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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
-------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
-------------------------
Commission file number 0-28454
ANDRX CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA 65-0366879
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4001 SOUTHWEST 47TH AVENUE 33314
FORT LAUDERDALE, FL (Zip Code)
(Address of Principal
Executive Offices)
954-584-0300
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve 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 _____
As of August 2, 1999, 31,388,400 shares of the Registrant's only class
of common stock were issued and outstanding.
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<PAGE>
ANDRX CORPORATION
INDEX TO THE FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Unaudited Consolidated Balance Sheets -
as of June 30, 1999 and December 31, 1998 3
Unaudited Consolidated Statements of Income -
for the three and six months ended June 30, 1999 and 1998 4
Unaudited Consolidated Statements of Cash Flows -
for the six months ended June 30, 1999 and 1998 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
</TABLE>
2
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands, except for share and per share amounts)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---------------- -----------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 82,890 $ 17,459
Investments available-for-sale 42,046 5,633
Accounts receivable, net of allowances of $5,819 and $2,529
as of June 30, 1999 and December 31, 1998, respectively 70,632 33,811
Inventories 71,651 42,337
Prepaid and other current assets 2,593 631
Investment in and due from or to joint venture, net 830 89
---------------- -----------------
Total current assets 270,642 99,960
Property, plant and equipment, net 28,649 20,429
Other assets 2,306 809
---------------- -----------------
Total assets $ 301,597 $ 121,198
================ =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 40,532 33,516
Accrued liabilities 16,234 10,837
Income taxes payable 31,739 55
Bank loan 28,156 4,107
Notes payable 424 100
---------------- -----------------
Total current liabilities 117,085 48,615
---------------- -----------------
Commitments and contingencies (Note 7)
Minority interest 13,289 -
Shareholders' equity
Convertible preferred stock; $0.001 par
value, 1,000,000 shares authorized; none
issued and outstanding as of June 30, 1999
and December 31, 1998 - -
Common stock; $0.001 par value, 50,000,000
shares authorized; 31,348,219 and 30,346,800
shares issued and outstanding as of June 30, 1999 and
December 31, 1998, respectively 31 30
Additional paid-in capital 129,146 86,305
Retained earnings (accumulated deficit) 42,073 (13,751)
Unrealized loss on investments available-for-sale, net of income taxes (27) (1)
---------------- -----------------
Total shareholders' equity 171,223 72,583
---------------- -----------------
Total liabilities and shareholders' equity $ 301,597 $ 121,198
================ =================
</TABLE>
The accompanying notes to the unaudited consolidated financial statements are
an integral part of these unaudited consolidated balance sheets.
3
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except for share and per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues
Distributed products $ 66,108 $ 52,855 $ 129,133 $ 100,935
Manufactured products 36,516 2,674 40,889 5,289
Stipulation fees 60,733 - 70,733 -
Licensing and other 1,203 426 1,729 426
------------- ------------- ------------- -------------
Total revenues 164,560 55,955 242,484 106,650
------------- ------------- ------------- -------------
Operating expenses
Cost of distributed products 53,587 44,880 104,156 85,819
Manufacturing costs 6,033 1,308 8,290 2,306
Selling, general and administrative 16,065 6,395 24,873 12,475
Research and development 7,186 4,084 11,591 7,180
Equity in (income) losses of joint venture (277) 388 (129) 686
Cybear, Inc. Internet operating expenses 3,182 746 5,926 1,236
Legal settlement - - 545 -
------------- ------------- ------------- -------------
Total operating expenses 85,776 57,801 155,252 109,702
------------- ------------- ------------- -------------
Income (loss) from operations 78,784 (1,846) 87,232 (3,052)
Other income (expense)
Gain on sale of Cybear, Inc. shares - - 300 -
Interest income 537 230 903 523
Interest expense (483) (102) (637) (148)
------------- ------------- ------------- -------------
Income (loss) before income taxes 78,838 (1,718) 87,798 (2,677)
Income taxes 29,958 - 31,974 -
------------- ------------- ------------- -------------
Net income (loss) $ 48,880 $ (1,718) $ 55,824 $ (2,677)
============= ============= ============= =============
Basic net income (loss) per share $ 1.60 $ (0.06) $ 1.83 $ (0.09)
============= ============= ============= =============
Diluted net income (loss) per share $ 1.51 $ (0.06) $ 1.73 $ (0.09)
============= ============= ============= =============
Basic weighted average shares of common
stock outstanding 30,614,000 30,039,000 30,525,000 29,908,000
============= ============= ============= =============
Diluted weighted average shares of common
stock outstanding 32,461,000 30,039,000 32,261,000 29,908,000
============= ============= ============= =============
</TABLE>
The accompanying notes to the unaudited consolidated financial statements are
an integral part of these unaudited consolidated statements.
4
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 55,824 $ (2,677)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,780 1,572
Provision for doubtful accounts, net 3,290 244
Gain on sale of Cybear, Inc. shares (300) -
Equity in (income) losses of joint venture (129) 686
Contributions to joint venture (500) (900)
Changes in operating assets and liabilities:
Accounts receivable (40,111) (3,966)
Due from or to joint venture (112) 265
Inventories (29,314) (19,039)
Prepaid and other assets (3,402) (146)
Accounts payable and accrued liabilities 12,413 8,052
Income taxes payable 31,684 -
------------- -------------
Net cash provided by (used in) operating activities 31,123 (15,909)
------------- -------------
Cash flows from investing activities
Purchases of property, plant and equipment (10,000) (3,990)
Maturities (purchases) of investments available-for-sale, net (36,455) 11,413
------------- -------------
Net cash provided by (used in) investing activities (46,455) 7,423
------------- -------------
Cash flows from financing activities
Proceeds from exercises of stock options and warrants 5,303 1,546
Net borrowings under bank loan 24,049 6,225
Proceeds from Cybear, Inc.'s public share offering 50,787 -
Proceeds from sale of Cybear, Inc. shares 300 -
Proceeds on notes payable 612 -
Payments on notes payable (288) -
------------- -------------
Net cash provided by financing activities 80,763 7,771
------------- -------------
Net increase (decrease) in cash and cash equivalents 65,431 (715)
Cash and cash equivalents, beginning of period 17,459 6,625
------------- -------------
Cash and cash equivalents, end of period $ 82,890 $ 5,910
============= =============
Supplemental disclosure of cash paid during the period for:
Interest $ 637 $ 148
============= =============
Income taxes $ 290 $ -
============= =============
</TABLE>
The accompanying notes to the unaudited consolidated financial statements are
an integral part of these unaudited consolidated statements.
5
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
In the opinion of management, the accompanying unaudited consolidated
financial statements have been prepared by Andrx Corporation ("Andrx" or the
"Company") pursuant to the rules and regulations of the United States Securities
and Exchange Commission ("SEC"). Certain information and footnote disclosures
normally included in annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to those rules and regulations. However, management believes that the
disclosures contained herein are adequate to make the information presented not
misleading. The unaudited consolidated financial statements reflect, in the
opinion of management, all material adjustments (which include only normal
recurring adjustments) necessary to present fairly the Company's unaudited
financial position and results of operations. The unaudited results of
operations for the three and six months ended June 30, 1999 and the cash flows
for the six months ended June 30, 1999 are not necessarily indicative of the
results of operations or cash flows which may be expected for the remainder of
1999. The unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes for the
year ended December 31, 1998, included in the Company's Annual Report on Form
10-K for the year ended December 31, 1998.
Certain prior year amounts have been reclassified to conform to the
current year presentation.
Share and per share amounts have been restated for all prior periods
for the Company's May 17, 1999 two-for-one stock split effected in the form of a
100% stock dividend.
2. CYBEAR, INC.
On June 23, 1999, Cybear, Inc. ("Cybear") (Nasdaq: CYBA), Andrx'
Internet-based portal and provider of healthcare communications and applications
subsidiary, completed a public offering of 3,450,000 of its common shares at
$16.00 per share raising net proceeds of approximately $50.8 million. Such
public offering reduced Andrx' ownership in Cybear from approximately 95% to
76%.
3. PRODUCT DISTRIBUTION, DEVELOPMENT AND
LICENSING AGREEMENT
In June 1999, the Company entered into an agreement with Geneva
Pharmaceuticals, Inc., a member of the Novartis Group, and the Global Generics
sector of Novartis AG, (collectively, "Geneva"), for the sale and marketing of
certain products. The agreement includes funding by Geneva of certain
controlled-release dosage forms of existing products that Andrx is developing
for submission as New Drug Applications (NDAs), the grant of marketing rights to
Geneva in certain territories for these products, and the receipt by Andrx of at
least certain minimum amounts of royalties from the sale of such products. The
Company has also committed to continuing to sell generic products marketed by
Geneva.
6
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4. INCOME TAXES
For the three and six months ended June 30, 1999, the Company provided
$30.0 million and $32.0 million, respectively, for Federal and state income
taxes or 38.0% and 36.4%, respectively, of income before income taxes. The
Company was not required to provide for Federal and state income taxes at the
38.6% Federal and state statutory rate due to the effect of the utilization of
the Company's net operating loss carryforwards, offset by Andrx' inability
to utilize Cybear's expected future losses, as Andrx' ownership of Cybear is
below 80% (see Note 2). Accordingly, effective June 23, 1999 Cybear will be
excluded from Andrx' consolidated tax return and will file as a separate tax
entity.
For the three and six months ended June 30, 1998, the Company had no
income taxes as its income tax benefits were fully offset by a corresponding
increase to the valuation allowance against its net deferred income tax assets.
5. INCOME (LOSS) PER SHARE
For the three and six months ended June 30, 1999 the Company generated
net income. Accordingly, the diluted basis considers the weighted average shares
of common stock outstanding including common stock equivalents.
For the three and six months ended June 30, 1998 the Company generated
net losses. Accordingly, all common stock equivalents were excluded from the
calculation of net loss per diluted share since the effects were anti-dilutive.
The diluted net loss per share is based on the weighted average shares of common
stock outstanding.
6. COMPREHENSIVE INCOME (LOSS)
The components of the Company's comprehensive income (loss) are as
follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------------- ----------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net income (loss) $ 48,880 $ (1,718) $ 55,824 $ (2,677)
Unrealized loss on investments
available-for-sale, net of income
taxes (20) (23) (26) (32)
--------------- --------------- --------------- ---------------
Comprehensive income (loss) $ 48,860 $ (1,741) $ 55,798 $ (2,709)
=============== =============== =============== ===============
</TABLE>
7
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
7. CONTINGENCIES
In June 1999, the patent infringement claim brought against the Company
by Hoechst Marion Roussel, Inc. and Carderm Capital L.P. (collectively, "HMRI")
in 1996 was resolved and the lawsuit was dismissed with prejudice. For the
quarter ended June 30, 1999, pursuant to a related Stipulation and Agreement
with HMRI (the "Stipulation"), Andrx received $60.7 million in interim and final
Stipulation fees from HMRI and on June 23, 1999 the Company commenced selling
its bioequivalent version of Cardizem(R) CD, Cartia XT(TM).
In addition to the putative class actions of the type disclosed in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998,
additional actions have been filed against the Company attacking the Stipulation
and seeking relief similar to that sought in the previously disclosed actions.
Except as disclosed above, there have been no material developments in
any legal matters described in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
8. BUSINESS SEGMENTS
Effective December 31, 1998, the Company adopted the provisions of the
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 requires the
Company to disclose selected segment information on an interim basis.
The Company operates the following business segments:
o Anda Generics, Inc. ("Anda Generics") markets and distributes
generic pharmaceuticals manufactured by third parties.
o Andrx Pharmaceuticals, Inc. ("Andrx Pharmaceuticals") develops
bioequivalent versions of selected controlled-release brand name
pharmaceuticals utilizing its proprietary drug delivery
technologies and manufactures and sells such products.
o Aura Laboratories, Inc. ("Aura Labs") applies the proprietary drug
delivery technologies developed by Andrx Pharmaceuticals to the
development of brand name controlled-release formulations of
existing drugs.
o Corporate and Other ("Corporate & Other") consists of corporate
activities, including general and administrative expenses,
adjustments for minority interest, interest income and income
taxes.
o Cybear uses the Internet and Internet-based browser technologies
to develop applications designed to improve communication among,
and increase efficiencies for, healthcare providers.
8
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Company evaluates the performance of the segments after all
intercompany sales are eliminated. The allocation of income taxes is not
evaluated at the segment level.
The following table presents financial information by business segment (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, 1999 ANDRX
CORPORATION
ANDA ANDRX AURA CORPORATE & EXCLUDING
GENERICS PHARMACEUTICALS LABS OTHER CYBEAR CYBEAR CONSOLIDATED
---------- -------------- ---------- ----------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 66,108 $ 98,425 $ - $ - $ 164,533 $ 27 $ 164,560
Equity in income of joint venture - 277 - - 277 - 277
Income (loss) from operations 5,629 80,197 (1,728) (2,206) 81,892 (3,108) 78,784
Interest income - - - 488 488 49 537
Interest expense (483) - - - (483) - (483)
Income tax expense - - - (29,958) (29,958) - (29,958)
Total assets as of June 30, 1999 108,390 60,485 84 76,637 245,596 56,001 301,597
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, 1998 ANDRX
CORPORATION
ANDA ANDRX AURA CORPORATE & EXCLUDING
GENERICS PHARMACEUTICALS LABS OTHER CYBEAR CYBEAR CONSOLIDATED
---------- -------------- ---------- ----------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 52,855 $ 3,100 $ - $ - $ 55,955 $ - $ 55,955
Equity in losses of joint venture - (388) - - (388) - (388)
Income (loss) from operations 2,883 (2,296) (685) (986) (1,084) (762) (1,846)
Interest income - - - 230 230 - 230
Interest expense (102) - - - (102) - (102)
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1999 ANDRX
CORPORATION
ANDA ANDRX AURA CORPORATE & EXCLUDING
GENERICS PHARMACEUTICALS LABS OTHER CYBEAR CYBEAR CONSOLIDATED
---------- -------------- ---------- ----------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 129,133 $ 113,324 $ - $ - $ 242,457 $ 27 $ 242,484
Equity in income of joint venture - 129 - - 129 - 129
Income (loss) from operations 11,951 88,319 (2,968) (4,167) 93,135 (5,903) 87,232
Gain on sale of Cybear shares 300 - - - 300 - 300
Interest income - - - 854 854 49 903
Interest expense (637) - - - (637) - (637)
Income tax expense - - - (31,974) (31,974) - (31,974)
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1998 ANDRX
CORPORATION
ANDA ANDRX AURA CORPORATE & EXCLUDING
GENERICS PHARMACEUTICALS LABS OTHER CYBEAR CYBEAR CONSOLIDATED
---------- -------------- ---------- ----------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 100,935 $ 5,715 $ - $ - $ 106,650 $ - $ 106,650
Equity in losses of joint venture - (686) - - (686) - (686)
Income (loss) from operations 5,264 (3,988) (1,095) (1,970) (1,789) (1,263) (3,052)
Interest income - - - 523 523 - 523
Interest expense (148) - - - (148) - (148)
</TABLE>
9
<PAGE>
ANDRX CORPORATION
PART I
FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ANDRX CORPORATION AND SUBSIDIARIES ("ANDRX" OR THE "COMPANY") CAUTIONS
READERS THAT CERTAIN IMPORTANT FACTORS MAY AFFECT THE COMPANY'S ACTUAL RESULTS
AND COULD CAUSE SUCH RESULTS TO DIFFER MATERIALLY FROM ANY FORWARD-LOOKING
STATEMENTS WHICH MAY BE DEEMED TO HAVE BEEN MADE IN THIS REPORT OR WHICH ARE
OTHERWISE MADE BY OR ON BEHALF OF THE COMPANY. FOR THIS PURPOSE, ANY STATEMENTS
CONTAINED IN THIS REPORT THAT ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE
DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, WORDS SUCH AS "MAY", "WILL", "EXPECT", "BELIEVE", "ANTICIPATE",
"INTEND", "COULD", "WOULD", "ESTIMATE", OR "CONTINUE" OR THE NEGATIVE OTHER
VARIATIONS THEREOF OR COMPARABLE TERMINOLOGY ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. FACTORS WHICH MAY AFFECT THE COMPANY'S RESULTS
INCLUDE, BUT ARE NOT LIMITED TO, THE RISKS AND UNCERTAINTIES ASSOCIATED WITH A
DRUG DELIVERY COMPANY WHICH HAS ONLY COMMERCIALIZED A FEW PRODUCTS, HAS NEW
TECHNOLOGIES, LIMITED MANUFACTURING EXPERIENCE, CURRENT AND POTENTIAL
COMPETITORS WITH SIGNIFICANT TECHNICAL AND MARKETING RESOURCES AND DEPENDENCE ON
COLLABORATIVE PARTNERS AND ON KEY PERSONNEL. THE COMPANY IS ALSO SUBJECT TO THE
RISKS AND UNCERTAINTIES ASSOCIATED WITH ALL DRUG DELIVERY COMPANIES, INCLUDING
COMPLIANCE WITH GOVERNMENT REGULATIONS AND PATENT INFRINGEMENT AND OTHER
LITIGATION. ADDITIONALLY, THE COMPANY IS SUBJECT TO RISKS AND UNCERTAINTIES
ASSOCIATED WITH DRUG DISTRIBUTION COMPANIES, INCLUDING BUT NOT LIMITED TO,
FIERCE COMPETITION, COMPETITORS WITH SIGNIFICANT TECHNICAL AND MARKETING
RESOURCES AND DECREASING GROSS MARGIN PERCENTAGES. IN ADDITION, CYBEAR, INC.
("CYBEAR") THE COMPANY'S 76% OWNED INTERNET BASED HEALTHCARE COMMUNICATIONS AND
APPLICATIONS SUBSIDIARY, IS SUBJECT TO THE RISKS AND UNCERTAINTIES OF AN
INTERNET COMPANY, INCLUDING BUT NOT LIMITED TO, LIMITED OPERATING HISTORY AND
SUBSTANTIAL OPERATING LOSSES, AVAILABILITY OF CAPITAL RESOURCES, ABILITY TO
EFFECTIVELY COMPETE, ECONOMIC CONDITIONS, UNANTICIPATED DIFFICULTIES IN PRODUCT
DEVELOPMENT, ABILITY TO GAIN MARKET ACCEPTANCE AND MARKET SHARE, ABILITY TO
MANAGE GROWTH, RELIANCE ON SHORT-TERM NON-EXCLUSIVE CONTRACTS, INTERNET SECURITY
RISKS AND UNCERTAINTY RELATING TO THE EVOLUTION OF THE INTERNET AS A MEDIUM FOR
COMMERCE, DEPENDENCE ON THIRD PARTY CONTENT PROVIDERS, DEPENDENCE ON KEY
PERSONNEL, ABILITY TO PROTECT INTELLECTUAL PROPERTY, YEAR 2000 PROBLEMS AND THE
IMPACT OF FUTURE GOVERNMENT REGULATION. THE COMPANY IS ALSO SUBJECT TO OTHER
RISKS DETAILED HEREIN OR DETAILED FROM TIME TO TIME IN THE COMPANY'S AND
CYBEAR'S FILINGS WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION (THE "SEC").
INTRODUCTION
Andrx was organized in August 1992 and commenced marketing and
distributing generic pharmaceuticals manufactured by third parties. In February
1993, the Company began to engage in the development of bioequivalent versions
of controlled-release pharmaceuticals utilizing its proprietary drug delivery
technologies. During 1996, the Company commenced its efforts to develop brand
name controlled-released products and an Internet based software application for
healthcare providers. Through October 9, 1997, the Company's distribution
operations generated substantially all of its revenues. On October 10, 1997, the
U.S. Food and Drug Administration ("FDA") granted final approval of the
Company's Abbreviated New Drug Application ("ANDA") for its bioequivalent
version of Dilacor XR(R), the Company's first manufactured product, which it
immediately launched as Diltia XT(R).
In September 1997, Andrx entered into a Stipulation and Agreement (the
"Stipulation") with Hoechst Marion Roussel, Inc. and Carderm Capital L.P.
(collectively, "HMRI") arising out of a patent infringement claim brought
against the Company by HMRI (the "HMRI Litigation") relating to the Company's
bioequivalent version of Cardizem(R) CD. Andrx and HMRI entered
10
<PAGE>
into a Stipulation in partial settlement of the HMRI Litigation in order to
reduce the risks that both parties faced as the case was litigated to its
conclusion. Andrx agreed to maintain the status quo in connection with the
marketing of its product and to dismiss certain claims against HMRI. HMRI agreed
to compensate Andrx for any lost profits, which were stipulated to be $100.0
million per year, if Andrx utimately prevailed in the HMRI Litigation. HMRI also
agreed to make non-refundable quarterly payments of $10.0 million to Andrx,
beginning upon Andrx' receipt of final FDA approval for its bioequivalent
version of Cardizem(R) CD and continuing until the HMRI Litigation was resolved
or certain other events occurred. Such quarterly payments were to be credited
against the payments of the stipulated lost profits if Andrx prevailed in the
HMRI Litigation. In July 1998, the Company received final FDA marketing approval
for its bioequivalent version of Cardizem(R) CD. In June 1999, the HMRI
Litigation was resolved, and the lawsuit was dismissed with prejudice. Pursuant
to the Stipulation, for the quarter ended June 30, 1999 Andrx received $60.7
million in interim and final Stipulation fees from HMRI and on June 23, 1999 the
Company commenced selling its bioequivalent version of Cardizem(R) CD, Cartia
XT(TM).
In June 1999, Andrx' 76% owned Internet-based portal and provider of
healthcare communications and applications subsidiary, completed a public
offering of 3,450,000 of its common shares at $16.00 per share, raising net
proceeds of approximately $50.8 million.
The Company is a 50% partner in ANCIRC Pharmaceuticals ("ANCIRC"), a
joint venture with Watson Pharmaceuticals, Inc., for the development of up to
eight controlled-release pharmaceutical products. The Company is also party to
development and licensing agreements for additional controlled-release products.
In June 1999, the Company entered into an agreement with Geneva Pharmaceuticals,
Inc., a member of the Novartis Group, and the Global Generics sector of Novartis
AG, (collectively, "Geneva"), for the sale and marketing of certain products.
The agreement includes funding by Geneva of certain controlled-release dosage
forms of existing products that Andrx is developing for submission as New Drug
Applications ("NDA"), the grant of marketing rights to Geneva in certain
territories for these products, and the receipt by Andrx of at least certain
minimum amounts of royalties from the sale of such products. The Company has
also committed to continuing to sell generic products marketed by Geneva.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 ("1999 QUARTER") AS COMPARED TO THE THREE
MONTHS ENDED JUNE 30, 1998 ("1998 QUARTER")
For the 1999 Quarter, Andrx reported net income of $48.9 million or
$1.51 per diluted share, as compared to a net loss of $1.7 million or $0.06 per
diluted share for the 1998 Quarter.
Total revenues increased by 194.1% to $164.6 million for the 1999
Quarter, as compared to $56.0 million for the 1998 Quarter.
11
<PAGE>
For the 1999 Quarter, sales from distributed products increased by
25.1% to $66.1 million, as compared to $52.9 million for the 1998 Quarter. The
increase in sales from distributed products reflects an increase in sales to
customers, an increase in the number of customers, as well as the participation
in the distribution of new products launched by other pharmaceutical companies,
offset by overall price declines.
Sales from manufactured products increased to $36.5 million for the
1999 Quarter, as compared to $2.7 million for the 1998 Quarter. Sales from
manufactured products include the Company's bioequivalent version of Dilacor
XR(R), Diltia XT(R) and, commencing June 23, 1999, the Company's bioequivalent
version of Cardizem(R) CD, Cartia XT(TM).
In the 1999 Quarter, Andrx received $60.7 million in interim and final
fees from HMRI pursuant to the Stipulation and the resolution of the HMRI
Litigation.
The Company recorded $1.2 million of licensing and other revenues in
the 1999 Quarter, as compared to $426,000 in the 1998 Quarter. Such revenues in
the 1999 Quarter were primarily generated from the Company's June 1999 agreement
with Geneva.
Gross profits from sales of distributed products were $12.5 million or
a gross margin of 18.9% in the 1999 Quarter, as compared to $8.0 million or a
gross margin of 15.1% in the 1998 Quarter. This represents the 28th consecutive
quarter (every quarter since inception) with an increase in gross profits from
the distribution operation.
Gross profits from sales of manufactured products were $30.5 million or
a gross margin of 83.5% in the 1999 Quarter, as compared to $1.4 million or a
gross margin of 51.1% in the 1998 Quarter. Manufacturing costs for the 1998
Quarter included idle manufacturing facility costs as the manufacturing facility
was not fully utilized for the Company's commercial manufacturing operations.
Selling, general and administrative expenses were $16.1 million or 9.8%
of total revenues for the 1999 Quarter, as compared to $6.4 million or 11.4% of
total revenues for the 1998 Quarter. The increase in selling, general and
administrative expenses was primarily due to an increase in the activities
necessary to support the increase in sales from distributed and manufactured
products and includes a royalty to the Company's Co-Chairman and Chief
Scientific Officer related to Stipulation fees and sales of Cartia XT(TM).
Research and development expenses were $7.2 million in the 1999
Quarter, as compared to $4.1 million in the 1998 Quarter. The increase in
research and development expenses of 76.0% reflects the progress and expansion
of the Company's development activities for its bioequivalent (ANDA) and brand
name (NDA) drug development programs including legal costs related to patent
infringement claims associated with the Company's ANDA filings. The Company's
NDA program currently has one product in Phase III clinical trials.
The Company's equity share of ANCIRC was $277,000 of income for the
1999 Quarter, as compared to $388,000 of loss in the 1998 Quarter. ANCIRC's 1999
Quarter profitability was primarily attributable to the launch of two ANCIRC
products - a bioequivalent version of Trental(R) in September 1998, and a
bioequivalent version of Oruvail(R) in April 1999. The Company does not expect
ANCIRC to maintain profitability as Andrx has suspended the production and sale
of ANCIRC's bioequivalent version of Oruvail(R). This will not have a material
affect on the Company's consolidated results of operations.
12
<PAGE>
In the 1999 Quarter, through its Cybear subsidiary, the Company
incurred $3.2 million of Internet operating expenses as compared to $746,000 in
the 1998 Quarter. Such increase is primarily the result of the progress in
applications development and the establishment of the related operational and
administrative infrastructure. During the 1999 Quarter, Cybear launched its
first product, SolutionsMD(SM), intended to address the communications and
operational needs of physicians.
Interest income was $537,000 in the 1999 Quarter, as compared to
$230,000 in the 1998 Quarter. The increase in interest income is the result of
the higher average level of cash, cash equivalents and investments
available-for-sale maintained during the 1999 Quarter, as compared to the 1998
Quarter, primarily from the interim and final Stipulation fees received from
HMRI and from the net proceeds of $50.8 million received from Cybear's June 23,
1999 public share offering. The Company invests in investment grade interest
bearing securities.
Interest expense increased to $483,000 in the 1999 Quarter from
$102,000 in the 1998 Quarter. The increase in interest expense was primarily the
result of a higher average level of borrowings under the Company's bank loan
during the 1999 Quarter, as compared to the 1998 Quarter. Such borrowings are
utilized to fund the Company's distribution operations.
In the 1999 Quarter, the Company provided $30.0 million for Federal and
state income taxes or 38.0% of income before income taxes. The Company was not
required to provide for taxes at the 38.6% Federal and state statutory rate due
to the effect of the utilization of the Company's net operating loss
carryforwards, offset by Andrx' inability to utilize Cybear's expected future
losses, as Andrx' ownership in Cybear is below 80%. Accordingly, effective June
23, 1999, Cybear will be excluded from Andrx' consolidated tax return and will
file as a separate tax entity. In the 1998 Quarter, the Company was not required
to provide for Federal or state income taxes as its income tax benefits were
fully offset by a corresponding increase to the valuation allowance against its
deferred income tax assets.
The diluted weighted average shares of common stock outstanding were
32.5 million in the 1999 Quarter, as compared to 30.0 million for the 1998
Quarter. The increase in such diluted weighted average shares of common stock
outstanding in the 1999 Quarter, as compared to the 1998 Quarter resulted
primarily from the inclusion of stock equivalents in the profitable 1999
Quarter. Share and per share amounts have been restated for all prior
periods for the Company's May 17, 1999 two-for-one stock split effected in the
form of a 100% stock dividend.
SIX MONTHS ENDED JUNE 30, 1999 ("1999 PERIOD") AS COMPARED TO SIX MONTHS ENDED
JUNE 30, 1998 ("1998 PERIOD")
For the 1999 Period, Andrx reported net income of $55.8 million or
$1.73 per diluted share, as compared to a net loss of $2.7 million or $0.09 per
diluted share for the 1998 Period.
Total revenues increased by 127.4% to $242.5 million for the 1999
Period, as compared to $106.7 million for the 1998 Period.
13
<PAGE>
For the 1999 Period, sales from distributed products increased by 27.9%
to $129.1 million, as compared to $100.9 million for the 1998 Period. The
increase in sales from distributed products reflects an increase in sales to
customers, an increase in the number of customers, as well as the participation
in the distribution of new products launched by other pharmaceutical companies,
offset by overall price declines.
Sales from manufactured products increased to $40.9 million for the
1999 Period, as compared to $5.3 million for the 1998 Period. Sales from
manufactured products include the Company's bioequivalent version of Dilacor
XR(R), and, commencing June 23, 1999, the Company's bioequivalent version of
Cardizem(R) CD.
In the 1999 Period, Andrx received $70.7 million in interim and final
fees from HMRI pursuant to the Stipulation and the resolution of the HMRI
Litigation.
The Company recorded $1.7 million of licensing and other revenues in
the 1999 Period, as compared to $426,000 in the 1998 Period.
Gross profits from sales of distributed products was $25.0 million or a
gross margin of 19.3% in the 1999 Period, as compared to $15.1 million or 15.0%
in the 1998 Period.
Gross profits from sales of manufactured products were $32.6 million or
a gross margin of 79.7% in the 1999 Period, as compared to $3.0 million or a
gross margin of 56.4% in the 1998 Period.
Selling, general and administrative expenses were $24.9 million or
10.3% of total revenues for the 1999 Period, as compared to $12.5 million or
11.7% for the 1998 Period. The increase in selling, general and administrative
expenses was primarily due to an increase in the activities necessary to support
the increase in sales from distributed and manufactured products and includes a
royalty to the Company's Co-Chairman and Chief Scientific Officer related to
Stipulation fees and sales of the Company's bioequivalent version of Cardizem(R)
CD.
Research and development expenses were $11.6 million in the 1999
Period, as compared to $7.2 million in the 1998 Period. The increase in research
and development expenses of 61.4% reflects the progress and expansion of the
Company's development activities for its ANDA and NDA drug development programs
including legal costs related to patent infringement claims associated with the
Company's ANDA filings.
The Company's equity share of ANCIRC was $129,000 of income for the
1999 Period, as compared to $686,000 of loss in the 1998 Period. ANCIRC's 1999
Period profitability was primarily attributable to the launch of two ANCIRC
products - a bioequivalent version of Trental(R) in September 1998, and a
bioequivalent version of Oruvail(R) in April 1999.
In the 1999 Period the Company recognized a gain of $300,000 on the
sale of Cybear common stock to Cybear's Chairman pursuant to an existing
subscription agreement.
14
<PAGE>
In the 1999 Period, through its Cybear subsidiary, the Company incurred
$5.9 million of Internet operating expenses as compared to $1.2 million in the
1998 Period. Such increase is primarily the result of progress in applications
development and the establishment of the related operational and administrative
infrastructure.
Interest income was $903,000 in the 1999 Period, as compared to
$523,000 in the 1998 Period. The increase in interest income is the result of
the higher average level of cash, cash equivalents and investments
available-for-sale maintained during the 1999 Period, as compared to the 1998
Period.
Interest expense increased to $637,000 in the 1999 Period, as compared
to $148,000 in the 1998 Period. The increase in interest expense was primarily
the result of a higher average level of borrowings under the Company's bank loan
during the 1999 Period, as compared to the 1998 Period.
In the 1999 Period, the Company provided $32.0 million for Federal and
state income taxes or 36.4% of income before taxes. In the 1998 Period, the
Company had no income taxes, as its benefits were fully offset by a
corresponding increase to the valuation allowance against its net deferred
income tax assets.
The diluted weighted average shares of common stock outstanding were
32.3 million in the 1999 Period, as compared to 29.9 million in the 1998 Period.
The increase in such diluted weighted average shares of common stock outstanding
in the 1999 Period, as compared to the 1998 Period resulted primarily from the
inclusion of stock equivalents in the profitable 1999 Period. Share and per
share amounts have been restated for all prior periods for the Company's May 17,
1999 two-for-one stock split effected in the form of a 100% stock dividend.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, Andrx had $124.9 million in cash, cash equivalents
and investments available-for-sale which includes $50.9 million of cash and cash
equivalents held by Cybear. The Company also had net working capital of $153.6
million.
Net cash provided by operating activities was $31.1 million in the 1999
Period, as compared to net cash used in operating activities of $15.9 million in
the 1998 Period. Net cash provided by operating activities in the 1999 Period is
primarily due to the Company generating $55.8 million of net income, and
increases in accounts payable and accrued liabilities, and income taxes payable,
offset by increases in accounts receivable and inventories. Net cash used in
operating activities in the 1998 Period is primarily due to the Company
generating $2.7 million of net loss, and increases in accounts receivable and
inventories, offset by increases in accounts payable and accrued liabilities.
The increase in accounts receivable in the 1999 Period is primarily the result
of the launch of Cartia XT(TM), the Company's bioequivalent version of
Cardizem(R) CD, on June 23, 1999. The increase in inventories in the 1999 Period
includes distributed and manufactured products. The increase in inventories for
distribution is in anticipation of potential price increases by generic drug
manufacturers.
Net cash used in investing activities was $46.5 million in the 1999
Period, as compared to net cash provided by investing activities of $7.4 million
in the 1998 Period. In the 1999 Period, the Company invested $36.5 million in
investments available-for-sale and purchased $10.0
15
<PAGE>
million in property, plant and equipment. In the 1998 Period, $11.4 million of
investments available-for-sale matured and the Company purchased $4.0 million of
property, plant and equipment.
Net cash provided by financing activities was $80.8 million in the 1999
Period, as compared to $7.8 million in the 1998 Period. Net cash provided by
financing activities in the 1999 Period consisted of net borrowings of $24.0
million under the Company's bank loan, $5.3 million in proceeds from the
issuance of shares of common stock upon the exercises of stock options and
warrants and $300,000 in proceeds from the gain on the sale of shares of Cybear
common stock. In addition, the Company's Cybear subsidiary issued 3,450,000
shares of its common stock at $16.00 per share and raised net proceeds $50.8
million. Net cash provided by financing activities for the 1998 Period consisted
of $6.2 million of net borrowings under the Company's bank loan and $1.5 million
in proceeds from the issuance of shares of common stock upon the exercises of
stock options and warrants.
The Company had outstanding short-term borrowings under its
distribution subsidiary's bank loan of $28.2 million as of June 30, 1999 as
compared to $4.1 million as of December 31, 1998. Such increase relates
primarily to the financing of additional inventories for distribution.
Borrowings under the bank loan are secured by all of the assets of that
operation, and are subject to a borrowing base related to the value of that
operations accounts receivable and inventories. The bank loan agreement requires
compliance by the Company with certain covenants including the maintenance of
minimum working capital and net worth levels by the Company's distribution
subsidiary. As of June 30, 1999, the Company was in compliance with all of the
covenants of this bank loan.
The Company anticipates that its cash requirements will continue to
increase due to the construction of its research and development, manufacturing,
distribution and corporate facilities including the related equipment purchases,
and expected continued increases in distribution inventories. For the full year
ending December 31, 1999, the Company anticipates that it will incur
approximately $27 million in capital expenditures and that distribution
inventories will increase by at least $30 million. The Company anticipates that
its existing capital resources will be sufficient to enable it to maintain its
operations for the foreseeable future.
YEAR 2000 SYSTEMS COSTS
The Year 2000 issue results from computer programs being written using
two digits rather than four to define the applicable year. This could cause the
Company's time-sensitive computers to recognize a date using "00" as the year
1900 rather than the year 2000 resulting in system failures and disruption of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in other normal business activities.
The Company has undertaken various initiatives intended to ensure that
its computer equipment and software will function properly with respect to dates
in the Year 2000 and thereafter. For this purpose, the term "computer equipment
and software" includes systems that are commonly thought of as IT systems,
including accounting, data processing, telephone/PBX systems, hand-held
terminals, scanning equipment, and other miscellaneous systems, as well as
systems that are not commonly thought of as IT systems, such as alarm systems,
fax machines and other equipment. Both IT and non-IT systems may contain
embedded technology and
16
<PAGE>
complicate the Company's Year 2000 identification, assessment, remediation, and
testing efforts. Based upon identification and assessment efforts to date, the
Company believes that certain computer equipment and software that it currently
uses will require replacement or modification.
As such, the Company will attempt to obtain replacements or
modifications that are Year 2000 compliant. Utilizing both internal and external
resources to identify and assess needed Year 2000 remediation, the Company
anticipates that its Year 2000 identification, assessment, remediation and
testing efforts, which began in the first quarter 1998, will be completed by the
fourth quarter 1999, prior to any currently anticipated impact from this issue.
The Company estimates that as of August 2, 1999, it had completed approximately
70% of the initiatives that it believes will be necessary to fully address
potential Year 2000 issues. The projects comprising the remaining 30% of the
initiatives are in process.
The Company has also mailed letters to its significant vendors,
customers and service providers to determine the extent to which interfaces with
such entities are vulnerable to Year 2000 issues and whether products and
services purchased from or by such entities are Year 2000 compliant. For those
significant service providers that have not provided written assurance that they
are year 2000 compliant, the Company is developing contingency plans to address
issues that might arise from interfaces with such entities.
The Company believes that the cost of its Year 2000 identification,
assessment, remediation and testing efforts, as well as currently anticipated
costs to be incurred by the Company with respect to Year 2000 issues of third
parties, will not exceed $1.6 million and will be funded from currently existing
financial resources. As of August 2, 1999 the Company had incurred costs of
approximately $600,000 related to its Year 2000 identification, assessment,
remediation and testing efforts. These costs were for analysis, repair of
existing software, or evaluation of information received from significant
vendors, service providers, or customers. Other non-Year 2000 efforts have not
been materially delayed by these efforts and Year 2000 issues should not pose
significant operational problems for the Company. However, if all Year 2000
issues are not properly identified, or assessment, remediation and testing are
not effected timely with respect to Year 2000 problems that are identified,
there can be no assurance that the Year 2000 issue will not materially adversely
impact the Company's results of operations or adversely affect the Company's
relationships with customers, vendors, or others. Additionally, there can be no
assurance that the Year 2000 issues of other entities will not have a material
adverse impact on the Company's systems or results of operations.
The Company has initiated a comprehensive analysis of the operational
problems and costs (including loss of revenues) that are reasonably likely to
result from the failure by the Company and certain third parties to complete
efforts necessary to achieve Year 2000 compliance on a timely basis. A
contingency plan is 60% complete for dealing with the most reasonably likely
worst case scenario, but such scenario has not yet been clearly identified. The
Company currently plans to complete such analysis and contingency planning by
December 31, 1999.
The costs of the Company's Year 2000 identification, assessment,
remediation and testing efforts and the dates on which the Company believes it
will complete such efforts are based upon management's best estimates, which
were derived using numerous assumptions regarding future events, including the
continued availability of certain resources, third-party
17
<PAGE>
remediation plans, and other factors. There can be no assurance that these
estimates will prove to be accurate, and actual results could differ materially
from those currently anticipated. Specific factors that could cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in Year 2000 issues, the ability to identify, assess,
remediate and test all relevant computer codes and embedded technology, and
similar uncertainties. In addition, variability of definitions of "compliance
with Year 2000" and the myriad of different products and services, and
combinations thereof, sold or received by the Company may lead to claims whose
impact on the Company is not currently estimatable. No assurance can be given
that the aggregate cost of defending and resolving such claims, if any, will not
materially adversely affect the Company's results of operations.
18
<PAGE>
ANDRX CORPORATION
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 7 to the "Notes to Unaudited Consolidated Financial
Statements" included in PART I, Item 1 of this report.
ITEM 2. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) On June 1, 1999, the Company held its Annual Meeting of
Shareholders (the "Meeting").
b) Not applicable.
c) At the Meeting, the following matters were voted upon:
(i) Election of Directors.
The following table sets forth the name of each nominee and the voting
with respect to each nominee for director:
<TABLE>
<CAPTION>
WITHHOLD
NAME FOR AUTHORITY
--------------------------------------- ------------------ ------------------
<S> <C> <C>
Alan P. Cohen 12,272,550 12,205
Melvin Sharoky, M.D. 12,272,450 12,305
</TABLE>
(ii) Ratification of the appointment of Arthur Andersen LLP as the
Company's independent certified public accountants for the
year ending December 31, 1999.
With respect to the foregoing matter, 12,281,159 shares were
voted in favor, 1,415 shares against and 2,181 shares
abstained. There were no broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.35 Product Distribution, Development and Licensing Agreement between
Geneva Pharmaceuticals, Inc., the Global Generics Sector of
Novartis AG and the Registrant. *
27.1 Financial Data Schedule
(SEC use only)
* A request for confidential treatment has been made for portions of
this Exhibit.
(b) Reports on Form 8-K:
None
19
<PAGE>
ANDRX CORPORATION
SIGNATURES
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.
By: /s/ Alan P. Cohen
----------------------------------------------
Alan P. Cohen
Co-Chairman and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Angelo C. Malahias
----------------------------------------------
Angelo C. Malahias
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
August 16, 1999
20
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.35 Product Distribution, Development and Licensing Agreement between
Geneva Pharmaceuticals, Inc., the Global Generics Sector of
Novartis AG and the Registrant.
27.1 Financial Data Schedule
(SEC use only)
EXHIBIT 10.35
PRODUCT DISTRIBUTION, DEVELOPMENT AND LICENSING AGREEMENT
AGREEMENT made as of the first day of May, 1999, between Aura
Laboratories, Inc. ("Aura"), Andrx Pharmaceuticals, Inc. ("Pharmaceuticals") and
Anda Generics, Inc. ("Anda"), each of which is a subsidiary of Andrx Corporation
(as more particularly defined below, Aura, Pharmaceuticals and Anda are
sometimes referred to herein as "Andrx") Geneva Pharmaceuticals, Inc.
("Geneva"), and the Global Generics Sector of Novartis AG ("Novartis Generics"
and, as more particularly defined below, Geneva and Novartis Generics are
sometimes referred to herein as "Novartis"), whose addresses are set forth under
their name on the signature page of this Agreement.
BACKGROUND INFORMATION
WHEREAS :
A. Geneva is in the business of manufacturing and/or marketing generic
pharmaceutical products;
B. Anda is a distributor of generic pharmaceutical products;
C. Geneva desires to appoint Anda as an authorized distributor of all
generic pharmaceutical products manufactured and/or marketed by Geneva and
agrees to sell the Geneva Products (as defined below) to Anda. Anda desires to
accept such appointment and agrees to purchase the Products from Geneva on the
terms and subject to the conditions described in this Agreement;
D. Aura and Pharmaceuticals are engaged in the development,
manufacture, marketing and distribution of the Andrx Products (as defined
below);
E. Novartis wishes to acquire from Andrx the exclusive right and
license to market, promote, distribute and sell the Andrx Products in the
Territory (as defined below);
F. Andrx desires and is willing to grant to Novartis the exclusive
right to market and distribute the Andrx Products within each entity's Territory
on the terms and conditions herein set forth; and
G. This Agreement creates an alliance that provides for a significant
expansion of the existing business relationship between Novartis and Andrx.
Pursuant to this alliance, Geneva will fund [*] of the development costs for the
Andrx Products, Andrx will grant certain exclusive rights to Novartis with
respect to those products, and Anda will purchase certain minimum amounts of
Geneva's products.
- --------
* Marked text omitted pursuant to an application for an order for
confidential treatment by Andrx Corporation.
<PAGE>
ARTICLE I. OVERVIEW
1.1 DEFINITIONS. All capitalized terms used in this Agreement shall
have the respective meanings set forth below:
"AFFILIATE" shall mean, with respect to any specified Person, any other
person who or which, directly or indirectly through one or more intermediaries,
Controls, is Controlled by, or is under common Control with, such specified
Person.
"ANDA" shall mean an Abbreviated New Drug Application prepared in
accordance with the U.S. Federal Food, Drug, and Cosmetic Act.
"ANDRX" shall mean whichever of Anda, Aura or Pharmaceuticals has the
responsibility to fulfill the applicable portion of this Agreement.
"ANDRX PRODUCT(S)" shall mean the pharmaceutical products now or
hereafter listed on Schedule A hereto which are being developed by Andrx in
order to achieve the U.S. labeling indications reflected on such schedule.
"APPROVAL" shall mean any governmental and other approvals necessary or
appropriate to commercially market any of the Andrx Products in any jurisdiction
within the Territory, including but not limited to FDA approval. It shall not
include approvals from governmental and non-governmental reimbursement agencies
or from formulary committees.
"COMPETITIVE PRICE" shall mean, [*]
"CONTRACT YEAR" shall mean a one-year period commencing May 1 of any
calendar year. The first Contract Year is May 1, 1999 through April 30, 2000.
"CONTROL" shall mean, as to any Person, the power to direct or cause
the direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"CUSTOMER INVOICE" shall mean the invoice sent by Novartis or its
Affiliates to their respective customers for their purchase of the Andrx
Products, which invoices shall specify the customer's purchase order number, the
identity, quantity and sales price of such Andrx Products, and such other
information as the Parties determine to be reasonably necessary to properly
account for such sale transaction.
"DISTRIBUTION CENTER" shall mean any warehouse and/or distribution
center utilized by Novartis, from which Novartis or its Affiliates shall
distribute the Andrx Products.
"DISTRIBUTION EXPENSES" shall mean (i) all costs, fees and
out-of-pocket or other expenses incurred, paid or accrued by Novartis in
connection with the storage and distribution of the
- --------
* Marked text omitted pursuant to an application for an order for
confidential treatment by Andrx Corporation.
2
<PAGE>
Andrx Products, including but not limited to all costs directly attributable to
the Andrx Products, such as shipping costs, and an apportioned share (based on
the proportion of the Andrx Products to all of the products warehoused and
distributed by Novartis, in terms of space) of the cost of operating and
maintaining the Distribution Centers, including but not limited to rent,
equipment, telephones, utilities, salaries and employee benefits or (ii) [*] of
Net Sales for such period, whichever is less.
"FDA" shall mean the United States Food and Drug Administration or any
successor governmental body.
"FORCE MAJEURE" shall mean and include, but not be limited to war,
insurrections, strikes, acts of God, governmental action (including consent
decrees entered into in settlement or mitigation of a bona fide suit or
proceeding instituted by a government agency) or any other act or thing beyond
the control of such Party.
"GENEVA PRODUCT(S)" shall mean any and all generic pharmaceutical
products now or hereafter manufactured and/or marketed by Geneva.
"GROSS MARGIN" shall mean (A) Net Sales less (B) the Transfer Price
paid to Andrx by Novartis.
"GROSS MARGIN PERCENTAGE" shall mean Gross Margin divided by Net Sales
expressed in terms of a percentage.
"INITIAL MARKETING PERIOD" for each portion of the Territory, shall
mean the period of time beginning before the Approvals for any particular Andrx
Product are obtained and ending twelve (12) months after the product launch by
Novartis.
"INITIAL TERM" shall mean the period of time starting May 1, 1999 and
ending April 30, 2004.
"INVOICE COST" shall mean the Competitive Price that is set at the
monthly formal pricing strategy meeting, which price shall appear on the invoice
from Geneva to Anda.
"LICENSE TERM" for each portion of the Territory shall mean, with
respect to each Andrx Product, such period of time beginning on the date of this
Agreement and, with respect to each Andrx Product, ending on the date that the
Parties agree that it no longer makes economic sense to market the Andrx Product
in the Territory.
"MARKETING COSTS" shall mean (i) all costs, fees and out-of-pocket or
other expenses incurred, paid or accrued by Novartis in connection with the
marketing of the Andrx Products, including but not limited to advertisements,
product samples, professional meetings and consultants, the cost of brochures
and other promotional materials, mailing or shipping costs and travel expenses
directly related to the marketing of the Andrx Product or (ii) [*] of Net Sales
for
- --------
* Marked text omitted pursuant to an application for an order for
confidential treatment by Andrx Corporation.
3
<PAGE>
the Initial Marketing Period for any product or [*] of Net Sales for any other
period, whichever is less.
"NDA" shall mean a New Drug Application prepared in accordance with the
U.S. Federal Food, Drug and Cosmetic Act.
"NET MARGIN" shall mean (i) Gross Margin less (ii) the sum of
Distribution Expenses, Marketing Costs and Selling Expenses.
"NET MARGIN PERCENTAGE" shall mean Net Margin divided by Net Sales
expressed in terms of a percentage.
"NET SALES" shall mean the actual gross amount invoiced by Novartis and
its Affiliates to their non-Affiliated customers for the sale of the Andrx
Products, less customary discounts, returns, promotional allowances, volume and
incentive rebates, shelf stock adjustments and other similar customary
adjustments or allowances actually given to such customers in the normal course
of business by Novartis or its Affiliates. Sales or transfers of Andrx Products
to Affiliates of Novartis for ultimate use by such Person shall be at prices (or
deemed prices) that are consistent with sales made to non-Affiliates of the same
or a similar business type that make purchases in similar quantities.
"NOVARTIS" for purposes of any portion of the Territory, shall mean
whichever of Geneva or Novartis Generics has marketing responsibility within
such portion.
"PARTY" shall mean Andrx and/or Novartis and their respective
successors and assigns.
"PERSON" means any individual, partnership, corporation, limited
liability company, trust, governmental authority or other entity, of whatever
nature.
"QUARTERLY PERIOD" shall mean each three month period ending on the
last day of July, October, January and April, or any shorter period commencing
on the first date on which any revenues are derived by Novartis from any Andrx
Product.
"REGULATORY AUTHORITY" shall mean the FDA and/or the substantially
equivalent regulatory bodies having jurisdiction over portions of the Territory,
which are located outside the United States. It shall not include governmental
and non-governmental pricing and reimbursement authorities, formulary committees
or other similar organizations.
"SELLING EXPENSES" shall mean all costs, fees and out-of-pocket or
other expenses incurred, paid or accrued by Novartis in connection with the sale
of the Andrx Products by, but not limited to, a sales force or teledetailing
force, including but not limited to (i) all costs which may be directly
allocable to the sale of the Andrx Products, such as customary commissions
attributable to the sale of the Andrx Products, and (ii) an apportioned share
(based on the proportion of the Andrx Products to all of the products sold by
Novartis, in terms of unit volume)
- --------
* Marked text omitted pursuant to an application for an order for
confidential treatment by Andrx Corporation.
4
<PAGE>
of the costs and expenses which may not be directly allocated to the sale of the
products, such as costs of operating the sales office(s) through which the Andrx
Products are sold, including but not limited to rent, equipment, telephones,
utilities, salaries, commissions, and employee benefits or (iii) [*] of Net
Sales for the Initial Marketing Period for any product or [*] of Net Sales for
any other period, whichever is less.
"SHELF STOCK ADJUSTMENT" OR "SSA" shall mean a credit provided by
Geneva to Anda whenever Geneva reduces its Invoice Cost for any Geneva Product,
thereby causing such Invoice Cost to no longer be a Competitive Price.
"TERRITORY" shall mean the countries, possessions or other geographic
regions in the world referred to on Schedule A.
"TRANSFER PRICE" shall mean [*]
1.2 SINGULAR AND PLURAL. Singular and plural forms as the case may be
of terms defined herein shall have correlative meanings.
1.3 ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with United States generally accepted
accounting principles consistently applied and all dollars ($) shall be in the
currency of the United States.
1.4 ANDA'S DISTRIBUTION RESPONSIBILITIES. Article II of this Agreement
sets forth the specific roles, responsibilities, and obligations of the Parties
related to Anda distribution of Geneva Products.
1.4.1 Primary Product Status. [*]
1.4.2 DESIGNATED PRODUCTS. [*]
1.4.3 MINIMUM PURCHASES. Anda agrees to purchase the following minimum
dollar values of Geneva Product each Quarterly Period (the monthly purchases
within the Quarterly Period are averaged to compare to the monthly minimum)
during each contract year, based on invoice price:
Year 1 - [*] per month minimum
Year 2 - [*] per month minimum
Year 3 - [*] per month minimum
Year 4 - [*] per month minimum
Year 5 - [*] per month minimum
If at the end of any Quarterly Period, Anda has exceeded its minimum
purchases the surplus shall be credited toward the following Quarterly Periods'
purchases.
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* Marked text omitted pursuant to an application for an order for
confidential treatment by Andrx Corporation.
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1.4.4 PRODUCT RETURNS. Geneva shall automatically credit Anda with an
additional [*] of invoice price on a quarterly basis as a return product
guarantee and limit, subject to Section 2.7.
1.5 GENEVA'S FUNDING RESPONSIBILITIES. Article III of this Agreement
sets forth the specific roles, responsibilities, and obligations of the Parties
related to Geneva's agreement to fund up to [*] of Andrx's product development
costs.
1.6 INITIAL PAYMENT. Upon signing this agreement, Geneva will wire
transfer [*] to Andrx, for credit to Aura and Pharmaceuticals.
1.6.1 ADDITIONAL PAYMENTS. On the first day of each month following the
signing of this Agreement and satisfactory minimum purchases by Anda of Geneva
products, Geneva shall wire transfer [*] to Andrx to fund the development of the
products referred to below. Geneva shall pay [*] each, for a total of [*] in
product development payments, which payments are only contingent upon the
minimum product purchase targets being met by Anda. If Andrx advises that its
research projects need accelerated funding, the Parties shall make reasonable
attempts to negotiate the terms of such accelerated funding.
1.7 DEVELOPMENT AND DISTRIBUTION OF ANDRX PRODUCTS. Article IV of this
Agreement sets forth the specific roles, responsibilities, and obligations of
the Parties related to the development and distribution of the Andrx Products.
1.8 EXCLUSIVE RIGHTS. In return for the [*] product development fee,
Novartis shall receive the exclusive rights to the applicable Andrx Product in
the Territory, each as set forth in Schedule A hereto or any amendment thereof.
ARTICLE II. ANDA'S DISTRIBUTION OF GENEVA PRODUCTS
2.1 APPOINTMENT OF ANDA. Geneva hereby appoints Anda as a
non-exclusive, authorized distributor of the Geneva Products, and Anda hereby
accepts that appointment on the terms and subject to the conditions described in
this Agreement.
2.2 PRICING OF GENEVA PRODUCTS. [*]
2.3 ORDERS FOR GENEVA PRODUCTS. Anda will transmit orders for the
Geneva Products to Geneva using a mutually acceptable order entry system. Anda
shall have no obligation to accept automatic shipments of any Geneva Product or
maintain any particular level of inventory of any Geneva Product.
2.4 MINIMUM PURCHASES. During each Quarterly Period Anda agrees to
purchase the minimum dollar values set forth in Section 1.4.3 above. In the
event Anda does not attain such
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minimum purchase amounts in any period as a result of Geneva's inability or
failure to timely deliver products (including as a result of Force Majeure or
regulatory problems) or a SSA, then Anda shall be deemed to have made purchases
in such period in an amount equal to such non-delivered product and/or such SSA.
2.5 TERMS OF SALE AND SHIPMENT.
2.5.1 Geneva shall sell each Geneva Product to Anda at the Competitive
Price for such Geneva Product in effect in the month of Anda's order and shall
deliver the Geneva Products F.O.B. to those distribution centers specified in
Anda's order or such other locations as may be agreed upon by the Parties in the
case of drop shipment orders, freight prepaid.
2.5.2 Title and risk of loss to the Geneva Products shall remain with
Geneva until shipment is received at the specified destination. If Anda requests
special routing of a shipment which results in a higher transportation cost than
would be incurred as a result of the routing selected by Geneva, then Geneva
shall advise Anda of such additional cost at the time such order is placed and
shall thereafter add such cost to Geneva's invoice.
2.5.3 Unless otherwise agreed upon by both Parties, Geneva shall
invoice all orders for the Geneva Products on the date shipped. All invoices
paid within [*] days will be entitled to a [*] cash discount off the Invoice
Cost.
2.6 PRICE INCREASES. [*]
2.7 RETURNED GOODS AND RECALLS. Geneva shall credit Andrx an additional
[*] of Invoice Cost on a quarterly basis as a return product guarantee and
limit. For consideration thereof, Anda waives the right to return Geneva
Products to Geneva and receive credit. Notwithstanding and in addition to the
foregoing limitation, Geneva shall reimburse Anda for the full amount of all
reasonable costs and expenses incurred by Anda (including the cost of recalled
product) in connection with Anda's performance of any product recall services or
assistance relating to the Geneva Products, in an amount no less than that
recognized by NWDA guidelines.
2.8 SHELF-STOCK ADJUSTMENTS. [*]
2.9 CONFIDENTIAL INFORMATION. In connection with the ongoing
relationship between Geneva and Anda, each Party may gain access to proprietary
information of the other which may be considered confidential by the Party
providing such information, and each Party shall use the same care to prevent
disclosure, publication, or dissemination to any third party of the other
Party's confidential information as is used to protect is own confidential
information, but not less than reasonable care. However, information generated,
compiled or stored by Anda reflecting the purchase and resale of Geneva Products
to its customers does not constitute the confidential information of Geneva, and
Anda will be entitled to utilize all such information in any manner deemed
appropriate by it. Geneva understands and agrees that Anda may, in its sole
discretion,
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elect to sell warehouse withdrawals, sales and other data to IMS or any other
third parties without any liability or contribution to Geneva.
2.10 WARRANTY AND INDEMNIFICATION. Geneva hereby warrants that the
Geneva Products are and shall be manufactured and delivered to Anda in
conformity with the Federal Food, Drug and Cosmetic Act, as amended, and all
other applicable laws, rules, and regulations. Geneva shall defend, indemnify,
and hold harmless Anda and its affiliates, customers, directors, officers,
employees and representatives from and against any and all claims, suits,
losses, damages, costs, and expenses (including without limitation reasonable
attorneys' fees) arising directly or indirectly out of (i) any injury or death
to any person or property alleged to have been caused by any Geneva Product
(excluding problems judicially determined to be attributable to Anda's gross
negligence or misconduct in handling such Geneva Product), (ii) Geneva's
performance or non-performance of its obligations under or pursuant to this
Agreement, (iii) infringement of any third party's patent, trademark, copyright,
trade secret or other intellectual property right, or (iv) violations of any
applicable laws, rules, and regulations, including those with respect to product
safety, labeling, packaging, weight, quality and consumer protection. Anda shall
notify Geneva of any such claim within a reasonable time following Anda's
receipt of written notice of such claim. The warranty and indemnification
provisions of this section shall apply to Geneva Products sold to Anda before
the term of this Agreement and shall survive the termination or expiration of
this Agreement.
2.11 INSURANCE. During the term of this Agreement and thereafter as may
be necessary to cover claims associated with Geneva Products purchased by Anda
(whether before, during or after such term), Geneva shall maintain
self-insurance coverage (including coverage for product liability and personal
injury damages) in an amount not less than $50 million per claim made. If Geneva
obtains comprehensive general liability insurance with a third party insurer,
Anda shall be designated as an "additional insured" under all such insurance
policies, and Geneva shall deliver to Anda certificates evidencing the existence
and continuation of such insurance from time to time upon Anda's request.
ARTICLE III. GENEVA FUNDING OF ANDRX PRODUCT DEVELOPMENT
3.1 PRODUCT DEVELOPMENT FUNDING. Geneva agrees to pay [*] in product
development fees to Andrx in accordance with Section 1.6 of this Agreement.
3.2 FUNDING DEFERRAL. If at the end of any Quarterly Period, Anda has
not met the minimum purchase levels set forth in this Agreement, then the
subsequent monthly funding will be reduced by an amount equal to [*] of the
amount by which Anda's purchases did not meet the minimum purchase amounts set
forth in Section 1.4.3 above (the "Purchase Deficit"). If Anda's purchases in
any subsequent period exceeds the minimum purchase amount for such period, the
dollars exceeded can be credited toward future quarters' objectives.
3.3 REPORTING AND DISCLOSURE OBLIGATIONS. Discounts (including rebates)
and administrative fees, if any, will be provided only in accordance with, and
the Parties agree to
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comply with their obligations under, applicable federal and state anti-kickback
laws, including, but not limited to, 42 U.S.C. /section/ 1320a-7b and the safe
harbor regulations promulgated thereunder.
ARTICLE IV. DEVELOPMENT AND DISTRIBUTION OF ANDRX PRODUCTS
4.1 RESEARCH, DEVELOPMENT AND REGISTRATION OF ANDRX PRODUCTS.
4.1.1 PRODUCT DEVELOPMENT. Andrx will continue to use commercially
reasonable efforts to develop controlled-release formulations for each of the
indications reflected on Schedule A for each of the Andrx Products. Andrx will
prepare and file with the FDA the applicable NDA or ANDA for each of the Andrx
Products, and shall serve as the contact and liaison with the FDA during the
period such NDAs or ANDAs are under review by the FDA.
4.1.2 PRODUCT REGISTRATION. Novartis Generics shall facilitate the
registration of the Andrx Products in the Territory. In discharging this
obligation, Novartis Generics shall be solely responsible for: (i) ascertaining
the technical and procedural requirements for each such registration, (ii)
performing all tasks required in connection therewith, (iii) translation of
dossiers from English to the appropriate local language; (iv) shipment of
documents and samples to the appropriate local authorities; (v) supplying
translators for regulatory meetings, and (vi) payment of all costs and expenses
related thereto. Notwithstanding the foregoing, Andrx shall provide such
technical and other assistance as may be reasonably requested by Novartis to
achieve these tasks, provided Novartis pays or reimburses Andrx for its costs in
performing such services.
4.1.3 PRODUCT DEVELOPMENT SCHEDULE. Annexed hereto as Schedule B is an
estimated project schedule for the initial development work for each of the
Andrx Products prepared by Andrx. Within ninety (90) days after the date of this
Agreement, Andrx shall prepare and submit an estimate, by Andrx Product, of its
development schedule. Within sixty (60) days of Andrx's delivery of' the batch
records for a given product, Andrx shall prepare and submit a detailed schedule
to obtain an NDA for such Andrx Product.
4.1.4 PRODUCT DEVELOPMENT UPDATES. Andrx shall provide to Novartis
within forty-five (45) days of the end of each Quarterly Period beginning with
the end of the third quarter of 1999, a report in reasonable detail, setting
forth as to each Andrx Product: (i) the development work performed by it as to
each Andrx Product during the period since its last such report; (ii) the status
of the development work at the end of the period with respect to each Andrx
Product; (iii) its recommendation as to whether Andrx should continue to pursue
development of each such Andrx Product and if not, its reasons for such
conclusion; and (iv) an updated project schedule for each Andrx Product.
4.1.5 DEVELOPMENT UNCERTAINTIES. Novartis recognizes and acknowledges
that: (i) the successful outcome of the development projects undertaken by Andrx
cannot be assured; (ii) it may prove impossible or impractical to gain
Regulatory Authority approval for one or more of the Andrx Products; (iii) any
product development schedules previously or hereafter provided by Andrx are
estimates and will be subject to revision; (iv) the mere failure to secure any
Approval shall not, by itself, be taken as a breach of this Agreement, and (v)
the Andrx Product formulations may need to be changed in order to meet certain
regulatory, business or other objectives.
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4.1.6 REPLACEMENT OF UNSUCCESSFUL PRODUCTS. The Parties agree that if
Andrx's development efforts on any Andrx Product for which marketing projections
and minimum royalty payments have been agreed upon are not successful, then the
Parties shall review Andrx's product development pipeline on such date and
attempt to agree upon a new replacement product in that pipeline and marketing
territory which is reasonably equivalent, in terms of projected market
opportunity (on this date) to the "terminated" Andrx Product. Once such
agreement is memorialized, in writing, the applicable Novartis company shall
gain the right to market that replacement product in that territory, subject to
the terms and conditions of this Agreement or such other terms and conditions as
may be reflected in that writing. While this substitution obligation is
currently limited to [*], the provisions of this Section may be expanded to
include additional products and markets once provisions similar to Schedule D
and Section 4.12.2 below are agreed upon.
4.2 OWNERSHIP OF INTELLECTUAL PROPERTY. Andrx shall own the NDAs, ANDA
and any other registration applications for the Andrx Products, as well as the
know-how and technologies related thereto.
4.3 DEVELOPMENT COSTS. Andrx shall be responsible for all costs and
expenses relating to the development of the Andrx Products in the manner
described on Schedule A. Novartis will not be responsible for any such costs or
expenses, except for the payments that Geneva is obligated to pay under Product
Development Funding provisions of this Agreement. In the event either Party
provides the other with a request that any of the Andrx Products be tested in
order to receive approved labeling for another indication or to provide
promotional information, and the Parties agree upon the scientific and/or
marketing basis for such request, Novartis shall be responsible for all costs
related to such testing (or such portion of the cost that the Parties otherwise
agree to in writing) and Andrx shall supervise the testing of such product for
the desired indication. If, however, either Party disagrees with the other's
scientific and/or marketing basis for such request, the requesting Party shall
be solely responsible for all costs related to such testing if it decides to
proceed. Use of any data generated from such studies may be used by the other
Party only with the prior written consent of the Party that paid for such
studies (unless otherwise required by the Regulatory Authority in the applicable
Territory), which consent may be conditioned upon payment of reasonable
compensation. By way of example, Novartis believes that it will be beneficial to
have a labeling indication for [*] advising that this product will [*]. Andrx
has advised that the testing required to obtain this indication may be expensive
and is reluctant to undertake the required testing if the cost thereof is
included within the product development funding amounts set forth in Article III
and will exceed [*] in the aggregate. Accordingly, in accordance with the terms
of this provision, the Parties agree to consider the relative costs and benefits
to be derived by this additional indication and to attempt to determine, and
allocate, their respective obligations with respect thereto.
4.4 CONFIDENTIALITY. Novartis hereby acknowledges that the information
developed by Andrx hereunder shall belong to and shall be exclusively licensed
by Andrx, as it relates to the Andrx Products, and constitutes valuable trade
secret and proprietary information. Novartis agrees to use its best efforts to
protect the confidentiality of all such information. The foregoing
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provisions relating to confidentiality shall not apply to information that: (i)
is or becomes public knowledge (through no failure of Novartis to perform its
obligations hereunder); (ii) is in the future rightfully received from third
parties by Novartis free of any obligation of confidentiality; or (iii) is
required by legal process to be disclosed; provided, however, in such case
Novartis gives prompt written notice to Andrx and affords Andrx the opportunity
to oppose or restrict such disclosure.
4.5 DISTRIBUTION.
4.5.1 Andrx hereby grants to Novartis and Novartis hereby accepts from
Andrx, upon the terms and conditions herein specified, the exclusive right and
license to market, promote, sell and distribute the Andrx Products listed beside
such Novartis company's name on the attached Schedule A in the Territories
assigned to such Novartis company on Schedule A for the License Term. This
license allows and permits Novartis to sub-license any or all of the Andrx
Products, to (i) any of its Affiliates, without Andrx's consent or (ii) any
other Person, with the prior written consent of Andrx. The grant of this license
by Andrx to Novartis shall be limited to the Andrx Products only, and for no
other product or purpose. In order for Novartis to begin and conduct marketing
and distribution activities, Andrx shall from time to time advise Novartis of
its manufacturing capabilities for each of the Andrx Products and shall provide
such other information concerning the manufacture and supply of the products as
Novartis may request, in writing, within fifteen (15) days of such request.
4.5.2 Promptly after the Approval for each Andrx Product is obtained
from a Regulatory Authority, Novartis shall use commercially reasonable efforts
to market and distribute such Andrx Product within the applicable Territory to
exploit sales and sales opportunities for such Andrx Product. Novartis shall
conduct its marketing and distribution activities in a prudent and skillful
manner in accordance, in all material respects, with applicable laws,
ordinances, rules, regulations, orders, licenses and other requirements now or
hereafter in effect.
4.6 COMMERCIALIZATION. The Andrx Products shall be manufactured and
shipped by Andrx and commercialized by Novartis (which for purposes of this
sub-section shall include Affiliates of Novartis) in the following manner:
4.6.1 Approximately 18 months prior to the date Novartis anticipates
receiving Regulatory Authority Approval for each Andrx Product, the Parties
shall discuss Andrx's manufacturing capabilities and projected Transfer Price
for such Andrx Product, and Novartis' projected marketing plans for such Andrx
Product.
4.6.2 As soon after the meeting specified in Section 4.6.1 above as may
be practicable, Novartis shall prepare and submit to Andrx its forecast, by
month, of its anticipated purchases of Andrx Product for the twelve month period
beginning with Regulatory Approval. This annual forecast shall be updated
quarterly and shall be provided to Andrx not later than 60 days before the first
date reflected therein. The first three months of anticipated purchases on each
such forecast shall be deemed a binding purchase order. However, the balance of
such forecasts shall not be binding upon Novartis and only represent Novartis'
estimate of the market for such Andrx
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Product for the purpose of establishing manufacturing capabilities and
schedules. There shall be no penalty imposed upon Novartis for failing to meet
the last 9 months of any forecast.
4.6.3 Novartis shall place all purchase orders for the Andrx Products
with Andrx, using whatever format the Parties agree upon. Andrx or any
manufacturer for Andrx shall use commercially reasonable efforts to fill such
purchase orders in a timely manner in accordance with the manufacturing
capabilities and planning requirements previously communicated to Novartis.
4.6.4 The Andrx Products will be marketed under whatever trade name
Novartis determines should be utilized for the Andrx Products (provided there is
no charge associated with such trade name), which may be the Andrx trade name if
specifically agreed to, in writing, by Andrx. In addition, Novartis shall be
able to specify different packaging for such Andrx Products, PROVIDED the
anticipated quantities for and returns on such "private labeled" or samples of
Andrx Products justifies the time and expense of manufacturing the Andrx
Products with that different packaging.
4.6.5 Unless otherwise specified in the purchase order, all finished
Andrx Products shall be packaged (using the trade name designated by Novartis
for the Andrx Products), marked and otherwise prepared for shipment in
accordance with good commercial practice and in a manner generally acceptable to
common carriers for shipment at their lowest rates. Andrx shall (i) be
responsible for boxing, crating, and all other packaging requirements related to
such purchase order; (ii) determine the appropriate method of shipment, forward
the finished products to the Distribution Center specified on such purchase
order, and pay all freight and destination charges, and (iii) send each such
shipment together with (1) a bill of lading specifying the identity and quantity
of the Andrx Products in such shipment and (2) an invoice specifying the
purchase order number, the identity, quantity and cost of such Andrx Products,
and such other information as Novartis may reasonably request. Andrx shall
prepare the foregoing bill of lading and invoice in whatever formats the Parties
agrees upon.
4.6.6 Novartis shall have the discretion to set the price of, and terms
of sale for, the Andrx Products to its customers in accordance with what it
believes to be prevailing market conditions, including establishing and offering
to its customers appropriate rebates, shelf stock adjustments, promotions and
other incentives to generate sales for the Andrx Products. Notwithstanding the
foregoing, without Andrx's prior written consent, Novartis shall not have the
right to "bundle" or otherwise discount the Product by selling it together with
any other product sold or distributed by such entity as part of one transaction.
4.6.7 Novartis shall (i) market, promote and sell the Andrx Products in
such manner as it believes to be appropriate, (ii) generate a purchase order for
all sales of the Andrx Products which may, but need not, distinguish the Andrx
Products from other pharmaceutical products Novartis sells, (iii) be responsible
for boxing, crating, and all other packaging requirements related to the sale
transactions it effects for the Andrx Products, (iv) determine the appropriate
method of shipment, forward the Andrx Products from the Distribution Center to
the customer, and pay or cause the customer to pay all freight and destination
charges related to such sale, (v) send each such shipment together with (1) a
bill of lading specifying the identity and quantity of the products in such
shipment, and (2) a Customer Invoice, which shall either (a) be completely
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separate from the invoices Novartis prepares and forwards to its customers for
other pharmaceutical products which Novartis sells or (b) contain such coding or
other distinguishing characteristic that will allow the accountants and auditors
for the Parties to separate the sales of the Andrx Products from the sales which
Novartis makes to its customers for other pharmaceutical products.
4.6.8 Following Regulatory Approval of the Andrx Products in any
Territory, Aura shall be responsible for the following: (i) adoption and
implementation of all manufacturing, pre-clinical and clinical development work
reasonably necessary to support the agreed upon indications for such product;
(ii) the collection of adverse drug event information and the maintenance of
adverse drug experience database and the preparation of scheduled periodic
report forms which, when translated and placed in an appropriate format by
Novartis, are suitable for submission to the regulatory authorities; and (iii)
preparation of scheduled periodic reports to the appropriate regulatory
authorities, PROVIDED for (ii) and (iii) above, Novartis has previously notified
Aura of the reporting requirements of such jurisdiction, in writing. These
activities are viewed as normal work in maintaining a product file. If Novartis
seeks additional services beyond those listed above, then Novartis will agree to
pay a reasonable amount to Andrx for the performance of these services.
4.7 EXPENSES. All Marketing Costs, Distribution Expenses and Selling
Expenses shall be borne solely by Novartis.
4.8 DISCLAIMER OF WARRANTIES. The Parties understand and agree that
there is no assurance that each and all of the Andrx Products will be successful
in the marketplace. The failure of any Andrx Product to be successful in the
marketplace will not, by itself, constitute a breach of any representation,
warranty, covenant or other obligation under this Agreement.
4.9 FOREIGN MARKETS. If Novartis makes the determination that it is not
commercially feasible to actively market and sell any Andrx Product in any
non-U.S. market, either directly or through an Affiliate or licensee, Novartis
shall advise Andrx of that determination and Novartis shall thereafter be
relieved of the obligation of marketing that Andrx Product in that non-U.S.
market. Should it become necessary or desirable to alter or adapt any of the
Andrx Products or the packaging of the Andrx Products for the local conditions
of any non-U.S. market, Novartis will suggest the appropriate modifications to
Andrx. The Parties shall then study the market potential for such alteration or
adaptation and jointly determine whether it should be made. If such alteration
or adaptation is not agreed upon assuming each of the Parties is acting
reasonably, Novartis shall be relieved of the obligation of marketing such Andrx
Product in that non-U.S. market and Andrx shall be able to market such product
in that market, either by itself or through others, using the trade name
previously adopted or utilized by Novartis in such market, if Novartis is no
longer marketing the product, without any obligation to Novartis.
4.10 TITLE. The Andrx Products shall belong to Andrx until such time as
they are sold to Novartis and delivered to a Distribution Center. Novartis shall
from time to time at the request of Andrx, but not more often than quarterly,
provide to Andrx an inventory of all unsold Andrx Products. Prior to delivery to
a Distribution Center, risk of loss shall remain with Andrx.
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4.11 TRANSFER PRICE. Novartis shall pay Andrx for any manufactured
Andrx Products it purchases at the Transfer Price for each Andrx Product.
4.12 ROYALTY PAYMENTS.
4.12.1 Novartis shall pay Andrx a royalty on its Net Margin received
from the sale of the Andrx Products during a Quarterly Period, as set forth in
Schedule C for each Andrx Product sold by Novartis in a Territory. The royalty
will be based on the Net Margin Percentage.
4.12.1(a) Notwithstanding the royalty calculation made pursuant to
Section 4.12.1 above and subject to the remainder of this Section 4.12.2,
Novartis shall pay the following minimum total royalty payments, on a quarterly
basis, with respect to sales of [*] in the United States market:
First year of commercialization [*]
Second year of commercialization [*]
Third, Fourth and fifth years of commercialization [*]
Novartis' agreement to pay the foregoing minimum royalty amounts is based on the
Parties' current market assumptions, market data, and assumptions about
therapeutic trends, including those listed on Schedule D for reference. If,
prior to final FDA approval to the [*] NDA, the Parties agree that the sales
forecast for [*] has decreased by 30% or more as a result of a change in market
assumptions, market data, or assumptions about therapeutic trends, then Novartis
may, at its sole option (exercised, in writing, at the time it advises Andrx of
its belief that the market has declined by [*]), either (i) continue funding the
development of [*] and adjust proportionately downward the minimum total royalty
payments, or (ii) request a replacement product in accordance with the procedure
set forth in Section 4.1.6 above. Andrx will notify Novartis of its anticipated
FDA approval date for [*] at least eight months prior to such date. If Novartis
chooses option (ii) above, and such decision is made less than six months before
the anticipated FDA approval date for [*] (and at least 60 days after the notice
by Andrx of the anticipated FDA approval date), Novartis shall immediately pay
[*] to Andrx, the license herein granted to Novartis for such product shall be
terminated, and Andrx or its licensee shall thereafter be permitted to sell such
product in the Territory without any obligation to Novartis.
(b) If Novartis believes the sales forecast for [*] has decreased by
30% or more and Andrx does not agree, then Novartis and Andrx will submit this
dispute to a mutually agreed upon industry expert for a binding decision. If the
mutually agreed upon industry expert finds that the sales forecast for [*] has
decreased by 30% or more, then the provisions set forth in Section 4.12.2 (a)
above shall apply. If the expert finds that the sales forecast for [*] has not
decreased by 30% or more, then the minimum total royalties will remain unchanged
and Novartis may not exercise the options set forth in Section 4.12.2 (a) above.
4.13 TIMING OF PAYMENTS. Novartis shall pay the Transfer Price for
Andrx Product purchased from Andrx within 30 days following the receipt of
Andrx's invoice therefor. Royalty
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payments shall be made quarterly in arrears, not later than thirty (30) days
following the end of a Quarterly Period. Along with each royalty payment,
Novartis shall deliver a report showing in reasonable detail the sales volume
for the Andrx Products it sold, its calculation of Net Margin and the royalty
payment payable to Andrx for the Quarterly Period. In addition, Novartis shall
provide a monthly sales and Net Margin report to Andrx, by the 15th calendar day
of the following month, estimating Novartis' monthly results for each of the
Andrx Products.
4.14 WARRANTY AND INDEMNIFICATION. Aura and Pharmaceuticals hereby
warrant that the Andrx Products are and shall be manufactured and delivered to
Novartis in conformity with the Federal Food, Drug and Cosmetic Act, as amended,
and all other applicable laws, rules, and regulations. Such Andrx entity shall
defend, indemnify, and hold harmless Novartis and its affiliates, customers,
directors, officers, employees and representatives from and against any and all
claims, suits, losses, damages, costs, and expenses (including without
limitation reasonable attorneys' fees) arising directly or indirectly out of (i)
any injury or death to any person or property alleged to have been caused by any
Andrx Product (excluding problems judicially determined to be attributable to
Novartis' negligence or misconduct in handling such Andrx Product), (ii) Andrx's
performance or non-performance of its obligations under or pursuant to this
Agreement, (iii) infringement of any third party's patent, trademark, copyright,
trade secret or other intellectual property right (except as previously
disclosed, in writing, prior to the commercialization of the Andrx Product), or
(iv) violations of any applicable laws, rules, and regulations, excluding those
with respect to product, labeling, packaging, and commercialization. Novartis
shall notify Andrx of any such claim within a reasonable time following
Novartis' receipt of written notice of such claim. The warranty and
indemnification provisions of this section shall survive the termination or
expiration of this Agreement.
ARTICLE V. MISCELLANEOUS
5.1 MAINTENANCE OF RECORDS; INSPECTION. Each Party shall maintain
complete and accurate books and records (including where applicable time
records) in connection with transactions entered into by it in furtherance of
this Agreement ("Agreement Transactions"). Such books and records shall be made
available from time to time and upon reasonable prior written notice to the
other Party for review and audit by outside auditors who are not affiliated with
either Party or their respective affiliates and who are reasonably acceptable to
the Party whose books and records are to be audited ("Auditors"). The cost of
such audit shall be borne by the Party requesting such audit unless such audit
shows that the audited Party overstated the amount which it was entitled to
receive or understated the amount which the auditing Party was entitled to
receive by two and one-half (2.5%) percent or more ("Excessive Error") in which
event the Party whose records were audited shall reimburse the other Party for
the cost of such audit. Any such audit shall be scheduled during regular
business hours within two (2) weeks after the Party whose books and records are
to be audited and the Party requesting such audit have agreed upon the Auditors
to be employed. Such Auditors shall not disclose any information to the Party
requesting such audit other than whether in their opinion the Agreement
Transactions have been properly calculated or reported, or if in their opinion
they have not been accurately reported, then the extent of any inaccuracy. The
Auditors and the auditors of the Party whose books and records were examined
shall meet to resolve any differences of opinion, and, if such differences
cannot be resolved within thirty (30) days, then they shall choose a third
accounting firm to resolve such differences. If they are unable to agree upon a
third accounting
15
<PAGE>
firm within sixty (60) days after the Auditors have presented their initial
findings, then either Party may apply to the American Arbitration Association to
have a third accounting firm appointed to resolve such differences ("Independent
Accounting Firm"). The decision of the Independent Accounting Firm shall be
final and binding upon the Parties. The fees and expenses of the Independent
Accounting Firm shall be borne equally by the Parties except if the decision of
such Independent Accounting Firm confirms that an Excessive Error was made in
which event the fees of the Independent Accounting Firm shall be borne solely by
the Party who committed the Excessive Error. The Auditors shall, before
commencing their audit, execute a confidentiality agreement in form and
substance reasonably satisfactory to the Party whose books and records are being
audited.
5.2 SETOFF RIGHTS. If and to the extent either Party fails to pay,
reimburse, or credit the other for any amount owed when due under this
Agreement, then the Party to whom such amount is owed shall have the right to
setoff such amount against amounts otherwise due from it, PROVIDED such setoff
is promptly communicated (i.e., within six months) and properly documented to
the other Party (including both the basis for such setoff and that such setoff
has been performed). If the other Party does not dispute such setoff (including
both the reason such setoff was not proper and that such setoff has been
disputed), in writing, within six months of the date it is performed, then such
setoff shall, for all purposes, be deemed accepted as appropriate and
authorized.
5.3 CURRENCY; TAXES. All payments from Novartis to Andrx shall be in
United States currency. The United States currency amount payable hereunder for
non-U.S. sales transactions shall be determined by the Citicorp (or other agreed
upon reference standard) rate of exchange in effect at the time that payment is
made to Andrx. Such payments shall be net of all taxes, assessments, or other
charges of any kind or description imposed by the Governments of any country on
sales within the country.
5.4 MUTUAL REPRESENTATIONS, WARRANTIES & COVENANTS. Each of the Parties
hereto represents and warrants in relation to itself to the other as follows:
5.4.1 It is duly incorporated or organized and validly existing under
the laws of the jurisdiction in which it is established;
5.4.2 It has the necessary power to enter into and to exercise its
rights and perform its obligations under this Agreement and all necessary action
required to authorize the execution and delivery of this Agreement by the person
or persons signing the same on behalf of it and the performance by it of its
obligations hereunder has been duly taken;
5.4.3 Its obligations under this Agreement constitute its legal, valid
and binding obligations enforceable against it in accordance with its terms;
5.4.4 No approvals, authorizations, licenses or consents and no filings
or registrations or other acts or things are required for the due execution and
delivery by it of this Agreement or the performance and observance by it of the
provisions hereof;
5.4.5 The execution and delivery of this Agreement and the exercise by
it of its rights and the performance by it of its obligations hereunder and
compliance with the terms hereof do
16
<PAGE>
not and will not: (i) knowingly violate any provision of any law, order,
judgment, injunction, decree, resolution, determination or award of any court or
other judicial administrative or governmental authority or organization having
applicability to it or any of its assets or revenues; or (ii) conflict or be
inconsistent with or result in any breach of any of the terms, covenants,
conditions or provisions of, or constitute a default under any indenture,
mortgage, trust, deed, bond, agreement or other instrument or obligation to
which it is a party or by which it or any of its assets or revenues may be bound
or affected; and
5.4.6 It is not currently debarred, suspended or otherwise excluded
from obtaining regulatory approval to market the Andrx Products in the
Territory.
5.5 ADDITIONAL REPRESENTATIONS, WARRANTIES & COVENANTS OF NOVARTIS.
Each Novartis company represents, warrants and covenants to Andrx as follows:
5.5.1 So long as this Agreement is in effect, Novartis shall not enter
into any agreement or make any commitment that would contravene any material
provision of, or materially derogate any of the rights of Andrx under this
Agreement. This provision does not in any way limit Novartis' right to develop,
market or sell products which are not controlled release versions of the same
chemical entities as the Andrx Products.
5.5.2 Novartis is and will at all times continue to be in full
compliance in all material respects with all applicable requirements, rules,
regulations and standards which govern its ability to market the Andrx Products
in the Territory.
5.5.3 Novartis shall make no representations in its advertisements,
promotional literature or in other claims for the Andrx Products which are
inconsistent with or exceed those claims described in the information circular
approved by the appropriate governmental authority for such Andrx Product.
5.5.4 Novartis shall promptly notify Andrx, in writing, of any adverse
drug interactions or complaints relating to any of the Andrx Products which it
receives or learns of and shall confer with and otherwise inform Andrx, in
writing, of all regulatory and other requirements concerning the reporting of
such interactions or complaints in any Territory.
5.6 ADDITIONAL REPRESENTATIONS, WARRANTIES & COVENANTS OF ANDRX. Andrx
represents, warrants and covenants to Novartis as follows:
5.6.1 So long as this Agreement is in effect, Andrx shall not enter
into any agreement or make any commitment that would contravene any material
provision of, or materially derogate any of the rights of Novartis under this
Agreement.
5.6.2 Andrx and the Andrx Products will at all times be in full
compliance in all material respects with all applicable requirements, rules,
regulations, and standards which govern the ability to market the Andrx Products
in the Territory.
5.6.3 Andrx shall promptly notify Novartis of any inspection or audit
relating to any of the Andrx Products by a Regulatory Authority or any other
governmental authority and shall
17
<PAGE>
confer with and otherwise inform Novartis of all comments and conclusions
received from such authority.
5.6.4 All development work will be conducted in compliance with
applicable law and in particular, without limiting the generality of the
foregoing, will comply with all applicable regulations of the relevant
Regulatory Authorities relating to the submission of a registration application
for the Andrx Products in the Territory and any information which is supplied by
Andrx to any such Regulatory Authority will be true and complete in all material
respects.
5.7 TERM. The Andrx product development and distribution provisions
contained in this Article IV of this Agreement shall be effective as of May 1,
1999 and shall continue in full force and effect until the expiration of the
last License Term for any of the Andrx Products, or termination by Andrx in
accordance with Section 5.8.1 below.
5.8 TERMINATION
5.8.1 TERMINATION BY ANDRX. Andrx shall have the right to terminate
this Agreement, effective upon written notice of termination to Novartis, in the
event that:
(i) Novartis fails to perform or observe or otherwise breaches any of
its material obligations under this Agreement, and such failure or breach
continues for a period of (a) sixty (60) days after written notice thereof to
Novartis from Andrx or (b) such longer period as shall be reasonably necessary
to cure such failure or breach, PROVIDED Novartis commenced to cure such failure
or breach within such sixty (60) day period and continues to cure same with all
due diligence;
(ii) Novartis shall (a) seek the liquidation, reorganization,
dissolution, winding-up of itself or the composition or readjustment of its
debts, (b) apply for or consent to the appointment of, or the taking of
possession by, a receiver, custodian, trustee or liquidator of itself or of all
or a substantial part of its assets, (c) make a general assignment for the
benefit of its creditors, (d) commence a voluntary case under the Bankruptcy
Code, (e) file a petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization, wind-up or composition or readjustment
of debts, or (f) adopt any resolution of its stockholders or Board of Directors
for the purpose of effecting any of the foregoing; or
(iii) A proceeding or case shall be commenced, without the application
or consent of Novartis and such proceeding or case shall continue undismissed,
or an order, judgement or decree approving or ordering any of the following
shall be entered and continue unstayed and in effect, for a period of forty-five
(45) days from the date service of process is effected upon Novartis, seeking
(a) Novartis' liquidation, reorganization, dissolution or winding-up or the
completion or readjustment at its debts, (b) the appointment of a trustee,
receiver, custodian, liquidator or the like of Novartis or of all or any
substantial part of its assets, or (c) similar relief in respect of Novartis
under any law relating to bankruptcy, insolvency, reorganization, winding-up or
the composition or readjustment of debts.
5.8.2 TERMINATION BY NOVARTIS. Novartis shall have the right to
terminate this Agreement, effective upon written notice of termination to Andrx
in the event that:
18
<PAGE>
(i) Andrx fails to perform or observe or otherwise breaches any of its
material obligations under this Agreement, and such failure or breach continues
for a period of (a) sixty (60) days after written notice thereof to Andrx from
Novartis or (b) such longer period as shall be reasonably necessary to cure such
failure or breach, PROVIDED Andrx commences to cure such failure or breach
within such sixty (60) day period and continues to cure same with all due
diligence;
(ii) Andrx shall (a) seek the liquidation, reorganization, dissolution,
winding-up of itself or the composition or readjustment of its debts, (b) apply
for or consent to the appointment of or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a substantial part of
its assets, (c) make a general assignment for the benefit of its creditors, (d)
commence a voluntary case under the Bankruptcy Code, (e) file a petition seeking
to take advantage of any other law relating to bankruptcy, insolvency,
reorganization, wind-up or composition or readjustment of debts, or (vi) adopt
any resolution of its stockholders or Board of Directors for the purpose of
effecting any of the foregoing; or
(iii) A proceeding or case shall be commenced without the application
or consent of Andrx and such proceeding or case shall continue undismissed, or
an order, judgement or decree approving or ordering any of the following shall
be entered and continue unstayed and in effect, for a period of forty-five (45)
days from and after the date service of process is effected upon Andrx, seeking
(a) Andrx's liquidation, reorganization, dissolution or winding-up, or the
composition or readjustment of its debts, (b) the appointment of a trustee,
receiver, custodian, liquidator or the like of Andrx or of all or any
substantial part of its assets or (c) similar relief in respect of Andrx under
any law relating to bankruptcy, insolvency, reorganization1 winding-up or the
completion or readjustment of debts.
5.8.3 EFFECT OF TERMINATION. As of the effective date of the
termination of this Agreement, all rights to the Andrx Products (other than
Andrx Product that has already been paid for by Novartis) shall become the
exclusive property of Andrx.
5.9 PUBLICITY. No Party shall publicly disclose the existence of this
agreement, the products covered hereby, or the specific terms of the
relationship without the other Party's consent, as required by law, or in a
manner consistent with the press release agreed to by the Parties.
5.10 NOTICES. Any notice or other communication required or desired to
be given to any Party under this Agreement shall be in writing and shall be
deemed given when: (i) deposited in the United States mail, first-class postage
prepaid, and addressed to that Party at the address for such Party set forth at
the end of this Agreement; (ii) delivered to Federal Express, Airborne, or any
other similar express delivery service for delivery to that Party at that
address; or (iii) sent by facsimile transmission, with electronic confirmation,
to that Party at its facsimile number set forth at the end of this Agreement.
Any Party may change its address or facsimile number for notices under this
Agreement by giving the other Party notice of such change.
5.11 GOVERNING LAW; VENUE. All questions concerning the validity or
meaning of this Agreement or relating to the rights and obligations of the
Parties with respect to performance under this Agreement shall be construed and
resolved under the laws of the State of Colorado.
19
<PAGE>
The Parties hereby designate the courts of the State of Colorado as the court of
proper jurisdiction and venue for any actions or proceedings relating to this
Agreement if such action or proceeding is commenced by Novartis and the courts
of the State of Florida if such action or proceeding is commenced by Andrx;
irrevocably consent to such designation, jurisdiction, and venue; and waive any
objections or defenses relating to jurisdiction or venue with respect to any
actions or proceedings initiated in such court.
5.12 SEVERABILITY. The intention of the Parties is to comply fully with
all laws and public policies, and this Agreement shall be construed consistently
with all laws and public policies to the extent possible. If and to the extent
that any arbitration panel or other court of competent jurisdiction determines
that it is impossible to construe any provision of this Agreement consistently
with any law or public policy and consequently holds that provision to be
invalid, such holding shall in no way affect the validity of the other
provisions of this Agreement, which shall remain in full force and effect.
5.13 NO IMPLIED WAIVERS; RIGHTS CUMULATIVE. No failure on the part of
Novartis or Andrx to exercise and no delay in exercising any right, power,
remedy or privilege under this Agreement or provided by statute or at law or in
equity or otherwise, including, without limitation, the right or power to
terminate this Agreement, shall impair, prejudice or constitute a waiver of any
such right, power, remedy or privilege or be construed as a waiver of any breach
of this Agreement or as an acquiescence therein, nor shall any single or partial
exercise of any such right, power, remedy or privilege preclude any other or
further exercise thereof or the exercise of any other right, power, remedy or
privilege.
5.14 SUCCESSORS AND ASSIGNS. Except as expressly permitted hereunder,
neither Party shall be permitted to assign their rights or obligations under
this Agreement without the prior written consent of the other Party, which
consent shall not be unreasonably withheld. Any attempt to assign or delegate
any portion of this Agreement in violation of this Section shall be null and
void. Subject to the foregoing, any reference to Novartis or Andrx hereunder
shall be deemed to include the successor thereto and assigns thereof.
5.15 COMPLETE AGREEMENT. This Agreement and the attachments referred to
herein contain the entire agreement between the Parties and supersedes all prior
or contemporaneous discussions, negotiations, representations, warranties, or
agreements relating to supply of full-line generic pharmaceuticals, including
without limitation any previous wholesale distribution agreement entered into
between Geneva or its affiliates and Anda and its affiliates. No changes to this
Agreement will be made or be binding on either Party unless made in writing and
signed by each Party.
5.16 FORCE MAJEURE. No Party hereunder shall be responsible for any
failure or delay in performance of its obligations hereunder (except payment of
money due) arising out of Force Majeure, but the affected Party shall use its
best efforts to avoid or remove the cause of such nonperformance and shall
continue performance hereunder with the utmost dispatch whenever such cause is
removed.
20
<PAGE>
5.17 SIGNATURE AUTHORITY. Each signatory to this Agreement represents
and warrants to the other that he or she has signature authority and is
empowered on behalf of his or her respective Party to execute this Agreement.
5.18 FURTHER ASSURANCES. Each Party agrees to duly execute and deliver,
or cause to be duly executed and delivered, such further instruments and do and
cause to be done such further acts and things, including, without limitation,
the filing of tax returns, the usage of tax treaties and of such additional
assignments, agreements, documents and instruments, that may be necessary or as
the other Party may at any time and from time to time reasonably request in
connection with this Agreement or to carry out more effectively the provisions
and purposes of, or to better assure and confirm unto such other Party its
rights and remedies under, this Agreement.
5.19 ATTORNEYS' FEES. Except as otherwise set forth in this Agreement,
all costs and expenses, including reasonable attorneys' fees, incurred in the
enforcement of this Agreement, shall be paid to the prevailing Party by the
non-prevailing Party, upon demand.
5.20 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which may be considered one and the same agreement and each
of such counterparts shall be deemed an original.
5.21 NO PARTNERSHIP OR OTHER RELATIONSHIP. Nothing contained in this
Agreement is intended nor shall be deemed or construed to (i) create a
partnership or joint venture between the Parties, (ii) cause any Party to be
responsible for the debts, liabilities, obligations, and expenses of the other
or any of the other Party's officers, directors, employees, independent
contractors or agents, or (iii) substitute any Party for the other Party's
officers, directors, employees, independent contractors or agents.
IN WITNESS WHEREOF, the Parties hereto, through their duly authorized
officers, have set their hands and do hereby agree to the terms set forth above
on the date first written above.
ANDA GENERICS, INC.
By: /s/ Scott Lodin
------------------------------------------
Scott Lodin
Vice President & General Counsel
Date: May 26, 1999
----------------------------------------
Address:
4001 SW 47 Avenue
Davie, FL 33314
Telephone Number: 954-584-0300
Facsimile Number: 954-792-1034
AURA LABORATORIES, INC.
21
<PAGE>
By: /s/ Scott Lodin
-----------------------------------
Scott Lodin
Vice President & General Counsel
Date: May 26, 1999
-----------------------------------
Address:
4001 SW 47 Avenue
Davie, FL 33314
Telephone Number: 954-584-0300
Facsimile Number: 954-792-1034
ANDRX PHARMACEUTICALS, INC.
By: /s/ Scott Lodin
-----------------------------------
Scott Lodin
Name: Scott Lodin
---------------------------------
Title: Vice President and General Counsel
----------------------------------
Date: May 26, 1999
-----------------------------------
Address:
4001 SW 47 Avenue
Davie, FL 33314
Telephone Number: 954-584-0300
Facsimile Number: 954-792-1034
GENEVA PHARMACEUTICALS, INC.
By: /s/ David M. Hurley
-----------------------------------
Name: David M. Hurley
---------------------------------
Title: President & CEO
--------------------------------
Date: May 26, 1999
---------------------------------
Address:
2655 W. Midway Blvd.
Broomfield, CO 80038
Telephone Number: 303-438-4442
Facsimile Number: 303-438-4300
GLOBAL GENERICS SECTOR, NOVARTIS AG
By:___________________________________________
Name:_________________________________________
Title:________________________________________
Date:_________________________________________
Address:
Telephone Number:
Facsimile Number:
22
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Andrx Product Territory Novartis Proposed Labeling
Company
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
[*] [*] [*] [*]
- ------------------------------------------------------------------------------------------------------------
[*] [*] [*] [*]
- ------------------------------------------------------------------------------------------------------------
[*] [*] [*] [*]
- ------------------------------------------------------------------------------------------------------------
[*] [*] [*] [*]
- ------------------------------------------------------------------------------------------------------------
</TABLE>
- --------
* Marked text omitted pursuant to an application for an order for
confidential treatment by Andrx Corporation.
23
<PAGE>
SCHEDULE B
Projected Schedules for Initial Development Work.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Product Projected NDA Filing Dates Projected NDA Filing Dates
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
[*] [*] [*]
- ------------------------------------------------------------------------------------------------------------
[*] [*] [*]
- ------------------------------------------------------------------------------------------------------------
</TABLE>
- --------
* Marked text omitted pursuant to an application for an order for
confidential treatment by Andrx Corporation.
24
<PAGE>
SCHEDULE C
ROYALTY SCHEDULE
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
<S> <C>
[*]USA Schedule**
-----------------------------------------------------------------------------
Net Margin Percentage Range Royalty Paid on Net Margin
-----------------------------------------------------------------------------
[*] [*]
-----------------------------------------------------------------------------
</TABLE>
** All other royalty schedules are to be negotiated at a later
date. Royalties are due to Andrx for each Andrx Product and
for each portion of the Territory. The total economic
deal-minimum payments and royalty amounts-for each product and
territory shall approximate the deal provided herein for [*],
as adjusted for the projected market for such products in that
Territory.
- --------
* Marked text omitted pursuant to an application for an order for
confidential treatment by Andrx Corporation.
25
<PAGE>
SCHEDULE D
[*]
- --------
* Marked text omitted pursuant to an application for an order for
confidential treatment by Andrx Corporation.
26
<PAGE>
AMENDMENT NUMBER 1
PRODUCT DISTRIBUTION, DEVELOPMENT AND LICENSING AGREEMENT
This Amendment Number 1 amends the Product Distribution, Development
and Licensing Agreement dated the first day of May, 1999 (the "Agreement"),
between Aura Laboratories, Inc. ("Aura"), Andrx Pharmaceuticals, Inc.
("Pharmaceuticals") and Anda Generics, Inc. ("Anda"), each of which is a
subsidiary of Andrx Corporation, Geneva Pharmaceuticals, Inc. ("Geneva"), and
the Global Generics Sector of Novartis AG ("Novartis Generics"), whose addresses
are set forth under their name on the signature page of the Agreement.
The parties agree to amend the Agreement as follows:
(a) Global Generics Sector of Novartis AG ("Novartis Generics") is
deleted as a party to the Agreement. "Geneva" will be
substituted for "Novartis" throughout the Agreement. All
rights, privileges, and obligations of Novartis Generics will
become the rights, privileges and obligations of Geneva.
Geneva shall have the right to sublicense to Novartis Generics
(including Biochemie Ges.m.b.H Kundl/Austria) at conditions to
be agreed upon separately by Geneva and the sublicensee.
(b) Section 5.3 shall be amended to read as follows:
5.3 CURRENCY; TAXES. All payments from Geneva to Andrx shall
be in United States currency. The United States currency amount payable
hereunder for non-U.S. sales transactions shall be determined by the Citicorp
(or other agreed upon reference standard) rate of exchange in effect at the time
that payment is made to Andrx. Each Party shall be solely responsible for
payment of all taxes, assessments, or other charges of any kind or description
imposed by the governments of any country on the amounts received, or income, of
each Party. All payments from Geneva to Andrx shall be net of all taxes,
assessments, or other charges of any kind or description imposed by the
governments of any country on sales within the country, excepting such taxes as
Geneva is obliged to withhold at source, pursuant to any excise, income, or
other tax law applicable to Geneva.
(c) The signature block for Novartis Generics is deleted.
<PAGE>
IN WITNESS WHEREOF, the Parties hereto, through their duly authorized
officers, have set their hands and do hereby agree to the terms set forth above
on the date first written above.
ANDA GENERICS, INC.
By: /s/ Scott Lodin
------------------------------------------
Scott Lodin
Vice President & General Counsel
Date: June 2, 1999
----------------------------------------
Address:
4001 SW 47 Avenue
Davie, FL 33314
Telephone Number: 954-584-0300
Facsimile Number: 954-792-1034
AURA LABORATORIES, INC.
By: /s/ Scott Lodin
------------------------------------------
Scott Lodin
Vice President & General Counsel
Date: June 2, 1999
----------------------------------------
Address:
4001 SW 47 Avenue
Davie, FL 33314
Telephone Number: 954-584-0300
Facsimile Number: 954-792-1034
ANDRX PHARMACEUTICALS, INC.
By: /s/ Scott Lodin
------------------------------------------
Name: Scott Lodin
----------------------------------------
Title: Vice President & General Counsel
---------------------------------------
Date: June 2, 1999
----------------------------------------
Address:
4001 SW 47 Avenue
Davie, FL 33314
Telephone Number: 954-584-0300
Facsimile Number: 954-792-1034
2
<PAGE>
GENEVA PHARMACEUTICALS, INC.
By: /s/ David M. Hurley
------------------------------------------
Name: David M. Hurley
----------------------------------------
Title: President & CEO
---------------------------------------
Date: June 2, 1999
----------------------------------------
Address:
2655 W. Midway Blvd.
Broomfield, CO 80038
Telephone Number: 303-438-4442
Facsimile Number: 303-438-4300
3
<PAGE>
AMENDMENT NUMBER 2
PRODUCT DISTRIBUTION, DEVELOPMENT AND LICENSING AGREEMENT
This Amendment Number 2 amends the Product Distribution, Development
and Licensing Agreement dated the first day of May, 1999 (actually signed on May
25 and 26, 1999), and Amendment Number 1 (actually signed on June 1 and 2,
1999), between Aura Laboratories, Inc. ("Aura"), Andrx Pharmaceuticals, Inc.
("Pharmaceuticals") and Anda Generics, Inc. ("Anda"), each of which is a
subsidiary of Andrx Corporation, Geneva Pharmaceuticals, Inc. ("Geneva")
(collectively the "Agreement").
The parties agree to amend the Agreement as follows:
(d) The effective date of the Agreement is changed from May 1,
1999 to June 1, 1999.
(e) The following definitions are changed to conform to the new
effective date of June 1, 1999:
"CONTRACT YEAR" shall mean a one-year period commencing June 1 of any
calendar year. The first Contract Year is June 1, 1999 through May 31, 2000.
"INITIAL TERM" shall mean the period of time starting June 1, 1999 and
ending May 31, 2004.
"QUARTERLY PERIOD" shall mean each three month period ending on the
last day of August, November, February and May, or any shorter period commencing
on the first date on which any revenues are derived by Novartis from any Andrx
Product.
IN WITNESS WHEREOF, the Parties hereto, through their duly authorized
officers, have set their hands and do hereby agree to the terms set forth above
on the date first written above.
ANDA GENERICS, INC.
By: /s/ Scott Lodin
------------------------------------------
Scott Lodin
Vice President & General Counsel
Date: June 8, 1999
----------------------------------------
Address:
4001 SW 47 Avenue
Davie, FL 33314
Telephone Number: 954-584-0300
Facsimile Number: 954-792-1034
<PAGE>
AURA LABORATORIES, INC.
By: /s/ Scott Lodin
------------------------------------------
Scott Lodin
Vice President & General Counsel
Date: June 8, 1999
----------------------------------------
Address:
4001 SW 47 Avenue
Davie, FL 33314
Telephone Number: 954-584-0300
Facsimile Number: 954-792-1034
ANDRX PHARMACEUTICALS, INC.
By: /s/ Scott Lodin
------------------------------------------
Name: Scott Lodin
-----------------------------------------
Title: Vice President & General Counsel
---------------------------------------
Date: June 8, 1999
----------------------------------------
Address:
4001 SW 47 Avenue
Davie, FL 33314
Telephone Number: 954-584-0300
Facsimile Number: 954-792-1034
GENEVA PHARMACEUTICALS, INC.
By: /s/ David M. Hurley
------------------------------------------
Name: David M. Hurley
----------------------------------------
Title: President & CEO
---------------------------------------
Date: June 8, 1999
----------------------------------------
Address:
2655 W. Midway Blvd.
Broomfield, CO 80038
Telephone Number: 303-438-4442
Facsimile Number: 303-438-4300
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH UNAUDITED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-3-1999
<CASH> 82,890,000
<SECURITIES> 42,046,000
<RECEIVABLES> 76,451,000
<ALLOWANCES> (5,819,000)
<INVENTORY> 71,651,000
<CURRENT-ASSETS> 270,642,000
<PP&E> 38,552,000
<DEPRECIATION> (9,903,000)
<TOTAL-ASSETS> 301,597,000
<CURRENT-LIABILITIES> 117,085,000
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0
0
<COMMON> 31,000
<OTHER-SE> 171,192,000
<TOTAL-LIABILITY-AND-EQUITY> 301,597,000
<SALES> 170,022,000
<TOTAL-REVENUES> 242,484,000
<CGS> 112,446,000
<TOTAL-COSTS> 155,252,000
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 637,000
<INCOME-PRETAX> 87,798,000
<INCOME-TAX> 31,974,000
<INCOME-CONTINUING> 55,824,000
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,824,000
<EPS-BASIC> 1.83
<EPS-DILUTED> 1.73
</TABLE>
