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 quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ________.
COPLEY PHARMACEUTICAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2514637
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
25 John Road
Canton, Massachusetts 02021
(Address of principal executive offices) (Zip Code)
Commission file number: 0-20126
Registrant's telephone number, including area code: (617) 821-6111
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
------ ------
The number of shares outstanding of the registrant's only class of common
stock as of July 31, 1997 was 19,119,235 shares.
<PAGE 2>
COPLEY PHARMACEUTICAL, INC.
INDEX
For the Six Months Ended June 30, 1997
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Operations
for the three and six months ended June 30,
1997 and 1996 4
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6 - 10
Item 2. Management's Discussion and Analysis of Results of
Operations and Changes in Financial Condition 11 - 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
<PAGE 3>
PART 1. Item 1. Condensed Consolidated Financial Statements
<TABLE>
COPLEY PHARMACEUTICAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
Unaudited
(In thousands, except share data) JUNE 30, DECEMBER 31,
1997 1996
-------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,717 $ 15,974
Available-for-sale securities 15,965 13,757
Accounts receivable, trade, net 25,104 27,024
Inventories:
Raw materials 11,986 12,580
Work in process 4,074 4,390
Finished goods 11,004 10,161
------- -------
Total inventories 27,064 27,131
Prepaid income taxes 1,342 ---
Current deferred tax assets 6,473 6,548
Other current assets 4,767 4,241
------- -------
Total current assets 90,432 94,675
Property, plant and equipment, net 49,285 52,355
Deferred tax assets 200 215
Other assets 3,149 4,482
------- -------
TOTAL ASSETS $143,066 $151,727
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 5,576 $ 6,360
Accounts payable, related party 7,976 10,948
Current portion of long-term debt 300 300
Accrued compensation and benefits 1,139 1,398
Accrued rebates 5,892 6,908
Accrued income taxes --- 883
Accrued recall relates and litigation expenses 9,194 17,839
Accrued expenses 5,991 1,860
------- -------
Total current liabilities 36,068 46,496
Accrued recall related and litigation expenses 3,550 ---
Long-term debt 5,100 5,100
------- -------
TOTAL LIABILITIES 44,718 51,596
Shareholders' equity:
Preferred stock, $.01 par value; authorized
3,000,000 shares; none issued --- ---
Common stock, $.01 par value; authorized
60,000,000 shares; issued 25,370,745 shares 254 254
Additional paid-in capital 77,982 77,875
Unrealized holding loss on available-for-sale
securities (20) ---
Retained earnings 32,692 34,569
Treasury stock, at cost, 6,251,510 and 6,266,258
shares outstanding, respectively (12,560) (12,567)
------- -------
Total shareholders' equity 98,348 100,131
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $143,066 $151,727
======= =======
</TABLE>
[FN]
The accompanying notes are an integral part of the Condensed Consolidated
Financial Statements.
<PAGE 4>
<TABLE>
COPLEY PHARMACEUTICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTH ENDED
JUNE 30, (Unaudited) JUNE 30,
1997 1996 (In thousands, except share data) 1997 1996
- ------- ------- -------- --------
<C> <C> <S> <C> <C>
Net sales:
$17,223 $22,608 Manufactured products $32,757 $40,049
8,277 12,703 Distributed products 18,559 19,609
------ ------ ------ ------
25,500 35,311 Net sales 51,316 59,658
Cost of goods sold:
12,223 16,914 Manufactured products 25,193 32,136
6,429 8,395 Distributed products 14,446 12,872
------ ------ ------ ------
18,652 25,309 Cost of goods sold 39,639 45,008
------ ------ ------ ------
6,848 10,002 Gross profit 11,677 14,650
Operating expenses:
3,566 3,298 Research and development 6,249 7,202
Selling, marketing and
1,051 1,618 distribution 2,319 5,031
1,990 2,421 General and administrative 3,466 3,671
2,167 (255) Recall related and litigation, net 2,366 (64)
310 --- Restructuring 312 ---
------ ------ ------ ------
(2,236) 2,920 Income (loss) from operations (3,035) (1,190)
350 205 Interest and other investment income 653 381
(68) (61) Interest expense (130) (119)
(1,540) (288) Other income (expenses), net (1,500) (1,319)
------ ------ ------ ------
(3,494) 2,776 Income (loss) before income taxes (4,012) (2,247)
(1,980) 1,074 Provision (benefit) for income taxes (2,135) (920)
------ ------ ------ ------
$(1,514) $1,702 NET INCOME (LOSS) $(1,877) $(1,327)
====== ====== ====== ======
Weighted average common
shares outstanding:
19,119 19,269 Primary 19,119 19,071
19,119 19,269 Fully diluted 19,119 19,071
Earnings (loss) per share:
$(0.08) $0.09 Primary $(0.10) $(0.07)
$(0.08) $0.09 Fully diluted $(0.10) $(0.07)
</TABLE>
[FN]
The accompanying notes are an integral part of the Condensed Consolidated
Financial Statements.
<PAGE 5>
<TABLE>
COPLEY PHARMACEUTICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
FOR THE SIX
MONTHS ENDED
(Unaudited) JUNE 30,
(In thousands) 1997 1996
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(1,877) $(1,327)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 3,628 3,532
Realized loss on sales of assets (116) 518
Change in deferred taxes 90 (121)
Changes in operating assets and liabilities:
Decreases (increases) in assets:
Accounts receivable 1,920 1,382
Inventories 67 (866)
Prepaid income taxes (2,225) 1,867
Other current assets (526) (2,595)
Other assets, net of amortization 1,324 (2,150)
Increases (decreases) in liabilities:
Accounts payable (3,756) (5,939)
Accrued expenses (2,239) (4,171)
------ ------
Net cash provided by (used in) operating
activities (3,710) (9,870)
------ ------
Cash flows from investing activities:
Capital expenditures (649) (5,845)
Purchases of available-for-sale securities (8,946) ---
Proceeds from maturities of available-for sale 6,800 5,000
securities
Proceeds from sales of property, plant and equipment 135 ---
------ ------
Net cash provided by (used in) investing (2,660) (845)
activities
------ ------
Cash flows from financing activities:
Issuance of common stock to Employee Stock Purchase Plan 113 151
------ ------
Net cash provided by (used in) financing activities 113 151
------ ------
Net increase (decrease) in cash and cash equivalents (6,257) (10,564)
Cash and cash equivalents at beginning of period 15,974 18,950
------ ------
Cash and cash equivalents at end of period $ 9,717 $ 8,386
====== ======
</TABLE>
[FN]
The accompanying notes are an integral part of the Condensed Consolidated
Financial Statements.
<PAGE 6>
COPLEY PHARMACEUTICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 1997
NOTE A - GENERAL
In the opinion of the Company, the accompanying condensed consolidated
financial statements contain all normal and recurring adjustments necessary to
present fairly the financial position of the Company as of June 30, 1997 and
December 31, 1996 and the results of its operations for the three and six
months ended June 30, 1997 and 1996, and its cash flows for the six months
ended June 30, 1997 and 1996. While the Company believes that the disclosures
presented are adequate to make the information not misleading, these financial
statements should be read in conjunction with the Notes included in the
Company's Form 10-K for the year ended December 31, 1996. The results for the
three-month and six-month period ended June 30, 1997 are not necessarily
indicative of the results that may be expected for any future period.
The Company's quarterly and annual operating results are affected by a wide
variety of factors that could have a material adverse effect on the Company's
business, financial condition, results of operations and stock price.
Statements in this Report on Form 10-Q which are not historical facts, so-
called "forward-looking statements", are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Investors
are cautioned that all forward-looking statements involve risks and
uncertainties, including those detailed in the Company's filings with the
Securities and Exchange Commission. See, for example, "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Risk Factors and Future Trends" contained in the Company's Form 10-K for the
year ended December 31, 1996.
NOTE B - RELATED PARTY TRANSACTIONS
On July 18, 1995, Hoechst Corporation ("HC"), the Company's 51% shareholder,
completed its purchase of Marion Merrell Dow, Inc. ("MMD") and changed MMD's
name to Hoechst Marion Roussel, Inc. ("HMRI"). This transaction resulted in a
related party relationship between the Company and its customer Rugby
Laboratories ("Rugby"), which was a subsidiary of MMD and is now a subsidiary
of HMRI. Net sales to Rugby totaled approximately $29,000 and $904,000 for the
six months ended June 30, 1997 and 1996, respectively. Total amounts due from
Rugby at June 30, 1997 and December 31, 1996, were approximately $39,000 and
$61,000, respectively.
In connection with HC's acquisition of its majority interest in the Company,
the Company is a party to a Product Agreement with HC pursuant to which the
Company is afforded the opportunity under specified conditions to distribute
and market the generic version of products sold by Hoechst-Roussel
Pharmaceuticals, Inc. ("HRPI"), which was an indirect majority-owned
subsidiary of HC. This Product Agreement has an initial term of five years,
until November 11, 1998, and continues unless terminated by either party giving
one year's notice. On January 1, 1996, HRPI was merged into HMRI.
HMRI has agreed to be bound by the Product Agreement to the extent that HRPI
was bound; that is, the Product Agreement continues to be in effect for
products manufactured by the former HRPI but not for products manufactured by
HMRI prior to the merger with HRPI nor for products developed by HMRI after
January 1, 1996. In furtherance of the Product Agreement, the Company and
HMRI enter into separate contracts relating to specific products as these
products become available for generic distribution. In order to assure
continuity of supply under a variety of circumstances and to provide other
competitive benefits, the Company agreed to renegotiate the existing
distribution contracts relating to glyburide and micronized glyburide and
signed new agreements in July 1997. Also in July 1997, the Company signed a
separate agreement for the distribution of pentoxifylline. As a result, the
Company expects increased royalty costs which have been reflected in the
current quarter's gross profit results. For the six months ended June 30,
1997 and 1996, approximately $13.7 million and $13.4 million, respectively, of
generic versions of products were purchased from HMRI under this Product
Agreement.
In connection with HC's acquisition of MMD, on December 5, 1995 the Federal
Trade Commission issued its Decision and Order ("Order") which, among other
things, requires either HC or MMD to divest its assets relating to research,
development, manufacture and sale of the compounds mesalamine and rifampin.
<PAGE 7>
For purposes of the Order, Copley is considered part of HC. Both these
products were in the developmental stage and the Company had not submitted an
ANDA for either product. Copley has agreed to divest its assets relating to
mesalamine and rifampin. In April 1997, the Company completed the sale of its
rifampin assets to a third party and in June 1997, the Company completed the
sale of its mesalamine assets to another third party. The Company expects
that it will be compensated by its majority owner if it is determined that it
has not obtained a satisfactory price for these assets.
The Company obtains its comprehensive general liability, product liability,
excess liability and all risks property insurance coverage through an
insurance and risk-sharing arrangement with HC and its parent, Hoechst
Aktiengesellschaft ("Hoechst AG"), and its various subsidiaries. Insurance
coverage is provided by HC through its wholly-owned insurance subsidiary, as
well as by external parties. The Company's total insurance expense for these
insurance policies was approximately $2.4 million and $2.5 million,
respectively, for the six months ended June 30, 1997 and 1996.
During the six months ended June 30, 1997 and 1996, the Company purchased
approximately $26,000 and $92,000, respectively, of bulk raw materials from a
chemical company whose president is a member of the Company's Board of
Directors.
During the six months ended June 30, 1997 the Company had net sales of
approximately $30,000 to Wuxi Chia Tai Copley Pharmaceutical, a Chinese
company whose majority owner is Chia Tai Copley Pharmaceutical of which the
Company is a 49% partner.
In June 1997, the Company discontinued its partnership participation in MIR
Pharmaceutical, a partnership formed to market and manufacture pharmaceutical
products in Russia, and whose senior vice president is a member of the
Company's Board of Directors. This resulted in a one-time charge which is
reflected in other expenses for the current quarter.
NOTE C - LITIGATION AND CONTINGENCIES
Albuterol Class Action Lawsuits
In connection with the Company's product recall of albuterol sulfate
inhalation solution, 0.5% ("albuterol"), the Company has been served with
complaints in numerous lawsuits in federal and state court, some of which are
on behalf of numerous claimants. The plaintiffs principally seek compensatory
and punitive damages and allege that injuries and deaths were caused by
inhalation of allegedly contaminated product manufactured and distributed by
the Company.
The federal court lawsuits were consolidated in the United States District
Court for the District of Wyoming as a multi-district litigation for pre-trial
purposes under the caption In Re: Copley Pharmaceutical, Inc. "Albuterol"
Products Liability Litigation. The District Court certified a partial class
action for determination of liability only and commenced a jury trial in June
1995. In August 1995, prior to the conclusion of the jury trial, the Company
entered into a settlement agreement with the representative plaintiffs in the
class action lawsuit. The settlement calls for the Company to receive a
general release of all non-death claims in return for contributions by the
Company and its insurers of a minimum of $65 million and a maximum of $130
million to settle all non-death claims relating to the Company's manufacture,
sale and recall of albuterol. An additional $20 million is allocated under the
terms of the settlement as an estimate of the cost of settling claims by
persons alleging wrongful death, which claims are limited by the settlement to
compensatory damages only and are subject to nonbinding negotiation and
arbitration. Within the Company's minimum and maximum contributions, the
amount to be paid by the Company is subject to revision based upon the number
and seriousness of individual claims eventually filed. On November 15, 1995,
the District Court entered its Order giving final approval of the settlement
and that Order has become final and nonappealable.
<PAGE 8>
The settlement agreement requires that the $150 million maximum contribution
be funded by an initial $50 million cash deposit and issuance of letters of
credit for the remaining balance, to be held by the Albuterol Settlement Trust
Fund as security for potential future payments. During the third quarter of
1995, the Company paid $5.1 million to the Albuterol Settlement Trust Fund and
obtained approximately $17.1 million in irrevocable stand-by letters of credit
to cover its uninsured obligation to fund the settlement agreement.
The settlement agreement required an additional $15.0 million cash deposit
after the order approving the settlement became final and nonappealable, which
occurred in late December 1996. In January 1997, the Company made an
additional $2.25 million cash deposit and its stand-by letters of credit have
been reduced by a like amount. The balance was funded by a draw upon a letter
of credit previously provided by one of the Company's insurers. These cash
contributions made by the Company totaling $7.35 million are nonrefundable
pursuant to the terms of the settlement agreement.
In August 1997, the Wyoming District Court ordered the Company to make
additional cash deposits totaling $3.15 million to fund the Company's portion
of payments of settlement amounts for class action cases alleging wrongful
death as well as settlements of opt-out cases, legal fees and other related
expenses. The Company's stand-by letters of credit will be reduced by a like
amount.
Approximately 5,530 proofs of claim (including approximately 540 alleging
wrongful death) have been filed with the Special Master appointed by the Court
to oversee the Albuterol Settlement Trust Fund. In addition, approximately
860 clients of Jacoby & Meyers, representing nearly all of that firm's clients
who are not alleging a death caused by albuterol, have agreed to be treated as
if they were class members and class counsel have agreed that these claimants
will be paid out of the Albuterol Settlement Trust Fund.
Recourse to the remaining letters of credit in the class action settlement
will not occur until all claims are processed and settlement amounts are
recommended by the Special Master, and is contingent on the number of claims
filed within certain categories. Although the total number of claims filed
against the Albuterol Settlement Trust Fund is less than the number of claims
for which the settling parties anticipated would be necessary to require the
maximum funding of the Albuterol Settlement Trust Fund, at this time the
Company is unable to determine how many of these claims will be awarded
damages by the Special Master and, if awarded damages, how much will be given
to various claimants. In addition, administrative fees and class action
attorney fees and expenses will be paid out of the Albuterol Settlement Trust
Fund. Accordingly, the Company cannot predict the total amount to be paid out
of the Albuterol Settlement Trust Fund.
The settlement is also subject to certain other contingencies and does not
cover certain individuals who previously opted out of the class action. The
Company continues to be a defendant in lawsuits that were brought by or on
behalf of approximately 65 people who properly opted out of the class action.
In May 1997, a settlement was concluded in two lawsuits involving
approximately 45 of these persons. The settlement was previously reserved and
did not have a material impact on the current quarter's earnings.
Grand Jury Investigation
On May 28, 1997, the Company announced that it had entered into a plea
agreement pursuant to which it agreed to waive indictment and plead guilty to
a one count Information charging a violation of Title 18, United States Code,
Section 371, a conspiracy to defraud the United States and one of its
agencies, the Food and Drug Administration ("FDA"). The Information alleged
that Copley made changes in the manufacturing processes for four drugs (only
two of which, procainamide 500 mg tablets and potassium chloride tablets,
currently are being manufactured by the Company) without proper notification
to the FDA and signed false batch records with respect to two of these drugs.
As part of the plea agreement, the Company agreed to pay a fine of $10.65
million, $3.55 million of which has been paid with the remainder due in two
equal installments in June, 1998 and June, 1999. The Company has revised its
reserve for recall related and litigation expenses which resulted in an after-
tax charge of approximately $2.0 million. The plea was accepted by the United
States District Court for the District of Massachusetts on June 19, 1997.
<PAGE 9>
The plea agreement followed a nearly four year investigation and grand jury
subpoenas from the United States Attorney's Office in Massachusetts for
documents focusing particularly on albuterol and Brompheril(R) products, which
were recalled by the Company in December 1993 and September 1994,
respectively, but extending beyond these products. The Company complied with
the subpoenas and cooperated with federal authorities throughout the
investigation.
Also on May 28, 1997, the Company announced that it had entered into an
agreement with the FDA providing for an independent audit of 20 of Copley's
ANDAs. The Company is cooperating fully with the FDA and the independent
audit commenced in July. The FDA has agreed that during this audit it will
continue to review the company's pending ANDAs, accept new ANDAs from the
Company, and, where appropriate, approve Copley ANDAs.
Shareholders' Lawsuit
In April 1993, three former shareholders of the Company filed a lawsuit
against the Company and certain of its officers and directors in the United
States District Court for the Southern District of New York. Ladenburg,
Thalmann & Co., Inc., a former financial advisor to the plaintiffs, was also
named as a defendant in the complaint. The complaint alleged that the Company
and certain of its officers and directors committed fraud and breached their
fiduciary duties to the plaintiffs in connection with the Company's November
1991 repurchase of shares. The complaint sought monetary damages in excess of
$10 million, rescission of the November 1991 share repurchase, unspecified
punitive damages and costs, disbursements and attorney's fees. In April 1997,
the Company settled this lawsuit for $525,000. This settlement was previously
reserved and did not have a material impact on the current quarter's
earnings.
Marion Merrell Dow, Inc. Bulk Diltiazem Lawsuit
In November of 1992, a lawsuit was filed against the Company by MMD and Tanabe
Seiyaku Co., Ltd. ("Tanabe") in the United States District Court for the
District of Massachusetts captioned Marion Merrell Dow, Inc. and Tanabe
Seiyaku Co., Ltd. v. Copley Pharmaceutical, Inc. and Orion Corporation
Fermion. MMD and Tanabe allege that the Company and Orion Corporation Fermion
("Orion"), the manufacturer of the Company's bulk diltiazem, are infringing a
process patent for one method of manufacturing bulk diltiazem. MMD and Tanabe
have alleged that they are the exclusive licensee and patentee, respectively,
of such process patent. The complaint seeks a permanent injunction and trebled
unspecified monetary damages. The Company has denied all liability in its
answer to the complaint. On May 10, 1993, the Court ordered the case
administratively closed, staying the case until further notice. On June 27,
1996, the parties jointly moved the Court for an Order further staying the
action until 30 days after completion of the related International Trade
Commission proceeding discussed below.
International Trade Commission Complaint
On February 25, 1993, the Company, together with a number of other off-patent
pharmaceutical manufacturers and certain chemical manufacturers, was named as
a respondent in a complaint filed by MMD and Tanabe before the United States
International Trade Commission ("the ITC") captioned Complaint of Marion
Merrell Dow, Inc. and Tanabe Seiyaku Co., Ltd. Pursuant to Section 337 of the
Tariff Act of 1930. The complaint seeks an order (i) prohibiting the
importation of, among other things, the bulk diltiazem purchased by the
Company from Orion, and (ii) requiring the Company to immediately stop selling
its current diltiazem product, which incorporates bulk diltiazem supplied by
Orion, based on the alleged infringement by Orion of a process patent for one
method of manufacturing bulk diltiazem.
<PAGE 10>
On June 1, 1996, the ITC issued its Final Determination ordering the
investigation terminated with the finding of no violation of Section 337, of
no patent infringement and taking no position on the issue of patent validity
and enforceability. On July 20, 1996, MMD and Tanabe filed an appeal with the
United States Court of Appeals for the Federal Circuit seeking review of the
ITC's Final Determination.
On March 7, 1997, the United States Court of Appeals for the Federal Circuit
affirmed the ITC's decision finding no infringement. A further appeal by MMD
to the United States Supreme Court is anticipated.
Orion has agreed at its expense to defend the Company in this action and the
MMD Bulk Diltiazem Lawsuit discussed previously and to indemnify the Company
for any damages that might be assessed as a result of the Company's sale of
diltiazem obtained from Orion. Although the Company believes that these
complaints are without merit, that the Company and Orion have meritorious
defenses to these actions, and that the Company should prevail in these
lawsuits, there can be no assurance that the Company will prevail or that an
adverse outcome would not have a material adverse effect on the Company's
financial condition or results of operations.
Warner-Lambert Lawsuit
On January 29, 1997, the Company was served with a complaint in an action
pending in the New Jersey Superior Court, Morris County, captioned Warner-
Lambert Company v. Copley Pharmaceutical, Inc. et ano. The plaintiff alleges
that the Company obtained access to the plaintiff's formula, process and
sustained release technology for a procainamide product through improper
means. The Company has been marketing its product since 1985. On August 5,
1997 this lawsuit was dismissed by Warner-Lambert Company. Under the
settlement agreement, Warner-Lambert's action was dismissed with prejudice and
all parties will bear their own costs. The Company's legal costs did not have
a material impact on the current quarter's earnings.
Other Legal Proceedings
The Company is subject to other legal proceedings and claims which arise in
the ordinary course of business. In the opinion of management, the results of
such proceedings will not have a material adverse effect on the Company's
financial condition or results of operations.
The Company has $12.7 million of estimated recall related and legal
contingency reserves accrued at June 30, 1997. These reserves reflect the
Company's estimates of its exposure at June 30, 1997 in its various
outstanding legal proceedings described above. Actual settlement amounts may
differ from amounts estimated.
NOTE D - DEBT
On August 7, 1997, the Company amended its working capital line of credit
agreement to replace one of its financial covenants related to profitability
with a working capital covenant effective June 30, 1997. At June 30, 1997, the
Company had $14.85 million in stand-by letters of credit related to the
Albuterol Settlement Trust Fund outstanding under this working capital line of
credit agreement. The Company is in the process of reducing its stand-by
letters of credit by $3.15 million to reflect its additional cash deposits
made pursuant to the August 1997 Court order. Refer to Note C for further
discussion of the Albuterol Settlement Trust Fund.
<PAGE 11>
Item 2. Management's Discussion and Analysis of Results of Operations and
Changes in Financial Condition
RESULTS OF OPERATIONS
<TABLE>
Net Sales
- ---------------------------------------------------------------------------------------
<CAPTION>
For the quarter For the six
ended (In thousands) months ended
June 30, Increase June 30, Increase
1997 1996 (Decrease) (Unaudited) 1997 1996 (Decrease)
- ---------------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C>
$17,223 $22,608 (23.8)% Manufactured products $32,757 $40,049 (18.2)%
8,277 12,703 (34.8)% Distributed products 18,559 19,609 ( 5.4)%
------ ------ ------ ------
$25,500 $35,311 (27.8)% Net sales $51,316 $59,658 (14.0)%
=======================================================================================
</TABLE>
Net sales for the second quarter of 1997 decreased 27.8% to $25.5 million,
compared to $35.3 million for the same period in 1996. Customer consolidations
and wholesaler initiatives to reduce their supplier bases continue to exert a
downward pressure on both selling prices and volumes. Additionally, new
product therapies increasingly have superseded demand for certain of the
Company's older products.
The Company's net sales were $51.3 million for the six-month period ended June
30, 1997 as compared to $59.7 million for the same period in 1996.
Increased sales volume of distributed products on a year-to-date basis and new
product launches occurring later in 1996 lessened the impact of the volume
reductions in base manufactured products and the overall pricing pressures.
In July 1997, the Company launched two new products: pentoxifylline, the
generic alternative to Hoechst Marion Roussel's Trental(R), and diclofenac
sodium delayed-release tablets, the off-patent version of Ciba-Geigy's
Voltaren(R) delayed-release tablets. Pentoxifylline is being marketed under the
Company's distribution agreement with Hoechst Marion Roussel, Inc.
<TABLE>
Gross Profit
- ---------------------------------------------------------------------------------------
<CAPTION>
For the quarter For the six
ended (In thousands) months ended
June 30, Increase June 30, Increase
1997 1996 (Decrease) (Unaudited) 1997 1996 (Decrease)
- ---------------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C>
$ 5,000 $ 5,694 (12.2)% Manufactured products $ 7,564 $ 7,913 ( 4.4)%
As a % of manufactured
29.0% 25.2% products net sales 23.1% 19.8%
- ---------------------------------------------------------------------------------------
$ 1,848 $ 4,308 (57.1)% Distributed products $ 4,113 $ 6,737 (38.9)%
As a % of distributed
22.3% 33.9% products net sales 22.2% 34.4%
- ---------------------------------------------------------------------------------------
$ 6,848 $10,002 (31.5)% Gross profit $11,677 $14,650 (20.3)%
26.9% 28.3% As a % of net sales 22.8% 24.6%
=======================================================================================
</TABLE>
<PAGE 12>
The Company's gross profit was $6.8 million, or 26.9% of net sales, for the
second quarter of 1997 as compared to $10.0 million, or 28.3% of net sales,
for the same period in 1996. The adverse impact of reduced sales and lower
distributed product margins resulting from the revised product supply
agreement with Hoechst Marion Roussel, Inc., were partially offset by
manufacturing efficiency gains and improved inventory management. Refer to
Note B for further discussion of the renegotiation of product supply
agreements.
For the six-month period ended June 30, 1997, the Company's gross profit was
$11.7 million, or 22.8% of net sales, as compared to $14.7 million or 24.6% of
net sales a year earlier.
<TABLE>
Operating Expenses
- ---------------------------------------------------------------------------------------
<CAPTION>
For the quarter For the six
ended (In thousands) months ended
June 30, Increase June 30, Increase
1997 1996 (Decrease) (Unaudited) 1997 1996 (Decrease)
- ---------------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C>
$3,566 $3,298 8.1 % Research and development $6,249 $7,202 (13.2)%
20.7% 14.6% As a % of net manufactured 19.1% 18.0%
sales
- ---------------------------------------------------------------------------------------
Selling, marketing and
$1,051 $1,618 (35.0)% distribution $2,319 $3,671 (36.8)%
4.1% 4.6% As a % of net sales 4.5% 6.2%
- ---------------------------------------------------------------------------------------
$1,990 $2,421 (17.8)% General and administrative $3,466 $5,031 (31.1)%
7.8% 6.9% As a % of net sales 6.8% 8.4%
- ---------------------------------------------------------------------------------------
Recall related and
$2,167 $ (255) 950 % litigation, net $2,366 $ (64) 3,797 %
8.5% (0.7)% As a % of net sales 4.6 % (0.1)%
- ---------------------------------------------------------------------------------------
$ 310 --- 100 % Restructuring $ 312 --- 100 %
1.2% As a % of net sales 0.6%
=======================================================================================
</TABLE>
Research and development expenses increased slightly to $3.6 million for the
second quarter of 1997 as compared to $3.3 million for the same period of
1996. For the six-month period, research and development expenses were $6.2
million as compared to $7.2 million reported in the prior year. Significant
reductions in product validation costs were the primary causes of this
decrease. Selling, marketing and distribution expenses decreased 35.0% to $1.1
million for the second quarter of 1997 as compared to $1.6 million for the
same period of 1996. For the six-month period, selling, marketing and
distribution expenses decreased 36.8% to $2.3 million compared to $3.7
million reported a year earlier. Higher advertising and promotional expenses
in the prior year and overall cost reductions were the primary causes of
these decreases.
General and administrative expenses were $2.0 million for the second quarter
of 1997 as compared to $2.4 million for the same period in 1996. This decrease
was primarily attributable to overall cost reductions, including significantly
lower directors' and officers' insurance premiums, and efficiency
improvements. For the six-month period ended June 30, 1997, general and
administrative expenses totaled $3.5 million compared to $5.0 million a year
earlier.
Net recall related and litigation expenses in 1997 include an adjustment to
the Company's reserve to reflect the plea agreement with the Massachusetts
U.S. Attorney and resultant fine, and other uninsured legal expenses incurred
by the Company for representation in its various legal proceedings. Refer to
Note B for further discussion of the plea agreement and the Company's other
outstanding legal proceedings.
The restructuring charges recorded in 1997 primarily reflect a small reduction
in the Company's workforce as part of its previously announced cost reduction
initiatives.
<PAGE 13>
<TABLE>
Interest and Other Income (Expense)
- ---------------------------------------------------------------------------------------
<CAPTION>
For the quarter For the six
ended (In thousands) months ended
June 30, Increase June 30, Increase
1997 1996 (Decrease) (Unaudited) 1997 1996 (Decrease)
- ---------------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C>
$ 350 $ 205 70.7 % Interest and other $ 653 $381 71.4 %
investment income
- ---------------------------------------------------------------------------------------
(68) (61) (11.5)% Interest expense (130) (119) (9.2)%
- ---------------------------------------------------------------------------------------
$(1,540) (288) (435)% Other income (expense) (1,500) (1,319) (13.7)%
=======================================================================================
</TABLE>
Interest and other investment income increased to $350,000 for the second
quarter of 1997 as compared to $205,000 for the same period of 1996 due to
increased average investment holdings. For the six-month period, interest and
other investment income increased to $653,000 as compared to $381,000 reported
a year earlier.
Other expenses of $1.5 million for the six-months ended June 30, 1997
consisted primarily of a one-time charge related to the Company's decision to
discontinue its partnership participation in MIR Pharmaceutical, a company
formed to manufacture and sell pharmaceutical products in Russia, and to
discontinue funding a collaborative effort in the field of ophthalmology.
Refer to Note B for further discussion of MIR Pharmaceutical.
Other expenses of $1.3 million for the six months ended June 30, 1996 were
primarily comprised of $1.0 million incurred in connection with the evaluation
of a possible business consolidation which the Company had decided not to
pursue.
<TABLE>
Taxes and Net Income (Loss)
- ---------------------------------------------------------------------------------------
<CAPTION>
For the quarter For the six
ended (In thousands) months ended
June 30, Increase June 30, Increase
1997 1996 (Decrease) (Unaudited) 1997 1996 (Decrease)
- ---------------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C>
$(1,980) $1,074 (284) % Income tax expense $(2,135) $ (920) (132)%
(benefit)
- ---------------------------------------------------------------------------------------
Effective tax (benefit)
(56.7)% 38.7% rate (53.2)% (40.9)%
- ---------------------------------------------------------------------------------------
$(1,514) $1,702 (189) % Net income (loss) $(1,877) $(1,327) (41) %
=======================================================================================
</TABLE>
The effective tax (benefit) rate for 1997 increased when compared to the same
periods in 1996 due primarily to the non-deductible nature of certain
expenses.
Net loss for the second quarter of 1997 was $1.5 million or $0.08 per share
compared to a net profit of $1.7 million or $0.09 per share for the second
quarter of 1996. Net income excluding litigation related expenses and
previously announced cost reduction initiatives would have been a profit of
$0.2 million or $0.01 per share.
For the six-month period ended June 30, 1997, the Company reported a net loss
of $1.9 million or $0.10 per share as compared to net loss of $1.3 million or
$0.07 per share for the same period in 1996. Excluding the unusual items
described above, 1997 earnings would have been a gain of $0.1 million, or less
than $0.01 per share. Restated with similar expense items excluded, 1996
earnings would have been a loss of $0.8 million or $0.04 per share.
Consistent downward pressures on both selling prices and volumes continue to
erode the Company's profits. Although the Company has been successful in its
various cost reductions and efficiency improvements throughout the Company, a
continuous stream of new products is needed to offset some of these
competitive pressures.
<PAGE 14>
CHANGES IN FINANCIAL CONDITION
Capital Resources and Liquidity
<TABLE>
<CAPTION>
Unaudited
June 30, December 31,
(In thousands) 1997 1996
--------- ------------
<S> <C> <C>
Cash and short-term investments $ 25,682 $ 29,731
Working capital 54,364 48,179
Long-term debt 5,100 5,100
Shareholders' equity 98,348 100,131
</TABLE>
Working capital increased $6.2 million from December 31, 1996 to $54.4 million
at June 30, 1997 primarily due to working capital generated from operations
and the reclassification to long-term liabilities of certain accrued expenses
related to the grand jury investigation.
The Company has a working capital line of credit agreement that provides a
maximum borrowing capacity of $30.0 million. At June 30, 1997, the Company
had $14.85 million of stand-by letters of credit issued under this line of
credit. These stand-by letters of credit were obtained by the Company
pursuant to the requirements of the Albuterol Settlement Trust Fund to cover
its uninsured obligation. Recourse to the letters of credit are contingent on
the number of claims filed within certain categories and will not occur until
all claims are processed and settlement amounts are recommended by the Special
Master.
In August 1997, the Wyoming District Court ordered the Company to make
additional cash deposits totaling $3.15 million to fund its portion of
payments of settlement amounts for class action cases alleging wrongful death
as well as settlements of opt-out cases, legal fees and other related
expenses. The Company's stand-by letters of credit will be reduced by a like
amount. Refer to Note C for further discussion of the Albuterol Settlement
Trust Fund.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See descriptions of legal proceedings in Note C of Notes to Condensed
Consolidated Financial Statements in Part I of this Form 10-Q, which are
hereby incorporated by reference herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Shareholders of the Company was held on May
30, 1997.
(b) (1) The following individuals were re-elected to the Board of
Directors. The number of votes cast in connection with the re-election of each
of the above directors was as follows:
Director For Against Abstained
-------- ----- ------- ---------
Kennrth N. Larsen 15,958,388 149,124 22,905
Agnes Varis 15,936,726 169,913 23,778
Martin Zeiger 15,876,164 228,864 25,389
<PAGE 15>
(c) (3) The selection of the firm of KPMG Peat Marwick LLP as auditors
for the fiscal year ending December 31, 1997 was ratified by the
following vote:
Number of Shares
----------------
For 15,985,051
Against 61,929
Abstained 83,437
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Fifth Amendment to Amended and Restated Loan
Agreement dated as of August 7, 1997 by and between
the Company and the First National Bank of Boston
("Bank of Boston").
10.2* Amended and Restated Glyburide Agreement effective
January 1, 1997 by and between Hoechst Marion
Roussel, Inc. and Copley Pharmaceutical, Inc.
10.3* Amended and Restated Micronized Glyburide
Agreement effective January 1, 1997 by and between
Hoechst Marion Roussel, Inc. and Copley
Pharmaceutical, Inc.
10.4* Pentoxifylline Agreement effective January 1, 1997 by
and between Hoechst Marion Roussel, Inc. and Copley
Pharmaceutical, Inc.
27 Financial Data Schedule
* Confidential treatment as to certain portions has been requested pursuant to
Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as amended.
(b) Reports on Form 8-K
Form 8-K dated May 28, 1997 - Item 5: Other Events The
Company announced that it entered into a plea agreement
covering all issues investigated by the Massachusetts U.S.
Attorney during a nearly three-year-long review.
Form 8-K dated June 24, 1997 - Item 5: Other Events.
The Company announced a number of cost reduction initiatives
and the acceptance of the Company's guilty plea.
No other reports on Form 8-K were filed during the three
months ended June 30, 1997.
<PAGE 16>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Signature Title Date
/s/ Ken E. Starkweather
- ------------------------- Vice President-Finance,
Ken E. Starkweather Treasurer and Chief Financial August 14, 1997
Officer (principal financial
and principal accounting officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEETS, STATEMENTS OF OPERATIONS AND
STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000829987
<NAME> COPLEY PHARMACEUTICAL, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 9717
<SECURITIES> 15965
<RECEIVABLES> 25604
<ALLOWANCES> (500)
<INVENTORY> 27064
<CURRENT-ASSETS> 90432
<PP&E> 72021
<DEPRECIATION> (22736)
<TOTAL-ASSETS> 143066
<CURRENT-LIABILITIES> 36068
<BONDS> 0
0
0
<COMMON> 254
<OTHER-SE> 98094
<TOTAL-LIABILITY-AND-EQUITY> 143066
<SALES> 25500
<TOTAL-REVENUES> 25500
<CGS> 18652
<TOTAL-COSTS> 18652
<OTHER-EXPENSES> 9084
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68
<INCOME-PRETAX> (3494)
<INCOME-TAX> (1980)
<INCOME-CONTINUING> (1514)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1514)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
Exhibit 10.1
FIFTH AMENDMENT
TO
AMENDED AND RESTATED LOAN AGREEMENT
This Amendment is made as of August 7, 1997 by and between COPLEY
PHARMACEUTICAL, INC., a Delaware corporation with its principal office at 25
John Road, Canton, Massachusetts (the "Borrower"), and BANKBOSTON, N.A. (f/k/a
The First National Bank of Boston), a national banking association with its
principal office at 100 Federal Street, Boston, Massachusetts (the "Bank").
RECITALS
A. The Bank and the Borrower are parties to a certain Amended and
Restated Loan Agreement dated August 17, 1993, as amended by a certain First
Amendment to Amended and Restated Loan Agreement dated June 29, 1995, a
certain Second Amendment to Amended and Restated Loan Agreement dated August
30, 1995, a certain Third Amendment to Amended and Restated Loan Agreement
dated March 25, 1996 and a certain Fourth Amendment to Amended and Restated
Loan Agreement dated July 31, 1996 (as amended, the "Loan Agreement").
Capitalized terms used herein without definition have the meaning assigned to
them in the Loan Agreement.
B. The Borrower has requested certain amendments to the Loan
Agreement as set forth herein.
C. Subject to certain terms and conditions, the Bank is willing to
agree to the same, as hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
I. AMENDMENTS TO LOAN AGREEMENT. The Borrower and the Bank agree that the
Loan Agreement shall be amended as follows:
A. Addition of Definitions. The following definitions are added to
Section 1.1 of the Loan Agreement in the appropriate alphabetical order:
"Consolidated Current Assets": As of any date, all assets of the Borrower
and any Subsidiaries on a consolidated basis that, in accordance with
generally accepted accounting principles, are properly classified as current
assets as of such date.
"Consolidated Current Liabilities": As of any date, all liabilities of
the Borrower and any Subsidiaries on a consolidated basis maturing on demand
or within one (1) year from such date, and any other liabilities as of such
date as may properly classified as current liabilities in accordance with
generally accepted accounting principles.
<PAGE 2>
B Deletion of Definitions. The definitions of "Adjusted Income" and
"Special Expenses" are deleted from Section 1.1 in their entirety.
C. Section 8.4 Amended. Section 8.4 (iii) of the Loan Agreement is
hereby deleted in its entirety and replace with the following:
"(iii) sales of assets for an aggregate consideration not exceeding
$5,000,000 in any fiscal year."
D. Section 9.2. Section 9.2 of the Loan Agreement is hereby deleted
in its entirety and replaced with the following:
"S. 9.2. Liquidity. The Borrower shall at all times maintain
Consolidated Current Assets which exceed the Borrowers Consolidated
Liabilities by greater than $40,000,000."
II. NO FURTHER AMENDMENTS. Except as specifically amended herein, all terms
and conditions of the Loan Agreement shall remain in full force and effect as
originally constituted. Each reference in the Loan Agreement to "this
Agreement", "hereunder", "hereof" or words of like import referring to the
Loan Agreement shall mean and be a reference to the Loan Agreement as amended
by this Fifth Amendment, and each reference in any other Loan Document to
the Loan Agreement, "thereunder", "thereof" or words of like import referring
to the Loan Agreement shall mean and be a reference to the Loan Agreement as
amended by this Fifth Amendment.
III. MISCELLANEOUS.
1. The Borrower represents and warrants that no event has occurred or
failed to occur, which constitutes, or which, solely with the passage of time
or the giving of notice (or both) would constitute, an Event of Default.
2. The execution and delivery of this Fifth Amendment by the Borrower
has been duly authorized by all requisite corporate action of the Borrower, is
legal, valid and binding on the Borrower, and will not violate any provision
of law, any order, judgment or decree of any court or other agency of
government, or the organizational documents of the Borrower or any other
instrument to which the Borrower is a party, or by which the Borrower is
bound.
3. The representations and warranties contained in Section 6 of the
Loan Agreement are true and correct in all material respects on and as of the
date of this Fifth Amendment as though made on and as of such date (except to
the extent that such representations and warranties expressly relate to an
earlier date or except to the extent variations therefrom have been (i)
permitted under the terms of Loan Agreement, (ii) otherwise approved in
writing by the Bank or (iii) reflected in reports filed by the Borrower with
the Securities and Exchange Commission).
<PAGE 3>
4. As provided in the Loan Agreement, the Borrower agrees to
reimburse the Bank upon demand for all out-of-pocket costs, charges,
liabilities, taxes and expenses of the Bank (including reasonable fees and
disbursements of counsel to the Bank) in connection with the preparation,
negotiation, interpretation, execution and delivery of this Fifth Amendment
and any other agreements, instruments or documents executed pursuant or
relating hereto.
5. The Borrower represents, warrants, and agrees that the Borrower
has no claims, defenses, counterclaims or offsets against the Bank in
connection with the Loan Agreement or the Obligations, and, to the extent
that any such claim, defense, counterclaim or offset may exist, the Borrower
hereby affirmatively WAIVES AND RELEASES Bank from the same.
This Fifth Amendment shall take effect as a sealed instrument under the
laws of the Commonwealth of Massachusetts as of the date first above written.
COPLEY PHARMACEUTICAL, INC.
By: /s/ Ken E. Starkweather
---------------------------
Name: Ken E. Starkweather
Title: Vice President - Finance,
Treasurer and Chief
Financial Officer
BANK OF BOSTON, N.A.
By: /s/ Jeffrey R. Westling
-----------------------------
Jeffrey R. Westling
Director
EXHIBIT 10.2
AMENDED AND RESTATED
GLYBURIDE AGREEMENT
THIS AMENDED AND RESTATED GLYBURIDE AGREEMENT (the "Agreement"),
effective this 1st day of January, 1997 (the "Effective Date"), is by and
between HOECHST MARION ROUSSEL, INC., a Delaware corporation ("HMRI"), and
COPLEY PHARMACEUTICAL, INC., a Delaware corporation ("COPLEY").
W I T N E S S E T H:
WHEREAS, HMRI is engaged in the manufacture, for the United States
of America market, of non-micronized glyburide in finished dosage forms (the
"Product" or "Products") pursuant to New Drug Application #17-532 (the "NDA"),
and
WHEREAS, COPLEY desires to purchase and market the Products, under
its own name and under the private label name of certain of COPLEY's customers
in the Territory (as hereinafter defined), and
WHEREAS, HMRI desires to supply Product to COPLEY, upon the terms
and conditions provided herein.
WHEREAS, COPLEY and HMRI are parties to that certain Glyburide
Agreement dated as of February 14, 1994 (the "Glyburide Agreement") and the
parties wish to amend and restate the Glyburide Agreement to include certain
new agreements between HMRI and COPLEY.
NOW THEREFORE, the parties hereto agree as follows:
1. MANUFACTURE, PURCHASE AND SALE OF PRODUCT, AND HMRI REVENUE SHARE
1.1 Purchase and Sale. Pursuant to the terms and conditions of this
Agreement consistent with 21 CFR 314.70(d)(4), HMRI agrees to manufacture
exclusively for COPLEY, during the Term (as defined in Section 11.1 hereof) of
this Agreement, generic versions of the 1.25 mg, 2.5 mg and 5.0 mg strengths
of HMRI's standard DiaBeta(R) (glyburide) formulation, for sale by COPLEY to
the trade in the Territory under the COPLEY label and the private label of
certain of COPLEY's customers. For the Term, and thereafter in the event of
renewal or extension (as set forth in Section 11 hereof), COPLEY agrees to
purchase all of its requirements for the Product for sale in the Territory
from HMRI and HMRI agrees to supply all of COPLEY's requirements for the
Product. It is understood by the parties that the Product is produced in
campaigns of a minimum quantity set forth in Schedule 1.1 of this Agreement
(the "Minimum Quantity"). Regardless of COPLEY's requirements under this
Section 1.1, COPLEY hereby agrees to place firm and binding orders for, and
to purchase and take delivery from HMRI of, quantities of the Product and any
multiples thereof to be delivered to COPLEY in each calender month during the
Term of this Agreement that are not less than the Minimum Quantity. The
parties acknowledge that shipments of the Product by HMRI may vary from the
Minimum Quantity by up to ten percent more or less than the Minimum Quantity.
<PAGE 2>
1.2 Product Specifications and Manufacturing Technology Transfer Option.
HMRI will manufacture the Product for COPLEY in oblong, scored tablets in
strengths and colors as follows:
Strength: COPLEY Generic
-------- --------------
5.0 mg blue
2.5 mg light pink
1.25 mg white
The Product shall meet the specifications set forth in the NDA, as
such specifications may be changed from time to time. HMRI shall on a timely
basis advise COPLEY of any changes made with respect to the NDA.
1.3 Labeling and Packaging. Packaging and labeling for the Product shall
be consistent with the U.S. Food and Drug Administration (the "FDA") approved
labeling for the Products, and shall be in dosage strengths and colors as set
forth in Section 1.2 herein and in packaging configurations as subsequently
mutually agreed upon by the parties.
1.4 Rolling Forecasts and Orders. On a monthly basis COPLEY will provide
HMRI with 12-month rolling forecasts by package size (SKU) and by distributor.
The first rolling forecast will be due upon execution of this Agreement.
COPLEY will be obligated to place orders and purchase from HMRI the
following:
a. 100% of the amounts forecast for the first three months of each
rolling forecast; and
b. 50% of the amounts forecast for months four, five and six of each
rolling forecast.
Each purchase order shall contain a shipment date in accordance with
HMRI's manufacturing lead time of twelve (12) weeks, and be subject to the
provisions of Section 9 hereof. COPLEY will supply HMRI with monthly sales
summaries by class of trade at HMRI's request.
1.5 Cost of Goods and Payment. Annually in January of each calendar year
during the Term of this Agreement, HMRI shall provide to COPLEY cost of goods
pricing for the Products during that calendar year. HMRI cost of goods
pricing provided to COPLEY for each calendar year subsequent to the initial
pricing provided in Exhibit A of this Agreement shall be accompanied by such
reasonable detail and documentation as to enable COPLEY to understand the
basis for such pricing. The pricing shall include material costs (including,
but not limited to, bulk active ingredient costs which bulk active costs shall
include a reasonable profit margin to HMRI to be negotiated based upon quotes
from qualified, bona fide sources), manufacturing charges and packaging costs
on a fully allocated basis according to generally accepted accounting
principles. HMRI's cost of goods pricing to COPLEY during 1997 for packaged
finished goods FOB Bridgewater, New Jersey shall be as set forth in Exhibit A,
attached hereto and made a part hereof. Notwithstanding the foregoing
<PAGE 3>
sentence, the parties understand that HMRI may move its production site of any
Product to a different site and that in such event Exhibit A of this Agreement
will be amended to reflect HMRI's cost of goods pricing to COPLEY at such new
production site. COPLEY agrees to pay the invoice amount for the Products
ordered by COPLEY. Terms of payment shall be open account, net forty-five
(45) days from the later of receipt of invoice or shipment of the Product.
1.6 Advertising/Marketing/Sales Costs and Product Pricing. COPLEY shall
be responsible for all advertising, marketing and sales costs associated with
Product distribution. COPLEY will have complete authority for all pricing
decisions for the Product sold by COPLEY. COPLEY agrees to keep HMRI
reasonably informed of price changes in excess of twenty-five percent (25%) or
such other percentage as mutually agreed to by the parties.
1.7 HMRI Net Profit Margin Share. The parties agree that HMRI shall
receive, on a monthly basis, payments from COPLEY which shall be equal to
[*] of the COPLEY Net Profit Margin realized on sales of any Product in the
Territory during each preceding calendar month. For the purposes of this
Section 1.7, COPLEY Net Profit Margin shall mean COPLEY Product gross sales
less actual chargebacks, rebates, price adjustments, returns and cash
discounts and less cost of goods as set forth in Section 1.5 herein. Exhibit
B, attached hereto and made a part hereof, sets forth the method of
calculation of HMRI Net Profit Margin Share. The monthly payments
contemplated by this Section 1.7 shall be made by check delivered to HMRI not
later than ninety (90) days following the close of each calendar month during
the Term of this Agreement.
2. TERRITORY
This Agreement encompasses only the United States of America and its
possessions and territories including Puerto Rico (the "Territory") and gives
COPLEY the right to market to all classes of trade in the Territory.
3. REGULATORY MATTERS
3.1 FDA Approval. HMRI represents and warrants that the Product is
approved by the FDA for the uses set forth in HMRI's labeling. COPLEY and
HMRI agree to take all necessary action to obtain and maintain any approvals
necessary to permit COPLEY to sell the Product under its own name in the
Territory in compliance with applicable federal and state drug laws. HMRI and
COPLEY agree to coordinate with each other concerning all changes to Product
labeling.
3.2 Regulatory Correspondence. COPLEY and HMRI shall make available to
each other, within three (3) days of receipt, regulatory correspondence
covering the following issues: regulatory letters, Product recalls,
withdrawal of Product, and correspondence bearing on the safety and efficacy
of the Product.
[*] Confidential portion has been omitted pursuant to a request for
confidential treatment and has been filed separately with the Commission.
<PAGE 4>
3.3 Product Inquiries and Complaints/Recalls. COPLEY will promptly submit
to HMRI all Product safety and efficacy inquiries, Product quality complaints
and adverse drug event (ADE) reports received by it, together with all
available evidence and other information relating thereto. Except as
otherwise required by law or governmental regulation, HMRI will be responsible
for investigating and responding to all such inquiries, complaints and adverse
events regarding the Product. It shall be the exclusive responsibility of
HMRI to comply with all federal, state and local governmental reporting
requirements regarding ADEs and Product quality matters, except where such
events or matters are caused solely by acts or omissions of COPLEY, in which
case HMRI may, consistent with applicable law and regulation, request COPLEY's
assistance in such compliance. HMRI will forward a copy of all FDA
submissions concerning Product ADEs or any Product safety-related topic to
COPLEY within ten (10) working days of submission. In the event of a dispute
in respect of the therapeutic action or quality of the Product: (i) if the
dispute involves only COPLEY and a subsequent purchaser then COPLEY and HMRI
shall consult prior to any compromise or settlement of such dispute; and
(ii) if the dispute involves COPLEY, HMRI and a subsequent purchaser then both
parties must consent prior to any compromise or settlement of such dispute.
COPLEY shall be responsible for forwarding recall materials received from HMRI
designed to recover Products distributed by it and its private label customers
in the event of a recall. Expenses associated with a recall are to be borne
by the party at fault.
3.4 Quality Assurance. In order to facilitate quality assurance
activities with respect to the Product, HMRI agrees to (a) allow COPLEY at
least once per year at mutually agreeable times to inspect/audit HMRI's
facilities and records pertaining to manufacture, testing, storage and packaging
for compliance with Good Manufacturing Practice, 21 CFR 211, and (b)
supply to COPLEY the results of all stability testing for the Product. COPLEY
agrees to allow HMRI at least once per year at mutually agreeable times to
inspect/audit COPLEY's facilities and records pertaining to storage and
distribution for compliance with Good Manufacturing Practice, 21 CFR 211.
3.5 Additional Information. COPLEY shall provide to HMRI in a timely
manner, but in no event less than thirty (30) days prior to the due date of
HMRI's annual report to the FDA with respect to the Product, all information
which HMRI requests regarding the Product in order to comply with applicable
federal and state drug laws. Such information shall include, without
limitation, quantities of the Product sold. COPLEY shall be responsible for
assuring that all promotional material produced by it relating to the Product
comply with federal, state and local law. COPLEY shall provide to HMRI prior
to first use copies of all advertising, promotional material, labeling and
other literature used on, or in connection with, the Product. HMRI shall
supply to COPLEY on a timely basis a copy of said FDA annual report.
4. PROPRIETARY RIGHTS AND TRADEMARKS
HMRI retains ownership of the NDA and any supplements thereto. HMRI is
the owner of certain proprietary information (the "Proprietary Rights") used
in connection with the manufacturing, sale and distribution of non-micronized
glyburide pharmaceutical preparations. No such Proprietary Rights are being
<PAGE 5>
assigned, licensed or otherwise transferred hereunder, and COPLEY acknowledges
that it shall have no rights hereunder to any such Proprietary Rights and
hereby agrees that it shall not contest or dispute the validity of or title to
any of such Proprietary Rights. Without limiting the generality of the
foregoing, COPLEY agrees it shall not take or cooperate in litigation or
threatened litigation which might or is intended to impair or attack such
Proprietary Rights or which questions the paramount interest of HMRI or its
affiliates, licensees or assignees in the same. COPLEY and its private label
customers shall market the Product under their own trade names and trademarks,
which shall not be confusingly similar to the trademark of HMRI for its non-
micronized glyburide product.
5. SECRECY
Except for literature and information intended for disclosure to
customers, each party will treat as confidential all technical and commercial
information acquired by it from the other party under this Agreement and will
take all necessary precautions to assure the secrecy of such confidential
information. Each party agrees to return to the other party upon the
expiration or termination of this Agreement all confidential technical and
commercial literature, data, and information acquired from the other party.
Neither party shall, during the term of this Agreement or for ten (10) years
thereafter, without the express prior written consent of the other party, use
or disclose any such information received by it from the other party pursuant
to the transactions contemplated by this Agreement for any purpose whatsoever.
6. WARRANTY
HMRI warrants that the Product manufactured by HMRI and sold to COPLEY
pursuant to this Agreement will meet the specifications for Products set forth
in the NDA in effect at the time of such shipment. HMRI reserves the right to
amend such specifications from time to time at the sole discretion of HMRI;
provided that COPLEY is provided with written notice within a commercially
reasonable period of time in advance in order to effect any necessary
marketing or other changes and, provided further that such changes do not
cause the Product delivered to COPLEY to cease to be the equivalent of the
DiaBeta(R) then sold by HMRI. All Products will conform to, and the Products
manufactured by HMRI will be manufactured in conformity with, the regulations
of the Federal Food and Drug Administration and any comparable state agency
applicable thereto. None of the Products contained in any shipment made
hereunder to COPLEY will, at the time of delivery, be adulterated or
misbranded within the meaning of the Federal Food, Drug and Cosmetic Act, as
amended (the "Act"), and those applicable state laws substantially similar to
the Act, as such Act and laws exist at the time of delivery. None of the
Products will be an article that may not, under the provisions of the Act, be
introduced into interstate commerce. The Products shall conform with any
specifications and quality assurance requirements mutually agreed to in
writing by the parties and, in any event, shall not contain any poisonous or
deleterious material. No Product shall infringe the patent, trade secret or
other proprietary right of any third party. THIS WARRANTY IS THE ONLY
WARRANTY, EXPRESS OR IMPLIED, MADE BY HMRI AS TO THE PRODUCT, AND ALL OTHER
WARRANTIES, INCLUDING MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE,
<PAGE 6>
ARE DISCLAIMED. Except as otherwise provided in this Agreement, the exclusive
remedy for breach of warranty shall be prompt replacement of the nonconforming
Product at HMRI's expense with a like amount of the Product conforming to the
above-stated warranty. For purposes hereof, replacement may include
reprocessing of the Product if done in a period of time commercially
reasonable to COPLEY. In no event shall HMRI be liable to COPLEY for any
alteration, change, improper packaging or other improper treatment of the
Product by COPLEY other than in accordance with HMRI's instructions; nor shall
HMRI be liable to COPLEY for any damage arising solely from COPLEY's
marketing, advertising, distribution or sale of the Product that conforms to
the warranty set forth above.
7. COPLEY'S OBLIGATIONS
COPLEY shall not alter the Product and shall not recommend or knowingly
sell the Product for any uses except as described in the FDA approved Product
labeling.
8. INDEMNITY
8.1 Indemnification by HMRI. HMRI shall defend, indemnify and hold
harmless COPLEY and its affiliates (and each of their employees, officers,
directors and stockholders) from and against any and all claims, liabilities,
assessed damages, costs and expenses (including, without limitation, costs and
expenses of investigation and settlement, court costs and attorneys' fees and
expenses regardless of outcome, but excluding any indirect, incidental or
consequential damages or losses and lost profits) arising out of any claim of
defect in materials or workmanship of the Product, failure of the Product to
conform to the express warranty set forth in Section 6 hereinabove or alleged
or actual personal injury, illness, death or other harm, except to the extent
such claim arises out of COPLEY's breach of this Agreement, negligence or
misconduct.
8.2 Indemnification by COPLEY. COPLEY shall defend, indemnify and hold
harmless HMRI and its affiliates (and each of their employees, officers,
directors and stockholders) from and against any and all claims, liabilities,
assessed damages, costs and expenses (including, without limitation, costs and
expenses of investigation and settlement, court costs and attorneys' fees and
expenses regardless of outcome, but excluding any indirect, incidental or
consequential damages or losses and lost profits) to the extent caused by
COPLEY's packaging, marketing, advertising, distribution or sale of Product
that conforms to the express warranty set forth in Section 6 hereinabove or
caused by alterations to the Product made by COPLEY after delivery by HMRI
other than in accordance with the written directions of HMRI, except to the
extent such claim arises out of HMRI's breach of this Agreement, negligence or
misconduct.
8.3 Indemnification Procedures. The parties shall cooperate and give each
other prompt notice of claims as to which indemnification may be claimed
hereunder. The indemnifying party may, at its option, control the defense of
claims for which indemnification may be sought. The indemnifying party shall
not be required to indemnify the indemnified party for any claim settled
without the indemnifying party's written consent.
<PAGE 7>
9. ORDERS
9.1 Placement of Orders. All orders placed by COPLEY with HMRI hereunder
shall be sent to the following address, unless otherwise notified in writing:
Hoechst Marion Roussel, Inc.
2110 East Galbraith Road
P.O. Box 156300
Cincinnati, OH 45215-6800
Attn: Ronald R. Schallick
Telephone: (513) 948-7197
Telecopy: (513) 948-4547
9.2 Shipment. HMRI shall make every reasonable effort to fill COPLEY's
accepted orders in accordance with COPLEY's requested delivery dates. All
shipments of the Product to COPLEY shall be accompanied by a certificate of
analysis for each batch in said shipment, certifying that each batch was made
in accordance with current Good Manufacturing Practices and the NDA and
listing test results. Deliveries to COPLEY shall be FOB, HMRI Bridgewater,
New Jersey or such other U.S. location to which HMRI may move production of
the Product. COPLEY shall pay all shipping costs, including insurance.
9.3 Risk of Loss. Risk of loss shall pass to COPLEY upon shipment by
HMRI.
9.4 Claims. COPLEY shall cause a commercially reasonable visual
inspection of all shipments of the Product promptly after arrival if shipped
directly to COPLEY, and shall give prompt oral notice of potential
nonconforming goods, and within thirty (30) days after arrival of any such
shipment, give written notice to HMRI of any claim that any Product included
in shipment may not conform to any applicable specifications or warranty. If
shipment of the Product is to a destination other than COPLEY, any claims of
non-conformity under this Section 9.4 must be made by COPLEY within ninety 90
days of actual delivery of the Product to such destination. HMRI shall
promptly replace such nonconforming Product with conforming Product at no
additional cost to COPLEY. COPLEY's failure to detect and/or give notice of
any defect not readily identifiable upon commercially reasonable visual
inspection shall not vitiate HMRI's obligations under the warranty and
indemnification provisions of this Agreement.
10. FORCE MAJEURE
Neither party shall be responsible or liable, in any way, for any default
in performance of this Agreement arising, directly or indirectly, from any
cause beyond such party's control, including, without limiting the generality
of this provision, fire, flood, tornado, cyclone, war, enemy action, embargo,
strike, lockout, labor trouble, transportation difficulties, governmental
order, proclamation or regulation, inability to obtain raw materials, fuel,
power, packaging or other supplies, accident, explosion, riot, insurrection or
expropriation of the plants by governmental authority, or failure to make
delivery of the Product if the same shall be prevented or delayed by state or
other governmental authority or as a result of requisitioning for allocation
<PAGE 8>
to others by any governmental authority.
11. TERM, TERMINATION AND BREACH
11.1 Term. The Term of this Agreement shall commence on the date first
written above (the "Effective Date") and shall be in full force and effect
until five (5) years from the Effective Date (such period being the "Initial
Term") unless earlier terminated pursuant to Section 11.3 or 11.4
(Termination). This Agreement shall renew for subsequent five (5) year
periods following expiration of the Initial Term (each an "Additional Term"),
under the same terms and conditions as the Initial Term, unless terminated by
written notice by either party not later than three (3) years prior to the
termination of any Initial Term or Additional Term hereunder.
The period of time between the commencement and the termination of this
Agreement at the end of the Initial Term or the last Additional Term, if any,
is referred to herein as the "Term."
11.2 Renegotiation. If either party gives notice of termination pursuant
to Section 11.1 or if HMRI gives notice of termination pursuant to Section
11.3(ii) or Section 11.4, the parties shall, for a period of three months
following such notice, negotiate in good faith the terms and conditions under
which the Agreement could be renewed or continued, as the case may be.
(i) In the event that HMRI provides notice to terminate pursuant to
this Section 11.1 or Section 11.4 and such renewal or continuation
negotiations are unsuccessful, this Agreement shall be terminated as of
the end of such three month negotiation period. At COPLEY's written
request, HMRI shall provide COPLEY or its designee with such technical
assistance services reasonably necessary to enable COPLEY to manufacture
or have manufactured its own product versions of the Products pursuant
to Abbreviated New Drug Applications of COPLEY (the "COPLEY Products")
in the Territory; provided, however, that COPLEY shall have no right to
(a) require HMRI to transfer to COPLEY or any third party any right
whatsoever with respect to the NDA or the Proprietary Rights, (b)
require HMRI to provide technical assistance services to any third
party, or (c) transfer to any third party technical assistance services
learned under this Agreement. In consideration of these technical
assistance services, HMRI shall receive a royalty of 20% of the COPLEY
Net Profit Margin (as defined in Section 1.7 herein) with respect to
sales by COPLEY of any COPLEY Product for a period of ten (10) years
from the date of first commercial sale of such COPLEY Product.
(ii) In the event that COPLEY provides notice to terminate pursuant
to this Section 11.1 and renewal negotiations are unsuccessful, HMRI
shall have no obligation to provide COPLEY with any technical assistance
services pursuant to this Agreement.
11.3 Termination.
(i) Either party shall have the right to terminate this Agreement at
<PAGE 9>
any time by giving due notice to terminate this Agreement in any of the
following events:
(a) Insolvency or bankruptcy of the other party or the inability
or failure of the other party to perform any financial obligations as
the same become due;
(b) Failure of the other party to make required payment under this
Agreement where such failure continues after ten (10) days' notice
from the other party;
(c) Demonstrable inability of the other party to perform its
material obligations under this Agreement; and/or
(d) The enactment of any law, order or regulation by a
governmental unit that would impair or restrict the right of or the
ability of either party to terminate or elect not to renew this
Agreement or which would render it impracticable or impossible for
the other party to perform its obligations hereunder.
(ii) Either party shall have the right to terminate this Agreement
at any time upon six months' prior written notice if the COPLEY Net
Profit Margin as defined in Section 1.7 has been negative for six
consecutive months.
11.4 HMRI Termination. This Agreement may be terminated at any time by
HMRI upon written notice to COPLEY that the bulk active ingredient cost
component of material costs under Section 1.5 herein is less than HMRI's
actual cost per U.S. GAAP net of any intercompany profits.
11.5 Breach or Misrepresentation. In the event of any material breach of
this Agreement or any material misrepresentation of any representation or
warranty contained herein by either party, the other party shall give the
breaching party written notice thereof. The breaching party shall have thirty
(30) days after receipt of written notice to cure said breach. If cure is not
effected within the thirty (30) day period, the nonbreaching party shall have
the right to terminate this Agreement.
12. NOTICES
Except for COPLEY's Product orders which shall be sent to the address
specified in Section 9 hereof, all notices which COPLEY gives HMRI shall be
sent prepaid, either by first class mail, return receipt requested, express
courier, telecopy, cable, or telex, addressed to HMRI as follows, unless
otherwise notified in writing:
Hoechst Marion Roussel, Inc.
10236 Marion Park Drive
P.O. Box 9627
Kansas City, MO 64134-0627
Attn: North America General Counsel
Telecopy: (816) 966-3805
<PAGE 10>
All notices which HMRI gives to COPLEY shall be sent in the same manner,
addressed to COPLEY as follows, unless otherwise notified in writing:
Copley Pharmaceutical, Inc.
Canton Commerce Center
25 John Road
Canton, MA 02021
Attn: President or Chief Financial Officer
Telecopy: (617) 575-1856
Any notice sent by mail shall be deemed given seventy-two (72) hours after
the deposits thereof. Any notice sent by express courier, telecopy, cable or
telex shall be deemed given when actually received.
13. ASSIGNABILITY
Neither party shall be entitled to assign its rights and obligations under
this Agreement without the other party's prior written consent; provided,
however, that (i) HMRI may assign its rights and obligations under this
Agreement to any member of the Hoechst group companies engaged in the
manufacture or sale of pharmaceutical products without the prior written
consent of COPLEY or its assignee, and (ii) in the event of a sale of all or
substantially all of the assets of COPLEY, COPLEY may assign its rights under
this Agreement to the purchaser of such assets, provided such purchaser
expressly assumes all of COPLEY's obligations under this Agreement, without
the prior written consent of HMRI or its designee.
14. DISPUTE RESOLUTION
Disputes between the parties will be settled by arbitration conducted
under rules established by the American Arbitration Association. The venue of
such arbitration proceeding shall be in the state in which the party
complained against resides.
15. SEVERING CLAUSE
If any portion of this Agreement is held invalid by a court of competent
jurisdiction, such portion shall be deemed to be of no force and effect and
the Agreement shall be construed as if such portion had not been included
herein.
16. ENTIRE AGREEMENT
This Agreement contains the sole and entire understanding of the parties
related to its subject matter and supersedes all prior or contemporaneous oral
or written agreements concerning the subject matter.
17. MODIFICATION
This Agreement cannot be changed orally and no modification of this
Agreement shall be recognized nor have any effect, unless the writing in which
<PAGE 11>
it is set forth is signed by HMRI and COPLEY, nor shall any waiver of any of
the provisions of this Agreement be effective unless in writing and signed by
the party to be charged therewith.
18. WAIVER
The failure of either party to enforce, at any time, or for any period of
time, the provisions hereof or the failure of either party to exercise any
option herein shall not be construed as a waiver of such provision or option
and shall in no way affect that party's right to enforce such provisions or
exercise such option. No waiver of any provision hereof shall be deemed a
waiver of any succeeding breach of the same or any other provisions of this
Agreement.
19. APPLICABLE LAW
This Agreement shall be deemed to have been entered into within and shall
be governed, construed and enforced in accordance with the laws of the State
of Delaware, regardless of the choice of law principles of that or any other
jurisdiction.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by the respective duly authorized officers on the dates and at the
place indicated below:
COPLEY PHARMACEUTICAL, INC. HOECHST MARION ROUSSEL, INC.
By: /s/ Gene M. Bauer By: /s/ Edward H. Stratemeier
-------------------------------- ----------------------------
Title: Executive Vice President and Title: Vice President and
Secretary General Counsel
------------------------------ ----------------------------
<PAGE 12>
SCHEDULE 1.1
MINIMUM QUANTITY
Strength Package Size Minimum Quantity
- -------- ------------ -----------------
1.25 mg 50 BTLS 20,000
2.50 mg 100 BTLS 32,000
500 BTLS 6,400
100 UD 32,000
5.00 mg 100 BTLS 32,000
500 BTLS 6,400
1000 BTLS 3,200
100 UD 32,000
<PAGE 13>
EXHIBIT A
to
Amended and Restated
Glyburide Agreement
Between
Hoechst Marion Roussel, Inc.
and
Copley Pharmaceutical, Inc.
1997 COST OF GOODS
During 1997, COPLEY's cost of goods for the Products from HMRI FOB
Bridgewater, New Jersey (or such other U.S. location to which HMRI may move
production of the Product) shall be based upon a bulk glyburide delivered cost
to HMRI of [*] per kilo and shall be as follows:
1000s 500s 100s 100sUD 50s
----- ---- ---- ------ ----
5.00 mg $[*] $[*] $[*] $[*] ---
2.50 mg $[*] $[*] $[*] $[*] ---
1.25 mg --- --- --- --- $[*]
[*] Confidential portion has been omitted pursuant to a request for
confidential treatment and has been filed separately with the Commission.
<PAGE 14>
EXHIBIT B
to
Amended and Restated
Glyburide Agreement
Between
Hoechst Marion Roussel, Inc.
and
Copley Pharmaceutical, Inc.
CALCULATION OF HMRI REVENUE SHARE (Section 1.7)
COPLEY Gross Sales $XXX
Less Actual:
Chargebacks $XXX
Rebates $XXX
Price Adjustments $XXX
Cash Discounts $XXX
Net Sales $XXX
Less Cost of Goods* $XXX
----
Net Profit Margin $XXX
HMRI Net Profit Margin Share Percentage x [*]
----
HMRI Net Profit Margin Share $XXX
====
* Cost of Goods calculated on a fully allocated basis according to generally
accepted accounting principles (as set forth in Section 1.5).
[*] Confidential portion has been omitted pursuant to a request for
confidential treatment and has been filed separately with the Commission.
- - 1 -
EXHIBIT 10.3
AMENDED AND RESTATED
MICRONIZED GLYBURIDE AGREEMENT
THIS AMENDED AND RESTATED MICRONIZED GLYBURIDE AGREEMENT (the
"Agreement"), effective this 1st day of January, 1997 (the "Effective Date"),
is by and between HOECHST MARION ROUSSEL, INC., a Delaware corporation
("HMRI"), and COPLEY PHARMACEUTICAL, INC., a Delaware corporation ("COPLEY").
W I T N E S S E T H:
WHEREAS, HMRI is engaged in the manufacture, for the United States
of America market, of micronized glyburide in finished dosage forms (the
"Product" or "Products") pursuant to New Drug Application #20-055 (the "NDA"),
and
WHEREAS, COPLEY desires to purchase and market the Products, under
its own name and under the private label name of certain of COPLEY's customers
in the Territory (as hereinafter defined), and
WHEREAS, HMRI desires to supply Product to COPLEY, upon the terms
and conditions provided herein.
WHEREAS, COPLEY and HMRI are parties to that certain Micronized
Glyburide Agreement dated as of December 21, 1994 (the "Micronized Glyburide
Agreement") and the parties wish to amend and restate the Micronized Glyburide
Agreement to include certain new agreements between HMRI and COPLEY.
NOW THEREFORE, the parties hereto agree as follows:
1. MANUFACTURE, PURCHASE AND SALE OF PRODUCT, AND HMRI REVENUE SHARE
1.1 Purchase and Sale. Pursuant to the terms and conditions of this
Agreement consistent with 21 CFR 314.70(d)(4), HMRI agrees to manufacture
exclusively for COPLEY, during the Term (as defined in Section 11.1 hereof) of
this Agreement, the 1.50 mg and 3.00 mg strengths of HMRI's micronized
glyburide formulation, for sale by COPLEY to the trade in the Territory under
the COPLEY label and the private label of certain of COPLEY's customers. For
the Term, and thereafter in the event of renewal or extension (as set forth in
Section 11 hereof), COPLEY agrees to purchase all of its requirements for the
Product for sale in the Territory from HMRI and HMRI agrees to supply all of
COPLEY's requirements for the Product. It is understood by the parties that
the Product is produced in campaigns of a minimum quantity set forth in
Schedule 1.1 of this Agreement (the "Minimum Quantity"). Regardless of
COPLEY's requirements under this Section 1.1, COPLEY hereby agrees to place
firm and binding orders for, and to purchase and take delivery from HMRI of,
<PAGE 2>>
quantities of the Product and any multiples thereof to be delivered to COPLEY
in each calender month during the Term of this Agreement that are not less
than the Minimum Quantity. The parties acknowledge that shipments of the
Product by HMRI may vary from the Minimum Quantity by up to ten percent more
or less than the Minimum Quantity.
1.2 Product Specifications and Manufacturing Technology Transfer Option.
HMRI will manufacture the Product for COPLEY in oblong, scored tablets in
strengths and colors as follows:
STRENGTH: COPLEY GENERIC:
3.00 mg green
1.50 mg pink
The Product shall meet the specifications set forth in the NDA, as such
specifications may be changed from time to time. HMRI shall on a timely basis
advise COPLEY of any changes made with respect to the NDA.
1.3 Labeling and Packaging. Packaging and labeling for the Product shall
be consistent with the U.S. Food and Drug Administration (the "FDA") approved
labeling for the Products, and shall be in dosage strengths and colors as set
forth in Section 1.2 herein and in packaging configurations as subsequently
mutually agreed upon by the parties.
1.4 Rolling Forecasts and Orders. On a monthly basis COPLEY will provide
HMRI with 12-month rolling forecasts by package size (SKU) and by distributor.
The first rolling forecast will be due upon execution of this Agreement.
COPLEY will be obligated to place orders and purchase from HMRI the
following:
a. 100% of the amounts forecast for the first three months of each
rolling forecast; and
b. 50% of the amounts forecast for months four, five and six of each
rolling forecast.
Each purchase order shall contain a shipment date in accordance with
HMRI's manufacturing lead time of twelve (12) weeks, and be subject to the
provisions of Section 9 hereof. COPLEY will supply HMRI with monthly sales
summaries by class of trade at HMRI's request.
1.5 Cost of Goods and Payment. Annually in January of each calendar year
during the Term of this Agreement, HMRI shall provide to COPLEY cost of goods
pricing for the Products during that calender year. HMRI cost of goods
pricing provided to COPLEY for each calendar year subsequent to the initial
pricing provided in Exhibit A of this Agreement shall be accompanied by such
<PAGE 3>
reasonable detail and documentation as to enable COPLEY to understand the
basis for such pricing. The pricing shall include material costs (including,
but not limited to, bulk active ingredient costs which bulk active costs shall
include a reasonable profit margin to HMRI to be negotiated based upon quotes
from qualified, bona fide sources), manufacturing charges and packaging costs
on a fully allocated basis according to generally accepted accounting
principles. HMRI's cost of goods pricing to COPLEY during 1997 for packaged
finished goods FOB Bridgewater, New Jersey shall be as set forth in Exhibit A,
attached hereto and made a part hereof. Notwithstanding the foregoing
sentence, the parties understand that HMRI may move its production site for
any Product to a different site and that in such event Exhibit A of this
Agreement will be amended to reflect HMRI's cost of goods pricing to COPLEY at
such new production site. COPLEY agrees to pay the invoice amount for the
Products ordered by COPLEY. Terms of payment shall be open account, net
forty-five (45) days from the later of receipt of invoice or shipment of the
Product.
1.6 Advertising/Marketing/Sales Costs and Product Pricing. COPLEY shall
be responsible for all advertising, marketing and sales costs associated with
Product distribution. COPLEY will have complete authority for all pricing
decisions for the Product sold by COPLEY. COPLEY agrees to keep HMRI
reasonably informed of price changes in excess of twenty-five percent (25%) or
such other percentage as mutually agreed to by the parties.
1.7 HMRI Net Profit Margin Share. The parties agree that HMRI shall
receive, on a monthly basis, payments from COPLEY which shall be equal to
[*] of the COPLEY Net Profit Margin realized on sales of any Product in the
Territory during each preceding calendar month. For the purposes of this
Section 1.7, COPLEY Net Profit Margin shall mean COPLEY Product gross sales
less actual chargebacks, rebates, price adjustments, returns and cash
discounts and less cost of goods as set forth in Section 1.5 herein. Exhibit
B, attached hereto and made a part hereof, sets forth the method of
calculation of HMRI Net Profit Margin Share. The monthly payments contemplated
by this Section 1.7 shall be made by check delivered to HMRI not
later than ninety (90) days following the close of each calendar month during
the Term of this Agreement.
1.8 Commercialization Fee. In consideration of services or activities
performed or rendered by HMRI in connection with commercialization of the
Product, COPLEY agrees to pay HMRI $[*] upon execution of this Agreement.
2. TERRITORY
This Agreement encompasses only the United States of America and its
possessions and territories including Puerto Rico (the "Territory") and gives
COPLEY the right to market to all classes of trade in the Territory.
[*] Confidential portion has been omitted pursuant to a request for
confidential treatment and has been filed separately with the Commission.
<PAGE 4>
3. REGULATORY MATTERS
3.1 FDA Approval. HMRI represents and warrants that the Product is
approved by the FDA for the uses set forth in HMRI's labeling. COPLEY and
HMRI agree to take all necessary action to obtain and maintain any approvals
necessary to permit COPLEY to sell the Product under its own name in the
Territory in compliance with applicable federal and state drug laws. HMRI and
COPLEY agree to coordinate with each other concerning all changes to Product
labeling.
3.2 Regulatory Correspondence. COPLEY and HMRI shall make available to
each other, within three (3) days of receipt, regulatory correspondence
covering the following issues: regulatory letters, Product recalls,
withdrawal of Product, and correspondence bearing on the safety and efficacy
of the Product.
3.3 Product Inquiries and Complaints/Recalls. COPLEY will promptly submit
to HMRI all Product safety and efficacy inquiries, Product quality complaints
and adverse drug event (ADE) reports received by it, together with all
available evidence and other information relating thereto. Except as
otherwise required by law or governmental regulation, HMRI will be responsible
for investigating and responding to all such inquiries, complaints and adverse
events regarding the Product. It shall be the exclusive responsibility of
HMRI to comply with all federal, state and local governmental reporting
requirements regarding ADEs and Product quality matters, except where such
events or matters are caused solely by acts or omissions of COPLEY, in which
case HMRI may, consistent with applicable law and regulation, request COPLEY's
assistance in such compliance. HMRI will forward a copy of all FDA
submissions concerning Product ADEs or any Product safety-related topic to
COPLEY within ten (10) working days of submission. In the event of a dispute
in respect of the therapeutic action or quality of the Product: (i) if the
dispute involves only COPLEY and a subsequent purchaser then COPLEY and HMRI
shall consult prior to any compromise or settlement of such dispute; and (ii)
if the dispute involves COPLEY, HMRI and a subsequent purchaser then both
parties must consent prior to any compromise or settlement of such dispute.
COPLEY shall be responsible for forwarding recall materials received from HMRI
designed to recover Products distributed by it and its private label customers
in the event of a recall. Expenses associated with a recall are to be borne
by the party at fault.
3.4 Quality Assurance. In order to facilitate quality assurance
activities with respect to the Product, HMRI agrees to (a) allow COPLEY at
least once per year at mutually agreeable times to inspect/audit HMRI's
facilities and records pertaining to manufacture, testing, storage and
packaging for compliance with Good Manufacturing Practice, 21 CFR 211, and (b)
supply to COPLEY the results of all stability testing for the Product. COPLEY
agrees to allow HMRI at least once per year at mutually agreeable times to
inspect/audit COPLEY's facilities and records pertaining to storage and
distribution for compliance with Good Manufacturing Practice, 21 CFR 211.
<PAGE 5>
3.5 Additional Information. COPLEY shall provide to HMRI in a timely
manner, but in no event less than thirty (30) days prior to the due date of
HMRI's annual report to the FDA with respect to the Product, all information
which HMRI requests regarding the Product in order to comply with applicable
federal and state drug laws. Such information shall include, without
limitation, quantities of the Product sold. COPLEY shall be responsible for
assuring that all promotional material produced by it relating to the Product
comply with federal, state and local law. COPLEY shall provide to HMRI prior
to first use copies of all advertising, promotional material, labeling and
other literature used on, or in connection with, the Product. HMRI shall
supply to COPLEY on a timely basis a copy of said FDA annual report.
4. PROPRIETARY RIGHTS AND TRADEMARKS
HMRI retains ownership of the NDA and any supplements thereto. HMRI is
the owner of certain proprietary information (the "Proprietary Rights") used
in connection with the manufacturing, sale and distribution of micronized
glyburide pharmaceutical preparations. No such Proprietary Rights are being
assigned, licensed or otherwise transferred hereunder, and COPLEY acknowledges
that it shall have no rights hereunder to any such Proprietary Rights and
hereby agrees that it shall not contest or dispute the validity of or title to
any of such Proprietary Rights. Without limiting the generality of the
foregoing, COPLEY agrees it shall not take or cooperate in litigation or
threatened litigation which might or is intended to impair or attack such
Proprietary Rights or which questions the paramount interest of HMRI or its
affiliates, licensees or assignees in the same. COPLEY and its private label
customers shall market the Product under their own trade names and trademarks,
which shall not be confusingly similar to the trademark of HMRI for its
micronized glyburide product.
5. SECRECY
Except for literature and information intended for disclosure to
customers, each party will treat as confidential all technical and commercial
information acquired by it from the other party under this Agreement and will
take all necessary precautions to assure the secrecy of such confidential
information. Each party agrees to return to the other party upon the
expiration or termination of this Agreement all confidential technical and
commercial literature, data, and information acquired from the other party.
Neither party shall, during the term of this Agreement or for ten (10) years
thereafter, without the express prior written consent of the other party, use
or disclose any such information received by it from the other party pursuant
to the transactions contemplated by this Agreement for any purpose whatsoever.
6. WARRANTY
HMRI warrants that the Product manufactured by HMRI and sold to COPLEY
pursuant to this Agreement will meet the specifications for the Product set
forth in the NDA in effect at the time of such shipment. HMRI reserves the
right to amend such specifications from time to time at the sole discretion of
HMRI; provided that COPLEY is provided with written notice within a
<PAGE 6>
commercially reasonable period of time in advance in order to effect any
necessary marketing or other changes. All Products will conform to, and the
Products manufactured by HMRI will be manufactured in conformity with, the
regulations of the Federal Food and Drug Administration and any comparable
state agency applicable thereto. None of the Product contained in any
shipment made hereunder to COPLEY will, at the time of delivery, be
adulterated or misbranded within the meaning of the Federal Food, Drug and
Cosmetic Act, as amended (the "Act"), and those applicable state laws
substantially similar to the Act, as such Act and laws exist at the time of
delivery. None of the Products will be an article that may not, under the
provisions of the Act, be introduced into interstate commerce. The Products
shall conform with any specifications and quality assurance requirements
mutually agreed to in writing by the parties and, in any event, shall not
contain any poisonous or deleterious material. No Product shall infringe the
patent, trade secret or other proprietary right of any third party. THIS
WARRANTY IS THE ONLY WARRANTY, EXPRESS OR IMPLIED, MADE BY HMRI AS TO THE
PRODUCT, AND ALL OTHER WARRANTIES, INCLUDING MERCHANTABILITY OR FITNESS FOR
ANY PARTICULAR PURPOSE, ARE DISCLAIMED. Except as otherwise provided in this
Agreement, the exclusive remedy for breach of warranty shall be prompt
replacement of the nonconforming Product at HMRI's expense with a like amount
of the Product conforming to the above-stated warranty. For purposes hereof,
replacement may include reprocessing of the Product if done in a period of
time commercially reasonable to COPLEY. In no event shall HMRI be liable to
COPLEY for any alteration, change, improper packaging or other improper
treatment of the Product by COPLEY other than in accordance with HMRI's
instructions; nor shall HMRI be liable to COPLEY for any damage arising solely
from COPLEY's marketing, advertising, distribution or sale of the Product that
conforms to the warranty set forth above.
7. COPLEY'S OBLIGATIONS
COPLEY shall not alter the Product and shall not recommend or knowingly
sell the Product for any uses except as described in the FDA approved Product
labeling.
8. INDEMNITY
8.1 Indemnification by HMRI. HMRI shall defend, indemnify and hold
harmless COPLEY and its affiliates (and each of their employees, officers,
directors and stockholders) from and against any and all claims, liabilities,
assessed damages, costs and expenses (including, without limitation, costs and
expenses of investigation and settlement, court costs and attorneys' fees and
expenses regardless of outcome, but excluding any indirect, incidental or
consequential damages or losses and lost profits) arising out of any claim of
defect in materials or workmanship of the Product, failure of the Product to
conform to the express warranty set forth in Section 6 hereinabove or alleged
or actual personal injury, illness, death or other harm, except to the extent
such claim arises out of COPLEY's breach of this Agreement, negligence or
misconduct.
<PAGE 7>
8.2 Indemnification by COPLEY. COPLEY shall defend, indemnify and hold
harmless HMRI and its affiliates (and each of their employees, officers,
directors and stockholders) from and against any and all claims, liabilities,
assessed damages, costs and expenses (including, without limitation, costs and
expenses of investigation and settlement, court costs and attorneys' fees and
expenses regardless of outcome, but excluding any indirect, incidental or
consequential damages or losses and lost profits) to the extent caused by
COPLEY's packaging, marketing, advertising, distribution or sale of Product
that conforms to the express warranty set forth in Section 6 hereinabove or
caused by alterations to the Product made by COPLEY after delivery by HMRI
other than in accordance with the written directions of HMRI, except to the
extent such claim arises out of HMRI's breach of this Agreement, negligence or
misconduct.
8.3 Indemnification Procedures. The parties shall cooperate and give each
other prompt notice of claims as to which indemnification may be claimed
hereunder. The indemnifying party may, at its option, control the defense of
claims for which indemnification may be sought. The indemnifying party shall
not be required to indemnify the indemnified party for any claim settled
without the indemnifying party's written consent.
9. ORDERS
9.1 Placement of Orders. All orders placed by COPLEY with HMRI hereunder
shall be sent to the following address, unless otherwise notified in writing:
Hoechst Marion Roussel, Inc.
2110 East Galbraith Road
P.O. Box 156300
Cincinnati, OH 45215-6300
Attn: Ronald R. Schallick
Telephone: (513) 948-7197
Telecopy: (513) 948-4547
9.2 Shipment. HMRI shall make every reasonable effort to fill COPLEY's
accepted orders in accordance with COPLEY's requested delivery dates. All
shipments of the Product to COPLEY shall be accompanied by a certificate of
analysis for each batch in said shipment, certifying that each batch was made
in accordance with current Good Manufacturing Practices and the NDA and
listing test results. Deliveries to COPLEY shall be FOB, HMRI Bridgewater,
New Jersey or such other U.S. location to which HMRI may move production of
the Product. COPLEY shall pay all shipping costs, including insurance.
9.3 Risk of Loss. Risk of loss shall pass to COPLEY upon shipment by
HMRI.
9.4 Claims. COPLEY shall cause a commercially reasonable visual
inspection of all shipments of the Product promptly after arrival if shipped
directly to COPLEY, and shall give prompt oral notice of potential
nonconforming goods, and within thirty (30) days after arrival of any such
<PAGE 8>
shipment, give written notice to HMRI of any claim that any Product included
in shipment may not conform to any applicable specifications or warranty. If
shipment of the Product is to a destination other than COPLEY, any claims of
non-conformity under this Section 9.4 must be made by COPLEY within ninety
(90) days of actual delivery of the Product to such destination. HMRI shall
promptly replace such nonconforming Product with conforming Product at no
additional cost to COPLEY. COPLEY's failure to detect and/or give notice of
any defect not readily identifiable upon commercially reasonable visual
inspection shall not vitiate HMRI's obligations under the warranty and
indemnification provisions of this Agreement.
10. FORCE MAJEURE
Neither party shall be responsible or liable, in any way, for any default
in performance of this Agreement arising, directly or indirectly, from any
cause beyond such party's control, including, without limiting the generality
of this provision, fire, flood, tornado, cyclone, war, enemy action, embargo,
strike, lockout, labor trouble, transportation difficulties, governmental
order, proclamation or regulation, inability to obtain raw materials, fuel,
power, packaging or other supplies, accident, explosion, riot, insurrection or
expropriation of the plants by governmental authority, or failure to make
delivery of the Product if the same shall be prevented or delayed by state or
other governmental authority or as a result of requisitioning for allocation
to others by any governmental authority.
11. TERM, TERMINATION AND BREACH
11.1 Term. The Term of this Agreement shall commence on the date first
written above (the "Effective Date") and shall be in full force and effect
until five (5) years from the Effective Date (such period being the "Initial
Term") unless earlier terminated pursuant to Section 11.3 or 11.4
(Termination). This Agreement shall renew for subsequent five (5) year
periods following expiration of the Initial Term (each an "Additional Term"),
under the same terms and conditions as the Initial Term, unless terminated by
written notice by either party not later than three (3) years prior to the
termination of any Initial Term or Additional Term hereunder.
The period of time between the commencement and the termination of this
Agreement at the end of the Initial Term or the last Additional Term, if any,
is referred to herein as the "Term."
11.2 Renegotiation. If either party gives notice of termination pursuant
to Section 11.1 or if HMRI gives notice of termination pursuant to Section
11.3(ii) or Section 11.4, the parties shall, for a period of three months
following such notice, negotiate in good faith the terms and conditions under
which the Agreement could be renewed or continued, as the case may be.
(i) In the event that HMRI provides notice to terminate pursuant to
this Section 11.1 or Section 11.4 and such renewal or continuation
negotiations are unsuccessful, this Agreement shall be terminated as of the
end of such three month negotiation period. At COPLEY's written request, HMRI
shall provide COPLEY or its designee with such technical assistance services
<PAGE 9>
reasonably necessary to enable COPLEY to manufacture or have manufactured its
own product versions of the Products pursuant to Abbreviated New Drug
Applications of COPLEY (the "COPLEY Products") in the Territory; provided,
however, that COPLEY shall have no right to (a) require HMRI to transfer to
COPLEY or any third party any right whatsoever with respect to the NDA or the
Proprietary Rights, (b) require HMRI to provide technical assistance services
to any third party, or (c) transfer to any third party technical assistance
services learned under this Agreement. In consideration of these technical
assistance services, HMRI shall receive a royalty of 20% of the COPLEY Net
Profit Margin (as defined in Section 1.7 herein) with respect to sales by
COPLEY of any COPLEY Product for a period of ten (10) years from the date of
first commercial sale of such COPLEY Product.
(ii) In the event that COPLEY provides notice to terminate pursuant
to this Section 11.1 and renewal negotiations are unsuccessful, HMRI shall
have no obligation to provide COPLEY with any technical assistance services
pursuant to this Agreement.
11.3 Termination.
(I) Either party shall have the right to terminate this Agreement
at any time by giving due notice to terminate this Agreement in any of the
following events:
(a) Insolvency or bankruptcy of the other party or the inability
or failure of the other party to perform any financial obligations as the same
become due;
(b) Failure of the other party to make required payment under
this Agreement where such failure continues after ten (10) days' notice from
the other party;
(c) Demonstrable inability of the other party to perform its
material obligations under this Agreement; and/or
(d) The enactment of any law, order or regulation by a
governmental unit that would impair or restrict the right of or the ability of
either party to terminate or elect not to renew this Agreement or which would
render it impracticable or impossible for the other party to perform its
obligations hereunder.
(ii) Either party shall have the right to terminate this Agreement
at any time upon six months' prior written notice if the COPLEY Net Profit
Margin as defined in Section 1.7 has been negative for six consecutive months.
<PAGE 10>
11.4 HMRI Termination. This Agreement may be terminated at any time by
HMRI upon written notice to COPLEY that the bulk active ingredient cost
component of material costs under Section 1.5 herein is less than HMRI's
actual cost per U.S. GAAP net of any intercompany profits.
11.5 Breach or Misrepresentation. In the event of any material breach of
this Agreement or any material misrepresentation of any representation or
warranty contained herein by either party, the other party shall give the
breaching party written notice thereof. The breaching party shall have thirty
(30) days after receipt of written notice to cure said breach. If cure is not
effected within the thirty (30) day period, the nonbreaching party shall have
the right to terminate this Agreement.
12. NOTICES
Except for COPLEY's Product orders which shall be sent to the address
specified in Section 9 hereof, all notices which COPLEY gives HMRI shall be
sent prepaid, either by first class mail, return receipt requested, express
courier, telecopy, cable, or telex, addressed to HMRI as follows, unless
otherwise notified in writing:
Hoechst Marion Roussel, Inc.
10236 Marion Park Drive
P.O. Box 9627
Kansas City, MO 64134-0627
Attn: North America General Counsel
Telecopy: (816) 966-3805
All notices which HMRI gives to COPLEY shall be sent in the same manner,
addressed to COPLEY as follows, unless otherwise notified in writing:
Copley Pharmaceutical, Inc.
Canton Commerce Center
25 John Road
Canton, MA 02021
Attn: President or Chief Financial Officer
Telecopy: (617) 575-1856
Any notice sent by mail shall be deemed given seventy-two (72) hours after
the deposits thereof. Any notice sent by express courier, telecopy, cable or
telex shall be deemed given when actually received.
<PAGE 11>
13. ASSIGNABILITY
Neither party shall be entitled to assign its rights and obligations under
this Agreement without the other party's prior written consent; provided,
however, that (i) HMRI may assign its rights and obligations under this
Agreement to any member of the Hoechst group companies engaged in the
manufacture or sale of pharmaceutical products without the prior written
consent of COPLEY or its assignee, and (ii) in the event of a sale of all or
substantially all of the assets of COPLEY, COPLEY may assign its rights under
this Agreement to the purchaser of such assets, provided such purchaser
expressly assumes all of COPLEY's obligations under this Agreement, without
the prior written consent of HMRI or its assignee.
14. DISPUTE RESOLUTION
Disputes between the parties will be settled by arbitration conducted
under rules established by the American Arbitration Association. The venue of
such arbitration proceeding shall be in the state in which the party
complained against resides.
15. SEVERING CLAUSE
If any portion of this Agreement is held invalid by a court of competent
jurisdiction, such portion shall be deemed to be of no force and effect and
the Agreement shall be construed as if such portion had not been included
herein.
16. ENTIRE AGREEMENT
This Agreement contains the sole and entire understanding of the parties
related to its subject matter and supersedes all prior or contemporaneous oral
or written agreements concerning the subject matter.
17. MODIFICATION
This Agreement cannot be changed orally and no modification of this
Agreement shall be recognized nor have any effect, unless the writing in which
it is set forth is signed by HMRI and COPLEY, nor shall any waiver of any of
the provisions of this Agreement be effective unless in writing and signed by
the party to be charged therewith.
18. WAIVER
The failure of either party to enforce, at any time, or for any period of
time, the provisions hereof or the failure of either party to exercise any
option herein shall not be construed as a waiver of such provision or option
and shall in no way affect that party's right to enforce such provisions or
exercise such option. No waiver of any provision hereof shall be deemed a
waiver of any succeeding breach of the same or any other provisions of this
Agreement.
<PAGE 12>
19. APPLICABLE LAW
This Agreement shall be deemed to have been entered into within and shall
be governed, construed and enforced in accordance with the laws of the State
of Delaware, regardless of the choice of law principles of that or any other
jurisdiction.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by the respective duly authorized officers on the dates and at the
place indicated below:
COPLEY PHARMACEUTICAL, INC. HOECHST MARION ROUSSEL, INC.
By: /s/ Gene M. Bauer By: /s/ Edward H. Stratemeier
-------------------------------- ----------------------------
Title: Executive Vice President and Title: Vice President and
Secretary General Counsel
------------------------------ ----------------------------
<PAGE 13>
SCHEDULE 1.1
MINIMUM QUANTITY
Strength Package Size Minimum Quantity
1.5 mg 100 BTLS 30,000
3.0 mg 100 BTLS 30,000
500 BTLS 6,000
1000 BTLS 3,000
<PAGE 14>
EXHIBIT A
to
Amended and Restated
Micronized Glyburide Agreement
Between
Hoechst Marion Roussel, Inc.
and
Copley Pharmaceutical, Inc.
1997 COST OF GOODS
During 1997, COPLEY's cost of goods for the Products from HMRI FOB
Bridgewater, New Jersey (or such other U.S. location to which HMRI may move
production of the Product) shall be based upon a bulk micronized glyburide
delivered cost to HMRI of [*] per kilo and shall be as follows:
1.50 mg
---------
100's
-----
$[*]
3.00 mg
---------
100's 500's 1000's
----- ----- ------
$[*] $[*] $[*]
[*] Confidential portion has been omitted pursuant to a request for
confidential treatment and has been filed separately with the Commission.
<PAGE 15>
EXHIBIT B
to
Amended and Restated
Micronized Glyburide Agreement
Between
Hoechst Marion Roussel, Inc.
and
Copley Pharmaceutical, Inc.
CALCULATION OF HMRI REVENUE SHARE (Section 1.7)
COPLEY Gross Sales $XXX
Less Actual:
Chargebacks $XXX
Rebates $XXX
Price Adjustments $XXX
Cash Discounts $XXX
Net Sales $XXX
Less Cost of Goods* $XXX
----
Net Profit Margin $XXX
HMRI Net Profit Margin Share Percentage x [*]
----
HMRI Net Profit Margin Share $XXX
====
* Cost of Goods calculated on a fully allocated basis according to generally
accepted accounting principles (as set forth in Section 1.5).
[*] Confidential portion has been omitted pursuant to a request for
confidential treatment and has been filed separately with the Commission.
EXHIBIT 10.4
PENTOXIFYLLINE AGREEMENT
THIS AGREEMENT (the "Agreement"), effective this 1st day of January
1997 (the "Effective Date"), is by and between HOECHST MARION ROUSSEL, INC., a
Delaware corporation ("HMRI"), and COPLEY PHARMACEUTICAL, INC., a Delaware
corporation ("COPLEY").
W I T N E S S E T H:
WHEREAS, HMRI is engaged in the manufacture, for the United States of
America market, of pentoxifylline in finished dosage forms (the "Product" or
"Products") pursuant to New Drug Application #18-631 (the "NDA"), and
WHEREAS, COPLEY desires to purchase and market the Products, under
its own name in the Territory (as hereinafter defined), and
WHEREAS, HMRI desires to supply Product to COPLEY, upon the terms and
conditions provided herein.
NOW THEREFORE, the parties hereto agree as follows:
1. MANUFACTURE, PURCHASE AND SALE OF PRODUCT, AND HMRI REVENUE SHARE
1.1 Purchase and Sale. Pursuant to the terms and conditions of this
Agreement consistent with 21 CFR 314.70(d)(4), HMRI agrees to manufacture
exclusively for COPLEY, during the Term (as defined in Section 11.1 hereof) of
this Agreement, the 400 mg strength of HMRI's pentoxifylline formulation, for
sale by COPLEY to the trade in the Territory under the COPLEY label only. For
the Term, and thereafter in the event of renewal or extension (as set forth in
Section 11 hereof), COPLEY agrees to purchase all of its requirements for the
Product for sale in the Territory from HMRI and HMRI agrees to supply all of
COPLEY's requirements for the Product. It is understood by the parties that
the Product is produced in campaigns of a minimum quantity set forth in
Schedule 1.1 of this Agreement (the "Minimum Quantity"). Regardless of
COPLEY's requirements under this Section 1.1, COPLEY hereby agrees to place
firm and binding orders for, and to purchase and take delivery from HMRI of,
quantities of the Product and any multiples thereof to be delivered to COPLEY
in each calender month during the Term of this Agreement that are not less
than the Minimum Quantity. The parties acknowledge that shipments of the
Product by HMRI may vary from the Minimum Quantity by up to ten percent more
or less than the Minimum Quantity. The first commercial launch date for the
Product shall be determined at the sole discretion of HMRI; provided, however,
that HMRI must allow COPLEY to proceed with such commercial launch in the
event that the Product becomes or is about to become subject to multi-source
competition. Those quantities ordered on a firm basis by COPLEY prior to the
first Product commercial launch date (not to exceed [21 batches]) which have
less than 12 months of remaining shelf life at the time of the first Product
commercial launch date (based on Product dating) shall be credited and/or
replaced by HMRI with new quantities at no additional cost to COPLEY.
<PAGE 2>
1.2 Product Specifications and Manufacturing Technology Transfer Option.
HMRI will manufacture the Product for COPLEY in oblong, scored tablets in
strengths and colors as follows:
Strength: COPLEY Generic
400 mg White
The Product shall meet the specifications set forth in the NDA, as
such specifications may be changed from time to time. HMRI shall on a timely
basis advise COPLEY of any changes made with respect to the NDA.
1.3 Labeling and Packaging. COPLEY shall be responsible for all the cost
of developing packaging and labeling for the Product which shall be consistent
with the U.S. Food and Drug Administration (the "FDA") approved labeling for
the Products, and shall be in dosage strengths and colors as set forth in
Section 1.2 herein and in packaging configurations as subsequently mutually
agreed upon by the parties. COPLEY agrees to develop Product labeling and
packaging configurations consistent with the reasonable request of HMRI.
1.4 Rolling Forecasts and Orders. On a monthly basis COPLEY will provide
HMRI with 12-month rolling forecasts by package size (SKU) and by distributor.
The first rolling forecast will be due upon execution of this Agreement.
COPLEY will be obligated to place orders and purchase from HMRI the
following:
a. 100% of the amounts forecast for the first three months of each
rolling forecast; and
b. 50% of the amounts forecast for months four, five and six of
each rolling forecast.
Each purchase order shall contain a shipment date in accordance with
HMRI's manufacturing lead time of twelve (12) weeks, and be subject to the
provisions of Section 9 hereof. COPLEY will supply HMRI with monthly sales
summaries by class of trade at HMRI's request.
1.5 Cost of Goods and Payment. As of the Effective Date, and thereafter
annually in January of each subsequent calendar year during the Term of this
Agreement, HMRI shall provide to COPLEY cost of goods pricing for the Products
during that calendar year. HMRI cost of goods pricing provided to COPLEY for
each calendar year subsequent to the initial pricing provided in Exhibit A of
<PAGE 3>
this Agreement shall be accompanied by such reasonable detail and
documentation as to enable COPLEY to understand the basis for such pricing.
The pricing shall include material costs (including, but not limited to, bulk
active ingredient costs which bulk active costs shall include a reasonable
profit margin to HMRI to be negotiated based upon quotes from qualified, bona
fide sources), manufacturing charges and packaging costs on a fully allocated
basis according to generally accepted accounting principles. HMRI's cost of
goods pricing to COPLEY during 1997 for packaged finished goods FOB
Bridgewater, New Jersey shall be as set forth in Exhibit A, attached hereto
and made a part hereof. Notwithstanding the foregoing sentence, the parties
understand that HMRI may move its production site for any Product to a
different site and that in such event Exhibit A will be amended to reflect
HMRI's cost of goods pricing to COPLEY at such new production site. COPLEY
agrees to pay the invoice amount for the Products ordered by COPLEY. Terms of
payment shall be open account, net forty-five (45) days from the later of
receipt of invoice or shipment of the Product. For the initial Product
commercial stocking period, terms of payment shall be open account, net sixty
(60) days from first Product commercial launch date.
1.6 Advertising/Marketing/Sales Costs and Product Pricing. COPLEY shall
be responsible for all advertising, marketing and sales costs associated with
Product distribution. COPLEY will have complete authority for all pricing
decisions for the Product sold by COPLEY. COPLEY agrees to keep HMRI
reasonably informed of price changes in excess of twenty-five percent (25%) or
such other percentage as mutually agreed to by the parties.
1.7 HMRI Net Profit Margin Share. The parties agree that HMRI shall
receive, on a monthly basis following COPLEY's market introduction of the
Product, payments from COPLEY which shall be equal to [*] of the COPLEY Net
Profit Margin realized on sales of any Product in the Territory during each
preceding calendar month or, if applicable, be charged [*] of any loss
realized on sales of any Product in the Territory during each preceding
calendar month. For the purposes of this Section 1.7, COPLEY Net Profit Margin
shall mean COPLEY Product gross sales less actual chargebacks, rebates, price
adjustments, returns and cash discounts and less cost of goods as set forth in
Section 1.5 herein. Exhibit B, attached hereto and made a part hereof, sets
forth the method of calculation of HMRI Net Profit Margin Share. The monthly
payments contemplated by this Section 1.7 shall be made by check delivered to
HMRI not later than ninety (90) days following the close of each calendar
month during the Term of this Agreement.
[*] Confidential portion has been omitted pursuant to a request for
confidential treatment and has been filed separately with the Commission.
<PAGE 4>
2. TERRITORY
This Agreement encompasses only the United States of America and its
possessions and territories including Puerto Rico (the "Territory") and gives
COPLEY the right to market to all classes of trade in the Territory.
3. REGULATORY MATTERS
3.1 FDA Approval. HMRI represents and warrants that the Product is
approved by the FDA for the uses set forth in HMRI's labeling. COPLEY and
HMRI agree to take all necessary action to obtain and maintain any approvals
necessary to permit COPLEY to sell the Product under its own name in the
Territory in compliance with applicable federal and state drug laws. HMRI and
COPLEY agree to coordinate with each other concerning all changes to Product
labeling.
3.2 Regulatory Correspondence. COPLEY and HMRI shall make available to
each other, within three (3) days of receipt, regulatory correspondence
covering the following issues: regulatory letters, Product recalls,
withdrawal of Product, and correspondence bearing on the safety and efficacy
of the Product.
3.3 Product Inquiries and Complaints/Recalls. COPLEY will promptly submit
to HMRI all Product safety and efficacy inquiries, Product quality complaints
and adverse drug event (ADE) reports received by it, together with all
available evidence and other information relating thereto. Except as
otherwise required by law or governmental regulation, HMRI will be responsible
for investigating and responding to all such inquiries, complaints and adverse
events regarding the Product. It shall be the exclusive responsibility of
HMRI to comply with all federal, state and local governmental reporting
requirements regarding ADEs and Product quality matters, except where such
events or matters are caused solely by acts or omissions of COPLEY, in which
case HMRI may, consistent with applicable law and regulation, request COPLEY's
assistance in such compliance. HMRI will forward a copy of all FDA
submissions concerning Product ADEs or any Product safety-related topic to
COPLEY within ten (10) working days of submission. In the event of a dispute
in respect of the therapeutic action or quality of the Product: (i) if the
dispute involves only COPLEY and a subsequent purchaser then COPLEY and HMRI
shall consult prior to any compromise or settlement of such dispute; and (ii)
if the dispute involves COPLEY, HMRI and a subsequent purchaser then both
parties must consent prior to any compromise or settlement of such dispute.
COPLEY shall be responsible for forwarding recall materials received from HMRI
designed to recover Products distributed by it and its private label customers
in the event of a recall. Expenses associated with a recall are to be borne
by the party at fault.
3.4 Quality Assurance. In order to facilitate quality assurance
activities with respect to the Product, HMRI agrees to (a) allow COPLEY at
least once per year at mutually agreeable times to inspect/audit HMRI's
facilities and records pertaining to manufacture, testing, storage and
packaging for compliance with Good Manufacturing Practice, 21 CFR 211, and (b)
supply to COPLEY the results of all stability testing for the Product. COPLEY
agrees to allow HMRI at least once per year at mutually agreeable times to
inspect/audit COPLEY's facilities and records pertaining to storage and
distribution for compliance with Good Manufacturing Practice, 21 CFR 221.
<PAGE 5>
3.5 Additional Information. COPLEY shall provide to HMRI in a timely
manner, but in no event less than thirty (30) days prior to the due date of
HMRI's annual report to the FDA with respect to the Product, all information
which HMRI requests regarding the Product in order to comply with applicable
federal and state drug laws. Such information shall include, without
limitation, quantities of the Product sold. COPLEY shall be responsible for
assuring that all promotional material produced by it relating to the Product
comply with federal, state and local law. COPLEY shall provide to HMRI prior
to first use copies of all advertising, promotional material, labeling and
other literature used on, or in connection with, the Product. HMRI shall
supply to COPLEY on a timely basis a copy of said FDA annual report.
4. PROPRIETARY RIGHTS AND TRADEMARKS
HMRI retains ownership of the NDA and any supplements thereto. HMRI is
the owner of certain proprietary information (the "Proprietary Rights") used
in connection with the manufacturing, sale and distribution of pentoxifylline
pharmaceutical preparations. No such Proprietary Rights are being assigned,
licensed or otherwise transferred hereunder, and COPLEY acknowledges that it
shall have no rights hereunder to any such Proprietary Rights and hereby
agrees that it shall not contest or dispute the validity of or title to any of
such Proprietary Rights. Without limiting the generality of the foregoing,
COPLEY agrees it shall not take or cooperate in litigation or threatened
litigation which might or is intended to impair or attack such Proprietary
Rights or which questions the paramount interest of HMRI or its affiliates,
licensees or assignees in the same. COPLEY and its private label customers
shall market the Product under their own trade names and trademarks, which
shall not be confusingly similar to the trademark of HMRI for its
pentoxifylline product.
5. SECRECY
Except for literature and information intended for disclosure to
customers, each party will treat as confidential all technical and commercial
information acquired by it from the other party under this Agreement and will
take all necessary precautions to assure the secrecy of such confidential
information. Each party agrees to return to the other party upon the
expiration or termination of this Agreement all confidential technical and
commercial literature, data, and information acquired from the other party.
Neither party shall, during the term of this Agreement or for ten (10) years
thereafter, without the express prior written consent of the other party, use
or disclose any such information received by it from the other party pursuant
to the transactions contemplated by this Agreement for any purpose whatsoever.
6. WARRANTY
HMRI warrants that the Product manufactured by HMRI and sold to COPLEY
pursuant to this Agreement will meet the specifications for Product set forth
in the NDA in effect at the time of such shipment. HMRI reserves the right to
amend such specifications from time to time at the sole discretion of HMRI;
provided that COPLEY is provided with written notice within a commercially
reasonable period of time in advance in order to effect any necessary
marketing or other changes and, provided further that such changes do not
<PAGE 6>
cause the Product delivered to COPLEY to cease to be the equivalent of the
Trental(R) then sold by HMRI. All Product will conform to, and the Products
manufactured by HMRI will be manufactured in conformity with, the regulations
of the Federal Food and Drug Administration and any comparable state agency
applicable thereto. None of the Product contained in any shipment made
hereunder to COPLEY will, at the time of delivery, be adulterated or
misbranded within the meaning of the Federal Food, Drug and Cosmetic Act, as
amended (the "Act"), and those applicable state laws substantially similar to
the Act, as such Act and laws exist at the time of delivery. None of the
Products will be an article that may not, under the provisions of the Act, be
introduced into interstate commerce. The Products shall conform with any
specifications and quality assurance requirements mutually agreed to in
writing by the parties and, in any event, shall not contain any poisonous or
deleterious material. No Product shall infringe the patent, trade secret or
other proprietary right of any third party. THIS WARRANTY IS THE ONLY
WARRANTY, EXPRESS OR IMPLIED, MADE BY HMRI AS TO THE PRODUCT, AND ALL OTHER
WARRANTIES, INCLUDING MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE,
ARE DISCLAIMED. Except as otherwise provided in this Agreement, the exclusive
remedy for breach of warranty shall be prompt replacement of the nonconforming
Product at HMRI's expense with a like amount of the Product conforming to the
above-stated warranty. For purposes hereof, replacement may include
reprocessing of the Product if done in a period of time commercially
reasonable to COPLEY. In no event shall HMRI be liable to COPLEY for any
alteration, change, improper packaging or other improper treatment of the
Product by COPLEY other than in accordance with HMRI's instructions; nor shall
HMRI be liable to COPLEY for any damage arising solely from COPLEY's
marketing, advertising, distribution or sale of the Product that conforms to
the warranty set forth above.
7. COPLEY'S OBLIGATIONS
COPLEY shall not alter the Product and shall not recommend or knowingly
sell the Product for any uses except as described in the FDA approved Product
labeling.
8. INDEMNITY
8.1 Indemnification by HMRI. HMRI shall defend, indemnify and hold
harmless COPLEY and its affiliates (and each of their employees, officers,
directors and stockholders) from and against any and all claims, liabilities,
assessed damages, costs and expenses (including, without limitation, costs and
expenses of investigation and settlement, court costs and attorneys' fees and
expenses regardless of outcome, but excluding any indirect, incidental or
consequential damages or losses and lost profits) arising out of any claim of
defect in materials or workmanship of the Product, failure of the Product to
conform to the express warranty set forth in Section 6 hereinabove or alleged
or actual personal injury, illness, death or other harm, except to the extent
such claim arises out of COPLEY's breach of this Agreement, negligence or
misconduct.
<PAGE 7>
8.2 Indemnification by COPLEY. COPLEY shall defend, indemnify and hold
harmless HMRI and its affiliates (and each of their employees, officers,
directors and stockholders) from and against any and all claims, liabilities,
assessed damages, costs and expenses (including, without limitation, costs and
expenses of investigation and settlement, court costs and attorneys' fees and
expenses regardless of outcome, but excluding any indirect, incidental or
consequential damages or losses and lost profits) to the extent caused by
COPLEY's packaging, marketing, advertising, distribution or sale of Product
that conforms to the express warranty set forth in Section 6 hereinabove or
caused by alterations to the Product made by COPLEY after delivery by HMRI
other than in accordance with the written directions of HMRI, except to the
extent such claim arises out of HMRI's breach of this Agreement, negligence or
misconduct.
8.3 Indemnification Procedures. The parties shall cooperate and give each
other prompt notice of claims as to which indemnification may be claimed
hereunder. The indemnifying party may, at its option, control the defense of
claims for which indemnification may be sought. The indemnifying party shall
not be required to indemnify the indemnified party for any claim settled
without the indemnifying party's written consent.
9. ORDERS
9.1 Placement of Orders. All orders placed by COPLEY with HMRI hereunder
shall be sent to the following address, unless otherwise notified in writing:
Hoechst Marion Roussel, Inc.
2110 East Galbraith Road
P.O. Box 156300
Cincinnati, OH 45215-6300
Attn: Ronald R. Schallick
Telephone: (513) 948-7197
Telecopy: (513) 948-4547
9.2 Shipment. HMRI shall make every reasonable effort to fill COPLEY's
accepted orders in accordance with COPLEY's requested delivery dates. All
shipments of the Product to COPLEY shall be accompanied by a certificate of
analysis for each batch in said shipment, certifying that each batch was made
in accordance with current Good Manufacturing Practices and the NDA and
listing test results. Deliveries to COPLEY shall be FOB, HMRI Bridgewater,
New Jersey or such other U.S. location to which HMRI may move production of
the Product. COPLEY shall pay all shipping costs, including insurance.
9.3 Risk of Loss. Risk of loss shall pass to COPLEY upon shipment by
HMRI.
9.4 Claims. COPLEY shall cause a commercially reasonable visual
inspection of all shipments of the Product promptly after arrival if shipped
directly to COPLEY, and shall give prompt oral notice of potential
nonconforming goods, and within thirty (30) days after arrival of any such
<PAGE 8>
shipment, give written notice to HMRI of any claim that any Product included
in shipment may not conform to any applicable specifications or warranty. If
shipment of the Product is to a destination other than COPLEY, any claims of
non-conformity under this Section 9.4 must be made by COPLEY within ninety
(90) days of actual delivery of the Product to such destination. HMRI shall
promptly replace such nonconforming Product with conforming Product at no
additional cost to COPLEY. COPLEY's failure to detect and/or give notice of
any defect not readily identifiable upon commercially reasonable visual
inspection shall not vitiate HMRI's obligations under the warranty and
indemnification provisions of this Agreement.
10. FORCE MAJEURE
Neither party shall be responsible or liable, in any way, for any default
in performance of this Agreement arising, directly or indirectly, from any
cause beyond such party's control, including, without limiting the generality
of this provision, fire, flood, tornado, cyclone, war, enemy action, embargo,
strike, lockout, labor trouble, transportation difficulties, governmental
order, proclamation or regulation, inability to obtain raw materials, fuel,
power, packaging or other supplies, accident, explosion, riot, insurrection or
expropriation of the plants by governmental authority, or failure to make
delivery of the Product if the same shall be prevented or delayed by state or
other governmental authority or as a result of requisitioning for allocation
to others by any governmental authority.
11. TERM, TERMINATION AND BREACH
11.1 Term. The Term of this Agreement shall commence on the date first
written above (the "Effective Date") and shall be in full force and effect
until five (5) years from the Effective Date (such period being the "Initial
Term") unless earlier terminated pursuant to Section 11.3 or 11.4
(Termination). This Agreement shall renew for subsequent five (5) year
periods following expiration of the Initial Term (each an "Additional Term"),
under the same terms and conditions as the Initial Term, unless terminated by
written notice by either party not later than three (3) years prior to the
termination of any Initial Term or Additional Term hereunder.
The period of time between the commencement and the termination of this
Agreement at the end of the Initial Term or the last Additional Term, if any,
is referred to herein as the "Term."
11.2 Renegotiation. If either party gives notice of termination pursuant
to Section 11.1 or if HMRI gives notice of termination pursuant to Section
11.3(ii) or Section 11.4, the parties shall, for a period of three months
following such notice, negotiate in good faith the terms and conditions under
which the Agreement could be renewed or continued, as the case may be.
(i) In the event that HMRI provides notice to terminate pursuant to
this Section 11.1 or Section 11.4 and such renewal or continuation
negotiations are unsuccessful, this Agreement shall be terminated as of the
end of such three month negotiation period. At COPLEY's written request, HMRI
shall provide COPLEY or its designee with such technical assistance services
<PAGE 9>
reasonably necessary to enable COPLEY to manufacture or have manufactured its
own product versions of the Products pursuant to Abbreviated New Drug
Applications of COPLEY (the "COPLEY Products") in the Territory; provided,
however, that COPLEY shall have no right to (a) require HMRI to transfer to
COPLEY or any third party any right whatsoever with respect to the NDA or the
Proprietary Rights, (b) require HMRI to provide technical assistance services
to any third party, or (c) transfer to any third party technical assistance
services learned under this Agreement. In consideration of these technical
assistance services, HMRI shall receive a royalty of 20% of the COPLEY Net
Profit Margin (as defined in Section 1.7 herein) with respect to sales by
COPLEY of any COPLEY Product for a period of ten (10) years from the date of
first commercial sale of such COPLEY Product.
(ii) In the event that COPLEY provides notice to terminate pursuant
to this Section 11.1 and renewal negotiations are unsuccessful, HMRI shall
have no obligation to provide COPLEY with any technical assistance services
pursuant to this Agreement.
11.3 Termination.
(I) Either party shall have the right to terminate this Agreement at
any time by giving due notice to terminate this Agreement in any of the
following events:
(a) Insolvency or bankruptcy of the other party or the inability
or failure of the other party to perform any financial obligations as the same
become due;
(b) Failure of the other party to make required payment under
this Agreement where such failure continues after ten (10) days' notice from
the other party;
(c) Demonstrable inability of the other party to perform its
material obligations under this Agreement; and/or
(d) The enactment of any law, order or regulation by a
governmental unit that would impair or restrict the right of or the ability of
either party to terminate or elect not to renew this Agreement or which would
render it impracticable or impossible for the other party to perform its
obligations hereunder.
(ii) Either party shall have the right to terminate this Agreement
at any time upon six months' prior written notice if the COPLEY Net Profit
Margin as defined in Section 1.7 has been negative for six consecutive months.
<PAGE 10>
11.4 HMRI Termination. This Agreement may be terminated at any time by
HMRI upon written notice to COPLEY that the bulk active ingredient cost
component of material costs under Section 1.5 herein is less than HMRI's
actual cost per U.S. GAAP net of any intercompany profits.
11.5 Breach or Misrepresentation. In the event of any material breach of
this Agreement or any material misrepresentation of any representation or
warranty contained herein by either party, the other party shall give the
breaching party written notice thereof. The breaching party shall have thirty
(30) days after receipt of written notice to cure said breach. If cure is not
effected within the thirty (30) day period, the nonbreaching party shall have
the right to terminate this Agreement.
12. NOTICES
Except for COPLEY's Product orders which shall be sent to the address
specified in Section 9 hereof, all notices which COPLEY gives HMRI shall be
sent prepaid, either by first class mail, return receipt requested, express
courier, telecopy, cable, or telex, addressed to HMRI as follows, unless
otherwise notified in writing:
Hoechst Marion Roussel, Inc.
10236 Marion Park Drive
P.O. Box 9627
Kansas City, MO 64134-0627
Attn: North America General Counsel
Telecopy: (816) 966-3805
All notices which HMRI gives to COPLEY shall be sent in the same manner,
addressed to COPLEY as follows, unless otherwise notified in writing:
Copley Pharmaceutical, Inc.
Canton Commerce Center
25 John Road
Canton, MA 02021
Attn: President or Chief Financial Officer
Telecopy: (617) 575-1856
Any notice sent by mail shall be deemed given seventy-two (72) hours after
the deposits thereof. Any notice sent by express courier, telecopy, cable or
telex shall be deemed given when actually received.
<PAGE 11>
13. ASSIGNABILITY
Neither party shall be entitled to assign its rights and obligations under
this Agreement without the other party's prior written consent; provided,
however, that (i) HMRI may assign its rights and obligations under this
Agreement to any member of the Hoechst group companies engaged in the
manufacture or sale of pharmaceutical products without the prior written
consent of COPLEY or its assignee, and (ii) in the event of a sale of all or
substantially all of the assets of COPLEY, COPLEY may assign its rights under
this Agreement to the purchaser of such assets, provided such purchaser
expressly assumes all of COPLEY's obligations under this Agreement, without
the prior written consent of HMRI or its assignee.
14. DISPUTE RESOLUTION
Disputes between the parties will be settled by arbitration conducted
under rules established by the American Arbitration Association. The venue of
such arbitration proceeding shall be in the state in which the party
complained against resides.
15. SEVERING CLAUSE
If any portion of this Agreement is held invalid by a court of competent
jurisdiction, such portion shall be deemed to be of no force and effect and
the Agreement shall be construed as if such portion had not been included
herein.
16. ENTIRE AGREEMENT
This Agreement contains the sole and entire understanding of the parties
related to its subject matter and supersedes all prior or contemporaneous oral
or written agreements concerning the subject matter.
17. MODIFICATION
This Agreement cannot be changed orally and no modification of this
Agreement shall be recognized nor have any effect, unless the writing in which
it is set forth is signed by HMRI and COPLEY, nor shall any waiver of any of
the provisions of this Agreement be effective unless in writing and signed by
the party to be charged therewith.
18. WAIVER
The failure of either party to enforce, at any time, or for any period of
time, the provisions hereof or the failure of either party to exercise any
option herein shall not be construed as a waiver of such provision or option
and shall in no way affect that party's right to enforce such provisions or
exercise such option. No waiver of any provision hereof shall be deemed a
waiver of any succeeding breach of the same or any other provisions of this
Agreement.
<PAGE 12>
19. APPLICABLE LAW
This Agreement shall be deemed to have been entered into within and shall
be governed, construed and enforced in accordance with the laws of the State
of Delaware, regardless of the choice of law principles of that or any other
jurisdiction.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by the respective duly authorized officers on the dates and at the
place indicated below:
COPLEY PHARMACEUTICAL, INC. HOECHST MARION ROUSSEL, INC.
By: /s/ Gene M. Bauer By: /s/ Edward H. Stratemeier
-------------------------------- ----------------------------
Title: Executive Vice President and Title: Vice President and
Secretary General Counsel
------------------------------ ----------------------------
<PAGE 13>
SCHEDULE 1.1
MINIMUM QUANTITY
Strength Package Size Minimum Quantity
- -------- ------------- ----------------
400 mg 100 BTLS 20,000
500 BTLS 4,000
5,000 BTLS 400
<PAGE 14>
EXHIBIT A
to
Pentoxifylline Agreement
Between
Hoechst Marion Roussel, Inc.
and
Copley Pharmaceutical, Inc.
1997 COST OF GOODS
During 1997, COPLEY's cost of goods for the Products from HMRI FOB
Bridgewater, New Jersey (or such other U.S. location to which HMRI may move
production of the Product) shall be based upon a bulk pentoxifylline delivered
cost to HMRI of $[*] per kilo and shall be as follows:
400 mg
--------
100's 500's 5,000's
----- ----- -------
$[*] $[*] $[*]
[*] Confidential portion has been omitted pursuant to a request for
confidential treatment and has been filed separately with the Commission.
<PAGE 15>
EXHIBIT B
to
Amended and Restated
Pentoxifylline Agreement
Between
Hoechst Marion Roussel, Inc.
and
Copley Pharmaceutical, Inc.
CALCULATION OF HMRI REVENUE SHARE (Section 1.7)
COPLEY Gross Sales $XXX
Less Actual:
Chargebacks $XXX
Rebates $XXX
Price Adjustments $XXX
Cash Discounts $XXX
Net Sales $XXX
Less Cost of Goods* $XXX
----
Net Profit Margin $XXX
HMRI Net Profit Margin Share Percentage x [*]
----
HMRI Net Profit Margin Share $XXX
====
* Cost of Goods calculated on a fully allocated basis according to generally
accepted accounting principles (as set forth in Section 1.5).
[*] Confidential portion has been omitted pursuant to a request for
confidential treatment and has been filed separately with the Commission.
