to be temporary, is accounted for using the equity method.
The four wholly-owned subsidiaries are as follows: Rakepoll Holding B.V., Gensia
Sicor Pharmaceuticals, Inc. (formerly Gensia Laboratories, Ltd. and herein
referred to as "Gensia Sicor Pharmaceuticals"), Gensia Development Corporation
and Genchem Pharma Ltd. ("Genchem Pharma"). All significant intercompany
accounts and transactions have been eliminated. Minority interest at March 31,
1999 represents minority stockholders' proportionate share of the equity in
Metabasis only which is included in other noncurrent assets. As noted above,
the remaining 50% of Diaspa was acquired during the second quarter of 1998, and
accordingly, Diaspa became a wholly-owned subsidiary in the second quarter of
1998.
In the opinion of the Company, all adjustments, consisting only of normal
recurring adjustments, necessary for the fair statement of the results for the
three-month periods ended March 31, 1999 and 1998 have been made. The results
of operations for the three-month period ended March 31, 1999 are not
necessarily indicative of the results to be expected for the full fiscal year.
The accompanying consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's 1998 Form 10-K filed with the Securities and Exchange Commission.
FOREIGN CURRENCY TRANSLATION
The financial statements of subsidiaries outside the United States, except
those subsidiaries located in highly inflationary economies, are generally
measured using the local currency as the functional currency. Assets and
liabilities of these subsidiaries are translated at the rates of exchange at the
balance sheet date. The resulting translation adjustments are included in
accumulated other comprehensive income (loss), a separate component of
stockholders' equity. Income and expense items are translated at average
monthly rates of exchange.
6
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
classifications used in 1999.
2. NET LOSS PER SHARE
Basic net loss per share is computed by dividing net loss, after deducting
preferred stock dividends, by the weighted average number of common shares
outstanding during the period. Shares issuable upon exercise of outstanding
stock options and warrants have not been included in the computation of diluted
net loss per share since the effects of such conversions and exercises would be
anti-dilutive.
3. COMPREHENSIVE NET INCOME (LOSS)
As of January 1, 1998, the Company adopted the Financial Accounting
Standards Board Statement No. 130, "Reporting Comprehensive Income" ("SFAS
130"). The new standard established new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this statement
had no impact on the Company's net loss or stockholders' equity. SFAS 130
requires unrealized gains or losses on the Company's available-for-sale
securities and foreign currency translation adjustments, which prior to adoption
were reported separately in stockholders' equity, to be included in other
comprehensive income (loss).
4. INVENTORIES
Inventories at March 31, 1999 and December 31, 1998 consisted of (in
thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ---------------
<S> <C> <C>
Raw materials $ 21,684 $ 21,543
Work-in-process 10,135 11,154
Finished goods 22,022 22,247
--------- ----------
53,841 54,944
Less reserves (3,259) (2,198)
--------- ----------
$ 50,582 $ 52,746
========= ==========
</TABLE>
5. CONTINGENCIES
In July 1998, the Company was named as a defendant in a complaint filed by
Protocol Systems, Inc. ("Protocol Systems"). The complaint alleges breach of a
supply agreement (the "Supply Agreement"). Protocol Systems alleges damages
estimated at approximately $10.8 million, plus any amounts which it may owe to a
third-party vendor. Gensia Sicor believes that the amount of the claim is
significantly overstated for a variety of reasons and plans to vigorously defend
itself against this claim. Based on a review of the current facts and
circumstances, management has recorded a provision for its estimate of liability
related to this lawsuit. The ultimate outcome with respect to the lawsuit could
have a material adverse effect on the Company's financial position, results of
operations or cash flows.
The Company is also a defendant in various actions, claims, and legal
proceedings arising from its normal business operations. Management believes
they have meritorious defenses and intends to vigorously defend against all
allegations and claims. As the ultimate outcome of these matters is uncertain,
no contingent liabilities or provisions have been recorded in the accompanying
financial statements for such matters. However, in management's opinion,
7
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
liabilities arising from such matters, if any, will not have a material adverse
effect on consolidated financial position, results of operations or cash flows.
6. SUBSEQUENT EVENT
In April 1999, the Company's wholly-owned subsidiary, Gensia Sicor
Pharmaceuticals, filed a lawsuit in the Superior Court of California for Orange
County against American Pharmaceutical Partners ("APP") for breach of contract,
breach of the implied covenant of good faith and fair dealing, unfair
competition and declaratory relief. The suit alleges that APP has breached a
distributorship agreement for certain Gensia Sicor Pharmaceuticals products by,
among other things, acquiring and operating a business which competes with
Gensia Sicor Pharmaceuticals with respect to some of the same products. The
Company is seeking damages in excess of $10 million in addition to a declaration
that the Company has no obligation or liability to APP.
8
<PAGE>
GENSIA SICOR, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Gensia Sicor has been unprofitable on an annual basis since its inception
in 1986. For the period from its inception to March 31, 1999, the Company has
incurred a cumulative net loss of $360.6 million.
When used in this Form 10-Q, the words "expects", "anticipates",
"estimates" and similar expressions are intended to identify forward-looking
statements. Such statements involve risks and uncertainties, including whether
new products will be timely developed, approved, and successfully marketed, the
impact of competitive products, product costs and pricing, changing market
conditions and other risks described in this Form 10-Q and in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998. Actual results
may differ materially from those projected. These forward-looking statements
represent the Company's judgment only as of the date of the filing of this Form
10-Q. The Company disclaims, however, any intent or obligation to update these
forward-looking statements.
RESULTS OF OPERATIONS
The Company reported a net loss of $1.7 million, or $.02 per common share
(after dividends on preferred stock of $1.5 million), in the first quarter ended
March 31, 1999 compared to a net loss of $4.9 million, or $.06 per common share
(after dividends on preferred stock of $1.5 million), in the first quarter of
1998.
Product sales in the first quarter of 1999 increased to $48.4 million from
$41.3 million in the first quarter of 1998. The increase in product sales is
primarily due to increased sales in the international operations mainly from new
products. International operations had a combined sales increase of $5.9
million over levels in the first quarter of 1998. Domestic product sales at
Gensia Sicor Pharmaceuticals also increased, mostly from the sale of inventory
to Abbott Laboratories as a result of the Sales and Distribution agreement
entered into with Abbott Laboratories in January 1999. One customer, the Mexican
hospital program, accounted for approximately $6.0 million of sales, or 13% of
the Company's sales in the quarter ended March 31, 1999. No other international
customer accounted for more than 5% of the Company's sales in the three months
ended March 31, 1999. Cost of sales for the first quarter of 1999 was $33.3
million which yielded a gross margin of 31%, compared to a cost of sales of
$28.1 million for the first quarter of 1998 which yielded a gross margin of 32%.
Contract research and license fees in the first quarter of 1999 increased
to $5.3 million from $2.3 million in the first quarter of 1998. The increase is
primarily due to a $3.5 million reimbursement from Baxter International for
Gensia Sicor Pharmaceuticals' expenses incurred for propofol research and
development. This increase was partially offset by a decrease in the license
revenue from Pfizer Inc. ("Pfizer"). The Company's 92% owned subsidiary,
Metabasis, continued to receive contract research revenues through its research
collaboration with Pfizer in the areas of pain and inflammation research and
with Sankyo Co. Ltd. in the area of diabetes. The research collaboration with
Pfizer will end in May 1999. Metabasis is engaged in discussions with other
pharmaceutical companies concerning collaborations under which these companies
would fund additional Metabasis' research and development efforts; however,
there is no assurance that any such collaborations will be completed.
Research and development expenses in the first quarter of 1999 were $5.3
million compared to $5.2 million in the same period of 1998. The Company is
continuing to pursue several options with respect to its Metabasis research
operation as the Company's strategic direction does not include a significant
commitment to basic research. Such options could cause Metabasis' future
research and development expenses and contract research revenues to decrease
from current levels.
Selling, general and administrative expenses in the first quarter of 1999
were $9.6 million compared to $9.7
9
<PAGE>
GENSIA SICOR, INC.
million in the same period of 1998.
The Company recorded amortization expense of $1.5 million in the first
quarter of 1999 compared to $1.4 million in the first quarter of 1998. The
increase is due to the amortization of goodwill resulting from the acquisition
of the remaining 50% of Diaspa in June 1998 and the acquisition of a research
and development branch by the Company's subsidiary, Genchem Pharma, in March
1998.
Interest and other expenses in the first quarter of 1999 increased to $2.6
million from $1.7 million in the first quarter of 1998 primarily due to higher
net interest expense from increased debt, and other expenses as a result of
Gensia Sicor Pharmaceuticals restructuring its sales force in connection with
its alliance with Abbott Laboratories.
The Company elected in January 1998 to write down the investment value of
its 19% interest in Gensia Automedics, Inc. from $1.8 million to $0.7 million,
due to, among other things, the lack of market acceptance of the GenESA System.
Accordingly, the difference in investment balance of $1.1 million was reflected
as a current period charge to write-down of investment in the first quarter of
1998. The Company subsequently wrote off the remaining balance of $0.7 million
in the fourth quarter of 1998.
Income tax expense in the first quarter of 1999 was $1.5 million compared
to income tax expense of $17,000 in the first quarter of 1998. The increase in
income tax expense is primarily attributable to increased earnings in the
foreign operations for the first quarter of 1999 compared to the first quarter
of 1998.
The Company recorded minority interest income of $31,000 in the first
quarter of 1999 compared to $287,000 in the first quarter of 1998. The
decrease is due to Diaspa, which became a wholly-owned subsidiary in June 1998
as a result of Sicor purchasing the remaining 50% interest in Diaspa.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, Gensia Sicor had cash and cash equivalents of $25.2
million and working capital of $19.0 million compared to $24.5 million and $17.3
million, respectively, as of December 31, 1998. The increase in cash and
working capital resulted from $9.5 million of cash provided by operations and
$0.7 million of cash from financing activities, offset by investment in long-
term assets of $8.2 million and $1.3 million of exchange rate changes.
Significant changes in operating assets and liabilities during the first
quarter of 1999 included a $7.5 million increase in accounts payable and accrued
expenses, a $3.1 million increase in accounts receivable and a $0.6 million
decrease in prepaid expenses and other assets. The increases in accounts
payable and accrued expenses and accounts receivable reflect the Company's
efforts to launch new products and complete transition with recent alliance
partners.
In the first quarter of 1999, the Company paid cash dividends on its
preferred stock totaling $1.5 million. At March 31, 1999, the Company had five
cumulative quarters, or approximately $7.5 million, in undeclared cumulative
preferred dividends. If the Company chooses to not declare dividends for six
cumulative quarters, the holders of the preferred stock, voting separately as a
class, will be entitled to elect two additional directors until the dividend in
arrears has been paid.
Gensia Sicor Pharmaceuticals entered into a Sales and Distribution
agreement with Abbott Laboratories in January 1999, under which the two
companies formed a strategic alliance for marketing and distribution of oncology
products in the United States. In connection with this agreement, the Company
received $5.6 million in the first quarter of 1999. Additionally, approximately
$5.0 million has been received in 1999 for the sale of inventory to Abbott
Laboratories.
10
<PAGE>
GENSIA SICOR, INC.
Gensia Sicor Pharmaceuticals also entered into an amendment to an earlier
agreement with Baxter International under which a fee of approximately $3.5
million was received in March 1999 from Baxter to reimburse Gensia Sicor
Pharmaceuticals for its expenses incurred for propofol research and development.
The Company anticipates that its efforts to reduce overall costs and
expenses and working capital requirements, combined with its current cash and
cash equivalents on hand at March 31, 1999 of $25.2 million, and commitments
from third parties, will enable it to maintain its current and planned
operations through at least 1999. In connection with its plans for expanding
its business, to accomplish its core strategy of being a leading fully-
integrated provider of injectable pharmaceutical products and services, the
Company's management and Board of Directors are evaluating plans to raise
required additional capital. The Company will continue to evaluate the need for
additional capital and, if appropriate, pursue equity, debt and lease financing,
or a combination of these, for its capital needs. Such financings may not be
available on acceptable terms, or at all. If financing is not available, the
Company may have to reduce planned expenditures, discontinue certain operations,
or otherwise restructure to continue operations.
As discussed in Note 5, the Company was named as a defendant in a complaint
filed by Protocol Systems. The complaint alleges breach of the Supply
Agreement, and damages estimated at approximately $10.8 million, plus any
amounts which Protocol Systems may owe to a third-party vendor. Gensia Sicor
believes that the amount of the claim is significantly overstated for a variety
of reasons and plans to vigorously defend itself against this claim. Based on a
review of the current facts and circumstances, management has recorded a
provision for its estimate of liability related to this lawsuit. The ultimate
outcome with respect to the lawsuit could have a material adverse effect on the
Company's financial position, results of operations or cash flows.
Most of the Company's foreign subsidiaries use foreign exchange currency
contracts to reduce the negative financial impact of currency fluctuations. In
March 1999, the Company's Italian subsidiary, Sicor, entered into twenty monthly
U.S. $1 million put options, ten at a strike price of Lira 1,696 per U.S. $1 and
an additional ten at a strike price of Lira 1,750 per U.S. $1. As of March 31,
1999, no contracts have been exercised.
IMPACT OF YEAR 2000
The Company has taken actions to understand the nature and extent of the
work required to make its systems and infrastructure Year 2000 compliant.
System hardware, software and microprocessor controlled equipment that support
the Company's infrastructure have been inventoried and assessed for Year 2000
compliance. To the extent necessary to address material Year 2000 issues, the
Company is in the process of obtaining and installing current releases or
upgrades from software vendors. All domestic business systems have been
upgraded and are believed to be compliant.
Work continues on the Company's international facilities systems. Upgrades
and conversions are scheduled for completion by the end of the second quarter of
1999 in Italy and by the end of the fourth quarter of 1999 in Mexico. A failure
by the Company to convert its international systems in a timely fashion could
have a material adverse effect on the Company.
Because third party failures could have a material adverse impact on the
Company's ability to conduct business, the Company is attempting to obtain
written assurances from all material customers and vendors that their systems
are or will be Year 2000 compliant. The Company has received such assurances
from its domestic material customers and vendors; however, this is an on-going
process. The Company anticipates that this process will be completed by mid-
1999 for its international operations. The Company's total sales to
international customers in the three months ended March 31, 1999 were
approximately $25.1 million, which represented approximately 52% of the
Company's total sales in such period. The Mexican hospital program accounted
for approximately $6.0 million of the Company's sales in the quarter ended March
31, 1999. If either the Company or any material customer or vendor
11
<PAGE>
GENSIA SICOR, INC.
experiences a failure of any critical system, it could have a material adverse
impact on the Company's business or require the Company to incur unanticipated
expenses.
If by mid-1999, the Company has not obtained reasonable assurances from
material vendors as to Year 2000 compliance, the Company will consider
alternatives, including the replacement of material vendors, if possible. The
business interruption of any of the Company's significant customers, resulting
from their Year 2000 issues, could have a material adverse impact on the
Company's revenues and results of operations.
The Company has not completed a formal contingency plan for non-compliance,
but it is developing a plan based on the information obtained from third parties
and an on-going evaluation of the Company's own systems. The Company
anticipates having a contingency plan in place by mid-1999 which will include
development of backup procedures, identification of alternate suppliers and
possible increases in inventory levels. The Company has not identified its most
reasonably likely worst case scenario with respect to possible losses in
connection with Year 2000 related problems. The Company plans on completing
this analysis in mid-1999.
There are many factors outside the Company's control that could cause the
Year 2000 problem to seriously disrupt its operations. There are risks,
however, for which the Company is preparing and, in so doing, seeking to reduce
its exposure. The scope of the Company's efforts regarding each risk is limited
to the Company's key products, key compounds, subsidiaries, critical suppliers,
and major customers. The most critical of these risks are: a disruption in
the supply of product with particular emphasis on failures of raw material
suppliers, commercial partners, and external distribution channels; internal
infrastructure failures such as utilities, communications, internal information
technology services and integrated information technology systems;
government failures, especially as they impact import and export activity;
interruption of the product regulatory filing process; and a major customer
failure or interruption.
The cost incurred through March 31, 1999, for the Year 2000 transition was
approximately $1.0 million, which includes software and hardware upgrades that
would have been purchased in the normal course of business to accommodate future
growth and worldwide integration. The Company estimates that the remaining
costs to be incurred on upgrading systems, including the Year 2000 transition,
will be approximately $1.0 million, and as such will not have a significant
impact on the Company's financial position or operating results. Based on
available information, including assurances from software vendors that their
products are compliant, the Company believes that, barring critical failures
arising from factors beyond the Company's direct control, it will be able to
manage its total Year 2000 transition without any material adverse effect on its
business operations, products, operating results or financial condition.
12
<PAGE>
GENSIA SICOR, INC.
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description of Document
------ -----------------------
10.1+ Sales and Distribution Agreement dated as of January 28, 1999
between Gensia Sicor Pharmaceuticals and Abbott Laboratories,
Inc.
27.1 Financial Data Schedule.
-------------
+ Certain portions of this exhibit have been omitted pursuant to a
request for confidential treatment.
(b) Reports on Form 8-K during the first quarter
None.
13
<PAGE>
GENSIA SICOR, INC.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENSIA SICOR INC.
Date: May 14, 1999 By: /s/ Carlo Salvi
-------------------------------------
Carlo Salvi, President
and Chief Executive Officer
Date: May 14, 1999 By: /s/ John W. Sayward
-------------------------------------
John W. Sayward, Executive Vice
President, Finance, Chief Financial
Officer and Treasurer
14
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EXHIBIT 10.1
[CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION]
SALES AND DISTRIBUTION AGREEMENT
--------------------------------
This SALES AND DISTRIBUTION AGREEMENT (this "Agreement") dated as of this 28th
day of January, 1999 by and between ABBOTT LABORATORIES INC., a Delaware
corporation having its principal place of business at 100 Abbott Park Road,
Abbott Park, Illinois 60064-3500 ("Abbott"), and GENSIA SICOR PHARMACEUTICALS,
INC., a Delaware corporation having its principal place of business at 19
Hughes, Irvine, California 92618-1902 ("Gensia Sicor").
RECITALS
--------
WHEREAS, Gensia Sicor has obtained FDA (as hereinafter defined) approvals
for the Base Products (as hereinafter defined) and has heretofore been
independently selling and marketing such Base Products through its sales force;
and
WHEREAS, Abbott desires to become the exclusive distributor (as described
in Article 2) of all of the Products (as hereinafter defined) in the Territory
(as hereinafter defined); and
WHEREAS, Gensia Sicor is willing to appoint Abbott as the exclusive
distributor of all the Products in the Territory, and Abbott is willing to
accept such appointment, in accordance with the terms and conditions hereof.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and intending to be legally bound hereby, Abbott
and Gensia Sicor hereby agree as follows:
ARTICLE 1
---------
DEFINITIONS
All capitalized terms used in this Agreement shall have the meanings set
forth or referenced below.
1.1 "Abbott Promoter" means at any time, an employee, agent or
---------------
representative of Abbott's Hospital Products Division who, at that time,
promotes sales of the Products.
1.2 "Act" means the Federal Food, Drug and Cosmetic Act of 1938, including
---
all amendments thereto, and all regulations promulgated thereunder, as the same
are amended, modified or supplemented from time to time.
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1.3 "Affiliate" means any entity which is, directly or indirectly,
---------
controlling, controlled by or under common control with a Party. For purposes
of this definition, "control" (including, with correlative meaning, the term
"controlling" and "controlled") shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such entity, whether through the ownership of voting securities, by
contract or otherwise.
1.4 "ANDA" means an abbreviated new drug application submitted to the FDA
----
under Section 507 of the Act, including supplements and amendments to such
application.
1.5 "Base Product" means, at any time, (a) the products listed in Exhibit
------------
1.5, as amended from time to time by written agreement of the Parties, and (b)
any New Product which become a Base Product in accordance with Section 1.21.
1.6 "Base Sales Level" shall have the meaning given it in Section 7.2
----------------
hereof. Base Sales Level is also abbreviated as "BSL" herein.
1.7 "Calendar Quarter" means a period of three (3) consecutive calendar
----------------
months commencing on January 1, April 1, July 1, or October 1 of any Contract
Year. For purposes of this Agreement, the first Calendar Quarter shall mean the
period from the Effective Date until March 31, 1999.
1.8 "Confidential Information" means any and all technical data,
------------------------
information, materials and other know-how presently owned by or developed by, or
on behalf of, a Party during the term of this Agreement which relates to the
Products, their preparation, marketing, sale or use and any and all financial
data and information relating to the business of either of the Parties and/or of
their Affiliates which a Party discloses to the other Party in writing and
identifies as being confidential, or if disclosed orally, visually or through
some other media, is summarized in writing within thirty (30) days of such
disclosure and identified as confidential, except any portion thereof which:
(a) is known to the receiving Party or its Affiliates at the time of
the disclosure, as evidenced by its written records;
(b) is disclosed to the receiving Party or its Affiliates by a Third
Party (as hereinafter defined) who has a right to make such disclosure;
(c) becomes patented, published or otherwise part of the public
domain through no fault of the receiving Party or its Affiliates;
(d) is independently developed by or for the receiving Party or its
Affiliates without access to Confidential Information disclosed hereunder, as
evidenced by its written records;
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(e) is disclosed by the receiving Party or its Affiliates pursuant
to oral questions, interrogatories, requests for information or documents,
subpoena, or a civil investigative demand of a court or governmental agency;
provided, that the receiving Party notifies the disclosing Party promptly upon
receipt of the request from such court or governmental agency and furnishes only
that portion of the Confidential Information which it is advised by counsel is
legally required; or
(f) is required to be disclosed by a Party or its Affiliates under
any statutory, regulatory or similar legislative requirement or any rule of any
stock exchange to which it or any Affiliate is subject; provided, that the
receiving Party notifies in writing the disclosing Party prior to any such
disclosure and furnishes only that portion of the Confidential Information which
it is advised by counsel is legally required.
1.9 "Contract Year" means the twelve-month period coinciding with the
-------------
calendar year. For the purpose of this Agreement, the first calendar year shall
mean the period from the Effective Date until December 31, 1999. The second
Contract Year shall be from January 1, 2000 through December 31, 2000.
1.10 "Distributor" is a natural person, corporation, partnership, trust,
-----------
joint venture, or other business entity or organization that sells or resells
Product to End Users but is not a Wholesaler. At the time of this Agreement,
the Parties hereby agree that the following entities shall be Distributors:
Oncology Therapeutics Network (OTN), Alternate Site Distributor (ASD), National
Specialty Services (NSS), Priority HealthCare, Medpath and Oncology Supply.
1.11 "Distributor Reversal" means, with respect to a Product, the positive
--------------------
difference between the price paid by a Distributor for a Product and the price
which is stipulated in the contract between Abbott and the End User at which
that Distributor sold such Product to such End User.
1.12 "End User" means any customer of Abbott, Gensia Sicor, Distributor or
--------
Wholesaler for the Product(s), including, but not limited to, hospitals, home
infusion pharmacies, nursing homes, alternate site facilities, outpatient
clinics, retail pharmacies, physician group practices, other facilities where
the Products are administered to patients and those resellers that do not
process a Wholesaler Reversal or Distributor Reversal on the sale of the
Products.
1.13 "Effective Date" means the date first above written.
--------------
1.14 "FDA" means the United States Food and Drug Administration and any
---
successor agency thereto.
1.15 "GPO" means a group purchasing organization.
---
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1.16 "Gross Price" means for a Product the per unit price at which Abbott
-----------
sells that particular Product to the Trade in the Territory, minus per unit
Wholesaler Reversals, Distributor Reversals and Returns directly related to such
Product.
1.17 "Gross Sales" means, with respect to any period and each Product, the
-----------
total dollar amount of sales of such Product by Abbott to the Trade in the
Territory minus Wholesaler Reversals, Distributor Reversals and Returns for such
Product, in each case during that period.
1.18 "Medicare/Medicaid Rebates" means those rebates that are due to
-------------------------
either federal or state-administered programs on purchases of the Products by
such programs as established by applicable federal or state laws, rules or
regulations.
1.19 "National Drug Code" or "NDC" means, with respect to a pharmaceutical
------------------ ---
product, the unique number associated with that product, which number is
required by the FDA for reporting purposes and gives detailed information
concerning such product, including such product's description, concentration,
and packaging.
1.20 "NDA" means a new drug application submitted to the FDA under Section
---
507 of the Act.
1.21 "New Product" means each product listed in Exhibit 1.21. Each such
-----------
product shall be a "New Product" for a period of two years from the date of the
first sale of such product to Abbott, and, thereafter, such product shall be a
Base Product. Exhibit 1.21 may be amended from time to time by written
agreement of the Parties.
1.22 "Oncology Market" means all segments of the Trade involved in the
---------------
administration and delivery of chemotherapeutic and adjuvant therapeutic agents
and treatments to cancer patients.
1.23 "Party" means Gensia Sicor or Abbott, and "Parties" shall mean Gensia
-----
Sicor and Abbott.
1.24 "PDMA" means the Prescription Drug Marketing Act of 1987, including
----
any amendments thereto, and all regulations promulgated thereunder.
1.25 "Performance Incentive" means any dividend, incentive, discount,
---------------------
rebate or similar incentive paid to a purchaser of a Product pursuant to a
written contractual obligation.
1.26 "PMA Code" means the Pharmaceutical Manufacturers Association's Code
--------
of Pharmaceutical Marketing Practices, as amended from time to time.
1.27 "Product" means a Base Product or a New Product.
-------
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1.28 "Promotion" means an interactive personal visit and discussion by an
---------
Abbott Promoter of a full presentation of a Product in which such Abbott
Promoter is fully equipped with all applicable promotional materials and the
Product labeling, such that the relevant characteristics of the Product are
described by the Abbott Promoter in a fair and balanced manner consistent with
the requirements of the Act, the PDMA, the PMA and this Agreement. "Promote"
means to make a Promotion.
1.29 "Recall" means the action of any governmental or regulatory authority
------
in the Territory issuing a request, directive or order to withdraw product from
the Trade.
1.30 "Returns" means, with respect to a Product, all of that Product that
-------
the Trade returns during a given period to either Party.
1.31 "Specifications" means the written specifications for the Products
--------------
contained in the ANDAs for the Products, as the same may be amended by Gensia
Sicor from time to time after approval by the FDA.
1.32 "Term" means the period from the Effective Date to the end of the
----
seventh Contract Year, and any extensions thereto or earlier terminations
thereof pursuant to Article 18.
1.33 "Territory" means the fifty (50) states of the United States of
---------
America, the District of Columbia and all territories and possessions of the
United States, including Puerto Rico.
1.34 "Third Party" means a natural person, corporation, partnership,
-----------
trust, joint venture, any governmental authority or other business entity or
organization, and any other recognized organization other than the Parties and
their Affiliates.
1.35 "Trade" means all customers for the Products, including, but not
-----
limited to, hospitals, home infusion pharmacies, nursing homes, alternate site
facilities, outpatient clinics, Wholesalers, Distributors, buying groups
(including, but not limited to, GPOs), retail pharmacies and physician group
practices and other locations where patients are treated with the Products.
1.36 "Transfer Price" means, with respect to a Product, the price that
--------------
Abbott shall pay to Gensia Sicor for such Product at the time Abbott purchases
such Product from Gensia Sicor, such price to be calculated in accordance with
Article 6.
1.37 "Transfer Price Schedule" means the schedule that identifies the
-----------------------
Transfer Price for all Products according to their respective NDCs.
1.38 "Wholesaler" is a natural person, corporation, partnership, trust,
----------
joint venture, or other business entity or organization that is listed on
Exhibit 1.38, as amended by written agreement of the Parties to include entities
reasonably determined by both
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Parties to perform functions substantially similar to the entities currently
listed on Exhibit 1.38.
1.39 "Wholesale Acquisition Cost" or "WAC" means, with respect to a
-------------------------- ---
Product, the price at which Abbott sells such Product to a Wholesaler.
1.40 "Wholesaler Reversal" means, with respect to a Product, the positive
-------------------
difference between the WAC for a Wholesaler for that Product and the price which
is stipulated in the contract between Abbott and the End User at which that
Wholesaler sold such Product to such End User.
ARTICLE 2
---------
APPOINTMENT TO MARKET AND DISTRIBUTE THE PRODUCTS
2.1 Exclusive Appointment. Subject to the terms and conditions of this
---------------------
Agreement, and except as set forth in Sections 2.2 and 8.2 hereof, Gensia Sicor
hereby appoints Abbott for the Term as Gensia Sicor's exclusive distributor of
the Products to the Trade in the Territory with the exception of the Products
identified in Exhibit 2.1 hereto, and Abbott hereby accepts such appointment. As
exclusive distributor, Abbott shall have the sole and exclusive right to
Promote, sell, and distribute the Products in the Territory for use by End Users
in the Territory. Gensia Sicor hereby grants to Abbott, subject to Sections 2.2
and 8.2 hereof, the option to have the exclusive right to Promote, sell, and
distribute in the Territory for use by End Users in the Territory any product
which (a) Gensia Sicor develops, purchases, produces or acquires rights to
produce during the Term of this Agreement and (b) is approved by the FDA
pursuant to an ANDA filed by Gensia Sicor which references a Product as a
"listed drug." This option shall be exercised by Abbott by written notice to
Gensia Sicor within thirty (30) days of the date of Gensia Sicor's written
notice to Abbott of the approval of the ANDA for such product by the FDA. Any
product for which Abbott exercises such option shall be automatically added to
Exhibit 1.21 hereto as a New Product.
2.2 Exception to Exclusive Appointment. Notwithstanding Section 2.1
-----------------------------------
hereof, Abbott shall not be authorized to distribute, promote or sell the
Products to Premier Purchasing Partners, L.P. or its Affiliates, but may deliver
Product to Wholesalers. At such time that Gensia Sicor's Manufacturing and
Distribution Agreement dated August 14, 1996, as amended, with American
Pharmaceutical Partners (the "APP Agreement") is terminated, Abbott's rights
hereunder shall become exclusive in the Territory. Gensia Sicor will not extend
the term of the APP Agreement with respect to the Products nor add any
additional products to the APP Agreement except as required thereunder. Neither
Gensia Sicor nor Abbott will perform any action that would interfere with Gensia
Sicor's ability to meet its obligations under the APP Agreement.
2.3 First Right of Negotiation for Product Line. Except in the
-------------------------------------------
circumstances set forth in Section 21.2 hereof, in the event Gensia Sicor
decides to divest itself of its
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rights to produce, distribute and sell any of the Products, Abbott shall have
the first right to negotiate with Gensia Sicor to purchase all such rights which
Gensia Sicor has to such Products in accordance with the procedures set forth in
this Section 2.3.
(a) Gensia Sicor shall notify Abbott in writing of its decision to sell
its rights to any Product. For a period of up to thirty (30) days following
receipt of such written notification from Gensia Sicor, the Parties shall
negotiate in good faith regarding written terms and conditions upon which Abbott
would purchase such rights to such Product. If the Parties are able to reach
written agreement regarding the material terms and conditions of a sale of such
rights to such Product to Abbott within such thirty (30) day period, the Parties
shall negotiate in good faith for a period of up to sixty (60) days a definitive
agreement for the purchase of such rights by Abbott. Gensia Sicor shall not
negotiate with any Third Party regarding the sale of the rights to any Products
prior to completion of its negotiations with Abbott set forth in this Section
2.3(a).
(b) If the Parties are unable to agree upon written terms and conditions
with respect to such rights to a Product within thirty (30) days after Abbott's
receipt of the written notice from Gensia Sicor regarding the sale of such
rights to such Product or, having reached written agreement on the material
terms and conditions of such sale, are unable to negotiate a definitive
agreement for such sale within sixty (60) days after reaching written agreement
upon the terms and conditions of such sale, Gensia Sicor shall be free to
negotiate with Third Parties regarding a sale of such rights to such Product;
provided, however, that Gensia Sicor shall not sell the rights to such Product
- -------- -------
to a Third Party on terms which are in the aggregate less favorable to Gensia
Sicor, as reasonably determined by Gensia Sicor, than the terms Abbott offered
to Gensia Sicor pursuant to this section 2.3 unless Abbott (i) withdraws such
offer or (ii) decides to not exercise its rights as set forth in this Section
2.3.
(c) The Parties agree that Gensia Sicor's sale of its rights to any
Product shall in no way affect Abbott's right and obligations hereunder, and any
such purchaser of the rights to any such Products shall assume all of Gensia
Sicor's obligations hereunder.
2.4 Marketing Efforts. During the Term, Abbott shall Promote, sell and
-----------------
distribute the Products to the Trade in the Territory consistent with the manner
in which Abbott would Promote, sell and distribute products of comparable
commercial and medical significance which are developed, controlled, sold or
distributed by Abbott. In furtherance of such efforts, Abbott shall employ its
expertise, best professional judgment and working relationships to ensure that
Abbott Promoters Promote the Products to maximize Product sales with each
Promotion thereof. Such efforts shall be consistent with the Abbott Promoters'
overall responsibilities within the Abbott Hospital Products Division sales
force. During the Term of this Agreement, Abbott will maintain a strategic
Oncology Market focus. Abbott will maintain an oncology business unit which
dedicates resources reasonably required at all times to fulfilling the
commitments set forth in this Agreement, including without limitation, utilizing
no fewer than twenty (20) full-time equivalent employees (FTE's). Abbott will
develop and update a short term and
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a five (5)-year business plan and deliver the same to Gensia Sicor, on an annual
basis at least thirty (30) days prior to the beginning of each Contract Year
commencing with Contract Year 2000, for the Promotion and sale of the Products.
Representatives of the Parties shall meet in person or by telephone at least
once each Calendar Quarter to discuss strategy, tactics for selling and sales of
the Products.
2.5 Trade Costs. Notwithstanding Section 1.17 hereof, Abbott shall be
-----------
responsible, at its sole cost and expense, for payment of all Wholesaler
Reversals and Distributor Reversals, cash term discounts (e.g.; 2% 15, net
thirty (30)), management fees, rebates, service allowances, Performance
Incentives, credits, taxes, freight, shipping charges and other sales related
charges associated with Abbott's sales of the Products to the Trade. Gensia
Sicor shall be responsible, at its sole cost and expense, for payment of all
Medicare/Medicaid Rebates as required by either federal or state-run programs.
2.6 Selling Price. Abbott shall determine, in its sole discretion, the
-------------
final sales price of the Products sold by Abbott to the Trade. Gensia Sicor
shall not refuse to sell Product to Abbott due to the final sales price at which
any Product is sold by Abbott to the Trade.
2.7 Assignment and Assumption of Agreements. Gensia Sicor hereby assigns
---------------------------------------
to Abbott all of Gensia Sicor's right, title and interest to, and delegates to
Abbott all of Gensia Sicor's obligations to supply Products under, those certain
agreements relating to Gensia Sicor's sale of the Products prior to the
Effective Date that are listed within Exhibit 2.7 (collectively, the "Product
Agreements") for all agreements that can be assigned without prior approval by
the other party. Gensia Sicor agrees to cooperate with Abbott and use
commercially reasonable efforts to attempt to secure required approvals to
assign any remaining agreements (which would, except for restrictions on
assignment, otherwise be deemed Product Agreements) within a reasonable time
after the Effective Date. Gensia Sicor hereby represents to Abbott that, to
Gensia Sicor's knowledge, no party to any of the Product Agreements, as of the
Effective Date, is in material breach of the Product Agreements. Abbott hereby
assumes all of Gensia Sicor's obligations under the Product Agreements as of the
Effective Date, and any additional agreements for which Third Party consents are
subsequently obtained (which shall then be deemed to be Product Agreements as of
such subsequent date), except for any obligations relating to free goods and
Performance Incentives in excess of *** of the invoiced sales amount of Products
to such customers as set forth in the Product Agreements. Gensia Sicor shall
retain the obligations in this Section only for the current term of the Product
Agreements as of the Effective Date of this Agreement exclusive of any
extensions or renewals. Abbott shall use commercially reasonable efforts to
remove Gensia Sicor's contractual obligations relating to free goods and
Performance Incentives as defined in this Section by December 31, 1999. Gensia
Sicor will continue to service each End User that refuses to assign Product
Agreements to Abbott until such time alternate agreements can be reached between
the Parties and such End User.
_______________________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
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2.8 Sales and Marketing Activities. Gensia Sicor may (but shall not be
------------------------------
obligated to) contact, solicit purchases, and otherwise Promote sales of
Products to purchasers and potential purchasers thereof on behalf of Abbott, at
its sole cost and expense. At the written request of Abbott, the Parties shall
meet to discuss the scope of such activities and in the event Abbott advises
Gensia Sicor, on commercially reasonable grounds, that any such activities are
inappropriate, Gensia Sicor shall discontinue such activities. Notwithstanding
the foregoing, Gensia Sicor shall not (a) agree on any price for the Products,
(b) offer the Products at any price, or (c) agree to sell Products, except to
Abbott and American Pharmaceutical Partners, L.P. The Parties expressly agree
that nothing in this Section 2.8 shall restrict the ability of Gensia Sicor to
initiate commercial activities pursuant to Section 18.4(e).
ARTICLE 3
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SALES AND MARKETING COMMITMENT FEE
3.1 Abbott Sales and Marketing Commitment Fee. Abbott shall pay to Gensia
-----------------------------------------
Sicor a fee (the "Sales and Marketing Commitment Fee") for the right to sell,
market and distribute the Products in accordance with the provisions of this
Agreement. It is the intent of the Parties that these funds be utilized by
Gensia Sicor, in its sole discretion, to research and develop new products. The
Sales and Marketing Commitment Fee shall equal *** Dollars ($***) and shall be
disbursed, as set forth in Exhibit 3.1 hereto.
3.2 Sales and Marketing Fee Distribution. The first installment of the
------------------------------------
Sales and Marketing Commitment Fee set forth in accordance with Exhibit 3.1
hereof shall be received by Gensia Sicor no later than ten days after the
Effective Date. During the term of this Agreement, additional installments of
the Sales and Marketing Commitment Fee after the initial installment shall be
disbursed in accordance with the schedule set forth in Exhibit 3.1.
ARTICLE 4
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MARKETING AND PROMOTION
4.1 Marketing Support Fees. Gensia Sicor shall pay Abbott a fee (the
----------------------
"Marketing Support Fee") to assist and support Abbott's Promotion efforts in the
sales, marketing and distribution of the Products. A Marketing Support Fee of
*** (US$***) shall be paid to Abbott by Gensia Sicor no later than the first day
of each Calendar Quarter beginning July 1, 2000. Such payment will continue for
twenty-one (21) consecutive Calendar Quarters, for a total of twenty-two (22)
Marketing Support Fee
____________________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
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payments, in accordance with the payment schedule set forth in Exhibit 4.1
hereto. Notwithstanding anything in this Section 4.1 to the contrary, in the
event the aggregate Marketing Support Fee payments to Abbott hereunder exceed
the aggregate amounts of the Sales and Marketing Commitment Fee installments
paid to Gensia Sicor pursuant to Article 3 hereof, Gensia Sicor may suspend
future payments of the Marketing Support Fee until the aggregate amount of Sales
and Marketing Commitment Fee installments paid to Gensia Sicor equal or exceed
the aggregate Marketing Support Fee payments otherwise payable to Abbott
hereunder.
(a) In the event the Agreement is terminated for any reason, Gensia
Sicor's payments otherwise payable will continue to be made to Abbott in
accordance with the payment schedule set forth in Exhibit 4.1 hereto subject to
the limitations set forth in the preceding sentence. In the event Gensia Sicor
fails to remit payment to Abbott for any scheduled Marketing Support Fee Payment
and such failure to pay continues for fifteen (15) days past the standard
payment terms described in Section 21.3, then Gensia Sicor hereby grants to
Abbott the right to withhold any payments due and owing to Gensia Sicor;
provided, however, that such monies that Abbott may withhold shall, in no event,
- -------- -------
exceed the aggregate amount of money that Gensia Sicor owes to Abbott.
(b) Notwithstanding any other provision of this Section 4.1, in the event
that during any applicable Calendar Quarter, the aggregate Gross Sales of all
New Products are less than *** percent (***%) of (i) with respect to the first
Calendar Quarter, ***% of the Base Sales Level of such New Products, (ii) with
respect to the second Calendar Quarter, ***% of the Base Sales Level of such New
Products, (iii) with respect to the third Calendar Quarter, ***% of the Base
Sales Level of such New Products and (iv) with respect to the fourth Calendar
Quarter, ***% of the Base Sales Level of such New Products, *** Dollars (US$***)
of the Marketing Support Fee otherwise due with respect to such applicable
Calendar Quarter shall be deferred until Abbott's New Product sales equal or
exceed the period specific forecast. Such deferral will not exceed twelve (12)
months from the date of the original due date, at which time the deferred
marketing support fees shall be paid. The remainder of the Marketing Support Fee
which is due with respect to such Calendar Quarter in accordance with the
schedule set forth in accordance with Exhibit 4.1 shall be paid.
(c) Notwithstanding any other provision of this Section 4.1, in the event
that during any applicable Calendar Quarter, the aggregate Gross Sales of all
New Products in such Calendar Quarter are greater than *** percent (***%) of (i)
with respect to the first Calendar Quarter, ***% of the Base Sales Level of such
New Products, (ii) with respect to the second Calendar Quarter, ***% of the Base
Sales Level of such New Products, (iii) with respect to the third Calendar
Quarter, ***% of the Base Sales Level of such New Products and (iv) with respect
to the fourth Calendar Quarter, ***% of the Base Sales Level of such New
Products, the scheduled Marketing Support Fee plus an additional *** Dollars
(US$***) will be paid to Abbott. Such additional *** Dollars
_______________________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
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(US$***) payment shall constitute a prepayment of the Marketing Support Fees in
inverse order from the schedule set forth in Exhibit 4.1.
4.2 Sales Training. Abbott shall, on an ongoing basis and at Abbott's sole
--------------
expense, train and supervise the Abbott Promoters in the Promotion and sale of
the Products. For purposes of training, Gensia Sicor shall supply, at Abbott's
expense, sales force training materials for the Products. Gensia Sicor shall
also provide reasonable assistance to Abbott (but shall not be required to incur
any significant out-of-pocket costs with respect thereto) in connection with
Abbott's initial training of the Abbott Promoters in the Promotion and sale of
the Products.
4.3 Use of Promotional and Marketing Materials. Abbott shall utilize only
------------------------------------------
promotional and marketing materials which have been previously approved in
writing by Gensia Sicor. All marketing and promotional materials produced by
Abbott shall be submitted by Abbott to Gensia Sicor for a final review and
approval, which approval shall not be unreasonably withheld or delayed. Abbott
shall immediately cease use and distribution, and shall cause the Abbott
Promoters to immediately cease use and distribution, of any promotional and
marketing materials which Gensia Sicor notifies Abbott in writing may no longer
be used or distributed due to regulatory, legal, medical or technical reasons,
and Abbott and the Abbott Promoters shall promptly advise Abbott's customers in
the Trade to cease such use. Notwithstanding anything in this Agreement to the
contrary, if Abbott reasonably determines that any promotional or sales
activities or materials approved by Gensia Sicor conflict with the PMA Code or
any applicable federal, state or local law or regulation, Abbott shall notify in
writing Gensia Sicor of such determination as soon as reasonably possible.
Abbott shall not be required to engage in such activity or to distribute such
material.
4.4 Product Labels and Package Inserts. All Product labels and package
----------------------------------
inserts for the Products shall be the sole responsibility of Gensia Sicor and
shall not identify Abbott.
4.5 Product Claims. Abbott shall ensure that its statements and claims
--------------
regarding the Products, including those relating to efficacy and safety, are
consistent with the Product labeling and promotional materials. Abbott shall
sell and Promote the Products in strict adherence to any applicable professional
requirements, and to all applicable federal, state and local laws, rules and
regulations, including, but not limited to, the Act, the American Medical
Association Gifts to Physicians from Industry Guidelines and the PDMA.
ARTICLE 5
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MANUFACTURE AND SUPPLY OF THE PRODUCTS
5.1 Product Supply.
--------------
___________
***Redacted and Filed Separately with the Securities and Exchange Commission.
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(a) Gensia Sicor shall sell to Abbott, and Abbott shall purchase from
Gensia Sicor, all of Abbott's requirements for the Products or any substantially
equivalent version of such Products supplied by anyone other than Gensia Sicor
on the terms and subject to the conditions of this Agreement. Gensia Sicor will
use commercially reasonable efforts to manufacture or to cause to be
manufactured such quantities of Products necessary to meet Abbott's most recent
Product forecasts submitted in accordance with the provisions of Section 10.1
hereof, except for Products purchased from Pharmacia & Upjohn - Perth,
Australia. Gensia Sicor shall manufacture or cause to be manufactured the
Products in accordance with the Specifications and current Good Manufacturing
Practices ("cGMPs") promulgated by the FDA or any successor thereto, or any
other applicable regulations governing the production and packaging of
pharmaceutical products in the Territory. In the event Abbott considers Third
Parties to develop or manufacture multi-source products for the Oncology Market,
other than the Products, that Abbott desires to develop for promotion to the
Trade, Gensia Sicor will have a first right of negotiation with respect to any
agreement for such Third Party development or manufacturing, in accordance with
the procedures set forth in Section 2.3 hereof with respect to sale of rights to
any Products by Gensia Sicor. Notwithstanding the foregoing, Gensia Sicor shall
have no such right of first negotiation with respect to the products set forth
in Exhibit 5.1 hereto, but will be considered by Abbott, in good faith, as a
candidate to develop and manufacture proprietary products for the Oncology
Market, other than the Products, that Abbott desires to Promote to the Trade.
(b) Except in the circumstances set forth in Section 21.2 hereof, in the
event Gensia Sicor considers licensing the manufacturing rights to any of the
Products during the Term, Abbott shall have a first right of negotiation with
respect to the licensing of any such manufacturing rights, in accordance with
the procedures described in Section 2.3 hereof with respect to sale of rights to
the Products by Gensia Sicor.
(c) All Products delivered to Abbott shall have a minimum of seventy-five
percent (75%) of its expiration dating remaining upon receipt at Abbott except
for inventory transferred pursuant to Article 8.
(d) The Parties agree to develop jointly a contingent supply plan, which
may include qualifying a second Gensia Sicor facility or an Abbott facility as a
secondary manufacturing source for the Products.
5.2 Delivery Terms. Gensia Sicor shall ship directly to Abbott all
--------------
Products F.O.B. the domestic site of manufacture or port of entry for Product
manufactured outside the Territory, by a common carrier that Abbott designates
or Abbott's private fleet. Gensia Sicor shall ship the Products in accordance
with Abbott's reasonable instructions contained in its purchase order form or as
otherwise reasonably directed by Abbott in writing. Gensia Sicor shall invoice
Abbott for each shipment of Products when such Products are shipped. Other than
terms relating to shipping as set forth herein, no terms of Abbott's purchaser
order form in conflict with or in addition to the terms and conditions set forth
in this Agreement shall be binding on Gensia Sicor.
12
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ARTICLE 6
---------
TRANSFER PRICE
6.1 Establishing Transfer Price. The price which Abbott shall pay to
---------------------------
Gensia Sicor for each Product at the time of sale to Abbott is the "Transfer
Price." The Transfer Price for *** shall be the sum of (x) *** ($***) times the
number of finished dosage units of *** purchased by Abbott and (y) *** ($***)
times the number of International Units of *** contained in such finished dosage
units. The Transfer Price for each Product, other than ***, shall be determined
as follows:
(a) Year 1999. Beginning on the Effective Date and continuing through
---------
December 31, 1999, the Transfer Price for each class of Products by NDC
("Product(NDC)") shall be as set forth in Exhibit 6.1 hereto.
(b) Year 2000 and Beyond.
--------------------
(i) Subject to subsection (iii) below, during the Term, Gensia Sicor
and Abbott shall meet each October to establish in writing the Transfer
Price for each Product(NDC) for the following Contract Year. At such
meeting, Gensia Sicor and Abbott shall review the Gross Price for each
Product(NDC) for the immediately preceding Calendar Quarter and the pricing
trends and market dynamics which may affect the Gross Price of such
Product(NDC) in the following Contract Year. Based on this information,
Gensia Sicor and Abbott shall, in good faith, endeavor to establish the
Transfer Price for each Product(NDC) for the following Contract Year. The
Parties shall calculate *** percent (***%) of the estimated average Gross
Price (the "Projected Gross Price") for the following Contract Year to
obtain the Transfer Price.
(ii) Subject to subsection (iii) below, if the Parties are unable to
agree upon a Transfer Price for a Product(NDC) by November 30th of the same
year, then the Transfer Price for such Product(NDC) shall be determined as
follows:
(A) Gensia Sicor shall calculate the Transfer Price of each
Product(NDC) for the following Contract Year by (I) calculating the
Projected Gross Price for such Product(NDC) as follows: (1) identifying the
"Dollar Total Each Average Price" as reported by International Marketing
Services ("IMS") in their "Quarterly Injectable Report" under the "DOL TOT"
column for all sales that such Product(NDC) was generally sold during the
third Calendar Quarter of the preceding Contract Year (such price being
hereinafter referred to as "IP(y-1)") and at which such Product(NDC) was
generally sold during the third Calendar Quarter of the
_____________________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
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Contract Year (such price being referred to as "IP(y)") in which the
calculation is made; provided, however, that in the event IMS data is not
-------- -------
available for the third Calendar Quarter of any Contract Year in which such
calculation is made, IMS data for the second Calendar Quarter for the
preceding Contract Year may be used for "IP(y-1)" and the IMS data for the
second Calendar Quarter in the Contract Year in which the calculation is
made may be used for "IP(y)", (2) subtracting IP(y) from IP(y-1), (3)
dividing that result by two, (4) subtracting that result from IP(y-1), (5)
dividing that result by IP(y-1), (6) subject to subsection (B) below,
multiplying that result times the average price at which Abbott sold such
Product(NDC) during the third Calendar Quarter of the Contract Year in
which the calculation is made (calculated by dividing the Gross Sales of
such Product(NDC) by the number of units sold (minus Returns) during such
Calendar Quarter) and (II) multiplying such Projected Gross Price by eight-
tenths (.8) to obtain the Transfer Price;
(B) If a Product(NDC) is a New Product not previously sold by
Gensia Sicor, the calculation in Section 6.1(b)(ii)(A)(6) shall use (instead
of the average Gross Price at which Abbott sold such Product(NDC)) (1)
.9IP(y), for Class 1 New Products(NDC) and (2) IP(y), for Class 2 New
Products(NDC); and
(C) Gensia Sicor shall deliver such calculation of the Transfer
Price for each Product(NDC) to Abbott no later than December 15th of that
Contract Year. In the event Gensia Sicor fails to deliver to Abbott such
calculations by December 15th, Abbott shall make such calculations. The
calculations of the Transfer Price for each Product(NDC) by Gensia Sicor or
Abbott, as applicable, shall be binding absent manifest error.
(iii) Notwithstanding anything to the contrary contained in this
Agreement, the Transfer Price for a Product(NDC) shall not be less than the
Cost Threshold for that Product(NDC).
(iv) If any product for which a Transfer Price has not been
determined shall be added to this Agreement as a Base Product or a New
Product during a Contract Year, the Parties shall determine the Transfer
Price therefor for the remainder of that Contact Year pursuant to this
Section 6.1, provided that the references therein to the third Calendar
Quarter shall be references to the Calendar Quarter ended prior to the date
on which such product is added to this Agreement.
6.2 Inventory Revaluation. Abbott shall revalue the inventory of each
---------------------
Product(NDC) at Abbott distribution centers and public warehouses as of close of
business on December 31/st/ of each Contract Year during the Term, by
multiplying (a) the number of units of such Product in Abbott's stock the shelf-
life for which has not expired on December 31st of such Contract Year by (b) the
Transfer Price of such Product(NDC) for the current Contract Year less the
Transfer Price for such Product(NDC) for the following Contract Year (determined
pursuant to Section 6.1 above). If the amount obtained from the calculation in
the foregoing sentence is positive, Gensia Sicor shall pay to Abbott
14
<PAGE>
such amount, however; if the amount obtained from such calculation is negative,
Abbott shall pay to Gensia Sicor such amount. The Parties shall account for any
such revaluation in the first Calendar Quarter's reconciliation described in
Section 7.4 hereof.
ARTICLE 7
---------
COMPENSATION
7.1 Abbott Compensation.
-------------------
(a) Abbott's total compensation from Gensia Sicor for selling, marketing,
promoting and distributing the Products, and the activities associated
therewith, shall depend upon the extent to which the Gross Sales of the Products
are greater than, equal to or less than the Base Sales Level in a Contract Year,
subject to the following limitation: ***
(b) Abbott's compensation for its marketing, promoting, distributing and
selling of *** during a Calendar Quarter shall be, upon approval of the ANDA for
***, the "Margin Split Percentage" applicable to Abbott as set forth in Exhibit
7.1(b) times the following amount, calculated for that Calendar Quarter
("Margin"): (A) the Gross Sales of *** minus (B) the sum of (I) *** percent
(***%) of such Gross Sales and (II) the sum of (x) *** ($***) times the number
of finished dosage units of *** included in such Gross Sales and (y) *** ($***)
times the number of International Units of *** included in such Gross Sales.
Abbott shall, at the close of each Calendar Quarter calculate its compensation
under this Section 7.1(b) and Gensia Sicor's share of the Margin ("Gensia
Sicor's *** Share"), which is the Margin Split Percentage applicable to Gensia
Sicor as set forth in Exhibit 7.1(b) times the Margin.
(c) After the close of each Calendar Quarter, Abbott and Gensia Sicor
shall calculate the following for all Products, other than ***, for that
Calendar Quarter:
(i) Gensia Sicor shall calculate for (x) the Products sold pursuant to
the APP Agreement (the "APP Products"), (y) Doxorubicin and (z) all other
Products (other than ***; the "Other Products") :
(A) an amount ("Aggregate Cost Threshold") equal to the Cost
Threshold thereof times the number of units thereof included in the
Gross Sales thereof in that Calendar Quarter; and
_____________________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
15
<PAGE>
(B) an amount ("Aggregate Revenue") equal to the Transfer
Price thereof times the number of units thereof included in the Gross
Sales thereof in that Calendar Quarter;
(ii) based on the information received from Gensia Sicor calculated
pursuant to Section 7.1(c)(i), Abbott shall calculate for the APP Products:
(A) *** percent (***%) of the Gross Sales of such APP Products
("APP Compensation Amount"); and
(B) the sum ("APP Amount") of the Aggregate Revenue of such
APP Products plus the APP Compensation Amount;
provided that (A) this Section 7.1(c)(ii) shall not apply to Gross
Sales of APP Products in excess of (I) *** dollars ($***) in 1999 and
(II) *** dollars ($***) in 2000; (B) all calculations with respect to
Gross Sales of APP Products above such amounts shall be made pursuant
to Section 7.1(c)(iv); and (C) from and after the first full Calendar
Quarter following the earlier of the termination of the APP Agreement
or July 1, 2000, the calculations for the APP Products (other than
Doxorubicin) shall be made pursuant to Section 7.1(c)(iv);
(iii) based on the information received from Gensia Sicor pursuant to
Section 7.1(c)(i), Abbott shall calculate for Doxorubicin:
(A) *** percent (***%) of the Gross Sales of Doxorubicin
("Doxorubicin Compensation Amount");
(B) the sum ("Doxorubicin Amount") of the Aggregate Revenue of
Doxorubicin included in the calculation of the Doxorubicin
Compensation Amount and the Doxorubicin Compensation Amount; and
(C) if an amount ("Doxorubicin Base Amount") equal to ***
(***) of the Aggregate Cost Threshold of Doxorubicin is greater than
the Gross Sales of Doxorubicin, an amount (the "Doxorubicin Limited
Compensation Amount") equal to such Gross Sales minus such Aggregate
Cost Threshold;
provided that from and after the earlier of December 31, 1999 or the
first full Calendar Quarter following approval of the Gensia Sicor
site transfer supplement for Doxorubicin, the calculations for
Doxorubicin shall be made pursuant to Section 7.1(c)(iv);
______________________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
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(iv) based on the information received from Gensia Sicor pursuant to
Section 7.1(c)(i), Abbott shall calculate for all the Other Products sold
by Abbott:
(A) *** percent (***%) of the Gross Sales of the Other
Products ("Product Compensation Amount");
(B) the sum ("Product Amount") for the Other Products of the
Aggregate Revenue and the Product Compensation Amount; and
(C) if an amount ("Product Base Amount") equal to *** percent
(***%) of the Aggregate Cost Threshold of the Other Products is
greater than the Gross Sales of the Other Products, an amount (the
"Limited Compensation Amount") equal to such Gross Sales minus such
Aggregate Cost Threshold;
provided that the calculations made under this Section 7.1(c)(iv)
shall not be made for (A) the APP Products until the calculations
under Section 7.1(c)(ii) shall terminate as provided therein and (B)
Doxorubicin until the calculations under Section 7.1(c)(iii) shall
terminate as provided therein; and
(v) based on the information received from Gensia Sicor pursuant to
Section 7.1(c)(i), Abbott shall calculate the sum ("Total Quarter
Compensation Amount") of the following:
(A) the APP Compensation Amount;
(B) if the Gross Sales of Doxorubicin included in the
calculation of the Doxorubicin Compensation Amount are equal or
greater than the Doxorubicin Base Amount, the Doxorubicin Compensation
Amount;
(C) if the Gross Sales of Doxorubicin included in the
calculation of the Doxorubicin Compensation Amount are less than the
Doxorubicin Base Amount, the Limited Doxorubicin Compensation Amount;
(D) if the Gross Sales of the Other Products included in the
calculation of the Product Compensation Amount are equal to or greater
than the Product Base Amount, the Product Compensation Amount; and
(E) if the Gross Sales of the Other Products included in the
calculation of the Product Compensation Amount are less than the
Product Base Amount, the Limited Compensation Amount.
______________________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
17
<PAGE>
(d) Gensia Sicor and Abbott shall make the following payments with respect
to the calculations made in Sections 7.1(b) and (c) for a Calendar Quarter:
(i) Abbott shall pay Gensia Sicor:
(A) Gensia Sicor's *** Share;
(B) the positive amount, if any, of the Gross Sales included in
the calculation of the APP Compensation Amount minus the APP Amount;
(C) the positive amount, if any, of the Gross Sales included in
the calculation of the Doxorubicin Compensation Amount minus the
Doxorubicin Amount; and
(D) the positive amount, if any, of the Gross Sales included in
the calculation of the Product Compensation Amount minus the Product
Amount thereof;
(ii) Gensia Sicor shall pay Abbott:
(A) the positive amount, if any, by which the APP Amount exceeds
the Gross Sales of APP Products included in the calculation of the APP
Compensation Amount;
(B) if the Gross Sales of Doxorubicin included in the
calculation of the Doxorubicin Compensation Amount are (x) less than
the Doxorubicin Amount thereof but (y) more than the Doxorubicin Base
Amount, the positive amount, if any, of the Aggregate Revenue of
Doxorubicin minus *** percent (***%) of the Gross Sales thereof;
(C) if the Gross Sales of Doxorubicin included in the
calculation of the Doxorubicin Compensation Amount are less than the
Doxorubicin Base Amount, the positive amount, if any, of the Aggregate
Revenue of Doxorubicin minus the Aggregate Cost Threshold of
Doxorubicin;
(D) if the Gross Sales of the Other Products included in the
calculation of the Product Compensation Amount are (x) less than the
Product Amount thereof but (y) more than the Product Base Amount
therefor, the positive amount, if any, of such Aggregate Revenue minus
the *** percent (***%) of the Gross Sales thereof; and
_______________________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
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<PAGE>
(E) if the Gross Sales of the Other Products included in the
calculation of the Product Compensation Amount are less than the
Product Base Amount therefor, the positive amount, if any, of such
Aggregate Revenue minus the Aggregate Cost Threshold for the Other
Products.
(e) After the close of 1999, Abbott shall calculate for all Products,
other than ***, the following for that Contract Year:
(i) if the Gross Sales for all such Products were more than the
Base Sales Level for Contract Year of 1999 as set forth in Section 7.2(a)
(the "1999 Base Sales Level"), Abbott shall determine either (the "1999
Incremental Amounts"):
(A) the incremental amounts by which such Gross Sales were
more than the minimum and less than the maximum at each amount set
forth in the "Gross Sales Achievement Level" column of Exhibit
7.1(e)(i), if the sum (the "APP/Doxorubicin Sum") of the portion of
such Gross Sales which are for Doxorubicin and the APP Products is
less than or equal to the 1999 Base Sales Level, provided that for
purposes of calculating the APP/Doxorubicin Sum not more than ***
dollars ($***) of the Gross Sales of the APP Products shall be
included therein; or
(B) the incremental amounts by which such Gross Sales were
more than the APP/Doxorubicin Sum (calculated as set forth in clause
(A) above) and less than the maximum amount next higher than the
APP/Doxorubicin Sum and more than the minimum and less than the
maximum amount of each such minimum amount higher than the
APP/Doxorubicin Sum set forth in the "Gross Sales Achievement Level"
column of Exhibit 7.1(e)(i), if the APP/Doxorubicin Sum is more than
the 1999 Base Sales Level;
(ii) the percentage in the "Compensation % " column ("1999
Compensation Percentage") opposite the "Gross Sales Achievement Level"
column in Exhibit 7.1(e)(i) applicable to each 1999 Incremental Amount
calculated pursuant to Section 7.1(e)(i);
(iii) the sum (the "1999 Incremental Compensation") of the following:
each of the 1999 Incremental Amounts calculated pursuant to Section
7.1(e)(i) multiplied by the applicable 1999 Compensation Percentage
identified pursuant to Section 7.1(e)(ii) (an example of such calculations
is set forth in Exhibit 7.1(e)(iii)); and
_______________________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
19
<PAGE>
(iv) the positive difference ("Maximum Incremental Compensation"),
if any, for all such Products, other than the APP Products to the extent
that calculations with respect thereto are made pursuant to Section
7.1(c)(ii), between (A) the Gross Sales thereof minus the Aggregate Cost
Threshold of such Products minus (B) the aggregate for that Contract Year
of the Total Quarter Compensation Amounts, excluding therefrom the APP
Compensation Amount.
(f) If, during 1999, the Gross Sales of all Products, other than *** are:
(i) at least *** percent (***of the 1999 Base Sales Level, Gensia
Sicor shall pay Abbott the lesser of the 1999 Incremental Compensation or
the Maximum Incremental Compensation;
(ii) at least equal to the result (the "1999 Baseline Amount")
obtained by multiplying the following fraction *** the 1999 Base Sales
Level but less than *** percent (***%) of the 1999 Base Sales Level, Abbott
shall pay the positive difference, if any, between the weighted average of
the amounts included in the Total Quarter Compensation Amount for the Other
Products and *** percent (***%) of the Gross Sales of the Other Products;
and
(iii) less than the 1999 Baseline Amount, Abbott shall pay Gensia
Sicor the sum of the aggregate of Total Quarter Compensation Amount, other
than the APP Compensation Amounts, for that Contract Year.
(g) After the close of each Contract Year after 1999, Abbott shall
calculate for all Products, other than ***, the following for each such Contract
Year:
(i) if the Gross Sales for all such Products were more than ***
percent (***%) of the Base Sales Level for that Contract Year, the amounts
("Incremental Amounts") by which such Gross Sales in excess of *** percent
(***%) of the Base Level Sales were more than the minimum and less than the
maximum of each of the amounts set forth in the "Gross Sales Achievement
Level" column of Exhibit 7.1(g)(i);
(ii) the percentage in the "Compensation %" column ("Compensation
Percentage") opposite the "Gross Sales Achievement Level" column in Exhibit
7.1(g)(i) applicable to each amount calculated pursuant to Section
7.1(g)(i);
(iii) the sum of the following amounts ("Incremental Compensation"):
the Incremental Amounts calculated pursuant to Section 7.1(g)(i) multiplied
by the applicable Compensation Percentage identified pursuant to Section
7.1(g)(ii); and
___________________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
20
<PAGE>
(iv) the Maximum Incremental Compensation, if applicable, for that
Contract Year.
(h) If, during a Contract Year after 1999, the Gross Sales of all
Products, other than *** are:
(i) at least *** percent (***%) of the Base Sales Level for that
Contract Year, Gensia Sicor shall pay Abbott the lesser of the Incremental
Compensation or the Maximum Incremental Compensation;
(ii) at least *** percent (***%) but less than *** percent (***%) of
the Base Sales Level for that Contract Year, Abbott shall pay the positive
difference, if any, between the weighted average of the amounts included in
the Total Quarter Compensation Amount for the Other Products and ***
percent (***%) of the Gross Sales thereof; and
(iii) less than less than fifty percent (50%) of Base Sales Level,
Abbott shall pay Gensia Sicor the aggregate of the Total Quarterly
Compensation Amounts for the that Contract Year; other than the APP
Compensation Amounts.
7.2 Establishing Base Sales Level. The "Base Sales Level" for each
-----------------------------
Product(NDC) shall be determined as follows:
(a) Contract Year 1999. For the Contract Year of 1999, the Base Sales
------------------
Level for all Products shall be *** ($***), of which the detail for each
Product(NDC) is set forth in Exhibit 7.2 (a) hereto.
(b) Contract Years 2000 and Beyond. Concurrently with the setting of the
------------------------------
Transfer Prices, which shall occur each October for the following Contract Year
in accordance with Article 6, Gensia Sicor and Abbott shall agree upon the Base
Sales Level for each Product(NDC) for the following Contract Year as follows:
(i) Base Products:
-------------
(A) In establishing the Base Sales Level for each class of Base
Product by NDC ("Base Product(NDC)"), Abbott and Gensia Sicor shall
review the previous twelve (12) months of unit sales for such
Product(NDC) and based upon market conditions and opportunities adjust
such sales to account for market unit growth or degradation to
estimate the number of units of such Base Product(NDC) ("Unit
Estimate") to be sold in the following Contract Year. The Unit
Estimates shall not employ trends that exceed those derived from
available IMS data unless the Parties mutually agree in writing to
apply an alternative trend or agree in writing to use other
___________________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
21
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reliable Third Party information. The Projected Gross Price for such
Base Product(NDC) as determined by Section 6.1 hereof in connection
with establishing the Transfer Price pursuant to Section 6.1 shall
then be multiplied by the Unit Estimate for that Base Product(NDC) to
calculate the Base Sales Level therefor.
(B) If the Parties have not determined the Unit Estimate for a
Base Product(NDC) by November 30th, Gensia Sicor shall calculate the
Unit Estimate for that Product(NDC) for the following Contract Year by
(1) identifying the unit sales of such Product(NDC) as reported by IMS
for the twelve months ending the third Calendar Quarter of the
preceding Contract Year (such amount being hereinafter referred to as
"IP(y-1)") and the unit sales of such Product(NDC) as reported by IMS
for the twelve months ending the third Calendar Quarter of the
Contract Year (such amount being referred to as "IP(y)") in which the
calculation is made, (2) dividing IP(y) by IP(y-1), and (3)
multiplying that result times the number of units of such Product(NDC)
sold by Abbott during the preceding twelve (12) months ending
September 30/th/ of that Contract Year.
(C) Any potential new Base Product(NDC) business that is
anticipated from Premier Purchasing Partners, L.P. or Novation during
the following Contract Year shall be presented as separate and
distinct from Base Product business anticipated from the rest of the
Trade for the sole purpose of determining purchase and manufacturing
obligations of the Parties set forth in Section 10.1 hereof.
(ii) New Products:
------------
(A) The Base Sales Level for each class of New Products by NDC
("New Product(NDC)") that is the first ANDA to market ("Class 1 New
Product(NDC)"), shall be determined as follows:
(I) Gensia Sicor and Abbott shall utilize the most recent eight
(8) quarters of IMS Hospital Unit Sales for that Product(NDC) and
other IMS Unit Sales (the "IMS Non-Hospital Unit Sales") for that
Product(NDC) multiplied by *** percent (***%) (or such other reliable
Third Party information as the Parties may agree upon) trended to
calculate the rate of change in unit sales of such Class 1 New
Product(NDC), and to use such rate of change to calculate the current
total available unit market for such Class 1 New Product(NDC). Based
upon anticipated market conditions, a factor agreed upon by the
Parties shall then be applied to account for unit growth or
degradation to arrive at an annual unit estimate for the following
Contract Year. A Projected Gross Price for Class 1 New Product(NDC),
_______________________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
22
<PAGE>
which shall be determined pursuant to Section 6.1 hereof in connection
with establishing the Transfer Price pursuant to Section 6.1, will be
multiplied by such annualized unit estimate to compute the anticipated
total available dollar market for each Class 1 New Product(NDC). The
Base Sales Level for each Class 1 New Product(NDC) will be calculated
from such anticipated total available dollar market by assuming a ***
percent (***%) market share gain per month in the first *** (***)
months following commercial launch of such Class 1 New Product(NDC),
*** percent (***%) market share gain per month for the next *** (***)
months, and a *** percent (***%) market share gain per month for the
next *** (***) months. Exhibit 7.2(b)(ii) attached hereto provides an
example of how the Base Sales Level may be determined for a New
Product(NDC).
(II) If the Parties have not agreed upon the Base Sales Level
for a Class 1 New Product(NDC) by November 30/th/, Gensia Sicor shall
calculate the Base Sales Level therefor by (1) identifying the unit
sales of such Product(NDC) as reported by IMS for the twelve months
ending the third Calendar Quarter two years prior to the third
Calendar Quarter of the current Contract Year (such amount being
hereinafter referred to as "IN(y-2)") and the unit sales of such
Product(NDC) as reported by IMS for the twelve months ending the third
Calendar Quarter of the Contract Year (such amount being referred to
as "IN(y)") in which the calculation is made; (2) dividing IN(y) by
IN(y-2); (3) multiplying that result times IN(y); (4) identifying the
portions of the result obtained in the preceding clause (3) that are
attributable to IMS Hospital Unit Sales and IMS Non-Hospital Unit
Sales and multiplying the IMS Non-Hospital Unit Sales portion times
1.10 and then adding that result to the IMS Hospital Unit Sales
portion; (5) multiplying that amount by the applicable percentage
provided in the last sentence of Section 7.2(b)(ii)(A)(I); and (6)
multiplying that amount by the Projected Gross Price for that
Product(NDC).
(B) Base Sales Levels for each New Product(NDC) that is not
the first ANDA to market ("Class 2 New Product(NDC)") shall be
determined as follows:
(I) Gensia Sicor and Abbott shall utilize the anticipated
total available dollar market for each Class 2 New Product(NDC)
calculated in the same manner as set forth above for Class 1 New
Product(NDC), but assuming a *** percent (***%) market share gain per
month in any *** (***) of the first *** (***) months following
commercial launch of such Class 2 New Product(NDC). If fewer than ***
percent (***%) of the GPO awards are available or become available
within the first eighteen (18) months of the introduction of any Class
2 New Product(NDC), then the Parties will meet to
_______________________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
23
<PAGE>
review the market share gain percentage assumptions set forth above,
and shall use good faith efforts to agree on a new market share gain
percentage schedule that reflects the true market opportunity for such
Class 2 New Product(NDC).
(II) If the Parties have not agreed upon the Base Sales Level for
a Class 2 New Product(NDC) by November 30/th/, Gensia Sicor shall
calculate the Base Sales Level therefor by making the same
calculations for that Product(NDC) as are made in Sections
7.2(b)(ii)(A)(II)(1), (2), (3) and (4) and multiplying that amount by
the applicable percentage provided in the first sentence of Section
7.2(b)(ii)(B)(I), and then multiplying that amount by the Projected
Gross Price for that Product(NDC).
(C) Twenty-four (24) months following commercial launch of any
Class 1 or Class 2 New Product(NDC), such New Product(NDC) will be
treated as a Base Product(NDC), and the Base Sales Level with respect
to such Base Product(NDC) will be calculated in accordance with the
provisions of Subsection 7.2(b)(i) hereof.
(c) Calculations. Gensia Sicor shall deliver such calculation of the
------------
Base Sales Level for each Product(NDC) to Abbott no later than December 15/th/
of that Contract Year. In the event Gensia Sicor fails to deliver to Abbott such
calculations by December 15/th/, Abbott shall make such calculations. The
calculations of the Base Sales Level for each Product(NDC) by Gensia Sicor or
Abbott, as applicable, shall be binding absent manifest error.
(d) Adjustments to Base Sales Levels. If during any Contract Year a
--------------------------------
product for which a Base Sales Level has not been calculated becomes a Base
Product or a New Product, the Parties shall calculate the Base Sales Level for
such product for the remainder of the Contract Year following Section 7.2(b)(i)
or (ii), as applicable, provided that references to the Calendar Quarter therein
shall be to the Calendar Quarter most recently ended. If any Base Product(NDC)
or New Product(NDC) shall be deleted from this Agreement, the Parties shall
reduce the Base Sales Level for that Product(NDC) for the remainder of the
Contract Year by subtracting from such Base Sales Level an amount equal to the
product of (x) the number of days remaining in that Contract Year divided by 365
or 366, as the case may be, and (y) the Base Sales Level for that Product(NDC)
for that Contract Year.
7.3 Unforeseen Market Conditions. Adjustments to the Base Sales Level may
-----------------------------
be made by written agreement of the Parties in the event of unforeseen market
conditions such as Product unavailability, delay in a Product's launch, and the
launch of a new product which erodes the total available market for a Product.
7.4 Reconciliation.
--------------
24
<PAGE>
(a) During the Term, Abbott shall perform a quarterly reconciliation
following the end of each Calendar Quarter (i) to determine the amount of any
payments to be made pursuant to Section 7.1 hereof for such Calendar Quarter,
(ii) to report inventory balances of each Product and (iii) to take into account
any inventory revaluation required by Section 6.2 hereof. Abbott shall prepare a
written reconciliation for each Product for a Calendar Quarter.
(b) Abbott shall perform an annual reconciliation following the end of
each Contract Year to determine the amount of any payment to be made pursuant to
Section 7.1 hereof. Abbott shall prepare a reconciliation for each Product(NDC),
indicating the Gross Sales, average Gross Price, Base Sales Level and inventory
balances for each Product(NDC).
(c) Abbott shall submit such written reconciliation reports to Gensia
Sicor within forty-five (45) days after the end of the Calendar Quarter or
Contract Year, as applicable, and such reports shall contain sufficient detail
and information to enable Gensia Sicor to ascertain their accuracy. Gensia Sicor
shall review and approve or request modification, in writing, of such
reconciliation report with fifteen (15) business days of receipt by Gensia
Sicor. If Gensia Sicor does not request modification within such fifteen (15)
business day period, the reconciliation report will be deemed to have been
approved by Gensia Sicor. Adjustments as to overpayments or underpayments, if
any, based on such reconciliation report shall be made by the affected Party to
the other Party within forty-five (45) days after Gensia Sicor's receipt of such
reconciliation report.
7.5 Trigger Cost. In October of each Contract Year Gensia Sicor shall set
------------
a dollar amount (the "Trigger Cost") for each Product for the following Contract
Year. Gensia Sicor may change such Trigger Cost from time to time during a
Contract Year at its sole discretion. When the difference between the weighted
average Gross Price and the Trigger Cost for a Product(NDC) is less than ***
percent (***%), Abbott will contact Gensia Sicor to discuss this situation and
Gensia Sicor shall agree to decrease the Trigger Cost to a level deemed
appropriate by Gensia Sicor; provided, however, Gensia Sicor shall not be
-------- -------
compelled to decrease the Trigger Cost to a level less than Gensia Sicor's Cost
Threshold. When the Trigger Cost for a Product(NDC) is within one hundred fifty
percent (150%) of the Cost Threshold for that Product(NDC), Gensia Sicor will
inform Abbott of such in writing and the Parties shall meet within sixty (60)
days to discuss what actions should be taken with respect to such Product(NDC).
7.6 Deletion of Products. In the event that the Gross Sales minus the
--------------------
Cost Threshold for any Product(NDC) is less than Abbott's variable costs for
distributing, selling and marketing such Product(NDC), Abbott may delete such
Product(NDC) from this Agreement upon ninety (90) days prior written notice to
Gensia Sicor, subject to Section 12.3(d).
______________________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
25
<PAGE>
ARTICLE 8
---------
TRANSITION ISSUES
8.1 First Sales Date. For purposes of this Agreement, January 1, 1999
----------------
(the "First Sales Date") shall be deemed to be the date on which sales of the
Products, whether by Gensia Sicor or Abbott, begin to be counted as Gross Sales
for Contract Year 1999.
8.2 Inventory Transition.
--------------------
(a) On or before January 31, 1999, the Parties shall use commercially
reasonable efforts to complete an inventory assessment of all Products held by
Wholesalers and Distributors as of the Effective Date; the results of such
inventory assessment shall be used to determine appropriate Wholesaler Reversal
or Distributor Reversal and Return adjustments as described in Sections 8.3 and
8.4 hereof.
(b) Abbott, for its sole account, shall pay for all costs and expenses,
including, without limitation transportation costs, costs associated with
conducting the inventory assessment described in the preceding sentence and
costs of acquiring inventory located at Gensia Sicor's distribution warehouses.
(c) Notwithstanding anything to the contrary contained in Section 2.1, the
Parties acknowledge that Gensia Sicor has sold Products before the date of this
Agreement and the Parties agree that Gensia Sicor shall have the right to sell
the Products to the Trade in the Territory for use by End Users in the Territory
during the transition period (the "Transition Period") commencing on the First
Sales Date and terminating on a date (the "Transition Date") forty-five (45)
days after the Effective Date. All sales during the Transition Period shall be
credited to Abbott in accordance with Section 8.1 hereof. On or before the
Transition Date, Abbott shall purchase and Gensia Sicor shall sell to Abbott all
of Gensia Sicor's inventory of the Products as of the Effective Date at the
Transfer Price for such Products, except for such quantity of Products as
reasonably determined by Gensia Sicor to be desirable to meet Gensia Sicor's
contract obligations during the Transition Period.
8.3 Wholesaler and Distributor Reversal Adjustment. Abbott hereby assumes
----------------------------------------------
Gensia Sicor's liability for all Wholesaler Reversals and Distributor Reversals
for Products Gensia Sicor sold to Wholesalers and Distributors prior to the
First Sales Date and during the Transition Period. As compensation for Abbott's
assuming, such Wholesaler Reversal and Distributor Reversal liability for
Products Gensia Sicor sold to such Wholesalers and Distributors prior to the
First Sales Date, Gensia Sicor shall pay to Abbott (within sixty (60) days after
the Parties complete the inventory assessment described in Section 8.2 hereof)
the actual amount of Wholesaler Reversals and Distributor Reversals paid by
Abbott to the Wholesalers and Distributors, on an aggregate basis, with respect
to Products sold by Gensia Sicor prior to the First Sales Date. In the event
that not all Product inventory, as determined per Section 8.2 above, is sold
sixty (60) days after the First Sales Date, Gensia Sicor shall pay to Abbott the
actual amount of
26
<PAGE>
Wholesaler Reversals and Distributor Reversals paid by Abbott to the Wholesalers
and Distributors on sales of this remaining inventory at the end of each
subsequent calendar month.
In the event Gensia Sicor elects or is requested by Abbott to issue a
credit to Wholesalers and Distributors for Wholesaler Reversals or Distributor
Reversals with respect to Products sold by Gensia Sicor prior to the First Sales
Date, Gensia Sicor will be entitled to offset the amount of any such credit
against its liability to Abbott for the Wholesaler Reversals and Distributor
Reversals calculated pursuant to the preceding paragraph.
8.4 Returns for Sales Prior to First Sales Date. As set forth in Section
-------------------------------------------
12.3, Gensia Sicor shall retain the financial responsibility for Returns of
Products sold by Gensia Sicor prior to the First Sales Date. Abbott shall track
all sales of Products by lot number. Gensia Sicor shall reimburse Abbott for any
Returns of Products processed by Abbott in accordance with Section 12.3 hereof,
but which relate to lot numbers of such Products sold by Gensia Sicor prior to
the First Sales Date. Abbott shall issue a report detailing any such Returns
and within forty-five (45) days' receipt of the report, Gensia Sicor shall issue
a credit memorandum in the amount of such reimbursement to Abbott. In the event
both Gensia Sicor and Abbott sold Products from the same lot, Abbott shall be
responsible, in accordance with Section 12.3 hereof, for Abbott's prorated share
of such Returns based upon the total units produced within such lot's production
run divided into the total number of units Abbott sold of such lot and Gensia
Sicor sold of such lot during the Transition Period.
8.5 Doxorubicin Purchase Order. Abbott shall place a purchase order for
--------------------------
the initial order of Doxorubicin within five (5) business days of the Effective
Date. Abbott shall pay One Million Five Hundred Thousand Dollars (US$1.5
million) of such purchase order within ten (10) business days of the date such
purchase order was placed. The remainder of the payment for the order will be
processed in accordance with Section 21.3 hereof.
8.6 Accrued Rebates. Gensia Sicor shall remain liable to pay all
---------------
Performance Incentives and GPO management fees that have been earned but not yet
paid prior to the First Sales Date.
27
<PAGE>
ARTICLE 9
---------
DOCUMENTATION
9.1 Sales Report. On or before the tenth day of each month, Abbott shall
------------
provide a report to Gensia Sicor reflecting the Gross Sales of the Products for
the prior month. Each such report shall provide, for each of the Products(NDC),
the Gross Price and the Gross Sales dollars and total unit sales for the
reported month and the year to date. An example of the Abbott monthly report is
set forth on Exhibit 9.1. The format of the monthly report shall be reasonably
acceptable to Gensia Sicor. In addition to hard copy summary reports, Abbott
shall supply to Gensia Sicor, in an electronic format reasonably acceptable to
Gensia Sicor, specific monthly Gross Sales detailed by End-Users, Returns,
Wholesaler Reversals, Distributor Reversals, contract and NDC number.
9.2 Certificate of Analysis. Upon Abbott's reasonable request, Gensia
-----------------------
Sicor shall provide Abbott with a certificate of analysis with respect to a
shipment of the Products sold to Abbott hereunder.
9.3 Inspection and Analysis. All Products sold to Abbott hereunder shall
-----------------------
be subject to Abbott's inspection and approval. Abbott shall have the right, for
a period of thirty (30) days following its receipt of the Products, to reject
any Product which is:
(a) not in compliance with the Specifications;
(b) not in compliance with all manufacturing procedures, in-process
controls, testing, specifications, containers and storage conditions, as set
forth in Gensia Sicor's NDA for the Product, or any subsequent amendments
thereto;
(c) not manufactured in accordance with cGMPs;
(d) not conforming to instructions agreed upon by the Parties in writing
regarding shipment packaging or transport;
(e) not conforming to reasonable instructions regarding quantities and
configuration set forth in the purchase order form;
(f) shipped in violation of any applicable statute, administrative order
or regulation; or
(g) recalled by any governmental agency or by Gensia Sicor for a reason
not the fault of Abbott.
If Abbott rejects any Product, it shall give Gensia Sicor written notice of
such rejection within the thirty (30) day evaluation period described above,
accompanied by a written summary of the grounds for rejection. Upon receipt of
such notice, Gensia Sicor may request Abbott to return the rejected Product, or
samples thereof, for testing by
28
<PAGE>
Gensia Sicor. Abbott's rejection shall be final unless Gensia Sicor notifies
Abbott in writing within thirty (30) days after the later of its receipt of the
rejection notice or the rejected Product, or samples thereof, that Gensia Sicor
disagrees with Abbott's conclusions with respect to the rejected Product. If the
Parties are unable to resolve the dispute, samples of the rejected Product shall
be submitted to a mutually acceptable independent testing laboratory for
analysis. The results of the independent testing laboratory shall be final and
binding on the Parties. The costs of the independent testing laboratory shall be
paid by the Party against whom the dispute is resolved. In the event the test
results indicate that the Products was properly rejected by Abbott, Gensia Sicor
shall replace such Product at Gensia Sicor's expense, including all additional
shipping and transportation costs, within twenty (20) business days if
replacement Product stock is available, or, if no such replacement stock is
available, as soon as is reasonably practical, after receipt of such results. In
the event the test results indicate that the Product was not properly rejected
by Abbott, Abbott shall pay all additional shipping and transportation costs
incurred as a result of the dispute.
ARTICLE 10
----------
FORECASTS AND ORDERS
10.1 Forecasts. Promptly after the Effective Date, and thereafter at
---------
least ten (10) days prior to the first day of each succeeding calendar month
during the Term, Abbott shall submit to Gensia Sicor a written rolling forecast
(a "Twelve Month Forecast") estimating by month Abbott's purchase requirements
for the Products, by NDC, for the following twelve (12)-month period. The
first, second and third months of a Twelve Month Forecast represent a firm order
(a "Three Month Firm Order") for the Products and shall be accompanied by a
purchase order. Upon receipt of a new Twelve Month Forecast, the fourth month
of the prior Twelve Month Forecast shall become a firm order as the third month
of the current Twelve Month Forecast. Abbott shall be obligated to purchase at
least *** percent (***%) of the Twelve Month Forecast. Gensia Sicor shall not
be obligated to supply for each of the three months following any Three Month
Firm Order more than *** percent (***%) of the quantity forecasted for each of
such months. Such rolling twelve (12) month forecasts shall be used by the
Parties for planning purposes and shall not be binding on Abbott, except as set
forth in this Section 10.1. At each time the Base Sales Level for the following
year is established, pursuant to Section 7.2 hereof, Abbott shall submit a new
Twelve Month Forecast for the following year for the same number of units used
to calculate such Base Sales Level, which shall be subject to the restrictions
described in the preceding sentences. Abbott shall provide Gensia Sicor with a
five (5) year strategic forecast for the Products on an annual basis at the same
time it provides the five (5) year business plan provided pursuant to Section
2.4 hereof. Unless otherwise specified in writing by Gensia Sicor to Abbott,
all forecasts shall be sent by Abbott to the following address:
______________________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
29
<PAGE>
Gensia Sicor Pharmaceuticals, Inc.
19 Hughes
Irvine, California 92618
Attn: Director, Materials Management
10.2 Purchase Order Forms. Abbott shall place all firm purchase orders
--------------------
for the Products on Abbott purchase order forms. Such purchase orders shall
specify a quantity that is the lesser of a full batch or the equivalent of six
(6) months of forecasted sales as specified in Exhibit 10.2, delivery dates and
special delivery and shipping instructions. In all other respects, the
obligations of the Parties shall be governed by the terms of this Agreement, and
none of the terms of the purchase order, acknowledgment or other similar form
shall be applicable.
10.3 Shipment Shortages. Abbott shall notify Gensia Sicor in writing of
------------------
any shortage in quantity of any shipment of the Products as soon as possible,
but in no event later than five (5) days following receipt of the Products. In
the event of such shortage, Gensia Sicor shall make up the shortage by
expediting subsequent production, as soon as reasonably practicable after
receiving such notice, at no additional cost to Abbott.
ARTICLE 11
----------
RECEIPT AND PROCESSING OF ORDERS
Abbott shall be responsible, at its sole expense, for solicitation of, and
for receiving and processing, purchase orders for the Products from the Trade.
Purchase orders for the Products, if any, received by Gensia Sicor from the
Trade shall be forwarded promptly to Abbott Laboratories, Dept. 243, Bldg.
AP52S, 200 Abbott Park Road, Abbott Park, Illinois 60064-3537, Attn: Manager,
Corporate Customer Service, for handling, invoicing and shipping.
ARTICLE 12
----------
DISTRIBUTION, BILLING, COLLECTION AND RETURNS
12.1 Distribution. Abbott shall be responsible, at its sole expense, for
------------
all distribution of the Products to the Trade in the Territory.
12.2 Billing and Collection. Abbott shall perform, at its sole expense,
----------------------
all invoicing and collection of payment for sales of the Products to the Trade,
including the processing of Wholesaler Reversals and Distributor Reversals, in a
manner consistent with its own standard billing system.
12.3 Returns. During the Term, Abbott shall be responsible for receiving
-------
and issuing credits to the Trade for Returns of the Products. Abbott shall use
its commercially reasonable efforts to manage inventory shipped to the Trade on
a first in,
30
<PAGE>
first out basis in order to maximize the dating of Products held in inventory.
Abbott shall provide Gensia Sicor with an inventory status report by Product and
by lot number once each Calendar Quarter.
(a) Products returned to Abbott from the Trade or returned directly by the
Trade to Gensia Sicor shall be processed in accordance with Abbott's then
current return goods policy or a returned goods policy agreed to jointly by the
Parties (a current copy of which is set forth in Exhibit 12.3 hereto), which may
be modified by mutual written agreement of the Parties from time to time, and in
conformity with cGMPs and any controlling regulations in the Territory. In the
event a revised Abbott return goods policy results in Returns that exceed levels
recorded in the most recent Contract Year, Gensia Sicor shall not be obligated
to assume the financial liability for such increased Returns. The accounting for
Returns to Abbott or Gensia Sicor from the Trade that are re-sellable (as
determined in accordance with Gensia Sicor's then current quality assurance
guidelines) shall be as follows: (1) all Gross Sales credited to the Trade for
such Returns shall be deducted from the aggregate of Gross Sales of such
Products during the Calendar Quarter in which such Returns were processed and
(2) returned Product shall be restored to sellable stock. The accounting for
Returns to Abbott or Gensia Sicor from the Trade that are not re-sellable (as
determined in accordance with Gensia Sicor's then current quality assurance
guidelines) shall be as follows: (1) all Gross Sales credited to the Trade shall
be deducted from the aggregate of Gross Sales of the Products during the
Calendar Quarter in which the Return was processed; (2) Returns shall be shipped
to Gensia Sicor's designated site for proper disposal; (3) a credit for such
Returns shall be given by Gensia Sicor to Abbott in the form of a credit
memorandum issued by Gensia Sicor. Gensia Sicor shall issue the credit
memorandum for Returns described in this Section 12.3 at a per unit value equal
to the Transfer Price for such unit of Product sold by Abbott or if such Product
was sold by Abbott in a lot with respect to which more than one sale occurred
under different Transfer Prices as determined by the lot number for such
Product, the weighted average of such Transfer Prices will be used for the per
unit value of such unit of Product. Such "weighted average" shall be calculated
by dividing (i) the sum of the results obtained by multiplying, for each unit of
Product sold at a different Transfer Price, (A) the total number of units of
Product sold at a particular Transfer Price by (B) the Transfer Price at which
such units of Product were sold, by (ii) the total number of units of such
Product sold.
(b) Notwithstanding anything to the contrary contained in this Agreement,
Returns to Abbott or Gensia Sicor shall not be accepted for credit from
Distributors, but may be accepted for no credit and processed in conformity with
cGMPs and any other applicable governmental regulations.
(c) Product may not be returned from Abbott inventory to Gensia Sicor.
With respect to the final Contract Year, the Parties shall negotiate in good
faith sixty (60) days prior to the commencement of such final Contract Year,
appropriate terms, conditions, and procedures which shall enable Abbott to
return Product and receive either a credit or cash payment.
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<PAGE>
(d) The Parties acknowledge the potential exists under this Section 12.3
for Abbott to ship excessive quantities of Product to Wholesalers, Distributors
or End Users in order to receive credit for Returns of excess inventory. Abbott
acknowledges and agrees that such activity is expressly prohibited by this
Agreement, and agrees that it is responsible for the ultimate legitimate sale or
disposition of any inventory in Abbott's possession. Moreover, Abbott
covenants to act responsibly with respect to the management of Returns. Gensia
Sicor's obligation to reimburse Abbott for Returns which may not be restocked
and resold shall be limited by the percentage of all Product sales hereunder as
defined in the following table:
Contract Year Return Percent
- -----------------------------------
1 ***%
- -----------------------------------
2 ***%
- -----------------------------------
3 and beyond ***%
- -----------------------------------
In any given Contract Year, if the dollar amount of Returns of all Products sold
hereunder when expressed as a percentage of the total dollar amount of sales of
all Products by Abbott exceeds the percentage set forth in the table above for
such Contract Year, Abbott shall pay to Gensia Sicor, within thirty (30) days
after the receipt of an invoice therefor, the fully burdened manufacturing
costs, as used by Gensia Sicor for its financial reporting purposes, for the
quantity of Product which must be destroyed plus reasonable out of pocket
expenses incurred by Gensia Sicor or its agents or contractors (such as third
party waste management companies) to destroy such quantity of Product for the
incremental Returns of such Product in excess of that defined in the table
above; provided, however, that in the event the Returns exceed the applicable
-------- -------
percentage set forth in the table above for reasons beyond Abbott's reasonable
control (e.g., Product defect or contamination), Abbott shall have no financial
responsibility for such Excess Returns. Examples of activities that are within
Abbott's reasonable control, and therefore, Abbott will be accountable in the
event of such returns, are loading an End User, Wholesaler, or Distributor well
over their reasonable level of consumption in an attempt to artificially
increase sales; shipping errors where product cannot be restocked for resale;
and efforts to move short-dated inventory to the Trade, in the event this
inventory arrived at Abbott with sufficient dating as specified in Section 5.1
(c). In the event the dollar amount of Returns of Product sold when expressed as
a percentage of the total dollar amount of sales of that Product by Abbott
exceed the applicable percentage set forth in the table above the Parties, shall
be obligated to meet and identify the cause for such level of Returns and
jointly develop an action plan to lower the Return level. If the dollar amount
of Returns of Product sold when expressed as a percentage of the total dollar
amount of sales of that Product by Abbott exceed the applicable percentage set
forth in the table above for any Product for two (2) consecutive Calendar
Quarters, Abbott may upon ninety (90) days' written notice to Gensia Sicor, at
its sole discretion, delete any such Product from the Agreement. Should Abbott
exercise a Product deletion under this
______________________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
32
<PAGE>
Section 12.3, Section 7.6 or Section 18.4 (a) or (b), Abbott shall use
commercially reasonable efforts to effect a smooth transition of such Product to
enable Gensia Sicor to promote the sale of such Products to the Trade; and
Abbott may not acquire or replace from a source other than Gensia Sicor,
develop, manufacture or have manufactured a deleted Product, other than by or
from Gensia Sicor, during the Term, unless the reason for deleting such Product
was primarily a result of Abbott's inability to service the Trade due to the
Cost Threshold for that Product set by Gensia Sicor; provided that Abbott may
replace a deleted Product from a source other than Gensia Sicor only if such
source offers Abbott terms and conditions materially better than those herein.
ARTICLE 13
----------
REGULATORY COMPLIANCE AND MEDICAL COMPLAINTS
13.1 No Modification to Products. Abbott shall not modify, repackage,
---------------------------
reformulate or alter any Product, including its label, except with specific
written authorization from Gensia Sicor.
13.2 Regulatory Compliance. Gensia Sicor shall be responsible for legal
---------------------
and regulatory filings for the Products. All responses to governmental agencies
concerning the Products shall be the sole responsibility of Gensia Sicor. Abbott
shall assist Gensia Sicor with respect to communications from governmental
agencies regarding the Products to the extent deemed reasonably necessary by
Gensia Sicor to fully respond to such communications. Abbott shall not recommend
or knowingly sell the Products for any use except as described in the FDA
approved Product labeling.
13.3 Medical and Technical Complaints. Gensia Sicor shall retain exclusive
--------------------------------
responsibility for handling Product manufacturing and medical and technical
complaints and disputes with the FDA, physicians and patients, including timely
filing with the FDA all fifteen (15) day and periodic reportable adverse drug
experience ("ADE") reports. With respect to such reports and other
communications described in this Section 13.3, each Party shall appoint a
primary liaison ("Liaison") with whom the other Party is to communicate. Abbott
shall report to Gensia Sicor's Liaison within twenty-four (24) hours any ADE
report it receives or otherwise obtains in the Territory with respect to the
Products, and shall cooperate with Gensia Sicor in providing information,
including follow-up information, about such reports. Further, Abbott shall
direct to Gensia Sicor's Liaison within three (3) business days of receipt all
inquiries Abbott receives which relate to the efficacy, safety or other medical
issues regarding the Products, unless such inquiry is of a routine nature and
the response is clearly set forth in either the Product labeling or the Product
inquiry report supplied by Gensia Sicor to Abbott. The Product inquiry report
shall set forth the standard responses used by Gensia Sicor to respond to
questions of a routine nature directed to Gensia Sicor with respect to the
Product. Gensia Sicor shall supply the Product inquiry reports to Abbott's
Liaison within a reasonable time after the Effective Date.
33
<PAGE>
13.4 Customer Disputes. Abbott shall be primarily responsible for handling
-----------------
disputes with customers and customer related activities with respect to the
Product, other than those described in Section 13.3, subject to the provisions
of Article 16 and Section 13.5.
13.5 Product Recalls and Withdrawals.
--------------------------------
(a) Responsibilities. In the event (i) any governmental or regulatory
----------------
authority in the Territory issues a request, directive or order that a Product
be recalled or withdrawn, (ii) a court of competent jurisdiction orders such
recall or withdrawal or (iii) Gensia Sicor determines, after consultation with
Abbott, that a recall or withdrawal is necessary or advisable (each a "Recall"),
Gensia Sicor shall, at Gensia Sicor's sole cost and expense, conduct any Recall,
unless the Recall was caused by the storage, distribution or handling of the
recalled Product by Abbott or its Affiliates or by the negligence or willful
misconduct of Abbott or its Affiliates with respect to the Product. In the
event the Recall was caused by Abbott as described above, Abbott promptly shall
reimburse Gensia Sicor for all direct costs of the Recall upon submission to
Abbott by Gensia Sicor of an itemized statement thereof. For purposes of this
Section 13.5, "negligence" by Abbott or its Affiliates shall include, to the
extent the Product Recall was caused by advertising or promotional materials,
the preparation and use of advertising or promotional materials, unless such
materials were created by Gensia Sicor. Each Party shall cooperate fully with
the handling of any Recall, including, without limitation, the contacting of End
Users of the Product, the taking of all appropriate corrective actions and the
conduct of any investigation surrounding the Recall. For purposes of this
Section 13.5, the expenses of Recall shall include, but not be limited to, the
expenses of notification and destruction or Return of the recalled Product and
all other costs incurred in connection with such Recall, but shall not include
lost profits or any other indirect or consequential damages of either Party.
ARTICLE 14
----------
BOOKS AND RECORDS
14.1 Recordkeeping and Audit Rights for the Products. Abbott shall
-----------------------------------------------
maintain proper books and records reflecting the sales of the Products,
including, without limitation, the Gross Sales, Wholesaler Reversals,
Distributor Reversals, Performance Incentives and Gross Price for such sales.
During the Term and for a period of three (3) years thereafter, upon thirty (30)
days prior written notice to Abbott (but not more frequently than once for any
Contract Year), Gensia Sicor may retain at Gensia Sicor's expense an independent
certified public accounting firm reasonably acceptable to Abbott to examine
Abbott's books and records relating to the matters described above in this
Section 14.1, at Abbott's principal place of business during normal business
hours for the sole purpose of verifying the accuracy of Abbott's calculations
described in this
34
<PAGE>
Agreement. Such accountants shall be required to execute a mutually acceptable
confidentiality agreement and shall report to Gensia Sicor only the amount and
relevant details of any discrepancy in the calculations. Within thirty (30) days
after completion of such examination, the Parties shall reconcile any
underpayment or overcharge. Such audit rights may be exercised by Gensia Sicor
only with respect to records for the previous thirty-six (36) months in which
Gross Sales occurred. Notwithstanding anything in this Section 14.1 to the
contrary, if a discrepancy to Gensia Sicor's detriment in excess of five percent
(5%) of the previous twelve (12) month's Gross Sales is detected during an audit
performed pursuant to this Section 14.1, then Abbott shall bear the costs of
Gensia Sicor's accountants that performed the audit.
14.2 Maintenance of Records. Abbott agrees to maintain records and
----------------------
otherwise establish procedures to assure compliance with all applicable
regulatory, professional and other legal requirements which apply to Abbott's
promotion, marketing and distribution of the Products.
14.3 Audit by Abbott. Upon the written request of Abbott and not more than
---------------
once in each Contract Year, Gensia Sicor shall permit an independent certified
public accounting firm of nationally recognized standing selected by Abbott and
reasonably acceptable to Gensia Sicor, at Abbott's sole expense, to have access
during normal business hours to such of the records of Gensia Sicor as may be
reasonably necessary to verify the accuracy of the costs associated with the
Returns for which Abbott shall be financially responsible pursuant to Section
12.3(d) for any year ending not more than twenty-four (24) months prior to the
date of such request. The accounting firm shall disclose to Abbott only whether
the invoices relating to such Returns are correct or not and the specific
details concerning any discrepancies. No other information shall be shared.
ARTICLE 15
----------
REPRESENTATIONS AND WARRANTIES
15.1 Gensia Sicor Representations and Warranties.
-------------------------------------------
(a) Product Warranties. Gensia Sicor represents and warrants to Abbott
------------------
that the Products delivered to Abbott hereunder shall be:
(i) manufactured in accordance with cGMPs and the Specifications;
(ii) when sold, free and clear of any Third Party security interest,
lien or encumbrance; and
(iii) manufactured in compliance with the Act and all other
applicable federal, state and local laws and regulations, including, but
not limited to,
35
<PAGE>
provisions of the Act prohibiting the introduction of "adulterated" or
"misbranded" articles into interstate commerce.
(b) Intellectual Property Representations and Warranties. Gensia Sicor
----------------------------------------------------
represents and warrants to Abbott that:
(i) to the best of Gensia Sicor's knowledge, there are no Third
Party patents or trademarks which are valid and which would be infringed by
making, using, selling or promoting the Products as formulated into the
Products in accordance with the terms of this Agreement;
(ii) Gensia Sicor, or an Affiliate, is the sole and exclusive owner
of all right, title and interest in and to the trademarks "Gensia(R)" and
"Gensia Sicor(TM)" (the "Licensed Marks"); and
(iii) as of the Effective Date, there are no suits, claims or
proceedings pending, nor have any suits, claims or proceedings been
threatened, against Gensia Sicor or any of its Affiliates in any court or
by or before any governmental body or agency with respect to the Products
or the patents relating thereto or the Licensed Marks, with the exception
of patent infringement litigation brought by Bristol-Myers Squibb relating
to cisplatin.
(c) State of the Business. Gensia Sicor represents and warrants to Abbott
---------------------
that, as of the Effective Date:
(i) the dollar amount actually credited to customers for Products
returned to Gensia Sicor for the first *** (***) months of calendar year
1998 when expressed as a percentage of the total dollar amount of all
Products invoiced to customers was less than *** percent (***%) of the
sales dollars actually invoiced to customers of all Products Gensia Sicor
sold during such period;
(ii) as of December 31, 1998, the total dollar amount that would
have been invoiced to Third Parties for the purchase of Leucovorin Calcium
from Gensia Sicor pursuant to a contract, purchase order or other agreement
except for the back order of Leucovorin Calcium due to lack of inventory
was *** dollars ($***) and, to the best of Gensia Sicor's knowledge, no
such Third Parties had cancelled any contract, purchase order or other
agreement for the purchase of Leucovorin Calcium from Gensia Sicor because
of such back order; and
(iii) the gross sales of the Products to End Users for the first
eleven (11) months of calendar year 1998 was *** Dollars (US$***) plus or
minus $*** (*** Dollars).
______________________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
36
<PAGE>
15.2 General Representations and Warranties. Each Party represents and
--------------------------------------
warrants to the other Party as follows:
(a) It is a corporation duly organized and validly existing under the
laws of its state of incorporation;
(b) It has the power and authority to execute and deliver this Agreement
and to perform its obligations hereunder; and
(c) The execution, delivery and performance by it of this Agreement and
its compliance with the terms and provisions hereof does not and will not
conflict with or result in a breach of any other agreement or relationship.
(d) Gensia Sicor hereby represents and warrants that Gensia Sicor Inc. is
its parent company.
15.3 Other Warranties. EXCEPT AS EXPRESSLY SET FORTH HEREIN, GENSIA
----------------
SICOR DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED WITH RESPECT TO THE
PRODUCTS, INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
15.4 Limitation of Liabilities. Except with respect to breaches due to
-------------------------
gross negligence or willful misconduct and with respect to claims covered by
Article 16, for all purposes hereunder, neither Party shall be liable to the
other Party for any indirect, special, incidental, consequential (including,
without limitation, lost profits), or punitive damages of the other Party
resulting from any breach of a Party's obligations hereunder or the breach of
any warranty made hereunder.
ARTICLE 16
----------
INDEMNIFICATION
16.1 Gensia Sicor Indemnification. Gensia Sicor shall indemnify, defend
----------------------------
and hold Abbott (and its Affiliates and their respective officers, directors,
employees and representatives) harmless from and against any and all
liabilities, damages, losses, expenses, fees, fines, penalties and costs
(including reasonable attorneys' fees) resulting from any and all demands,
claims, causes of action, suits and proceedings brought by a Third Party arising
out of, related to or in connection with (a) the use of the Products as a
pharmaceutical product or the safety or efficacy of the Products, except where
such demands, claims, causes of action, suits or proceedings arise out of the
wrongful or negligent acts or omissions on the part of Abbott's employees,
agents or representatives, (b) the breach of Gensia Sicor's warranties,
representations or covenants set forth in this Agreement, (c) the wrongful or
negligent acts or omissions on the part of Gensia Sicor's employees, agents or
representatives, and/or (d) the patent infringement litigation brought
37
<PAGE>
by Bristol-Myers Squibb relating to cisplatin, (e) the intellectual property
rights associated with the Products, (f) that certain Distribution Agreement
dated on or about March 4, 1996 between Gensia Sicor and DDN/Obergfel, L.L.C.,
and/or (g) any other pre-existing contractual obligations of Gensia Sicor in any
Third Party contracts for the Products, except for the obligations expressly
assumed by Abbott under Sections 2.7 and 8.3; provided, that (i) Abbott promptly
notifies in writing Gensia Sicor of any such action or demand, (ii) Abbott
reasonably cooperates in the defense and/or settlement of the action or demand,
(iii) Gensia Sicor, at its cost and expense, is allowed to handle, control,
defend and settle such action or demand, and (iv) Gensia Sicor shall not be
obligated to indemnify any person entitled to indemnification hereunder for any
demands, claims, causes of action, suits or proceedings arise out of the
wrongful or negligent acts or omissions on the part of Abbott's employees,
agents or representatives.
16.2 Abbott Indemnification. Abbott shall indemnify, defend and hold
----------------------
Gensia Sicor (and its Affiliates and their officers, directors, employees and
representatives) harmless from and against any and all liabilities, damages,
losses, expenses, fees, fines, penalties and costs (including reasonable
attorneys' fees) resulting from any and all demands, claims, causes of action,
suits and proceedings brought by a Third Party arising out of, related to or in
connection with (a) Abbott's Promotion, sales, handling, storage or distribution
or Returns of any Product or Product samples, (b) the breach of Abbott's
warranties, representations or covenants set forth in this Agreement, and/or (c)
the wrongful or negligent acts or omissions on the part of Abbott's employees,
agents or representatives; provided, that (i) Gensia Sicor promptly notifies in
writing Abbott of any such action or demand, (ii) Gensia Sicor reasonably
cooperates in the defense and/or settlement of the action or demand and (iii)
Abbott, at its cost and expense, is allowed to handle, control, defend and
settle such action or demand.
16.3 Cooperation. Each Party shall promptly notify in writing the other
-----------
Party of any claim or potential claim covered by the indemnification provisions
of this Article 16 and shall include sufficient information to enable the other
Party to assess the facts relating to such claim. Each Party shall cooperate
with the other Party in the defense of all such claims. No settlement or
compromise shall be binding on a Party without such Party's prior written
consent, which consent shall not be unreasonably withheld or delayed.
16.4 Equitable Remedies. In the event Gensia Sicor is subject to a
------------------
successful action for specific performance brought by a third party pursuant to
a pre-existing contractual relationship between Gensia Sicor and such third
party and such specific performance impairs certain rights that Gensia Sicor has
granted to Abbott hereunder, Gensia Sicor shall be solely liable and financially
responsible to any such third party for monies that may become due pursuant to
such matter.
ARTICLE 17
----------
38
<PAGE>
INFRINGEMENT
17.1 Prosecution. Gensia Sicor shall, at its own expense, file, prosecute,
-----------
issue and maintain all patents covering the Products (the "Patents") in such
manner and with respect to such Products as Gensia Sicor, in its sole
discretion, shall determine. In the event that Gensia Sicor elects or has
elected not to continue to prosecute or maintain any Patent or applications for
such Patent, Gensia Sicor shall so advise Abbott and Abbott shall have the
right, but not the obligation, to assume prosecution or maintenance of the
Patent.
17.2 Infringement Actions. Gensia Sicor and Abbott shall promptly notify
--------------------
in writing each other of any infringement of the Patents which may come to their
attention. Gensia Sicor, in its sole discretion, shall have the first right to
obtain a discontinuance of the infringement or to bring, respond to, defend or
prosecute any suit or other action against such infringer. Gensia Sicor shall
bear solely all costs and expenses associated therewith and shall be entitled to
retain and keep any and all sums received, obtained, collected or recovered
whether by judgment, settlement or otherwise, as a result of such suit or
action. Abbott shall, at Gensia Sicor's expense, render all reasonably
requested assistance in any such suit or action, including, but not limited to,
joining or being named in such suit or action, executing all required documents
and providing records, data and company witnesses. In the event that Gensia
Sicor elects not to enforce any Patent against such infringer within ninety (90)
days after receipt of notice of such infringement, then Gensia Sicor shall
notify Abbott of its decision not to enforce the Patent against such infringer,
and Abbott shall have the right, but not the obligation, to do so, at Abbott's
sole expense, and shall be entitled to retain and keep any and all sums
received, obtained, collected or recovered whether by judgment, settlement or
otherwise, as a result of such suit or action. Gensia Sicor shall, at Abbott's
expense, render all reasonable requested assistance in any such suit or action,
including, but not limited to, joining or being named in such suit or action,
executing all required documents and providing records, data and company
witnesses. Notwithstanding anything contained herein to the contrary, Abbott
shall not settle any action prosecuted or defended herein without the prior
written consent of Gensia Sicor.
ARTICLE 18
----------
TERM AND TERMINATION
18.1 Term. Subject to early termination as set forth in this Article 18,
----
this Agreement shall commence upon the Effective Date and extend through the end
of the seventh Contract Year; provided, however, that this Agreement shall
-------- -------
continue automatically for successive one (1) year periods unless either party
provides written notice of termination to the other party three (3) years prior
to such date of termination. For example, a party who wishes to terminate this
Agreement upon the end of the seventh Contract Year must give written notice of
termination to the other party prior to the beginning of the fifth Contract
Year.
39
<PAGE>
18.2 Termination for Cause. Either Party may terminate this Agreement for
---------------------
cause in the event the other Party (a) is insolvent or unable to pay generally
its debt as they become due, or such Party admits in writing its inability to
pay its debts as they become due; or (b) such Party applies for, consents to, or
acquiesces in the appointment of a trustee, receiver, or other custodian for
such Party, or for any property of such Party, or for a substantial part of the
property of such Party, and such has not been dismissed or discharged, or shall
make a general assignment for the benefit of creditors and such proceeding or
assignment has not been dismissed or discharged within thirty (30) days
thereafter; or (c) any bankruptcy, reorganization, debt arrangement, or other
case or proceeding under any bankruptcy or insolvency law, or any dissolution or
liquidation proceeding, is commenced in respect of such Party, and, if such case
or proceeding is not commenced by the Party, it has been consented to or
acquiesced in by such Party or shall continue for sixty (60) days undismissed;
or (d) such Party shall take any corporate action to authorize, or in
furtherance of, any of the foregoing; or (e) materially breaches this Agreement
and fails to cure such breach within sixty (60) days after receipt of written
notice of such breach from the non-breaching party.
18.3 By Abbott for Gensia Sicor's Inability to Supply. In the event Gensia
------------------------------------------------
Sicor is unable to supply a Product to Abbott hereunder for reason of Force
Majeure, as described in Section 20.1, or a Product Recall or withdrawal, for a
period of at least one hundred eighty (180) consecutive days, Abbott shall have
the right to terminate this Agreement with respect to such Product, if Gensia
Sicor fails to cure such inability to supply within thirty (30) days after
receipt of written notice from Abbott regarding such inability.
18.4 By Gensia Sicor for Lack of Abbott Performance.
----------------------------------------------
(a) If the Gross Sales for all Products for a Contract Year are less than
*** percent (***%) of the Base Level Sales for all Products for that Contract
Year, Abbott shall, at the request of Gensia Sicor, meet from time to time, in
person, with Gensia Sicor to discuss the reasons for such performance by Abbott
and use commercially reasonable efforts to agree upon a plan calculated by the
Parties to increase the sales of Products for the following years; provided,
--------
however, that this subsection (a) shall not apply in any case where subsection
- -------
(b) shall apply.
(b) If:
(x) the Gross Sales for all Products for 1999 are less than *** dollars
($***),
(y) the Gross Sales for all Products for a Contract Year are less than
*** percent (***%) of the Base Level Sales for all Products for that
Contract Year, or
______________________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
40
<PAGE>
(z) (I) the Gross Sales for all Products for a Contract Year are less than
*** percent (***%) of the Base Level Sales for all Products for that
Contract Year and (II) Gensia Sicor shall have notified in writing
Abbott within ninety (90) days of the end of the prior Contract Year
in which, during the Term the Gross Sales for all Products for such
prior Contract Year were less than *** percent (***%) of the Base
Level Sales for all Products for that Contract Year,
then (i) upon written notice by Gensia Sicor to Abbott within ninety (90) days
of the end of a Contract Year, the Parties shall negotiate in good faith
modification or replacement of any and all terms of this Agreement as proposed
by Abbott in response to such notice and (ii) upon further written notice by
Gensia Sicor to Abbott, unless the Parties shall have executed an amendment or
new agreement setting forth terms and conditions agreed by the Parties pursuant
to preceding clause (i) within sixty (60) days of the notice given pursuant
thereto, this Agreement shall terminate on the date set forth in the notice
given pursuant to this clause (ii); provided, however, that in calculating the
-------- -------
Gross Sales achieved by Abbott in a Contract Year for purposes of determining
whether an event described in clause (x), (y) or (z) has occurred, Abbott shall
be deemed to have attained those Gross Sales which Abbott would have attained
had Gensia Sicor delivered Products which it failed to deliver as a result of a
breach by Gensia Sicor or a Force Majeure.
(c) If Gensia Sicor terminates this Agreement pursuant to clause (x) in
subsection (b) of this Section 18.4, Abbott shall, within 30 days of such
termination, repay to Gensia Sicor all amounts received by it pursuant to
Articles 6 and 7 of this Agreement.
(d) Upon termination of the Agreement pursuant to 18.4 (c), Abbott shall
use its best efforts to effect a smooth transition of the promotion, sale and
distribution of the Products to the Trade by Abbott to Gensia Sicor. At its sole
option, Gensia Sicor may purchase from Abbott all or any portion of Abbott's
supply of any Product at the Transfer Price for such Product. In the event
Gensia Sicor does not elect to buy back Abbott's inventory for any Product,
Abbott shall be allowed to sell such inventory of such Product to the Trade in
the Territory for use by End Users in the Territory.
(e) Within one hundred eighty (180) days prior to termination of this
Agreement, Gensia Sicor shall have the right to initiate commercial activities
which may include contracting, establishing customer relationships or other
activities directed toward sales activities which will begin upon the effective
date of termination; provided, however, that Gensia Sicor covenants that none of
-------- -------
its activities during such period will unreasonably interfere with Abbott's
ability to achieve Abbott's Base Sales Level.
________________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
41
<PAGE>
18.5 By Either Party for FDA Withdrawal. Either Party may terminate this
----------------------------------
Agreement with respect to a Product upon ten (10) days' prior written notice to
the other Party in the event the FDA causes the withdrawal of that Product from
the market for a period in excess of one hundred twenty (120) days.
18.6 Effect of Termination or Expiration. The termination, expiration,
-----------------------------------
cancellation or abandonment of this Agreement through any means and for any
reason shall not release the Parties from any obligation accrued or accruing
prior thereto and shall be without prejudice to the rights and remedies of
either Party with respect to any antecedent breach of any of the provisions of
this Agreement. All provisions of this Agreement which are expressly indicated
to survive the termination of this Agreement shall do so for the period of time
so indicated. In addition, the following Articles and Sections shall survive the
termination of this Agreement for a period of three (3) years: Sections 13.3,
Articles 14, 15, and 16.
ARTICLE 19
----------
CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS
19.1 Confidentiality. The Parties acknowledge that during the Term, each
---------------
Party and their Affiliates may exchange Confidential Information. Each Party
shall use Confidential Information of the other Party only for the purpose of
the activities contemplated by this Agreement and shall not disclose such
Confidential Information to a Third Party, except in accordance with the
provisions of this Agreement or upon the written consent of the other Party. The
Parties shall take all steps reasonably necessary to ensure that their
Affiliates keep all Confidential Information exchanged hereunder confidential in
accordance with the provisions hereof as though the Affiliates were parties
hereto. This provision shall remain in effect for a period of three (3) years
after termination or expiration of this Agreement.
19.2 Public Announcements. Neither Party shall make any public
--------------------
announcement concerning the transactions contemplated herein, or make any public
statement which includes the name of the other Party or any of its Affiliates,
or otherwise use the name of the other Party or any of its Affiliates in any
public statement or document, except as may be required legally by law or
judicial order, without the prior written consent of the other Party, which
consent shall not be unreasonably withheld or delayed.
ARTICLE 20
----------
FORCE MAJEURE
20.1 Force Majeure. Neither Party shall be held in breach of this
-------------
Agreement for failure to perform any of its obligations hereunder and the time
required for performance shall be extended for a period equal to the period of
such delay, provided
42
<PAGE>
that such delay has been caused by or is a result of any acts of God; acts of
the public enemy; civil strife; wars declared or undeclared; embargoes; labor
disputes, including strikes, lockouts, job actions or boycotts affecting the
industry generally; fires; explosions; floods; shortages of material or energy;
events caused by reason of laws or regulations or orders by any government,
governmental agency or instrumentality or by any other supervening unforeseeable
circumstances beyond the reasonable control of the Party so affected. The Party
so affected shall (a) give prompt written notice to the other Party of the
nature and date of commencement of the force majeure event and its expected
duration, and (b) use its reasonable best efforts to relieve the effect of such
cause as rapidly as possible.
20.2 Continuation of Force Majeure. In the event a delay in performance
-----------------------------
with respect to a Product caused by a Force Majeure event continues unresolved
for a period of one hundred eighty (180) consecutive days, Abbott may terminate
this Agreement with respect to such Product as provided in Section 18.3 hereof.
ARTICLE 21
----------
MISCELLANEOUS
21.1 Relationship of the Parties. The relationship of the Parties under
---------------------------
this Agreement is that of independent contractors. Nothing contained in this
Agreement shall be construed so as to constitute the Parties as partners, joint
venturers or agents of the other. Neither Party has any express or implied right
or authority under this Agreement to assume or create any obligations or make
any representations or warranties on behalf of or in the name of the other
Party.
21.2 Assignment. Neither Party may assign its interest under this
----------
Agreement without the prior written consent of the other Party, which consent
shall not be unreasonably withheld; provided, however, that either Party may
-------- -------
assign this Agreement, in whole or in part, without such consent, to an
Affiliate of such Party. Any permitted assignee shall assume all obligations of
its assignor under this Agreement. No assignment shall relieve any Party of
responsibility for the performance of any accrued obligation which such Party
then has hereunder. Notwithstanding the foregoing, this Agreement shall not
limit either party's ability to merge with, acquire, or be acquired by a Third
Party, or to assign this Agreement in connection with the merger, acquisition,
sale of all or substantially all of the assets to which this Agreement pertains,
change of control or similar transaction, without the prior written consent of
the other party, provided that all obligations and rights of such assigning
party set forth herein shall be binding on any such Third Party or assignee.
21.3 Payments. All payments required by this Agreement shall be made in
--------
United States dollars. Unless otherwise specified herein, all invoices are
strictly net and payment must be received within forty-five (45) days from the
date of invoice, except for
43
<PAGE>
the transition items identified in Article 8. All payments shall be made by
check or wire transfer to a bank account specified in writing by the receiving
Party. If payment is not made pursuant to an invoice, the paying Party shall
provide the receiving Party with ten (10) business days prior written notice of
a payment. Time for payment shall be of the essence. Unless the paying Party
notifies the receiving Party in writing of a good faith dispute with respect to
amounts not received within such forty-five (45) day period, interest shall
accrue thereon at the rate of prime plus two percent (2%), such interest to
begin accruing on a daily basis from the date of invoice, and shall accrue both
before and after judgment; provided, however, that in the case of a good faith
-------- -------
dispute regarding payment that is resolved to be due and is not paid within
three (3) days after such resolution, interest shall accrue on any amount
overdue at the rate of prime plus two percent (2%), such interest to begin
accruing on a daily basis from the date such payment becomes overdue, and shall
accrue both before and after judgment. For purposes of this Agreement, the rate
of prime shall be that rate of prime quoted by Citibank, N.A., New York, New
York, or any successor entity thereto.
21.4 Binding Effect. This Agreement shall be binding upon and inure to
--------------
the benefit of each of the Parties and its successors and permitted assigns.
21.5 Entire Agreement. This Agreement, including the Exhibits, which are
----------------
attached hereto and incorporated herein by reference, constitutes the entire
agreement between the Parties concerning the subject matter hereof and
supersedes all written or oral prior agreements or understandings with respect
thereto.
21.6 Governing Law. This Agreement shall be construed, interpreted and
-------------
governed by the laws of the State of Illinois, without regard to its choice of
law provisions.
21.7 Severability. If any provision of this Agreement for any reason
------------
shall be held invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other term or provision
hereof, and this Agreement shall be interpreted and construed as if such term or
provision, to the extent the same shall have been held to be invalid, illegal or
unenforceable, had never been contained herein. To the extent permitted by
applicable law, the Parties hereto hereby waive any provision of law which
renders any provision hereof prohibited or unenforceable in any respect.
21.8 Amendment, Waiver or Modification of Agreement. No amendment,
----------------------------------------------
waiver, modification, supplementation or termination of any of the terms or
provisions of this Agreement shall be valid unless in writing and signed by
authorized representatives of both Parties. Failure by either Party to enforce
any rights under this Agreement shall not be construed as a waiver of such
rights nor shall a waiver by either Party in one or more instances be construed
as constituting a continuing waiver or as a waiver in other instances.
44
<PAGE>
21.9 Headings. The captions to the Articles and Sections in this
--------
Agreement are inserted for convenience only and are not a part hereof.
21.10 Notices. All notices hereunder shall be in writing and shall be (a)
-------
delivered personally, (b) mailed by registered or certified mail, postage
prepaid, or (c) sent by facsimile or express mail to the following addresses of
the respective Parties:
If to Abbott: Abbott Laboratories
President, Hospital Products Division
D-960, Building AP30
200 Abbott Park Road
Abbott Park, Illinois 60064-3537
Facsimile Number: (847) 937-2927
with a copy to: Abbott Laboratories
Divisional Vice President
Domestic Legal Operations
D-322, Building AP6D
100 Abbott Park Road
Abbott Park, Illinois 60064-3500
Facsimile Number: (847) 938-1206
If to Gensia Sicor: Gensia Sicor Pharmaceuticals, Inc.
President
19 Hughes
Irvine, California 92618-1902
Facsimile Number: (949) 457-2852
with a copy to: Gensia Sicor Pharmaceuticals, Inc.
Vice President and Senior Legal Counsel
19 Hughes
Irvine, California 92618-1902
Facsimile Number: (949) 458-6109
Notice shall be effective upon receipt if personally delivered or sent by
facsimile, on the third business day following the date of mailing if sent by
registered or certified mail, and on the second business day following the date
of transmission or delivery to the express mail service if sent by express mail.
A Party may change its address listed above by sending notice to the other
Party.
21.11 Counterparts. This Agreement may be executed in two (2) original
------------
counterparts, each of which shall be deemed an original, but both of which
together shall constitute one and the same instrument.
45
<PAGE>
IN WITNESS WHEREOF, each Party has caused this Agreement to be executed on
its behalf by its duly authorized officer as of the Effective Date.
ABBOTT LABORATORIES INC. GENSIA SICOR PHARMACEUTICALS, INC.
By: /s/ Richard A. Gonzalez By: /s/ Michael D. Cannon
---------------------------- ----------------------------
Name: Richard A. Gonzalez Name: Michael D. Cannon
Title: President Title: President
Hospital Products Division Gensia Sicor Pharmaceuticals
Date: Jan. 29, 1999 Date: Jan. 28, 1999
---------------------------- --------------------------
GENSIA SICOR INC. GUARANTY OF SECTION 4.1 OBLIGATIONS
- -----------------------------------------------------
In consideration of Abbott's entering into this Agreement, Gensia Sicor
Inc., parent corporation of Gensia Sicor Pharmaceuticals, Inc., hereby
absolutely and unconditionally guarantees the performance of Gensia Sicor
Pharmaceuticals, Inc.'s Marketing Support Fee payment obligations to Abbott
under Section 4.1 of this Agreement.
GENSIA SICOR INC.
By: /s/ John Sayward
----------------------------
Name: John Sayward
--------------------------
Title: EVP, Finance & CFO
-------------------------
Date: 2/1/99
--------------------------
46
<PAGE>
EXHIBIT 1.5
BASE PRODUCT LIST
NDC Number Description
- ---------- -----------
***
_______________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
47
<PAGE>
EXHIBIT 1.21
NEW PRODUCT LIST
Products
- --------
***
_____________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
48
<PAGE>
EXHIBIT 1.38
WHOLESALER LIST
***
_____________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
49
<PAGE>
EXHIBIT 2.1
PRODUCTS ON AWARD AT AMERICAN PHARMACEUTICAL PARTNERS
NDC Number Description
- ---------- -----------
***
_________________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
50
<PAGE>
EXHIBIT 2.7
PRODUCT AGREEMENTS
CONTRACT # ACCOUNT
***
______________________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
51
<PAGE>
EXHIBIT 3.1
SALES AND MARKETING COMMITMENT FEE SCHEDULE
Commitment Fee Amount Timing of Disbursement of Funds
- --------------------- -------------------------------
$4,535,000 Within ten (10) days after the Effective Date
$1,075,000 On or before March 31, 1999
$*** On or before March 31, 2000
$*** On or before March 31, 2001
___________ ___________________________
Grand Total $***
___________________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
52
<PAGE>
EXHIBIT 4.1
MARKETING SUPPORT FEE PAYMENT SCHEDULE
Payment Number Amount Due Date
- -------------- ------ --------
1 $*** July 1, 2000
2 $*** October 1, 2000
3 $*** January 1, 2001
4 $*** April 1, 2001
5 $*** July 1, 2001
6 $*** October 1, 2001
7 $*** January 1, 2002
8 $*** April 1, 2002
9 $*** July 1, 2002
10 $*** October 1, 2002
11 $*** January 1, 2003
12 $*** April 1, 2003
13 $*** July 1, 2003
14 $*** October 1, 2003
15 $*** January 1, 2004
16 $*** April 1, 2004
17 $*** July 1, 2004
18 $*** October 1, 2004
19 $*** January 1, 2005
20 $*** April 1, 2005
21 $*** July 1, 2005
22 $*** October 1, 2005
____________________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
53
<PAGE>
EXHIBIT 5.1
ABBOTT PRODUCTS
NDC Number Description
- ---------- -----------
***
___________________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
54
<PAGE>
EXHIBIT 6.1
TRANSFER PRICING THROUGH DECEMBER 31, 1999
Projected Trigger
NDC Number / Description Gross Price Transfer Cost
- --------------------------- ----------- -------- ----
***
____________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
55
<PAGE>
EXHIBIT 7.1 (B)
*** Compensation Schedule
Year Margin Split Percent (Abbott/Gensia Sicor)
- ----- ------------------------------------------
All Sales through First Full Contract Year Sales ***
Second Full Contract Year Sales ***
Remaining Full Contract Year Sales ***
Note: Compensation on *** begins upon FDA ANDA approval and supply of Product.
The Margin split is calculated on the Gross Sales minus Abbott's and Gensia
Sicor's expenses as defined in Article 7.1c.
Example calculation:
Year 1 *** Gross Sales ***
Abbott Expense ***
Gensia Sicor Expense
*** units x ((*** bulk drug x ***) + ($*** finishing cost)) = $***
Margin Split Dollars Available ***
Year 1 Abbott Margin ***
Year 1 Gensia Sicor Margin ***
______________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
56
<PAGE>
EXHIBIT 7.1 (E)(I)
COMPENSATION SCHEDULE
1999 COMPENSATION
-----------------
Gross Sales Achievement Level Compensation %
- ----------------------------- --------------
Minimum Maximum
Amount Amount
- -------- ------
***
_______________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
57
<PAGE>
EXHIBIT 7.1 (e)(iii)
INCREMENTAL COMPENSATION SCHEDULE
1999 COMPENSATION EXAMPLE
-------------------------
Example: 1999 Actual Gross Sales = ***
***
***
***
Incremental Amounts Compensation
- ------------------- ------------
***
**Note: Any actual calculation of the total compensation to Abbott in any
Contract Year shall be subject to Cost Threshold limitations.
**Note: In this example, the 1999 Incremental Compensation would be the sum of
***, *** and *** (the incremental compensation amounts above $***MM (the Base
Sales Level)).
________________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
58
<PAGE>
EXHIBIT 7.1 (g)(i)
INCREMENTAL COMPENSATION SCHEDULE
2000 AND BEYOND COMPENSATION
----------------------------
Gross Sales Achievement Level Compensation %
- ------------------------------ --------------
***
** Note: Once the Base Sales Level is achieved, the Compensation % shall be
applied only to the incremental dollars associated with the level of
achievement.
===================================================
***
_____________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
59
<PAGE>
EXHIBIT 7.2 (a)
DETAIL OF BASE SALES LEVEL FOR 1999
NDC Number / Description Base Sales Level
- ------------------------ ----------------
***
________________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
60
<PAGE>
EXHIBIT 7.2(B)(II)
EXAMPLE OF SETTING BASE SALES LEVEL
***
____________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
61
<PAGE>
EXHIBIT 9.1
MONTHLY REPORT EXAMPLE
YEAR TO DATE SALES OF GENSIA SICOR PRODUCTS
List Number Description Jan-99 Feb-99 Mar-99 Apr-99 Total
- ---------------------------- ----------------------------------------------
***
==============================================
==============================================
REPORTS MAY BE ISSUED IN TOTAL BY PRODUCT, BY CUSTOMER, BY PRODUCT AND BY
CUSTOMER, ETC.
PER GENSIA'S REQUEST, ABBOTT SHALL BE ABLE TO CUSTOMIZE TRACKING REPORT(S) IN
ACCEPTABLE FORMAT(S).
_____________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
62
<PAGE>
EXHIBIT 10.2
WHOLE BATCH QUANTITIES AS OF JANUARY 8, 1999
2000
and
Item Number Description 1999 beyond
- ----------- ------------------------------------
***
_______________
*** Redacted and Filed Separately with the Securities and Exchange Commission.
63
<PAGE>
EXHIBIT 12.3
RETURN GOODS POLICY
ABBOTT LABORATORIES, INC.
HOSPITAL PRODUCTS DIVISION
DRUG WHOLESALERS, MED/SURG DISTRIBUTORS, AND RADIOLOGY SUPPLIERS
EFFECTIVE JANUARY 1, 1998
________________________________________________________________________________
This policy applies to all products sold or distributed by Abbott Laboratories
Hospital Products Division including, but not limited to, select products
distributed for BERLEX(R), PHARMACIA UPJOHN(R) AND SMITH KLINE BEECHAM(R).
RETURN GOODS POLICY
-------------------
. It is the intention of the Hospital Products Division of Abbott
Laboratories to issue full credit for all RETURN GOODS, provided the
minimal conditions of this policy are met.
. AUTHORIZATION for returns MUST BE OBTAINED FROM AN ABBOTT TRADE SALES
----
SPECIALIST. Call your Hospital Products Division Trade Sales Specialist or
Customer Service at 1-800-ABBOTT3 (1-800-222-6883) to arrange a
representative visit. The Returned Goods Authorization (RGA) form must be
completed and signed by the customer in accordance with FDA good
manufacturing practices. NO CREDIT IS GRANTED WITHOUT AN AUTHORIZED AND
SIGNED RGA. Returns must be shipped to the assigned Abbott Distribution
Center or other location designated by an Abbott Trade Sales Specialist or
customer service and shipped freight prepaid. Collect shipments will be
charged back to the customer. Product must be returned within 30 days from
the date the RGA was initiated.
. SHORTAGES/DAMAGED PRODUCT. Shortages or damage must be reported to
Customer Service at 1-800-222-6883 UPON RECEIPT OF PRODUCT. To insure
credit for damaged product, please provide the carrier's damaged goods
report or other similar documentation.
. CREDIT FOR EXPIRATION-DATED PRODUCTS WILL BE ALLOWED AS FOLLOWS:
Full Credit for products returned in salable condition with remaining
dating or not more than 3 months past expiration.
Exceptions:
-----------
. CONTROLLED DRUGS AND TEMPERATURE SENSITIVE PRODUCTS (E. G. LIPOSYN(R),
QUELICIN(R), ATRACURIUM, LORAZEPAM, CENOLATE(R), AND PANCURONIUM
BROMIDE) MUST HAVE 6 OR FEWER MONTHS OF DATING OR NOT BE MORE THAN 3
MONTHS PAST EXPIRATION.
. CALCIJEX IS NOT RETURNABLE FOR CREDIT EXCEPT IN THE EVENT OF AN ORDERING
OR SHIPPING ERROR REPORTED WITHIN 10 DAYS OF DELIVERY. EXPIRED PRODUCT
IS NOT ELIGIBLE FOR CREDIT.
. FULL CREDIT GRANTED FOR NON-EXPIRATION-DATED PRODUCTS RETURNED IN FULL
-----------------------------
SALABLE CASES WITHIN ONE YEAR OF PURCHASE FROM ABBOTT.
. SCHEDULE II PRODUCT RETURNS must be arranged by calling Abbott Laboratories
at 1-800-323-9030, extension 6868 so that appropriate forms and labels can
be mailed.
. PRODUCTS ARE INELIGIBLE FOR CREDIT which were:
----------
1. returned in less than a full salable unit.
64
<PAGE>
2. returned opened, marked, or not in original packaging.
3. acquired from Abbott as nonreturnable.
4. previously sold by Drug Wholesalers, Radiology Suppliers, or Med/Surg
Distributors to end customers.
5. manufactured to customer specification.
6. not shipped and billed to Drug Wholesalers, Radiology Suppliers, or
Med/Surg Distributors by Abbott.
7. involved in a deal, or bankruptcy sale, or have deteriorated due to
conditions beyond Abbott's control, such as from improper storage, heat,
cold, humidity, water, dust, dirt, smoke, or fire.
. Abbott reserves the right to destroy products which are returned outside
the above policy, or which are considered unfit or unsafe for use; to
reduce or refuse credit when inadequate inventory controls cause excessive
product returns; and to revise or make exceptions to this policy at
Abbott's discretion.
. CUSTOMERS ARE ENCOURAGED TO RETURN ONLY FULL, UNOPENED CASES OF PRODUCT
UNLESS THE PRODUCT IS EXPIRED OR NEARLY EXPIRED. Prior to returning
overstocked product to Abbott, multi-location
wholesalers/distributors/suppliers are encouraged to employ inter-
divisional transfers when possible.
* * * * * * * * *
65
<PAGE>
ABBOTT LABORATORIES HOSPITAL PRODUCTS DIVISION
-----------------------------------------------
Hospital & Alternate Site Customer Returned Goods Policy
--------------------------------------------------------
Customers may return Abbott product purchased from Abbott directly or purchased
indirectly from a wholesaler, distributor, or radiology supplier. Product must
be returned to Abbott regardless of the origin of purchase. Credit will be
granted under these conditions and terms:
A. AUTHORIZATION
-------------
Required. Contact Corporate Customer Service (1-800-ABBOTT3 or
1-800-222-6883) for Returned Goods Authorization (RGA). The RGA form must
be completed and signed by the customer in accordance with FDA good
manufacturing practices. NO CREDIT is granted without an authorized and
signed RGA.
. All product returns must follow the returned goods procedure specified
below in Section E.
B. CREDIT FOR ORDERING AND SHIPPING ERRORS
---------------------------------------
Product delivered to customers due to ordering or shipping errors may be
returned for 100% credit if product is restocked. Credit is granted
subject to these conditions:
. SHORTAGES/DAMAGED PRODUCT. Shortages and damage must be reported within
10 days. To insure full credit for damaged product, please provide the
carrier's report of damaged goods or other similar documentation.
. Product must be returned to Abbott within 45 days of original delivery
in salable, original, full, unopened, undamaged and clean cases.
. Nonrestockable products such as Liposyn(R) products, all controlled
drugs, products requiring refrigeration (including Quelicin(R),
Atracurium, Lorazepam, Cenolate(R), and Pancuronium Bromide), and
products requiring special storage/handling will receive 50% credit. If
an Abbott error caused the return, 100% credit will be granted. (Note
that many of these products can also be returned when expired as
specified in section D.)
. Custom products and private label products may not be returned except in
the event of an Abbott error.
C. RETURNED GOODS CREDIT FOR EXCESS STOCK
--------------------------------------
Products returned over 45 days after original delivery may be eligible for
credit as excess stock.
ELIGIBLE products are:
--------
. 75% CREDIT for Non-Expiration Dated products returned within 12 months
of purchase in salable, original, full, unopened, undamaged and clean
cases.
. 50% CREDIT for Large Volume Parenteral Solutions (including Premixed
Solutions, Partial- Fill IV Solutions, and ADD-Vantage(R) Partial-Fill
Solutions), Irrigation Solutions, Procedural Trays, and Nutritional
Products (excluding Liposyn(R)) returned six months or more prior to
expiration date in original, full, unopened, undamaged and clean cases.
NOT ELIGIBLE for credit as excess stock are:
------------
. Expiration Dated Product not specifically listed as eligible for excess
stock credit.
. Returned product that is not salable for any reason.
. Certain products sold under written warranties.
. Custom products and private label products.
. Non-Expiration Dated products purchased 12 or more months prior to
return to Abbott.
D. RETURNED GOODS CREDIT FOR EXPIRED PRODUCT
-----------------------------------------
Several Expiration Dated Products may be returned to Abbott for credit
after expiration.
ELIGIBLE products are:
--------
. 100% credit for Hetastarch if returned in full, undamaged and unopened
cases within zero to twelve months after expiration.
. 50% credit for Inhalation Anesthetics, Anesthetic Drugs and Adjuncts,
Fentanyl Oralet (Oral Transmucosal Fentanyl Citrate)(R), Pharmaceutical
Injectables and Additives (excluding Calcijex(R)), Abbojects(R), and
Prefilled Vials for use with PCA Infusers in full, undamaged and
unopened cases or shelf packs (salable units only) if returned within
zero to three months after expiration date.
66
<PAGE>
NOT ELIGIBLE for credit as expired products are:
------------
. Magnevist(R), Ultravist(R), Calcijex(R), Laryngotracheal Anesthesia
Kits, Large Volume Parenteral Solutions (including Premixed Solutions,
Partial- Fill IV Solutions, and ADD-Vantage(R) Partial-Fill Solutions),
Irrigation Solutions, Procedural Trays, Nutritional Products, custom
products and private label products.
E. ABBOTT HOSPITAL PRODUCTS RETURNED GOODS PROCESS
1. RETURNED GOODS AUTHORIZATION (RGA) IS REQUIRED. Call Corporate Customer
Service (1-800-ABBOTT3 or 1-800-222-6883) to obtain RGA. Provide NDC
product code, lot number, expiration date and quantity to be returned at
this time.
2. Corporate Customer Service will mail RGA form and shipping labels to
customer.
3. SCHEDULE II controlled drugs require the use of DEA form 222 in addition
to the RGA.
4. Arrange a carrier to return the product.
. Abbott will help arrange and pay for a carrier to pickup product
returned due to Abbott's error. Carrier will schedule a time with
customer for pickup of product. Under all other conditions, the
customer pays for freight on returned goods shipments.
or
. Customer may arrange and pay for shipment of product to Abbott.
Abbott will reimburse freight costs when Abbott's error caused the
return. A signed Returned Goods Authorization form is required even
if the customer chooses the carrier.
5. Abbott verifies authorization, RGA signature, quantities returned,
product condition, and issues appropriate credit.
6. If SCHEDULE II controlled drugs are destroyed by the DEA, send a copy of
DEA Form 41 to Abbott along with the completed RGA to receive credit.
7. Field destruction of expired product (excluding Schedule II controlled
drugs) will NOT be accepted for credit.
---
8. THIRD PARTY RETURNED GOODS COMPANIES may be used to process expired
product for credit if an authorization form is on file with Abbott for
each account indicating the third party return company received
permission from the account to process Abbott returns. (A copy of the
form is available from Corporate Customer Service 1-800-ABBOTT3 or
1-800-222-6883.) The THIRD PARTY RETURNED GOODS COMPANY may return
expired product using Abbott provided or approved forms. Required
information includes customer name and address, Abbott account number,
NDC product code, lot number, quantity returned and expiration date.
F. TERMS
. Products not returned in accordance with this policy will be destroyed
and no credit will be issued.
. Abbott is solely responsible for determining if returned product is
salable.
. Credit will be issued directly to the customer (not the Third Party
Returned Goods Company).
. No credit will be allowed on freight collect returned goods shipments.
Collect freight charges paid by Abbott will be debited to the customer's
account.
. No credit is allowed for product involved in fire, bankruptcy, or
certain special promotion deal sales.
. Product expressly sold as non-returnable cannot be returned except in
the event of an Abbott error.
. Electronic drug delivery devices, pain management devices, and
compounders are not returnable under this policy. Check the contract
under which the device was purchased for return options or call your
Abbott representative for more information.
. Abbott reserves the right to make exceptions to this policy for
extenuating circumstances.
. Abbott reserves the right to modify this policy without advance notice.
67
<PAGE>
RETURNED GOODS POLICY SUMMARY*
--------------------------------
*See the above policy for precise interpretation of the returned goods policy.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHIPPING & NON EXPIRATION
ORDERING ERRORS DATED PRODUCT EXCESS DATED PRODUCT EXPIRED DATED PRODUCT
- -------------------------------------------------------------------------------------------------------------------------------
REQUIRED .Return product .Return within 1 Return six or more months Return zero to three months
within 45 days. year of purchase prior to expiration in full, after expiration date in full
.Report damage in full, unopened and unopened and undamaged cases. unopened and undamaged cases or
within 10 days. undamaged cases. salable units.
- -------------------------------------------------------------------------------------------------------------------------------
ELIGIBLE All product Sets, suction, and .Large Volume Parenteral .Inhalation Anesthetics
PRODUCTS returned and accessories Solutions .Anesthetic Drugs and Adjuncts
restocked. returned and .Irrigation Solutions .Fentanyl Oralet ??
restocked .Procedural Trays .Pharmaceutical Injectables and
.Nutritional Products Additives (excluding
(excluding Liposyn(R)) Calcijex(R))
.Prefilled Vials for use with
PCA Infusers
- -------------------------------------------------------------------------------------------------------------------------------
CREDIT 100% 75% 50% 50%
ALLOWED
- -------------------------------------------------------------------------------------------------------------------------
EXCEPTIONS 50% credit for Pump and device Liposyn(R) is not returnable .100% credit for Hetastarch
controlled drugs returns are for credit. returned 0-12 months after
and certain addressed in expiration.
refrigerated contracts outside .Calcijex(R) is not returnable
products. of this policy. for credit.
- -----------------------------------------------------------------------------------------------------------------------------
NOT ELIGIBLE Dated Products. .Inhalation Anesthetics .Large Volume Parenteral
.Anesthetic Drugs and Adjuncts Solutions (including Premixed
.Fentanyl Oralet?? Solutions, Partial- Fill IV
NEVER .Pharmaceutical Injectables Solutions, and ADD-Vantage
ELIGIBLE: and Additives Partial-Fill Solutions)
- -------
Custom or .Prefilled Vials for use with .Irrigation Solutions
private PCA Infusers. .Procedural Trays
label Magnevist(R) .Ultravist(R) .Nutritional Products
products. .Calcijex(R) .Magnevist(R) Ultravist(R)
Product .LTA Kits .Calcijex(R)
returned .LTA Kits
outside of
policy terms
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
68
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 25,166
<SECURITIES> 0
<RECEIVABLES> 54,768
<ALLOWANCES> (2,050)
<INVENTORY> 50,582
<CURRENT-ASSETS> 138,548
<PP&E> 142,203
<DEPRECIATION> (36,431)
<TOTAL-ASSETS> 369,291
<CURRENT-LIABILITIES> 119,525
<BONDS> 0
0
16
<COMMON> 798
<OTHER-SE> 165,876
<TOTAL-LIABILITY-AND-EQUITY> 369,291
<SALES> 48,357
<TOTAL-REVENUES> 53,660
<CGS> 33,287
<TOTAL-COSTS> 33,287
<OTHER-EXPENSES> 17,199
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,869
<INCOME-PRETAX> 1,305
<INCOME-TAX> 1,501
<INCOME-CONTINUING> (165)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,653)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
